As filed with the Securities and Exchange Commission on June 28, 1996
Registration No. 333-00365
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Asset Backed Securities Corporation
(Exact name of Registrant as specified in its charter)
on behalf of itself and trusts with respect to which
it is the settlor or depositor
Delaware Park Avenue Plaza 13-3354848
(State or other 55 East 52nd Street (I.R.S. Employer
jurisdiction of New York, New York 10055 Identification No.)
incorporation or (212) 909-2000
organization)
(Address,including zip code, and telephone number, including area
code, of Registrant's principal executive offices)
Gina Hubbell
Director and Vice President
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
(212) 909-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copy to:
James D. Johnson
Sidley & Austin
875 Third Avenue
New York, New York 10022
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Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
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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. [ ]
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS THREE BASE PROSPECTUSES (EACH, A
"PROSPECTUS") RELATING TO THE OFFERING OF ONE OR MORE SERIES OF SECURITIES EACH
OF WHICH WILL INCLUDE ONE OR MORE CLASSES OF CERTIFICATES AND MAY INCLUDE ONE OR
MORE CLASSES OF NOTES. THE FIRST PROSPECTUS (THE "AUTOMOBILE PROSPECTUS")
CONTEMPLATES THE SECURITIZATION OF ASSETS WHICH MAY INCLUDE (1) CERTAIN
AUTOMOBILE RECEIVABLES OR (2) ASSET BACKED CERTIFICATES OR NOTES, EACH
REPRESENTING AN INTEREST IN A TRUST FUND CONSISTING OF A POOL OF SUCH AUTOMOBILE
RECEIVABLES. THE SECOND PROSPECTUS (THE "MORTGAGE PROSPECTUS") CONTEMPLATES THE
SECURITIZATION OF ASSETS WHICH MAY INCLUDE (1) ONE OR MORE MORTGAGE POOLS,
CONTAINING (A) MORTGAGE LOANS SECURED BY RESIDENTIAL, COOPERATIVE AND
MULTIFAMILY PROPERTIES AND (B) CERTAIN CONVENTIONAL MORTGAGE PASS-THROUGH
CERTIFICATES ISSUED BY ONE OR MORE TRUSTS ESTABLISHED BY ONE OR MORE PRIVATE
ENTITIES OR (2) ONE OR MORE CONTRACT POOLS CONTAINING MANUFACTURED HOUSING
CONDITIONAL SALES CONTRACTS AND INSTALLMENT LOAN AGREEMENTS OR PARTICIPATION
CERTIFICATES REPRESENTING PARTICIPATION INTERESTS IN SUCH CONTRACTS. THE THIRD
PROSPECTUS (THE "CREDIT CARD PROSPECTUS") CONTEMPLATES THE SECURITIZATION OF
ASSETS THAT MAY INCLUDE A POOL OF RECEIVABLES ARISING FROM TIME TO TIME IN THE
ORDINARY COURSE OF BUSINESS IN ONE OR MORE DESIGNATED PORTFOLIOS OF CREDIT CARD,
CHARGE CARD OR CERTAIN OTHER TYPES OF ACCOUNTS AND ASSET-BACKED SECURITIES
CONSISTING OF CERTIFICATES REPRESENTING UNDIVIDED INTERESTS IN, OR NOTES OR
LOANS SECURED BY, RECEIVABLES ARISING IN CERTAIN DESIGNATED PORTFOLIOS OF CREDIT
CARD, CHARGE CARD OR CERTAIN OTHER TYPES OF ACCOUNTS.
THE EXHIBITS TO THE REGISTRATION STATEMENT INCLUDE (1) FOUR FORMS OF
PROSPECTUS SUPPLEMENT (EXHIBITS 99.1 THROUGH 99.4) WHICH RELATE TO THE
AUTOMOBILE PROSPECTUS, (2) SEVEN FORMS OF PROSPECTUS SUPPLEMENT (EXHIBITS 99.5
THROUGH 99.11) WHICH RELATE TO THE MORTGAGE PROSPECTUS AND (3) THREE FORMS OF
PROSPECTUS SUPPLEMENT (EXHIBITS 99.12 THROUGH 99.14) WHICH RELATE TO THE CREDIT
CARD PROSPECTUS.
IN ADDITION, IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW, EACH
PROSPECTUS AND THE RELATED PROSPECTUS SUPPLEMENT WILL ALSO BE USED AFTER THE
COMPLETION OF THE RELATED OFFERING IN CONNECTION WITH CERTAIN OFFERS AND SALES
RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES. IN ORDER TO
REGISTER UNDER RULE 415 THOSE SECURITIES WHICH MAY BE OFFERED AND SOLD IN
MARKET-MAKING TRANSACTIONS, THE APPROPRIATE BOX ON THE COVER PAGE OF THE
REGISTRATION STATEMENT HAS BEEN CHECKED AND THE UNDERTAKINGS REQUIRED BY ITEM
512(A) OF REGULATION S-X HAVE BEEN INCLUDED IN ITEM 17 OF PART 17.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
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Subject to completion, dated __________ ___, 199__
PROSPECTUS
CS FIRST BOSTON AUTO RECEIVABLES AND RECEIVABLES SECURITIES
TRUSTS
Asset Backed Notes
Asset Backed Certificates
_______________
Asset Backed Securities Corporation
Company
_______________
The Asset Backed Notes (the "Notes") and the Asset Backed Certificates
(the "Certificates" and, collectively with the Notes, the "Securities")
described herein may be sold from time to time in one or more series (each, a
"Series"), in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each Series of Securities will be issued by a trust (each, a
"Trust") to be formed with respect to such Series and may include one or more
classes of Notes and/or one or more classes of Certificates. The property of
each Trust will include assets composed of (a) Primary Assets, which may include
(i) one or more pools of motor vehicle installment loan agreements or motor
vehicle retail installment sale contracts secured by new and used automobiles,
vans and light duty trucks (the "Receivables"), and security interests in the
vehicles financed thereby or (ii) Collateral Certificates (as defined herein),
(b) certain monies due or received under the terms of the Primary Assets, on or
after the applicable cutoff date, (c) the rights to certain credit and cash flow
enhancement as described herein and (d) a de minimis amount of certain other
property ancillary thereto, in each case as more fully described herein and in
the related Prospectus Supplement. The Primary Assets either will be sold to a
Trust by Asset Backed Securities Corporation, a Delaware corporation (the
"Company") or the Company will transfer funds to a Trust in exchange for the
Certificates. Such Trust will use such funds to purchase the Primary Assets, in
each case as described in the related Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, each
class of Securities of any Series will represent the right to receive a
specified amount of payments of principal and interest on the related Primary
Assets, at the rates, on the dates and in the manner described herein and in the
related Prospectus Supplement. As more fully described herein and in the related
Prospectus Supplement, distributions on any class of Securities may be senior or
subordinate to distributions on one or more other classes of Securities of the
same Series, and payments on the Certificates of a Series may be subordinated in
priority to payments on the Notes of such Series. If provided in the related
Prospectus Supplement, a Series of Securities may include one or more classes of
Securities entitled to principal distributions with disproportionate, nominal or
no distributions in respect of interest, or to interest distributions with
disproportionate, nominal or no distributions in respect of principal.
THE NOTES OF A SERIES WILL REPRESENT OBLIGATIONS OF, AND THE
CERTIFICATES OF A SERIES WILL REPRESENT BENEFICIAL INTERESTS IN, THE RELATED
TRUST ONLY, AND WILL NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT
GUARANTEED OR INSURED BY, CS FIRST BOSTON CORPORATION, THE COMPANY, ANY OF THEIR
RESPECTIVE AFFILIATES, OR ANY GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" ON PAGE 14 OF THIS PROSPECTUS AND IN THE RELATED PROSPECTUS
SUPPLEMENT.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN THE PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not be used to
consummate sales of Securities of any Series unless accompanied
by a Prospectus Supplement.
_______________
[GRAPHIC OMITTED]
This date of this Prospectus is __________, 199_.
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PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder will, among other things, set forth with respect to such
Series of Securities: (i) the aggregate principal amount, interest rate and
authorized denominations, as applicable, of each Class of such Securities; (ii)
certain information concerning the Primary Assets and the related Seller and
Servicer, as applicable; (iii) the terms of any Credit or Cash Flow Enhancement
applicable to any Class or Classes of such Securities; (iv) information
concerning any other assets in the related Trust; (v) the expected date or dates
on which the principal amount, if any, of each Class of such Securities will be
paid to holders of such Securities; (vi) the extent to which any Class within
such Series is subordinated to any other Class of such Series; and (vii)
additional information with respect to the plan of distribution of such
Securities.
REPORTS TO SECURITYHOLDERS
With respect to each Series of Securities, the Servicer (as defined in
the related Prospectus Supplement) of the related Primary Assets will prepare
for distribution to the related Securityholders certain monthly and annual
reports concerning such Securities and the related Trust. See, "Certain
Information Regarding the Securities -- Statements to Securityholders".
AVAILABLE INFORMATION
The Company, as originator of the Trusts, has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended, (the
"Securities Act") with respect to the Securities being offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. In addition, Company is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files reports and other
information with the Commission. Such Registration Statement, reports and other
information are available for inspection without charge at the public reference
facilities of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the regional offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained from the Public Reference Section of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
Upon receipt of a request by an investor who has received an
electronic Prospectus Supplement and Prospectus from the Underwriter or a
request by such investor's representative within the period during which there
is an obligation to deliver a Prospectus Supplement and Prospectus, the
Underwriter will promptly deliver, or cause to be delivered, without charge, to
such investor a paper copy of the Prospectus Supplement and Prospectus.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Company on behalf of the Trust referred to
in the accompanying Prospectus Supplement with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the "Exchange Act" after the date of this
Prospectus and prior to the termination of the offering of the Securities
offered by such Trust shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the dates of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the accompanying Prospectus Supplement) or in any
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subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or supersede,
to constitute a part of this Prospectus.
The Company on behalf of any Trust will provide without charge to each
person to whom a copy of this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference, except the exhibits to such documents. Requests for such
copies should be directed to: Secretary, Asset Backed Securities Corporation,
Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055 (212) 909-2000.
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SUMMARY OF TERMS
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and by reference to the
information with respect to each Series of Securities contained in the related
Prospectus Supplement to be prepared and delivered in connection with the
offering of such Securities. Certain capitalized terms used in this summary are
defined elsewhere in this Prospectus on the pages indicated in the "Index of
Terms".
Issuer........................... With respect to any Series of
Securities, a trust (each, a "Trust")
formed pursuant to either (i) either (a)
a pooling and servicing agreement (a
"Pooling and Servicing Agreement") among
the Company, the Servicer and the
Trustee for such Trust or (b) a trust
agreement (a "Trust Agreement") between
the Company and the Trustee for such
Trust (each such Trust being referred to
herein as a "Grantor Trust") or (ii) a
Trust Agreement between the Company and
the Trustee for such Trust (each such
Trust being referred to herein as an
"Owner Trust").
Company....................... The Company is a special-purpose
Delaware corporation organized for the
purpose of issuing the Securities and
other securities issued under the
Registration Statement backed by
receivables or underlying securities of
various types and acting as settlor or
depositor with respect to trusts,
custody accounts or similar arrangements
or as general or limited partner in
partnerships formed to issue securities.
It is not expected that the Company will
have any significant assets. The Company
is an indirect, wholly owned finance
subsidiary of CS First Boston USA, Inc.,
which is a wholly owned subsidiary of CS
First Boston, Inc. Neither CS First
Boston USA, Inc. nor CS First Boston,
Inc. nor any of their affiliates has
guaranteed, will guarantee or is or will
be otherwise obligated with respect to
any Series of Securities.
The Company's principal executive office
is located at Park Avenue Plaza, 55 East
52nd Street, New York, New York 10055,
and its telephone number is (212)
909-2000.
Trustee....................... With respect to each Owner Trust and
each Grantor Trust, the trustee
specified in the related Prospectus
Supplement (the "Trustee").
Servicer...................... With respect to each Owner Trust and
each Grantor Trust, the servicer, if
any, specified in the related Prospectus
Supplement (the "Servicer").
Indenture Trustee............. With respect to any Series of Securities
that is issued by an Owner Trust and
includes one or more classes of Notes,
the
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indenture trustee specified in the
related Prospectus Supplement the
"Indenture Trustee").
Securities Offered............ Each Series of Securities issued by an
Owner Trust will include also include
one or more classes of Notes. Each
Series of Securities issued by a Grantor
Trust will include one or more classes
of Certificates, but will not include
any Notes. Each class of Notes will be
issued pursuant to an indenture (each,
an "Indenture") between the related
Owner Trust and the Indenture Trustee
specified in the related Prospectus
Supplement. Each class of Certificates
will be issued pursuant to the related
Trust Agreement (in the case of
Certificates issued by an Owner Trust)
or the related Pooling and Servicing
Agreement or Trust Agreement (in the
case of Certificates issued by a Grantor
Trust). The related Prospectus
Supplement will specify which class or
classes of Notes and/or Certificates of
the related Series are being offered
thereby.
Notes......................... As specified in the related Prospectus
Supplement, each class of Notes will
have a stated principal amount or no
principal amount and will bear interest
at a specified rate or rates (with
respect to each class of Notes, the
"Interest Rate") or will not bear
interest. Each class of Notes may have a
different Interest Rate, which may be a
fixed, variable or adjustable Interest
Rate or any combination of the
foregoing. The related Prospectus
Supplement will specify the Interest
Rate, or the method for determining the
Interest Rate, for each class of Notes.
A Series of Securities issued by an
Owner Trust may include two or more
classes of Notes that differ as to
timing and priority of payments,
seniority, allocations of losses,
Interest Rate or amount of payments of
principal or interest. Additionally,
payments of principal or interest in
respect of any such class or classes may
or may not be made upon the occurrence
of specified events or on the basis of
collections from designated portions of
the Primary Assets. If specified in the
related Prospectus Supplement, one or
more classes of Notes ("Strip Notes")
may be entitled to (i) principal
payments with disproportionate, nominal
or no interest payments or (ii) interest
payments with disproportionate, nominal
or no principal payments. See
"Description of the Notes--Distributions
of Principal and Interest".
Notes will be available for purchase in
denominations of $1,000 or such other
minimum denominations as shall be
specified in the related Prospectus
Supplement and integral multiples
thereof and will be available in
book-entry form, or such other form as
shall be specified in the related
Prospectus Supplement. If the
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related Prospectus Supplement provides
that the Notes will be available in book
entry form only, Noteholders will be
able to receive Definitive Notes only in
the limited circumstances described
herein or in the related Prospectus
Supplement. See "Certain Information
Regarding the Securities--Definitive
Securities".
If the Servicer exercises its option to
purchase the Primary Assets of a Trust
(or if not and, if and to the extent
provided in the related Prospectus
Supplement, satisfactory bids for the
purchase of such Primary Assets are
received), in the manner and on the
respective terms and conditions
described under "Description of the
Transfer and Servicing
Agreements--Termination", the
outstanding Notes will be redeemed as
set forth in the related Prospectus
Supplement.
The Certificates.............. As specified in the related Prospectus
Supplement, each class of Certificates
will have a stated certificate balance
(the "Certificate Balance") or no stated
principal balance and will accrue
interest on such Certificate Balance at
a specified rate or will not bear
interest (with respect to each class of
Certificates, the "Certificate
Pass-Through Rate"). Each class of
Certificates may have a different
Certificate Pass-Through Rate, which may
be a fixed, variable or adjustable
Certificate Pass-Through Rate, or any
combination of the foregoing. The
related Prospectus Supplement will
specify the Certificate PassThrough
Rate, or the method for determining the
applicable Pass-Through Rate, for each
class of Certificates.
A Series of Securities may include two
or more classes of Certificates that
differ as to timing and priority of
distributions, seniority, allocations of
losses, Certificate Pass-Through Rate or
amount of distributions in respect of
principal or interest. Additionally,
distributions in respect of principal or
interest in respect of any such class or
classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the related Primary Assets.
If specified in the related Prospectus
Supplement, one or more classes of
Certificates ("Strip Certificates") may
be entitled to (i) principal
distributions with disproportionate,
nominal or no interest distributions or
(ii) interest distributions with
disproportionate, nominal or no
principal distributions. See
"Description of the
Certificates--Distributions of Principal
and Interest". If a Series of Securities
issued by an Owner Trust includes
classes of Notes, distributions in
respect of the Certificates will be
subordinated in priority of payment to
payments on the Notes to the extent
specified in the related Prospectus
Supplement.
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Certificates will be available for
purchase in a minimum denomination of
$10,000 or such other minimum
denomination as shall be specified in
the related Prospectus Supplement and in
integral multiples of $1,000 in excess
thereof and will be available in
book-entry form or such other form as
shall be specified in the related
Prospectus Supplement. If the related
Prospectus Supplement provides that the
Certificates will be available in book
entry form only, Certificateholders will
be able to receive Definitive
Certificates only in the limited
circumstances described herein or in the
related Prospectus Supplement. See
"Certain Information Regarding the
Securities--Definitive Securities".
If the Servicer or the Company exercises
its option to purchase the Primary
Assets of a Trust (or if not and, if and
to the extent provided in the related
Prospectus Supplement, satisfactory bids
for the purchase of such Primary Assets
are received), in the manner and on the
respective terms and conditions
described under "Description of the
Transfer and Servicing
Agreements--Termination", the
Certificates will be prepaid as set
forth in the related Prospectus
Supplement.
Risk Factors.................. For a discussion of risk factors that
should be considered with respect to an
investment in the Securities, see "Risk
Factors" herein and in the related
Prospectus Supplement.
The Trust Property
General............... On or prior to the date of issuance of a
Series of Securities specified in the
related Prospectus Supplement (the
"Closing Date"), either (i) the Company
will own and will sell or (ii) the
seller or sellers specified in the
related Prospectus Supplement, which
seller or sellers may also be the
Servicer, (the "Seller") will sell to
the Company and Company will sell, in
each such case, Primary Assets having
the aggregate principal balance
specified in such Prospectus Supplement
as of the date specified therein (the
"Cutoff Date") to the Trust being formed
on such date pursuant to either (i) a
Pooling and Servicing Agreement (in the
case of a Grantor Trust) or (ii) a Trust
Agreement (in the case of an Owner
Trust).
The property of each Trust also will
include amounts on deposit in certain
trust accounts, including the related
Collection Account and any other account
identified in the applicable Prospectus
Supplement. See "Description of the
Transfer and Servicing Agreements--Trust
Accounts".
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Receivables........... Receivables consist of Motor Vehicle
Installment Contracts secured by new or
used automobiles, vans or light duty
trucks and the right to receive certain
payments made with respect to such
Receivables, security interests in the
vehicles financed thereby (the "Financed
Vehicles"), certain accounts and the
proceeds thereof, and any proceeds from
claims under certain related insurance
policies.
Receivables arise or will arise, from
motor vehicle installment loan
agreements originated by either the
Seller or Sellers specified in the
related Prospectus Supplement
(collectively, the "Seller") or motor
vehicle retail installment sale
contracts acquired by the Seller
(collectively, the "Motor Vehicle
Installment Contracts"), in each case
secured by new or used automobiles, vans
or light duty trucks purchased by the
obligors on such Receivables (each, an
"Obligor") from motor vehicle dealers
(the "Dealers"). The Receivables for any
given Receivables Pool will be selected
from the Motor Vehicle Installment
Contracts owned by a Seller based on the
criteria specified in the related
Receivables Purchase Agreement, and
described herein under "The Receivables
Pools" and "Description of the Transfer
and Servicing Agreements--Sale and
Assignment of Receivables" and in the
related Prospectus Supplement under "The
Receivables Pool."
Collateral
Certificates.......... The Collateral Certificates, if any,
consist of certain asset backed
certificates or notes, each issued
pursuant to a pooling and servicing
agreement, sale and servicing agreement,
trust agreement or indenture (each, an
"Underlying Agreement"). Each Collateral
Certificate represents an interest in a
trust fund (an "Underlying Trust Fund")
created pursuant to such Underlying
Agreement. The assets of each Underlying
Trust Fund consist primarily of a pool
of motor vehicle installment loan
agreements and motor vehicle retail
installment sale contracts secured by
new or used automobiles, vans and light
duty trucks, certain monies due or
received thereunder, security interests
in the vehicles financed thereby, and a
de minimis amount of certain other
property ancillary thereto. Holders of a
Collateral Certificate are entitled to
receive distributions of interest and
principal in respect thereof as
described herein. The Collateral
Certificates, if any, will be more
particularly described in the related
Prospectus Supplement.
Credit and Cash Flow
Enhancement......... If and to the extent specified in the
related Prospectus Supplement, credit
enhancement with respect to a Trust or
any class or classes of Securities may
include any one or more of the
following: subordination of one or more
other classes of
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Securities of the same Series, reserve
funds, spread accounts, yield supplement
accounts, surety bonds, insurance
policies, letters of credit, credit or
liquidity facilities, cash collateral
accounts, over-collateralization,
guaranteed investment contracts, swaps
or other interest rate protection
agreements, repurchase obligations,
other agreements with respect to third
party payments or other support, cash
deposits, or other arrangements that are
incidental to or related to the Primary
Assets included in a Trust. To the
extent specified in the related
Prospectus Supplement, a form of credit
enhancement with respect to a Trust or
class or classes of Securities will be
subject to certain limitations and
exclusions from coverage thereunder.
Transfer and Servicing
Agreements.................. The Primary Assets either will be sold
to the Trust by the Company or the
Company will transfer funds to the Trust
which will purchase the related
Receivables, if any, and Collateral
Certificates, if any, with such funds.
If the Primary Assets are sold to the
Trust by the Company the Seller will
sell the related Receivables, if any, to
the Company pursuant to a Receivables
Purchase Agreement. The Company will (i)
sell or transfer such Receivables, if
any, and will assign certain rights and
benefits received under such Receivables
Purchase Agreement and/or (ii) sell or
transfer the related Collateral
Certificates, if any, to a Trust
pursuant to a Trust Agreement. The
rights and benefits of an Owner Trust
under any such agreement will be
assigned to the related Indenture
Trustee as collateral for the Notes, if
any of the related Series.
A Servicer will agree with a Trust
pursuant to the Pooling and Servicing
Agreement (in the case of a Grantor
Trust) or pursuant to a sale and
servicing agreement (a "Sale and
Servicing Agreement") (in the case of an
Owner Trust) to be responsible for
servicing, managing, maintaining custody
of and making collections on
Receivables.
To the extent provided in the related
Prospectus Supplement, the Servicer will
advance scheduled payments under each
Precomputed Receivable that are not
timely made (a "Precomputed Advance") to
the extent that the Servicer, in its
sole discretion, expects to recoup the
Precomputed Advance from subsequent
payments on or with respect to such
Receivable or from other Precomputed
Receivables in accordance with the terms
of the related Pooling and Servicing
Agreement or Sale and Servicing
Agreement, as applicable. In addition,
with respect to Simple Interest
Receivables, the Servicer will advance
any interest shortfall (a "Simple
Interest Advance"). As used herein,
"Advance" means any
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Precomputed Advance or Simple Interest
Advance. The Servicer will be entitled
to reimbursement of Advances from
subsequent payments on or with respect
to the Receivables to the extent
described in the related Prospectus
Supplement.
To the extent provided in the related
Prospectus Supplement, the Seller will
be obligated to repurchase any
Receivable in which the interest of the
applicable Trust is material and
adversely affected as a result of a
breach of any representation or warranty
made by the Seller in the related
Receivables Purchase Agreement if such
breach is not cured in a timely manner
following the discovery by or notice to
the Seller thereof.
To the extent specified in the related
Prospectus Supplement, the Servicer will
be obligated under the Receivables
Purchase Agreement to purchase or make
Advances with respect to any Receivable
if, among other things, it extends the
date for final payment by the Obligor
thereon beyond the final scheduled
maturity date for the related
Receivables Pool specified in the
related Prospectus Supplement (the
"Final Scheduled Maturity Date"),
changes the annual percentage rate (the
"APR") or the amount of the scheduled
monthly payments on such Receivable or
fails to maintain a perfected security
interest in the Financed Vehicle related
to such Receivable.
As specified in the related Prospectus
Supplement, the Servicer will receive a
fee for servicing the Receivables of
each Trust equal to the percentage
specified in the related Prospectus
Supplement of the aggregate outstanding
principal balance of the related
Receivables Pool, plus certain late
fees, prepayment charges and other
administrative fees or similar charges.
See "Description of the Transfer and
Servicing Agreements--Servicing
Compensation and Payment of Expenses"
herein.
Certain Legal Aspects
of Receivables;
Repurchase Obligations....... To the extent specified in the related
Prospectus Supplement, the Seller will
be obligated to repurchase any
Receivable sold to a Trust as to which a
first perfected security interest in the
name of the Seller in the Financed
Vehicle securing such Receivable shall
not exist as of the date such Receivable
is purchased by such Trust, if such
breach shall materially adversely affect
the interest of such Trust in such
Receivable and if such failure or breach
is not cured by the Seller by the last
day of the second month following the
discovery by or notice to the Seller of
such breach.
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In connection with the sale of
Receivables to a Trust, security
interests in the Financed Vehicles
securing such Receivables will be
assigned by the Seller to such Trust.
Due to administrative burden and
expense, however, the certificates of
title to such Financed Vehicles will not
be amended to reflect such assignment to
the Trust. In the absence of such an
amendment, the Trust may not have a
perfected security interest in the
Financed Vehicles securing the
Receivables in some states. If a Trust
does not have a perfected security
interest in a Financed Vehicle, its
ability to realize on such Financed
Vehicle in the event of a default may be
adversely affected.
To the extent the security interest is
perfected, such Trust will have a prior
claim over subsequent purchasers of such
Financed Vehicle and holders of
subsequently perfected security
interests. However, as against liens for
repairs of Financed Vehicles or for
taxes unpaid by the related Obligor, or
through fraud or negligence, a Trust
could lose its security interest, or the
priority of its security interest, in a
Financed Vehicle. Neither the Seller nor
the Servicer will be obligated to
repurchase a Receivable with respect to
which a Trust loses its security
interest or the priority of its security
interest in the related Financed Vehicle
for any such cause after the Closing
Date.
Federal and state consumer protection
laws impose requirements on creditors in
connection with extensions of credit and
collections of retail installment loans,
and certain of these laws make an
assignee of such a loan liable to the
obligor thereon for any violation by the
lender. To the extent specified in the
related Prospectus Supplement, the
Seller will be obligated to repurchase
any Receivable that fails to comply with
such requirements. See "Certain Legal
Aspects of the Receivables".
Tax Considerations............ If a Prospectus Supplement specifies
that the related Trust will be an Owner
Trust, upon the issuance of the related
Series of Securities, Federal Tax
Counsel will deliver an opinion to the
effect that, for federal income tax
purposes: (i) any Notes of such Series,
when issued, will be characterized as
debt and (ii) such Trust will not be
characterized as an association or a
publicly traded partnership taxable as a
corporation. In respect of any such
Series, each holder of a Note (each, a
"Noteholder"), by the acceptance of a
Note of such Series, will agree to treat
such Note as indebtedness, and each
holder of a Certificate (each, a
"Certificateholder"), by the acceptance
of a Certificate of such Series, will
agree to treat such Trust as a
partnership in which such
Certificateholder is a partner for
federal income tax purposes.
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If a Prospectus Supplement specifies
that the related Trust will be a Grantor
Trust, upon the issuance of the related
Series of Certificates Federal Tax
Counsel to such Trust will deliver an
opinion to the effect that such Trust
will be treated as a grantor trust for
federal income tax purposes and will not
be subject to federal income tax.
See "Certain Federal Income Tax
Consequences" and "Certain State and
Local Tax Considerations with respect to
Owner Trusts" for additional information
regarding the application of tax laws.
ERISA Considerations........... Subject to the considerations discussed
under "ERISA Considerations" herein and
in the related Prospectus Supplement (i)
the Notes of any Series issued by an
Owner Trust and (ii) any Certificates
issued by a Grantor Trust that are not
subordinated to any other Security and
that meet certain other requirements may
be eligible for purchase by employee
benefit plans.
As specified in the related Prospectus
Supplement, the Certificates of any
Series that are subordinated to any
other Security of that Series may not be
acquired by any "employee benefit plan"
as defined in and subject to the
Employee Retirement Income Security Act
of 1974, as amended, or by any "plan" as
defined in Section 4975 of the Code. See
"ERISA Considerations" herein and in the
related Prospectus Supplement.
Persons investing assets of employee
benefit plans subject to the Employee
Retirement Income Security Act of 1974,
as amended, or of plans as defined in
Section 4975 of the Code should read
"ERISA Considerations" herein and
consult their own legal advisors to
determine whether and to what extent the
Notes and Certificates that are not
subordinated to any other Certificates
constitute permissible investments for
such employee benefit plans and whether
the purchase or holding of Notes or
Certificates could give rise to
transactions prohibited under ERISA or
Section 4975 of the Code.
Legal Investment.............. Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and to what extent the
Certificates or Notes constitute legal
investments for them.
Ratings........................ It is a condition to the issuance of the
Securities to be offered
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hereunder that they be rated in one of
the four highest rating categories by at
least one nationally recognized
statistical rating organization. A
rating is not a recommendation to
purchase, hold or sell Securities
inasmuch as such rating does not comment
as to market price or suitability for a
particular investor. Ratings of
Securities will address the likelihood
of the payment of principal and interest
thereon pursuant to their terms. There
can be no assurance that a rating will
remain for a given period of time or
that a rating will not be lowered or
withdrawn entirely by a rating agency if
in its judgment circumstances in the
future so warrant. For more detailed
information regarding the ratings
assigned to any class of a particular
Series of Securities, see "Summary of
Terms--Rating of the Securities" and
"Risk Factors -- Ratings of the
Securities" in the related Prospectus
Supplement.
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RISK FACTORS
In addition to the other information contained in this Prospectus and in
the related Prospectus Supplement to be prepared and delivered in connection
with the offering of any Series of Securities, prospective investors should
carefully consider the following risk factors before investing in any class or
classes of Securities of any such Series.
Certain Legal Aspects -- Lack of Security Interests in Financed Vehicles.
Security interests in the Financed Vehicles securing Receivables will be
assigned to the related Trust. Due to administrative burden and expense,
however, the certificates of title to the Financed Vehicles will not be amended
to reflect such assignment to the Trust. In the absence of such amendments, a
Trust may not have perfected security interest in the Financed Vehicles securing
the Receivables in some states.
If a Trust does not have a perfected security interest in a Financed
Vehicle, its ability to realize in the event of a default on such Financed
Vehicle may be adversely affected. To the extent the security interest is
perfected, the Trust will have a prior claim over subsequent purchasers of such
Financed Vehicle and holders of subsequently perfected security interests;
however, such Trust could lose its security interest or the priority of its
security interest as against liens for repairs to Financed Vehicles or for taxes
unpaid by an Obligor under a Receivable or through fraud or negligence. Should
the Trust lose its security interest or the priority of its security interest as
against liens for repairs to Financed Vehicles or for taxes unpaid by an Obligor
under a Receivable or through fraud or negligence, then neither the Seller nor
the Servicer will have any obligation to repurchase such Receivable. See
"Certain Legal Aspects of the Receivables -- Security Interests in Financed
Vehicles".
To the extent provided in the related Prospectus Supplement, the Seller
will be obligated to repurchase any Receivable sold to a Trust as to which a
perfected security interest in the name of the Seller in the Financed Vehicle
securing such Receivable shall not exist as of the date such Receivable is
transferred to such Trust, if such breach shall materially adversely affect the
interest of the Trust in such Receivable and if such failure or breach is not
timely cured following discovery by or notice thereof to the Seller.
Certain Legal Aspects -- Consumer Protection Laws. Federal and state
consumer protection laws impose requirements on creditors in connection with
extensions of credit and collections of retail installment obligations, and
certain of these laws make an assignee of such a loan (such as a Trust) liable
to the obligor thereon for any violation by the lender. To the extent specified
herein and in the related Prospectus Supplement, the Seller will be obligated to
repurchase any Receivable that fails to comply with such requirements. See
"Certain Legal Aspects of the Receivables -- Consumer Protection Laws".
Certain Legal Aspects -- Insolvency Considerations and the Characterization
of the Transfer of Receivables. Each Seller intends that the transfer of the
Receivables by it under each Receivables Purchase Agreement constitute a sale.
Notwithstanding the foregoing, in the event
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that such Seller were to become a debtor in a bankruptcy case a court could take
the position that the sale of Receivables to the Company should be treated as a
pledge of such Receivables to secure a borrowing by such Seller. If the transfer
to the Trust were to be characterized as a secured loan, to the extent that the
Seller would be deemed to have granted a security interest in the Receivables to
the Trust, and that interest had been validly perfected before the Seller's
insolvency and had not been taken in contemplation of insolvency, that security
interest should not be subject to avoidance, and payments to be with respect to
the Receivables should not be subject to recovery by a receiver of the Seller.
However, in such a case, delays in payments on the Notes and the Certificates
and possible reductions in the amount of those payments could occur.
Recent Legal Developments Regarding the Sale of Accounts Receivables. The
U.S. Court of Appeals for the Tenth Circuit in its decision in Octagon Gas
Systems, Inc. v. Rimmer (In re Meridian Reserve, Inc.) (decided May 27, 1993)
concluded (noting that its position is in contrast to that taken by another
court) that accounts receivable sold by the debtor prior to the filing for
bankruptcy remain property of the debtor's bankruptcy estate. The Seller will
warrant in each Receivables Purchase Agreement that the sale of Receivables to
the related Trust is a valid sale of such Receivables to such Trust. For a
discussion of certain consequences of characterization of a transaction as a
sale or a pledge, see Certain Legal Aspects -- Insolvency Considerations above.
Subordination of Certain Classes of Securities; Limited Assets of a Trust.
To the extent specified in the related Prospectus Supplement, distributions of
interest and principal on one or more classes of Certificates of a Series may be
subordinated in priority of payment to interest and principal due on the Notes,
if any, of such Series or one or more classes of Certificates of such Series.
Moreover, none of the Trusts will have, nor will any such Trust be permitted or
expected to have, any significant assets or sources of funds other than the
Primary Assets and, to the extent provided in the related Prospectus Supplement,
access to funds in Reserve Account or other form of credit enhancement. The
Notes, if any, of any Series will represent obligations solely of, and the
Certificates of any such Series will represent interests solely in, the related
Trust, and neither the Notes nor the Certificates of any such Series will
represent obligations of or interests in, or be insured or guaranteed by, the
Company, related Seller, Servicer, Trustee or Indenture Trustee, or any other
entity. Consequently, holders of the Securities of any Series must rely for
repayment upon payments on the related Primary Assets and, if and to the extent
available, amounts payable under any available form of credit enhancement, as
specified in the related Prospectus Supplement.
Maturity and Prepayment Considerations -- Receivables. All of the
Receivables are prepayable at any time. When used herein with respect to any
Receivable, the term "prepayment" includes prepayments in full, partial
prepayments (including those related to rebates of extended warranty contract
costs and insurance premiums) and liquidation due to default, as well as
receipts of proceeds from physical damage, credit life and disability insurance
policies and Repurchase Amounts (as defined herein) with respect to certain
other Receivables repurchased for administrative reasons. The rate of
prepayments on the Receivables may be influenced by a variety of economic,
social and other factors, including the fact that an Obligor generally may not
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sell or transfer the Financed Vehicle securing a Receivable without the consent
of the Seller. The rate of prepayment on the Receivables may also be influenced
by the structure of the underlying loans. See "Weighted Average Life of the
Securities". In addition, pursuant to each Receivables Purchase Agreement, the
Seller will be obligated to repurchase Receivables in respect of which it is in
breach of certain representations, warranties or covenants. See "Description of
the Transfer and Servicing Agreements - Sale and Assignment of Receivables". Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Receivables held by a Trust will be borne entirely by the Holders of the related
Series of Securities. See also "Description of the Transfer and Servicing
Agreements--Termination" regarding the Servicer's option to purchase the
Receivables of a given Receivables Pool.
Maturity and Prepayment Considerations -- Collateral Certificates. The rate
of payment of principal of Securities, and the aggregate amount of each
distribution on and the yield to maturity of all Securities will depend on a
number of factors, including the performance of the Collateral Certificates and
the rate of payment of principal (including prepayments) thereof. Each of the
Collateral Certificates is subject to prepayment, which may result from the
occurrence of the events described herein and in the prospectus used in
connection with the offering of such Collateral Certificates.
The rate of payment of principal of the Securities may also be affected by
the repurchase of the underlying receivables, and the corresponding retirement
of the Collateral Certificates. In such event, the amount paid in respect of the
Collateral Certificates held by the Trust would be treated as prepayment of
principal and accrued interest of the Collateral Certificates and thus would be
passed through to the Securityholders.
Risk of Commingling. With respect to each Trust the assets of which consist
of Receivables, the Servicer will deposit all payments on the related Primary
Assets (from whatever source) and all proceeds of such Primary Assets collected
during the period specified in the related Prospectus Supplement (a "Collection
Period") into the related Collection Account within two business days of receipt
thereof. However, in the event that a Servicer satisfies certain requirements
for monthly or less frequent remittances and the Rating Agencies (as such term
is defined in the related Prospectus Supplement) affirm their initial rating of
the related Securities, then for so long as such Servicer is the Servicer and
provided that (i) no Servicer Default exists and (ii) each other condition to
making monthly or less frequent deposits as may be specified by the Rating
Agencies and described in the related Prospectus Supplement is satisfied, the
Servicer will not be required to deposit such amounts into the Collection
Account of such Trust until the business day preceding each Distribution Date.
The Servicer will deposit the aggregate Repurchase Amount for Receivables
purchased by the Servicer during the related Collection Period into the
applicable Collection Account on or before the business day preceding each
Distribution Date. Pending deposit into such Collection Account, collections may
be invested by the Servicer at its own risk and for its own benefit and will not
be segregated from funds of the Servicer. If the Servicer were unable to remit
such funds, the applicable Securityholders might incur a loss. To the extent set
forth in the related Prospectus Supplement, the Servicer may, in order to
satisfy the requirements described above, obtain a letter of credit or other
security for the
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benefit of the related Trust to secure timely remittances of collections on the
related Primary Assets or payment of the aggregate Repurchase Amount with
respect to Receivables purchased by the Servicer.
Removal of a Servicer After a Servicer Default. The related Prospectus
Supplement may provide that with respect to a Series of Securities issued by an
Owner Trust, upon the occurrence of a Servicer Default, the related Indenture
Trustee or Noteholders may remove the Servicer without the consent of the
related Trustee or any Certificateholders. The Trustee or the Certificateholder
with respect to such Series will not have the ability to remove the Servicer if
a Servicer Default occurs. In addition, the Noteholders with respect to such
Series have the ability, with certain specified exceptions, to waive defaults by
the Servicer, including defaults that could materially adversely affect the
Certificateholders of such Series. See "Description of the Transfer and
Servicing Agreements -- Waiver of Past Defaults".
Limitation on Exercise of Rights due to Book-Entry Registration. The
related Prospectus Supplement may specify that one or more classes of the
Securities of a given Series initially will be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), or any other nominee
of The Depository Trust Company ("DTC") set forth in the related Prospectus
Supplement, and will not be registered in the names of the holders of the
Securities of such Series or their nominees. Because of this, unless and until
Definitive Securities for such Series are issued, holders of such Securities
will not be recognized by the applicable Trustee or Indenture Trustee as
"Certificateholders", "Noteholders" or "Securityholders", as the case may be (as
such terms are used herein or in the related Pooling and Servicing Agreement or
the related Indenture and Trust Agreement, as applicable). Hence, until
Definitive Securities are issued, holders of such Securities will be able to
exercise the rights of Securityholders only indirectly through DTC and its
participating organizations. See "Certain Information Regarding the Securities
- -- Book-Entry Registration" and "-- Definitive Securities".
THE TRUSTS
With respect to each Series of Securities, the Company will establish a
separate Trust pursuant to a Trust Agreement or Pooling and Servicing Agreement,
as applicable, for the transactions described herein and in the related
Prospectus Supplement. The property of each Trust will include Primary Assets
and all payments due thereunder on and after the applicable Cutoff Date in the
case of Precomputed Receivables and all payments received thereunder on and
after the applicable Cutoff Date in the case of Simple Interest Receivables or
Collateral Certificates. On the applicable Closing Date, after the issuance of
the Notes and/or Certificates of a given Series, the Company will transfer or
sell Primary Assets to the Trust in the outstanding principal amount specified
in the related Prospectus Supplement. The property of each Trust may also
include (i) such amounts as from time to time may be held in separate trust
accounts established and maintained pursuant to the related Trust Agreement or
Pooling and Servicing Agreement, as applicable, and the proceeds of such
accounts, as described herein and in the related Prospectus Supplement; (ii)
security interests in Financed Vehicles and any other interest of a Seller in
such Financed Vehicles; (iii) the rights to proceed from claims on certain
physical
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damage, credit life and disability insurance policies covering Financed Vehicles
or the Obligors, as the case may be; (iv) any property that shall have secured a
Receivable and that shall have been acquired by the applicable Trust; and (v)
any and all proceeds of the Primary Assets or the foregoing. To the extent
specified in the related Prospectus Supplement, a Reserve Account or other form
of credit enhancement may be a part of the property of a given Trust or may be
held by the Trustee for the benefit of holders of the related Securities.
The Servicer specified in the related Prospectus Supplement, as servicer
under the Pooling and Servicing Agreement or Sale and Servicing Agreement, as
applicable, will service the Receivables held by each Trust and will receive
fees for such services. See "Description of the Transfer and Servicing
Agreements -- Servicing Compensation and Payment of Expenses" herein and
"Description of the Transfer and Sale and Servicing Agreement -- Servicing
Compensation" in the related Prospectus Supplement. To facilitate the servicing
of Receivables, each Seller and each Trustee will authorize the Servicer to
retain physical possession of the Receivables held by each Trust and other
documents relating thereto as custodian for each such Trust. Due to the
administrative burden and expense, the certificates of title to the Financed
Vehicles will not be amended to reflect the sale and assignment of the security
interest in the Financed Vehicles to a Trust. In the absence of such an
amendment, a Trust may not have a perfected security interest in certain of the
Financed Vehicle in some states. See "Certain Legal Aspects of the Receivables"
and "Description of the Transfer and Servicing Agreements -- Sale and Assignment
of Receivables". In the case of Primary Assets consisting of Collateral
Certificates, the Trustee specified in the related Prospectus Supplement will
manage the Collateral Certificates.
If the protection provided to (i) holders of Notes issued by an Owner Trust
by the subordination of the related Certificates and by the Reserve Account, if
any, or any other available form of credit enhancement for such Series or (ii)
Certificateholders by any such Reserve Account or other form of credit
enhancement is insufficient, such Noteholders or Certificateholders, as the case
may be, will have to look to payments or by or on behalf of Obligors on
Receivables or on the Collateral Certificates, as applicable, and the proceeds
from the repossession and sale of Financed Vehicles that secure defaulted
Receivables for distributions of principal and interest on the Securities. In
such event, certain factors, such as the applicable Trust's not having perfected
security interests in all of the Financed Vehicles, may limit the ability of a
Trust to realize on the collateral securing the related Primary Assets, or may
limit the amount realized to less than the amount due under Motor Vehicle
Installment Contracts. Securityholders may be subject to delays in payment on,
or may incur losses on their investment in, such Securities as a result of
defaults or delinquencies by Obligors and depreciation in the value of the
related Financed Vehicles. See "Description of the Transfer and Servicing
Agreements -- Credit and Cash Flow Enhancement" and "Certain Legal Aspects of
the Receivables".
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
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The Trustee
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the related Securities is limited solely to the express obligations of such
Trustee set forth in the related Trust Agreement and Sale and Servicing
Agreement or the related Pooling and Servicing Agreement, as applicable. A
Trustee may resign at any time, in which event the Servicer will be obligated to
appoint a successor trustee. The Servicer may also remove the related Trustee if
such Trustee ceases to be eligible to continue as Trustee under the related
Trust Agreement or Pooling and Servicing Agreement, as applicable, and will be
obligated to appoint a successor trustee. Any resignation or removal of a
Trustee and appointment of a successor trustee will not become effective until
the acceptance of the appointment by the successor trustee.
THE RECEIVABLES POOLS
General
The Receivables in a Receivables Pool have been or will be originated or
acquired by a Seller in the ordinary course of business, in accordance with its
credit and underwriting standards as described in the related Prospectus
Supplement.
The Receivables to be sold to each Trust will be selected from a Seller's
portfolio for inclusion in a Receivables Pool based on several criteria, which
criteria include that (subject to certain limitations which, if applicable, will
be specified in the related Prospectus Supplement) each Receivable (i) is
secured by a new or used vehicle, (ii) was originated or acquired (either from a
motor vehicle dealer or a financial institution) by the Seller, (iii) provides
for level monthly payments (except for the last payment, which may be minimally
different from the level payments) that fully amortize the amount financed over
the original term to maturity of the related Motor Vehicle Installment Contract,
(iv) is a Precomputed Receivable or a Simple Interest Receivable and (v)
satisfies the other criteria, if any, set forth in the related Prospectus
Supplement. No selection procedures believed by the Seller to be adverse to
Securityholders were or will be used in selecting the Receivables.
"Precomputed Receivables" consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78s" ("Rule of78s
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level monthly installment payments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of (x) an amount of interest equal to 1/12 of the
stated contract interest rate under the related Motor Vehicle Installment
Contract multiplied by the unpaid principal balance of such loan, plus (y) an
amount allocable to principal equal to the remainder of the monthly payment. A
Rule of 78s Receivable provides for the payment by the obligor of a specified
total amount of payments, payable in equal monthly installments on each due
date, which total represents the principal amount financed plus add-on
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interest in an amount calculated at the stated contract interest rate under the
related Motor Vehicle Installment Contract for the term of the receivable. The
rate at which such amount of add-on interest is earned and, correspondingly, the
amount of each fixed monthly payment allocated to reduction of the outstanding
principal amount are calculated in accordance with the Rule of 78s.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed thereunder over a series of fixed level
monthly payments. However, unlike the monthly payment under an Actuarial
Receivable, each monthly payment consists of an installment of interest that is
calculated on the basis of the outstanding principal balance of the receivable
multiplied by the stated contract interest rate under the related Motor Vehicle
Installment Contract and further multiplied by the period elapsed (as a fraction
of a calendar year) since the preceding payment of interest was made. As
payments are received under a Simple Interest Receivable, the amount received is
applied first to interest accrued to the date of payment and the balance is
applied to reduce the unpaid principal balance. Accordingly, if an obligor pays
a fixed monthly installment before its scheduled due date, the portion of the
payment allocable to interest for the period since the preceding payment was
made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. Conversely, if an obligor pays a fixed
monthly installment after its scheduled due date, the portion of the payment
allocable to interest for the period since preceding payment was made will be
greater than it would have been had the payment been made as scheduled, and the
portion of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the obligor is obligated to pay a fixed
monthly installment until the final scheduled payment date, at which time the
amount of the final installment may be increased or decreased as necessary to
repay the then outstanding principal balance.
In the event of the prepayment in full (voluntarily or by acceleration) of
a Rule of 78s Receivable, under the terms of the contract a "refund" or "rebate"
will be made to the Obligor of the portion of the total amount of payments then
due and payable allocable to "unearned" add-on interest, calculated in
accordance with a method equivalent to the Rule of 78s. If an Actuarial
Receivable is prepaid in full, with minor variations based upon state law, the
Actuarial Receivable requires that the rebate be calculated on the basis of a
constant interest rate. If a Simple Interest Receivable is prepaid, rather than
receive a rebate, the obligor is required to pay interest only to the date of
prepayment. The amount of a rebate under a Rule of 78s Receivable generally will
be less than the amount of a rebate on an Actuarial Receivable and generally
will be less than the remaining scheduled payments of interest that would have
been due under a Simple Interest Receivable for which all payments were made on
schedule.
To the extent provided in the related Prospectus Supplement, each Trust
will account for the Rule of 78s Receivables as if such Receivables were
Actuarial Receivables. Amounts received upon prepayment in full of a Rule of 78s
Receivable in excess of the then outstanding principal balance of such
Receivable and accrued interest thereon (calculated pursuant to the actuarial
method) will not be paid to Noteholders or passed through to Certificateholders
of the applicable Series, but will be paid to the Servicer as additional
servicing compensation.
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Information with respect to each Receivables Pool will be set forth in the
related Prospectus Supplement, including, to the extent appropriate, the
composition and distribution by APR and by states of origination of the
Receivables, the portion of such Receivables Pool consisting of Precomputed
Receivables and of Simple Interest Receivables, and the portion of such
Receivables Pool secured by new vehicles and by used vehicles.
Delinquencies, Repossessions and Net Losses
Certain information concerning the experience of a Seller pertaining to
delinquencies, repossessions and net losses with respect to Motor Vehicle
Installment Contracts will be set forth in each Prospectus Supplement. There can
be no assurance that the delinquency, repossession and net loss experience on
any Receivables Pool will be comparable to prior experience or to such
information.
New and Used Financed Vehicles
The extension of credit to an Obligor on a Receivable is based on an
assessment of an applicant's ability to repay the amounts due on such Receivable
and the adequacy of the related Financed Vehicle. Such assessment does not
distinguish between new or used vehicles. Rather, the amount advanced under a
motor vehicle loan generally will not exceed 90% of the value of the collateral.
For new motor vehicles, the value equals the dealer invoice for the motor
vehicle that serves as collateral, plus sales tax, license fee, title fee, the
cost of service and warranty contracts, and any premium for credit life and
disability insurance obtained in connection with the loan. For used motor
vehicles, the value equals the wholesale price reported in the most recent
edition of the National Automotive Dealers Association Used Car Guide or the
National Auto Research Division Black Book, plus sales tax, license fee, title
fee, the cost of service and warranty contracts, and any premium for credit life
and disability insurance obtained in connection with the loan. The maximum age
of any used motor vehicle acceptable as collateral generally is six model years.
Additional information with respect to delinquencies, repossessions and net
losses with respect to Motor Vehicle Installment Contracts secured by new or
used Financed Vehicles will be set forth in each Prospectus Supplement.
THE COLLATERAL CERTIFICATES
General
Primary Assets for a Series may consist, in whole or in part, of Collateral
Certificates which include certificates evidencing an undivided interest in, or
notes or loans secured by, motor vehicle installment loan agreements and motor
vehicle retail installment sale contracts. Such Collateral Certificates, will
have previously been offered and distributed to the public pursuant to an
effective registration statement or are being registered under the Securities
Act in connection with the offering of a Series of Securities, in each case,
subject to certain exceptions which, if applicable, will be described in the
related Prospectus Supplement. Collateral Certificates will have been issued
pursuant to a pooling and servicing agreement, a sale and servicing agreement,
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a trust agreement, an indenture or similar agreement (an "Underlying Trust
Agreement"). The servicer (the "Underlying Servicer") of such underlying motor
vehicle installment loans or sale contracts will have entered into the
Underlying Trust Agreement with a trustee (the "Underlying Trustee").
The issuer of the Collateral Certificates (the "Underlying Issuer") will be
a financial institution, corporation, or other entity engaged generally in the
business of purchasing or originating motor vehicle installment loan agreements
and motor vehicle retail installment sale contracts; or a limited purpose
corporation organized for the purpose of, among other things, establishing
trusts and acquiring and selling receivables to such trusts, and selling
beneficial interests in such trusts; or one of such trusts. If so specified in
the related Prospectus Supplement, the Underlying Issuer may be an affiliate of
the Company. The obligations of the Underlying Issuer will generally be limited
to certain representations and warranties with respect to the assets conveyed by
it to the related trust. The related Prospectus Supplement will (subject to
certain exceptions which, if applicable, will be described in the related
Prospectus Supplement) provide that the Underlying Issuer will not have
guaranteed any of the assets conveyed to the related trust or any of the
Collateral Certificates issued under the Underlying Trust Agreement.
Distributions of principal and interest will be made on the Collateral
Certificates on the dates specified in the related Prospectus Supplement. The
Collateral Certificates may be entitled to receive nominal or no principal
distribution or nominal or no interest distributions. Principal and interest
distributions will be made on the Collateral Certificates by the Underlying
Trustee or the Underlying Servicer. The Underlying Issuer or the Underlying
Servicer may have the right to repurchase assets underlying the Collateral
Certificates after a certain date or under other circumstances specified in the
related Prospectus Supplement.
Enhancement Relating to Collateral Certificates.
Enhancement in the form of reserve funds, subordination of other Securities
issued in connection with the Collateral Certificates, guarantees, letters of
credit, cash collateral accounts, insurance policies or other types of
enhancement may be provided with respect to the Receivables underlying the
Collateral Certificates or with respect to the Collateral Certificates
themselves. The type, characteristics and amount of enhancement will be a
function of certain characteristics of the Receivables and other factors and
will have been established for the Collateral Certificates on the basis of
requirements of rating agencies.
Additional Information.
The related Prospectus Supplement for a Series for which the Primary Assets
include Collateral Certificates will specify, to the extent relevant and to the
extent such information is reasonably available to the Company and the Company
reasonably believes such information to be reliable: (i) the aggregate
approximate principal amount and type of the Collateral Certificates to be
included in the Primary Assets; (ii) certain characteristics of the receivables
which comprise the underlying assets for the Collateral Certificates; (iii) the
expected and final maturity of the
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Collateral Certificates; (iv) the interest rate of the Collateral Certificates;
(v) the Underlying Issuer, the Underlying Servicer (if other than the Underlying
Issuer) and the Underlying Trustee for such Collateral Certificates; (vi)
certain characteristics of the enhancement, if any, such as reserve funds,
insurance funds, insurance policies, letters of credit or guarantees relating to
the receivables underlying the Collateral Certificates or to such Collateral
Certificates themselves; (vii) the terms on which the underlying receivables for
such Collateral Certificates may, or are required to, be purchased prior to
their stated maturity or the stated maturity of the Collateral Certificates; and
(viii) the terms on which receivables may be substituted for those originally
underlying the Collateral Certificates
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates of any
Series generally will be influenced by the rate at which the principal balances
of the related Primary Assets are paid, which payment may be in the form of
scheduled amortization or prepayments. With respect to Securities backed by
Receivables and to receivables underlying Collateral Certificates, the term
"prepayments" includes prepayments in full, partial prepayments (including those
related to rebates of extended warranty contract costs and insurance premiums),
liquidations due to defaults, as well as receipts of proceeds from physical
damage, credit life and disability insurance policies, or the Repurchase Amount
of Receivables and/or Collateral Certificates repurchased by the Company or a
Seller or purchased by a Servicer for administrative reasons. Substantially all
of the Receivables and receivables underlying Collateral Certificates are
prepayable at any time without penalty to the Obligor. The rate of prepayment of
automotive receivables is influenced by a variety of economic, social and other
factors, including the fact that an Obligor generally may not sell or transfer
the Financed Vehicle securing a receivable without the consent of the related
seller. The rate of prepayment on the receivables may also be influenced by the
structure of the loan. In addition, under certain circumstances, the related
Seller will be obligated to repurchase Receivables from a given Trust pursuant
to the related Receivables Purchase Agreement as a result of breaches of
representations and warranties, and the Servicer will be obligated to purchase
receivables from such Trust pursuant to the Sale and Servicing Agreement or
Pooling and Servicing Agreement as a result of breaches of certain covenants.
See "Description of the Transfer and Servicing Agreements -- Sale and Assignment
of Receivables" and "-- Servicing Procedures". See also "Description of the
Transfer and Servicing Agreements -- Termination" regarding the Servicer's
option to purchase Primary Assets from a given Trust.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Notes and/or Certificates of a
Series on each Distribution Date since such amount will depend, in part, on the
amount of principal collected on the related Primary Assets during the
applicable Collection Period. Any reinvestment risks resulting from a faster or
slower incidence of payment of Primary Assets will be borne entirely by the
Noteholders and Certificateholders. The related Prospectus Supplement may set
forth certain additional
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information with respect to the maturity and prepayment considerations
applicable to particular Primary Assets and the related Series of Securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer or Trustee will compute prior to each distribution
with respect to such class of Notes indicating the remaining outstanding
principal balance of such class of Notes, as of the applicable Distribution Date
(after giving effect to payments to be made on such Distribution Date), as a
fraction of the initial outstanding principal balance of such class of Notes.
The "Certificate Pool Factor" for each class of Certificates will be a
seven-digit decimal which the Servicer or Trustee will compute prior to each
distribution with respect to such class of Certificates indicating the remaining
Certificate Balance of such class of Certificates, as of the applicable
Distribution Date (after giving effect to distributions to be made on such
Distribution Date), as a fraction of the initial Certificate Balance of such
class of Certificates. Each Note Pool Factor and each Certificate Pool Factor
will be 1.0000000 as of the related Closing Date, and thereafter will decline to
reflect reductions in the outstanding principal balance of the applicable class
of Notes or the reduction of the Certificate Balance of the applicable class of
Certificates. A Noteholder's portion of the aggregate outstanding principal
balance of the related class of Notes will be the product of (i) the original
denomination of such Noteholder's Note and (ii) the applicable Note Pool Factor
at the time of determination. A Certificateholder's portion of the aggregate
outstanding Certificate Balance for the related class of Certificates will be
the product of (a) the original denomination of such Certificateholder's
Certificate and (b) the applicable Certificate Pool Factor at the time of
determination.
As provided in the related Prospectus Supplement, the Noteholders, if any,
and the Certificateholders will receive reports on or about each Distribution
Date concerning payments received on the Receivables, the Pool Balance and each
Note Pool Factor or Certificate Pool Factor, as applicable. In addition,
Securityholders of record during any calendar year will be furnished information
for tax reporting purposes not later than the latest date permitted by law. See
"Certain Information Regarding the Securities -- Statements to Securityholders".
THE SELLER AND THE SERVICER
Certain information with respect to the Seller and the Servicer will be set
forth in the related Prospectus Supplement.
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USE OF PROCEEDS
If so provided in the related Prospectus Supplement, the net proceeds from
the sale of the Securities of a Series will be applied by the applicable Trust
to the purchase of the Primary Assets from the Company or the Seller, as
applicable. The Company will use the portion of such proceeds paid to it to
purchase the Primary Assets.
DESCRIPTION OF THE NOTES
General
Each Owner Trust will issue one or more classes of Notes pursuant to an
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary describes
the material provisions of each Indenture which are anticipated to be common to
any Notes included in a Series of Securities. The following summary does not
purport to be a complete description of all terms of the related Notes or
Indenture and therefore is subject to, and is qualified in its entirely by
reference to, the provisions of the related Notes and Indenture.
If so specified in the related Prospectus Supplement, each class of Notes
will initially by represented by one or more certificates registered in the name
of the nominee of DTC (together with any successor depository selected by the
Trust, the "Depository"). The Notes will be available for purchase in minimum
denominations of $1,000 or such other minimum denomination as shall be specified
in the related Prospectus Supplement and integral multiples thereof in
book-entry form or such other form as shall be specified in the related
Prospectus Supplement. If the Notes shall be available in book-entry form only,
the Company has been informed by DTC that DTC's nominee will be Cede unless
another nominee is specified in the related Prospectus Supplement. Accordingly,
such nominee is expected to be the holder of record of the Notes of each class.
If the Notes shall be available in book-entry form only, unless and until
Definitive Notes are issued under the limited circumstances described herein or
in the related Prospectus Supplement, no Noteholder will be entitled to receive
a physical certificate representing a Note. If the Notes shall be available in
book-entry form only, all references herein and in the related Prospectus
Supplement to actions by Noteholders refer to action taken by DTC upon
instructions from it participating organizations, and all references herein and
in the related Prospectus Supplement to distributions, notices, reports and
statements to Noteholders refer to distributions, notices, reports and
statements to DTC or its nominee, as registered holder of the Notes, for
distribution to Noteholders in accordance with DTC's procedures with respect
thereto. See "Certain Information Regarding the Securities -- Book-Entry
Registration" and "-- Definitive Securities".
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Distribution of Principal and Interest
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each class of Notes of a Series will be described in the related
Prospectus Supplement. The right of holders of any class of Notes to receive
payments of principal and interest may be senior or subordinate to the rights of
holders of one or more other class or classes of Notes of such Series, as
described in the related Prospectus Supplement. The related Prospectus
Supplement may provide that payments of interest on the Notes will be made prior
to payments of principal thereon. If so provided in the related Prospectus
Supplement, a Series of Notes may include one or more classes of Strip Notes
entitled to (i) principal payments with disproportionate, nominal or no interest
payments or (ii) interest payments with disproportionate, nominal or no
principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes of a Series or the method for determining such Interest Rate. One or
more classes of Notes of a Series may be redeemable in whole or in part under
the circumstances specified in the related Prospectus Supplement, including as a
result of the exercise by the Servicer of its option to purchase the related
Receivable Pool. See "Description of the Transfer and Servicing Agreements --
Termination".
To the extent specified in any Prospectus Supplement, one or more classes
of Notes of a given Series may have fixed principal payment schedules, as set
forth in such Prospectus Supplement. Holders of any Notes will be entitled to
receive payments of principal on any given Distribution Date in the applicable
amount set forth on such schedule with respect to such Notes, in the manner and
to the extent set forth in the related Prospectus Supplement.
The related Prospectus Supplement may also provide that payment of interest
to Noteholders of all classes within a Series will have the same priority. Under
certain circumstances, the amount available for such payments could be less than
the amount of interest payable on the Notes on a Distribution Date, in which
case each class of Notes will receive its ratable share (based upon the
aggregate amount of interest due to such class of Notes) of the aggregate amount
available to be distributed on such date as interest on the Notes of such
Series. See "Description of the Transfer and Servicing Agreements --
Distribution" and "-- Credit and Cash Flow Enhancement".
In the case of a Series of Securities issued by an Owner Trust that
includes two or more classes of Notes, the sequential order and priority of
payment in respect of principal and interest, and any schedule or formula or
other provisions applicable to the determination thereof, of each such class
will be set forth in the related Prospectus Supplement. Payments in respect of
principal of and interest on any class of Notes will be made on pro rata basis
among all the Noteholders of such class or by such other method as is specified
in the Prospectus Supplement.
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Provisions of the Indenture
Events of Default; Rights upon Event of Default. "Events of Default" in
respect of a Seriesof Notes under the related Indenture will consist of: (i) a
default for five days or more in the payment of any interest on any such Note:
(ii) a default in the payment of the principal of, or any installment of the
principal of, any such Note when the same becomes due and payable; (iii) a
default in the observance of performance in any material respect of any covenant
or agreement of the related Trust made in such Indenture and the continuation of
any such default for a period of 30 days after notice thereof is given to the
related Trust by the applicable Indenture Trustee or to such Trust and the
related Indenture Trustee by the holders of 25% of the aggregate outstanding
principal amount of such Notes; (iv) any representation or warranty made by such
Trust in the related Indenture or in any certificate delivered pursuant thereto
or in connection therewith having been incorrect in a material respect as of the
time made, if such breach is not cured with 30 days after notice thereof is
given to such Trust by the applicable Indenture Trustee or to such Trust and
such Indenture Trustee by the holder of 25% of the aggregate outstanding
principal amount of such Notes; (v) certain events of bankruptcy, insolvency,
receivership or liquidation with respect to such Trust and (vi) such other
events as are specified in the Prospectus Supplement. The amount of principal
required to be paid to Noteholders of each Series under the related Indenture on
any Distribution Date generally will be limited to amounts available to be
deposited in the applicable Note Distribution Account; therefore, the failure to
pay principal on a class of Notes generally will not result in the occurrence of
an Event of Default until the applicable final scheduled Distribution Date for
such class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any Series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes may declare the principal of such Notes to be
immediately due and payable. Such declaration may, under certain circumstances,
be rescinded by the holders of a majority in principal amount of such Notes then
outstanding.
If the Notes of any Series are declared due and payable following an Event
of Default, the related Indenture Trustee may institute proceedings to collect
amounts due thereon, foreclose on the property of the Trust, exercise remedies
as a secured party, sell the related Primary Assets or elect to have the
applicable Trust maintain possession of such Primary Assets and continue to
apply collections on such Primary Assets as if there had been no declaration of
acceleration. Subject to certain limitations which, if applicable, will be
specified in the related Prospectus Supplement, the Indenture Trustee will be
prohibited from selling the Primary Assets following and Event of Default, other
than a default in the payment of any principal of, or a default for five days or
more in the payment of any interest on, any Note of such Series, unless (i) the
holders of all such outstanding Notes consent to such sale, (ii) the proceeds of
such sale are sufficient to pay in full the principal of and the accrued
interest on such outstanding Notes at the date of such sale or (iii) such
Indenture Trustee determines that the proceeds of the Primary Assets would not
be sufficient on an ongoing basis to make all payments on such Notes as such
payments would have become due if such obligations had not been declared due and
payable, and such Indenture Trustee
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obtains the consent of the holders of 66 2/3% of the aggregate outstanding
principal amount of such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of such Notes if it reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities that might be incurred by it in complying with such request. Subject
to the provisions for indemnification and certain limitations contained in the
related Indenture, the holders of a majority of the aggregate outstanding
principal amount of the Notes of a Series will have the right to direct the
time, method and place of conducting any proceeding or exercising any remedy
available to the related Indenture Trustee; in addition, the holders of Notes
representing a majority of the aggregate outstanding principal amount of such
Notes may, in certain cases, waive any default with respect thereto, except a
default in the payment of principal of or interest on any Note or a default in
respect of a covenant or provision of such Indenture that cannot be modified or
amended without the waiver or consent of the holders of all the outstanding
Notes of such Series.
No holder of a Note will have the right to institute any proceeding with
respect to the related Indenture, unless (i) such holder previously has given to
the applicable Indenture Trustee written notice of a continuing Event of
Default; (ii) the holders of not less than 25% of the outstanding principal
amount of such Notes have made written request to such Indenture Trustee so
institute such proceeding in its own name as Indenture Trustee; (iii) such
holder or holders have offered such Indenture Trustee reasonable indemnity; (iv)
such Indenture Trustee has for 60 days failed to institute such proceeding; and
(v) no direction inconsistent with such written request has been given to such
Indenture Trustee during such 60-day period by the holders of a majority of the
outstanding principal amount of the Notes of such Series.
With respect to any Owner Trust, none of the related Indenture Trustee in
its individual capacity, the related Trustee in its individual capacity, any
holder of a Certificate representing an ownership interest in such Trust, or any
of their respective beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the related Notes or for the agreements of such Trust contained in
the applicable Indenture.
No Trust may engage in any activity other than as described herein or in
the related Prospectus Supplement. No Trust will incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the related Notes and
the related Indenture, pursuant to any Advances made to it by the Servicer or
otherwise in accordance with the Related Documents (as defined herein).
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia;
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(ii) such entity expressly assumes such Trust's obligation to make due and
punctual payments upon the Notes of the related Series and to perform or observe
every agreement and covenant of such Trust under the Indenture; (iii) no Event
of Default shall have occurred and be continuing immediately after such merger
or consolidation; (iv) such Trust has been advised by each Rating Agency that
such merger or consolidation will not result in the qualification, reduction or
withdrawal of its then-current rating of any class of the Notes or Certificates
of such Series; and (v) such Trust has received an opinion of counsel to the
effect that such consolidation or merger would have no material adverse tax
consequence to the Trust or to any related Noteholder or Certificateholder.
No Owner Trust will (i) except as expressly permitted by the applicable
Indenture, the applicable Transfer and Servicing Agreements or certain other
documents with respect to such Trust (the "Related Documents"), sell, transfer,
exchange or otherwise dispose of any of the assets of such Trust; (ii) claim any
credit on or make any deduction from the principal and interest payment in
respect to the related Notes (other than amounts withheld under the Code or
applicable state tax laws) or assert any claim against any present or former
holder of such Notes because of the payment of taxes levied or assessed upon
such Trust; (iii) dissolve or liquidate in whole or in part; (iv) permit the
validity or effectiveness of the related Indenture to be impaired or permit any
person to be released from any covenants or obligations with respect to the
related Notes under such Indenture except as may be expressly permitted thereby;
(v) permit any lien, charge, excise, claim, security interest, mortgage, or
other encumbrance to be created on or extent to or otherwise arise upon or
burden the assets of such Trust or any part thereof, or any interest therein or
the proceeds thereof; or (vi) permit the lien of the related Indenture not to
constitute a valid first priority security interest (other than with respect to
a tax, mechanics' or similar lien) in the asset of such Trust.
Each Indenture Trustee and the related Noteholders, by accepting the
related Notes, will covenant that they will not at any time institute against
the applicable Trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
Modification of Indenture. Each Owner Trustee and the related Indenture
Trustee may, with the consent of the holders of a majority of the aggregate
outstanding principal amount of the Notes of the related Series, execute a
supplemental indenture to add provisions to, change in any manner or eliminate
any provisions of, the related Indenture, or modify (except as provided below)
in any manner the rights of the related Noteholders. Without the consent of the
holder of each outstanding Note affected thereby, no supplemental indenture
will: (i) change the due date of any installment of principal of or interest on
any such Note or reduce the principal amount thereof, the interest rate
specified thereon or the redemption price with respect thereto or change any
place of payment where or the coin or currency in which any such Note or any
interest thereon is payable; (ii) impair the right to institute suit for the
enforcement of certain provisions of the related Indenture regarding payment;
(iii) reduce the percentage of the aggregate amount of the outstanding Notes of
such Series, the consent of the holders of which is required for any such
supplemental indenture or for any waiver of compliance with certain provisions
of the related Indenture or of certain defaults thereunder and their
consequences as provided for in such
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Indenture; (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the applicable Owner Trust, any other
obligor on such Notes, the Seller or an affiliate of any of them; (v) reduce the
percentage of the aggregate outstanding amount of such Notes, the consent of the
holders of which is required to direct the related Indenture Trustee to sell or
liquidate the Primary Assets if the proceeds of such sale would be insufficient
to pay the principal amount and accrued and unpaid interest on the outstanding
Notes of such Series; (vi) decrease the percentage of the aggregate principal
amount of such Notes required to amend the sections of the related Indenture
that specify the percentage of the aggregate principal amount of the Notes of
such Series necessary to amend such Indenture or certain other related
agreements; or (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the related Indenture with respect to any of the
collateral for such Notes or, except as otherwise permitted or contemplated in
such Indenture, terminate the lien of such Indenture on any such collateral or
deprive the holder of any such Note of the security afforded by the lien of such
Indenture.
An Owner Trust and the related Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related Series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not materially and adversely affect the interest of any
such Noteholder.
Annual Compliance Statement. Each Owner Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Owner
Trust will be required to mail each year to all related Noteholders a brief
report relating to its eligibility and qualification to continue as Indenture
Trustee under the related Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain indebtedness,
if any, owing by such Owner Trust to the applicable Indenture Trust in its
individual capacity, the property and funds physically held by such Indenture
Trustee as such and any action taken by it that materially affects the related
Notes that has not been previously reported.
Satisfaction and Discharge of Indenture. Each Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
The Indenture Trustee
The Indenture Trustee for a Series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any Series may resign
at any time, in which event the related Owner Trust will be obligated to appoint
a successor indenture trustee for such Series. An Owner Trust may also remove
the related Indenture Trustee if such Indenture Trustee ceases to
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be eligible to continue as such under the related Indenture or if such Indenture
Trustee becomes insolvent. In such circumstances, such Owner Trust will be
obligated to appoint a successor indenture trustee for the applicable Series of
Notes. No resignation or removal of the Indenture Trustee and appointment of a
successor indenture trustee for a Series of Notes will become effective until
the acceptance of the appointment by the successor indenture trustee for such
Series.
DESCRIPTION OF THE CERTIFICATES
General
Each Trust will issue one or more classes of Certificates pursuant to a Trust
Agreement or Pooling and Servicing Agreement, as applicable. A form of each of
the Trust Agreement and the Pooling and Servicing Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary describes the material provisions of the Trust Agreement and
the Pooling and Servicing Agreement, in each case, which are anticipated to be
common to any Certificates included in a Series of Securities. The following
summary does not purport to be a complete description of all terms of the
related Notes, Trust Agreement or Pooling and Servicing Agreement and therefore
is subject to, and is qualified in its entirety by reference to, the provisions
of the related Certificates and Trust Agreement or Pooling and Servicing
Agreement, as applicable.
If so specified in the related Prospectus Supplement and except for the
Certificates, if any, of a Series purchased by an affiliate of CS First Boston
or a Seller or an affiliate of such Seller, each class of Certificates will
initially be represented by one or more certificates registered in the name of
the Depository. The Certificates will be available for purchase in minimum
denominations of $10,000 or such other minimum denomination as shall be
specified in the related Prospectus Supplement and integral multiples of $1,000
in excess thereof in book-entry form only (or such other form as shall be
specified in the related Prospectus Supplement). In the event that the
Certificates shall be available in book-entry form only, the Company has been
informed by DTC that DTC's nominee will be Cede. Accordingly, such nominee is
expected to be the holder of record of the Certificates of any Series. In the
event that the Certificates shall be available in book-entry form only, unless
and until Definitive Certificates are issued under the limited circumstances
described herein or in the related Prospectus Supplement, no Certificateholder
(other than an affiliate of CS First Boston or a Seller or an affiliate of such
Seller) will be entitled to receive a physical certificate representing a
Certificate. In the event that the Certificates shall be available in book-entry
form only, all references herein and in the related Prospectus Supplement to
actions by Certificateholders refer to actions taken by DTC upon instructions
from the Participants, and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities--Book-Entry Registration" and "--Definitive Securities". Any
Certificate of a Series owned by an affiliate of CS First Boston or
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a Seller or an affiliate of such Seller will be entitled to equal and
proportionate benefits under the applicable Trust Agreement or Pooling and
Servicing Agreement, as applicable, except that such Certificates will be deemed
not to be outstanding for the purpose of determining whether the requisite
percentage of Certificateholders has given any request, demand, authorization,
direction, notice, or consent or taken any other action under the Related
Documents.
Distributions of Principal and Interest
The timing and priority of distributions, seniority, allocations of losses,
Certificate Pass- Through Rate and amount of or method of determining
distributions with respect to principal and interest on each class of
Certificates of a Series will be described in the related Prospectus Supplement.
Distributions of interest on such Certificates will be made on the dates
specified in the related Prospectus Supplement (the "Distribution Date") and
will be made prior to distributions with respect to principal of such
Certificates. To the extent provided in the related Prospectus Supplement, a
Series of Certificates may include one or more classes of Strip Certificates
entitled to (i) principal distributions with disproportionate, nominal or no
interest distributions or (ii) interest distributions with disproportionate,
nominal or no principal distributions. Each class of Certificates may have a
different Certificate Pass-Through Rate, which may be a fixed, variable or
adjustable Certificate Pass-Through Rate (and which may be zero for certain
classes of Strip Certificates) or any combination of the foregoing. The related
Prospectus Supplement will specify the Certificate Pass-Through Rate for each
class of Certificates of a Series or the method for determining such Certificate
Pass-Through Rate.
In the case of a Series of Securities that includes two or more classes of
Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination thereof, of each such class
will be as set forth in the related Prospectus Supplement. In the case of
Certificates issued by an Owner Trust, distributions in respect of such
Certificates will be subordinated to payments in respect of the Notes of such
Series as more fully described in the related Prospectus Supplement.
Distributions in respect of interest on and principal of any class of
Certificates will be made on a pro rata basis among all holders of Certificates
of such class.
CERTAIN INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
If so specified in the related Prospectus Supplement, DTC will act as
securities depository for each class of Securities offered hereby. Each class of
Securities initially will be represented by one or more certificates registered
in the name of Cede, the nominee of DTC. As such, it is anticipated that the
only "Noteholder" and/or "Certificateholder" with respect to a Series of
Securities will be Cede, as nominee of DTC. Beneficial owners of the Securities
("Security Owners") will not be recognized as "Noteholders" by the related
Indenture Trustee, as such term is used in each Indenture, or as
"Certificateholders" by the related Trustee, as such term is used
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in each Trust Agreement or Pooling and Servicing Agreement, as applicable, and
Security Owners will be permitted to exercise the rights of Noteholders or
Certificateholders only indirectly through DTC and its participating members
("Participants").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code (the "UCC") in effect in the
State of New York, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for the
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entries, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to the DTC system also is available to banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (the "Indirect
Participants").
Security Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or an interest in,
the Securities may do so only through Participants and Indirect Participants. In
addition, all Security Owners will receive all distributions of principal and
interest from the related Indenture Trustee or the related Trustee, as
applicable, through Participants or Indirect Participants. Under a book-entry
format, Security Owners may experience some delay in their receipt of payments,
since such payments will be forwarded by the applicable Trustee or Indenture
Trustee to DTC's nominee. DTC will then forward such payments to the
Participants, which thereafter will forward them to Indirect Participants or
Security Owners.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Securities and to
receive and transmit distributions of principal of and interest on the
Securities. Participants and Indirect Participants with which Security Owners
have accounts with respect to the Securities similarly are required to make
book-entry transfers and to receive and transmit such payments on behalf of
their respective Security Owners. Accordingly, although Security Owners will not
possess physical certificates representing the Securities, the Rules provide a
mechanism by which Participants and Indirect Participants will receive payments
and transfer or exchange interests, directly or indirectly, on behalf of
Security Owners.
Because DTC can act only on behalf of Participants, who in turn may act on
behalf of Indirect Participants and, the ability of a Security Owner to pledge
Securities to persons or entities that do not participate in the DTC system, or
otherwise take actions with respect to such Securities, may be limited due to
the lack of a physical certificate representing such Securities.
DTC has advised the Company that it will take any action permitted to be
taken by a Security Owner under the Indenture, Trust Agreement or Pooling and
Servicing Agreement, as applicable, only at the direction of one or more
Participants to whose account with DTC the
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Securities are credited. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
Except as required by law, none of CS First Boston, the Company, the
related Seller, the related Servicer, or related Indenture Trustee, if any, or
the related Trustee will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of
Securities of any Series held by DTC's nominee, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
Definitive Securities
If so stated in the related Prospectus Supplement, the Notes and/or
Certificates of a given Series will be issued in fully registered, certificated
form ("Definitive Notes" and "Definitive Certificates", respectively, and,
collectively, "Definitive Securities") to Noteholders or Certificateholders or
their respective nominees, rather than to DTC or its nominee, only if (i) the
related Trustee of a Grantor Trust or the related Indenture Trustee in the case
of an Owner Trust, as applicable, determines that DTC is no longer willing or
able to discharge properly its responsibilities as Depository with respect to
the related Securities and such Indenture Trustee or Trustee, as applicable, is
unable to locate a qualified successor, (ii) the Indenture Trustee or Trustee,
as applicable, elects, at its option, to terminate the book-entry system through
DTC or (iii) after the occurrence of an Event of Default or Servicer Default,
Security Owners representing at least a majority of the outstanding principal
amount of the Notes or Certificates, as applicable, of such Series, advise the
related Trustee through DTC that the continuation of a book-entry system through
DTC (or a successor thereto) is no longer in the best interests of the related
Security Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the related Trustee or Indenture Trustee, as applicable,
will be required to notify the related Security Owners, through Participants, of
the availability of Definitive Securities. Upon surrender by DTC of the
certificates representing all Securities of any affected class and the receipt
of instructions for re-registration, the Trustee will issue Definitive
Securities to the related Security Owners. Distributions on the related
Definitive Securities will be made thereafter by the related Trustee or
Indenture Trustee, as applicable, directly to the holders in whose name the
related Definitive Securities are registered at the close of business on the
applicable record date, in accordance with the procedures set forth herein and
in the related Indenture or the related Trust Agreement or Pooling and Servicing
Agreement, as applicable. Distributions will be made by check mailed to the
address of such holders as they appear on the register specified in the related
Indenture, Trust Agreement or Pooling and Servicing Agreement, as applicable;
however, the final payment on any Securities (whether Definitive Securities or
Securities registered in the name of a Depository or its nominee) will be made
only upon presentation and surrender of such Securities at the office or agency
specified in the notice of final distribution to Securityholders.
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Definitive Securities will be transferable and exchangeable at the offices
of the related Trustee or Indenture Trustee (or any security registrar appointed
thereby), as applicable. No service charge will be imposed for any registration
of transfer or exchange, but such Trustee or Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
Statements to Securityholders
With respect to each Series of Securities, on or prior to each Distribution
Date, the related Servicer will prepare and forward to the related Indenture
Trustee or Trustee to be included with the distribution to each Securityholder
of record a statement setting forth for the related Collection Period the
following information (and any other information specified in the related
Prospectus Supplement):
(i) the amount of the distribution allocable to principal of each class of
Securities of such Series;
(ii) the amount of the distribution allocable to interest on each class of
Securities of such Series;
(iii) if applicable, the amount of the Servicing Fee paid to the related
Servicer with respect to the related Collection Period;
(iv) the outstanding principal balance and Note Pool Factor for each class
of Notes, if any, and the Certificate Balance and Certificate Pool Factor for
each class of Certificates of such Series as of the related record date;
(v) the balance of any Reserve Account or other form of credit enhancement,
after giving effect to any additions thereto or withdrawals therefrom or
reductions thereto to be made on the following Distribution Date; and
(vi) the aggregate amount of Realized Losses, if any, in respect of
Receivables for the related Collection Period.
Items (i), (ii) and (iv) above with respect to the Notes or Certificates of
a Series will be expressed as a dollar amount per $1,000 of initial principal
balance of such Notes or the initial Certificate Balance of such Certificates,
as applicable.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year during the term of each Trust, the
related Trustee or Indenture Trustee, as applicable, will mail to each person
who at any time during such calendar year shall have been a registered
Securityholder a statement containing certain information for the purposes of
such Securityholder's preparation of federal income tax returns. See "Certain
Federal Income Tax Consequences".
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List of Securityholders
Three or more holders of the Notes of any Series or one or more holders of
such Notes evidencing not less than 25% of the aggregate outstanding principal
balance thereof may, by written request to the related Indenture Trustee, obtain
access to the list of all Noteholders maintained by such Indenture Trustee for
the purpose of communicating with other Noteholders with respect to their rights
under the related Indenture or under such Notes. Such Indenture Trustee may
elect not to afford the requesting Noteholders access to the list of Noteholders
if it agrees to mail the desired communication or proxy, on behalf of and at the
expense of the requesting Noteholders, to all Noteholders of such Series.
Three or more holders of the Certificates of any Series or one or more
holders of such Certificates evidencing not less than 25% of the Certificate
Balance of such Certificates may, by written request to the related Trustee,
obtain access to the list of all Certificateholders maintained by such Trustee
for the purpose of communicating with other Certificateholders with respect to
their rights under the related Trust Agreement or Pooling and Servicing
Agreement, as applicable, or under such Certificates.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material provisions (in each such case,
to the extent anticipated to be common to any Certificates included in a Series
of Securities of each Receivables Purchase Agreement pursuant to which a Trust
will purchase Receivables from a Seller, each Trust Agreement or Pooling and
Servicing Agreement pursuant to which a Trust will be created, Certificates will
be issued, and pursuant to which the Servicer will service Receivables (in the
case of a Grantor Trust), each Sale and Servicing Agreement pursuant to which
the Servicer will service Receivables (in the case of an Owner Trust) or, in the
case of Securities backed by Collateral Certificates, each Trust Agreement
pursuant to which a Trust will be created, Collateral Certificates will be sold
or transferred to such Trust and a Trustee will manage Collateral Certificates
(collectively the "Transfer and Servicing Agreements"). Forms of the Transfer
and Servicing Agreements have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. The following summary does not
purport to be a complete description of all of the terms of the Transfer and
Servicing Agreements and therefore is subject to, and is qualified in its
entirety by reference to, the provisions of the related Transfer and Servicing
Agreement.
Sale and Assignment of Receivables and Collateral Certificates
In the case of Primary Assets consisting of Receivables, on or prior to the
related Closing Date, a Seller will transfer and assign to the Company, pursuant
to a Receivables Purchase Agreement without recourse, all of its right, title
and interest in and to Receivables in the outstanding principal amount specified
in the related Prospectus Supplement, including its security interests in the
related Financed Vehicles. Each such Receivable will be identified in a schedule
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appearing as an exhibit to the related Receivables Purchase Agreement (the
"Schedule of Receivables").
In each Receivables Purchase Agreement the Seller will represent and
warrant to the Company, among other things, that (i) the information set forth
in the Schedule of Receivables is correct in all material respects as of the
applicable Cutoff Date; (ii) the Obligor on each Receivable is contractually
required to maintain physical damage insurance covering the related Financed
Vehicle in accordance with the Seller's normal requirements; (iii) on the
Closing Date, to the best of its knowledge, the Receivables are free and clear
of all security interests, liens, charges and encumbrances, and no offsets,
defenses or counterclaims have been asserted or threatened; (iv) at the Closing
Date, each of the Receivables is secured by a perfected, first- priority
security interest in the related Financed Vehicle in favor of the Seller; (v)
each Receivable, at the time it was originated, complied and, on the Closing
Date complies, in all material respects with applicable federal and state laws,
including, without limitation, consumer credit, truth-in-lending, equal credit
opportunity and disclosure laws; and (vi) any other representations and
warranties that may be set forth in the related Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, as of the
last day of the second Collection Period (or, if the Seller so elects, the last
day of the first Collection Period) following the discovery by or notice to the
Seller of any breach of a representation and warranty of the Seller that
materially and adversely affects the interests of the related Trust in any
Receivable, the Seller will be obligated to repurchase such Receivable, unless
the Seller cures such breach in a timely fashion. The purchase price for any
such Receivable will be equal to the unpaid principal balance owed by the
Obligor on such Receivable, plus interest on such unpaid principal balance at
the applicable APR to the last day of the month of repurchase (the "Repurchase
Amount"). This repurchase obligation will constitute the sole remedy available
to the Securityholders, the related Trustee and any related Indenture Trustee
for any such uncured breach.
On the related Closing Date, the Company will transfer and assign to the
related Trust, pursuant to a Trust Agreement or Pooling and Servicing Agreement,
as applicable, without recourse, all of its right, title and interest in and to
Primary Assets in the outstanding principal amount specified in the related
Prospectus Supplement. Concurrently with the transfer and assignment of such
Primary Assets to the related Trust, the related Trustee or Indenture Trustee,
as applicable, will execute, authenticate and deliver the related Securities.
The net proceeds from the sale of the Securities will be applied to the purchase
of the related Primary Assets to the extent specified in the related Prospectus
Supplement.
Pursuant to the terms of the Trust Agreement or the Pooling and Servicing
Agreement, as applicable, the Company will assign to the related Trust the
representations and warranties made by the related Seller under the related
Receivables Purchase Agreement for the benefit of the related Securityholders
and will make certain limited representations and warranties with respect to the
Primary Assets. To the extent that the related Seller does not repurchase a
Primary Asset in the event of a breach of its representations and warranties
under the related Receivables
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Purchase Agreement with respect to such Primary Asset, the Company will not be
required to repurchase such Primary Asset unless such breach also constitutes a
breach of one of the Company's representations and warranties under the related
Receivables Purchase Agreement with respect to such Primary Asset and such
breach materially and adversely affects the interests of the Securityholders in
any such Primary Asset. Neither the Seller nor the Company will have any other
obligation with respect to the Primary Assets or the Securities.
Trust Accounts
With respect to each Owner Trust, the Servicer will establish and maintain
with the related Indenture Trustee, or the Trustee will establish and maintain
(a) one or more accounts, on behalf of the related Securityholders, into which
all payments made on or in respect of the related Primary Assets will be
deposited (the "Collection Account") and (b) an account, in the name of the
Indenture Trustee on behalf of the Noteholders, into which amounts released from
the Collection Account and any Reserve Account or other form of credit
enhancement for payment to such Noteholders will be deposited and from which all
distributions to such Noteholders will be made (the "Note Distribution
Account"). With respect to each Owner Trust and Grantor Trust, the Servicer or
the related Trustee will establish and maintain an account, in the name of such
Trustee on behalf of the Certificateholders, into which amounts released from
the Collection Account and any Reserve Account or other form of credit
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to any Grantor Trust, the
Servicer or the related Trustee will also establish and maintain the Collection
Account and any other Trust Account in the name of the related Trustee on behalf
of the related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer will
establish for each Series of Securities an additional account (the "Payahead
Account"), in the name of the related Indenture Trustee (in the case of an Owner
Trust) or Trustee (in the case of a Grantor Trust), into which, to the extent
required in the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, early payments made by or on behalf of Obligors on
Precomputed Receivables will be deposited until such time as such payments
become due. Until such time as payments are transferred from the Payahead
Account to the Collection Account, they will not constitute collected interest
or collected principal and will not be available for distribution to Noteholders
or Certificateholders. Any other accounts to be established with respect to a
Trust will be described in the related Prospectus Supplement.
For each Series of Securities, funds in the Collection Account, Note
Distribution Account, Certificate Distribution Account and any Reserve Account
or other accounts identified as such in the related Prospectus Supplement
(collectively, the "Trust Accounts") will be invested as provided in the related
Sale and Servicing Agreement or Pooling and Servicing Agreement, as applicable,
in Eligible Investments. "Eligible Investments" will generally be limited to
investments acceptable to the Rating Agencies as being consistent with the
rating of the related Securities. Eligible Investments will generally be limited
to obligations or securities that mature on or before the date of the next
scheduled distribution to Securityholders of such Series. However, to the extent
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permitted by the Rating Agencies, funds in any Reserve Account may be invested
in securities that will not mature prior to the date of such next scheduled
distribution with respect to such Notes or Certificates and will not be sold
prior to maturity to meet any shortfalls. Thus, the amount of available funds on
deposit in a Reserve Account at any time may be less than the balance of such
Reserve Account. If the amount required to be withdrawn from a Reserve Account
to cover shortfalls in collections on the related Receivables (as provided in
the related Prospectus Supplement) exceeds the amount of available funds on
deposit in such Reserve Account, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result, which
could, in turn, increase the average life of the related Notes or Certificates.
To the extent provided in the related Prospectus Supplement, investment earnings
on funds deposited in the Trust Accounts, net of losses and investment expenses
(collectively, "Investment Earnings"), will be deposited in the applicable
Collection Account on each Distribution Date and will be treated as collections
of interest on the related Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories that signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or Trustee, as applicable, or (b) a
depository institution organized under the laws of the United States of America
or any one of the states thereof or the District of Columbia (or any domestic
branch of a foreign bank) (i) that has either (A) a long-term unsecured debt
rating acceptable to the Rating Agencies or (B) a short-term unsecured debt
rating or certificate of deposit rating acceptable to the Rating Agencies and
(ii) whose deposits are insured by the FDIC.
Servicing Procedures
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Company and each Trust will designate the Servicer as
custodian to maintain possession, as such Trust's agent, of the related Motor
Vehicle Installment Contracts and any other documents relating to the
Receivables. The Seller's and the Servicer's accounting records and computer
systems will be marked to reflect the sale and assignment of the related
Receivables to each Trust, and UCC financing statements reflecting such sale and
assignment will be filed.
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and will, consistent with the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, follow
such collection procedures as it follows with respect to comparable Motor
Vehicle Installment Contracts it services for itself and others. Consistent with
its normal procedures, the Servicer may, in its discretion, arrange with the
Obligor on a Receivable to extend or modify the payment schedule, but no such
arrangement will, for purposes
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of any Sale and Servicing Agreement or Pooling and Servicing Agreement, modify
the original due dates or the amount of the scheduled payments or extend the
final payment date of any Receivable beyond the Final Scheduled Maturity Date
(as such term is defined with respect to any Receivables Pool in the related
Prospectus Supplement). Some of such arrangements may result in the Servicer
purchasing the Receivables for the Repurchase Amount, while others may result in
the Servicer making Advances. The Servicer may sell the related Financed Vehicle
securing any Receivable at a public or private sale, or take any other action
permitted by applicable law. See "Certain Legal Aspects of the Receivables".
Collections
With respect to each Trust, the Servicer or the Trustee will deposit all
payments on the related Primary Assets (from whatever source) and all proceeds
of such Primary Assets, collected during a Collection Period into the related
Collection Account not later than two business days after receipt thereof.
However, notwithstanding the foregoing, such amounts may be remitted to the
Collection Account by the Servicer on a monthly basis on or prior to the
applicable Distribution Date if no Servicer Default exists and each other
condition to making deposits less frequently than daily as may be specified by
the Rating Agencies or set forth in the related Prospectus Supplement is
satisfied. Pending deposit into the Collection Account, such collections may be
invested by the Servicer at its own risk and for its own benefit and will not be
segregated from its own funds. If the Servicer were unable to remit such funds
to the Collection Account on any Distribution Date, Securityholders might incur
a loss. To the extent set forth in the related Prospectus Supplement, the
Servicer may, in order to satisfy the requirements described above, obtain a
letter of credit or other security for the benefit of the related Trust to
secure timely remittances of collections on the related Primary Assets and
payment of the aggregate Repurchase Amount with respect to Receivables
repurchased by the Servicer.
Collections on a Precomputed Receivable during any Collection Period will
be applied first to the repayment of any outstanding Precomputed Advances made
by the Servicer with respect to such Receivable (as described below), and then
to the scheduled monthly payment due on such Receivable. Any portion of such
collections remaining after the scheduled monthly payment has been made (such
excess amounts, the "Payaheads") will, unless such remaining amount is
sufficient to prepay the Precomputed Receivable in full and, (subject to certain
limitations which, if applicable, will be specified in the related Prospectus
Supplement) be transferred to and kept in the Payahead Account until such later
Distribution Date on which such Payaheads may be applied either to the scheduled
monthly payment due during the related Collection Period or to prepay such
Receivable in full.
Advances
To the extent the collections of interest and principal on a Precomputed
Receivable for a Collection Period fall short of the related scheduled payment,
the Servicer generally will make a Precomputed Advance of the shortfall. The
Servicer will be obligated to make a Precomputed Advance on a Precomputed
Receivable only to the extent that the Servicer, in its sole discretion,
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expects to recoup such Advance from subsequent collections or recoveries on such
Receivable or other Precomputed Receivables in the related Receivables Pool. The
Servicer will deposit the Precomputed Advance in the applicable Collection
Account on or before the business day proceeding the applicable Distribution
Date. The Servicer will recoup its Precomputed Advance from subsequent payments
by or on behalf of the related Obligor or from insurance or liquidation proceeds
with respect to the related Receivable and will release its right to
reimbursement in conjunction with its purchase of the Receivable as Servicer or,
upon determining that reimbursement from the preceding sources is unlikely, will
recoup its Precomputed Advance from any collections made on other Precomputed
Receivables in the related Receivables Pool.
On or before the business day prior to each Distribution Date, the Servicer
will deposit into the related Collection Account as a Simple Interest Advance an
amount equal to the amount of interest that would have been due on the related
Simple Interest Receivables at their respective APRs for the related Collection
Period (assuming that such Simple Interest Receivables are paid on their
respective due dates) minus the amount of interest actually received on such
Simple Interest Receivables during the applicable Collection Period. If such
calculation results in a negative number, an amount equal to such amount shall
be paid to the Servicer in reimbursement of outstanding Simple Interest
Advances. In addition, in the event that a Simple Interest Receivable becomes a
Liquidated Receivable (as such term is defined in the related Prospectus
Supplement), the amount of accrued and unpaid interest thereon (but not
including interest for the then current collection Period) will be withdrawn
from the Collection Account and paid to the Servicer in reimbursement of
outstanding Simple Interest Advances. No advances of principal will be made with
respect to Simple Interest Receivables.
Net Deposits
For administrative convenience, unless the Servicer or the Trustee is
required to remit collections to the Collection Account on a daily basis as
described under "-- Collections" above, the Servicer or the Trustee will be
permitted to make deposits of collections, aggregate Advances and Repurchase
Amounts for any Trust for or in respect of each Collection Period net of
distributions to be made to the Servicer with respect to such Collection Period.
The Servicer also may cause a single, net transfer to be made from the
Collection Account to the Payahead Account, or vice versa.
Servicing Compensation and Payment of Expenses
To the extent provided in the related Prospectus Supplement, with respect
to each Trust the related Servicer will be entitled to receive, out of interest
collected on or in respect of the related Primary Assets, a fee for each
Collection Period (the "Servicing Fee") in an amount equal to the percentage per
annum specified in the related Prospectus Supplement (the "Servicing Fee Rate")
of the Pool Balance as of the first day of such Collection Period. The Servicing
Fee (together with any portion of the Servicing Fee that remains unpaid from
prior Distribution Dates) will be paid solely to the extent of the Interest
Distribution Amount; however, the Servicing Fee
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will be paid prior to the distribution of any portion of the Interest
Distribution Amount to the holders of the Notes or Certificates of any Series.
To the extent provided in the related Prospectus Supplement, the Servicer
will also collect and retain any late fees, prepayment charges and other
administrative fees or similar charges allowed by applicable law with respect to
Receivables and will be entitled to reimbursement from each Trust for certain
liabilities. Payments by or on behalf of Obligors will be allocated to scheduled
payments under the related Motor Vehicle Installment Contract and late fees and
other charges in accordance with the Servicer's normal practices and procedures.
If applicable, the Servicing Fee will compensate the Servicer for
performing the functions of a third party servicer of motor vehicle receivables
as an agent for the related Trust, including collecting and posting all
payments, responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment statements and reporting the collateral. The
Servicing Fee will also compensate the Servicer for administering the
Receivables, including making Advances, accounting for collection, furnishing
monthly and annual statements to the related Indenture Trust and/or Trustee, and
generating federal income tax information for such Trust and for the related
Noteholders and/or Certificateholders as well as the Trust's compliance with the
reporting provisions under the Exchange Act. The Servicing Fee also will
reimburse the Servicer for certain taxes, the fees of the related Indenture
Trustee and/or Trustee, accounting fees, outside auditor fees, date processing
cost and other costs incurred in connection with administering the Primary
Assets.
Distributions
With respect to each Series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, principal only or interest only) on each
class of Securities entitled thereto will be made by the related Trustee or
Indenture Trustee, as applicable, to the Certificateholders and Noteholders of
such Series. The timing, calculation, allocation, order, source and priorities
of, and requirements for, all payments to the holders of each class of Notes
and/or distributions to holders of each class of Certificates will be set forth
in the related Prospectus Supplement.
With respect to each Trust, on each Distribution Date collections on or in
respect of the related Primary Assets will be transferred from the Collection
Account to the Note Distribution Account or Certificate Distribution Account, as
applicable, for distribution to the Noteholders and Certificateholders to the
extent provided in the related Prospectus Supplement. Credit enhancement, such
as a Reserve Account, will be available to cover shortfalls in the amount
available for distribution on such date to the extent specified in the related
Prospectus Supplement. As more fully described in the related Prospectus
Supplement, distributions in respect of principal of a class of Securities of a
Series may be subordinate to distributions in respect in respect of interests on
such class, and distributions in respect of one or more classes of Certificates
of such Series may be subordinate to payments in respect of the Notes, if any,
of such Series or other classes of Certificates. Distributions of principal on
the Securities of a Series may be
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based on the amount of principal collected or due, or the amount of realized
losses incurred, in a Collection Period.
Credit and Cash Flow Enhancement
The amounts and types of any credit and cash flow enhancement arrangements
and the provider thereof, if applicable, with respect to each class of
Securities of a Series will be set forth in the related Prospectus Supplement.
To the extent provided in the related Prospectus Supplement, credit or cash flow
enhancement may be in the form of subordination of one or more classes of
Securities, Reserve Accounts, spread accounts, letters of credit, surety bonds,
insurance policies, over-collateralization, credit or liquidity facilities,
guaranteed investment contracts, swaps or other interest rate protection
agreements, repurchase obligations, other agreements with respect to third party
payments or other support, cash deposits, or such other arrangements that are
incidental to or related to the Primary Assets included in a Trust as may be
described in the related Prospectus Supplement, or any combination of the
foregoing. If specified in the applicable Prospectus Supplement, credit or cash
flow enhancement for a class of Securities may cover one or more other classes
of Securities of the same Series, and credit enhancement for a Series of
Securities may cover one or more other Series of Securities.
The existence of a Reserve Account or other form of credit enhancement for
the benefit of any class or Series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of such class or Series of the full
amount of principal and interest due thereon and to decrease the likelihood that
such Securityholders will experience losses. The credit enhancement for a class
or Series of Securities will not (as a general rule) provide protection against
all types of loss and will not guarantee repayment of all principal and interest
thereon. If losses occur which exceed the amount covered by such credit
enhancement or which are not covered by such credit enhancement, Securityholders
will bear their allocable share of such losses, as described in the Prospectus
Supplement. In addition, if a form of credit enhancement covers more than one
Series of Securities, Securityholders of any such Series will be subject to the
risk that such credit enhancement may be exhausted by the claims of
Securityholders of other Series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Trust Agreement, Sale and Servicing Agreement or Pooling
and Servicing Agreement, as applicable, the Company will establish for a Series
or class or classes of Securities an account (the "Reserve Account"), which will
be maintained with the related Indenture Trustee or Trustee, as applicable. A
Reserve Account will be funded by an initial deposit by the Company on the
Closing Date in the amount set forth in the related Prospectus Supplement. As
further described in the related Prospectus Supplement, the amount on deposit in
the Reserve Account may be increased or reinstated on each Distribution Date, to
the extent described in the related Prospectus Supplement, by the deposit there
of amounts from collections on the Primary Assets. The related Prospectus
Supplement will describe the circumstances under which and the manner in which
distributions may be made out of any such Reserve Account, either to holders of
the Securities covered thereby or to the Company or to any other entity.
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Evidence as to Compliance
Each Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, will provide that a firm of independent public accountants will
furnish annually to the related Trust and Indenture Trustee and/or Trustee a
statement as to compliance by the Sale and Servicer during the preceding twelve
months (or, in the case of the first such statement, during such shorter period
that shall have elapsed since the applicable Closing Date) with certain
standards relating to the servicing of the Receivables, the Servicer's
accounting records and computer files with respect thereto and certain other
matters.
Each Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, will also provide for delivery to the related Trust and Indenture
Trustee and/or Trustee each year of a certificate signed by an officer of the
Servicer stating that the Servicer has fulfilled it obligations under the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, throughout the preceding twelve months (of, in the case of the first
such certificate, during such shorter period that shall have elapsed since the
applicable Closing Date) or, if there has been a default in the fulfillment of
any such obligation, describing each such default. The Servicer will agree to
give each Indenture Trustee and/or Trustee, as applicable, notice of certain
Servicer Defaults under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable.
Copies of the foregoing statements and certificates may be obtained by
Securityholders by a request in writing addressed to the related Trustee or
Indenture Trustee, as applicable, at the Corporate Trust Officer for such
Trustee or Indenture Trustee specified in the related Prospectus Supplement.
Statements to Trustees and the Trust
Prior to each Distribution Date with respect to each Series of Securities,
the Servicer will provide to the applicable Indenture Trustee, if any, and the
applicable Trustee as of the close of business on the last day of the preceding
Collection Period a statement setting forth substantially the same information
as is required to be provided in the periodic reports provided to
Securityholders of such Series as described under "certain Information Regarding
the Securities -- Reports to Securityholders".
Certain Matters Regarding the Servicer
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that the Servicer may not resign from its obligations and duties as
Servicer thereunder, except upon determination that such Servicer's performance
of such duties is no longer permissible under applicable law. No such
resignation will become effective until the related Indenture Trustee or
Trustee, as applicable, or a successor servicer has assumed the servicing
obligations and duties under the related Sale and Servicing Agreement or Pooling
and Servicing Agreement, as applicable.
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Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
further provide that neither the Servicer nor any of its directors, officers,
employees and agents will be under any liability to the related Trust or
Securityholders for taking any action or for refraining from taking any action
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, or for errors in judgement; provided, however, that
neither the Servicer nor any such person will be protected against any liability
that would otherwise be imposed by reason of wilful misfeasance, bad faith or
negligence in the performance of the Servicer's duties or by reason of reckless
disregard of its obligations and duties thereunder. In addition, each Sale and
Servicing Agreement and Pooling and Servicing Agreement will provide that the
Servicer is under no obligation to appear in, prosecute or defend any legal
action that is not incidental to its servicing responsibilities under such Sale
and Servicing Agreement or Pooling and Servicing Agreement, as applicable, and
that, in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to all or
substantially all of the business of the Servicer, or any corporation which
assumes the obligations of the Servicer, will be the successor to the Servicer
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable.
Servicer Defaults
A "Servicer Default" under each Sale and Servicing Agreement and Pooling
and Servicing Agreement will consist of: (i) any failure by the Servicer to
deliver to the related Trustee or Indenture Trustee, as applicable, for deposit
in any of the Trust Accounts any required payment or to direct the related
Trustee or Indenture Trust, as applicable, to make any required distributions
therefrom, which failure continues unremedied for five business days after
discovery by an officer of the Servicer or written notice of such failure is
given (a) to the Servicer by the related Trustee or Indenture Trustee, as
applicable, or (b) to the Servicer and to the related Trustee or Indenture
Trustee, as applicable, by holders of Notes, if any, evidencing not less that
25% of the aggregate outstanding principal amount thereof or, in the event a
Series of Securities includes no Notes or if such Notes have been paid in full,
by holders of Certificates evidencing not less that 25% of the Certificate
Balance; (ii) any failure by the Servicer duly to observe or perform in any
material respect any covenant or agreement in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement, as applicable, which failure
materially and adversely affects the rights of the related Securityholders and
which continues unremedied for 60 days after written notice of such failure is
given to the Servicer in the same manner described in clause (i) above; (iii)
certain events of bankruptcy, insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain actions by the
Servicer indicating its insolvency, reorganization pursuant to bankruptcy
proceedings or inability to pay its obligations and (iv) such other events as
are set forth in the related Prospectus Supplement.
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Rights Upon Servicer Default
Generally, in the case of an Owner Trust, as long as a Servicer Default
under the related Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related Series evidencing not less
than 25% of the aggregate principal amount of such Notes then outstanding may
terminate all the rights and obligations of the Servicer under such Sale and
Servicing Agreement, whereupon such Indenture Trustee or a successor servicer
appointed by such Indenture Trustee will succeed to all the responsibilities,
duties and liabilities of the Servicer under such Sale and Servicing Agreement
and will be entitled to similar compensation arrangements. Generally, in the
case of any Grantor Trust, as long as a Servicer Default under the related
Pooling and Servicing Agreement remains unremedied, the related Trustee or
holders of Certificates of the related Series evidencing not less than 25% of
the Certificate Balance may terminate all the rights and obligations of the
Servicer under such Pooling and Servicing Agreement, whereupon such Trustee or a
successor servicer appointed by such Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Pooling and
Servicing Agreement and will be entitled to similar compensation arrangements.
If, however, a bankruptcy trustee or similar official has been appointed for the
Servicer, and no Servicer Default other than such appointment has occurred, such
trustee or official may have the power to prevent any Indenture Trustee or the
related Noteholders or such Trustee or the related Certificateholders from
effecting a transfer of servicing. In the event that the related Indenture
Trustee, if any, or the related Trustee is unwilling or unable to act as
successor to the Servicer, such Indenture Trustee or Trustee, as applicable, may
appoint, or may petition a court of competent jurisdiction to appoint, a
successor with a net worth of at least $100,000,000 and whose regular business
includes the servicing of motor vehicle receivables. The Indenture Trustee, if
any, or the Trustee may arrange for compensation to be paid to such paid to such
successor servicer, which in no event may be greater than the compensation
payable to the Servicer under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable.
Waiver of Past Defaults
To the extent provided in the related Prospectus Supplement, (i) in the
case of each Owner Trust, holders of the related Notes evidencing not less than
a majority of the aggregate outstanding principal amount of the Notes (or of
Certificates evidencing not less than a majority of the outstanding Certificate
Balance, in the case of any default that does not adversely affect the Indenture
Trustee or Noteholders) and (ii) in the case of each Grantor Trust, holders of
Certificates evidencing not less than a majority of the Certificate Balance,
may, on behalf of all such Noteholders and Certificateholders, waive any default
by the Servicer in the performance of its obligations under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, and its
consequences, except a default in making any required deposits to or payments
from any Trust Account or in respect of a covenant or provision in the Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable, that
cannot be modified or amended without the consent of each Securityholder (in
which event the related waiver will require the approval of holders of all of
the Securities of such Series). No such waiver will impair the Securityholders'
right with respect to any subsequent Servicer Default.
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Amendment
Each of the Transfer and Servicing Agreements may be amended by the parties
thereto without the consent of the related Noteholders or Certificateholders,
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Transfer and Servicing Agreement or of
modifying in any manner the rights of such Noteholders or Certificateholders,
provided, that any such action will not, in the opinion of counsel satisfactory
to the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder.
The Transfer and Servicing Agreements may also be amended from time to time
by the parties thereto with the consent of the holders of Notes evidencing at
least a majority of the aggregate principal amount of the then outstanding
Notes, if any, and with the consent of the holders of Certificates evidencing at
least a majority of the aggregate principal amount of the then outstanding
Certificates, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Transfer and Servicing
Agreement or of modifying in any manner the rights of such Noteholders or
Certificateholders, as applicable; provided that no such amendment may (i)
increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on or in respect of the related Primary
Assets or distributions that are required to be made for the benefit of such
Noteholders or Certificateholders or (ii) reduce the aforesaid percentage of the
Notes or Certificates of such Series the holders of which are required to
consent to any such amendment, without the consent of the holders of all of the
outstanding Notes or Certificates, as the case may be, of such Series.
Payment in Full of the Notes
Upon the payment in full of all outstanding Notes of a given Series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of such Series generally will succeed to the rights of the Noteholders of such
Series under the related Sale and Servicing Agreement.
Termination
The obligations of the related Servicer, the related Trustee and the
related Indenture Trustee, if any, with respect to a Trust pursuant to the
related Transfer and Servicing Agreement will terminate upon the earliest to
occur of (i) the maturity or other liquidation of the last Primary Asset and the
disposition of any amounts received upon liquidation of any such remaining
Primary Asset, (iii) the payment to Noteholders, if any, and Certificateholders
of all amounts required to be paid to them pursuant to the Transfer and
Servicing Agreements and (iv) the occurrence of either event described below.
In order to avoid excessive administrative expenses, the related
Servicer will be permitted, at its option, to purchase from a Trust all
remaining Primary Assets as of the end of any Collection Period, if the then
outstanding Pool Balance is 10% or less of the Pool Balance as of
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the related Cutoff Date, at a purchase price equal to the aggregate of the
Repurchase Amounts thereof as of the end of such Collection Period.
If and to the extent provided in the related Prospectus Supplement, the
Indenture Trustee or Trustee, as applicable, will, within ten days following a
Distribution Date as of which the Pool Balance is equal to or less than the
percentage of the original Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Primary Assets remaining in
such Trust, in the manner and subject to the terms and conditions set forth in
such Prospectus Supplement. If such Indenture Trustee or Trustee receives
satisfactory bids as described in such Prospectus Supplement, then the Primary
Assets remaining in such Trust will be sold to the highest bidder.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Security Interests in Financed Vehicles
In states in which retail installment contracts such as the Receivables
evidence the credit sale of automobiles, vans and light duty trucks by dealers
to obligors, the contracts also constitute personal property security agreements
and include grants of security interests in the vehicles under the UCC as in
effect in such states. Perfection of security interests in the automobiles, vans
and light duty trucks financed, directly or indirectly, by a Seller is generally
governed by the motor vehicle registration laws of the state in which the
vehicle is located. In general, a security interest in automobiles, vans and
light-duty trucks is perfected by obtaining the certificate of title to the
financed vehicle or notation of the secured party's lien on the vehicles'
certificate of title.
All of the Motor Vehicle Installment Contracts name the Seller as obligee
or assignee and as the secured party. The Seller will take all actions necessary
under the laws of the state in which the financed vehicle is located to perfect
the Seller's security interest in such financed vehicle, including, where
applicable, having a notation of its lien recorded on such vehicle's certificate
of title. If the Seller, because of clerical error or otherwise, has failed to
take such action with respect to financed vehicle, it will not have a perfected
security interest and its security interest may be subordinate to the interest
of, among others, subsequent purchasers of the financed vehicle that give value
without notice of the Seller's security interest and to whom a certificate of
ownership is issued in such purchaser's name, holders of perfected security
interests in the financed vehicle and the trustee in bankruptcy of the Obligor.
The Seller's security interest may also be subordinate to such third parties in
the event of fraud or forgery by the Obligor or administrative error by state
recording officials or in the circumstances noted below.
Pursuant to each Sale and Servicing Agreement and Pooling and Servicing
Agreement, the Seller will assign its interests in the Financed Vehicles
securing the related Receivables to the related Trust; however, because of
administrative burden and expense, neither the Seller nor the related Trustee
will amend any certificate of title to identify such Trust as the new secured
party on the certificates of title relating to the Financed Vehicles. Also, the
Servicer will hold
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certificates of title relating to the Financed Vehicles in its possession as
custodian for the Trust pursuant to the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable. See "Description of the Transfer
and Servicing Agreements -- Sale and Assignment of Receivables".
In most states, assignments such as those under the related Trust Agreement
or Pooling and Servicing Agreement, as applicable, are effective conveyances of
a security interest in the related financed vehicle without amendment of any
lien noted on such vehicle's certificate of title, and the assignee succeeds
thereby to the assignor's rights as secured party. Although re-registration of
the motor vehicle is not necessary in such states to convey a perfected security
interest in the Financed Vehicles to a Trust, because the related Trust will not
be listed as legal owner on the certificates of title to the Financed Vehicles,
a Trust's security interest could be defeated through fraud or negligence.
However, in the absence of fraud or forgery by the vehicle owner or the Servicer
or administrative error by state of local agencies, the notation of the Seller's
lien on a certificate of title will be sufficient to protect a Trust against the
rights of subsequent purchasers of a Financed Vehicle or subsequent creditors
who take a security interest in a Financed Vehicle. If there are any Financed
Vehicles as to which the Seller fails to obtain a first-priority perfected
security interest, the Trust's security interest would be subordinate to, among
others, subsequent purchasers of such Financed Vehicles and holders of perfected
security interests therein. Such a failure, however, would constitute a breach
of the Seller's representations and warranties under the related Receivables
Purchase Agreement and the Seller will be required to repurchase such Receivable
from the Trust unless the breach is cured in a timely manner. See "Description
of the Transfer and Servicing Agreements -- Sale and Assignment of Receivables"
and "Risk Factors -- Certain Legal Aspects -- Security Interests in Financed
Vehicles".
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 thereafter until the owner
re-registers such motor vehicle in the new state. A majority of states require
surrender of a certificate of title to re-register a vehicle. Accordingly, a
secured party must surrender possession if it holds the certificate of title of
the vehicle or, in the case of vehicles registered in states providing for the
notation of a lien on the certificate of title but not possession by the secured
party, the secured party would receive notice of surrender 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 reperfect 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, an Obligor somehow procures a new certificate of title
that does not list the secured party's lien. Additionally, in states that do not
require a certificate of title for registration of a vehicle, re-registration
could defeat perfection. In the ordinary course of servicing the Receivables,
the Servicer will 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 Financed Vehicle and the purchaser thereof attempts to
re-register such vehicle, the Seller must surrender possession of the
certificate of title or will receive notice as a result of having its lien noted
thereon and accordingly will have an opportunity to require satisfaction of the
related Receivable before its lien is released. Under each Sale and Servicing
Agreement and
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Pooling and Servicing Agreement, the Servicer will be obligated to take
appropriate steps, at its own expense, to maintain perfection of security
interests in the related Financed Vehicles and is obligated to purchase the
related Receivable if it fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected,
first-priority security interest in such vehicle. The Code also grants priority
to certain federal tax liens over the lien of a secured party. The laws of
certain states and federal law permit the confiscation of motor vehicles by
governmental authorities under certain circumstances if used in unlawful
activities, which may result in the loss of a secured party's perfected security
interest in a confiscated motor vehicle. In each Receivables Purchase Agreement,
the Seller will represent and warrant that, as of the date any Receivable is
sold to the Trust, the security interest in the related Financed Vehicle is or
will be prior to all other present liens (other than tax liens and other liens
that arise by operation of law) upon and security interests in such Financed
Vehicle. However, liens for repairs or taxes could arise, or the confiscation of
a Financed Vehicle could occur, at any time during the term of a Receivable. No
notice will be given to the related Trustee, the related Indenture Trustee, if
any, or related Securityholders in the event such a lien arises or confiscation
occurs. Any such lien or confiscation arising or occurring after the Closing
Date will not give rise to a repurchase obligation of the Seller under the
related Receivables Purchase Agreement.
Repossession
In the event of default by an Obligor, the holder of the related retail
installment sale contract 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 such
means would constitute a breach of the peace. Self-help repossession is the
method employed by the Servicer in most cases and is accomplished simply by
taking possession of the related motor vehicle. In cases where the Obligor
objects or raises a defense to repossession, or if otherwise required by
applicable state law, a court order must be obtained from the appropriate state
court, and the vehicle must then be recovered in accordance with that order. In
some jurisdictions, the secured party is required to notify an Obligor debtor of
the default and the intent to repossess the collateral and to give such Obligor
a period of time within which to cure the default prior to repossession.
Generally, such right to cure may only be exercised on a limited number of
occasions during the term of the related contract.
Notice of Sale; Redemption Rights
The UCC and other state laws require the secured party to provide the
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
Obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon, plus reasonable expenses for repossessing, holding and
preparing the collateral for disposition and arranging for its sale, plus, in
some jurisdictions, reasonable attorneys' fees
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or, in some states, by payment of delinquent installments or the unpaid
principal balance of the related obligation.
Deficiency Judgments and Excess Proceeds
The proceeds of the resale of any Financed Vehicle generally will be
applied first to the expenses of resale and repossession and then to the
satisfaction of the related indebtedness. While some states impose prohibitions
or limitations on deficiency judgments if the net proceeds from any such resale
do not cover the full amount of the indebtedness, a deficiency judgment can be
sought in certain other states that do not prohibit or limit such judgments.
However, the deficiency judgment would be a personal judgment against the
Obligor for the shortfall, and a defaulting Obligor can be expected to have very
little capital or sources of income available following repossession; in many
cases, therefore, 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. In
addition to the notice requirement, 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
restrain the secured party 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.
Occasionally, after the resale of a motor vehicle and payment of all
related 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 such vehicle or, if no such lienholder exists,
to the former owner of the vehicle.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Soldiers' and Sailors' Relief Act, state adaptations of the National Consumer
Act and of the Uniform Consumer Credit Code, and state motor vehicle retail
installment sales acts, retail installment sales acts and other similar laws.
Also, the laws of certain states impose finance charge ceilings and other
restrictions on consumer transactions and require contract disclosures in
addition to those required under 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 a Trust, to enforce consumer finance contracts
such as Receivables.
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The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law, has the effect
of subjecting a seller in a consumer credit transaction (and certain related
creditors and their assignees) to all claims and defenses that the obligor in
the transaction could assert against the seller of the goods. Liability under
the FTC Rule is limited to the amounts paid by the obligor under the contract,
and the holder of the contract may also be unable to collect any balance
remaining due thereunder from the obligor. Most of the Receivables will be
subject to the requirements of the FTC Rule. Accordingly, each Trust, as holder
of the related Receivables, will be subject to any claims or defenses that the
purchasers of the related Financed Vehicles may assert against the sellers of
such Financed Vehicles. If an Obligor were successful in asserting any such
claims or defenses, such claim or defense would constitute a breach of the
Seller's warranties under the related Receivables Purchase Agreement and would
create an obligation of the Seller to repurchase the Receivable unless such
breach is cured in a timely manner. See "Description of the Transfer and
Servicing Agreements -- Sale and Assignment of Receivables."
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the Fourteenth 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 creditors' repossession and
resale do not involve sufficient state action to afford constitutional
protection to borrowers.
Under each Receivables Purchase Agreement the Seller will represent and
warrant that each Receivable complies in all material respects with all
applicable federal and state laws. Accordingly, if an Obligor has a claim
against a Trust for a violation of any law and such claim materially and
adversely affects the interests of such Trust in a Receivable, such violation
would constitute a breach of such representation and warranty and would create
an obligation of the Seller to repurchase such Receivable unless the breach is
cured. See "Description of the Transfer and Servicing Agreements -- Sale and
Assignment of Receivables".
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a 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, may reduce the amount of the secured indebtedness to the market value of
the motor vehicle at the time of bankruptcy (as determined by the court),
leaving the party providing financing as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce
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the monthly payments due under the related contract or change the rate of
interest and time of repayment of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material United
States federal income tax consequences of the purchase, ownership and
disposition of Securities. The summary does not purport to deal with federal
income tax consequences applicable to all categories of holders, some of which
may be subject to special rules. For example, it does not discuss the tax
treatment of beneficial owners of Notes ("Note Owners") or Certificates
("Certificate Owners") that are insurance companies, regulated investment
companies or dealers in securities. Moreover, there are no cases or Internal
Revenue Service ("IRS") rulings on similar transactions involving both debt and
equity interests issued by a trust with terms similar to those of the Notes and
the Certificates. As a result, the IRS might disagree with all or part of the
discussion below. Prospective investors are urged to consult their own tax
advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Sidley & Austin ("Federal Tax Counsel") regarding certain
federal income tax matters. An opinion of Federal Tax Counsel, however, is not
binding on the IRS or the courts. No ruling on any of the issues discussed below
will be sought from the IRS. For purposes of the following summary, references
to the Trust, the Notes, the Certificates and related terms, parties and
documents shall be deemed to refer, unless otherwise specified herein, to each
Trust and the Notes, Certificates and related terms, parties and documents
applicable to such Trust.
Owner Trusts
Tax Characterization of the Owner Trusts. In the case of an Owner Trust,
Federal Tax Counsel will deliver its opinion that the Trust will not be an
association (or publicly traded partnership) taxable as a corporation for
federal income tax purposes. The opinion of Federal Tax Counsel will be based on
the assumption that the terms of the Trust Agreement and related documents will
be complied with, and on such counsel's conclusions that the nature of the
income of the Trust, or restrictions (if any) on transfers of the Certificates,
will exempt the Trust from the rule that certain publicly traded partnerships
are taxable as corporations.
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If a Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all of its income on the related Primary
Assets, which might be reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificate Owners (and
possibly Note Owners) could be liable for any such tax that is unpaid by the
Trust.
Tax Consequences to Note Owners.
Treatment of the Notes as Indebtedness. The Trust will agree, and the Note
Owners will agree by their purchase of Notes, to treat the Notes as debt for
federal tax purposes. Federal Tax Counsel will (subject to certain exceptions
which, if applicable, will be specified in the related Prospectus Supplement)
advise the Owner Trust that the Notes will be classified as debt for federal
income tax purposes, or classified in such other manner as shall be provided in
the related Prospectus Supplement. If, contrary to the opinion of Federal Tax
Counsel, the IRS successfully asserted that one or more of the Notes did not
represent debt for federal income tax purposes, the Notes might be treated as
equity interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences described above (and the resulting
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, the
Trust might be treated as a publicly traded partnership that would be taxable as
a corporation unless it met certain qualifying income tests. Treatment of the
Notes as equity interests in a partnership could have adverse tax consequences
to certain holders, even if the Trust were not treated as a publicly traded
partnership taxable as a corporation. For example, income allocable to certain
tax-exempt entities (including pension funds) would be "unrelated business
taxable income", income to foreign holders generally would be subject to U.S.
tax and U.S. tax return filing and withholding requirements, and individual
holders might be subject to certain limitations on their ability to deduct their
share of Trust expenses. The discussion below assumes that the Notes will be
characterized as debt for federal income tax purposes.
Interest Income on the Notes. The taxation of interest on a Note will
depend on whether the interest constitutes "qualified stated interest" (as
defined below). Interest on a Note that constitutes qualified stated interest is
includible in a Note Owner's income as ordinary interest income when actually or
constructively received, if such Note Owner uses the cash method of accounting
for federal income tax purposes, or when accrued, if such Note Owner uses an
accrual method of accounting for federal income tax purposes. Interest that does
not constitute qualified stated interest is included in a Note Owner's income
under the rules described below under "-- Original Issue Discount", regardless
of such Note Owner's method of accounting, or, in certain circumstances, under
rules governing contingent payments which are set out in regulations issued in
final form on June 11, 1996 (the "1996 Contingent Debt Regulations).
Notwithstanding the foregoing, interest that is payable on a Note with a fixed
maturity of one year or less from its issue date is included in a Note Owner's
income under the rules described below under "--Short Term Notes".
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In general, "qualified stated interest" is stated interest that, during the
entire term of the Note, is unconditionally payable at least annually at a
single fixed rate of interest or, subject to certain exceptions summarized
below, at a variable rate that is a single "qualified floating rate" or a single
"objective rate" (each as described below). If stated interest is
unconditionally payable at two or more qualified floating rates, a single fixed
rate and one or more qualified floating rates, or a single fixed rate and a
single objective rate that is a "qualified inverse floating rate" (as defined
below), all or a portion of the stated interest might be treated as "qualified
stated interest". Under the Treasury Regulations issued under Sections 1271-1273
and 1275 of the Code in January, 1994, (the "OID Regulations") interest is
considered unconditionally payable only if late payment or nonpayment is
expected to be penalized or reasonable remedies exist to compel payment. Under
the 1996 Contingent Debt Regulations effective for instruments issued on or
after August 13, 1996, interest is considered unconditionally payable only if
reasonable legal remedies exist to compel timely payment or the debt instrument
otherwise contains terms and conditions that make the likelihood of late payment
a remote contingency. If stated interest is payable at a variable rate other
than in accordance with the foregoing, the interest will not be treated as
"qualified stated interest", and it is unclear whether such payments must be
treated as part of a Note's "stated redemption price at maturity" and governed
by the rules described below under "-- Original Issue Discount" or,
alternatively, must be taxed as contingent interest under the 1996 Contingent
Debt Regulations.
Stated interest generally qualifies as being payable at a "qualified
floating rate" if variations in the value of the rate can reasonably be expected
to measure contemporaneous fluctuations in the cost of newly borrowed funds in
the currency in which the Note is denominated. A variable rate will be
considered a qualified floating rate if the variable rate equals (i) the product
of an otherwise qualified floating rate and a fixed multiple that is greater
than zero, or greater than 0.65 for debt instruments issued on or after August
13, 1996, but not more than 1.35 or (ii) an otherwise qualified floating rate
(or the product described in clause (i)) plus or minus a fixed rate. If the
variable rate equals the product of an otherwise qualified floating rate and a
single multiplier greater than 1.35 or (in the case of a debt instrument issued
on or after August 13, 1996) less than or equal to 0.65, however, such rate will
generally constitute an objective rate, described more fully below.
In the case of a debt instrument issued before August 13, 1996, stated
interest generally qualifies as payable at an "objective rate" if variations in
the rate are determined using a single fixed formula and are based on (i) one or
more qualified floating rates, (ii) one or more rates where each rate would be a
qualified floating rate for a debt instrument denominated in a currency other
than the currency in which the Note is denominated, (iii) the yield or changes
in the price of one or more items of personal property that are "actively
traded", or (iv) a combination of rates described in the three foregoing
clauses. In the case of a debt instrument issued on or after August 13, 1996,
stated interest qualifies as payable at an "objective rate" if the rate is
determined using a single fixed formula and is based on objective financial
information or economic information. However an objective rate does not include
a rate based on information that is within the control of the issuer or that is
unique to the circumstances of the issuer or a related party. The IRS may
designate other objective rates.
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An objective rate is a qualified inverse floating rate if (a) the rateis equal
to a fixed rate minus a qualified floating rate and (b) the variations in the
rate can reasonably be expected to reflect inversely contemporaneous variations
in the cost of newly borrowed funds (disregarding certain caps, floors,
governors or similar restrictions).
All or a portion of interest that otherwise is treated as qualified stated
interest under the rules summarized above will not be treated as qualified
stated interest if, among other circumstances: (i) the variable rate of interest
is subject to one or more minimum or maximum rate floors or ceilings or one or
more governors limiting the amount of increase or decrease in each case which
are not fixed throughout the term of the Note and which are reasonably expected
as of the issue date to cause the rate in certain accrual periods to be
significantly higher or lower than the overall expected return on the Note
determined without such floor or ceiling; (ii) it is reasonably expected that
the average value of the variable rate during the first half of the term of the
Note will be either significantly less than or significantly greater than the
average value of the rate during the final half of the term of the Note; (iii)
the "issue price" of the Note (as described below) exceeds the total
noncontingent principal payments by more than an amount equal to the lesser of
.015 multiplied by the product of the total noncontingent principal payments and
the number of complete years to maturity from the issue date (or, in certain
cases, its weighted average maturity) and 15 percent of the total noncontingent
principal, (iv) the Note does not provide that a qualified floating rate or
objective rate in effect at any time during the term of the Note is set at the
value of the rate on any day that is no earlier than three months prior to the
first day on which the value is in effect and no later than one year following
that first day, or (v) if interest is not unconditionally payable. In these
situations, as well as others, it is unclear whether such interest payments
constitute qualified stated interest, or must be treated either as part of a
Note's "stated redemption price at maturity" (as described below) resulting in
original issue discount, or represent contingent payments subject to taxation
under the 1996 Contingent Debt Regulations.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1273 and 1275 of the Code and the OID Regulations. The discussion herein is
based in part on the OID Regulations, which generally apply to debt instruments
issued on or after April 4, 1994. Note Owners also should be aware that the OID
Regulations do not address certain issues relevant to prepayable securities such
as the Notes.
In general, a Note's original issue discount, if any, is the difference
between the "stated redemption price at maturity" of the Note and its "issue
price".
The original issue discount with respect to a Note will be considered to be
zero if it is less than a specified de minimis amount of 0.25% of the Note's
stated redemption price at maturity multiplied by the number of complete years
from the date of issue of such Note to its maturity date or, in the case of
Notes that have more than one principal payment or that have interest payments
that are not qualified stated interest, the weighted average maturity of the
Note. Because of the possibility of prepayments, it is not clear how the de
minimis rules will apply to
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the Notes. It is possible that the anticipated rate of prepayments assumed in
pricing the debtinstrument (the "Prepayment Assumption") will be required to be
used in determining the weighted average maturity of the Notes. In the absence
of authority to the contrary, the Company presently expects to apply the de
minimis rule by using the Prepayment Assumption. Generally, an original Note
Owner includes de minimis original issue discount in income as principal
payments are made. The amount includable in income with respect to each
principal payment equals a pro rata portion of the entire amount of de minimis
original issue discount with respect to that Note. Any de minimis amount of
original issue discount includable in income by a Note Owner is generally
treated as a capital gain if the Note is a capital asset in the hands of the
Note Owner.
The "stated redemption price at maturity" of a Note generally will be equal
to the sum of all payments, whether denominated as principal or interest, to be
made with respect thereto other than "qualified stated interest".
In general, the "issue price" of a Note is the first price at which a
substantial amount of the Notes of such class are sold for money to the public
(excluding bond houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers).
If the Notes are determined to be issued with original issue discount, a
holder of a Note must generally include the original issue discount in ordinary
gross income for federal income tax purposes as it accrues in advance of the
receipt of any cash attributable to such income. The amount of original issue
discount, if any, required to be included in a Note Owner's ordinary gross
income for federal income tax purposes in any taxable year will be computed in
accordance with Section 1272(a) of the Code and the OID Regulations. Under such
section and the OID Regulations, original issue discount accrues on a daily
basis under a constant yield method that takes into account the compounding of
interest. The amount of original issue discount to be included in income by a
holder of a debt instrument, such as a Note, under which principal payments may
be subject to acceleration because of prepayments of other debt obligations
securing such an instrument, is computed by taking into account the Prepayment
Assumption.
The amount of original issue discount includable in income by a Note Owner
is the sum of the "daily portions" of the original issue discount for each day
during the taxable year on which the holder held the Note. The daily portions of
original issue discount are determined by allocating to each day in any "accrual
period" a pro rata portion of the excess, if any, of (A) the sum of (i) the
present value of all remaining payments to be made on the Note as of the close
of the "accrual period" and (ii) the payments during the accrual period of
amounts included in the stated redemption price of the Note over (B) the
"adjusted issue price" of the Note at the beginning of the accrual period.
Generally, the "accrual period" for the Notes corresponds to the intervals at
which amounts are paid or compounded with respect to such Note, beginning with
their date of issuance and ending with the maturity date. The "adjusted issue
price" of a Note at the beginning of any accrual period is the sum of the issue
price and accrued original issue discount for each prior accrual period reduced
by the amount of payments other than payments of qualified stated interest made
during each prior accrual period. The Code requires the present value of the
remaining payments to be determined on the bases of (a) the original yield to
maturity (determined
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on the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period), (b) events, including actual
prepayments, which have occurred before the close of the accrual period and (c)
the assumption that the remaining payments will be made in accordance with the
original Prepayment Assumption. Although original issue discount, if any, will
be reported to Note Owners based on the Prepayment Assumption, no representation
is made to Note Owners that the Notes will be prepaid at that rate or at any
other rate.
In general, a subsequent purchaser of a Note will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Note, unless the price paid equals or exceeds the Note's stated redemption price
at maturity. If the price paid exceeds the Note's "adjusted issue price" (as
described above), but does not equal or exceed the stated redemption price at
maturity, the amount of original issue discount to be accrued will be reduced in
accordance with a formula set forth in Section 1272(a)(7)(B) of the Code. If the
price paid is less than the Note's adjusted issue price, the purchaser will be
required to include in income any original issue discount on the Note and, to
the extent the price paid is less than the adjusted issue price, the Note will
be treated as having been purchased with "market discount". See "--Market
Discount", below.
The Company believes that the owner of a Note determined to be issued with
original issue discount will be required to include the original issue discount
in ordinary gross income for federal income tax purposes computed in the manner
described above. However, the OID Regulations either do not address or are
subject to varying interpretations with respect to several issues concerning the
computation of original issue discount for obligations such as the Notes.
If a variable rate Note is deemed to have been issued with original issue
discount, as described above, the amount of original issue discount accrues on a
daily basis under a constant yield method that takes into account the
compounding of interest; provided, however, that the interest associated with
such a Note generally is assumed to remain constant throughout the term of the
Note at a rate that, in the case of a qualified floating rate, equals the value
of such qualified floating rate as of the issue date of the Note, or, in the
case of an objective rate, at a fixed rate that reflects the yield that is
reasonably expected for the Note. A holder of such a Note would then recognize
original issue discount during each accrual period which is calculated based
upon such Note's assumed yield to maturity. If the interest actually accrued or
paid during an accrual period exceeds (or is less than) the constant interest
assumed to be accrued or paid during the accrual period under the foregoing
rules, qualified stated interest or original issue discount allocable to an
accrual period is increased (or decreased) under rules set forth in the OID
Regulations.
The OID Regulations either do not address or are subject to varying
interpretations with respect to several issues concerning the computation of
original issue discount on the Notes, including variable rate Notes. Additional
information regarding the manner of reporting original issue discount to the
Service and to holders of variable rate Notes will be set forth in the
Prospectus Supplement relating to the issuance of such Notes.
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Market Discount. Notes, whether or not issued with original issue discount,
will be subject to the market discount rules of the Code. A purchaser of a Note
who purchases the Note at a price that is less than the Note's "stated
redemption price at maturity" or, in the case of a Note issued with original
issue discount, at a price that is less than the Note's "adjusted issue price"
(as such terms are described above under "--Original Issue Discount") will be
required to recognize accrued market discount as ordinary income as payments of
principal are received on such Note or upon the sale or exchange of the Note. In
general, the holder of a Note may elect to treat market discount as accruing
either (i) under a constant yield method that is similar to the method for the
accrual of original issue discount or (ii) in proportion to accruals of original
issue discount (or, if there is no original issue discount, in proportion to
accruals of stated interest), in each case computed taking into account the
Prepayment Assumption. The amount of accrued market discount for purposes of
determining the amount of ordinary income to be recognized with respect to
subsequent payments on such a Note is to be reduced by the amount previously
treated as ordinary income.
The Code provides that the market discount in respect of a Note will be
considered to be zero if the amount allocable to the Note is less than a
specified de minimis amount of 0.25% of the Note's stated redemption price at
maturity multiplied by the number of complete years remaining to its maturity
after the holder acquired the Note. If market discount is treated as de minimis
under this rule, the de minimis market discount would be allocated among the
scheduled payments included in the stated redemption price at maturity of such
Note, and the portion of the discount allocable to each such payment would be
reported as income when such payment occurs or is due.
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments
such as certain of the Notes. Until such time as regulations are issued, rules
described in the legislative history for these provisions of the Code will
apply. Note Owners who acquire a Note at a market discount should consult their
tax advisors concerning various methods which are available for accruing that
market discount.
In general, the Code requires a holder of a Note having market discount to
defer a portion of the interest deductions attributable to any indebtedness
incurred or continued to purchase or carry such Note. Alternatively, a holder of
a Note may elect to include market discount in gross income as it accrues and,
if the holder makes such an election, the holder will be exempt from this rule.
The adjusted basis of a Note subject to such election will be increased to
reflect market discount included in gross income, thereby reducing any gain or
increasing any loss on a sale or other taxable disposition.
Amortizable Premium. A holder of a Note who holds the Note as a capital
asset and who purchased the Note at a price greater than its stated redemption
price at maturity will be considered to have purchased the Note at a premium. In
general, the Note Owner may elect to deduct the amortizable bond premium as it
accrues under a constant yield method. A Note Owner's tax basis in the Note will
be reduced by the amount of the amortizable bond premium deducted. In addition,
it appears that the same methods which apply to the accrual of market
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discount on obligations providing for principal payments prior to maturity are
intended to apply in computing the amortizable bond premium deduction with
respect to a Note. It is not clear, however, whether the alternatives to the
constant-yield method wffhich may be available for the accrual of market
discount are available for amortizing premium on Notes. Note Owners who pay a
premium for a Note should consult their tax advisors concerning such an election
and rules for determining the method for amortizing bond premium.
Gain or Loss on Disposition. If a Note is sold, the selling Note Owner
will recognize gain or loss equal to the difference between the amount realized
from the sale and the selling Note Owner's adjusted basis in such Note. The
adjusted basis generally will equal the cost of such Note to the seller,
increased by any original issue discount and market discount on such Note
included in the seller's income and reduced (but not below zero) by any payments
on the Note other than qualified stated interest and any amortizable premium.
Except as discussed above with respect to market discount, any gain or loss
recognized upon a sale, exchange, retirement, or other disposition of a Note
will be capital gain if the Note is held as a capital asset. Special character
rules apply to debt instruments characterized as contingent debt instruments
under the 1996 Contingent Debt Regulations. In general under those rules gain is
treated as ordinary, and loss is treated as ordinary to the extent of prior
ordinary income inclusion.
Short-Term Notes. In the case of a Note with a maturity of one year or less
from its issue date (a "Short-Term Note"), no interest is treated as qualified
stated interest, and therefore all interest is included in original issue
discount. Note Owners that report income for federal income tax purposes on an
accrual method and certain other Note Owners, including banks and dealers in
securities, are required to include original issue discount in income on such
Short-Term Notes on a straight-line basis, unless an election is made to accrue
the original issue discount according to a constant yield method based on daily
compounding.
Any other Note Owner of a Short Term Note is not required to accrue
original issue discount for federal income tax purposes, unless it elects to do
so. In the case of a Note Owner that is not required, and does not elect, to
include original issue discount in income currently, any gain realized on the
sale, exchange or retirement of a Short-Term Note is ordinary income to the
extent of the original issue discount accrued on a straight-line basis (or, if
elected, according to a constant yield method based on daily compounding)
through the date of sale, exchange or retirement. In addition, Note Owners that
are not required, and do not elect, to include original issue discount in income
currently are required to defer deductions for any interest paid on indebtedness
incurred or continued to purchase or carry a Short-Term Note in an amount not
exceeding the deferred interest income with respect to such Short-Term Note
(which includes both the accrued original issue discount and accrued interest
that are payable but that have not been included in gross income), until such
deferred interest income is realized. Such a Note Owner may elect to apply the
foregoing rules (except for the rule characterizing gain on sale, exchange or
retirement as ordinary) with respect to "acquisition discount" rather than
original issue discount. Acquisition discount is the excess of the stated
redemption price at maturity of the Short-Term Note over the Note Owner's basis
in the Short-Term Note. This election applies to all obligations acquired by the
taxpayer on or after the first day of the first taxable year to which such
election
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applies, unless revoked with the consent of the IRS. A Note Owner's tax
basis in a Short-Term Note is increased by the amount included in such Owner's
income on such a Note.
Taxation of Certain Foreign Note Owners. As used herein, the term
"Non-United States Holder" means a Note Owner that is, for United States federal
income tax purposes, (i) a nonresident alien individual, (ii) a foreign
corporation, (iii) a nonresident alien fiduciary of a foreign estate or trust or
(iv) a foreign partnership one or more of the members of which is, for United
States federal income tax purposes, a nonresident alien individual, a foreign
corporation or a nonresident alien fiduciary of a foreign estate or trust.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of Non-United States Holders. The 1996 Proposed
Regulations are generally proposed to be effective for payments after December
31, 1997, regardless of the issue date of the Note with respect to which such
payments are made, subject to certain transition rules. It cannot be predicted
at this time whether the 1996 Proposed Regulations will become effective as
proposed, or what, if any, modifications may be made to them. The discussion
under this heading and under "-- Backup Withholding and Information Reporting",
below, is not intended to include a complete discussion of the provisions of the
1996 Proposed Regulations, and prospective investors are urged to consult their
tax advisors with respect to the effect the 1996 Proposed Regulations may have.
In general, Non-United States Holders will not be subject to United States
federal withholding tax with respect to payments of principal and interest on
Notes, provided that certain conditions are met. Under United States federal
income tax law now in effect, and subject to the discussion of backup
withholding in the following section, payments of principal and interest
(including original issue discount) with respect to a Note to any Non-United
States Holder will not be subject to United States federal withholding tax,
provided, in the case of interest (including original issue discount), that (i)
such Holder does not actually or constructively own 10% or more of the equity of
the Trust, (ii) such Holder is not for federal income tax purposes a controlled
foreign corporation related, directly or indirectly, to the Trust through equity
ownership, (iii) such Holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code and (iv) either (A) the Note Owner certifies,
under penalties of perjury, to the Trust or paying agent, as the case may be,
that such Holder is a Non-United States Holder and provides such Holder's name
and address, or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "financial institution") and holds the Note, certifies, under
penalties of perjury, to the Trust or paying agent, as the case may be, that
such Certificate has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof. A certificate described in this paragraph is
effective only with respect to payments of interest (including original issue
discount) made to the certifying Non-United States Holder after the issuance of
the certificate in the calendar year of its issuance and the two immediately
succeeding calendar years. Under temporary Treasury Regulations, the forgoing
certification may be provided by the beneficial owner of a Note on IRS Form W-8.
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The 1996 Proposed Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1996 Proposed
Regulations would not affect the documentation rules described in the preceding
paragraph, but would add "intermediary certification" options for certain
qualifying withholding agents. Under one such option, a withholding agent would
be allowed to rely on IRS Form W-8 furnished by a financial institution or other
intermediary on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution or
intermediary has entered into a withholding agreement with the IRS and is thus a
"qualified intermediary". Under another option, an authorized foreign agent of a
United States withholding agent would be permitted to act on behalf of the
United States withholding agent, provided certain conditions are met.
The 1996 Proposed Regulations, if adopted, would also provide certain
presumptions with respect to withholding for holders not providing the required
certifications to qualify for the withholding exemption described above. In
addition, the 1996 Proposed Regulations would replace a number of current tax
certification forms (including IRS Form W-8, IRS Form 1001 and IRS Form 4224,
discussed below) with a single, restated form and standardize the period of time
for which withholding agents could rely on such certifications. The 1996
Proposed Regulations would also provide rules to determine whether, for purposes
of United States federal withholding tax, interest paid to a Non-United States
Holder that is an entity should be treated as paid to the entity or those
holding an interest in that entity.
Notwithstanding the foregoing, interest described in Section 871(h)(4) of
the Code will be subject to United States withholding tax at a 30% rate (or such
lower rate as may be provided by an applicable treaty). In general, interest
described in Section 871(h)(4) of the Code includes (subject to certain
exceptions) any interest the amount of which is determined by reference to
receipts, sales or other cash flow of the issuer or a related person, any income
or profits of the issuer or a related person, any change in the value of any
property of the issuer or a related person or any dividends, partnership
distributions or similar payments made by the issuer or a related person.
Interest described in Section 871(h)(4) of the Code may include other types of
contingent interest identified by the IRS in future Treasury Regulations. If the
Trust issues Notes the interest on which the Trust believes is described in
Section 871(h)(4) of the Code, the United States withholding tax consequences of
any such Notes will be described in the applicable Prospectus Supplement.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest (including original issue discount) on the Note is
effectively connected with the conduct of such trade or business, the Non-United
States Holder, although exempt from the withholding tax discussed in the
preceding paragraphs, will be subject to United States federal income tax on
such interest (including original issue discount) in the same manner as if it
were a United States person (as defined below). In lieu of the certificate
described above, such Holder will be required to provide a properly executed IRS
Form 4224 annually in order to claim an exemption from withholding tax. In
addition, if such Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate as may be specified by an
applicable treaty)
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of its effectively connected earnings and profits for the taxable year, subject
to adjustments. For this purpose, interest (including original issue discount)
on a Note will be included in the earningsand profits of such Holder if such
interest (including original issue discount) is effectively connected with the
conduct by such Holder of a trade or business in the United States.
Generally, any gain or income (other than that attributable to accrued
interest, market discount or original issue discount in certain circumstances)
realized upon the sale, exchange, retirement or other disposition of a Note will
not be subject to United States federal income tax unless (i) such gain or
income is effectively connected with a trade or business in the United States of
the Non-United States Holder or (ii) in the case of a Non-United States Holder
who is a nonresident alien individual, the Non-United States Holder is present
in the United States for 183 days or more in the taxable year of such sale,
exchange, retirement or other disposition and either (a) such individual has a
"tax home" (as defined in Section 911(d)(3) of the Code) in the United States or
(b) the gain is attributable to an office or other fixed place of business
maintained by such individual in the United States.
Backup Withholding and Information Reporting. Under current United States
federal income tax law, information reporting requirements apply to interest
(including original issue discount) and principal payments made to, and to the
proceeds of sales before maturity by, certain non-corporate Note Owners that are
United States persons. "United States person" means a citizen or resident of the
United States, a corporation, partnership or other entity treated as a
corporation or partnership for United States federal income tax purposes,
created or organized under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is includible in
gross income for United States federal income tax purposes, without regard to
its source.
In addition, a 31% backup withholding tax will apply if such non-corporate
Note Owner (i) fails to furnish its Taxpayer Identification Number ("TIN")
(which, for an individual, would be his or her Social Security Number) to the
payor in the manner required, (ii) furnishes an incorrect TIN and the payor is
so notified by the IRS, (iii) is notified by the IRS that it has failed properly
to report payments of interest and dividends or (iv) in certain circumstances,
fails to certify, under penalties of perjury, that it has not been notified by
the IRS that it is subject to backup withholding for failure properly to report
interest and dividend payments. Backup withholding will not apply with respect
to payments made to certain exempt recipients, such as corporations (within the
meaning of Section 7701(a) of the Code) and tax-exempt organizations.
In the case of a Non-United States Holder, under Treasury Regulations,
backup withholding and information reporting will not apply to payments of
principal and interest made by the Trust or any paying agent thereof on a Note
with respect to which such holder has provided the required certification under
penalties of perjury that it is a Non-United States Holder or has otherwise
established an exemption, provided that (i) the Trust or paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
person and (ii) certain other conditions are satisfied.
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Subject to the discussion below, payments to or through the United States
office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury as to its
status as a Non-United States Holder and certain other qualifications (and no
agent of the broker who is responsible for receiving or reviewing such statement
has actual knowledge that it is incorrect) and provides his or her name and
address or the holder otherwise establishes an exemption.
In general, if principal or interest payments on a Note are collected
outside the United States by a foreign office of a custodian, nominee or other
agent acting on behalf of a Note Owner, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
owner and will not be subject to information reporting. However, if such
custodian, nominee or other agent is a United States person for United States
federal income tax purposes, a controlled foreign corporation for United States
tax purposes, or a foreign person 50% or more of whose gross income is
effectively connected with its conduct of a United States trade or business for
a specified three-year period, such custodian, nominee or other agent may be
subject to certain information reporting (but not backup withholding)
requirements with respect to such payment unless such custodian, nominee or
other agent has in its records documentary evidence that the Note Owner is not a
United States person and certain conditions are met or the Note Owner otherwise
establishes an exemption. Under proposed Treasury Regulations, backup
withholding may apply to any payment which such custodian, nominee or other
agent is required to report if such custodian, nominee or other agent has actual
knowledge that the payee is a United States person.
Under Treasury Regulations, payments on the sale, exchange or retirement of
a Note effected by or through a foreign office of a broker will not be subject
to backup withholding. However, if such broker is a United States person, a
controlled foreign corporation for United States tax purposes, or a foreign
person 50% or more of whose gross income is effectively connected with its
conduct of a United States trade or business for a specified three-year period,
information reporting (but not backup withholding) will be required unless such
broker has in its records documentary evidence that the Note Owner is not a
United States person and certain other conditions are met or the Note Owner
otherwise establishes an exemption. Under proposed Treasury Regulations, backup
withholding may apply to any payment which such broker is required to report if
such broker has actual knowledge that the payee is a United States person.
The 1996 Proposed Regulations would, if adopted, alter the forgoing rules
in certain respects. In particular, the 1996 Proposed Regulations would provide
certain presumptions under which Non-United States Holders may be subject to
backup withholding in the absence of required certifications.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a Note Owner under the backup withholding rules will
be allowed as a refund or a credit against such owner's United States federal
income tax, provided that the required information is furnished to the IRS.
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Note Owners should consult their tax advisors regarding the application of
information reporting and backup withholding to their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available.
Tax Consequences to Certificates Owners.
Treatment of the Trust as a Partnership. The Trust will agree, and the
related Certificate Owners will agree by their purchase of Certificates, to
treat the Trust as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust, the partners of
the partnership being the Certificate Owners (including, to the extent relevant,
the Seller in its capacity as recipient of distributions from any Reserve Fund),
and the Notes being debt of the partnership. However, the proper
characterization of the arrangement involving the Trust, the Certificates, the
Notes, the Seller, the Company and the Servicer is not certain because there is
no authority on transactions closely comparable to that contemplated herein. A
variety of alternative characterizations are possible. For example, to the
extent the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Seller, the Company or the Trust.
As long as such characterization did not result in the Trust being subject to
tax as a corporation, any such characterization would not result in materially
adverse tax consequences to Certificate Owners 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, that all payments on the Certificates are
denominated in United States dollars, none of the Certificates represents
Stripped Certificates and that a Series of Securities includes a single class of
Certificates. If these conditions are not satisfied with respect to any given
Series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the related Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificate Owner will be required to take into
account separately such Owner's allocable share of income, gains, losses,
deductions and credits of the Trust (whether or not there is a corresponding
cash distribution). Thus, cash basis holders will in effect be required to
report income from the Certificates on the accrual basis and Certificate Owners
may become liable for taxes on Trust income even if they have not received cash
from the Trust to pay such taxes. The Trust's income will consist primarily of
interest and finance charges earned on the related Primary Assets (including
appropriate adjustments for market discount, original issue discount and bond
premium) and any gain upon collection or disposition of such Primary Assets. The
Trust's deductions will consist primarily of interest accruing with respect to
the Notes, servicing and other fees, and losses or deductions upon collection or
disposition of Primary Assets.
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Any Collateral Certificates held by the Owner Trust will be subject to the
federal income tax treatment described herein depending on the terms of the
Collateral Certificates and their characterization (for example, as
indebtedness) for federal income tax purposes.
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 Certificate Owners will be allocated taxable income of the
Trust for each month equal to the sum of: (i) the interest or other income that
accrues on the Certificates in accordance with their terms for such month
including, as applicable, interest accruing at the related Certificate
Pass-Through Rate for such month and interest on amounts previously due on the
Certificates but not yet distributed; (ii) any Trust income attributable to
discount on the related Primary Assets that corresponds to any excess of the
principal amount of the Certificates over their initial issue price; (iii) any
prepayment premium payable to the Certificate Owners for such month; and (iv)
any other amounts of income payable to the Certificate Owners for such month.
Such allocation will be reduced by any amortization by the Trust of premium on
Primary Assets that corresponds to any excess of the issue price of Certificates
over their principal amount.
Based on the economic arrangement of the parties, the foregoing approach
for allocating Trust income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Certificate Owners. Moreover, even
under the foregoing method of allocation, Certificate Owners may be allocated
income equal to the entire Certificate Pass-Through Rate plus the other items
described above, even though the Trust might not have sufficient cash to make
current cash distributions of such amount. In addition, because tax allocations
and tax reporting will be done on a uniform basis for all Certificate Owners,
but Certificate Owners may be purchasing Certificates at different times and at
different prices, Certificate Owners may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
All of the taxable income allocated to a Certificate Owner that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer, but not interest expense) would be miscellaneous itemized
deductions and thus deductible only to the extent such expenses plus all other
Section 212 expenses exceed two percent of such individual's adjusted gross
income. An individual taxpayer will be allowed no deduction for his share of
expenses of the Trust in determining his liability for alternative minimum tax.
In addition, Section 68 of the Code provides that the amount of itemized
deductions (including those provided for in Section 212 of the Code) otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds a threshold amount specified in the Code ($117,950 in 1996 in the case
of a joint return) will be reduced by the lesser of (i) 3% of the excess of
adjusted gross
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income over the specified threshold amount or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. Accordingly, such
deductions might be disallowed to such individual in whole or in part and might
result in such Certificate Owner being taxed on an amount of income that exceeds
the amount of cash actually distributed to such holder over the life of the
Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificate Owners on an aggregate basis to the extent relevant.
If the IRS were to require that such calculations be made separately for each
Primary Asset, such calculations may result in certain timing and character
differences under certain circumstances.
Discount and Premium. The purchase price paid by the Trust for the related
Primary Assets may be greater or less than the remaining principal balance of
the Primary Assets at the time of purchase. If so, the Primary Assets will have
been acquired at a premium or market discount, as the case may be. See "Tax
Consequences to Note Owners--Market Discount" and "-- Amortizable Premium"
above. (As indicated above, the Trust will make this calculation on an aggregate
basis, but it is possible that the IRS might require that it be recomputed on a
Primary Asset-by-Primary Asset basis.)
If the Trust acquires the Primary Assets at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Primary Assets or to offset any such premium
against interest income on the Primary Assets. As indicated above, a portion of
such market discount income or premium deduction may be allocated to Certificate
Owners.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply with these requirements due to lack of data. On May 10, 1996, proposed
Treasury Regulations were issued that would change that rules relating to
terminations. Those regulations are effective for terminations occurring on or
after the date those regulations are finalized.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificate Owner's tax basis in a Certificate will generally equal its cost,
increased by its share of Trust income allocable to such Certificate Owner and
decreased by any distributions received with respect to such Certificate. In
addition, both the tax basis in the Certificates and the amount realized on a
sale of a Certificate would include the Certificate
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Owner's share (determined under Treasury Regulations) of the Notes and other
liabilities of theTrust. A Certificate Owner acquiring Certificates at different
prices will generally be required to maintain a single aggregate adjusted tax
basis in such Certificates and, upon a sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificate Owners in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a Certificate Owner purchasing
Certificates may be allocated tax items (which will affect the purchaser's tax
liability and tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
Treasury Regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificate Owners. The Seller will
be authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificate Owner sells its
Certificates at a profit (loss), the purchasing Certificate Owner will have a
higher (lower) basis in the Certificates than the selling Certificate Owner had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificate Owners might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep complete and
accurate books of the Trust. Such books will be maintained for financial
reporting and tax purposes on an accrual basis, and the fiscal year of the Trust
will be the calendar year. The Trustee will file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Trust and will
report each Certificate Owner's allocable share of items of Trust income and
expense to holders and the IRS on Schedule K-1. The Trust will provide the
Schedule K-1 information to nominees that fail to provide the Trust with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Certificates.
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Generally, holders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (a) the name, address and identification number of such person, (b)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (c) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Company will be designated as the tax matters partner for each Trust in
the related Trust Agreement and, as such, will be responsible for representing
the Certificate Owners in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificate Owners, and, under
certain circumstances, a Certificate Owner may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificate Owner's returns and adjustments of
items not related to the income and losses of the Trust.
Taxation of Certain Foreign Certificate Owners. As used herein, the term
"Non-United States Owner" means a Certificate Owner that is not a United States
person, as defined under "Owner Trusts--Tax Consequences to Note Owners--Backup
Withholding and Information Reporting," above.
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of federal withholding taxes
with respect to Non-United States Owners because there is no clear authority
dealing with that issue under facts substantially similar to those described
herein. Although it is not expected that the Trust would be engaged in a trade
or business in the United States for such purposes, the Trust will withhold as
if it were so engaged in order to protect the Trust from possible adverse
consequences of a failure to withhold. The Trust expects to withhold on the
portion of its taxable income that is allocable to Non-United States Owners
pursuant to Section 1446 of the Code, as if such income were effectively
connected
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to a U.S. trade or business, at a rate of 35% for Non-United States Owners that
are taxable as corporations and 39.6% for all other such Owners. Subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the Trust to change itswithholding procedures. In
determining a Certificate Owner's withholding status, the Trust may rely on IRS
Form W-8, IRS Form W-9 or the Certificate Owner's certification of nonforeign
status signed under penalties of perjury.
Each Non-United States Owner might be required to file a U.S. individual or
corporate income tax return on its share of the Trust's income including, in the
case of a corporation, a return in respect of the branch profits tax. Each
Non-United States Owner must obtain a taxpayer identification number from the
IRS and submit that number to the Trust on Form W-8 in order to assure
appropriate crediting of the taxes withheld. Assuming the Trust is not engaged
in a U.S. trade or business, a Non-United States Owner would be entitled to a
refund with respect to all or a portion of taxes withheld by the Trust if, in
particular, such Owner's allocable share of interest from the Trust constituted
"portfolio interest" under the Code.
Such interest, however, may not constitute "portfolio interest" if, among
other reasons, the underlying obligation is not in registered form or if the
interest is determined without regard to the income of the Trust (in the later
case, such interest being properly characterized as a guaranteed payment under
Section 707(c) of the Code). If this were the case, Non-United States Owners
would be subject to a United States federal income and withholding tax at a rate
of 30 percent (without any deductions or other allowances for costs and expenses
incurred in producing such income), unless reduced or eliminated pursuant to an
applicable treaty. In such case, a Non-United States Owner would only be
entitled to a refund for that portion of the taxes in excess of the taxes that
should have been withheld with respect to such interest.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificate Owner fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
Grantor Trusts
Tax Characterization of the Grantor Trusts.
Characterization. In the case of a Grantor Trust, Federal Tax Counsel will
deliver its opinion that the Trust will not be classified as an association
taxable as a corporation and that such Trust will be classified as a grantor
trust under subpart E, Part I of subchapter J of the Code. In this case,
beneficial owners of Certificates (referred to herein as "Grantor Trust
Certificateholders") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by a Trust that is treated as a grantor trust are referred to herein as "Grantor
Trust Certificates".
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Taxation of Grantor Trust Certificateholders--General. Subject to the
discussion below under "--Stripped Certificates" and "--Subordinated
Certificates", each Grantor Trust Certificateholder will be treated as the owner
of a pro rata undivided interest in the Primary Assets and other assets of the
Trust. Accordingly, and subject to the discussion below of the
recharacterization of the Servicing Fee, each Grantor Trust Certificateholder
must include in income its pro rata share of the interest and other income from
the Primary Assets (including any interest, original issue discount, market
discount, prepayment fees, assumption fees, and late payment charges with
respect to such assets), and, subject to certain limitations discussed below,
may deduct its pro rata share of the fees and other deductible expenses paid by
the Trust, at the same time and to the same extent as such items would be
included or deducted by the Grantor Trust Certificateholder if the Grantor Trust
Certificateholder held directly a pro rata interest in the assets of the Trust
and received and paid directly the amounts received and paid by the Trust. Any
amounts received by a Grantor Trust Certificateholder in lieu of amounts due
with respect to any Primary Asset 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.
Under Sections 162 and 212 each Grantor Trust Certificateholder will be
entitled to deduct its pro rata share of servicing fees, prepayment fees,
assumption fees, any loss recognized upon an assumption and late payment charges
retained by the Servicer, provided that such amounts are reasonable compensation
for services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus all other miscellaneous itemized
deductions exceed two percent of the Grantor Trust Certificateholder's adjusted
gross income, and will be allowed no deduction for such expenses in determining
their liabilities for alternative minimum tax. In addition, Section 68 of the
Code provides that the amount of itemized deductions (including those provided
for in Section 212 of the Code) otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount specified in
the Code ($117,950 in 1996 in the case of a joint return) will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the specified
threshold amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year.
The servicing compensation to be received by the Servicer may be questioned
by the IRS as exceeding a reasonable fee for the services being performed in
exchange therefor, and a portion of such servicing compensation could be
recharacterized as an ownership interest retained by the Servicer or other party
in a portion of the interest payments to be made pursuant to the Contracts. In
this event, a Certificate might be treated as a Stripped Certificate subject to
the stripped bond rules of Section 1286 of the Code and the original issue
discount provisions rather than to the market discount and premium rules. See
the discussion below under "-- Stripped Certificates". Except as discussed below
under "--Stripped Certificates" or "--Subordinated Certificates", this
discussion assumes that the servicing fees paid to the Servicer do not exceed
reasonable servicing compensation.
A purchaser of a Grantor Trust Certificate will be treated as purchasing an
interest in each Primary Asset in the Trust at a price determined by allocating
the purchase price paid for the
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Certificate among all Primary Assets in proportion to their fair market values
at the time of the purchase of the Certificate. To the extent that the portion
of the purchase price of a Grantor Trust Certificate allocated to a Primary
Asset is less than or greater than the portion of the stated redemption price at
maturity of the Primary Asset, the interest in the Primary Asset will have been
acquired at a discount or premium. See "--Market Discount" and "--Premium",
below.
The treatment of any discount on a Primary Asset will depend on whether the
discount represents original issue discount or market discount. Except as
indicated otherwise in the applicable Prospectus Supplement, it is not expected
that any Primary Asset will have original issue discount (except as discussed
below under "--Stripped Certificates" or "--Subordinated Certificates").
The information provided to Grantor Trust Certificateholders will not
include information necessary to compute the amount of discount or premium, if
any, at which an interest in each Primary Asset is acquired.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Primary Assets may be subject to the market discount rules
of Sections 1276 through 1278 to the extent an undivided interest in a Primary
Asset is considered to have been purchased at a "market discount". For a
discussion of the market discount rules under the Code, see "Owner Trusts -- Tax
Consequences to Note Owners -- Market Discount" above; however, Grantor Trust
Certificateholders generally are not permitted to take into account the
Prepayment Assumption in calculating the accrual of market discount with respect
to their Grantor Trust certificates (except for Grantor Trust certificates
representing interests in Collateral Certificates that constitute indebtedness
for federal income tax purposes). See "Prepayments" below.
Premium. To the extent a Grantor Trust Certificateholder is considered to
have purchased an undivided interest in a Primary Asset for an amount that is
greater than the stated redemption price at maturity of such interest, such
Grantor Trust Certificateholder will be considered to have purchased the
interest in the Primary Asset with "amortizable bond premium" equal in amount to
such excess. For a discussion of the rules applicable to amortizable bond
premium, see "Owner Trusts -- Tax Consequences to Note Owners -- Amortizable
Premium" above; however, Grantor Trust Certificateholders generally are not
permitted to take into account the Prepayment Assumption in computing the
amortizable bond premium deduction with respect to their Grantor Trust
Certificates (except for Grantor Trust certificates representing interests in
Collateral Certificates that constitute indebtedness for federal income tax
purposes). See "Prepayments" below.
Stripped Certificates. Certain classes of Certificates may be subject to
the stripped bond rules of Section 1286 of the Code and for purposes of this
discussion will be referred to as "Stripped Certificates". In general, a
Stripped Certificate will be subject to the stripped bond rules where there has
been a separation of ownership of the right to receive some or all of the
principal payments on a Primary Asset from ownership of the right to receive
some or all of the related interest payments. In general, where such separation
has occurred, under the stripped bond rules
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of Section 1286 of the Code the holder of a right to receive a principal or
interest payment on the bond is required to accrue into income, on a constant
yield basis under rules governing original issue discount (see "Owner Trust--Tax
Consequences to Note Owners--Original Issue Discount"), the difference between
the holder's initial purchase price for such right and the principal or interest
payment to be received with respect to such right.
Certificates will constitute Stripped Certificates and will be subject to
these rules under various circumstances, including the following: (i) if any
servicing compensation is deemed to exceed a reasonable amount (see "--Taxation
of Grantor Trust Certificateholders--General", above); (ii) if the Company or
any other party retains a retained yield with respect to the Primary Assets held
by the Trust; (iii) if two or more classes of Certificates are issued
representing the right to non-pro rata percentages of the interest or principal
payments on the Contracts; or (iv) if Certificates are issued which represent
the right to interest-only payments or principal-only payments.
The tax treatment of the Stripped Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Stripped Certificate as a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect to
a Stripped Certificate must be included in ordinary gross income for federal
income tax purposes as it accrues in accordance with the constant yield method
that takes into account the compounding of interest and such accrual of income
may be in advance of the receipt of any cash attributable to such income. See
"Owner Trust--Tax Consequences to Note Owners--Original Issue Discount" above;
however, Grantor Trust Certificateholders generally are not permitted to take
into account the Prepayment Assumption in computing original issue discount. See
"Prepayments" below. For purposes of applying the original issue discount
provisions of the Code, the issue price of a Stripped Certificate will be the
purchase price paid by each holder thereof and the stated redemption price at
maturity may include the aggregate amount of all payments to be made with
respect to the Stripped Certificate whether or not denominated as interest. The
amount of original issue discount with respect to a Stripped Certificate may be
treated as zero under the original issue discount de minimis rules described
above.
When an investor purchases more than one class of Stripped Certificates it
is currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes of
applying the original issue discount rules described above. The Trustee intends
in reporting information relating to original issue discount to Grantor Trust
Certificateholders to provide such information on an aggregate poolwide basis.
Notwithstanding the position that the Trustee intends to take, it is
possible that the Service may take a contrary position for purposes of applying
the original issue discount provisions of the Code to the Stripped Certificates.
For example, a holder of a Stripped Certificate might be treated as the owner of
(i) as many stripped coupons as there are scheduled payments of interest on each
Primary Asset, with each such stripped coupon treated as a separate debt
instrument or (ii) a separate installment obligation for each Primary Asset
representing the Stripped Certificate's pro
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rata share of principal and/or interest payments to be made with respect
thereto. As a result of these possible alternative characterizations, investors
should consult their own tax advisors regarding the proper treatment of Stripped
Certificates for federal income tax purposes.
Subordinated Certificates. In the event the Trust issues two classes of
Grantor Trust Certificates that are identical except that one class is a
subordinate class (with a relatively high Certificate Pass Through Rate) and the
other is a senior class (with a relatively low Certificate Pass Through Rate
(referred to herein as the "Subordinate Certificates" and "Senior Certificates",
respectively), the Trust will be deemed to have acquired the following assets:
(i) the principal portion of each Primary Asset plus a portion of the interest
due on each Primary Asset (the "Trust Stripped Bond"), and (ii) a portion of the
interest due on each Primary Asset equal to the difference between the
Certificate Pass Through Rate on the Subordinate Certificates and the
Certificate Pass Through Rate on the Senior Certificates, if any, which
difference is then multiplied by the Subordinate Class Percentage (the "Trust
Stripped Coupon"). The "Subordinate Class Percentage" equals the initial
aggregate principal amount of the Subordinate Certificates divided by the sum of
the initial aggregate principal amount of the Subordinate Certificates and the
Senior Certificates. The "Senior Class Percentage" equals the initial aggregate
principal amount of the Senior Certificates divided by the sum of the initial
aggregate principal amount of the Subordinate Certificates and the Senior
Certificates.
The Senior Certificateholders in the aggregate will own the Senior Class
Percentage of the Trust Stripped Bond and accordingly each Senior
Certificateholder will be treated as owning its pro rata share of such asset.
The Senior Certificateholders will not own any portion of the Trust Stripped
Coupon. The Subordinate Certificateholders in the aggregate own both the
Subordinate Class Percentage of the Trust Stripped Bond plus 100% of the Trust
Stripped Coupon, if any, and accordingly each Subordinate Certificateholder will
be treated as owning its pro rata share in both such assets. The Trust Stripped
Bond will be treated as a "stripped bond" and the Trust Stripped Coupon will be
treated as "stripped coupons" within the meaning of Section 1286 of the Code.
Because the purchase price paid by each Subordinate Certificateholder will be
allocated between that Certificateholder's interest in the Trust Stripped Bond
and the Trust Stripped Coupon based on the relative fair market value of each
asset on the date such Subordinate Certificate is purchased, the Trust Stripped
Bond may be issued with original issue discount.
Except to the extent modified below, the income of the Trust Stripped Bond
represented by a Certificate will be reported in the same manner as described
generally above for holders of Certificates. The interest income on the
Subordinate Certificates at the Senior Certificate Pass-Through Rate and the
portion of the Servicing Fee that does not constitute excess servicing will be
treated as qualified stated interest.
Income of the holder of the Trust Stripped Coupon will be reported by
treating the Trust Stripped Coupon as a single debt instrument with original
issue discount equal to the excess of the total amount payable with respect to
such Trust Stripped Coupon (based on the prepayment assumption used in pricing
the Certificates) over the portion of the purchase price allocated thereto. The
sum of the daily portions of original issue discount on the Trust Stripped
Coupon
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for each day during a year in which the Subordinate Certificateholder holds the
Trust Stripped Coupon will be included in the Subordinate Certificateholder's
income.
If the Subordinate Certificateholders receive distribution of less than
their share of the Trust's receipts of principal or interest (the "Shortfall
Amount") because of the subordination of the Subordinate Certificates, holders
of Subordinate Certificates would probably be treated for federal income tax
purposes as if they had (i) received as distributions their full share of such
receipts, (ii) paid over to the Senior Certificateholders an amount equal to
such Shortfall Amount and (iii) retained the right to reimbursement of such
amounts to the extent such amounts are otherwise available as a result of
collections on the Primary Assets or amounts available from a Reserve Account or
other form of credit enhancement, if any.
Under this analysis, (a) Subordinate Certificateholders would be required
to accrue as current income any interest income or original issue discount of
the Trust that was a component of the Shortfall Amount, even though such amount
was in fact paid to the Senior Certificateholders, (b) a loss would only be
allowed to the Subordinate Certificateholders when their right to receive
reimbursement of such Shortfall Amount became worthless (i.e., when it becomes
clear that amount will not be available from any source to reimburse such loss)
and (c) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Subordinate Certificateholders
because such amount was previously included in income. Those results should not
significantly affect the inclusion of income for Subordinate Certificateholders
on the accrual method of accounting, but could accelerate inclusion of income to
Subordinate Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method. Moreover, the character and timing of loss
deductions are unclear. Subordinate Certificateholders are strongly urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any losses sustained with respect to the Subordinate Certificates
including any loss resulting from the failure to recover previously accrued
interest or discount income.
Election to Treat All Interest as Original Issue Discount. The OID
regulations permit a Grantor Trust Certificateholder to elect to accrue all
interest, discount (including de minimis market or original issue discount) and
premium in income as interest, based on a constant yield method. If such an
election were to be made with respect to an interest in a Primary Asset with
market discount, the Certificate Owner would be deemed to have made an election
to include in income currently market discount with respect to all other debt
instruments having market discount that such Grantor Trust Certificateholder
acquires during the year of the election or thereafter. Similarly, a Grantor
Trust Certificateholder that makes this election for an interest in a Primary
Asset that is acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Grantor Trust Certificateholder owns or acquires. See
"-- Premium". The election to accrue interest, discount and premium on a
constant yield method with respect to a Grantor Trust Certificate is
irrevocable.
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Prepayments. The Tax Reform Act of 1986 (the "1986 Act") contains a
provision requiring original issue discount on certain obligations issued after
December 31, 1986 to be calculated taking into account the Prepayment Assumption
and requiring such discount to be taken into income on the basis of a constant
yield to assumed maturity taking into account of actual prepayments. The
legislative history to the 1986 Act states that similar rules apply with respect
to market discount and amortizable bond premium on such obligations. The proper
treatment of interests, such as the Grantor Trust Certificates, in debt
instruments that are subject to prepayment is unclear. Legislation has been
proposed but not yet enacted that would extend the rules contained in the 1986
Act to any pool of debt instruments the payments on which may be accelerated by
prepayments. Grantor Trust Certificateholders should consult their tax advisors
as to the proper reporting of income from such Certificates in light of the
possibility of prepayment and as to the possible application of the rules
contained in the 1996 Contingent Debt Regulations relating to contingent
principal debt instruments which might be viewed as including interest only
strips.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount realized (exclusive of
amounts attributable to accrued and unpaid interest, which will be treated as
ordinary income) allocable to the Primary Asset and the owner's adjusted basis
in the Grantor Trust Certificate. Such adjusted basis generally will equal the
Seller's cost for the Grantor Trust Certificate, increased by the original issue
discount and any market discount included in the seller's gross income with
respect to the Grantor Trust Certificate, and reduced (but not below zero) by
any premium amortized by the Seller and by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will,
except as discussed below, be capital gain or loss to an owner for which the
Primary Assets represented by a Grantor Trust Certificate are "capital assets"
within the meaning of Section 1221, except that gain will be treated in whole or
in part as ordinary interest income to the extent of the Seller's interest in
accrued market discount not previously taken into income on underlying Primary
Assets having a fixed maturity date of more than one year from the date of
origination. A capital gain or loss will be long-term or short-term depending on
whether or not the Grantor Trust Certificate has been owned for the long-term
capital gain holding period (currently more than one year).
Notwithstanding the foregoing, any gain realized on the sale or exchange of
a Grantor Trust Certificate will be ordinary income to the extent of the
seller's interest in accrued market discount on Primary Assets not previously
taken into income. See "--Market Discount", above.
Non-United States Grantor Trust Certificate Owners. Amounts paid to
Non-United States Owners of Grantor Trust Certificates will be treated as
interest for purposes of United States withholding tax. Such interest
attributable to the underlying Primary Assets will not be subject to the normal
30% (or such lower rate provided for by an applicable tax treaty) withholding
tax imposed on such amounts provided that (i) the Non-U.S. Certificate Owner
does not own, directly or indirectly, 10% or more of, and is not a controlled
foreign corporation (within the definition of Section 957) related to each of
the issuers of the Primary Assets and (ii) such Certificate Owner fulfills
certain certification requirements. Under these requirements, the Certificate
Owner must
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certify, under penalty of perjury, that it is not a "United States person" and
must provide its name and address. "United States person" means a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is includible in
gross income for United States federal income tax purposes, without regard to
its source. To the extent that the Primary Assets were originated on or before
July 18, 1984, Non-United States Owners of Grantor Trust Certificates may be
subject to withholding. If, however, interest or gain is effectively connected
to the conduct of a trade or business within the United States by such
Certificate Owner, such owner will be subject to United States federal income
tax thereon at graduated rates and, in the case of a corporation, to a possible
branch profits tax, and will not be subject to withholding tax provided that the
owner meets applicable documentation requirements. Potential investors who are
not United States persons should consult their own tax advisors regarding the
specific tax consequences of owning a Certificate.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of Non-United States Owners of Grantor Trust
Certificates. The 1996 Proposed Regulations are generally proposed to be
effective for payments after December 31, 1997, regardless of the issue date of
the Primary Assets with respect to which such payments are made, subject to
certain transition rules. For further discussion, see "Owner Trusts - Tax
Consequences to Note Owners -Taxation of Certain Foreign Note Owners" above.
Backup Withholding. Distributions made on the Grantor Trust Certificates
and proceeds from the sale of such Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Grantor Trust Certificateholder fails
to comply with certain identification procedures, unless such holder is an
exempt recipient under applicable provisions of the Code. See "Owner Trusts --
Tax Consequences to Note Owners -- Backup Withholding and Information Reporting"
above.
STATE AND LOCAL TAX CONSIDERATIONS
An investment in the Securities may have state or local income, franchise,
personal property or other tax consequences. Such consequences may depend upon,
among other things, the tax laws of the jurisdiction where the Security Owners
reside or are doing business, the characterization of the Trust (e.g., as a
trust, partnership or other entity) for state or local tax purposes, whether the
Trust is considered to be doing business in a particular jurisdiction, and the
classification of the Securities as equity or debt or as an undivided interest
in the underlying Primary Assets under the laws of a jurisdiction.
Generally, the tax treatment of the Securities for federal income tax
purposes should apply for state and local tax purposes. Thus, if the
Certificates or Notes are treated as indebtedness for federal income tax
purposes, they should likewise be treated as indebtedness for state and local
tax purposes. In such case, Certificate Owners and Note Owners not otherwise
subject to state or local tax would not become subject to such tax solely
because of their ownership of the
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Securities. However, a Security Owner already subject to tax in a state or
locality could be required to pay additional tax as a result of such holder's
ownership or disposition of Securities.
If some or all of the Securities are treated as equity interest in a
partnership (not treated as a publicly traded partnership taxable as a
corporation) for federal income tax purposes, such Securities generally should
be treated as partnership interests for state and local income tax purposes. In
such case, the partnership should be viewed as a passive holder of investments
and, as a result, should not be subject to state or local taxation and the
Security Owners should not be subject of taxation on income received through the
partnership unless they are already subject to tax in such jurisdiction.
However, if the state or local jurisdiction viewed such partnership as doing
business in such jurisdiction, Security Owners would normally be subject to
taxation in such jurisdiction on their allocable share of the partnership's
income even though they otherwise had no contact with such jurisdiction.
Furthermore, depending on the specific allocation and apportionment formula, if
any, use by such jurisdiction, it is possible that Security Owners in such case
may be subject to tax in such jurisdiction on their income from other sources.
Additionally, notwithstanding the flow-through treatment that generally applies
to partnerships, some states and localities impose an entity level tax on
partnerships and trusts doing business within their jurisdiction.
The foregoing discussion presents some of the state and local tax
consequences that might apply to Security Owners. However, because of the
variation in each state's and locality's tax laws based in whole or in part upon
income, it is impossible to predict tax consequences to Note Owners and
Certificate Owners all of the taxing jurisdictions in which they are already
subject to tax. Accordingly, Security Owners are strongly urged to consult their
own tax advisors with respect to state and local tax consequences arising out of
the purchase, ownership and disposition of Securities.
***
THE FEDERAL AND STATE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S
OR CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS OF NOTES
OR CERTIFICATES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND
CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL 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
Set forth below are certain consequences under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Code that a fiduciary
(a "Plan Fiduciary") of an "employee benefit plan" (as defined in and subject to
ERISA) or of a "plan" (as defined in Section 4975 of the Code) who has
investment discretion should consider before deciding to invest the plan's
assets in Securities. The following summary is intended to be a summary of
certain relevant ERISA issues and does not purport to address all ERISA
considerations that may be applicable to a particular plan.
In general, the terms "employee benefit plan" as defined in ERISA and
"plan" as defined in Section 4975 of the Code (a "Plan") refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an employer's employees and their beneficiaries. Plans
include corporate pension and profit-sharing plans, "simplified employee pension
plans", Keogh plans for self-employed individuals (including partners in a
partnership), individual retirement accounts described in Section 408 of the
Code and medical benefit plans.
Each Plan Fiduciary must give appropriate consideration to the facts and
circumstances that are relevant to an investment in the Securities plays in the
Plan's investment portfolio. Each Plan Fiduciary before deciding to invest in
the Securities, must be satisfied that investment in the Securities is a prudent
investment for the Plan, that the investments of the Plan, including the
investment in the Securities, are diversified so as to minimize the risks of
large losses and that an investment in the Securities complies with the Plan and
related trust documents.
Each Plan considering acquiring a Security should consult its own legal and
tax advisors before doing so.
Exempt Plans
ERISA and Section 4975 of the code do not apply to governmental plans and
certain church plans, each as defined in Section 3 of ERISA and Section 4975(g)
of the Code. However, fiduciaries with respect to these plans may be subject to
federal, state or other laws similar in effect to ERISA and Section 4975 of the
code. The discussion below does not purport to address considerations under such
federal, state or other laws.
Ineligible Purchasers
Securities may not be purchased with the assets of a Plan that is sponsored
by or maintained by the Company, the Trustee, the Indenture Trustee, the Trust,
the Servicer or any of their respective affiliates. Securities may not be
purchased with the assets of a Plan if the Company, the Trustee, the Indenture
Trustee, the Trust, the Servicer or any of their respective affiliates or any
employees thereof: (i) has investment discretion with respect to the investment
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of such Plan assets; or (ii) has authority or responsibility to give or
regularly gives investment advice with respect to such Plan assets for a fee,
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such Plan assets and that
such advice will be based on the particular investment needs of the Plan. A
party that is described in clause (i) or (ii) of the preceding sentence is a
fiduciary under ERISA and the Code with respect to the Plan, and any such
purchase might result in a "prohibited transaction" under ERISA and the Code.
Plan Assets
It is possible that the purchase of a Security by a Plan will cause, for
purposes of Title I of ERISA and Section 4975 of the Code, the related assets of
a Trust to be treated as assets of that Plan. A regulation (the "DOL
Regulation") issued under ERISA by the United States Department of Labor (the
"DOL") contains rules for determining when an investment by a Plan in an entity
will result in the underlying assets of the entity being plan assets. The rules
provide that the assets of an entity will not be "plan assets" of a Plan that
purchases an interest therein if such interest is not an "equity interest". The
DOL Regulation defines an equity interest as an interest other than an
instrument that is treated as indebtedness under applicable local law and that
has no substantial equity features. The DOL Regulation provides with respect to
the purchase of an equity interest by a Plan, that the assets of an entity will
not be plan assets of a Plan that purchases an interest therein if certain
exceptions apply including the following: (i) the investment by all "benefit
plan investors" is not "significant"; or (ii) the security issued by the entity
is a "publicly offered security". The Prospectus Supplement will specify whether
any of the exceptions set forth in the regulation under ERISA may apply with
respect to a Series of Securities.
With respect to clause (i) of the preceding paragraph, the term "benefit
plan investors" includes all plans and accounts of the types described above
under "General" as employee benefit plans and accounts, whether or not subject
to ERISA, as well as entities that hold "plan assets" due to investments made in
such entities by any of such plans or accounts. Investments by benefit plan
investors will be deemed not significant if benefit plan investors own, in the
aggregate, less than a 25% interest in the entity, determined without regard to
the investments of persons with discretionary authority or control over the
assets of such entity, of any person who provides investment advice for a fee
with respect to such assets and of "affiliates" of such persons (within the
meaning of the DOL Regulation). Because the availability of this exception to
any Trust depends upon the identity of the Certificateholders of the applicable
Series at any time, there can be no assurance that any Series or class of
Certificates will qualify for this exception.
With respect to clause (ii) of the second preceding paragraph, a publicly
offered security is one which is (a) "freely transferable," (b) part of a class
of securities that is "widely held" and (c) either (1) part of a class of
securities registered under Section 12(b) or 12(g) of the Exchange Act, or (2)
sold to the Plan as part of a public offering pursuant to an effective
registration statement under the securities Act and registered under the
Exchange Act within 120 days (or such later time as may be allowed by the
Securities and Exchange Commission) after the end of the fiscal year of the
issuer in which the offering of such security occurred. Whether a security is
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"freely transferable" is based on all relevant facts and circumstances. A class
of securities is "widely held" only if it is of a class of securities owned by
100 or more investors independent of the issuer and of each other.
If none of the exceptions set forth in the DOL Regulation apply, the assets
of a Trust will be deemed to be the assets of each Plan investor for the
purposes of ERISA and Section 4975 of the Code. In such a case, the discussion
set forth in the following sections will apply.
Consequences of Characterization as Plan Assets
If the assets of a Trust are plan assets, the Trustee will be a fiduciary
under ERISA with respect to Plan investors and its duties and liabilities will
be subject to the provisions of ERISA.
In addition, Section 406 of ERISA will prohibit the Trustee, among others,
from causing the assets of the Trust to be involved, directly or indirectly, in
certain types of transactions with "parties in interest" to investing Plans
unless statutory or administrative exemption applies. If the prohibited
transaction restrictions of Section 406 of ERISA are violated, ERISA generally
provides for criminal and civil penalties upon the Plan Fiduciary and possibly
other persons. Section 4975(c) of the Code generally imposes excise tax on
"disqualified persons" who engage, directly or indirectly, in similar types of
transactions with the assets of Plans subject to such Section (except that an
IRA that engages in a prohibited transaction may instead forfeit its tax exempt
status) and also requires recession of such transaction.
If the Trust assets are plan assets, Section 406 of ERISA will prohibit the
Trustee, among others, from causing the assets of the Trust to be involved,
directly or indirectly, in certain types of transactions with "parties in
interest" to investing Plans unless a statutory or administrative exemption
applies. If the prohibited transaction restrictions of Section 406 of ERISA are
violated, ERISA generally provides for criminal and civil penalties upon the
Plan Fiduciary and possibly other persons. Section 4975(c) of the Code generally
imposes an excise tax on "disqualified persons" who engage, directly or
indirectly, in similar types of transactions with the assets of Plans subject to
such Section (except that an IRA that engages in a prohibited transaction may
instead forfeit its tax-exempt status) and also requires recision of such
transaction.
The types of transactions subject to the prohibited transaction
restrictions of ERISA and Section 4975(c) of the Code include: (i) sales,
exchanges or leases of property (such as the Securities), (ii) loans or other
extensions of credit and (iii) the furnishing of goods and services. As
described in Section 406(b)(1) or Section 4975(c)(1)(E) of the Code, the use of
plan assets by or for the benefit of parties in interest or disqualified persons
may also constitute a prohibited transaction.
The Company, the Trustee, the Indenture Trustee, the Trust, the Servicer
and certain other persons and certain affiliates thereof, might be considered or
might become a party in interest or disqualified person with respect to a Plan.
If so, the acquisition, holding or disposition of Securities by or on behalf of
such Plan could give rise to one or more "prohibited transactions"
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within the meaning of Section 406 ERISA and Section 4975(c) of the Code unless
an exemption described below or some other exemption is available. In
particular, the sale of a Security by the Underwriters or the services provided
by the Trustee to such Plan would appear in certain circumstances to be a
prohibited transaction unless an exemption applies.
Prohibited Transaction Exemption for Senior Certificates Issued by Grantor
Trusts
The following discussion applies only to nonsubordinated Certificates
(referred to herein as "Senior Certificates") issued by a Grantor Trust.
The U.S. Department of Labor has granted to the underwriter (or in the case
of series offered by more than one underwriter, the lead underwriter) named in
each Prospectus Supplement an exemption (the "Exemption") from certain of the
prohibited transaction rules of ERISA with respect to the initial purchase, the
holding and the subsequent resale by Plans of certificates representing
interests in asset-backed pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The receivables covered by the Exemption include
motor vehicle installment sales contracts such as the Receivables. The Exemption
will apply to the acquisition, holding and resale of the Senior Certificates by
a Plan, provided that certain conditions (certain of which are described below)
are met.
Among the conditions that must be satisfied for the Exemption to apply to
the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior 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 Senior certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(3) The Senior Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poor's Ratings Group,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch
Investors Services, L.P.;
(4) The related Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to the underwriters in connection
with the distribution or placement of the Senior Certificates represents
not more than reasonable compensation for underwriting or placing the
Senior Certificates; the sum of all payments made to and retained by the
Seller pursuant to the sale of the Contracts to the related Trust
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represents not more than the fair market value of such Contracts; and the
sum of all payments made to and retained by the Servicer represents not
more than reasonable compensation for the Servicer's services under the
related Pooling and Servicing Agreement and reimbursement of the Servicer's
reasonable expenses in connections therewith; and
(6) The Plan investing in the Senior Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act.
Moreover, the Exemption would provide relief from certain self-dealing or
conflict of interest prohibited transactions applicable to a Plan whose Plan
Fiduciary is an obligor with respect to more than five percent of the fair
market value of the Contracts, or an affiliate of such person, if, among other
requirements, (i) in the case of the acquisition of Senior Certificates in
connection with the initial issuance, at least fifty percent of each class of
Senior Certificates in which Plans have invested are acquired by persons
independent of the Restricted Group (as defined below) and at least fifty
percent of the aggregate interest in the Trust is acquired by persons
independent of the Restricted Group (as defined below), (ii) the Plan's
investment in any class of Senior Certificates does not exceed twenty-five
percent of that class of Senior Certificates outstanding at the time of the
acquisition and (ii) immediately after the acquisition, no more than twenty-five
percent of the assets of the benefit Plan with respect to which the investing
fiduciary has discretionary authority or renders investment advice are invested
in certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by any underwriter, the related Trustee, the related Seller, the
related Servicer, any obligor with respect to Contracts included in the related
Trust constituting more than five percent of the aggregate unamortized principal
balance of the assets in the Trust, or any affiliate of such parties (the
"Restricted Group").
Whether the conditions in the Exemption will be satisfied as to
Certificates or any particular class will depend upon the relevant facts and
circumstances existing at the time the Plan acquires Certificates of that class.
Any Plan Fiduciary who proposes to acquire Certificates on behalf of a Plan in
reliance upon the Exemption should determine whether the Plan satisfies all of
the applicable conditions of the Exemption and consult with its counsel
regarding other factors that may affect the applicability of the Exemption.
If for any reason the Exemption does not provide an exemption for a
particular Plan, one of three prohibited transaction class exemptions ("PTCE")
issued by the DOL might apply, i.e., PTCE 91-38 (Class Exemption for Certain
Transactions Involving Bank Collective Investment Funds), PTCE 90-1 (Class
Exemption for Certain Transactions Involving Insurance Company Pooled Separate
Accounts) or PTCE 84-14 (Class Exemption for Plan Asset Transactions Determined
by Independent Qualified Professional Asset Managers). There can be no assurance
that any of these class exemptions will apply with respect to any particular
Plan or, even if it were to apply, that the exemption would apply to all
transactions involving the applicable Trust.
-83-
<PAGE>
Purchase of Notes
If Notes are treated as indebtedness under applicable local law and have no
substantial equity features, the assets of the relevant Trust will not be
treated for purposes of ERISA or Section 4975 of the Code as assets of any Plan.
As a result, the prohibited transactions provisions of ERISA and Section 4975 of
the Code will not apply to transactions involving the underlying assets of the
Trust. However, as is the case with Certificates, if the Trust is or becomes a
"party in interest" or "disqualified person" with respect to a Plan (for
example, if such Trust were owned at least 50% by a service provider to a Plan),
the purchase or holding of such Note could give rise to a prohibited transaction
under ERISA or Section 4975 of the Code.
General Considerations
Before a Plan Fiduciary decides to purchase Certificates on behalf of a
Plan, the Plan Fiduciary should determine whether the Exemption is applicable,
whether any other prohibited transaction exemption (if required) is available
under ERISA and Section 4975 of the Code or whether an exemption from "plan
asset" treatment is available to the applicable Trust. The Plan Fiduciary should
also consult the ERISA discussion in the applicable Prospectus Supplement for
further information regarding the application of ERISA to any class of
Certificates.
Subordinated Certificates are not available for purchase by any Plan.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESENTATION BY THE COMPANY, THE SERVICER, THE TRUSTEE OR ANY OTHER PARTY THAT
THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO
INVESTMENTS BY ANY PARTICULAR PLAN OR THAT SUCH INVESTMENT IS APPROPRIATE FOR
ANY PARTICULAR PLAN. EACH PLAN FIDUCIARY SHOULD CONSULT WITH ITS ATTORNEYS AND
FINANCIAL ADVISORS AS TO THE PROPRIETY OF SUCH AN INVESTMENT IN LIGHT OF THE
CIRCUMSTANCES OF THE PARTICULAR PLAN AND THE RESTRICTIONS OF ERISA AND SECTION
4975 OF THE CODE.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes, if any, of a given Series and an underwriting agreement
with respect to the Certificates of such Series (collectively, the "Underwriting
Agreements"), the Company will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase, the principal amount of each
class of Notes and Certificates, as the case may be, of the related Series set
forth therein and in the related Prospectus Supplement.
-84-
<PAGE>
In the Underwriting Agreements with respect to any given Series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all of the Notes and Certificates, as
the case may be, described therein that are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates, as the
case may be, or (ii) specify that the related Notes and Certificates, as the
case may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of such sale. After the initial
public offering of any such Notes and Certificates, as the case may be, such
public offering prices and such concessions may be changed.
Each Underwriting Agreement will provide that the related Seller will
indemnify the related underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts
in Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
Series of Securities, the closing of the sale of any class of Securities will be
conditioned on the closing of the sale of all other such classes under such
Underwriting Agreement.
The place and time of delivery for the Notes and Certificates, as the case
may be, in respect of which this Prospectus is delivered will be set forth in
the related Prospectus Supplement.
If and to the extent required by applicable law or regulation, this
Prospectus and the Prospectus Supplement will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the offered Securities in which the Underwriter
acts as principal. The Underwriter may also act as agent in such transactions.
Sales will be made at negotiated prices determined at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the Securities of any Series will be
passed upon by Sidley & Austin, New York, New York. Certain federal income tax
and other matters will be passed upon for each Trust by Sidley & Austin and
certain state tax and other matters will be passed upon for each Trust by Sidley
& Austin or counsel for the related Servicer.
-85-
<PAGE>
===============================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or CS First Boston. This Prospectus Supplement and the Prospectus do not
constitute an offer of any securities other than those to which they relate or
an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
-----------------------------
<TABLE>
TABLE OF CONTENTS
Page
Prospectus Supplement
<CAPTION>
Prospectus
<S> <C>
Prospectus Supplement.........................................................2
Reports to Securityholders....................................................2
Available Information.........................................................2
Incorporation of Certain Documents by Reference...............................2
Summary of Terms..............................................................4
Rick Factors.................................................................14
The Trusts...................................................................17
The Receivables Pools........................................................19
The Collateral Certificates..................................................21
Weighted Average Life of the Securities......................................23
Pool Factors and Trading Information.........................................24
The Seller and the Servicer..................................................25
Use of Proceeds..............................................................25
Description of the Notes.....................................................25
Description of the Certificates..............................................31
Certain Information Regarding the Securities.................................32
Description of the Transfer and Servicing Agreements.........................36
Certain Legal Aspects of the Receivables.....................................48
Certain Federal Income Tax Consequences......................................53
State and Local Tax Considerations...........................................77
ERISA Considerations.........................................................79
Plan of Distribution.........................................................85
Legal Matters................................................................86
</TABLE>
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the securities described in this Prospectus
Supplement, whether or not participating in this distribution, may be required
to deliver this Prospectus Supplement and the Prospectus. This is in addition to
the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
- --------------------------------------------
===============================================================================
$[ ]
CS FIRST BOSTON
AUTO RECEIVABLES
AND RECEIVABLES
SECURITIES TRUSTS
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[ ] [ ]% [Floating Rate]
Asset Backed Certificates, Class [ ]
ASSET BACKED SECURITIES CORPORATION
(COMPANY)
===========================
PROSPECTUS
[ ], 199[ ]
[LOGO] CS First Boston
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ______ __, 1996
P R O S P E C T U S
Asset Backed Securities Corporation
Depositor
Conduit Mortgage and Manufactured Housing Contract
Pass-Through Certificates
(Issuable in Series)
--------------------
The Conduit Mortgage and Manufactured Housing Contract Pass-Through
Certificates (the "Certificates") offered hereby and by the related Prospectus
Supplements will be offered from time to time in series (each, a "Series") in
one or more separate classes (each, a "Class"), which may be divided into one or
more subclasses(each, a "Subclass"), that represent interests in specified
percentages of principal and interest (a "Percentage Interest") with respect to
the related Mortgage Pool or the Contract Pool (each, as defined below), or that
have been assigned a Stated Principal Balance and an Interest Rate (as such
terms are defined herein), as more fully set forth herein, and will evidence the
undivided interest or beneficial interest specified in the related Prospectus
Supplement in one of a number of trusts, each to be created by Asset Backed
Securities Corporation (the "Depositor") from time to time. The trust property
of each trust (the "Trust Fund") will consist of (a) a pool (the "Mortgage
Pool") containing (i) conventional one- to four-family residential mortgage
loans, (ii) mortgage loans secured by multifamily residential rental properties
consisting of five or more dwelling units or apartment buildings owned by
cooperative housing corporations, (iii) loans made to finance the purchase of
certain rights relating to cooperatively owned
(Continued on next page)
The Certificates do not represent an obligation of or interest in the
Depositor or any affiliate thereof. Neither the Certificates, the Mortgage
Loans, the Contracts nor the Mortgage Certificates are insured or guaranteed by
any governmental agency or instrumentality, except to the extent provided
herein.
See "Risk Factors" beginning on page 14 herein for a discussion of certain
factors that potential investors should consider in determining whether to
invest in the Certificates of a Series in respect of which this Prospectus is
being delivered.
Prospective investors should consider the limitations discussed under
"ERISA Considerations" herein.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters, which may include CS First
Boston Corporation, an affiliate of the Depositor, as more fully described under
"Plan of Distribution" and in the related Prospectus Supplement. Certain
offerings of the Certificates, as specified in the related Prospectus
Supplement, may be made in one or more transactions exempt from the registration
requirements of the Securities Act of 1933, as amended. Such offerings are not
being made pursuant to the Registration Statement of which this Prospectus forms
a part.
There will have been no public market for the Certificates of any Series
prior to the offering thereof. No assurance can be given that such a market will
develop as a result of such offering or, if it does develop, that it will
continue.
The Depositor, as specified in the applicable Prospectus Supplement, may
elect to treat the Trust Fund with respect to certain Series of Certificates as
one or more Real Estate Mortgage Investment Conduits (each, a "REMIC"). See
"Certain Federal Income Tax Consequences".
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Certificates of such Series may be subject to early
termination and may receive Special Distributions (as defined herein) in
reduction of the Stated Principal Balance (as defined herein) under the
circumstances described herein and in such Prospectus Supplement.
This Prospectus may not be used to consummate sales of the Certificates
offered hereby unless accompanied by a Prospectus Supplement.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
CS First Boston
The date of this Prospectus is , 1996.
<PAGE>
(Continued from prior page)
properties secured by a pledge of shares of a cooperative corporation and an
assignment of a proprietary lease or occupancy agreement on a cooperative
dwelling, (iv) mortgage participation certificates evidencing participation
interests in such loans that are acceptable to the nationally recognized
statistical rating agency or agencies rating the related Series of Certificates
(collectively, the "Rating Agency") for a rating in one of the four highest
rating categories of such Rating Agency (such loans and participation
certificates being referred to collectively hereinafter as the "Mortgage
Loans"), or (v) certain conventional mortgage pass-through certificates (the
"Mortgage Certificates") and related property or (b) a pool (the "Contract
Pool") of manufactured housing conditional sales contracts and installment loan
agreements (the "Contracts") or participation certificates representing
participation interests in such Contracts and related property conveyed to such
trust by the Depositor. The Mortgage Loans may be conventional mortgage loans,
conventional cooperative loans, mortgage loans insured by the Federal Housing
Administration (the "FHA"), or mortgage loans partially guaranteed by the
Veterans Administration (the "VA"), or any combination of the foregoing, bearing
fixed or variable rates of interest. The Contracts may be conventional
contracts, contracts insured by the FHA or partially guaranteed by the VA, or
any combination of the foregoing, bearing fixed or variable rates of interest,
as specified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, the rights of the holders of the Certificates of
one or more Classes or Subclasses of a Series to receive distributions with
respect to the related Mortgage Pool or Contract Pool may be subordinated to
such rights of the holders of the Certificates of one or more Classes or
Subclasses of such Series to the extent described herein and in such Prospectus
Supplement. As provided in the applicable Prospectus Supplement, the timing of
payments, whether of principal or of interest, to any one or more of such
Classes or Subclasses may be on a sequential or a pro rata basis, or a
combination thereof. The Prospectus Supplement with respect to each Series will
also set forth specific information relating to the Trust Fund with respect to
the Series in respect of which the Prospectus is being delivered, together with
specific information regarding the Certificates of such Series.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Certificates will,
among other things, set forth with respect to such Series of Certificates: (i)
the identity of each Class or Subclass within such Series; (ii) the undivided
interest, Percentage Interest, Stated Principal Balance or notional amount of
each Class or Subclass of Certificates; (iii) the Pass-Through Rate, Interest
Rate or Annual Rate borne by each Class or Subclass within such Series; (iv)
certain information concerning the Mortgage Loans, the Mortgage Certificates,
the Contracts, if any, and the other assets comprising the Trust Fund for such
Series; (v) the final Distribution Date of each Class or Subclass of
Certificates within such Series; (vi) the identity of each Class or Subclass of
Compound Interest Certificates, if any, within such Series; (vii) the method
used to calculate the amount to be distributed with respect to each Class or
Subclass of Certificates; (viii) the order of application of distributions to
each of the Classes or Subclasses within such Series, whether sequential, pro
rata, or otherwise; (ix) the Distribution Dates with respect to such Series; (x)
information with respect to the terms of the Residual Certificates or
Subordinated Certificates offered hereby, if any, are offered; (xi) information
with respect to the method of credit support, if any, with respect to such
Series; and (xii) additional information with respect to the plan of
distribution of such Series of Certificates.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of the material terms of the documents
referred to herein and therein, but neither contains nor will contain all of the
information set forth in the Registration Statement of which this Prospectus and
the related Prospectus Supplement is a part. For further information, reference
is made to such Registration Statement and the exhibits thereto which the
Depositor has filed with the Securities and Exchange Commission (the
"Commission"), under the Securities Act of 1933, as amended (the "Securities
Act"). Statements contained in this Prospectus and any Prospectus Supplement as
to the contents of any contract or other document referred to are summaries of
the material provisions of each such contract or other document and in each
instance reference is made to the copy of the contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. Copies of the Registration Statement may be
obtained
2
<PAGE>
from the Commission, upon payment of the prescribed charges, or may be examined
free of charge at the Commission's offices. Reports and other information filed
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Regional Offices of the Commission at
Seven World Trade Center, Suite 1300, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of such site is
(http://www.sec.gov). Copies of the Pooling and Servicing Agreement pursuant to
which a Series of Certificates is issued will be provided to each person to whom
a Prospectus and the related Prospectus Supplement are delivered, upon written
or oral request directed to: Secretary, Asset Backed Securities Corporation,
Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055,
(212) 909-2000.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter or a request by such
investor's representative within the period during which there is an obligation
to deliver a Prospectus Supplement and Prospectus, the Underwriter will promptly
deliver, or cause to be delivered, without charge, to such investor a paper copy
of the Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports filed
or caused to be filed by the Depositor with respect to a Trust Fund pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), prior to the termination of the offering of
Certificates offered hereby. The Depositor will provide or cause to be provided
without charge to each person to whom this Prospectus is delivered in connection
with the offering of one or more Classes of Certificates, upon request, a copy
of any or all such documents or reports incorporated herein by reference, in
each case to the extent such documents or reports relate to one or more of such
Classes of such Certificates, other than the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests to the Depositor should be directed to: Secretary, Asset Backed
Securities Corporation, Park Avenue Plaza, 55 East 52nd Street, New York, New
York 10055, telephone number (212) 909-2000.
3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus, and by reference to the
information with respect to each Series of Certificates contained in the related
Prospectus Supplement. Certain capitalized terms used and not otherwise defined
herein shall have the meanings given elsewhere in this Prospectus.
Securities Offered................. Conduit Mortgage and Manufactured Housing
Contract Pass-Through Certificates (the
"Certificates"), issuable in series
(each, a "Series"). The Certificates may
be issued in one or more classes (each, a
"Class") and such Classes may be divided
into one or more subclasses (each, a
"Subclass"). One or more of such Classes
or Subclasses of a Series may be
subordinated to one or more Classes or
Subclasses of such Series, as specified
in the related Prospectus Supplement (any
such Class or Subclass to which another
Class or Subclass is subordinated being
hereinafter referred to as a "Senior
Class" or a "Senior Subclass",
respectively, and any such subordinated
Class or Subclass being hereinafter
referred to as a "Subordinated Class" or
"Subordinated Subclass", respectively).
One or more of such Classes or Subclasses
of Certificates of a Series (the
"Residual Certificates") may evidence a
residual interest in the related REMIC.
If so specified in the related Prospectus
Supplement, one or more Classes or
Subclasses of Certificates within a
Series (the "Multi-Class Certificates")
may be assigned a principal balance (a
"Stated Principal Balance" or a
"Certificate Principal Balance") based on
the cash flow from the Mortgage Loans (as
hereinafter defined), Mortgage
Certificates (as hereinafter defined),
the Contracts (as hereinafter defined)
and/or the other assets in the Trust Fund
(as defined below) if specified as such
in the related Prospectus Supplement and
a stated annual interest rate, determined
in the manner set forth in such
Prospectus Supplement, which may be fixed
or variable (an "Interest Rate"). If so
specified in the related Prospectus
Supplement, one or more such Classes or
Subclasses may receive unequal amounts of
the distributions of principal and
interest on the Mortgage Loans, the
Contracts and the Mortgage Certificates
included in the related Trust Fund, as
specified in such Prospectus Supplement
(any such Class or Subclass receiving the
higher proportion of principal
distributions being referred to
hereinafter as a "Principal Weighted
Class" or "Principal Weighted Subclass",
respectively, and any such Class or
Subclass receiving the higher proportion
of interest distributions being referred
to hereinafter as an "Interest Weighted
Class" or an "Interest Weighted
Subclass", respectively). If so specified
in the related Prospectus Supplement, the
allocation of the principal and interest
distributions may involve as much as 100%
of each distribution of principal or
interest being allocated to one or more
Classes or Subclasses and 0% to another.
If so specified in the related Prospectus
Supplement, one or more Classes or
Subclasses may receive disproportionate
amounts of certain distributions of
principal, which proportions may change
over time subject to certain conditions.
Payments may be applied to any one or
more Class or Subclass on a sequential,
pro rata basis or other basis, as
specified in the related Prospectus
Supplement. Each Certificate will
represent the undivided interest,
beneficial interest or percentage
interest specified in the related
Prospectus Supplement in one of a number
of trusts to be created by the Depositor
from time to time. The trust property of
each trust (the "Trust Fund") will
consist of (a) one or more mortgage pools
(each, a "Mortgage Pool") containing (i)
conventional one- to four-family
residential
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
mortgage loans, (ii) loans (the
"Cooperative Loans") made to finance the
purchase of certain rights relating to
cooperatively owned properties secured by
the pledge of shares issued by a
cooperative corporation (the
"Cooperative") and the assignment of a
proprietary lease or occupancy agreement
providing the exclusive right to occupy a
particular dwelling unit (a "Cooperative
Dwelling" and, together with one- to
four-family residential properties, each,
a "Single Family Property"), (iii)
mortgage loans secured by multifamily
residential rental properties consisting
of five or more dwelling units or
apartment buildings owned by cooperative
housing corporations ("Multifamily
Property"), purchased by the Depositor
either directly or through one or more
affiliates from an affiliate or from
unaffiliated sellers, (iv) mortgage
participation certificates evidencing
participation interests in such loans
that are acceptable to the nationally
recognized rating agency or agencies
identified in the related Prospectus
Supplement (collectively, the "Rating
Agency") rating the Certificates of such
Series for a rating in one of the four
highest rating categories of such Rating
Agency (such loans and participation
certificates referred to in clauses (i)
through (iii) and mortgage participation
certificates being referred to
collectively hereinafter as the "Mortgage
Loans"), or (v) certain conventional
mortgage pass-through certificates (the
"Mortgage Certificates") issued by one or
more trusts established by one or more
private entities or (b) one or more
contract pools (each, a "Contract Pool")
containing manufactured housing
conditional sales contracts and
installment loan agreements (the
"Contracts") or participation
certificates representing participation
interests in such Contracts (such
Contracts, together with the Mortgage
Loans and the Mortgage Certificates,
being referred to collectively
hereinafter as the "Trust Assets")
purchased by the Depositor either
directly or through one or more
affiliates from one or more affiliates or
from Unaffiliated Sellers, and related
property conveyed to such trust by the
Depositor.
Each Series of Certificates will be offered
in book-entry form (or, if specified in
the applicable Prospectus Supplement,
fully registered, certificated form), in
one or more Classes, which may be divided
into one or more Subclasses evidencing
the right to receive a share of principal
payments and the percentages of interest
payments on the underlying Mortgage
Loans, Mortgage Certificates or Contracts
at the Pass-Through Rate for the related
Mortgage Pool or Contract Pool. If so
specified in the Prospectus Supplement,
Multi-Class Certificates of a Series may
be issued with the Stated Principal
Balances and the Interest Rates therein
specified. At the time of issuance, each
Certificate offered by means of this
Prospectus and the related Prospectus
Supplements will be rated in one of the
four highest rating categories by at
least one Rating Agency. The minimum
undivided interest, percentage interest
or beneficial interest in a Mortgage Pool
or Contract Pool, the minimum notional
amount to be evidenced by a Certificate
of a Class or Subclass, or the minimum
denomination in which a Certificate of a
Class or Subclass is to be issued will be
set forth in the related Prospectus
Supplement.
Depositor.......................... Asset Backed Securities Corporation, a
Delaware corporation.
Master Servicer.................... The entity, if any, named as Master
Servicer in the applicable Prospectus
Supplement, which may be an affiliate of
the Depositor. See "Description of the
Certificates".
Interest........................... Interest will be distributed on the days
specified in the Prospectus Supplement
with respect to a Series, or if any such
day is not a business day, the next
succeeding business day (each, a
"Distribution Date"), at the rate, or
pursuant to the method of
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
determining such rate, specified in the
applicable Prospectus Supplement for each
Class or Subclass within such Series,
commencing on the day specified in such
Prospectus Supplement, in the manner
specified in such Prospectus Supplement.
See "Yield Considerations" and
"Description of the Certificates-Payments
on Mortgage Loans" and "-Payments on
Contracts".
Principal (including
Prepayments)....................... Principal on each Trust Asset underlying a
Series of Certificates will be
distributed on each Distribution Date (or
such other date or dates as may be
specified in the applicable Prospectus
Supplement), commencing on the date
specified in the applicable Prospectus
Supplement in the priority and manner
specified in such Prospectus Supplement.
If so specified in the Prospectus
Supplement with respect to a Series that
includes Multi-Class Certificates,
distributions on such Multi-Class
Certificates may be made in reduction of
the Stated Principal Balance, in an
amount equal to the Stated Principal
Distribution Amount.
The Stated Principal Distribution Amount
will equal the amount by which the Stated
Principal Balance of such Multi-Class
Certificates (before taking into account
the amount of interest accrued and added
to the Stated Principal Balance of any
Class of Compound Interest Certificates)
exceeds the Asset Value (as defined
herein) of the Trust Assets and other
property in the related Trust Fund as of
the Business Day prior to the related
Distribution Date (or such other amount
as may be specified, or determined by
such method as may be specified, in the
applicable Prospectus Supplement). See
"Maturity and Prepayment Considerations"
and "Description of the
Certificates-Payments on Mortgage Loans"
and "-Payments on Contracts". If so
specified in the Prospectus Supplement
relating to a Series, the Multi-Class
Certificates of such Series which have
other than monthly Distribution Dates may
receive special distributions in
reduction of the Stated Principal Balance
("Special Distributions") in any month,
other than a month in which a
Distribution Date occurs, if, as a result
of principal prepayments on the Trust
Assets included in the related Trust Fund
and/or low reinvestment yields, the
Trustee determines, based on assumptions
specified in the related Pooling and
Servicing Agreement, that the amount of
cash anticipated to be on deposit in the
Certificate Account for such Series on
the next Distribution Date may be less
than the sum of the interest
distributions and the amount of
distributions in reduction of Stated
Principal Balance to be made on such
Distribution Date. Special Distributions
will be made on such Certificates in the
same priority and manner as distributions
in reduction of the Stated Principal
Balance would be made on the next
Distribution Date for such Certificates
(or, if so specified in the applicable
Prospectus Supplement, a different
priority or manner). See "Description of
the Certificates-Special Distributions".
The Mortgage Pools................. If so specified in the applicable
Prospectus Supplement, the Certificates
of a Series will represent the interest
specified in such Prospectus Supplement
in the Mortgage Pool or Pools included in
the Trust Fund for such Series. The
original principal amount of each
Mortgage Loan in a Mortgage Pool will not
be more than 95% (such ratio, the
"Loan-to-Value Ratio") of the value of
the property (the "Mortgaged Property")
securing such Mortgage Loan (or such
other Loan-to-Value Ratio as may be
specified in the applicable Prospectus
Supplement), based upon an appraisal of
the Mortgaged Property completed in
connection with the origination of such
Mortgage Loan and considered acceptable
to the originator of such Mortgage Loan
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6
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or the sales price of such Mortgaged
Property, whichever is less (the
"Original Value"). If specified in the
applicable Prospectus Supplement,
Mortgage Loans secured by Single Family
Property having an original principal
amount exceeding 80% of the Original
Value (or such other percentage as may be
specified in the applicable Prospectus
Supplement) will be covered by a policy
of private mortgage insurance until the
outstanding principal amount is reduced
to the percentage of the Original Value
set forth in the applicable Prospectus
Supplement as a result of principal
payments by the borrower (the
"Mortgagor").
The principal balance at origination of
each Mortgage Loan that is secured by
Single Family Property will not exceed
$500,000 (or such other amount as may be
specified in the applicable Prospectus
Supplement). The Mortgage Loans in a
Mortgage Pool will have original
maturities ranging from 10 to 40 years
(or such other original maturities as may
be specified in the applicable Prospectus
Supplement). Mortgage Pools may be formed
from time to time in varying sizes.
Fixed Pass-through Rate
Mortgage Pools..................... With respect to each Mortgage Pool included
in the Trust Fund with respect to a
Series bearing a fixed Pass-Through Rate,
the Depositor will be obligated to
deliver Mortgage Loans that (i) have
interest rates (the "Mortgage Rates")
that will exceed by at least 3/8 of 1%
(or such other percentage as may be
specified in the applicable Prospectus
Supplement) the interest rate (the
"Pass-Through Rate") for such Series,
(ii) conform to the eligibility
requirements for such Series set forth in
the applicable Prospectus Supplement, and
(iii) have an aggregate principal balance
equal to the amount specified in such
Prospectus Supplement, subject to a
permitted variance of up to 10%.
Variable Pass-Through Rate
Mortgage Pools..................... If so specified in the applicable
Prospectus Supplement, the Depositor may
establish one or more Mortgage Pools,
each of which will have a variable as
opposed to a fixed Pass-Through Rate. The
variable Pass-Through Rate will equal the
weighted average of the Mortgage Rates of
all of the Mortgage Loans in the Mortgage
Pool minus the fixed percentage servicing
fee for each Mortgage Loan set forth in
the applicable Prospectus Supplement or
in a Current Report on Form 8-K (or such
other variable rate as may be specified,
or determined by such method as may be
specified, in the applicable Prospectus
Supplement). A Mortgage Pool with a
variable Pass-Through Rate may be
composed of Mortgage Loans that have
fluctuating Mortgage Rates. The
characteristics of a variable
Pass-Through Rate and its effect on the
yield to Certificateholders as well as
the servicing compensation payable to the
related Servicer and the Master Servicer
and the amounts, if any, with respect to
such Mortgage Loans payable to the
Depositor or to the person or entity
specified in the applicable Prospectus
Supplement will be more fully described
in such Prospectus Supplement.
Mortgage Certificates.............. If so specified in the applicable
Prospectus Supplement, the Trust Fund for
a Series of Certificates may include
Mortgage Certificates issued by one or
more trusts established by one or more
private entities, with the respective
aggregate principal balances and the
characteristics described in such
Prospectus Supplement. Each Mortgage
Certificate included in a Trust Fund will
evidence an interest of the type
specified in the applicable Prospectus
Supplement in a pool of mortgage loans of
the type described in such Prospectus
Supplement, secured principally by
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7
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mortgages on one- to four-family
residences, mortgages on multi-family
residential rental properties or
apartment buildings owned by cooperative
housing corporations, by pledges of
shares of cooperative corporations and
assignments of proprietary leases or
occupancy agreements on cooperative
dwellings or by such other similar
security as may be specified in such
Prospectus Supplement.
The Contract Pools................. If so specified in the applicable
Prospectus Supplement, the Certificates
of a Series will represent the interest
specified in such Prospectus Supplement
in the Contract Pool or Pools included in
the Trust Fund for such Series. The
Contracts will be fixed-rate Contracts
(or, if so specified in the applicable
Prospectus Supplement, the Contracts will
be variable rate Contracts). Such
Contracts, as specified in the applicable
Prospectus Supplement, will consist of
manufactured housing conditional sales
contracts and installment loan agreements
and will be conventional Contracts or
Contracts insured by the FHA or partially
guaranteed by the VA. Each Contract may
be secured by a new or used unit of
manufactured housing (a "Manufactured
Home").
The applicable Prospectus Supplement will
specify the range of terms to maturity of
the Contracts at origination and the
maximum Loan-to-Value Ratio at
origination (the "Contract Loan-to-Value
Ratio"). Because manufactured homes,
unlike site-built homes, generally
depreciate in value, the Loan-to-Value
Ratios of some of the Contracts may be
higher at the Cut-off Date than at
origination and may increase over time.
Generally, Contracts that are
conventional Contracts will not be
covered by primary mortgage insurance
policies or primary credit insurance
policies. Each Manufactured Home which
secures a Contract will be covered by a
standard hazard insurance policy (which
may be a blanket policy) to the extent
described herein or in the applicable
Prospectus Supplement insuring against
hazard losses due to various causes,
including fire, lightning and windstorm.
A Manufactured Home located in a
federally designated flood area will be
required to be covered by flood
insurance. Contract Pools may be formed
from time to time in varying sizes.
None of the Contracts will have been
originated by the Depositor or any of its
affiliates.
Certain Risk Factors............... For a discussion of certain risk factors
that should be considered in connection
with an investment in the Certificates,
including those relating to the limited
liquidity of an investment in the
Certificates, the limited obligations
evidenced by the Certificates, the
limited amount and nature of credit
support, if any, and the credit and other
risks with respect to the Trust Assets,
see "Risk Factors".
Yield Considerations............... If so specified in the applicable
Prospectus Supplement, an assumed rate of
prepayment will be used to calculate the
expected yield to maturity on each Class
of the Certificates of a Series. The
yield on any Class of Certificates, the
purchase price of which is greater than
the aggregate amount of the Principal
Distributions to be made to such Class (a
"Premium Certificate"), is likely to be
adversely affected by a higher than
anticipated level of principal
prepayments on the Trust Assets included
in related Trust Fund. This effect on
yield will intensify with any increase in
the amount by which the purchase price of
such Certificate exceeds the aggregate
amount of such Principal Distributions.
If the differential is particularly wide
and a high level of prepayments occurs,
it is possible for Holders of Premium
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Certificates not only to suffer a lower
than anticipated yield but, in extreme
cases, to fail to recoup fully their
initial investment. Conversely, a lower
than anticipated level of principal
prepayments (which can be anticipated to
increase the expected yield to Holders of
Certificates that are Premium
Certificates) will likely result in a
lower than anticipated yield to Holders
of Certificates of a Class the purchase
price of which is less than the aggregate
amount of the Principal Distributions to
be made to such Class (a "Discount
Certificate"). The Prospectus Supplement
for each Series of Certificates that
includes an Interest Weighted or a
Principal Weighted Class will set forth
certain yield calculations on each such
Class based upon a range of specified
prepayment assumptions on the Trust
Assets included in the related Trust
Fund.
The yield to Certificateholders will also
be adversely affected because interest
will accrue on the Mortgage Loans, the
Contracts or the mortgage loans
underlying the Mortgage Certificates
included in a Trust Fund, from the first
day of the month preceding the month in
which a Distribution Date occurs, but the
distribution of such interest will be
made no earlier than the 25th day of the
succeeding month, or such other day as is
specified in the applicable Prospectus
Supplement. The adverse effect on yield
of this delay will intensify with any
increase in the period of time by which
the Distribution Date for a Series of
Certificates succeeds the date on which
distributions on the Mortgage Loans, the
Contracts, or the Mortgage Certificates
are received by the Master Servicer or
the Trustee. See "Yield Considerations".
Credit Support..................... Neither the Certificates nor the Trust
Assets are insured or guaranteed by any
guarantee (except to the limited extent
described in the applicable Prospectus
Supplement that certain Trust Assets may
be insured or guaranteed, in whole or in
part, by the FHA or VA). Credit support
will be provided on the Mortgage Pools or
Contract Pools by one or more irrevocable
letters of credit (the "Letter of
Credit"), a policy of mortgage pool
insurance (the "Pool Insurance Policy"),
a bond or similar form of insurance
coverage against certain losses in the
event of the bankruptcy of a Mortgagor
(the "Mortgagor Bankruptcy Bond") or any
combination of the foregoing, in each
such case, to the extent specified in the
applicable Prospectus Supplement. In lieu
of or in addition to the foregoing credit
support arrangements if so specified in
the applicable Prospectus Supplement, the
Certificates of a Series may be issued in
one or more Classes or Subclasses.
Payments on the Certificates of one or
more Classes or Subclasses (the "Senior
Certificates") may be supported by a
prior right to receive distributions
attributable or otherwise payable to
another Class or Subclass (the
"Subordinated Certificates") to the
extent specified in the applicable
Prospectus Supplement (the "Subordinated
Amount"). In addition, if so specified in
the applicable Prospectus Supplement, one
or more Classes or Subclasses of
Subordinated Certificates may be
subordinated to another Class or Subclass
of Subordinated Certificates and may be
entitled to receive disproportionate
amounts of distributions of principal. If
so specified in the applicable Prospectus
Supplement, a reserve (the "Reserve
Fund") and certain other accounts or
funds may be established to support
payments on the Certificates. A
Prospectus Supplement with respect to a
Series may also provide for additional or
alternative forms of credit support,
including a guarantee or surety bond,
acceptable to the Rating Agency
("Alternative Credit Support").
A. Letter of Credit................ If so specified in the applicable
Prospectus Supplement, the issuer of one
or more Letters of Credit (the "L/C
Bank") will deliver to the Trustee the
Letters of Credit
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9
<PAGE>
- --------------------------------------------------------------------------------
for the Mortgage Pool or Contract Pool.
To the extent described herein and in the
applicable Prospectus Supplement, the L/C
Bank will honor the Trustee's demands
with respect to such Letter of Credit, to
the extent of the amount available
thereunder, to make payments to the
Certificate Account on each Distribution
Date in an amount equal to the amount
sufficient to repurchase each Liquidating
Loan that has not been purchased by the
related Servicer or the Master Servicer
pursuant to the terms of the applicable
Servicing Agreement or Pooling and
Servicing Agreement referred to herein.
The term "Liquidating Loan" means: (a)
each Mortgage Loan with respect to which
foreclosure proceedings have been
commenced (and the Mortgagor's right of
reinstatement has expired), (b) each
Mortgage Loan with respect to which the
Servicer or the Master Servicer has
agreed to accept a deed to the property
in lieu of foreclosure, (c) each
Cooperative Loan as to which the shares
of the related Cooperative Dwelling and
the related proprietary lease or
occupancy agreement have been sold or
offered for sale or (d) each Contract
with respect to which repossession
proceedings have been commenced. Any
other Mortgage Loan, Cooperative Loan or
Contract constituting a Liquidating Loan
will be described in the applicable
Prospectus Supplement. The liability of
the L/C Bank under the Letter of Credit
will be reduced by the amount of
unreimbursed payments thereunder. In the
event that at any time there remains no
amount available under the Letter of
Credit for a specific Mortgage Pool or
Contract Pool, and coverage under another
form of credit support, if any, is
exhausted, any losses will be borne by
the holders of Certificates of the Series
evidencing interests in such Mortgage
Pool or Contract Pool, as specified in
the applicable Prospectus Supplement.
The maximum liability of the L/C Bank under
the Letter of Credit for a Mortgage Pool
or Contract Pool will be an amount equal
to a percentage (not greater than 10% (or
such other percentage as may be specified
in the applicable Prospectus Supplement)
of the initial aggregate principal
balance of the Mortgage Loans in such
Mortgage Pool or Contracts in such
Contract Pool) (the "L/C Percentage"),
set forth in the Prospectus Supplement,
relating to such Mortgage Pool or
Contract Pool. The maximum amount
available at any time to be paid under
the Letter of Credit will be determined
in accordance with the provisions of the
applicable Pooling and Servicing
Agreement referred to herein. The
duration of coverage and the amount and
frequency of any reduction in coverage
provided by the Letter of Credit with
respect to a Series of Certificates will
be in compliance with requirements
established by the Rating Agency rating
such Series and will be set forth in the
applicable Prospectus Supplement. If so
specified in the applicable Prospectus
Supplement, the Letter of Credit with
respect to a Series of Certificates may,
in addition to or in lieu of the
foregoing, provide coverage with respect
to the unpaid principal or notional
amount of the Certificates of a Class or
Classes within such Series. See "Credit
Support-Letter of Credit".
B. Pool Insurance.................. If so specified in the applicable
Prospectus Supplement, the Master
Servicer will obtain a Pool Insurance
Policy to cover any loss (subject to the
limitations described below) by reason of
default by the Mortgagors on the related
Mortgage Loans to the extent not covered
by any policy of primary mortgage
insurance (a "Primary Mortgage Insurance
Policy"). The amount of coverage provided
by the Pool Insurance Policy for a
Mortgage Pool will be specified in the
applicable Prospectus Supplement. A Pool
Insurance Policy for a Mortgage Pool,
however, will not be a blanket policy
against loss, because claims thereunder
may only be made for
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10
<PAGE>
- --------------------------------------------------------------------------------
particular defaulted Mortgage Loans and
only upon satisfaction of certain
conditions precedent. See "Description of
Insurance-Pool Insurance Policies".
The Master Servicer, if any, or the
Depositor or the applicable Servicer will
be required to use its best reasonable
efforts to maintain the Pool Insurance
Policy for each such Mortgage Pool and to
present claims thereunder to the issuer
of such Pool Insurance Policy (the "Pool
Insurer") on behalf of the Trustee and
the Certificateholders. See "Description
of the Certificates-Presentation of
Claims".
C. Mortgagor Bankruptcy
Bond........................ If so specified in the applicable
Prospectus Supplement, the Master
Servicer, if any, or the Depositor or the
applicable Servicer will obtain and use
its best reasonable efforts to maintain a
Mortgagor Bankruptcy Bond for such Series
covering certain losses resulting from
action that may be taken by a bankruptcy
court in connection with the bankruptcy
of a Mortgagor. The level of coverage
provided by such Mortgagor Bankruptcy
Bond will be specified in the applicable
Prospectus Supplement. See "Description
of Insurance-Mortgagor Bankruptcy Bond".
D. Subordinated Certificates....... If so specified in the applicable
Prospectus Supplement, the rights of
holders of the Certificates of one or
more Subordinated Classes or Subclasses
of a Series to receive distributions with
respect to the Mortgage Loans in the
Mortgage Pool or Contracts in the
Contract Pool for such Series, or with
respect to a Subordinated Pool (as
defined herein), will be subordinated to
the rights of the holders of the
Certificates of one or more Classes or
Subclasses of such Series to receive such
distributions to the extent described in
the applicable Prospectus Supplement, and
limited to the Subordinated Amount set
forth in the applicable Prospectus
Supplement. This subordination will be
intended to enhance the likelihood of
regular receipt by holders of the Senior
Certificates of the full amount of
scheduled payments of principal and
interest due them and to reduce the
likelihood that the holders of such
Senior Certificates will experience
losses. See "Credit Support-Subordinated
Certificates".
E. Shifting Interest............... If so specified in the applicable
Prospectus Supplement, the protection
afforded to holders of Senior
Certificates of a Series by the
subordination of certain rights of
holders of Subordinated Certificates of
such Series to distributions on the
related Mortgage Loans or Contracts may
be effected by the preferential right of
the holders of the Senior Certificates to
receive, prior to any distribution being
made in respect of the holders of the
related Subordinated Certificates,
current distributions on the related
Mortgage Loans or Contracts of principal
and interest due them on each
Distribution Date out of funds available
for distribution on such date in the
related Certificate Account and by the
distribution to the holders of the Senior
Certificates on each Distribution Date of
a greater than pro rata percentage of
certain principal prepayments or other
recoveries of principal specified in the
applicable Prospectus Supplement on a
Mortgage Loan or Contract that are
received in advance of their scheduled
Due Dates and are not accompanied by an
amount as to interest representing
scheduled interest due on any date or
dates in any month or months subsequent
to the month of prepayment (the
"Principal Prepayments"). The allocation
of a greater than pro rata share of such
amounts to the Senior Certificates will
have the effect of accelerating the
amortization of the Senior Certificates
while increasing the respective interest
in the Trust Fund evidenced by the
Subordinated Certificates. Increasing the
respective interest of the
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Subordinated Certificates relative to
that of the Senior Certificates is
intended to preserve the availability of
the benefits of the subordination
provided by the Subordinated
Certificates. See "Description of the
Certificates-Distributions of Principal
and Interest" and "-Distributions on
Certificates" and "Credit
Support-Shifting Interest".
F. Reserve Fund.................... If so specified in the applicable
Prospectus Supplement, a Reserve Fund may
be established for such Series. If so
specified in such Prospectus Supplement,
such Reserve Fund will not be included in
the corpus of the Trust Fund for such
Series. If so specified in the applicable
Prospectus Supplement, such Reserve Fund
may be created by the deposit, in escrow,
by the Depositor, of a separate pool of
mortgage loans, cooperative loans or
manufactured housing conditional sales
contracts and installment loan agreements
(the "Subordinated Pool") with the
aggregate principal balance specified in
the applicable Prospectus Supplement, or
by the deposit of cash in the amount
specified in the applicable Prospectus
Supplement (the "Initial Deposit"). The
Reserve Fund will be funded by the
retention of specified distributions on
the Trust Assets of the related Mortgage
Pool or Contract Pool, and/or on the
mortgage loans, cooperative loans or
manufactured housing conditional sales
contracts and installment loan agreements
in the Subordinated Pool, until the
Reserve Fund (without taking into account
the amount of any Initial Deposit)
reaches an amount (the "Required
Reserve") set forth in the applicable
Prospectus Supplement. Thereafter,
specified distributions on the Trust
Assets of the related Mortgage Pool or
Contract Pool, and/or on the mortgage
loans, cooperative loans or manufactured
housing conditional sales contracts and
installment loan agreements in the
Subordinated Pool, will be retained to
the extent necessary to maintain such
Reserve Fund (without taking into account
the amount of any Initial Deposit) at the
related Required Reserve. In no event
will the Required Reserve for any Series
ever be required to exceed the lesser of
the Subordinated Amount for such Series
or the outstanding aggregate principal
amount of Certificates of the
Subordinated Classes or Subclasses of
such Series specified in the applicable
Prospectus Supplement. If so specified in
the applicable Prospectus Supplement, the
Reserve Fund with respect to such Series
may be funded at a lesser amount or in
another manner acceptable to the Rating
Agency rating such Series. See "Credit
Support-Subordinated Certificates" and
"-Reserve Fund".
G. Other Funds..................... Assets consisting of cash, certificates of
deposit or letters of credit, or any
combination thereof, in the aggregate
amount specified in the applicable
Prospectus Supplement, will be deposited
by the Depositor in one or more accounts
to be established with respect to a
Series of Certificates by the Depositor
with the Trustee on the related Delivery
Date if such assets are required to make
timely distributions in respect of
principal of, and interest on, the
Certificates of such Series, are
otherwise required as a condition to the
rating of such Certificates in the rating
category specified in the Prospectus
Supplement, or are required in order to
provide for certain contingencies or in
order to make certain distributions
regarding Certificates which represent
interests in GPM Loans (a "GPM Fund") or
Buy-Down Loans (a "Buy-Down Fund").
Following each Distribution Date, amounts
may be withdrawn from any such fund and
used and/or distributed in accordance
with the Pooling and Servicing Agreement
under the conditions and to the extent
specified in the applicable Prospectus
Supplement.
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12
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H. Swap Agreement.................. If so specified in the Prospectus
Supplement relating to a Series of
Certificates, the Trust will enter into
or obtain an assignment of a swap
agreement or similar agreement pursuant
to which the Trust will have the right to
receive certain payments of interest (or
other payments) as set forth or
determined as described therein. See
"Credit Support-Swap Agreement".
Hazard Insurance and Special
Hazard Insurance Policies.......... If so specified in the applicable
Prospectus Supplement, all of the
Mortgage Loans (except for the
Cooperative Loans) and the Contracts will
be covered by standard hazard insurance
policies insuring against losses due to
various causes, including fire, lightning
and windstorm. In addition, the Depositor
will, if so specified in the applicable
Prospectus Supplement, obtain an
insurance policy (the "Special Hazard
Insurance Policy") covering losses that
result from certain other physical risks
that are not otherwise insured against
(including earthquakes and mudflows). The
Special Hazard Insurance Policy, if any,
will be limited in scope and will cover
losses in an amount specified in the
applicable Prospectus Supplement. Any
hazard losses not covered by either
standard hazard policies or the Special
Hazard Insurance Policy will not be
insured against and to the extent that
the amount available under any other
method of credit support available for
such Series is exhausted, will be borne
by Certificateholders of such Series. The
hazard insurance policies and the Special
Hazard Insurance Policy will be subject
to the limitations described under
"Description of Insurance-Standard Hazard
Insurance Policies on Mortgage Loans",
"-Standard Hazard Insurance Policies on
the Manufactured Homes" and"-Special
Hazard Insurance Policies".
Substitution of Trust Assets....... If so specified in the Prospectus
Supplement relating to a Series of
Certificates, within the period following
the date of issuance of such Certificates
specified in such Prospectus Supplement,
the Depositor or one or more Servicers
will deliver to the Trustee with respect
to such Series Trust Assets in
substitution for any one or more of the
Trust Assets included in the Trust Fund
relating to such Series which do not
conform in one or more material respects
to the representations and warranties in
the related Pooling and Servicing
Agreement. See "Description of the
Certificates-Assignment of Mortgage
Loans", "-Assignment of Contracts"
and"-Assignment of Mortgage
Certificates".
Advances........................... The Servicers of the Mortgage Loans and
Contracts (and the Master Servicer, if
any, with respect to each Mortgage Loan
and Contract that it services directly,
and otherwise to the extent the related
Servicer does not do so) will be
obligated to advance delinquent
installments of principal and interest on
the Mortgage Loans and Contracts (the
"Advances") under certain circumstances.
See "Description of the
Certificates-Advances".
Optional Termination............... If so specified in the Prospectus
Supplement with respect to a Series, the
Depositor or such other persons as may be
specified in a Prospectus Supplement may
purchase the Trust Assets in the related
Trust Fund and any property acquired in
respect thereof at the time, in the
manner and at the price specified in such
Prospectus Supplement. In the event that
the Depositor elects to treat the related
Trust Fund as one or more Real Estate
Mortgage Investment Conduits (each, a
"REMIC") under the Internal Revenue Code
of 1986, as amended (the "Code"), any
such repurchase will be effected only in
compliance with the requirements of
Section 860F(a)(4) of
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13
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the Code, so as to constitute a
"qualified liquidation" thereunder. The
exercise of the right of repurchase will
effect early retirement of the
Certificates of that Series. See
"Maturity and Prepayment Considerations"
and "Description of the
Certificates-Termination".
ERISA Limitations.................. A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code
should carefully review with its own
legal advisers whether the purchase or
holding of Certificates could give rise
to a transaction prohibited or otherwise
impermissible under ERISA or Section 4975
of the Code. See "ERISA Considerations".
Tax Status......................... See "Certain Federal Income Tax
Consequences".
Legal Investment................... If so specified in the applicable
Prospectus Supplement relating to a
Series of Certificates, a Class or
Subclass of such Certificates will
constitute a "mortgage related security"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") if and
for so long as it is rated in one of the
two highest rating categories by at least
one nationally recognized statistical
rating organization. Such Classes or
Subclasses, if any, will be legal
investments for certain types of
institutional investors to the extent
provided in SMMEA, subject, in any case,
to any other regulations which may govern
investments by such institutional
investors. See "Legal Investment".
Use of Proceeds.................... The Depositor will use the net proceeds
from the sale of each Series for one or
more of the following purposes: (i) to
purchase the related Trust Assets, (ii)
to repay indebtedness which has been
incurred to obtain funds to acquire such
Trust Assets, (iii) to establish any
reserve funds described in the applicable
Prospectus Supplement and (iv) to pay
costs of structuring and issuing such
Certificates. If so specified in the
applicable Prospectus Supplement, the
purchase of the Trust Assets for a Series
may be effected by an exchange of
Certificates by the Depositor with the
seller of such Trust Assets. See "Use of
Proceeds".
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14
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and in
the applicable Prospectus Supplement to be prepared and delivered in connection
with the offering of any Series of Certificates, prospective investors should
carefully consider the following risk factors before investing in any Class or
Classes of Certificates of any such Series.
Limited Liquidity
There can be no assurance that a secondary market for the Certificates of
any Series will develop or, if it does develop, that it will provide
Certificateholders with liquidity of investment or that it will continue for the
life of the Certificates of any Series. The Prospectus Supplement for any Series
of Certificates may indicate that an underwriter specified therein intends to
establish a secondary market in such Certificates; however, no underwriter will
be obligated to do so. The Certificates will not be listed on any securities
exchange.
Limited Obligations
Except for any related insurance policies or credit support described in
the applicable Prospectus Supplement, the Trust Assets included in the related
Trust Fund will be the sole source of payments on the Certificates of a Series.
The Certificates of any Series will not represent an interest in or obligation
of the Depositor, the Master Servicer, any Servicer, any Unaffiliated Seller,
the Trustee or any of their affiliates, except for the limited obligations of
the Depositor, the Master Servicer or any Unaffiliated Seller with respect to
certain breaches of representations and warranties and the Master Servicer's
obligations as Master Servicer. Neither the Certificates of any Series nor the
related Trust Assets will be guaranteed or insured by any governmental agency or
instrumentality (except to the limited extent described in the related
Prospectus Supplement that certain Trust Assets may be insured or guaranteed, in
whole or in part, by the FHA or VA), the Depositor, the Master Servicer, any
Servicer, any Unaffiliated Seller, the Trustee, any of their affiliates or any
other person. Consequently, in the event that payments on the Trust Assets are
insufficient or otherwise unavailable to make all payments required on the
Certificates, there will be no recourse to the Depositor, the Master Servicer,
any Servicer, any Unaffiliated Seller, the Trustee or, except as specified in
the applicable Prospectus Supplement, any other entity.
Limitations, Reduction and Substitution of Credit Support
With respect to each Series of Certificates, credit support may be provided
in limited amounts to cover certain types of losses on the underlying Trust
Assets. Credit support may be provided in one or more of the forms referred to
herein, including, but not limited to: a Letter of Credit; a Pool Insurance
Policy; a Mortgagor Bankruptcy Bond; subordination of other Classes of
Certificates of the same Series; a Reserve Fund; and any combination thereof.
See "Credit Support" herein. Regardless of the form of credit support, if any,
provided, the amount of coverage will be limited in amount and in most cases
will be subject to periodic reduction in accordance with a schedule or formula.
Furthermore, such credit support may provide only very limited coverage as to
certain types of losses, and may provide no coverage as to certain other types
of losses. All or a portion of the credit support, if any, for any Series of
Certificates will generally be permitted to be reduced, terminated or
substituted for, if each applicable Rating Agency indicates that the then
current rating thereof will not be adversely affected. See "Credit Support".
Risks of the Trust Assets
An investment in securities such as the Certificates of any Series which
generally represent interests in mortgage loans or manufactured housing
conditional sales contracts and installment loan agreements ("contracts"), as
the case may be, may be affected by, among other things, a decline in real
estate values and changes in the mortgagor's or obligor's financial condition.
No assurance can be given that the values of the Mortgaged Properties securing
the Mortgage Loans or the values of the Manufactured Homes securing the
Contracts, as the case may be, underlying any Series of Certificates have
remained or will remain at their levels on the dates of origination of the
related Mortgage Loans or Contracts. If the residential real estate market
should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans comprising a particular Trust Fund,
and any secondary financing on the Mortgaged Properties, become equal to or
greater than the value of the Mortgaged Properties, the actual rates of
delinquencies, foreclosures and losses could
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be higher than those now generally experienced in the mortgage lending industry
and those experienced in the related Originator's portfolio. In addition,
adverse economic conditions generally, in particular geographic areas or
industries, or affecting particular segments of the borrowing community (such as
Mortgagors or Obligors relying on commission income and self-employed Mortgagors
or Obligors) and other factors, may affect the timely payment by Mortgagors or
Obligors of scheduled payments of principal and interest on the Mortgage Loans
or Contracts, as the case may be, and, accordingly, the actual rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. See
"Yield Considerations" and "Maturity and Prepayment Considerations" herein. To
the extent that such losses are not covered by the applicable credit support,
holders of Certificates of the Series evidencing interests in the related Trust
Fund will bear all risk of loss resulting from default by Mortgagors or Obligors
and will have to look primarily to the value of the Mortgaged Properties or
Manufactured Homes for recovery of the outstanding principal and unpaid interest
on the defaulted Mortgage Loans or Contracts. In addition to the foregoing,
certain geographic regions on the United States from time to time will
experience weaker regional economic conditions and housing markets and,
consequently, will experience higher rates of loss and delinquency on mortgage
loans or contracts generally. The Mortgage Loans or Contracts underlying certain
Series of Certificates may be concentrated in these regions, and such
concentration may present risk considerations in addition to those generally
present for similar mortgage-backed or contract-backed securities without such
concentration. See "The Trust Fund - The Mortgage Pools; - Underwriting
Standards; - The Contract Pools; and - Underwriting Policies".
Prepayment and Yield Considerations
The rate and timing of principal payments on the Certificates of each
Series will depend, among other things, on the rate and timing of principal
payments (including prepayments, defaults and liquidations) on the related
Mortgage Loans or Contracts. As is the case with mortgage-backed securities
generally, each Series of Certificates are subject to substantial inherent
cash-flow uncertainties because the Mortgage Loans and Contracts may be prepaid
at any time. Generally, when prevailing interest rates increase, prepayment
rates on mortgage loans tend to decrease, resulting in a slower return of
principal to investors at a time when reinvestment at such higher prevailing
rates would be desirable. Conversely, when prevailing interest rates decline,
prepayment rates on mortgage loans tend to increase, resulting in a faster
return of principal to investors at a time when reinvestment at comparable
yields may not be possible.
The yield to maturity on each Class of Certificates of each Series will
depend, among other things, on the rate and timing of principal payments
(including prepayments, defaults and liquidations) on the Mortgage Loans or
Contracts, as applicable, and the allocation thereof to reduce the Certificate
Principal Balance of such Class. The yield to maturity on each Class of
Certificates will also depend on the Pass-Through Rate and the purchase price
for such Certificates. The yield to investors on any Class of Certificates will
be adversely affected by any allocation thereto of interest shortfalls on the
Mortgage Loans or Contracts, as applicable, which are expected to result from
the distribution of interest only to the date of prepayment (rather than a full
month's interest) in connection with prepayments in full and in part (including
for this purpose Insurance Proceeds and Liquidation Proceeds) to the extent not
covered by amounts otherwise payable to the Master Servicer as servicing
compensation.
In general, if a Class of Certificates is purchased at a premium and
principal distributions thereon occur at a rate faster than anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if a Class of Certificates is
purchased at a discount and principal distributions thereon occur at a rate
slower than that assumed at the time of purchase, the investor's actual yield to
maturity will be lower than that assumed at the time of purchase.
Subordination
To the extent specified in the applicable Prospectus Supplement,
distributions of interest and principal on one or more Classes of Certificates
of a Series may be subordinated in priority of payment to interest and principal
due on one or more other Classes of Certificates of such Series.
Limitation on Exercise of Rights due to Book-Entry Registration
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If so specified in the applicable Prospectus Supplement, one or more
Classes of Certificates of a Series initially will be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), or any other nominee
of The Depository Trust Company ("DTC") set forth in the applicable Prospectus
Supplement, and will not be registered in the names of the holders of the
Certificates of such Series or their nominees. Because of this, unless and until
Certificates in fully registered, certificated form ("Definitive Certificates")
for such Series are issued, holders of such Certificates will not be recognized
by the applicable Trustee as "Certificateholders" (as such terms are used herein
or in the related Pooling and Servicing Agreement or the related Deposit Trust
Agreement, as applicable). Hence, until Definitive Certificates are issued,
holders of such Certificates will be able to exercise the rights of
Certificateholders only indirectly through DTC and its participating
organizations.
THE TRUST FUND
Ownership of the Mortgage Pool or Pools or Contract Pool or Pools included
in the Trust Fund (as hereinafter defined) for a Series of Certificates may be
evidenced by one or more Classes of Certificates, which may consist of one or
more Subclasses, as specified in the Prospectus Supplement for such Series. Each
Certificate will evidence the undivided interest, beneficial interest or
notional amount specified in the applicable Prospectus Supplement in one or more
Mortgage Pools containing one or more Mortgage Loans or Contract Pools
containing one or more Contracts, having an aggregate principal balance of not
less than approximately $50,000,000 as of the first day of the month of its
creation (the "Cut-off Date"), or such other minimum aggregate principal balance
as may be specified in the applicable Prospectus Supplement. If so specified in
the applicable Prospectus Supplement, each Class or Subclass of the Certificates
of a Series will evidence the percentage interest specified in such Prospectus
Supplement in the payments of principal and interest on the Mortgage Loans in
the related Mortgage Pool or Pools or on the Contracts in the related Contract
Pool or Pools (a "Percentage Interest"). To the extent specified in the
applicable Prospectus Supplement, each Mortgage Pool or Contract Pool with
respect to a Series will be covered by a Letter of Credit, a Pool Insurance
Policy, a Special Hazard Insurance Policy, a Mortgagor Bankruptcy Bond, by the
subordination of the rights of the holders of the Subordinated Certificates of a
Series to the rights of the holders of the Senior Certificates of such Series,
which, if so specified in the applicable Prospectus Supplement, may include
Certificates of a Subordinated Class or Subclass and the establishment of a
Reserve, by the right of one or more Classes or Subclasses of Certificates to
receive a disproportionate amount of certain distributions of principal or
interest or another form or forms of Alternative Credit Support acceptable to
the Rating Agency rating the Certificates of such Series or by any combination
of the foregoing. See "Description of Insurance" and "Credit Support".
The Mortgage Pools
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include (a) one or more Mortgage Pools containing
(i) conventional one- to four-family residential, first and/or more junior
mortgage loans, (ii) Cooperative Loans made to finance the purchase of certain
rights relating to cooperatively owned properties secured by the pledge of
shares issued by a Cooperative and the assignment of a proprietary lease or
occupancy agreement providing the exclusive right to occupy a particular
Cooperative Dwelling, (iii) mortgage loans secured by Multifamily Property,(iv)
mortgage participation certificates evidencing participation interests in such
loans that are acceptable to the Rating Agency rating the Certificates of such
Series for a rating in one of the four highest rating categories of such Rating
Agency, or (v) certain conventional Mortgage Certificates issued by one or more
trusts established by one or more private entities or (b) one or more Contract
Pools containing manufactured housing conditional sales contracts and
installment loan agreements or participation certificates representing
participation interests in such Contracts purchased by the Depositor either
directly or through one or more affiliates from one or more affiliates or from
Unaffiliated Sellers, and related property conveyed to such trust by the
Depositor.
A Mortgage Pool may include Mortgage Loans insured by the FHA ("FHA
Loans")and/or Mortgage Loans partially guaranteed by the Veterans Administration
(the "VA" and such Mortgage Loans are referred to as "VA Loans"). All Mortgage
Loans will be evidenced by promissory notes (the "Mortgage Notes") secured by
first or more junior mortgages or first or more junior deeds of trust or other
similar security instruments creating a first or more junior lien, as
applicable, on, or installment sales contracts for the sale of, the Mortgaged
Properties(as defined below). Single Family
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Property and Multifamily Property will consist of single family detached homes,
townhouses, row houses, attached homes (single family units having a common
wall), individual units located in condominiums, individual units located in
apartment buildings owned by cooperative housing corporations, individual units
in planned unit developments, leasehold interests in single family detached
homes, multifamily residential rental properties and apartment buildings owned
by cooperative housing corporations. Each such detached or attached home or
multifamily property will be constructed on land owned in fee simple by the
Mortgagor or on land leased by the Mortgagor for a term at least two years
greater than the term of the applicable Mortgage Loan. Attached homes may
consist of duplexes, triplexes and fourplexes (multifamily structures where each
Mortgagor owns the land upon which the unit is built with the remaining adjacent
land owned in common). Multifamily Property may include mixed commercial and
residential buildings. The Mortgaged Properties may include investment
properties and vacation and second homes. Mortgage Loans secured by Multifamily
Property may also be secured by an assignment of leases and rents and operating
or other cash flow guarantees relating to the Mortgaged Properties to the extent
specified in the applicable Prospectus Supplement.
Each Mortgage Loan in a Mortgage Pool will (i) have an individual principal
balance at origination of not less than $25,000 nor more than $500,000, (ii)have
monthly payments due on the first day of each month (the "Due Date"),(iii) be
secured by Mortgaged Properties or relate to Cooperative Loans located in any of
the 50 states or the District of Columbia, and (iv) consist of fully-amortizing
Mortgage Loans, each with a 10 to 40 year term at origination, a fixed or
variable rate of interest and level or variable monthly payments over the term
of the Mortgage Loan or, in each such case, such other Mortgage Loan
characteristics as are set forth in the applicable Prospectus Supplement. In
addition, to the extent so specified in the applicable Prospectus Supplement,
the Loan-to-Value Ratio (as hereinafter described) of such Mortgage Loans at
origination will not exceed 95% on any Mortgage Loan with an original principal
balance of $150,000 or less, 90% on any Mortgage Loan with an original principal
balance in excess of $150,000 through $200,000,85% on any Mortgage Loan with an
original principal balance in excess of$200,000 through $300,000 and 80% on any
Mortgage Loan with an original principal balance exceeding $300,000. If so
specified in the applicable Prospectus Supplement, a Mortgage Pool may also
include fully amortizing, adjustable rate Mortgage Loans ("ARM Loans") with a
30-year term (or other term specified in the applicable Prospectus Supplement)
at origination and a mortgage interest rate adjusted periodically (with
corresponding adjustments in the amount of monthly payments) to equal the sum
(which may be rounded) of a fixed margin and an index described in such
Prospectus Supplement, subject to any applicable restrictions on such
adjustments. The Mortgage Pools may also include other types of Mortgage Loans
to the extent set forth in the applicable Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, no Mortgage Loan
will have a Loan-to-Value Ratio at origination in excess of 95%,regardless of
its original principal balance. The Loan-to-Value Ratio is the ratio, expressed
as a percentage, of the principal amount of the Mortgage Loan at the date of
determination to the lesser of (a) the appraised value determined in an
appraisal obtained by the Originator and (b) the sales price for such property
(the "Original Value"). If so specified in the applicable Prospectus Supplement,
with respect to a Mortgage Loan secured by a mortgage on a vacation or second
home or an investment property (other than Multifamily Property), no income
derived from the property will be considered for underwriting purposes, the
Loan-to-Value Ratio (taking into account any secondary financing) of such
Mortgage Loan may not exceed 80% and the original principal balance of such
Mortgage Loan may not exceed $250,000.
If so specified in the applicable Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans with fluctuating Mortgage Rates. Any such Mortgage
Loan may provide that on the day on which the Mortgage Rate adjusts, the amount
of the monthly payments on the Mortgage Loan will be adjusted to provide for the
payment of the remaining principal amount of the Mortgage Loan with level
monthly payments of principal and interest at the new Mortgage Rate to the
maturity date of the Mortgage Loan. Alternatively, the Mortgage Loan may provide
that the Mortgage Rate adjusts more frequently than the monthly payment. As a
result, a greater or lesser portion of the monthly payment will be applied to
the payment of principal on the Mortgage Loan, thus increasing or decreasing the
rate at which the Mortgage Loan is repaid. See "Yield Considerations". In the
event that an adjustment to the Mortgage Rate causes the amount of interest
accrued in any month to exceed the amount of the monthly payment on such
Mortgage Loan, the excess (the "Deferred Interest") will be added to the
principal balance of the Mortgage Loan (unless otherwise paid by the Mortgagor),
and will bear interest at the Mortgage Rate in effect from time to time. The
amount by which the Mortgage Rate or monthly payment may increase or decrease
and the aggregate amount of Deferred Interest on any Mortgage Loan may be
subject to certain limitations, as described in the applicable Prospectus
Supplement.
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If so specified in the Prospectus Supplement for the related Series, the
Mortgage Rate on certain ARM Loans will be convertible from an adjustable rate
to a fixed rate, at the option of the Mortgagor under certain circumstances. If
so specified in the applicable Prospectus Supplement Prospectus Supplement, the
Pooling and Servicing Agreement will provide that the Unaffiliated Seller from
which such convertible ARM Loans were acquired will be obligated to repurchase
from the Trust Fund any such ARM Loan as to which the conversion option has been
exercised (a "Converted Mortgage Loan"), at a purchase price set forth in the
applicable Prospectus Supplement. The amount of such purchase price will be
required to be deposited in the Certificate Account and will be distributed to
the Certificateholders on the Distribution Date in the month following the month
of the exercise of the conversion option. The obligation of the Unaffiliated
Seller to repurchase Converted Mortgage Loans may or may not be supported by
cash, letters of credit, third party guarantees or other similar arrangements.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans pursuant to which the monthly payments made by the
Mortgagor during the early years of the Mortgage Loan will be less than the
scheduled monthly payments on the Mortgage Loan ("Buy-Down Loans"). The
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor, the seller of the related Mortgaged Property, the
Servicer or another source and placed in a custodial account (the "Buy-Down
Fund") by the Servicer, or if so specified in the applicable Prospectus
Supplement, with the Trustee. In lieu of a cash deposit, if so specified in the
applicable Prospectus Supplement, a letter of credit or guaranteed investment
contract may be delivered to the Trustee to fund the Buy-Down Fund.
See"Description of the Certificates-Payments on Mortgage Loans". Buy-Down Loans
included in a Mortgage Pool will provide for a reduction in monthly interest
payments by the Mortgagor for a period of up to the first four years of the term
of such Mortgage Loans.
If provided for in the applicable Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans pursuant to which the monthly payments by the
Mortgagor during the early years of the related Mortgage Loan are less than the
amount of interest that would otherwise be payable thereon, with the interest
not so paid added to the outstanding principal balance of such Mortgage Loan
("GPM Loans"). If so specified in the applicable Prospectus Supplement, the
resulting difference in payment shall be compensated for from an amount
contributed by the Depositor or another source and delivered to the Trustee (the
"GPM Fund"). In lieu of cash deposit, the Depositor may deliver to the Trustee a
letter of credit, guaranteed investment contract or another instrument
acceptable to the Rating Agency rating the related Series to fund the GPM Fund.
FHA Loans will be insured by the Federal Housing Administration (the
"FHA")as authorized under the National Housing Act, as amended, and the United
States Housing Act of 1937, as amended. Such FHA loans will be insured under
various FHA programs including the standard FHA 203-b programs to finance the
acquisition of one- to four-family housing units, the FHA 245 graduated payment
mortgage program and the FHA 221 and 223 programs to finance certain multifamily
residential rental properties. FHA Loans generally require a minimum down
payment of approximately 5% of the original principal amount of the FHA Loan. No
FHA Loan may have an interest rate or original principal amount exceeding the
applicable FHA limits at the time of origination of such FHA Loan.
VA Loans will be partially guaranteed by the VA under the Servicemen's
Readjustment Act of 1944, as amended (the "Servicemen's Readjustment Act"). The
Servicemen's Readjustment Act permits a veteran (or in certain instances the
spouse of a veteran) to obtain a mortgage loan guarantee by the VA covering
mortgage financing of the purchase of a one- to four-family dwelling unit at
interest rates permitted by the VA. The program has no mortgage loan limits,
requires no down payment from the purchasers and permits the guarantee of
mortgage loans of up to 30 years' duration. However, no VA Loan will have an
original principal amount greater than five times the partial VA guarantee for
such VA Loan. The maximum guarantee that may be issued by the VA under this
program currently is 50% of the principal amount of the Mortgage Loan if the
principal amount of the Mortgage Loan is $45,000 or less, the lesser of $36,000
and 40% of the principal amount of the Mortgage Loan if the principal amount of
the Mortgage Loan is greater than $45,000 but less than or equal to $144,000,
and the lesser of $46,000 and 25% of the principal amount of the Mortgage Loan
if the principal amount of the Mortgage Loan is greater than $144,000.
The Prospectus Supplement (or, if such information is not available in
advance of the date of such Prospectus Supplement, a Current Report on Form 8-K
to be filed with the Commission) for each Series of Certificates the Trust Fund
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with respect to which contains Mortgage Loans will contain information as to the
type of Mortgage Loans that will comprise the related Mortgage Pool or Pools and
information as to (i) the aggregate principal balance of the Mortgage Loans as
of the applicable Cut-off Date, (ii) the type of Mortgaged Properties securing
the Mortgage Loans, (iii) the original terms to maturity of the Mortgage Loans,
(iv) the largest in principal balance of the Mortgage Loans, (v) the earliest
origination date and latest maturity date of the Mortgage Loans, (vi) the
aggregate principal balance of mortgage Loans having Loan-to-Value Ratios at
origination exceeding 80%, (vii)the interest rate or range of interest rates
borne by the Mortgage Loans,(viii) the average outstanding principal balance of
the Mortgage Loans, (ix)the geographical distribution of the Mortgage Loans, (x)
the aggregate principal balance of Buy-Down Loans or GPM Loans, if applicable,
(xi)with respect to ARM Loans, the adjustment dates, the highest, lowest and
weighted average margin, and the maximum Mortgage Rate variation at the time of
any periodic adjustment and over the life of such ARM Loans, and (xii) with
respect to Mortgage Loans secured by Multifamily Property or such other Mortgage
Loans as are specified in the Prospectus Supplement, whether the Mortgage Loan
provides for an interest only period and whether the principal amount of such
Mortgage Loan is amortized on the basis of a period of time that extends beyond
the maturity date of the Mortgage Loan.
No assurance can be given that values of the Mortgaged Properties in a
Mortgage Pool have remained or will remain at their levels on the dates of
origination of the related Mortgage Loans. If the real estate market should
experience an overall decline in property values such that the outstanding
balances of the Mortgage Loans and any secondary financing on the Mortgaged
Properties in a particular Mortgage Pool become equal to or greater than the
value of the Mortgaged Properties, the actual rates of delinquencies,
foreclosures and losses could be higher than those now generally experienced in
the mortgage lending industry. In addition, the value of property securing
Cooperative Loans and the delinquency rate with respect to Cooperative Loans
could be adversely affected if the current favorable tax treatment of
cooperative stockholders were to become less favorable. See "Certain Legal
Aspects of the Mortgage Loans and Contracts-The Mortgage Loans". To the extent
that such losses are not covered by the methods of credit support or the
insurance policies described herein or by Alternative Credit Support, they will
be borne by holders of the Certificates of the Series evidencing interests in
the Mortgage Pool.
Multifamily lending is generally viewed as exposing the lender to a greater
risk of loss than one- to four-family residential lending. Multifamily lending
typically involve larger loans to single borrowers or groups of related
borrowers than residential one- to four-family mortgage loans. Furthermore, the
repayment of loans secured by income producing properties is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired. Multifamily
real estate can be affected significantly by supply and demand in the market for
the type of property securing the loan and, therefore, may be subject to adverse
economic conditions. Market values may vary as a result of economic events or
governmental regulations outside the control of the borrower or lender, such as
rent control laws, which impact the future cash flow of the property.
Corresponding to the greater lending risk is a generally higher interest rate
applicable to multifamily mortgage lending.
The Depositor will cause the Mortgage Loans constituting each Mortgage Pool
to be assigned to the Trustee named in the applicable Prospectus Supplement, for
the benefit of the holders of the Certificates of such Series (the
"Certificateholders"). The Master Servicer, if any, named in the applicable
Prospectus Supplement will service the Mortgage Loans, either by itself or
through other mortgage servicing institutions, if any (each, a "Servicer"),
pursuant to a Pooling and Servicing Agreement, as described herein, among the
Master Servicer, if any, the Depositor and the Trustee (the "Pooling and
Servicing Agreement") and will receive a fee for such services. See "-Mortgage
Loan Program" and "Description of the Certificates". With respect to those
Mortgage Loans serviced by a Servicer, such Servicer will be required to service
the related Mortgage Loans in accordance with the Seller's Warranty and
Servicing Agreement between the Servicer and the Depositor (a "Servicing
Agreement") and will receive the fee for such services specified in such
Servicing Agreement; however, any Master Servicer will remain liable for its
servicing obligations under the Pooling and Servicing Agreement as if the Master
Servicer alone were servicing such Mortgage Loans.
The Depositor will make certain representations and warranties regarding
the Mortgage Loans, but its assignment of the Mortgage Loans to the Trustee will
be without recourse. See "Description of the Certificates - Assignment of
Mortgage Loans". The Master Servicer's obligations with respect to the Mortgage
Loans will consist principally of its contractual servicing obligations under
the Pooling and Servicing Agreement (including its obligation to enforce certain
purchase and
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other obligations of Servicers and/or Unaffiliated Sellers, as more fully
described herein under "-Mortgage Loan Program-Representations by Unaffiliated
Sellers; Repurchases" and "Description of the Certificates-Assignment of
Mortgage Loans" and "-Servicing by Unaffiliated Sellers") and its obligations to
make Advances in the event of delinquencies in payments on or with respect to
the Mortgage Loans or in connection with prepayments and liquidations of such
Mortgage Loans, in amounts described herein under "Description of the
Certificates-Advances". Such Advances with respect to delinquencies will be
limited to amounts that the Master Servicer believes ultimately would be
reimbursable under any applicable Letter of Credit, Pool Insurance Policy,
Special Hazard Insurance Policy, Mortgagor Bankruptcy Bond or other policy of
insurance, from amounts in the Reserve Fund, under any Alternative Credit
Support or out of the proceeds of liquidation of the Mortgage Loans, cash in the
Certificate Account or otherwise. See "Description of the
Certificates-Advances", "Credit Support" and "Description of Insurance".
Each Mortgage Pool included in the related Trust Fund will be composed of
Mortgage Loans evidencing interests in Mortgage Loans having Mortgage Rates that
will exceed by at least 3/8 of 1% (or such other percentage as may be specified
in the applicable Prospectus Supplement) the fixed or variable Pass-Through Rate
established for the Mortgage Pool. To the extent and in the manner specified in
the applicable Prospectus Supplement, Certificateholders of a Series will be
entitled to receive distributions based on the payments of principal on the
underlying Mortgage Loans, plus interest on the principal balance thereof at the
related Pass-Through Rate. The difference between a Mortgage Rate and the
related Pass-Through Rate (less any servicing compensation payable to the
Servicers of such Mortgage Loans and the amount, if any, payable to the
Depositor or the person or entity specified in the applicable Prospectus
Supplement) may be retained by the Master Servicer as servicing compensation to
it. See"Description of the Certificates-Servicing Compensation and Payment of
Expenses".
Mortgage Loan Program
The Mortgage Loans will have been purchased by the Depositor either
directly or through affiliates, from one or more affiliates or from sellers
unaffiliated with the Depositor ("Unaffiliated Sellers"). Mortgage Loans
acquired by the Depositor will have been originated in accordance with the
underwriting criteria specified below under "Underwriting Standards" or as
otherwise described in an applicable Prospectus Supplement.
Underwriting Standards
Except in the case of certain Mortgage Loans originated by Unaffiliated
Sellers in accordance with their own underwriting criteria ("Closed Loans") or
such other standards as may be described in the applicable Prospectus
Supplement, all prospective Mortgage Loans will be subject to the underwriting
standards adopted by the Depositor. See "Closed Loan Program" below for a
description of underwriting standards applicable to Closed Loans. Unaffiliated
Sellers will represent and warrant that Mortgage Loans originated by them and
purchased by the Depositor have been originated in accordance with the
applicable underwriting standards established by the Depositor or such other
standards as may be described in the applicable Prospectus Supplement. The
following discussion describes the underwriting standards of the Depositor with
respect to any Mortgage Loan that it purchases.
The mortgage credit approval process for one- to four-family residential
loans follows a standard procedure that generally complies with FHLMC and FNMA
regulations and guidelines (except that certain Mortgage Loans may have higher
loan amounts and qualifying ratios) and applicable federal and state laws and
regulations. The credit approval process for Cooperative Loans follows a
procedure that generally complies with applicable FNMA regulations and
guidelines (except for the loan amounts and qualifying ratios) and applicable
federal and state laws and regulations. The originator of a Mortgage Loan (the
"Originator") generally will review a detailed credit application by the
prospective mortgagor designed to provide pertinent credit information,
including a current balance sheet describing assets and liabilities and a
statement of income and expenses, as well as an authorization to apply for a
credit report that summarizes the prospective mortgagor's credit history with
local merchants and lenders and any record of bankruptcy. In addition, an
employment verification is obtained from the prospective mortgagor's employer
wherein the employer reports the length of employment with that organization,
the current salary, and gives an indication as to whether it is expected that
the prospective mortgagor will continue such employment in the future. If the
prospective mortgagor is self-employed, he or she is required to submit copies
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of signed tax returns. The prospective mortgagor may also be required to
authorize verification of deposits at financial institutions. In certain
circumstances, other credit considerations may cause the Originator or Depositor
not to require some of the above documents, statements or proofs in connection
with the origination or purchase of certain Mortgage Loans.
An appraisal generally will be required to be made on each residence to be
financed. Such appraisal generally will be made by an appraiser who meets FNMA
requirements as an appraiser of one- to four-family residential properties. The
appraiser is required to inspect the property and verify that it is in good
condition and that, if new, construction has been completed. The appraisal
generally will be based on the appraiser's judgment of value, giving appropriate
weight to both the market value of comparable homes and the cost of replacing
the residence. These underwriting standards also require a search of the public
records relating to a mortgaged property for liens and judgments against such
mortgaged property.
Based on the data provided, certain verifications and the appraisal, a
determination is made by the Originator as to whether the prospective mortgagor
has sufficient monthly income available to meet the prospective mortgagor's
monthly obligations on the proposed loan and other expenses related to the
residence (such as property taxes, hazard and primary mortgage insurance and, if
applicable, maintenance) and other financial obligations and monthly living
expenses. Each Originator's lending guidelines for conventional mortgage loans
generally will specify that mortgage payments plus taxes and insurance and all
monthly payments extending beyond one year (including those mentioned above and
other fixed obligations, such as car payments) would equal no more than
specified percentages of the prospective mortgagor's gross income. These
guidelines will be applied only to the payments to be made during the first year
of the loan. For FHA and VA Loans, the Originator's lending guidelines will
follow HUD and VA guidelines, respectively. Other credit considerations may
cause an Originator to depart from these guidelines. For example, when two
individuals co-sign the loan documents, the incomes and expenses of both
individuals may be included in the computation.
The Mortgaged Properties may be located in states where, in general, a
lender providing credit on a single-family property may not seek a deficiency
judgment against the Mortgagor but rather must look solely to the property for
repayment in the event of foreclosure. The Depositor's underwriting standards
applicable to all states (including anti-deficiency states) require that the
value of the property being financed, as indicated by the appraisal, currently
supports and is anticipated to support in the future the outstanding loan
balance.
Certain of the types of Mortgage Loans that may be included in the Mortgage
Pools or Subsidiary Trust Funds may involve additional uncertainties not present
in traditional types of loans. For example, Buy-Down Loans and GPM Loans provide
for escalating or variable payments by the Mortgagor. These types of Mortgage
Loans are underwritten on the basis of a judgment that the Mortgagor will have
the ability to make larger monthly payments in subsequent years. In some
instances the Mortgagor's income may not be sufficient to enable it to continue
to make scheduled loan payments as such payments increase.
To the extent specified in the applicable Prospectus Supplement, the
Depositor may purchase Mortgage Loans for inclusion in a Trust Fund that are
underwritten under standards and procedures which vary from and are less
stringent than those described herein. For instance, Mortgage Loans may be
underwritten under a "limited documentation" program if so specified in the
applicable Prospectus Supplement. With respect to such Mortgage Loans, minimal
investigation into the borrowers' credit history and income profile is
undertaken by the Originator and such Mortgage Loans may be underwritten
primarily on the basis of an appraisal of the Mortgaged Property or Cooperative
Dwelling and the Loan-to-Value Ratio at origination. Thus, if the Loan-to-Value
Ratio is less than a percentage specified in the applicable Prospectus
Supplement, the Originator may forego certain aspects of the review relating to
monthly income, and traditional ratios of monthly or total expenses to gross
income may not be considered.
The underwriting standards for Mortgage Loans secured by Multifamily
Property will be described in the applicable Prospectus Supplement.
Qualifications of Unaffiliated Sellers
Each Unaffiliated Seller of Closed Loans secured by residential properties
must be an institution experienced in originating conventional mortgage loans
and/or FHA Loans or VA Loans in accordance with accepted practices and prudent
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guidelines, and must maintain satisfactory facilities to originate those loans
(in each case, subject to certain limited exceptions). In addition, except as
otherwise specified, the Depositor requires adequate financial stability and
adequate servicing experience, where appropriate, as well as satisfaction of
certain other criteria.
Representations by Unaffiliated Sellers; Repurchases
Each Unaffiliated Seller (or the Master Servicer, if the Unaffiliated
Seller is also the Master Servicer under the Pooling and Servicing Agreement)
will have made representations and warranties in respect of the Mortgage Loans
sold by such Unaffiliated Seller to the Depositor. Such representations and
warranties will generally include, among other things: (i) with respect to each
Mortgaged Property, that title insurance (or in the case of Mortgaged Properties
located in areas where such policies are generally not available, an attorney's
certificate of title) and any required hazard and primary mortgage insurance was
effective at the origination of each Mortgage Loan, and that each policy (or
certificate of title) remained in effect on the date of purchase of the Mortgage
Loan from the Unaffiliated Seller; (ii) that the Unaffiliated Seller had good
and marketable title to each such Mortgage Loan; (iii) with respect to each
Mortgaged Property, that each mortgage constituted a valid first lien on the
Mortgaged Property (subject only to permissible title insurance exceptions);
(iv) that there were no delinquent tax or assessment liens against the Mortgaged
Property; and (v) that each Mortgage Loan was current as to all required
payments, in each such case, subject to certain exceptions which may be
specified in the applicable Prospectus Supplement. With respect to a Cooperative
Loan, the Unaffiliated Seller will represent and warrant that (a) the security
interest created by the cooperative security agreements constituted a valid
first lien on the collateral securing the Cooperative Loan (subject to the right
of the related Cooperative to cancel shares and terminate the proprietary lease
for unpaid assessments and to the lien of the related Cooperative for unpaid
assessments representing the Mortgagor's pro rata share of the Cooperative's
payments for its mortgage, current and future real property taxes, maintenance
charges and other assessments to which like collateral is commonly subject) and
(b) the related cooperative apartment was free from material damage and was in
good repair.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Mortgage Loan will have been made as of the date on which such
Unaffiliated Seller sold the Mortgage Loan to the Depositor or its affiliate. A
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Certificates evidencing an interest in such
Mortgage Loan. Since the representations and warranties of an Unaffiliated
Seller do not address events that may occur following the sale of a Mortgage
Loan by an Unaffiliated Seller, the repurchase obligation described below will
not arise if, during the period commencing on the date of sale of a Mortgage
Loan by the Unaffiliated Seller to or on behalf of the Depositor, the relevant
event occurs that would have given rise to such an obligation had the event
occurred prior to sale of the affected Mortgage Loan. However, the Depositor
will not include any Mortgage Loan in the Trust Fund for any Series of
Certificates if anything has come to the Depositor's attention that would cause
it to believe that the representations and warranties of an Unaffiliated Seller
will not be accurate and complete in all material respects in respect of such
Mortgage Loan as of the related Cut-off Date.
The only representations and warranties to be made for the benefit of
holders of Certificates of a Series in respect of any Mortgage Loan relating to
the period commencing on the date of sale of such Mortgage Loan to the Depositor
or its affiliates will be certain limited representations of the Depositor and
of the Master Servicer described below under "Description of the
Certificates-Assignment of Mortgage Loans". If the Master Servicer is also an
Unaffiliated Seller of Mortgage Loans with respect to a particular Series, such
representations will be in addition to the representations and warranties made
in its capacity as an Unaffiliated Seller.
Upon the discovery of the breach of any representation or warranty made by
an Unaffiliated Seller in respect of a Mortgage Loan that materially and
adversely affects the interests of the Certificateholders of the related Series,
such Unaffiliated Seller or the Servicer of such Mortgage Loan will be obligated
to repurchase such Mortgage Loan at a purchase price equal to 100% of the unpaid
principal balance thereof at the date of repurchase or, in the case of a Series
of Certificates as to which the Depositor has elected to treat the related Trust
Fund as one or more REMICs, as defined in the Code, at such other price as may
be necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together with accrued interest at the
Pass-Through Rate for the related Mortgage Pool, to the first day of the month
following such repurchase and the amount of any unreimbursed Advances made by
the Master Servicer or the Servicer, as applicable, in respect of such Mortgage
Loan. The Master Servicer will be required to enforce this obligation for the
benefit
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of the Trustee and the Certificateholders, following the practices it would
employ in its good faith business judgment were it the owner of such Mortgage
Loan. Subject to the ability of the Depositor, the Unaffiliated Seller or the
Servicer to substitute for certain Mortgage Loans as described below, this
repurchase obligation generally constitutes the sole remedy available to the
Certificateholders of such Series for a breach of representation or warranty by
an Unaffiliated Seller
The obligation of the Master Servicer to purchase a Mortgage Loan if an
Unaffiliated Seller or a Servicer defaults on its obligation to do so is subject
to limitations, and no assurance can be given that Unaffiliated Sellers will
carry out their respective repurchase obligations with respect to Mortgage
Loans. However, to the extent that a breach of the representations and
warranties of an Unaffiliated Seller may also constitute a breach of the
representations and warranties made by the Depositor or by the Master Servicer
with respect to the insurability of the Mortgage Loans, the Depositor may have a
repurchase obligation, and the Master Servicer may have the limited purchase
obligation, in each case as described below under "Description of the
Certificates-Assignment of Mortgage Loans".
Closed Loan Program
The Depositor may also acquire Closed Loans that have been originated by
Unaffiliated Sellers in accordance with underwriting standards acceptable to the
Depositor. Closed Loans for which 11 or fewer monthly payments have been
received generally will be further subject to the Depositor's customary
underwriting standards. Closed Loans for which 12 to 60 monthly payments have
been received generally will be subject to a review of payment history and will
conform to the Depositor's guidelines for the related mortgage program. In the
event one or two payments were over 30 days delinquent, a letter explaining the
delinquencies will be required of the Mortgagor. The Depositor will not purchase
for inclusion in a Mortgage Pool a Closed Loan for which (i) more than two
monthly payments were over 30 days delinquent, (ii) one payment was over 60 days
delinquent, or (iii) more than 60 monthly payments were received (in each such
case, subject to certain exceptions which may be specified in the applicable
Prospectus Supplement).
Mortgage Certificates
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include certain conventional mortgage
pass-through certificates (the "Mortgage Certificates") issued by one or more
trusts established by one or more private entities and evidencing, the entire
interest (or such other percentage interest as may be specified in such
Prospectus Supplement) in a pool of mortgage loans. A description of the
mortgage loans underlying the Mortgage Certificates, the related pooling and
servicing arrangements and the insurance arrangements in respect of such
mortgage loans will be set forth in the applicable Prospectus Supplement or in
the Current Report on Form 8-K referred to below. Such Prospectus Supplement
(or, if such information is not available in advance of the date of such
Prospectus Supplement, a Current Report on Form 8-K to be filed by the Depositor
with the Commission within 15 days of the issuance of the Certificates of such
Series) will also set forth information with respect to the entity or entities
forming the related mortgage pool, the issuer of any credit support with respect
to such Mortgage Certificates, the aggregate outstanding principal balance and
the pass-through rate borne by each Mortgage Certificate included in the Trust
Fund, together with certain additional information with respect to such Mortgage
Certificates. The inclusion of Mortgage Certificates in a Trust Fund with
respect to a Series of Certificates is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the related
Series of Certificates. Mortgage Certificates, together with the Mortgage Loans
and Contracts, are referred to herein as the "Trust Assets".
The Contract Pools
If so specified in the Prospectus Supplement with respect to a Series, the
Trust Fund for such Series may include a Contract Pool evidencing interests in
manufactured housing conditional sales contracts and installment loan agreements
(the "Contracts") originated by a manufactured housing dealer in the ordinary
course of business and purchased by the Depositor. The Contracts may be
conventional manufactured housing contracts or contracts insured by the FHA or
partially guaranteed by the VA. Each Contract will be secured by a Manufactured
Home, as defined below. The Contracts will be fully amortizing (or, if so
specified in the applicable Prospectus Supplement, have balloon payments at
maturity) and will
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bear interest at a fixed annual percentage rate ("APR") (or, if so specified in
the applicable Prospectus Supplement, bear interest at a variable rate).
The Manufactured Homes securing the Contracts consist of manufactured homes
within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "a structure, transportable in one or more sections,
which in the traveling mode, is eight body feet or more in width or forty body
feet or more in length, or, when erected on site, is three hundred twenty or
more square feet, and which is built on a permanent chassis and designed to be
used as a dwelling with or without a permanent foundation when connected to the
required utilities, and includes the plumbing, heating, air conditioning, and
electrical systems contained therein; except that such term shall include any
structure which meets all the requirements of [this] paragraph except the size
requirements and with respect to which the manufacturer voluntarily files a
certification required by the Secretary of Housing and Urban Development and
complies with the standards established under [this] chapter".
The Depositor will cause the Contracts constituting each Contract Pool to
be assigned to the Trustee named in the applicable Prospectus Supplement for the
benefit of the related Certificateholders. The Master Servicer specified in the
applicable Prospectus Supplement will service the Contracts, either by itself or
through other Servicers, pursuant to the Pooling and Servicing Agreement. See
"Description of the Certificates-Servicing by Unaffiliated Sellers". With
respect to those Contracts serviced by the Master Servicer through a Servicer,
the Master Servicer will remain liable for its servicing obligations under the
Agreement as if the Master Servicer alone were servicing such Contracts. The
Contract documents, if so specified in the applicable Prospectus Supplement, may
be held for the benefit of the Trustee by a Custodian (the "Custodian")
appointed pursuant to a Custodial Agreement (the "Custodial Agreement") among
the Depositor, the Trustee and the Custodian.
Each Contract Pool will be composed of Contracts bearing interest at the
APRs specified in the Prospectus Supplement. Each registered holder of a
Certificate will be entitled to receive periodic distributions, which generally
will be monthly, of all or a portion of principal on the underlying Contracts or
interest on the principal balance thereof at the Pass-Through Rate, or both. If
so specified in the applicable Prospectus Supplement, the difference between the
APR on a Contract and the related Pass-Through Rate (less sub-servicing
compensation), will be retained by the Master Servicer as servicing compensation
to it. See "Description of the Certificates-Payments on Contracts".
The applicable Prospectus Supplement (or, if such information is not
available in advance of the date of such Prospectus Supplement, a Current Report
on Form 8-K to be filed with the Commission) will specify, for the Contracts
contained in the related Contract Pool, among other things: (a) the dates of
origination of the Contracts; (b) the weighted average APR on the Contracts; (c)
the range of outstanding principal balances as of the Cut-off Date; (d) the
average outstanding principal balance of the Contracts as of the Cut-off Date;
(e) the weighted average term to maturity as of the Cut-off Date; and (f) the
range of original maturities of the Contracts.
With respect to the Contracts included in the Contract Pool, the Depositor,
the Master Servicer or such other party, as specified in the applicable
Prospectus Supplement, will make or cause to be made representations and
warranties as to the types and geographical distribution of such Contracts and
as to the accuracy in all material respects of certain information furnished to
the Trustee in respect of each such Contract. In addition, the Master Servicer
or the Unaffiliated Seller of the Contracts will represent and warrant that, as
of the Cut-off Date, no Contract was more than 30 days (or such other number of
days as may be specified in the Prospectus Supplement) delinquent as to payment
of principal and interest. Upon a breach of any representation that materially
and adversely affects the interest of the Certificateholders in a Contract, the
Master Servicer, the Unaffiliated Seller or such other party, as appropriate,
will be obligated either to cure the breach in all material respects or to
repurchase the Contract or, if so specified in the applicable Prospectus
Supplement, to substitute another Contract as described below. This repurchase
or substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of representation by the Master
Servicer, the Unaffiliated Seller or such other party.
If so specified in the applicable Prospectus Supplement, in addition to
making certain representations and warranties regarding its authority to enter
into, and its ability to perform its obligations under, the Agreement, the
Master Servicer will make certain representations and warranties, except to the
extent that another party specified in the Prospectus
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Supplement makes any such representations, to the Trustee with respect to the
enforceability of coverage under any applicable insurance policy or hazard
insurance policy. See "Description of Insurance" for information regarding the
extent of coverage under certain of such insurance policies. Upon a breach of
the insurability representation that materially and adversely affects the
interests of the Certificateholders in a Contract, the Master Servicer, the
Unaffiliated Seller or such other party, as appropriate, generally will be
obligated to cure the breach in all material respects, to repurchase such
Contract at a price equal to the principal balance thereof as of the date of
repurchase plus accrued interest at the related Pass-Through-Rate to the first
day of the month following the month of repurchase or to take such other action
as may be specified in the applicable Prospectus Supplement. The Master
Servicer, if required by the Rating Agency rating the Certificates, will procure
a surety bond, guaranty, letter of credit or other instrument (the "Performance
Bond") acceptable to such Rating Agency to support this repurchase obligation.
See "Credit Support-Performance Bond". This repurchase obligation constitutes
the sole remedy available to the Certificateholders or the Trustee for a breach
of the Master Servicer's or seller's insurability representation.
If the Depositor discovers or receives notice of any breach of its
representations and warranties relating to a Contract within two years or such
other period as may be specified in such Prospectus Supplement of the date of
the initial issuance of the Certificates, the Depositor generally may remove
such Contract from the Trust Fund ("Deleted Contract"), rather than repurchase
the Contract as provided above, and substitute in its place another Contract
("Substitute Contract"). Any Substitute Contract, on the date of substitution,
will (i) have an outstanding principal balance, after deduction of all scheduled
payments due in the month of substitution, not in excess of the outstanding
principal balance of the Deleted Contract (the amount of any shortfall to be
distributed to Certificateholders in the month of substitution), (ii) have an
APR not less than (and not more than 1% greater than) the APR of the Deleted
Contract, (iii) have a Pass-Through Rate equal to the Pass-Through Rate of the
Deleted Contract, (iv) have a remaining term to maturity not greater than (and
not more than one year less than) that of the Deleted Contract and (v) comply
with all the representations and warranties set forth in the Pooling and
Servicing Agreement as of the date of substitution. This repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for any such breach.
Underwriting Policies
Conventional Contracts will comply with the underwriting policies of the
Originator or Unaffiliated Seller of the Contracts described in the applicable
Prospectus Supplement. Except as described below or in the applicable Prospectus
Supplement, the Depositor believes that these policies were consistent with
those utilized by mortgage lenders or manufactured home lenders generally during
the period of origination.
With respect to a Contract made in connection with the Obligor's purchase
of a Manufactured Home, the "appraised value" is the amount determined by a
professional appraiser. The appraiser must personally inspect the Manufactured
Home and prepare a report which includes market data based on recent sales of
comparable Manufactured Homes and, when deemed applicable, a replacement cost
analysis based on the current cost of a similar Manufactured Home. The Contract
Loan-to-Value Ratio is equal to the original principal amount of the Contract
divided by the lesser of the "appraised value" or the sales price for the
Manufactured Home or such other amount as may be specified, or determined by
such method as may be specified, in the applicable Prospectus Supplement.
THE DEPOSITOR
The Depositor is a special purpose Delaware corporation organized for the
purpose of causing the issuance of Certificates and other securities issued
under the Registration Statement backed by receivables or underlying securities
of various types and acting as settlor or depositor with respect to trusts,
custody accounts or similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not expected that the Depositor
will have any significant assets. The Depositor is an indirect, wholly owned
finance subsidiary of Collateralized Mortgage Securities Corporation, which is a
wholly owned subsidiary of CS First Boston Securities Corporation, which is a
wholly owned subsidiary of CS First Boston, Inc. Neither CS First Boston
Securities Corporation, nor CS First Boston, Inc., nor any of their affiliates,
has guaranteed, will guarantee or is or will be otherwise obligated with respect
to any Series of Certificates. The Depositor's
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principal executive office is located at Park Avenue Plaza, 55 East 52nd Street,
New York, New York 10055, and its telephone number is (212) 909-2000.
Trust Assets will be acquired by the Depositor directly or through one or
more affiliates.
USE OF PROCEEDS
The Depositor will apply all or substantially all of the net proceeds from
the sale of each Series offered hereby and by the applicable Prospectus
Supplement to purchase the Trust Assets, to repay indebtedness which has been
incurred to obtain funds to acquire the Trust Assets, to establish the Reserve
Funds, if any, for the Series and to pay costs of structuring and issuing the
Certificates. If so specified in the applicable Prospectus Supplement,
Certificates may be exchanged by the Depositor for Trust Assets. If so specified
in the applicable Prospectus Supplement, the Trust Assets for each Series of
Certificates will be acquired by the Depositor either directly, or through one
or more affiliates which will have acquired such Trust Assets, from time to time
either in the open market or in privately negotiated transactions (in the case
of Trust Assets other than Mortgage Certificates).
YIELD CONSIDERATIONS
Each monthly payment on a Mortgage Loan is calculated as one-twelfth of the
applicable Mortgage Rate multiplied by the unpaid principal balance of such
Mortgage Loan. The amount of such interest payment distributed monthly to
Certificateholders with respect to each Mortgage Loan generally will be
similarly calculated based on the applicable Pass-Through Rate for the related
Mortgage Pool. The Pass-Through Rate for a Mortgage Pool will be either fixed or
variable, as specified in the applicable Prospectus Supplement.
Each monthly accrual of interest on a Contract is calculated as one-twelfth
of the product of the APR and the principal balance outstanding on the scheduled
payment date for such Contract in the preceding month. If so specified in the
applicable Prospectus Supplement, the Pass-Through Rate with respect to each
Contract will be calculated on a Contract-by-Contract basis and the servicing
fee applicable to each Contract from the applicable APR.
With respect to a Mortgage Pool or a Contract Pool bearing a fixed
Pass-Through Rate, each Mortgage Loan or Contract will have a Mortgage Rate or
APR that exceeds the Pass-Through Rate by at least 3/8 of 1% (or such other
percentage as may be specified in the applicable Prospectus Supplement). The
difference between a Mortgage Rate or APR and the related fixed Pass-Through
Rate for the Mortgage Pool or Contract Pool (less any servicing compensation
payable to the related Servicers and the amounts, if any, payable to the
Depositor or the person or entity specified in the applicable Prospectus
Supplement) will be retained by the Master Servicer as servicing compensation to
it. See "Description of the Certificates-Servicing Compensation and Payment of
Expenses". Although Mortgage Rates and APRs in a fixed Pass-Through Rate
Mortgage Pool or Contract Pool, respectively, may vary, disproportionate
principal prepayments among Mortgage Loans bearing different Mortgage Rates or
APRs will not affect the return to Certificateholders since, as set forth above,
the Pass-Through Rate may not exceed any Mortgage Rate or APR.
With respect to Mortgage Pools having a variable Pass-Through Rate, the
Pass-Through Rate will equal the weighted average of the Mortgage Rates on all
the Mortgage Loans in the Mortgage Pool, minus the servicing compensation
payable to the Master Servicer and the Servicer of such Mortgage Loans and the
amounts, if any, retained by the Depositor or an Unaffiliated Seller or paid to
the person or entity specified in the applicable Prospectus Supplement. The
servicing fee and such other amounts will be fixed as to each Mortgage Loan at a
rate per annum, and may vary among Mortgage Loans. Because the Mortgage Rates in
such a Mortgage Pool will differ and the aggregate servicing compensation and
such other amounts to be retained or distributed with respect to each Mortgage
Loan will be fixed, it is likely that the weighted average of the Mortgage
Rates, and the corresponding variable Pass-Through Rate, will change as the
Mortgage Loans amortize and as a result of prepayments.
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If so specified in the applicable Prospectus Supplement, a Mortgage Pool
may contain Mortgage Loans with fluctuating Mortgage Rates that adjust more
frequently than the monthly payment with respect to such Mortgage Loans. As a
result, the portion of each monthly payment allocated to principal may vary from
month to month. Negative amortization with respect to a Mortgage Loan will occur
if an adjustment to the Mortgage Rate causes the amount of interest accrued in
any month, calculated at the new Mortgage Rate for such period, to exceed the
amount of the monthly payment or if the allowable increase in any monthly
payment is limited to an amount that is less than the amount of interest accrued
in any month. The amount of any resulting Deferred Interest will be added to the
principal balance of the Mortgage Loan and will bear interest at the Mortgage
Rate in effect from time to time. To the extent that, as a result of the
addition of any Deferred Interest, the Mortgage Loan negatively amortizes over
its term, the weighted average life of the Certificates of the related Series
will be greater than would otherwise be the case. As a result, the yield on any
such Mortgage Loan at any time may be less than the yields on similar adjustable
rate mortgage loans, and the rate of prepayment may be lower or higher than
would otherwise be anticipated.
Generally, when a full prepayment is made on a Mortgage Loan or Contract,
the Mortgagor or the borrower under a Contract (the "Obligor"), is charged
interest for the number of days actually elapsed from the due date of the
preceding monthly payment up to the date of such prepayment, at a daily interest
rate determined by dividing the Mortgage Rate or APR by 365. Full prepayments
will reduce the amount of interest paid by the Mortgagor or the Obligor because
interest on the principal amount of any Mortgage Loan or Contract so prepaid
will be paid only to the date of prepayment instead of for a full month;
however, the Master Servicer with respect to a Series (subject to certain
limitations which, if applicable, herein or in the applicable Prospectus
Supplement) will be required to advance from its own funds the portion of any
interest at the related Pass-Through Rate that is not so received. Partial
prepayments generally are applied on the first day of the month following
receipt, with no resulting reduction in interest payable for the period in which
the partial prepayment is made. Full and partial prepayments, together with
interest on such full and partial prepayments at the Pass-Through Rate for the
related Mortgage Pool or Contract Pool to the last day of the month in which
such prepayments occur (subject to certain limitations which, if applicable,
herein or in the applicable Prospectus Supplement) will be deposited in the
Certificate Account and will be available for distribution to Certificateholders
on the next succeeding Distribution Date in the manner specified in the
applicable Prospectus Supplement. See "Maturity and Prepayment Considerations".
Generally, the effective yield to holders of Certificates having a monthly
Distribution Date will be lower than the yield otherwise produced by the
Pass-Through Rate with respect to a Mortgage Pool or Contract Pool or the
pass-through rate borne by a Mortgage Certificate because, while interest will
accrue on each Mortgage Loan or Contract, or mortgage loan underlying a Mortgage
Certificate, to the first day of the month, the distribution of such interest to
holders of such Certificates, to the extent so specified in the applicable
Prospectus Supplement, will be made no earlier than the 25th day of the month
following the month of the accrual (or such other day as is set forth in the
applicable Prospectus Supplement). The adverse effect on yield will intensify
with any increase in the period of time by which the Distribution Date with
respect to a Series of Certificates succeeds such 25th day (or such other day as
is set forth in the applicable Prospectus Supplement). With respect to the
Multi-Class Certificates of a Series having other than monthly Distribution
Dates, the yield to holders of such Certificates will also be adversely affected
by any increase in the period of time from the date to which interest accrues on
such Certificate to the Distribution Date on which such interest is distributed.
In the event that the Certificates of a Series are divided into two or more
Classes or Subclasses and that a Class or Subclass is an Interest Weighted
Class, in the event that such Series includes a Class of Residual Certificates,
or as otherwise may be appropriate, the Prospectus Supplement for such Series
will indicate the manner in which the yield to Certificateholders will be
affected by different rates of prepayments on the Mortgage Loans, on the
Contracts or on the mortgage loans underlying the Mortgage Certificates. In
general, the yield on Certificates that are offered at a premium to their
principal or notional amount ("Premium Certificates") is likely to be adversely
affected by a higher than anticipated level of principal prepayments on the
Mortgage Loans, on the Contracts or on the mortgage loans underlying the
Mortgage Certificates. This relationship will become more sensitive as the
amount by which the Percentage Interest of such Class in each Interest
Distribution is greater than the corresponding Percentage Interest of such Class
in each Principal Distribution. If the differential is particularly wide (e.g.,
the Interest Distribution is allocated primarily or exclusively to one Class or
Subclass and the Principal Distribution primarily or exclusively to another) and
a high level of prepayments occurs, there is a possibility that
Certificateholders of Premium Certificates will not only suffer a lower than
anticipated yield but, in extreme cases, will fail to recoup fully their initial
investment. Conversely, a lower than anticipated level of principal
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prepayments (which can be anticipated to increase the expected yield to holders
of Certificates that are Premium Certificates) will likely result in a lower
than anticipated yield to holders of Certificates that are offered at a discount
to their principal amount ("Discount Certificates"). If so specified in the
applicable Prospectus Supplement, a disproportionately large amount of Principal
Prepayments may be distributed to the holders of the Senior Certificates at the
times and under the circumstances described therein.
In the event that the Certificates of a Series include one or more Classes
or Subclasses of Multi-Class Certificates, the Prospectus Supplement for such
Series will set forth information, measured relative to a prepayment standard or
model specified in such Prospectus Supplement, with respect to the projected
weighted average life of each such Class or Subclass and the percentage of the
initial Stated Principal Balance of each such Subclass that would be outstanding
on special Distribution Dates for such Series based on the assumptions stated in
such Prospectus Supplement, including assumptions that prepayments on the
Mortgage Loans or Contracts or on the mortgage loans underlying the Mortgage
Certificates in the related Trust Fund are made at rates corresponding to the
various percentages of such prepayment standard or model.
MATURITY AND PREPAYMENT CONSIDERATIONS
The scheduled maturities of all of the Mortgage Loans (or the mortgage
loans underlying the Mortgage Certificates) at origination will not be less than
approximately 10 years or exceed 40 years and all the Contracts will have
maturities at origination of not more than 20 years (or, in each such case, such
other scheduled maturities as are set forth in the applicable Prospectus
Supplement), but such Mortgage Loans (or such underlying mortgage loans) or
Contracts may be prepaid in full or in part at any time. If so specified in the
applicable Prospectus Supplement, no such Mortgage Loan (or mortgage loan) or
Contract will provide for a prepayment penalty and each will contain (except in
the case of FHA and VA Loans) due-on-sale clauses permitting the mortgagee or
obligee to accelerate the maturity thereof upon conveyance of the Mortgaged
Property, Cooperative Dwelling or Manufactured Home.
The FHA has compiled statistics relating to one- to four-family, level
payment mortgage loans insured by the FHA under the National Housing Act of
1934, as amended, at various interest rates, all of which permit assumption by
the new buyer if the home is sold. Such statistics indicate that while some of
such mortgage loans remain outstanding until their scheduled maturities, a
substantial number are paid prior to their respective stated maturities. The
Actuarial Division of HUD has prepared tables which, assuming full mortgage
prepayments at the rates experienced by FHA, set forth the percentages of the
original number of FHA Loans in pools of level payment mortgage loans of varying
maturities that will remain outstanding on each anniversary of the original date
of such mortgage loans (assuming they all have the same origination date) ("FHA
Experience"). Published information with respect to conventional residential
mortgage loans indicates that such mortgage loans have historically been prepaid
at higher rates than government insured loans because, unlike government insured
mortgage loans, conventional mortgage loans may contain due-on-sale clauses that
allow the holder thereof to demand payment in full of the remaining principal
balance of such mortgage loans upon sales or certain transfers of the mortgaged
property. There are no similar statistics with respect to the prepayment rates
of cooperative loans or loans secured by multifamily properties.
It is customary in the residential mortgage industry in quoting yields (a)
on a pool of 30-year fixed-rate, level payment mortgages, to compute the yield
as if the pool were a single loan that is amortized according to a 30-year
schedule and is then prepaid in full at the end of the twelfth year and (b) on a
pool of 15-year fixed-rate, level payment mortgages, to compute the yield as if
the pool were a single loan that is amortized according to a 15-year schedule
and then is prepaid in full at the end of the seventh year.
Prepayments on residential mortgage loans are also commonly measured
relative to a prepayment standard or model. If so specified in the Prospectus
Supplement relating to a Series of Certificates, the model used in a Prospectus
Supplement will be the Standard Prepayment Assumption ("SPA"). SPA represents an
assumed rate of prepayment relative to the then outstanding principal balance of
a pool of mortgages. A prepayment assumption of 100% of SPA assumes prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgages in the first month of the life of the mortgages and an additional 0.2%
per annum in each month thereafter until the thirtieth month and in each month
thereafter during the life of the mortgages, 100% of SPA assumes a constant
prepayment rate of 6% per annum each month.
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Information regarding FHA Experience, other published information, SPA or
any other rate of assumed prepayment, as applicable, will be set forth in the
Prospectus Supplement with respect to a Series of Certificates. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a Series
of Certificates will conform to FHA Experience, mortgage industry custom, any
level of SPA, or any other rate specified in the applicable Prospectus
Supplement. A number of factors, including homeowner mobility, economic
conditions, enforceability of due-on-sale clauses, mortgage market interest
rates, mortgage recording taxes and the availability of mortgage funds, may
affect prepayment experience on residential mortgage loans.
The terms of the Pooling and Servicing Agreement will require the Servicer
or the Master Servicer to enforce any due-on-sale clause to the extent it has
knowledge of the conveyance or the proposed conveyance of the underlying
Mortgaged Property or Cooperative Dwelling; provided, however, that any
enforcement action that would impair or threaten to impair any recovery under
any related Insurance Policy will not be required or permitted. See "Description
of the Certificates-Enforcement of "Due-On-Sale" Clauses; Realization Upon
Defaulted Mortgage Loans" and "Certain Legal Aspects of the Mortgage Loans And
Contracts-The Mortgage Loans-"Due-On-Sale" Clauses" for a description of certain
provisions of each Pooling and Servicing Agreement and certain legal
developments that may affect the prepayment experience on the Mortgage Loans.
At the request of the Mortgagor, the Servicer may refinance the Mortgage
Loans in any Mortgage Pool by accepting prepayments thereon and making new loans
secured by a mortgage on the same property. Upon such refinancing, the new loans
will not be included in the Mortgage Pool and the related Servicer will be
required to repurchase the affected Mortgage Loan. A Mortgagor may be legally
entitled to require the Servicer to allow such a refinancing. Any such
repurchase will have the same effect as a prepayment in full of the related
Mortgage Loan.
There are no uniform statistics compiled for prepayments of contracts
relating to Manufactured Homes. Prepayments on the Contracts may be influenced
by a variety of economic, geographic, social and other facts, including
repossessions, aging, seasonality and interest rate fluctuations. Other factors
affecting prepayment of mortgage loans or Contracts include changes in housing
needs, job transfers, unemployment and servicing decisions. An investment in
Certificates evidencing interests in Contracts may be affected by, among other
things, a downturn in regional or local economic conditions. These regional or
local economic conditions are often volatile, and historically have affected the
delinquency, loan loss and repossession experience of the Contracts. To the
extent that losses on the Contracts are not covered by the Subordinated Amount,
if any, Letters of Credit, applicable Insurance Policies, if any, or by any
Alternative Credit Support, holders of the Certificates of a Series evidencing
interests in such Contracts will bear all risk of loss resulting from default by
Obligors and will have to look primarily to the value of the Manufactured Homes,
which generally depreciate in value, for recovery of the outstanding principal
and unpaid interest of the defaulted Contracts. See "The Trust Fund-The Contract
Pools".
While most Contracts will contain "due-on-sale" provisions permitting the
holder of the Contract to accelerate the maturity of the Contract upon
conveyance by the borrower, the Master Servicer may permit proposed assumptions
of Contracts where the proposed buyer meets the underwriting standards described
above. Such assumption would have the effect of extending the average life of
the Contract. FHA Mortgage Loans and Contracts and VA Mortgage Loans and
Contracts are not permitted to contain "due on sale" clauses, and are freely
assumable.
Mortgage Loans made with respect to Multifamily Properties may have
provisions that prevent prepayment for a number of years and may provide for
payments of interest only during a certain period followed by amortization of
principal on the basis of a schedule extending beyond the maturity of the
related Mortgage Loan. Prepayments of Mortgage Loans secured by Multifamily
Property may be affected by these and other factors, including changes in
interest rates and the relative tax benefits associated with ownership of
Multifamily Property.
If set forth in the applicable Prospectus Supplement, the Depositor or
other specified entity will have the option to repurchase the Trust Assets
included in the related Trust Fund under the conditions stated in such
Prospectus Supplement. For any Series of Certificates for which the Depositor
has elected to treat the Trust as one or more REMICs pursuant to the provisions
or the Code, any such repurchase will be effected in compliance with the
requirements of Section 860F(a)(4) of the Code so as to constitute a "qualifying
liquidation" thereunder. In addition, the Depositor will be obligated, under
certain
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circumstances, to repurchase certain of the Trust Assets. The Master Servicer
and Unaffiliated Sellers will also have certain repurchase obligations, as more
fully described herein. In addition, the mortgage loans underlying the Mortgage
Certificates may be subject to repurchase under circumstances similar to those
described above. Such repurchases will have the same effect as prepayments in
full. See "The Trust Fund-Mortgage Loan Program-Representations by Unaffiliated
Sellers; Repurchases", "Description of the Certificates-Assignment of Mortgage
Loans", "-Assignment of Mortgage Certificates", "-Assignment of Contracts" and
"-Termination".
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to an agreement
consisting of either (a) a Pooling and Servicing Agreement or (b) a Reference
Agreement (the "Reference Agreement") and the Standard Terms and Provisions of
Pooling and Servicing Agreement (such Standard Terms, the "Standard Terms",
either the Standard Terms together with the Reference Agreement or the Pooling
and Servicing Agreement referred to as the "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer, if any, and the Trustee named in the
applicable Prospectus Supplement or a deposit trust agreement between the
Depositor and the Trustee (the "Deposit Trust Agreement", together with the
Pooling and Servicing Agreement, the "Agreement"). Forms of the Pooling and
Servicing Agreement and the Deposit Trust Agreement have been filed as exhibits
to the Registration Statement of which this Prospectus is a part. The following
summaries describe the material provisions common to each Pooling and Servicing
Agreement and Deposit Trust Agreement. The summaries are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Pooling and Servicing Agreement or Deposit Trust Agreement for the applicable
Series and the applicable Prospectus Supplement. Wherever defined terms of the
Pooling and Servicing Agreement or Deposit Trust Agreement are referred to, such
defined terms are thereby incorporated herein by reference.
General
Each Certificate offered hereby and by means of the applicable Prospectus
Supplement will be issued in book-entry form (or, if specified in the applicable
Prospectus Supplement, fully registered, certificated form) and will represent
the undivided interest or beneficial interest attributable to such Class or
Subclass in the Trust Fund. The Trust Fund with respect to a Series will consist
of: (i) such Mortgage Loans, Contracts, and Mortgage Certificates and
distributions thereon as from time to time are subject to the applicable
Agreement; (ii) such assets as from time to time are identified as deposited in
the Certificate Account referred to below; (iii) property acquired by
foreclosure of Mortgage Loans or deed in lieu of foreclosure, or Manufactured
Homes acquired by repossession; (iv) the Letter of Credit, if any, with respect
to such Series; (v) the Pool Insurance Policy, if any, with respect to such
Series (described below under "Description of Insurance"); (vi) the Special
Hazard Insurance Policy, if any, with respect to such Series (described below
under "Description of Insurance"); (vii) the Mortgagor Bankruptcy Bond and
proceeds thereof, if any, with respect to such Series (as described below under
"Description of Insurance"); (viii) the Performance Bond and proceeds thereof,
if any, with respect to such Series; (ix) the Primary Mortgage Insurance
Policies, if any, with respect to such Series (as described below under
"Description of Insurance"); (x) the Depositor's rights under the Warranty and
Servicing Agreement with respect to the Mortgage Loans or Contracts, if any,
with respect to such Series; and (xi) the GPM and Buy-Down Funds, if any, with
respect to such Series; or, in lieu of some or all of the foregoing, such
Alternative Credit Support as shall be described in the applicable Prospectus
Supplement. Upon the original issuance of a Series of Certificates, Certificates
representing the minimum undivided interest or beneficial ownership interest in
the related Trust Fund or the minimum notional amount allocable to each Class
will evidence the undivided interest, beneficial ownership interest or
percentage ownership interest specified in the applicable Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, one or more
Servicers or the Depositor may directly perform some or all of the duties of a
Master Servicer with respect to a Series.
If so specified in the Prospectus Supplement for a Series with respect to
which the Depositor has elected to treat the Trust Fund as one or more REMICs
under the Code, ownership of the Trust Fund for such Series may be evidenced by
Multi-Class Certificates and Residual Certificates. Distributions of principal
and interest with respect to Multi-Class
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Certificates may be made on a sequential or concurrent basis, as specified in
the applicable Prospectus Supplement. If so specified in the applicable
Prospectus Supplement, one or more of such Classes or Subclasses may be Compound
Interest Certificates.
The Residual Certificates, if any, included in a Series will be designated
by the Depositor as the "residual interest" in the related REMIC for purposes of
Section 860G(a)(2) of the Code, and will represent the right to receive
distributions as specified in the Prospectus Supplement for such Series. All
other Classes of Certificates of such Series will constitute "regular interests"
in the related REMIC, as defined in the Code. If so specified in the applicable
Prospectus Supplement, such Residual Certificates may be offered hereby and by
means of such Prospectus Supplement. See "Certain Federal Income Tax
Consequences".
If so specified in the Prospectus Supplement for a Series which includes
Multi-Class Certificates, each Trust Asset in the related Trust Fund will be
assigned an initial "Asset Value". The Asset Value of each Trust Asset in the
related Trust Fund generally will be the Stated Principal Balance of each Class
or Classes of Certificates of such Series that, based upon certain assumptions,
can be supported by distributions on such Trust Assets allocable to such Class
or Subclass, together with reinvestment income thereon, to the extent specified
in the applicable Prospectus Supplement, and amounts available to be withdrawn
from any Buy-Down, GPM Fund or Reserve Fund for such Series. The method of
determining the Asset Value of the Trust Assets in the Trust Fund for such a
Series that includes Multi-Class Certificates will be specified in the
applicable Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series,
ownership of the Trust Fund for such Series may be evidenced by one or more
Classes or Subclasses of Certificates that are Senior Certificates and
Subordinated Certificates, each representing the undivided interests in the
Trust Fund specified in such Prospectus Supplement. If so specified in the
applicable Prospectus Supplement, one or more Classes or Subclasses or
Subordinated Certificates of a Series may be subordinated to the right of the
holders of Certificates of one or more Classes or Subclasses within such Series
to receive distributions with respect to the Mortgage Loans or Contracts in the
related Trust Fund, in the manner and to the extent specified in such Prospectus
Supplement. If so specified in the applicable Prospectus Supplement, the holders
of each Subclass of Senior Certificates will be entitled to the Percentage
Interests in the principal and/or interest payments on the underlying Mortgage
Loans or Contracts specified in such Prospectus Supplement. If so specified in
the applicable Prospectus Supplement, the Subordinated Certificates of a Series
will evidence the right to receive distributions with respect to a specific pool
of Mortgage Loans or Contracts, which right will be subordinated to the right of
the holders of the Senior Certificates of such Series to receive distributions
with respect to such specific pool of Mortgage Loans or Contracts, as more fully
set forth in such Prospectus Supplement. If so specified in the applicable
Prospectus Supplement, the holders of the Senior Certificates may have the right
to receive a greater than pro rata percentage of Principal Prepayments in the
manner and under the circumstances described in the Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, the Depositor may
sell certain Classes or Subclasses of the Certificates of a Series, including
one or more Classes or Subclasses of Subordinated or Residual Certificates, in
privately negotiated transactions exempt from registration under the Securities
Act. Such Certificates will be transferable only pursuant to an effective
registration statement or an applicable exemption under the Securities Act and
pursuant to any applicable state law. Alternatively, if so specified in the
applicable Prospectus Supplement, the Depositor may offer one or more Classes or
Subclasses of the Subordinated or Residual Certificates of a Series by means of
this Prospectus and such Prospectus Supplement.
The Certificates of a Series offered hereby and by means of the applicable
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set forth in the applicable
Prospectus Supplement. No service charge will be made for any transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge in connection with such
transfer or exchange.
Distributions of Principal and Interest
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Beginning on the date specified in the applicable Prospectus Supplement,
distributions of principal and interest on the Certificates of a Series will be
made by the Master Servicer or Trustee, if so specified in the Prospectus
Supplement, on each Distribution Date to persons in whose name the Certificates
are registered at the close of business on the day specified in such Prospectus
Supplement (the "Record Date"). Such distributions of interest will be made
periodically at the intervals, in the manner and at the per annum rate specified
in the applicable Prospectus Supplement, which rate may be fixed or variable.
Interest on the Certificates will be calculated on the basis of a 360-day year
consisting of twelve 30-day months or on such other basis as may be specified in
the applicable Prospectus Supplement. Distributions of principal on the
Certificates will be made in the priority and manner and in the amounts
specified in the applicable Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series of
Certificates, distributions of interest and principal to a Certificateholder
will be equal to the product of the undivided interest evidenced by such
Certificate and the payments of principal and interest (adjusted to the related
Pass-Through Rate) on or with respect to the Mortgage Loans or Contracts
(including any Advances thereof) or the Mortgage Certificates included in the
Trust Fund with respect to such Series.
If so specified in the applicable Prospectus Supplement, distributions on a
Class or Subclass of Certificates of a Series may be based on the Percentage
Interest evidenced by a Certificate of such Class or Subclass in the
distributions (including any Advances thereof) of principal (the "Principal
Distribution") and interest (adjusted to the Pass-Through Rate for the related
Mortgage Pool or Contract Pool) (the "Interest Distribution") on or with respect
to the Mortgage Loans, the Contracts or the Mortgage Certificates in the related
Trust Fund. On each Distribution Date, the Trustee will distribute to each
holder of a Certificate of such Class or Subclass an amount equal to the product
of the Percentage Interest evidenced by such Certificate and the interest of
such Class or Subclass in the Principal Distribution and the Interest
Distribution (in each case, subject to certain limitations which, if applicable,
will be described in the applicable Prospectus Supplement). A Certificate of
such a Class or Subclass may represent a right to receive a percentage of both
the Principal Distribution and the Interest Distribution or a percentage of
either the Principal Distribution or the Interest Distribution, as specified in
the applicable Prospectus Supplement.
If so specified in the applicable Prospectus Supplement, the holders of the
Senior Certificates may have the right to receive a percentage of Principal
Prepayments that is greater than the percentage of regularly scheduled payments
of principal such holder is entitled to receive. Such percentages may vary from
time to time, subject to the terms and conditions specified in the Prospectus
Supplement.
Distributions of interest on each such Class or Subclass will be made on
the Distribution Dates, and at the Interest Rates, specified in such Prospectus
Supplement (subject to certain limitations in the case of a Series of
Certificates that includes Multi-Class Certificates, which limitations, if
applicable, will be specified in the applicable Prospectus Supplement).
Distributions of interest on each Class or Subclass of Compound Interest
Certificates of such Series will be made on each Distribution Date after the
Stated Principal Balance of all Certificates of such Series having a Final
Scheduled Distribution Date prior to that of such Class or Subclass of Compound
Interest Certificates has been reduced to zero (subject to certain limitations
in the case of a Series of Certificates that includes Multi-Class Certificates,
which limitations, if applicable, will be specified in the applicable Prospectus
Supplement). Prior to such time, interest on such Class or Subclass of Compound
Interest Certificates will be added to the Stated Principal Balance thereof on
each Distribution Date for such Series.
If so specified in the Prospectus Supplement relating to a Series of
Certificates that includes Multi-Class Certificates, distributions in reduction
of the Stated Principal Balance of such Certificates will be made as described
herein. Distributions in reduction of the Stated Principal Balance of such
Certificates will be made on each Distribution Date for such Series to the
holders of the Certificates of the Class or Subclass then entitled to receive
such distributions until the aggregate amount of such distributions have reduced
the Stated Principal Balance of such Certificates to zero. Allocation of
distributions in reduction of the Stated Principal Balance will be made to each
Class or Subclass of such Certificates in the order specified in the applicable
Prospectus Supplement, which, if so specified in such Prospectus Supplement, may
be concurrently. Distributions in reduction of the Stated Principal Balance of
each Certificate of a Class or Subclass then entitled
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to receive such distributions will be made pro rata among the Certificates of
such Class or Subclass (or on such other basis as is specified in the applicable
Prospectus Supplement).
The maximum amount which will be distributed in reduction of the Stated
Principal Balance to holders of Certificates of a Class or Subclass then
entitled thereto on any Distribution Date generally will equal, to the extent
funds are available in the Certificate Account, the sum of (i) the amount of the
interest, if any, that has accrued but is not yet payable on the Compound
Interest Certificates of such Series since the prior Distribution Date (or since
the date specified in the applicable Prospectus Supplement in the case of the
first Distribution Date) (the "Accrual Distribution Amount"); (ii) the Stated
Principal Distribution Amount; and (iii) to the extent specified in the
applicable Prospectus Supplement, the applicable percentage of the Excess Cash
Flow specified in such Prospectus Supplement.
The "Stated Principal Distribution Amount" with respect to a Distribution
Date will equal the sum of the Accrual Distribution Amount, if any, and the
amount, if any, by which the then outstanding Stated Principal Balance of the
Multi-Class Certificates of such Series (before taking into account the amount
of interest accrued on any Class of Compound Interest Certificates of such
Series to be added to the Stated Principal Balance thereof on such Distribution
Date) exceeds the Asset Value of the Trust Assets in the Trust Fund underlying
such Series as of the end of a period (a "Due Period") specified in the
applicable Prospectus Supplement (or such other amount as is specified in the
applicable Prospectus Supplement relating to a Series of Certificates that
includes Multi-Class Certificates). For purposes of determining the Stated
Principal Distribution Amount with respect to a Distribution Date, the Asset
Value of the Trust Assets will be reduced to take into account the interest
evidenced by such Classes or Subclasses of Certificates in the principal
distributions on or with respect of such Trust Assets received by the Trustee
during the preceding Due Period.
"Excess Cash Flow" represents the excess of (i) the interest evidenced by
such Multi-Class Certificates in the distributions received on the Mortgage
Loans or Contracts underlying such Series in the Due Period preceding a
Distribution Date for such Series (and, in the case of the first Due Period, the
amount deposited in the Certificate Account on the closing day for the sale of
such Certificates), together with income from the reinvestment thereof, and, to
the extent specified in such Prospectus Supplement, the amount of cash withdrawn
from any Reserve, GPM or Buy-Down Fund for such Series in the Due Period
preceding such Distribution Date, over (ii) the sum of all interest accrued,
whether or not then distributable, on the Multi-Class Certificates since the
preceding Distribution Date (or since the date specified in the applicable
Prospectus Supplement in the case of the first Distribution Date), the Stated
Principal Distribution Amount for the then current Distribution Date and, if
applicable, any payments made on any Certificates of such Class or Subclass
pursuant to any special distributions in reduction of Stated Principal Balance
during such Due Period (or such other amount as is specified in the applicable
Prospectus Supplement relating to a Series of Certificates that includes
Multi-Class Certificates).
The Stated Principal Balance of a Multi-Class Certificate of a Series at
any time represents the maximum specified dollar amount (exclusive of interest
at the related Interest Rate) to which the holder thereof is entitled from the
cash flow on the Trust Assets in the Trust Fund for such Series, and will
decline to the extent distributions in reduction of Stated Principal Balance are
received by such holder. The Initial Stated Principal Balance of each Class or
Subclass within a Series that has been assigned a Stated Principal Balance will
be specified in the applicable Prospectus Supplement.
Distributions (other than the final distribution in retirement of the
Certificates) will be made by check mailed to the address of the person entitled
thereto as it appears on the Certificate Register, except that, with respect to
any holder of a Certificate meeting the requirements specified in the applicable
Prospectus Supplement, distributions shall be made by wire transfer in
immediately available funds, provided that the Trustee shall have been furnished
with appropriate wiring instructions not less than two Business Days prior to
the related Distribution Date. The final distribution in retirement of
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency designated by the Master Servicer for such
purpose, as specified in the final distribution notice to Certificateholders.
Assignment of Mortgage Certificates
Pursuant to the applicable Pooling and Servicing Agreement for a Series of
Certificates that includes Mortgage Certificates in the related Trust Fund, the
Depositor will cause such Mortgage Certificates to be transferred to the Trustee
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together with all principal and interest distributed on such Mortgage
Certificates after the Cut-off Date. Each Certificate included in a Trust Fund
will be identified in a schedule appearing as an exhibit to the applicable
Pooling and Servicing Agreement. Such schedule will include information as to
the principal balance of each Mortgage Certificate as of the date of issuance of
the Certificates and its coupon rate, maturity and original principal balance.
In addition, such steps will be taken by the Depositor as are necessary to cause
the Trustee to become the registered owner of each Mortgage Certificate which is
included in a Trust Fund and to provide for all distributions on each such
Mortgage Certificate to be made directly to the Trustee.
In connection with such assignment, the Depositor will make certain
representations and warranties in the Pooling and Servicing Agreement as to,
among other things, its ownership of the Mortgage Certificates. In the event
that these representations and warranties are breached, and such breach or
breaches adversely affect the interests of the Certificateholders in the
Mortgage Certificates, the Depositor will be required to repurchase the affected
Mortgage Certificates at a price equal to the principal balance thereof as of
the date of purchase together with accrued and unpaid interest thereon at the
related pass-through rate to the distribution date for such Mortgage
Certificates or, in the case of a Series in which an election has been made to
treat the related Trust Fund as one or more REMICs, at the lesser of the price
set forth above, or the adjusted tax basis, as defined in the Code, of such
Mortgage Certificates. The Mortgage Certificates with respect to a Series may
also be subject to repurchase, in whole but not in part, under the circumstances
and in the manner described in the applicable Prospectus Supplement. Any amounts
received in respect of such repurchases will be distributed to
Certificateholders on the immediately succeeding Distribution Date.
If so specified in the applicable Prospectus Supplement, within the
specified period following the date of issuance of a Series of Certificates, the
Depositor may, in lieu of the repurchase obligation set forth above, and in
certain other circumstances, deliver to the Trustee Mortgage Certificates
("Substitute Mortgage Certificates") in substitution for any one or more of the
Mortgage Certificates ("Deleted Mortgage Certificates") initially included in
the Trust Fund. The required characteristics or any such Substitute Mortgage
Certificates and any additional restrictions relating to the substitution of
Mortgage Certificates will be set forth in the applicable Prospectus Supplement.
Assignment of Mortgage Loans
The Depositor will cause the Mortgage Loans constituting a Mortgage Pool to
be assigned to the Trustee, together with all principal and interest received on
or with respect to such Mortgage Loans after the Cut-off Date, but not including
principal and interest due on or before the Cut-off Date. The Trustee will,
concurrently with such assignment, deliver the Certificates to the Depositor in
exchange for the Mortgage Loans. Each Mortgage Loan will be identified in a
schedule appearing as an exhibit to the related Pooling and Servicing Agreement.
Such schedule will include information as to the adjusted principal balance of
each Mortgage Loan as of the Cut-off Date, as well as information with respect
to the Mortgage Rate, the currently scheduled monthly payment of principal and
interest, the maturity of the Mortgage Note and the Loan-to-Value Ratio at
origination.
In addition, the Depositor will, as to each Mortgage Loan that is not a
Cooperative Loan, deliver or cause to be delivered to the Trustee (or to the
custodian hereinafter referred to) the Mortgage Note endorsed to the order of
the Trustee, the Mortgage with evidence of recording indicated thereon (except
for any Mortgage not returned from the public recording office, in which case
the Depositor will deliver a copy of such Mortgage together with its certificate
that the original of such Mortgage was delivered to such recording office) and
an assignment of the Mortgage in recordable form. Assignments of the Mortgage
Loans to the Trustee will be recorded in the appropriate public office for real
property records, except in states where, in the opinion of counsel acceptable
to the Trustee, such recording is not required to protect the Trustee's interest
in the Mortgage Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor or the Originator of such Mortgage
Loan.
The Depositor will cause to be delivered to the Trustee, its agent, or a
custodian, with respect to any Cooperative Loan, the related original security
agreement, the proprietary lease or occupancy agreement, the recognition
agreement, an executed financing statement and the relevant stock certificate
and related blank stock powers. The Master Servicer will file in the appropriate
office a financing statement evidencing the Trustee's security interest in each
Cooperative Loan.
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The Trustee (or the custodian hereinafter referred to) will, generally
within 60 days after receipt thereof, review and hold such documents in trust
for the benefit of the Certificateholders. If any such document is found to be
defective in any material respect, the Trustee will promptly notify the Master
Servicer and the Depositor, and the Master Servicer will notify the related
Servicer. If the Servicer cannot cure the defect within 60 days after notice is
given to the Master Servicer, the Servicer will be obligated either to
substitute for the related Mortgage Loan a Replacement Mortgage Loan or Loans,
or to purchase within 90 days of such notice the related Mortgage Loan from the
Trustee at a price equal to the principal balance thereof as of the date of
purchase or, in the case of a Series as to which an election has been made to
treat the related Trust Fund as one or more REMICs, at such other price as may
be necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together with accrued interest at the
applicable Pass-Through Rate, to the first day of the month following such
repurchase, plus the amount of any unreimbursed Advances made by the Master
Servicer or the Servicer, as applicable, in respect of such Mortgage Loan. The
Master Servicer is obligated to enforce the repurchase obligation of the
Servicer, to the extent described above under "The Trust Fund-Mortgage Loan
Program-Representations by Unaffiliated Sellers; Repurchases". This repurchase
obligation generally constitutes the sole remedy available to the
Certificateholders or the Trustee for a material defect in a constituent
document.
With respect to the Mortgage Loans in a Mortgage Pool, the Depositor will
make representations and warranties as to the types and geographical
distribution of such Mortgage Loans and as to the accuracy in all material
respects of certain information furnished to the Trustee in respect of each such
Mortgage Loan. In addition, if so specified in the applicable Prospectus
Supplement, the Depositor will represent and warrant that, as of the Cut-off
Date for the related Series of Certificates, no Mortgage Loan is more than 30
days delinquent as to payment of principal and interest. Upon a breach of any
representation or warranty by the Depositor that materially and adversely
affects the interest of the Certificateholders, the Depositor will be obligated
either to cure the breach in all material respects or to repurchase the Mortgage
Loan at the purchase price set forth above. Subject to the ability of the
Depositor, if so specified in the applicable Prospectus Supplement, to
substitute for certain Mortgage Loans as described below, this repurchase
obligation generally constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of representation or warranty by
the Depositor.
Within the period specified in the applicable Prospectus Supplement,
following the date of issuance of a Series of Certificates, the Depositor, the
Master Servicer or the related Servicer, as the case may be, may deliver to the
Trustee Mortgage Loans ("Substitute Mortgage Loans") in substitution for any one
or more of the Mortgage Loans ("Deleted Mortgage Loans") initially included in
the Trust Fund but which do not conform in one or more respects to the
description thereof contained in the applicable Prospectus Supplement, or as to
which a breach of a representation or warranty is discovered, which breach
materially and adversely affects the interests of the Certificateholders. The
required characteristics of any such Substitute Mortgage Loan and any additional
restrictions relating to the substitution of Mortgage Loans will generally be as
described under "The Trust Fund-The Mortgage Pools" with respect to the
substitution of Mortgage Loans.
In addition to making certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under the
Pooling and Servicing Agreement relating to a Series of Certificates, the Master
Servicer may make certain representations and warranties to the Trustee in such
Pooling and Servicing Agreement with respect to the enforceability of coverage
under any applicable Primary Insurance Policy, Pool Insurance Policy, Special
Hazard Insurance Policy or Mortgagor Bankruptcy Bond. See "Description of
Insurance" for information regarding the extent of coverage under certain of the
aforementioned insurance policies. Upon a breach of any such representation or
warranty that materially and adversely affects the interests of the
Certificateholders of such Series in a Mortgage Loan, the Master Servicer will
be obligated either to cure the breach in all material respects or to purchase
such Mortgage Loan at the price calculated as set forth above
To the extent described in the applicable Prospectus Supplement, the Master
Servicer will procure a surety bond, corporate guaranty or another similar form
of insurance coverage acceptable to the Rating Agency rating the related Series
of Certificates to support, among other things, this purchase obligation. The
aforementioned purchase obligation generally constitutes the sole remedy
available to the Certificateholders or the Trustee for a breach of the Master
Servicer's insurability representation. The Master Servicer's obligation to
purchase Mortgage Loans upon such a breach is subject to limitations.
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The Trustee will be authorized, with the consent of the Depositor and the
Master Servicer, to appoint a custodian pursuant to a custodial agreement to
maintain possession of documents relating to the Mortgage Loans as the agent of
the Trustee.
Pursuant to each Pooling and Servicing Agreement, the Master Servicer,
either directly or through Servicers, will service and administer the Mortgage
Loans assigned to the Trustee as more fully set forth below.
Assignment of Contracts
The Depositor will cause the Contracts constituting the Contract Pool to be
assigned to the Trustee, together with principal and interest due on or with
respect to the Contracts after the Cut-off Date, but not including principal and
interest due on or before the Cut-off Date. If the Depositor is unable to obtain
a perfected security interest in a Contract prior to transfer and assignment to
the Trustee, the Unaffiliated Seller will be obligated to repurchase such
Contract. The Trustee, concurrently with such assignment, will authenticate and
deliver the Certificates. Each Contract will be identified in a schedule
appearing as an exhibit to the Agreement (the "Contract Schedule"). The Contract
Schedule generally will specify, with respect to each Contract, among other
things: the original principal amount and the adjusted principal balance as of
the close of business on the Cut-off Date; the APR; the current scheduled
monthly level payment of principal and interest; and the maturity of the
Contract.
In addition, the Depositor, as to each Contract, will deliver or cause to
be delivered to the Trustee, or, if specified in the applicable Prospectus
Supplement, the Custodian, the original Contract and copies of documents and
instruments related to each Contract and the security interest in the
Manufactured Home securing each Contract. In order to give notice of the right,
title and interest of the Certificateholders to the Contracts, the Depositor
will cause a UCC-1 financing statement to be executed by the Depositor
identifying the Trustee as the secured party and identifying all Contracts as
collateral. The Contracts generally will not be stamped or otherwise marked to
reflect their assignment from the Depositor to the Trust Fund. Therefore, if a
subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the interest of the Certificateholders in the
Contracts could be defeated. See "Certain Legal Aspects of Mortgage Loans and
Contracts-The Contracts".
The Trustee (or the Custodian) will review and hold such documents in trust
for the benefit of the Certificateholders. If any such document is found to be
defective in any material respect, the Unaffiliated Seller must cure such defect
within 60 days, or within such other period specified in the applicable
Prospectus Supplement, after the Trustee's notice to the Unaffiliated Seller of
the defect. If the defect is not cured, the Unaffiliated Seller will repurchase
the related Contract or any property acquired in respect thereof from the
Trustee at a price equal to the remaining unpaid principal balance of such
Contract (or, in the case of a repossessed Manufactured Home, the unpaid
principal balance of such Contract immediately prior to the repossession) or, in
the case of a Series as to which an election has been made to treat the related
Trust Fund as one or more REMICs, at such other price as may be necessary to
avoid a tax on a prohibited transaction, as described in Section 860F(a) of the
Code, in each case together with accrued but unpaid interest to the first day of
the month following repurchase at the related Pass-Through Rate, plus any
unreimbursed Advances with respect to such Contract. This repurchase obligation
generally constitutes the sole remedy available to the Certificateholders or the
Trustee for a material defect in a Contract document.
Each Unaffiliated Seller of Contracts will have represented, among other
things, that (i) immediately prior to the transfer and assignment of the
Contracts, the Unaffiliated Seller had good title to, and was the sole owner of
each Contract and there had been no other sale or assignment thereof, (ii) as of
the date of such transfer, the Contracts are subject to no offsets, defenses or
counterclaims, (iii) each Contract at the time it was made complied in all
material respects with applicable state and federal laws, including usury, equal
credit opportunity and disclosure laws, (iv) as of the date of such transfer,
each Contract is a valid first lien on the related Manufactured Home and such
Manufactured Home is free of material damage and is in good repair, (v) as of
the date of such transfer, no Contract is more than 30 days delinquent in
payment and there are no delinquent tax or assessment liens against the related
Manufactured Home and (vi) with respect to each Contract, the Manufactured Home
securing the Contract is covered by a Standard Hazard Insurance Policy in the
amount required in
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the Pooling and Servicing Agreement and that all premiums now due on such
insurance have been paid in full (in each case, subject to certain exceptions
which, if applicable, will be specified in the applicable Prospectus
Supplement).
All of the representations and warranties of a seller in respect of a
Contract will have been made as of the date on which such seller sold the
Contract to the Depositor or its affiliate; the date such representations and
warranties were made may be a date prior to the date of initial issuance of the
related Series of Certificates. A substantial period of time may have elapsed
between the date as of which the representations and warranties were made and
the later date of initial issuance of the related Series of Certificates. Since
the representations and warranties referred to in the preceding paragraph are
the only representations and warranties that will be made by a seller, the
seller's repurchase obligation described below will not arise if, during the
period commencing on the date of sale of a Contract by the seller to the
Depositor or its affiliate, the relevant event occurs that would have given rise
to such an obligation had the event occurred prior to sale of the affected
Contract. Nothing, however, has come to the Depositor's attention that would
cause it to believe that the representations and warranties referred to in the
preceding paragraph will not be accurate and complete in all material respects
in respect of Contracts as of the date of initial issuance of the related Series
of Certificates.
The only representations and warranties to be made for the benefit of
Certificateholders in respect of any Contract relating to the period commencing
on the date of sale of such Contract to the Depositor or its affiliate will be
certain limited representations of the Depositor and of the Master Servicer
described above under "The Trust Fund-The Contract Pools".
If an Unaffiliated Seller cannot cure a breach of any representation or
warranty made by it in respect of a Contract that materially and adversely
affects the interest of the Certificateholders in such Contract within 90 days
(or such other period specified in the applicable Prospectus Supplement) after
notice from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, the principal balance thereof (or
such other price as may be specified, or determined by such method as may be
specified, in the applicable Prospectus Supplement) as of the date of the
repurchase or, in the case of a Series as to which an election has been made to
treat the related Trust Fund as one or more REMICs, at such other price as may
be necessary to avoid a tax on a prohibited transaction, as described in Section
860F(a) of the Code, in each case together with accrued and unpaid interest to
the first day of the month following repurchase at the related Pass-Through
Rate, plus the amount of any unreimbursed Advances in respect of such Contract
(the "Purchase Price"). The Master Servicer will be required under the
applicable Pooling and Servicing Agreement to enforce this obligation for the
benefit of the Trustee and the Certificateholders, following the practices it
would employ in its good faith business judgment were it the owner of such
Contract. This repurchase obligation generally will constitute the sole remedy
available to Certificateholders or the Trustee for a breach of representation by
an Unaffiliated Seller.
Neither the Depositor nor the Master Servicer will be obligated to purchase
a Contract if an Unaffiliated Seller defaults on its obligation to do so, and no
assurance can be given that sellers will carry out their respective repurchase
obligations with respect to Contracts. However, to the extent that a breach of
the representations and warranties of an Unaffiliated Seller may also constitute
a breach of a representation made by the Depositor or the Master Servicer, the
Depositor or the Master Servicer may have a purchase obligation as described
above under "The Trust Fund-The Contract Pools".
Servicing by Unaffiliated Sellers
Each Unaffiliated Seller of a Mortgage Loan or a Contract may have the
option to act as the Servicer (or Master Servicer) for such Mortgage Loan or
Contract pursuant to a Servicing Agreement. A representative form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The following summary describes the material
provisions common to each Servicing Agreement but is qualified in its entirety
by reference to the form of Servicing Agreement and by the discretion of the
Master Servicer or Depositor to modify the Servicing Agreement and to enter into
different Servicing Agreements. The Pooling and Servicing Agreement provides
that, if for any reason the Master Servicer for such Series of Certificates is
no longer the Master Servicer of the related Mortgage Loans or Contracts, the
Trustee or any successor master servicer must recognize the Servicer's rights
and obligations under such Servicing Agreement.
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A Servicer may delegate its servicing obligations to third-party servicers,
but continue to act as Servicer under the related Servicing Agreement. The
Servicer will be required to perform the customary functions of a servicer,
including collection of payments from Mortgagors and Obligors and remittance of
such collections to the Master Servicer, maintenance of primary mortgage
insurance, hazard insurance, FHA insurance and VA guarantees and filing and
settlement of claims thereunder, subject in certain cases to (a) the right of
the Master Servicer to approve in advance any such settlement; (b) maintenance
of escrow accounts of Mortgagors and Obligors for payment of taxes, insurance,
and other items required to be paid by the Mortgagor pursuant to terms of the
related Mortgage Loan or the Obligor pursuant to the related Contract; (c)
processing of assumptions or substitutions; (d) attempting to cure
delinquencies; (e) supervising foreclosures or repossessions; (f) inspection and
management of Mortgaged Properties, Cooperative Dwellings or Manufactured Homes
under certain circumstances; and (g) maintaining accounting records relating to
the Mortgage Loans and Contracts. A Servicer will also be obligated to make
Advances in respect of delinquent installments of principal and interest on
Mortgage Loans and Contracts (as described more fully below under "-Payments on
Mortgage Loans" and "-Payments on Contracts"), and in respect of certain taxes
and insurance premiums not paid on a timely basis by Mortgagors and Obligors.
As compensation for its servicing duties, a Servicer will be entitled to
amounts from payments with respect to the Mortgage Loans and Contracts serviced
by it. The Servicer will also be entitled to collect and retain, as part of its
servicing compensation, certain fees and late charges provided in the Mortgage
Note or related instruments. The Servicer will be reimbursed by the Master
Servicer for certain expenditures that it makes, generally to the same extent
that the Master Servicer would be reimbursed under the applicable Pooling and
Servicing Agreement.
Each Servicer will be required to agree to indemnify the Master Servicer
for any liability or obligation sustained by the Master Servicer in connection
with any act or failure to act by the Servicer in its servicing capacity.
Each Servicer will be required to service each Mortgage Loan or Contract
pursuant to the terms of the Servicing Agreement for the entire term of such
Mortgage Loan or Contract, unless the Servicing Agreement is earlier terminated
by the Master Servicer or unless servicing is released to the Master Servicer.
The Master Servicer may (subject to certain limitations which, if applicable,
will be specified in the applicable Prospectus Supplement) terminate a Servicing
Agreement upon 30 days' written notice to the Servicer, without cause, upon
payment of an amount equal to the fair market value of the right to service the
Mortgage Loans or Contracts serviced by any such Servicer under such Servicing
Agreement, or if such fair market value cannot be determined, a specified
percentage of the aggregate outstanding principal balance of all such Mortgage
Loans or Contracts, or immediately upon the giving of notice upon certain stated
events, including the violation of such Servicing Agreement by the Servicer.
The Master Servicer may agree with a Servicer to amend a Servicing
Agreement. The Master Servicer may also, at any time and from time to time,
release servicing to third-party servicers, but continue to act as Master
Servicer under the related Pooling and Servicing Agreement. Upon termination of
a Servicing Agreement, the Master Servicer may act as servicer of the related
Mortgage Loans or Contracts or enter into one or more new Servicing Agreements.
If the Master Servicer acts as servicer, it will not assume liability for the
representations and warranties of the Servicer that it replaces. If the Master
Servicer enters into a new Servicing Agreement, each new Servicer must be an
Unaffiliated Seller or meet the standards for becoming an Unaffiliated Seller or
have such servicing experience that is otherwise satisfactory to the Master
Servicer. The Master Servicer will make reasonable efforts to have the new
Servicer assume liability for the representations and warranties of the
terminated Servicer, but no assurance can be given that such an assumption will
occur. In the event of such an assumption, the Master Servicer may, in the
exercise of its business judgment, release the terminated Servicer from
liability in respect of such representations and warranties. Any amendments to a
Servicing Agreement or new Servicing Agreements may contain provisions different
from those described above that are in effect in the original Servicing
Agreements. However, the Pooling and Servicing Agreement with respect to a
Series will provide that any such amendment or new agreement may not be
inconsistent with or violate such Pooling and Servicing Agreement.
Payments on Mortgage Loans
The Master Servicer will (subject to certain exceptions which, if
applicable, will be specified in the applicable Prospectus Supplement) establish
and maintain a separate account or accounts in the name of the Trustee (the
"Certificate
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Account"), which must be maintained with a depository institution and in a
manner acceptable to the Rating Agency rating the Certificates of a Series.
If so specified in the applicable Prospectus Supplement, the Master
Servicer, in lieu of establishing a Certificate Account, may establish a
separate account or accounts in the name of the Trustee (the "Custodial
Account") meeting the requirements set forth herein for the Certificate Account.
In such a case, amounts in such Custodial Account, after making the required
deposits and withdrawals specified below, shall be remitted to the Certificate
Account maintained by the Trustee for distribution to Certificateholders in the
manner set forth herein and in such Prospectus Supplement.
In those cases where a Servicer is servicing a Mortgage Loan pursuant to a
Servicing Agreement, the Servicer will establish and maintain an account (the
"Servicing Account") that will comply with either the standards set forth above
or, subject to the conditions set forth in the Servicing Agreement, be
maintained with a depository meeting the requirements of the Rating Agency
rating the Certificates of the related Series, and that is otherwise acceptable
to the Master Servicer. The Servicer will be required to deposit into the
Servicing Account on a daily basis all amounts enumerated in the following
paragraph in respect of the Mortgage Loans received by the Servicer, less its
servicing compensation. On the date specified in the Servicing Agreement, the
Servicer shall remit to the Master Servicer all funds held in the Servicing
Account with respect to each Mortgage Loan. The Servicer will also be required
to advance any monthly installment of principal and interest that was not timely
received, less its servicing fee, provided that, such requirement shall only
apply to the extent such Servicer determines in good faith any such advance will
be recoverable out of Insurance Proceeds, proceeds of the liquidation of the
related Mortgage Loans or otherwise.
The Certificate Account may be maintained with a depository institution
that is an affiliate of the Master Servicer. The Master Servicer will deposit in
the Certificate Account for each Series of Certificates on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date) in the
manner set forth in the applicable Prospectus Supplement:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Loans, net of any portion of such payments
that represent unreimbursed or unrecoverable Advances made by the related
Servicer;
(ii) all payments on account of interest on the Mortgage Loans, net of
any portion thereof retained by the Servicer, if any, as its servicing fee;
(iii) all proceeds of (A) any Special Hazard Insurance Policy, Primary
Mortgage Insurance Policy, FHA Insurance, VA Guarantee, Mortgagor
Bankruptcy Bond or Pool Insurance Policy with respect to such Series of
Certificates and any title, hazard or other insurance policy covering any
of the Mortgage Loans included in the related Mortgage Pool (to the extent
such proceeds are not applied to the restoration of the related property or
released to the Mortgagor in accordance with customary servicing
procedures) (collectively, "Insurance Proceeds") or any Alternative Credit
Support established in lieu of any such insurance and described in the
applicable Prospectus Supplement; and (B) all other cash amounts received
and retained in connection with the liquidation of defaulted Mortgage
Loans, by foreclosure or otherwise, other than Insurance Proceeds, payments
under the Letter of Credit or proceeds of any Alternative Credit Support,
if any, with respect to such Series ("Liquidation Proceeds"), net of
expenses of liquidation, unpaid servicing compensation with respect to such
Mortgage Loans and unreimbursed or unrecoverable Advances made by the
Servicers of the related Mortgage Loans;
(iv) all payments under the Letter of Credit, if any, with respect to
such Series;
(v) all amounts required to be deposited therein from the Reserve
Fund, if any, for such Series;
(vi) any Advances made by a Servicer or the Master Servicer (as
described herein under "-Advances");
(vii) any Buy-Down Funds (and, if applicable, investment earnings
thereon) required to be deposited in the Certificate Account, as described
below; and
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(viii) all proceeds of any Mortgage Loan repurchased by the Master
Servicer, the Depositor, any Servicer or any Unaffiliated Seller (as
described under "The Trust Fund-Mortgage Loan Program-Representations by
Unaffiliated Sellers; Repurchases" or "-Assignment of Mortgage Loans" above
or repurchased by the Depositor as described under "-Termination" below)
With respect to each Buy-Down Loan, if so specified in the applicable
Prospectus Supplement, the Master Servicer or the related Servicer will deposit
the Buy-Down Funds with respect thereto in a custodial account complying with
the requirements set forth above for the Certificate Account, which may be an
interest-bearing account. The amount of such required deposits, together with
investment earnings thereon at the rate specified in the applicable Prospectus
Supplement, will provide sufficient funds to support the full monthly payments
due on such Buy-Down Loan on a level debt service basis. Neither the Master
Servicer nor the Depositor will be obligated to add to the Buy-Down Fund should
investment earnings prove insufficient to maintain the scheduled level of
payments on the Buy-Down Loans. To the extent that any such insufficiency is not
recoverable from the Mortgagor under the terms of the related Mortgage Note,
distributions to Certificateholders will be affected. With respect to each
Buy-Down Loan, the Master Servicer will withdraw from the Buy-Down Fund and
deposit in the Certificate Account on or before each Distribution Date the
amount, if any, for each Buy-Down Loan that, when added to the amount due on
that date from the Mortgagor on such Buy-Down Loan, equals the full monthly
payment that would be due on the Buy-Down Loan if it were not subject to the
buy-down plan.
If the Mortgagor on a Buy-Down Loan prepays such loan in its entirety, or
defaults on such loan and the Mortgaged Property is sold in liquidation thereof,
during the period when the Mortgagor is not obligated, on account of the
buy-down plan, to pay the full monthly payment otherwise due on such loan, the
related Servicer will withdraw from the Buy-Down Fund and deposit in the
Certificate Account the amounts remaining in the Buy-Down Fund with respect to
such Buy-Down Loan. In the event of a default with respect to which a claim,
including accrued interest supplemented by amounts in the Buy-Down Fund with
respect to the related Buy-Down Loan, has been made, the Master Servicer or the
related Servicer will pay an amount equal to the remaining amounts in the
Buy-Down Fund with respect to the related Buy-Down Loan, to the extent the claim
includes accrued interest supplemented by amounts in the Buy-Down Fund, to the
related Pool Insurer or the insurer under the related Primary Insurance Policy
(the "Primary Insurer") if the Mortgaged Property is transferred to the Pool
Insurer or the Primary Insurer, as the case may be, which pays 100% of the
related claim (including accrued interest and expenses) in respect of such
default, to the L/C Bank in consideration of such payment under the related
Letter of Credit, or to the guarantor or other person which pays the same
pursuant to Alternative Credit Support described in the applicable Prospectus
Supplement. In the case of any such prepaid or defaulted Buy-Down Loan the
amounts in the Buy-Down Fund in respect of which were supplemented by investment
earnings, the Master Servicer will withdraw from the Buy-Down Fund and remit to
the Depositor or the Mortgagor, depending on the terms of the related buy-down
plan, any investment earnings remaining in the related Buy-Down Fund.
If so specified in the Prospectus Supplement with respect to a Series, in
lieu of, or in addition to the foregoing, the Depositor may deliver cash, a
letter of credit or a guaranteed investment contract to the Trustee to fund the
Buy-Down Fund for such Series, which shall be drawn upon by the Trustee in the
manner and at the times specified in such Prospectus Supplement.
Payments on Contracts
A Certificate Account meeting the requirements set forth under "Description
of the Certificates-Payments on Mortgage Loans" will be established in the name
of the Trustee.
There will be deposited in the Certificate Account on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (including scheduled payments of principal and interest due after
the Cut-off Date but received by the Master Servicer on or before the Cut-off
Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts,
adjusted to the Pass-Through Rate;
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(iii) all Liquidation Proceeds received with respect to Contracts or
property acquired in respect thereof by foreclosure or otherwise;
(iv) all Insurance Proceeds received with respect to any Contract,
other than proceeds to be applied to the restoration or repair of the
Manufactured Home or released to the Obligor;
(v) any Advances made as described under "-Advances" and certain other
amounts required under the Pooling and Servicing Agreement to be deposited
in the Certificate Account with respect to any Contract;
(vi) all amounts received from Credit Support provided with respect to
a Series of Certificates with respect to any Contract;
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Master Servicer, the Depositor or otherwise as
described above or under "-Termination" below; and
(viii) all amounts, if any, required to be transferred to the
Certificate Account from the Reserve Fund with respect to any Contract.
Collection of Payments on Mortgage Certificates
The Mortgage Certificates, if any, included in the Trust Fund with respect
to a Series of Certificates will be registered in the name of the Trustee so
that all distributions thereon will be made directly to the Trustee. The Pooling
and Servicing Agreement will require the Trustee, if it has not received a
distribution with respect to any Mortgage Certificate by the second business day
after the date on which such distribution was due and payable pursuant to the
terms of such Mortgage Certificate, to request the issuer or guarantor, if any,
of such Mortgage Certificate to make such payment as promptly as possible and
legally permitted and to take such legal action against such issuer or guarantor
as the Trustee deems appropriate under the circumstances, including the
prosecution of any claims in connection therewith. The reasonable legal fees and
expenses incurred by the Trustee in connection with the prosecution of any such
legal action will be reimbursable to the Trustee out of the proceeds of any such
action and will be retained by the Trustee prior to the deposit of any remaining
proceeds in the Certificate Account pending distribution thereof to
Certificateholders of the affected Series. In the event that the Trustee has
reason to believe that the proceeds of any such legal action may be insufficient
to reimburse it for its projected legal fees and expenses, the Trustee will
notify such Certificateholders that it is not obligated to pursue any such
available remedies unless adequate indemnity for its legal fees and expenses is
provided by such Certificateholders.
Distributions on Certificates
On each Distribution Date with respect to a Series of Certificates as to
which credit support is provided by means other than the creation of a
Subordinated Class or Subclasses and the establishment of a Reserve Fund, the
Master Servicer will withdraw from the applicable Certificate Account funds on
deposit therein and distribute, or, if so specified in the applicable Prospectus
Supplement, will withdraw from the Custodial Account funds on deposit therein
and remit to the Trustee, who will distribute, such funds to Certificateholders
of record on the applicable Record Date. Such distributions shall occur in the
manner described herein under "Description of the Certificates-Distributions of
Principal and Interest" and in the applicable Prospectus Supplement. If so
specified in the applicable Prospectus Supplement, the Master Servicer will
withdraw from the applicable Certificate Account funds on deposit therein and
distribute them to the Trustee. Such funds shall consist of the aggregate of all
previously undistributed payments on account of principal (including principal
prepayments, if any) and interest received (relating to each Mortgage Loan in
the Mortgage Pool or each Contract in the Contract Pool) after the Cut-off Date
and on or prior to the 20th day (or if such day is not a business day, the next
preceding business day) of the month of such distribution or such other day as
may be specified in the applicable Prospectus Supplement (in either case the
"Determination Date"), except (other than with respect to a Series which
includes Multi-Class Certificates):
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(i) all payments that were due on or before the Cut-off Date;
(ii) all principal prepayments and, if so specified in the applicable
Prospectus Supplement, Liquidation Proceeds and all payments in respect of
certain repurchased Mortgage Loans or Contracts received during the month
of distribution and all payments of interest representing interest for the
month of distribution or any portion thereof;
(iii) all payments which represent early receipt (other than
prepayments) of scheduled payments of principal and interest due on a date
or dates subsequent to the first day of the month of distribution;
(iv) amounts received on particular Mortgage Loans or Contracts as
late payments of principal or interest and with respect to which the Master
Servicer has made an unreimbursed Advance;
(v) amounts representing reimbursement for other Advances which the
Master Servicer has determined to be otherwise nonrecoverable and amounts
representing reimbursement for certain losses and expenses incurred or
Advances made by the Master Servicer and discussed below; and
(vi) that portion of each collection of interest on a particular
Mortgage Loan in such Mortgage Pool or on a particular Contract in such
Contract Pool that represents (A) servicing compensation to the Master
Servicer, (B) amounts payable to the entity or entities specified in the
applicable Prospectus Supplement or permitted withdrawals from the
Certificate Account out of payments under the Letter of Credit, if any,
with respect to the Series, (C) related Insurance Proceeds or Liquidation
Proceeds, (if so specified in the applicable prospectus supplement, to the
extent such amounts exceed the aggregate of unpaid principal and interest
on the related Contract) (D) amounts in the Reserve Fund, if any, with
respect to the Series or (E) proceeds of any Alternative Credit Support,
each deposited in the Certificate Account to the extent described under
"Description of the Certificates-Maintenance of Insurance Policies",
"-Presentation of Claims", "-Enforcement of Due-on-Sale Clauses;
Realization Upon Defaulted Mortgage Loans" and "-Enforcement of Due-on-Sale
Clauses; Realization Upon Defaulted Contracts" or in the applicable
Prospectus Supplement.
No later than the Business Day immediately preceding the Distribution Date
for a Series of Certificates, the Master Servicer will furnish a statement to
the Trustee setting forth the amount to be distributed on the next succeeding
Distribution Date on account of principal and interest on the Mortgage Loans or
Contracts, stated separately or the information enabling the Trustee to
determine the amount of distribution to be made on the Certificates and a
statement setting forth certain information with respect to the Mortgage Loans
or Contracts.
If so specified in the applicable Prospectus Supplement, the Trustee will
establish and maintain the Certificate Account for the benefit of the holders of
the Certificates of the related Series in which the Trustee shall deposit, as
soon as practicable after receipt, each distribution made to the Trustee by the
Master Servicer, as set forth above, with respect to the Mortgage Loans or
Contracts, any distribution received by the Trustee with respect to the Mortgage
Certificates, if any, included in the Trust Fund and deposits from any Reserve
Fund or GPM Fund. If so specified in the applicable Prospectus Supplement, prior
to making any distributions to Certificateholders, any portion of the
distribution on the Mortgage Certificates that represents servicing
compensation, if any, payable to the Trustee shall be deducted and paid to the
Trustee.
Funds on deposit in the Certificate Account may be invested in Eligible
Investments maturing in general not later than the Business Day preceding the
next Distribution Date. If so provided in the Prospectus Supplement, all income
and gain realized from any such investment will be for the benefit of the Master
Servicer. The Master Servicer will be required to deposit the amount of any
losses incurred with respect to such investments out of its own funds, when
realized. The Certificate Account established pursuant to the Deposit Trust
Agreement shall be a non-interest bearing account or accounts.
The timing and method of distribution of funds in the Certificate Account
to Classes or Subclasses of Certificates having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the applicable Prospectus Supplement.
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Special Distributions
To the extent specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes of Multi-Class Certificates that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of the Stated Principal Balance ("Special Distributions") in any
month, other than a month in which a Distribution Date occurs, if, as a result
of principal prepayments on the Trust Assets in the related Trust Fund and/or
low reinvestment yields, the Trustee determines, based on assumptions specified
in the related Pooling and Servicing Agreement, that the amount of cash
anticipated to be on deposit in the Certificate Account on the next Distribution
Date for such Series and available to be distributed to the holders of the
Certificates of such Classes or Subclasses may be less than the sum of (i) the
interest scheduled to be distributed to holders of the Certificates of such
Classes or Subclasses and (ii) the amount to be distributed in reduction of the
Stated Principal Balance of such Certificates on such Distribution Date. Any
such Special Distributions will be made in the same priority and manner as
distributions in reduction of the Stated Principal Balance would be made on the
next Distribution Date.
Reports to Certificateholders
The Master Servicer or the Trustee will include with each distribution to
Certificateholders of record of such Series, or within a reasonable time
thereafter, a statement generally setting forth, among other things, the
following information, if applicable (per each Certificate, as to (i) through
(iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Certificate, other than a Multi-Class
Certificate or Residual Certificate, the amount of such distribution
allocable to principal of the Trust Assets, separately identifying the
aggregate amount of any Principal Prepayments included therein, and the
portion, if any, advanced by a Servicer or the Master Servicer (such
portion of Advances, may, if so specified in the applicable Prospectus
Supplement, be given as an aggregate amount of principal and interest;
(ii) to each holder of a Certificate, other than a Multi-Class
Certificate or Residual Certificate, the amount of such distribution
allocable to interest on the related Trust Assets and the portion, if any,
advanced by a Servicer or the Master Servicer (such portion of Advances,
may, if so specified in the applicable Prospectus Supplement, be given as
an aggregate consent of principal and interest;
(iii) to each holder of a Certificate, the amount of servicing
compensation with respect to the related Trust Assets and such other
customary information as the Master Servicer deems necessary or desirable
to enable Certificateholders to prepare their tax returns;
(iv) to each holder of a Multi-Class Certificate on which an interest
distribution and a distribution in reduction of the Stated Principal
Balance are then being made, the amount of such interest distribution and
distribution in reduction of the Stated Principal Balance, and the Stated
Principal Balance of each Class after giving effect to the distribution in
reduction of the Stated Principal Balance made on such Distribution Date or
on any Special Distribution Date occurring subsequent to the last report;
(v) to each holder of a Multi-Class Certificate on which a
distribution of interest only is then being made, the aggregate Stated
Principal Balance of Certificates outstanding of each Class or Subclass
after giving effect to the distribution in reduction of the Stated
Principal Balance made on such Distribution Date and on any Special
Distribution Date occurring subsequent to the last such report and after
including in the aggregate Stated Principal Balance the Stated Principal
Balance of the Compound Interest Certificates, if any, outstanding and the
amount of any accrued interest added to the Compound Value of such Compound
Interest Certificates on such Distribution Date;
(vi) to each holder of a Compound Interest Certificate (but only if
such holder shall not have received a distribution of interest on such
Distribution Date equal to the entire amount of interest accrued on such
Certificate with respect to such Distribution Date):
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(a) the information contained in the report delivered pursuant to
clause (v) above;
(b) the interest accrued on such Class or Subclass of Compound
Interest Certificates with respect to such Distribution Date and added
to the Compound Value of such Compound Interest Certificate; and
(c) the Stated Principal Balance of such Class or Subclass of
Compound Interest Certificates after giving effect to the addition
thereto of all interest accrued thereon;
(vii) in the case of a Series of Certificates with a variable
Pass-Through Rate, the weighted average Pass-Through Rate applicable to the
distribution in question;
(viii) the amount or the remaining obligations of an L/C Bank with
respect to a Letter of Credit, after giving effect to the declining amount
available and any payments thereunder and other amounts charged thereto on
the applicable Distribution Date, expressed as a percentage of the amount
reported pursuant to (x) below, and the amount of coverage remaining under
the Pool Insurance Policy, Special Hazard Insurance Policy, Mortgagor
Bankruptcy Bond, or Reserve Fund as applicable, in each case, as of the
applicable Determination Date, after giving effect to any amounts with
respect thereto distributed to Certificateholders on the Distribution Date;
(ix) in the case of a Series of Certificates benefiting from the
Alternative Credit Support described in the applicable Prospectus
Supplement, the amount of coverage under such Alternative Credit Support as
of the close of business on the applicable Determination Date, after giving
effect to any amounts with respect thereto distributed to
Certificateholders on the Distribution Date;
(x) the aggregate scheduled principal balance of the Trust Assets as
of a date not earlier than such Distribution Date after giving effect to
payments of principal distributed to Certificateholders on the Distribution
Date;
(xi) the book value of any collateral acquired by the Mortgage Pool or
Contract Pool through foreclosure, repossession or otherwise; and
(xii) the number and aggregate principal amount of Mortgage Loans or
Contracts one month and two or more months delinquent.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer, or the Trustee, if specified in the
applicable Prospectus Supplement, will cause to be furnished to each
Certificateholder of record at any time during such calendar year a report as to
the aggregate of amounts reported pursuant to (i) through (iii) or (iv) through
(vi) above and such other information as in the judgment of the Master Servicer
or the Trustee, as the case may be, is needed for the Certificateholder to
prepare its tax return, as applicable, for such calendar year or, in the event
such person was a Certificateholder of record during a portion of such calendar
year, for the applicable portion of such year.
Advances
Each Servicer and the Master Servicer (with respect to Mortgage Loans or
Contracts serviced by it and with respect to Advances required to be made by the
Servicers that were not so made) will be obligated (subject to certain
limitations which, if applicable, will be specified herein or in the applicable
Prospectus Supplement) to advance funds in an amount equal to the aggregate
scheduled installments of payments of principal and interest (adjusted to the
applicable Pass-Through Rate) that were due on the Due Date with respect to a
Mortgage Loan or Contract and that were delinquent (including any payments that
have been deferred by the Servicer or the Master Servicer) as of the close of
business on the date specified in the Pooling and Servicing Agreement, to be
remitted no later than the close of business on the business day immediately
preceding the Distribution Date, subject to their respective determinations that
such advances are reimbursable under any Letter of Credit, Pool Insurance
Policy, Primary Mortgage Insurance Policy, Mortgagor Bankruptcy Bond, from the
proceeds of Alternative Credit Support, from cash in the Reserve Fund, the
Servicing or Certificate Accounts or otherwise. In making
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such advances, the Servicers and Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to the
Certificateholders, rather than to guarantee or insure against losses. Any such
Advances are reimbursable to the Servicer or Master Servicer out of related
recoveries on the Mortgage Loans with respect to which such amounts were
advanced. In addition, such Advances are reimbursable from cash in the Reserve
Fund, the Servicing or Certificate Accounts to the extent that the Servicer or
the Master Servicer, as the case may be, shall determine that any such Advances
previously made are not ultimately recoverable. The Servicers and the Master
Servicer generally will also be obligated to make Advances in respect of certain
taxes and insurance premiums not paid by Mortgagors or Obligors on a timely
basis and, to the extent deemed recoverable, foreclosure costs, including
reasonable attorney's fees. Funds so advanced are reimbursable out of recoveries
on the related Mortgage Loans. This right of reimbursement for any Advance will
be prior to the rights of the Certificateholders to receive any amounts
recovered with respect to such Mortgage Loans or Contracts. The Servicers and
the Master Servicer will also be required (subject to certain limitations which,
if applicable, will be specified herein or in the applicable Prospectus
Supplement) to advance an amount necessary to provide a full month's interest
(adjusted to the applicable Pass-Through Rate) in connection with full or
partial prepayments, liquidations, defaults and repurchases of the Mortgage
Loans or Contracts. Any such Advances will not be reimbursable to the Servicers
or the Master Servicer.
Collection and Other Servicing Procedures
The Master Servicer, directly or through the Servicers, as the case may be,
will make reasonable efforts to collect all payments called for under the
Mortgage Loans or Contracts and will, consistent with the applicable Pooling and
Servicing Agreement and any applicable Letter of Credit, Pool Insurance Policy,
Special Hazard Insurance Policy, Primary Mortgage Insurance Policy, Mortgagor
Bankruptcy Bond, or Alternative Credit Support, follow such collection
procedures as it follows with respect to mortgage loans or contracts serviced by
it that are comparable to the Mortgage Loans or Contracts, except when, in the
case of FHA or VA Loans, applicable regulations require otherwise. Consistent
with the above, the Master Servicer may, in its discretion, waive any late
payment charge or any prepayment charge or penalty interest in connection with
the prepayment of a Mortgage Loan or Contract or extend the due dates for
payments due on a Mortgage Note or Contract for a period of not greater than 270
days, provided that the insurance coverage for such Mortgage Loan or Contract or
the coverage provided by any Letter of Credit or any Alternative Credit Support,
will not be adversely affected.
Under the Pooling and Servicing Agreement, the Master Servicer, either
directly or through Servicers, to the extent permitted by law, may establish and
maintain an escrow account (the "Escrow Account") in which Mortgagors or
Obligors will be required to deposit amounts sufficient to pay taxes,
assessments, mortgage and hazard insurance premiums and other comparable items.
This obligation may be satisfied by the provision of insurance coverage against
loss occasioned by the failure to escrow insurance premiums rather than causing
such escrows to be made. Withdrawals from the Escrow Account may be made to
effect timely payment of taxes, assessments, mortgage and hazard insurance, to
refund to Mortgagors or Obligors amounts determined to be overages, to pay
interest to Mortgagors or Obligors on balances in the Escrow Account, if
required, and to clear and terminate such account. The Master Servicer will be
responsible for the administration of each Escrow Account and will be obligated
to make advances to such accounts when a deficiency exists therein.
Alternatively, in lieu of establishing an Escrow Account, the Servicer may
procure a performance bond or other form of insurance coverage, in an amount
acceptable to the Rating Agency rating the related Series of Certificates,
covering loss occasioned by the failure to escrow such amounts.
Maintenance of Insurance Policies
To the extent that the applicable Prospectus Supplement does not expressly
provide for a method of credit support described below under "Credit Support" or
for Alternative Credit Support in lieu of some or all of the insurance coverage
set forth below, the following paragraphs on insurance shall apply.
Standard Hazard Insurance
To the extent specified in the applicable Prospectus Supplement, the terms
of each Servicing Agreement will require the Servicer to cause to be maintained
for each Mortgage Loan or Contract that it services (and the Master Servicer
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will be required to maintain for each Mortgage Loan or Contract serviced by it
directly) a policy of standard hazard insurance (a "Standard Hazard Insurance
Policy") covering the Mortgaged Property underlying such Mortgage Loan or
Manufactured Home underlying such Contract in an amount at least equal to the
maximum insurable value or the improvements securing such Mortgage Loan or
Contract or the principal balance of such Mortgage Loan or Contract, whichever
is less. Each Servicer or the Master Servicer, as the case may be, shall also
maintain on property acquired upon foreclosure, or deed in lieu of foreclosure,
of any Mortgage Loan or Contract, a Standard Hazard Insurance Policy in an
amount that is at least equal to the maximum insurable value of the improvements
that are a part of the Mortgaged Property or Manufactured Home. Any amounts
collected by the Servicer or the Master Servicer under any such policies (other
than amounts to be applied to the restoration or repair of the Mortgaged
Property or Manufactured Home or released to the borrower in accordance with
normal servicing procedures) shall be deposited in the related Servicing Account
for deposit in the Certificate Account or, in the case of the Master Servicer,
shall be deposited directly into the Certificate Account. Any cost incurred in
maintaining any such insurance shall not, for the purpose of calculating monthly
distributions to Certificateholders, be added to the amount owing under the
Mortgage Loan or Contract, notwithstanding that the terms of the Mortgage Loan
or Contract may so permit. Such cost shall be recoverable by the Servicer only
by withdrawal of funds from the Servicing Account or by the Master Servicer only
by withdrawal from the Certificate Account, as described in the Pooling and
Servicing Agreement. No earthquake or other additional insurance is to be
required of any borrower or maintained on property acquired in respect of a
Mortgage Loan or Contract, other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance. When the Mortgaged Property or Manufactured Home is
located at the time of origination of the Mortgage Loan or Contract in a
federally designated flood area, the related Servicer (or the Master Servicer,
in the case of each Mortgage Loan or Contract serviced by it directly) will
maintain or cause flood insurance to be maintained, to the extent available, in
those areas where flood insurance is required under the National Flood Insurance
Act of 1968, as amended.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's Cooperative Dwelling or such
Cooperative's building could significantly reduce the value of the collateral
securing such Cooperative Loan to the extent not covered by other credit
support.
The Pooling and Servicing Agreement will require the Master Servicer to
perform the aforementioned obligations of the Servicer in the event the Servicer
fails to do so. In the event that the Master Servicer obtains and maintains a
blanket policy insuring against hazard losses on all of the related Mortgage
Loans or Contracts, it will conclusively be deemed to have satisfied its
obligations to cause to be maintained a Standard Hazard Insurance Policy for
each Mortgage Loan or Contract that it services. This blanket policy may contain
a deductible clause, in which case the Master Servicer will, in the event that
there has been a loss that would have been covered by such policy absent such
deductible, deposit in the Certificate Account the amount not otherwise payable
under the blanket policy because of the application of such deductible clause.
Since the amount of hazard insurance to be maintained on the improvements
securing the Mortgage Loans or Contracts may decline as the principal balances
owing thereon decrease, and since residential properties have historically
appreciated in value over time, in the event of partial loss, hazard insurance
proceeds may be insufficient to fully restore the damaged Mortgaged Property or
Manufactured Home. See "Description of Insurance-Special Hazard Insurance
Policies" for a description of the limited protection afforded by a Special
Hazard Insurance Policy against losses occasioned by certain hazards that are
otherwise uninsured against as well as against losses caused by the application
of the coinsurance provisions contained in the Standard Hazard Insurance
Policies.
Special Hazard Insurance
If so specified in the applicable Prospectus Supplement, the Master
Servicer will be required to exercise its best reasonable efforts to maintain
the Special Hazard Insurance Policy, if any, with respect to a Series of
Certificates in full force
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and effect, unless coverage thereunder has been exhausted through payment of
claims, and will pay the premium for the Special Hazard Insurance Policy on a
timely basis; provided, however, that the Master Servicer shall be under no such
obligation if coverage under the Pool Insurance Policy, if any, with respect to
such Series has been exhausted. In the event that the Special Hazard Insurance
Policy is cancelled or terminated for any reason (other than the exhaustion of
total policy coverage), the Master Servicer will exercise its best reasonable
efforts to obtain from another insurer a replacement policy comparable to the
Special Hazard Insurance Policy with a total coverage that is equal to the then
existing coverage of the Special Hazard Insurance Policy; provided that if the
cost of any such replacement policy is greater than the cost of the terminated
Special Hazard Insurance Policy, the amount of coverage under the replacement
Special Hazard Insurance Policy may be reduced to a level such that the
applicable premium will not exceed the cost of the Special Hazard Insurance
Policy that was replaced. Certain characteristics of the Special Hazard
Insurance Policy are described under "Description of Insurance-Special Hazard
Insurance Policies".
Pool Insurance
To the extent specified in the applicable Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool Insurance
Policy with respect to a Series of Certificates in effect throughout the term of
the Pooling and Servicing Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay the premiums for such Pool
Insurance Policy on a timely basis. In the event that the Pool Insurer ceases to
be a qualified insurer because it is not qualified to transact a mortgage
guaranty insurance business under the laws of the state of its principal place
of business or any other state which has jurisdiction over the Pool Insurer in
connection with the Pool Insurance Policy, or if the Pool Insurance Policy is
cancelled or terminated for any reason (other than the exhaustion of total
policy coverage), the Master Servicer will exercise its best reasonable efforts
to obtain a replacement policy of pool insurance comparable to the Pool
Insurance Policy and may obtain, under the circumstances described above with
respect to the Special Hazard Insurance Policy, a replacement policy with
reduced coverage. In the event the Pool Insurer ceases to be a qualified insurer
because it is not approved as an insurer by FHLMC, FNMA or any successors
thereto, the Master Servicer will agree to review, not less often than monthly,
the financial condition of the Pool Insurer with a view towards determining
whether recoveries under the Pool Insurance Policy are jeopardized and, if so,
will exercise its best reasonable efforts to obtain from another qualified
insurer a replacement insurance policy under the above-stated limitations.
Certain characteristics of the Pool Insurance Policy are described under
"Description of Insurance-Pool Insurance Policies".
Primary Mortgage Insurance
To the extent specified in the applicable Prospectus Supplement, the Master
Servicer will be required to keep in force and effect for each Mortgage Loan
secured by Single Family Property serviced by it directly, and each Servicer of
a Mortgage Loan secured by Single Family Property will be required to keep in
full force and effect with respect to each such Mortgage Loan serviced by it, in
each case to the extent required by the underwriting standards of the Depositor,
a Primary Mortgage Insurance Policy issued by a qualified insurer (the "Primary
Mortgage Insurer") with regard to each Mortgage Loan for which such coverage is
required pursuant to the applicable Servicing Agreement and the Pooling and
Servicing Agreement and to act on behalf of the Trustee (the "Insured") under
each such Primary Mortgage Insurance Policy. Neither the Servicer nor the Master
Servicer will cancel or refuse to renew any such Primary Mortgage Insurance
Policy in effect at the date of the initial issuance of a Series of Certificates
that is required to be kept in force under the Pooling and Servicing Agreement
or applicable Servicing Agreement unless the replacement Primary Mortgage
Insurance Policy for such cancelled or non- renewed policy is maintained with an
insurer whose claims-paying ability is acceptable to the Rating Agency rating
the Certificates. See "Description of Insurance-Primary Mortgage Insurance
Policies."
Mortgagor Bankruptcy Bond
If so specified in the applicable Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Mortgagor
Bankruptcy Bond for a Series of Certificates in full force and effect throughout
the term of the Pooling and Servicing Agreement, unless coverage thereunder has
been exhausted through payment of claims, and will pay
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the premiums for such Mortgagor Bankruptcy Bond on a timely basis. At the
request of the Depositor, coverage under a Mortgagor Bankruptcy Bond will be
cancelled or reduced by the Master Servicer to the extent permitted by the
Rating Agency rating the related Series of Certificates, provided that such
cancellation or reduction does not adversely affect the then current rating of
such Series. See "Description of Insurance-Mortgagor Bankruptcy Bond".
Presentation of Claims
The Master Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to HUD, the VA, the Pool Insurer, the
Special Hazard Insurer, the issuer of the Mortgagor Bankruptcy Bond, and each
Primary Mortgage Insurer, as applicable, and take such reasonable steps as are
necessary to permit recovery under such insurance policies or Mortgagor
Bankruptcy Bond, if any, with respect to a Series concerning defaulted Mortgage
Loans or Contracts or Mortgage Loans or Contracts that are the subject of a
bankruptcy proceeding. All collections by the Master Servicer under any FHA
insurance or VA guarantee, any Pool Insurance Policy, any Primary Mortgage
Insurance Policy or any Mortgagor Bankruptcy Bond and, where the related
property has not been restored, any Special Hazard Insurance Policy, are to be
deposited in the Certificate Account, subject to withdrawal as heretofore
described. In those cases in which a Mortgage Loan or Contract is serviced by a
Servicer, the Servicer, on behalf of itself, the Trustee and the
Certificateholders, will present claims to the applicable Primary Mortgage
Insurer and to the FHA and the VA, as applicable, and all collections thereunder
shall be deposited in the Servicing Account, subject to withdrawal, as set forth
above, for deposit in the Certificate Account
If any property securing a defaulted Mortgage Loan or Contract is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, neither the related
Servicer nor the Master Servicer, as the case may be, will be required to expend
its own funds to restore the damaged property unless it determines, and, in the
case of a determination by a Servicer, the Master Servicer agrees, (i) that such
restoration will increase the proceeds to Certificateholders on liquidation of
the Mortgage Loan or Contract after reimbursement of the expenses incurred by
the Servicer or the Master Servicer, as the case may be, and (ii) that such
expenses will be recoverable through proceeds of the sale of the Mortgaged
Property or proceeds of any related Pool Insurance Policy, any related Primary
Mortgage Insurance Policy or otherwise.
If recovery under a Pool Insurance Policy or any related Primary Mortgage
Insurance Policy is not available because the related Servicer or the Master
Servicer has been unable to make the above determinations or otherwise, the
Servicer or the Master Servicer is nevertheless obligated to follow such normal
practices and procedures as are deemed necessary or advisable to realize upon
the defaulted Mortgage Loan. If the proceeds of any liquidation of the Mortgaged
Property or Manufactured Home are less than the principal balance of the
defaulted Mortgage Loan or Contract, respectively, plus interest accrued thereon
at the applicable Pass-Through Rate, and if coverage under any other method of
credit support with respect to such Series is exhausted, the related Trust Fund
will realize a loss in the amount of such difference plus the aggregate of
expenses incurred by the Servicer or the Master Servicer in connection with such
proceedings and which are reimbursable under the related Servicing Agreement or
the Pooling and Servicing Agreement. In the event that any such proceedings
result in a total recovery that is, after reimbursement to the Servicer or the
Master Servicer of its expenses, in excess of the principal balance of the
related Mortgage Loan or Contract, together with accrued and unpaid interest
thereon at the applicable Pass-Through Rates, the Servicer and the Master
Servicer will be entitled to withdraw amounts representing normal servicing
compensation on such Mortgage Loan or Contract from the Servicing Account or the
Certificate Account, as the case may be.
Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans
Each Servicing Agreement and the Pooling and Servicing Agreement with
respect to Certificates representing interests in a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the Mortgagor, such
Servicer or the Master Servicer, as the case may be, will, to the extent it has
knowledge of such conveyance, exercise its rights to accelerate the maturity of
such Mortgage Loan under any "due-on-sale" clause applicable thereto, if any,
unless it reasonably believes that such enforcement is not exercisable under
applicable law or regulations or if such exercise would
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result in loss of insurance coverage with respect to such Mortgage Loan. In
either case, where the due-on-sale clause will not be exercised, the Servicer or
the Master Servicer is authorized to take or enter into an assumption and
modification agreement from or with the person to whom such Mortgaged Property
has been or is about to be conveyed, pursuant to which such person becomes
liable under the Mortgage Note and, unless prohibited by applicable state law,
the Mortgagor remains liable thereon, provided that the Mortgage Loan will
continue to be covered by any Pool Insurance Policy and any related Primary
Mortgage Insurance Policy. In the case of an FHA Loan, such an assumption can
occur only with HUD approval of the substitute Mortgagor. Each Servicer and the
Master Servicer will also be authorized, with the prior approval of the Insurer
under any required insurance policies, to enter into a substitution of liability
agreement with such person, pursuant to which the original Mortgagor is released
from liability and such person is substituted as Mortgagor and becomes liable
under the Mortgage Note.
Under the Servicing Agreements and the Pooling and Servicing Agreement, the
Servicer or the Master Servicer, as the case may be, will foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
related Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion, the Servicer or the Master
Servicer will follow such practices and procedures as are deemed necessary or
advisable and as shall be normal and usual in its general mortgage servicing
activities and in accordance with FNMA guidelines, except when, in the case of
FHA or VA Loans, applicable regulations require otherwise. However, neither the
Servicer nor the Master Servicer will be required to expend its own funds in
connection with any foreclosure or towards the restoration of any property
unless it determines and, in the case of a determination by a Servicer, the
Master Servicer agrees (i) that such restoration and/or foreclosure will
increase the proceeds of liquidation of the related Mortgage Loan to
Certificateholders after reimbursement to itself for such expenses and (ii) that
such expenses will be recoverable to it either through Liquidation Proceeds,
Insurance Proceeds, payments under the Letter of Credit, or amounts in the
Reserve Fund, if any, with respect to the related Series, or otherwise.
Any prospective purchaser of a Cooperative Dwelling will generally be
required to obtain the approval of the board of directors of the related
Cooperative before purchasing the shares and acquiring rights under the
proprietary lease or occupancy agreement securing the Cooperative Loan. See
"Certain Legal Aspects of the Mortgage Loans and Contracts-The Mortgage
Loans-Foreclosure" herein. This approval is usually based on the purchaser's
income and net worth and numerous other factors. Although the Cooperative's
approval is unlikely to be unreasonably withheld or delayed, the necessity of
acquiring such approval could limit the number of potential purchasers for those
shares and otherwise limit the Trust Fund's ability to sell and realize the
value of those shares.
The market value of any Multifamily Property obtained in foreclosure or by
deed in lieu of foreclosure will be based substantially on the operating income
obtained from renting the dwelling units. Since a default on a Mortgage Loan
secured by Multifamily Property is likely to have occurred because operating
income, net of expenses, is insufficient to make debt service payments on the
related Mortgage Loan, it can be anticipated that the market value of such
property will be less than was anticipated when such Mortgage Loan was
originated. To the extent that the equity in the property does not absorb the
loss in market value and such loss is not covered by other credit support, a
loss may be experienced by the related Trust Fund. With respect to Multifamily
Property consisting of an apartment building owned by a Cooperative, the
Cooperative's ability to meet debt service obligations on the Mortgage Loan, as
well as all other operating expenses, will be dependent in large part on the
receipt of maintenance payments from the tenant-stockholders, as well as any
rental income from units or commercial areas the Cooperative might control.
Unanticipated expenditures may in some cases have to be paid by special
assessments of the tenant-stockholders. The Cooperative's ability to pay the
principal amount of the Mortgage Loan at maturity may depend on its ability to
refinance the Mortgage Loan. The Depositor, the Unaffiliated Seller and the
Master Servicer will have no obligation to provide refinancing for any such
Mortgage Loan.
Enforcement of "Due-on-Sale" Clauses; Realization Upon Defaulted Contracts
Each Servicing Agreement and Pooling and Servicing Agreement with respect
to Certificates representing interests in a Contract Pool will provide that,
when any Manufactured Home securing a Contract is about to be conveyed by the
Obligor, the Master Servicer, to the extent it has knowledge of such prospective
conveyance and prior to the time of the consummation of such conveyance, may
exercise its rights to accelerate the maturity of such Contract under the
applicable
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"due-on-sale" clause, if any, unless it is not exercisable under applicable law.
In such case, the Master Servicer is authorized to take or enter into an
assumption agreement from or with the person to whom such Manufactured Home has
been or is about to be conveyed, pursuant to which such person becomes liable
under the Contract and, unless determined to be materially adverse to the
interests of Certificateholders, with the prior approval of the Pool Insurer, if
any, to enter into a substitution of liability agreement with such person,
pursuant to which the original Obligor is released from liability and such
person is substituted as Obligor and becomes liable under the Contract. Where
authorized by the Contract, the APR may be increased, upon assumption, to the
then-prevailing market rate, but shall not be decreased.
Under the Servicing Agreement or the Pooling and Servicing Agreement, the
Master Servicer will repossess or otherwise comparably convert the ownership of
properties securing such of the related Manufactured Homes as come into and
continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments. In connection with such repossession or other
conversion, the Servicer or Master Servicer will follow such practices and
procedures as it shall deem necessary or advisable and as shall be normal and
usual in its general Contract servicing activities. The Servicer or Master
Servicer, however, will not be required to expend its own funds in connection
with any repossession or towards the restoration of any property unless it
determines (i) that such restoration or repossession will increase the proceeds
of liquidation of the related Contract to the Certificateholders after
reimbursement to itself for such expenses and (ii) that such expenses will be
recoverable to it either through liquidation proceeds or through insurance
proceeds.
Servicing Compensation and Payment of Expenses
Under the Pooling and Servicing Agreement for a Series of Certificates, the
Depositor or the person or entity specified in the applicable Prospectus
Supplement and any Master Servicer will be entitled to receive an amount
described in such Prospectus Supplement. The Master Servicer's primary
compensation generally will be equal to the difference, with respect to each
interest payment on a Mortgage Loan, between the Mortgage Rate and the
Pass-Through Rate for the related Mortgage Pool and with respect to each
interest payment on a Contract, between the APR and the Pass-Through Rate for
the related Contract (less any servicing compensation payable to the Servicer of
the related Mortgage Loan or Contract, if any, as set forth below, and the
amount, if any, payable to the Depositor or to the person or entity specified in
the applicable Prospectus Supplement). As compensation for its servicing duties,
a Servicer will be entitled to receive a monthly servicing fee in the amount
specified in the related Servicing Agreement. Such servicing compensation shall
be payable by withdrawal from the related Servicing Account prior to deposit in
the Certificate Account. Each Servicer (with respect to the Mortgage Loans or
Contracts serviced by it) and the Master Servicer will be entitled to servicing
compensation out of Insurance Proceeds, Liquidation Proceeds, or Letter of
Credit payments. Additional servicing compensation in the form of prepayment
charges, assumption fees, late payment charges or otherwise shall be retained by
the Servicers and the Master Servicer to the extent not required to be deposited
in the Certificate Account.
The Servicers and the Master Servicer, subject to certain exceptions which,
if applicable, will be specified in the applicable Prospectus Supplement, will
pay from their servicing compensation certain expenses incurred in connection
with the servicing of the Mortgage Loans or Contracts, including, without
limitation, payment of the Insurance Policy premiums and, in the case of the
Master Servicer, fees or other amounts payable for any Alternative Credit
Support, payment of the fees and disbursements of the Trustee (and any custodian
selected by the Trustee), the Certificate Register and independent accountants
and payment of expenses incurred in enforcing the obligations of Servicers and
Unaffiliated Sellers. Certain of these expenses may be reimbursable by the
Depositor pursuant to the terms of the Pooling and Servicing Agreement. In
addition, the Master Servicer will be entitled to reimbursement of expenses
incurred in enforcing the obligations of Servicers and Unaffiliated Sellers
under certain limited circumstances.
As set forth in the preceding section, the Servicers and the Master
Servicer will be entitled to reimbursement for certain expenses incurred by them
in connection with the liquidation of defaulted Mortgage Loans or Contracts. The
related Trust Fund will suffer no loss by reason of such expenses to the extent
claims are fully paid under the Letter of Credit, if any, the related insurance
policies, from amounts in the Reserve Fund or under any applicable Alternative
Credit Support described in a Prospectus Supplement. In the event, however, that
claims are either not made or fully paid under such Letter of Credit, Insurance
Policies or Alternative Credit Support, or if coverage thereunder has ceased, or
if amounts in the Reserve
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Fund are not sufficient to fully pay such losses, the related Trust Fund will
suffer a loss to the extent that the proceeds of the liquidation proceedings,
after reimbursement of the expenses of the Servicers or the Master Servicer, as
the case may be, are less than the principal balance of the related Mortgage
Loan or Contract. In addition, the Servicers and the Master Servicer will be
entitled to reimbursement of expenditures incurred by them in connection with
the restoration of a Mortgaged Property, Cooperative Dwelling or Manufactured
Home, such right of reimbursement being prior to the rights of the
Certificateholders to receive any payments under the Letter of Credit, or from
any related Insurance Proceeds, Liquidation Proceeds, amounts in the Reserve
Fund or any proceeds of Alternative Credit Support.
Under the Deposit Trust Agreement, the Trustee will be entitled to deduct,
from distributions of interest with respect to the Mortgage Certificates, a
specified percentage of the unpaid principal balance of each Mortgage
Certificate as servicing compensation. The Trustee shall be required to pay all
expenses, except as expressly provided in the Deposit Trust Agreement, subject
to limited reimbursement as provided therein.
Evidence as to Compliance
The Master Servicer will deliver to the Depositor and the Trustee, on or
before the date specified in the Pooling and Servicing Agreement, an Officer's
Certificate stating that (i) a review of the activities of the Master Servicer
and the Servicers during the preceding calendar year and of its performance
under the Pooling and Servicing Agreement has been made under the supervision of
such officer, and (ii) to the best of such officer's knowledge, based on such
review, the Master Servicer and each Servicer has fulfilled all its obligations
under the Pooling and Servicing Agreement and the applicable Servicing Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. Such Officer's Certificate shall be accompanied by a
statement of a firm of independent public accountants to the effect that, on the
basis of an examination of certain documents and records relating to servicing
of the Mortgage Loans or Contracts, conducted in accordance with generally
accepted accounting principles in the mortgage banking industry, the servicing
of the Mortgage Loans or Contracts was conducted in compliance with the
provisions of the Pooling and Servicing Agreement and the Servicing Agreements,
except for such exceptions as such firm believes it is required to report.
Certain Matters Regarding the Master Servicer, the Depositor and the Trustee
The Master Servicer under each Pooling and Servicing Agreement will be
named in the applicable Prospectus Supplement. The entity acting as Master
Servicer may be an Unaffiliated Seller and have other normal business
relationships with the Depositor and/or affiliates of the Depositor and may be
an affiliate of the Depositor. In the event there is no Master Servicer under a
Pooling and Servicing Agreement, all servicing of Mortgage Loans or Contracts
will be performed by a Servicer pursuant to a Servicing Agreement.
The Master Servicer may not resign from its obligations and duties under
the Pooling and Servicing Agreement except upon a determination that its duties
thereunder are no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed the
Master Servicer's obligations and duties under the Pooling and Servicing
Agreement.
The Trustee under each Pooling and Servicing Agreement or Deposit Trust
Agreement will be named in the applicable Prospectus Supplement. The commercial
bank or trust company serving as Trustee may have normal banking relationships
with the Depositor and/or its affiliates and with the Master Servicer and/or its
affiliates.
The Trustee may resign from its obligations under the Pooling and Servicing
Agreement at any time, in which event a successor trustee will be appointed. In
addition, the Depositor may remove the Trustee if the Trustee ceases to be
eligible to act as Trustee under the Pooling and Servicing Agreement or if the
Trustee becomes insolvent, at which time the Depositor will become obligated to
appoint a successor Trustee. The Trustee may also be removed at any time by the
holders of Certificates evidencing voting rights aggregating not less than 50%
of the voting rights evidenced by the Certificates of
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such Series. Any resignation and removal of the Trustee, and the appointment of
a successor trustee, will not become effective until acceptance of such
appointment by the successor Trustee.
The Trustee may resign at any time from its obligations and duties under
the Deposit Trust Agreement by executing an instrument in writing resigning as
Trustee, filing the same with the Depositor, mailing a copy of a notice of
resignation to all Certificateholders then of record, and appointing a qualified
successor trustee. No such resignation will become effective until the successor
trustee has assumed the Trustee's obligations and duties under the Deposit Trust
Agreement.
Each Pooling and Servicing Agreement and Deposit Trust Agreement will also
provide that neither the Depositor nor the Master Servicer nor any director,
officer, employee or agent of the Depositor or the Master Servicer or the
Trustee, or any responsible officers of the Trustee will be under any liability
to the Certificateholders, for the taking of any action or for refraining from
the taking of any action in good faith pursuant to the Pooling and Servicing
Agreement, or for errors in judgment; provided, however, that none of the
Depositor, the Master Servicer or the Trustee nor any such person will be
protected against, in the case of the Master Servicer and the Depositor, any
breach of representations or warranties made by them, and in the case of the
Master Servicer, the Depositor and the Trustee, against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of its duties or by reason of reckless disregard of its
obligations and duties thereunder. Each Pooling and Servicing Agreement and
Deposit Trust Agreement will further provide that the Depositor, the Master
Servicer and the Trustee and any director, officer and employee or agent of the
Depositor, the Master Servicer or the Trustee shall be entitled to
indemnification, by the Trust Fund in the case of the Depositor and Master
Servicer and by the Master Servicer in the case of the Trustee and will be held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to the applicable Agreement or the Certificates and in the
case of the Trustee, resulting from any error in any tax or information return
prepared by the Master Servicer or from the exercise of any power of attorney
granted pursuant to the Pooling and Servicing Agreement, other than any loss,
liability or expense related to any specific Mortgage Loan, Contract or Mortgage
Certificate (except any such loss, liability or expense otherwise reimbursable
pursuant to the applicable Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of their duties thereunder or by reason of reckless disregard of
their obligations and duties thereunder. In addition, each Agreement will
provide that neither the Depositor nor the Master Servicer, as the case may be,
will be under any obligation to appear in, prosecute or defend any legal action
that is not incidental to its duties under the Agreement and that in its opinion
may involve it in any expense or liability. The Depositor or the Master Servicer
may, however, in their discretion, undertake any such action deemed by them
necessary or desirable with respect to the applicable Agreement and the rights
and duties of the parties thereto and the interests of the Certificateholders
thereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom will be expenses, costs and liabilities of the
Trust Fund, and the Master Servicer or the Depositor, as the case may be, will
be entitled to be reimbursed therefor out of the Certificate Account.
Deficiency Event
To the extent a Deficiency Event is specified in the applicable Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Certificates of each Series may be defined in the Pooling and Servicing
Agreement as being the inability of the Trustee to distribute to holders of one
or more Classes of Certificates of such Series, in accordance with the terms
thereof and the Pooling and Servicing Agreement, any distribution of principal
or interest thereon when and as distributable, in each case because of the
insufficiency for such purpose of the funds then held in the related Trust Fund.
To the extent a Deficiency Event is specified in the applicable Prospectus
Supplement, upon the occurrence of a Deficiency Event, the Trustee is required
to determine whether or not the application on a monthly basis (regardless of
the frequency of regular Distribution Dates) of all future scheduled payments on
the Mortgage Loans, Contracts and Mortgage Certificates included in the related
Trust Fund and other amount receivable with respect to such Trust Fund towards
payments on such Certificates in accordance with the priorities as to
distributions of principal and interest set forth in such Certificates will be
sufficient to make distributions of interest at the applicable Interest Rates
and to distribute in full the principal balance of each such Certificate on or
before the latest Final Distribution Date of any outstanding Certificates of
such Series.
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To the extent a Deficiency Event is specified in the applicable Prospectus
Supplement, the Trustee will obtain and rely upon an opinion or report of a firm
of independent accountants of recognized national reputation as to the
sufficiency of the amounts receivable with respect to such Trust Fund to make
such distributions on the Certificates, which opinion or report will be
conclusive evidence as to such sufficiency. Pending the making of any such
determination, distributions on the Certificates shall continue to be made in
accordance with their terms.
To the extent a Deficiency Event is specified in the applicable Prospectus
Supplement, in the event that the Trustee makes a positive determination, the
Trustee will apply all amounts received in respect of the related Trust Fund
(after payment of fees and expenses of the Trustee and accountants for the Trust
Fund) to distributions on the Certificates of such Series in accordance with
their terms, except that such distributions shall be made monthly and without
regard to the amount of principal that would otherwise be distributable on any
Distribution Date. Under certain circumstances following such positive
determination, the Trustee may resume making distributions on such Certificates
expressly in accordance with their terms.
To the extent a Deficiency Event is specified in the applicable Prospectus
Supplement, if the Trustee is unable to make the positive determination
described above, the Trustee will apply all amounts received in respect of the
related Trust Fund (after payment of Trustee and accountants' fees and expenses)
to monthly distributions on the Certificates of such series pro rata, without
regard to the priorities as to distribution of principal set forth in such
Certificates, and such Certificates will, to the extent permitted by applicable
law, accrue interest at the highest Interest Rate borne by any Certificate of
such Series, or in the event any Class of such Series shall accrue interest at a
floating rate, at the weighted average Interest Rate, calculated on the basis of
the maximum interest rate applicable to the Class having such floating interest
rate and on the original principal amount of the Certificates of that Class. In
such event, the holders of a majority in outstanding principal balance of such
Certificates may direct the Trustee to sell the related Trust Fund, any such
direction being irrevocable and binding upon the holders of all Certificates of
such Series and upon the owners of the residual interests in such Trust Fund. In
the absence of such a direction, the Trustee may not sell all or any portion of
such Trust Fund.
Events of Default
Events of Default under each Pooling and Servicing Agreement will consist
of: (i) any failure to make a specified payment which continues unremedied, in
most cases, for five business days after the giving of written notice; (ii) any
failure by the Trustee, the Servicer or the Master Servicer, as applicable, duly
to observe or perform in any material respect any other of its covenants or
agreements in the Pooling and Servicing Agreement which failure shall continue
for 60 days (15 days in the case of a failure to pay the premium for any
insurance policy) or any breach of any representation and warranty made by the
Master Servicer or the Servicer, if applicable, which continues unremedied for
the period set forth in the applicable Prospectus Supplement after the giving of
written notice of such failure or breach; (iii) a breach of any of certain
representations and warranties made by the Master Servicer in the Pooling and
Servicing Agreement that materially and adversely affects the interests of
Certificateholders, which continues unremedied for 30 days after the giving of
written notice of such breach; (iv) certain events of insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings regarding
the Master Servicer or a Servicer, as applicable; and (v) any lowering,
withdrawal or notice of an intended or potential lowering, of the outstanding
rating of the Certificates by the Rating Agency rating such Certificates because
the existing or prospective financial condition or mortgage loan servicing
capability of the Master Servicer is insufficient to maintain such rating.
Rights Upon Event of Default
So long as an Event of Default with respect to a Series of Certificates
remains unremedied, the Depositor, the Trustee or the holders of Certificates
evidencing not less than 25% of the voting rights evidenced by the Certificates
of such Series may terminate all of the rights and obligations of the Master
Servicer under the Pooling and Servicing Agreement and in and to the Mortgage
Loans and Contracts and the proceeds thereof, whereupon (subject to applicable
law regarding the Trustee's ability to make advances) the Trustee or, if the
Depositor so notifies the Trustee and the Master Servicer, the Depositor or its
designee, will succeed to all the responsibilities, duties and liabilities of
the Master Servicer under such
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Pooling and Servicing Agreement and will be entitled to similar compensation
arrangements. In the event that the Trustee would be obligated to succeed the
Master Servicer but is unwilling or unable so to act, it may appoint, or
petition to a court of competent jurisdiction for the appointment of, a
successor master servicer. Pending such appointment, the Trustee (unless
prohibited by law from so acting) shall be obligated to act in such capacity.
The Trustee and such successor master servicer may agree upon the servicing
compensation to be paid to such successor, which in no event may be greater than
the compensation to the Master Servicer under the Pooling and Servicing
Agreement.
Amendment
Each Pooling and Servicing Agreement may be amended by the Depositor, the
Master Servicer and the Trustee, without the consent of the Certificateholders,
(i) to cure any ambiguity, (ii) to correct or supplement any provision therein
that may be inconsistent with any other provision therein, (iii) if so specified
in the applicable Prospectus Supplement, to amend any provision thereof to the
extent necessary or desirable to maintain the rating or ratings assigned to each
of the Classes of Certificates by each Rating Agency, or (iv) to make any other
provisions with respect to matters or questions arising under such Pooling and
Servicing Agreement that are not inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of any Certificateholder of the related Series. The Pooling and
Servicing Agreement may also be amended by the Depositor, the Master Servicer
and the Trustee with the consent of holders of Certificates evidencing not less
than 66 2/3% of the voting rights evidenced by the Certificates, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of such Pooling and Servicing Agreement or of modifying in any manner
the rights of the Certificateholders; provided, however, that no such amendment
may (i) reduce in any manner the amount of, delay the timing of or change the
manner in which payments received on or with respect to Mortgage Loans and
Contracts are required to be distributed with respect to any Certificate without
the consent of the holder of such Certificate, (ii) adversely affect in any
material respect the interests of the holders of a Class or Subclass of
Certificates of a Series in a manner other than that set forth in (i) above
without the consent of the holders of such Class or Subclass evidencing not less
than 66 2/3% of such Class or Subclass, or (ii) reduce the aforesaid percentage
of the Certificates, the holders of which are required to consent to such
amendment, without the consent of the holders of the Class affected thereby.
Further, the Depositor, the Master Servicer and the Trustee, at any time and
from time to time, without the consent of the Certificateholders, may amend the
Pooling and Servicing Agreement to modify, eliminate or add to any of its
provisions to such extent as shall be necessary to maintain the qualification of
the Trust (or any part thereof) as a REMIC, or to prevent the imposition of any
additional material state or local taxes, at all times that any Certificates are
outstanding; provided, however, that such action, as evidenced by an opinion of
counsel (obtained at the expense of the Trust Fund), is necessary or helpful to
maintain such qualification or to prevent the imposition of any such taxes, and
would not adversely affect in any material respect the interest of any
Certificateholder.
The Deposit Trust Agreement for a Series may be amended by the Trustee and
the Depositor without Certificateholder consent, (i) to cure any ambiguity, (ii)
to correct or supplement any provision therein that may be inconsistent with any
other provision therein, or (iii) to make any other provisions with respect to
matters or questions arising thereunder that are not inconsistent with any other
provisions thereof, provided that such action will not, as evidenced by an
opinion of counsel, adversely affect the interests of any Certificateholders of
that Series in any material respect. The Deposit Trust Agreement for each Series
may also be amended by the Trustee and the Depositor with the consent of the
Holders of Certificates evidencing Percentage Interests aggregating not less
than 66 2/3% of each Class of the Certificates of such Series affected thereby
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of such Agreement or modifying in any manner
the rights of Certificateholders of that Series; provided, however, that no such
amendment may (i) reduce in any manner the amount of, or delay the timing of, or
change the manner in which payments received on Mortgage Certificates are
required to be distributed in respect of any Certificate, without the consent of
the Holder of such Certificate or (ii) reduce the aforesaid percentage of
Certificates the Holders of which are required to consent to any such amendment,
without the consent of the Holders of all Certificates of such Series then
outstanding. Further, the Depositor, the Master Servicer and the Trustee, at any
time and from time to time, without the consent of the Certificateholders, may
amend the Deposit Trust Agreement to modify, eliminate or add to any of its
provisions to such extent as shall be necessary to maintain the qualification of
the Trust (or any part thereof) as a REMIC, or to prevent the imposition of any
additional material state or local taxes, at all times that any Certificates are
outstanding; provided, however, that such action, as evidenced by an opinion of
counsel (obtained at the expense of the Trust Fund), is
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necessary or helpful to maintain such qualification or to prevent the imposition
of any such taxes, and would not adversely affect in any material respect the
interest of any Certificateholder.
Termination
The obligations created by the Pooling and Servicing Agreement for a Series
of Certificates will terminate upon the earlier of (a) the repurchase of all
Mortgage Loans or Contracts and all property acquired by foreclosure of any such
Mortgage Loan or Contract and (b) the later of (i) the maturity or other
liquidation of the last Mortgage Loan or Contract subject thereto and the
disposition of all property acquired upon foreclosure of any such Mortgage Loan
or Contract and (ii) the payment to the Certificateholders of all amounts held
by the Master Servicer and required to be paid to them pursuant to such Pooling
and Servicing Agreement. The obligations created by the Deposit Trust Agreement
for a Series of Certificates will terminate upon the distribution to
Certificateholders of all amounts required to be distributed to them pursuant to
such Deposit Trust Agreement. In no event, however, will the trust created by
either such Agreement continue beyond the expiration of 21 years from the death
of the last survivor of certain persons identified therein. For each Series of
Certificates, the Master Servicer will give written notice of termination of the
applicable Agreement of each Certificateholder, and the final distribution will
be made only upon surrender and cancellation of the Certificates at an office or
agency specified in the notice of termination.
If so provided in the applicable Prospectus Supplement, the Pooling and
Servicing Agreement for each Series of Certificates will permit, but not
require, the Depositor or such other person as may be specified in the
Prospectus Supplement to repurchase from the Trust Fund for such Series all
remaining Mortgage Loans or Contracts subject to the Pooling and Servicing
Agreement at a price specified in such Prospectus Supplement. In the event that
the Depositor elects to treat the related Trust Fund as one or more REMICs,
under the Code, any such repurchase will be effected in compliance with the
requirements of Section 860F(a)(4) of the Code, in order to constitute a
"qualifying liquidation" thereunder. The exercise of any such right will effect
early retirement of the Certificates of that Series, but the right so to
repurchase may be effected only on or after the aggregate principal balance of
the Mortgage Loans or Contracts for such Series at the time of repurchase is
less than a specified percentage of the aggregate principal balance at the
Cut-off Date for the Series, or on or after the date set forth in the applicable
Prospectus Supplement.
CREDIT SUPPORT
Credit support for a Series of Certificates may be provided by one or more
Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Certificates (which may, if so specified in the applicable Prospectus
Supplement, be issued in notional amounts), the provision for shifting interest
credit enhancement, the establishment of a Reserve Fund, the method of
Alternative Credit Support specified in the applicable Prospectus Supplement, or
any combination of the foregoing, in addition to, or in lieu of, the insurance
arrangements set forth below under Description of Insurance. The amount and
method of credit support will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
Letters of Credit
The Letters of Credit, if any, with respect to a Series of Certificates will be
issued by the bank or financial institution specified in the applicable
Prospectus Supplement (the "L/C Bank"). The maximum obligation of the L/C Bank
under the Letter of Credit will be to honor requests for payment thereunder in
an aggregate fixed dollar amount, net of unreimbursed payments thereunder, equal
to the percentage of the aggregate principal balance on the related Cut-off Date
of the Mortgage Loans or Contracts evidenced by each Series (the "L/C
Percentage") specified in the Prospectus Supplement for such Series. The
duration of coverage and the amount and frequency of any reduction in coverage
provided by the Letter of Credit with respect to a Series of Certificates will
be in compliance with the requirements established by the Rating Agency rating
such Series and will be set forth in the Prospectus Supplement relating to such
Series of Certificates. The amount available under the Letter of Credit in all
cases shall be reduced to the extent of the unreimbursed payments thereunder.
The obligations of the L/C Bank under the Letter of Credit for each Series of
Certificates will expire 30 days after the latest of the scheduled
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final maturity dates of the Mortgage Loans or Contracts in the related Mortgage
Pool or Contract Pool or the repurchase of all Mortgage Loans or Contracts in
the Mortgage Pool or Contract Pool in the circumstances specified above. See
"Description of the Certificates-Termination".
Under the Pooling and Servicing Agreement, the Master Servicer (subject to
certain exceptions which, if applicable, will be specified in the applicable
Prospectus Supplement) will be required not later than three business days prior
to each Distribution Date to determine whether a payment under the Letter of
Credit will be necessary on the Distribution Date and will, no later than the
third business day prior to such Distribution Date, advise the L/C Bank and the
Trustee of its determination, setting forth the amount of any required payment.
On the Distribution Date, the L/C Bank will be required to honor the Trustee's
request for payment thereunder in an amount equal to the lesser of (A) the
remaining amount available under the Letter of Credit and (B) the outstanding
principal balances of any Liquidating Loans to be assigned on such Distribution
Date (together with accrued and unpaid interest thereon at the related Mortgage
Rate or APR to the related Due Date). The proceeds of such payments under the
Letter of Credit will be deposited into the Certificate Account and will be
distributed to Certificateholders, in the manner specified in the applicable
Prospectus Supplement, on such Distribution Date, except to the extent of any
unreimbursed Advances, servicing compensation due to the Servicers and the
Master Servicer and other amounts payable to the Depositor or the person or
entity named in the applicable Prospectus Supplement therefrom.
If at any time the L/C Bank makes a payment in the amount of the full
outstanding principal balance and accrued interest on a Liquidating Loan, it
will be entitled to receive an assignment by the Trustee of such Liquidating
Loan, and the L/C Bank will thereafter own such Liquidating Loan free of any
further obligation to the Trustee or the Certificateholders with respect
thereto. Payments made to the Certificate Account by the L/C Bank under the
Letter of Credit with respect to such a Liquidating Loan will be reimbursed to
the L/C Bank only from the proceeds (net of liquidation costs) of such
Liquidating Loan. The amount available under the Letter of Credit will be
increased to the extent it is reimbursed for such payments.
To the extent the proceeds of liquidation of a Liquidating Loan acquired by
the L/C Bank in the manner described in the preceding paragraph exceed the
amount of payments made with respect thereto, the L/C Bank will be entitled to
retain such proceeds as additional compensation for issuance of the Letter of
Credit.
Prospective purchasers of Certificates of a Series with respect to which
credit support is provided by a Letter of Credit must look to the credit of the
L/C Bank, to the extent of its obligations under the Letter of Credit, in the
event of default by Mortgagors or Obligors. If the amount available under the
Letter of Credit is exhausted, or the L/C Bank becomes insolvent, and amounts in
the Reserve Fund, if any, with respect to such Series are insufficient to pay
the entire amount of the loss and still be maintained at the level specified in
the applicable Prospectus Supplement (the "Required Reserve"), the
Certificateholders (in the priority specified in the applicable Prospectus
Supplement) will thereafter bear all risks of loss resulting from default by
Mortgagors or Obligors (including losses not covered by insurance or Alternative
Credit Support), and must look primarily to the value of the properties securing
defaulted Mortgage Loans or Contracts for recovery of the outstanding principal
and unpaid interest.
In the event that a Subordinated Class or Subclass of a Series of
Certificates is issued with a notional amount, the coverage provided by the
Letter of Credit with respect to such Series, and the terms and conditions of
such coverage, will be set forth in the applicable Prospectus Supplement.
Subordinated Certificates
To the extent specified in the Prospectus Supplement with respect to a
Series of Certificates, credit support may be provided by the subordination of
the rights of the holders of one or more Classes or Subclasses of Certificates
to receive distributions with respect to the Mortgage Loans in the Mortgage Pool
or Contracts in the Contract Pool underlying such Series, or with respect to a
Subordinated Pool of mortgage loans or manufactured housing conditional sales
contracts and installment loan agreements, to the rights of the Senior
Certificateholders or holders of one or more Classes or Subclasses of
Subordinated Certificates of such Series to receive such distributions, to the
extent of the applicable Subordinated
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Amount. In such a case, credit support may also be provided by the establishment
of a Reserve Fund, as described below. The Subordinated Amount, as described
below, will be reduced by an amount equal to Aggregate Losses. Aggregate Losses
are defined in the related Pooling and Servicing Agreement for any given period
as the aggregate amount of delinquencies, losses and other deficiencies in the
amounts due to the holders of the Certificates of one or more classes or
Subclasses of such Series paid or borne by the holders of one or more Classes or
Subclasses of Subordinated Certificates of such Series ("payment deficiencies"),
but excluding any payments of interest on any amounts originally due to the
holders of the Certificates of a Class or Subclass to which the applicable Class
or Subclass of Subordinated Certificates are subordinated on a previous
Distribution Date, but not paid as due, whether by way of withdrawal from the
Reserve Fund, if any (including, prior to the time that the Subordinated Amount
is reduced to zero, any such withdrawal of amounts attributable to the Initial
Deposit, if any), reduction in amounts otherwise distributable to the
Subordinated Certificateholders on any Distribution Date or otherwise, less the
aggregate amount of previous payment deficiencies recovered by the related Trust
Fund during such period in respect of the Mortgage Loans or Contracts giving
rise to such previous payment deficiencies, including, without limitation, such
recoveries resulting from the receipt of delinquent principal and/or interest
payments, Liquidation Proceeds or Insurance Proceeds (net, in each case, of
servicing compensation, foreclosure costs and other servicing costs, expenses
and unreimbursed Advances relating to such Mortgage Loans or Contracts). The
Prospectus Supplement for each Series of Certificates with respect to which
credit support will be provided by one or more Classes or Subclasses of
Subordinated Certificates will set forth the Subordinated Amount for such
Series. If specified in the applicable Prospectus Supplement, the Subordinated
Amount will decline over time in accordance with a schedule which will also be
set forth in the applicable Prospectus Supplement.
Shifting Interest
If specified in the Prospectus Supplement for a Series of Certificates for
which credit enhancement is provided by shifting interest as described herein,
the rights of the holders of the Subordinated Certificates of a Series to
receive distributions with respect to the Mortgage Loans or Contracts in the
related Trust Fund or Subsidiary Trust will be subordinated to such right of the
holders of the Senior Certificates of the same Series to the extent described in
such Prospectus Supplement. This subordination feature is intended to enhance
the likelihood of regular receipt by holders of Senior Certificates of the full
amount of scheduled monthly payments of principal and interest due them and to
provide limited protection to the holders of the Senior Certificates against
losses due to mortgagor defaults.
The protection afforded to the holders of Senior Certificates of a Series
by the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Certificates a disproportionately greater
percentage (the "Senior Prepayment Percentage") of Principal Prepayments. The
initial Senior Prepayment Percentage will be the percentage specified in the
applicable Prospectus Supplement and will decrease in accordance with the
schedule and subject to the conditions set forth in such Prospectus Supplement.
This disproportionate distribution of Principal Prepayments will have the effect
of accelerating the amortization of the Senior Certificates while increasing the
respective interest of the Subordinated Certificates in the Mortgage Pool or
Contract Pool. Increasing the respective interest of the Subordinated
Certificates relative to that of the Senior Certificates is intended to preserve
the availability of the benefits of the subordination provided by the
Subordinated Certificates.
Swap Agreement
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Trust will enter into or obtain an assignment of a swap
agreement or other similar agreement pursuant to which the Trust will have the
right to receive certain payments of interest (or other payments) as set forth
or determined as described therein. The Prospectus Supplement relating to a
Series of Certificates having the benefit of an interest rate swap agreement
will describe the material terms of such agreement and the particular risks
associated with the interest rate swap feature, including market and credit
risk, the effect of counterparty defaults and other risks, if any, addressed by
the rating. The Prospectus Supplement relating to such Series of Certificates
also will set forth certain information relating to the corporate status,
ownership and credit quality of the counterparty or counterparties to such swap
agreement.
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Reserve Fund
If so specified in the applicable Prospectus Supplement, credit support
with respect to a Series of Certificates may be provided by the establishment
and maintenance with the Trustee for such Series of Certificates, in trust, of a
Reserve Fund for such Series. If so specified in the applicable Prospectus
Supplement, the Reserve Fund for a Series will not be included in the Trust Fund
for such Series. The Reserve Fund for each Series will be created by the
Depositor and shall be funded by the retention by the Master Servicer of certain
payments on the Mortgage Loans or Contracts, by the deposit with the Trustee, in
escrow, by the Depositor of a Subordinated Pool of mortgage loans or
manufactured housing conditional sales contracts and installment loan agreements
with the aggregate principal balance, as of the related Cut-off Date, set forth
in the applicable Prospectus Supplement, by any combination of the foregoing, or
in another manner specified in the applicable Prospectus Supplement. Following
the initial issuance of the Certificates of a Series and until the balance of
the Reserve Fund first equals or exceeds the Required Reserve, the Master
Servicer will retain specified distributions on the Mortgage Loans or Contracts
and/or on the mortgage loans or manufactured housing conditional sales contracts
and installment loan agreements in the Subordinated Pool otherwise distributable
to the holders of Subordinated Certificates and deposit such amounts in the
Reserve Fund. After the amounts in the Reserve Fund for a Series first equal or
exceed the applicable Required Reserve, the Master Servicer will retain such
distributions and deposit so much of such amounts in the Reserve Fund as may be
necessary, after the application of such distributions to amounts due and unpaid
on the Certificates or on the Certificates of such Series to which the
applicable Class or Subclass of Subordinated Certificates are subordinated and
the reimbursement of unreimbursed Advances and liquidation expenses, to maintain
the Reserve Fund at the Required Reserve. The balance in the Reserve Fund in
excess of the Required Reserve shall be paid to the applicable Class or Subclass
of Subordinated Certificates, or to another specified person or entity, as set
forth in the applicable Prospectus Supplement, and shall be unavailable
thereafter for future distribution to Certificateholders of any Class. The
Prospectus Supplement for each Series will set forth the amount of the Required
Reserve applicable from time to time. The Required Reserve may decline over time
in accordance with a schedule which will also be set forth in the applicable
Prospectus Supplement.
Amounts held in the Reserve Fund for a Series from time to time will
continue to be the property of the Subordinated Certificateholders of the
Classes or Subclasses specified in the applicable Prospectus Supplement until
withdrawn from the Reserve Fund and transferred to the Certificate Account as
described below. If on any Distribution Date the amount in the Certificate
Account available to be applied to distributions on the Senior Certificates of
such Series, after giving effect to any Advances made by the Servicers or the
Master Servicer on such Distribution Date, is less than the amount required to
be distributed to such Senior Certificateholders (the "Required Distribution")
on such Distribution Date, the Master Servicer will withdraw from the Reserve
Fund and deposit into the Certificate Account the lesser of (i) the entire
amount on deposit in the Reserve Fund available for distribution to the Senior
Certificateholders (which amount will not in any event exceed the Required
Reserve) or (ii) the amount necessary to increase the funds in the Certificate
Account eligible for distribution to the Senior Certificateholders on such
Distribution Date to the Required Distribution; provided, however, that in no
event will any amount representing investment earnings on amounts held in the
Reserve Fund be transferred into the Certificate Account or otherwise used in
any manner for the benefit of the Senior Certificateholders. If so specified in
the applicable Prospectus Supplement, the balance, if any, in the Reserve Fund
in excess of the Required Reserve shall be released, to the Subordinated
Certificateholders. Whenever the Reserve Fund is less than the Required Reserve
(subject to certain exceptions which, if applicable, will be specified in the
applicable Prospectus Supplement), holders of the Subordinated Certificates of
the applicable Class or Subclass will not receive any distributions with respect
to the Mortgage Loans or Contracts other than amounts attributable to interest
on the Mortgage Loans or Contracts after the initial Required Reserve has been
attained and amounts attributable to any income resulting from investment of the
Reserve Fund as described below. Whether or not the amount of the Reserve Fund
exceeds the Required Reserve on any Distribution Date, the holders of the
Subordinated Certificates of the applicable Class or Subclass are entitled to
receive from the Certificate Account their share of the proceeds of any Mortgage
Loan or Contract, or any property acquired in respect thereof, repurchased by
reason of defective documentation or the breach of a representation or warranty
pursuant to the Pooling and Servicing Agreement. Amounts in the Reserve Fund
shall be applied in the following order:
(i) to the reimbursement of Advances determined by the Master Servicer and
the Servicers to be otherwise unrecoverable, other than Advances of interest in
connection with prepayments in full, repurchases and liquidations, and the
reimbursement of liquidation expenses incurred by the Servicers and the Master
Servicer if sufficient funds for such reimbursement are not otherwise available
in the related Servicing Accounts and Certificate Account;
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(ii) to the payment to the holders of the Senior Certificates of such
Series of amounts distributable to them on the related Distribution Date in
respect of scheduled payments of principal and interest due on the related Due
Date to the extent that sufficient funds in the Certificate Account are not
available therefor; and
(iii) to the payment to the holders of the Senior Certificates of such
Series of the principal balance or purchase price, as applicable, of Mortgage
Loans or Contracts repurchased, liquidated or foreclosed during the period
ending on the day prior to the Due Date to which such distribution relates and
interest thereon at the related Pass-Through Rate, to the extent that sufficient
funds in the Certificate Account are not available therefor.
Amounts in the Reserve Fund in excess of the Required Reserve, including
any investment income on amounts therein, as set forth below, shall then be
released to the holders of the Subordinated Certificates, or to such other
person as is specified in the applicable Prospectus Supplement, as set forth
above.
Funds in the Reserve Fund for a Series shall be invested as provided in the
related Pooling and Servicing Agreement in certain types of eligible
investments. The earnings on such investments will be withdrawn and paid to the
holders of the applicable Class or Subclass of Subordinated Certificates in
accordance with their respective interests in the Reserve Fund in the priority
specified in the applicable Prospectus Supplement. Investment income in the
Reserve Fund is not available for distribution to the holders of the Senior
Certificates of such Series or otherwise subject to any claims or rights of the
holders of the applicable Class or Subclass of Senior Certificates. Eligible
investments for monies deposited in the Reserve Fund will be specified in the
Pooling and Servicing Agreement for a Series of Certificates for which a Reserve
Fund is established and in some instances will be limited to investments
acceptable to the Rating Agency rating the Certificates of such Series from time
to time as being consistent with its outstanding rating of such Certificates.
Such eligible investments will be limited, however, to obligations or securities
that mature at various time periods up to 30 days according to a schedule in the
Pooling and Servicing Agreement based on the current balance of the Reserve Fund
at the time of such investment or the contractual commitment providing for such
investment.
The time necessary for the Reserve Fund of a Series to reach and maintain
the applicable Required Reserve at any time after the initial issuance of the
Certificates of such Series and the availability of amounts in the Reserve Fund
for distributions on such Certificates will be affected by the delinquency,
foreclosure and prepayment experience of the Mortgage Loans or Contracts in the
related Trust Fund and/or in the Subordinated Pool and therefore cannot be
accurately predicted.
Performance Bond
If so specified in the applicable Prospectus Supplement, the Master
Servicer may be required to obtain a Performance Bond that would provide a
guarantee of the performance by the Master Servicer of one or more of its
obligations under the Agreement, including its obligation to advance delinquent
installments of principal and interest on Mortgage Loans or Contracts and its
obligation to repurchase Mortgage Loans or Contracts in the event of a breach by
the Master Servicer of a representation or warranty contained in the Agreement.
In the event that the outstanding credit rating of the obligor of the
Performance Bond is lowered by the Rating Agency, with the result that the
outstanding rating on the Certificates would be reduced by such Rating Agency,
the Master Servicer will be required to secure a substitute Performance Bond
issued by an entity with a rating sufficient to maintain the outstanding rating
on the Certificates or to deposit and maintain with the Trustee cash in the
amount specified in the applicable Prospectus Supplement.
DESCRIPTION OF INSURANCE
To the extent that the applicable Prospectus Supplement does not expressly
provide for a form of credit support specified above or for Alternative Credit
Support in lieu of some or all of the insurance mentioned below, the following
paragraphs on insurance shall apply with respect to the Mortgage Loans included
in the related Trust Fund. Each Manufactured Home that secures a Contract will
be covered by a standard hazard insurance policy and other insurance policies to
the extent described in the applicable Prospectus Supplement. Any material
changes in such insurance from the
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description that follows or the description of any Alternative Credit Support
will be set forth in the applicable Prospectus Supplement.
Primary Mortgage Insurance Policies
To the extent specified in the applicable Prospectus Supplement, each
Servicing Agreement will require the Servicer to cause a Primary Mortgage
Insurance Policy to be maintained in full force and effect with respect to each
Mortgage Loan that is secured by a Single Family Property covered by the
Servicing Agreement requiring such insurance and to act on behalf of the Insured
with respect to all actions required to be taken by the Insured under each such
Primary Mortgage Insurance Policy. Any primary mortgage insurance or primary
credit insurance policies relating to the Contracts underlying a Series of
Certificates will be described in the applicable Prospectus Supplement.
The amount of a claim for benefits under a Primary Mortgage Insurance
Policy covering a Mortgage Loan in the related Mortgage Pool (herein referred to
as the "Loss") generally will consist of the insured portion of the unpaid
principal amount of the covered Mortgage Loan (as described herein) and accrued
and unpaid interest thereon and reimbursement of certain expenses, less (i) all
rents or other payments collected or received by the Insured (other than the
proceeds of hazard insurance) that are derived from or in any way related to
such Mortgaged Property, (ii) hazard insurance proceeds in excess of the amount
required to restore such Mortgaged Property and which have not been applied to
the payment of such Mortgage Loan, (iii) amounts expended but not approved by
the Primary Mortgage Insurer, (iv) claim payments previously made by the Primary
Mortgage Insurer, and (v) unpaid premiums.
As conditions precedent to the filing of or payment of a claim under a
Primary Mortgage Insurance Policy covering a Mortgage Loan in the related
Mortgage Pool, the Insured generally will be required to, in the event of
default by the Mortgagor: (i) advance or discharge (A) all hazard insurance
premiums and (B) as necessary and approved in advance by the Primary Mortgage
Insurer, (1) real estate property taxes, (2) all expenses required to preserve,
repair and prevent waste to the Mortgaged Property so as to maintain such
Mortgaged Property in at least as good a condition as existed at the effective
date of such Primary Mortgage Insurance Policy, ordinary wear and tear excepted,
(3) property sales expenses, (4) any outstanding liens (as defined in such
Primary Mortgage Insurance Policy) on the Mortgaged Property and (5) foreclosure
costs, including court costs and reasonable attorneys' fees; (ii) in the event
of a physical loss or damage to the Mortgaged Property, have restored and
repaired the Mortgaged Property to at least as good a condition as existed at
the effective date of such Primary Mortgage Insurance Policy, ordinary wear and
tear excepted; and (iii) tender to the Primary Mortgage Insurer good and
merchantable title to and possession of the mortgaged property.
Other provisions and conditions of each Primary Mortgage Insurance Policy
covering a Mortgage Loan in the related Mortgage Pool generally will provide
that: (a) no change may be made in the terms of such Mortgage Loan without the
consent of the Primary Mortgage Insurer; (b) written notice must be given to the
Primary Mortgage Insurer within 10 days after the Insured becomes aware that a
Mortgagor is delinquent in the payment of a sum equal to the aggregate of two
scheduled monthly payments due under such Mortgage Loan or that any proceedings
affecting the Mortgagor's interest in the Mortgaged Property securing such
Mortgage Loan have commenced, and thereafter the Insured must report monthly to
the Primary Mortgage Insurer the status of any such Mortgage Loan until such
Mortgage Loan is brought current, such proceedings are terminated or a claim is
filed; (c) the Primary Mortgage Insurer will have the right to purchase such
Mortgage Loan, at any time subsequent to the 10 days' notice described in (b)
above and prior to the commencement of foreclosure proceedings, at a price equal
to the unpaid principal amount of the Mortgage Loan, plus accrued and unpaid
interest thereon and reimbursable amounts expended by the Insured for the real
estate taxes and fire and extended coverage insurance on the Mortgaged Property
for a period not exceeding 12 months, and less the sum of any claim previously
paid under the Primary Mortgage Insurance Policy and any due and unpaid premiums
with respect to such policy; (d) the Insured must commence proceedings at
certain times specified in the Primary Mortgage Insurance Policy and diligently
proceed to obtain good and merchantable title to and possession of the Mortgaged
Property; (e) the Insured must notify the Primary Mortgage Insurer of the price
specified in (c) above at least 15 days prior to the sale of the Mortgaged
Property by foreclosure, and bid such amount unless the Mortgage Insurer
specifies a lower or higher amount; and (f) the Insured may accept a conveyance
of the Mortgaged Property in lieu of foreclosure with written approval of the
Mortgage Insurer provided
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the ability of the Insured to assign specified rights to the Primary Mortgage
Insurer are not thereby impaired or the specified rights of the Primary Mortgage
Insurer are not thereby adversely affected.
The Primary Mortgage Insurer generally will be required to pay to the
Insured either: (1) the insured percentage of the Loss; or (2) at its option
under certain of the Primary Mortgage Insurance Policies, the sum of the
delinquent monthly payments plus any advances made by the Insured, both to the
date of the claim payment, and thereafter, monthly payments in the amount that
would have become due under the Mortgage Loan if it had not been discharged plus
any advances made by the Insured until the earlier of (A) the date the Mortgage
Loan would have been discharged in full if the default had not occurred or (B)
an approved sale. Any rents or other payments collected or received by the
Insured which are derived from or are in any way related to the Mortgaged
Property will be deducted from any claim payment.
FHA Insurance and VA Guarantees
The FHA is responsible for administering various federal programs,
including mortgage insurance, authorized under the National Housing Act, as
amended, and the United States Housing Act of 1937, as amended. Any FHA
Insurance or VA Guarantees relating to Contracts underlying a Series of
Certificates will be described in the applicable Prospectus Supplement.
The insurance premiums for FHA Loans are collected by HUD approved lenders
or by the Servicers of such FHA Loans and are paid to the FHA. The regulations
governing FHA single-family mortgage insurance programs provide that insurance
benefits are payable either upon foreclosure (or other acquisition of
possession) and conveyance of the mortgaged premises to HUD or upon assignment
of the defaulted FHA Loan to HUD. With respect to a defaulted FHA Loan, the
Servicer of such FHA Loan will be limited in its ability to initiate foreclosure
proceedings. When it is determined, either by the Servicer or HUD, that default
was caused by circumstances beyond the Mortgagor's control, the Servicer will be
expected to make an effort to avoid foreclosure by entering, if feasible, into
one of a number of available forms of forbearance plans with the Mortgagor. Such
plans may involve the reduction or suspension of scheduled mortgage payments for
a specified period, with such payments to be made upon or before the maturity
date of the mortgage, or the recasting of payments due under the mortgage up to
or beyond the scheduled maturity date. In addition, when a default caused by
such circumstances is accompanied by certain other criteria, HUD may provide
relief by making payments to the Servicer of such Mortgage Loan in partial or
full satisfaction of amounts due thereunder (which payments are to be repaid by
the Mortgagor to HUD) or by accepting assignment of the Mortgage Loan from the
Servicer. With certain exceptions, at least three full monthly installments must
be due and unpaid under the Mortgage Loan, and HUD must have rejected any
request for relief from the Mortgagor before the Servicer may initiate
foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Presently, claims are being paid in cash, and claims
have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debenture interest rate. The Servicer of each FHA Loan in a Mortgage Pool will
be obligated to purchase any such debenture issued in satisfaction of a
defaulted FHA Loan serviced by it for an amount equal to the principal amount of
the FHA Loan.
The amount of insurance benefits generally paid by the FHA is equal to the
entire unpaid principal balance of the defaulted FHA Loan, adjusted to reimburse
the Servicer of such FHA Loan for certain costs and expenses and to deduct
certain amounts received or retained by such Servicer after default. When
entitlement to insurance benefits results from foreclosure (or other acquisition
of possession) and conveyance to HUD, the Servicer is compensated for no more
than two-thirds of its foreclosure costs, and is compensated for interest
accrued and unpaid prior to such date in general only to the extent it was
allowed pursuant to a forbearance plan approved by HUD. When entitlement to
insurance benefits results from assignment of the FHA Loan to HUD, the insurance
payment includes full compensation for interest accrued and unpaid to the
assignment date. The insurance payment itself, upon foreclosure of an FHA Loan,
bears interest from a date 30 days after the mortgagor's first uncorrected
failure to perform any obligation or make any payment due under the Mortgage
Loan and, upon assignment, from the date of assignment, to the date of payment
of the claim, in each case at the same interest rate as the applicable HUD
debenture interest rate as described above.
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The maximum guarantee that may be issued by the VA under a VA Loan is 50%
of the principal amount of the VA Loan if the principal amount of the Mortgage
Loan is $45,000 or less, the lesser of $36,000 and 40% if the principal amount
of the VA Loan if the principal amount of such VA Loan is greater than $45,000
but less than or equal to $144,000, and the lesser of $46,000 and 25% of the
principal amount of the Mortgage Loan if the principal amount of the Mortgage
Loan is greater than $144,000. The liability on the guarantee is reduced or
increased pro rata with any reduction or increase in the amount of indebtedness,
but in no event will the amount payable on the guarantee exceed the amount of
the original guarantee. The VA may, at its option and without regard to the
guarantee, make full payment to a mortgage holder of unsatisfied indebtedness on
a Mortgage upon its assignment to the VA.
With respect to a defaulted VA Loan, the Servicer is, absent exceptional
circumstances, authorized to announce its intention to foreclose only when the
default has continued for three months. Generally, a claim for the guarantee is
submitted after liquidation of the Mortgaged Property.
The amount payable under the guarantee will be the percentage of the VA
Loan originally guaranteed applied to indebtedness outstanding as of the
applicable date of computation specified in the VA regulations. Payments under
the guarantee will be equal to the unpaid principal amount of the VA Loan,
interest accrued on the unpaid balance of the VA Loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to the
extent that such amounts have not been recovered through liquidation of the
Mortgaged Property. The amount payable under the guarantee may in no event
exceed the amount of the original guarantee.
Standard Hazard Insurance Policies on Mortgage Loans
The Standard Hazard Insurance Policies covering the Mortgage Loans in a
Mortgage Pool will provide for coverage at least equal to the applicable state
standard form of fire insurance policy with extended coverage. In general, the
standard form of fire and extended coverage policy will cover physical damage
to, or destruction of, the improvements on the Mortgaged Property caused by
fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions particularized in each
policy. Because the Standard Hazard Insurance Policies relating to such Mortgage
Loans will be underwritten by different insurers and will cover Mortgaged
Properties located in various states, such policies will not contain identical
terms and conditions. The most significant terms thereof, however, generally
will be determined by state law and generally will be similar. Most such
policies typically will not cover any physical damage resulting from the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement (including earthquakes, landslides and mudflows), nuclear
reaction, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive.
The Standard Hazard Insurance Policies, if any, covering Mortgaged
Properties securing Mortgage Loans typically will contain a "coinsurance" clause
which, in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the Mortgaged Property in order
to recover the full amount of any partial loss. If the insured's coverage falls
below this specified percentage, such clause will provide that the insurer's
liability in the event of partial loss will not exceed the greater of (i) the
actual cash value (the replacement cost less physical depreciation) of the
dwellings, structures and other improvements damaged or destroyed or (ii) such
proportion of the loss, without deduction for depreciation, as the amount of
insurance carried bears to the specified percentage of the full replacement cost
of such dwellings, structures and other improvements.
The Depositor will not require that a standard hazard or flood insurance
policy be maintained on the Cooperative Dwelling relating to any Cooperative
Loan. Generally, the cooperative corporation itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a Cooperative and the related
borrower on a Cooperative Loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to such borrower's Cooperative Dwelling or such
Cooperative's building could
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significantly reduce the value of the collateral securing such Cooperative Loan
to the extent not covered by other credit support.
Any losses incurred with respect to Mortgage Loans due to uninsured risks
(including earthquakes, mudflows and, with respect to Mortgaged Properties
located other than in HUD designated flood areas, floods) or insufficient hazard
insurance proceeds and any hazard losses incurred with respect to Cooperative
Loans could affect distributions to the Certificateholders.
With respect to Mortgage Loans secured by Multifamily Property, certain
additional insurance policies may be required with respect to the Multifamily
Property; for example, general liability insurance for bodily injury and
property damage, steam boiler coverage where a steam boiler or other pressure
vessel is in operation, and rent loss insurance to cover income losses following
damage or destruction of the Mortgaged Property. The applicable Prospectus
Supplement will specify the required types and amounts of additional insurance
that may be required in connection with Mortgage Loans secured by Multifamily
Property and will describe the general terms of such insurance and conditions to
payment thereunder.
Standard Hazard Insurance Policies on the Manufactured Homes
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to cause to be maintained with respect to each Contract one or more
Standard Hazard Insurance Policies which provide, at a minimum, the same
coverage as a standard form fire and extended coverage insurance policy that is
customary for manufactured housing, issued by a company authorized to issue such
policies in the state in which the Manufactured Home is located, and in an
amount which is not less than the maximum insurable value of such Manufactured
Home or the principal balance due from the Obligor on the related Contract,
whichever is less; provided, however, that the amount of coverage provided by
each Standard Hazard Insurance Policy shall be sufficient to avoid the
application of any co-insurance clause contained therein. When a Manufactured
Home's location was, at the time of origination of the related Contract, within
a federally designated flood area, the Master Servicer also shall cause flood
insurance to be maintained (or maintain itself), which coverage shall be at
least equal to the minimum amount specified in the preceding sentence or such
lesser amount as may be available under the federal flood insurance program.
Each Standard Hazard Insurance Policy caused to be maintained by the Master
Servicer shall contain a standard loss payee clause in favor of the Master
Servicer and its successors and assigns. If any Obligor is in default in the
payment of premiums on its Standard Hazard Insurance Policy or Policies, the
Master Servicer shall pay such premiums out of its own funds, and may add
separately such premium to the Obligor's obligation as provided by the Contract,
but may not add such premium to the remaining principal balance of the Contract.
The Master Servicer may maintain, in lieu of causing individual Standard
Hazard Insurance Policies to be maintained with respect to each Manufactured
Home, and shall maintain, to the extent that the related Contract does not
require the Obligor to maintain a Standard Hazard Insurance Policy with respect
to the related Manufactured Home, one or more blanket insurance policies
covering losses on the Obligor's interest in the Contracts resulting from the
absence or insufficiency of individual Standard Hazard Insurance Policies. Any
such blanket policy shall be substantially in the form and in the amount carried
by the Master Servicer as of the date of the Pooling and Servicing Agreement.
The Master Servicer shall pay the premium for such policy on the basis described
therein and shall pay any deductible amount with respect to claims under such
policy relating to the Contracts. If the insurer thereunder shall cease to be
acceptable to the Master Servicer, the Master Servicer shall exercise its best
reasonable efforts to obtain from another insurer a replacement policy
comparable to such policy.
If the Master Servicer shall have repossessed a Manufactured Home on behalf
of the Trustee, the Master Servicer shall either (i) maintain at its expense
hazard insurance with respect to such Manufactured Home or (ii) indemnify the
Trustee against any damage to such Manufactured Home prior to resale or other
disposition.
Pool Insurance Policies
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If so specified in the applicable Prospectus Supplement, the Master
Servicer will obtain a Pool Insurance Policy for a Mortgage Pool underlying
Certificates of such Series. Such Pool Insurance Policy will be issued by the
Pool Insurer named in the applicable Prospectus Supplement. Any Pool Insurance
Policy for a Contract Pool underlying a Series of Certificates will be described
in the applicable Prospectus Supplement. Each Pool Insurance Policy will cover
any loss (subject to the limitations described below) by reason of default to
the extent the related Mortgage Loan is not covered by any Primary Mortgage
Insurance Policy, FHA insurance or VA guarantee. The amount of the Pool
Insurance Policy, if any, with respect to a Series will be specified in the
applicable Prospectus Supplement. A Pool Insurance Policy, however, will not be
a blanket policy against loss, because claims thereunder may only be made for
particular defaulted Mortgage Loans and only upon satisfaction of certain
conditions precedent described below. Any Pool Insurance Policies relating to
the Contracts will be described in the applicable Prospectus Supplement.
The Pool Insurance Policy, if any, will provide that as a condition
precedent to the payment of any claim the Insured generally will be required (i)
to advance hazard insurance premiums on the Mortgaged Property securing the
defaulted Mortgage Loan; (ii) to advance, as necessary and approved in advance
by the Pool Insurer, (a) real estate property taxes, (b) all expenses required
to preserve and repair the Mortgaged Property, to protect the Mortgaged Property
from waste, so that the Mortgaged Property is in at least as good a condition as
existed on the date upon which coverage under the Pool Insurance Policy with
respect to such Mortgaged Property first became effective (ordinary wear and
tear excepted), (c) property sales expenses, (d) any outstanding liens on the
Mortgaged Property and (e) foreclosure costs including court costs and
reasonable attorneys' fees; and (iii) if there has been physical loss or damage
to the Mortgaged Property, to restore the Mortgaged Property to its condition
(reasonable wear and tear excepted) as of the issue date of the Pool Insurance
Policy. It also will be a condition precedent to the payment of any claim under
the Pool Insurance Policy that the Insured maintain a Primary Mortgage Insurance
Policy that is acceptable to the Pool Insurer on all Mortgage Loans that have
Loan-to-Value Ratios at the time of origination in excess of 80%. FHA insurance
and VA guarantees will be deemed to be an acceptable Primary Mortgage Insurance
Policy under the Pool Insurance Policy. Assuming satisfaction of these
conditions, the Pool Insurer will pay to the Insured the amount of loss,
determined as follows: (i) the amount of the unpaid principal balance of the
Mortgage Loan immediately prior to the Approved Sale (as described below) of the
Mortgaged Property, (ii) the amount of the accumulated unpaid interest on such
Mortgage Loan to the date of claim settlement at the applicable Mortgage Rate
and (iii) advances as described above, less (a) all rents or other payments
(excluding proceeds of fire and extended coverage insurance) collected or
received by the Insured, which are derived from or in any way related to the
Mortgaged Property, (b) amounts paid under applicable fire and extended coverage
policies which are in excess of the cost of restoring and repairing the
Mortgaged Property and which have not been applied to the payment of the
Mortgage Loan, (c) any claims payments previously made by the Pool Insurer on
the Mortgage Loan, (d) due and unpaid premiums payable with respect to the Pool
Insurance Policy and (e) all claim payments received by the Insured pursuant to
any Primary Mortgage Insurance Policy. An "Approved Sale" is (1) a sale of the
Mortgaged Property acquired because of a default by the Mortgagor to which the
Pool Insurer has given prior approval, (2) a foreclosure or trustee's sale of
the Mortgaged Property at a price exceeding the maximum amount specified by the
Pool Insurer, (3) the acquisition of the Mortgaged Property under the Primary
Insurance Policy by the Primary Mortgage Insurer or (4) the acquisition of the
Mortgaged Property by the Pool Insurer. The Pool Insurer must be provided with
good and merchantable title to the Mortgaged Property as a condition precedent
to the payment of any Loss. If any Mortgaged Property securing a defaulted
Mortgage Loan is damaged and the proceeds, if any, from the related Standard
Hazard Insurance Policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the Mortgaged Property to a condition sufficient to
permit recovery under the Pool Insurance Policy, the Master Servicer or the
Servicer of the related Mortgage Loan will not be required to expend its own
funds to restore the damaged Mortgaged Property unless it is determined (A) that
such restoration will increase the proceeds to the Certificateholders of the
related Series on liquidation of the Mortgage Loan, after reimbursement of the
expenses of the Master Servicer or the Servicer, as the case may be, and (B)
that such expenses will be recoverable by it through payments under the Letter
of Credit, if any, with respect to such Series, Liquidation Proceeds, Insurance
Proceeds, amounts in the Reserve Fund, if any, or payments under any Alternative
Credit Support, if any, with respect to such Series.
No Pool Insurance Policy will insure (and many Primary Mortgage Insurance
Policies may not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Mortgage Loan, including misrepresentation by the Mortgagor, the
Unaffiliated Seller, the Originator or other persons involved in the origination
thereof, (ii) the exercise by the Insured of its right to call the Mortgage
Loan, or the term of the Mortgage Loan is shorter than the amortization period
and the defaulted payment is for an amount more than twice the
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regular periodic payments of principal and interest for such Mortgage Loan, or
(iii) the exercise by the Insured of a "due-on-sale" clause or other similar
provision in the Mortgage Loan; provided, in either case (ii) or (iii), such
exclusion shall not apply if the Insured offers a renewal or extension of the
Mortgage Loan or a new Mortgage Loan at the market rate in an amount not less
than the then outstanding principal balance with no decrease in the amortization
period. A failure of coverage attributable to one of the foregoing events might
result in a breach of the Master Servicer's insurability representation
described under "Description of the Certificates-Assignment of Mortgage Loans"
above, and in such event, subject to the limitations described therein, might
give rise to an obligation on the part of the Master Servicer to purchase the
defaulted Mortgage Loan if the breach materially and adversely affects the
interests of the Certificateholders of the related Series and cannot be cured by
the Master Servicer. Depending upon the nature of the event, a breach of
representation made by the Depositor or an Unaffiliated Seller may also have
occurred. Such a breach, if it materially and adversely affects the interests of
the Certificateholders of such Series and cannot be cured, would give rise to a
repurchase obligation on the part of the Unaffiliated Seller as more fully
described under "The Trust Fund-Mortgage Loan Program-Representations by
Unaffiliated Sellers; Repurchases" and "Description of the
Certificates-Assignment of Mortgage Loans".
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Certificates of the related Series by the aggregate
dollar amount of claims paid less the aggregate of the net amounts realized by
the Pool Insurer upon disposition of all foreclosed Mortgaged Properties covered
thereby. The amount of claims paid will include certain expenses incurred by the
Master Servicer or by the Servicer of the defaulted Mortgage Loan as well as
accrued interest on delinquent Mortgage Loans to the date of payment of the
claim. Accordingly, if aggregate net claims paid under a Pool Insurance Policy
reach the original policy limit, coverage under the Pool Insurance Policy will
lapse and any further losses will be borne by the holders of the Certificates of
such Series. In addition, unless the Master Servicer or the related Servicer
could determine that an Advance in respect of a delinquent Mortgage Loan would
be recoverable to it from the proceeds of the liquidation of such Mortgage Loan
or otherwise, neither such Servicer nor the Master Servicer would be obligated
to make an Advance respecting any such delinquency, since the Advance would not
be ultimately recoverable to it from either the Pool Insurance Policy or from
any other related source. See "Description of the Certificates-Advances".
Special Hazard Insurance Policies
If so specified in the applicable Prospectus Supplement, the Master
Servicer shall obtain a Special Hazard Insurance Policy for the Mortgage Pool
underlying a Series of Certificates. Any Special Hazard Insurance Policies for a
Contract Pool underlying a Series of Certificates will be described in the
applicable Prospectus Supplement. The Special Hazard Insurance Policy for the
Mortgage Pool underlying the Certificates of a Series will be issued by the
Special Hazard Insurer named in the applicable Prospectus Supplement. Each
Special Hazard Insurance Policy will, subject to the limitations described
below, protect against loss by reason of damage to Mortgaged Properties caused
by certain hazards (including vandalism and earthquakes and, except where the
Mortgagor is required to obtain flood insurance, floods and mudflows) not
insured against under the standard form of hazard insurance policy for the
respective states in which the Mortgaged Properties are located. See
"Description of the Certificates-Maintenance of Insurance Policies" and
"-Standard Hazard Insurance". The Special Hazard Insurance Policy will not cover
losses occasioned by war, certain governmental actions, nuclear reaction and
certain other perils. Coverage under a Special Hazard Insurance Policy will be
at least equal to the amount set forth in the applicable Prospectus Supplement.
Subject to the foregoing limitations, each Special Hazard Insurance Policy,
if any, will provide that, when there has been damage to the Mortgaged Property
securing a defaulted Mortgage Loan and to the extent such damage is not covered
by the Standard Hazard Insurance Policy, if any, maintained by the Mortgagor,
the Master Servicer or the Servicer, the Special Hazard Insurer will pay the
lesser of (i) the cost of repair or replacement of such Mortgaged Property or
(ii) upon transfer of such Mortgaged Property to the Special Hazard Insurer, the
unpaid balance of such Mortgage Loan at the time of acquisition of such
Mortgaged Property by foreclosure or deed in lieu of foreclosure, plus accrued
interest to the date of claim settlement (excluding late charges and penalty
interest) and certain expenses incurred in respect of such Mortgaged Property.
No claim may be validly presented under a Special Hazard Insurance Policy unless
(i) hazard insurance on the Mortgaged Property has been kept in force and other
reimbursable protection, preservation and foreclosure expenses have been paid
(all of which must be approved in advance as necessary by the insurer) and (ii)
the insured has acquired title to the Mortgaged Property as a result of default
by the Mortgagor. If the sum of the unpaid principal balance plus accrued
interest and certain expenses is paid by the Special Hazard Insurer, the amount
of further coverage under the related Special
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Hazard Insurance Policy will be reduced by such amount less any net proceeds
from the sale of the Mortgaged Property. Any amount paid as the cost of repair
of the Mortgaged Property will further reduce coverage by such amount.
The terms of the Pooling and Servicing Agreement will require the Master
Servicer to maintain the Special Hazard Insurance Policy in full force and
effect throughout the term of the Pooling and Servicing Agreement. If a Pool
Insurance Policy is required to be maintained pursuant to the Pooling and
Servicing Agreement, the Special Hazard Insurance Policy will be designed to
permit full recoveries under the Pool Insurance Policy in circumstances where
such recoveries would otherwise be unavailable because Mortgaged Property has
been damaged by a cause not insured against by a Standard Hazard Insurance
Policy. In such event the Pooling and Servicing Agreement will provide that, if
the related Pool Insurance Policy shall have terminated or been exhausted
through payment of claims, the Master Servicer will be under no further
obligation to maintain such Special Hazard Insurance Policy.
Mortgagor Bankruptcy Bond
In the event of a personal bankruptcy of a Mortgagor, a bankruptcy court
may establish the value of the related Mortgaged Property or Cooperative
Dwelling at an amount less than the then outstanding principal balance of the
related Mortgage Loan. The amount of the secured debt could be reduced to such
value, and the holder of such Mortgage Loan thus would become an unsecured
creditor to the extent the outstanding principal balance of such Mortgage Loan
exceeds the value so assigned to the Mortgaged Property or Cooperative Dwelling
by the bankruptcy court. In addition, certain other modifications of the terms
of a Mortgage Loan can result from a bankruptcy proceeding. If so specified in
the applicable Prospectus Supplement, losses resulting from a bankruptcy
proceeding affecting the Mortgage Loans in a Mortgage Pool with respect to a
Series of Certificates will be covered under a Mortgagor Bankruptcy Bond (or any
other instrument that will not result in a downgrading of the rating of the
Certificates of a Series by the Rating Agency that rated such Series). Any
Mortgagor Bankruptcy Bond will provide for coverage in an amount acceptable to
the Rating Agency rating the Certificates of the related Series, which will be
set forth in the applicable Prospectus Supplement. Subject to the terms of the
Mortgagor Bankruptcy Bond, the issuer thereof may have the right to purchase any
Mortgage Loan with respect to which a payment or drawing has been made or may be
made for an amount equal to the outstanding principal amount of such Mortgage
Loan plus accrued and unpaid interest thereon. The coverage of the Mortgagor
Bankruptcy Bond with respect to a Series of Certificates may be reduced as long
as any such reduction will not result in a reduction of the outstanding rating
of the Certificates of such Series by the Rating Agency rating such Series.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND CONTRACTS
The following discussion contains summaries of certain legal aspects of
mortgage loans and manufactured housing conditional sales contracts and
installment loan agreements which are general in nature. Because such legal
aspects are governed by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the security for the Mortgage Loans or Contracts is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Mortgage Loans and Contracts.
The Mortgage Loans
General
The Mortgage Loans (other than the Cooperative Loans) comprising or underlying
the Trust Assets for a Series will be secured by either first mortgages or deeds
of trust, depending upon the prevailing practice in the state in which the
underlying property is located. The filing of a mortgage, deed of trust or deed
to secure debt creates a lien or title interest upon the real property covered
by such instrument and represents the security for the repayment of an
obligation that is customarily evidenced by a promissory note. It is not prior
to the lien for real estate taxes and assessments or other charges imposed under
governmental police powers. Priority with respect to such instruments depends on
their terms, the knowledge of the
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parties to the mortgage and generally on the order of recording with the
applicable state, county or municipal office. There are two parties to a
mortgage: the mortgagor, who is the borrower and homeowner, and the mortgagee,
who is the lender. In a mortgage state, the mortgagor delivers to the mortgagee
a note or bond evidencing the loan and the mortgage. Although a deed of trust is
similar to a mortgage, a deed of trust has three parties: the borrower-homeowner
called the trustor (similar to a mortgagor) a lender called the beneficiary
(similar to a mortgagee) and a third-party grantee called the trustee. Under a
deed of trust, the borrower grants the property, irrevocably until the debt is
paid, in trust, generally with a power of sale, to the trustee to secure payment
of the loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed of
trust or mortgage, applicable law and, in some cases, with respect to the deed
of trust, the directions of the beneficiary.
Foreclosure
Foreclosure of a mortgage is generally accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming. After the completion of a judicial foreclosure proceeding, the
court may issue a judgment of foreclosure and appoint a receiver or other
officer to conduct the sale of the property. In some states, mortgages may also
be foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Though a deed of trust may also be foreclosed by judicial action,
foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property upon a default by the borrower under the terms
of the note or deed of trust. In some states, the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest in the real property, including any junior lienholders. If
the loan is not reinstated within any applicable cure period, a notice of sale
must be posted in a public place and, in most states, published for a specified
period of time in one or more newspapers. In addition, some state laws require
that a copy of the notice of sale be posted on the property and sent to all
parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender.
In case of foreclosure under either a mortgage or a deed of trust, the sale
by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of a number of factors, including the difficulty a
potential buyer at the sale would have in determining the exact status of title
and the fact that the physical condition of the property may have deteriorated
during the foreclosure proceedings, it is uncommon for a third party to purchase
the property at the foreclosure sale. Rather, it is common for the lender to
purchase the property from the trustee or receiver for a credit bid less than or
equal to the unpaid principal amount of the note, accrued and unpaid interest
and the expenses of foreclosure. Thereafter, subject to the right of the
borrower in some states to remain in possession during the redemption period,
the lender will assume the burdens of ownership, including obtaining hazard
insurance and making such repairs at its own expense as are necessary to render
the property suitable for sale. The lender commonly will obtain the services of
a real estate broker and pay the broker a commission in connection with the sale
of the property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property. Any
loss may be reduced by the receipt of mortgage insurance proceeds.
Cooperative Loans
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If specified in the Prospectus Supplement relating to a Series of
Certificates, the Mortgage Loans may also contain Cooperative Loans evidenced by
promissory notes secured by security interests in shares issued by private
corporations which are entitled to be treated as housing cooperatives under the
Code and in the related proprietary leases or occupancy agreements granting
exclusive rights to occupy specific dwelling units in the corporations'
buildings. The security agreement will create a lien upon, or grant a title
interest in, the property that it covers, the priority of which will depend on
the terms of the particular security agreement as well as the order of
recordation of the agreement in the appropriate recording office. Such a lien or
title interest is not prior to the lien for real estate taxes and assessments
and other charges imposed under governmental police powers.
A corporation that is entitled to be treated as a housing cooperative under
the Code owns all the real property or some interest therein sufficient to
permit it to own the building and all separate dwelling units therein. The
cooperative is directly responsible for property management and, in most cases,
payment of real estate taxes and hazard and liability insurance. If there is a
blanket mortgage or mortgages on the cooperative apartment building and/or
underlying land, as is generally the case, or an underlying lease of the land,
as is the case in some instances, the cooperative, as property mortgagor, is
also responsible for meeting these mortgage or rental obligations. The interest
of the occupancy under proprietary leases or occupancy agreements as to which
that cooperative is the landlord are generally subordinate to the interest of
the holder of a blanket mortgage and to the interest of the holder of a land
lease. If the cooperative is unable to meet the payment obligations (i) arising
under a blanket mortgage, the mortgagee holding a blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements or (ii) arising under its land lease, the holder of the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity. The
inability of the cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee.
Similarly, a land lease has an expiration date and the inability of the
cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy agreements. A foreclosure by
the holder of a blanket mortgage could eliminate or significantly diminish the
value of any collateral held by the lender who financed an individual
tenant-stockholder of cooperative shares including, in the case of the
Cooperative Loans, the collateral securing the Cooperative Loans. Similarly, the
termination of the land lease by its holder could eliminate or significantly
diminish the value of any collateral held by the lender who financed an
individual tenant-stockholder of the cooperative shares or, in the case of the
Cooperative Loans, the collateral securing the Cooperative Loans.
Each cooperative is owned by tenant-stockholders who, through ownership of
stock or shares in the corporation, receive proprietary leases or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed through
a cooperative share loan evidenced by a promissory note and secured by a
security interest in the occupancy agreement or proprietary lease and in the
related cooperative shares. The lender takes possession of the share certificate
and a counterpart of the proprietary lease or occupancy agreement, and a
financing statement covering the proprietary lease or occupancy agreement and
the cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "-Realizing upon Cooperative Loan Security" below.
Tax Aspects of Cooperative Loans
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the
Code) of a corporation that qualifies as a "cooperative housing corporation"
within the meaning of Section 216(b)(1) of the Code is allowed a deduction for
amounts paid or accrued within his taxable year to the corporation representing
his proportionate share of certain interest expenses and certain real estate
taxes allowable as a deduction under Section 216(a) of the Code to the
corporation under Sections
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163 and 164 of the Code. In order for a corporation to qualify under Section
216(b)(1) of the Code for its taxable year in which such items are allowable as
a deduction to the corporation, such section requires, among other things, that
at least 80% of the gross income of the corporation be derived from its
tenant-stockholder. By virtue of this requirement the status of a corporation
for purposes of Section 216(b)(1) of the Code must be determined on a
year-to-year basis. Consequently, there can be no assurance that cooperatives
relating to the Cooperative Loans will qualify under such section for any
particular year. In the event that such a cooperative fails to qualify for one
or more years, the value of the collateral securing any related Cooperative
Loans could be significantly impaired because no deduction would be allowable to
tenant-stockholders under Section 216(a) of the Code with respect to those
years. In view of the significance of the tax benefits accorded
tenant-stockholders of a corporation that qualifies under Section 216(b)(1) of
the Code, the likelihood that such a failure would be permitted to continue over
a period of years appears remote.
Realizing upon Cooperative Loan Security
The cooperative shares and proprietary lease or occupancy agreement owned
by the tenant- stockholder and pledged to the lender are, in almost all cases,
subject to restrictions on transfer as set forth in the cooperative's
certificate of incorporation and by-laws, as well as in the proprietary lease or
occupancy agreement. The proprietary lease or occupancy agreement, even while
pledged, may be cancelled by the cooperative for failure by the
tenant-stockholder to pay rent or other obligations or charges owed by such
tenant-stockholder, including mechanics' liens against the cooperative apartment
building incurred by such tenant-stockholder. Commonly, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
which are owed to the cooperative are made liens upon the shares to which the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate such
lease or agreement in the event the borrower defaults in the performance of
covenants thereunder. The lender and the cooperative will typically enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder on its obligations
under the proprietary lease or occupancy agreement. A default by the
tenant-stockholder under the proprietary lease or occupancy agreement will
usually constitute a default under the security agreement between the lender and
the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from a sale of the cooperative apartment subject,
however, to the cooperative's right to sums due under such proprietary lease or
occupancy agreement or that have become liens on the shares relating to the
proprietary lease or occupancy agreement. The total amount owed to the
cooperative by the tenant-stockholder, which the lender generally cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the cooperative loan and accrued and unpaid
interest thereon.
Recognition agreements also provide that in the event the lender succeeds
to the tenant- shareholder's shares and proprietary lease or occupancy agreement
as the result of realizing upon the collateral for a cooperative loan, the
lender must obtain the approval or consent of the cooperative as required by the
proprietary lease before transferring the cooperative shares or assigning the
proprietary lease. Such approval or consent is usually based on the prospective
purchaser's income and net worth, among other factors, and may significantly
reduce the number of potential purchasers, which could limit the ability of the
lender to sell and realize upon the value of the collateral. Generally, the
lender is not limited in any rights it may have to dispossess the
tenant-shareholders.
The terms of the Cooperative Loans do not require either the Mortgagor or
the Cooperative to obtain title insurance of any type. Consequently, the
existence of any prior liens or other imperfections of title also may adversely
affect the marketability of the Cooperative Dwelling in the event of
foreclosure.
In New York, lenders generally realize upon the pledged shares and
proprietary lease or occupancy agreement given to secure a cooperative loan by
public sale in accordance with the provisions of Article 9 of the Uniform
Commercial Code (the "UCC") and the security agreement relating to those shares.
Article 9 of the UCC requires that a sale be conducted in a "commercially
reasonable" manner. Whether a sale has been conducted in a "commercially
reasonable" manner will
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depend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the sale. Generally, a sale conducted according to the usual
practice of banks selling similar collateral will be considered reasonably
conducted.
Article 9 of the UCC provides that the proceeds of the sale will be applied
first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative corporation to receive sums due under
the proprietary lease or occupancy agreement. If there are proceeds remaining,
the lender must account to the tenant-stockholder for the surplus. Conversely,
if a portion of the indebtedness remains unpaid, the tenant-stockholder is
generally responsible for the deficiency. See "Anti-Deficiency Legislation and
Other Limitations on Lenders" below.
In the case of foreclosure on a Multifamily Property that was converted
from a rental building to a building owned by a cooperative housing corporation
under a non-eviction plan, some states require that a purchaser at a foreclosure
sale take the property subject to rent control and rent stabilization laws which
apply to certain tenants who elected to remain in the building but not to
purchase shares in the cooperative when the building was so converted. Any such
restrictions could adversely affect the number of potential purchasers for and
the value of such property.
Rights of Redemption
In some states, after a sale pursuant to a deed of trust or foreclosure of
a mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
certain other states, this right of redemption applies only to a sale following
judicial foreclosure, and not a sale pursuant to a non-judicial power of sale.
In most states where the right of redemption is available, statutory redemption
may occur upon payment of the foreclosure purchase price, accrued interest and
taxes. In some states, the right to redeem is an equitable right. The effect of
a statutory right of redemption is to diminish the ability of the lender to sell
the foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser from the lender subsequent to foreclosure or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender to retain the property and pay the expenses of ownership until
the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders
Certain states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or a non-judicial
sale under a deed of trust. A deficiency judgment is a personal judgment against
the former borrower equal in most cases to the difference between the amount due
to the lender and the net amount realized upon the foreclosure sale. Other
statutes prohibit a deficiency judgment where the loan proceeds were used to
purchase a dwelling occupied by the borrower.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an attempt
to satisfy the full debt before bringing a personal action against the borrower.
In certain other states, the lender has the option of bringing a personal action
against the borrower on the debt without first exhausting such security;
however, in some of these states, the lender, following judgment on such
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies with respect to the security. Consequently, the
practical effect of the election requirement, when applicable, is that lenders
will usually proceed first against the security rather than bringing a personal
action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result of
low or no bids at the foreclosure sale.
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In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In the case of cooperative loans, lenders generally realize on cooperative
shares and the accompanying proprietary lease or occupancy agreement given to
secure a cooperative loan under Article 9 of the UCC. Some courts have
interpreted section 9-504 of the UCC to prohibit a deficiency award unless the
creditor establishes that the sale of the collateral (which, in the case of a
Cooperative Loan, would be the shares of the Cooperative and the related
proprietary lease or occupancy agreement) was conducted in a commercially
reasonable manner.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, in a Chapter
13 proceeding under the federal Bankruptcy Code, when a court determines that
the value of a home is less than the principal balance of the loan, the court
may prevent a lender from foreclosing on the home, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the value
of the home as it exists at the time of the proceeding, leaving the lender as a
general unsecured creditor for the difference between that value and the amount
of outstanding indebtedness. A bankruptcy court may grant the debtor a
reasonable time to cure a payment default, and in the case of a mortgage loan
not secured by the debtor's principal residence, also may reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule. Certain court decisions have applied such
relief to claims secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail to
comply with the provisions of the law. In some cases, this liability may affect
assignees of the mortgage loans.
Each Mortgage Loan secured by Multifamily Property will be a non-recourse
loan to the Mortgagor (subject to certain exceptions which, if applicable, will
be specified in the applicable Prospectus Supplement). As a result, the
Mortgagor's obligation to repay the Mortgage Loan can be enforced only against
the Mortgaged Property regardless of whether the Mortgagor has other assets from
which it could repay the loan.
The mortgage securing each Mortgage Loan relating to Multifamily Property
will contain an assignment of rents and an assignment of leases or similar
agreement (subject to certain exceptions which, if applicable, will be specified
in the applicable Prospectus Supplement), pursuant to which the borrower assigns
its right, title and interest as landlord under each lease and the income
derived therefrom to the Depositor, while retaining a license to collect the
rents so long as there is no default. In the event the borrower defaults, the
license terminates and the Trustee (as the assignee of such assignment) is
entitled to collect the rents. The Trustee may enforce its right to such rents
by seeking the appointment of a receiver to collect the rents immediately after
giving notice to the borrower of the default.
"Due-on-Sale" Clauses
The forms of note, mortgage and deed of trust relating to conventional
Mortgage Loans may contain a "due-on-sale" clause permitting acceleration of the
maturity of a loan if the borrower transfers its interest in the property. The
enforceability of these clauses has been subject of legislation or litigation in
many states, and in some cases the enforceability of these clauses was limited
or denied. However, the Garn-St Germain Depository Institutions Act of 1982 (the
"Garn-St Germain Act") preempts state constitutional, statutory and case law
that prohibits the enforcement of due-on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms, subject to certain limited
exceptions. The Garn-St Germain Act does "encourage" lenders to permit
assumption of loans at the original rate of interest or at some other rate less
than the average of the original rate and the market rate.
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The Garn-St Germain Act also sets forth nine specific instances in which a
mortgage lender covered by the Garn-St Germain Act may not exercise a
due-on-sale clause, notwithstanding the fact that a transfer of the property may
have occurred. These include intra-family transfers, certain transfers by
operation of law, leases of fewer than three years and the creation of a junior
encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit
the imposition of prepayment penalty upon the acceleration of a loan pursuant to
a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the average
life of the Mortgage Loans and the number of Mortgage Loans which may be
outstanding until maturity.
Enforceability of Certain Provisions
Standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states, there
are or may be specific limitations upon late charges which a lender may collect
from a borrower for delinquent payments. State and federal statutes or
regulations may also limit a lender's right to collect a prepayment penalty when
the prepayment is caused by the lender's acceleration of the loan pursuant to a
due-on-sale clause. Certain states also limit the amounts that a lender may
collect from a borrower as an additional charge if the loan is prepaid. Under
the Servicing Agreements and the Pooling and Servicing Agreement, late charges
and prepayment fees (to the extent permitted by law and not waived by the
Servicers) will be retained by the Servicers or Master Servicer as additional
servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial remedies
that may be fashioned include judicial requirements that the lender undertake
affirmative and sometimes expensive actions to determine the causes for the
borrower's default and the likelihood that the borrower will be able to
reinstate the loan. In some cases, courts have substituted their judgment for
the lender's judgment and have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower failing to adequately maintain or insure the property or the
borrower executing a second mortgage or deed of trust affecting the property. In
other cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under the deeds of trust receive notices in addition to
the statutorily-prescribed minimum requirements. For the most part, these cases
have upheld the notice provisions as being reasonable or have found that the
sale by a trustee under a deed of trust or under a mortgage having a power of
sale does not involve sufficient state action to afford constitutional
protections to the borrower.
Environmental Considerations
Under the federal Comprehensive Environmental Response Compensation and
Liability Act, as amended, and similar state laws, a secured party which takes a
deed in lieu of foreclosure or purchases a mortgaged property at a foreclosure
sale may become liable in certain circumstances for the costs of environmental
investigation and remedial action ("Cleanup Costs") if hazardous wastes or
hazardous substances have been released or disposed of on the property. Such
Cleanup Costs may be substantial. It is possible that such costs could become a
liability of the Trust Fund and reduce the amounts otherwise distributable to
the Certificateholders if a Mortgaged Property securing a Mortgage Loan became
the property of the Trust Fund in certain circumstances and if such Cleanup
Costs were incurred.
Except as otherwise specified in the applicable Prospectus Supplement, each
Unaffiliated Seller will represent, as of the date of delivery of the related
Series of Certificates, that to the best of its knowledge no Mortgaged Property
secured by Multifamily Property is subject to an environmental hazard that would
have to be eliminated under applicable law before the sale of, or which could
otherwise affect the marketability of, such Mortgaged Property or which would
subject the owner or operator of such Mortgaged Property or a lender secured by
such Mortgaged Property to liability under law, and that there are no liens
which relate to the existence of any clean-up of a hazardous substance (and to
the best of its knowledge no circumstances are existing that under law would
give rise to any such lien) affecting the Mortgaged Property which are or
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may be liens prior to or on a parity with the lien of the related mortgage. The
Agreement will further provide that the Master Servicer, acting on behalf of the
Trust Fund, may not acquire title to a Mortgaged Property or take over its
operation unless the Master Servicer has received a report from a qualified
independent person selected by the Master Servicer setting forth whether such
Mortgaged Property is subject to or presents any toxic wastes or environmental
hazards and an estimate of the cost of curing or cleaning up such hazard.
The Contracts
General
As a result of the Depositor's assignment of the Contract to the Trustee,
the Certificateholders will succeed collectively to all of the rights (including
the right to receive payment on the Contracts) and will assume certain
obligations of the Depositor. Each Contract evidences both (a) the obligation of
the Obligor to repay the loan evidenced thereby and (b) the grant of a security
interest in the Manufactured Home to secure repayment of such loan. Certain
aspects of both features of the Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code in effect in the states in which the Manufactured Homes
initially were registered. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the Pooling and Servicing Agreement, the Master Servicer or the
Depositor, as the case may be, will transfer physical possession of the
Contracts to the Trustee or its custodian. In addition, the Master Servicer will
make an appropriate filing of a UCC-1 financing statement in the appropriate
states to give notice of the Trustee's ownership of the Contracts. The Contracts
will not be stamped or marked otherwise to reflect their assignment from the
Depositor to the Trustee. Therefore, if a subsequent purchaser were able to take
physical possession of the Contracts without notice of such assignment, the
Trustee's interest in the Contracts could be defeated.
Security Interests in the Manufactured Homes
The law governing perfection of a security interest in a Manufactured Home
varies from state to state. Security interests in manufactured homes may be
perfected either by notation of the secured party's lien on the certificate of
title or by delivery of the required documents and payment of a fee to the state
motor vehicle authority, depending on state law. In some nontitle states,
perfection pursuant to the provisions of the UCC is required. The lender or
Master Servicer may effect such notation or delivery of the required documents
and fees, and obtain possession of the certificate of title, as appropriate
under the laws of the state in which any manufactured home securing a
manufactured housing conditional sales contract is registered. In the event the
Master Servicer or the lender fails, due to clerical errors, to effect such
notation or delivery, or files the security interest under the wrong law (for
example, under a motor vehicle title statute rather than under the UCC, in a few
states), the Certificateholders may not have a first priority security interest
in the Manufactured Home securing a Contract. As manufactured homes have become
larger and often have been attached their sites without any apparent intention
to move them, courts in many states have held that manufactured homes, under
certain circumstances, may become subject to real estate title and recording
laws. As a result, a security interest in a manufactured home could be rendered
subordinate to the interests of other parties claiming an interest in the home
under applicable state real estate law. In order to perfect a security interest
in a manufactured home under real estate laws, the holder of the security
interest must file either a "fixture filing" under the provisions of the UCC or
a real estate mortgage under the real estate laws of the state where the
manufactured home is located. These filings must be made in the real estate
records office of the county where the manufactured home is located.
Substantially all of the Contracts will contain provisions prohibiting the
borrower from permanently attaching the Manufactured Home to its site. So long
as the Obligor does not violate this agreement, a security interest in the
Manufactured Home will be governed by the certificate of title laws or the UCC,
and the notation of the security interest on the certificate of title or the
filing of a UCC financing statement will be effective to maintain the priority
of the seller's security interest in the Manufactured Home. If, however, a
Manufactured Home is permanently attached to its site, other parties could
obtain an interest in the Manufactured Home which is prior to the security
interest originally retained by the Unaffiliated Seller and transferred to the
Depositor. With respect to a Series of Certificates and as described in the
applicable Prospectus Supplement, the Master Servicer may be required to perfect
a security interest in the Manufactured
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Home under applicable real estate laws. If such real estate filings are not
required and if any of the foregoing events were to occur, the only recourse of
the Certificateholders would be against the Unaffiliated Seller pursuant to its
repurchase obligation for breach of warranties. Based on the representations of
the Unaffiliated Seller, the Depositor, however, believes that it has obtained a
perfected first priority security interest by proper notation or delivery of the
required documents and fees with respect to substantially all of the
Manufactured Homes securing the Contracts.
The Depositor will assign its security interests in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Neither the Depositor nor
the Trustee will amend the certificates of title to identify the Trustee as the
new secured party. Accordingly, the Depositor or such other entity as may be
specified in the Prospectus Supplement will continue to be named as the secured
party on the certificates of title relating to the Manufactured Homes. In most
states, such assignment is an effective conveyance of such security interest
without amendment of any lien noted on the related certificate of title and the
new secured party succeeds to the assignor's rights as the secured party.
However, in some states there exists a risk that, in the absence of an amendment
to the certificate of title, such assignment of the security interest might not
be held effective against creditors of the assignor.
In the absence of fraud, forgery or permanent affixation of the
Manufactured Home to its site by the Manufactured Home owner, or administrative
error by state recording officials, the notation of the lien of the Depositor on
the certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the security interest assigned to the Depositor and the Certificateholders
is not perfected, such security interest would be subordinate to, among others,
subsequent purchasers for value of Manufactured Homes and holders of perfected
security interests. There also exists a risk in not identifying the
Certificateholders as the new secured party on the certificate of title that,
through fraud or negligence, the security interest of the Certificateholders
could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of most states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another state
and not re-register the Manufactured Home in such state, and if steps are not
taken to re-perfect the Trustee's security interest in such state, the security
interest in the Manufactured Home would cease to be perfected. A majority of
states generally require surrender of a certificate of title to re-register a
Manufactured Home; accordingly, the Trustee, or the Master Servicer as custodian
for the Trustee, must surrender possession if it holds the certificate of title
to such Manufactured Home or, in the case of Manufactured Homes registered in
states which provide for notation of lien, the Trustee would receive notice of
surrender if the security interest in the Manufactured Home is noted on the
certificate of title. Accordingly, the Trustee would have the opportunity to
re-perfect its security interest in the Manufactured Home in the state of
relocation. In states which do not require a certificate of title for
registration of a Manufactured Home, re-registration could defeat perfection. In
the ordinary course of servicing manufactured housing conditional sales
contracts and installment loan agreements, the Master Servicer takes steps to
effect such re-perfection upon receipt of notice of re-registration or
information from the Obligor as to relocation. Similarly, when an Obligor under
a manufactured housing conditional sales contract or installment loan agreement
sells a Manufactured Home, the Trustee, or the Master Servicer as custodian for
the Trustee, must surrender possession of the certificate of title or will
receive notice as a result of its lien noted thereon and accordingly will have
an opportunity to require satisfaction of the related manufactured housing
conditional sales contract or installment loan agreement before release of the
lien. Under the Pooling and Servicing Agreement, the Master Servicer, on behalf
of the Depositor, is obligated to take such steps, at the Master Servicer's
expense, as are necessary to maintain perfection of security interests in the
Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home take priority even over a perfected security interest. The
Depositor will represent in the Pooling and Servicing Agreement that it has no
knowledge of any such liens with respect to any Manufactured Home securing
payment on any Contract. However, such liens could arise at any time during the
term of a Contract. No notice will be given to the Trustee or Certificateholders
in the event such a lien arises and such lien would not give rise to a
repurchase obligation on the part of the party specified in the Pooling and
Servicing Agreement.
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Enforcement of Security Interests in Manufactured Homes
The Master Servicer on behalf of the Trustee, to the extent required by the
related Pooling and Servicing Agreement, may take action to enforce the
Trustee's security interest with respect to Contracts in default by repossession
and resale of the Manufactured Homes securing such Defaulted Contracts. Except
in Louisiana, so long as the Manufactured Home has not become subject to the
real estate law, a creditor can repossess a Manufactured Home securing a
Contract by voluntary surrender, by "self-help" repossession that is "peaceful"
(i.e., without breach of the peace) or, in the absence of voluntary surrender
and the ability to repossess without breach of the peace, by judicial process.
The holder of a Contract must give the debtor a number of days notice, which
varies from 10 to 30 days depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale. The law in most
states also requires that the debtor be given notice of any sale prior to resale
of the unit so that the debtor may redeem at or before such resale. In the event
of such repossession and resale of a Manufactured Home, the Trustee would be
entitled to be paid out of the sale proceeds before such proceeds could be
applied to the payment of the claims of unsecured creditors or the holders of
subsequently perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain
a deficiency judgment from a debtor for any deficiency on repossession and
resale of the Manufactured Home securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission
is intended to defeat the ability of the transferor of a consumer credit
contract which is the seller of goods which gave rise to the transaction (and
certain related lenders and assignees) to transfer such contract free of notice
of claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a contract to all claims and defenses which the debtor could
assert against the seller of goods. Liability under this rule is limited to
amounts paid under a Contract; however, the Obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
against such Obligor. Numerous other federal and state consumer protection laws
impose requirements applicable to the origination and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission Act,
the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Fair Debt Collection Practices Act and the Uniform Consumer
Credit Code. In the case of some of these laws, the failure to comply with their
provisions may affect the enforceability of the related Contract.
Transfers of Manufactured Homes, Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Depositor or the Master Servicer
and permit the acceleration of the maturity of the Contracts by the Depositor or
the Master Servicer upon any such sale or transfer that is not consented to. The
Depositor or the Master Servicer expects that it will permit most transfers of
Manufactured Homes and not accelerate the maturity of the related Contracts. In
certain cases, the transfer may be made by a delinquent Obligor in order to
avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Depositor
desires to accelerate the maturity of the related Contract, the Depositor's
ability to do so will depend on the enforceability under state law of the
"due-on-sale" clause. The Garn-St Germain Act preempts, subject to certain
exceptions and conditions, state laws prohibiting enforcement of "due-on-sale"
clauses applicable to the Manufactured Homes. In some states the Depositor or
the Master Servicer may be prohibited from enforcing a "due-on-sale" clause in
respect of certain Manufactured Homes.
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Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan that is secured
by a first lien on certain kinds of manufactured housing. The Contracts would be
covered if they satisfy certain conditions, among other things, governing the
terms of any prepayments, late charges and deferral fees and requiring a 30-day
notice period prior to instituting any action leading to repossession of or
foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision that expressly rejects application of the federal law. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
In any state in which application of Title V was expressly rejected or a
provision limiting discount points or other charges has been adopted, no
Contract which imposes finance charges or provides for discount points or
charges in excess of permitted levels has been included in the Trust Assets or
Fund. The Depositor, or the party specified in the related Pooling and Servicing
Agreement will represent that all of the Contracts comply with applicable usury
laws.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
I. GENERAL
The following is a general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates. As used hereinafter in "Certain Federal Income Tax Consequences",
"Mortgage Loans" shall include Mortgage Certificates and Contracts and "Mortgage
Pool" shall include "Contract Pool". The following discussion does not purport
to discuss all federal income tax consequences that may be applicable to
particular categories of investors, some of which may be subject to special
rules. Further, the authorities on which this discussion is based are subject to
change or differing interpretation, which change or differing interpretation
could apply retroactively. This discussion does not address the state or local
tax consequences of the purchase, ownership and disposition of such
Certificates. Investors should consult their own tax advisers in determining the
federal, state, local, or other tax consequences to them of the purchase,
ownership and disposition of the Certificates offered hereunder, particularly
with respect to the federal income tax changes effected by the Tax Reform Act of
1986 (the "1986 Act") as explained by the Conference Committee Report (the
"Committee Report") accompanying such 1986 Act.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Mortgage Pool
("REMIC Mortgage Pool") which the Master Servicer elects to have treated as a
real estate mortgage investment conduit ("REMIC") under Code Sections 860A
through 860G ("REMIC Provisions") and (ii) certificates ("Trust Certificates")
representing certain interests in a Mortgage Pool which the Master Servicer does
not elect to have treated as a REMIC. REMIC Certificates and Trust Certificates
will be referred to collectively as "Certificates".
Under the REMIC Provisions, REMICs may issue one or more classes of
"regular" interests and must issue one and only one class of "residual"
interests. A REMIC Certificate representing a regular interest in a REMIC
Mortgage Pool will be referred to as a "REMIC Regular Certificate" and a REMIC
Certificate representing a residual interest in a REMIC Mortgage Pool will be
referred to as a "REMIC Residual Certificate".
A Trust Certificate representing an undivided equitable ownership interest
in the principal of the Mortgage Loans constituting the related Mortgage Pool,
together with interest thereon at a remittance rate (which may be less than,
greater than, or equal to the pass-through rate), will be referred to as a
"Trust Fractional Certificate" and a Trust Certificate representing an equitable
ownership of all or a portion of the interest paid on each Mortgage Loan
constituting the related Mortgage Pool (net of normal servicing fees) will be
referred to as a "Trust Interest Certificate."
The following discussion is based in part upon the rules governing original
issue discount that are set forth in Code Sections 1271 through 1273 and 1275
and in Treasury regulations issued under the original issue discount provisions
of the
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Code (the "OID Regulations"), and the Treasury regulations issued under the
provisions of the Code relating to REMICs (the "REMIC Regulations"). The OID
Regulations generally are effective with respect to debt instruments issued on
or after April 4, 1994.
II. REMIC TRUST FUNDS
A. Classification of REMIC Trust Funds
With respect to each series of REMIC Certificates relating to a REMIC
Mortgage Pool, Sidley & Austin, New York, New York, will deliver their opinion
generally to the effect that, assuming that (i) a REMIC election is made timely
in the required form, (ii) there is ongoing compliance with all provisions of
the related Pooling and Servicing Agreement, (iii) certain representations set
forth in the Pooling and Servicing Agreement are true and (iv) there is
continued compliance with applicable provisions of the Code, as it may be
amended from time to time, and applicable Treasury regulations issued
thereunder, such REMIC Mortgage Pool will qualify as a REMIC and the classes of
interests offered will be considered to be "regular interests" or "residual
interests" in that REMIC Mortgage Pool within the meaning of the REMIC
Provisions.
Holders of REMIC Certificates ("REMIC Certificateholders") should be aware
that, if an entity electing to be treated as a REMIC fails to comply with one or
more of the ongoing requirements of the Code for REMIC status during any taxable
year, the Code provides that the entity will not be treated as a REMIC for such
year and thereafter. In such event, an entity electing to be treated as a REMIC
may be taxable as a separate corporation under Treasury regulations, and the
REMIC Certificates issued by such entity may not be accorded the status
described below under the heading "Characterization of Investments in REMIC
Certificates". In the case of an inadvertent termination of REMIC status, the
Code provides the Treasury Department with authority to issue regulations
providing relief. Any such relief, however, may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the REMIC's
income for the period of time in which the requirements for REMIC status are not
satisfied.
Among the ongoing requirements in order to qualify for REMIC treatment is
that substantially all of the assets of the Trust Fund (as of the close of the
third calendar month beginning after the creation of the REMIC and continually
thereafter) must consist of only "qualified mortgages" and "permitted
investments". In order to be a "qualified mortgage", or to support treatment of
a certificate of participation therein as a "qualified mortgage" an obligation
must be principally secured by an interest in real property. The REMIC
Regulations treat an obligation secured by manufactured housing qualifying as a
single family residence under Code Section 25(e)(10) as an obligation secured by
real property, without regard to the treatment of the obligation or the property
under state law. Under Code Section 25(e)(10), a single family residence
includes any manufactured home that has a minimum of 400 square feet of living
space and a minimum width in excess of 102 inches and that is of a kind
customarily used at a fixed location.
B. Characterization of Investments in REMIC Certificates
In general, REMIC Certificates are not treated for federal income tax
purposes as ownership interests in the assets of a REMIC Mortgage Pool. However,
(i) REMIC Certificates held by a mutual savings bank or a domestic building and
loan association will constitute "qualifying real property loans" within the
meaning of Code Section 593(d) in the same proportion that the assets of the
REMIC Mortgage Pool underlying such Certificates ("Assets") would be so treated;
(ii) REMIC Certificates held by a domestic building and loan association will
constitute a "regular or residual interest in a REMIC" within the meaning of
Code Section 7701(a)(19)(C)(xi) in the same proportion that the Assets would be
treated as "loans secured by an interest in real property" within the meaning of
Code Section 7701(a)(19)(C)(v) or as other assets described in Code Section
7701(a)(19)(C)(i) through (x); and (iii) REMIC Certificates held by a real
estate investment trust will constitute "real estate assets" within the meaning
of Code Section 856(c)(5)(A), and any amount includible in gross income on the
REMIC Certificates will be considered "interest on obligations secured by
mortgages on real property or on interests in real property" within the meaning
of Code Section 856(c)(3)(B) in the same proportion that the Assets and income
of the REMIC would be treated as "interests in real property" as defined in Code
Section 856(c)(6)(C) (or, as provided in the Committee Report, as "real estate
assets" as defined in Code Section 856(c)(6)(B)) and as "interest on obligations
secured by mortgages on real property or on interests in real property",
respectively. See, in this regard,
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"Characterization of Investments in Trust Certificates-Buydown Mortgage Loans",
below. Moreover, if 95% or more of the Assets qualify for any of the foregoing
treatments, the REMIC Certificates (and income thereon) will qualify for the
corresponding status in their entirety. Investors should be aware that the
investment of amounts in any Reserve Fund or GPM Fund in non-qualifying assets
would, and, holding property acquired by foreclosure pending sale might, reduce
the amount of the REMIC Certificates that would qualify for the foregoing
treatment. The REMIC Regulations provide that payments on Mortgage Loans held
pending distribution are considered part of the Mortgage Loans for purposes of
Code Sections 593(d) and 856(c)(5)(A); it is unclear whether such collected
payments would be so treated for purposes of Code Section 7701(a)(19)(C)(v), but
there appears to be no reason why analogous treatment should not be given to
such collected payments under that provision. The determination as to the
percentage of the REMIC's assets (or income) that will constitute assets (or
income) described in the foregoing sections of the Code will be made with
respect to each calendar quarter based on the average adjusted basis (or average
amount of income) of each category of the assets held (or income accrued) by the
REMIC during such calendar quarter. The REMIC will report those determinations
to Certificateholders in the manner and at the times required by applicable
Treasury regulations. The Prospectus Supplement or the related Current Report on
Form 8-K for each Series of REMIC Certificates will describe the Assets as of
the Cut-off Date. REMIC Certificates held by certain financial institutions will
constitute an "evidence of indebtedness" within the meaning of Code Section
582(c)(1); in addition, regular interests in any other REMIC acquired by a REMIC
in accordance with the requirements of Section 860G(a)(3)(A)(i) and (ii) or
Section 860G(a)(4)(B) of the Code will be treated as "qualified mortgages"
within the meaning of Code Section 860D(a)(4).
For purposes of characterizing an investment in REMIC Certificates, a
Contract secured by a Manufactured Home qualifying as a "single family
residence" under Code Section 25(e)(10) will constitute (i) a "qualifying real
property loan" within the meaning of Code Section 593(d), (ii) a "real estate
asset" within the meaning of Code Section 856, and (iii) an asset described in
Code Section 7701(a)(19)(C). With respect to the Contracts included in a Trust
Fund that makes an election to be treated as a REMIC, each Unaffiliated Seller
will represent and warrant that each of the Manufactured Homes securing such
Contracts meets the definition of a "single family residence".
C. Tiered REMIC Structures
For certain series of Certificates, two or more separate elections may be
made to treat designated portions of the related Trust Fund as REMICs ("Tiered
REMICs") for federal income tax purposes. Upon the issuance of any such series
of Certificates, Sidley & Austin, counsel to the Depositor, will deliver their
opinion generally to the effect that, assuming compliance with all provisions of
the related Pooling and Servicing Agreement, the Tiered REMICs will each qualify
as a REMIC and the REMIC Certificates issued by the Tiered REMICs will be
considered to evidence ownership of REMIC Regular Certificates or REMIC Residual
Certificates in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be
"qualifying real property loans" under Section 593(d) of the Code, "real estate
assets" within the meaning of Section 856(c)(5)(A) of the Code, and assets
described in Section 7701(a)(19)(C) of the Code, and whether the income on such
Certificates is interest described in Section 856(c)(3)(B) of the Code, the
Tiered REMICs will be treated as one REMIC.
D. Taxation of Owners of REMIC Regular Certificates
Except as otherwise stated in this discussion, the REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC Mortgage Pool and not as ownership interests in the REMIC
Mortgage Pool or its Assets. In general, interest, original issue discount and
market discount paid or accrued on a REMIC Regular Certificate will be treated
as ordinary income to the holder of such REMIC Regular Certificate.
Distributions in reduction of the stated redemption price at maturity of the
REMIC Regular Certificate will be treated as a return of capital to the extent
of such holder's basis in such REMIC Regular Certificate. Holders of REMIC
Regular Certificates that otherwise report income under a cash method of
accounting will be required to report income with respect to REMIC Regular
Certificates under an accrual method.
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1. Original Issue Discount
Certain REMIC Regular Certificates may be issued with "original issue
discount" within the meaning of Code Section 1273(a). Any holders of REMIC
Regular Certificates issued with original issue discount generally will be
required to include original issue discount in income as it accrues, in
accordance with a constant yield method that takes into account the compounding
of interest, in advance of the receipt of the cash attributable to such income.
The Master Servicer will report annually (or more frequently if required) to the
Internal Revenue Service ("IRS") and to Certificateholders such information with
respect to the original issue discount accruing on the REMIC Regular
Certificates as may be required under Code Section 6049 and the regulations
thereunder. See "Reporting and Other Administrative Matters of REMICs" below.
Rules governing original issue discount are set forth in Code Sections 1271
through 1273 and 1275 and in the OID Regulations. Code Section 1272(a)(6)
provides special original issue discount rules applicable to REMIC Regular
Certificates.
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual of original issue
discount on REMIC Regular Certificates, and for certain other federal income tax
purposes. The Prepayment Assumption is to be determined in the manner prescribed
in Treasury regulations. To date, no such regulations have been promulgated. The
Committee Report indicates that the regulations will provide that the Prepayment
Assumption, if any, used with respect to a particular transaction must be the
same as that used by the parties in pricing the transaction. The Master Servicer
will use a Prepayment Assumption in reporting original issue discount that is
consistent with this standard. However, neither the Depositor nor the Master
Servicer makes any representation that the Mortgage Loans will in fact prepay at
the rate reflected in the Prepayment Assumption or at any other rate. Each
investor must make its own decision as to the appropriate prepayment assumption
to be used in deciding whether or not to purchase any of the REMIC Regular
Certificates. The Prospectus Supplement with respect to a Series of REMIC
Certificates will disclose the Prepayment Assumption to be used in reporting
original issue discount, if any, and for certain other federal income tax
purposes.
The total amount of original issue discount on a REMIC Regular Certificate
is the excess of the "stated redemption price at maturity" of the REMIC Regular
Certificate over its "issue price". Except as discussed in the following two
paragraphs, in general, the issue price of a particular class of REMIC Regular
Certificates offered hereunder will be the price at which a substantial amount
of REMIC Regular Certificates of that class are first sold to the public
(excluding bond houses and brokers), and the stated redemption price at maturity
of a REMIC Regular Certificate will be its Stated Principal Balance.
If a REMIC Regular Certificate is sold with accrued interest that relates
to a period prior to the issue date of such REMIC Regular Certificate, the
amount paid for the accrued interest will be treated instead as increasing the
issue price of the REMIC Regular Certificate. In addition, that portion of the
first interest payment in excess of interest accrued from the date of initial
issuance of the Certificates (the "Closing Date") to the first Distribution Date
will be treated for federal income tax reporting purposes as includible in the
stated redemption price at maturity of the REMIC Regular Certificates, and as
excludible from income when received as a payment of interest on the first
Distribution Date (except to the extent of any market discount accrued as of
that date). The OID Regulations suggest, however, that some or all of this
pre-issuance accrued interest "may" be treated as a separate asset (and hence
not includible in a REMIC Regular Certificate's issue price or stated redemption
price at maturity), whose cost is recovered entirely out of interest paid on the
first Distribution Date.
The stated redemption price at maturity of a REMIC Regular Certificate is
equal to the total of all payments to be made on such Certificate other than
"qualified stated interest". Under the OID Regulations, "qualified stated
interest" is interest that is unconditionally payable at least annually during
the entire term of the Certificate at either (i) a single fixed rate that
appropriately takes into account the length of the interval between payments or
(ii) a current value of a single "qualified floating rate" or "objective rate"
(each, a "Single Variable Rate"). A "current value" is the value of a variable
rate on any day that is no earlier than three months prior to the first day on
which that value is in effect and no later than one year following that day. A
"qualified floating rate" is a rate whose variations can reasonably be expected
to measure contemporaneous variations in the cost of newly borrowed funds in the
currency in which the Certificate is denominated. Such a rate remains qualified
even though it is multiplied by a fixed, positive multiple not exceeding 1.35,
and, for debt
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instruments issued on or after August 13, 1996, not less than 0.65, increased or
decreased by a fixed rate, or both. Certain combinations of rates constitute a
single qualified floating rate, including (i) interest stated at a fixed rate
for an initial period of less than one year followed by a qualified floating
rate if the value of the floating rate at the Closing Date is intended to
approximate the fixed rate, and (ii) two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Certificate. A combination of such rates is conclusively presumed to
be a single floating rate if the values of all rates on the Closing Date are
within 0.25 percentage points of each other. A variable rate that is subject to
an interest rate cap, floor, "governor" or similar restriction on rate
adjustment may be a qualified floating rate only if such restriction is fixed
throughout the term of the instrument, or is not reasonably expected as of the
Closing Date to cause the yield on the debt instrument to differ significantly
from the expected yield absent the restriction. An "objective rate" is a rate
(other than a qualified floating rate) determined using a single formula fixed
for the life of the Certificate, which is based on (i) one or more qualified
floating rates (including a multiple or inverse of a qualified floating rate),
(ii) one or more rates each of which would be a qualified floating rate for a
debt instrument denominated in a foreign currency, (iii) the yield or changes in
price of one or more items of "actively traded" personal property, (iv) a
combination of the foregoing objective rates, or (v) a rate designated by the
IRS. However, a variable rate is not an objective rate if it is reasonably
expected that the average value of the rate during the first half of the
Certificate's term will differ significantly from the average value of such rate
during the final half of its term. Final regulations issued on June 11, 1996
expand the definition of an objective rate effective for instruments issued on
or after August 13, 1996. A combination of interest stated at a fixed rate for
an initial period of less than one year followed by an objective rate is treated
as a single objective rate if the value of the objective rate at the Closing
Date is intended to approximate the fixed rate; such a combination of rates is
conclusively presumed to be a single objective rate if the objective rate on the
Closing Date does not differ from the fixed rate by more than 0.25 percentage
points. The qualified stated interest payable with respect to certain variable
rate debt instruments not bearing stated interest at a Single Variable Rate is
discussed below under "Variable Rate Certificates". Under the foregoing rules,
some of the payments of interest on a Certificate bearing a fixed rate of
interest for an initial period followed by a qualified floating rate of interest
in subsequent periods could be treated as included in the stated redemption
price at maturity if the initial fixed rate were to differ sufficiently from the
rate that would have been set using the formula applicable to subsequent
periods. See "Variable Rate Certificates". REMIC Regular Certificates offered
hereby other than such Certificates providing for variable rates of interest are
not anticipated to have stated interest other than "qualified stated interest",
but if any such REMIC Regular Certificates are so offered, appropriate
disclosures will be made in the Prospectus Supplement. Some or all of the
payments on REMIC Regular Certificates providing for the accretion of interest
will be included in the stated redemption price at maturity of such
Certificates. Further, because interest is payable to Certificateholders only to
the extent that amounts are received with respect to the Mortgage Loans, such
interest may not be considered "unconditionally payable" and hence may not be
considered qualified stated interest; however, the Master Servicer will not
adopt such treatment for purposes of information reporting.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a REMIC Regular Certificate will be considered to be
zero if such original issue discount is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average life of the REMIC Regular Certificate. For this purpose, the weighted
average life of the REMIC Regular Certificate is computed as the sum of the
amounts determined by multiplying the amount of each payment under the
instrument (other than a payment of qualified stated interest) by a fraction,
whose numerator is the number of complete years from the issue date until such
payment is made and whose denominator is the stated redemption price at maturity
of such REMIC Regular Certificate. The IRS may take the position that this rule
should be applied taking into account the Prepayment Assumption and the effect
of any anticipated investment income. Under the OID Regulations, REMIC Regular
Certificates bearing only qualified stated interest except for any "teaser"
rate, interest holiday or similar provision would be treated as subject to the
de minimis rule if the greater of the foregone interest or any excess of the
Certificates' stated principal amount over their issue price is less than such
de minimis amount.
The OID Regulations generally would treat de minimis original issue
discount as includible in income as each principal payment is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, whose numerator is the amount of such principal payment and whose
denominator is the outstanding principal balance of the REMIC Regular
Certificate. The OID Regulations also would permit a Certificateholder to elect
to accrue de minimis original issue discount (together with stated interest,
market discount and original issue discount) into income currently based on a
constant yield method. See "Taxation of Owners of REMIC Regular
Certificates-Market Discount and Premium".
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Each holder of a REMIC Regular Certificate must include in gross income the
sum of the "daily portions" of original issue discount on its REMIC Regular
Certificate for each day during its taxable year on which it held such REMIC
Regular Certificate. For this purpose, in the case of an original holder of a
REMIC Regular Certificate, the daily portions of original issue discount will be
determined as follows. A calculation will first be made of the portion of the
original issue discount that accrued during each accrual period, that is
generally each period that ends on a date that corresponds to a Distribution
Date on the REMIC Regular Certificate and begins on the first day following the
immediately preceding accrual period (or in the case of the first such period,
begins on the Closing Date). For any accrual period such portion will equal the
excess, if any, of (i) the sum of (A) the present value of all of the
distributions remaining to be made on the REMIC Regular Certificate, if any, as
of the end of the accrual period and (B) distributions made on such REMIC
Regular Certificate during the accrual period of amounts included in the stated
redemption price at maturity, over (ii) the adjusted issue price of such REMIC
Regular Certificate at the beginning of the accrual period. The present value of
the remaining payments referred to in the preceding sentence will be calculated
based on (i) the yield to maturity of the REMIC Regular Certificate, calculated
as of the settlement date, giving effect to the Prepayment Assumption, (ii)
events (including actual prepayments) that have occurred prior to the end of the
accrual period and (iii) the Prepayment Assumption. The adjusted issue price of
a REMIC Regular Certificate at the beginning of any accrual period will equal
the issue price of such Certificate, increased by the aggregate amount of
original issue discount with respect to such REMIC Regular Certificate that
accrued in prior accrual periods, and reduced by the amount of any distributions
made on such REMIC Regular Certificate in prior accrual periods of amounts
included in the stated redemption price at maturity. The original issue discount
accruing during any accrual period will then be allocated ratably to each day
during the period to determine the daily portion of original issue discount for
each day. With respect to an accrual period between the settlement date and the
first Distribution Date on the REMIC Regular Certificate that is shorter than a
full accrual period, the OID Regulations permit the daily portions of original
issue discount to be determined according to any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate that purchases such
REMIC Regular Certificate at a cost (not including payment for accrued qualified
stated interest) less than its remaining stated redemption price at maturity
will also be required to include in gross income, for each day on which it holds
such REMIC Regular Certificate, the daily portions of original issue discount
with respect to such REMIC Regular Certificate, but reduced, if such cost
exceeds the "adjusted issue price", by an amount equal to the product of (i)
such daily portions and (ii) a constant fraction, whose numerator is such excess
and whose denominator is the sum of the daily portions of original issue
discount on such REMIC Regular Certificate for all days on or after the day of
purchase. The adjusted issued price of a REMIC Regular Certificate on any given
day is equal to the sum of the adjusted issue price (or, in the case of the
first accrual period, the issue price) of the REMIC Regular Certificate at the
beginning of the accrual period during which such day occurs and the daily
portions of original issue discount for all days during such accrual period
prior to such day, reduced by the aggregate amount of distributions made during
such accrual period prior to such day other than distributions of qualified
stated interest.
Variable Rate Certificates. REMIC Regular Certificates bearing interest at
one or more variable rates are subject to certain special rules. The qualified
stated interest payable with respect to certain variable rate debt instruments
not bearing interest at a Single Variable Rate generally is determined under the
OID Regulations by converting such instruments into fixed rate debt instruments.
Instruments qualifying for such treatment generally include those providing for
stated interest at (i) more than one qualified floating rate, or (ii) a single
fixed rate and (a) one or more qualified floating rates or (b) a single
"qualified inverse floating rate" (each, a "Multiple Variable Rate"). A
qualified inverse floating rate is an objective rate equal to a fixed rate
reduced by a qualified floating rate, the variations in which can reasonably be
expected to inversely reflect contemporaneous variations in the cost of newly
borrowed funds (disregarding permissible rate caps, floors, governors and
similar restrictions such as are described above).
Purchasers of REMIC Regular Certificates bearing a variable rate of
interest should be aware that there is uncertainty concerning the application of
Section 1272(a)(6) of the Code and the OID Regulations to such Certificates. In
the absence of other authority, the Master Servicer intends to be guided by the
provisions of the OID Regulations governing variable rate debt instruments in
adapting the provisions of Section 1272(a)(6) of the Code to such Certificates
for the purpose of preparing reports furnished to Certificateholders. The effect
of the application of such provisions generally will be to cause
Certificateholders holding Certificates bearing interest at a Single Variable
Rate to take into account for each period an amount corresponding approximately
to the sum of (i) the qualified stated interest accruing on the outstanding face
amount of the REMIC Regular Certificate as the stated interest rate for that
Certificate varies from time to time and (ii) the
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amount of original issue discount that would have been attributable to that
period on the basis of a constant yield to maturity for a bond issued at the
same time and issue price as the REMIC Regular Certificate, having the same face
amount and schedule of payments of principal as such Certificate, subject to the
same Prepayment Assumption, and bearing interest at a fixed rate equal to the
value of the applicable qualified floating rate or qualified inverse floating
rate in the case of a Certificate providing for either such rate, or equal to
the fixed rate that reflects the reasonably expected yield on the Certificate in
the case of a Certificate providing for an objective rate other than an inverse
floating rate, in each case as of the issue date. Certificateholders holding
REMIC Regular Certificates bearing interest at a Multiple Variable Rate
generally will take into account interest and original issue discount under a
similar methodology, except that the amounts of qualified stated interest and
original issue discount attributable to such a Certificate first will be
determined for an "equivalent" debt instrument bearing fixed rates, the assumed
fixed rates for which are (a) for each qualified floating rate, the value of
each such rate as of the Closing Date (with appropriate adjustment for any
differences in intervals between interest adjustment dates), (b) for a qualified
inverse floating rate, the value of the rate as of the Closing Date, and (c) for
any other objective rate, the fixed rate that reflects the yield that is
reasonably expected for the Certificate. If the interest paid or accrued with
respect to a Multiple Variable Rate Certificate during an accrual period differs
from the assumed fixed interest rate, such difference will be an adjustment (to
interest or original issue discount, as applicable) to the Certificateholder's
taxable income for the taxable period or periods to which such difference
relates.
In the case of a Certificate that provides for stated interest at a fixed
rate in one or more accrual periods and either one or more qualified floating
rates or a qualified inverse floating rate in other accrual periods, the fixed
rate is first converted into an assumed variable rate. The assumed variable rate
will be a qualified floating rate or a qualified inverse floating rate according
to the type of actual variable rates provided by the Certificate, and must be
such that the fair market value of the REMIC Regular Certificate as of issuance
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for the assumed variable rate in lieu of the fixed
rate. The REMIC Regular Certificate is then subject to the determination of the
amount and accrual of original issue discount as described above, by reference
to the hypothetical variable rate instrument.
Purchasers of variable rate REMIC Regular Certificates further should be
aware that the provisions of the OID Regulations applicable to variable rate
debt instruments have been limited and may not apply to some REMIC Regular
Certificates having variable rates. If such a Certificate is not governed by the
provisions of the OID Regulations applicable to variable rate debt instruments,
it may be subject to provisions of Treasury regulations, issued in final form on
June 11, 1996, applicable to instruments having contingent payments (the "1996
Contingent Debt Regulations"). The application of those provisions to
instruments such as variable rate REMIC Regular Certificates is subject to
differing interpretations. Prospective purchasers of variable rate REMIC Regular
Certificates are advised to consult their tax advisers concerning the tax
treatment of such Certificates.
2. Market Discount and Premium
A Certificateholder that purchases a REMIC Regular Certificate at a market
discount, that is, at a purchase price less than the REMIC Regular Certificate's
stated redemption price at maturity, or, in the case of a REMIC Regular
Certificate issued with original issued discount, the REMIC Regular
Certificate's adjusted issue price (as defined under "Taxation of Owners of
REMIC Regular Certificates-Original Issue Discount"), will recognize market
discount upon receipt of each payment of principal. In particular, such a holder
will generally be required to allocate each payment of principal on a REMIC
Regular Certificate first to accrued market discount, and to recognize ordinary
income, to the extent such principal payment does not exceed the aggregate
amount of accrued market discount on such REMIC Regular Certificate not
previously included in income. Such market discount must be included in income
in addition to any original issue discount includible in income with respect to
such REMIC Regular Certificate.
A Certificateholder may elect to include market discount in income
currently as it accrues, rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made for
a REMIC Regular Certificate with market discount, the Certificateholder would be
deemed to have made an election to
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currently include market discount in income with respect to all other debt
instruments having market discount that such Certificateholder acquires during
the year of the election or thereafter. Similarly, a Certificateholder that
makes this election for a Certificate that is acquired at a premium is deemed to
have made an election to amortize bond premium, as described below, with respect
to all debt instruments having amortizable bond premium that such
Certificateholder owns or acquires. The election to accrue interest, discount
and premium on a constant yield method with respect to a Certificate is
irrevocable without the consent of the IRS.
Under a statutory de minimis exception, market discount with respect to a
REMIC Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such REMIC Regular Certificate multiplied
by the number of complete years to maturity remaining after the date of its
purchase. In interpreting a similar de minimis rule with respect to original
issue discount on obligations payable in installments, the OID Regulations refer
to the weighted average maturity of obligations, and it is likely that the same
rule will be applied in determining whether market discount is de minimis. It
appears that de minimis market discount on a REMIC Regular Certificate would be
treated in a manner similar to original issue discount of a de minimis amount.
See "Taxation of Holders of REMIC Regular Certificates-Original Issue Discount".
Such treatment would result in discount being included in income at a slower
rate than discount would be required to be included using the method described
above. However, Treasury regulations implementing the market discount de minimis
exception have not been issued in proposed, temporary or final form, and the
precise treatment of de minimis market discount on obligations payable in more
than one installment therefore remains uncertain.
The 1986 Act grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more than a
de minimis amount on debt instruments, the principal of which is payable in more
than one installment. Until such time as regulations are issued by the Treasury
Department, certain rules described in the Committee Report will apply. Under
those rules, the holder of a bond purchased with more than de minimis market
discount may elect to accrue such market discount either on the basis of a
constant yield method or on the basis of the appropriate proportionate method
described below. Under the proportionate method for obligations issued with
original issue discount, the amount of market discount that accrues during a
period is equal to the product of (i) the total remaining market discount,
multiplied by (ii) a fraction, the numerator of which is the original issue
discount accruing during the period and the denominator of which is the total
remaining original issue discount at the beginning of the period. Under the
proportionate method for obligations issued without original issue discount, the
amount of market discount that accrues during a period is equal to the product
of (i) the total remaining market discount, multiplied by (ii) a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the period. The Prepayment Assumption,
if any, used in calculating the accrual of original issue discount is to be used
in calculating the accrual of market discount under any of the above methods.
Because the regulations referred to in this paragraph have not been issued, it
is not possible to predict what effect such regulations might have on the tax
treatment of a REMIC Regular Certificate purchased at a discount in the
secondary market.
Further, a purchaser generally will be required to treat a portion of any
gain on sale or exchange of a REMIC Regular Certificate as ordinary income to
the extent of the market discount accrued to the date of disposition under one
of the foregoing methods, less any accrued market discount previously reported
as ordinary income. Such purchaser also may be required to defer a portion of
its interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such REMIC Regular Certificate. Any
such deferred interest expense is, in general, allowed as a deduction not later
than the year in which the related market discount income is recognized. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
A REMIC Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated redemption
price at maturity will be considered to be purchased at a premium. The holder of
such a REMIC Regular Certificate may elect to amortize such premium under the
constant yield method. The OID Regulations also permit Certificateholders to
elect to include all interest, discount and premium in income based on a
constant yield method, further treating the Certificateholder as having made the
election to amortize premium generally, as described above. The Committee Report
indicates a Congressional intent that the same rules that will apply to accrual
of
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market discount on installment obligations will also apply in amortizing bond
premium under Code Section 171 on installment obligations such as the REMIC
Regular Certificates.
3. Treatment of Subordinated Certificates
As described above under "Credit Support-Subordinated Certificates",
certain Series of Certificates may contain one or more Classes or Subclasses of
Subordinated Certificates. Holders of Subordinated Certificates will be required
to report income with respect to such Certificates on the accrual method without
giving effect to delays and reductions in distributions attributable to defaults
or delinquencies on any Mortgage Loans, except possibly, in the case of income
that constitutes qualified stated interest, to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Certificateholder of a Subordinated Certificate in any
period could significantly exceed the amount of cash distributed to such
Certificateholder in that period.
Although not entirely clear, it appears that a corporate holder or a holder
who holds a Regular Certificate in the course of a trade or business generally
should be allowed to deduct as an ordinary loss any loss sustained on account of
partial or complete worthlessness of a Subordinated Certificate. Although
similarly unclear, a noncorporate holder who does not hold such Regular
Certificate in the course of a trade or business generally should be allowed to
deduct as a short-term capital loss any loss sustained on account of complete
worthlessness of a Subordinated Certificate. Special rules are applicable to
banks and thrift institutions, including rules regarding reserves for bad debts.
Holders of Subordinated Certificates should consult their own tax advisers
regarding the appropriate timing, character and amount of any loss sustained
with respect to Subordinated Certificates.
E. Taxation of Owners of REMIC Residual Certificates
1. General
An owner of a REMIC Residual Certificate ("Residual Owner") generally will
be required to report its daily portion of the taxable income or, subject to the
limitation described below in "Taxation of Owners of REMIC Residual
Certificates-Basis Rules and Distributions", the net loss of the REMIC Mortgage
Pool for each day during a calendar quarter that the Residual Owner owned such
REMIC Residual Certificate. For this purpose, the daily portion will be
determined by allocating to each day in the calendar quarter, using a 30 days
per month/90 days per quarter/360 days per year counting convention, its ratable
portion of the taxable income or net loss of the REMIC Mortgage Pool for such
quarter, and by allocating the daily portions among the Residual Owners (on such
day) in accordance with their percentage of ownership interests on such day. Any
amount included in the gross income of, or allowed as a loss to, any Residual
Owner by virtue of the rule referred to in this paragraph will be treated as
ordinary income or loss. Purchasers of REMIC Residual Certificates should be
aware that taxable income from such Certificates may exceed cash distributions
with respect thereto in any taxable year. For example, if the Mortgage Loans are
acquired by a REMIC at a discount, then the holder of a residual interest may
recognize income without corresponding cash distributions. This result could
occur because a payment produces recognition by the REMIC of discount on the
Mortgage Loan while all or a portion of such payment could be used in whole or
in part to make principal payments on REMIC Regular Certificates issued without
substantial discount. Taxable income may also be greater in earlier years as a
result of the fact that interest expense deductions, expressed as a percentage
of the outstanding principal amount of the REMIC Regular Certificates, will
increase over time as the lower yielding sequences of Certificates are paid,
whereas interest income with respect to any given Mortgage Loan will remain
constant over time as a percentage of the outstanding principal amount of that
loan.
Any payments received by a holder of a REMIC Residual Certificate in
connection with the acquisition of such Certificate will be taken into account
in determining the income of such holder for federal income tax purposes.
Although it appears likely that any such payment would be includible in income
immediately upon its receipt, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or according
to some other method. Because of the uncertainty concerning the treatment of
such payments, holders of REMIC Residual Certificates should consult their tax
advisers concerning the treatment of such payments for income tax purposes.
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2. Taxable Income or Net Loss of the REMIC Trust Fund
The taxable income or net loss of the REMIC Mortgage Pool will reflect a
netting of income from the Mortgage Loans, any cancellation of indebtedness
income due to the allocation of Realized Losses to REMIC Regular Certificates,
and the deductions and losses allowed to the REMIC Mortgage Pool. Such taxable
income or net loss for a given calendar quarter will be determined in the same
manner as for an individual having the calendar year as his taxable year and
using the accrual method of accounting, with certain modifications. The first
modification is that a deduction will be allowed for accruals of interest
(including original issue discount) on the REMIC Regular Certificates. Second,
market discount equal to the excess of any Mortgage Loan's adjusted issue price
(as determined under "Taxation of Owners of REMIC Regular Certificates-Market
Discount and Premium") over its fair market value at the time of its transfer to
the REMIC Mortgage Pool generally will be included in income as it accrues,
based on a constant yield method and on the Prepayment Assumption. For this
purpose, the Master Servicer intends to treat the fair market value of the
Mortgage Loans as being equal to the aggregate issue prices of the REMIC Regular
Certificates and REMIC Residual Certificates; if one or more classes of REMIC
Regular Certificates or REMIC Residual Certificates are retained by the
Depositor, the Master Servicer will estimate the value of such retained
interests in order to determine the fair market value of the Mortgage Loans for
this purpose. Third, no item of income, gain, loss or deduction allocable to a
prohibited transaction (see "Prohibited Transactions and Other Possible REMIC
Taxes", below) will be taken into account. Fourth, the REMIC Mortgage Pool
generally may not deduct any item that would not be allowed in calculating the
taxable income of a partnership by virtue of Code Section 703(a)(2). Fifth, the
REMIC Regulations provide that the limitation on miscellaneous itemized
deductions imposed on individuals by Code Section 67 will not be applied at the
Mortgage Pool level to the servicing fees paid to the Master Servicer or
sub-servicers if any. (See, however, "Pass-Through of Servicing Fees", below.)
If the deductions allowed to the REMIC Mortgage Pool exceed its gross income for
a calendar quarter, such excess will be the net loss for the REMIC Mortgage Pool
for that calendar quarter.
3. Basis Rules and Distributions
Any distribution by a REMIC Mortgage Pool to a Residual Owner will not be
included in the gross income of such Residual Owner to the extent it does not
exceed the adjusted basis of such Residual Owner's interest in a REMIC Residual
Certificate. Such distribution will reduce the adjusted basis of such interest,
but not below zero. To the extent a distribution exceeds the adjusted basis of
the REMIC Residual Certificate, it will be treated as gain from the sale of the
REMIC Residual Certificate. (See "Sales of REMIC Certificates", below.) The
adjusted basis of a REMIC Residual Certificate is equal to the amount paid for
such REMIC Residual Certificate, increased by amounts included in the income of
the Residual Owner (see "Taxation of Owners of REMIC Residual Certificates-Daily
Portions" above), and decreased by distributions and by net losses taken into
account with respect to such interest.
A Residual Owner is not allowed to take into account any net loss for any
calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC Residual Certificate as of the close of such
calendar quarter (determined without regard to such net loss). Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used only
to offset income from the REMIC Residual Certificate.
The effect of these basis and distribution rules is that a Residual Owner
may not amortize its basis in a REMIC Residual Certificate, but may only recover
its basis through distributions, through the deduction of any net losses of the
REMIC Mortgage Pool or upon the sale of its REMIC Residual Certificate. See
"Sales of REMIC Certificates", below. The Residual Owner does, however, receive
reduced taxable income over the life of the REMIC because the REMIC's basis in
the underlying REMIC Mortgage Pool includes the fair market value of the REMIC
Regular Certificates and REMIC Residual Certificates.
4. Excess Inclusions
Any "excess inclusions" with respect to a REMIC Residual Certificate are
subject to certain special tax rules. With respect to a Residual Owner, the
excess inclusion for any calendar quarter is defined as the excess (if any) of
the daily portions of taxable income over the sum of the "daily accruals" for
each day during such quarter that such REMIC Residual
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Certificate was held by such Residual Owner. The daily accruals are determined
by allocating to each day during a calendar quarter its ratable portion of the
product of the "adjusted issue price" of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120 percent of the long-term "applicable
federal rate" (generally, an average of current yields on Treasury securities of
comparable maturity, and hereafter the "AFR") in effect at the time of issuance
of the REMIC Residual Certificate. For this purpose, the adjusted issue price of
a REMIC Residual Certificate as of the beginning of any calendar quarter is the
issue price of the REMIC Residual Certificate, increased by the amount of daily
accruals for all prior quarters and decreased by any distributions made with
respect to such REMIC Residual Certificate before the beginning of such quarter.
The issue price of a REMIC Residual Certificate is the initial offering price to
the public (excluding bond houses and brokers) at which a substantial amount of
the REMIC Residual Certificates were sold.
For Residual Owners, other than thrift institutions described in Code
Section 593, an excess inclusion cannot be offset by deductions, losses or loss
carryovers from other activities. For Residual Owners that are subject to tax on
unrelated business taxable income (as defined in Code Section 511), an excess
inclusion is treated as unrelated business taxable income. For Residual Owners
that are nonresident alien individuals or foreign corporations generally subject
to United States 30% withholding tax, even if interest paid to such Residual
Owners is generally eligible for exemptions from such tax, an excess inclusion
will be subject to such tax and no tax treaty rate reduction or exemption may be
claimed with respect thereto. See "Foreign Investors in REMIC Certificates."
Provisions enacted by the "Technical and Miscellaneous Revenue Act of 1988"
(the "1988 Act") cause the above-described exception for thrift institutions
generally to apply only to those residual interests held and deductions, losses
and loss carryovers incurred directly by such institutions (and not by other
members of an affiliated group of corporations filing a consolidated income tax
return) or certain wholly owned direct subsidiaries of such institutions formed
and operated exclusively in connection with the organization and operation of
one or more REMICs. The REMIC Regulations further limit this exception to
residual interests having "significant value". In order to have significant
value, the REMIC Residual Certificates must have an aggregate issue price, at
issuance, at least equal to two percent of the aggregate issue prices of all of
the related REMIC Regular and Residual Certificates. In addition, the
anticipated weighted average life of the REMIC Residual Certificates must equal
or exceed 20 percent of the anticipated weighted average life of the REMIC,
based on the Prepayment Assumption and on any required or permitted clean up
calls or required liquidation provided for in the REMIC's organizational
documents. Although it has not done so, the Treasury also has authority to issue
regulations that, if REMIC Residual Certificates are found in the aggregate not
to have "significant value", would treat as excess inclusions with respect to
any REMIC Residual Certificate the entire daily portion of taxable income for
such REMIC Residual Certificate. Each Prospectus Supplement pursuant to which
REMIC Residual Certificates are offered will state whether such REMIC Residual
Certificates will have, or may be regarded as having, significant value under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will have "significant value" will be based upon certain
assumptions, and the Depositor will make no representation that a REMIC Residual
Certificate will have "significant value" for purposes of the above described
rules or that a REMIC Residual Owner will receive distributions of amounts
calculated pursuant to those assumptions.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder.
5. Noneconomic REMIC Residual Certificates
Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual
Certificates will be disregarded for all federal income tax purposes if "a
significant purpose of the transfer was to enable the transferor to impede the
assessment or collection of tax". If such transfer is disregarded, the purported
transferor will continue to remain liable for any taxes due with respect to the
income on such "noneconomic" REMIC Residual Certificate. The REMIC Regulations
provide that a REMIC Residual Certificate is noneconomic unless, at the time of
its transfer and based on the Prepayment Assumption and any required or
permitted clean-up calls or required liquidation provided for in the REMIC's
organizational documents, (1)
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the present value of the expected future distributions (discounted using the
AFR) on the REMIC Residual Certificate equals at least the product of the
present value of the anticipated excess inclusions and the highest tax rate
applicable to corporations for the year of the transfer, and (2) the transferor
reasonably expects that the transferee will receive distributions with respect
to the REMIC Residual Certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. Accordingly, all transfers of REMIC Residual Certificates that may
constitute noneconomic residual interests will be subject to certain
restrictions under the terms of the related Pooling and Servicing Agreement that
are intended to reduce the possibility of any such transfer being disregarded.
Such restrictions will require each party to a transfer to provide an affidavit
that no purpose of such transfer is to impede the assessment or collection of
tax, including certain representations as to the financial condition of the
prospective transferee. Prior to purchasing a REMIC Residual Certificate,
prospective purchasers should consider the possibility that a purported transfer
of such REMIC Residual Certificate by such a purchaser to another purchaser at
some future date may be disregarded in accordance with the above-described
rules, which would result in the retention of tax liability by such purchaser.
The applicable Prospectus Supplement will disclose whether offered REMIC
Residual Certificates may be considered "noneconomic" residual interests under
the REMIC Regulations; provided, however, that any disclosure that a REMIC
Residual Certificate will or will not be considered "noneconomic" will be based
upon certain assumptions, and the Depositor will make no representation that a
REMIC Residual Certificate will not be considered "noneconomic" for purposes of
the above-described rules or that a REMIC Residual Owner will receive
distributions calculated pursuant to such assumptions. See "Foreign Investors in
REMIC Certificates" below for additional restrictions applicable to transfers of
certain REMIC Residual Certificates to foreign persons
6. Tax-Exempt Investors
Tax-exempt organizations (including employee benefit plans) that are
subject to tax on unrelated business taxable income (as defined in Code Section
511) will be subject to tax on any excess inclusions attributed to them as
owners of Residual Certificates. Excess inclusion income associated with a
Residual Certificate may significantly exceed cash distributions with respect
thereto. See "Excess Inclusions".
Generally, tax-exempt organizations that are not subject to federal income
taxation on "unrelated business taxable income" pursuant to Code Section 511 are
treated as "disqualified organizations" under provisions of the 1988 Act. Under
provisions of the Pooling and Servicing Agreement, such organizations generally
are prohibited from owning Residual Certificates. See "Sales of REMIC
Certificates".
7. Real Estate Investment Trusts
If the applicable Prospectus Supplement so provides, a Mortgage Pool may
hold Mortgage Loans bearing interest based wholly or partially on Mortgagor
profits, Mortgaged Property appreciation, or similar contingencies. Such
interest, if earned directly by a real estate investment trust ("REIT"), would
be subject to the limitations of Code sections 856(f) and 856(j). Treasury
Regulations treat a REIT holding a REMIC Residual Certificate for a principal
purpose of avoiding such Code provisions as receiving directly the income of the
REMIC Mortgage Pool, hence potentially jeopardizing its qualification for
taxation as a REIT and exposing such income to taxation as a prohibited
transaction at a 100 percent rate.
8. Mark-to-Market Rules
Code Section 475 generally requires that securities dealers include
securities in inventory at their fair market value, recognizing gain or loss as
if the securities were sold at the end of each tax year. Prospective purchasers
of the REMIC Residual Certificates should be aware that on January 3, 1995, the
Internal Revenue Service released proposed regulations (the "Proposed Mark to
Market Regulations") under Code Section 475 relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities of a dealer, except to the
extent that the dealer has specifically identified a security as held for
investment. The Proposed Mark to Market Regulations provide that, for purposes
of this mark-to-market requirement, a REMIC Residual Certificate is not treated
as a security and thus may not be marked to market. The Proposed Mark to Market
Regulations would apply to all REMIC Residual Certificates acquired on or after
January 4, 1995.
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F. Sales of REMIC Certificates
If a REMIC Certificate is sold, the seller will recognize gain or loss
equal to the difference between the amount realized on the sale and its adjusted
basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will equal the cost of such REMIC Regular Certificate to
the seller, increased by any original issue discount or market discount included
in the seller's gross income with respect to such REMIC Regular Certificate and
reduced by premium amortization deductions and distributions previously received
by the seller of amounts included in the stated redemption price at maturity of
such REMIC Regular Certificate. The adjusted basis of a REMIC Residual
Certificate will be determined as described under "Taxation of Owners of REMIC
Residual Certificates-Basis Rules and Distributions". Gain from the disposition
of a REMIC Regular Certificate that might otherwise be treated as a capital gain
will be treated as ordinary income to the extent that such gain does not exceed
the excess, if any, of (i) the amount that would have been includible in such
holder's income had income accrued at a rate equal to 110% of the AFR as of the
date of purchase, over (ii) the amount actually includible in such holder's
income. Except as otherwise provided under "Taxation of Owners of REMIC Regular
Certificates-Market Discount and Premium" and under Code Section 582(c), any
additional gain or any loss on the sale or exchange of a REMIC Certificate will
be capital gain or loss, provided such REMIC Certificate is held as a capital
asset (generally, property held for investment) within the meaning of Code
Section 1221. The Code currently provides for a top marginal tax rate of 39.6%
for individuals while maintaining a maximum marginal rate for the long-term
capital gains of individuals at 28%. There is no such rate differential for
corporations. In addition, the distinction between a capital gain or loss and
ordinary income or loss remains relevant for other purposes, including
limitations on the use of capital losses to offset ordinary income.
All or a portion of any gain from the sale of a REMIC Certificate that
might otherwise be capital gain may be treated as ordinary income (i) if such
Certificate is held as part of a "conversion transaction" as defined in Code
Section 1258(c), up to the amount of interest that would have accrued on the
holder's net investment in the conversion transaction at 120% of the appropriate
applicable Federal rate under Code Section 1274(d) in effect at the time the
taxpayer entered into the transaction reduced by any amount treated as ordinary
income with respect to any prior disposition or other termination of a position
that was held as part of such transaction, or (ii) in the case of a noncorporate
taxpayer that has made an election under Code Section 163(d)(4) to have net
capital gains taxed as investment income at ordinary income rates.
If a Residual Owner sells a REMIC Residual Certificate at a loss, the loss
will not be recognized if, within six months before or after the sale of the
REMIC Residual Certificate, such Residual Owner purchases another residual in
any REMIC or any interest in a taxable mortgage pool (as defined in Code Section
7701(i)) comparable to a residual interest in a REMIC. Such disallowed loss will
be allowed upon the sale of the other residual interest (or comparable interest)
if the rule referred to in the preceding sentence does not apply to that sale.
While the Committee Report states that this rule may be modified by Treasury
regulations, the REMIC Regulations do not address this issue and it is not clear
whether any such modification will in fact be implemented or, if implemented,
what its precise nature or effective date would be.
The 1988 Act makes transfers of a residual interest to certain
"disqualified organizations" subject to an additional tax on the transferor in
an amount equal to the maximum corporate tax rate applied to the present value
(using a discount rate equal to the AFR) of the total anticipated excess
inclusions with respect to such residual interest for the periods after the
transfer. For this purpose, "disqualified organizations" includes the United
States, any state or political subdivision of a state, any foreign government or
international organization or any agency or instrumentality of any of the
foregoing; any tax-exempt entity (other than a Code Section 521 cooperative)
which is not subject to the tax on unrelated business income; and any rural
electrical or telephone cooperative. The anticipated excess inclusions must be
determined as of the date that the REMIC Residual Certificate is transferred and
must be based on events that have occurred up to the time of such transfer, the
Prepayment Assumption, and any required or permitted clean-up calls or required
liquidation provided for in the REMIC's organizational documents. The tax
generally is imposed on the transferor of the REMIC Residual Certificate, except
that it is imposed on an agent for a disqualified organization if the transfer
occurs through such agent. The Pooling and Servicing Agreement requires, as a
prerequisite to any transfer of a Residual Certificate, the delivery to the
Trustee of an affidavit of the transferee to the effect that it is not a
disqualified organization and contains other provisions designed to render any
attempted transfer of a Residual Certificate to a disqualified organization
void.
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In addition, if a "pass-through entity" includes in income excess
inclusions with respect to a REMIC Residual Certificate, and a disqualified
organization is the record holder of an interest in such entity at any time
during any taxable year of such entity, then a tax will be imposed on such
entity equal to the product of (i) the amount of excess inclusions on the REMIC
Residual Certificate for such taxable year that are allocable to the interest in
the pass-through entity held by such disqualified organization and (ii) the
highest marginal federal income tax rate imposed on corporations. A pass-through
entity will not be subject to this tax for any period, however, if the record
holder of an interest in such entity furnishes to such entity (i) such holder's
social security number and a statement under penalties of perjury that such
social security number is that of the record holder or (ii) a statement under
penalties of perjury that such record holder is not a disqualified organization.
For these purposes, a "pass-through entity" means any regulated investment
company, real estate investment trust, trust, partnership or certain other
entities described in Section 860E(e)(6) of the Code. In addition, a person
holding an interest in a pass-through entity as a nominee for another person
shall, with respect to such interest, be treated as a pass-through entity.
G. Pass-Through of Servicing Fees
The general rule is that Residual Owners take into account taxable income
or net loss of the related REMIC Mortgage Pool. Under that rule, servicing
compensation of the Master Servicer and the subservicers (if any) would be
allocated to the holders of the REMIC Residual Certificates, and therefore would
not affect the income or deductions of holders of REMIC Regular Certificates.
However, in the case of a "single-class REMIC", such expenses and an equivalent
amount of additional gross income will be allocated among all holders of REMIC
Regular Certificates and REMIC Residual Certificates for purposes of the
limitations on the deductibility of certain miscellaneous itemized deductions by
individuals contained in Code Sections 56(b)(1) and 67. Generally, any holder of
a REMIC Residual Certificate and any holder of a REMIC Certificate issued by a
"single-class REMIC" who is an individual, estate or trust (including such a
person that holds an interest in a pass-through entity holding such a REMIC
Certificate) will be able to deduct such expenses in determining regular taxable
income only to the extent that such expenses together with certain other
miscellaneous itemized deductions of such individual, estate or trust exceed 2%
of adjusted gross income; such a holder may not deduct such expenses to any
extent in determining liability for alternative minimum tax. Accordingly, REMIC
Residual Certificates, and REMIC Regular Certificates receiving an allocation of
servicing compensation, may not be appropriate investments for individuals,
estates or trusts, and such persons should carefully consult with their own tax
advisers regarding the advisability of an investment in such Certificates.
A "single-class REMIC" is a REMIC that either (i) would be treated as an
investment trust under the provisions of Treasury Regulation Section
301.7701-4(c) in the absence of a REMIC election, or (ii) is substantially
similar to such an investment trust and is structured with the principal purpose
of avoiding the allocation of investment expenses to holders of REMIC Regular
Certificates. The Depositor intends (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) to treat
each REMIC Mortgage Pool as other than a "single-class REMIC", consequently
allocating servicing compensation expenses and related income amounts entirely
to REMIC Residual Certificates and in no part to REMIC Regular Certificates.
H. Prohibited Transactions and Other Possible REMIC Taxes
The Code imposes a tax on REMIC Mortgage Pools equal to 100 percent of the
net income derived from "prohibited transactions". In general, a prohibited
transaction means the disposition of a Mortgage Loan other than pursuant to
certain specified exceptions, the receipt of income from a source other than a
Mortgage Loan or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Loans for temporary investment pending
distribution on the REMIC Certificates. The Code also imposes a 100 percent tax
on the value of any contribution of assets to the REMIC after the "startup day"
(the day on which the regular and residual interests are issued), other than
pursuant to specified exceptions, and subjects "net income from foreclosure
property" to tax at the highest corporate rate. It is not anticipated that a
REMIC Mortgage Pool will engage in any such transactions or receive any such
income.
I. Termination of a REMIC Trust Fund
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In general, no special tax consequences will apply to a holder of a REMIC
Regular Certificate upon the termination of the REMIC Mortgage Pool by virtue of
the final payment or liquidation of the last Mortgage Loan remaining in the
REMIC Mortgage Pool. If a Residual Owner's adjusted basis in its REMIC Residual
Certificate at the time such termination occurs exceeds the amount of cash
distributed to such Residual Owner in liquidation of its interest, then,
although the matter is not entirely free from doubt, it appears that the
Residual Owner would be entitled to a loss (which could be a capital loss) equal
to the amount of such excess.
J. Reporting and Other Administrative Matters of REMICs
Reporting of interest income, including any original issue discount, with
respect to REMIC Regular Certificates is required annually, and may be required
more frequently under Treasury regulations. Certain holders of REMIC Regular
Certificates who are generally exempt from information reporting on debt
instruments, such as corporations, banks, registered securities or commodities
brokers, real estate investment trusts, registered investment companies, common
trust funds, charitable remainder annuity trusts and unitrusts, will be provided
interest and original issue discount income information and the information set
forth in the following paragraph upon request in accordance with the
requirements of the Treasury regulations. The information must be provided by
the later of 30 days after the end of the quarter for which the information was
requested, or two weeks after the receipt of the request. The REMIC Mortgage
Pool must also comply with rules requiring the face of a REMIC Certificate
issued at more than a de minimis discount to disclose the amount of original
issue discount and the issue date and requiring such information to be reported
to the Treasury Department.
The REMIC Regular Certificate information reports must include a statement
of the "adjusted issue price" of the REMIC Regular Certificate at the beginning
of each accrual period. In addition, the reports must include information
necessary to compute the accrual of any market discount that may arise upon
secondary trading of REMIC Regular Certificates. Because exact computation of
the accrual of market discount on a constant yield method would require
information relating to the holder's purchase price which the REMIC Mortgage
Pool may not have, it appears that this provision will only require information
pertaining to the appropriate proportionate method of accruing market discount.
The responsibility for complying with the foregoing reporting rules will be
borne by the Master Servicer.
For purposes of the administrative provisions of the Code, REMIC Pools will
be treated as partnerships and the holders of Residual Certificates will be
treated as partners. The Master Servicer will file federal income tax
information returns on behalf of the related REMIC Pool, and will be designated
as agent for and will act on behalf of the "tax matters person" with respect to
the REMIC Pool in all respects.
As agent for the tax matters person, the Master Servicer will, subject to
certain notice requirements and various restrictions and limitations, generally
have the authority to act on behalf of the REMIC and the Residual Owners in
connection with the administrative and judicial review of items of income,
deduction, gain or loss of the REMIC Mortgage Pool, as well as the REMIC
Mortgage Pool's classification. Residual Owners will generally be required to
report such REMIC Mortgage Pool items consistently with their treatment on the
REMIC Mortgage Pool's federal income tax information return and may in some
circumstances be bound by a settlement agreement between the Master Servicer, as
agent for the tax matters person, and the IRS concerning any such REMIC Mortgage
Pool item. Adjustments made to the REMIC Mortgage Pool tax return may require a
Residual Owner to make corresponding adjustments on its return, and an audit of
the REMIC Mortgage Pool's tax return, or the adjustments resulting from such an
audit, could result in an audit of a Residual Owner's return.
K. Backup Withholding with Respect to REMIC Certificates
Payments of interest and principal on REMIC Regular Certificates, as well
as payment of proceeds from the sale of REMIC Certificates, may be subject to
the "backup withholding tax" under Section 3406 of the Code at a rate of 31
percent if recipients of such payments fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may
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be imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the manner required.
L. Foreign Investors in REMIC Certificates
1. REMIC Regular Certificates
Except as qualified below, payments made on a REMIC Regular Certificate to
a REMIC Regular Certificateholder that is not a U.S. Person, as hereinafter
defined (a "non-U.S. Person"), or to a person acting on behalf of such a
Certificateholder, generally will be exempt from U.S. federal income and
withholding taxes, provided that (a) the holder of the Certificate is not
subject to U.S. tax as a result of a connection to the United States other than
ownership of such Certificate, (b) the holder of such Certificate signs a
statement under penalties of perjury that certifies that such holder is a
Non-U.S. Person, and provides the name and address of such holder, and (c) the
last U.S. Person in the chain of payment to the holder receives such statement
from such holder or a financial institution holding on its behalf and does not
have actual knowledge that such statement is false. If the holder does not
qualify for exemption, distributions of interest, including distributions in
respect of accrued original issue discount, to such holder may be subject to a
withholding tax rate of 30 percent, subject to reduction under any applicable
tax treaty.
"U.S. Person" means a citizen or resident of the United States, a
corporation, partnership or other entity treated as a corporation or partnership
for United States federal income tax purposes, created or organized in or under
the laws of the United States or any political subdivision thereof, or an estate
or trust that is subject to U.S. federal income tax regardless of the source of
its income.
Holders of REMIC Regular Certificates should be aware that the IRS may take
the position that exemption from U.S. withholding taxes does not apply to such a
holder that also directly or indirectly owns 10 percent or more of the REMIC
Residual Certificates. Further, the foregoing rules will not apply to exempt a
"United States shareholder" (as such term is defined in Code Section 951) of a
controlled foreign corporation from taxation on such United States shareholder's
allocable portion of the interest or original issue discount income earned by
such controlled foreign corporation.
2. REMIC Residual Certificates
Amounts paid to a Residual Owner that is not a "U.S. Person" (as defined
above) (a "non-U.S. Person") generally will be treated as interest for purposes
of applying the withholding tax on non-U.S. Persons with respect to income on
its REMIC Residual Certificate. However, it is unclear whether distributions on
REMIC Residual Certificates will be eligible for the general exemption from
withholding tax that applies to REMIC Regular Certificates as described above.
Treasury Regulations provide that, for purposes of the portfolio interest
exception, payments to the foreign owner of a REMIC Residual Certificate are to
be considered paid on the obligations held by the REMIC, rather than on the
Certificate itself. Such payments would thus only qualify for the portfolio
interest exception if the underlying obligations held by the REMIC would so
qualify. Such withholding tax generally would be imposed at a rate of 30 percent
but would be subject to reduction under any tax treaty applicable to the
Residual Owner. However, there is no exemption from withholding tax nor may the
rate of such tax be reduced, under a tax treaty or otherwise, with respect to
any distribution of income that is an excess inclusion. Although no regulations
have been proposed or adopted addressing withholding on residual interests held
by non-U.S. Persons, the provisions of the REMIC Regulations, described below,
relating to the transfer of residual interests to non-U.S. Persons can be read
as implying that withholding with respect to excess inclusion income is to be
determined by reference to the amount of the accrued excess inclusion income
rather than to the amount of cash distributions. If the IRS were successfully to
assert such a position, cash distributions on Residual Certificates held by
non-U.S. Persons could be subject to withholding at rates as high as 100
percent, depending on the relationship of accrued excess inclusion income to
cash distributions with respect to such Residual Certificates. See "Taxation of
Owners of REMIC Residual Certificates-Excess Inclusions".
Certain restrictions relating to transfers of REMIC Residual Certificates
to and by investors who are non-U.S. Persons are also imposed by the REMIC
Regulations. First, transfers of REMIC Residual Certificates to a non-U.S.
Person
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that have "tax avoidance potential" are disregarded for all federal income tax
purposes. If such transfer is disregarded, the purported transferor of such a
REMIC Residual Certificate to a non-U.S. Person would continue to remain liable
for any taxes due with respect to the income on such REMIC Residual Certificate.
A transfer of a REMIC Residual Certificate has tax avoidance potential unless,
at the time of the transfer, the transferor reasonably expects (1) that the
REMIC will distribute to the transferee Residual Certificateholder amounts that
will equal at least 30 percent of each excess inclusion, and (2) that such
amounts will be distributed at or after the time at which the excess inclusion
accrues and not later than the close of the calendar year following the calendar
year of accrual. This rule does not apply to transfers if the income from the
REMIC Residual Certificate is taxed in the hands of the transferee as income
effectively connected with the conduct of a U.S. trade or business. Second, if a
non-U.S. Person transfers a REMIC Residual Certificate to a U.S. Person (or to a
non-U.S. Person in whose hands income from the REMIC Residual Certificate would
be effectively connected), and the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, that transfer is
disregarded for all federal income tax purposes and the purported non-U.S.
Person transferor continues to be treated as the owner of the REMIC Residual
Certificate. Thus, the REMIC's liability to withhold 30 percent of the accrued
excess inclusions is not terminated even though the REMIC Residual Certificate
is no longer held by a non-U.S. Person.
Holders of REMIC Regular Certificates and REMIC Residual Certificates
should be aware that proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued on April 15, 1996 which, if adopted in final form,
could affect the United States taxation of foreign investors in REMIC
Certificates. The 1996 Proposed Regulations are generally proposed to be
effective for payments after December 31, 1997, regardless of the issue date of
the REMIC Certificate with respect to which such payments are made, subject to
certain transition rules. One of the effects of the 1996 Proposed Regulations
would be to provide certain presumptions with respect to withholding for holders
not providing the required certifications to qualify for the withholding
exemption described above. In addition, the 1996 Proposed Regulations would
replace a number of current tax certification forms with a single, restated form
and standardize the period of time for which withholding agents could rely on
such certifications. The 1996 Proposed Regulations would also provide rules to
determine whether, for purposes of United States federal withholding tax,
interest paid to a non-U.S. Person that is an entity should be treated as paid
to the entity or those holding an interest in that entity.
The discussion under this heading is not intended to be a complete
discussion of the provisions of the 1996 Proposed Regulations, and prospective
investors are urged to consult their tax advisors with respect to the effect the
1996 Proposed Regulations may have.
M. State and Local Taxation
Many states do not automatically conform to changes in the federal income
tax laws. Consequently, a REMIC Mortgage Pool that would not qualify as a fixed
investment trust for federal income tax purposes may be characterized as a
corporation, a partnership, or some other entity for purposes of state income
tax law. Such characterization could result in entity level income or franchise
taxation of the REMIC Mortgage Pool formed in, owning mortgages or property in,
or having servicing activity performed in a state without conforming REMIC
provisions in its income or franchise tax law. Further, REMIC Regular
Certificateholders resident in non-conforming states may have their ownership of
REMIC Regular Certificates characterized as an interest other than debt of the
REMIC such as stock or a partnership interest. Investors are advised to consult
their tax advisers concerning the state and local income tax consequences of
their purchase and ownership of REMIC Regular Certificates.
III. MORTGAGE POOLS
A. Classification of Mortgage Pools
With respect to each series of Trust Certificates for which they are
identified as counsel to the Depositor in the applicable Prospectus Supplement,
Sidley & Austin will deliver their opinion to the effect that the arrangements
pursuant to which such Mortgage Pool will be administered and such Trust
Certificates will be issued will not be classified as an association taxable as
a corporation and that each such Mortgage Pool will be classified as a trust
whose taxation will be governed by the provisions of subpart E, Part I of
subchapter J of the Code.
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B. Characterization of Investments in Trust Certificates
1. Trust Fractional Certificates
In the case of Trust Fractional Certificates, counsel to the Depositor will
deliver an opinion that, in general (and subject to the discussion below of
Contracts and under "Buydown Mortgage Loans"), (i) Trust Fractional Certificates
held by a thrift institution taxed as a "mutual savings bank" or "domestic
building and loan association" will represent interests in "qualifying real
property loans" within the meaning of Code Section 593(d); (ii) Trust Fractional
Certificates held by a thrift institution taxed as a "domestic building and loan
association" will represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701 (a)(19)(C)(v); (iii) Trust
Fractional Certificates held by a real estate investment trust will represent
"real estate assets" within the meaning of Code Section 856(c)(5)(A) and
interest on Trust Fractional Certificates will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Code Section 856(c)(5)(B); and (iv) Trust
Fractional Certificates acquired by a REMIC in accordance with the requirements
of Section 860G(a)(3)(A)(i) and (ii) or Section 860G(a)(4)(B) of the Code will
be treated as "qualified mortgages" within the meaning of Code Section
860D(a)(4). In the case of a Trust Fractional Certificate evidencing interests
in Contracts, such Certificates will qualify for the treatment described in (i)
through (iv) of the preceding sentence only to the extent of the fraction of
such Certificate corresponding to the fraction of the Contract Pool that
consists of Contracts that would receive such treatment if held directly by the
Trust Fractional Certificateholder.
2. Trust Interest Certificates
With respect to each Series of Certificates for which they are identified
as counsel to the Depositor in the applicable Prospectus Supplement, Sidley &
Austin will advise the Depositor that in their opinion, based on the legislative
history, a REMIC that acquires a Trust Interest Certificate in accordance with
the requirements of Section 860G(a)(3)(A)(i) and (ii) or Section 860G(a)(4)(B)
of the Code will be treated as owning a "Qualified Mortgage" within the meaning
of Section 860G(a)(3) of the Code.
Although there appears to be no policy reason not to accord to Trust
Interest Certificates the treatment described above for Trust Fractional
Certificates, there is no authority addressing such characterization for
instruments similar to Trust Interest Certificates. Consequently, it is unclear
to what extent, if any, (1) a Trust Interest Certificate owned by a "domestic
building and loan association" within the meaning of Code Section 7701 (a)(19)
will be considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v); (2) a Trust
Interest Certificate owned by a financial institution described in Code Section
593(a) will be considered to represent "qualifying real property loans" within
the meaning of Code Section 593(d); or (3) a real estate investment trust which
owns a Trust Interest Certificate will be considered to own "real estate assets"
within the meaning of Code Section 856(c)(5)(A), and interest income thereon
will be considered "interest on obligations secured by mortgages on real
property" within the meaning of Code Section 856(c)(3)(B). Prospective
purchasers to which such characterization of an investment in Trust Interest
Certificates is material should consult their own tax advisers regarding whether
the Trust Interest Certificates, and the income therefrom, will be so
characterized.
3. Buydown Mortgage Loans
It is contemplated that the assets of certain Mortgage Pools may include
Buydown Mortgage Loans. The characterization of an investment in Buydown
Mortgage Loans will depend upon the precise terms of the related Buydown
Agreement. There are no directly applicable precedents with respect to the
federal income tax treatment or the characterization of investments in Buydown
Mortgage Loans. Accordingly, holders of Trust Certificates should consult their
own tax advisers with respect to characterization of investments in Mortgage
Pools that include Buydown Mortgage Loans.
Although the matter is not entirely free from doubt, the portion of a Trust
Certificate representing an interest in Buydown Mortgage Loans may be considered
to represent an investment in "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v) and "qualifying
real property loans" within the meaning of Code Section 593(d) to the extent the
outstanding principal balance of the Buydown Mortgage Loans exceeds the amount
held
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from time to time in the Buydown Fund. It is also possible that the entire
interest in Buydown Mortgage Loans may be so considered, because the fair market
value of the real property securing each Buydown Mortgage Loan will exceed the
amount of such loan at the time it is made. Purchasers and their tax advisers
are advised to review Section 1.593-11(d)(2) of the Treasury Regulations, which
suggests that this latter treatment may be available, and to compare Revenue
Ruling 81-203, 1981-2 C.B. 137, which may be read to imply that apportionment is
generally required whenever more than a minimal amount of assets other than real
property may be available to satisfy purchasers' claims.
For similar reasons, the portion of such Trust Certificate representing an
interest in Buydown Mortgage Loans may be considered to represent "real estate
assets" within the meaning of Code Section 856(c)(5)(A). Purchasers and their
tax advisers are advised to review Section 1.856-5(c)(1)(i) of the Treasury
Regulations, which specifies that if a mortgage loan is secured by both real
property and by other property and the value of the real property alone equals
or exceeds the amount of the loan, then all interest income will be treated as
"interest on obligations secured by mortgages on real property" within the
meaning of Code Section 856(c)(3)(B).
C. Taxation of Owners of Trust Fractional Certificates
Each holder of a Trust Fractional Certificate (a "Trust Fractional
Certificateholder") will be treated as the owner of an undivided percentage
interest in the principal of, and possibly a different undivided percentage
interest in the interest portion of, each of the Mortgage Loans included in a
Mortgage Pool. Accordingly, each Trust Fractional Certificateholder must report
on its federal income tax return its allocable share of income from its
interests, as described below, at the same time and in the same manner as if it
had held directly interests in the Mortgage Loans and received directly its
share of the payments on such Mortgage Loans. Because those interests represent
interests in "stripped bonds" or "stripped coupons" within the meaning of Code
Section 1286, such interests would be considered to be newly issued debt
instruments, and thus to have no market discount or premium, and the amount of
original issue discount may differ from the amount of original issue discount on
the Mortgage Loans and the amount includible in income on account of a Trust
Fractional Certificate may differ significantly from the amount payable thereon
from payments of interest on the Mortgage Loans. Each Trust Fractional
Certificateholder may report and deduct its allocable share of the servicing and
related fees and expenses paid to or retained by the Company at the same time,
to the same extent, and in the same manner as such items would have been
reported and deducted had it held directly interests in the Mortgage Loans and
paid directly its share of the servicing and related fees and expenses. A holder
of a Trust Fractional Certificate who is an individual, estate or trust will be
allowed a deduction for servicing fees in determining its regular tax liability
only to the extent that the aggregate of such holder's miscellaneous itemized
deductions exceeds two percent of adjusted gross income, and will be allowed no
deduction for such fees in determining its liability for alternative minimum
tax. Amounts received by Trust Fractional Certificateholders in lieu of amounts
due with respect to any Mortgage Loan but not received by the Depositor from the
Mortgagor will be treated for federal income tax purposes as having the same
character as the payments which they replace.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Stripped Mortgage Loans
should read the material under the headings "Application of Stripped Bond
Rules", "Market Discount and Premium" and "Allocation of Purchase Price" for a
discussion of particular rules applicable to their Certificates.
Purchasers of Trust Fractional Certificates identified in the applicable
Prospectus Supplement as representing interests in Unstripped Mortgage Loans
should read the material under the headings "Treatment of Unstripped
Certificates", "Market Discount and Premium", and "Allocation of Purchase Price"
for a discussion of particular rules applicable to their Certificates. However,
the IRS has indicated that under some circumstances it will view a portion of
servicing and related fees and expenses paid to or retained by the Master
Servicer or sub-servicers as an interest in the Mortgage Loans, essentially
equivalent to that portion of interest payable with respect to each Mortgage
Loan that is retained by the Depositor ("Retained Yield"). If such a view were
sustained with respect to a particular Mortgage Pool, such purchasers would be
subject to the rules set forth under "Application of Stripped Bond Rules" rather
than those under "Treatment of Unstripped Certificates". The Depositor does not
expect any Servicing Fee or Master Servicing Fee to constitute a retained
interest in the Mortgage Loans; nevertheless, any such expectation generally
will be a matter of uncertainty, and prospective purchasers are advised to
consult their own tax advisers with respect to the existence of a retained
interest and any effects on investment in Trust Fractional Certificates.
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1. Application of Stripped Bond Rules
Each Mortgage Pool will consist of an interest in each of the Mortgage
Loans relating thereto, exclusive of the Depositor's Retained Yield, if any.
With respect to each Series of Certificates for which they are identified as
counsel to the Depositor in the applicable Prospectus Supplement, Sidley &
Austin will advise the Depositor that, in their opinion, any Retained Yield will
be treated for federal income tax purposes as an ownership interest retained by
the Depositor in a portion of each interest payment on the underlying Mortgage
Loans. The sale of the Trust Certificates associated with any Mortgage Pool for
which there is a class of Trust Interest Certificates or two or more Classes of
Trust Fractional Certificates bearing different interest rates or of Trust
Certificates identified in the Prospectus Supplement as representing interests
in "Stripped Mortgage Loans" (subject to certain exceptions which, if
applicable, will be stated in the applicable Prospectus Supplement) will be
treated for federal income tax purposes as having effected a separation in
ownership between the principal of each Mortgage Loan and some or all of the
interest payable thereon. As a consequence, each Stripped Mortgage Loan
(generally, a Mortgage Loan having Retained Yield or included in a Mortgage Pool
having either Trust Interest Certificates or more than one class of Trust
Fractional Certificates or identified in the Prospectus Supplement as related to
a Class of Trust Certificates identified as representing interests in Stripped
Mortgage Loans) will become subject to the "stripped bond" rules of the Code
(the "Stripped Bond Rules"). The effect of applying those rules will generally
be to require each Trust Fractional Certificateholder to accrue and report
income attributable to its share of the principal and interest on each of the
Stripped Mortgage Loans as original issue discount on the basis of the yield to
maturity of such Stripped Mortgage Loans, as determined in accordance with the
provisions of the Code dealing with original issue discount. For a description
of the general method of calculating original issue discount, see "REMIC Trust
Funds-Taxation of Owners of REMIC Regular Certificates-Original Issue Discount".
The yield to maturity of a Trust Fractional Certificateholder's interest in the
Stripped Mortgage Loans will be calculated taking account of the price at which
the holder purchased the Certificate and the holder's share of the payments of
principal and interest to be made thereon. Although the provisions of the Code
and the OID Regulations do not directly address the treatment of instruments
similar to Trust Fractional Certificates, in reporting to Trust Fractional
Certificateholders the Trustee intends to treat such Certificates as a single
obligation with payments corresponding to the aggregate of the payments
allocable thereto from each of the Mortgage Loans, and to determine the amount
of original issue discount on such certificates accordingly. See "Aggregate
Reporting".
Under Treasury regulations, original issue discount so determined with
respect to a particular Stripped Mortgage Loan may be considered to be zero
under the de minimis rule described above, in which case it is treated as market
discount. See "REMIC Trust Funds-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount". Those regulations also provide that
original issue discount so determined with respect to a particular Stripped
Mortgage Loan will be treated as market discount if the rate of interest on the
Stripped Mortgage Loan, including a reasonable Servicing Fee, is no more than
one percentage point less than the unstripped rate of interest. See "-Market
Discount and Premium". The Trustee intends to apply the foregoing de minimis and
market discount rules on an aggregate poolwide basis, although it is possible
that investors may be required to apply them on a loan by loan basis. The loan
by loan information required for such application of those rules may not be
available. See "Aggregate Reporting".
Subsequent purchasers of the Certificates may be required to include
"original issue discount" in income in an amount computed using the price at
which such subsequent purchaser purchased the Certificate. Further, such
purchasers may be required to determine if the above described de minimis and
market discount rules apply at the time a Trust Fractional Certificate is
acquired, based on the characteristics of the Mortgage Loans at that time.
Variable Rate Certificates. Purchasers of Trust Fractional Certificates
bearing a variable rate of interest should be aware that there is considerable
uncertainty concerning the application of the OID Regulations to Mortgage Loans
bearing a variable rate of interest. Although such regulations are subject to a
different interpretation, as discussed below, in the absence of other contrary
authority in preparing reports furnished to Certificateholders the Trustee
intends to treat Stripped Mortgage Loans bearing a variable rate of interest
(other than those treated as having market discount pursuant to the regulations
described above) as subject to the provisions therein governing variable rate
debt instruments. The effect of the application of such provisions generally
will be to cause Certificateholders holding Trust Fractional Certificates
bearing interest at a Single Variable Rate or at a Multiple Variable Rate (as
defined above under "REMIC Trust Funds-Taxation of Owners of REMIC Regular
Certificates-Original Issue Discount") to accrue original issue discount and
interest as though
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the value of each variable rate were a fixed rate, which is (a) for each
qualified floating rate, the value of each such rate as of the Closing Date
(with appropriate adjustment for any differences in intervals between interest
adjustment dates), (b) for a qualified inverse floating rate, the value of the
rate as of Closing Date, and (c) for any other objective rate, the fixed rate
that reflects the yield that is reasonably expected for the Trust Fractional
Certificate. If the interest paid or accrued with respect to such Variable Rate
Trust Fractional Certificate during an accrual period differs from the assumed
fixed interest rate, such difference will be an adjustment (to interest or
original issue discount, as applicable) to the Certificateholder's taxable
income for the taxable period or periods to which such difference relates.
Prospective purchasers of Trust Fractional Certificates bearing a variable
rate of interest should be aware that the provisions in the OID Regulations
applicable to variable rate debt instruments may not apply to certain adjustable
and variable rate mortgage loans, possibly including the Mortgage Loans, or to
Stripped Certificates representing interests in such Mortgage Loans. If variable
rate Trust Fractional Certificates are not governed by the provisions of the OID
Regulations applicable to variable rate debt instruments, such Certificates may
be subject to the provisions of the 1996 Contingent Debt Regulations. The
application of those provisions to instruments such as the Trust Fractional
Certificates is subject to differing interpretations. Prospective purchasers of
variable rate Trust Fractional Certificates are advised to consult their tax
advisers concerning the tax treatment of such Certificates.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information on
an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount on a
mortgage loan by mortgage loan (or the rights to individual payments) basis
taking account of an allocation of their basis in the Certificates among the
interests in the various mortgage loans represented by such Certificates
according to their respective fair market values. Investors should be aware that
it may not be possible to reconstruct after the fact sufficient mortgage by
mortgage information should a computation on that basis be required by the IRS.
Because the treatment of the Certificates under the OID Regulations is both
complicated and uncertain, Certificateholders should consult their tax advisers
to determine the proper method of reporting amounts received or accrued on
Certificates.
2. Treatment of Unstripped Certificates.
Mortgage Loans in a Mortgage Pool for which there is neither any Class of
Trust Interest Certificates, nor more than one Class of Trust Fractional
Certificates, nor any Retained Yield otherwise identified in the Prospectus
Supplement as being Unstripped Mortgage Loans ("Unstripped Mortgage Loans") will
be treated as wholly owned by the Trust Fractional Certificateholders of a
Mortgage Pool. Trust Fractional Certificateholders using the cash method of
accounting must take into account their pro rata shares of original issue
discount as it accrues and qualified stated interest (as described in "REMIC
Trust Funds--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount") from Unstripped Mortgage Loans as and when collected by the Trustee.
Trust Fractional Certificateholders using an accrual method of accounting must
take into account their pro rata shares of qualified stated interest from
Unstripped Mortgage Loans as it accrues or is received by the Trustee, whichever
is earlier.
Code Sections 1272 through 1275 provide rules for the current inclusion in
income of original issue discount on obligations issued by natural persons on or
after March 2, 1984. Generally those sections provide that original issue
discount should be included on the basis of a constant yield to maturity.
However, the application of the original issue discount rules to mortgages is
unclear in certain respects. The Treasury Department has issued the OID
Regulations relating to original issue discount, which generally address the
treatment of mortgages issued on or after April 4, 1994. The OID Regulations
provide a new de minimis rule for determining whether certain self-amortizing
installment obligations, such as the Mortgage Loans, are to be treated as having
original issue discount. Such obligations would have original issue discount if
the points charged at origination (or other loan discount) exceeded the greater
of one-sixth of one percent times the number of full years to final maturity or
one-fourth of one percent times weighted average maturity. The OID Regulations
treat certain variable rate mortgage loans as having original issue discount
because of an initial rate of interest that differs from that determined
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by the mechanism for setting the interest rate during the remainder of the loan,
or because of the use of an index that does not vary in a manner approved the
OID Regulations. For a description of the general method of calculating the
amount of original issue discount see "REMIC Trust Funds-Taxation of Owners of
REMIC Regular Certificates-Original Issue Discount" and "Application of Stripped
Bond Rules-Variable Rate Certificates".
A subsequent purchaser of a Trust Fractional Certificate that purchases
such Certificate at a cost (not including payment for accrued qualified stated
interest) less than its allocable portion of the aggregate of the remaining
stated redemption prices at maturity of the Unstripped Mortgage Loans will also
be required to include in gross income, for each day on which it holds such
Trust Fractional Certificate, its allocable share of the daily portion of
original issue discount with respect to each Unstripped Mortgage Loan, but
reduced, if the cost of such subsequent purchaser's interest in such Unstripped
Mortgage Loan exceeds its "adjusted issue price", by an amount equal to the
product of (i) such daily portion and (ii) a constant fraction whose numerator
is such excess and whose denominator is the sum of the daily portions of
original issue discount allocable to such subsequent purchaser's interest for
all days on or after the day of purchase. The adjusted issue price of an
Unstripped Mortgage Loan on any given day is equal to the sum of the adjusted
issue price (or, in the case of the first accrual period, the issue price) of
such Unstripped Mortgage Loan at the beginning of the accrual period during
which such day occurs and the daily portions of original issue discount for all
days during such accrual period prior to such day, reduced by the aggregate
amount of payments made during such accrual period prior to such day other than
payments of qualified stated interest.
3. Market Discount and Premium
In general, if the Stripped Bond Rules do not apply to a Trust Fractional
Certificate, a purchaser of a Trust Fractional Certificate will be treated as
acquiring market discount bonds to the extent that the share of such purchaser's
purchase price allocable to any Unstripped Mortgage Loan is less than its
allocable share of the "adjusted issue price" of such Mortgage Loan. See
"Treatment of Unstripped Certificates" and "Application of Stripped Bond Rules".
Thus, with respect to such Mortgage Loans, a holder will be required, under Code
Section 1276, to include as ordinary income the previously unrecognized accrued
market discount in an amount not exceeding each principal payment on any such
Mortgage Loans at the time each principal payment is received or due, in
accordance with the purchaser's method of accounting, or upon a sale or other
disposition of the Certificate. In general, the amount of market discount that
has accrued is determined on a ratable basis. A Trust Fractional
Certificateholder may, however, elect to determine the amount of accrued market
discount on a constant yield to maturity basis. This election is made on a
bond-by-bond basis and is irrevocable. In addition, the description of the
market discount rules in "Taxation of Owners of REMIC Regular
Certificates-Market Discount and Premium" with respect to (i) conversion to
ordinary income of a portion of any gain recognized on sale or exchange of a
market discount bond, (ii) deferral of interest expense deductions, (iii) the de
minimis exception from the market discount rules and (iv) the elections to
include in income either market discount or all interest, discount and premium
as they accrue, is also generally applicable to Trust Fractional Certificates.
Treasury regulations implementing the market discount rules, including the 1986
Act amendments thereto, have not yet been issued and investors therefore should
consult their own tax advisers regarding the application of these rules.
If a Trust Fractional Certificate is purchased at a premium, under existing
law such premium must be allocated to each of the Mortgage Loans (on the basis
of its relative fair market value). The portion of any premium allocated to
Unstripped Mortgage Loans originated after September 27, 1985 can be amortized
and deducted under the provisions of the Code relating to amortizable bond
premium. The portion of such premium allocated to Unstripped Mortgage Loans
originated on or before September 27, 1985 may only be deducted upon the sale or
final distribution in respect of any such Mortgage Loan, as the special rules of
the Code that permit the amortization of such premium apply in the case of debt
instruments other than corporate and governmental obligations, only to
obligations issued after that date. Upon such a sale or final distribution in
respect of such a Mortgage Loan, the premium, if any, allocable thereto would be
recognized as a short-term or long-term capital loss by a Certificateholder
holding the interests in Mortgage Loans represented by such Certificate as
capital assets, depending on how long the Certificate had been held.
The application of the Stripped Bond Rules to Stripped Mortgage Loans will
generally cause any premium allocable to Stripped Mortgage Loans to be amortized
automatically by adjusting the rate of accrual of interest and discount to take
account of the allocable portion of the actual purchase price of the
Certificate. In that event, no additional deduction for the
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amortization of premium would be allowed. It is possible that the IRS may take
the position that the application of the Stripped Bond Rules to the Stripped
Mortgage Loans should be adjusted so as not to take account of any premium
allocable to a Stripped Mortgage Loan originated on or before September 27,
1985. Any such premium would then be subject to the provisions of the Code
relating to the amortization of bond premium, including the limitations
described in the preceding paragraph on the amortization of premium allocable to
Mortgage Loans originated on or before September 27, 1985.
4. Allocation of Purchase Price
As noted above, it is anticipated that a purchaser of a Trust Fractional
Certificate relating to Unstripped Mortgage Loans will be required to allocate
the purchase price thereof to the undivided interest it acquires in each of the
Mortgage Loans, in proportion to the respective fair market values of the
portions of such Mortgage Loans included in the Mortgage Pool at the time the
Certificate is purchased. The Depositor believes that it may be reasonable to
make such allocation in proportion to the respective principal balances of the
Mortgage Loans, where the interests in the Mortgage Loans represented by a Trust
Fractional Certificate have a common remittance rate and other common
characteristics, and otherwise so as to produce a common yield for each interest
in a Mortgage Loan, provided the Mortgage Loans are not so diverse as to evoke
differing prepayment expectations. However, if there is any significant
variation in interest rates among the Mortgage Loans, a disproportionate
allocation of the purchase price taking account of prepayment expectations may
be required
D. Taxation of Owners of Trust Interest Certificates
With respect to each Series of Certificates for which they are identified
as counsel to the Depositor in the applicable Prospectus Supplement, Sidley &
Austin will advise the Depositor that, in their opinion, each holder of a Trust
Interest Certificate (a "Trust Interest Certificateholder") will be treated as
the owner of an undivided interest in the interest portion ("Interest Coupon")
of each of the Mortgage Loans. Accordingly, and subject to the discussion under
"Application of Stripped Bond Rules" below, each Trust Interest
Certificateholder is treated as owning its allocable share of the entire
Interest Coupon from the Mortgage Loans, will report income as described below,
and may deduct its allocable share of the servicing and related fees and
expenses paid to or retained by the Depositor at the same time and in the same
manner as such items would have been reported under the Trust Interest
Certificateholder's tax accounting method had it held directly an interest in
the Interest Coupon from the Mortgage Loans, received directly its share of the
amounts received with respect to the Mortgage Loans and paid directly its share
of the servicing and related fees and expenses. An individual, estate or trust
holder of a Trust Interest Certificate will be allowed a deduction for servicing
fees in determining its regular tax liability only to the extent that the
aggregate of such holder's miscellaneous itemized deductions exceeds two percent
of adjusted gross income, and will be allowed no deduction for such fees in
determining its liability for alternative minimum tax. Amounts, if any, received
by Trust Interest Certificateholders in lieu of amounts due with respect to any
Mortgage Loan but not received by the Master Servicer from the Mortgagor will be
treated for federal income tax purposes as having the same character as the
payment which they replace.
1. Application of Stripped Bond Rules
A Trust Interest Certificate will consist of an undivided interest in the
Interest Coupon of each of the Mortgage Loans. With respect to each Series of
Certificates for which they are identified as counsel to the Depositor in the
applicable Prospectus Supplement, Sidley & Austin will advise the Depositor
that, in their opinion a Trust Interest Certificate will be treated for federal
income tax purposes as comprised of an ownership interest in a portion of the
Interest Coupon of each of the Mortgage Loans (a "Stripped Interest") separated
by the Depositor from the right to receive principal payments and the remainder,
if any, of each interest payment on the underlying Mortgage Loan. As a
consequence, the Trust Interest Certificates will become subject to the Stripped
Bond Rules. Each Trust Interest Certificateholder will be required to apply the
Stripped Bond Rules to its interest in the Interest Coupon under the method
prescribed by the Code, taking account of the price at which the holder
purchased the Trust Interest Certificate and the Trust Interest
Certificateholder's share of the scheduled payments to be made thereon. The
Stripped Bond Rules generally require a holder of Stripped Coupons to accrue and
report income from such Stripped Coupons daily on the basis of the yield to
maturity of such stripped bonds or coupons, as determined in accordance with the
provisions of the Code dealing with original issue discount. For a discussion of
the general method of calculating the amount of original issue discount, see
"REMIC Trust Funds-Taxation of Owners of REMIC Regular Certificates-Original
Issue Discount". The provisions of the Code and the OID Regulations do not
directly
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address the treatment of instruments similar to Trust Interest Certificates. In
reporting to Trust Interest Certificateholders such Certificates will be treated
as a single obligation with payments corresponding to the aggregate of the
payments allocable thereto from each of the Mortgage Loans. See "Aggregate
Reporting". Alternatively, Trust Interest Certificateholders may be required by
the IRS to treat their interests in each scheduled payment on each Stripped
Interest (or their interests in all scheduled payments from each of the Stripped
Interests) as a separate obligation for purposes of allocating purchase price
and computing original issue discount.
The tax treatment of the Trust Interest Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Trust Interest Certificate
as a single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect to
a Trust Interest Certificate must be included in ordinary gross income for
federal income tax purposes as it accrues in accordance with a constant yield
method that takes into account the compounding of interest and such accrual of
income may be in advance of the receipt of any cash attributable to such income.
In general, the rules for accruing original issue discount set forth above in
"REMIC Trust Funds - Taxation of Owners of REMIC Regular Certificates - Original
Issue Discount" apply; however there is no authority permitting Trust Interest
Certificateholders to take into account the Prepayment Assumption in computing
original issue discount accruals. See "Prepayments" below. For purposes of
applying the original issue discount provisions of the Code, the issue price
used in reporting original issue discount with respect to a Trust Interest
Certificate will be the purchase price paid by each holder thereof and the
stated redemption price at maturity may include the aggregate amount of all
payments to be made with respect to the Trust Interest Certificate whether or
not denominated as interest. The amount of original issue discount with respect
to a Trust Interest Certificate may be treated as zero under the original issue
discount de minimis rules described above.
Aggregate Reporting. The Trustee intends in reporting information relating
to original issue discount to Certificateholders to provide such information on
an aggregate poolwide basis. Applicable law is unclear, however, and it is
possible that investors may be required to compute original issue discount
either on a mortgage loan by mortgage loan basis or on a payment by payment
basis taking account of an allocation of their basis in the Certificates among
the interests in the various mortgage loans represented by such Certificates
according to their respective fair market values. The effect of an aggregate
computation for the inclusion of original issue discount in income may be to
defer the recognition of losses due to early prepayments relative to a
computation on a mortgage by mortgage basis. Investors should be aware that it
may not be possible to reconstruct after the fact sufficient mortgage by
mortgage information should a computation on that basis be required by the IRS.
Because the treatment of the Trust Interest Certificates under current law,
and the potential application of the 1996 Contingent Debt Regulations are both
complicated and uncertain, Trust Interest Certificateholders should consult
their tax advisers to determine the proper method of reporting amounts received
or accrued on Trust Interest Certificates.
E. Prepayments
The 1986 Act contains a provision requiring original issue discount on
certain obligations issued after December 31, 1986 to be calculated taking into
account a prepayment assumption and requiring such discount to be taken into
income on the basis of a constant yield to assumed maturity taking account of
actual prepayments. The proper treatment of interests, such as the Trust
Fractional Certificates and the Trust Interest Certificates, in debt instruments
that are subject to prepayment is unclear. Legislation that has been proposed
but not yet enacted would extend the rules contained in the 1986 Act to any pool
of debt instruments the payments on which may be accelerated by reason of
prepayments. Trust Fractional Certificateholders and Trust Interest
Certificateholders should consult their tax advisors as to the proper reporting
of income from Trust Fractional Certificates and Trust Interest Certificates, as
the case may be, in light of the possibility of prepayment and, with respect to
the Trust Interest Certificates, as to the possible application of the 1996
Contingent Debt Regulations.
F. Sales of Trust Certificates
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If a Certificate is sold, gain or loss will be recognized by the holder
thereof in an amount equal to the difference between the amount realized on the
sale and the Certificateholder's adjusted tax basis in the Certificate. Such tax
basis will equal the Certificateholder's cost for the Certificate, increased by
any original issue or market discount with respect to the interest in the
Mortgage Loans represented by such Certificate previously included in income,
and decreased by any deduction previously allowed for premium and by the amount
of payments, other than payments of qualified stated interest, previously
received with respect to such Certificate. The portion of any such gain
attributable to accrued market discount not previously included in income will
be ordinary income, as will gain attributable to a Certificate which is part of
a "conversion transaction" or which the holder elects to treat as ordinary. See
"REMIC Trust Funds-Sales of REMIC Certificates" above. Any remaining gain or any
loss will be capital gain or loss if the Certificate was held as a capital asset
except to the extent that section 582(c) of the Code applies to such gain or
loss.
G. Trust Reporting
The Master Servicer will furnish to each holder of a Trust Fractional
Certificate with each distribution a statement setting forth the amount of such
distribution allocable to principal on the underlying Mortgage Loans and to
interest thereon at the Pass-Through Rate. In addition, the Master Servicer will
furnish, within a reasonable time after the end of each calendar year, to each
holder of a Trust Certificate who was such a holder at any time during such
year, information regarding the amount of servicing compensation received by the
Master Servicer and sub-servicer (if any) and such other customary factual
information as the Master Servicer deems necessary or desirable to enable
holders of Trust Certificates to prepare their tax returns.
H. Back-up Withholding
In general, the rules described in "REMIC Trust Funds-Back-up Withholding"
will also apply to Trust Certificates.
I. Foreign Certificateholders
Payments in respect of interest or original issue discount (including
amounts attributable to servicing fees) on the Mortgage Loans to a
Certificateholder who is not a citizen or resident of the United States, a
corporation or other entity organized in or under the laws of the United States
or of any State thereof, or United States estate or trust, will not generally be
subject to 30% United States withholding tax, provided that such
Certificateholder (i) does not own, directly or indirectly, 10% of more of, and
is not a controlled foreign corporation (within the meaning of Section 957 of
the Code) related to, each of the issuers of the Mortgages and (ii) provides
required certification as to its non-United States status under penalty of
perjury and then will be free of such tax only to the extent that the underlying
Mortgages were issued after July 18, 1984. This withholding tax may be reduced
or eliminated by an applicable tax treaty. Notwithstanding the foregoing, if any
such payments are effectively connected with a United States trade or business
conducted by the Certificateholder, they will be subject to regular United
States income tax and, in the case of a corporation, to a possible branch
profits tax, but will ordinarily be exempt from United States withholding tax
provided that applicable documentation requirements are met.
Holders of Trust Certificates should be aware that proposed Treasury
Regulations were issued on April 15, 1996 which, if adopted in final form, could
affect the United States taxation of foreign investors in Trust Certificates.
For further discussion of those proposed regulations, see "II. REMIC TRUST FUNDS
- - L. Foreign Investors in REMIC Certificates" above.
J. State and Local Taxation
In addition to the federal income tax consequences described in "Certain
Federal Income Tax Consequences", potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisers with respect to the various state tax
consequences of an investment in the Certificates.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans subject to ERISA ("ERISA
Plans") and on those persons who are ERISA fiduciaries with respect to the
assets of such ERISA Plans. In accordance with the general fiduciary standards
of ERISA, an ERISA Plan fiduciary should consider whether an investment in the
Certificates is permitted by the documents and instruments governing the Plan,
consistent with the Plan's overall investment policy and appropriate in view of
the composition of its investment portfolio.
Employee benefit plans which are governmental plans and certain church
plans (if no election has been made under Section 410(d) of the Code) are not
subject to ERISA requirements. Accordingly, assets of such plans may be invested
in the Certificates subject to the provisions of applicable federal and state
law and, in the case of any such plan which is qualified under Section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code, the
restrictions imposed under Section 503 of the Code.
In addition to imposing general fiduciary standards, ERISA and Section 4975
of the Code prohibit a broad range of transactions involving assets of ERISA
Plans and other plans subject to Section 4975 of the Code (together with ERISA
Plans, "Plans") and certain persons ("Parties in Interest") who have certain
specified relationships to the Plans and taxes and/or imposes other penalties on
any such transaction under ERISA and/or Section 4975 of the Code, unless an
exemption applies. If the assets of a Trust Fund are treated for ERISA purposes
as the assets of the Plans that purchase or hold Certificates of the applicable
Series, an investment in Certificates of that Series by or with "plan assets" of
a Plan might constitute or give rise to a prohibited transaction under ERISA or
Section 4975 of the Code, unless a statutory or administrative exemption
applies. Violation of the prohibited transaction rules could result in the
imposition of excise taxes and/or other penalties under ERISA and/or Section
4975 of the Code.
Final Plan Assets Regulation
The United States Department of Labor ("DOL") has issued a final regulation
(the "Final Regulation") under which assets of an entity in which a Plan makes
an equity investment will be treated as assets of the investing Plan in certain
circumstances. Unless the Final Regulation provides an exemption from this "plan
asset" treatment, and if such an exemption is not otherwise available under
ERISA, an undivided portion of the assets of a Trust Fund will be treated, for
purposes of applying the fiduciary standards and prohibited transaction rules of
ERISA and Section 4975 of the Code, as an asset of each Plan which becomes a
Certificateholder of the applicable Series.
The Final Regulation provides an exemption from "plan asset" treatment for
securities issued by an entity if, immediately after the most recent acquisition
of any equity interest in the entity, less than 25% of the value of each class
of equity interests in the entity, excluding interests held by a person who has
discretionary authority or control with respect to the assets of the entity (or
any affiliate of such a person), are held by "benefit plan investors" (e.g.,
Plans, governmental and other benefit plans not subject to ERISA and entities
holding assets deemed to be "plan assets"). Because the availability of this
exemption to any Trust Fund depends upon the identity of the Certificateholders
of the applicable Series at any time, there can be no assurance that any Series
or Class of Certificates will qualify for this exemption.
Prohibited Transaction Class Exemptions
Prohibited Transaction Class Exemption 83-1 (Class Exemption for Certain
Transactions Involving Mortgage Pool Investment Trusts) ("PTCE 83-1") permits,
subject to certain conditions, certain transactions involving the creation,
maintenance and termination of certain residential mortgage pools and the
acquisition and holding of certain residential mortgage pool pass-through
certificates by Plans, regardless of whether (a) the mortgage pool is exempt
from "plan asset" treatment or (b) the transactions would otherwise be
prohibited under ERISA or Section 4975 of the Code. A Series of Certificates
will be an "Exempt Series" if the general conditions (described below) of PTCE
83-1 are satisfied, and if the applicable Series of Certificates evidences
ownership interests in Trust Assets which do not include Mortgage Certificates,
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Cooperative Loans, Mortgage Loans secured by cooperative buildings, Mortgage
Loans secured by Multifamily Property, or Contracts (collectively "Nonexempt
Assets"). An investment by a Plan in Certificates of an Exempt Series (1) will
be exempt from the prohibitions of Section 406(a) of ERISA (relating generally
to Plan transactions involving Parties in Interest who are not fiduciaries) if
the Plan purchases the Certificates at no more than fair market value and the
rights and interests evidenced by such Certificates are not subordinated to the
rights and interests evidenced by other Certificates of the Trust, and (2) will
be exempt from the prohibitions of Sections 406(b) (1) and (2) of ERISA
(relating generally to Plan transactions with fiduciaries) if, in addition, (i)
the purchase is approved by an independent fiduciary, (ii) the Plan pays no more
for the Certificates than would be paid in an arm's length transaction with an
unrelated party, (iii) no sales commission or other fee is paid to the Depositor
as Mortgage Pool sponsor, (iv) the Plan does not purchase more than 25% of the
Certificates of that Series and (v) at least 50% of the Certificates of that
Series is purchased by persons independent of the Depositor, the Trustee and the
Insurer, as applicable. It does not appear that PTCE 83-1 applies to a Series of
Certificates with respect to which the Trust Assets include Nonexempt Assets (a
"Nonexempt Series"). See "The Trust Fund-The Mortgage Pools" and "-The Contract
Pools". Accordingly, it appears that PTCE 83-1 will not exempt Plans that
acquire Certificates of a Nonexempt Series from the prohibited transaction rules
of ERISA and Section 4975 of the Code. The applicable Prospectus Supplement will
state whether a Series of Certificates is an Exempt Series or a Nonexempt
Series.
PTCE 83-1 sets forth three general conditions that must be satisfied for
any transaction to be eligible for exemption: (1) the existence of a pool
trustee who is not an affiliate of the pool sponsor; (2) the maintenance of a
system of insurance or other protection for the pooled mortgage loans and
property securing such loans, and for indemnifying certificateholders against
reductions in pass-through payment due to property damage or defaults in loan
payments; and (3) a limitation on the amount of the payment retained by the pool
sponsor, together with other benefits inuring to it, to not more than adequate
consideration for selling the mortgage loans and reasonable compensation for
services provided by the pool sponsor to the mortgage pool.
The Trustee for all Series will be unaffiliated with the Depositor, and,
accordingly, the first general condition will be satisfied. With respect to the
second general condition of PTCE 83-1, the credit support method represented by
the issuance of a Subordinated Class or Subclasses of Certificates and/or the
establishment of a Reserve Fund, with respect to any Exempt Series for which
such a method of Credit Support is provided (see "Credit Support-Subordinated
Certificates" and "-Reserve Fund"), is substantially similar to a system for
protecting Certificateholders against reductions in pass-through payments which
has been reviewed and accepted by the DOL as an alternative to pool insurance or
a letter of credit indemnification system. This may support a Plan fiduciary's
conclusion that the second general condition is satisfied with respect to any
such Exempt Series although, in the absence of a ruling to this effect, there
can be no assurance that these features will be so viewed by the DOL. In
addition, the Depositor intends to use its best efforts to establish, for each
Exempt Series for which credit support is provided by a Letter of Credit (see
"Credit Support-Letters of Credit") and/or the insurance arrangements set forth
above under "Description of Insurance" (an "Insured Series"), a system that will
adequately protect the Mortgage Pools and indemnity Certificateholders of the
applicable Series against pass-through payment reductions resulting from
property damage or defaults in loan payments. With respect to the third general
condition of PTCE 83-1, the Depositor intends to use its best efforts to
establish a compensation system which will produce for the Depositor total
compensation that will not exceed adequate consideration for forming the
Mortgage Pool and selling the Certificates. However, the Depositor does not
guarantee that its systems will be sufficient to meet the second and third
general conditions (described above) with respect to any Exempt Series.
If an Exempt Series of Certificates is subdivided into two or more Classes
or Subclasses which are entitled to disproportionate allocations of the
principal and interest payments on the Mortgage Loans held by the applicable
Trust Fund, the availability of the exemption afforded by PTCE 83-1 may be
adversely affected, as described in the applicable Prospectus Supplement.
Moreover, if the Certificateholders of any Class or Subclass of Certificates are
entitled to pass-through payment of principal (but no or only nominal interest)
or interest (but no or only nominal principal), it appears that PTCE 83-1 will
not exempt Plans which acquire Certificates of that Class or Subclass from the
prohibited transaction rules of ERISA and Section 4975 of the Code.
If an Exempt Series of Certificates includes a Class of Subordinated
Certificates, PTCE 83-1 will not provide an exemption from the prohibited
transaction rules of ERISA for Plans that acquire such Subordinated
Certificates.
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If for any reason PTCE 83-1 does not provide an exemption for a particular
Plan Certificateholder, one of three other prohibited transaction class
exemptions issued by the DOL might apply, i.e., PTCE 91-38 (formerly PTCE 80-51)
(Class Exemption for Certain Transactions Involving Bank Collective Investment
Funds), PTCE 90-1 (formerly PTCE 78-19) (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts) or PTCE 84-14
(Class Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers). There can be no assurance that any of these class
exemptions will apply with respect to any particular Plan Certificateholder or,
even if it were to apply, that the exemption would apply to all transactions
involving the applicable Trust Fund. Any person who is a fiduciary by reason of
his or her authority to invest "plan assets" of any Plan (a "Plan investor") and
who is considering the use of "plan assets" of any Plan to purchase the offered
Certificates should consult with its counsel with respect to the potential
applicability of ERISA and the Code to such investments, and should determine on
its own whether PTCE 83-1 or another exemption would be applicable (and whether
all conditions have been satisfied with respect to any such exemptions), and
whether the offered Certificates are an appropriate investment for a Plan.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
the offered 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.
Underwriter's PTE
CS First Boston Corporation ("First Boston") is the recipient of a final
prohibited transaction exemption, 54 Fed. Reg. 42597 (Oct. 17, 1989) (the
"Underwriter's PTE" or "CS First Boston Corporation's PTE" if specified in the
applicable Prospectus Supplement), which may accord protection from violations
under Sections 406 and 407 of ERISA and Section 4975 of the Code for Plans that
acquire Certificates. The Underwriter's PTE applies to certificates (a) which
represent (1) a beneficial ownership interest in the assets of a trust and
entitle the holder to pass-through payments of principal, interest and/or other
payments made with respect to the assets of the trust, or (2) an interest in a
REMIC if the certificates are issued by and are obligations of a trust; and (b)
with respect to which First Boston or any of its affiliates is either the sole
underwriter, the manager or co-manager of the underwriting syndicate or a
selling or placement agent. The corpus of a trust to which the Underwriter's PTE
applies may consist of (i) obligations which bear interest or are purchased at a
discount and which are secured by (A) single-family residential, multifamily
residential or commercial real property (including obligations secured by
leasehold interests on commercial real property) or (B) shares issued by a
cooperative housing association; and (ii) "guaranteed governmental mortgage pool
certificates" (as defined in the Final Regulation).
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Trust Assets have been included in other
investment pools ("Other Pools");
(b) certificates evidencing interests in Other Pools have been both (1)
rated in one of the three highest generic rating categories by Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or Fitch
Investors Service, Inc., and (2) purchased by investors other than Plans, for at
least one year prior to a Plan's acquisition of Certificates in reliance upon
the Underwriter's PTE;
(c) at the time of such acquisition, the Class of Certificates acquired by
the Plan has received a rating in one of the rating categories referred to in
condition (b) above;
(d) the Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(e) the applicable Series of Certificates evidences ownership in Trust
Assets which may include non Subordinated Mortgage Certificates (whether or not
interest and principal payable with respect to the Mortgage Certificates are
guaranteed by the GNMA, FHLMC or FNMA);
(f) the Class of Certificates acquired by the Plan are not subordinated to
other Classes of Certificates of that Series with respect to the right to
receive payment in the event of defaults or delinquencies on the underlying
Trust Assets;
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(g) the Plan is an "accredited investor" (as defined in Rule 501(a)(1) of
Regulation D under the Securities Act);
(h) 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; and
(i) the sum of all payments made to and retained by the Underwriter or
members of any underwriting syndicate in connection with the distribution of the
Certificates represents not more than reasonable compensation for underwriting
the Certificates; the sum of all payments made to and retained by the Seller
pursuant to the sale of the Trust Assets to the Trust represents not more than
the fair market value of such Trust Assets; and the sum of all payments made to
and retained by the Master Servicer and all Servicers represents not more than
reasonable compensation for such Servicers' services under the Pooling and
Servicing Agreement and reimbursement of such Servicers' reasonable expenses in
connection herewith.
In addition, the Underwriter's PTE will not apply to a Plan's investment in
Certificates if the Plan fiduciary responsible for the decision to invest in a
Class of Certificates is a Mortgagor or Obligor with respect to more than 5% of
the fair market value of the obligations constituting the Trust Assets or an
affiliate of such person, unless:
(1) in the case of an acquisition in connection with the initial issuance
of any Series of Certificates, at least 50% of each Class of Certificates in
which Plans have invested is acquired by persons independent of the Restricted
Group and at least 50% of the aggregate interest in the Trust is acquired by
persons independent of the Restricted Group;
(2) the Plan's investment in any Class of Certificates does not exceed 25%
of the outstanding Certificates of that Class at the time of acquisition;
(3) immediately after such acquisition, no more than 25% of the Plan assets
with respect to which the investing fiduciary has discretionary authority or
renders investment advice are invested in certificates evidencing interest in
trusts sponsored or containing assets sold or serviced by the same entity; and
(4) the Plan is not sponsored by the Depositor, any Underwriter, the
Trustee, any Servicer, any Pool, Special Hazard or Primary Mortgage Insurer or
the obligor under any other credit support mechanism, a Mortgagor or Obligor
with respect to obligations constituting more than 5% of the aggregate
unamortized principal balance of the Trust Assets on the date of the initial
issuance of Certificates, or any of their affiliates (the "Restricted Group").
Each Series of Certificates generally is expected to satisfy condition (a).
If a Series includes a Class of Subordinated Certificates, that Class will not
satisfy condition (f). Additionally, the Prospectus permits the issuance of
Certificates rated in one of the four highest rating categories, so a particular
Class of a Series may not satisfy condition (c).
Whether the other conditions in the Underwriter's PTE will be satisfied as
to Certificates or any particular Class will depend upon the relevant facts and
circumstances existing at the time the Plan acquires Certificates of that Class.
Any Plan investor who proposes to use "plan assets" of a Plan to acquire
Certificates in reliance upon the Underwriter's PTE should determine whether the
Plan satisfies all of the applicable conditions and consult with its counsel
regarding other factors that may affect the applicability of the Underwriter's
PTE.
General Considerations
Any member of the Restricted Group, a Mortgagor or Obligor, or any of their
affiliates might be considered or might become a Party in Interest with respect
to a Plan. In that event, the acquisition or holding of Certificates of the
applicable Series or Class by, on behalf of or with "plan assets" of such Plan
might be viewed as giving rise to a prohibited transaction under ERISA and
Section 4975 of the Code, unless PTCE 83-1, the Underwriter's PTE or another
exemption is available. Accordingly, before a Plan investor makes the investment
decision to purchase, to commit to purchase or to hold Certificates of any
Series or Class, the Plan investor should determine (a) whether the second and
third general conditions and the specific conditions (described briefly above)
of PTCE 83-1 have been satisfied; (b) whether the Underwriter's PTE is
applicable; (c) whether any other prohibited transaction exemption (if required)
is available under ERISA and Section
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4975 of the Code; or (d) whether an exemption from "plan asset" treatment is
available to the applicable Trust Fund. The Plan investor should also consult
the ERISA discussion, if any, in the applicable Prospectus Supplement for
further information regarding the application of ERISA to any Series or Class of
Certificates.
Subordinated Certificates are not available for purchase by or with "plan
assets" of any Plan, other than a governmental or church plan which is not
subject to ERISA or Section 4975 of the Code (as described above), and any
acquisition of Subordinated Certificates by, on behalf of or with "plan assets"
of any such Plan will be treated as null and void for all purposes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE
CERTIFICATES OF ANY SERIES OR CLASS SHOULD CONSULT WITH ITS COUNSEL WITH RESPECT
TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE OF THE
ACQUISITION AND OWNERSHIP OF SUCH CERTIFICATES.
LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Certificates will
specify whether a Class or Subclass of such Certificates, as long as it is rated
in one of the two highest rating categories by one or more nationally recognized
statistical rating organizations, will constitute a "mortgage related security"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Such Class or Subclass, if any, constituting a "mortgage related security" will
be a legal investment for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including depository
institutions, insurance companies, trustees and state government employee
retirement systems) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulation to the same extent
that, under applicable law, obligations issued by or guaranteed as to principal
and interest by the United States or any agency or instrumentality thereof
constitute legal investments for such entities.
Pursuant to SMMEA, a number of states enacted legislation, on or prior to
the October 3, 1991 cutoff for such enactments, limiting to varying extents the
ability of certain entities (in particular, insurance companies) to invest in
"mortgage related securities", in most cases by requiring the affected investors
to rely solely upon existing state law, and not SMMEA. Accordingly, the
investors affected by such legislation will be authorized to invest in
Certificates qualifying as "mortgage related securities" only to the extent
provided in such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in such securities, and national banks
may purchase such securities for their own account without regard to the
limitations generally applicable to investment securities set forth in 12 U.S.C.
24 (Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe. In this connection, federal credit unions
should review NCUA Letter to Credit Unions No. 96, as modified by Letter to
Credit Unions No. 108, which includes guidelines to assist federal credit unions
in making investment decisions for mortgage related securities. The NCUA has
adopted rules, codified as 12 C.F.R. Section 703.5(f)-(k), which prohibit
federal credit unions from investing in certain mortgage related securities
(including securities such as certain Series, Classes or Subclasses of
Certificates), except under limited circumstances.
All depository institutions considering an investment in the Certificates
should review the "Supervisory Policy Statement on Securities Activities" dated
January 28, 1992, as revised April 15, 1994 (the "Policy Statement") of the
Federal Financial Institutions Examination Council.
The Policy Statement which has been adopted by the Board of Governors of
the Federal Reserve System, the Office of the Comptroller of the Currency, the
FDIC and the Office of Thrift Supervision and by the NCUA (with certain
modifications), prohibits depository institutions from investing in certain
"high-risk mortgage securities" (including securities
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such as certain Series, Classes or Subclasses of the Certificates), except under
limited circumstances, and sets forth certain investment practices deemed to be
unsuitable for regulated institutions.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review rules, policies and guidelines
adopted from time to time by such authorities before purchasing any
Certificates, as certain Series, Classes or Subclasses may be deemed unsuitable
investments, or may otherwise be restricted, under such rules, policies or
guidelines (in certain instances irrespective of SMMEA).
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits, provisions which
may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying", and, with regard to any Certificates issued in
book-entry form, provisions which may restrict or prohibit investments in
securities which are issued in book-entry form.
Except as to the status of certain Classes of Certificates as "mortgage
related securities", no representation is made as to the proper characterization
of the Certificates for legal investment purposes, financial institution
regulatory purposes, or other purposes, or as to the ability of particular
investors to purchase Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Certificates) may adversely affect the liquidity of the
Certificates.
Investors should consult their own legal advisers in determining whether
and to what extent such Certificates constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Certificates offered hereby and by means of the applicable
Prospectus Supplements may be sold directly by the Depositor or may be offered
through CS First Boston Corporation ("CSFB"), an affiliate of the Depositor, or
underwriting syndicates represented by CSFB (the "Underwriters"). The Prospectus
Supplement with respect to each such Series of Certificates will set forth the
terms of the offering of such Series or Certificates and each Subclass within
such Series, including the name or names of the Underwriters, the proceeds to
the Depositor, and either the initial public offering price, the discounts and
commissions to the Underwriters and any discounts or concessions allowed or
reallowed to certain dealers, or the method by which the price at which the
Underwriters will sell such Certificates will be determined.
Unless otherwise specified in the Prospectus Supplement, the Underwriters
will be obligated to purchase all of the Certificates of a Series described in
the Prospectus Supplement with respect to such Series if any such Certificates
are purchased. The Certificates may be acquired by the Underwriters for their
own account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale.
If so indicated in the Prospectus Supplement, the Depositor will authorize
Underwriters or other persons acting as the Depositor's agents to solicit offers
by certain institutions to purchase the Certificates from the Depositor pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases such institutions must be
approved by the Depositor. The obligation of any purchaser under any such
contract will be subject to the condition that the purchase of the offered
Certificates shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject. The Underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
The Depositor may also sell the Certificates offered hereby and by means of
the applicable Prospectus Supplements from time to time in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Depositor may effect such transactions by selling Certificates to or through
dealers, and such dealers may receive compensation in the form of
107
<PAGE>
underwriting discounts, concessions or commissions from the Depositor and any
purchasers of Certificates for whom they may act as agents.
The place and time of delivery for each Series of Certificates offered
hereby and by means of the applicable Prospectus Supplement will be set forth in
the Prospectus Supplement with respect to such Series.
If and to the extent required by applicable law or regulation, this
Prospectus and the Prospectus Supplement will also be used by CSFB after the
completion of the offering in connection with offers and sales related to
market-making transactions in the Certificates offered hereby in which CSFB acts
as principal. CSFB may also act as agent in such transactions. Sales will be
made at negotiated prices determined at the time of sale.
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriters by Sidley &
Austin, New York, New York.
108
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
Page on which
Term is defined
Term in the Prospectus
- ---- -----------------
<S> <C>
Accrual Distribution Amount ....................................... 32
Advances .......................................................... 12
AFR ............................................................... 83
Agreement ......................................................... 29
Alternative Credit Support ........................................ 8
Approved Sale ..................................................... 61
APR ............................................................... 21
ARM Loans ......................................................... 17
Asset Value ....................................................... 29
Assets ............................................................ 79
Buy-Down Fund ..................................................... 11
Buy-Down Loans .................................................... 18
Cede .............................................................. 15
Certificate Account ............................................... 39
Certificate Principal Balance ..................................... 3
Certificateholders ................................................ 19
Certificates ...................................................... 1
Class ............................................................. 1
Cleanup Costs ..................................................... 69
Closed Loans ...................................................... 20
Closing Date ...................................................... 76
Code .............................................................. 12
Committee Report .................................................. 73
Contract Loan-to-Value Ratio ...................................... 7
Contract Pool ..................................................... 1
Contract Schedule ................................................. 35
Contracts ......................................................... 1
Converted Mortgage Loan ........................................... 15
Cooperative ....................................................... 3
Cooperative Dwelling .............................................. 36
Cooperative Loans ................................................. 4
Cut-off Date ...................................................... 16
Custodial Account ................................................. 38
Custodial Agreement ............................................... 24
Custodian ......................................................... 24
Deferred Interest ................................................. 16
Deficiency Event .................................................. 50
Definitive Certificates ........................................... 15
Deleted Contract .................................................. 24
Deleted Mortgage Certificates ..................................... 33
Deleted Mortgage Loans ............................................ 34
Deposit Trust Agreement ........................................... 28
Depositor ......................................................... 1
Determination Date ................................................ 39
Discount Certificate .............................................. 7
Distribution Date ................................................. 4
</TABLE>
109
<PAGE>
<TABLE>
<S> <C>
DOL ............................................................... 98
DTC ............................................................... 15
Due Date .......................................................... 16
Due Period ........................................................ 31
ERISA ............................................................. 12
ERISA Plans ....................................................... 98
Escrow Account .................................................... 42
Exempt Series ..................................................... 99
FHA ............................................................... 1
FHA Experience .................................................... 28
FHA Loans ......................................................... 16
Final Regulation .................................................. 98
First Boston ...................................................... 100
GPM Fund .......................................................... 11
GPM Loans ......................................................... 18
Initial Deposit ................................................... 10
Insurance Proceeds ................................................ 38
Insured Series .................................................... 99
Interest Coupon ................................................... 95
Interest Distribution ............................................. 30
Interest Rate ..................................................... 3
Interest Weighted Class ........................................... 3
Interest Weighted Subclass ........................................ 3
IRS ............................................................... 76
L/C Bank .......................................................... 8
L/C Percentage .................................................... 9
Letter of Credit .................................................. 8
Liquidating Loan .................................................. 8
Liquidation Proceeds .............................................. 38
Loan-to Value Ratio ............................................... 5
Loss .............................................................. 57
Manufactured Home ................................................. 7
Master Servicer ................................................... 4
Mortgage Certificates ............................................. 1
Mortgage Loans .................................................... 1
Mortgage Notes .................................................... 14
Mortgage Pool ..................................................... 1
Mortgage Rates .................................................... 6
Mortgaged Property ................................................ 5
Mortgagor ......................................................... 6
Mortgagor Bankruptcy Bond ......................................... 8
Multi-Class Certificate ........................................... 3
Multifamily Property .............................................. 4
Multiple Variable Rate ............................................ 78
Nonexempt Assets .................................................. 99
Nonexempt Series .................................................. 99
non-U.S. Person ................................................... 89
Obligor ........................................................... 26
OID Regulations ................................................... 74
Original Value .................................................... 5
Originator ........................................................ 20
Other Pools ....................................................... 100
Parties in Interest ............................................... 98
</TABLE>
110
<PAGE>
<TABLE>
<S> <C>
Pass-Through Rate ................................................. 6
Percentage Interest ............................................... 1
Performance Bond .................................................. 24
Plans ............................................................. 98
Policy Statement .................................................. 103
Pool Insurance Policy ............................................. 8
Pool Insurer ...................................................... 9
Pooling and Servicing Agreement ................................... 19
Premium Certificate ............................................... 7
Prepayment Assumption ............................................. 76
Primary Insurer ................................................... 38
Primary Mortgage Insurance Policy ................................. 9
Primary Mortgage Insurer .......................................... 45
Principal Distribution ............................................ 31
Principal Prepayments ............................................. 10
Principal Weighted Class .......................................... 3
Purchase Price .................................................... 36
Rating Agency ..................................................... 1
Record Date ....................................................... 31
Reference Agreement ............................................... 29
REIT .............................................................. 4
REMIC ............................................................. 1
REMIC Certificateholders .......................................... 74
REMIC Certificates ................................................ 73
REMIC Mortgage Pool ............................................... 73
REMIC Provisions .................................................. 73
REMIC Regular Certificate ......................................... 73
REMIC Regulations ................................................. 74
REMIC Residual Certificate ........................................ 73
Required Distribution ............................................. 55
Required Reserve .................................................. 11
Reserve Fund ...................................................... 8
Residual Certificates ............................................. 3
Residual Owner .................................................... 81
Restricted Group .................................................. 101
Retained Yield .................................................... 92
Securities Act .................................................... 2
Senior Certificates ............................................... 8
Senior Class ...................................................... 3
Senior Prepayment Percentage ...................................... 54
Senior Subclass ................................................... 3
Series ............................................................ 1
Servicer .......................................................... 19
Servicing Account ................................................. 36
Servicing Agreement ............................................... 19
Single Family Property ............................................ 4
Single Variable Rate .............................................. 76
Single-Class REMIC ................................................ 86
SMMEA ............................................................. 12
SPA ............................................................... 28
Special Distributions ............................................. 5
Special Hazard Insurance Policy ................................... 11
Standard Terms .................................................... 28
</TABLE>
111
<PAGE>
<TABLE>
<S> <C>
Stated Principal Balance .......................................... 1
Stated Principal Distribution Amount .............................. 30
Stripped Bond Rules ............................................... 92
Stripped Interest ................................................. 96
Stripped Mortgage Loan ............................................ 92
Subclass .......................................................... 1
Subordinated Amount ............................................... 8
Subordinated Certificates ......................................... 8
Subordinated Class ................................................ 3
Subordinated Pool ................................................. 10
Subordinated Subclass ............................................. 3
Substitute Contract ............................................... 24
Substitute Mortgage Certificates .................................. 33
Substitute Mortgage Loans ......................................... 34
Tiered REMICS ..................................................... 75
Title V ........................................................... 73
Trust Assets ...................................................... 4
Trust Certificates ................................................ 73
Trust Fractional Certificate ...................................... 73
Trust Fractional Certificateholder ................................ 91
Trust Fund ........................................................ 1
Trust Interest Certificate ........................................ 90
Trust Interest Certificateholder .................................. 93
U.S. Person ....................................................... 88
UCC ............................................................... 66
Unaffiliated Sellers .............................................. 20
Underwriters ...................................................... 103
Unstripped Mortgage Loans ......................................... 94
VA ................................................................ 1
VA Loans .......................................................... 16
</TABLE>
112
<PAGE>
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
- --------------------------------------------------------------------------------
Subject to completion
Preliminary Prospectus dated [ ], 199[ ]
PROSPECTUS
CS FIRST BOSTON CARD RECEIVABLES TRUSTS
Asset Backed Notes
Asset Backed Certificates
(Issuable in Series)
Asset Backed Securities Corporation, Depositor
----------
The Asset Backed Notes (the "Notes") and the Asset Backed Certificates (the
"Certificates" and, together with the Notes, the "Securities") described herein
may be sold from time to time in one or more series (each, a "Series"), in
amounts, at prices and on terms to be determined at the time of sale and to be
set forth in a supplement to this Prospectus (a "Prospectus Supplement"). Each
Series of Securities will be issued by a trust or master trust (a "Trust") to be
formed pursuant to a Trust Agreement or Master Trust Agreement (a "Trust
Agreement") or a Pooling and Servicing Agreement, Master Pooling and Servicing
Agreement or similar agreement (a "Pooling and Servicing Agreement") (such Trust
Agreements and Pooling and Servicing Agreements, collectively, the "Agreements")
as described herein. Each such Series may include one or more classes (each, a
"Class") of Notes and/or one or more Classes of Certificates.
The property of each Trust will include certain Base Assets (as defined
herein), which may consist of credit card, charge card or certain other types of
Receivables or Participations (each as defined herein) or certain "card
receivables backed securities" ("CRB Securities", as defined herein), and may
also include certain Series Enhancements (as defined herein) or other assets as
described herein or in the related Prospectus Supplement. Any such Receivables
will consist of one or more pools of receivables arising from time to time in
the ordinary course of business in one or more portfolios of credit card, charge
card or certain other types of accounts (collectively, "Accounts"). Any
Participations included in the Base Assets for a Series will consist of
undivided interests in one or more pools of Receivables, and any CRB Securities
included therein will consist of asset backed securities representing interests
in, or notes or loans secured by, one or more underlying pools of Receivables.
The property of a Trust the Base Assets of which consist of Receivables or
Participations will include the right to receive all monies due in respect of
such Receivables, net (to the extent provided in the related Prospectus
Supplement) of certain amounts payable to the servicer of such Receivables
specified in such Prospectus Supplement (the "Servicer"),
(Continued on the following page)
----------
THE NOTES OF A SERIES WILL REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF A
SERIES WILL REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY,
AND WILL NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT
GUARANTEED OR INSURED BY, CS FIRST BOSTON CORPORATION, THE
DEPOSITOR, ANY OF THEIR RESPECTIVE AFFILIATES, OR ANY UNITED
STATES GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" IN THIS PROSPECTUS AND IN THE RELATED PROSPECTUS SUPPLEMENT.
PROSPECTIVE INVESTORS SHOULD CONSIDER LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN THE PROSPECTUS SUPPLEMENT
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities of any Series unless accompanied by a
Prospectus Supplement.
----------
Underwriters of the Securities
[LOGO] CS FIRST BOSTON
This date of this Prospectus is [ ], 1996.
<PAGE>
(Continued from the previous page)
which servicer may also be the Seller. The Base Assets for a Series will be sold
to the Trust by Asset Backed Securities Corporation, a Delaware corporation (the
"Depositor") or such other depositor or transferor as shall be specified in the
related Prospectus Supplement, and any Receivables included in the Base Assets
for a Series will have been purchased by the Depositor from the seller or
sellers designated in the related Prospectus Supplement (collectively, the
"Seller"). Series Enhancement with respect to a Series may include Credit
Enhancement (as defined herein) and/or certain types of Ancillary Arrangements
(as defined herein).
To the extent specified in the related Prospectus Supplement, each Class of
Securities of any Series will represent the right to receive a specified amount
of payments of principal and interest on the related Base Assets, at the rates,
on the dates and in the manner described herein and in the related Prospectus
Supplement. As more fully described herein and in the related Prospectus
Supplement, distributions on any Class of Securities may be senior or
subordinate to distributions on one or more other Classes of Securities of the
same Series, and payments on the Certificates of a Series may be subordinated in
priority to payments on the Notes of such Series. If provided in the related
Prospectus Supplement, a Series of Securities may include one or more classes of
Securities entitled to principal distributions with disproportionate, nominal or
no distributions in respect of interest, or to interest distributions with
disproportionate, nominal or no distributions in respect of principal.
-2-
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be offered
hereunder will, among other things, set forth with respect to such Series of
Securities: (i) the aggregate principal amount, interest rate and authorized
denominations of each Class of such Securities; (ii) certain information
concerning the Base Assets and the related Seller and Servicer, as applicable;
(iii) the terms of any Series Enhancement applicable to any Class or Classes of
such Securities; (iv) information concerning any other assets in the related
Trust; (v) the expected date or dates on which the principal amount of each
Class of such Securities will be paid to holders of such Securities; (vi) the
extent to which any Class within such Series is subordinated to any other Class
of such Series; and (vii) additional information with respect to the plan of
distribution of such Securities.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities (as defined herein) are issued,
unaudited reports containing information concerning the related Trust will be
sent by the Trustee on behalf of such Trust or by the related Indenture Trustee
annually and on each Distribution Date specified in the related Prospectus
Supplement only to Cede & Co. ("Cede"), as nominee for the Depository Trust
Company ("DTC") and registered holder of the Securities (the "Securityholder").
Such reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. See "ADDITIONAL INFORMATION
REGARDING THE SECURITIES - Book Entry Registration" and "DESCRIPTION OF THE
TRUST OR POOLING AND SERVICING AGREEMENT - Reports to Holders" . The Depositor,
as originator of the Trust, will file with the Securities and Exchange
Commission (the "Commission") such periodic reports as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations of the Commission thereunder but may at any time cease to file
any reports that are no longer so required.
AVAILABLE INFORMATION
The Depositor, as originator of the Trusts, has filed with the Commission a
Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Securities being offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement, which is available for
inspection without charge at the public reference facilities of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
regional offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor on behalf of the Trust referred to in
the accompanying Prospectus Supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of this Prospectus
and prior to the termination of the offering of the Securities offered by such
Trust shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the dates of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or
-3-
<PAGE>
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the accompanying Prospectus Supplement) or in any
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Depositor on behalf of any Trust will provide without charge to each
person to whom a copy of this Prospectus is delivered, on the written or oral
request of such person, a copy of any or all of the documents incorporated
herein by reference, except the exhibits to such documents. Requests for such
copies should be directed to the Secretary of Asset Backed Securities
Corporation, Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055.
Telephone requests may be directed to the Secretary of Asset Backed Securities
Corporation at (212) 909-2000.
-4-
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to each Series contained in the related Prospectus
Supplement to be prepared and delivered in connection with the offering of
Certificates and/or Notes of such Series.
Issuer............................. With respect to any Series of
Securities, a Trust formed pursuant to
either (i) a trust agreement or master
trust agreement (a "Trust Agreement")
between the Depositor and the Trustee of
such Trust or (ii) a pooling and
servicing agreement, master pooling and
servicing agreement or similar agreement
(a "Pooling and Servicing Agreement")
among the Depositor, the Servicer and
the Trustee of such Trust (such Trust
Agreements and Pooling and Servicing
Agreements being sometimes referred to
herein collectively, as the
"Agreements"). A Trust formed pursuant
to a Trust Agreement may be either an
owner trust (an "Owner Trust") or a
grantor trust (a "Grantor Trust") and a
Trust formed pursuant to a Pooling and
Servicing Agreement will be a Grantor
Trust.
Depositor.......................... The Depositor is a special-purpose
Delaware corporation organized for the
purpose of causing the issuance of the
Securities and other securities issued
under the Registration Statement backed
by receivables or underlying securities
of various types and acting as settlor
or depositor with respect to trusts,
custody accounts or similar arrangements
or as general or limited partner in
partnerships formed to issue securities.
It is not expected that the Depositor
will have any significant assets. The
Depositor is an indirect, wholly owned
finance subsidiary of Collaterized
Mortgage Securities Corporation, which
is a wholly owned subsidiary of CS First
Boston Securities Corporation, which is
a wholly owned subsidiary of CS First
Boston, Inc. Neither Collaterized
Mortgage Securities Corporation, CS
First Boston Securities Corporation nor
CS First Boston, Inc. nor any of their
affiliates has
- --------------------------------------------------------------------------------
-5-
<PAGE>
- --------------------------------------------------------------------------------
guaranteed, will guarantee or is or will
be otherwise obligated with respect to
any Series of Securities.
The Depositor's principal executive
office is located at Park Avenue Plaza,
55 East 52nd Street, New York, New York
10055, and its telephone number is (212)
909-2000.
Trustee............................ With respect to each Trust, the trustee
specified in the related Prospectus
Supplement (the "Trustee").
Servicer........................... With respect to each Trust for which the
Base Assets include Receivables or
Participations, the servicer specified
in the related Prospectus Supplement
(the "Servicer").
Indenture Trustee.................. With respect to any Series of Securities
that includes one or more classes of
Notes, the indenture trustee specified
in the related Prospectus Supplement
(the "Indenture Trustee").
Risk Factors....................... For a discussion of risk factors that
should be considered with respect to an
investment in the Securities, see "RISK
FACTORS" herein and in the related
Prospectus Supplement.
Securities Offered................. Each Series of Securities issued by a
Trust will include one or more classes
(each a "Class") of Certificates and may
also include one or more Classes of
Notes. Each Class of Certificates will
be issued pursuant to the related Trust
Agreement or Pooling and Servicing
Agreement. Any Series of Securities
issued pursuant to a Pooling and
Servicing Agreement will only include
Certificates and the Base Assets of such
Certificates will consist primarily of
Receivables or Participations (such
Certificates being sometimes referred to
herein as "Receivables Pooling
Certificates"). Any Series of Securities
issued pursuant to a Trust Agreement may
include Certificates and Notes, and the
Base Assets of such Certificates and
such
- --------------------------------------------------------------------------------
-6-
<PAGE>
- --------------------------------------------------------------------------------
Notes will consist primarily of CRB
Securities (such Certificates being
sometimes referred to herein as "CRB
Backed Certificates", such Notes being
sometimes referred to herein as "CRB
Backed Notes" and such CRB Backed
Certificates and CRB Backed Notes being
referred to collectively as "CRB Backed
Securities"). Each Class of Notes will
be issued pursuant to an indenture
(each, an "Indenture") between the
related Trust and the Indenture Trustee
specified in the related Prospectus
Supplement. The related Prospectus
Supplement will specify which Class or
Classes of Notes and/or Certificates of
the related Series are being offered
thereby.
A Trust may issue one or more classes of
additional Certificates or Notes that
are not being offered by this Prospectus
or any related Prospectus Supplement.
Notes.............................. As specified in the related Prospectus
Supplement, each Class of Notes will
have a stated principal amount, notional
principal amount or no principal amount
and will bear interest at a specified
rate or rates (with respect to each
Class of Notes, the "Note Interest
Rate") or will not bear interest. Each
Class of Notes may have a different Note
Interest Rate, which may be a fixed,
variable or adjustable Note Interest
Rate or any combination of the
foregoing. The related Prospectus
Supplement will specify the Note
Interest Rate, or the method for
determining the Note Interest Rate, for
each Class of Notes.
A Series of Securities may include two
or more Classes of Notes that differ as
to timing and priority of payments,
seniority, Note Interest Rates or amount
of payments of principal or interest.
Additionally, payments of principal or
interest in respect of any such Class or
Classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the Base Assets. If
specified in the related Prospectus
Supplement,
- --------------------------------------------------------------------------------
-7-
<PAGE>
- --------------------------------------------------------------------------------
one or more Classes of Notes ("Strip
Notes") may be entitled to (i) principal
payments with disproportionate, nominal
or no interest payments or (ii) interest
payments with disproportionate, nominal
or no principal payments. See
"DESCRIPTION OF THE NOTES -- Payments of
Interest and Principal".
Notes will be available for purchase in
denominations of $100,000, or such other
minimum denomination as shall be
specified in the related Prospectus
Supplement, and integral multiples of
$1,000 in excess thereof and will be
available in book-entry form, or if
specified in the related Prospectus
Supplement, as Definitive Notes. If the
related Prospectus Supplement provides
that the Notes shall be available in
book-entry form only, Noteholders will
be able to receive Definitive Notes (as
defined herein under "RISK FACTORS --
Book-Entry Registration") only in the
limited circumstances described herein
or in the related Prospectus Supplement.
See "CERTAIN INFORMATION REGARDING THE
SECURITIES -- Definitive Securities".
If a Servicer, Seller or Depositor with
an option to purchase the Base Assets of
a Trust exercises such option (or if not
and, if and to the extent provided in
the related Prospectus Supplement,
satisfactory bids for the purchase of
such Base Assets are received), in the
manner and on the respective terms and
conditions described under "DESCRIPTION
OF THE TRUST AGREEMENT OR POOLING AND
SERVICING AGREEMENTS -- Termination",
the outstanding Notes will be redeemed
as set forth in the related Prospectus
Supplement.
The Certificates................... As specified in the related Prospectus
Supplement, each Class of Certificates
will have an original principal amount,
no principal amount or a notional
principal amount and will accrue
interest on such original principal or
notional principal amount at a specified
rate (with respect to each
- --------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
Class of Certificates, the "Certificate
Interest Rate") or will not bear
interest. Each Class of Certificates may
have a different Certificate Interest
Rate, which may be a fixed, variable or
adjustable Certificate Interest Rate, or
any combination of the foregoing. The
related Prospectus Supplement will
specify the Certificate Interest Rate,
or the method for determining the
applicable Certificate Interest Rate,
for each Class of Certificates.
A Series of Securities may include two
or more Classes of Certificates that
differ as to timing and priority of
distributions, seniority, allocations of
losses, Certificate Interest Rate or
amount of distributions in respect of
principal or interest. Additionally,
distributions in respect of principal or
interest in respect of any such Class or
Classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the related Base Assets. If
specified in the related Prospectus
Supplement, one or more Classes of
Certificates ("Strip Certificates") may
be entitled to (i) principal
distributions with disproportionate,
nominal or no interest distributions or
(ii) interest distributions with
disproportionate, nominal or no
principal distributions. See
"DESCRIPTION OF THE CERTIFICATES --
Payments of Principal" and "-- Payments
of Interest". If a Series of Securities
includes Classes of Notes, distributions
in respect of the Certificates may be
subordinated in priority of payment to
payments on the Notes to the extent
specified in the related Prospectus
Supplement.
Certificates will be available for
purchase in a minimum denomination of
$100,000 or such other minimum
denomination as shall be specified in
the related Prospectus Supplement, and
in integral multiples of $1,000 in
excess thereof and will be available in
book-entry form or, if specified in the
related Prospectus Supplement, as
Definitive Certificates. If the related
Prospectus Supplement
- --------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
specifies that the Certificates will be
available in book-entry form only,
Certificateholders will be able to
receive Definitive Certificates (as
defined under "RISK FACTORS -- Book
Entry Registration") only in the limited
circumstances described herein or in the
related Prospectus Supplement. See
"CERTAIN INFORMATION REGARDING THE
SECURITIES -- Definitive Securities".
If a Servicer, Seller or Depositor with
an option to purchase the Base Assets of
a Trust exercises such option (or if not
and, if and to the extent provided in
the related Prospectus Supplement,
satisfactory bids for the purchase of
such Base Assets are received), in the
manner and on the respective terms and
conditions described under "DESCRIPTION
OF THE TRUST OR POOLING AND SERVICING
AGREEMENT --Termination", the
Certificates will be prepaid as set
forth in the related Prospectus
Supplement.
Receivables Pooling Certificates
A. Certificateholders' Interest;
Depositor's Interest............ In the case of a Series of Receivables
Pooling Certificates, a portion of the
assets of the related Trust will be
allocated among the Certificateholders
of such Series (the "Investor
Certificateholders' Interest") and the
remainder will be allocated to the
interest of the Depositor therein (the
"Depositor's Interest") and as provided
in the related Prospectus Supplement.
The Depositor's Interest represents the
right to the assets of the Trust not
allocated to the Investor
Certificateholders' Interest of any
Series or any interests in the Trust
issued as Series Enhancement. In the
case of a Master Trust, the Depositor
may cause the issuance of additional
Series from time to time and any such
issuance will have the effect of
decreasing the Depositor's Interest. The
Depositor's Interest may be evidenced by
an exchangeable certificate that is
subject to certain transfer
restrictions. The
- --------------------------------------------------------------------------------
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<PAGE>
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aggregate principal amount of the
Investor Certificateholders' Interest
will, except as provided herein or in
the related Prospectus Supplement,
remain fixed at the aggregate initial
principal amount of the Certificates of
such Series and the principal amount of
the Depositor's Interest will fluctuate
as the amount of the Principal
Receivables held by the Trust changes
from time to time. If so provided in the
related Prospectus Supplement, in
certain circumstances, interests in the
assets of a Trust may be allocated to a
Credit Enhancer, and in the case of a
Master Trust interests in the assets of
the Trust may be allocated to the
Investor Certificateholders of more than
one Series.
B. Issuance of Additional
Series......................... The related Prospectus Supplement may
provide, in the case of a Master Trust,
that the related Pooling and Servicing
Agreement will provide that pursuant to
one or more supplements to such Pooling
and Servicing Agreement (each, a
"Supplement"), the Depositor may cause
the related Trustee to issue one or more
new Series and accordingly cause a
reduction in the Depositor's Interest
represented by the Depositor's
Certificate. Under each such Pooling and
Servicing Agreement, the Depositor may
define, with respect to any Series, the
principal terms of such Series. A new
Series will only be issued upon
satisfaction of the conditions described
herein or in the related Prospectus
Supplement.
C. Collections.................... All collections of Receivables with
respect to a given Trust will be
allocated by the related Servicer or the
Trustee as amounts collected on
Principal Receivables and on Finance
Charge Receivables. The Servicer or the
Trustee will allocate between the
Investor Certificateholders' Interest of
each Series (if more than one) of such
Trust and the Depositor's Interest all
amounts collected with respect to
Finance Charge Receivables and Principal
Receivables and the Defaulted Amount (as
defined under
- --------------------------------------------------------------------------------
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<PAGE>
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"DESCRIPTION OF THE CERTIFICATES --
Receivables Pooling Certificates --
Collections"). Collections of Finance
Charge Receivables and the Defaulted
Amount will be allocated to each such
Series at all times based upon its
Floating Allocation Percentage.
Collections of Principal Receivables
will be allocated to each such Series at
all times based upon its Principal
Allocation Percentage. The Floating
Allocation Percentage and the Principal
Allocation Percentage with respect to
each such Series will be determined as
set forth in the related Supplement and,
with respect to each such Series offered
hereby, in the related Prospectus
Supplement. See "DESCRIPTION OF THE
CERTIFICATES --Receivables Pooling
Certificates". Collections will be
deposited in the related Collection
Account and invested in the manner
described under "SERVICING OF
RECEIVABLES--Deposits to the Collection
Account".
D. Interest....................... Interest will accrue on the invested
amount of the Receivables Pooling
Certificates of a Series or Class (the
"Invested Amount" of such Series or
Class) at the per annum rate of interest
either specified in or determined in the
manner specified in the related
Prospectus Supplement (the "Certificate
Interest Rate"). If the Prospectus
Supplement for a Series of Receivables
Pooling Certificates so provides, the
Certificate Interest Rate and interest
payment dates applicable to each
Certificate of that Series may be
subject to adjustment from time to time.
Any such Certificate Interest Rate
adjustment would be determined by
reference to one or more indices or by a
remarketing firm, in each case as
described in the Prospectus Supplement
for such Series. Subject to certain
limitations which are specified herein
or which will be specified in the
related Prospectus Supplement,
collections of Finance Charge
Receivables and certain other amounts
allocable to the Investor
Certificateholders' Interest of a Series
offered hereby will be used to make
interest payments to Certificateholders
of
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<PAGE>
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such Series on each Interest Payment
Date with respect thereto, provided that
if a Rapid Amortization Period commences
with respect to such Series, thereafter
interest will be distributed to such
Certificateholders monthly on each
Special Payment Date. If the Interest
Payment Dates for a Series or Class
occur less frequently than monthly,
collections of Finance Charge
Receivables or other amounts (or the
portion thereof allocable to such Class)
will be deposited in one or more trust
accounts (in the case of the deposit of
such interest, an "Interest Funding
Account") and used to make interest
payments to Certificateholders of such
Series or Class on the following
Interest Payment Date with respect
thereto. If a Series has more than one
Class of Receivables Pooling
Certificates, each such Class may have a
separate Interest Funding Account.
E. Principal....................... The principal of any Receivables Pooling
Certificates will be scheduled to be
paid either in full on an expected date
specified in the related Prospectus
Supplement (the "Expected Final Payment
Date"), in which case such Series will
have an Accumulation Period as described
below under "Accumulation Period", or in
installments commencing on a date
specified in the related Prospectus
Supplement (the "Principal Commencement
Date"), in which case such Certificates
will have a Controlled Amortization
Period as described below under
"Controlled Amortization Period". If
such a Series has more than one Class of
Certificates, a different method of
paying principal, a different Expected
Final Payment Date and/or a different
Principal Commencement Date may be
assigned to each Class. The payment of
principal with respect to the
Certificates of such a Series or Class
may be made or commence earlier than the
applicable Expected Final Payment Date
or Principal Commencement Date, as the
case may be, and the final principal
payment with respect to the Certificates
of such Series or Class may be made
earlier or later than the applicable
Expected Final
- --------------------------------------------------------------------------------
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<PAGE>
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Payment Date or Principal Commencement
Date, if a Pay Out Event occurs with
respect to such Series or Class or under
certain other circumstances described
herein or in the related Prospectus
Supplement.
F. Revolving Period............... Receivables Pooling Certificates will
have a revolving period (a "Revolving
Period"), which will commence on the
date specified in the related Prospectus
Supplement as the Series Cut-Off Date
and continue until the earliest to occur
of (a) if a Pay Out Event occurs, the
commencement of a Rapid Amortization
Period with respect to such Series and
(b) the date specified in the related
Prospectus Supplement as the day on
which the Accumulation Period or
Controlled Amortization Period, as the
case may be, commences. During the
Revolving Period with respect to a
Series, collections of Principal
Receivables and certain other amounts
otherwise allocable to the Investor
Certificateholders' Interest of such
Series may be distributed to or for the
benefit of the Certificateholders of
other Series (if so provided in the
related Prospectus Supplement) or the
holder of the Depositor's Certificate in
respect of the Seller's Interest, or
allocated and paid to the Depositor to
purchase additional Receivables.
G. Accumulation Period............ If so specified by the related
Prospectus Supplement, unless a Rapid
Amortization Period commences, a Series
of Receivables Pooling Certificates will
have an accumulation period (the
"Accumulation Period"). The Accumulation
Period will commence on the close of
business on the date specified or
determined in the manner specified in
the related Prospectus Supplement and
continue until the earliest to occur of
(a) the commencement of a Rapid
Amortization Period with respect to such
Series, (b) payment in full of the
Invested Amount of the Certificates of
such Series or (c) the Series
Termination Date with respect to such
Series.
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-14-
<PAGE>
- --------------------------------------------------------------------------------
During the Accumulation Period of a
Series of Receivables Pooling
Certificates, collections of Principal
Receivables and certain other amounts
allocable to the Investor
Certificateholders' Interest of such
Series will be deposited on each
Distribution Date (which date during
each calendar month will be specified in
the related Prospectus Supplement) in a
trust account established for the
benefit of the Investor
Certificateholders of such Series (a
"Principal Funding Account") and used to
make principal distributions to such
Investor Certificateholders when due.
The amount to be deposited in the
Principal Funding Account on any such
Distribution Date may, but will not
necessarily, be limited to an amount
(the "Controlled Deposit Amount") equal
to the amount specified in the related
Prospectus Supplement (the "Controlled
Accumulation Amount") plus any existing
deficit with respect to the Controlled
Accumulation Amount arising from prior
Distribution Dates (the "Deficit
Controlled Accumulation Amount"). If a
Series of Receivables Pooling
Certificates has more than one Class,
each Class may have a separate Principal
Funding Account and Controlled
Accumulation Amount. In addition, the
related Prospectus Supplement may
describe certain priorities among such
Classes with respect to deposits of
principal into such Principal Funding
Accounts. In general, on the Expected
Final Payment Date for a particular
Series or Class, all amounts accumulated
in the Principal Funding Account with
respect to such Series or Class during
the Accumulation Period will be
distributed as a single repayment of
principal with respect to such Series or
Class unless a Pay Out Event shall have
occurred prior to such Expected Final
Payment Date.
H. Controlled Amortization
Period......................... If the related Prospectus Supplement so
specifies, unless a Rapid Amortization
Period commences with respect to such
Series, a Series of Receivables Pooling
Certificates will have an
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-15-
<PAGE>
- --------------------------------------------------------------------------------
amortization period during which
collections of Principal Receivables
allocable to Certificates within one or
more Classes of such Series will be used
to make periodic installment payments of
principal with respect to such
Certificates (the "Controlled
Amortization Period"). The Controlled
Amortization Period will commence at the
close of business on the date specified
or determined in the manner specified in
the related Prospectus Supplement and
continue until the earliest to occur of
(a) the commencement of a Rapid
Amortization Period with respect to such
Series, (b) payment in full of the
Invested Amount of the Certificates of
such Series or (c) the Series
Termination Date with respect to such
Series. During the Controlled
Amortization Period of a Series,
collections of Principal Receivables and
certain other amounts allocable to the
Investor Certificateholders' Interest in
such Series will be used on each
Distribution Date to make principal
distributions to Investor
Certificateholders of such Series or any
Class of such Series then scheduled to
receive such distributions. The amount
to be distributed to Investor
Certificateholders of any Series on any
Distribution Date may, but will not
necessarily, be limited to an amount
(the "Controlled Distribution Amount")
equal to an amount (the "Controlled
Amortization Amount") specified in the
related Prospectus Supplement plus any
existing deficit with respect to the
Controlled Amortization Amount arising
from prior Distribution Dates (the
"Deficit Controlled Amortization
Amount"). If a Series of Receivables
Pooling Certificates has more than one
Class, each Class may have a separate
Controlled Amortization Amount. In
addition, the related Prospectus
Supplement may describe certain
priorities among such Classes with
respect to such distributions.
I. Rapid Amortization
Period......................... During the period beginning at the close
of business on the Business Day
immediately preceding the day on which a
Pay Out Event is
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<PAGE>
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deemed to have occurred with respect to
a Series of Receivables Pooling
Certificates and ending upon the
earliest to occur of (i) the payment in
full of the Invested Amount of the
Certificates of such Series and any
amount required to be paid to a provider
of Series Enhancement\ with respect
thereto or (ii) the Series Termination
Date (the "Rapid Amortization Period"),
collections of Principal Receivables and
certain other amounts allocable to the
Investor Certificateholders' Interest of
such Series will be distributed as
principal payments to the Investor
Certificateholders of such Series
monthly on each Distribution Date
beginning with the first Special Payment
Date with respect to such Series. During
the Rapid Amortization Period with
respect to a Series, distributions of
principal to Investor Certificateholders
will not be subject to any Controlled
Deposit Amount or Controlled
Distribution Amount. In addition, upon
the commencement of the Rapid
Amortization Period with respect to a
Series, any funds on deposit in a
Principal Funding Account with respect
to such Series will be paid to the
Investor Certificateholders of the
relevant Class or Series on the first
Special Payment Date with respect to
such Series. See "Pay Out Events" below
for a discussion of the events which
might lead to the commencement of the
Rapid Amortization Period with respect
to a Series.
J. Pay Out Events................. A "Pay Out Event" with respect to a
Series refers to any of certain events
specified as such in the related
Prospectus Supplement, which events may
include:
(a) the occurrence of an
Insolvency Event (as defined
under "DESCRIPTION OF THE
CERTIFICATES -- Receivables
Pooling Certificates -- Pay
Out Events") relating to the
Seller or the Depositor, or
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<PAGE>
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(b) the Trust becoming an
investment company within the
meaning of the Investment
Company Act of 1940, as
amended (the "Investment
Company Act").
In the case of any event described
above, a Pay Out Event with respect to
the affected Series will be deemed to
have occurred without any notice or
other action on the part of the Trustee
or the Investor Certificateholders of
such Series immediately upon the
occurrence of such event. The Rapid
Amortization Period with respect to a
Series will commence at the close of
business on the day immediately
preceding the day on which a Pay Out
Event occurs with respect thereto.
Distributions of principal to the
Certificateholders of such Series will
begin on the Distribution Date next
following the month during which such
Pay Out Event occurs (such Distribution
Date and each following Distribution
Date with respect to such Series, a
"Special Payment Date"). Any amounts on
deposit in a Principal Funding Account
or an Interest Funding Account with
respect to such Series at such time will
be distributed on the first such Special
Payment Date to the Certificateholders
of such Series. If a Series has more
than one Class of Certificates, each
Class may have different Pay Out Events
which, in the case of any Series of
Receivables Pooling Certificates offered
hereby, will be described in the related
Prospectus Supplement.
Pursuant to the Pooling and Servicing
Agreement, in addition to the
consequences of a Pay Out Event
discussed above, if any Insolvency Event
occurs with respect to the Seller or the
Depositor, on the day of such Insolvency
Event, the Seller or the Depositor,
respectively, will immediately cease to
transfer Principal Receivables directly
or indirectly to the Trust and promptly
give notice to the Trustee of such
Insolvency Event. Under the terms of the
Pooling and Servicing Agreement
applicable to such Series, within 15
days of such
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<PAGE>
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Insolvency Event the Trustee will
publish a notice of the occurrence of
the Insolvency Event stating that the
Trustee intends to sell, dispose of or
otherwise liquidate the Receivables in a
commercially reasonable manner and on
commercially reasonable terms unless
within 90 days from the date such notice
is published the holders of Certificates
of each Series evidencing more than 50%
of the aggregate unpaid principal amount
of each such Series (or if a Series
includes more than one Class, the
holders of Certificates evidencing more
than 50% of each Class of such
Certificates of such Series) and certain
other interested parties specified in
the related Prospectus Supplement
instruct the Trustee not to dispose of
or liquidate the Receivables and to
continue transferring Principal
Receivables as before such Insolvency
Event. The proceeds from any such sale,
disposition or liquidation of the
Receivables will be deposited in the
Collection Account and allocated as
described in the applicable Pooling and
Servicing Agreement and the related
Prospectus Supplement. If the sum of (a)
the portion of such proceeds allocated
to the Certificateholders' Interest of
any Series and (b) the proceeds of any
collections of the Receivables in the
Collection Account allocated to the
Certificateholders' Interest of such
Series is not sufficient to pay the
Invested Amount of the Certificates of
such Series in full, such
Certificateholders will incur a loss.
K. Paired Series................... If so specified in the related
Prospectus Supplement, a Series of
Certificates may be issued (a "Paired
Series") that is paired with one or more
other Series or a portion of one or more
other Series previously issued by a
Trust (a "Prior Series"). A Paired
Series may be issued at or after the
commencement of a Controlled
Accumulation Period or Controlled
Amortization Period for a Prior Series.
As the Invested Amount of the Prior
Series having a Paired Series is
reduced, the Invested Amount of the
Paired Series will increase by an
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<PAGE>
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equal amount. Upon payment in full of
such Prior Series, the Invested Amount
of the Paired Series will be equal to
the amount of the Invested Amount paid
to Certificateholders of such Prior
Series. If a Pay Out Event occurs (a)
with respect to the Prior Series having
a Paired Series or (b) with respect to
the Paired Series when such Prior Series
is in a Controlled Amortization Period
or Controlled Accumulation Period, the
percentage specified in the applicable
Prospectus Supplement for the allocation
of collections to such Prior Series and
the allocation percentage for the
allocation of collections to such Paired
Series will be reset as specified in the
related Prospectus Supplement and the
Controlled Amortization Period or Rapid
Amortization Period for such Prior
Series could be lengthened, which, in
turn, may result in the holders of the
Certificates of such Prior Series
receiving the final payment of principal
on such Certificates after the Expected
Final Payment Date.
Final Scheduled Payment
Date............................. The Final Scheduled Payment Date for
each Class of Certificates of a Series
is the date after which no Certificates
of such Class are expected to remain
outstanding, calculated on the basis of
the assumptions applicable to such
Series described in the related
Prospectus Supplement. The Final
Scheduled Payment Date of a Class may be
the maturity date of the Base Asset in
the related Trust which has the latest
stated maturity, or will be determined
as described herein and in the related
Prospectus Supplement.
The actual final Payment Date of the
Certificates of any Class will depend
principally upon the rate of payment
(including early amortization,
prepayments and repurchases) of the
Receivables underlying or comprising the
Base Assets in the related Trust and, in
the case of CRB Backed Certificates, the
terms of the underlying CRB Securities.
The actual final Payment Date of
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<PAGE>
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Securities of a given Class may occur
earlier (and may occur substantially
earlier) than the Final Scheduled
Payment Date of such Class as a result
of the application of prepayments to the
reduction of the principal balance of
such Certificates, or if any early
amortization period occurs with respect
to the Base Assets underlying such
Class, but may also occur later than the
applicable Final Scheduled Payment Date.
See "RISK FACTORS" and "DESCRIPTION OF
THE CERTIFICATES" herein for a more
detailed description of factors that may
affect the timing of principal payments
on the Certificates.
The Trust Property
General.......................... On or prior to the date of issuance of a
Series of Securities specified in the
related Prospectus Supplement (the
"Closing Date"), the Depositor will
transfer Base Assets to the related
Trust (after acquiring such Base Assets,
in certain cases, from the seller or
sellers specified in the related
Prospectus Supplement (collectively, the
"Seller")) having the aggregate
principal balance specified in such
Prospectus Supplement as of the date
specified therein (the "Series Cutoff
Date"). Alternatively, if so specified
in the related Prospectus Supplement, in
certain circumstances the Depositor may
transfer cash to the Trust and the Trust
will use such cash to acquire such Base
Assets.
The assets of the Trust may also include
one or more types of Series Enhancement
(as described below), certain Ancillary
Arrangements (as described below) and
certain trust accounts, including the
related Collection Account, Distribution
Account and Reserve Account and any
other account or asset identified in the
applicable Prospectus Supplement. See
"DESCRIPTION OF THE TRUST AGREEMENTS AND
POOLING AND SERVICING AGREEMENTS --
Trust Accounts".
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<PAGE>
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A. Base Assets.................... The Base Assets for a Series may consist
of any combination of the following
assets, to the extent and as specified
in the related Prospectus Supplement:
(1) Receivables and Participations in
Receivables and (2) CRB Securities. To
the extent set forth in the related
Prospectus Supplement, the Base Assets
for a Series (x) may be purchased by the
Depositor from the related Seller and
transferred to the related Trust, (y)
may be purchased by the Depositor in the
open market or in privately negotiated
transactions (including transactions
with entities affiliated with the
Depositor) and transferred to the Trust
or (z) may be purchased by the related
Trust in the open market or in privately
negotiated transactions.
(1) Receivables and
Participations
(a) General................... The assets of the Trust created with
respect to a Series may include a pool
of receivables ("Receivables") arising
from time to time in the ordinary course
of business in one or more designated
portfolios of credit card, charge card
or certain other types of accounts
("Accounts"), together with any monies
due under such Receivables net, if and
as provided in the related Prospectus
Supplement, of certain amounts payable
to the related Servicer.
Any designated Accounts will meet the
criteria provided in the applicable
Agreement applied as of the applicable
Series Cut-Off Date specified therein.
The Accounts will consist of certain
initial Accounts described in the
related Prospectus Supplement ("Initial
Accounts") and any Additional Accounts
(as described below), but will not
include any Removed Accounts (as
described below). Pursuant to the
applicable Agreement: (a) the Seller of
the Initial Accounts may (subject to
certain limitations and conditions), and
in some circumstances will be obligated
to, designate additional Accounts
("Additional Accounts"), the Receivables
arising in which will be added to the
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<PAGE>
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Trust or, in lieu thereof or in addition
thereto, transfer eligible
Participations to the Trust and (b) such
Seller will have the right (subject to
certain limitations and conditions), but
not the obligation, to remove the
Receivables in certain Accounts from the
Trust ("Removed Accounts").
All new Receivables arising during the
term of a Trust in any designated
Accounts (including in any Additional
Accounts) will be the property of the
Trust. Accordingly, the amount of
Receivables in the Trust will fluctuate
as new Receivables are generated and as
existing Receivables are collected,
charged off as uncollectible or
otherwise adjusted. Receivables may be
payable in U.S. dollars or in any
foreign currency.
"Participations" are undivided interests
in a pool of assets primarily consisting
of Receivables owned by a Seller or an
affiliate of the Seller, together with
any collections thereon.
The Receivables comprising or underlying
the Base Assets in a Trust will
principally consist of Credit Card
Receivables and/or Charge Card
Receivables (as described below) or such
other receivables or assets as the
Prospectus Supplement shall specify.
(b) Credit Card
Receivables................ "Credit Card Receivables" are
Receivables due to issuers of credit
cards (such as VISA USA, Inc. ("VISA"1)
or MasterCard International Incorporated
("Mastercard International"1) credit
cards) from the holders of such cards,
including Receivables for periodic
finance charges, annual membership fees,
cash advance fees, late charges on
amounts charged for merchandise and
services and certain other designated
fees (collectively, "Finance Charge
Receivables") and Receivables
representing amounts charged by
cardholders for merchandise and
services, amounts advanced to
cardholders as cash advances and certain
other fees billed to cardholders on the
Accounts
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<PAGE>
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(collectively, "Principal Receivables").
In addition, certain Interchange
attributed to cardholder charges for
merchandise and services in the Accounts
may be treated as Finance Charge
Receivables. "Interchange" consists of
certain fees received by a credit
card-issuing bank from the VISA and
MasterCard International associations as
partial compensation for taking credit
risk, absorbing fraud losses and funding
Receivables for a limited period prior
to initial billing.
- ----------
1 VISA and MasterCard are registered trademarks of VISA USA, Inc. And MasterCard
International Incorporated, respectively.
- --------------------------------------------------------------------------------
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<PAGE>
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Recoveries of charged-off Finance Charge
Receivables will be treated as
collections of Finance Charge
Receivables and recoveries of
charged-off Principal Receivables will
be applied against charge-offs of
Principal Receivables. From time to
time, subject to certain conditions,
certain of the amounts described above
which are included in Principal
Receivables may be treated as Finance
Charge Receivables.
(c) Charge Card
Receivables................ "Charge Card Receivables" are
Receivables due from charge account
customers of merchants who permit their
customers to maintain charge card
accounts, and generally represent
amounts charged on the designated
Accounts for merchandise and services
and annual membership fees and certain
other administrative fees billed to such
customers. Inasmuch as Receivables
originated under charge card Accounts
are generally not subject to a monthly
finance charge, a portion of the
collections on the Charge Card
Receivables will be treated as "yield",
with the remainder treated as payments
of principal.
(2) CRB Securities................. Base Assets for a Series may consist, in
whole or in part, of asset backed
securities ("Card Receivables Backed
Securities" or "CRB Securities")
consisting of certificates representing
undivided interests in, or notes or
loans secured by, Receivables arising in
Accounts (as described above). Such
certificates, notes or loans will have
previously been offered and distributed
to the public pursuant to an effective
registration statement registered under
the Securities Act or will be so
registered, offered and distributed
concurrently with the offering of a
Series of Securities. See "TRUST ASSETS
- CRB Securities". Payments on the CRB
Securities will be distributed directly
to the Trustee as registered owner of
such CRB Securities or, if applicable,
to the Indenture Trustee as pledgee
thereof, or in
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such other manner as shall be specified
in the related Prospectus Supplement.
The related Prospectus Supplement for a
Series which includes CRB Securities as
Base Assets will specify (such
disclosure may be on an approximate
basis), to the extent relevant and to
the extent such information is
reasonably available to the Depositor
and the Depositor reasonably believes
such information to be reliable, (i) the
approximate aggregate principal amount
and type of the CRB Securities; (ii)
certain characteristics of the
Receivables which comprise the
underlying assets for the CRB
Securities; (iii) the expected maturity
and the final maturity of the CRB
Securities; (iv) the certificate rate
for the CRB Securities; (v) the issuer
or issuers of the CRB Securities
(collectively, the "CRB Issuer"), the
servicer or servicers of the CRB
Securities (collectively, the "CRB
Servicer") and the trustee or trustees
of the Securities (collectively, the
"CRB Trustee"); (vi) certain
characteristics of enhancement, if any,
relating to the CRB Securities, such as
reserve funds, insurance policies,
letters of credit or guarantees; (vii)
any pay out events or rapid or early
amortization events applicable to the
CRB Securities; (viii) the terms on
which the CRB Securities or the
underlying Receivables may, or are
required to, be repurchased prior to the
stated maturity of such CRB Securities;
and (ix) the terms on which substitute
Receivables may be delivered to replace
those initially deposited with the CRB
Trustee. See "TRUST ASSETS - CRB
Securities".
B. Collection, Distribution, Pre-
Funding and other Trust
Accounts........................ All payments on or with respect to the
Base Assets for a Series will be
remitted directly to an account (the
"Collection Account") to be established
for such Series with the related Trustee
(or the related Indenture Trustee), or
with the related Servicer in the name of
such Trustee (or Indenture Trustee)
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<PAGE>
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or in such other manner as shall be
specified in the related Prospectus
Supplement.
To the extent provided in the related
Prospectus Supplement, the Trustee (or
the Indenture Trustee) shall be required
to apply a portion of the amount in the
Collection Account, together with
reinvestment earnings thereon at the
rate or rates specified in the related
Prospectus Supplement, to the payment,
if and as provided in the related
Prospectus Supplement, of certain
amounts payable to the Servicer under
the related Agreement and any other
person specified in the related
Prospectus Supplement, and to deposit a
portion of the amount in the Collection
Account into one or more separate
accounts (each a "Payment Account" or
"Funding Account", as the case may be)
to be established for such Series, each
in the manner and at the times
established in the related Prospectus
Supplement. Amounts deposited in any
such Payment Account will be available,
to the extent specified in the related
Prospectus Supplement, for (i)
application to the payment of principal
of and/or interest on certain Classes of
the Securities of such Series on the
next Payment Date, (ii) the making of
adequate provision for future payments
on certain Classes of Securities and/or
(iii) any other purpose specified in the
related Prospectus Supplement. After
applying the funds in the Collection
Account as described above, any funds
remaining in the Collection Account may
be paid over to the Servicer, the
Depositor, any provider of Credit
Enhancement with respect to such Series
(a "Credit Enhancer") or any other
person entitled thereto in the manner
and at the times established in the
related Prospectus Supplement.
A Prospectus Supplement may also provide
that the assets of a Trust will include
a Pre-Funding Account (the "Pre-Funding
Account"). In such event, to the extent
provided in the related Prospectus
Supplement, the Depositor and/or the
Seller will be obligated (subject only
to the
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availability thereof) to deposit, and
the related Trust will be obligated to
accept (subject to the satisfaction of
certain conditions described in the
applicable Agreement), additional Base
Assets (the "Additional Base Assets")
from time to time during the Funding
Period specified in the related
Prospectus Supplement having an
aggregate principal balance
approximately equal to the amount on
deposit in the Pre-Funding Account (the
"Pre-Funded Amount") on the related
Closing Date.
From time to time, various additional
accounts may be created under the terms
of the documents related to a specific
Series.
Series Enhancement................. If stated in the Prospectus Supplement
relating to a Series, enhancement may be
provided with respect to one or more
Classes of the Securities of such Series
in the form of one of more types of
Credit Enhancement (as described below)
or Ancillary Arrangements (as described
below), or both ("Series Enhancement").
The Series Enhancement will support the
payments on the Securities and may be
used for other purposes, to the extent
and under the conditions specified in
such related Prospectus Supplement. See
"SERIES ENHANCEMENT".
Credit Enhancement with respect to a
Trust or any Class or Classes of
Securities may include any one or more
of the following: the subordination of
one or more Classes of such Securities
to other Classes of such Securities, a
letter of credit, the establishment of a
cash collateral guaranty or account, a
reserve fund, a surety bond or
insurance, a spread account or the use
of cross support features or another
method of Credit Enhancement described
in the related Prospectus Supplement.
Ancillary Arrangements may take the form
of guaranteed rate agreements, maturity
liquidity facilities, tax protection
agreements, interest rate caps, floor or
collar agreements, interest rate or
currency swap agreements or other
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similar arrangements that are incidental
or related to the Base Assets included
in a Trust. If so specified in the
related Prospectus Supplement, any such
Credit Enhancement or Ancillary
Arrangements may be provided by the
Depositor or an affiliate thereof.
Servicing.......................... For Series for which the Base Assets
include Receivables or Participations,
the Servicer designated in the related
Prospectus Supplement will be
responsible for servicing, managing and
making collections on such Receivables
or Participations. The Servicer may
perform such functions alone, through
subservicers or in conjunction with a
master servicer, as described in such
Prospectus Supplement. In performing
these functions, the Servicer will be
required to exercise the same degree of
skill and care that it customarily
exercises with respect to similar
receivables owned or serviced by it.
Under certain limited circumstances, the
Servicer may resign or be removed, in
which event either the Trustee or a
third party Servicer will act as
Servicer. The Servicer will receive a
periodic fee as servicing compensation
and may, as specified herein and in the
related Prospectus Supplement, receive
certain additional compensation. See
"SERVICING OF RECEIVABLES".
Tax Considerations................. In the case of an Owner Trust, Sidley &
Austin ("Federal Tax Counsel") will
deliver its opinion that the Trust will
not be an association (or publicly
traded partnership) taxable as a
corporation for federal income tax
purposes.
The Owner Trust will agree, and the
beneficial owners of the Notes (each a
"Note Owner") will agree by their
purchase of Notes, to treat the Notes as
debt for federal tax purposes. Federal
Tax Counsel will advise the Owner Trust
that the Notes will be classified as
debt for federal income tax purposes, or
that the Notes will be classified in
such other manner as shall be specified
in the
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<PAGE>
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related Prospectus Supplement. The Owner
Trust will also agree, and the related
beneficial owners of the Certificates
(each a "Certificate Owner") will agree
by their purchase of Certificates, to
treat the Owner Trust as a partnership
for purposes of federal and state income
tax, franchise tax and any other tax
measured in whole or in part by income,
with the assets of the partnership being
the assets held by the Trust, the
partners of the partnership being the
Certificate Owners (including, to the
extent relevant, the Seller or Depositor
in its capacity as recipient of
distributions from any reserve fund),
and the Notes being debt of the
partnership. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES -- Owner Trusts" herein
for additional information concerning
the application of federal income tax
laws to each Owner Trust and the related
Securities.
In the case of a Grantor Trust, Federal
Tax Counsel will deliver its opinion
that the Grantor Trust will be
classified as a grantor trust for
federal income tax purposes and will not
be classified as an association taxable
as a corporation. In general, each owner
of a beneficial interest in the
Certificates must include in income its
pro rata share of interest and other
income from the Receivables,
Participations or CRB Securities and
other assets of the Trust and, subject
to certain limitations, may deduct its
pro rata share of fees and other
deductible expenses paid by the Grantor
Trust. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES -- Grantor Trusts" herein
for additional information concerning
the application of federal income tax
laws to each Grantor Trust and the
related Certificates.
In the case of a Master Trust, Federal
Tax Counsel will deliver its opinion
that, although no transaction closely
comparable to that contemplated herein
has been the subject of any Treasury
regulation, revenue ruling or judicial
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<PAGE>
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decision, based upon its analysis of the
factors discussed below, the Seller will
be properly treated as the owner of the
Base Assets and the other assets of the
Trust for federal income tax purposes
and accordingly, the Certificates, when
issued, will be properly characterized
for federal income tax purposes as
indebtedness of the Seller that is
secured by the Base Assets. The Seller,
by entering into the Agreement, each
Certificateholder, by the acceptance of
a Certificate, and each Certificate
Owner, by virtue of accepting a
beneficial interest in a Certificate,
will agree to treat the Certificates (or
the beneficial interests therein) as
indebtedness of the Seller secured by
the assets of the Trust for federal,
state and local income and franchise tax
purposes and for the purposes of any
other tax imposed on or measured by
income. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES -- Master Trusts" herein
for additional information concerning
the application of federal income tax
laws to each Master Trust and the
related Certificates.
Certain ERISA Considerations....... Subject to the considerations and
qualificaitons discussed under "ERISA
CONSIDERATIONS" herein and the
considerations and qualifications set
forth in the related Prospectus
Supplement, the Notes of any Series
issued by a Trust may be eligible for
purchase by employee benefit plans.
Persons investing assets of employee
benefit plans subject to the Employee
Retirement Income Security Act of 1974,
as amended ("ERISA") or of plans as
defined in Section 4975 of the Code
should read "ERISA Considerations"
herein and consult their own legal
advisors to determine whether and to
what extent the Certificates constitute
permissible investments for such
employee benefit plans and whether the
purchase or holding of Certificates
could give rise to transactions
prohibited under ERISA or Section 4975
of the Code.
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<PAGE>
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Legal Investment................... Investors whose investment authority is
subject to legal restrictions should
consult their own legal advisors to
determine whether and to what extent the
Certificates or Notes constitute legal
investments for them.
Use of Proceeds.................... The Depositor will use the net proceeds
from the sale of each Series of
Securities for one or more of the
following purposes: (i) to purchase the
related Base Assets and/or Series
Enhancement, (ii) to repay indebtedness
which has been incurred to obtain funds
to acquire such Base Assets and/or
Series Enhancement, (iii) to fund the
purchase of such Base Assets and/or
Series Enhancement by the related Trust
on the Closing Date or to establish a
Pre-Funding Account for such Series,
(iv) to establish any Reserve Account or
Cash Collateral Accounts described in
the related Prospectus Supplement or (v)
to pay costs of structuring and issuing
such Securities. If so specified in the
related Prospectus Supplement, the
purchase of the Base Assets for a Series
may be effected in whole or in part by
an exchange of Certificates with the
Seller of such Base Assets. See "USE OF
PROCEEDS".
Ratings............................ It will be a requirement for the
issuance of any Class of Securities of a
Series offered by this Prospectus and
the related Prospectus Supplement that
such Securities be rated by at least one
Rating Agency in one of its four highest
applicable rating categories. The rating
or ratings applicable to such Securities
will be as set forth in the related
Prospectus Supplement. For more detailed
information regarding the ratings
assigned to any Class of a particular
Series of Securities, see "SUMMARY OF
TERMS -- Rating of the Securities" and
"RISK FACTORS -- Ratings of the
Securities" in the related Prospectus
Supplement.
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<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus and in
the related Prospectus Supplement to be prepared and delivered in connection
with the offering of any Series of Securities, prospective investors should
carefully consider the following risk factors before investing in any Class or
Classes of Securities of any such Series.
Limited Liquidity. There can be no assurance that a secondary market for
any Class of Securities of any Series will develop or, if it does develop, that
such market will provide holders of such Securities with liquidity of investment
or that it will continue for the life of such Securities. The Underwriters
presently expect to make a secondary market in certain Classes of the Securities
offered hereby and pursuant to the related Prospectus Supplements, but have no
obligation to do so.
Risk of Delayed Principal Payments due to Dependence on Cardholder
Repayments; Maturity and Repayment Considerations. The Receivables comprising or
underlying the Base Assets for any Series of Securities offered hereunder may be
paid at any time, and there is no assurance that there will be new Receivables
created in the related Accounts, that Receivables will be added to the related
Trust or any underlying CRB Trust (as defined herein, under "TRUST ASSETS -- CRB
Securities") or that any particular pattern of accountholder repayments will
occur. The actual rate of accumulation of principal in a Principal Funding
Account with respect to a Series of Receivables Pooling Certificates during an
Accumulation Period and the rate of distributions of principal with respect to
any such Series during a Controlled Amortization or Rapid Amortization Period
will depend on, among other factors, the rate of accountholder repayments, the
timing of the receipt of repayments and the rate of default by accountholders.
As a result, no assurance can be given that the Invested Amount of a Class of
Receivables Pooling Certificates will be paid on the Expected Final Payment
Date, if any, with respect to such Class or that payment of the principal during
the Controlled Amortization Period, if any, with respect to such Class will
equal the Controlled Amortization Amount, if any, with respect to such Class or
will follow any expected pattern.
Accountholder monthly payment rates with respect to Accounts depend upon a
variety of factors, including seasonal purchasing and payment habits of
accountholders, the availability of other sources of credit, general economic
conditions, tax laws and the terms of the Accounts, including the periodic rate
finance charges assessed on the Accounts (which are subject to change by the
Seller). Increased convenience use, in which accountholders pay their Account
balances in full on or prior to the due date and thus avoid all finance charges,
would decrease the effective yield on the Accounts and could cause the
commencement of a Rapid Amortization Period for one or more Series, as well as a
decrease in protection to holders of Securities against defaults under the
Accounts. No assurance can be given as to the accountholder payment rates which
will actually occur in any future period.
The rate of payment of principal of Securities of a Series for which the
Base Assets consist of CRB Securities, and the aggregate amount of each
distribution on and the yield to maturity of such Securities, will depend on a
number of factors, including the performance of such CRB Securities and the rate
of payment of principal (including prepayments) thereof, which will in turn
depend in large
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<PAGE>
part on the rate of repayment of the underlying Receivables and the possible
occurrence of any related Pay Out Events. The rate of payment of principal of
such Securities may also be affected by the repurchase of the Receivables
underlying the CRB Securities, and the corresponding retirement of such CRB
Securities. See "RISK FACTORS -- Maturity Assumptions" in the related Prospectus
Supplement.
Risk of Prepayment due to Dependence on Generation of Additional
Receivables. The continuation of the Revolving Period for any Series of
Receivables Pooling Certificates will depend on the continued generation of new
Receivables for the related Trust. A decline in the amount of Receivables in the
Accounts for any reason (including the decision by accountholders to use
competing sources of credit, an economic downturn, increased convenience use or
other factors) could result in the occurrence of a Pay Out Event with respect a
Series and commencement of a Rapid Amortization Period with respect to such
Series. In such event, Certificateholders would bear the risk of reinvestment of
the principal amounts of their Certificates. The Pooling and Servicing Agreement
for such a Series will provide that if the Depositor's Interest is not
maintained at a minimum level equal to an amount specified in the Pooling and
Servicing Agreement and the related Prospectus Supplement (the "Required
Depositor's Interest"), then the Depositor will be required to transfer
Additional Accounts to the Trust. In addition, subject to certain exceptions,
which if applicable, will be set forth in the related Prospectus Supplement, if
the Depositor fails to transfer such Additional Accounts to the Trust pursuant
to the Pooling and Servicing Agreement, a Pay Out Event will occur.
Limited Nature of Rating. Any rating assigned to any Class of Securities of
a Series by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Ratings Group, a division of McGraw-Hill, Inc. ("S&P"), or such other nationally
recognized rating agency specified in the related Prospectus Supplement (each, a
"Rating Agency"), will reflect such Rating Agency's assessment solely of the
likelihood that Securityholders will receive the payments of interest and
principal required to be made under the applicable Agreement or Indenture and
will be based primarily on the value of the Base Assets in the Trust and the
availability of any Series Enhancement with respect to such Class or Series. The
rating will not be a recommendation to purchase, hold or sell Securities of such
Class or Series, and such rating will not comment as to the marketability of
such Securities, any market price or suitability for a particular investor.
There is no assurance that any rating will remain for any given period of time
or that any rating will not be lowered or withdrawn entirely by a Rating Agency
if in such Rating Agency's judgment circumstances so warrant.
Limitations on Exercise of Rights due to Book-Entry Registration. The
related Prospectus Supplement may provide that each Class of the Securities of a
given Series initially will be represented by one or more certificates
registered in the name of Cede & Co. ("Cede"), or any other nominee of The
Depository Trust Company ("DTC") set forth in the related Prospectus Supplement,
and will not be issued in fully registered, certified form to the holders of the
Securities of such Series or their nominees ("Definitive Certificates", in the
case of Certificates so issued in fully registered, certified form, "Definitive
Notes", in the case of Notes so issued in fully registered, certified form, and
collectively, "Definitive Securities"). Because of this, unless and until
Definitive Securities for such
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<PAGE>
Series are issued, holders of such Securities will not be recognized by the
applicable Trustee or Indenture Trustee as "Certificateholders", "Noteholders"
or "Securityholders", as the case may be (as such terms are used herein or in
the related Agreement or the related Indenture, as applicable). Hence, until
Definitive Securities are issued, holders of such Securities will be able to
exercise the rights of Securityholders only indirectly through DTC and its
participating organizations. See "CERTAIN INFORMATION REGARDING THE SECURITIES
- -- Book-Entry Registration" and "-- Definitive Securities" .
Risk of Pay Out Event Occurring due to Certain Legal Aspects -- Consumer
Protection Laws. The Accounts and Receivables are subject to numerous federal
and state consumer protection laws which impose requirements on the making,
enforcement and collection of consumer loans. The United States Congress and the
states may enact laws and amendments to existing laws to regulate further the
credit card and consumer revolving loan industry or to reduce finance charges or
other fees or charges applicable to credit card and other consumer revolving
loan accounts. Such laws, as well as any new laws or rulings which may be
adopted, may adversely affect the ability of a Servicer to collect on the
Receivables comprising or underlying the Base Assets for a Series or maintain
the current level of periodic finance charges and other fees and charges with
respect to Accounts. In addition, failure by a Servicer to comply with such
requirements could adversely affect the ability of such Servicer to enforce the
Receivables. In October 1987, November 1991 and March 1994, members of Congress
attempted unsuccessfully to limit the maximum annual percentage rate that may be
assessed on credit card accounts. In addition, in May 1992, two members of the
House Banking Committee asked the United States General Accounting Office (the
"GAO") to undertake a study of competition in the credit card industry and
particularly to address how a government imposed limit on credit card interest
rates could affect credit availability. In Spring 1994, the GAO released its
study on competitive pricing and disclosure in the credit card industry. The GAO
did not recommend that Congress enact legislation capping interest rates on
credit cards, but did recommend monitoring of the industry. The Depositor cannot
predict what action, if any, will be taken by Congress as a result thereof. If
federal legislation were enacted which contained an interest rate cap
substantially lower than the annual percentage rates currently assessed on the
Accounts, it is possible that the average yield on the portfolio of Accounts in
a Trust would be reduced and therefore a Pay Out Event could occur with respect
to the related Series of Securities, if the related Prospectus Supplement so
provides. See "DESCRIPTION OF THE CERTIFICATES -- Pay Out Events". In addition,
during recent years, there has been increased consumer awareness with respect to
the level of finance charges and fees and other practices of credit card issuers
and other consumer revolving loan providers. As a result of these developments
and other factors, there can be no assurance as to whether any federal or state
legislation will be promulgated which would impose additional limitations on the
monthly periodic rate finance charges or other fees or charges relating to the
Accounts.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of Securityholders in the Receivables comprising or
underlying the Base Assets for a Series if such laws result in any Receivables
being charged off as uncollectible when there are no funds available from Series
Enhancement or other sources.
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<PAGE>
Risk of Subordination of Trust's Interest in the Receivables due to Certain
Legal Aspects --Transfers of Receivables. For Series involving a transfer of
Receivables to the related Trust, the related Seller (and to a certain extent
the Depositor) will warrant in the related Pooling and Servicing Agreement and
in the related Receivables Purchase Agreement, respectively, that such transfer
of the Receivables from the Seller to the Depositor and from the Depositor to
the Trust is and will be either a valid transfer and assignment of all right,
title and interest of the Seller in the Receivables and all proceeds thereof to
the Depositor, and a valid transfer of all right, title and interest of the
Depositor in the Receivables and all proceeds thereof to the Trust or will be
the grant to the Trust of a security interest in such Receivables. The Seller
(and to a certain extent the Depositor) will take certain actions required to
perfect the Trust's interest in the Receivables and will warrant that if the
transfer to the Trust is deemed to be a grant to the Trust of a security
interest in the Receivables, the Trustee will have a first priority perfected
security interest therein. If any such transfer of the Receivables and the
proceeds thereof to the Trust is deemed to create a security interest therein, a
tax or government lien on property of the Seller (or of the Depositor) arising
before such Receivables come into existence (or are transferred to the
Depositor) may have priority over the Trust's interest in such Receivables. See
"CERTAIN LEGAL ASPECTS OF RECEIVABLES -- Transfer of Receivables".
Risk of Delay in Payments on Securities or Early Termination due to Certain
Legal Aspects --Receivership of a Seller. If any Seller is a regulated financial
institution, to the extent that such Seller grants a security interest in the
Receivables directly or indirectly to the Trust and that security interest is
validly perfected before any insolvency of the Seller and is not granted or
taken in contemplation of insolvency or with the intent to hinder, delay or
defraud the Seller or its creditors, that security interest should not be
subject to avoidance in the event of insolvency and receivership of the Seller,
and payments to the Trust with respect to the Receivables should not be subject
to recovery by a conservator or receiver for the Seller. If, however, any such
conservator or receiver were to assert a contrary position, or were to require
the Trustee to establish its right to those payments by submitting to and
completing the administrative claims procedure established under the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), or the
conservator or receiver were to request a stay or proceedings with respect to
the Seller as provided under FIRREA, delays in payments on the Securities and
possible reductions in the amount of those payments could occur.
If a conservator or receiver were appointed for the Seller, new Principal
Receivables would not thereafter be transferred to the related Trust and the
Trustee would sell the portion of the Receivables allocable to each related
Series in accordance with the Pooling and Servicing Agreement (unless the
Securityholders holding the required percentage of the outstanding Securities of
each Class within such Series instruct otherwise), thereby causing early
termination of such Trust and a loss to the holders of such Securities if the
net proceeds of such sale and any related Series Enhancement were insufficient
to pay such Securities in full. Upon the occurrence of a Pay Out Event, if a
conservator or receiver were appointed for the Seller or the Depositor and no
Pay Out Event other than such conservatorship, receivership or insolvency of the
Seller or the Depositor existed, the conservator or receiver may have the power
to prevent the early sale, liquidation or disposition of the Receivables and the
commencement of the Rapid Amortization Period. In addition, a conservator or
receiver for
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<PAGE>
the Seller or the Depositor may have the power to cause early payment of the
Securities. See "CERTAIN LEGAL ASPECTS OF THE RECEIVABLES -- Certain Matters
Relating to Receivership".
Risk of Nontransferability of Servicer Duties in the Event of Servicer
Default due to Certain Legal Aspects -- Receivership of a Servicer. In the event
of a Servicer Default with respect to a Series, if a conservator or receiver is
appointed for the Servicer, and no Servicer Default other than such
conservatorship or receivership or insolvency of the Servicer exists, the
conservator or receiver may have the power to prevent either the Trustee or the
Securityholders from effecting a transfer of servicing to a successor Servicer.
Risk of Reduced Portfolio Yield due to Certain Legal Concerns Applicable to
Accounts. Since October 1991, a number of lawsuits and administrative actions
have been filed in several states against out-of-state banks (both federally
insured state-chartered banks and federally insured national banks) which issue
cards. These actions challenge various fees and charges (such as late fees,
over-the-limit fees, returned payment check fees and annual membership fees)
assessed against residents of the states in which such suits were filed, based
on restrictions or prohibitions under such states' laws alleged to be applicable
to the out-of-state cards' issuers. There can be no assurance that one of the
Sellers will not be named as a defendant in future lawsuits or administrative
actions challenging the fees and charges which it assesses residents of other
states. In October 1991, the United States District Court for the State of
Massachusetts held that Greenwood Trust Company (a federally-insured,
Delaware-chartered bank that issues the Discover credit card) was prohibited by
Massachusetts law from assessing late charges on credit card accounts of
Massachusetts residents. On August 6, 1992, that decision was reversed by the
United States Court of Appeals for the First Circuit, which held that the
Massachusetts law was preempted by federal law permitting the charges in
question. In November 1992, the Commonwealth of Massachusetts petitioned the
United States Supreme Court to accept the case. On January 11, 1993, the U.S.
Supreme Court denied the petition of the Commonwealth to review the decision of
the First Circuit. The California Supreme Court in March 1992 refused to review
a lower court's determination that the practice by Wells Fargo Bank of charging
its cardholders over-the-limit and late payment fees violated California laws
that require banks to limit such charges to their costs. On November 29, 1995,
the Supreme Court of New Jersey ruled that a national bank that issued credit
cards in New Jersey but is located in another state, and that is entitled under
the National Bank Act to charge borrowers interest at a rate allowed by the laws
of the State where the bank is located, was not entitled to charge New Jersey
cardholders certain late payment fees, notwithstanding the fact that the state
in which the bank is located permits such late payment fees, because late
payment fees are not defined as interest within the meaning of the National Bank
Act and because New Jersey state law forbade the charging of such late payment
fees. On June 3, 1996, the U.S. Supreme Court upheld regulations issued by the
U.S. Comptroller of the Currency that characterize late fees as interest and
that therefore entitle a national bank to charge late fees if the state in which
such national bank is located allows such late fees. Although the U.S. Supreme
Court resolved certain conflicts of interpretation among the states, such
actions and similar actions which may be brought in other states as a result of
such actions, if resolved adversely to card issuers, could have the effect of
limiting certain charges, other than
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periodic finance charges, that could be assessed on accounts of residents of
such states and could require card issuers to pay refunds and civil penalties
with respect to charges previously imposed on cardholders in such states.
Consequently such actions could have an adverse impact on a Seller's card
operations. One potential effect of any such litigation involving a Seller, if
successful, would be to reduce the Net Portfolio Yield for a Series. The terms
"Portfolio Yield" and "Net Portfolio Yield" have the meanings set forth in the
Prospectus Supplement relating to such Series. If such a reduction occurs, a Pay
Out Event may occur.
Risk of Reduced Finance Charges due to Competition. The credit card and
charge card industry is highly competitive. There is increased competitive use
of advertising, target marketing and pricing competition in interest rates and
annual cardholder fees as both traditional and new credit card and charge card
issuers seek to expand or to enter the market. As a result of this competition,
certain major credit card and charge card issuers assess finance charges for
selected portions of their portfolio at rates lower than the rates currently
being assessed on the Accounts. A Seller's ability to compete in the credit card
and charge card industry will affect its ability to generate new Receivables.
Risk of Delayed Payment of Principal of and Interest on Securities due to
Social, Geographic and Economic Factors. Changes in card use, payment patterns
and the rate of defaults by cardholders may result from a variety of social,
economic and geographic factors. Economic factors include the rate of inflation
and relative interest rates offered for various types of loans. Adverse changes
in economic conditions in any states where cardholders are located could have a
direct impact on the timing and amount of payments on the Securities of any
Series. The Depositor is unable to determine and has no basis to predict
whether, or to what extent, economic, social or geographic factors will affect
future card use or repayment patterns. New credit card issuers have been
entering the market while other issuers have been seeking to expand market share
through increased advertising, target marketing and pricing competition.
Additionally, the use of incentive or affinity programs (e.g., gift awards for
card usage) may affect card usage patterns.
In 1992, a jury in Federal court in Utah held that the VISA association
violated antitrust laws when it denied membership in VISA to a subsidiary of
Sears Roebuck & Co., on the basis that another Sears subsidiary is the issuer of
the Discover card, a competitor of the VISA credit card. In April 1993, a motion
by VISA for a new trail was denied. VISA is currently appealing this decision to
the United States Court of Appeals for the Tenth Circuit. MasterCard has settled
a similar lawsuit. This settlement by MasterCard and/or a final decision
against, or a similar settlement by, VISA could result in increased competition
among issuers of VISA and MasterCard credit cards and thereby have adverse
consequences for members of the VISA and MasterCard associations.
Risk of reduced Portfolio Yield, Pay Out Event and Commencement of Rapid
Amortization Period due to Seller's Ability to Change Terms of the Receivables.
The Seller or other originator of any Receivables comprising or underlying the
Base Assets of a Trust may have the right to determine the finance charges and
the other fees and charges which will be applicable from time to time on its
Accounts, to alter the minimum monthly payment required under the Accounts and
to change various other terms of its agreement with cardholders with respect to
the
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Accounts. A decrease in the finance charges and other fees and charges assessed
on the Accounts would decrease the effective yield on the Accounts and could
result in the occurrence of a Pay Out Event for one or more Series and
commencement of the Rapid Amortization Period for such Series. Under the
applicable Pooling and Servicing Agreement, a Seller may agree that, unless
required by law or as is otherwise necessary in its good faith judgment to
maintain its credit card business on a competitive basis, it will not reduce the
annual percentage rate at which finance charges are assessed on the Receivables
or the other fees and charges assessed on the Accounts, if, as a result of such
reduction, the Net Portfolio Yield for any Series as of such date would be less
than the Base Rate for such Series. The term "Base Rate" for a Series has the
meaning set forth in the Prospectus Supplement relating to such Series. A Seller
may also covenant in the applicable Receivables Purchase Agreement and Pooling
and Servicing Agreement that it will change the terms relating to the Accounts
only if the change is made applicable to the comparable segment of the accounts
owned and serviced by the Seller with characteristics the same as or
substantially similar to the Accounts, except as otherwise restricted by the
terms of the applicable cardholder agreement. In servicing Accounts, a Servicer
will be required to exercise the same care and apply the same policies that it
exercises in handling similar matters for its own comparable accounts. Except as
set forth above or as otherwise set forth in the applicable Prospectus
Supplement, a Pooling and Servicing Agreement may not contain any restrictions
on the ability of a Seller to change the terms of the Accounts or the
Receivables. There can be no assurance that changes in applicable law, changes
in the marketplace or prudent business practice might not result in a
determination by a Seller to decrease finance charges or other fees and charges
for existing accounts, or take actions which would otherwise change the terms of
the Accounts.
Risk of Delayed Payment of Principal of and Interest on Securities due to
Subordination and Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one or more
Classes of Certificates of a Series may be subordinated in priority of payment
to interest and principal due on the Notes, if any, of such Series or to
interest and principal due on one or more Classes of Certificates of such
Series. Moreover, none of the Trusts will have, nor will any such Trust be
permitted or expected to have, any significant assets or sources of funds other
than the Base Assets and, to the extent provided in the related Prospectus
Supplement, a Reserve Account or other form of Series Enhancement. The Notes, if
any, of any Series will represent obligations solely of, and the Certificates of
any such Series will represent interests solely in, the related Trust, and
neither the Notes nor the Certificates of any such Series will represent
obligations of or interests in, or be insured or guaranteed by, the Depositor or
the related Seller, Servicer, Trustee or Indenture Trustee, or any other entity.
Consequently, holders of the Securities of any Series must rely for repayment
upon payments on the related Base Assets and, if and to the extent available,
amounts available under any available form of Series Enhancement, as specified
in the related Prospectus Supplement.
Risk of Commingling. With respect to each Trust for which a Servicer has
been appointed, such Servicer will deposit all payments on the related Base
Assets (from whatever source) and all proceeds of such Base Assets collected
during the period specified in the related Prospectus Supplement (a "Collection
Period") into the related Collection Account within two business days of receipt
thereof.
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However, in the event that a Servicer satisfies certain requirements for monthly
or less frequent remittances and the Rating Agencies affirm their initial rating
of the related Securities, then for so long as such servicer is the Servicer and
provided that (i) no Servicer Default exists and (ii) each other condition to
making monthly or less frequent deposits as may be specified by the Rating
Agencies and described in the related Prospectus Supplement is satisfied, the
Servicer will not be required to deposit such amounts into the Collection
Account of such Trust until the business day preceding each Distribution Date.
The Servicer will deposit the aggregate amount (the "Repurchase Amount") paid
for the purchase of Receivables by the Servicer during the related Collection
Period into the applicable Collection Account on or before the business day
preceding each Distribution Date. Pending deposit into such Collection Account,
collections may be invested by the Servicer at its own risk and for its own
benefit and will not be segregated from funds of the Servicer. If the Servicer
were unable to remit such funds, the applicable Securityholders might incur a
loss. To the extent set forth in the related Prospectus Supplement, the Servicer
may, in order to satisfy the requirements described above, obtain a letter of
credit or other security for the benefit of the related Trust to secure timely
remittances of collections on the related Base Assets or payment of the
aggregate Repurchase Amount with respect to Receivables purchased by the
Servicer.
Limited Rights of Certificateholders in the Event of Servicer Default.
With respect to a Series of Securities that includes Notes, upon the occurrence
of a Servicer Default the related Indenture Trustee or Noteholders (subject to
certain limitations, which if applicable, will be specified in the related
Prospectus Supplement) will have the right to remove the Servicer without the
consent of the related Trustee or any Certificateholders, and the Trustee or the
Certificateholder with respect to such Series will not have the ability to
remove the Servicer if a Servicer Default occurs. In addition, the Noteholders
with respect to such Series would have the ability, with certain specified
exceptions, to waive defaults by the Servicer, including defaults that could
materially adversely affect the Certificateholders of such Series.
Effect of the Issuance of New Series. In the case of a Trust that is a
master trust, such Trust may issue new Series from time to time. While the terms
of any Series will be specified in a Supplement, the provisions of a Supplement
and, therefore, the terms of any new Series, will not be subject to the prior
review or consent of holders of the Certificates of any previously issued
Series. Such terms may include methods for determining applicable investor
percentages and allocating collections, provisions creating different or
additional security or other Series Enhancements, provisions subordinating such
Series to other Series or subordinating other Series (if the Supplement relating
to such Series so permits) to such Series, and any other amendment or supplement
to the Pooling and Servicing Agreement which is made applicable only to such
Series. The obligation of the Trustee to issue any new Series is subject to the
following conditions, among others: (a) such issuance will not result in any
Rating Agency reducing or withdrawing its then existing rating of the
Certificates of any outstanding Series or Class and (b) the Depositor shall have
delivered to the Trustee a certificate of an authorized officer to the effect
that, in the reasonable belief of the Depositor, such issuance will not (i)
result in the occurrence of a Pay Out Event or (ii) materially adversely affect
the timing or amount of payments to Certificateholders of any Series or Class.
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There can be no assurance, however, that the issuance of any other Series,
including any Series issued from time to time hereafter, might not have an
impact on the timing or amount of payments received by a Certificateholder.
THE TRUSTS
The Depositor will establish each Trust pursuant to an Agreement. The
Trustee of each such Trust will be a commercial bank, savings and loan
association or trust company identified as such Trustee in the related
Prospectus Supplement. The property of the Trust will include certain Base
Assets and may also include certain Series Enhancements and other assets
specified in the related Prospectus Supplement.
Each Trust will issue one or more Series of Securities that will include
one or more Classes of Certificates and may also include one or more Classes of
Notes. Any Notes included in a Series will be issued pursuant to an Indenture
entered into between the related Trust and an indenture trustee (the "Indenture
Trustee"). The Indenture Trustee will also be a commercial bank, savings and
loan association or trust company identified as such Indenture Trustee in the
related Prospectus Supplement.
A form of Trust Agreement, a form of Pooling and Servicing Agreement, a
form of Series Supplement to the Pooling and Servicing Agreement and a form of
Indenture have each been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part. If applicable, the Trust Agreement, the
Pooling and Servicing Agreement, the Series Supplement and the Indenture,
relating to a particular Series of Securities will be filed as an exhibit to a
report on Form 8-K to be filed with the Commission within 15 days following the
issuance of such Series of Securities.
TRUST ASSETS
General
The assets of the Trust for a Series of Certificates will include certain
Base Assets described below and may include Certain Series Enhancements with
respect to such Series and certain other assets described in the related
Prospectus Supplement.
The Base Assets for a Series will consist of one or more of the following
types of assets: (a) Receivables, (b) Participations in Receivables or (c) CRB
Securities. The Base Assets for a Series may be purchased by the Depositor from
the Seller identified in the related Prospectus Supplement or, with respect to
CRB Securities, may be purchased by the Depositor in the open market or in
privately negotiated transactions (which may include transactions with
affiliates of the Depositor), and then, in each such case, will be transferred
by the Depositor to the Trust in exchange for
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Securities issued by the Trust. Alternatively, the Trust may purchase some or
all of the Base Assets in the open market or in privately negotiated
transactions with cash obtained by the Trust in exchange for the issuance of
Securities of the Trust to the Depositor.
If so specified in the related Prospectus Supplement, the assets of the
Trust for a Series may include monies on deposit in a Pre-Funding Account
established with the Trustee (or the Indenture Trustee), which monies are to be
used for the purchase of additional Base Assets during a Funding Period
specified in such Prospectus Supplement.
The following is a brief description of the Base Assets expected to be
included in Trusts. Specific information regarding the Base Assets with respect
to a Series of Securities will be provided in the related Prospectus Supplement
and, to the extent not contained in the related Prospectus Supplement, in a
report on Form 8-K to be filed with the Commission within 15 days after the
initial issuance of such Securities.
Receivables and Participations
General. The Base Assets for a Series may consist, in whole or in part, of
Receivables arising from time to time in the ordinary course of business in a
portfolio of consumer, corporate, revolving credit card, charge card or debit
card accounts (collectively, the "Accounts"). The Receivables may be payable in
U.S. dollars or in any other foreign currency. The Accounts will consist of the
Initial Accounts described below, as well as any Additional Accounts added to
the Trust from time to time as provided below, but will not include any Removed
Accounts removed from the Trust as provided below.
A Seller will initially convey to the related Trust (or will convey to the
Depositor, which will promptly reconvey to such Trust) all Receivables existing
on the Series Cut-Off Date in the Initial Accounts, together with all
Receivables arising in such Initial Accounts from time to time after the Series
Cut-Off Date until the termination of such Trust. After the Series Cut-Off Date,
a Seller may convey to the related Trust (which conveyance may be through the
Depositor) Receivables arising in certain Additional Accounts, in each case in
accordance with the provisions of the applicable Pooling and Servicing
Agreement. In addition, pursuant to the related Pooling and Servicing Agreement,
a Seller in some circumstances will be obligated to designate Additional
Accounts, which together with the Receivables arising in such Additional
Accounts, which will be conveyed to the related Trust. The Seller will convey to
the Trust all Receivables arising in any such Additional Accounts, whether such
Receivables are then existing or thereafter created. The addition to a Trust of
Receivables arising in Additional Accounts or Participations will be subject to
certain conditions set forth in the applicable Pooling and Servicing Agreement.
Pursuant to the related Pooling and Servicing Agreement and Series Supplement,
the Depositor will also have the right (subject to certain limitations and
conditions), but not the obligation, to remove the Receivables in any Account
that becomes a Removed Account. The amount of Receivables in a Trust will
fluctuate from day to day as new Receivables are generated or added to the Trust
and as existing Receivables are collected, charged-off as uncollectible, removed
or otherwise adjusted. If so specified in the related Prospectus
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Supplement, a Seller will be able to include Participations in the related Trust
in lieu of or in addition to Receivables.
Credit Card Accounts and Receivables. "Credit Card Receivables" are
Receivables arising under credit card accounts ("Credit Card Accounts"),
including Finance Charge Receivables and Principal Receivables. In addition,
certain Interchange attributed to cardholder charges for merchandise and
services in the Accounts may be treated as Finance Charge Receivables.
Recoveries of charged-off Finance Charge Receivables will be treated as
collections of Finance Charge Receivables and recoveries of charged-off
Principal Receivables will be applied against charge-offs of Principal
Receivables. From time to time, subject to certain conditions, certain of the
amounts described above which are included in Principal Receivables may be
treated as Finance Charge Receivables. "Interchange" consists of certain fees
received by a credit card issuer from the VISA and MasterCard International
associations as partial compensation for taking credit risk, absorbing fraud
losses and funding receivables for a limited period prior to initial billing.
Under the VISA and MasterCard International systems, a portion of the
Interchange in connection with cardholder charges for merchandise and services
is passed from banks which clear the transactions for merchants to credit
card-issuing banks. VISA and MasterCard International may from time to time
change the amount of Interchange reimbursed to banks issuing their credit cards.
Charge Card Accounts and Receivables. "Charge Card Receivables" are
receivables arising under customer charge accounts ("Charge Card Accounts"), and
generally represent amounts charged on designated Accounts for merchandise and
services, and all annual membership fees and certain other administrative fees
billed to the designated Accounts. Receivables arising under Charge Card
Accounts are generally not subject to monthly finance charges.
There are distinctions between Credit Card Accounts and Charge Card
Accounts. Credit Card Accounts offer revolving credit plans to customers. Charge
Card Accounts generally have no pre-set spending limit and are designed for use
as a convenient method of payment for the purchase of merchandise and services.
Charge Card Accounts generally cannot be used as a means of financing such
purchases. Accordingly, the full balance of a month's purchases is billed to
cardmembers and is due upon receipt of the billing statement. By contrast,
revolving credit plans allow customers to make a minimum monthly payment and to
borrow the remaining outstanding balance from the credit card issuer up to a
predetermined limit. As a result of these payment requirement differences, the
Charge Card Accounts have a high monthly payment rate and balances which turn
over rapidly relative to their charge volume when compared to Credit Card
Accounts.
Another distinction between Charge Card Accounts and Credit Card Accounts
is that Charge Card Account balances are generally not subject to monthly
finance charges. As described above, the full Account balance is billed monthly
and is due upon receipt of the billing statement. Cardmembers do not have the
option of using their Charge Card Accounts to extend payment and to pay a
finance charge on the remaining outstanding balance. Credit Card Accounts, by
contrast, do allow customers to pay a specified minimum portion of an
outstanding amount and to finance the balance at a finance charge rate
determined by the credit card issuer. (Because Charge Card Account
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balances are not assessed finance charges, for the purpose of providing yield to
the Trust, a portion of Collections on Receivables in Charge Card Accounts
received in any Monthly Period equal to the product of Collections and a yield
factor which may be specified in the related Prospectus Supplement (the "Yield
Factor") will generally be treated as Yield Collections). Each related
Prospectus Supplement, where applicable, will describe the Yield Calculation for
a specific portfolio of Charge Card Accounts.
Additional Information Relating to Receivables
The related Prospectus Supplement for each Series will provide information
with respect to any Receivables that constitute Base Assets as of the Series
Cut-off Date, including, among other things, the aggregate principal balance of
the Receivables and whether the Receivables are Credit Card Receivables or
Charge Card Receivables.
The eligibility criteria which shall apply with respect to the inclusion of
Receivables in the Base Assets for a Series will be specified in the related
Prospectus Supplement. The information provided in the related Prospectus
Supplement with respect to such Receivables will include, among other things:
(a) underwriting criteria; (b) the loss and delinquency experience for the
portfolio of Receivables; (c) the composition of the portfolio by Account
balance; and (d) the geographic distribution of Accounts and Receivables. The
related Prospectus Supplement will also specify any other limitations on the
types or characteristics of Receivables included in the Base Assets for a
Series.
If information of the nature described above respecting the Receivables
included in the Base Assets of a Series is not known to the Seller at the time
the Securities of the Series are initially offered, approximate or more general
information of the nature described above will be provided in the related
Prospectus Supplement and additional information will be set forth in a Current
Report on Form 8-K to be available to investors on the date of issuance of the
related Securities and to be filed with the Commission within 15 days after the
initial issuance of such Securities.
CRB Securities
General. Base Assets for a Series may consist, in whole or in part, of card
receivables backed securities ("CRB Securities") consisting of certificates
evidencing an undivided interest in, or notes or loans secured by, Receivables
generated in Accounts. Such certificates, notes or loans will have previously
been offered and distributed to the public pursuant to an effective registration
statement registered under the Securities Act or will be so registered, offered
and distributed concurrently with the offering of the related Series of
Securities. CRB Securities will have been issued pursuant to a pooling and
servicing agreement, a master pooling and servicing agreement, a sale and
servicing agreement, a trust agreement, indenture or similar agreement (a "CRB
Agreement"). The Securities represent an undivided interest in or obligation of
a trust formed pursuant to a CRB Agreement (a "CRB Trust"). The seller/servicer
of the underlying Receivables will have entered into the CRB Agreement with the
trustee under such CRB Agreement (the "CRB Trustee"). Receivables
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underlying a CRB Security will be serviced by a servicer (the "CRB Servicer")
directly or by one or more sub-servicers who may be subject to the supervision
of the CRB Servicer.
The issuer of the CRB Securities (the "CRB Issuer") will be a financial
institution, corporation or other entity engaged generally in the business of
issuing credit or charge cards; any form of store, merchandiser or service
provider that issues credit or charge cards; or a limited purpose corporation
organized for the purpose of, among other things, establishing trusts and
acquiring and selling receivables to such trusts, and selling beneficial
interests in such trusts; or one of such trusts. If so specified in the related
Prospectus Supplement, the CRB Issuer may be an affiliate of the Depositor. The
obligations of the CRB Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to the
related trust. The CRB Issuer will not have guaranteed any of the assets
conveyed to the related trust or any of the CRB Securities issued under the CRB
Agreement.
Distributions of principal and interest will be made on the CRB Securities
on the dates specified in the related Prospectus Supplement. The CRB Securities
may be entitled to receive nominal or no principal distributions or nominal or
no interest distributions. Principal and interest distributions will be made on
the CRB Securities by the CRB Trustee or the CRB Servicer. The CRB Issuer or the
CRB Servicer may have the right to repurchase assets underlying the CRB
Securities after a certain date or under other circumstances specified in the
related Prospectus Supplement.
Underlying Receivables. The Receivables underlying the CRB Securities may
consist of Credit Card Receivables, Charge Card Receivables or other specified
types of Receivables.
Credit Enhancement Relating to CRB Securities. Credit Enhancement in the
form of reserve funds, subordination of other CRB Securities, guarantees,
letters of credit, cash collateral accounts, insurance policies or other types
of Credit Enhancement may be provided with respect to the Receivables underlying
the CRB Securities or with respect to the CRB Securities themselves. The type,
characteristics and amount of Credit Enhancement will be a function of certain
characteristics of the Receivables and other factors and will have been
established for the CRB Securities on the basis of requirements of the
applicable Rating Agencies.
Additional Information. The related Prospectus Supplement for a Series for
which the Base Assets include CRB Securities will specify, to the extent
relevant and to the extent such information is reasonably available to the
Depositor and the Depositor reasonably believes such information to be reliable,
(i) the aggregate approximate principal amount and type of the CRB Securities to
be included in the Base Assets; (ii) certain characteristics of the Receivables
which comprise the underlying assets for the CRB Securities, including (A)
whether such Receivables are Credit Card Receivables, Charge Card Receivables or
other types of Receivables, (B) the fees and charges associated with such
Receivables and (C) the servicing fee or range of servicing fees with respect to
such Receivables; (iii) the expected and final maturity of the CRB Securities;
(iv) the interest rate of the CRB Securities; (v) the CRB Issuer, the CRB
Servicer (if other than the CRB Issuer) and the CRB Trustee for such CRB
Securities; (vi) certain characteristics of the credit enhancement, if any,
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relating to the Receivables underlying the CRB Securities or to such CRB
Securities themselves; (vii) the terms on which the underlying Receivables for
such CRB Securities may be, or are required to be, purchased prior to their
stated maturity or the stated maturity of the CRB Securities; and (viii) the
terms on which Receivables may be substituted for those originally underlying
the CRB Securities.
If information of the nature described above representing the CRB
Securities is not known to the Depositor at the time the related Series of
Securities are initially offered, approximate or more general information of the
nature described above will be provided in the related Prospectus Supplement and
the additional information, to the extent available, will be set forth in a
Current Report on Form 8-K to be available to investors on the date of issuance
of the related Series of Securities and to be filed with the Commission within
15 days of the initial issuance of such Securities.
Collection and Payment Accounts
A separate Collection Account will be established by the Trustee (or, in
the case of a Series that includes Notes, the Indenture Trustee), or by the
Servicer in the name of the Trustee (or the Indenture Trustee), for each Series
of Securities for receipt of the amount of cash, if any, specified in the
related Prospectus Supplement to be initially deposited therein by the
Depositor, all amounts received on or with respect to the Base Assets and, to
the extent specified in the related Prospectus Supplement, any income earned
thereon. Certain amounts on deposit in such Collection Account and certain
amounts available pursuant to any Series Enhancement, as provided in the related
Prospectus Supplement, will be deposited in one or more related Payment
Accounts, which will also be established by the Trustee (or the Indenture
Trustee) for such Series of Securities, for payment to the related holders of
such Securities. The Trustee (or Indenture Trustee) will invest the funds in the
Collection and Payment Accounts in Eligible Investments maturing, with certain
exceptions, in the case of funds in the Collection Account, not later than the
day preceding the date such funds are due to be deposited in the applicable
Payment Account or otherwise paid, and in the case of funds in a Payment
Account, not later than the day preceding the next Payment Date for the related
Class or Classes of Securities. Eligible Investments include among other
investments, obligations of the United States and certain agencies thereof,
federal funds, certificates of deposits, commercial paper, demand and time
deposits and banker's acceptances, certain repurchase agreements of United
States government securities and certain guaranteed investment contracts, in
each case, acceptable to the applicable Rating Agencies.
From time to time, various other accounts, which may include a Pre-Funding
Account may be created under the terms of the documents related to a specific
Series.
SERIES ENHANCEMENT
General
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For any Series or Securities, Series Enhancement may be provided with
respect to one or more Classes thereof. Series Enhancement may consist of Credit
Enhancement (as described below), Ancillary Arrangements (as described below),
or both.
Credit Enhancement in General
"Credit Enhancement" with respect to a Series of Securities or one or more
specific Classes of such Series may take the form of the subordination of one or
more Classes of such Securities to other Classes of such Series, a letter of
credit, the establishment of a cash collateral guaranty or account, a surety
bond, insurance, the use of cross support features or another method of Credit
Enhancement described in the related Prospectus Supplement, or any combination
of the foregoing. If so specified in the related Prospectus Supplement, any form
of Credit Enhancement may be structured so as to be drawn upon by more than one
Class of Securities of a Series to the extent described therein.
Credit Enhancement will not provide protection against all risks of loss
and will not guarantee repayment of the entire principal balance of the
Securities and interest thereon. If losses occur which exceed the amount covered
by the Credit Enhancement or which are not covered by the Credit Enhancement,
holders of Securities will bear their allocable share of deficiencies.
If Credit Enhancement is provided with respect to a Series, the related
Prospectus Supplement will include a description of (a) the amount payable under
such Credit Enhancement, (b) any conditions to payment thereunder not described
herein, (c) the conditions (if any) under which the amount payable under such
Credit Enhancement may be reduced and under which such Credit Enhancement may be
terminated or replaced and (d) any material provisions of any agreement relating
to such Credit Enhancement. Additionally, the related Prospectus Supplement may
set forth certain information with respect to the issuer of any third-party
Credit Enhancement, including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies which exercise primary
jurisdiction over the conduct of its business and (iv) its total assets and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in the related Prospectus Supplement. If so specified in the related Prospectus
Supplement, the issuer of such third party Credit Enhancement may have a
subordinated interest in the Trust, the Receivables or certain cash flows in
respect of the Receivables to the extent described in such Prospectus Supplement
(the "Enhancement Invested Amount").
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Subordination
If so specified in the related Prospectus Supplement, one or more Series of
Securities or one or more Classes of Securities of a Series or one or more
classes of other certificated or uncertificated interests in the assets of a the
related Trust ("Collateral Indebtedness Interests") may be subordinated to one
or more other Series or one or more Classes of such Series. If so specified in
the related Prospectus Supplement, the rights of holders of the subordinate
Securities or Collateral Indebtedness Interests to receive distributions of
principal and/or interest on any Payment Date will be subordinated to such
rights of the holders of the Securities which are senior to such subordinate
Securities to the extent set forth in the related Prospectus Supplement. The
related Prospectus Supplement will also set forth information concerning the
amount of subordination of a Series or Class of subordinate Securities or
Collateral Indebtedness Interests, the circumstances in which such subordination
will be applicable, the manner, if any, in which the amount of subordination
will decrease over time and the conditions under which amounts available from
payments that would otherwise be made to holders of such subordinate Securities
or Collateral Indebtedness Interests will be distributed to holders of
Securities which are senior to such subordinate Securities or Collateral
Indebtedness Interests. The amount of subordination will decrease whenever
amounts otherwise payable to the holders of subordinate Securities or Collateral
Indebtedness Interests are paid to the holders of the Securities which are
senior to such subordinated Securities or Collateral Indebtedness Interests. If
so specified in the related Prospectus Supplement, subordination may apply only
in the event of certain types of losses not covered by another Credit
Enhancement.
Letter of Credit
If so specified in the related Prospectus Supplement, support for a Series
of Securities or one or more Classes of a Series may be provided by one or more
letters of credit. A letter of credit may provide limited protection against
certain losses in addition to or in lieu of another form of Credit Enhancement.
The issuer of the letter of credit named in the related Prospectus Supplement
(the "L/C Bank") will be obligated to honor demands with respect to such letter
of credit, to the extent of the amount available thereunder, to provide funds
under the circumstances and subject to such conditions as are specified in the
related Prospectus Supplement. The liability of the L/C Bank under its letter of
credit may be reduced by the amount of unreimbursed payments thereunder.
The maximum liability of a L/C Bank under its letter of credit will
generally be an amount equal to a percentage specified in the related Prospectus
Supplement of the initial principal amount of a Series of Securities or a Class
of such Series. The maximum amount available at any time to be paid under a
letter of credit will be determined in the manner specified therein and in the
related Prospectus Supplement.
Cash Collateral Guaranty or Cash Collateral Account
If so specified in the related Prospectus Supplement, support for a Series
of Securities or one or more Classes of a Series may be provided by a guaranty
(a "Cash Collateral Guaranty") secured
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by the deposit of cash or certain permitted investments in an account (a "Cash
Collateral Account") reserved for the beneficiaries of the Cash Collateral
Guaranty, or by a Cash Collateral Account alone. Any such Cash Collateral
Account will generally take the form of a cash collateral trust formed pursuant
to a trust agreement involving a cash collateral depositor and a cash collateral
trustee. The Cash Collateral Guaranty will generally be an obligation of the
cash collateral trust and not of the cash collateral depositor, the cash
collateral trustee (except to the extent of amounts on deposit in the Cash
Collateral Account), or the related Trustee, Indenture Trustee, Seller, Servicer
or the Depositor. The amount available pursuant to a Cash Collateral Guaranty or
a Cash Collateral Account will be the lesser of the amount on deposit in the
Cash Collateral Account and an amount specified in the related Prospectus
Supplement. The related Prospectus Supplement will set forth the circumstances
under which payments will be made to beneficiaries of a Cash Collateral Guaranty
from the related Cash Collateral Account or from the Cash Collateral Account
directly.
Reserve Account
If so specified in the related Prospectus Supplement, the Depositor may
deposit cash, a letter or letters of credit, short-term investments or other
instruments acceptable to the applicable Rating Agency or Rating Agencies in one
or more reserve accounts (each, a "Reserve Account") to be established in the
name of the Trustee (or the Indenture Trustee). Any such Reserve Account will be
used, as specified in such Prospectus Supplement, by the Trustee (or the
Indenture Trustee) to make required payments of principal of or interest on the
Securities of the related Series or one or more Classes thereof, to make
adequate provision for future payments on one or more Classes of such Securities
or for any other purpose specified in the Agreement with respect to such Series,
to the extent that funds are not otherwise available for such purpose. In the
alternative or in addition to such deposit, a Reserve Account for a Series may
be funded through application of all or a portion of the excess cash flow from
the Base Assets for such Series, to the extent described in the related
Prospectus Supplement. If applicable, the initial amount of the Reserve Account
and the Reserve Account maintenance requirements for a Series will be described
in the related Prospectus Supplement. Amounts deposited in a Reserve Account
will be invested by the Trustee (or the Indenture Trustee) in Eligible
Investments meeting certain specified maturity criteria.
Surety Bond or Insurance Policy
If so specified in the related Prospectus Supplement, Credit Enhancement
for a Series or one or more Classes of Securities of a Series may be provided by
the issuance of insurance by one or more insurance companies. Such insurance
will guarantee distributions of interest or principal on the affected Securities
in the manner and amount specified in the related Prospectus Supplement.
If so specified in the related Prospectus Supplement, Credit Enhancement
for a Series or one or more Classes of Securities of a Series may take the form
of a surety bond purchased for the benefit of the holders of such Securities to
assure distributions of interest or principal with respect to such Securities in
the manner and amount specified in the related Prospectus Supplement.
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Spread Account
If so specified in the related Prospectus Supplement, support for a Series
or one or more Classes of Securities of a Series may be provided by the periodic
deposit of certain available excess cash flow from the Trust assets into an
account (the "Spread Account") intended to assure the subsequent distribution of
interest and principal on such Securities in the manner specified in the related
Prospectus Supplement.
Ancillary Arrangements
If so specified in the related Prospectus Supplement, the Trust may enter
into one or more derivative arrangements that are related to or incidental to
one or more of the Base Assets for a Series ("Ancillary Arrangements"). Such
Ancillary Arrangements may take the form of guaranteed rate agreements, maturity
liquidity facilities, tax protection agreements, interest rate cap, floor or
collar agreements, interest rate or currency swap agreements or other similar
arrangements. If so specified in the related Prospectus Supplement, such
Ancillary Arrangements may be entered into with the Depositor or an affiliate
thereof. The related Prospectus Supplement will to the extent appropriate
contain analogous disclosure with respect to any such Ancillary Arrangements as
is set forth herein or in such Prospectus Supplement with respect to the Base
Assets.
SERVICING OF RECEIVABLES
General
Customary servicing functions with respect to any Receivables included in
the Base Assets for a Series or underlying any Participations included therein
will be provided by the Servicer named in the related Prospectus Supplement
pursuant to the related Pooling and Servicing Agreement. In general, comparable
servicing functions will be performed by the CRB Servicer with respect to the
Receivables underlying any CRB Securities included in the Base Assets.
Collection Procedures
The Servicer will make reasonable efforts to collect all payments required
to be made under the Accounts and will, consistent with the terms of the related
Pooling and Servicing Agreement for a Series and any applicable Credit
Enhancement, follow such collection procedures as it follows with respect to
comparable receivables held in its own portfolio.
Deposits to the Collection Account
The Servicer will deposit (subject to certain exceptions which, if
applicable, will be specified in the related Prospectus Supplement) any
collections on the Receivables in a Monthly Period (which period will be defined
for each Servicer in the related Prospectus Supplement) into the Collection
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Account within two business days of the Date of Processing (or, in the case of
Interchange, on each Distribution Date) to the extent such collections are
allocable to the Certificateholders' Interest of any Series and are required to
be deposited into an account for the benefit of, or distributed to, the Investor
Certificateholders of any Series or the issuer of any Series Enhancement. In
certain limited circumstances, the Servicer will not be required to segregate,
and will be permitted to use for its own benefit collections on the Receivables
received by it during each Monthly Period until the related Distribution Date.
The "Distribution Date" for each calendar month will be specified in the
Prospectus Supplement. To the extent and in the manner specified in the related
Prospectus Supplement and subject to certain exceptions that will be described
therein, on the earlier of (i) the second business day following the Date of
Processing and (ii) the day on which the Servicer deposits any collections into
the Collection Account, the Servicer will pay to the holder of the Depositor
Certificate its allocable portion of any collections then held by the Servicer.
The "Date of Processing" will generally be the business day on which a record of
any transaction is first recorded on the Servicer's computer file of consumer
revolving accounts (without regard to the effective date of such recordation).
To the extent and in the manner specified in the related Prospectus
Supplement, the Servicer will establish the Collection Account in the name of
the Trustee (or, for a Series that includes Notes, the Indenture Trustee). To
the extent and in the manner indicated in the related Prospectus Supplement, the
Collection Account will be an account maintained (i) at a depository
institution, the long-term unsecured debt obligations of which at the time of
any deposit therein are rated as described in the related Prospectus Supplement
and as specified by the Rating Agencies rating the Securities of such Series or
(ii) in an account or accounts the deposits in which are insured to the maximum
extent available by the Federal Deposit Insurance Corporation (the "FDIC") or
which are secured in a manner meeting requirements established by such Rating
Agencies.
To the extent and in the manner specified in the related Prospectus
Supplement, the funds held in the Collection Account may be invested, pending
remittance to the Trustee (or the Indenture Trustee), in Eligible Investments.
If so specified in the related Prospectus Supplement, the Servicer will be
entitled to receive as additional compensation any interest or other income
earned on funds in the Collection Account. The related Prospectus Supplement
will describe the obligations of the Servicer (if different from those described
above), the Seller, the Trustee, the Indenture Trustee and/or the Depositor to
deposit certain payments and/or collections received by them in respect of the
Trust assets into the Collection Account. In addition, to the extent so provided
in the related Prospectus Supplement, if the Servicer deposits in the Collection
Account for a Series any amount not required to be deposited therein, it may, at
any time, withdraw such amount from such Collection Account.
Servicing Compensation and Payment of Expenses
The related Prospectus Supplement may provide that the Servicer will be
entitled to receive a servicing fee in an amount to be determined as specified
in the related Prospectus Supplement (the
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"Servicing Fee"). The Servicing Fee may be fixed or variable, as specified in
the related Prospectus Supplement.
As specified in the related Prospectus Supplement, the Servicer may be
required to pay certain expenses incurred in connection with the servicing of
the Receivables including, without limitation, the payment of the fees and
expenses of the Trustee (and Indenture Trustee) and independent accountants,
payment of the cost of any Series Enhancement and payment of expenses incurred
in preparation of reports to holders of Securities. To the extent specified in
the related Prospectus Supplement, the rights of the Servicer to receive funds
from the Collection Account for a Series, whether as the Servicing Fee or other
compensation, or for the reimbursement of expenses or otherwise, may be
subordinated to the rights of holders of the Securities of such Series.
Evidence as to Compliance
The Pooling and Servicing Agreement for a Series may provide that, each
year, a firm of independent public accountants will furnish a statement to the
Trustee to the effect that such firm has examined certain documents and records
relating to the servicing of the Receivables by the Servicer and that, on the
basis of such examination, such firm is of the opinion that the servicing has
been conducted in compliance with the Pooling and Servicing Agreement, except
for (i) such exceptions as such firm believes to be immaterial and (ii) such
other exceptions as are set forth in such statement. The Pooling and Servicing
Agreement for a Series will provide for delivery to the Trustee for such Series
of an annual statement signed by an officer of the Servicer to the effect that
the Servicer has fulfilled its obligations under the Pooling and Servicing
Agreement throughout the preceding calendar year. Comparable statements and
reports may be required to be delivered to the Indenture Trustee pursuant to any
Indenture relating to such Series.
Certain Matters Regarding the Servicer
Any Servicer for a Series will be identified in the related Prospectus
Supplement. The Servicer may be an affiliate of the Seller or the Depositor and
may have other business relationships with the Seller, the Depositor or their
respective affiliates.
If certain events (each a "Servicer Default") occur with respect to the
Servicer under an Agreement, the related Trustee (or a specified percentage of
the holders of Securities as set forth in the related Prospectus Supplement) may
terminate the Servicer, in which case the Trustee will appoint a successor
Servicer. Servicer Defaults and the rights of the Trustee and the holders of
Securities upon the occurrence of a Servicer Default under the Agreement for a
Series will be substantially similar to those described under "DESCRIPTION OF
THE TRUST AGREEMENT S OR POOLING AND SERVICING AGREEMENTS -- Servicer Defaults"
and "-- Rights upon Servicer Defaults" or will be as described in the related
Prospectus Supplement.
The Servicer generally may not resign from its obligations and duties under
the Agreement, except (a) upon determination that (i) the performance of its
duties under the Pooling and Servicing
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Agreement is no longer permissible under applicable law and (ii) there is no
reasonable action which the Servicer could take to make the performance of its
duties hereunder permissible under applicable law, (b) in connection with a
conveyance, consolidation or merger by the Servicer with any corporation, or
conveyance or transfer of its properties or assets substantially as an entirety
to any other person permitted under the Agreement or (c) upon the satisfaction
of the following conditions: (i) the acceptance and assumption, by an agreement
supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, of the obligations and duties of the Servicer
thereunder by a proposed successor Servicer, (ii) the Servicer having given
written notice to each applicable Rating Agency of such transfer and each such
Rating Agency having notified the Servicer in writing to the effect that its
then current rating of the Securities of any Series will not be reduced or
withdrawn as a result of such transfer, (iii) the provider of Credit
Enhancement, if any, having consented in writing to such transfer (such consent
not to be unreasonably withheld) and (iv) the proposed successor Servicer being
an Eligible Servicer (as defined below). Notwithstanding anything in the Pooling
and Servicing Agreement to the contrary, any successor Servicer appointed under
clause (c) will be deemed to be a successor Servicer. Any such determination
permitting the resignation of the Servicer will be evidenced as to clause (a)
above by an opinion of counsel to such effect delivered to the Trustee. No such
resignation will become effective until the Trustee or a successor Servicer
shall have assumed the responsibilities and obligations of the Servicer in
accordance with the Pooling and Servicing Agreement.
"Eligible Servicer" means the Trustee (or the Indenture Trustee) or an
entity which, at the time of its appointment as Servicer (i) is an established
financial institution having capital or a net worth of not less than
$100,000,000, (ii) is servicing a portfolio of consumer credit card or charge
card accounts, (iii) is legally qualified and has the capacity to service the
Accounts, (iv) has demonstrated the ability to professionally and completely
service a portfolio of similar accounts in accordance with standards of skill
and care customary in the industry and (v) is qualified to use the software that
is then currently being used to service the Accounts or obtains the right to use
or has its own software which is adequate to perform its duties under the
Pooling and Servicing Agreement.
Indemnification
Except to the extent otherwise provided therein, each Pooling and Servicing
Agreement will provide that the Servicer will indemnify the Trust, the Trustee
and the holders of all Securities of a Series from and against any loss,
liability, expense, damage or injury suffered or sustained by reason of any
acts, omissions or alleged acts or omissions arising out of activities of the
Servicer with respect to the Trust or the Trustee or any co-trustee pursuant to
the Pooling and Servicing Agreement, including those arising from acts or
omissions of the Servicer pursuant to the Pooling and Servicing Agreement,
including but not limited to any judgment, award, settlement, reasonable
attorneys' fees and other costs or expenses incurred in connection with the
defense of any actual or threatened action, proceeding or claim; provided,
however, that the Servicer shall not indemnify: (i) the Trust or the Trustee if
such acts, omissions or alleged acts or omissions constitute fraud, gross
negligence, breach of fiduciary duty or misconduct by the Trustee; (ii) the
Trust, the Trustee or the holders of such Securities for any liability, cost or
expense of the Trust with respect to any action taken by the
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Trust at the request of such holders in accordance with the Pooling and
Servicing Agreement or with respect to any Federal, state or local income or
franchise taxes (or any interest or penalties with respect thereto) required to
be paid by the Trust or such holders to any taxing authority; or (iii) the Trust
or such holders for any losses incurred by any of them as a result of defaulted
Receivables or Receivables which are written off as uncollectible unless such
write-off is caused by a breach of the Pooling and Servicing Agreement by the
Servicer. Subject to certain exceptions in the Pooling and Servicing Agreement,
any indemnification pursuant to the Pooling and Servicing Agreement will be only
from the assets of the Servicer.
DESCRIPTION OF THE NOTES
General
The following summaries describe the material provisions of the Indentures
which are anticipated to be common to any Notes included in a Series of
Securities. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the provisions of the related
Notes and the Indenture. Where particular provisions or terms used in such Notes
or Indentures are referred to herein, the actual provisions (including
definitions of terms) are incorporated herein by reference as part of such
summaries.
The Notes included in any Series will be issued in one or more Classes. The
Notes will only be issued in fully registered form, without coupons, in the
authorized denominations for each Class specified in the related Prospectus
Supplement. Upon satisfaction of the conditions, if any, applicable to a Class
of Notes of a Series, as described in the related Prospectus Supplement, the
transfer of the Notes may be registered, and the instruments evidencing such
Notes may be exchanged, at the office of the registrar (which may be the
Indenture Trustee) appointed from time to time pursuant to the Indenture (the
"Registrar") without the payment of any service charge other than any tax or
governmental charge payable in connection with such registration of transfer or
exchange. If specified in the related Prospectus Supplement, one or more Classes
of Notes of a Series may be available in book-entry form only.
Payments of principal of and interest, if any, on the Notes of a Series
will be made on the dates specified in the related Prospectus Supplement (the
"Payment Dates") by check mailed to holders of such Notes, registered as such at
the close of business on the record date applicable to such Payment Dates at
their addresses appearing on the register of Notes for such Series or in such
other manner specified in the related Prospectus Supplement, except that (a)
payments may be made by wire transfer (at the expense of the Noteholder
requesting payment by wire transfer) in certain circumstances described in the
related Prospectus Supplement and (b) final payments of principal in retirement
of any Note will be made only upon presentation and surrender of such Note at
the office of the Indenture Trustee specified in the related Prospectus
Supplement. Notice of the final payment on a Note will be mailed to the holder
of such Note before the Payment Date on which the final principal payment on any
Note is expected to be made to the holder of such Note.
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Payments of principal of and interest on the Notes will be made by the
Indenture Trustee, or a paying agent provided for under the Indenture, as
specified in the related Prospectus Supplement.
Payments of Interest and Principal
Each Class of Notes of a Series will have a stated principal amount,
notional amount or no principal amount and will bear interest at a specified
Note Interest Rate or will not bear interest. Each Class of Notes may have a
different Note Interest Rate, which may be fixed, variable or an adjustable Note
Interest Rate, or any combination of the foregoing. The Notes included in any
Series may include one or more Classes of Notes entitled to (i) principal
payments with disproportionate, nominal or no interest payments or (ii) interest
payments with disproportionate, nominal or no principal payments. The related
Prospectus Supplement will specify the Note Interest Rate for each Class of
Notes or the method for determining such Note Interest Rate. The right of
holders of any Class of Notes to receive payments of principal and interest may
be senior or subordinate to the rights of holders of one or more other Class or
Classes of Notes of such Series, as described in the related Prospectus
Supplement. The Prospectus Supplement may specify that payments of interest, if
any, on Notes will be made prior to payments of principal thereon or in such
other order or priority as shall be specified in such Prospectus Supplement.
One or more Classes of Notes of a Series may be redeemable in whole or in
part under the circumstances specified in the related Prospectus Supplement,
including as the result of the exercise by the Servicer, the Seller or the
Depositor of any option that it may have to purchase the Base Assets of the
related Trust. To the extent specified in the related Prospectus Supplement, one
or more Classes of Notes of a Series may have fixed principal payment schedules
as set forth therein. Holders of Notes will have the right to receive payments
of principal on any given Payment Date in the applicable amount set forth in
such schedule with respect to such Notes. Notes may also be subject to
prepayment of principal to the extent set forth in the related Prospectus
Supplement.
With respect to a Series that includes two or more Classes of Notes, each
Class may differ as to the timing and priority of payments, seniority,
allocations of losses, Note Interest Rates or amount of payments of principal or
interest, and payments of principal or interest in respect of any such Class or
Classes may be subject to the occurrence of specified events or may be made on
the basis of collections from designated portions of the Base Assets. If
specified in the related Prospectus Supplement, one or more Classes of Notes
("Strip Notes") may be entitled to (i) principal payments with disproportionate,
nominal or no interest payments or (ii) interest payments with disproportionate,
nominal or no principal payments.
Certain Provisions of the Indenture
Events of Default; Rights upon Event of Default. "Events of Default" in
respect of a Series of Notes under the related Indenture will consist of certain
events specified in the Related Prospectus Supplement, which events will
include: (i) a default for five days or more in the payment of any interest on
any such Note: (ii) a default in the payment of the principal of, or any
installment of the
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principal of, any such Note when the same becomes due and payable; (iii) a
default by the related Trust in the observance or performance in any material
respect of any covenant or agreement made in such Indenture and the continuation
of any such default for a period of 30 days after notice thereof is given to the
related Trust by the applicable Indenture Trustee or to such Trust and the
related Indenture Trustee by the holders of 25% of the aggregate outstanding
principal amount of such Notes; (iv) any representation or warranty made by such
Trust in the related Indenture or in any certificate delivered pursuant thereto
or in connection therewith having been incorrect in any material respect as of
the time made, if such breach is not cured with 30 days after notice thereof is
given to such Trust by the applicable Indenture Trustee or to such Trust and
such Indenture Trustee by the holders of 25% of the aggregate outstanding
principal amount of such Notes; (v) certain events of bankruptcy, insolvency,
receivership or liquidation with respect to such Trust or (vi) such other events
as shall be specified in the related Prospectus Supplement. The amount of
principal required to be paid to Noteholders of each Series under the related
Indenture on any Payment Date generally will be limited to amounts available to
be deposited in the applicable Payment Account; therefore, the failure to pay
principal on a Class of Notes generally will not result in the occurrence of an
Event of Default until the applicable final scheduled Payment Date for such
Class of Notes.
If an Event of Default should occur and be continuing with respect to the
Notes of any Series, the related Indenture Trustee or holders of a majority in
principal amount of such Notes may declare the principal of such Notes to be
immediately due and payable. Such declaration may, under certain circumstances,
be rescinded by the holders of a majority in principal amount of such Notes then
outstanding. If the Notes of any Series are declared due and payable following
an Event of Default, the related Indenture Trustee may institute proceedings to
collect amounts due thereon, foreclose on the property of the Trust, exercise
remedies as a secured party, sell the related Base Assets or elect to have the
applicable Trust maintain possession of such Base Assets and continue to apply
collections on such Base Assets as if there had been no declaration of
acceleration. The Indenture Trustee, however, will be prohibited from selling
the Base Assets following an Event of Default, other than a default in the
payment of any principal of, or a default for five days or more in the payment
of any interest on, any Note of such Series, unless one of certain conditions
specified in the related Prospectus Supplement are met, which conditions
generally will include (i) the holders of all such outstanding Notes consent to
such sale, (ii) the proceeds of such sale are sufficient to pay in full the
principal of and the accrued and unpaid interest on such outstanding Notes at
the date of such sale or (iii) such Indenture Trustee determines that the
proceeds of the Base Assets would not be sufficient on an ongoing basis to make
all payments on such Notes as such payments would become due if such obligations
had not been declared due and payable, and such Indenture Trustee obtains the
consent of the holders of 66-2/3% of the aggregate outstanding principal amount
of such Notes.
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a Series of Notes, such Indenture Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of such Notes if it reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities that might be incurred by it in complying with such request. Subject
to the provisions for indemnification and certain
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limitations contained in the related Indenture, the holders of a majority of the
aggregate outstanding principal amount of the Notes of a Series will have the
right to direct the time, method and place of conducting any proceeding or
exercising any remedy available to the related Indenture Trustee; in addition,
the holders of Notes representing a majority of the aggregate outstanding
principal amount of such Notes may, in certain cases, waive any default with
respect thereto, except a default in the payment of principal of or interest on
any Note or a default in respect of a covenant or provision of such Indenture
that cannot be modified or amended without the waiver or consent of the holders
of all the outstanding Notes of such Series.
No holder of a Note will have the right to institute any proceeding with
respect to the related Indenture, unless certain conditions specified in such
Indenture have been satisfied, which conditions generally will include (i) such
holder previously has given to the applicable Indenture Trustee written notice
of a continuing Event of Default; (ii) the holders of not less than 25% of the
outstanding principal amount of such Notes have made written request to such
Indenture Trustee to so institute such proceeding in its own name as Indenture
Trustee; (iii) such holder or holders have offered such Indenture Trustee
reasonable indemnity; (iv) such Indenture Trustee has for 60 days failed to
institute such proceeding; and (v) no direction inconsistent with such written
request has been given to such Indenture Trustee during such 60-day period by
the holders of a majority of the outstanding principal amount of the Notes of
such Series.
With respect to any Series of Securities that includes Notes, none of the
related Indenture Trustee in its individual capacity, the related Trustee in its
individual capacity, any holder of a Certificate representing an ownership
interest in such Trust or any other holder of an interest in such Trust, or any
of their respective beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the principal of or
interest on the related Notes or for the agreements of such Trust contained in
the related Indenture.
No Trust may engage in any activity other than as described herein or in
the related Prospectus Supplement. Except as and to the extent provided in the
related Prospectus Supplement, no Trust will incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the related Notes and
the related Indenture.
Certain Covenants. Each Indenture will provide that the related Trust may
not consolidate with or merge into any other entity, unless certain conditions,
which shall be specified in such Indenture shall be satisfied, which conditions
generally will include (i) the entity formed by or surviving such consolidation
or merger is organized under the laws of the United States, any state of the
United States or the District of Columbia; (ii) such entity expressly assumes
such Trust's obligation to make due and punctual payments upon the Notes of the
related Series and to perform or observe every agreement and covenant of such
Trust under the Indenture; (iii) no Event of Default shall have occurred and be
continuing immediately after such merger or consolidation; (iv) such Trust has
been advised by each Rating Agency that such merger or consolidation will not
result in the qualification, reduction or withdrawal of its then-current rating
of any Class of the Notes or Certificates of such
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Series; and (v) such Trust has received an opinion of counsel to the effect that
such consolidation or merger would have no material adverse tax consequence to
the Trust or to any related Noteholder or Certificateholder, (vi) any action
that is necessary to maintain the lien and security interest created by this
Indenture will have been taken; and (vii) the Trust will have delivered to the
Indenture Trustee an officer's certificate and an opinion of counsel each
stating that such consolidation or merger and such supplemental indenture comply
with the covenants of the Indenture and that all conditions precedent provided
for in the Indenture relating to such transaction have been complied with.
No Trust relating to a Series of Securities that includes Notes will (i)
except as expressly permitted by the applicable Indenture, the applicable Trust
Agreement or Pooling and Servicing Agreement or certain other documents with
respect to such Trust (the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of such Trust; (ii) claim any credit on
or make any deduction from principal and interest payments in respect of the
related Notes (other than amounts withheld under the Code or applicable state
tax laws) or assert any claim against any present or former holder of such Notes
because of the payment of taxes levied or assessed upon such Trust; (iii)
dissolve or liquidate in whole or in part; (iv) permit the validity or
effectiveness of the related Indenture to be impaired or permit any person to be
released from any covenants or obligations with respect to the related Notes
under such Indenture except as may be expressly permitted thereby; (v) permit
any lien, charge, excise, claim, security interest, mortgage, or other
encumbrance to be created on or extend to or otherwise arise upon or burden the
assets of such Trust or any part thereof, or any interest therein or the
proceeds thereof; or (vi) permit the lien of the related Indenture not to
constitute a valid first priority security interest (other than with respect to
a tax, mechanics' or similar lien) in the assets of such Trust.
Each Indenture Trustee and the related Noteholders, by accepting the
related Notes, will covenant that they will not at any time institute against
the applicable Trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
Modification of Indenture. The Trust and the related Indenture Trustee may,
with the consent of the holders of a majority of the aggregate outstanding
principal amount of the Notes of the related Series, execute a supplemental
indenture to add provisions to, change in any manner or eliminate any provisions
of, the related Indenture, or modify (except as provided below) in any manner
the rights of the related Noteholders, provided that (subject to certain
exceptions which, if applicable, will be specified in the related Prospectus
Supplement) without the consent of the holder of each outstanding Note affected
thereby, no supplemental indenture will: (i) change the due date of any
installment of principal of or interest on any such Note or reduce the principal
amount thereof, the interest rate specified thereon or the redemption price with
respect thereto or change any place of payment where or the coin or currency in
which any such Note or any interest thereon is payable; (ii) impair the right to
institute suit for the enforcement of certain provisions of the related
Indenture regarding payment; (iii) reduce the percentage of the aggregate amount
of the outstanding Notes of such Series, the consent of the holders of which is
required for any such supplemental indenture or for any waiver of compliance
with certain provisions of the related Indenture or of certain defaults
thereunder and their
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consequences as provided for in such Indenture; (iv) modify or alter the
provisions of the related Indenture regarding the voting of Notes held by the
applicable Trust, any other obligor on such Notes, the Seller or an affiliate of
any of them; (v) reduce the percentage of the aggregate outstanding amount of
such Notes, the consent of the holders of which is required to direct the
related Indenture Trustee to sell or liquidate the Base Assets in the Trust if
the proceeds of such sale would be insufficient to pay the principal amount and
accrued and unpaid interest on the outstanding Notes of such Series; (vi)
decrease the percentage of the aggregate principal amount of such Notes required
to amend the sections of the related Indenture that specify the percentage of
the aggregate principal amount of the Notes of such Series necessary to amend
such Indenture or certain other related agreements; or (vii) permit the creation
of any lien ranking prior to or on a parity with the lien of the related
Indenture with respect to any of the collateral for such Notes or, except as
otherwise permitted or contemplated in such Indenture, terminate the lien of
such Indenture on any such collateral or deprive the holder of any such Note of
the security afforded by the lien of such Indenture.
The Trust and the related Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related Series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders; provided
that such action will not materially and adversely affect the interest of any
such Noteholder.
Annual Compliance Statement. Each Trust for a Series of Securities that
includes Notes will be required to file annually with the related Indenture
Trustee a written statement as to the fulfillment of its obligations under the
related Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Trust for
a Series of Securities that includes Notes will be required to mail each year to
all related Noteholders a brief report relating to its eligibility and
qualification to continue as Indenture Trustee under the related Indenture, any
amounts advanced by it under the Indenture, the amount, interest rate and
maturity date of certain indebtedness owing by such Trust to the applicable
Indenture Trustee in its individual capacity, the property and funds physically
held by such Indenture Trustee as such and any action taken by it that
materially affects the related Notes that has not been previously reported.
Satisfaction and Discharge of Indenture. Each Indenture will be discharged
with respect to the collateral securing the related Notes upon the delivery to
the related Indenture Trustee for cancellation of all such Notes or, with
certain limitations, upon deposit with such Indenture Trustee of funds
sufficient for the payment in full of all such Notes.
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The Indenture Trustee
The Indenture Trustee for a Series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for any Series may resign
at any time, in which event the related Trust will be obligated to appoint a
successor indenture trustee for such Series. The Trust may also remove the
related Indenture Trustee if such Indenture Trustee ceases to be eligible to
continue as such under the related Indenture or if such Indenture Trustee
becomes insolvent. In such circumstances, such Trust will be obligated to
appoint a successor indenture trustee for the applicable Series of Notes. No
resignation or removal of the Indenture Trustee and appointment of a successor
indenture trustee for a Series of Notes will become effective until the
acceptance of the appointment by the successor indenture trustee for such
Series.
DESCRIPTION OF THE CERTIFICATES
General
The following summaries describe the material provisions in the Agreements
which generally are anticipated to be common to the Trust Agreements and to the
Pooling and Servicing Agreement. The summaries do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, the
provisions of the Prospectus Supplement and Agreement relating to each Series of
Certificates. Where particular provisions or terms used in such Certificates or
Agreements are referred to herein, the actual provisions (including definitions
of terms) are incorporated herein by reference as part of such summaries.
The related Prospectus Supplement will provide that each Class of
Certificates will have an original principal amount, no principal amount or
notional amount and will accrue interest on such original principal amount or
notional at a specified Certificate Interest Rate or will not bear interest.
Each Class of Certificates may have a different Certificate Interest Rate, which
may be a fixed, variable or adjustable Certificate Interest Rate, or any
combination of the foregoing. The related Prospectus Supplement will specify the
Certificate Interest Rate, or the method for determining the applicable
Certificate Interest Rate, for each Class of Certificates.
A Series of Securities may include two or more Classes of Certificates that
differ as to timing and priority of distributions, seniority, allocations of
losses, Certificate Interest Rate or amount of distributions in respect of
principal or interest. Additionally, distributions in respect of principal or
interest in respect of any such Class or Classes may or may not be made upon the
occurrence of specified events or on the basis of collections from designated
portions of the related Base Assets. If specified in the related Prospectus
Supplement, one or more Classes of Certificates may be Strip Certificates. If a
Series of Securities includes Classes of Notes, distributions in respect of the
Certificates may be subordinated in priority of payment to payments on the Notes
to the extent specified in the related Prospectus Supplement.
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Certificates will be available for purchase in a minimum denomination of
$100,000 or such other minimum denominations as the Prospectus Supplement shall
provide and in integral multiples of $1,000 in excess thereof and will be
available in book-entry form or if provided in the related Prospectus
Supplement, as Definitive Certificates. If the Certificates will be available in
book-entry form only, the related Prospectus Supplement will provide that
Certificateholders will be able to receive Definitive Certificates only in the
limited circumstances described herein or in such related Prospectus Supplement.
The Certificates of each Series will be issued only in fully registered form,
without coupons, in the authorized denominations for each Class specified in the
related Prospectus Supplement. Upon satisfaction of the conditions, if any,
applicable to a Class of Certificates of a Series, as described in the related
Prospectus Supplement, the transfer of the Certificates may be registered and
the Certificates may be exchanged at the office of the Trustee specified in the
related Prospectus Supplement without the payment of any service charge other
than any tax or governmental charge payable in connection with such registration
of transfer or exchange.
Payments of principal of and interest, if any, on the Certificates of a
Series will be made on the dates specified in the related Prospectus Supplement
(the "Payment Dates") by check mailed to Certificateholders of such Series,
registered as such at the close of business on the record date applicable to
each Payment Date at their addresses appearing on the register of Certificates
for such Series or in such other manner as shall be specified in the related
Prospectus Supplement, except that (a) payments may be made by wire transfer (at
the expense of the Certificateholder requesting payment by wire transfer) in
certain circumstances described in the related Prospectus Supplement and (b)
final payments of principal in retirement of any Certificate will be made only
upon presentation and surrender of such Certificate at the office of the Trustee
specified in the related Prospectus Supplement. Notice of the final payment on a
Certificate will be mailed to the holder of such Certificate before the Payment
Date on which the final principal payment on any Certificate is expected to be
made to the holder of such Certificate.
Payments of principal of and interest, if any, on the Certificates will be
made by the Trustee, or a paying agent on behalf of the Trustee, as specified in
the related Prospectus Supplement. All payments with respect to the Base Assets
for a Series, together with reinvestment income thereon, amounts withdrawn from
any Reserve Account and amounts available pursuant to any other Series
Enhancement generally will be deposited directly into the Collection Account net
(if and as provided in the related Prospectus Supplement) of certain amounts
payable to the Servicer under the related Agreement and specified in the related
Prospectus Supplement, and will thereafter be deposited into the applicable
Payment Accounts and be available to make payments on Certificates of such
Series on the next Payment Date, as the case may be. See "THE TRUST ASSETS --
Collection and Payment Accounts".
Payments of Interest
The Certificates of each Class which by their terms are entitled to receive
interest will bear interest (calculated on the basis of a 360-day year of twelve
30-day months or such other basis as is specified in the related Prospectus
Supplement) from the date and at the rate per annum specified,
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or calculated in the method described, in the related Prospectus Supplement.
Interest on such Certificates of a Series will be payable on the Payment Dates
specified in the related Prospectus Supplement. The rate of interest on one or
more Classes of Certificates of a Series may be floating. A Class of
Certificates may by its terms be "Principal Only Certificates", which may not be
entitled to receive any interest distributions or may be entitled to receive
only nominal interest distributions. A Class of Certificate may by its terms be
"Zero Coupon Certificates", the interest on which is not paid on the related
Payment Date, but will accrue and be added to the principal thereof on such
Payment Date.
Interest payable on the Certificates on a Payment Date will include all
interest accrued during the related period specified in the related Prospectus
Supplement. In the event interest accrues during the calendar month preceding a
Payment Date, the effective yield to Certificateholders will be reduced from the
yield that would otherwise be obtainable if interest payable on the Certificates
were to accrue through the day immediately preceding such Payment Date.
Payments of Principal
On each Payment Date for Certificates of a Series, principal payments will
be made to the holders of such Certificates on which principal is then payable,
to the extent set forth in the related Prospectus Supplement. Such payments will
be made in an aggregate amount determined as specified in the related Prospectus
Supplement and will be allocated among the respective Classes of a Series in the
manner, at the times and in the priority (which may, in certain cases, include
allocation by random lot) set forth in the related Prospectus Supplement.
With respect to each Class of Certificates not issued pursuant to a Pooling
and Servicing Agreement, a "Final Scheduled Payment Date" will be specified in
the related Prospectus Supplement, which will be the date (calculated on the
basis of the assumptions applicable to such Series described therein) on which
the entire aggregate principal balance of such Class is expected to be reduced
to zero. Because payments received on the Base Assets will generally be used to
make distributions in reduction of the outstanding principal amounts of such
Certificates, it is likely that the final principal payment with respect to a
Class of Certificates will occur earlier, and may occur substantially earlier
than its Final Scheduled Payment Date.
Receivables Pooling Certificates
Investor Certificateholders' Interest; Depositor's Interest. In the case of
a Series of Receivables Pooling Certificates, a portion of the assets of the
related Trust will be allocated among the Certificateholders' Interest and the
remainder will be allocated to the Depositor's Interest and as provided in the
related Prospectus Supplement. The Depositor's Interest represents the rights to
the assets of the Trust not allocated to the Investor Certificateholders'
Interest of any Series or any interests in the Trust issued as Series
Enhancement. In the case of a Master Trust, the related Seller may cause the
issuance of additional Series of Certificates from time to time and any such
issuance will have the effect of decreasing the Depositor's Interest. The
Depositor's Interest may be evidenced
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by an exchangeable certificate that is subject to certain transfer restrictions.
The aggregate principal amount of the Investor Certificateholders' Interest
will, except as provided herein or in the related Prospectus Supplement, remain
fixed at the aggregate initial principal amount of the Certificates of such
Series and the principal amount of the Depositor's Interest will fluctuate as
the amount of the Principal Receivables held by the Trust changes from time to
time. If so provided in the related Prospectus Supplement, in certain
circumstances, interests in the assets of a Trust may be allocated to a Credit
Enhancer, and in the case of a Master Trust, interests in the assets of the
Trust may be allocated to the Investor Certificateholders of more than one
Series.
Effect of Issuance of Additional Series. In the case of a Master Trust, the
Pooling and Servicing Agreement may provide that, pursuant to any one or more
supplements to such Pooling and Servicing Agreement (each, a "Supplement"), the
Depositor may direct the Trustee to authenticate from time to time new Series
subject to the conditions described below (each such issuance, a "New
Issuance"). Each New Issuance will have the effect of decreasing the Depositor's
Interest to the extent of the Initial Invested Amount of such new Series. Under
the Pooling and Servicing Agreement, the Depositor may designate, with respect
to any newly issued Series: (a) its name or designation; (b) its initial
principal amount (or method for calculating such amount) and its invested amount
in the Trust which is generally based on the aggregate amount of Principal
Receivables in the Trust allocated to such Series, and its Series Invested
Amount; (c) its certificate rate (or formula for the determination thereof); (d)
the interest payment date or dates and the dates from which interest shall
accrue, (e) the method for allocating collections to Certificateholders of such
Series; (f) any bank accounts to be used by such Series and the terms governing
the operation of any such bank accounts; (g) the percentage used to calculate
the Monthly Servicing Fee; (h) the provider and terms of any form of Series
Enhancement with respect thereto; (i) the terms on which the Certificates of
such Series may be repurchased or remarketed to other investors; (j) the Series
Termination Date; (k) the number of Classes of Certificates of such Series, and
if such Series consists of more than one Class, the rights and priorities of
each such Class; (l) the extent to which the Certificates of such Series will be
issuable in temporary or permanent global form (and, in such case, the
depositary for such global certificate or certificates, the terms and
conditions, if any, upon which such global certificate or certificates may be
exchanged, in whole or in part, for definitive certificates, and the manner in
which any interest payable on such global certificate or certificates will be
paid); (m) whether the Certificates of such Series may be issued in bearer form
and any limitations imposed thereon; (n) the priority of such Series with
respect to any other Series; and (o) any other relevant terms (all such terms,
the "Principal Terms" of such Series). None of the Depositor, the Servicer, the
Trustee or the Trust is required or intends to obtain the consent of any
Certificateholder of any outstanding Series to issue any additional Series.
The Pooling and Servicing Agreement may provide that the Depositor may
designate Principal Terms such that each Series has a Controlled Accumulation
Period or a Controlled Amortization Period that may have a different length and
begin on a different date than such periods for any other Series. Further, one
or more Series may be in their Controlled
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Accumulation Period or Controlled Amortization Period while other Series are
not. Moreover, each Series may have the benefits of Series Enhancement issued by
enhancement providers different from the providers of Series Enhancement with
respect to any other Series. Under the Pooling and Servicing Agreement, the
Trustee shall hold any such Series Enhancement only on behalf of the
Certificateholders of the Series to which such Series Enhancement relates. With
respect to each such Series Enhancement, the Depositor also has the option under
the Pooling and Servicing Agreement to vary among Series the terms upon which a
Series may be repurchased by the Depositor or remarketed to other investors.
There is no limit to the number of New Issuances the Depositor may cause under
the Pooling and Servicing Agreement. The Trust will terminate only as provided
in the Pooling and Servicing Agreement. There can be no assurance that the terms
of any Series might not have an impact on the timing and amount of payments
received by a Certificateholder of another Series.
Under the Pooling and Servicing Agreement and pursuant to a Supplement, a
New Issuance may only occur upon the satisfaction of certain conditions provided
in the Pooling and Servicing Agreement. The obligation of the Trustee to
authenticate the Certificates of such new Series and to execute and deliver the
related Series Supplement is subject to the satisfaction of the following
conditions: (a) on or before the fifth day immediately preceding the date upon
which the New Issuance is to occur, the Depositor shall have given the Trustee,
the Servicer, each Rating Agency and any Series Enhancer entitled thereto
pursuant to the relevant Supplement written notice of such New Issuance and the
date upon which the New Issuance is to occur; (b) the Depositor shall have
delivered to the Trustee the related Series Supplement, in form satisfactory to
the Trustee, executed by each party to the Pooling and Servicing Agreement other
than the Trustee; (c) the Depositor shall have delivered to the Trustee any
related Series Enhancement agreement executed by each of the parties to such
agreement; (d) the Depositor shall have received notice from each Rating Agency
that the New Issuance shall not cause the Rating Agency to reduce or withdraw
the then current rating of the Certificates of any outstanding Series or Class;
(e) the Depositor shall have delivered to the Trustee and certain providers of
Series Enhancement a certificate of an authorized representative, dated the date
upon which the New Issuance is to occur, to the effect that the Depositor
reasonably believes that such issuance will not, based on the facts known to
such representative at the time of such certification, cause a Pay Out Event;
(f) the Depositor shall have delivered to the Trustee, each Rating Agency and
certain providers of Series Enhancement an opinion of counsel acceptable to the
Trustee that for federal income tax purposes (i) following such New Issuance the
Trust will not be deemed to be an association (or publicly traded partnership)
taxable as a corporation, (ii) such New Issuance will not adversely affect the
tax characterization as debt of Certificates of any outstanding Series or Class
that were characterized as debt at the time of their issuance, (iii) such New
Issuance will not cause or constitute an event in which gain or loss would be
recognized by any Certificateholders, and (iv) except as is otherwise provided
in a Supplement with respect to any Series, the Certificates of such Series will
be properly characterized as debt. Upon satisfaction of the above conditions,
the Trustee shall execute the Supplement and issue to the Depositor the
Certificates of such new Series for execution and redelivery to the Trustee for
authentication.
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Allocation Percentage. Pursuant to the Pooling and Servicing Agreement, all
amounts collected with respect to Finance Charge Receivables and Principal
Receivables and the Defaulted Amount with respect to any Monthly Period will be
allocated among the Investor Certificateholders' Interest of each Series, the
Depositor's Interest and in certain circumstances to the provider of Series
Enhancement, and all Adjustment Payments and Deposit Amounts deposited in the
Collection Account (collectively, "Miscellaneous Payments") with respect to any
Monthly Period will be allocate among the Certificateholders' Interest of each
Series, as follows:
(a) collections of Finance Charge Receivables and the Defaulted Amount
will at all times be allocated to the Investor Certificateholders'
Interest of a Series based on the Floating Allocation Percentage of
such Series;
(b) collections of Principal Receivables will at all times be allocated to
the Investor Certificateholders' Interest of a Series based on the
Principal Allocation Percentage of such Series; and
(c) miscellaneous Payments will at all times be allocated among the
Investor Certificateholder's Interest of each Series based on their
respective Invested Amounts.
The "Floating Allocation Percentage" and the "Principal Allocation Percentage"
with respect to any Series will be determined as set forth in the related
Supplement and, with respect to each Series offered hereby, in the related
Prospectus Supplement. Amounts not allocated to the Investor Certificateholders'
Interest of any Series as described above will be allocated to the Depositor's
Interest.
Collections. All collections in respect of Base Assets with respect to a
given Trust will be allocated by the related Servicer or Trustee as amounts
collected on Principal Receivables and on Finance Charge Receivables. The
Servicer will allocate between the Investor Certificateholders' Interest of each
Series (if more than one) of such Trust and the Depositor's Interest all amounts
collected with respect to Finance Charge Receivables and Principal Receivables
and the Defaulted Amount. The "Defaulted Amount" for any Monthly Period will be
an amount (not less than zero) equal to (a) the amount of Principal Receivables
which were charged off as uncollectible in such Monthly Period in accordance
with the Servicer's customary and usual servicing procedures ("Defaulted
Receivables") for such Monthly Period minus (b) the sum of (i) the amount of any
Defaulted Receivables of which either the Depositor or the Servicer becomes
obligated to accept reassignment or assignment during such Monthly Period
(unless an Insolvency Event shall have occurred with respect to the Depositor,
the Seller or the Servicer, in which event the amount of such Defaulted
Receivables will not be added to the sum so subtracted), (ii) the aggregate
amount of recoveries (net of collection expenses) received in such Monthly
Period with respect to both Finance Charge Receivables and Principal Receivables
previously charged off as uncollectible and (iii) the excess, if any, for the
immediately preceding Monthly Period of the sum computed pursuant to this clause
(b) for such Monthly Period over the amount of Principal Receivables which
became Defaulted Receivables in such Monthly Period. Collections of Finance
Charge Receivables and the Defaulted
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Amount will be allocated to each such Series at all times based upon its
Floating Allocation Percentage. Collections of Principal Receivables will be
allocated to each such Series at all times based upon its Principal Allocation
Percentage. The Floating Allocation Percentage and the Principal Allocation
Percentage with respect to each such Series will be determined as set forth in
the related Supplement and, with respect to each such Series offered hereby, in
the related Prospectus Supplement. Collections will be deposited in the related
Collection Account and invested in the manner described under "SERVICING OF
RECEIVABLES -- Deposits in the Collection Account".
Interest. Interest will accrue on the Invested Amount of the Receivables
Pooling Certificates of a Series or Class offered hereby at the per annum rate
either specified, or determined in the manner specified, in the related
Prospectus Supplement. If the Prospectus Supplement for a Series of Receivables
Pooling Certificates so provides, the interest rate and interest payment dates
applicable to each Class of Certificates of that Series may be subject to
adjustment from time to time. Any such interest rate adjustment would be
determined by reference to one or more indices or by a remarketing firm, in each
case as described in the Prospectus Supplement for such Series. To the extent
provided herein or in the related Prospectus Supplement, collections of Finance
Charge Receivables and certain other amounts allocable to the
Certificateholders' Interest of a Series offered hereby will be used to make
interest payments to Certificateholders of such Series on each Interest Payment
Date with respect thereto, provided that if a Rapid Amortization Period
commences with respect to such Series, thereafter interest will be distributed
to such Certificateholders monthly on each Special Payment Date. If the Interest
Payment Dates for a Series or Class occur less frequently than monthly,
collections or other amounts (or the portion thereof allocable to such Class)
will be deposited in one or more Interest Funding Accounts and used to make
interest payments to Certificateholders of such Series or Class on the following
Interest Payment Date with respect thereto. If a Series has more than one Class
of Receivables Pooling Certificates, each such Class may have a separate
Interest Funding Account.
Principal. The principal of any Receivables Pooling Certificates will be
scheduled to be paid either in full on the related Expected Final Payment Date,
in which case such Series will have an Accumulation Period as described below
under " -- Accumulation Period", or in installments commencing on the related
Principal Commencement Date, in which case such Certificates will have a
Controlled Amortization Period as described below under " -- Controlled
Amortization Period". If such a Series has more than one Class of Certificates,
a different method of paying principal, Expected Final Payment Date and/or
Principal Commencement Date may be assigned to each Class. The principal with
respect to the Certificates of such a Series or Class may be made or commence
earlier than the applicable Expected Final Payment Date or Principal
Commencement Date, as the case may be, and the final principal payment with
respect to the Certificates of such Series or Class may be made earlier or later
than the applicable Expected Final Payment Date or Principal Commencement Date,
if a Pay Out Event occurs with respect to such Series or Class or under certain
other circumstances described herein or in the related Prospectus Supplement.
Revolving Period. Receivables Pooling Certificates will have a Revolving
Period, which will commence on the date specified in the related Prospectus
Supplement as the Series Cut-Off Date and
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continue until the earliest to occur r of (a) the commencement of the Rapid
Amortization Period with respect to such Series and (b) the date specified in
the related Prospectus Supplement as the last day of the Revolving Period with
respect to such Series. During the Revolving Period with respect to such Series,
collections of Principal Receivables and certain other amounts otherwise
allocable to the Certificateholders' Interest of such Series will be distributed
to or for the benefit of the Certificateholders of other Series (if so provided
in the related Prospectus Supplement) or the Seller or the Depositor in respect
of the Depositor's Interest.
Accumulation Period. If so specified by the related Prospectus Supplement
in the case of a Series of Receivables Pooling Certificates, and unless a Rapid
Amortization Period commences with respect to such Series, one or more Classes
of Certificates of such Series will have an Accumulation Period. The
Accumulation Period will commence on the close of business on the date
specified, or determined in the manner specified, in the related Prospectus
Supplement and will continue until the earliest to occur of (a) the commencement
of a Rapid Amortization Period with respect to such Series, (b) payment in full
of the Invested Amount of the Certificates of such Series or (c) the Series
Termination Date with respect to such Series.
During the Accumulation Period with respect to a Series of Receivables
Pooling Certificates, collections of Principal Receivables and certain other
amounts allocable to the Investor Certificateholders' Interest of such Series
will be deposited on each Distribution Date in a Principal Funding Account
established for the benefit of the Investor Certificateholders of such Series
and used to make principal distributions to such Certificateholders when due.
The amount to be deposited in the Principal Funding Account on any such
Distribution Date may, but will not necessarily, be limited to the Controlled
Deposit Amount equal to the Controlled Accumulation Amount specified in the
related Prospectus Supplement plus any existing Deficit Controlled Accumulation
Amount. If a Series of Receivables Pooling Certificates has more than one Class,
each Class may have a separate Principal Funding Account and Controlled
Accumulation Amount. In addition, the related Prospectus Supplement may describe
certain priorities among such Classes with respect to deposits of principal into
such Principal Funding Accounts. In general, unless a Pay Out Event shall have
occurred prior thereto, on the Expected Final Payment Date for a particular
Series or Class, all amounts accumulated in the Principal Funding Account with
respect to such Series or Class during the Accumulation Period will be
distributed as a single repayment of principal with respect to such Series or
Class.
Controlled Amortization Period. If the related Prospectus Supplement so
specifies with respect to a Series of Receivables Pooling Certificates, unless a
Rapid Amortization Period commences with respect to such Series, one or more
Classes of Certificates of such Series will have a Controlled Amortization
Period. The Controlled Amortization Period will commence at the close of
business on the date specified or determined in the manner specified in the
related Prospectus Supplement and will continue until the earliest to occur of
(a) the commencement of the Rapid Amortization Period with respect to such
Series, (b) payment in full of the Invested Amount of the Certificates of such
Series or (c) the Series Termination Date with respect to such Series. During
the Controlled Amortization Period with respect to a Series, collections of
Principal Receivables and certain other amounts allocable to the Investor
Certificateholders' Interest of such Series will be used on each
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Distribution Date to make principal distributions to Certificateholders of such
Series or any Class of such Series then scheduled to receive such distributions.
The amount to be distributed to Certificateholders of any Series on any
Distribution Date may, but will not necessarily, be limited to a Controlled
Distribution Amount which will be equal to the Controlled Amortization Amount
specified in the related Prospectus Supplement plus any existing Deficit
Controlled Amortization Amount. If a Series of Receivables Pooling Certificates
has more than one Class, each Class may have a separate Controlled Amortization
Amount. In addition, the related Prospectus Supplement may describe certain
priorities among such Classes with respect to such distributions.
Rapid Amortization Period. During the Rapid Amortization Period,
collections of Principal Receivables and certain other amounts allocable to the
Investor Certificateholders' Interest of such Series will be distributed as
principal payments to the Investor Certificateholders of such Series monthly on
each Distribution Date beginning with the first Special Payment Date with
respect to such Series. During the Rapid Amortization Period with respect to a
Series, distributions of principal to Investor Certificateholders will not be
subject to any Controlled Deposit Amount or Controlled Distribution Amount. In
addition, upon the commencement of the Rapid Amortization Period with respect to
a Series, any funds on deposit in a Principal Funding Account with respect to
such Series will be paid to the Certificateholders of the relevant Class or
Series on the first Special Payment Date with respect to such Series. See
"DESCRIPTION OF THE CERTIFICATES -- Pay Out Events" below for a discussion of
the events which might lead to the commencement of the Rapid Amortization Period
with respect to a Series.
Pay Out Events. As described above, the Revolving Period with respect to a
Series of Receivables Pooling Certificates will commence on the Series Cut-Off
Date and continue until the commencement of the Accumulation Period or the
Controlled Amortization Period, unless a Pay Out Event occurs with respect to
such Series prior to any of such dates. A "Pay Out Event" with respect to such
Series refers to any of certain events specified as such in the related
Prospectus Supplement, which events may include:
(a) the occurrence of an "Insolvency Event" (which shall mean the
appointment of the FDIC as receiver of the Depositor or the Seller or
another person specified in related Prospectus Supplement) or certain
other events relating to the bankruptcy, insolvency or receivership of
the Depositor or the Seller (or such other person specified in the
related Prospectus Supplement).
(b) the Trust becomes an investment company within the meaning of the
Investment Company Act.
In the case of any event described above, a Pay Out Event with respect
to the affected Series will be deemed to have occurred without any notice or
other action on the part of the Trustee or the Investor Certificateholders of
such Series immediately upon of the occurrence of such event. The Rapid
Amortization Period with respect to a Series will commence at the close of
business on the day immediately preceding the day on which a Pay Out Event
occurs with respect thereto. Distributions
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of principal to the Investor Certificateholders of such Series will begin on the
Distribution Date next following the month during which such Pay Out Event
occurs (such Distribution Date and each following Distribution Date with respect
to such Series, a "Special Payment Date"). Any amounts on deposit in a Principal
Funding Account or an Interest Funding Account with respect to such Series at
such time will be distributed on the first such Special Payment Date to the
Investor Certificateholders of such Series. If a Series has more than one Class
of Certificates, each Class may have different Pay Out Events which, in the case
of any Series of Certificates offered hereby, will be described in the related
Prospectus Supplement.
In addition to the consequences of a Pay Out Event discussed above, if any
Insolvency Event occurs with respect to the Depositor or the Seller, pursuant to
the Pooling and Servicing Agreement and the Receivables Purchase Agreement, on
the day of such Insolvency Event, the Depositor or the Seller will immediately
cease to transfer Principal Receivables directly or indirectly to the Trust and
promptly give notice to the Trustee of such Insolvency Event. Under the terms of
the Pooling and Servicing Agreement and the Receivables Purchase Agreement
applicable to such Series, within 15 days the Trustee will publish a notice of
the occurrence of the Insolvency Event stating that the Trustee intends to sell,
dispose of or otherwise liquidate the Receivables in a commercially reasonable
manner and on commercially reasonable terms unless within 90 days from the date
such notice is published the holders of Certificates of each Series or, if a
Series includes more than one Class, each Class of such Series evidencing more
than 50% of the aggregate unpaid principal amount of each such Series or Class
and certain other interested parties specified in the related Prospectus
Supplement instruct the Trustee not to dispose of or liquidate the Receivables
and to continue transferring Principal Receivables as before such Insolvency
Event. The proceeds from any such sale, disposition or liquidation of the
Receivables will be deposited in the Collection Account and allocated as
described in the applicable Pooling and Servicing Agreement and the related
Prospectus Supplement. If the sum of (a) the portion of such proceeds allocated
to the Investor Certificateholders' Interest of any Series and (b) the proceeds
of any collections of the Receivables in the Collection Account allocated to the
Investor Certificateholders' Interest of such Series, together with any related
rights under any applicable Series Enhancement, is not sufficient to pay the
Invested Amount of the Certificates of such Series in full, such Investor
Certificateholders will incur a loss.
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Paired Series. If so provided in the related Prospectus Supplement, a Prior
Series may be paired with a Paired Series issued by the Trust. As the Invested
Amount of the Prior Series is reduced, the Invested Amount in the Trust of the
Paired Series will increase by an equal amount. Upon payment in full of the
Prior Series, the Invested Amount of such Paired Series will be equal to the
Invested Amount paid to Certificateholders of such Prior Series. If a Pay Out
Event occurs with respect to the Prior Series or with respect to the Paired
Series when the Prior Series is in a Controlled Amortization Period or
Controlled Accumulation Period, the Series Allocation Percentage and the
Principal Allocation Percentage for the Prior Series and the Series Allocation
Percentage and the Principal Allocation Percentage for the Paired Series will be
reset as provided in the related Prospectus Supplement and the Early
Amortization Period or Early Accumulation Period for such Series could be
lengthened.
Optional Termination; Final Payment of Principal. If specified in the
Prospectus Supplement, subject to any conditions described therein, on any day
occurring on or after the day that the principal amount of the Certificates of a
Series and the Enhancement Invested Amount, if any, with respect to such Series
is reduced to a percentage of the initial outstanding aggregate principal amount
of the Certificates of such Series set forth in such Prospectus Supplement, the
Depositor will have the option to repurchase the Investor Certificateholders'
Interest of such Series. The purchase price will be equal to the sum of the
principal amount such Series (less the amount, if any, on deposit in any
Principal Funding Account with respect to such Series), plus the Enhancement
Invested Amount, if any, with respect to such Series, plus accrued and unpaid
interest on the unpaid principal amount of the Certificates (including the
Collateral Indebtedness Interest, if any) and (if applicable) on the Enhancement
Invested Amount (and accrued and unpaid interest with respect to interest
amounts that were due but not paid on a prior Payment Date) through (a) if the
day on which such repurchase occurs is a Distribution Date, the day preceding
such Distribution Date or (b) if the day on which such repurchase occurs is not
a Distribution Date, the day preceding the Distribution Date following such day,
at the applicable Certificate Interest Rate. Following any such repurchase and
the deposit of the aggregate purchase price into the Collection Account, the
Investor Certificateholders of such Series will have no further rights with
respect to the Receivables. In the event that the Depositor shall fail for any
reason to deposit the aggregate purchase price for the Investor
Certificateholders' Interest of a Series, payments would continue to be made to
the Investor Certificateholders of such Series as described herein and in the
related Prospectus Supplement.
In any event, the last payment of principal and interest on the Securities
of a Series will be due and payable not later than the date (the "Series
Termination Date") specified in the related Prospectus Supplement. In the event
that the principal amount of the Securities of any such Series or the
Enhancement Invested Amount is greater than zero on the Series Termination Date,
the Trustee will sell or cause to be sold interests in the Receivables of the
related Trust, as specified in the Pooling and Servicing Agreement, in an amount
equal to the sum of the principal amount of the outstanding Securities and the
Enhancement Invested Amount, if any, with respect to such Series at the close of
business on the Series Termination Date. The net proceeds of such sale will be
deposited in the Collection Account and allocated to the Certificateholders of
such Series or the holder of the
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Enhancement Invested Amount after such Certificateholders are paid in full, as
provided in the Pooling and Servicing Agreement with respect to such Series.
The Depositor may, at its option, purchase a Class of Certificates of any
Series, on any Distribution Date under the circumstances, if any, specified in
the Prospectus Supplement relating to such Series. Alternatively, if so
specified in the related Prospectus Supplement for a Series of Certificates, the
Depositor, the Servicer, or another entity designated in such Prospectus
Supplement may, at its option, cause an early termination of a Trust by
repurchasing all of the Receivables from such Trust on or after a date specified
in the related Prospectus Supplement, or on or after such time as the aggregate
outstanding principal amount of the Certificates or Receivables, as specified in
the related Prospectus Supplement, is less than the amount or percentage
specified in the related Prospectus Supplement. Notice of such purchase or
termination must be given by the Depositor, the Servicer or the Trustee prior to
the related date. The purchase or repurchase price will be set forth in the
related Prospectus Supplement.
In addition, the related Prospectus Supplement may provide other
circumstances under which holders of Certificates of a Series could be fully
paid significantly earlier than would otherwise be the case as a result of the
occurrence of a Rapid Amortization Event.
CERTAIN INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
If so specified in the related Prospectus Supplement, holders of Securities
may hold their Securities through DTC (in the United States) or CEDEL or
Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations which are participants in such systems.
Cede, as nominee for DTC, will hold one or more global Securities. Unless
and until Definitive Securities are issued under the limited circumstances
described in the related Prospectus Supplement, all references herein or in such
Prospectus Supplement to actions by holders of Securities shall refer to actions
taken by DTC upon instructions from its participating organizations (the
"Participants") and all references herein to distributions, notices, reports and
statements to holders of Securities shall refer to distributions, notices,
reports and statements to DTC or Cede, as the registered holder of the
Securities, as the case may be, for distribution to the beneficial owners of
such Securities in accordance with DTC procedures.
CEDEL and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in CEDEL's and Euroclear's
names on the books of their respective Depositaries which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC. Citibank, N.A. will act as depositary for CEDEL and
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Morgan Guaranty Trust Company of New York will act as depositary for Euroclear
(in such capacities, the "Depositaries").
Transfers between DTC Participants will occur in the ordinary way in
accordance with DTC rules. Transfers among CEDEL Participants or Euroclear
Participants will occur in the ordinary way in accordance with the applicable
rules and operating procedures of CEDEL and Euroclear.
Cross-market transfers between persons holding directly or indirectly
through DTC on the one hand, and directly or indirectly through CEDEL or
Euroclear, on the other, will be effected in DTC in accordance with DTC rules on
behalf of the relevant European international clearing system by its Depositary;
however, such cross-market transactions will require delivery of instructions to
the relevant European international clearing system by the counterparty in such
system in accordance with its rules and procedures and within its established
deadlines (European time). The relevant European international clearing system
will, if the transaction meets its settlement requirements, deliver instructions
to its Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same-day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time-zone differences, credits of securities received in CEDEL
or Euroclear as a result of a transaction with a DTC Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear Participant or CEDEL Participant on such business day. Cash received
in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC. For additional information regarding clearance and settlement procedures
for the Securities, see Annex I hereto and for information with respect to tax
documentation procedures relating to the Securities, see Annex I hereto and
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES -- Foreign Investors" .
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities for its Participants and facilitate the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and may include certain other organizations (including the Underwriters).
Indirect access to the DTC System also is available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (the "Indirect
Participants").
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Holders of Securities that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Securities may do so only through Participants and Indirect
Participants. In addition, holders of Securities will receive all distributions
of principal of and interest on the Securities from the Trustee (or the
Indenture Trustee), as paying agent, or its successor in such capacity (the
"Paying Agent"), through the Participants who in turn will receive them from
DTC. Under a book-entry format, holders of Securities may experience some delay
in their receipt of payments, since such payments will be forwarded by the
Paying Agent to Cede, as nominee for DTC. DTC will forward such payments to its
Participants which thereafter will forward them to Indirect Participants or
holders of Securities. It is anticipated that the only "Certificateholder",
"Noteholder" and/or "Securityholder" for a Series will be Cede, as nominee of
DTC. Holders of Securities would not then be recognized by the Trustee as
"Certificateholders", "Noteholders" or "Securityholders", as such terms are used
in the Agreement, and holders of Securities would only be permitted to exercise
the rights of a "Certificateholder", "Noteholder" or "Securityholder" indirectly
through the Participant who in turn will exercise such rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Securities and is required to
receive and transmit distributions of principal of and interest on the
Securities. Participants and Indirect Participants with which holders of
Securities have accounts with respect to the Securities similarly are required
to make book-entry transfers and receive and transmit such payments on behalf of
their respective holders of Securities. Accordingly, although holders of
Securities will not possess Securities, holders of Securities 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, the ability of a holder of Securities to pledge
Securities to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such Securities, may be limited due to the
lack of a physical certificate or instrument for such Securities.
DTC will take any action permitted to be taken by a "Certificateholder",
"Noteholder" or "Securityholder" under the applicable Agreement or Indenture
only at the direction of one or more Participants to whose account with DTC the
relevant Securities are credited. Additionally, DTC will take such actions with
respect to specified percentages of the Certificateholders', Noteholders' or
Securityholders' interests only at the direction of and on behalf of
Participants whose holdings include undivided interests that satisfy such
specified percentages. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
Centrale de Livraison de Valeurs Mobilieres S.A. ("CEDEL") is incorporated
under the laws of Luxembourg as a professional depositary. CEDEL holds
securities for its participating organizations ("CEDEL Participants") and
facilitates the clearance and settlement of securities transactions between
CEDEL Participants through electronic book-entry changes in accounts of CEDEL
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in
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CEDEL, in any of 28 currencies including United States dollars. CEDEL provides
to the CEDEL Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depositary, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the Underwriters. Indirect access to CEDEL
is also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
Participant, either directly or indirectly.
The Euroclear System ("Euroclear") was created in 1968 to hold securities
for its participants ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating both the need for
physical movement of certificates and the risk resulting from transfers of
securities and cash that are not simultaneous.
The Euroclear System has subsequently been extended to clear and settle
transactions between Euroclear Participants counterparties both in CEDEL and in
many domestic securities markets. Transactions may be settled in any of 32
settlement currencies, including United States dollars. In addition to
safekeeping (custody) and securities clearance and settlement, the Euroclear
System includes securities lending and borrowing and money transfer services.
The Euroclear System is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance System S.C., a Belgian cooperative corporation that
establishes policy on behalf of Euroclear Participants. The Euroclear Operator
is the Belgian branch of a New York banking corporation which is a member bank
of the Federal Reserve System. As such, it is regulated and examined by the
Board of Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission.
All operations are conducted by the Euroclear Operator and all Euroclear
securities clearance accounts and cash accounts are accounts with the Euroclear
Operator. They are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System, and
applicable Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern all transfers of securities and cash, both within the
Euroclear System and receipts and withdrawals of securities and cash. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries and may
include the Underwriters. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial relationship
with a Euroclear Participant, either directly or indirectly. The Euroclear
Operator acts
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under the Terms and Conditions only on behalf of Euroclear Participants, and has
no record of or relationship with persons holding through Euroclear
Participants.
Distributions with respect to Securities held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES". CEDEL or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by a
Certificateholder, Noteholder or Securityholder under the applicable Agreement
or Indenture on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Securities among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
Definitive Securities
If the Securities of any Series will be available in book entry form, such
Securities will be issued as Definitive Securities, rather than to DTC or its
nominee, only under circumstances specified in the related Prospectus
Supplement, which circumstances may include that, (i) the Depositor advises the
Trustee (and any Indenture Trustee) in writing that DTC is no longer willing or
able to discharge properly its responsibilities as depository with respect to
the Securities, and the Trustee (or the Indenture Trustee) or the Depositor are
unable to locate a qualified successor, (ii) the Depositor, at its option,
elects to terminate the book-entry system through DTC or (iii) after the
occurrence of a Servicer Default, holders of Securities of the related Series
evidencing not less than 50% of the aggregate unpaid principal amount of such
Securities advise the Trustee and DTC through Participants in writing that the
continuation of a book-entry system through DTC (or a successor thereto) is no
longer in the best interests of the holders of such Securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Securities. Upon surrender by DTC of the
physical certificates or notes held by Cede that represent the Securities, and
instructions for registration, the Trustee (or the Indenture Trustee) will issue
such Securities in the form of Definitive Securities, and thereafter the Trustee
(or the Indenture Trustee) will recognize the holders of such Definitive
Securities as holders of Securities, under the applicable Agreement or Indenture
and the related Prospectus Supplement ("Holders").
If Definitive Securities are issued, distribution of principal and interest
on the Definitive Securities will be made by the Paying Agent or the Trustee (or
the Indenture Trustee) directly to the Holders in whose names the Definitive
Securities were registered on the related Record Date in
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accordance with the procedures set forth herein and in the related Agreement,
Indenture and Prospectus Supplement. Distributions will be made by check mailed
to the address of each Holder as it appears on the register maintained by the
Trustee (or the Indenture Trustee), except that the final payment on any
Definitive Security will be made only upon presentation and surrender of such
Definitive Security on the date for such final payment at such office or agency
as is specified in the notice of final distribution to Holders. The Trustee (or
the Indenture Trustee) will provide such notice to Holders not later than the
date specified in the related Prospectus Supplement.
Definitive Securities will be transferable and exchangeable at the offices
of the Transfer agent specified pursuant to the applicable Agreement or
Indenture (the "Transfer Agent") and the Registrar. No service charge will be
imposed for any registration of transfer or exchange, but the Transfer Agent and
Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
DESCRIPTION OF THE TRUST AGREEMENTS OR POOLING AND SERVICING
AGREEMENTS
The following summaries describe the material provisions of the Trust
Agreements and Pooling and Servicing Agreements which are anticipated to be
common to any Series of Securities. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
provisions of the related Agreement. Where particular provisions or terms used
in an Agreement are referred to herein, the actual provisions (including
definitions of terms) are incorporated herein by reference as part of such
summaries.
Assignment of Base Assets to the Trust
Assignment of Receivables; Pre-Funding Account. For any Series of
Receivables Pooling Certificates, pursuant to the related Pooling and Servicing
Agreement and Receivables Purchase Agreement, the Seller will sell and assign to
the related Trust on the Closing Date specified in the related Prospectus
Supplement (the "Closing Date"), either directly or by assignment to the
Depositor and reassignment by the Depositor to the Trust, without recourse to
the Seller (or the Depositor), all Receivables in the Initial Accounts
outstanding as of the Series Cut-Off Date, and will similarly sell and assign to
the Trust all Receivables in the Additional Accounts as of the applicable
additional cut-off dates and all Receivables thereafter created under the
Initial Accounts or the Additional Accounts (other than the Removed Accounts)
any Participations added to the Trust and the proceeds of all of the foregoing.
To the extent specified in the related Prospectus Supplement, a portion of the
proceeds from the sale of the Securities of a Series may be applied by the
Depositor to the deposit of a Pre-Funded Amount into a Pre-Funding Account. If a
Pre-Funding Account is provided for, the related Prospectus Supplement will
specify the terms, conditions and manner under which additional Receivables will
be purchased by the Trust from time to time during the Funding Period provided
for therein.
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In connection with any transfer of any such Receivables, the Seller will
annotate and indicate in its computer files that such Receivables have been
conveyed to the Trust. In addition, the Seller will provide to the Trustee a
computer file or a microfiche list containing a true and complete list showing
each Account, the Receivables of which have been designated for inclusion in the
Trust, identified by account number, collection status, the amount of
Receivables outstanding and the amount of Principal Receivables as of the
initial Series Cut-Off Date, or additional Cut-Off Date. The Seller will not
deliver to the Trustee any other records or agreements relating to such Accounts
or the Receivables. The records and agreements relating to such Accounts and the
Receivables maintained by the Seller or the Servicer will not be segregated by
the Seller or the Servicer from other documents and agreements relating to other
accounts and receivables and will not be stamped or marked to reflect the
transfer of the Receivables to the Trust. Each Seller will file the UCC
financing statements meeting the requirements of applicable state law with
respect to the Receivables. See "RISK FACTORS -- Certain Legal Aspects --
Transfer of Receivables" and "RISK FACTORS--Risk of Commingling" and "CERTAIN
LEGAL ASPECTS OF THE RECEIVABLES".
Assignment of CRB Securities; Pre-Funding Account. All or a portion of the
net proceeds received from the sale of the Securities of a Series, the Base
Assets of which consist entirely or in part of CRB Securities, will be applied
to the purchase of the related CRB Securities from the Depositor or other Seller
on the Closing Date and, to the deposit of a Pre-Funded Amount into a
Pre-Funding Account, if and to the extent specified in the related Prospectus
Supplement. If a Pre-Funding Account is provided for, the related Prospectus
Supplement will specify the terms, conditions and manner under which additional
CRB Securities will be purchased by the Trust from time to time during the
Funding Period provided for therein. The Trustee will cause any CRB Securities
purchased by the Trust to be registered in the name of the Trustee (or its
nominee or correspondent) or, where applicable, the Indenture Trustee, and the
Trustee (or its agent or correspondent) or such Indenture Trustee will have
possession of any certificated CRB Securities. The Trustee will not be in
possession of or be assignee of record of any underlying assets for a CRB
Security. See "THE TRUST ASSETS -- CRB Securities".
Each CRB Security to be transferred to the Trust will be identified in a
schedule appearing as an exhibit to the related Trust Agreement (the "CRB
Schedule"), which will specify the original principal amount, outstanding
principal balance as of the Cut-off Date (or subsequent cut-off date), annual
Certificate Interest Rate or interest rate and maturity date for each such CRB
Security. In the Trust Agreement, to the extent that any CRB Securities are
purchased from the Depositor, the Depositor will represent and warrant to the
Trustee regarding the CRB Securities: (i) that the information contained in the
CRB Schedule is true and correct in all material respects; (ii) that,
immediately prior to the conveyance of the CRB Securities, the Depositor had
good title thereto, and was the sole owner thereof; (iii) that there has been no
other sale by it of such CRB Securities; and (iv) that there is no existing
lien, charge, security interest or other encumbrance on such CRB Securities.
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Repurchase and Substitution of Non-Conforming Base Assets
In general, the Depositor and/or the Seller or another entity will make
certain representations and warranties to the Trust regarding the Base Assets to
be purchased by the Trust. To the extent described in the related Prospectus
Supplement, the Agreement will provide that if the Depositor, the Seller or such
other entity cannot cure a breach of any such representations and warranties in
all material respects within the time period specified in such Prospectus
Supplement after notification by the Trustee of such breach, and if such breach
is of a nature that materially and adversely affects the value of such Base
Asset, then the Depositor, the Seller or such other entity will be required to
repurchase the affected Base Assets on the terms and conditions and in the
manner described in such Prospectus Supplement. If provided in the related
Prospectus Supplement, the Depositor, the Seller or such other entity may,
rather than repurchase a Base Asset as described above, remove such Base Asset
from the Trust (the "Removed Base Asset") and substitute in its place one or
more other Base Assets meeting the qualifications described in such Prospectus
Supplement (each, a "Qualifying Substitute Base Asset"). The above-described
cure, repurchase or substitution obligations (subject to certain exceptions
which, if applicable, will be specified in the related Prospectus Supplement)
shall constitute the sole remedies available to holders of Securities or the
Trustee (or Indenture Trustee) for a breach of a representation or warranty in
respect of a Base Asset. Where Base Assets are purchased by a Depositor from a
Seller and reconveyed to the Trustee, the Depositor's only source of funds to
effect any cure, repurchase or substitution generally will be through the
enforcement of the corresponding obligations of such Seller to the Depositor.
Trust Accounts
With respect to any Series of Securities that includes Notes, the Owner
Trustee will establish and maintain with the related Indenture Trustee (a) one
or more accounts, in the name of the Indenture Trustee on behalf of the related
Securityholders, into which all payments made on or in respect of the related
Base Assets will be deposited (the "Collection Account") and (b) one or more
accounts, in the name of the Indenture Trustee on behalf of the Noteholders,
into which amounts released from the Collection Account and any Reserve Account
or other form of Series Enhancement for payment to such Noteholders will be
deposited and from which all payments to such Noteholders will be made (the
"Note Payment Account"). With respect to each Trust, the Trustee will establish
and maintain one or more accounts with the related Trustee, in the name of such
Trustee on behalf of the Certificateholders, into which amounts released from
the Collection Account and any Reserve Account or other form of Series
Enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Payment Account"). With respect to any Series that does not include
Notes, the Trustee will also establish and maintain the Collection Account and
any other account in the name of the related Trustee on behalf of the related
Certificateholders.
For each Series of Securities, funds in the Collection Account, Note
Payment Account and Certificate Payment Account and any Reserve Account or other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") will be invested as provided in the related Agreement or
Indenture in Eligible Investments. "Eligible Investments" will generally be
limited to investments acceptable to the Rating Agencies as being consistent
with the rating of the
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related Securities. Except as described hereafter or in the related Prospectus
Supplement, Eligible Investments will be limited to obligations or securities
that mature on or before the date of the next scheduled distribution to
Securityholders of such Series. However, to the extent permitted by the Rating
Agencies, funds in any Reserve Account may be invested in securities that will
not mature prior to the date of such next scheduled distribution with respect to
such Notes or Certificates and will not be sold prior to maturity to meet any
shortfalls. Thus, the amount of available funds on deposit in a Reserve Account
at any time may be less than the balance of such Reserve Account. If the amount
required to be withdrawn from a Reserve Account to cover shortfalls in
collections with respect to the related Base Assets (as provided in the related
Prospectus Supplement) exceeds the amount of available funds on deposit in such
Reserve Account, a temporary shortfall in the amounts distributed to the related
Noteholders or Certificateholders could result, which could, in turn, increase
the average life of the related Notes or Certificates. The related Prospectus
Supplement may provide that investment earnings on funds deposited in the Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), will be treated as collections of interest on the related Base
Assets.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories that signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or Trustee, as applicable, or (b) a
depository institution organized under the laws of the United States of America
or any one of the states thereof or the District of Columbia (or any domestic
branch of a foreign bank) (i) that has either (A) a long-term unsecured debt
rating acceptable to the Rating Agencies or (B) a short-term unsecured debt
rating or certificate of deposit rating acceptable to the Rating Agencies and
(ii) whose deposits are insured by the FDIC.
Reports to Certificateholders
The Trustee will prepare and forward to each Certificateholder on each
Distribution Date, or as soon thereafter as is practicable, a statement setting
forth, to the extent applicable to any Series, the information specified in the
related Prospectus Supplement for such Series. In addition, within a reasonable
period of time after the end of each calendar year, the Trustee will be required
to furnish to each holder of record at any time during such calendar year a
statement setting forth the information specified in such Prospectus Supplement,
which will include information intended to enable holders of Certificates to
prepare their tax returns. Information in the Distribution Date reports and the
annual reports provided to the holders will not have been examined and reported
upon by an independent public accountant. However, any Servicer will provide to
the Trustee an annual report by independent public accountants with respect to
the Servicer's servicing of the Receivables. See "SERVICING OF RECEIVABLES --
Evidence as to Compliance".
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Servicer Defaults
With respect to a Series of Receivables Pooling Certificates, "Servicer
Defaults" under the Pooling and Servicing Agreement for such Series generally
include (i) any failure by the Servicer to deposit amounts in the Collection
Account and any Payment Account to enable the Trustee to distribute to
Certificateholders of such Series any required payment, which failure continues
unremedied for five days after the giving of written notice of such failure to
the Servicer by the Trustee for such Series, or to the Servicer and the Trustee
by the holders of the required percentage of any Class of Securities of such
Series specified in the related Prospectus Supplement, (ii) any failure by the
Servicer duly to observe or perform in any material respect any other of its
covenants or agreements in the Pooling and Servicing Agreement which continues
unremedied for 30 days after the giving of written notice of such failure to the
Servicer by the Trustee, or to the Servicer and the Trustee by the holders of
the required percentage of any Class of Securities of such Series, (iii) certain
events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings and certain actions by the Servicer
indicating its insolvency, reorganization or inability to pay its obligations
and (iv) certain other events that shall be specified in the related Prospectus
Supplement.
Rights Upon Servicer Defaults
With respect to a Series of Receivables Pooling Certificates, so long as a
Servicer Default remains unremedied under the Pooling and Servicing Agreement
for a Series (and subject to any right of any Indenture Trustee), the Trustee
for such Series or holders of the required percentage of any Class of Securities
specified in the related Prospectus Supplement may terminate all of the rights
and obligations of the Servicer as servicer under the Pooling and Servicing
Agreement in and to the Receivables, whereupon the Trustee will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Pooling
and Servicing Agreement and will be entitled to reasonable servicing
compensation not to exceed the applicable Servicing Fee, together with other
servicing compensation in the form of assumption fees, late payment charges or
as otherwise provided in the Pooling and Servicing Agreement.
In the event that the Trustee is unwilling or unable so to act, it may
select, or petition a court of competent jurisdiction to appoint, a financial
institution, bank or loan servicing institution with a net worth of at least
$15,000,000 to act as successor Servicer under the provisions of such Pooling
and Servicing Agreement relating to the servicing of the Receivables. The
successor Servicer would be entitled to reasonable servicing compensation in an
amount not to exceed the Servicing Fee as set forth in the related Prospectus
Supplement, together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise, as provided in the Pooling
and Servicing Agreement.
During the continuance of any Servicer Default under the Pooling and
Servicing Agreement for a Series, the Trustee for such Series will have the
right to take action to enforce its rights and remedies and to protect and
enforce the rights and remedies of the Certificateholders of such Series,
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and holders of the required percentages of the Certificates specified in the
related Prospectus Supplement may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred upon the Trustee. The Trustee, however, will not be
under any obligation to pursue any such remedy or to exercise any of such trusts
or powers unless such Certificateholders have offered the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred by the Trustee therein or thereby. Also, the Trustee may decline to
follow any such direction if the Trustee determines that the action or
proceeding so directed may not lawfully be taken or would involve it in personal
liability or be unjustly prejudicial to the nonassenting Certificateholders.
No Certificateholder of a Series, solely by virtue of such holder's status
as a Certificateholder, will have any right under the Pooling and Servicing
Agreement for such Series to institute any proceeding with respect to the
Pooling and Servicing Agreement, unless such holder previously has given to the
Trustee for such Series written notice of default and unless the holders of the
required percentages of the outstanding Securities specified in the related
Prospectus Supplement have made written request upon the Trustee to institute
such proceeding in its own name as Trustee thereunder and have offered to the
Trustee reasonable indemnity, and the Trustee for 60 days has neglected or
refused to institute any such proceeding.
The Trustee
The identity of the commercial bank, savings and loan association or trust
company named as the Trustee for each Series of Certificates will be set forth
in the related Prospectus Supplement. The entity serving as Trustee may have
normal banking relationships with the Depositor, the Seller or the Servicer. In
addition, for the purpose of meeting the legal requirements of certain local
jurisdictions, the Trustee will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust relating to a Series of
Securities. In the event of such appointment, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement relating to
such Series will be conferred or imposed upon the Trustee and each such separate
trustee or co-trustee jointly, or in any jurisdiction in which the Trustee shall
be incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Trustee. The Trustee may also
appoint agents to perform any of the responsibilities of the Trustee, which
agents shall have any or all of the rights, powers, duties and obligations of
the Trustee conferred on them by such appointment; provided that the Trustee
shall continue to be responsible for its duties and obligations under the
Agreement.
Duties of the Trustee
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Securities or of any Base Asset, Series Enhancement or
related documents. If no Servicer Default (as defined in the related Pooling and
Servicing Agreement, if applicable) has occurred, the Trustee is required to
perform only those duties specifically required of it under the Agreement. Upon
receipt of the various certificates, statements, reports or other instruments
required to be furnished to it, the
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Trustee is required to examine them to determine whether they are in the form
required by the related Agreement; however, the Trustee will not be responsible
for the accuracy or content of any such documents furnished by it or the
Securityholders to the Servicer under the Agreement.
The Trustee may be held liable for its own negligent action or failure to
act, or for its own misconduct; provided, however, that the Trustee will not be
personally liable with respect to any action taken, suffered or omitted to be
taken by it in good faith in accordance with the direction of the
Securityholders upon a Servicer Default. See "-- Rights Upon Servicer Defaults"
above. The Trustee is not required to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its duties under an
Agreement, or in the exercise of any of its rights or powers, if it has
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Replacement of the Trustee
The Trustee may, upon written notice to the Depositor, resign at any time,
in which event the Depositor will be obligated to use its best efforts to
appoint a successor Trustee. If no successor Trustee has been appointed and has
accepted the appointment within 30 days after giving such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for
appointment of a successor Trustee. The Trustee may also be removed at any time
(i) by the Depositor, if the Trustee ceases to be eligible to continue as such
under the related Agreement, (ii) if the Trustee becomes insolvent or (iii) by
the holders of the required percentages of the outstanding Securities specified
in the related Prospectus Supplement upon 30 days' advance written notice to the
Trustee and to the Depositor. 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.
Amendment of the Agreement
The Agreement for each Series of Securities may be amended by the Depositor
and the related Trustee, and where applicable the Seller and the Servicer,
without notice to or consent of the Securityholders (i) to cure any ambiguity,
(ii) to correct any defective provisions or to correct or supplement any
provision therein which may be inconsistent with any other provision therein,
(iii) to add to the duties of the Depositor, Seller or Servicer, (iv) to add any
other provisions with respect to matters or questions arising under such
Agreement or related Series Enhancement, (v) to add or amend any provisions of
such Agreement as required by a Rating Agency in order to maintain or improve
the rating of any Class of the Securities, (vi) to comply with any requirements
imposed by the Code or (vii) to make such other amendments as are specified in
the related Prospectus Supplement; provided that any such amendment pursuant to
clause (iv) or (vii) above will not adversely affect in any material respect the
interests of any Securityholders of such Series, as evidenced by an opinion of
counsel. Any such amendment except pursuant to clause (vi) of the preceding
sentence shall be deemed not to adversely affect in any material respect the
interests of any Securityholder if the Trustee receives written confirmation
from each Rating Agency rating such Securities that such amendment will not
cause such Rating Agency to reduce the then current rating
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thereof. The Agreement for each Series may also be amended by the Depositor and
the Trustee, and where applicable the Seller and the Servicer, with the consent
of the holders of the required percentages of the outstanding Securities of each
Series affected thereby specified in the related Prospectus Supplement, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Agreement or modifying in any manner the rights of
Securityholders of such Series; provided, however, that no such amendment may
(a) reduce the amount or delay the timing of payments on any Security without
the consent of the holder of such Security; or (b) reduce the aforesaid
percentage of aggregate outstanding principal amount of Securities of each
Class, the holders of which are required to consent to any such amendment.
List of Certificateholders
Upon written request of three or more Certificateholders of record of a
Series for purposes of communicating with other Certificateholders with respect
to their rights under the Agreement or under the Certificates for such Series,
which request is accompanied by a copy of the communication which such
Certificateholders propose to transmit, the Trustee will afford such
Certificateholders access during business hours to the most recent list of
Certificateholders of that Series held by the Trustee.
No Agreement will provide for the holding of any annual or other meeting of
Certificateholders.
Termination
The obligations created by the Agreement for a Series will terminate upon
the distribution to Certificateholders of all amounts distributable to them
pursuant to such Agreement after the earliest to occur of (i) the final payment
or other liquidation of the last Base Asset remaining in the Trust for such
Series or (ii) the repurchase, as described below, by the Servicer from the
Trustee for such Series of all Base Assets and other property at that time
subject to the Agreement. The Agreement for each Series will permit, but will
not require, the Servicer, the Seller and/or the Depositor to repurchase from
the Trust for such Series all remaining Base Assets at a price equal to 100% of
the aggregate principal amount of such Base Assets plus, with respect to any
property acquired in respect of a Base Asset, if any, the outstanding principal
amount of the related Base Asset, and unreimbursed expenses (that are
reimbursable pursuant to the terms of the Agreement), plus accrued interest
thereon at the weighted average rate on the related Base Assets through the last
day of the Monthly Period in which such repurchase occurs. The exercise of such
right will effect early retirement of the Certificates of such Series, but the
Servicer's right to so purchase is subject to the aggregate Principal Balance of
the Base Assets at the time of repurchase being less than a fixed percentage, to
be set forth in the related Prospectus Supplement, of the Cut-off Date aggregate
Principal Balance. In no event, however, will the trust created by the Agreement
continue beyond the expiration of 21 years from the death of the last survivor
of certain persons identified therein. For each Series, the Servicer or the
Trustee, as applicable, will give written notice of termination of the Agreement
to each Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an office or agency specified
in the notice of termination. If so provided in the related
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Prospectus Supplement for a Series, the Depositor or another entity may effect
an optional termination of the Trust under the circumstances described in such
related Prospectus Supplement. See "DESCRIPTION OF THE CERTIFICATES--
Receivables Pooling Certificates -- Optional Termination; Final Payment of
Principal".
Payment in Full of the Notes
With respect to any Series of Securities that includes Notes, the Trust
Agreement will provide that upon the payment in full of all outstanding Notes of
a given Series and the satisfaction and discharge of the related Indenture, the
related Trustee will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such Series will succeed to all the rights of the
Noteholders of such Series under such Trust Agreement, to the extent and in the
matter provided therein.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
The following discussion contains summaries of certain legal aspects of
credit, charge and debit card receivables which are general in nature. As a
consequence, investors should consider the issues raised by the following
discussion as relevant in connection with both the Receivables and the
Receivables underlying the CRB Securities. Because certain of such legal aspects
are governed by applicable state law (which laws may differ substantially), the
summaries do not purport to be complete nor purport to reflect the laws of any
particular state, nor purport to encompass the laws of all states in which
Receivables (or the receivables underlying the CRB Securities) originate. The
summaries are qualified in their entirety by reference to the applicable federal
and state laws governing the Receivables (and the Receivables underlying the CRB
Securities).
Transfer of Receivables
With respect to each transfer of Receivables to a Trust, the Seller and/or
the Depositor will warrant in the applicable Agreement that such transfer
constitutes either a valid transfer and assignment to the Trust of all right,
title and interest of the Seller (and/or the Depositor) in and to the
Receivables free and clear from liens arising from or through the Seller (or the
Depositor), except, to the extent specified in the related Prospectus
Supplement, for certain potential tax liens, any interest of the Seller or the
Depositor as holder of the Depositor's Interest and the Servicer's right to
receive interest and investment earnings (net of losses and investment expenses)
in respect of the Collection Account, or a valid grant to the Trust of a
security interest in the Receivables. The Seller and/or the Depositor will also
warrant in the Agreement that, in the event the transfer of the Receivables to
the Trust is deemed to create a security interest under the Uniform Commercial
Code (the "UCC") as in effect in the state in which its principal office is
located, there will exist a valid, subsisting and enforceable first priority
perfected security interest in the Receivables in favor of the Trust and a
valid, subsisting and enforceable first priority perfected security interest in
the Receivables created thereafter in the relevant Accounts in favor of the
Trust upon their creation except for certain liens as described in the
Agreement.
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The Receivables are generally considered to be "accounts" for purposes of
the UCC. Both the transfer of accounts and the transfer of accounts as security
for an obligation are treated under Article 9 of the UCC as creating a security
interest therein and are subject to its provisions, and the filing of
appropriate financing statements is required to perfect the security interest of
the Trust. Financing statements covering the Receivables will be filed with the
appropriate governmental authority to protect the interest of the Depositor in
the Trust.
There are certain limited circumstances under the UCC in which a prior or
subsequent transferee of Receivables coming into existence after the date on
which such Receivables are transferred to the Trust could have an interest in
such Receivables with priority over the Trust's interest. Under the Pooling and
Servicing Agreement, however, the Seller and/or the Depositor will warrant that
the Receivables have been transferred to the Trust free and clear of the lien of
any third party, except for certain tax and other governmental liens. In
addition, the Seller and the Depositor will each covenant that, except as
permitted by the Pooling and Servicing Agreement, it will not sell, pledge,
assign, transfer or grant any lien on any Receivables (or any interest therein)
other than to the Trust. A tax or other government lien on property of the
Seller or the Depositor arising prior to the time a Receivables comes into
existence may also have priority over the interest of the Trust in such
Receivables. In addition, if a Seller is a Bank, if the FDIC were appointed as
receiver of the Bank, certain administrative expenses of the receiver may also
have priority over the interest of the Trust in such Receivables.
A case recently decided by the United States Court of Appeals for the Tenth
Circuit contains language to the effect that accounts sold by an entity which
subsequently became bankrupt remained property of the debtor's bankruptcy
estate. If a Seller were to become a debtor under the federal bankruptcy code
and a court were to follow the reasoning of the Tenth Circuit, Securityholders
could experience a delay or reduction in distributions.
Certain Matters Relating to Receivership
It is likely that the Sellers of Receivables to a Trust or the sellers of
Receivables to CRB Trusts will be banking institutions. FIRREA, which became
effective August 9, 1989, sets forth certain powers that the FDIC could exercise
if it were appointed as receiver of a Seller which is a national bank.
Subject to clarification by FDIC regulations or interpretations, it would
appear from the positions taken by the FDIC before the passage of FIRREA that
the FDIC in its capacity as receiver for a Seller would not interfere with the
timely transfer to the Trust or to a CRB Trust of payments collected on the
Receivables or interfere with the timely liquidation of Receivables as described
below. To the extent that a Seller granted a security interest in the
Receivables to the related Trust (or granted such a security interest to the
Depositor which was then assigned the related Trust) or to a CRB Trust , and
that interest was validly perfected before the Seller's insolvency and was not
taken or granted in contemplation of insolvency or with the intent to hinder,
delay or defraud the Seller or its creditors, that security interest should not
be subject to avoidance, and payments to the Trust or to a CRB Trust
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with respect to Receivables should not be subject to recovery by the FDIC as
receiver of the Seller. If, however, the FDIC were to assert a contrary
position, or were to require the related Trustee or CRB Trustee to establish its
right to those payments by submitting to and completing the administrative
claims procedure established under FIRREA, delays in payments on the Securities
of any Series of CRB Securities relating to such Seller outstanding at such time
and possible reductions in the amount of those payments could occur.
Each Pooling and Servicing Agreement and Receivables Purchase Agreement as
to which a banking institution is the Seller will provide that, upon the
appointment of a receiver for the Seller, the Seller will promptly give notice
thereof to the Depositor, and a Pay Out Event will occur. Under the Pooling and
Servicing Agreement, no new Principal Receivables will be transferred to the
Trust and, unless otherwise instructed within a specified period by the holders
of the required percentages of outstanding Securities specified in the related
Prospectus Supplement or unless otherwise prohibited by law, the Trustee will
proceed to sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from the sale of the Receivables would then be treated by the Trustee
as collections on the Receivables. This procedure could by delayed as described
above. The net proceeds of any such sale will first be treated by the Trustee as
collections on the Finance Charge Receivables, if any. Upon the occurrence of a
Pay Out Event, if a conservator or receiver is appointed for the Seller or the
Depositor and no Pay Out Event other than such conservatorship or receivership
or insolvency of the Seller or the Depositor exists, the conservator or receiver
may have the power to prevent the early sale, liquidation or disposition of the
Receivables and the commencement of a Rapid Amortization Period with respect to
any outstanding Series. In addition, a conservator or receiver for the Seller or
the Depositor may have the power to cause early payment of the Certificates.
If a Seller that is a banking institution is servicing its Receivables and
a conservator or receiver is appointed for the Servicer, and no Servicer Default
other than such conservatorship or receivership or insolvency of the Servicer
exist, the conservator or receiver may have the power to prevent either the
Trustee or the Certificateholders from effecting a transfer of servicing to a
successor Servicer.
Consumer Protection Laws
The relationship of cardholder and card issuer is extensively regulated by
Federal and state consumer protection laws. The most significant of these laws
include the Federal Truth-in-Lending Act, Equal Credit Opportunity Act, Fair
Credit Reporting Act, Electronic Funds Transfer Act and, to the extent that the
Seller is a national banking association, the National Bank Act, as well as the
banking statutes of the state in which the bank is located, and comparable
statutes in the states in which cardholders reside. These statutes impose
disclosure requirements when an account is advertised, when it is opened, at the
end of monthly billing cycles, upon account renewal for accounts on which annual
fees are assessed, and at year end and, in addition, limit cardholder liability
for unauthorized use, prohibit certain discriminatory practices in extending
credit, and impose certain limitations on the type of account-related charges
that may be assessed. Newly adopted Federal legislation requires card issuers to
disclose to consumers the interest rates, annual cardholder fees,
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grace periods, and balance calculation methods associated with their accounts.
Cardholders are entitled under current law to have payments and credits applied
to the account promptly, to receive prescribed notices and to have billing
errors resolved promptly.
Various proposed laws and amendments to existing laws have been introduced
in Congress and certain state and local legislatures that, if enacted, would
further regulate the credit card industry. Certain such laws would, among other
things, impose a ceiling on the rate at which a financial institution may assess
finance charges on credit card accounts that would be substantially below the
rates of the finance charges currently assessed by most Sellers on their
accounts. A proposed bill of this nature was defeated in the United States House
of Representatives in 1987, and on November 14, 1991, the United States Senate
approved by a vote of 74 to 19 a measure which could have established, if it
were enacted as law, a ceiling on credit card interest rates of 4% above the
rate that the IRS charges on the underpayment of taxes. Such a law would, in
effect, reduce all interest rates on credit cards to 14% per annum until the IRS
calculates the new rate, which is currently done on a quarterly basis. Although
this proposed legislation was not passed by Congress, the issue of federal
regulation of interest rates on credit cards continues to be debated, and there
can be no assurance that such a bill will not become law in the future. The
potential effect of any legislation which limits the amount of finance charges
that may be charged on credit cards could be to reduce the Net Portfolio Yield
of each Series. If such Net Portfolio Yield of a Series is reduced, a Pay Out
Event for such Series may occur, and the Rapid Amortization Period for such
Series would commence.
Since October 1991, a number of lawsuits and administrative actions have
been filed in several states against out-of-state banks (both federally insured
state-chartered banks and federally insured national banks) which issue cards.
These actions challenge various fees and charges (such as late fees, overlimit
fees, returned payment check fees and annual membership fees) assessed against
residents of the states in which such suits were filed, based on restrictions or
prohibitions under such states' laws alleged to be applicable to the
out-of-state card issuers. In October 1991, the United States District Court for
the State of Massachusetts held that Greenwood Trust Company (a
federally-insured, Delaware-charted bank that issues the Discover credit card)
was prohibited by Massachusetts law from assessing late charges on credit card
accounts of Massachusetts residents. On August 6, 1992, the decision was
reversed by the United States Court of Appeals for the First Circuit, which held
that the Massachusetts law was preempted by federal law permitting the charges
in question. In November 1992, the Commonwealth of Massachusetts petitioned the
United States Supreme Court to accept the case. On January 11, 1993, the U.S.
Supreme Court denied the petition of the Commonwealth to review the decision of
the First Circuit. The California Supreme Court in March 1992 refused to review
a lower court's determination that the practice by Wells Fargo Bank of charging
its cardholders over-the-limit and late payment fees violated California laws
that require banks to limit such charges to their costs. On November 29, 1995,
the Supreme Court of New Jersey ruled that a national bank that issued credit
cards in New Jersey but is located in another state, and that is entitled under
the National Bank Act to charge borrowers interest at a rate allowed by the laws
of the state where the bank is located, was not entitled to charge New Jersey
cardholders certain late payment fees, notwithstanding the fact that the state
in which the bank is located permits such late payment fees, because late
payment fees are not defined as interest within the meaning of the National
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Bank Act and because New Jersey state law forbade the charging of such late
payment fees. On June 3, 1996, the U.S. Supreme Court upheld regulations issued
by the U.S. Comptroller of the Currency that characterize late fees as interest
and that therefore entitle a national bank to charge late fees if the state in
which such national bank is located allows such late fees. Although the U.S.
Supreme Court resolved certain conflicts of interpretation among the states,
such actions and similar actions which may be brought in other states as a
result of such actions, if resolved adversely to card issuers, could have the
effect of limiting certain charges, other than periodic finance charges, that
could be assessed on accounts of residents of such states and could require card
issuers to pay refunds and civil penalties with respect to charges previously
imposed on cardholders in such states.
The Trust may be liable for certain violations of consumer protection laws
that apply to the Receivables, either as assignee of the Seller with respect to
obligations arising before transfer of the Receivables to the Trust or as a
party directly responsible for obligations arising after the transfer. In
addition, a cardholder may be entitled to assert such violations by way of
set-off against his obligation to pay the amount of Receivables owing. Each
Seller will covenant in the Agreement to accept the retransfer of all
Receivables in an Account if any Receivable in such Account has not been created
in compliance with the requirements of such laws.
Application of Federal and state bankruptcy and debtor relief laws would
adversely affect the interests of the Certificateholders if such laws result in
any Receivables being written off as uncollectible.
THE DEPOSITOR
General
The Depositor is a special purpose Delaware corporation organized for the
purpose of causing the issuance of the Securities and other securities issued
under the Registration Statement backed by receivables or underlying securities
of various types and acting as settlor or depositor with respect to trusts,
custody accounts or similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not expected that the Depositor
will have any significant assets. The Depositor is an indirect, wholly owned
finance subsidiary of Collateralized Mortgage Securities Corporation, which is a
wholly owned subsidiary of CS First Boston Securities Corporation, which is a
wholly owned subsidiary of CS First Boston, Inc. Neither CS First Boston
Securities Corporation, nor CS First Boston, Inc., nor any of their affiliates,
has guaranteed, will guarantee or is or will be otherwise obligated with respect
to any Series of Securities. The Depositor's principal executive office is
located at Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055, and
its telephone number is (212) 909-2000.
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USE OF PROCEEDS
The Depositor will use the net proceeds from the sale of each Series of
Securities for one or more of the following purposes: (i) to purchase the
related Base Assets and/or Series Enhancement, (ii) to repay indebtedness which
has been incurred to obtain funds to acquire such Base Assets and/or Series
Enhancement, (iii) to fund the purchase of such Base Assets and/or Series
Enhancement by the related Trust on the Closing Date or to establish a
Pre-Funding Account for such Series, (iv) to establish any Reserve Account or
Cash Collateral Accounts described in the related Prospectus Supplement or (v)
to pay costs of structuring and issuing such Securities. If so specified in the
related Prospectus Supplement, the purchase of the Base Assets for a Series may
be effected in whole or in part by an exchange of Securities with the Seller of
such Base Assets.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated material United
States federal income tax consequences of the purchase, ownership and
disposition of Securities. The summary does not purport to deal with federal
income tax consequences applicable to all categories of holders, some of which
may be subject to special rules. For example, it does not discuss the tax
treatment of beneficial owners of Notes ("Note Owners") or Certificates
("Certificate Owners", together with Note Owners, "Security Owners") that are
insurance companies, regulated investment companies or dealers in securities.
Moreover, there are no cases or Internal Revenue Service ("IRS") rulings on
similar transactions involving both debt and equity interests issued by a trust
with terms similar to those of the Notes and the Certificates. As a result, the
IRS might disagree with all or part of the discussion below. Prospective
investors are urged to consult their own tax advisors in determining the
federal, state, local, foreign and any other tax consequences to them of the
purchase, ownership and disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be provided
with an opinion of Sidley & Austin ("Federal Tax Counsel") regarding certain
federal income tax matters. An opinion of Federal Tax Counsel, however, is not
binding on the IRS or the courts. No ruling on any of the issues discussed below
will be sought from the IRS. For purposes of the following summary, references
to the Trust, the Notes, the Certificates and related terms, parties and
documents shall be deemed to refer, unless otherwise specified herein, to each
Trust and the Notes, Certificates and related terms, parties and documents
applicable to such Trust.
OWNER TRUSTS
Tax Characterization of the Owner Trusts
In the case of an Owner Trust, Federal Tax Counsel will deliver its opinion
that the Trust will not be an association (or publicly traded partnership)
taxable as a corporation for federal income tax
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purposes. The opinion of Federal Tax Counsel will be based on the assumption
that the terms of the Trust Agreement and related documents will be complied
with, and on such counsel's conclusions that the nature of the income of the
Trust, or the restrictions (if any) on transfers of the Certificates, will
exempt the Trust from the rule that certain publicly traded partnerships are
taxable as corporations.
If an Owner Trust were taxable as a corporation for federal income tax
purposes, the Owner Trust would be subject to corporate income tax on its
taxable income. The Trust's taxable income would include all of its income on
the related Base Assets, which might be reduced by its interest expense on the
Notes. Any such corporate income tax could materially reduce cash available to
make payments on the Notes and distributions on the Certificates, and
Certificate Owners (and possibly Note Owners) could be liable for any such tax
that is unpaid by the Trust.
Tax Consequences to Note Owners
Treatment of the Notes as Indebtedness. The Trust will agree, and the Note
Owners will agree by their purchase of Notes, to treat the Notes as debt for
federal tax purposes. Federal Tax Counsel will advise the Owner Trust that the
Notes will be classified as debt for federal income tax purposes, or classified
in such other manner as shall be provided in the related Prospectus Supplement.
As noted above, there are no cases or IRS rulings on similar transactions
involving both debt and equity interests issued by a trust with terms similar to
those of the Notes and the Certificates and, as a result, the IRS might disagree
will such conclusion. If, contrary to the opinion of Federal Tax Counsel, the
IRS successfully asserted that one or more of the Notes did not represent debt
for federal income tax purposes, the Notes might be treated as equity interests
in the Trust. If so treated, the Trust might be taxable as a corporation with
the adverse consequences described above (and the resulting taxable corporation
would not be able to reduce its taxable income by deductions for interest
expense on Notes recharacterized as equity). Alternatively, the Trust might be
treated as a publicly traded partnership that would be taxable as a corporation
unless it met certain qualifying income tests. Treatment of the Notes as equity
interests in a partnership could have adverse tax consequences to certain
holders, even if the Trust were not treated as a publicly traded partnership
taxable as a corporation. For example, income allocable to certain tax-exempt
entities (including pension funds) would be "unrelated business taxable income",
income to foreign holders generally would be subject to U.S. federal income tax
and U.S. federal tax return filing and withholding requirements, and individual
holders might be subject to certain limitations on their ability to deduct their
share of Trust expenses. The discussion below assumes that the Notes will be
characterized as debt for federal income tax purposes.
Interest Income on the Notes. The taxation of interest on a Note will
depend on whether the interest constitutes "qualified stated interest" (as
defined below). Interest on a Note that constitutes qualified stated interest is
includible in a Note Owner's income as ordinary interest income when actually or
constructively received, if such Note Owner uses the cash method of accounting
for federal income tax purposes, or when accrued, if such Note Owner uses an
accrual method of accounting for federal income tax purposes. Interest that does
not constitute qualified stated interest
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is included in a Note Owner's income under the rules described below under
"--Original Issue Discount", regardless of such Note Owner's method of
accounting, or, in certain circumstances, under rules governing contingent
payments which are set out in regulations issued in final form on June 11, 1996
(the "1996 Contingent Debt Regulations"). Notwithstanding the foregoing,
interest that is payable on a Note with a fixed maturity of one year or less
from its issue date is included in a Note Owner's income under the rules
described below under "--Short Term Notes".
In general, "qualified stated interest" is stated interest that, during the
entire term of the Note, is unconditionally payable at least annually at a
single fixed rate of interest or, subject to certain exceptions summarized
below, at a variable rate that is a single "qualified floating rate" or a single
"objective rate" (each as described below). If stated interest is
unconditionally payable at two or more qualified floating rates, a single fixed
rate and one or more qualified floating rates, or a single fixed rate and a
single objective rate that is a "qualified inverse floating rate" (as defined
below), all or a portion of the stated interest might be treated as "qualified
stated interest" See --"Original Issue Discount", below. Under Treasury
Regulations issued in January 1994 under Sections 1271-1273 and 1275 of the Code
(the "OID Regulations"), interest is considered unconditionally payable only if
late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment. Under the 1996 Contingent Debt Regulations effective
for instruments issued on or after August 13, 1996, interest is considered
unconditionally payable only if reasonable legal remedies exist to compel timely
payment or the debt instrument otherwise contains terms and conditions that make
the likelihood of late payment a remote contingency. If stated interest is
payable at a variable rate other than in accordance with the foregoing, the
interest will not be treated as "qualified stated interest", and it is unclear
whether such payments must be treated as part of a Note's "stated redemption
price at maturity" (as described below) and governed by the rules described
below under "--Original Issue Discount" or, alternatively, must be taxed as
contingent interest under the 1996 Contingent Debt Regulations.
Stated interest generally qualifies as being payable at a "qualified
floating rate" if variations in the value of the rate can reasonably be expected
to measure contemporaneous fluctuations in the cost of newly borrowed funds in
the currency in which the Note is denominated. A variable rate will be
considered a qualified floating rate if the variable rate equals (i) the product
of an otherwise qualified floating rate and a fixed multiple that is greater
than zero, or greater than 0.65 for debt instruments issued on or after August
13, 1996, but not more than 1.35 or (ii) an otherwise qualified floating rate
(or the product described in clause (i)) plus or minus a fixed rate. If the
variable rate equals the product of an otherwise qualified floating rate and a
single multiplier greater than 1.35 or (in the case of a debt instrument issued
on or after August 13, 1996) less than or equal to 0.65, however, such rate will
generally constitute an objective rate, described more fully below.
In the case of a debt instrument issued before August 13, 1996, stated
interest generally qualifies as payable at an "objective rate" if variations in
the rate are determined using a single fixed formula and are based on (i) one or
more qualified floating rates, (ii) one or more rates where each rate would be a
qualified floating rate for a debt instrument denominated in a currency other
than the
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currency in which the Note is denominated, (iii) the yield or changes in the
price of one or more items of personal property that are "actively traded", or
(iv) a combination of rates described in the three foregoing clauses. In the
case of a debt instrument issued on or after August 13, 1996, stated interest
qualifies as payable at an "objective rate" if the rate is determined using a
single fixed formula and is based on objective financial information or economic
information. However, an objective rate does not include a rate based on
information that is within the control of the issuer or that is unique to the
circumstances of the issuer or a related party. The IRS may designate other
objective rates. An objective rate is a "qualified inverse floating rate" if (a)
the rate is equal to a fixed rate minus a qualified floating rate and (b) the
variations in the rate can reasonably be expected to reflect inversely
contemporaneous variations in the cost of newly borrowed funds (disregarding
certain caps, floors, governors or similar restrictions).
All or a portion of interest that otherwise is treated as qualified stated
interest under the rules summarized above will not be treated as qualified
stated interest if, among other circumstances: (i) the variable rate of interest
is subject to one or more minimum or maximum rate floors or ceilings or one or
more governors limiting the amount of increase or decrease in each case which
are not fixed throughout the term of the Note and which are reasonably expected
as of the issue date to cause the rate in certain accrual periods to be
significantly higher or lower than the overall expected return on the Note
determined without such floor or ceiling; (ii) it is reasonably expected that
the average value of the variable rate during the first half of the term of the
Note will be either significantly less than or significantly greater than the
average value of the rate during the final half of the term of the Note; (iii)
the "issue price" of the Note (as described below) exceeds the total
noncontingent principal payments by more than an amount equal to the lesser of
.015 multiplied by the product of the total noncontingent principal payments and
the number of complete years to maturity from the issue date (or, in certain
cases, its weighted average maturity) and 15 percent of the total noncontingent
principal, (iv) the Note does not provide that a qualified floating rate or
objective rate in effect at any time during the term of the Note is set at the
value of the rate on any day that is no earlier than three months prior to the
first day on which the value is in effect and no later than one year following
that first day, or (v) if interest is not unconditionally payable. In these
situations, as well as others, it is unclear whether such interest payments must
be treated either as part of a Note's "stated redemption price at maturity" (as
described below) resulting in original issue discount, or represent contingent
payments subject to taxation under the 1996 Contingent Debt Regulations.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1273 and 1275 of the Code and the OID Regulations. The discussion herein is
based in part on the OID Regulations, which generally apply to debt instruments
issued on or after April 4, 1994. Note Owners also should be aware that the OID
Regulations do not address certain issues relevant to prepayable securities such
as the Notes.
In general, a Note's original issue discount, if any, is the difference
between the "stated redemption price at maturity" of the Note and its "issue
price".
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The original issue discount with respect to a Note will be considered to be
zero if it is less than a specified de minimis amount of 0.25% of the Note's
stated redemption price at maturity multiplied by the number of complete years
from the date of issue of such Note to its maturity date or, in the case of
Notes that have more than one principal payment or that have interest payments
that are not qualified stated interest, the weighted average maturity of the
Note. Because of the possibility of prepayments, it is not clear how the de
minimis rules will apply to the Notes. It is possible that the anticipated rate
of prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption") will be required to be used in determining the weighted average
maturity of the Notes. In the absence of authority to the contrary, the
Depositor presently expects to apply the de minimis rule by using the Prepayment
Assumption. Generally, an original Note Owner includes de minimis original issue
discount in income as principal payments are made. The amount includable in
income with respect to each principal payment equals a pro rata portion of the
entire amount of de minimis original issue discount with respect to that Note.
Any de minimis amount of original issue discount includable in income by a Note
Owner is generally treated as a capital gain if the Note is a capital asset in
the hands of the Note Owner.
The "stated redemption price at maturity" of a Note generally will be equal
to the sum of all payments, whether denominated as principal or interest, to be
made with respect thereto other than "qualified stated interest" (as described
above).
In general, the "issue price" of a Note is the first price at which a
substantial amount of the Notes of such class are sold for money to the public
(excluding bond houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers).
If a Note is determined to be issued with original issue discount, the Note
Owner must generally include the original issue discount in ordinary gross
income for federal income tax purposes as it accrues in advance of the receipt
of any cash attributable to such income. The amount of original issue discount,
if any, required to be included in a Note Owner's ordinary gross income for
federal income tax purposes in any taxable year will be computed in accordance
with Section 1272(a) of the Code and the OID Regulations. Under such section and
the OID Regulations, original issue discount accrues on a daily basis under a
constant yield method that takes into account the compounding of interest.
The amount of original issue discount includable in income by a Note Owner
is the sum of the "daily portions" of the original issue discount for each day
during the taxable year on which the holder held the Note. The daily portions of
original issue discount are determined by allocating to each day in any "accrual
period" a pro rata portion of the excess, if any, of (A) the sum of (i) the
present value of all remaining payments to be made on the Note as of the close
of the "accrual period" and (ii) the payments during the accrual period of
amounts included in the stated redemption price of the Note over (B) the
"adjusted issue price" of the Note at the beginning of the accrual period.
Generally, the "accrual period" for the Notes corresponds to the intervals at
which amounts are paid or compounded with respect to such Note, beginning with
their date of issuance and ending with the maturity date. The "adjusted issue
price" of a Note at the beginning of any accrual period is the sum of the issue
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price and accrued original issue discount for each prior accrual period reduced
by the amount of payments other than payments of qualified stated interest made
during each prior accrual period. The Code and certain related legislative
history require, pending the issuance of Treasury Regulations, the present value
of the remaining payments to be determined on the bases of (a) the original
yield to maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual period), (b)
events, including actual prepayments, which have occurred before the close of
the accrual period and (c) the assumption that the remaining payments will be
made in accordance with the original Prepayment Assumption. Although original
issue discount, if any, will be reported to Note Owners based on the Prepayment
Assumption, no representation is made to Note Owners that the Notes will be
prepaid at that rate or at any other rate.
In general, a subsequent purchaser of a Note will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Note, unless the price paid equals or exceeds the Note's stated redemption price
at maturity. If the price paid exceeds the Note's "adjusted issue price" (as
described above), but does not equal or exceed the stated redemption price at
maturity, the amount of original issue discount to be accrued will be reduced in
accordance with a formula set forth in Section 1272(a)(7)(B) of the Code. If the
price paid is less than the Note's adjusted issue price, the purchaser will be
required to include in income any original issue discount on the Note and, to
the extent the price paid is less than the adjusted issue price, the Note will
be treated as having been purchased with "market discount". See "--Market
Discount", below.
If a variable rate Note is deemed to have been issued with original issue
discount, as described above, the amount of original issue discount accrues on a
daily basis under a constant yield method that takes into account the
compounding of interest; provided, however, that the interest associated with
such a Note generally is assumed to remain constant throughout the term of the
Note at a rate that, in the case of a qualified floating rate, equals the value
of such qualified floating rate as of the issue date of the Note, or, in the
case of an objective rate, at a fixed rate that reflects the yield that is
reasonably expected for the Note. A holder of such a Note would then recognize
original issue discount during each accrual period which is calculated based
upon such Note's assumed yield to maturity. If the interest actually accrued or
paid during an accrual period exceeds (or is less than) the constant interest
assumed to be accrued or paid during the accrual period under the foregoing
rules, qualified stated interest or original issue discount allocable to an
accrual period is increased (or decreased) under rules set forth in the OID
Regulations.
The Depositor believes that the owner of a Note determined to be issued
with original issue discount will be required to include the original issue
discount in ordinary gross income for federal income tax purposes computed in
the manner described above. However, the OID Regulations either do not address
or are subject to varying interpretations with respect to several issues
concerning the computation of original issue discount for obligations such as
the Notes.
Market Discount. Notes, whether or not issued with original issue discount,
will be subject to the market discount rules of the Code. A purchaser of a Note
who purchases the Note at a price that
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is less than the Note's "stated redemption price at maturity" or, in the case of
a Note issued with original issue discount, at a price that is less than the
Note's "adjusted issue price" (as such terms are described above under
"--Original Issue Discount") will be required to recognize accrued market
discount as ordinary income as payments of principal are received on such Note
or upon the sale or exchange of the Note. In general, the holder of a Note may
elect to treat market discount as accruing either (i) under a constant yield
method that is similar to the method for the accrual of original issue discount
or (ii) in proportion to accruals of original issue discount (or, if there is no
original issue discount, in proportion to accruals of stated interest), in each
case computed taking into account the Prepayment Assumption. The amount of
accrued market discount for purposes of determining the amount of ordinary
income to be recognized with respect to subsequent payments on such a Note is to
be reduced by the amount previously treated as ordinary income under the market
discount rule.
The Code provides that the market discount in respect of a Note will be
considered to be zero if the market discount is less than a specified de minimis
amount of 0.25% of the Note's stated redemption price at maturity multiplied by
the number of complete years remaining to its maturity after the holder acquired
the Note. If market discount is treated as de minimis under this rule, the de
minimis market discount would be allocated among the scheduled payments included
in the stated redemption price at maturity of such Note, and the portion of the
discount allocable to each such payment would be reported as income when such
payment occurs or is due.
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments,
such as certain of the Notes, that are subject to repayment. Until such time as
regulations are issued, rules described in the legislative history for these
provisions of the Code will apply. Note Owners who acquire a Note at a market
discount should consult their tax advisors concerning various methods which are
available for accruing that market discount.
In general, the Code requires a holder of a Note having market discount to
defer a portion of the interest deductions attributable to any indebtedness
incurred or continued to purchase or carry such Note. Alternatively, a holder of
a Note may elect to include market discount in gross income as it accrues and,
if the holder makes such an election, the holder will be exempt from this rule.
The adjusted basis of a Note subject to such election will be increased to
reflect market discount included in gross income, thereby reducing any gain or
increasing any loss on a sale or other taxable disposition.
Amortizable Premium. A Note Owner who holds the Note as a capital asset and
who purchased the Note at a price greater than its stated redemption price at
maturity will be considered to have purchased the Note at a premium. In general,
the Note Owner may elect to deduct the amortizable bond premium as it accrues
under a constant yield method. A Note Owner's tax basis in the Note will be
reduced by the amount of the amortizable bond premium deducted. In addition, it
appears that the same methods which apply to the accrual of market discount on
obligations providing for principal payments prior to maturity are intended to
apply in computing the amortizable bond premium deduction with respect to a
Note. It is not clear, however, whether the alternatives to the
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constant-yield method which may be available for the accrual of market discount
are available for amortizing premium on Notes. Note Owners who pay a premium for
a Note should consult their tax advisors concerning such an election and rules
for determining the method for amortizing bond premium.
Election to Treat All Interest as Original Issues Discount. The OID
Regulations permit an election to accrue all interest, discount (including de
minimis market or original issue discount) (reduced by any premium) in income as
interest, based on a constant yield method. If such an election were to be made
with respect to a Note, the Note Owner would be deemed to have made an election
to include in income currently market discount with respect to all other debt
instruments having market discount that such Note Owner acquires during the year
of the election or thereafter. Similarly, a Note Owner that makes this election
for a Note that is acquired at a premium will be deemed to have made an election
to amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Note Owner owns or acquires. See "-- Amortizable
Premium", above. The election to accrue interest, discount and premium on a
constant yield method with respect to a Note is irrevocable.
Gain or Loss on Disposition. If a Note is sold, the selling Note Owner will
recognize gain or loss equal to the difference between the amount realized from
the sale and the selling Note Owner's adjusted basis in such Note. The adjusted
basis generally will equal the cost of such Note to the seller, increased by any
original issue discount and market discount on such Note included in the
seller's income, and reduced (but not below zero) by any payments on the Note
other than qualified stated interest and reduced further by any amortizable
premium. Except as discussed above with respect to market discount, any gain or
loss recognized upon a sale, exchange, retirement, or other disposition of a
Note will be capital gain if the Note is held as a capital asset. Special
character rules apply to debt instruments characterized as contingent debt
instruments under the 1996 Contingent Debt Regulations. In general, under those
rules gain is treated as ordinary, and loss is treated as ordinary to the extent
of prior ordinary income inclusions.
Short-Term Notes. In the case of a Note with a maturity of one year or less
from its issue date (a "Short-Term Note"), no interest is treated as qualified
stated interest, and therefore all interest is included in original issue
discount. Note Owners that report income for federal income tax purposes on an
accrual method and certain other Note Owners, including banks and dealers in
securities, are required to include original issue discount in income on such
Short-Term Notes on a straight-line basis, unless an election is made to accrue
the original issue discount according to a constant yield method based on daily
compounding.
Any other Note Owner of a Short-Term Note is not required to accrue
original issue discount for federal income tax purposes, unless it elects to do
so. In the case of a Note Owner that is not required, and does not elect, to
include original issue discount in income currently, any gain realized on the
sale, exchange or retirement of a Short-Term Note is ordinary income to the
extent of the original issue discount accrued on a straight-line basis (or, if
elected, according to a constant yield method based on daily compounding)
through the date of sale, exchange or retirement. In addition,
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Note Owners that are not required, and do not elect, to include original issue
discount on a Short- Term Note in income currently are required to defer
deductions for any interest paid on indebtedness incurred or continued to
purchase or carry such Short-Term Note in an amount not exceeding the deferred
interest income with respect to such Short-Term Note (which includes both the
accrued original issue discount and accrued interest that are payable but that
have not been included in gross income), until such deferred interest income is
realized. Such a Note Owner may elect to apply the foregoing rules (except for
the rule characterizing gain on sale, exchange or retirement as ordinary) with
respect to "acquisition discount" rather than original issue discount.
Acquisition discount is the excess of the stated redemption price at maturity of
the Short-Term Note over the Note Owner's basis in the Short-Term Note. This
election applies to all obligations acquired by the taxpayer on or after the
first day of the first taxable year to which such election applies, unless
revoked with the consent of the IRS. A Note Owner's tax basis in a Short-Term
Note is increased by the amount included in such Owner's income on such a Note.
Taxation of Certain Foreign Note Owners. As used herein, the term
"Non-United States Person" means a person that is, for United States federal
income tax purposes, (i) a nonresident alien individual, (ii) a foreign
corporation, (iii) a nonresident alien fiduciary of a foreign estate or trust or
(iv) a foreign partnership one or more of the members of which is, for United
States federal income tax purposes, a nonresident alien individual, a foreign
corporation or a nonresident alien fiduciary of a foreign estate or trust. A
"Non-United States Holder" means a Non-United States Person that is a Note
Owner.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of Non-United States Holders. The 1996 Proposed
Regulations are generally proposed to be effective for payments after December
31, 1997, regardless of the issue date of the Note with respect to which such
payments are made, subject to certain transition rules. It cannot be predicted
at this time whether the 1996 Proposed Regulations will become effective as
proposed, or what, if any, modifications may be made to them. The discussion
under this heading and under "-- Backup Withholding and Information Reporting",
below, is not intended to include a complete discussion of the provisions of the
1996 Proposed Regulations, and prospective investors are urged to consult their
tax advisors with respect to the effect the 1996 Proposed Regulations may have.
In general, Non-United States Holders will not be subject to United States
federal withholding tax with respect to payments of principal and interest on
Notes (including original issue discount), provided that certain conditions are
met. Under United States federal income tax law now in effect, and subject to
the discussion of backup withholding in the following section, payments of
principal and interest (including original issue discount) with respect to a
Note to any Non-United States Holder will not be subject to United States
federal withholding tax, provided, in the case of interest (including original
issue discount), that (i) such Holder does not actually or constructively own
10% or more of the equity of the Trust, (ii) such Holder is not for federal
income tax purposes a controlled foreign corporation related, directly or
indirectly, to the Trust through equity ownership, (iii) such Holder is not a
bank receiving interest described in Section 881(c)(3)(A) of the Code and (iv)
either
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(A) the Non-United States Holder certifies, under penalties of perjury, to the
Trust or paying agent, as the case may be, that such Holder is a Non-United
States Holder and provides such Holder's name and address, or (B) a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Note, certifies, under penalties of perjury, to the
Trust or paying agent, as the case may be, that such certificate has been
received from the beneficial owner by it or by a financial institution between
it and the beneficial owner and furnishes the payor with a copy thereof. A
certificate described in this paragraph is effective only with respect to
payments of interest (including original issue discount) made to the certifying
Non-United States Holder after the issuance of the certificate in the calendar
year of its issuance and the two immediately succeeding calendar years. Under
temporary Treasury Regulations, the forgoing certification may be provided by
the beneficial owner of a Note on IRS Form W-8.
The 1996 Proposed Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1996 Proposed
Regulations would not affect the documentation rules described in the preceding
paragraph, but would add "intermediary certification" options for certain
qualifying withholding agents. Under one such option, a withholding agent would
be allowed to rely on IRS Form W-8 furnished by a financial institution or other
intermediary on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution or
intermediary has entered into a withholding agreement with the IRS and is thus a
"qualified intermediary". Under another option, an authorized foreign agent of a
United States withholding agent would be permitted to act on behalf of the
United States withholding agent, provided certain conditions are met.
The 1996 Proposed Regulations, if adopted, would also provide certain
presumptions with respect to withholding for holders not providing the required
certifications to qualify for the withholding exemption described above. In
addition, the 1996 Proposed Regulations would replace a number of current tax
certification forms (including IRS Form W-8 IRS, Form 1001, and IRS Form 4224,
discussed below) with a single, restated form and standardize the period of time
for which withholding agents could rely on such certifications. The 1996
Proposed Regulations would also provide rules to determine whether, for purposes
of United States federal withholding tax, interest paid to a Non-United States
Holder that is an entity should be treated as paid to the entity or those
holding an interest in that entity.
Notwithstanding the foregoing, interest described in Section 871(h)(4) of
the Code will be subject to United States withholding tax at a 30% rate (or such
lower rate as may be provided by an applicable treaty). In general, interest
described in Section 871(h)(4) of the Code includes (subject to certain
exceptions) any interest the amount of which is determined by reference to
receipts, sales or other cash flow of the issuer or a related person, any income
or profits of the issuer or a related person, any change in the value of any
property of the issuer or a related person or any dividends, partnership
distributions or similar payments made by the issuer or a related person.
Interest described in Section 871(h)(4) of the Code may include other types of
contingent interest identified
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by the IRS in future Treasury Regulations. If the Trust issues Notes the
interest on which the Trust believes is described in Section 871(h)(4) of the
Code, the United States withholding tax consequences of any such Notes will be
described in the applicable Prospectus Supplement.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest (including original issue discount) on the Note is
effectively connected with the conduct of such trade or business, the Non-United
States Holder, although exempt from the withholding tax discussed in the
preceding paragraphs, will be subject to United States federal income tax on
such interest (including original issue discount) in the same manner as if it
were a United States person (as defined below). In lieu of the certificate
described above, such Holder will be required to provide a properly executed IRS
Form 4224 annually in order to claim an exemption from withholding tax. In
addition, if such Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate as may be specified by an
applicable treaty) of its effectively connected earnings and profits for the
taxable year, subject to adjustments. For this purpose, interest (including
original issue discount) on a Note will be included in the earnings and profits
of such Holder if such interest (including original issue discount) is
effectively connected with the conduct by such Holder of a trade or business in
the United States.
Generally, any gain or income (other than that attributable to accrued
interest, market discount or original issue discount in certain circumstances)
realized upon the sale, exchange, retirement or other disposition of a Note by a
Non-United States Holder will not be subject to United States federal income tax
unless (i) such gain or income is effectively connected with a trade or business
in the United States of the Non-United States Holder or (ii) in the case of a
Non-United States Holder who is a nonresident alien individual, the Non-United
States Holder is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition and either
(a) such individual has a "tax home" (as defined in Section 911(d)(3) of the
Code) in the United States or (b) the gain is attributable to an office or other
fixed place of business maintained by such individual in the United States.
Backup Withholding and Information Reporting. Under current United States
federal income tax law, information reporting requirements apply to interest
(including original issue discount) and principal payments made to, and to the
proceeds of sales before maturity by, certain Note Owners that are United States
persons. "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity treated as a corporation or
partnership for United States federal income tax purposes, created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate or trust the income of which is includible in gross income for
United States federal income tax purposes, without regard to its source.
In addition, a 31% backup withholding tax will apply if such Note Owner (i)
fails to furnish its Taxpayer Identification Number ("TIN") (which, for an
individual, would be his or her Social Security Number) to the payor in the
manner required, (ii) furnishes an incorrect TIN and the payor is so notified by
the IRS, (iii) is notified by the IRS that it has failed properly to report
payments of interest and dividends or (iv) in certain circumstances, fails to
certify, under penalties of perjury, that
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it has not been notified by the IRS that it is subject to backup withholding for
failure properly to report interest and dividend payments. Backup withholding
will not apply with respect to payments made to certain exempt recipients, such
as corporations (within the meaning of Section 7701(a) of the Code) and
tax-exempt organizations.
In the case of a Non-United States Holder, under Treasury Regulations,
backup withholding and information reporting will not apply to payments of
principal and interest made by the Trust or any paying agent thereof on a Note
with respect to which such holder has provided the required certification under
penalties of perjury that it is a Non-United States Holder or has otherwise
established an exemption, provided that (i) the Trust or paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
person and (ii) certain other conditions are satisfied.
Subject to the discussion below, payments to or through the United States
office of a broker will be subject to backup withholding and information
reporting unless the holder certifies under penalties of perjury as to its
status as a Non-United States Holder and certain other qualifications (and no
agent of the broker who is responsible for receiving or reviewing such statement
has actual knowledge that it is incorrect) and provides his or her name and
address or the holder otherwise establishes an exemption.
In general, if principal or interest payments on a Note are collected
outside the United States by a foreign office of a custodian, nominee or other
agent acting on behalf of a Note Owner, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
owner and will not be subject to information reporting. However, if such
custodian, nominee or other agent is a United States person for United States
federal income tax purposes, a controlled foreign corporation for United States
tax purposes, or a foreign person 50% or more of whose gross income is
effectively connected with its conduct of a United States trade or business for
a specified three-year period, such custodian, nominee or other agent may be
subject to certain information reporting (but not backup withholding)
requirements with respect to such payment unless such custodian, nominee or
other agent has in its records documentary evidence that the Note Owner is not a
United States person and certain conditions are met or the Note Owner otherwise
establishes an exemption. Under proposed Treasury Regulations, backup
withholding may apply to any payment which such custodian, nominee or other
agent is required to report if such custodian, nominee or other agent has actual
knowledge that the payee is a United States person.
Under Treasury Regulations, payments on the sale, exchange or retirement of
a Note effected by or through a foreign office of a broker will not be subject
to backup withholding. However, if such broker is a United States person, a
controlled foreign corporation for United States tax purposes, or a foreign
person 50% or more of whose gross income is effectively connected with its
conduct of a United States trade or business for a specified three-year period,
information reporting (but not backup withholding) will be required unless such
broker has in its records documentary evidence that the Note Owner is not a
United States person and certain other conditions are met or the Note Owner
otherwise establishes an exemption. Under proposed Treasury
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Regulations, backup withholding may apply to any payment which such broker is
required to report if such broker has actual knowledge that the payee is a
United States person.
The 1996 Proposed Regulations would, if adopted, alter the forgoing rules
in certain respects. In particular, the 1996 Proposed Regulations would provide
certain presumptions under which NonUnited States Holders may be subject to
backup withholding in the absence of required certifications.
Backup withholding tax is not an additional tax. Rather, any amounts
withheld from a payment to a Note Owner under the backup withholding rules will
be allowed as a refund or a credit against such owner's United States federal
income tax, provided that the required information is furnished to the IRS.
Note Owners should consult their tax advisors regarding the application of
information reporting and backup withholding to their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available.
Tax Consequences to Certificate Owners
Treatment of the Trust as a Partnership. The Trust will agree, and the
related Certificate Owners will agree by their purchase of Certificates, to
treat the Trust as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by income, with the
assets of the partnership being the assets held by the Trust, the partners of
the partnership being the Certificate Owners (including, to the extent relevant,
the Seller or the Depositor in its capacity as recipient of distributions from
any reserve fund), and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller, the Depositor and the Servicer is not
certain because there is no authority on transactions closely comparable to that
contemplated herein. A variety of alternative characterizations are possible.
For example, to the extent the Certificates have certain features characteristic
of debt, the Certificates might be considered debt of the Seller, the Depositor
or the Trust. As long as such characterization did not result in the Trust being
subject to tax as a corporation, any such characterization is not expected to
result in materially adverse tax consequences to Certificate Owners 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, none of the Certificates represents Stripped
Certificates and that a Series of Securities includes a single class of
Certificates. If these conditions are not satisfied with respect to any given
Series of Certificates, additional tax considerations with respect to such
Certificates will be disclosed in the related Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
federal income tax. Rather, each Certificate Owner will be required to take into
account separately such Owner's allocable
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share of income, gains, losses, deductions and credits of the Trust (whether or
not there is a corresponding cash distribution). Thus, cash basis holders will
in effect be required to report income from the Certificates on the accrual
basis and Certificate Owners may become liable for taxes on Trust income even if
they have not received cash from the Trust to pay such taxes. The Trust's income
will consist primarily of interest and finance charges earned on the related
Base Assets (including appropriate adjustments for market discount, original
issue discount and bond premium) and any gain upon collection or disposition of
such Base Assets. The Trust's deductions will consist primarily of interest
accruing with respect to the Notes to the extent the Notes are properly
characterized as debt, as discussed above under "--Tax Consequences to Note
Owners", servicing and other fees, and losses or deductions upon collection or
disposition of Base Assets.
Any Collateral Certificates held by the Owner Trustee will be subject to
the federal income tax treatment described herein depending on the terms of the
Collateral Certificates and their characterization (for example, as
indebtedness) for federal income tax purposes.
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 is expected to
provide, in general, that the Certificate Owners will be allocated taxable
income of the Trust for each month equal to the sum of: (i) the interest or
other income that accrues on the Certificates in accordance with their terms for
such month including, as applicable, interest accruing at the related
Certificate Interest Rate for such month and interest on amounts previously due
on the Certificates but not yet distributed; (ii) any Trust income attributable
to discount on the related Base Assets that corresponds to any excess of the
principal amount of the Certificates over their initial issue price; (iii) any
prepayment premium payable to the Certificate Owners for such month; and (iv)
any other amounts of income payable to the Certificate Owners for such month.
Such allocation will be reduced by any amortization by the Trust of premium on
Base Assets that corresponds to any excess of the issue price of Certificates
over their principal amount.
Based on the economic arrangement of the parties, the foregoing approach
for allocating Trust income should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Certificate Owners. Moreover, even
under the foregoing method of allocation, Certificate Owners may be allocated
income equal to the entire Certificate Interest Rate plus the other items
described above, even though the Trust might not have sufficient cash to make
current cash distributions of such amount. In addition, because tax allocations
and tax reporting will be done on a uniform basis for all Certificate Owners,
but Certificate Owners may be purchasing Certificates at different times and at
different prices, Certificate Owners may be required to report on their tax
returns taxable income that is greater or less than the amount reported to them
by the Trust.
All of the taxable income allocated to a Certificate Owner that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will generally constitute
"unrelated business taxable income" taxable to such holder under the Code.
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A non-corporate Certificate Owner's share of expenses of the Trust
(including fees to the Servicer, but not interest expense) would generally be
"miscellaneous itemized deductions" and thus deductible only to the extent such
expenses plus all other miscellaneous itemized deductions exceed two percent of
such Certificate Owner's adjusted gross income. A non-corporate Certificate
Owner will be allowed no deduction for its share of the expenses of the Trust in
determining its liability for alternative minimum tax. In addition, Section 68
of the Code provides that the amount of all "itemized deductions" otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds a threshold amount specified in the Code ($117,950 in 1996 in the case
of a joint return) will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the specified threshold amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year.
Accordingly, such deductions might be disallowed to such individual in whole or
in part and might result in such Certificate Owner being taxed on an amount of
income that exceeds the amount of cash actually distributed to such holder over
the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificate Owners on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Base Asset, such
calculations may result in certain timing and character differences under
certain circumstances.
Discount and Premium. The purchase price paid by the Trust for the related
Base Assets may be greater or less than the remaining principal balance of the
Base Assets at the time of purchase. If so, the Base Assets will have been
acquired at a premium or market discount, as the case may be. See "Tax
Consequences to Note Owners--Market Discount" and "--Amortizable Premium" above.
(As indicated above, the Trust will make this calculation on an aggregate basis,
but it is possible that the IRS might require that it be recomputed on a Base
Asset-by-Base Asset basis.)
If the Trust acquires the Base Assets at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Base Assets or to offset any such premium against interest
income on the Base Assets. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificate Owners.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply with those requirements due to lack of data. On May 10, 1996, proposed
Treasury Regulations were issued that would change the rules relating to
terminations. Those regulations are effective for terminations occurring on or
after the date those regulations are finalized.
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Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificate Owner's tax basis in a Certificate will generally equal the
Certificate's cost, increased by the share of Trust income allocable to such
Certificate Owner with respect to such Certificates and decreased by any
distributions received with respect to such Certificate. In addition, both the
tax basis in the Certificates and the amount realized on a sale of a Certificate
would include the Certificate Owner's share (determined under Treasury
Regulations) of the Notes and other liabilities of the Trust. A Certificate
Owner acquiring Certificates at different prices will generally be required to
maintain a single aggregate adjusted tax basis in such Certificates and, upon a
sale or other disposition of some of the Certificates, allocate a portion of
such aggregate tax basis to the Certificates sold (rather than maintaining a
separate tax basis in each Certificate for purposes of computing gain or loss on
a sale of that Certificate).
If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificate Owners based
on the principal amount of Certificates owned by them as of the close of the
last day of such month. As a result, a Certificate Owner purchasing Certificates
may be allocated tax items (which will affect the purchaser's tax liability and
tax basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
Treasury Regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificate Owners. The Seller will
be authorized to revise the Trust's method of allocation between transferors and
transferees.
Section 754 Election. In the event that a Certificate Owner sells its
Certificates at a profit (loss), the purchasing Certificate Owner will have a
higher (lower) basis in the Certificates than the selling Certificate Owner had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificate Owners might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep complete and
accurate books of the Trust. Such books will be maintained for financial
reporting and tax purposes on an accrual basis, and the fiscal year of the Trust
will be the calendar year. The Trustee will file a partnership
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information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificate Owner's allocable share of items of Trust
income and expense to Certificate Owners and the IRS on Schedule K-1. The Trust
will provide the Schedule K-1 information to nominees that fail to provide the
Trust with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, Certificate Owners must file tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (a) the names address and identification number of such person, (b)
whether such person is a United States person, a tax-exempt entity or a foreign
government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (c) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
Except as provided otherwise in the relevant Prospective Supplement, the
Depositor will be designated as the tax matters partner for each Trust in the
related Trust Agreement and, as such, will be responsible for representing the
Certificate Owners in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificate Owners, and, under
certain circumstances, a Certificate Owner may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificate Owner's returns and adjustments of
items not related to the income and losses of the Trust.
Taxation of Certain Foreign Certificate Owners. As used herein, the term
"Non-United States Owner" means a Certificate Owner that is not a United States
Person, as defined under "Owner Trusts -- Tax Consequences to Note Owners --
Backup Withholding and Information Reporting", above.
It is not clear whether the Trust would be considered to be engaged in a
trade or business in the United States for purposes of federal withholding taxes
with respect to Non-United States Owners
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because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to Non-United States Owners pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for Non-United States Owners that are taxable as corporations and 39.6%
for all other Non-United States Owners. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Trust to change its withholding procedures. In determining a Certificate
Owner's withholding status, the Trust may rely on IRS Form W-8, IRS Form W-9 or
the Certificate Owner's certification of nonforeign status signed under
penalties of perjury.
Each Non-United States Owner might be required to file a U.S. individual or
corporate income tax return on its share of the Trust's income, including, in
the case of a corporation, a return in respect of the branch profits tax. Each
Non-United States Owner must obtain a taxpayer identification number from the
IRS and submit that number to the Trust on Form W-8 in order to assure
appropriate crediting of the taxes withheld. Assuming that the Trust is
determined not to be engaged in a U.S. trade or business, a Non-United States
Owner might be entitled to a refund with respect to all or a portion of taxes
withheld by the Trust if, in particular, such Owner's allocable share of
interest from the Trust constituted "portfolio interest" under the Code.
Such interest, however, may not constitute "portfolio interest" if, among
other reasons, the underlying obligation is not in registered form or if the
interest is determined without regard to the income of the Trust (in the later
case, such interest being properly characterized as a guaranteed payment under
Section 707(c) of the Code). If this were the case, Non-United States Owners
would be subject to a United States federal income and withholding tax at a rate
of 30 percent (without any deductions or other allowances for costs and expenses
incurred in producing such income), unless reduced or eliminated pursuant to an
applicable treaty. In such case, a Non-United States Owner would only be
entitled to a refund for that portion of the taxes in excess of the taxes that
should have been withheld with respect to such interest.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificate Owner fails to comply with certain
identification procedures, unless the certificate owner is an exempt recipient
under applicable provisions of the Code.
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GRANTOR TRUSTS
Tax Characterization of the Grantor Trusts
Characterization. In the case of a Grantor Trust, Federal Tax Counsel will
deliver its opinion that the Trust will not be classified as an association
taxable as a corporation and that such Trust will be classified as a grantor
trust under subpart E, Part I of subchapter J of the Code. In this case,
beneficial owners of Certificates (referred to herein as "Grantor Trust
Certificateholders") will be treated for federal income tax purposes as owners
of a portion of the Trust's assets as described below. The Certificates issued
by a Trust that is treated as a grantor trust are referred to herein as "Grantor
Trust Certificates".
Taxation of Grantor Trust Certificateholders--General. Subject to the
discussion below under "--Stripped Certificates" and "--Subordinated
Certificates", each Grantor Trust Certificateholder will be treated as the owner
of a pro rata undivided interest in the Base Assets and other assets of the
Trust. Accordingly, and subject to the discussion below of the
recharacterization of the Servicing Fee, each Grantor Trust Certificateholder
must include in income its pro rata share of the interest and other income from
the Base Assets (including any interest, original issue discount, market
discount, prepayment fees, assumption fees, and late payment charges with
respect to the Base Assets), and, subject to certain limitations discussed
below, may deduct its pro rata share of the fees and other deductible expenses
paid by the Trust, at the same time and to the same extent as such items would
be included or deducted by the Grantor Trust Certificateholder if the Grantor
Trust Certificateholder held directly a pro rata interest in the assets of the
Trust and received and paid directly the amounts received and paid by the Trust.
Any amounts received by a Grantor Trust Certificateholder in lieu of amounts due
with respect to Base Assets 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.
Under Sections 162 and 212 each Grantor Trust Certificateholder will be
entitled to deduct its pro rata share of servicing fees, prepayment fees,
assumption fees, any loss recognized upon an assumption and late payment charges
retained by the Servicer, provided that such amounts are reasonable compensation
for services rendered to the Trust. A non-corporate Grantor Trust
Certificateholder's share of expenses of the Trust would generally be
"miscellaneous itemized deductions" and thus deductible only to the extent such
expenses plus all other miscellaneous itemized deductions exceed two percent of
such Grantor Trust Certificateholder's adjusted gross income. A non-corporate
Grantor Trust Certificateholder will be allowed no deduction for its share of
the expenses of the Trust in determining its liability for alternative minimum
tax. In addition, Section 68 of the Code provides that the amount of "itemized
deductions" otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds a threshold amount specified in the Code ($117,950
in 1996 in the case of a joint return) will be reduced by the lesser of (i) 3%
of the excess of adjusted gross income over the specified threshold amount or
(ii) 80% of the amount of itemized deductions otherwise allowable for such
taxable year.
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The servicing compensation to be received by the Servicer might be
questioned by the IRS with respect to certain Certificates or Base Assets as
exceeding a reasonable fee for the services being performed in exchange
therefor, and a portion of such servicing compensation could be recharacterized
as an ownership interest retained by the Servicer or other party in a portion of
the interest payments to be made pursuant to the Base Assets. In this event, a
Certificate might be treated as a Stripped Certificate subject to the stripped
bond rules of Section 1286 of the Code and therefore be subject to the original
issue discount rules. See the discussion below under "--Stripped Certificates".
Except as discussed below under "--Stripped Certificates" or "--Subordinated
Certificates", this discussion assumes that the servicing fees paid to the
Servicer do not exceed reasonable servicing compensation.
A purchaser of a Grantor Trust Certificate will be treated as purchasing an
interest in each Base Assets in the Trust at a price determined by allocating
the purchase price paid for the Certificate among all Base Assets in proportion
to their fair market values at the time of the purchase of the Certificate. To
the extent that the portion of the purchase price of a Grantor Trust Certificate
allocated to a Base Assets is less than or greater than the portion of the
stated redemption price at maturity of the Base Assets, the interest in the Base
Assets will have been acquired at a discount or premium. See "--Market Discount"
and "--Premium", below.
The treatment of any discount on a Base Asset will depend on whether the
discount represents original issue discount or market discount. It is not
expected that any Base Assets will have original issue discount (except as
discussed below under "--Stripped Certificates" or "--Subordinated
Certificates").
The information provided to Grantor Trust Certificateholders will not
include information necessary to compute the amount of discount or premium, if
any, at which an interest in each Base Asset is acquired.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Base Assets may be subject to the market discount rules of
Sections 1276 through 1278 of the Code to the extent an undivided interest in a
Base Asset is considered to have been purchased at a "market discount". For a
discussion of the market discount rules under the Code, see "Owner Trust -- Tax
Consequences to Note Owners -- Market Discount" above; however, Grantor Trust
Certificateholders generally are not permitted to take into account the
Prepayment Assumption in calculating the accrual of market discount with respect
to their Grantor Trust Certificates. See "Prepayments" below.
Premium. To the extent a Grantor Trust Certificateholder is considered to
have purchased an undivided interest in a Base Asset for an amount that is
greater than the stated redemption price at maturity of such interest, such
Grantor Trust Certificateholder will be considered to have purchased the
interest in the Base Asset at a "premium" equal in amount to such excess. For a
discussion of the rules applicable to premium, see "Owner Trusts -- Tax
Consequences to Note Owners --Amortizable Premium" above; however, Grantor Trust
Certificateholders generally are not permitted
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to take into account the Prepayment Assumption in computing the amortizable bond
premium deduction with respect to their Grantor Trust Certificates. See
"Prepayments" below.
Stripped Certificates. Certain classes of Certificates may be subject to
the stripped bond rules of Section 1286 of the Code and for purposes of this
discussion will be referred to as "Stripped Certificates". In general, a
Stripped Certificate will be subject to the stripped bond rules where there has
been a separation of ownership of the right to receive some or all of the
principal payments on a Base Asset from ownership of the right to receive some
or all of the related interest payments. In general, where such separation has
occurred, under the stripped bond rules of Section 1286 of the Code the holder
of a right to receive a principal or interest payment on the Base Asset is
required to accrue into income, on a constant yield basis under rules governing
original issue discount (see "Owner Trust--Tax Consequences to Note
Owners--Original Issue Discount"), the difference between the holder's initial
purchase price for such right and the principal or interest payment to be
received with respect to such right.
Certificates will constitute Stripped Certificates and will be subject to
these rules under various circumstances, including the following: (i) if any
servicing compensation is deemed to exceed a reasonable amount (see "--Taxation
of Grantor Trust Certificateholders--General", above); (ii) if the Company or
any other party retains a retained yield with respect to the Base Assets held by
the Trust; (iii) if two or more classes of Certificates are issued representing
the right to non-pro rata percentages of the interest or principal payments on
the Base Assets; or (iv) if Certificates are issued which represent the right to
interest-only payments or principal-only payments.
The tax treatment of the Stripped Certificates with respect to the
application of the original issue discount provisions of the Code is currently
unclear. However, the Trustee intends to treat each Stripped Certificate as a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect to
a Stripped Certificate must be included in ordinary gross income for federal
income tax purposes as it accrues in accordance with the constant yield method
that takes into account the compounding of interest and such accrual of income
may be in advance of the receipt of any cash attributable to such income. See
"Owner Trust--Tax Consequences to Note Owners--Original Issue Discount" above;
however Grantor Trust Certificateholders generally are not permitted to take
into account the Prepayment Assumption in computing original issue discount. See
"Prepayments" below. For purposes of applying the original issue discount
provisions of the Code, the issue price of a Stripped Certificate will be the
purchase price paid by each holder thereof and the stated redemption price at
maturity may include the aggregate amount of all payments to be made with
respect to the Stripped Certificate whether or not denominated as interest. The
amount of original issue discount with respect to a Stripped Certificate may be
treated as zero under the original issue discount de minimis rules described
above.
When an investor purchases more than one class of Stripped Certificates it
is currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes of
applying the original issue discount rules described above.
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The Trustee intends in reporting information relating to original issue discount
to Grantor Trust Certificateholders to provide such information on an aggregate
poolwide basis.
Notwithstanding the position that the Trustee intends to take, it is
possible that the Service may take a contrary position for purposes of applying
the original issue discount provisions of the Code to the Stripped Certificates.
For example, a holder of a Stripped Certificate might be treated as the owner of
(i) as many stripped coupons as there are scheduled payments of interest on each
Base Asset, with each such stripped coupon treated as a separate debt instrument
or (ii) a separate installment obligation for each Base Asset representing the
Stripped Certificate's pro rata share of principal and/or interest payments to
be made with respect thereto. As a result of these possible alternative
characterizations, investors should consult their own tax advisors regarding the
proper treatment of Stripped Certificates for federal income tax purposes.
Subordinated Certificates. In the event the Trust issues two classes of
Grantor Trust Certificates that are identical except that one class is a
subordinated class (with a relatively higher Certificate Interest Rate) and the
other is a senior class (with a relatively lower Certificate Interest Rate),
(referred to herein as the "Subordinate Certificates" and "Senior Certificates",
respectively), the Trust would deemed to have acquired the following assets: (i)
the principal portion of each Base Asset plus a portion of the interest due on
each Base Asset (the "Trust Stripped Bond"), and (ii) a portion of the interest
due on each Base Asset equal to the difference between the Certificate Interest
Rate on the Subordinate Certificates and the Certificate Interest Rate on the
Senior Certificates, if any, which difference is then multiplied by the
Subordinate Class Percentage (the "Trust Stripped Coupon"). The "Subordinate
Class Percentage" equals the initial aggregate principal amount of the
Subordinate Certificates divided by the sum of the initial aggregate principal
amount of the Subordinate Certificates and the Senior Certificates. The "Senior
Class Percentage" equals the initial aggregate principal amount of the Senior
Certificates divided by the sum of the initial aggregate principal amount of the
Subordinate Certificates and the Senior Certificates.
The Senior Certificateholders in the aggregate will own the Senior Class
Percentage of the Trust Stripped Bond and accordingly each Senior
Certificateholder will be treated as owning its pro rata share of such asset.
The Senior Certificateholders will not own any portion of the Trust Stripped
Coupon. The Subordinate Certificateholders in the aggregate own both the
Subordinate Class Percentage of the Trust Stripped Bond plus 100% of the Trust
Stripped Coupon, if any, and accordingly each Subordinate Certificateholder will
be treated as owning its pro rata share in both such assets. The Trust Stripped
Bond will be treated as a "stripped bond" and the Trust Stripped Coupon will be
treated as "stripped coupons" within the meaning of Section 1286 of the Code.
Because the purchase price paid by each Subordinate Certificateholder will be
allocated between that Certificateholder's interest in the Trust Stripped Bond
and the Trust Stripped Coupon based on the relative fair market value of each
asset on the date such Subordinate Certificate is purchased, the Trust Stripped
Bond may be issued with original issue discount.
Except to the extent modified below, the income of the Trust Stripped Bond
represented by a Certificate will be reported in the same manner as described
generally above for holders of
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Certificates. The interest income on the Subordinate Certificates at the Senior
Certificate Certificate Interest Rate and the portion of the Servicing Fee that
does not constitute excess servicing may be treated as qualified stated
interest.
Income of the holder of the Trust Stripped Coupon will be reported by
treating the Trust Stripped Coupon as a single debt instrument with original
issue discount equal to the excess of the total amount payable with respect to
such Trust Stripped Coupon over the portion of the purchase price allocated
thereto. The sum of the daily portions of original issue discount on the Trust
Stripped Coupon for each day during a year in which the Subordinate
Certificateholder holds the Trust Stripped Coupon will be included in the
Subordinate Certificateholder's income. It is unclear whether a Subordinated
Certificateholder's interest in Trust Stripped Bonds and Trust Stripped Coupons
should be treated separately, or aggregated and treated as a single debt
instrument for purposes of applying the original issue discount rules. However,
the Trustee intends to treat each Subordinate Certificateholder's interest in
Trust Stripped Bonds and Trust Stripped Coupons as a single debt instrument
issued on the day it is purchased for purposes of calculating any original issue
discount.
If the Subordinate Certificateholders receive distribution of less than
their share of the Trust's receipts of principal or interest (the "Shortfall
Amount") because of the subordination of the Subordinate Certificates, holders
of Subordinate Certificates would probably be treated for federal income tax
purposes as if they had (i) received as distributions their full share of such
receipts, (ii) paid over to the Senior Certificateholders an amount equal to
such Shortfall Amount and (iii) retained the right to reimbursement of such
amounts to the extent such amounts are otherwise available as a result of
collections on the Base Assets or amounts available from a Reserve Account or
other form of credit enhancement, if any.
Under this analysis, (a) Subordinate Certificateholders would be required
to accrue as current income any interest income or original issue discount on
the Base Assets that was a component of the Shortfall Amount, even though such
amount was in fact paid to the Senior Certificateholders, (b) a loss would only
be allowed to the Subordinate Certificateholders when their right to receive
reimbursement of such Shortfall Amount became worthless (i.e., when it becomes
clear that the amount will not be available from any source to reimburse such
loss) and (c) reimbursement of such Shortfall Amount prior to such a claim of
worthlessness would not be taxable income to Subordinate Certificateholders
because such amount was previously included in income. Those results should not
significantly affect the inclusion of income for Subordinate Certificateholders
on the accrual method of accounting, but could accelerate inclusion of income to
Subordinate Certificateholders on the cash method of accounting by, in effect,
placing them on the accrual method. Moreover, the character and timing of loss
deductions are unclear. Subordinate Certificateholders are strongly urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any losses sustained with respect to the Subordinate Certificates
including any loss resulting from the failure to recover previously accrued
interest or discount income.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a Grantor Trust Certificateholder to elect to accrue all
interest, discount (including de minimis market
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or original issue discount) (reduced by any premium) in income as interest,
based on a constant yield method. If such an election were to be made with
respect to an interest in a Base Asset with market discount, the Certificate
Owner would be deemed to have made an election to include in income currently
market discount with respect to all other debt instruments having market
discount that such Grantor Trust Certificateholder acquires during the year of
the election or thereafter. Similarly, a Grantor Trust Certificateholder that
makes this election for an interest in a Base Asset 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 (including other
Base Assets) that such Grantor Trust Certificateholder owns or acquires. See "--
Premium", above. The election to accrue interest, discount and premium on a
constant yield method with respect to a Grantor Trust Certificate is
irrevocable.
Prepayments. The Tax Reform Act of 1986 (the "1986 Act") contains a
provision requiring original issue discount on certain obligations issued after
December 31, 1986 to be calculated taking into account the Prepayment Assumption
and requiring such discount to be taken into income on the basis of a constant
yield to maturity taking into account of actual prepayments. The legislative
history of the 1986 Act states that similar rules apply with respect to market
discount and amortizable bond premium on such obligations. The proper treatment
of interests, such as the Grantor Trust Certificates, in debt instruments that
are subject to prepayment is unclear. Legislation has been proposed but not yet
enacted that could extend the rules contained in the 1986 Act to any pool of
debt instruments the payments on which may be accelerated by reason of
prepayments. Grantor Trust Certificateholders should consult their tax advisors
as to the proper reporting of income from such Certificates in light of the
possibility of prepayment and as to the possible application of the rules
contained in the 1996 Contingent Debt Regulations relating to contingent
principal debt instruments which might be viewed as including interest only
strips.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will be treated as a sale or
exchange of the Grantor Trust Certificateholder's interest in the assets of the
Grantor Trust and will result in gain or loss equal to the difference, if any,
between the amount realized (exclusive of amounts attributable to accrued and
unpaid interest, which will be treated as ordinary income) and the owner's
adjusted basis in those assets. Such adjusted basis generally will equal the
Seller's cost for the Grantor Trust Certificate, increased by the original issue
discount and any market discount included in the seller's gross income with
respect to the Grantor Trust Certificate, and reduced (but not below zero) by
any premium amortized by the Seller and by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss will be
capital gain or loss to an owner for which the interests in the assets of the
Grantor Trust represented by the Grantor Trust Certificate are "capital assets"
within the meaning of Section 1221, except that gain will be treated in whole or
in part as ordinary interest income to the extent of the Depositor's Interest in
accrued market discount not previously taken into income on underlying Base
Assets having a fixed maturity date of more than one year from the date of
origination. A capital gain or loss will be long-term or short-term depending on
whether or not the Grantor Trust Certificate has been owned for the long-term
capital gain holding period (currently more than one year).
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Non-United States Grantor Trust Certificate Owners. Amounts paid to
Non-United States Persons (as defined above under "Owner Trusts--Tax
Consequences to Certificate Owners--Taxation of Certain Foreign Certificate
Owners) who are owners of Grantor Trust Certificates ("Non-United States
Owners") will be treated as interest for purposes of United States withholding
tax. Such interest attributable to the underlying Receivables will not be
subject to the normal 30% (or such lower rate provided for by an applicable tax
treaty) withholding tax imposed on such amounts provided that such Owner (i)
does not own, directly or indirectly, 10% or more of, and is not a controlled
foreign corporation (within the meaning of Section 957 of the Code) related to,
each of the issuers of the Base Assets and (ii) fulfills certain certification
and other requirements. Under these requirements, such Owner must certify, under
penalty of perjury, that it is not a "United States person" (as defined above
under "Owner Trusts-- Tax Consequences to Note Owners--Backup Withholding and
Information Reporting") and must provide its name and address. Non-United States
Owners of Grantor Trust Certificates may be subject to withholding to the extent
that the Base Assets were originated on or before July 18, 1984. If interest or
gain is effectively connected to the conduct of a trade or business within the
United States by such Owner, such owner will be subject to United States federal
income tax thereon at graduated rates and, in the case of a corporation, to a
possible branch profits tax, and will not be subject to withholding tax provided
that the owner meets applicable documentation requirements. Potential investors
who are not United States persons should consult their own tax advisors
regarding the specific tax consequences of owning a Certificate.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of Non-United States Owners of Grantor Trust
Certificates. The 1996 Proposed Regulations are generally proposed to be
effective for payments after December 31, 1997, regardless of the issue date of
the Base Assets with respect to which such payments are made, subject to certain
transition rules. For further discussion, see "Owner Trusts - Tax Consequences
to Note Owners - Taxation of Certain Foreign Note Owners" above.
Backup Withholding. Distributions made on the Grantor Trust Certificates
and proceeds from the sale of such Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Grantor Trust Certificateholder fails
to comply with certain identification procedures, unless such Owner is an exempt
recipient under applicable provisions of the Code. See "Owner Trusts -- Tax
Consequences to Note Owners -- Backup Withholding and Information Reporting,"
above.
MASTER TRUSTS
Treatment of the Certificates as Indebtedness
In the case of a Master Trust, Federal Tax Counsel will deliver its opinion
that, although no transaction closely comparable to that contemplated herein has
been the subject of any Treasury regulation, revenue ruling or judicial
decision, based upon its analysis of the factors discussed below, the Depositor
(or the Seller) will be properly treated as the owner of the Base Assets for
federal
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income tax purposes and, accordingly, the Certificates, when issued, will be
properly characterized for federal income tax purposes as indebtedness of the
Depositor (or the Seller) that is secured by the Base Assets.
The Depositor (or the Seller) and Certificate Owners will express in the
Agreement the intent that, for federal, state and local income and franchise tax
purposes, and for the purposes of any other tax imposed on or measured by
income, the Certificates will be indebtedness of the Depositor (or the Seller)
secured by the Base Assets. The Depositor (or the Seller), by entering into the
Agreement, each Certificate holder, by the acceptance of a Certificate, and each
Certificate Owner, by virtue of accepting a beneficial interest in a
Certificate, will agree to treat the Certificates (or the beneficial interests
therein) as indebtedness of the Depositor (or the Seller) secured by the Base
Assets for federal, state and local income and franchise tax purposes and for
the purposes of any other tax imposed on or measured by income. However, because
different criteria are used in determining the non-tax accounting treatment of a
transaction, the Seller is expected to treat the Agreement for financial
accounting purposes as a transfer of an ownership interest in the Base Assets
and not as creating a debt obligation of the Depositor (or the Seller).
The economic substance of a transaction generally determines its federal
income tax consequences and the form of a transaction, while a relevant factor,
is generally not conclusive evidence of its economic substance. In appropriate
circumstances the courts have allowed taxpayers, as well as the IRS, to treat a
transaction in accordance with its economic substance, notwithstanding that
participants characterized the transaction differently for nontax purposes. In
some instances, however, courts have held that a taxpayer is bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Based on the advice of Federal Tax
Counsel, the Depositor and the Seller believe that the rationale of those cases
will not apply to this transaction.
The determination of whether the economic substance of a transfer of an
interest in property is a sale or a loan secured by the transferred property
depends on numerous factors that indicate whether the transferor has
relinquished (and the transferee has obtained) substantial incidents of
ownership in the property. Among the primary factors considered are whether the
transferee has obtained the opportunity for gain if the property increases in
value, has assumed the risk of loss if the property decreases in value and, in
the case of accounts receivable such as the Base Assets, whether the transferee,
at the time of transfer, has a fixed interest in the proceeds of the receivable
when collected. Federal Tax Counsel will consider such factors in rendering its
opinion that the Certificates will be properly characterized for federal income
tax purposes as indebtedness of the Depositor (or the Seller) secured by the
Base Assets. Contrary characterizations that could be asserted by the IRS are
described under "Possible Characterization of the Arrangement as a Partnership
or Association Taxable as a Corporation" below. Except as otherwise expressly
indicated, the following discussion assumes that the Certificates are properly
treated as debt obligations of the Depositor (or the Seller) for federal income
tax purposes.
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Interest Income to Certificate Owners. It is anticipated that the
Certificates will be issued at par value (or at an insubstantial discount from
par value) and therefore, except as discussed below or in the applicable
Prospectus Supplement, will not be issued with original issue discount.
As discussed above under "Owner Trusts--Tax Consequences to Note
Owners--Interest Income on the Notes" and "--Original Issue Discount", interest
that constitutes "qualified stated interest" is includible in a Certificate
Owner's income as ordinary interest income when it is received or accrued in
accordance with the Certificate Owner's method of tax accounting. Interest that
does not constitute "qualified stated interest" may be treated either as part of
a Certificate's stated redemption price at maturity" (as described above under
"Owner Trusts - Tax Consequences to Note Owners Original Issue Discount")
resulting in original issue discount, or be treated as contingent interest under
the 1996 Contingent Debt Regulations.
One requirement for treatment as "qualified stated interest" is that the
interest be "unconditionally payable". Under the OID Regulations, with respect
to instruments issued before August 13, 1996, interest is considered
unconditionally payable only if late payment or nonpayment is expected to be
penalized or reasonable remedies exist to compel payment. The IRS has recently
clarified this rule in a published ruling. Because the Certificate Owners will
not have available default remedies ordinarily available to holders of debt
instruments, the IRS could take the position that the interest payable on the
Certificates is not "unconditionally payable" within the meaning of the OID
Regulations. Under the 1996 Contingent Debt Regulations effective for
instruments issued on or after August 13, 1996, interest is considered
unconditionally payable only if reasonable legal remedies exist to compel timely
payment or the debt instrument otherwise contains terms and conditions that make
the likelihood of late payment a remote contingency. See "Owner Trusts - Tax
Consequences to Note Owners - Original Issue Discount" above.
Market Discount and Premium. A Certificate Owner who purchases a
Certificate at a market discount may be subject to the "market discount" rules
of the Code. These rules provide, in part, for the treatment of gain
attributable to accrued market discount as ordinary income upon the receipt of
partial principal payments or on the sale or other disposition of the
Certificate, and for the deferral of interest deductions with respect to debt
incurred to acquire or carry the market discount Certificate. See "Owner
Trusts--Tax Consequences to Note Owners--Market Discount".
If a Certificate is purchased by a Certificate Owner at a premium, such
premium will be amortized as an offset to interest income (with a corresponding
reduction in the Certificate Owner's basis) under a constant yield method over
the term of the Certificate if an election under Section 171 of the Code is made
or is previously in effect. See "Owner Trusts--Tax Consequences to Note
Owners--Premium".
Disposition of Certificates. If a Certificate is sold, exchanged or
otherwise disposed of, a Certificate Owner generally will recognize gain or loss
in an amount equal to the difference between the amount realized on the sale,
exchange or disposition and the Certificate Owner's adjusted tax basis in the
Certificate. The adjusted tax basis of a Certificate generally will equal the
cost of the
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Certificate to the Certificate Owner, increased by any original issue discount
or market discount previously includible in the Certificate Owner's gross
income, and reduced by the portion of the basis of the Certificate allocable to
payments on the Certificate previously received by the Certificate Owner and any
amortized premium. Subject to the market discount rules, gain or loss on the
sale or other disposition of a Certificate will generally be capital gain or
loss if the Certificate is held by the Certificate Owner as a capital asset.
Capital gain or loss will be long-term if the Certificate is held by the
Certificate Owner for more than one year and otherwise will be short-term.
Possible Characterization of the Arrangement as a Partnership or Association
Taxable as a Corporation
Although, as described above, Federal Tax Counsel will deliver an opinion
that the Certificates are properly characterized as debt of the Depositor (or
the Seller) for federal income tax purposes, such opinion is not binding on the
IRS or the courts and no assurance can be given that this characterization would
prevail. If the IRS were to contend successfully that the Certificates were not
debt obligations of the Seller for federal income tax purposes, the arrangement
among the Seller and the Certificate Owners might be classified for federal
income tax purposes as either a partnership (including a publicly traded
partnership) or an association taxable as a corporation that owns the Base
Assets.
If the Certificates were treated as interests in a partnership, the
partnership would probably be treated as a "publicly traded partnership." A
publicly traded partnership is taxed in the same manner as a corporation unless
at least 90% of its gross income consists of specified types of "qualifying
income." Such qualifying income includes, among other things, "interest" that is
not "derived in the conduct of a financial or insurance business." If a deemed
partnership between the Depositor (or the Seller) and the Certificate Owners
were to qualify for the foregoing exception from taxation as a corporation, the
deemed partnership would not be subject to federal income tax but each item of
income, gain, loss, and deduction generated as a result of the ownership of the
Base Assets by the partnership would be passed through to the Depositor (or the
Seller) and the Certificate Owners as partners in such a partnership according
to their respective interests therein.
The income reportable by the Certificate Owners as partners could differ
from the income reportable by the Certificate Owners as holders of debt
obligations of the Depositor (or the Seller). For example, a cash basis
Certificate Owner might be required to report income when it accrued to the
partnership rather than when it is received by the Certificate Owner. Moreover,
an individual's share of expenses of the partnership would be miscellaneous
itemized deductions that, in the aggregate, are allowed as deductions only to
the extent they, together with other miscellaneous itemized deductions, exceed
two percent of the individual's adjusted gross income, and an individual
Certificate Owner's deduction for such holder's share of expenses of the
partnership would be subject to reduction under Section 68 of the Code if the
individual's adjusted gross income exceeded certain limits. As a result, the
individual might be taxed on a greater amount of income than the stated rate on
the Certificates.
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If, alternatively, the arrangement created by the Agreement were treated as
either an association taxable as a corporation or a "publicly traded
partnership" taxable as a corporation, the resulting entity may be subject to
federal income taxes at corporate tax rates on its taxable income from the Base
Assets. Because neither the Seller nor the Depositor will provide any indemnity
for income taxes such a tax might result in reduced distributions to Certificate
Owners and Certificate Owners might be liable for a share of such a tax.
Moreover, distributions by the entity would probably not be deductible in
computing the entity's taxable income and all or part of the distributions to
Certificate Owners would generally be treated as dividend income to the
Certificate Owners.
On May 9, 1996, proposed Treasury Regulations (the "Check-the-Box
Regulations") were issued which generally permit non-corporate entitities to
elect whether to be taxed as corporations or as partnerships. The Check-the-Box
Regulations are proposed to apply generally for tax years beginning on or after
the date the regulations are finalized. If the IRS were to contend successfully
that the Certificates were not debt obligations of the Seller for federal income
tax purposes, the arrangement among the Seller and the Certificate Owners might
be classified for federal income tax purposes as a partnership (including a
publicly traded partnership), but, under the Check-the-Box Regulations, would
not be classified as an association taxable as a corporation. However, the
Check- the-Box Regulations would have no effect on the possibility of
classification of a partnership as a publicly traded partnership taxable as a
corporation.
Since the Seller will treat the Certificates as indebtedness for federal
income tax purposes, the Seller will not comply with the tax reporting
requirements that would apply under these alternative characterizations of the
Certificates.
Foreign Investors
As used herein, the term "Foreign Investor" means a Certificate Owner that
is, for United States federal income tax purposes, (i) a nonresident alien
individual, (ii) a foreign corporation, (iii) a nonresident alien fiduciary of a
foreign estate or trust or (iv) a foreign partnership one or more of the members
of which is, for United States federal income tax purposes, a nonresident alien
individual, a foreign corporation or a nonresident alien fiduciary of a foreign
estate or trust.
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
United States taxation of Non-United States Holders. The 1996 Proposed
Regulations are generally proposed to be effective for payments after December
31, 1997, regardless of the issue date of the Note with respect to which such
payments are made, subject to certain transition rules. It cannot be predicted
at this time whether the 1996 Proposed Regulations will become effective as
proposed, or what, if any, modifications may be made to them. The discussion
under this heading and under "-- Backup Withholding and Information Reporting",
below, is not intended to be a complete discussion of the provisions of the 1996
Proposed Regulations, and prospective investors are urged to consult their tax
advisors with respect to the effect the 1996 Proposed Regulations may have.
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Subject to the discussion of backup withholding below, and assuming the
Certificates represent debt obligations of the Depositor (or the Seller) for
federal income tax purposes, Foreign Investors generally will not be subject to
United States federal withholding tax with respect to payments of principal and
interest on Certificates, provided that certain conditions are met. Under United
States federal income tax law now in effect, payments of principal and interest
(including original issue discount) with respect to a Certificate to any Foreign
Investor will not be subject to United States federal withholding tax, provided,
in the case of interest (including original issue discount), that (i) such
Investor does not actually or constructively own 10% or more of the total
combined voting power of all classes of equity of the Depositor (or the Seller),
(ii) such Investor is not for federal income tax purposes a controlled foreign
corporation related, directly or indirectly, to the Depositor (or the Seller)
through equity ownership, (iii) such Investor is not a bank receiving interest
described in Section 881(c)(3)(A) of the Code and (iv) either (A) the Foreign
Investor certifies, under penalties of perjury, to the Depositor (or the Seller)
or paying agent, as the case may be, that such Investor is a Foreign Investor
and provides such Investor's name and address, or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Certificate, certifies, under penalties of perjury,
to the Trust or paying agent, as the case may be, that such Certificate has been
received from the beneficial owner by it or by a financial institution between
it and the beneficial owner and furnishes the payor with a copy thereof. A
certificate described in this paragraph is effective only with respect to
payments of interest (including original issue discount) made to the certifying
Foreign Investor after the issuance of the certificate in the calendar year of
its issuance and the two immediately succeeding calendar years. Under temporary
Treasury Regulations, the forgoing certification may be provided by the
beneficial owner of a Note on IRS Form W-8.
The 1996 Proposed Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1996 Proposed
Regulations would not affect the documentation rules described in the preceding
paragraph, but would add "intermediary certification" options for certain
qualifying withholding agents. Under one such option, a withholding agent would
be allowed to rely on IRS Form W-8 furnished by a financial institution or other
intermediary on behalf of one or more beneficial owners (or other
intermediaries) without having to obtain the beneficial owner certificate
described in the preceding paragraph, provided that the financial institution or
intermediary has entered into a withholding agreement with the IRS and is thus a
"qualified intermediary". Under another option, an authorized foreign agent of a
United States withholding agent would be permitted to act on behalf of the
United States withholding agent, provided certain conditions are met.
The 1996 Proposed Regulations, if adopted, would also provide certain
presumptions with respect to withholding for holders not providing the required
certifications to qualify for the withholding exemption described above. In
addition, the 1996 Proposed Regulations would replace a number of current tax
certification forms (including IRS Form W-8, IRS Form 1001 and IRS Form 4224,
discussed below) with a single, restated form and standardize the period of time
for which withholding agents could rely on such certifications. The 1996
Proposed Regulations would also provide rules to determine whether, for purposes
of United States federal withholding tax, interest
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paid to a Non-United States Holder that is an entity should be treated as paid
to the entity or those holding an interest in that entity.
Notwithstanding the foregoing, interest described in Section 871(h)(4) of
the Code will be subject to United States withholding tax at a 30% rate (or such
lower rate as may be provided by an applicable treaty). In general, interest
described in Section 871(h)(4) of the Code includes (subject to certain
exceptions) any interest the amount of which is determined by reference to
receipts, sales or other cash flow of the issuer or a related person, any income
or profits of the issuer or a related person, any change in the value of any
property of the issuer or a related person or any dividends, partnership
distribution or similar payments made by the issuer or a related person.
Interest described in Section 871(h)(4) of the Code may include other types of
contingent interest identified by the IRS in future Treasury Regulations. If the
Trust issues Certificates the interest on which is described in Section
871(h)(4) of the Code, the United States withholding tax consequences of any
such Certificates will be described in the applicable Prospectus Supplement.
If a Foreign Investor is engaged in a trade or business in the United
States and interest (including original issue discount) on the Certificate is
effectively connected with the conduct of such trade or business, the Foreign
Investor, although exempt from the withholding tax discussed above, will be
subject to United States federal income tax on such interest (including original
issue discount) in the same manner as if it were a United States person (as
defined below). In lieu of the certificate described above, such Investor will
be required to provide a properly executed IRS Form 4224 annually in order to
claim an exemption from withholding tax. In addition, if such Investor is a
foreign corporation, it may be subject to a branch profits tax equal to 30% (or
such lower rate as may be specified by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to adjustments. For
this purpose, interest (including original issue discount) on a Certificate will
be included in the earnings and profits of such Investor if such interest
(including original issue discount) is effectively connected with the conduct by
such Investor of a trade or business in the United States.
Generally, any gain or income (other than that attributable to accrued
interest or original issue discount) realized upon the sale, exchange,
retirement or other disposition of a Certificate will not be subject to United
States federal income tax unless (i) such gain or income is effectively
connected with a trade or business in the United States of the Foreign Investor
or (ii) in the case of a Foreign Investor who is a nonresident alien individual,
the Foreign Investor is present in the United States for 183 days or more in the
taxable year of such sale, exchange, retirement or other disposition and either
(a) such individual has a "tax home" (as defined in Section 911(d)(3) of the
Code) in the United States or (b) the gain is attributable to an office or other
fixed place of business maintained by such individual in the United States.
If the IRS were to contend successfully that the Certificates represent
interests in a partnership (not taxable as a corporation), a Certificate Owner
that is a nonresident alien, foreign corporation or foreign estate or trust
might be required to file a U.S. individual or corporate income tax return and
pay tax on its share of partnership income at regular U.S. rates, including the
branch profits tax in the
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case of a corporation, and would be subject to withholding tax on its share of
partnership income. If the Certificates were recharacterized as interests in a
association taxable as a corporation or a "publicly traded partnership" taxable
as a corporation, to the extent distributions under the Agreement were treated
as dividends, a nonresident alien individual or foreign corporation would
generally be subject to withholding tax on the gross amount of such dividends at
the rate of 30% (or lower rate as provided by an applicable treaty), unless
dividends are effectively connected with the holder's United States trade or
business (in which case such dividends would be taxed at graduated rates
applicable to U.S. persons). In either case, and assuming the Certificates are
recharacterized as partnership interests or equity interests in a corporation, a
Certificate Owner that is a nonresident alien, foreign corporation, foreign
partnership or foreign estate or trust might be subject to federal income tax on
any gain from the sale of the Certificates.
Backup Withholding
Distributions made on the Certificates and proceeds from the sale of such
Certificates will be subject to a "backup" withholding tax of 31% if, in
general, the Certificate Owners fails to comply with certain identification
procedures, unless such Owner is an exempt recipient under applicable provisions
of the Code.
The 1996 Proposed Regulations would, if adopted, alter the forgoing rules
in certain respects. In particular, the 1996 Proposed Regulations would provide
certain presumptions under which NonUnited States Holders may be subject to
backup withholding in the absence of required certifications.
CERTAIN STATE AND LOCAL TAX CONSIDERATIONS
An investment in the Securities may have state or local income, franchise,
personal property or other tax consequences. Such consequences may depend upon,
among other things, the tax laws of the jurisdiction where the Security Owners
reside or are doing business, the characterization of the Trust (e.g., as a
trust, partnership or other entity) for state or local tax purposes, whether the
Trust is considered to be doing business in a particular jurisdiction, and the
classification of the Securities as equity or debt or as an undivided interest
in the underlying Base Assets under the laws of a jurisdiction.
Generally, the tax treatment of the Securities for federal income tax
purposes should apply for state and local tax purposes. Thus, if the
Certificates or Notes are treated as indebtedness for federal income tax
purposes, they should likewise be treated as indebtedness for state and local
tax purposes. In such case, Certificate Owners and Note Owners not otherwise
subject to state or local tax would not become subject to such tax solely
because of their ownership of the Securities. However, a Security Owner already
subject to tax in a state or locality could be required to pay additional tax as
a result of such holder's ownership or disposition of Securities.
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If some or all of the Securities are treated as equity interests in a
partnership (not treated as a publicly traded partnership taxable as a
corporation) for federal income tax purposes, such Securities generally should
be treated as partnership interests for state and local income tax purposes. In
such case, the partnership should be viewed as a passive holder of investments
and, as a result, should not be subject to state or local taxation and the
Security Owners should not be subject to taxation on income received through the
partnership unless they are already subject to tax in such jurisdiction.
However, if the state or local jurisdiction viewed such partnership as doing
business in such jurisdiction, Security Owners would normally be subject to
taxation in such jurisdiction on their allocable share of the partnership's
income even though they otherwise had no contact with such jurisdiction.
Furthermore, depending on the allocation and apportionment formula, if any, used
by such jurisdiction, it is possible that Security Owners in such case may be
subject to tax in such jurisdiction on their income from other sources.
Additionally, notwithstanding the flow-through treatment that generally applies
to partnerships, some states and localities impose an entity level tax on
partnerships and trusts doing business within their jurisdiction.
The foregoing discussion presents some of the state and local tax
consequences that might apply to Security Owners. However, because of the
variation in each state's and locality's tax laws based in whole or in part upon
income, it is impossible to predict tax consequences to Note Owners and
Certificate Owners all of the taxing jurisdictions in which they are already
subject to tax. Accordingly, Security Owners are strongly urged to consult their
own tax advisors with respect to state and local tax consequences arising out of
the purchase, ownership and disposition of Securities.
***
THE TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL INFORMATION
ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTE OWNER'S OR CERTIFICATE
OWNER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS OF NOTES OR
CERTIFICATES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND
CERTIFICATES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
ERISA CONSIDERATIONS
General
Set forth below are certain consequences under ERISA and the Code that a
fiduciary (a "Plan Fiduciary") of an "employee benefit plan" (as defined in and
subject to ERISA) or of a "plan" (as defined in Section 4975 of the Code) who
has investment discretion should consider before deciding
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to invest the plan's assets in Securities. The following summary is intended to
be a summary of certain relevant ERISA issues and does not purport to address
all ERISA considerations that may be applicable to a particular plan.
In general, the terms "employee benefit plan" as defined in ERISA and
"plan" as defined in Section 4975 of the Code (a "Plan") refer to any plan or
account of various types which provide retirement benefits or welfare benefits
to an individual or to an employer's employees and their beneficiaries. Plans
include corporate pension and profit-sharing plans, "simplified employee pension
plans", Keogh plans for self-employed individuals (including partners in a
partnership), individual retirement accounts described in Section 408 of the
Code and medical benefit plans.
Each Plan Fiduciary must give appropriate consideration to the facts and
circumstances that are relevant to an investment in the Securities, including
the role that an investment in the Securities plays in the Plan's investment
portfolio. Each Plan Fiduciary, before deciding to invest in the Securities,
must be satisfied that investment in the Securities is a prudent investment for
the Plan, that the investments of the Plan, including the investment in the
Securities, are diversified so as to minimize the risks of large losses and that
an investment in the Securities complies with the Plan and related trust
documents.
Each Plan considering acquiring a Security should consult its own legal and
tax advisors before doing so.
Exempt Plans
ERISA and Section 4975 of the Code do not apply to governmental plans and
certain church plans, each as defined in Section 3 of ERISA and Section 4975(g)
of the Code. However, fiduciaries with respect to these plans may be subject to
federal, state or other laws similar in effect to ERISA and Section 4975 of the
Code. The discussion below does not purport to address considerations under such
federal, state or other laws.
Ineligible Purchasers
Securities may not be purchased with the assets of a Plan that is sponsored
by or maintained by the Depositor, the Trustee, the Issuer, the Servicer or any
of their respective affiliates. Securities may not be purchased with the assets
of a Plan if the Depositor, the Trustee, the Issuer, the Servicer or any of
their respective affiliates or any employees thereof: (i) has investment
discretion with respect to the investment of such Plan assets; or (ii) has
authority or responsibility to give or regularly gives investment advice with
respect to such Plan assets for a fee, pursuant to an agreement or understanding
that such advice will serve as a primary basis for investment decisions with
respect to such Plan assets and that such advice will be based on the particular
investment needs of the Plan. A party that is described in clause (i) or (ii) of
the preceding sentence is a fiduciary under ERISA and the Code with respect to
the Plan, and any such purchase might result in a "prohibited transaction" under
ERISA and the Code.
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Plan Assets
It is possible that the purchase of a Security by a Plan will cause, for
purposes of Title I of ERISA and Section 4975 of the Code, the related Base
Assets to be treated as assets of that Plan. A regulation (the "DOL Regulation")
issued under ERISA by the United States Department of Labor (the "DOL") contains
rules for determining when an investment by a Plan in an entity will result in
the underlying assets of the entity being plan assets. Those rules provide that
the assets of an entity will not be "plan assets" of a Plan that purchases an
interest therein if such interest is not an "equity interest". The DOL
Regulation defines an equity interest as an interest other than an instrument
that is treated as indebtedness under applicable local law and that has no
substantial equity features. The DOL Regulation provides, with respect to the
purchase of an equity interest by a Plan, that the assets of an entity will not
be plan assets of a Plan that purchases an interest therein if certain
exceptions apply including the following: (i) the investment by all "benefit
plan investors" is not "significant"; or (ii) the security issued by the entity
is a "publicly offered security". The Prospectus Supplement will specify whether
any of the exceptions set forth in the regulation under ERISA may apply with
respect to a Series of Securities.
With respect to clause (i) of the preceding paragraph, the term "benefit
plan investors" includes all plans and accounts of the types described above
under "General" as employee benefit plans and accounts, whether or not subject
to ERISA, as well as entities that hold "plan assets" due to investments made in
such entities by any of such plans or accounts. Investments by benefit plan
investors will be deemed not significant if benefit plan investors own, in the
aggregate, less than a 25% interest in the entity, determined without regard to
the investments of persons with discretionary authority or control over the
assets of such entity, of any person who provides investment advice for a fee
with respect to such assets and of "affiliates" of such persons (within the
meaning of the DOL Regulation). Because the availability of this exception to
any Trust depends upon the identity of the Certificateholders of the applicable
Series at any time, there can be no assurance that any Series or Class of
Certificates will qualify for this exception.
With respect to clause (ii) of the second preceding paragraph, a publicly
offered security is one which is (a) "freely transferable", (b) part of a class
of securities that is "widely held" and (c) either (1) part of a class of
securities registered under Section 12(b) or 12(g) of the Exchange Act, or (2)
sold to the Plan as part of a public offering pursuant to an effective
registration statement under the Securities Act and registered under the
Exchange Act within 120 days (or such later time as may be allowed by the
Securities and Exchange Commission) after the end of the fiscal year of the
issuer in which the offering of such security occurred. Whether a security is
"freely transferable" is based on all relevant facts and circumstances. A class
of securities is "widely held" only if it is of a class of securities owned by
100 or more investors independent of the issuer and of each other.
If none of the exceptions set forth in the DOL Regulation (including those
discussed above) apply, the Base Assets will be deemed to be the assets of each
benefit plan investor for purposes of ERISA. In such a case, the discussion set
forth in the following sections will apply.
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Consequences of Characterization as Plan Assets
If the Base Assets are plan assets, the Trustee, or, in the case of Notes,
the Depositor or its affiliate will be a fiduciary under ERISA with respect to
Plan investors, and its duties and liabilities will be subject to the provisions
of ERISA. Generally, the fiduciary provisions of ERISA require Plan Fiduciaries
to act for the exclusive benefit of participants and beneficiaries of the Plan,
to employ the care, skill, prudence and diligence that a prudent man acting in a
like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, to diversify investments so
as to minimize the risk of large losses and to comply with the Plan and trust
documents of the Plan.
Prohibited Transactions
If the Base Assets are plan assets, Section 406 of ERISA will prohibit the
Trustee, among others, from causing the assets of the Issuer to be involved,
directly or indirectly, in certain types of transactions with "parties in
interest" to investing Plans unless a statutory or administrative exemption
applies. If the prohibited transaction restrictions of Section 406 of ERISA are
violated, ERISA generally provides for criminal and civil penalties upon the
Plan Fiduciary and possibly other persons. Section 4975(c) of the Code generally
imposes an excise tax on "disqualified persons" who engage, directly or
indirectly, in similar types of transactions with the assets of Plans subject to
such Section (except that an IRA that engages in a prohibited transaction may
instead forfeit its tax-exempt status) and also requires recision of such
transaction.
The types of transactions subject to the prohibited transaction
restrictions of ERISA and Section 4975(c) of the Code include: (i) sales,
exchanges or leases of property (such as the Securities), (ii) loans or other
extensions of credit and (iii) the furnishing of goods and services. As
described in Section 406(b)(1) or Section 4975(c)(1)(E) of the Code, the use of
plan assets by or for the benefit of parties in interest or disqualified persons
may also constitute a prohibited transaction.
The Depositor, the Trustee, the Issuer, the Servicer and certain other
persons and certain affiliates thereof, might be considered or might become a
party in interest or disqualified person with respect to a Plan. If so, the
acquisition, holding or disposition of Securities by or on behalf of such Plan
could give rise to one or more "prohibited transactions" within the meaning of
Section 406 ERISA and Section 4975(c) of the Code unless an exemption described
below or some other exemption is available. In particular, the sale of a
Security by the Underwriters or the services provided by the Trustee to such
Plan would appear in certain circumstances to be a prohibited transaction unless
an exemption applies.
There are several exemptions from the prohibited transaction restrictions
of Section 406 of ERISA and Section 4975 of the Code, and the applicability of
any particular exemption depends upon the circumstances. Certain exemptions are
described below.
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The prohibited transaction restrictions of Section 406(a) of ERISA and
Sections 4975(c)(1)(A) through (D) of the Code do not apply to the purchase or
sale of Securities by a Plan from a party in interest that is a registered
broker-dealer if the conditions set forth in Prohibited Transaction Class
Exemption 75-1 ("PTCE 75-1") are satisfied. That exemption, however, does not
extend to violations of Section 406(b) of ERISA or Section 4975(c)(1)(E) of the
Code. The conditions that must be satisfied for PTCE 75-1 to apply as follows:
(i) the broker-dealer is registered under the Exchange Act and
customarily purchases and sells securities for its own account in the
ordinary course of its business as a broker-dealer;
(ii) the transaction is at least as favorable to the Plan as an
arm's-length transaction with an unrelated party and, at the time of the
transaction, was not a prohibited transaction within the meaning of Section
503(b) of the Code;
(iii) the broker dealer is not a fiduciary with respect to the Plan
and is a party in interest with respect to the Plan solely because it or an
affiliate provides services to the Plan; and
(iv) for a period of six years from the date of the transaction, the
Plan maintains or causes to be maintained such records as are necessary to
determine whether the foregoing conditions have been met, and such records
are unconditionally available for examination during normal business hours
by the DOL and certain other persons.
Certain other prohibited transaction class exemptions ("PTCEs") issued by
DOL, including PTCE 84-14 (qualified professional asset managers), PTCE 90-1
(insurance company pooled separate accounts) and PTCE 91-38 (bank collective
investment fund), may apply to Plans purchasing Securities and to some or all
transactions involving the Securities if the conditions for an applicable
exemption are satisfied. There can be no assurance that any of these class
exemptions or PTCE 75-1 will apply with respect to any particular Plan or, even
if it were to apply, that the exemption would apply to all transactions
involving the applicable Trust.
Section 408(b)(2) of ERISA and Section 4975(d)(2) of the Code permit the
payment of fees to parties in interest that perform services for a Plan if (i)
such services are appropriate and helpful for the establishment or operation of
the Plan, (ii) such services are provided under a reasonable arrangement
(including termination upon reasonably short notice without penalty); and (iii)
no more than reasonable compensation is paid therefor.
Before purchasing any Securities, a Plan Fiduciary should consult with its
counsel and determine whether there exists any prohibition to the acquisition
and holding of such Securities. In particular, a Plan Fiduciary should determine
whether the Underwriters, the Issuer, the Trustee, the Depositor or the Servicer
are parties in interest with respect to the Plan and whether any prohibited
transaction exemptions, such as PTCE 75-1, PTCE 84-14, PTCE 90-1, PTCE 91-38,
Section 408(b)(2) of ERISA or Section 4975(d)(2) of the Code, apply. A
Prospectus Supplement may specify that Plans may not purchase a Security if no
Exemption would apply.
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Prohibited Transaction Class Exemptions
Except as otherwise set forth, the foregoing statements regarding the
consequences under ERISA of an investment in Securities are based on the
provisions of the Code and ERISA as currently in effect, and the existing
administrative and judicial interpretations thereunder. No assurance can be
given that administrative, judicial or legislative changes will not occur that
would not make the foregoing statements incorrect or incomplete.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESENTATION BY THE DEPOSITOR THE ISSUER, THE TRUSTEE, THE SERVICER OR ANY
OTHER PARTY THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH
RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN OR THAT SUCH INVESTMENT IS
APPROPRIATE FOR ANY PARTICULAR PLAN. EACH PLAN FIDUCIARY SHOULD CONSULT WITH
ATTORNEYS AND FINANCIAL ADVISORS AS TO THE PROPRIETY OF SUCH AN INVESTMENT IN
LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR PLAN AND THE RESTRICTIONS OF ERISA
AND SECTION 4975 OF THE CODE.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Notes, if any, of a given Series and an underwriting agreement
with respect to the Certificates of such Series (collectively, the "Underwriting
Agreements"), the Depositor will agree to cause the related Trust to sell to the
underwriters named therein and in the related Prospectus Supplement, and each of
such underwriters will severally agree to purchase, the principal amount of each
Class of Notes and Certificates, as the case may be, of the related Series set
forth therein and in the related Prospectus Supplement.
In the Underwriting Agreements with respect to any given Series of
Securities, the several underwriters will agree, subject to the terms and
conditions set forth therein, to purchase all of the Notes and Certificates, as
the case may be, described therein that are offered hereby and by the related
Prospectus Supplement if any of such Notes and Certificates, as the case may be,
are purchased.
Each Prospectus Supplement will either (i) set forth the price at which
each Class of Notes and Certificates, as the case may be, being offered thereby
will be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates, as the
case may be, or (ii) specify that the related Notes and Certificates, as the
case may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of such sale. After the initial
public offering of any such Notes and Certificates, as the case may be, such
public offering prices and such concessions may be changed.
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Each Underwriting Agreement will provide that the related Seller will
indemnify the related underwriters against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
underwriters may be required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts
in Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
Series of Securities, the closing of the sale of any Class of Securities will be
conditioned on the closing of the sale of all other such Classes under such
Underwriting Agreement.
The place and time of delivery for the Notes and Certificates, as the case
may be, in respect of which this Prospectus is delivered will be set forth in
the related Prospectus Supplement.
If and to the extent required by applicable law or regulation, this
Prospectus and the applicable Prospectus Supplements will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.
LEGAL MATTERS
Certain legal matters relating to the Securities of any Series will be
passed upon by Sidley & Austin, New York, New York. Certain federal income tax
and other matters will be passed upon for each Trust by Sidley & Austin and
certain state tax and other matters will be passed upon for each Trust by Sidley
& Austin.
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INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
Accounts.................................................................................... 1
Accumulation Period......................................................................... 14
Additional Accounts......................................................................... 22
Additional Base Assets...................................................................... 28
Agreement................................................................................... 1
Ancillary Arrangements...................................................................... 49
Base Assets................................................................................. 21
Cash Collateral Account..................................................................... 48
Cash Collateral Guaranty.................................................................... 48
Cede........................................................................................ 34
CEDEL....................................................................................... 73
CEDEL Participants.......................................................................... 73
Certificates................................................................................ 1
Certificate Interest Rate................................................................... 8-9
Certificateholders.......................................................................... 35
Certificates................................................................................ 1
Class....................................................................................... 1
Closing Date................................................................................ 21
CODE........................................................................................ 88
Collateral Indebtedness Interests........................................................... 47
Collection Account.......................................................................... 26
Collection Period........................................................................... 39
Commission.................................................................................. 3
Controlled Accumulation Amount.............................................................. 15
Controlled Amortization Amount.............................................................. 16
Controlled Amortization Period.............................................................. 16
Controlled Deposit Amount................................................................... 15
Controlled Distribution Amount.............................................................. 16
CRB Backed Certificate...................................................................... 7
CRB Backed Notes............................................................................ 7
CRB Backed Securities....................................................................... 7
CRB Issuer.................................................................................. 26
CRB Servicer................................................................................ 26
CRB Trust................................................................................... 44
CRB Trustee................................................................................. 26
Credit Card Accounts........................................................................ 42
Credit Card Receivables..................................................................... 23
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Credit Enhancement.......................................................................... 47
Credit Enhancer............................................................................. 27
Date of Processing.......................................................................... 50
Defaulted Amount............................................................................ 65
Deficit Controlled Accumulation Amount...................................................... 15
Deficit Controlled Amortization Amount...................................................... 16
Definitive Certificates..................................................................... 34
Definitive Notes............................................................................ 34
Definitive Securities....................................................................... 34
Depositaries................................................................................ 71
Depositor................................................................................... 1
Depositor's Certificate..................................................................... 11
Depositor's Interest........................................................................ 10
Distribution Date........................................................................... 50
DTC......................................................................................... 34
Eligible Institution........................................................................ 78
Eligible Investments........................................................................ 78
Eligible Servicer........................................................................... 53
Enhancement Invested Amount................................................................. 47
ERISA....................................................................................... 31
Euroclear................................................................................... 73
Euroclear Operator.......................................................................... 73
Euroclear Participants...................................................................... 73
Exchange Act................................................................................ 3
Expected Final Payment Date................................................................. 13
FDIC........................................................................................ 51
Federal Tax Counsel......................................................................... 29
Final Scheduled Payment Date................................................................ 62
Finance Charge Receivables.................................................................. 23
FIRREA...................................................................................... 36
Floating Allocation Percentage.............................................................. 65
Foreign Investor............................................................................ 116
Funding Account............................................................................. 27
GAO......................................................................................... 35
Grantor Trust............................................................................... 5
Holders..................................................................................... 75
Indenture................................................................................... 7
Indenture Trustee........................................................................... 6
Indirect Participants....................................................................... 72
Initial Accounts............................................................................ 22
Insolvency Event............................................................................ 68
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Interchange................................................................................. 24
Interest Funding Account.................................................................... 13
Invested Amount............................................................................. 12
Investment Earnings......................................................................... 78
IRS......................................................................................... 88
Moody's..................................................................................... 34
Net Portfolio Yield......................................................................... 38
Non-United States Holder.................................................................... 96
Non-United States Owner..................................................................... 105
Note Interest Rate.......................................................................... 7
Noteholders................................................................................. 35
Notes....................................................................................... 1
OID Regulations............................................................................. 90
Owner Trust................................................................................. 5
Paired Series............................................................................... 19
Participations.............................................................................. 23
Pay Out Events.............................................................................. 17
Paying Agent................................................................................ 72
Payment Account............................................................................. 27
Payment Date................................................................................ 54
Plan........................................................................................ 121
Pooling and Servicing Agreement............................................................. 1
Portfolio Yield............................................................................. 38
Prepayment Assumption....................................................................... 92
Pre-Funded Amount........................................................................... 28
Pre-Funding Account......................................................................... 27
Principal Allocation Percentage............................................................. 65
Principal Commencement Date................................................................. 13
Principal Funding Account................................................................... 15
Principal Receivables....................................................................... 23
Prior Series................................................................................ 19
Prospectus.................................................................................. S-1
Prospectus Supplement....................................................................... 1
Rapid Amortization Period................................................................... 17
Rating Agency............................................................................... 34
Receivables................................................................................. 22
Receivables Pooling Certificates............................................................ 6
Registrar................................................................................... 54
Related Documents........................................................................... 58
Removed Accounts............................................................................ 23
Repurchase Amount........................................................................... 40
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Reserve Account............................................................................. 49
Revolving Period............................................................................ 14
S&P......................................................................................... 34
Securities.................................................................................. 1
Securityholders............................................................................. 35
Seller...................................................................................... 2
Series...................................................................................... 1
Series Cut-Off Date......................................................................... 21
Series Enhancement.......................................................................... 28
Series Termination Date..................................................................... 70
Servicer.................................................................................... 6
Servicer Default............................................................................ 52
Servicing Fee............................................................................... 51
Shortfall Amount............................................................................ 110
Special Payment Date........................................................................ 18
Spread Account.............................................................................. 49
Strip Certificates.......................................................................... 9
Subordinate Certificates.................................................................... 109
Subordinate Class Percentage................................................................ 109
Supplement.................................................................................. 11
TIN......................................................................................... 99
Transfer Agent.............................................................................. 75
Trust Accounts.............................................................................. 78
Trust Agreement............................................................................. 1
Trust Stripped Bond......................................................................... 109
Trust Stripped Coupon....................................................................... 109
Trustee..................................................................................... 6
UCC......................................................................................... 84
Underwriting Agreements..................................................................... 125
Yield Calculation........................................................................... 45
Yield Factor................................................................................ 43
</TABLE>
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<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Certificates
(the "Global Securities") will be available only in book entry form. Unless
otherwise specified in a Prospectus Supplement for a Series, investors in the
Global Securities may hold such Global Securities through any of DTC, CEDEL or
Euroclear. The Global Securities will be tradeable as home market instruments in
both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same day funds.
Secondary market trading between investors holding Global Securities
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding Global Securities will be effected on a
delivery-against-payment basis through Citibank and Morgan as the respective
depositaries of CEDEL and Euroclear and as participants in DTC.
Non-U.S. holders of Global Securities will be exempt from U.S. withholding
taxes, provided that such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or their
participants.
Initial Settlement
All Global Securities will he held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
Citibank and Morgan, which in turn will hold such positions in accounts as
participants of DTC.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to conventional asset-backed securities.
Investor securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
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<PAGE>
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desire value
date.
Trading between DTC participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to conventional
asset-backed securities.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a participant at least one
business day prior to settlement. CEDEL or Euroclear will instruct Citibank or
Morgan, respectively, as the case may be, to receive the Global Securities
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment date to and excluding the settlement
date. Payment will then be made by Citibank or Morgan to the DTC participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the CEDEL Participant's or Euroclear Participant's account. The Global
Securities credit will appear the next day (European time) and the cash debit
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the CEDEL or Euroclear cash debit will be valued instead as of
the actual settlement date.
CEDEL Participants and Euroclear participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, participants can elect not to preposition funds and allow that credit line
to be drawn upon to finance settlement.
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<PAGE>
Under this procedure, CEDEL Participants or Euroclear Participants purchasing
Global Securities would incur overdraft charges for one day, assuming they
cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases, the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each
participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Securities to
Citibank or Morgan for the benefit of CEDEL Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, CEDEL and Euroclear Participants may employ
their customary procedures for transactions in which Global Securities are to be
transferred by the respective clearing system, through Citibank or Morgan, to a
DTC participant. The seller will send instructions to CEDEL or Euroclear through
a participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct Citibank or Morgan, as appropriate, to deliver
the Global Securities to the DTC participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date. The payment will
then be reflected in the account of the CEDEL Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the CEDEL or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
CEDEL or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
CEDEL or Euroclear Participant's account would instead be valued as of the
actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase Global
Securities from DTC participants for delivery to CEDEL Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(1) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear
account in order to settle the sale side of the trade; or
AI-3
<PAGE>
(3) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the CEDEL Participant
or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
persons, unless such holder takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. persons (Form W-8). Non U.S. persons that are
beneficial owners can obtain a complete exemption from the withholding tax by
filing a signed Form W-8 (Certificate of Foreign Status) in the calendar year in
which the payment is made or collected or in either of the preceding two
calendar years.
Exemption for non-U.S. persons with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States) annually.
Exemption or reduced rate for non-U.S. persons resident in treaty countries
(Form 1001). Non-U.S. persons that are beneficial owners residing in a country
that has a tax treaty with the United States can obtain an exemption or reduced
tax rate (depending on the treaty terms) by filing Form 1001 (Ownership,
Exemption or Reduced Rate Certificate) every three years. If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless the
filer alternatively files Form W-8. Form 1001 may be filed by the beneficial
owner or his agent.
Exemption for U.S. persons (Form W-9). U.S. persons should file a Form W-9
(Request for Taxpayer Identification Number and Certification) in order to avoid
backup withholding (see "Certain Federal Income Tax Consequences -- Owner Trusts
- -- Tax Consequences to Note Owners --Backup Withholding and Information
Reporting", above).
U.S. Federal Income Tax Reporting Procedure. The Global Security holder, or
in the case of a Form 1001 or a Form 4224 filer, his agent, files by submitting
the appropriate form to the person through whom he holds (the clearing agency,
in the case of persons holding directly on the books of the clearing agency).
Form W-8 and Form 1001 are effective for three calendar years and Form 4224 is
effective for one taxable year.
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<PAGE>
On April 15, 1996, proposed Treasury Regulations (the "1996 Proposed
Regulations") were issued which, if adopted in final form, could affect the
documentation required from non-U.S. persons holding Global Securities. The 1996
Proposed Regulations are generally proposed to be effective for payments after
December 31, 1997, regardless of the issue date of the Global Security with
respect to which such payments are made, subject to certain transition rules.
The 1996 Proposed Regulations would, if adopted, replace a number of current tax
certification forms (including IRS Form W-8, IRS Form 1001 and IRS Form 4224,
discussed above) with a single, restated form and standardize the period of time
for which withholding agents could rely on such certifications. It cannot be
predicted at this time whether the 1996 Proposed Regulations will become
effective as proposed, or what, if any, modifications may be made to them.
Prospective investors are urged to consult their tax advisors with respect to
the effect the 1996 Proposed Regulations may have.
This summary does not deal with all aspects of foreign income tax
withholding that may be relevant to foreign holders of these Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of these Global Securities.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution*
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration Fee.......................... $ 345
Printing and Engraving Expenses...........
Trustee's Fees and Expenses...............
Legal Fees and Expenses...................
Blue Sky Fees and Expenses................
Accountant's Fees and Expenses............
Rating Agency Fees........................
Miscellaneous.............................
------
Total.....................................
======
</TABLE>
- -------------
* To be completed by amendment.
Item 16. Exhibits
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of Asset Backed Securities
Corporation. (Incorporated by reference to Registration Statement
No. 33-10125).
4.1.1 Form of Indenture. (Owner Trust, Fixed Rate Notes, Auto Receivables)*
4.1.2 Form of Indenture. (Owner Trust, Fixed Rate Notes, Auto Securities)*
4.1.3 Form of Indenture. (Owner Trust, Fixed/Floating Rate Notes, Credit Card
Securities)*
4.2.1 Form of Pooling and Servicing Agreement. (Grantor Trust, Fixed Rate
Certificates, Auto Receivables)
4.2.2 Form of Master Pooling and Servicing Agreement. (Master Trust, Credit
Card Receivables)*
4.2.3 Form of Standard Terms and Conditions of Pooling and Servicing. (Grantor
Trust/REMIC, Fixed/Floating Rate Certificates, Manufactured Housing
Contracts)
4.2.4 Form of Standard Terms and Conditions of Pooling and Servicing. (REMIC,
Fixed/Floating Rate Certificates, Mortgage Loans)
4.2.5 Form of Standard Terms and Conditions of Pooling and Servicing and
Reference Agreement. (REMIC, Fixed/Floating Rate Certificates, Mortgage
Loans)*
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<PAGE>
4.2.6 Form of Pooling and Servicing Agreement. (REMIC, Fixed/Floating Rate
Certificates, Mortgage Loans)*
4.3.1 Form of Series Supplement to Pooling and Servicing Agreement. (Master
Trust, Credit Card Receivables)*
4.3.2 Form of Reference Agreement. (Grantor Trust, Fixed Rate Certificates,
Manufactured Housing Contracts)
4.3.3 Form of Reference Agreement. (Grantor Trust/REMIC, Fixed Rate/Interest
Only Certificates, Manufactured Housing Contracts)*
4.3.4 Form of Reference Agreement. (Grantor Trust, Fixed Rate Certificates,
Mortgage Loans)*
4.3.5 Form of Reference Agreement. (Grantor Trust/REMIC, Fixed Rate
Certificates, Mortgage Loans)*
4.3.6 Form of Reference Agreement. (REMIC, Fixed/Floating Rate Certificates,
Mortgage Loans)*
4.4.1 Form of Trust Agreement. (Owner Trust, Auto Receivables)*
4.4.2 Form of Trust Agreement. (Owner Trust, Auto Securities)*
4.4.3 Form of Trust Agreement. (Grantor Trust, Auto Securities)
4.4.4 Form of Trust Agreement. (Owner Trust, Credit Card Securities)
4.4.5 Form of Trust Agreement. (Grantor Trust, Credit Card Securities)
4.4.6 Form of Deposit Trust Agreement. (Grantor Trust, Fixed Rate/Interest Only
Certificates, Mortgage Certificates)
5.1.1 Opinion of Sidley & Austin. (Auto Loans)
5.1.2 Opinion of Sidley & Austin. (Mortgage Loans)
5.1.3 Opinion of Sidley & Austin. (Credit Cards)
8.1.1 Opinion of Sidley & Austin with respect to tax matters. (Auto Loans)
8.1.2 Opinion of Sidley & Austin with respect to tax matters. (Mortgage Loans)
8.1.3 Opinion of Sidley & Austin with respect to tax matters. (Credit Cards)
10.1.1 Form of Receivables Purchase Agreement. (Auto Loan Receivables)*
10.1.2 Form of Receivables Purchase Agreement. (Credit Card Receivables)*
10.1.3 Form of Master Seller's Warranty and Servicing Agreement. (Mortgage
Loans)*
10.2.1 Form of Sale and Servicing Agreement. (Owner Trust, Auto Loan
Receivables)*
23.1 Consent of Sidley & Austin. (included in exhibits 5.1 and 8.1)
24.1 Powers of Attorney of directors and officers of Asset Backed Securities
Corporation. (included in the signature pages to this Registration
Statement filed with the Commission on January 22, 1996)
25.1 Statement of Eligibility and Qualification of Indenture Trustee**
II-2
<PAGE>
99.1 Form of Prospectus Supplement. (Owner Trust, Fixed Rate Notes and
Certificates, Auto Receivables)
99.2 Form of Prospectus Supplement. (Grantor Trust, Fixed Rate Certificates,
Auto Receivables)
99.3 Form of Prospectus Supplement. (Grantor Trust, Fixed Rate Certificates,
Auto Securities)
99.4 Form of Prospectus Supplement. (Owner Trust, Fixed Rate Notes and
Certificates, Auto Securities)
99.5 Form of Prospectus Supplement. (Grantor Trust/REMIC, Mortgage Loans)
99.6 Form of Prospectus Supplement. (REMIC, Fixed Rate Certificates, Mortgage
Loans)
99.7 Form of Prospectus Supplement. (REMIC, Fixed/Floating Rate Certificates,
Mortgage Loans)
99.8 Form of Prospectus Supplement. (Grantor Trust, Principal Only/Interest
Only Certificates, Mortgage Loans)
99.9 Form of Prospectus Supplement. (Grantor Trust/REMIC, Fixed Rate
Certificates, Manufactured Housing Contracts)
99.10 Form of Prospectus Supplement. (REMIC, Variable Rate Certificates,
Adjustable Rate Mortgage Loans)
99.11 Form of Prospectus Supplement. (Grantor Trust/REMIC, Floating Rate
Certificates, Mortgage Certificates)
99.12 Form of Prospectus Supplement. (Master Trust, Fixed/Floating Rate
Certificates, Credit Card Receivables)
99.13 Form of Prospectus Supplement. (Owner Trust, Fixed/Floating Rate Notes and
Certificates, Credit Card Securities)
99.14 Form of Prospectus Supplement. (Grantor Trust, Fixed/Floating Rate
Certificates, Credit Card Securities)
- ------------------
* Previously filed.
** To be filed by Form 8-K.
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<PAGE>
Item 17. Undertakings
(a) As to the Qualification of Trust Indentures under the Trust
Indenture Act of 1939:
The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the
trustee to act under subsection (a) of Section 310 of the Trust
Indenture Act in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Act.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment 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 this 28th day of
June, 1996.
Asset Backed Securities Corporation
By: /s/ Gina Hubbell
------------------------------------
Name: Gina Hubbell
Title: Director and Vice President
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<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
* Director and Chairman of the June 28, 1996
- -------------------- Board
Andrew Stone
* President and Director (Principal June 28, 1996
- -------------------- Executive Officer)
Scott Ulm
/s/ Gina Hubbell Director and Vice President June 28, 1996
- --------------------
Gina Hubbell
* Director June 28, 1996
- --------------------
William Pitofsky
* Vice President June 28, 1996
- --------------------
Richard Eimbinder
* Vice President and Controller June 28, 1996
- -------------------- (Principal Accounting Officer)
Thomas Zingalli
* Treasurer (Principal Financial June 28, 1996
- -------------------- Officer)
Linda Hanauer
* /s/ Gina Hubbell
- --------------------
By: Gina Hubbell
Attorney-in-fact
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<PAGE>
EXHIBIT INDEX
Page Number
-----------
Item 16. Exhibits
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of Asset Backed Securities
Corporation. (Incorporated by reference to Registration Statement No.
33-10125).
4.1.1 Form of Indenture. (Owner Trust, Fixed Rate Notes, Auto Receivables)*
4.1.2 Form of Indenture. (Owner Trust, Fixed Rate Notes, Auto Securities)*
4.1.3 Form of Indenture. (Owner Trust, Fixed/Floating Rate Notes, Credit Card
Securities)*
4.2.1 Form of Pooling and Servicing Agreement. (Grantor Trust, Fixed Rate
Certificates, Auto Receivables)
4.2.2 Form of Master Pooling and Servicing Agreement. (Master Trust, Credit
Card Receivables)*
4.2.3 Form of Standard Terms and Conditions of Pooling and Servicing. (Grantor
Trust/REMIC, Fixed/Floating Rate Certificates, Manufactured Housing
Contracts)
4.2.4 Form of Standard Terms and Conditions of Pooling and Servicing. (REMIC,
Fixed/Floating Rate Certificates, Mortgage Loans)
4.2.5 Form of Standard Terms and Conditions of Pooling and Servicing and
Reference Agreement. (REMIC, Fixed/Floating Rate Certificates, Mortgage
Loans)*
4.2.6 Form of Pooling and Servicing Agreement. (REMIC, Fixed/Floating Rate
Certificates, Mortgage Loans)*
4.3.1 Form of Series Supplement to Pooling and Servicing Agreement. (Master
Trust, Credit Card Receivables)*
4.3.2 Form of Reference Agreement. (Grantor Trust, Fixed Rate Certificates,
Manufactured Housing Contracts)
4.3.3 Form of Reference Agreement. (Grantor Trust/REMIC, Fixed Rate/Interest
Only Certificates, Manufactured Housing Contracts)*
4.3.4 Form of Reference Agreement. (Grantor Trust, Fixed Rate Certificates,
Mortgage Loans)*
4.3.5 Form of Reference Agreement. (Grantor Trust/REMIC, Fixed Rate
Certificates, Mortgage Loans)*
4.3.6 Form of Reference Agreement. (REMIC, Fixed/Floating Rate Certificates,
Mortgage Loans)*
4.4.1 Form of Trust Agreement. (Owner Trust, Auto Receivables)*
4.4.2 Form of Trust Agreement. (Owner Trust, Auto Securities)*
4.4.3 Form of Trust Agreement. (Grantor Trust, Auto Securities)
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<PAGE>
4.4.4 Form of Trust Agreement. (Owner Trust, Credit Card Securities)
4.4.5 Form of Trust Agreement. (Grantor Trust, Credit Card Securities)
4.4.6 Form of Deposit Trust Agreement. (Grantor Trust, Fixed Rate/Interest Only
Certificates, Mortgage Certificates)
5.1.1 Opinion of Sidley & Austin. (Auto Loans)
5.1.2 Opinion of Sidley & Austin. (Mortgage Loans)
5.1.3 Opinion of Sidley & Austin. (Credit Cards)
8.1.1 Opinion of Sidley & Austin with respect to tax matters. (Auto Loans)
8.1.2 Opinion of Sidley & Austin with respect to tax matters. (Mortgage Loans)
8.1.3 Opinion of Sidley & Austin with respect to tax matters. (Credit Cards)
10.1.1 Form of Receivables Purchase Agreement. (Auto Loan Receivables)*
10.1.2 Form of Receivables Purchase Agreement. (Credit Card Receivables)*
10.1.3 Form of Master Seller's Warranty and Servicing Agreement. (Mortgage
Loans)*
10.2.1 Form of Sale and Servicing Agreement. (Owner Trust, Auto Loan
Receivables)*
23.1 Consent of Sidley & Austin. (included in exhibits 5.1 and 8.1)
24.1 Powers of Attorney of directors and officers of Asset Backed Securities
Corporation. (included in the signature pages to this Registration
Statement filed with the Commission on January 22, 1996)
25.1 Statement of Eligibility and Qualification of Indenture Trustee**
99.1 Form of Prospectus Supplement. (Owner Trust, Fixed Rate Notes and
Certificates, Auto Receivables)
99.2 Form of Prospectus Supplement. (Grantor Trust, Fixed Rate Certificates,
Auto Receivables)
99.3 Form of Prospectus Supplement. (Grantor Trust, Fixed Rate Certificates,
Auto Securities)
99.4 Form of Prospectus Supplement. (Owner Trust, Fixed Rate Notes and
Certificates, Auto Securities)
99.5 Form of Prospectus Supplement. (Grantor Trust/REMIC, Mortgage Loans)
99.6 Form of Prospectus Supplement. (REMIC, Fixed Rate Certificates, Mortgage
Loans)
99.7 Form of Prospectus Supplement. (REMIC, Fixed/Floating Rate Certificates,
Mortgage Loans)
99.8 Form of Prospectus Supplement. (Grantor Trust, Principal Only/Interest
Only Certificates, Mortgage Loans)
99.9 Form of Prospectus Supplement. (Grantor Trust/REMIC, Fixed Rate
Certificates, Manufactured Housing Contracts)
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<PAGE>
99.10 Form of Prospectus Supplement. (REMIC, Variable Rate Certificates,
Adjustable Rate Mortgage Loans)
99.11 Form of Prospectus Supplement. (Grantor Trust/REMIC, Floating Rate
Certificates, Mortgage Certificates)
99.12 Form of Prospectus Supplement. (Master Trust, Fixed/Floating Rate
Certificates, Credit Card Receivables)
99.13 Form of Prospectus Supplement. (Owner Trust, Fixed/Floating Rate Notes
and Certificates, Credit Card Securities)
99.14 Form of Prospectus Supplement. (Grantor Trust, Fixed/Floating Rate
Certificates, Credit Card Securities)
- ------------------
* Previously filed.
** To be filed by Form 8-K.
II-9
Exhibit 4.2.1
================================================================================
FORM OF POOLING AND SERVICING AGREEMENT
among
ASSET BACKED SECURITIES CORPORATION,
as Company,
[ ],
as Servicer
and
[ ],
as Trustee
on behalf of the Certificateholders
Dated as of ___________
CS FIRST BOSTON AUTO RECEIVABLES TRUST 199__
___% Asset Backed Certificates, Class A
___% Asset Backed Certificates, Class B
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions....................................................1
Section 1.01. Definitions..............................................1
ARTICLE II Conveyance of Receivables; Original Issuance
of Certificates...............................................17
Section 2.01. Conveyance of Receivables..............................17
Section 2.02. Acceptance by Trustee..................................18
Section 2.03. Representations and Warranties
of the Company.........................................18
Section 2.04. Repurchase Upon Breach.................................22
Section 2.05. Custody of Receivable Files............................22
Section 2.06. Duties of Servicer as Custodian........................23
Section 2.07. Instructions; Authority to Act.........................24
Section 2.08. Custodian's Indemnification............................24
Section 2.09. Effective Period and Termination.......................24
ARTICLE III Administration and Servicing of Receivables...................25
Section 3.01. Duties of Servicer.....................................25
Section 3.02. Collection and Allocation of Receivable
Payments...............................................25
Section 3.03. Realization Upon Receivables...........................26
Section 3.04. Physical Damage Insurance..............................26
Section 3.05. Maintenance of Security Interests
in Financed Vehicles...................................27
Section 3.06. Covenants of Servicer..................................27
Section 3.07. Purchase of Receivables Upon Breach....................27
Section 3.08. Servicing Fee..........................................27
Section 3.09. Servicer's Certificate.................................28
Section 3.10. Annual Statement as to Compliance;
Notice of Default......................................28
Section 3.11. Annual Independent Certified Public
Accountant's Report....................................28
Section 3.12. Access to Certain Documentation and
Information Regarding Receivables......................29
Section 3.13. Servicer Expenses......................................29
Section 3.14. Appointment of Subservicer.............................29
ARTICLE IV Accounts......................................................30
Section 4.01. Establishment of Trust Accounts........................30
Section 4.02. Reserve Account........................................32
[Section 4.03. Yield Supplement Account..............................35
ARTICLE V Payments and Statements to Certificateholders.................36
Section 5.01. Collections............................................36
Section 5.02. Application of Collections.............................36
Section 5.03. Advances...............................................37
Section 5.04. Additional Deposits....................................38
</TABLE>
i
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 5.05. Deposits...............................................38
Section 5.06. Statements to Certificateholders.......................41
Section 5.07. Tax Treatment; Construction............................42
Section 5.09. Net Deposits...........................................42
ARTICLE VI The Certificates..............................................43
Section 6.01. The Certificates.......................................43
Section 6.02. Authentication of Certificates. .......................43
Section 6.03. Registration of Transfer and Exchange
of Certificates........................................43
Section 6.04. Mutilated, Destroyed, Lost or Stolen
Certificates...........................................44
Section 6.05. Persons Deemed Owners..................................44
Section 6.06. Access to List of Certificateholders'
Names and Addresses....................................45
Section 6.07. Maintenance of Office or Agency........................45
Section 6.08. Book-Entry Certificates................................45
Section 6.09. Notices to Clearing Agency.............................46
Section 6.10. Definitive Certificates................................46
[Section 6.11. Limitations on Transfer of the Class B
Certificates...........................................47
ARTICLE VII The Company...................................................49
Section 7.01. The Company's Representations..........................49
Section 7.02. Corporate Existence....................................50
Section 7.03. Liabilities of the Company. ..........................51
Section 7.04. Merger or Consolidation of, or Assumption
of the Obligations of, the Company.....................51
Section 7.05. Limitation on Liability of the Company
and Others.............................................51
Section 7.06. The Company May Own Certificates.......................52
ARTICLE VIII The Servicer..................................................52
Section 8.01. Representations of Servicer............................52
Section 8.02. Indemnities of Servicer................................53
Section 8.03. Merger or Consolidation of, or Assumption
of the Obligations of, Servicer........................54
Section 8.04. Limitation on Liability of Servicer and
Others.................................................55
ARTICLE IX Default.......................................................55
Section 9.01. Events of Default......................................55
Section 9.02. Appointment of Successor...............................57
Section 9.03. Repayment of Advances..................................58
Section 9.04. Notification of Certificateholders.....................58
Section 9.05. Waiver of Past Defaults................................58
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ARTICLE X The Trustee...................................................58
Section 10.01. Duties of Trustee......................................58
Section 10.02. Certain Matters Affecting Trustee......................59
Section 10.03. Trustee Not Liable for Certificates
or Receivables.........................................60
Section 10.04. Trustee May Own Certificates...........................61
Section 10.05. Trustee's Fees and Expenses............................61
Section 10.06. Eligibility Requirements for Trustee...................61
Section 10.07. Resignation or Removal of Trustee......................62
Section 10.08. Successor Trustee......................................62
Section 10.09. Merger or Consolidation of Trustee.....................63
Section 10.10. Appointment of Co-Trustee or Separate
Trustee................................................63
Section 10.11. Representations and Warranties of
Trustee................................................65
ARTICLE XI Termination...................................................66
Section 11.01. Termination of the Trust...............................66
Section 11.02. Optional Purchase of All Receivables...................67
ARTICLE XII Miscellaneous Provisions......................................67
Section 12.01. Amendment..............................................67
Section 12.02. Protection of Title to Trust...........................68
Section 12.03. Separate Counterparts..................................70
Section 12.04. Limitation on Rights of
Certificateholders.....................................70
Section 12.05. Governing Law..........................................71
Section 12.06. Notices................................................71
Section 12.07. Severability of Provisions.............................71
Section 12.08. Assignment.............................................72
Section 12.09. Certificates Nonassessable and Fully
Paid...................................................72
Section 12.10. Limitations on Rights of Others........................72
Section 12.11. Headings...............................................72
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POOLING AND SERVICING AGREEMENT dated as of ______________, among ASSET BACKED
SECURITIES CORPORATION (the "Company"), as depositor, ____________, as servicer
(the "Servicer"), and ____________, a____________banking corporation, as trustee
(the "Trustee").
RECITALS
WHEREAS, the Company owns certain motor vehicle installment loan agreements
and motor vehicle retail installment sale contracts (collectively, the "Motor
Vehicle Installment Contracts"); and
WHEREAS, the Company and the Trustee wish to set forth the terms and
conditions pursuant to which the Trust (as hereinafter defined) will acquire the
Motor Vehicle Installment Contracts from the Company, and the Servicer will
service the Motor Vehicle Installment Contracts on behalf of the Trust;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the Company and the Trustee hereby agree as follows:
ARTICLE I.
Definitions
Section 1.01. Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
"Account Property" means any account established and maintained pursuant to
Article IV, all amounts and investments held from time to time in any such
account (whether in the form of deposit accounts, Physical Property, book-entry
securities, uncertificated securities or otherwise), and all proceeds of the
foregoing.
"Advances" means either a Precomputed Advance or a Simple Interest Advance
or both, as applicable.
"Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement" means this Pooling and Servicing Agreement.
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"Amount Financed" means, with respect to any Receivable, the amount
advanced under the related Motor Vehicle Installment Contract toward the
purchase price of the Financed Vehicle and any related costs.
"Annual Percentage Rate" or "APR" of a Receivable means the annual rate of
finance charges stated in the related Motor Vehicle Installment Contract.
"Benefit Plan" has the meaning set forth in Section 6.11(b).
"Book-Entry Certificates" means a beneficial interest in the Class A
Certificates ownership and transfers of which shall be registered through book
entries by a Clearing Agency as described in Section 6.08.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions or trust companies in ______________ are authorized
or obligated by law, regulation or executive order to be closed.
"Certificate Balance" means, as of any date, the aggregate outstanding
principal amount of the Certificates at such date.
"Certificate Owner" means, with respect to a Book-Entry Certificate, the
Person who is the beneficial owner of such Book-Entry Certificate, as reflected
on the books of the Clearing Agency or on the books of a Person maintaining an
account with such Clearing Agency (directly as a Clearing Agency Participant or
as an indirect participant, in each case in accordance with the rules of such
Clearing Agency).
"Certificate Pool Factor" means, with respect to each class of Certificates
as of the close of business on the last day of a Collection Period, a
seven-digit decimal figure equal to the outstanding principal amount of such
class of Certificates (after giving effect to any reduction thereof to be made
on the immediately following Distribution Date) divided by the original
outstanding principal amount of such class of Certificates. The Certificate Pool
Factor, with respect to each class of Certificates, will be 1.0000000 as of the
Closing Date and, thereafter, will decline to reflect reductions in the
outstanding principal amount of such class of Certificates.
"Certificateholder" or "Holder" means a Person in whose name a Certificate
is registered in the Certificate Register.
"Certificate Register" and "Certificate Registrar" mean the register
maintained and the registrar appointed pursuant to Section 6.03.
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"Certificates" means the Class A Certificates and the Class B Certificates.
"Class A Certificate" means a ___% Asset Backed Certificate, Class A,
evidencing a beneficial interest in the Trust, substantially in the form of
Exhibit A.
"Class A Certificate Balance" means, initially, $__________, and, as of any
date of determination thereafter, such initial Class A Certificate Balance
reduced by all amounts previously distributed to Holders of Class A Certificates
and allocable to principal.
"Class A Distributable Amount" means, with respect to any Distribution
Date, the sum of the Class A Principal Distributable Amount and the Class A
Interest Distributable Amount for such date.
"Class A Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the sum of the Class A Monthly Interest
Distributable Amount for the preceding Distribution Date, and any outstanding
Class A Interest Shortfall on such preceding Distribution Date, over the amount
in respect of interest that Holders of the Class A Certificates actually
received on such preceding Distribution Date, plus 30 days' interest on such
excess, to the extent permitted by law, at the Class A Pass-Through Rate.
"Class A Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Class A Monthly Interest Distributable Amount
for such Distribution Date and Class A Interest Carryover Shortfall for such
Distribution Date.
"Class A Monthly Interest Distributable Amount" means, with respect to any
Distribution Date, an amount equal to the product of (i) one-twelfth, (ii) the
Class A Pass-Through Rate and (iii) the Class A Certificate Balance on the
preceding Distribution Date (or, the case of the first Distribution Date, the
Closing Date) after giving effect to (a) any amount distributed to Holders of
Class A Certificates on such preceding Distribution Date and allocable to
principal and (b) any Realized Losses allocated to the Class A Certificates on
such preceding Distribution Date.
"Class A Monthly Principal Distributable Amount" means, with respect to any
Distribution Date, the Class A Percentage of the Principal Distribution Amount.
"Class A Pass-Through Rate" means ___%.
"Class A Percentage" means ___%.
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"Class A Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class A Monthly Principal Distributable
Amount and any outstanding Class A Principal Carryover Shortfall from the
preceding Distribution Date, over the amount in respect of principal that is
actually distributed to Holders of the Class A Certificates on such current
Distribution Date.
"Class A Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Class A Monthly Principal Distributable Amount
for such Distribution Date and the Class A Principal Carryover Shortfall as of
the closing of the preceding Distribution Date; provided, however, that the
Class A Principal Distributable Amount shall not exceed the Class A Certificate
Balance. In addition, on the Final Scheduled Distribution Date, the principal
required to be included in the Class A Principal Distributable Amount will
include the lesser of (a) the Class A Percentage of (1) any Scheduled Payments
of principal due and remaining unpaid on each Precomputed Receivable and (2) any
principal due and remaining unpaid to each Simple Interest Receivable, in each
case, in the Trust as of the final Scheduled Maturity Date or (b) the amount
that is necessary (after giving effect to the other amounts to be distributed to
Holders of the Class A Certificates on such Distribution Date and allocable to
principal) to reduce the Class A Certificate Balance to zero.
"Class B Certificate" means a ___% Asset Backed Certificate, Class B,
evidencing a beneficial interest in the Trust, substantially in the form of
Exhibit B.
"Class B Certificate Balance" means initially, $__________, and, as of any
date of determination thereafter, such initial Class B Certificate Balance
reduced by all amounts previously distributed to Holders of Class B Certificates
and allocable to principal.
"Class B Distributable Amount" means, with respect to any Distribution
Date, the sum of the Class B Principal Distributable Amount and the Class B
Interest Distributable Amount.
"Class B Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the sum of the Class B Interest Distributable
Amount for the preceding Distribution Date and any outstanding Class B Interest
Carryover Shortfall on such preceding Distribution Date, over the amount in
respect of interest that Holders of the Class B Certificates actually received
on such preceding Distribution Date, plus 30 days' interest on such excess, to
the extent permitted by law, at the Class B Pass-Through Rate.
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"Class B Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Class B Monthly Interest Distributable Amount
for such Distribution Date and the Class B Interest Carryover Shortfall for such
Distribution Date.
"Class B Monthly Interest Distributable Amount" means, with respect to any
Distribution Date, an amount equal to the product of (i) one-twelfth, (ii) the
Class B Pass-Through Rate and (iii) the Class B Certificate Balance on the
preceding Distribution Date (or, in the case of the first Distribution Date, the
Closing Date) after giving effect to (a) any amount distributed to Holders of
the Class B Certificates on such preceding Distribution Date and allocable to
principal and (b) any Realized Losses allocated to the Class B Certificates on
such preceding Distribution Date.
"Class B Monthly Principal Distributable Amount" means, with respect to any
Distribution Date, the Class B Percentage of the Principal Distribution Amount.
"Class B Pass-Through Rate" means___%.
"Class B Percentage" means ___%.
"Class B Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class B Monthly Principal Distributable
Amount and any outstanding Class B Principal Carryover Shortfall from the
preceding Distribution Date, over the amount in respect of principal that is
actually distributed to Holders of the Class B Certificates on such current
Distribution Date.
"Class B Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Class B Monthly Principal Distributable Amount
for such Distribution Date and the Class B Principal Carryover Shortfall as of
the close of the preceding Distribution Date; provided, however, that the Class
B Principal Distributable Amount shall not exceed the Class B Certificate
Balance. In addition, on the Final Scheduled Distribution Date, the principal
required to be included in the Class B Principal Distributable Amount will
include the lesser of (a) the Class B Percentage of (1) any Scheduled Payments
of principal due and remaining unpaid on each Precomputed Receivable and (2) any
principal due and remaining unpaid on each Simple Interest Receivable, in each
case, in the Trust as of the Final Scheduled Maturity Date or (b) the amount
that is necessary (after giving effect to the other amounts to be deposited in
the Distribution Account on such Distribution Date and allocable to principal)
to reduce the Class B Certificate Balance to zero.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended.
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"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means ______________.
"Code" means the Internal Revenue Code of 1986.
"Collection Account" means the account designated as such, established and
maintained pursuant to Section 4.01.
"Collection Period" means a calendar month (or in the case of the first
Distribution Date, the period from and including the Cutoff Date to and
including the last day of the calendar month in which the Closing Date occurs).
Any amount stated as of the last day of a Collection Period or as of the first
day of a Collection Period or as of the first day of a collection Period shall
give effect to the following calculations as determined as of the close of
business on such last day: (a) all applications of collections, (b) all current
and previous Payaheads, (c) all applications of Payahead Balances, (d) all
Advances and reductions of Advances and (e) all distributions to be made on the
following Distribution Date.
"Corporate Trust Office" means the principal corporate trust office of the
Trustee, which at the time of execution of this agreement is located at
______________________. Attention: ________________, or at such other address as
the Trustee may designate from time to time by notice to Certificateholders, the
Company and the Servicer, or the principal corporate trust office of any
successor Trustee (of which address such successor Trustee shall notify the
Certificateholders, the Company and the Servicer).
"Cutoff Date" means _______________.
"Cutoff Date Pool Balance" means the sum of the aggregate Principal Balance
of the Receivables as of the Cutoff Date.
"Definitive Certificates" shall have the meaning specified in Section 6.11.
"Delivery" when used with respect to Account Property means:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC and are susceptible of
physical delivery, transfer thereof to the Trustee or its nominee or custodian
by physical delivery to the Trustee or its nominee or custodian
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endorsed to, or registered in the name of, the Trustee or its nominee or
custodian or endorsed in blank, and, with respect to a certificated security (as
defined in Section 8-102 of the UCC) transfer thereof (i) by delivery of such
certificated security endorsed to, or registered in the name of, the Trustee or
its nominee or custodian or endorsed in blank to a financial intermediary (as
defined in Section 8-313 of the UCC) and the making by such financial
intermediary of entries on its books and records identifying such certificated
securities as belonging to the Trustee or its nominee or custodian and the
sending by such financial intermediary of a confirmation of the purchase of such
certificated security by the Trustee or its nominee or custodian, or (ii) by
delivery thereof to a "clearing corporation" (as defined in Section 8-102(3) of
the UCC) and the making by such clearing corporation of appropriate entries on
its books reducing the appropriate securities account of the transferor and
increasing the appropriate securities account of a financial intermediary by the
amount of such certificated security, the identification by the clearing
corporation of the certificated securities for the sole and exclusive account of
the financial intermediary, the maintenance of such certificated securities by
such clearing corporation or a "custodian bank" (as defined in section 8-102(4)
of the UCC) or the nominee of either, subject to the clearing corporations'
exclusive control, the sending of a confirmation by the financial intermediary
of the purchase by the Trustee or its nominee or custodian of such securities
and the making by such financial intermediary of entries on its books and
records identifying such certificated securities as belonging to the Trustee or
its nominee or custodian (all of the foregoing, "Physical Property"), and, in
any event, any such Physical Property in registered form shall be in the name of
the Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect the complete transfer
of ownership of any such Account Property to the Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury, the Federal
Home Loan Mortgage Corporation or by the Federal National Mortgage Association
that are book-entry securities held through the Federal Reserve System pursuant
to federal book-entry regulations, the following procedures, all in accordance
with applicable Law, including applicable federal regulations and Articles 8 and
9 of the UCC: book-entry registration of such Account Property to an appropriate
book-entry account maintained with Federal Reserve Bank by a financial
intermediary that is also a "depository" pursuant to applicable federal
regulations and issuance by such financial intermediary of deposit advice or
other written confirmation of such book-entry registration to the Trustee or its
nominee or custodian of the purchase by the Trustee or its nominee or custodian
of such book-entry securities; the making by such financial intermediary of
entries in its books and records identifying such book-entry
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security held through the Federal Reserve System pursuant to federal book-entry
regulations as belonging to the Trustee, or its nominee or custodian and
indicating that such custodian holds such Account Property solely as agent for
the Trustee or its nominee or custodian; and such additional or alternative
procedures as may hereafter become appropriate to effect complete transfer of
ownership of any such Account Property to the Trustee or its nominee or
custodian consistent with changes in applicable law or regulations or the
interpretation thereof; and
(c) with respect to any item of Account Property that is an uncertificated
security under Article 8 of the UCC and that is not governed by clause (b)
above, registration on the books and records of the issuer thereof in the name
of the financial intermediary, the sending of a confirmation by the financial
intermediary of the purchase by the Trustee or its nominee or custodian of such
uncertificated security, and the making by such financial intermediary of
entries on its books an records identifying such uncertificated certificates as
belonging to the Trustee or its nominee or custodian.
"Depository Agreement" means the agreement dated __________, among the
Trustee and The Depository Trust Company, as the initial Clearing Agency,
substantially in the form of Exhibit C.
"Determination Date" means the ____day of each calendar month or, if such
day is not a Business Day, the immediately following Business Day.
"Distribution Account" means the account designated as such, established
and maintained pursuant to Section 4.01.
"Distribution Date" means, with respect to each Collection Period, the ___
day of the following calendar month or, if such day is not a Business Day, the
immediately following Business Day, commencing on ____
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one to the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution shall have a credit rating from each
Rating Agency in one of its generic rating categories that signifies investment
grade.
"Eligible Institution" means (a) the corporate trust department of the
Trustee or (b) a depository institution organized under the laws of the United
States of America or any
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one of the states thereof or the District of Columbia (or any domestic branch of
a foreign bank), which (1) has either (A) a long-term unsecured debt rating of
AAA or better by Standard & Poor's and A1 or better by Moody's or (B) a
certificate of deposit rating of A-1+ by Standard & Poor's and P-1 or better by
Moody's or any other long-term, short-term or certificate of deposit rating
acceptable to the Rating Agencies and (2) whose deposits are insured by the
FDIC. If so qualified, the Trustee may be considered an Eligible Institution for
the purposes of clause (b) of this definition.
"Eligible Investments" mean book-entry securities, negotiable instruments
or securities represented by instruments in bearer or registered form which
evidence;
(a) direct obligations of, and obligations fully guaranteed as to timely
payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States of America or any state thereof (of any domestic branch of a
foreign bank ) and subject to supervision and examination by federal or state
banking or depository institution authorities; provided, however, that at the
time of the investment or contractual commitment to invest therein, the
commercial paper or other short-term unsecured debt obligations thereof (other
than such obligations the rating of which is based on the credit of a Person
other than such depository institution or trust company) shall have a credit
rating of A-1+ from Standard & Poor's and P1 from Moody's;
(c) commercial paper having, at the time of the investment or contractual
commitment to invest therein, a rating of A-1+ from Standard & Poor's and P1
from Moody's;
(d) investments in money market funds having a rating of AAA-m or AAAm-G
from Standard & Poor's and Aaa from Moody's;
(e) bankers' acceptances issued by any depository institution or trust
company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the United States of America or any
agency or instrumentality thereof the obligations of which are backed by the
full faith and credit of the United States of America, in either case entered
into with a depository institution or trust company (acting as principal)
described in clause (b);
(g) any other investment with respect to which the Trustee or the Company
has received written notification from the Rating Agencies that the acquisition
of such investment as an
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Eligible Investment will not in a withdrawal or downgrading of the ratings of
the Certificates.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means an event specified in Section 9.01.
"FDIC" means the Federal Deposit Insurance Corporation.
"Final Scheduled Distribution Date" means ______________.
"Final Scheduled Maturity Date" means __________________.
"Financed Vehicle" means an automobile, van or light-duty truck, together
with all accessions thereto, securing an Obligor's indebtedness under the
related Receivable.
"Interest Distribution Amount" means, with respect to any Distribution
Date, the sum of the following amounts in respect of the preceding Collection
Period:(a) that portion of all collections on Receivables (including Payaheads)
allocable to interest, (b) Liquidation Proceeds with respect to the Receivables
to the extent allocable to interest due thereon in accordance with the
Servicer's customary servicing procedures, (c) all Advances made by the Servicer
of interest due on Receivables, (d) the Purchase Amount of each Receivable that
became a Purchased Receivable during the related Collection Period to the extent
attributable to accrued interest on such Receivable, (e) the Yield Supplement
Amount; and (f) Recoveries; provided, however, that in calculating the Interest
Distribution Amount the following will be excluded: (i) amounts received on
Precomputed Receivables to the extent that the Servicer has previously made an
unreimbursed Precomputed Advance of interest; (ii) Liquidation Proceeds with
respect to a particular Precomputed Receivable to the extent of any unreimbursed
Precomputed Advances of interest; (iii) all payments and proceeds (including
Liquidation Proceeds) of any Purchased Receivables the Purchase Amount of which
has been included in the Interest Distribution Amount in a prior Collection
Period; (iv) the sum for all Simple Interest Receivables of collections
allocable to interest on each such Simple Interest Receivable received during
the preceding Collection Period in excess of the amount of interest that would
be due on the aggregate Principal Balance of the Simple Interest Receivables
during such Collection Period at their respective APR's if a payment were
received on each Simple Interest Receivable during such Collection Period on the
date payment is due under the terms of the related Motor Vehicle Installment
Contract; and (v) Liquidation Proceeds with respect
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to a Simple Interest Receivable attributable to accrued and unpaid interest
thereon (but not including interest for the then current Collection Period) but
only to the extent of any unreimbursed Simple Interest Advances.
"Investment Earnings" means, with respect to any Distribution Date, the
investment earnings (net of losses and investment expenses) on amounts on
deposit in the Collection Account, Reserve Account and Yield Supplement Account,
which will be distributed on each Distribution Date in the manner set forth in
Article IV.
"Lien" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind, other than tax liens, mechanics' liens and any liens
that attach to the respective Receivable by operation of law.
"Liquidated Receivable" means any Receivable liquidated by the Servicer
through sale of a Financed Vehicle or otherwise.
"Liquidation Proceeds" means, with respect to a Liquidated Receivable, the
monies collected in respect thereof, from whatever source, during the Collection
Period in which such Receivable became a Liquidated Receivable, net of the sum
of any amounts expended by the Servicer in connection with such liquidation,
plus any amounts required by law to be remitted to the Obligor.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"Motor Vehicle Installment Contract" means a motor vehicle installment loan
agreement originated by a Seller or a motor vehicle retail installment sale
contract acquired by a Seller from a motor vehicle dealer or another financial
institution.
"Obligor" on a Receivable means the purchaser or co-purchasers of the
Financed Vehicle and any other Person who owes payments under the Receivable.
"Officers' Certificate" means a certificate signed by the (a) chairman of
the board, the president, the vice chairman of the board, any executive vice
president or any vice president and (b) a cashier, assistant cashier, any
treasurer, assistant treasurer, secretary or assistant secretary of the Company,
a Seller or the Servicer, as appropriate.
"Opinion of Counsel" means one or more written opinions of counsel, who may
be an employee of or counsel to the Servicer, which counsel shall be acceptable
to the Trustee or Rating Agencies, as applicable.
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"Outstanding Precomputed Advances" means on the Precomputed Receivables
means the sum, as of the close of business on the last day of a Collection
Period, of all Precomputed Advances, reduced as provided by Section 5.03(a).
"Outstanding Simple Interest Advances" on the Simple Interest Receivables
means the sum, as of the close of business on the last day of a Collection
Period, of all Precomputed Advances, reduced as provided by Section 5.03(b).
"Payahead" means, with respect to a Precomputed Receivable and any
Collection Period, the amount, as of the close of business on the last day of
such Collection Period, computed in accordance with Section 5.02 with respect to
such Receivable.
"Payahead Account" means the account designated, as such, established and
maintained pursuant to Section 4.01.
"Payahead Balance" means, with respect to a Precomputed Receivable and any
Collection Period, the sum, as of the close of business on the last day of such
Collection Period, of all Payaheads made by or on behalf of the Obligor with
respect to such Precomputed Receivable, as reduced by applications of previous
Payaheads with respect to such Precomputed Receivable, pursuant to Sections 5.02
and 5.03.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust, unincorporated organization,
or government or any agency or political subdivision thereof.
"Physical Property" has the meaning assigned to such term in the definition
of "Delivery" above.
"Pool Balance" means, as of the close of business on the last day of a
Collection Period, the aggregate Principal Balance of the Receivables as of such
date (excluding Purchased Receivables and Liquidated Receivables).
"Precomputed Advance" means the amount, as of the close of business on the
last day of a Collection Period, which the Servicer is required to advance on
any Precomputed Receivable pursuant to Section 5.03(a).
"Precomputed Receivable" means any Receivable under which the portion of
each payment allocable to earned interest (which may be referred to in the
Receivable as an add-on finance charge) and the portion allocable to the Amount
Financed are determined according to the sum of periodic balances or the sum of
monthly balances or any equivalent method, or which is a monthly actuarial
receivable.
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"Principal Balance" means (a) with respect to any Precomputed Receivable,
the Amount Financed minus the sum, as of the close of business on the last day
of a Collection Period, of (1) that portion of all Scheduled Payments due on or
prior to such day allocable to principal using the actuarial or constant yield
method, (2) any refunded portion of extended warranty protection plan costs or
physical damage, credit life or disability insurance premiums included in the
Amount Financed, (3) the portion of any related Purchase Amount allocable to
principal and (4) any prepayment in full or any partial prepayments applied to
reduce the related Principal Balance; and (b) with respect to any Simple
Interest Receivable, the Amount Financed minus the sum, as of the close of
business on the last day of a Collection Period, of (1) the portion of all
payments made by or on behalf of the related Obligor on or prior to such day and
allocable to principal using the Simple Interest Method and (2) the portion of
any related Purchase Amount allocable to principal.
"Principal Distribution Amount" means, for any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period: (a)
that portion of all collections on Receivables (including amounts withdrawn from
the Payahead Account but excluding amounts deposited into the Payahead Account
pursuant to Sections 4.01(c) and 5.02) allocable to principal; (b) all
Liquidation Proceeds attributable to the principal amount of Receivables that
became Liquidated Receivables during such Collection Period in accordance with
the Servicer's customary servicing procedures, plus the amount of Realized
Losses with respect to such Liquidated Receivables; (c) all Precomputed Advances
made by the Servicer of principal due on the Precomputed Receivables; (d) to the
extent attributable to principal, the Purchase Amount received with respect to
each Receivable that became a Purchased Receivable during the related Collection
Period; (e) partial prepayments relating to refunds of extended warranty
protection plan costs or of physical damage, credit life or disability insurance
policy premiums, but only if such costs or premiums were financed by the
respective Obligor as of the date of the original Motor Vehicle Installment
Contract; and (f) on the Final Scheduled Distribution Date, any amounts advanced
by the Servicer on such date with respect to principal on the Receivables.
"Purchase Amount" means the amount, as of the close of business on the last
day of a Collection Period, required to prepay a Receivable in full under the
terms thereof, including interest to the end of the month of purchase.
"Purchased Receivable" means a Receivable purchased as of the close of
business on the last day of a Collection Period by the Servicer pursuant to
Section 3.07 or by the Company pursuant to Section 2.04.
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"Rating Agency" means Moody's or Standard & Poor's or, if neither such
organization nor a successor thereto remains in existence, any nationally
recognized statistical rating organization or other comparable Person designated
by the Company, notice of which designation shall be given to the Trustee and
the Servicer.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 10 days (or such shorter period as shall be
acceptable to each Rating Agency) prior notice thereof and that, within 7 days
of receipt of such notice, none of the Rating Agencies shall have notified the
Company, the Servicer or the Trustee in writing that such action will result in
a reduction or withdrawal of the then current ratings of the Certificates.
"Realized Losses" means, with respect to any Receivable that becomes a
Liquidated Receivable, the excess of the Principal Balance of such Liquidated
Receivable over that portion of Liquidation Proceeds allocable to principal.
"Receivable" means any Motor Vehicle Installment Contract listed on
Schedule I (which schedule may be in the form of microfiche).
"Receivable Files" means the documents specified in Section 2.05.
"Receivables Purchase Agreement" means an agreement, substantially in the
form of Exhibit H hereto, between the Company and a Seller, pursuant to which
such Seller sold Motor Vehicle Installment Contracts to be included in the Trust
to the Company.
"Record Date" with respect to each Distribution Date means the _____ day of
the calendar month in which such Distribution Date occurs.
"Recoveries" means, with respect to any Receivable that becomes a
Liquidated Receivable, monies collected in respect thereof, from whatever
source, during any Collection Period following the Collection Period in which
such Receivable became a Liquidated Receivable, net of the sum of any amounts
expended by the Servicer for the account of the Obligor and any amounts required
by law to be remitted to the Obligor.
"Reserve Account" means the account designated as such, established and
maintained pursuant to Section 4.02.
"Reserve Account Initial Deposit" means, with respect to the Closing Date,
an amount equal to the Specified Reserve Account Balance on the Closing Date
(which is equal to $_________).
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"Scheduled Payment" with respect to any Precomputed Receivable means the
payment required to be made by the Obligor during each Collection Period under
the related Motor Vehicle Installment Contract sufficient to amortize the
Principle Balance of such Precomputed Receivable, using the actuarial method,
over the term of the Receivable and to provide interest at the APR.
"Seller" means, with respect to any Receivable, the Person from whom such
Receivable was acquired by the Company pursuant to the related Receivables
Purchase Agreement.
"Servicer" means ______________, and each successor Servicer pursuant to
Section 8.03 or 9.02.
"Servicer's Certificate" means the certificate required to be delivered by
the Servicer pursuant to Section 3.09.
"Servicing Fee" means the fee payable to the Servicer for services rendered
during each Collection Period, determined pursuant to Section 3.08.
"Servicing Rate" means ___% per annum.
"Simple Interest Advance" means the amount of interest, as of the close of
business on the last day of a Collection Period, that the Servicer is required
to advance on the Simple Interest Receivables pursuant to Section 5.03(b).
"Simple Interest Method" means the method of allocating a fixed level
payment to principal and interest, pursuant to which the portion of such payment
that is allocated to interest is equal to the product of the fixed rate of
interest multiplied by the unpaid principal balance multiplied by the period of
time elapsed since the preceding payment of interest was made and the remainder
of such payment is allocable to principal.
"Simple Interest Receivable" means any Receivable under which the portion
of a payment allocable to interest and the portion allocable to principle is
determined in accordance with the Simple Interest Method.
"Specified Reserve Account Balance" means [STATE FORMULA].
"Standard & Poor's" means Standard & Poor's Ratings Services, a division of
the McGraw-Hill, Inc., or its successor.
"Total Distribution Amount" means, for each Distribution Date, the sum of
the Interest Distribution Amount and the Principal Distribution Amount (other
than the portion thereof attributable to Realized Losses).
"Trust" means the trust created by this Agreement.
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"Trust Account" means any of the Collection Account, the Distribution
Account and the Payahead Account, established and maintained pursuant to Section
4.01.
"Trustee" means ___________________, a _______________ banking corporation,
its successors in interest and any successor Trustee hereunder.
"Trustee Officer" means any officer within the Corporate Trust Office of
the Trustee, including the chairman or vice-chairman of the board of directors,
the chairman or vice-chairman of the executive committee of the board of
directors, the president, any vice president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, or any other officer of the
Trustee customarily performing functions similar to those performed by any of
the above designated officers and also, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
"UCC" means the Uniform Commercial Code as in effect in the State of New
York on the date hereof.
"Weighted Average Pass-Through Rate" means the weighted average (calculated
on the basis of the outstanding principal amounts) of the Class A Pass-Through
Rate and the Class B Pass- Through Rate.
"Yield Supplement Account" means the account established and maintained
pursuant to Section 4.03.
"Yield Supplement Account Agreement" means the agreement dated as of
____________, among the Company, the Servicer and the Trustee, substantially in
the form of Exhibit J.
"Yield Supplement Amount" means, with respect to any Receivable (other than
a Liquidated Receivable or Purchased Receivable after the Collection Period in
which such Receivable becomes a Liquidated Receivable or Purchased Receivable)
and any Distribution Date, the amount, if positive, equal to the product of (a)
one-twelfth, (b) the sum of (i) the Weighted Average Pass- Through Rate, plus
(ii) the Servicing Fee Rate, minus (iii) the APR of such Receivable and (c) the
Principal Balance of such Receivable.
"Yield Supplement Initial Deposit" means $____________.
"Yield Supplement Maximum Amount" means $_____________.
Section 1.02. Other Definitional Provisions. (a) All terms defined in this
Agreement shall have the defined meanings
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when used in any certificate or other document made or delivered pursuant hereto
or thereto unless otherwise defined therein.
(b) As used herein, and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined herein or in
any such certificate or other document, and accounting terms partly defined
herein or in any such certificate or other document to the extent not defined,
shall have the respective meanings given to them under United States generally
accepted accounting principles. To the extent that the definitions of accounting
terms herein or in any such certificate or other document are inconsistent with
the meanings of such terms under United States generally accepted accounting
principles, the definitions contained herein or in any such certificate or other
document shall control.
(c) The words "hereof," "herein," "hereunder" and word of similar import
when used herein shall refer to this Agreement as a whole and not to any
particular provision hereof; Article, Section, Schedule and Exhibit references
contained herein are references to Articles, Sections, Schedules and Exhibits
herein; and the term "including" shall mean "including without limitation".
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II.
Conveyance of Receivables; Original Issuance of Certificates
Section 2.01. Conveyance of Receivables. In consideration of the Trustee's
delivery on the Closing Date to or upon the order of the Company of Class A
Certificates in an initial aggregate principal amount of $_____________ and
Class B Certificates in an initial aggregate principal amount of $__________,
the Company does hereby sell, transfer, assign, set over and otherwise convey to
the Trustee in trust for the benefit of the Certificateholders, without recourse
(subject to the obligations set forth herein), all right, title and interest of
the Company in and to:
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(a) the Receivables and all moneys due thereon on or after the Cutoff
Date, in the case of Precomputed Receivables, or all moneys received
thereon on and after the Cutoff Date, in the case of Simple Interest
Receivables;
(b) the security interests in the Financed Vehicles granted by
Obligors pursuant to the Receivables and any other interest of the Company
in such Financed Vehicles;
(c) any proceeds with respect to the Receivables from claims on any
physical damage, theft, credit life or disability insurance policies
covering Financed Vehicles or Obligors;
(d) any Financed Vehicle that shall have secured any such Initial
Receivable and shall have been acquired by or on behalf of the Company, the
Servicer or the Trust;
(e) all other assets comprising the estate of the Trust; and
(f) the proceeds of any and all of the foregoing.
Section 2.02. Acceptance by Trustee. The Trustee hereby acknowledges the
sale, transfer and assignment of the Receivables and the other assets of the
Trust referred to in Section 2.01 and declares that the Trustee holds and will
hold the Receivables and such other assets in trust, upon the terms herein set
forth, for the use and benefit of all present and future Certificateholders.
Section 2.03. Representations and Warranties of the Company. The Company
makes the following representations and warranties as to the Receivables
conveyed to the Trust, on which the Trustee is deemed to have relied in
accepting the Receivables in trust and executing and authenticating the
Certificates. Such representations and warranties speak as of the execution and
delivery of this Agreement and as of the Closing Date, but shall survive the
sale, transfer and assignment of the Receivables to the Trustee.
(a) Characteristics of Receivables. Each Receivable (1) was originated
by the Seller thereof or acquired from a motor vehicle dealer or another
financial institution by such Seller in the ordinary course of such
Seller's business, (2) has created a valid, subsisting and enforceable
first priority security interest in favor of such Seller in the Financed
Vehicle, which security interest is assignable by such Seller and the
Company, (3) contains customary and enforceable provisions such that the
rights and remedies of the holder thereof shall be adequate for realization
against the collateral of the benefits of the security, (4) provides for
level monthly payments (provided
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that the payment in the first or last month in the life of the Receivable
may be minimally different from the level payments) that fully amortize the
Amount Financed by maturity and yield interest at the Annual Percentage
Rate, and (5) in the case of a Precomputed Receivable, in the event that
such contract is prepaid, provides for a prepayment that fully pays the
Principal Balance and includes accrued but unpaid interest through the date
of prepayment at the Annual Percentage Rate.
(b) Schedule of Receivables. The information set forth in Schedule I
to this Agreement is true and correct in all material respects as of the
opening of business on the Cutoff Date, and no selection procedures
believed to be adverse to the Certificateholders were utilized in selecting
the Receivables. The computer tape or other listing regarding the
Receivables made available to the Trustee is true and correct in all
material respects as of the Cutoff Date.
(c) Compliance with Law. Each Receivable and the sale of the Financed
Vehicle complied in all material respects at the time it was originated or
made and at the execution of this Agreement with all requirements of
applicable federal, state and local laws and regulations thereunder,
including, without limitation, usury laws, the Federal Truth-in-Lending
Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the
Fair Debt Collection Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and
Z, and State adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code, and other consumer credit laws and equal credit
opportunity and disclosure laws.
(d) Binding Obligation. Each Receivable represents the genuine, legal,
valid and binding payment obligation in writing of the Obligor, enforceable
by the holder thereof in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization and similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and to general
principles of equity (whether applied in a proceeding at law or in equity).
(e) No Government Obligor. None of the Receivables is due from the
United States of America or any State or from any agency, department or
instrumentality of the United States of America or any State.
(f) Security Interest in Financed Vehicle. Immediately prior to the
sale, assignment and transfer thereof to the Trustee, each Receivable shall
be secured by a validly perfected first security interest in the Financed
Vehicle in favor of the Company as secured party or all necessary and
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appropriate actions have been commenced that would result in the valid
perfection of a first security interest in the Financed Vehicle in favor of
the Company as secured party.
(g) Receivables in Force. No Receivable has been satisfied,
subordinated or rescinded, nor has any Financed Vehicle been released from
the lien granted by the related Receivable in whole or in part.
(h) No Waiver. No provision of a Receivable has been waived in such a
manner that the Receivable fails to meet any other representation or
warranty of the Company with respect thereto.
(i) No Amendments. No Receivable shall have been amended such that the
amount of the Obligor's Scheduled Payments shall have been increased except
for increases resulting from the inclusion of any premiums for forced
placed physical damage insurance covering the Financed Vehicle.
(j) No Defenses. No facts are known to the Company that would give
rise to any right of rescission, setoff, counterclaim or defense, nor shall
the same have been asserted or threatened, with respect to any Receivable.
(k) No Liens. To the best of the Company's knowledge, no liens or
claims have been filed for work, labor or materials relating to a Financed
Vehicle that are prior to, or equal or coordinate with, the security
interest in the Financed Vehicle granted by the Receivable.
(l) No Default. No Receivable has a payment that is more than 90 days
overdue as of the related Cutoff Date and, except as permitted in this
paragraph, no default, breach, violation or event permitting acceleration
under the terms of any Receivable has occurred; no continuing condition
that with notice or the lapse of time would constitute a default, breach,
violation or event permitting acceleration under the terms of any
Receivable has arisen; and the Company has not waived and shall not waive
any of the foregoing.
(m) Insurance. The related Seller, in accordance with its customary
procedures, has determined that the Obligor has obtained physical damage
insurance covering the Financed Vehicle and under the terms of the
Receivable the Obligor is required to maintain such insurance.
(n) Title. It is the intention of the Company that the transfer and
assignment herein contemplated constitute a sale of the Receivables from
the Company to the Trust and that the beneficial interest in and title to
the Receivables not be part of the debtor's estate in the event of the
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filing of a petition of receivership by or against the Company. No
Receivable has been sold, transferred, assigned or pledged by the Company
to any Person other than the Trustee. Immediately prior to the transfer and
assignment herein contemplated, the Company had good and marketable title
to each Receivable conveyed by it hereunder to the Trust, free and clear of
all Liens and rights of others and, immediately upon the transfer thereof,
the Trustee, in trust for the benefit of the Certificateholders, shall have
good and marketable title to each such Receivable, free and clear of all
Liens and rights of others; and the transfer of the Receivables to the
Trustee for the benefit of the Certificateholders has been perfected under
the UCC.
(o) Lawful Assignment. No Receivable was originated in, or is subject
to the laws of, any jurisdiction under which the sale, transfer and
assignment of such Receivable under this Agreement shall be unlawful, void
or voidable.
(p) All Filings Made. All filings (including UCC filings) necessary in
any jurisdictions to give the Trustee a first perfected ownership interest
in the Receivables shall have been made.
(q) One Original. There shall be only one original executed copy of
each Receivable.
(r) Scheduled Payments. (1) No Receivable has a payment that is more
than 90 days overdue as of the related Cutoff Date and (2) no Receivable
has a final scheduled payment date that is later than the Final Scheduled
Maturity Date.
(s) Location of Receivable Files. The Receivable Files are kept at one
or more of the locations listed in Schedule II.
(t) No Bankruptcies. No Obligor on any Receivable as of the related
Cutoff Date was noted in the related Receivable File as having filed for
bankruptcy.
(u) No Repossessions. No Financed Vehicle securing any Receivable is
in repossession status.
(v) Maturity of Receivables. The weighted average remaining term of
the Initial Receivables as of the Initial Cutoff Date is _______ months.
(w) Financing. Approximately ___% of the aggregate principal balance
of the Receivables, constituting ___% of the number of Receivables as of
the Cutoff Date, represents financing of new vehicles and the remainder of
the Receivables represents financing of used vehicles; and
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approximately ___% of the aggregate principal balance of the Receivables as
of the Cutoff Date represent Precomputed Receivables and the remainder of
the Receivables represent Simple Interest Receivables. The aggregate
Principal Balance of the Receivables as of the Cutoff Date is
$_____________.
(x) Chattel Paper. Each Receivable constitutes "chattel paper" under
the UCC.
(y) Agreement. The representations and warranties of the Company in
this Section and Section 7.01 are true and correct.
(z) APR. The weighted average Annual Percentage Rate of the
Receivables as of the Cutoff Date is approximately ___%.
Section 2.04. Repurchase Upon Breach. The Company, the Servicer or the
Trustee, as the case may be, shall inform the other parties to this Agreement
promptly in writing, upon the discovery of any breach of the Company's
representations and warranties made pursuant to Section 2.03. Unless any such
breach is cured in all material respects by the last day of the second
Collection Period following the discovery thereof (and notice to the Company) by
the Trustee or receipt by the Trustee of notice thereof from the Company or the
Servicer, the Company shall be obligated to repurchase, as of such last day (or,
at the Company's option, the last day of the first Collection Period following
such discovery or notice), any Receivable conveyed by it to the Trust if the
interest of the Certificateholders in such Receivable is materially and
adversely affected by such breach. In consideration of the repurchase of any
such Receivable, the Company shall remit the Purchase Amount to the Collection
Account, in the manner specified in Section 5.04. The sole remedy of the
Trustee, the Trust or the Certificateholders with respect to a breach of
representations and warranties pursuant to Section 2.03 and the agreement
contained in this Section shall be to require the Company to repurchase
Receivables pursuant to this Section 2.04, subject to the conditions contained
herein.
Section 2.05. Custody of Receivable Files. To assure uniform quality in
servicing the Receivables and to reduce administrative costs, the Trustee hereby
revocably appoints the Servicer, and the Servicer hereby accepts such
appointment, to act as the agent of the Trustee as custodian of the following
documents or instruments, which are hereby constructively delivered to the
Trustee as of the Closing Date with respect to each Receivable:
(a) the fully executed original of the Receivable;
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(b) a copy of the original credit application as executed by the
Obligor;
(c) the original certificate of title or such documents that the
Servicer or the related Seller shall keep on file, in accordance with their
customary procedures, evidencing the security interest of such Seller in
the Financed Vehicle; and
(d) any and all other documents that the Servicer or related Seller
shall keep on file, in accordance with their customary procedures, relating
to a Receivable, an Obligor or a Financed Vehicle.
Section 2.06. Duties of Servicer as Custodian.
(a) Safekeeping. The Servicer shall hold the Receivable Files as custodian
on behalf of the Trustee for the benefit of all present and future
Certificateholders, and shall maintain such accurate and complete accounts,
records and computer systems pertaining to each Receivable File as shall enable
the Trustee to comply with this Agreement. In performing its duties as
custodian, the Servicer shall act with reasonable care, using that degree of
skill and attention that the Servicer exercises with respect to the receivable
files relating to all comparable automotive receivables that the Servicer
services for itself or others. The Servicer shall conduct, or cause to be
conducted, periodic audits of the Receivable Files held by it under this
Agreement, and of the related accounts, records and computer systems, in such a
manner as shall enable the Trustee to verify the accuracy of the Servicer's
record keeping. The Servicer shall promptly report to the Trustee any failure on
its part to hold the Receivable Files and maintain its accounts, records and
computer systems as herein provided and shall promptly take appropriate action
to remedy any such failure. Nothing herein shall be deemed to require an initial
review or any periodic review by the Trustee of the Receivable Files.
(b) Maintenance of and Access to Records. The Servicer shall maintain each
Receivable File at its offices specified in Schedule II to this Agreement or at
such other office as shall be specified to the Trustee by written notice not
later than 90 days after any change in location. The Servicer shall make
available to the Trustee or its duly authorized representatives, attorneys or
auditors a list of locations of the Receivable Files and the related accounts,
records and computer systems maintained by the Servicer at such times during
normal business hours as the Trustee shall instruct.
(c) Release of Documents. Upon instruction from the Trustee, the Servicer
shall release any Receivable File to the Trustee, the Trustee's agent or the
Trustee's designee, as the case may be, at such place or places as the Trustee
may
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designate, as soon as practicable, and upon the release and delivery of any such
document in accordance with the instructions of the Trustee, the Servicer shall
be released from any further liability and responsibility under this Section
2.06 with respect to such documents unless and until such time as such documents
shall be returned to the Servicer, and in no event shall the Servicer be
responsible for any loss occasioned by the Trustee's failure to return any
document in a timely manner.
Section 2.07. Instructions; Authority to Act. The Servicer shall be deemed
to have received proper instructions with respect to the Receivable Files upon
its receipt of written instructions signed by a Trustee Officer.
Section 2.08. Custodian's Indemnification. The Servicer as custodian shall
indemnify the Trustee and each of its officers, directors, employees and agents
for any and all liabilities, obligations, losses, compensatory damages,
payments, costs, or expenses of any kind whatsoever that may be imposed on,
incurred by or asserted against the Trustee or any of its officers, directors,
employees or agents as the result of any improper act or omission in any way
relating to the maintenance and custody by the Servicer as custodian of the
Receivable Files; provided, however, that the Servicer shall not be liable to
the Trustee or any such officer, director, employee or agent of the Trustee for
any portion of any such amount resulting from the willful misfeasance, bad faith
or negligence of the Trustee or any such officer, director, employee or agent of
the Trustee.
Section 2.09. Effective Period and Termination. The Servicer's appointment
as custodian shall become effective as of the Cutoff Date and shall continue in
full force and effect until terminated pursuant to this Section 2.09. If the
Servicer shall resign as Servicer in accordance with the provisions of this
Agreement or if all of the rights and obligations of any Servicer shall have
been terminated under Section 9.01, the appointment of such Servicer as
custodian shall be terminated by the Trustee, or by Holders of the Certificates
evidencing not less than 25% of the Certificate Balance, in the same manner as
the Trustee or such Holders may terminate the rights and obligations of the
Servicer under Section 9.01. The Trustee may terminate the Servicer's
appointment as custodian, with cause, at any time upon written notification to
the Servicer, and without cause upon 30 days' prior written notification. As
soon as practicable after any termination if such appointment, the Servicer
shall deliver the Receivable Files to the Trustee or the Trustee's agent at such
place or places as the Trustee may reasonably designate. Notwithstanding any
such termination of the Servicer as custodian, the Trustee agrees to provide, or
to cause its agent to provide, access to the Receivable Files to the Servicer
for the purpose of carrying out its duties and responsibilities with respect to
the servicing of the Receivables hereunder.
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ARTICLE III.
Administration and Servicing of Receivables
Section 3.01. Duties of Servicer. The Servicer, as agent for the Trustee
(to the extent provided herein), shall manage, service, administer and make
collections on the Receivables (other than Purchased Receivables) with
reasonable care, using that degree of skill and attention that the Servicer
exercises with respect to all comparable automotive receivables that it services
for itself or others. The Servicer's duties shall include collection and posting
of all payments, responding to inquiries of Obligors on such Receivables,
investigating delinquencies, sending payment coupons to Obligors, reporting tax
information to Obligors, accounting for collections, furnishing monthly and
annual statements to the Trustee with respect to distributions, and making
Advances pursuant to Section 5.03. Subject to the provisions of Section 3.02,
the Servicer shall follow its customary standards, policies and procedures in
performing its duties as Servicer. Without limiting the generality of the
foregoing, the Servicer is authorized and empowered by the Trustee to execute
and deliver, on behalf of itself, the Trust, the Certificateholders, the
Trustee, or any of them, any and all instruments of satisfaction or
cancellation, or partial or full release or discharge, and all other comparable
instruments with respect to such Receivables or to the Financed Vehicles
securing such Receivables. If the Servicer shall commence a legal proceeding to
enforce a Receivable, the Trustee (in the case of any Receivable other than a
Purchased Receivable) shall thereupon be deemed to have automatically assigned,
solely for the purpose of collection, such Receivable to the Servicer. If in any
enforcement suit or legal proceeding it shall be held that the Servicer may not
enforce a Receivable on the ground that it shall not be a real party in interest
or a holder entitled to enforce such Receivable, the Trustee shall, at the
Servicer's expense and direction, take steps to enforce such Receivable,
including bringing suit in its name or the name of the Certificateholders. The
Trustee shall, upon written request of the Servicer, furnish the Servicer with
any powers of attorney and other documents reasonably necessary or appropriate
to enable the Servicer to carry out its servicing and administrative duties
hereunder.
Section 3.02. Collection and Allocation of Receivable Payments. (a) The
Servicer shall make reasonable efforts to collect all payments called for under
the terms and provisions of the Receivables as and when the same shall become
due and shall follow such collection procedures as it follows with respect to
all comparable automotive receivables that it services for itself or others. The
Servicer shall allocate collections between principal and interest in accordance
with the customary servicing procedures it follows with respect to all
comparable automotive receivables that it services for itself and others. The
Servicer
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may in its discretion waive any late payment charge or any other fees that may
be collected in the ordinary course of servicing a Receivable.
(b) The Servicer shall not agree to any alteration of the APR on any
Receivable or of the amount of the Scheduled Payments on a Precomputed
Receivable or the originally scheduled payments on Simple Interest Receivables.
The Servicer shall not grant rebates or adjustments on a Receivable that modify
the original due dates or amounts of the Scheduled Payments on a Precomputed
Receivable or the original due dates or amounts of the originally Scheduled
Payments on a Precomputed Receivable or the originally due dates or amounts of
the originally scheduled payments on a Simple Interest Receivable; provided,
however, that the Servicer may grant one extension of one month in any six month
period, provided that (1) either such extensions granted to an Obligor over the
term of a Receivable do not extend the date for final payment by such Obligor
thereunder beyond the Final Scheduled Maturity Date or (2) if such extensions do
result in a final scheduled payment date under a Receivable that occurs after
the Final Scheduled Maturity Date, the Servicer shall [pay to the Trust the
additional interest payable by the related Obligor with respect to such
extensions] [repurchase any Receivable so affected or advance any such deferred
payments to the Trust on the Final Scheduled Distribution Date if and to the
extent any shortfalls in the Class A Distributable Amount or Class B
Distributable Amount occur on such date].
Section 3.03. Realization Upon Receivables. On behalf of the Trust, the
Servicer shall use its best efforts, consistent with its customary servicing
procedures, to repossess or otherwise convert the ownership of the Financed
Vehicle securing any Receivable as to which the Servicer shall have determined
eventual payment in full is unlikely. The Servicer shall follow such customary
and usual practices and procedures as it shall deem necessary or advisable in
its servicing of automotive receivables, which may include selling the Financed
Vehicle at public or private sale. The Servicer shall be entitled to recover all
out-of-pocket expenses incurred by it in the course of converting a Financed
Vehicle into cash proceeds. The foregoing shall be subject to the provision
that, in any case in which the Financed Vehicle shall have suffered damage, the
Servicer shall not expend funds in connection with the repair or the
repossession of such Financed Vehicle unless it shall determine in its
discretion that such repair and/or repossession will increase the Liquidation
Proceeds by an amount greater than the amount of such expenses.
Section 3.04. Physical Damage Insurance. The Servicer, in accordance with
its customary servicing procedures, shall require that each Obligor shall have
obtained physical damage insurance covering the Financed Vehicle as of the
execution of the Receivable.
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Section 3.05. Maintenance of Security Interests in Financed Vehicles. The
Servicer shall, in accordance with its customary servicing procedures, take such
steps as are necessary to maintain perfection of the security interest created
by each Receivable in the related Financed Vehicle. The Trustee hereby
authorizes the Servicer to take such steps as are necessary to re-perfect such
security interest on behalf of the Trust in the event of the relocation of a
Financed Vehicle or for any other reason.
Section 3.06. Covenants of Servicer. The Servicer shall not release the
Financed Vehicle securing any Receivable from the security interest granted by
such Receivable in whole or in part except in the event of payment in full by
the Obligor thereunder or repossession, nor shall the Servicer impair the rights
of the Trust or the Certificateholders in such Receivables, nor shall the
Servicer increase the number of scheduled payments due under a Receivable.
Section 3.07. Purchase of Receivables Upon Breach. The Servicer or the
Trustee shall inform the other party and the Company promptly, in writing, upon
the discovery of any breach pursuant to Section 3.02, 3.05 or 3.06 that
materially and adversely affects the Certificateholders' interests in any
Receivable. Unless such breach shall have been cured by the last day of the
second Collection Period following such discovery (or, at the Servicer's
election, the last day of the first following Collection Period), the Servicer
shall purchase, as of such last day, any Receivable that is materially and
adversely affected by such breach. In consideration of the purchase of any such
Receivable pursuant to either of the two preceding sentences, the Servicer shall
remit the Purchase Amount to the Collection Account in the manner specified in
Section 5.04. For purposes of this Section 3.07, the Purchase Amount shall
consist in part of a release by the Servicer of all rights of reimbursement with
respect to Outstanding Precomputed Advances or Outstanding Simple Interest
Advances on the Receivable. The sole remedy of the Trustee, the Trust or the
Certificateholders with respect to a breach pursuant to Section 3.02, 3.05 or
3.06 shall be to require the Servicer to repurchase Receivables pursuant to this
Section 3.07. The Trustee shall have no duty to conduct any affirmative
investigation as to the occurrence of any condition requiring the repurchase of
any Receivable pursuant to this Section.
Section 3.08. Servicing Fee. As compensation for servicing the Receivables,
the Servicer shall be entitled to receive the Servicing Fee on each Distribution
Date, from the Interest Distribution Amount available on such Distribution Date,
in an amount equal to the product of (a) one twelfth, (b) the Servicing Rate and
(c) the Pool Balance as of the first day of the preceding Collection Period. The
Servicer shall also be entitled to all late fees, prepayment charges (including,
in the case of a Receivable that provides for payments according to the
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"Rule of 78s" and that is prepaid in full, the difference between the Principal
Balance of such Receivable (plus accrued interest to the date of prepayment) and
the principal balance of such Receivable computed according to the "Rule of
78s") and other administrative fees or similar charges allowed by applicable law
with respect to the Receivables, collected (from whatever source) on the
Receivables, as and when collected, plus any reimbursement pursuant to Section
8.02.
Section 3.09. Servicer's Certificate. Not later than 11:00 a.m. (New York
time) on each Determination Date, the Servicer shall deliver to the Trustee, the
Rating Agencies and the Company, a Servicer's Certificate containing all
information necessary to make the distributions on the related Distribution Date
pursuant to Section 5.05 for the related Collection Period. Receivables to be
purchased by the Servicer or to be repurchased by the Company shall be
identified by the Servicer by account number with respect to such Receivable (as
specified in Schedule I).
Section 3.10. Annual Statement as to Compliance; Notice of Default. (a) The
Servicer shall deliver to the Trustee, on or before _____________ of each year,
an Officers' Certificate, dated as of _____________ of preceding year, stating
that (1) a review of the activities of the Servicer during the preceding
12-month period (or such shorter period as shall have elapsed since the Closing
Date) and of its performance under this Agreement has been made under such
officers' supervision and (2) to the best of such officers' knowledge, based on
such review, the Servicer has fulfilled all its obligations under this Agreement
throughout such year or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officers and the
nature and status thereof. The Trustee shall send a copy of such certificate and
the report referred to in Section 3.11 to the Rating Agencies. A copy of such
certificate and the report referred to in Section 3.11 may be obtained by any
Certificateholder by a request in writing to the Trustee addressed to the
Corporate Trust Office.
(b) The Servicer shall deliver to the Trustee and to the Rating Agencies,
promptly after having obtained knowledge thereof, but in no event later than 5
Business Days thereafter, written notice in an Officers' Certificate of any
event which with the giving of notice or lapse of time, or both, would become an
Event of Default under Section 9.01(a) or (b).
Section 3.11. Annual Independent Certified Public Accountant's Report. The
Servicer shall deliver to the Trustee, on or before _____________ of each year
beginning ______________, 199_, a report of a firm of independent certified
public accountants, addressed to the Board of Directors of the Servicer to the
effect that such firm has examined the financial statements of the Servicer, and
issued its report thereon, and
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that such examination (a) was made in accordance with generally accepted
auditing standards and accordingly included such tests of the accounting records
and such other auditing procedures as such firm considered necessary in the
circumstances; (b) included tests relating to automotive loans serviced for
others in accordance with the requirements of the Uniform Single Audit Program
for Mortgage Bankers (the "Program"), to the extent the procedures in such
Program are applicable to the servicing obligations set forth herein; and (c)
except as described in the report, disclosed no exceptions or errors in the
records relating to automobile, van and light duty truck loans serviced for
others that, in the firm's opinion, paragraph four of such Program requires such
firm to report.
The Report will also indicate that the firm is independent of the Servicer
within the meaning of the Code of Professional Ethics of the American Institute
of Certified Public Accountants.
Section 3.12. Access to Certain Documentation and Information Regarding
Receivables. The Servicer shall provide to the Certificateholders access to the
Receivable Files in such cases where Certificateholders shall be required by
applicable statutes or regulations to review such documentation. Access shall be
afforded without charge, but only upon reasonable request and during the normal
business hours at the offices of the Servicer. Nothing in this Section shall
affect the obligation of the Servicer to observe any applicable law prohibiting
disclosure of information regarding the Obligors, and the failure of the
Servicer to provide access to information as a result of such obligation shall
not constitute a breach of this Section.
Section 3.13. Servicer Expenses. The Servicer shall be required to pay all
expenses incurred by it in connection with its activities hereunder, including
fees and disbursements of independent accountants, taxes imposed on the Servicer
and expenses incurred in connection with distributions and reports to
Certificateholders.
Section 3.14. Appointment of Subservicer. The Servicer may at any time
appoint a subservicer to perform all or any portion of its obligations as
Servicer hereunder; provided, further, that the Servicer shall remain obligated
and shall be liable to the Trustee and the Certificateholders for the servicing
and administering of the Receivables in accordance with the provisions hereof
without diminution of such obligation and liability by virtue of the appointment
of such 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 shall be as agreed between
the Servicer and its subservicer from time to time, and
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none of the Trust, the Trustee or the Certificateholders shall have any
responsibility therefor.
ARTICLE IV.
Accounts
Section 4.01. Establishment of Trust Accounts. (a) (1) The Servicer, for
the benefit of the Certificateholders, shall establish and maintain in the name
of the Trustee an Eligible Deposit Account (the "Collection Account"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Certificateholders.
(2) The Servicer, for the benefit of the Certificateholders, shall
establish and maintain in the name of the Trustee a non-interest bearing
account (the "Distribution Account"), bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Certificateholders.
(b) Funds on deposit in the Collection Account shall be invested by
the Trustee in Eligible Investments selected in writing by the Servicer
(pursuant to standing instructions or otherwise); provided, however, that
it is understood and agreed that the Trustee shall not be liable for any
loss arising from such investment in Eligible Investments. Investment
Earnings on Eligible Investments held in the Collection Account shall be
for the benefit of the Servicer and shall be distributed on each
Distribution Date to the Servicer. Funds on deposit in the Collection
Account shall be invested in Eligible Investments that will mature (1) not
later than the Business Day immediately preceding the next Distribution
Date or (2) on such next Distribution Date if such investment is held in
the trust department of the institution with which the Collection Account
and is then maintained and is invested in a time deposit that is rated at
least A-1 Standard & Poor's and P-1 by Moody's. Funds deposited in the
Collection Account upon the maturity of any Eligible Investments on the day
immediately preceding a Distribution Date are not required to be invested
overnight. If at any time the Collection Account ceases to be an Eligible
Deposit Account, the Trustee (or the Servicer on its behalf) shall, within
10 Business Days (or such longer period, not to exceed 30 calendar days, to
which each Rating Agency shall consent), establish a new Collection Account
as an Eligible Deposit Account and shall transfer any cash and/or
investments to such new account.
(c) (1) The Servicer shall establish and maintain with the Trustee an
Eligible Deposit Account
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(the "Payahead Account"). The Payahead Account shall not be property of the
Trust.
(2) The Servicer shall, on or prior to each Distribution Date (and
prior to deposits to the Distribution Account) transfer from the Collection
Account to the Payahead Account all Payaheads as described in Section 5.02
received by the Servicer during the related Collection Period.
Notwithstanding the foregoing and the first sentence of Section 5.01, for
so long as the Servicer is permitted to make monthly remittances to the
Collection Account pursuant to Section 5.01, Payaheads need not be remitted
to and deposited in the Payahead Account, but instead may be remitted to
and held by the Servicer. So long as such condition is met, the Servicer
shall not be required to segregate or otherwise hold separate any Payaheads
remitted to the Servicer as aforesaid, but shall be required to remit
Payaheads to the Collection Account in accordance with Section 5.05(a).
(d) (1) Except as otherwise provided herein, the accounts established
and maintained pursuant to this Article IV shall be under the sole dominion
and control of the Trustee for the benefit of the Certificateholders. With
respect to any Account Property, the Trustee agrees, by its acceptance
hereof, that:
(A) Any Account Property that is held in deposit accounts shall
be held solely in Eligible Deposit Accounts (subject to the last
sentence of Section 4.01(b)); and, except as otherwise provided
herein, each such Eligible Deposit Account shall be subject to the
exclusive custody and control of the Trustee, and the Trustee shall
have sole signature authority with respect thereto;
(B) Any Account Property that constitutes Physical Property shall
be delivered to the Trustee in accordance with paragraph (a) of the
definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Trustee or a financial intermediary (as
such term is defined in Section 8- 313(4) of the UCC) acting solely
for the Trustee;
(C) Any Account Property that is a book-entry security held
through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Trustee,
pending maturity or disposition, through continued book-entry
registration of such Account Property as described in such paragraph;
and
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(D) Any Account Property that is an "uncertificated security"
under Article 8 of the UCC and that is not governed by clause (C)
above shall be delivered to the Trustee in accordance with paragraph
(c) of the definition of "Delivery" and shall be maintained by the
Trustee, pending maturity or disposition, through continued
registration of the Trustee's (or its custodian's or its nominee's)
ownership of such security.
(2) The Servicer shall have the power, revocable by the Trustee, to
instruct the Trustee to make withdrawals and payments from the trust
accounts for the purpose of permitting the Servicer or the Trustee to carry
out its respective duties hereunder.
Section 4.02. Reserve Account. (a) In order to effectuate the subordination
provided for herein and to assure that sufficient amounts to make required
distributions to Certificateholders will be available, the Servicer shall
establish and maintain an Eligible Deposit Account (the "Reserve Account"),
bearing a designation clearly indicating that the funds deposited therein are
held in trust for the benefit of the Certificateholders. The Reserve Account
will include the money and other property deposited and held therein pursuant to
this Section 4.02, Section 4.04(a) and Section 5.05(e).
On or prior to the Closing Date, the Company shall deposit an amount equal
to the Reserve Account Initial Deposit into the Reserve Account. The Reserve
Account shall not be part of the Trust, but instead will be held for the benefit
of the Certificateholders. The Company hereby acknowledges that all funds on
deposit in the Reserve Account (and any investment earnings thereon) are owned
directly by it, and the Company hereby agrees to treat the same as its assets
(and earnings) for federal income tax and all other purposes.
(b) In order to give effect to the subordination provided for herein
and to assure the availability of the amounts maintained in the Reserve
Account, the Company hereby sells, conveys and transfers to the Trustee, as
collateral agent, and its successors and assigns, the Reserve Account
Initial Deposit and all proceeds thereof and hereby pledges to the Trustee
as collateral agent, and its successors and assigns, all other amounts
deposited in or credited to the Reserve Account from time to time under
this Agreement, all Eligible Investments made with amounts on deposit
therein, all earnings and distributions thereon and proceeds thereof,
subject, however, to the limitations set forth below, and solely for the
purpose of securing and providing for payment of the Class A Distributable
Amount and the Class B Distributable Amount in accordance with
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Section 5.05(b) (all the foregoing, subject to the limitations set forth
below, the "Reserve Account Property"), to have and to hold all the
aforesaid property, rights and privileges unto the Trustee, its successors
and assigns, in trust for the uses and purposes, and subject to the terms
and provisions, set forth in this Section. The Trustee hereby acknowledges
such transfer and accepts the trusts hereunder and shall hold and
distribute the Reserve Account Property in accordance with the terms and
provisions of this Section.
(c) Consistent with the limited purposes for which such trust is
granted, the amounts on deposit in the Reserve Account on each Distribution
Date shall be available for distribution as provided in Section 5.05, in
accordance with and subject to the following: if the amount on deposit in
the Reserve Account (after giving effect to all deposits thereto and
withdrawals therefrom on such Distribution Date) is greater than the
Specified Reserve Account Balance, the Trustee shall release and distribute
all such excess amounts to the Company. Upon any such distribution to the
Company, the Certificateholders will have no further rights in, or claims
to, such amounts.
(d) Funds on deposit in the Reserve Account shall be invested by the
Trustee, as collateral agent, in Eligible Investments selected in writing
by the Company. Unless otherwise permitted by the Rating Agencies, funds on
deposit in the Reserve Account shall be invested in Eligible Investments
that will mature (1) not later than the Business Day immediately preceding
the next Distribution Date or (2) on such next Distribution Date if such
investment is held in the trust department of the institution with which
the Reserve Account is then maintained and is invested in a time deposit
that is rated at least A-1 by Standard & Poor's and P-1 by Moody's. Funds
deposited in the Reserve Account upon the maturity of any Eligible
Investments on the day immediately preceding a Distribution Date are not
required to be invested overnight. If, at any time, the Reserve Account
ceases to be an Eligible Deposit Account, the Trustee as collateral agent
(or the Servicer on its behalf) shall, within 10 Business Days ((or such
longer period), not to exceed 30 calendar days, to which each Rating Agency
may consent), establish a new Reserve Account as an Eligible Deposit
Account and shall transfer any cash and/or any investments to such new
account.
(e) With respect to the Reserve Account Property, the Company, on
behalf of itself, its successors and assigns, and the Trustee agree that:
(1) Any Reserve Account Property that is held in deposit accounts
shall be held solely in the name of
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the Trustee, as collateral agent, at an Eligible Institution. Each
such deposit account shall be subject to the exclusive custody and
control of the Trustee, and the Trustee shall have sole signature
authority with respect thereto;
(2) Any Reserve Account Property that constitutes Physical
Property shall be delivered to the Trustee, as collateral agent, in
accordance with paragraph (a) of the definition of "Delivery" and
shall be held, pending maturity or disposition, solely by the Trustee,
as collateral agent, or a financial intermediary (as such term is
defined in Section 8-313(4) of the UCC) acting solely for the Trustee,
as collateral agent;
(3) Any Reserve Account Property that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Trustee, as
collateral agent, pending maturity or disposition, through continued
book-entry registration of such Reserve Account Property as described
in such paragraph; and
(4) Any Reserve Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by
clause (3) above shall be delivered to the Trustee, as collateral
agent, in accordance with paragraph (c) of the definition of
"Delivery" and shall be maintained by the Trustee, as collateral
agent, pending maturity or disposition, through continued registration
of the Trustee's (or its custodian's or its nominee's) ownership of
such security, in its capacity as collateral agent.
Effective upon Delivery of any Reserve Account Property in the form of
Physical Property, book-entry securities or uncertificated securities, the
Trustee shall be deemed to have purchased such Reserve Account Property for
value, in good faith and without notice of any adverse claim thereto.
(f) The Company and the Servicer agree to take or cause to be taken
such further actions, to execute, deliver and file or cause to be executed,
delivered and filed such further documents and instruments (including,
without limitation, any UCC financing statements or this Agreement) as may
be determined to be necessary in an Opinion of Counsel to the Company
delivered to the Trustee in order to perfect the interests created by this
Section and otherwise fully to effectuate the purposes, terms and
conditions of this Section. The Company shall:
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(1) promptly execute, deliver and file any financing statements,
amendments, continuation statements, assignments, certificates, and
other documents with respect to such interests and perform all such
other acts as may be necessary in order to perfect or maintain the
perfection of the Trustee's security interest; and
(2) file the necessary financing statements or amendments thereto
within five days, and promptly notify the Trustee of any such filing,
after the occurrence of any of the following: (A) any change in its
corporate name or any trade name; (B) any change in the location of
its chief executive office or principal place of business; and (C) any
merger or consolidation or other change in its identity or corporate
structure and promptly notify the Trustee of any such filings.
(g) The Trustee shall not enter into any subordination or
intercreditor agreement with respect to the Reserve Account Property.
(h) Following the payments in full of the Certificate Balance and of
all other amounts owing or to be distributed under this Agreement to
Certificateholders and the termination of the Trust, any amount remaining
on deposit in the Reserve Account shall be distributed to the Sellers.
[Section 4.03. Yield Supplement Account. (a) On or prior to the Closing
Date, the Company shall establish an Eligible Deposit Account (the "Yield
Supplement Account"), bearing a designation clearly indicating that the funds
deposited therein are for the benefit of the Certificateholders. On or prior to
the Closing Date, the Company, the Servicer and the Trustee shall enter into the
Yield Supplement Account Agreement and the Seller shall deposit an amount equal
to the Yield Supplement Initial Deposit into the Yield Supplement Account. The
Yield Supplement Account shall not be part of the Trust, but instead will be
held for the benefit of the Certificateholders. The Company hereby acknowledges
that the Yield Supplement Initial Deposit and any investment earnings thereon
are owned directly by it, and the Company hereby agrees to treat the same as its
assets (and earnings) for federal income tax and all other purposes.
(b) The Company hereby sells, conveys and transfers to Trustee, as
collateral agent, and its successors and assigns, the Yield Supplement
Initial Deposit and all proceeds thereof, and hereby pledges to the Trustee
as collateral agent, and its successors and assigns, all other amounts
deposited in or credited to the Trustee as collateral agent, and its
successors and assigns, all other amounts deposited in or credited to the
Yield Supplement Account from time to time under this Agreement, all
Eligible
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Investment made with amounts on deposit therein, all earnings and
distributions thereon, subject, however, to the limitations set forth
below.
(c) The amounts on deposit in the Yield Supplement Account on each
Distribution Date shall be available for distribution as provided in
Section 5.05; provided, however, that if the amount on deposit in the Yield
Supplement Account (after giving effect to all deposits thereto and
withdrawals therefrom on such Distribution Date) is greater than the Yield
Supplement Maximum Amount, the Trustee shall release and distribute such
excess amount to the Company. Upon any such distribution to the Company,
the Certificateholders will have no further rights in, or claims to, such
amounts.
(d) Following the payment in full of the Certificate Balance and of
all other amounts owing or to be distributed to Certificateholders under
this Agreement and the termination of the Trust, any amount remaining on
deposit in the Yield Supplement Account shall be distributed to the
Company.]
ARTICLE V.
Payments and Statements to Certificateholders
Section 5.01. Collections. The Servicer shall remit within two Business
Days of receipt thereof to the Collection Account all payments by or on behalf
of the Obligors with respect to the Receivables (other than Purchased
Receivables) and all Liquidation Proceeds. Notwithstanding the foregoing, for so
long as (a) ________ remains the Servicer, (b) no Event of Default shall have
occurred and be continuing and (c)(1) __________ maintains a short-term rating
of at least A-1 by Standard & Poor's and P-1 by Moody's (and for five Business
Days following a reduction in either such rating) or (2) prior to ceasing daily
remittances, the Rating Agency Condition shall have been satisfied (and any
conditions or limitations imposed by the Rating Agencies in connection therewith
are complied with), the Servicer may remit all such payments and Liquidation
Proceeds with respect to any Collection Period to the Collection Account on a
less frequent basis, but in no event later than the Determination Date
immediately preceding each Distribution Date. For purposes of this Article V,
the phrase "payments by or on behalf of Obligors" shall mean payments made with
respect to the Receivables by Persons other than the Servicer or the Company.
Section 5.02. Application of Collections. All collections for a Collection
Period shall be applied by the Servicer as follows: With respect to each
Receivable (other than a Purchased Receivable), payments by or on behalf of the
Obligor
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shall be applied first, in the case of Precomputed Receivables, to reduce
Outstanding Precomputed Advances as described in Section 5.03(a) and, in the
case of Simple Interest Receivables, to reduce Outstanding Simple Interest
Advances as described in Section 5.03(b). Next, any excess shall be applied, in
the case of Precomputed Receivables, to the Scheduled Payment and, in the case
of Simple Interest Receivables, to pay interest accrued on such Simple Interest
Receivable to [and including] the date of receipt of such payment and any
remaining excess shall be applied to prepay the Simple Interest Receivable, and,
in the case of Precomputed Receivables, any remaining excess (a "Payahead")
shall be added to the Payahead Balance and shall be applied to prepay the
Precomputed Receivable only if the sum of such excess and the previous Payahead
Balance shall be sufficient to prepay the Receivable in full. Otherwise, and
such remaining excess payment shall constitute a Payahead and shall increase the
Payahead Balance.
Section 5.03. Advances. (a) As of the close of business on the last day of
each Collection Period, if the payments by or on behalf of an Obligor on a
Precomputed Receivable (other than a Purchased Receivable) shall be less than
the Scheduled Payment, the Payahead Balance, if any, with respect to such
Precomputed Receivable shall be applied by the Servicer to the extent of the
shortfall and such Payahead Balance shall be reduced accordingly. Next, the
Servicer shall advance any remaining shortfall (such amount a "Precomputed
Advance"), to the extent that the Servicer, at its sole discretion, shall
determine that such Precomputed Advance shall be recoverable from the Obligor,
the Purchase Amount or Liquidation Proceeds with respect to such Receivable or
proceeds of any other Precomputed Receivables. Each such Precomputed Advance
shall increase the aggregate amount of Outstanding Precomputed Advances.
Outstanding Precomputed Advances shall be reduced by subsequent payments by or
on behalf of the Obligor, collections of Liquidation Proceeds in respect of
Precomputed Receivables or payments of the Purchase Amount in respect of
Precomputed Receivables. If the Servicer shall determine that an Outstanding
Precomputed Advance with respect to any Precomputed Receivable shall not be
recoverable as aforesaid, the Servicer shall be reimbursed from any collections
made on other Precomputed Receivables in the Trust, and Outstanding Precomputed
Advances with respect to such Precomputed Receivable shall be reduced
accordingly.
(b) At the close of business on the last day of each Collection
Period, the Servicer shall advance an amount equal to the amount of
interest due on the Simple Interest Receivables at their respective APR's
for the related Collection Period (assuming the Simple Interest Receivables
pay on their respective due dates) minus the amount of interest actually
received on the Simple Interest Receivables during the related Collection
Period (such
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amount, a "Simple Interest Advance"). Each such Simple Interest Advance
shall increase the aggregate amount of Outstanding Simple Interest
Advances. If such calculation results in a negative number, an amount equal
to such negative number shall be paid to the Servicer and the amount of
Outstanding Simple Interest Advances shall be reduced by such amount. In
addition, in the event that a Simple Interest Receivable becomes a
Liquidated Receivable, Liquidation Proceeds with respect to such Simple
Interest Receivable attributable to accrued and unpaid interest thereon
(but not including interest for the then current Collection Period) shall
be paid to the Servicer to reduce Outstanding Simple Interest Advances, but
only to the extent of any current Outstanding Simple Interest Advances. The
Servicer shall not make any advance with respect to principal of a Simple
Interest Receivable.
Section 5.04. Additional Deposits. The Servicer shall deposit in the
Collection Account the aggregate Advances pursuant to Section 5.03. The Servicer
and the Company shall deposit or cause to be deposited in the Collection Account
the aggregate Purchase Amount with respect to Purchased Receivables, and the
Servicer shall deposit therein all amounts to be paid under Section 11.02. The
Servicer shall deposit the aggregate Purchase Amount with respect to Purchased
Receivables in the Collection Account when such obligations are due, unless the
Servicer shall not be required to make daily deposits pursuant to Section 5.01.
Section 5.05. Deposits. (a) On each Distribution Date, the Trustee shall
cause the following transfers to be made in immediately available funds in the
amounts set forth in the Servicer's Certificate for such Distribution Date:
[(1) from moneys on deposit in the Yield Supplement Account or
otherwise paid by the Company to the Trustee pursuant to the Yield
Supplement Account Agreement to the Distribution Account, an amount
equal to the Yield Supplement Amount for such Distribution Date;]
(2) from the Collection Account to the Distribution Account, the
entire amount then on deposit in the Collection Account; provided,
however, that in the event the Servicer is required to make deposits
to the Collection Account on a daily basis pursuant to Section 5.01,
the amount of funds transferred from the Collection Account to the
Distribution Account will include only those funds that were deposited
in the Collection Account for the Collection Period related to such
Distribution Date; and
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(3) from the Payahead Account, or from the Servicer in the event
that the second and third sentences of Section 4.01(c)(2) are
applicable, to the Distribution Account, the aggregate amount of
previous Payaheads to be applied to Scheduled Payments on Precomputed
Receivables for the related Collection Period or prepayments for the
related Collection Period, pursuant to Sections 5.02 and 5.03, in the
amount set forth in the Servicer's Certificate delivered on the
related Determination Date. A single, net transfer may be made.
(b) On each Determination Date, the Servicer shall calculate the Total
Distribution Amount, Interest Distribution Amount, Principal Distribution
Amount, [Yield Supplement Amount,] the Class A Principal Distributable
Amount, Class A Interest Distributable Amount, Class B Principal
Distributable Amount and Class B Interest Distributable Amount and, based
on the Total Distribution Amount and the other amounts to be distributed on
such Distribution Date, determine the amounts distributable to Holders of
the Class A Certificates and the Class B Certificates.
(c) On each Distribution Date, the Trustee (based on the information
contained in the Servicer's Certificate delivered on the related
Determination Date pursuant to Section 3.09) shall distribute amounts on
deposit in the Distribution Account and, if applicable, the Reserve
Account, in the manner and priority set forth below:
(1) to the Servicer, from the Interest Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods;
(2) to the Class A Certificateholders:
(A) from the Class A Percentage of the Interest Distribution
Amount (after payment of the Servicing Fee and except as provided
in the proviso to subsection (d)(1) below), the Class A Interest
Distributable Amount;
(B) from the Class A Percentage of the Principal
Distribution Amount, the Class A Principal Distributable Amount;
(3) To the Class B Certificateholders:
(A) from the Class B Percentage of the Interest Distribution
Amount (after payment of the Servicing Fee), the Class B Interest
Distributable Amount; and
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(B) from the Class B Percentage of the Principal
Distribution Amount, the Class B Principal Distributable Amount.
(d) The rights of the Class B Certificateholders to receive
distributions in respect of the Class B Certificates shall be and hereby
are subordinated to the rights of the Class A Certificateholders to receive
distributions in respect of the Class A Certificates and the rights of the
Servicer to receive the Servicing Fee (and any accrued and unpaid Servicing
Fees from prior Collection Periods) to the extent provided in this Section.
Such subordination shall be effected as follows, and all payments shall be
affected pursuant to clause (1) below prior to any payments pursuant to
clause (2):
(1) If the Class A Percentage of the Interest Distribution Amount
(after such Interest Distribution Amount has been reduced by Servicing
Fee payments) is less than the Class A Interest Distributable Amount
on any Distribution Date, the Class A Certificateholders shall be
entitled to receive distributions in respect of such deficiency first,
from the Class B Percentage of the Interest Distribution Amount;
second, if such amounts are insufficient, from amounts on deposit in
the Reserve Account; and third, if such amounts are insufficient, from
the Class B Percentage of the Principal Distribution Amount; provided,
however, that if the amount of Simple Interest Advances required to be
made for the Collection Period have not been paid by the Servicer or
withdrawn from the Reserve Account, any resultant shortfall shall be
allocated pro rata between the Class A Certificates and the Class B
Certificates and any portion of such shortfall allocable to the Class
A Certificates (and any Class A Interest Carryover Shortfalls
attributable thereto) shall be paid only from amounts that are or
become available in the Reserve Account after giving effect to any
deposit thereto on such day.
(2) If the Class A Percentage of the Principal Distribution
Amount is less than the Class A Principal Distributable Amount on any
Distribution Date, the Class A Certificateholders shall be entitled to
receive distribution in respect of such deficiency first, from the
Class B Percentage of the Principal Distribution Amount; second, if
such amounts are insufficient, from amounts on deposit in the Reserve
Account and third, if such amounts are insufficient, from the Class B
Percentage of the Interest Distribution Amount.
(e) On each Distribution Date, the Trustee shall distribute any excess
amounts remaining in the Distribution
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Account after making the distributions described in clauses (c)(1) through
(c)(3) above in the following amounts and in the following order of
priority: (1) to the Reserve Account until the amount on deposit therein
equals the Specified Reserve Account Balance and (2) to the Company.
(f) Subject to Section 11.01 respecting the final payment upon
retirement of each Certificate, the Servicer shall instruct the Trustee on
each Distribution Date to distribute to each Certificateholder of record on
the preceding Record Date the interest and principal amounts to be
distributed to such Certificateholder on such Distribution Date. Such
distributions by the Trustee shall be made either (1) by wire transfer in
immediately available funds to the account of such Holder at a bank or
other entity having appropriate facilities thereof, provided that such
Holder holds Certificates with a minimum initial aggregate principal amount
of $1,000,000 and such Certificateholder has provided appropriate
instructions to the Servicer prior to such Distribution Date, or (2) by
check mailed to such Certificateholder at the address of such Holder
appearing in the Certificate Register.
Section 5.06. Statements to Certificateholders. On each Determination Date,
the Servicer shall provide to the Trustee for the Trustee to forward to each
Certificateholder of record as of the most recent Record Date, a statement
setting forth the following information for the related Collection Period as to
each Class of Certificates to the extent applicable:
(a) the amount of such distribution allocable to principal of each
class of Certificates;
(b) the amount of such distribution allocable to interest of each
class of Certificates;
(c) the Pool Balance as of the close of business on the last day of
the related Collection Period after giving effect to payments allocated to
principal reported under (1) above;
(d) the Class A Certificate Balance and the Class B Certificate
Balance as of the close of business on the last day of the related
Collection Period, after giving effect to payments allocated to principal
reported under paragraph (a) above;
(e) the amount of the Servicing Fee paid to the Servicer for the
related Collection Period;
(f) the amount, if any, of Class A Principal Carryover Shortfall,
Class A Interest Carryover Shortfall, Class B
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Principal Carryover Shortfall and Class B Interest Carryover Shortfall, as
applicable, on such Distribution Date and any change in the Class A
Principal Carryover Shortfall, Class A Interest Carryover Shortfall, Class
B Principal Carryover Shortfall and Class B Interest Carryover Shortfall,
as applicable, from the preceding Distribution Date;
(g) the amount of Realized Losses, if any, with respect to the related
Collection Period.
(h) the amount otherwise distributable to Holders of the Class B
Certificates that is distributed to Holders of Class A Certificates on such
Distribution Date.
(i) the balance of the Reserve Account on such Distribution Date,
after giving effect to deposits thereto and withdrawals therefrom made on
such Distribution Date;
[(j) the Yield Supplement Amount and the amount on deposit in the
Yield Supplement Account after giving effect to distributions on such date;
and]
(k) the aggregate Payahead Balance and the change in such balance from
the preceding Distribution Date.
Each amount set forth pursuant to subclauses (a), (b), (d) and (e) above shall
be expressed as a dollar amount per $1,000 of original principal balance of
Class A Certificate or Class B Certificate, as applicable.
Section 5.07. Tax Treatment; Construction. It is the intention of the
parties hereto, and each holder by its acceptance of a Certificate shall be
deemed to agree, that the Trust will be treated as a grantor trust for federal
income tax purposes and all transactions contemplated by this Agreement will be
reported, to the extent applicable, on all applicable tax returns consistently
with such treatment. The provisions of this Agreement shall be construed, and
the affairs of the Trust shall be conducted as provided herein, so as to achieve
treatment of the Trust as a grantor trust for federal income tax purposes.
Section 5.08. Accounting and Tax Returns. The Trustee shall (a) deliver to
each Certificateholder such information as may be required by the Code and
applicable Treasury Regulations (including Form 1099) to enable each Holder to
prepare its federal and state income tax returns, (b) file such tax returns
relating to the Trust as from time to time may be required or appropriate under
any applicable state or federal statute or any rule or regulation thereunder and
(c) cause such tax returns to be signed in the manner required by law.
Section 5.09. Net Deposits. As an administrative convenience, unless the
Servicer is required to
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remit collections daily, the Servicer will be permitted to make the deposit of
collections on the Receivables, aggregate Advances and Purchase Amounts for or
with respect to each Collection Period net of distributions to be made to the
Servicer with respect to such Collection Period. The Servicer, however, will
account to the Trustee and to the Certificateholders as if all deposits,
distributions and transfers were made individually.
ARTICLE VI.
The Certificates
Section 6.01. The Certificates. The Certificates shall be issued in fully
registered form in minimum denominations of $1,000 and integral multiples of $1
in excess thereof. The Certificates shall be executed on behalf of the Trust by
manual or facsimile signature of an authorized officer of the Trustee.
Certificates bearing the manual or facsimile signatures of signatures of
individuals who were, at the time when such signatures were affixed, authorized
to sign on behalf of the Trust, shall be validly issued and entitled to the
benefit of this Agreement, notwithstanding the fact that such individuals or any
of them have ceased to be so authorized prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of authentication
and delivery of such Certificates.
A transferee of a Certificate shall become a Certificateholder and shall be
entitled to the rights and subject to the obligations of a Certificateholder
hereunder upon such transferee's acceptance of a Certificate duly registered in
such transferee's name pursuant to Section 6.03.
Section 6.02. Authentication of Certificates. Concurrently with the
conveyance of the Receivables to the Trust, the Trustee shall cause the
Certificates to be executed on behalf of the Trust, authenticated and delivered
to or upon the written order of the Company, signed by an authorized Trust
Officer, without further corporate action by the Company, in authorized
denominations. No Certificate shall entitle its Holder to any benefit under this
Agreement or be valid for any purpose unless there shall appear on such
Certificate a certificate of authentication, executed by the Trustee by manual
signature. Such authentication shall constitute conclusive evidence that such
Certificate shall have been duly authenticated and delivered hereunder. All
Certificates shall be dated the date of their authentication.
Section 6.03. Registration of Transfer and Exchange of Certificates. The
Certificate Registrar shall keep or cause to be kept, at the office or agency
maintained pursuant to Section 6.07, a Certificate Register in which, subject to
such reasonable regulations as it may prescribe, the Trustee shall
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provide for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. Unless otherwise specified in this Agreement,
the Trustee shall be the initial Certificate Registrar.
Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Trustee shall execute, authenticate and deliver, in
the name of the designated transferee or transferees, one or more new
Certificates in authorized denominations of a like aggregate amount dated the
date of authentication by the Trustee. At the option of a Holder, Certificates
may be exchanged for other Certificates of authorized denominations of a like
aggregate amount upon surrender at the Corporate Trust Office of the
Certificates to be exchanged.
Every Certificate presented or surrendered for registration of transfer or
exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Certificate Registrar duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Certificate
surrendered for registration of transfer and exchange shall be canceled and
subsequently disposed of by the Trustee.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
Section 6.04. Mutilated, Destroyed, Lost or Stolen Certificates. If (a) any
mutilated Certificate shall be surrendered to the Certificate Registrar, or if
the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar and the Trustee such security or indemnity as may
be required by them to save each of them harmless, then in the absence of notice
that such Certificate has been acquired by a bona fide purchaser, the Trustee on
behalf of the Trust shall execute, and the Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate of like tenor and denomination. In
connection with the issuance of any new Certificate under this Section, the
Trustee and the Certificate Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Certificate issued pursuant to this Section
shall constitute conclusive evidence of ownership of a beneficial interest in
the Trust, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.
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Section 6.05. Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, the Trustee or the Certificate
Registrar may treat the Person in whose name any Certificate shall be registered
as the owner of such Certificate for the purpose of receiving distributions
pursuant to Section 5.05 and for all other purposes whatsoever, and neither the
Trustee nor the Certificate Registrar shall be bound by any notice to the
contrary.
Section 6.06. Access to List of Certificateholders' Names and Addresses.
The Trustee shall furnish or cause to be furnished to the Servicer, within 15
days after receipt by the Trustee of a request therefor from the Servicer in
writing, a list, in such form as the Servicer may reasonably require, of the
names and addresses of the Certificateholders as of the most recent Record Date.
If three or more Certificateholders, or one or more Holders of Certificates
evidencing no less than 25% of the Certificate Balance apply in writing to the
Trustee, and such application states that the applicants desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates and such application is accompanied by a copy of the
communication that such applicants propose to transmit, then the Trustee shall,
within five Business Days after the receipt of such application, afford such
applicants access during normal business hours to the current list of
Certificateholders. Each Holder, by receiving and holding a Certificate, shall
be deemed to have agreed to hold neither the Servicer nor the Trustee
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
Section 6.07. Maintenance of Office or Agency. The Trustee shall maintain
in the Borough of Manhattan, The City of New York, an office or offices or
agency where Certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Trustee in respect of the
Certificates and this Agreement may be served. The Trustee initially designates
___________________ as its office for such purposes. The Trustee shall give
prompt written notice to the Servicer and to Certificateholders of any change in
the location of the Certificate Register or any such office or agency.
Section 6.08. Book-Entry Certificates. The Class A Certificates, upon
original issuance, will be issued in the form of one or more typewritten
Certificates representing Book-Entry Certificates, to be delivered to the
Depository Trust Company, the initial Clearing Agency by or on behalf of the
Trust. The Class A Certificates shall be registered initially on the Certificate
Register in the name of Cede & Co. the nominee of the initial Clearing Agency,
and no Certificate Owner will receive a definitive certificate representing such
Certificate Owner's interest in the Certificates, except as provided in Section
6.10. Unless and until definitive, fully registered Certificates (the
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"Definitive Certificates") have been issued to such Certificate Owners pursuant
to Section 6.10
(a) the provisions of this Section shall be in full force and effect;
(b) the Company, the Servicer, the Certificate Registrar and the
Trustee may deal with the Clearing Agency for all purposes (including the
making of distributions on the Class A Certificates) as the sole Holder of
such Certificates and shall have no obligation to the related Certificate
Owners;
(c) to the extent that the provisions of this Section conflict with
any other provisions of this Agreement, the provisions of this Section
shall control;
(d) the rights of such Certificate Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by
law and agreements between such Certificate Owners and the Clearing Agency
and/or the Clearing Agency Participants pursuant to the Depository
Agreement. Unless and until Definitive Certificates are issued pursuant to
Section 6.10, the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and transmit
distributions of principal and interest on the Class A Certificates to such
Clearing Agency Participants; and
(e) whenever this Agreement requires or permits actions to be taken
based upon instructions or directions of Holders of Class A Certificates
evidencing a specified percentage of the Class A Certificate Balance, the
Clearing Agency shall be deemed to represent such percentage only to the
extent that it has received instructions to such effect from Certificate
Owners and/or Clearing Agency Participants owning or representing,
respectively, such required percentage of the beneficial interest in the
Class A Certificates and has delivered such instructions to the Trustee.
Section 6.09. Notices to Clearing Agency. Whenever a notice or other
communication to Holders of the Class A Certificates is required under this
Agreement, unless and until Definitive Certificates have been issued to such
Certificate Owners pursuant to Section 6.10, the Trustee and the Servicer shall
give all such notices and communications specified herein to be given to Holders
of Class A Certificates to the Clearing Agency.
Section 6.10. Definitive Certificates. If (a) the Sellers advise the
Trustee in writing that the Clearing Agency is no longer willing or able to
properly discharge its
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responsibilities under the Depository Agreement and the Company or the Trustee
are unable to locate a qualified successor, (b) the Company at its option
advises the Trustee in writing that it elects to terminate the book-entry system
through the Clearing Agency or (c) after the occurrence of an Event of Default,
Certificate Owners representing beneficial interests aggregating not less than a
majority of the aggregate outstanding principal amount of the Book-Entry
Certificates advise the Trustee and the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of the Certificate Owners, then the Clearing Agency shall
notify all Certificate Owners and the Trustee of the occurrence of such event
and of the availability of Definitive Certificates evidencing the same. Upon
surrender to the Trustee of the typewritten Certificates representing the
Book-Entry Certificates by the Clearing Agency, accompanied by registration
instructions, the Trustee shall execute and authenticate the Definitive
Certificates in accordance with the instructions of the Clearing Agency. None of
the Company, the Certificate Registrar or the Trustee shall be liable for any
delay in delivery of such instructions and may conclusively rely on, and shall
be protected in relying on, such instructions. Upon the issuance of Definitive
Certificates, the Trustee shall recognize the Holders of the Definitive
Certificates as Certificateholders hereunder. The Definitive Certificates may be
printed, lithographed or engraved or produced in any other manner that is
reasonably acceptable to the Trustee, as evidenced by its execution thereof.
[Section 6.11. Limitations on Transfer of the Class B Certificates. (a) The
Class B Certificates have not been and will not be registered under the
Securities Act will not be listed on any exchange. No transfer of a Class B
Certificate shall be made unless such transfer is made pursuant to an effective
registration statement under the Securities Act and any applicable state
securities laws or is exempt from the registration requirements under said Act
and such state securities laws. In the event that a transfer is to be made in
reliance upon an exemption from the Securities Act and state securities laws, in
order to assure compliance with the Securities Act and such laws, the Holder
desiring to effect such transfer and such Holder's prospective transferee shall
each certify to the Trustee in writing the facts surrounding the transfer in
substantially the forms set forth in Exhibit E (the "Transferor Certificate")
and either Exhibit F (the "Investment Letter") or Exhibit G (the "Rule 144A
Letter"). Except in the case of a transfer as to which the proposed transferee
has provided a Rule 144A Letter, there shall also be delivered to the Trustee an
Opinion of Counsel that such transfer may be made pursuant to an exemption from
the Securities Act and state securities laws, which Opinion of Counsel shall not
be an expense of the Trust or Trustee; provided that such Opinion of Counsel in
respect of the applicable state securities laws may be a
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memorandum of law rather than an opinion if such counsel is not licensed in the
applicable jurisdiction. The Company shall provide to any Holder of a Class B
Certificate and any prospective transferee designated by any such Holder,
information regarding the Class B Certificates and the Receivables and such
other information as shall be necessary to satisfy the condition to eligibility
set forth in Rule 144A(d)(4) under the Securities Act for transfer of any such
Class B Certificate without registration thereof under the Securities Act
pursuant to the registration exemption provided by Rule 144A. Each Holder of a
Class B Certificate desiring to effect such a transfer shall, and does hereby
agree to, indemnify the Trust, the Trustees and the Company against any
liability that may result if the transfer is not so exempt or is not made in
accordance with federal and state securities laws.
(b) No transfer of a Class B Certificate shall be made unless the
Trustee shall have received a representation from the transferee of such
Class B Certificate, acceptable to and in form and substance satisfactory
to the Trustee, to the effect that such transferee is not an employee
benefit plan, trust or account (each a "Benefit Plan") subject to the
fiduciary responsibility provisions of ERISA or Section 4975 of the Code or
a Person acting on behalf of any such Benefit Plan or using assets of a
Benefit Plan to acquire Class B Certificates. For purposes of the preceding
sentence, such representation shall be deemed to have been made to the
Trustee by the transferee's (including an initial acquiror's) acceptance of
a Class B Certificate. Notwithstanding anything else to the contrary
herein, any proposed transfer of a Class B Certificate to or on behalf of a
Benefit Plan subject to ERISA or the Code without the delivery to the
Trustee of an Opinion of Counsel satisfactory to the Trustee shall be void
and of no effect. The Trustee shall be under no liability to any Person for
any registration of transfer of any Class B Certificate that is in fact not
permitted by this Section 6.11 or for making any payments due on such Class
B Certificate to the Holder thereof or taking any other action with respect
to such Holder under the provisions of this Agreement so long as the
transfer was registered by the Trustee in accordance with the foregoing
requirements. The Trustee shall be entitled, but not obligated, to recover
from any Holder of a Class B Certificate that was in fact a Benefit Plan
subject to Section 406 of ERISA or Section 4975 of the Code, or a Person
acting on behalf of any such Benefit Plan at the time it became a Holder or
which subsequently became such a Benefit Plan or Person acting on behalf of
such a Benefit Plan, all payments made on such Class B Certificate at and
after either such time. Any payments so recovered by the Trustee shall be
paid and delivered by the Trustee to the last preceding Holder of such
Certificate that is not, and
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was not at the time it held such Certificate, a Benefit Plan or Person
acting on behalf of a Benefit Plan.
(c) The Trustee shall cause each Class B Certificate to contain a
legend stating that transfer of the Class B Certificates is subject to
certain restrictions and referring prospective purchasers of the Class B
Certificates to this Section 6.11 with respect to such restrictions.
(d) Unless otherwise set forth in this Agreement, no transfer of a
Class B Certificate or any interest therein shall be made unless prior to
such transfer the Holder of such Class B Certificate delivers to the
Sellers and the Trustee either a ruling of the Internal Revenue Service or
an Opinion of Counsel to the effect that the proposed transfer will not
result in the arrangement contemplated by this Agreement being treated as
an association taxable as a corporation under either the Code or the tax
laws of the State of New York.]
ARTICLE VII.
The Company
Section 7.01. The Company's Representations. The Company makes the
following representations with respect to itself on which the Trustee is deemed
to have relied in accepting the Receivables in trust and executing and
authenticating the Certificates. The representations speak as of the execution
and delivery of this Agreement and as of the Closing Date and shall survive the
sale of the Receivables to the Trustee.
(a) Organization and Good Standing. The Company is duly organized and
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and had at all relevant
times, and has, the corporate power, authority and legal right to acquire,
own and sell the Receivables.
(b) Due Qualification. The Company is duly qualified to do business as
a foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications.
(c) Power and Authority. The Company has the corporate power and
authority to execute and deliver this
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Agreement and to carry out its terms; the Company has full power and
authority to sell and assign the property to be sold and assigned to and
deposited with the Trustee by it as part of the Trust, and the Company
shall have duly authorized such sale and assignment to the Trustee by all
necessary corporate action; and the execution, delivery and performance of
this Agreement Assignment shall have been duly authorized by the Company by
all necessary corporate action.
(d) Binding Obligation. This Agreement when executed and delivered by
the Company, shall constitute a legal, valid and binding obligation of the
Company enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization and similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and to general
principles of equity (whether applied in a proceeding at law or in equity).
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof do not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or bylaws of the Company, or any material term of
any indenture, agreement or other instrument to which the Company is a
party or by which it is bound; or result in the creation or imposition of
any Lien upon any of its properties pursuant to the terms of any such
indenture, agreement or other instrument (other than pursuant to this
Agreement); or violate any law or, to the best of the Company's knowledge,
any order, rule or regulation applicable to the Company of any court or of
any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Company or its
properties.
(f) No Proceeding. There are no proceedings or investigations pending
or, to the Company's best knowledge, threatened, before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Company or its properties: (1)
asserting the invalidity of this Agreement or the Certificates; (2) seeking
to prevent the issuance of the Certificates or the consummation of any of
the transactions contemplated by this Agreement; (3) seeking any
determination or ruling that might materially and adversely affect the
performance by the Company of its obligations under, or the validity or
enforceability of, this Agreement or the Certificates; or (4) relating to
the Company and that might materially and adversely affect the federal
income tax attributes of the Certificates.
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Section 7.02. Corporate Existence. During the term of this Agreement, the
Company will keep in full force and effect its existence, rights and franchises
as a corporation under the laws of the jurisdiction of its incorporation and
will obtain and preserve its qualification to do business in each jurisdiction
in which such qualification is or shall be necessary or appropriate to the
proper administration of this Agreement and the transactions contemplated
hereby.
Section 7.03. Liabilities of the Company. The Company shall be liable in
accordance herewith only to the extent of the obligations specifically
undertaken and the representations and warranties made by the Company under this
Agreement.
Section 7.04. Merger or Consolidation of, or Assumption of the Obligations
of, the Company. Any Person (a) into which the Company may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Company shall be a party or (c) which may succeed to substantially all of the
properties and assets of the Company, which Person in any of the foregoing cases
executes an agreement of assumption to perform every obligation of the Company
under this Agreement, shall be the successor to the Company hereunder without
the execution or filing of any document or any further act by any of the parties
to this Agreement; provided, however, that (i) immediately after giving effect
to such transaction, no representation or warranty made pursuant to Section 2.03
shall have been breached and no Event of Default, and no event which, after
notice or lapse of time, or both, would become an Event of Default shall have
happened and be continuing, (ii) the Company shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel each stating that such
consideration, merger or succession and such agreement of assumption comply with
this Section and that all conditions precedent, if any, provided for in this
Agreement relating to such transaction have been complied with, (iii) the Rating
Agency Requirement shall have been satisfied with respect to such transaction
and (iv) the Company shall have delivered to the Trustee an Opinion of Counsel
stating that, in the Opinion of such Counsel, either (A) all financing
statements and continuation statements and amendments thereto have been executed
and filed that are necessary fully to preserve and protect the interest of the
Trustee in the Receivables and reciting the details of such filings or (B) no
such action is necessary to preserve and protect such interest. Notwithstanding
anything herein to the contrary, the execution of the foregoing agreement of
assumption and compliance with clauses (i), (ii), (iii) and (iv) above shall be
conditions to the consummation of the transactions referred to in clauses (a),
(b) or (c) above.
Section 7.05. Limitation on Liability of the Company and Others. The
Company and any director, officer, employee or agent of the Company may rely in
good faith on the advice of
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counsel or on any document of any kind, prima facie properly executed and
submitted by any Person respecting any matters arising hereunder. The Company
shall be under no obligation to appear in, prosecute or defend any legal action
that shall not be related to its obligations under this Agreement and that in
its opinion may involve it in any expense or liability.
Section 7.06. The Company May Own Certificates. The Company and any
Affiliate thereof may in its individual or any other capacity become the owner
or pledgee of Certificates with the same rights as it would have if it were not
the Company or an Affiliate thereof, except as otherwise provided herein.
ARTICLE VIII.
The Servicer
Section 8.01. Representations of Servicer. The Servicer makes the following
representations on which the Trustee is deemed to have relied in accepting the
Receivables in trust and executing and authenticating the Certificates. The
representations speak as of the execution and delivery of this Agreement and as
of the Closing Date and shall survive the sale of the Receivables to the
Trustee.
(a) Organization and Good Standing. The Servicer is duly organized and
validly existing as a banking corporation in good standing under the laws
of the state of its incorporation, with power and authority to own its
properties and to conduct its business as such properties are currently
owned and such business is presently conducted, and had at all relevant
times, and has, the corporate power, authority and legal right to acquire,
own, sell and service the Receivables and to hold the Receivable Files as
custodian on behalf of the Trustee.
(b) Due Qualification. The Servicer is duly qualified to do business
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business (including the servicing
of the Receivables as required by this Agreement) shall require such
qualifications.
(c) Power and Authority. The Servicer has the power and authority to
execute and deliver this Agreement and to carry out its terms; and the
execution, delivery and performance of this Agreement have been duly
authorized by the Servicer by all necessary corporate action.
(d) Binding Obligation. This Agreement constitutes a legal, valid and
binding obligation of the Servicer
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enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization and similar laws nor or hereafter in effect
relating to or affecting creditors' rights generally and to general
principles of equity (whether applied in a proceeding at law or in equity).
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof does not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or bylaws of the Servicer, or any material term
of any indenture, agreement or other instrument to which the Servicer is a
party or by which it is bound; or result in the creation or imposition of
any Lien upon any of its properties pursuant to the terms of any such
indenture, agreement or other instrument (other than this Agreement); or
violate any law or, to the best of the Servicer's knowledge, any order,
rule or regulation applicable to the Servicer of any court or of any
federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Servicer or its
properties.
(f) No Proceedings. There are no proceedings or investigations pending
or, to the Servicer's best knowledge, threatened, before any court,
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Servicer or its properties:
(1) asserting the invalidity of this Agreement or the Certificates; (2)
seeking to prevent the issuance of the Certificates or the consummation of
any of the transactions contemplated by this Agreement; (3) seeking any
determination or ruling that might materially and adversely affect the
performance by the Servicer of its obligations under, or the validity of
enforceability of, this Agreement or the Certificates; or (4) relating to
the Servicer and which might materially and adversely affect the federal
income tax attributes of the Certificates.
Section 8.02. Indemnities of Servicer. The Servicer shall be liable in
accordance herewith only to the extent of the obligations specifically
undertaken by the Servicer under this Agreement.
The Servicer shall defend, indemnify and hold harmless the Trustee, the
Trust and the Certificateholders from and against any and all costs, expenses,
losses, damages, claims, and liabilities, arising out of or resulting from the
use, ownership or operation by the Servicer or any Affiliate thereof of a
Financed Vehicle.
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The Servicer shall indemnify, defend and hold harmless the Trustee, the
Trust and the Certificateholders from and against any and all costs, expenses,
losses, damages, claims, and liabilities to the extent that such cost, expense,
loss, claim, damage, or liability arose out of, or was imposed upon any such
Person through, the negligence, willful misfeasance or bad faith of the Servicer
in the performance of its duties under this Agreement or by reason of reckless
disregard of its obligations and duties under this Agreement.
For purposes of this Section, in the event of the termination of the rights
and obligations of _________ (or any successor thereto pursuant to Section 8.03)
as Servicer pursuant to Section 9.01, or a resignation by such Servicer pursuant
to this Agreement, such Servicer shall be deemed to be the Servicer pending
appointment of a successor Servicer (other than the Trustee) pursuant to Section
9.02.
Indemnification under this Section shall survive the resignation or removal
of the Trustee or the termination of this Agreement and shall include reasonable
fees and expenses of counsel and expenses of litigation. If the Servicer shall
have made any indemnity payments pursuant to this Section and the recipient
thereafter collects any of such amounts from others, such Person shall promptly
repay such amounts to the Servicer, without interest.
Section 8.03. Merger or Consolidation of, or Assumption of the Obligations
of, Servicer. Any Person (a) into which the Servicer may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Servicer shall be a party, or (c) which may succeed to substantially all of the
properties and assets of the Servicer, which Person in any of the foregoing
cases executes an agreement of assumption to perform every obligation of the
Servicer hereunder, shall be the successor to the Servicer under this Agreement
without further act on the part of any of the parties to this Agreement;
provided, however, that (i) immediately after giving effect to such transaction,
no Event of Default, and no event which, after notice or lapse of time, or both,
would become an Event of Default shall have happened and be continuing, (ii) the
Servicer shall have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section and that all
conditions precedent provided for in this Agreement relating to such transaction
have been complied with, (iii) the Rating Agency Condition shall have been
satisfied with respect to such transaction and (iv) the Servicer shall have
delivered to the Trustee an Opinion of Counsel stating that, in the Opinion of
such Counsel, either (A) all financing statements and continuation statements
and amendments thereto have been executed and filed that are necessary fully to
preserve and protect the interest of the Trustee in the Receivables and
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reciting the details of such filings or (B) no such action is necessary to
preserve and protect such interest. Notwithstanding anything herein to the
contrary, the execution of the foregoing agreement of assumption and compliance
with clauses (i), (ii), (iii) and (iv) above shall be conditions to the
consummation of the transactions referred to in clauses (a), (b) or (c) above.
Section 8.04. Limitation on Liability of Servicer and Others. Neither the
Servicer nor any of its directors, officers, employees or agents shall be under
any liability to the Trustee, the Trust or the Certificateholders, except as
provided under this Agreement, for any action taken or for refraining from the
taking of any action pursuant to this Agreement or for errors in judgment;
provided, however, that this provision shall not protect the Servicer or any
such Person 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 this Agreement. The
Servicer and any director, officer, employee or agent of the Servicer may rely
in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising under this Agreement.
Except as provided in this Agreement, the Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action that shall not be
related to its duties as Servicer hereunder and that in its opinion may involve
it in any expense or liability; provided, however, that the Servicer may
undertake any reasonable action that it deems necessary or desirable with
respect to this Agreement and the rights and duties of the parties to this
Agreement and the interests of the Certificateholders under this Agreement.
ARTICLE IX.
Default
Section 9.01. Events of Default. The occurrence and continuation of any of
the following events shall constitute an "Event of Default" for purposes of this
Agreement:
(a) Any failure by the Servicer to deliver to the Trustee any proceeds
or payment required to be so delivered under the terms of the Certificates
and this Agreement that shall continue unremedied for a period of three
Business Days after discovery of such failure by an officer of the Servicer
or after written notice of such failure is received by the Servicer from
the Trustee or Holders of Certificates evidencing not less than 25% of the
Certificate Balance; or
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(b) Failure by the Servicer or the Company, as the case may be, duly
to observe or to perform in any material respect any other covenants or
agreements of the Servicer or the Company (as the case may be) set forth in
the Certificates or in this Agreement, which failure shall (1) materially
and adversely affect the rights of Certificateholders and (2) continue
unremedied for a period of 60 days after the date on which written notice
of such failure, requiring the same to be remedied, shall have been given
(A) to the Servicer or the Company (as the case may be) by the Trustee or
(B) to the Servicer or the Company (as the case may be) and to the Trustee
by the Holders of Certificates evidencing not less than 25% of the
Certificate Balance; or
(c) The entry of a decree or order by court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator, receiver or liquidator for the Servicer in any insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period
of 60 consecutive days; or
(d) The consent by the Servicer to the appointment of a conservator,
receiver or liquidator in any insolvency, readjustment of debt, marshaling
of assets and liabilities or similar proceedings of or relating to the
Servicer or of or relating to substantially all of its property; or the
admission by the Servicer in writing of its inability to pay its debts
generally as they become due, the filing by the Servicer of a petition to
take advantage of any applicable insolvency or reorganization statute, the
making by the servicer of an assignment for the benefit of its creditors,
or the voluntary suspension by the Servicer of payment of its obligations;
If an Event of Default shall have occurred and for as long as such Event of
Default continues unremedied, either the Trustee or the Holders of Certificates
evidencing not less than a majority of the Certificate Balance, by notice given
in writing to the Servicer (and to the Trustee if given by Certificateholders)
may terminate all of the rights and obligations (other than the obligations set
forth in Section 8.02) of the Servicer under this Agreement. On or after the
receipt by the Servicer of such written notice, all authority and power of the
Servicer under this Agreement, whether with respect to the Certificates or the
Receivables or otherwise, shall, without further action, pass to and be vested
in the Trustee or such successor Servicer as may be appointed under Section
9.02; and, without limitation, the Trustee is hereby authorized and empowered to
execute and deliver, on behalf of the predecessor
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Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of the Receivables and related documents,
or otherwise. The predecessor Servicer shall cooperate with the successor
Servicer and the Trustee in effecting the termination of the responsibilities
and rights of the predecessor Servicer under this Agreement, including the
transfer to the successor Servicer for administration by it of all cash amounts
that shall at the time be held by the predecessor Servicer for deposit, or shall
thereafter be received with respect to any Receivable. All reasonable costs and
expenses (including attorneys' fees) incurred in connection with transferring
the Receivable Files to the successor Servicer and amending this Agreement to
reflect the succession of such successor Servicer pursuant to this Section shall
be paid by the predecessor Servicer upon presentation of reasonable
documentation of such costs and expenses. Upon receipt of notice of the
occurrence of an Event of Default, the Trustee shall give notice thereof to the
Rating Agencies.
Section 9.02. Appointment of Successor. (a) Upon the Servicer's receipt of
notice of termination pursuant to Section 9.01 or the Servicer's resignation in
accordance with the terms of this Agreement, the predecessor Servicer shall
continue to perform its functions as Servicer under this Agreement, in the case
of termination, only until the date specified in such termination notice or, if
no such date is specified in a notice of termination, until receipt of such
notice and, in the case of resignation, until the earlier of (1) the date that
is 45 days after the date of delivery to the Trustee of written notice of such
resignation (or written confirmation of such notice) in accordance with the
terms of this Agreement and (2) the date upon which the predecessor Servicer
shall become unable to act as Servicer, as specified in the notice of
resignation and accompanying Opinion of Counsel. In the event of the Servicer's
termination hereunder, the Trustee shall appoint a successor Servicer, and the
successor Servicer shall accept its appointment by a written assumption in form
acceptable to the Trustee. In the event that a successor Servicer has not been
appointed at the time when the predecessor Servicer has ceased to act as
Servicer in accordance with this Section, the Trustee, without any further
action, shall automatically be appointed the successor Servicer and shall be
entitled to the Servicing Fee. Notwithstanding the above, the Trustee shall, if
it is legally unable so to act, appoint, or petition a court of competent
jurisdiction to appoint, any established institution having a net worth of not
less than $100,000,000 and whose regular business includes the servicing of
automotive receivables as the successor to the Servicer under this Agreement.
(b) Upon appointment, the successor Servicer (including the Trustee
acting as successor Servicer) shall
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be the successor in all respects to the predecessor Servicer and shall be
subject to all the responsibilities, duties and liabilities arising
thereafter relating thereto placed on the predecessor Servicer and shall be
entitled to the Servicing Fee and all of the rights granted to the
predecessor Servicer by the terms and provisions of this Agreement.
Section 9.03. Repayment of Advances. The Servicer, if it resigns or is
removed pursuant to the terms of this Agreement, shall be entitled to receive
reimbursement for Outstanding Precomputed Advances and Outstanding Simple
Interest Advances made by it pursuant to Sections 5.03 and 5.04.
Section 9.04. Notification of Certificateholders. Upon any termination of,
or appointment of a successor to, the Servicer pursuant to this Article IX, the
Trustee shall give prompt written notice thereof to the Certificateholders and
to the Rating Agencies.
Section 9.05. Waiver of Past Defaults. The Holders of Certificates
evidencing not less than a majority of the Certificate Balance may, on behalf of
all Certificateholders, waive any default by the Servicer in the performance of
its obligations hereunder and its consequences, except a default in making any
required deposits to or payments from the trust accounts in accordance with this
Agreement. Upon any such waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
ARTICLE X.
The Trustee
Section 10.01. Duties of Trustee. (a) The Trustee, both prior to and after
the occurrence of an Event of Default, shall undertake to perform such duties as
are specifically set forth herein. If an Event of Default has occurred and is
continuing, the Trustee shall exercise the rights and powers vested in it by
this Agreement and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs; provided, however, that if the Trustee shall assume
the duties of the Servicer pursuant to Section 9.02, the Trustee in performing
such duties shall use the degree of skill and attention customarily exercised by
a servicer with respect to automobile receivables that it services for itself or
others.
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(b) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Agreement; provided,
however, that the Trustee shall examine such certificates and opinions to
determine whether or not they conform to the requirements of this
Agreement.
(c) The Trustee shall take and maintain custody of the Schedule of
Receivables included as an exhibit to this Agreement and shall retain all
Servicer's Certificates identifying Receivables that become Purchased
Receivables or Liquidated Receivables.
(d) The Trustee shall not be liable for any action taken, suffered or
omitted to be taken in good faith in accordance with this Agreement or at
the direction of the Holders of Certificates evidencing not less than 25%
of the Certificate Balance relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee under this
Agreement.
(e) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent actions, its own negligent
failure to act or its own bad faith or willful misconduct; provided,
however, that:
(1) this paragraph does not limit the effect of clause (d) of
this Section; and
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trustee Officer unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(f) No provision of this Agreement shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(g) Except for actions expressly authorized by this Agreement, the
Trustee shall take no action reasonably likely to impair the security
interests created or existing under any Receivable or to impair the value
of any Receivable.
Section 10.02. Certain Matters Affecting Trustee. Except as otherwise
provided in Section 10.01:
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(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need
not investigate any fact or matter stated in any such document.
(b) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters or relating to this Agreement or the
Certificates shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it under
this Agreement in good faith and in accordance with such advice or opinion
of such counsel.
(c) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement, or to institute, conduct
or defend any litigation under this Agreement at the request, order or
direction of any of the Certificateholders pursuant to the provisions of
this Agreement, unless such Certificateholders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that may be incurred therein or thereby; however, nothing
contained in this Agreement shall relieve the Trustee of its obligation,
upon the occurrence of an Event of Default (that shall not have been cured
or waived), to exercise such of the rights and powers vested in it by this
Agreement, and to use the same degree of care and skill in their exercise
as a prudent person would exercise or use under the circumstances in the
conduct of that person's own affairs.
(d) The Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith which it believes to be authorized or within
its rights or powers conferred upon it by this Agreement; provided, that
such conduct does not constitute willful misconduct, bad faith or
negligence on the part of the Trustee.
(e) The Trustee may execute any of the trusts or powers or perform any
duties hereunder either directly or by or through agents or attorneys or a
custodian.
Section 10.03. Trustee Not Liable for Certificates or Receivables. The
recitals contained herein and in the Certificates (other than the certificate of
authentication on the Certificates) shall be taken as the statements of the
Company or the Servicer, as the case may be, and the Trustee assumes no
responsibility for the correctness thereof. The Trustee makes no representations
as to the validity or sufficiency of this Agreement or of the Certificates
(other than the certificate of authentication on the Certificates), or of any
Receivable or related document. The Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity and
enforceability of any Receivable, or the perfection
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and priority of any security interest created by any Receivable in any Financed
Vehicle or the maintenance of any such perfection and priority, or for or with
respect to the efficacy of the Trust or its ability to generate the payments to
be distributed to Certificateholders under this Agreement, including, without
limitation: the existence, condition and ownership of any Financed Vehicle; the
existence and enforceability of any insurance thereon; the existence and
contents of any Receivable or any computer or other record thereof; the validity
of the assignment of any Receivable to the Trust or of any intervening
assignment; the completeness of any Receivable; the performance or enforcement
of any Receivable; the compliance by the Company or the Servicer with any
warranty or representation made under this Agreement or in any related document
or the accuracy of any such warranty or representation before receipt of notice
or other discovery of any breach thereof; or any action of the Servicer taken in
the name of the Trustee.
Section 10.04. Trustee May Own Certificates. The Trustee in its individual
or any other capacity may become the owner or pledgee of Certificates and may
deal with the Company and the Servicer in banking transactions with the same
rights that it would have if it were not Trustee.
Section 10.05. Trustee's Fees and Expenses. The Company shall pay to the
Trustee, and the Trustee shall be entitled to receive as compensation for its
services hereunder, such fees as have been separately agreed upon before the
date hereof between the Company and the Trustee, and the Trustee shall be
entitled to reimbursement by the Company for its reasonable expenses under this
Agreement, including the reasonable compensation, expenses and disbursements of
such agents, representatives, experts and counsel as the Trustee may employ in
connection with the exercise and performance of its rights and duties under this
Agreement, except any such expenses and fees that may arise from the Trustee's
negligence, willful misfeasance or bad faith or that is the responsibility of
Certificateholders under this Agreement.
Section 10.06. Eligibility Requirements for Trustee. The Trustee shall at
all times be a corporation having an office in the same state as the location of
the Corporate Trust Office; organized and doing business under the laws of such
state or the United States of America; authorized under such laws to exercise
corporate trust powers; having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by federal or state
authorities; and having (or having a parent that has) a rating of at least Baa3
by Moody's. If such corporation shall publish reports of condition at least
annually pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purpose of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most
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recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, the Trustee
shall resign immediately in the manner and with the effect specified in Section
10.07.
Section 10.07. Resignation or Removal of Trustee. The Trustee may resign at
any time and be discharged from the trusts hereby created by giving written
notice thereof to the Servicer. Upon receiving such notice of resignation, the
Servicer shall promptly appoint a successor Trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. If no successor Trustee shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 10.06 and shall fail to resign after written request
therefor by the Servicer, or if at any time the Trustee shall be legally unable
to act, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take charge
or control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Servicer may remove the
Trustee. If the Servicer shall remove the Trustee under the authority of the
immediately preceding sentence, the Servicer shall promptly appoint a successor
Trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the outgoing Trustee so removed and one copy to the successor
Trustee, and shall pay all fees owed to the outgoing Trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section shall not become
effective until acceptance of appointment by the successor Trustee pursuant to
Section 10.08. The Servicer shall provide notice of any resignation or removal
of the Trustee to each of the Rating Agencies.
Section 10.08. Successor Trustee. Any successor Trustee appointed pursuant
to Section 10.07 shall execute, acknowledge and deliver to the Servicer and to
its predecessor Trustee an instrument accepting its appointment as successor
Trustee under this Agreement, and thereupon the resignation or removal of the
predecessor Trustee shall become effective and such successor Trustee, without
any further act, deed or conveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor under this Agreement,
with like effect as if originally named as Trustee. The predecessor Trustee
shall deliver to the successor Trustee
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all documents and statements and monies held by it under this Agreement; and the
Servicer and the predecessor Trustee shall execute and deliver such instruments
and do such other things as may reasonably be required for fully and certainly
vesting and confirming in the successor Trustee all such rights, powers, duties
and obligations.
No successor Trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor Trustee shall be eligible
pursuant to Section 10.06.
Upon acceptance of appointment by a successor Trustee pursuant to this
Section, the Servicer shall mail notice thereof to all Certificateholders and to
the Rating Agencies. If the Servicer shall fail to mail such notice within 10
days after acceptance of appointment by the successor Trustee, the successor
Trustee shall cause such notice to be mailed at the expense of the Servicer.
Section 10.09. Merger or Consolidation of Trustee. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided, that such
corporation is eligible to serve as Trustee pursuant to Section 10.06, without
the execution or filing of any instrument or any further act on the part of any
of the parties hereto, anything herein to the contrary notwithstanding. The
Trustee shall mail notice of any such merger or consolidation to the Rating
Agencies.
Section 10.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust or any Financed Vehicle may at the time be located, the Servicer
and the Trustee acting jointly shall have the power and shall execute and
deliver all instruments to appoint one or more Persons approved by the Trustee
to act as co-trustee, jointly with the Trustee, or separate trustee or separate
trustees, of all or any part of the Trust, and to vest in such Person, in such
capacity and for the benefit of the Certificateholders, such title to the Trust
or any part thereof and, subject to the other provisions of this Section, such
powers, duties, obligations, rights and trusts as the Servicer and the Trustee
may consider necessary or desirable. If the Servicer shall not have joined in
any such appointment within 15 days after the receipt by it of a request to do
so, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee under this Agreement shall be required to meet
the terms of eligibility as a successor Trustee
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pursuant to Section 10.06 and no notice of the appointment of any co-trustee or
separate trustee shall be required pursuant to Section 10.08.
Each separate trustee and co-trustee shall, to the extent permitted by law,
be appointed and act subject to the following provisions and conditions:
(a) All rights, powers, duties and obligations conferred or imposed
upon any such separate trustee or co-trustee shall be conferred upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee joining
in such act), except to the extent that under any law of any jurisdiction
in which any particular act or acts are to be performed, the Trustee shall
be incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of title
to the Trust or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Trustee;
(b) No trustee under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement;
and
(c) The Servicer and the Trustee acting jointly may at any time accept
the resignation of or remove any separate trustee or co-trustee;
(d) The execution, delivery and performance by the Trustee of this
Agreement (i) shall not violate any provision of any law governing the
banking and trust powers of the Trustee or, to the best of the Trustee's
knowledge, any order, writ, judgment or decree of any court, arbitrator or
governmental authority applicable to the Trustee or any of its assets, (ii)
shall not violate any provision of the corporate charter or bylaws of the
Trustee and (iii) shall not violate any provision of, or constitute, with
or without notice or lapse of time, a default under, or result in the
creation or imposition of any Lien on any properties included in the Trust
pursuant to the provisions of, any mortgage, indenture, contract, agreement
or other undertaking to which it is a party, which violation, default or
Lien could reasonably be expected to materially and adversely affect the
Trustee's performance or ability to perform its duties under this Agreement
or the transactions contemplated in this Agreement.
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(e) The execution, delivery and performance by the Trustee of this
Agreement shall not require the authorization, consent, approval of, the
giving of notice to, the filing or registration with, or the taking of any
other action in respect of, any governmental authority or agency regulating
the banking and corporate trust activities of the Trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Each
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer.
Any separate trustee or co-trustee may at any time appoint the Trustee its
agent or attorney-in-fact with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor co-trustee or separate trustee.
Section 10.11. Representations and Warranties of Trustee. The Trustee shall
make the following representations and warranties, on which the Company and
Certificateholders shall be deemed to rely:
(a) The Trustee is a banking corporation duly organized, validly existing
and in good standing under the laws of its place of incorporation.
(b) The Trustee has full corporate power, authority and legal right to
execute and deliver, and to perform its obligations under, this Agreement, and
shall have taken all necessary action to authorize the execution and delivery
of, and the performance of its obligations under, this Agreement.
(c) This Agreement has been duly executed and delivered by the Trustee and
shall constitute the legal, valid and binding obligation of the Trustee, subject
to applicable bankruptcy, insolvency, reorganization and similar laws now or
hereafter in
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effect relating to or affecting creditors' rights generally and to general
principles of equity (whether applied in a proceeding at law or in equity).
ARTICLE XI.
Termination
Section 11.01. Termination of the Trust. (a) The respective obligations and
responsibilities of the Company, the Servicer and the Trustee hereunder and the
Trust created hereby shall terminate upon the earlier to occur of (1) the
payment to Certificateholders of all amounts required to be paid to them
pursuant to this Agreement and the disposition of all property held as part of
the Trust and (2) the time provided in Section 11.02; provided, however, that in
no event shall the trust created by this Agreement continue beyond the
expiration of 21 years from the death of the last survivor of the descendants of
Joseph P. Kennedy, the late ambassador of the United States to the Court of St.
James, living on the date of this Agreement. The Servicer shall promptly notify
the Trustee of any prospective termination pursuant to this Section.
(b) Except as provided in Section 11.01(a), neither the Company nor any
Certificate Owner shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Distribution
Date upon which Certificateholders shall surrender their Certificates to the
Trustee for payment of the final distribution and cancellation of the
Certificates, shall be given by the Trustee by letter to Certificateholders
mailed not earlier than the 15th day and not later than the 25th day of the
calendar month immediately preceding the calendar month in which such final
Distribution Date shall occur, stating (1) the Distribution Date upon which
final payment of the Certificates will be made upon presentation and surrender
of the Certificates at the office of the Trustee therein designated, (2) the
amount of such final payment and (3) that the Record Date otherwise applicable
to such Distribution Date is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office of the Trustee
therein specified. The Trustee shall give such notice to the Certificate
Registrar (if other than the Trustee) at the time such notice is given to
Certificateholders. Upon presentation and surrender of the Certificates, the
Trustee shall cause to be distributed to Certificateholders amounts
distributable on such Distribution Date pursuant to Section 5.05.
In the event that all of the Certificateholders shall not have surrendered
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Trustee shall give a second written
notice to the
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remaining Certificateholders requesting that such Certificateholders surrender
their Certificates for cancellation and receive the final distribution with
respect thereto. If within one year after such second notice all of the
Certificates shall not have been surrendered for cancellation, the Trustee may
take appropriate steps, or may appoint an agent to take appropriate steps, to
contact the remaining Certificateholders concerning surrender of their
Certificates, and the cost thereof shall be paid out of the funds and other
assets that shall remain subject to this Agreement. Any funds remaining in the
Trust after exhaustion of such remedies shall be distributed by the Trustee to
the Company.
Section 11.02. Optional Purchase of All Receivables. On the last day of any
Collection Period as of which the Pool Balance shall be less than or equal to
10% of the Cutoff Date Pool Balance, the Servicer shall have the option to
purchase the corpus of the Trust; provided, however, that the Servicer may not
effect any such purchase if at such time the rating of the Servicer's long-term
debt obligations is less than [Baa3] by [Moody's], unless the Trustee shall have
received an Opinion of Counsel to the effect that such purchase would not
constitute a fraudulent conveyance. To exercise such option, the Servicer shall
deposit an amount into the Collection Account pursuant to Section 5.04 equal to
the aggregate Purchase Amount for the Receivables (including defaulted
Receivables), plus the appraised value of any other property held by the Trust,
such value to be determined by an appraiser mutually agreed upon by the Servicer
and the Trustee. The Servicer thereafter shall succeed to all interests in and
to the Trust.
ARTICLE XII.
Miscellaneous Provisions
Section 12.01. Amendment. This Agreement may be amended by the Company, the
Servicer and the Trustee, without the consent of the Certificateholders, to cure
any ambiguity, to correct or supplement any provisions in this Agreement or for
the purpose of adding any provisions to, or changing in any manner or
eliminating any provision in, this Agreement or of modifying in any manner the
rights of the Certificateholders; provided, however, that such action shall not,
as evidenced by an Opinion of Counsel delivered to the Trustee, adversely affect
in any material respect the interests of any Certificateholder.
This Agreement may also be amended from time to time by the Company, the
Servicer and the Trustee with the consent of the Holders of Certificates
evidencing not less than a majority of the Certificate Balance, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the rights of
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the Certificateholders; provided, however, that no such amendment shall (a)
except as otherwise provided in the first paragraph of this Section, increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the Receivables or distributions that are required to
be made on any Certificate or (b) reduce the aforesaid percentage of the
Certificate Balance required to consent to any such amendment without the
consent of the Holders of all Certificates then outstanding.
Promptly after the execution of any such amendment or consent, the Trustee
shall furnish written notification of the substance of such amendment or consent
to each Certificateholder and the Rating Agencies.
It shall not be necessary for the consent of Certificateholders pursuant to
this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Agreement) and of evidencing the
authorization of any action by Certificateholders shall be subject to such
reasonable requirements as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement and
the Opinion of Counsel referred to in Section 12.02(i). The Trustee may, but
shall not be obligated to, enter into any such amendment that affects the
Trustee's own rights, duties or immunities under this Agreement or otherwise.
Section 12.02. Protection of Title to Trust. (a) The Company and the
Servicer shall execute and file such financing statements and cause to be
executed and filed such continuation statements, all in such manner and in such
places as may be required by law fully to preserve, maintain and protect the
interest of the Certificateholders and the Trustee in the Receivables and in the
proceeds thereof. The Company and the Servicer shall deliver (or cause to be
delivered) to the Trustee file-stamped copies of, or filing receipts for, any
document filed as provided above, as soon as available following such filing.
(b) Neither the Company nor the Servicer shall change its name, identity or
corporate structure in any manner that would, could or might make any financing
statement or continuation statement filed in accordance with paragraph (a) above
seriously misleading within the meaning of ss. 9-402(7) of the UCC, unless the
Company or the Servicer shall have given the Trustee at least five days' prior
written notice of such change and shall have
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promptly filed appropriate amendments to all previously filed financing
statements or continuation statements.
(c) The Company and the Servicer shall have an obligation to give the
Trustee at least 60 days' prior written notice of any relocation of its
principal executive office if, as a result of such relocation, the applicable
provisions of the UCC would require the filing of any amendment of any
previously filed financing or continuation statement or of any new financing
statement, and shall promptly file any such amendment or new financing
statement. The Servicer shall at all times maintain its principal executive
office and each office from which it shall service Receivables within the United
States of America.
(d) The Servicer shall maintain accounts and records as to each Receivable
accurately and in sufficient detail to permit (1) the reader thereof to know at
any time the status of such Receivable, including payments and recoveries made
and payments owing (and the nature of each) and (2) reconciliation between
payments or recoveries on (or with respect to) each Receivable and the amounts
from time to time deposited in the Distribution Account and Payahead Account in
respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that, from and
after the time of sale under this Agreement of the Receivables, the Servicer's
master computer records (including any back-up archives) that refer to a
Receivable shall indicate clearly the interest of the Trust in such Receivable
and that such Receivable is owned by the Trustee. Indication of the Trustee's
ownership of a Receivable shall be deleted from or modified on the Servicer's
computer systems when, and only when, such Receivable shall have been paid in
full or repurchased.
(f) If at any time a Seller or the Servicer shall propose to sell, grant a
security interest in, or otherwise transfer any interest in automotive
receivables to, any prospective purchaser, lender or other transferee, the
Servicer shall give to such prospective purchaser, lender or other transferee
computer tapes, records or print-outs (including any restored from back-up
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate clearly that such Receivable has been sold and is owned by the
Trustee.
(g) The Servicer shall permit the Trustee and its agents to inspect, audit
and make copies of and abstracts from the Servicer's records regarding any
Receivable at any time during normal business hours upon reasonable notice.
(h) Upon request, the Servicer shall furnish to the Trustee, within five
Business Days, a list of all Receivables (by contract number and name of
Obligor) then held as part of the Trust, together with a reconciliation of such
list to the Schedule of Receivables and to each of the Servicer's
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Certificates furnished before such request indicating removal of Receivables
from the Trust.
(i) The Servicer shall deliver to the Trustee, promptly after the execution
and delivery of this Agreement and, if required pursuant to Section 12.01, of
each amendment hereto, an Opinion of Counsel stating that, in the opinion of
such Counsel, either (A) all financing statements and continuation statements
have been executed and filed that are necessary fully to preserve and protect
the interest of the Trustee in the Receivables, and reciting the details of such
filings or referring to prior Opinions of Counsel in which such details are
given, or (B) no such action is necessary to preserve and protect such interest.
(j) The Company shall, to the extent required by applicable law, cause the
Certificates to be registered with the Securities and Exchange Commission
pursuant to Section 12(b) or Section 12(g) of the Securities Exchange Act of
1934 within the time periods specified in such sections.
Section 12.03. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
Section 12.04. Limitation on Rights of Certificateholders. (a) The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations and liabilities of the parties to
this Agreement or any of them.
(b) No Certificateholder shall have any right to vote (except as provided
in Section 9.05 or 12.01) or in any manner otherwise control the operation and
management of the Trust or the obligations of the parties to this Agreement; nor
shall any provision in this Agreement or contained in the Certificates be
construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken pursuant to any
provision of this Agreement.
(c) No Certificateholder shall have any right to institute any suit, action
or proceeding in equity or at law upon or under or with respect to this
Agreement, unless: (1) such Holder previously shall have given to the Trustee
written notice of a continuing Event of Default; (2) the Holders of Certificates
evidencing not less than 25% of the Certificate Balance shall
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have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee under this Agreement and shall have
offered the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby; (3) the
Trustee, for 60 days after its receipt of such notice, request and offer of
indemnity shall have neglected or refused to institute any such action, suit or
proceeding; (4) during such 60-day period no request or waiver inconsistent with
such written request shall have been given to the Trustee by Holders
representing a majority of the Certificate Balance. It is understood and
intended that no one or more Certificateholders shall have any right in any
manner whatever by virtue of, or by availing of, any provisions of this
Agreement to affect, disturb or prejudice the rights of any other
Certificateholders, or to obtain or seek to obtain priority over or preference
to any other such Holder, or to enforce any right under this Agreement, except
in the manner provided in this Agreement.
Section 12.05. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES UNDER THIS AGREEMENT SHALL DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 12.06. Notices. All demands, notices and communications upon or to
the Company, the Servicer, the Trustee or the Rating Agencies under this
Agreement shall be in writing, personally delivered or mailed by certified mail,
return receipt requested, and shall be deemed to have been duly given upon
receipt (a) in the case of the Company, to _________________________, Attention:
____________; (b) in the case of the Servicer, to ________________________,
Attention: ____________; (c) in the case of the Trustee, at the Corporate Trust
Office; (d) in the case of Moody's, to Moody's Investors Service, Inc., ABS
Monitoring Department, 99 Church Street, New York, New York 10007, and (e) in
the case of Standard & Poor's, to Standard & Poor's Ratings Group, 25 Broadway -
15th Floor, New York, New York 10004, Attention: Asset Backed Surveillance
Department. Any notice required or permitted to be mailed to a Certificateholder
shall be given by first class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder shall receive such notice.
Section 12.07. Severability of Provisions. Any provision of this Agreement
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement, and any such prohibition or unenforceability in any jurisdiction
shall
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not invalidate or render unenforceable such provision in any other jurisdiction.
Section 12.08. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 7.04 and 8.03 and as provided
in the provisions of this Agreement concerning the resignation of the Servicer,
this Agreement may not be assigned by the Company or the Servicer without the
prior written consent of the Trustee and the Holders of Certificates evidencing
not less than 66% of the Certificate Balance.
Section 12.09. Certificates Nonassessable and Fully Paid.
Certificateholders shall not be personally liable for obligations of the Trust.
The interests represented by the Certificates shall be nonassessable for any
losses or expenses of the Trust or for any reason whatsoever.
Section 12.10. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the Company, the Servicer, the Trustee
and the Certificateholders, and nothing in this Agreement, whether express or
implied, shall be construed to give any other Person any legal or equitable
right, remedy or claim in respect of the Trust or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
Section 12.11. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
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IN WITNESS WHEREOF, the Company, the Servicer and the Trustee have caused
this Pooling and Servicing Agreement to be duly executed by their respective
officers as of the day and year first above written.
ASSET BACKED SECURITIES CORPORATION,
as Company
By: ___________________________________
Name:
Title:
______________________________________,
as Servicer
By: ___________________________________
Name:
Title:
______________________________________,
as Trustee
By: ___________________________________
Name:
Title:
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SCHEDULE I
Schedule of Receivables
[to be delivered on the Closing Date]
- 1 -
<PAGE>
SCHEDULE II
Location of Receivables Files
[To be provided at the Closing Date]
II-1
<PAGE>
EXHIBIT A
Form Of Class A Certificate
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS CLASS A CERTIFICATE
WILL BE MADE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING
PRINCIPAL AMOUNT OF THIS CLASS A CERTIFICATE AT ANY TIME MAY BE LESS THAN THE
AMOUNT SHOWN ON THE FACE HEREOF.
NUMBER $
R- CUSIP NO.
CS FIRST BOSTON AUTO RECEIVABLES TRUST 199_-_
___% ASSET BACKED CERTIFICATE, CLASS A
evidencing a fractional undivided interest in the Trust (as defined below), the
property of which includes a pool of motor vehicle installment loan contracts
and motor vehicle retail installment sale contracts (collectively, the "Motor
Vehicle Installment Contracts") secured by new and used automobiles, vans and
light duty trucks.
(This Class A Certificate does not represent an interest in, or obligation of,
Asset Backed Securities Corporation or any of its affiliates, except to the
extent described below).
THIS CERTIFIES THAT ________________________ is the registered owner of
____________ DOLLARS nonassessable, fully-paid, fractional undivided interest in
CS First Boston Auto Receivables Trust 199_-_ (the "Trust") formed pursuant to
the Pooling and Servicing Agreement dated as of ____________, (the "Agreement"),
among Asset Backed Securities Corporation (the "Company"), ___________, as
servicer (in such capacity, the "Servicer") and ____________, a ____________
banking association, as trustee (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth below. To the extent not
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<PAGE>
otherwise defined herein, the capitalized terms used herein have the meanings
assigned to them in the Agreement.
This certificate is one of a duly authorized series of Certificates,
designated as the __% Asset Backed Certificates, Class A (herein called the
"Class A Certificates"), all issued under the Agreement, to which Agreement
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Company, the Servicer, the Trustee and Holders of
the Certificates. The Class A Certificates are subject to all the terms of the
Agreement.
The property of the Trust includes a pool of Motor Vehicle Installment
Contracts secured by new and used automobiles, vans and light duty trucks
(collectively, the "Receivables"), all monies due under such Receivables on or
after the related Cutoff Date, in the case of Precomputed Receivables, or
received on or after the related Cutoff Date, in the case of Simple Interest
Receivables, security interests in the vehicles financed thereby, certain bank
accounts and the proceeds thereof, proceeds from claims on certain insurance
policies and all proceeds of the foregoing.
Under the Agreement, there will be distributed on the ___ day of each month
or, if such ___ day is not a Business Day, the next succeeding Business Day
(each, a "Distribution Date"), commencing on ________, to the Person in whose
name this Class A Certificate is registered at the close of business on the
______ day of the month in which such Distribution Date occurs (the "Record
Date"), such Certificateholder's fractional undivided interest in the amount to
be distributed to Class A Certificateholders on such Distribution Date.
It is the intent of the Company, the Trustee and the Certificateholders
that, for purposes of federal income, state and local income and single business
tax and any other income taxes, the Trust to be treated as a grantor trust and
the Certificates be treated as interests in a grantor trust. The Company, the
Servicer, the Trustee and each Certificateholder or Certificate Owner, by its
acceptance of a Certificate or of a beneficial interest in a Certificate,
respectively, agree to treat, and to take no action inconsistent with the
treatment of, the Certificates for such tax purposes as interests in a grantor
trust.
Distributions on this Class A Certificate will be made as provided in the
Agreement by the Trustee by wire transfer or check mailed to the Person
identified as the Holder of record thereof in the Certificate Register, without
the presentation or surrender of this Class A Certificate or the making of any
notation hereon, except that with respect to Class A Certificates registered on
the Record Date in the name of the nominee of the Clearing Agency (initially,
such nominee to be Cede & Co.),
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<PAGE>
payments will be made by wire transfer in immediately available funds to the
account designated by such nominee. Except as otherwise provided in the
Agreement and notwithstanding the above, the final distribution on this Class A
Certificate will be made after due notice by the Trustee of the pendency of such
distribution and only upon presentation and surrender of this Class A
Certificate at the office or agency maintained for that purpose by the Trustee
in the Borough of Manhattan, The City of New York.
Reference is hereby made to the further provisions of this Class A
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been executed by
an authorized officer of the Trustee, by manual signature, this Class A
Certificate shall not entitle the Holder hereof to any benefit under the
Agreement or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
A-3
<PAGE>
IN WITNESS WHEREOF, the Trustee, on behalf of the Trust and not in its
individual capacity, has caused this Class A Certificate to be duly executed.
Date: CS FIRST BOSTON AUTO RECEIVABLES
TRUST 199_-_
By: _______________________, not in its
individual capacity but solely
as Trustee
By:
__________________________________
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Class A Certificates referred to in the within-mentioned
Agreement.
Date: _______________________________________
as Trustee
By:
_______________________________________
Authorized Signatory
A-4
<PAGE>
[REVERSE OF CLASS A CERTIFICATE]
The Class A Certificates do not represent an obligation of, or an interest
in, the Company, the Servicer, the Trustee or any of their respective
affiliates, and no recourse may be had against such parties or their assets
except as expressly set forth or contemplated herein or in the Agreement. In
addition, this Class A Certificate is not guaranteed by any governmental agency
or instrumentality and is limited in right of payment to certain collections and
recoveries with respect to the Receivables (and certain other amounts), all as
more specifically set forth herein and in the Agreement. A copy of the Agreement
may be examined by any Certificateholder upon written request during normal
business hours at the principal office of the Company and at such other places,
if any, designated by the Company.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company, the Servicer and the Trustee and the rights of the Certificateholders
at any time by the Company, the Servicer and the Trustee with the consent of the
Holders of Certificates evidencing not less than a majority of the Certificate
Balance. Any such consent by the Holder of this Class A Certificate shall be
conclusive and binding on such Holder and on all future Holders of this
Certificate and of any Class A Certificate issued upon the transfer hereof or in
exchange here for in lieu hereof, whether or not notation of such consent is
made upon this Class A Certificate. The Agreement also permits the amendment
thereof, in certain limited circumstances, without the consent of the Holders of
any of the Certificates.
As provided in the Agreement and subject to certain limitations therein set
forth, the transfer of this Class A Certificate is registerable in the
Certificate Register upon surrender of this Class A Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Trustee in the Borough of Manhattan, The City of New York, accompanied by
a written instrument of transfer in form satisfactory to the Trustee and the
Certificate Registrar duly executed by the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Class A
Certificates of authorized denominations evidencing the same aggregate interest
in the Trust will be issued to the designated transferee. The initial
Certificate Registrar appointed under the Agreement is ________________________.
Except as provided in the Agreement, the Class A Certificates are issuable
only as registered certificates without coupons in a minimum denomination of
$1,000 and integral
A-5
<PAGE>
multiples of $1 in excess thereof. As provided in the Agreement and subject to
certain limitations therein set forth, the Class A Certificates are exchangeable
for new Class A Certificates of authorized denominations evidencing the same
aggregate denomination, as requested by the Holder surrendering the same. No
service charge will be made for any such registration of transfer or exchange,
but the Trustee or the Certificate Registrar may require payment of a sum
sufficient to cover any tax or governmental charge payable in connection
therewith.
The Trustee, the Certificate Registrar and any agent of the Trustee or the
Certificate Registrar may treat the Person in whose name this Class A
Certificate is registered as the owner hereof for all purposes, and none of the
Trustee, the Certificate Registrar or any such agent shall be affected by any
notice to the contrary.
The obligations and responsibilities created by the Agreement and the Trust
created thereby shall terminate upon the payment to Certificateholders of all
amounts required to be paid to them pursuant to the Agreement and the
disposition of all property held by the Trust. The Servicer of the Receivables
may at its option purchase the Trust property at a price specified in the
Agreement, and such purchase of the Receivables and other property of the Trust
will effect early retirement of the Certificates; provided, however, that such
right of purchase is exercisable only as of the last day of any Collection
Period as of which the Pool Balance is less than or equal to 10% of the Cutoff
Date Pool Balance.
A-6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________________________________________________
(Please print or type name and address,
including postal zip code, of assignee)
the within Class A Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing ________________________ to transfer said Class A
Certificate on the books of the Certificate Registrar, with full power of
substitution in the premises.
Dated:
____________________________*/
Signature Guaranteed:
____________________________*/
- ----------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Class A Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-7
<PAGE>
EXHIBIT B
Form of Class B Certificate
THIS CLASS B CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM. THE TRANSFER OF THIS CLASS B CERTIFICATE
IS SUBJECT TO CERTAIN RESTRICTIONS AND CONDITIONS SET FORTH IN THE AGREEMENT
UNDER WHICH THIS CLASS B CERTIFICATE IS ISSUED (A COPY OF WHICH IS AVAILABLE
FROM THE TRUSTEE UPON REQUEST), INCLUDING RECEIPT BY THE TRUSTEE OF AN
INVESTMENT LETTER IN WHICH THE TRANSFEREE SHALL MAKE CERTAIN REPRESENTATIONS.
THIS CERTIFICATE MAY NOT BE PURCHASED BY OR TRANSFERRED TO ANY PERSON THAT IS AN
EMPLOYEE BENEFIT PLAN SUBJECT TO THE FIDUCIARY RESPONSIBILITY PROVISIONS OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), OR
ANY GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY
FEDERAL, STATE OR LOCAL LAW THAT IS, TO A MATERIAL EXTENT, SIMILAR TO THE
FOREGOING PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY, A "PLAN") OR ANY PERSON
INVESTING THE ASSETS OF A PLAN, EXCEPT AS PROVIDED IN THE AGREEMENT REFERRED TO
HEREIN.
DISTRIBUTIONS IN REDUCTION OF THE PRINCIPAL BALANCE OF THIS CLASS B CERTIFICATE
WILL BE MADE IN INSTALLMENTS AS SET FORTH HEREIN. ACCORDINGLY, THE OUTSTANDING
PRINCIPAL AMOUNT OF THIS CLASS B CERTIFICATE AT ANY TIME MAY BE LESS THAN THE
AMOUNT SHOWN ON THE FACE HEREOF.
NUMBER $
R- CUSIP NO.
CS FIRST BOSTON AUTO RECEIVABLES TRUST 199_-__
____% ASSET BACKED CERTIFICATE, CLASS B
evidencing a fractional undivided interest in the Trust (as defined below), the
property of which includes a pool of motor vehicle installment loan agreements
and motor vehicle retail installment sale contracts (collectively, the "Motor
Vehicle Installment Contracts") secured by new and used automobiles, vans and
light duty trucks.
(This Class B Certificate does not represent an interest in, or obligation of,
Asset Backed Securities Corporation or any of its affiliates, except to the
extent described below.)
THIS CERTIFIES THAT ______________________________ is the registered owner
of ___________________ DOLLARS nonassessable, fully-paid fractional undivided
interest in CS
B-1
<PAGE>
First Boston Auto Receivables Trust 199_-(the "Trust") form pursuant to a
Pooling and Servicing Agreement dated as of _________ (the "Agreement"), among
Asset Backed Securities Corporation (the "Company"), _______, as servicer (in
such capacity, the "Servicer") and _______, a _______ banking association, as
trustee (the "Trustee"), a summary of certain of the pertinent provisions of
which is set forth below. To the extent not otherwise defined herein, the
capitalized terms used herein have the meanings assigned to them in the
Agreement.
This Certificate is one of a dully authorized series of Certificates,
designated as the ___% Asset Backed Certificates, Class B herein called the
"Class B Certificates"), all issued under the Agreement, to which Agreement
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Company, the Servicer, the Trustee and Holders of
the Certificates. The Class B Certificates are subject to all the terms of the
Agreement.
The property of the Trust includes a pool of Motor Vehicle Installment
Contracts secured by new and used automobiles, vans and light duty trucks
(collectively, the "Receivables"), all monies due under such Receivables on or
after _____, in the case of Precomputed Receivables, or received on or after
______, in the case of Simple Interest Receivables, security interests in the
vehicles financed thereby, certain bank accounts and the proceeds thereof,
proceeds from claims on certain insurance policies and all proceeds of the
foregoing.
Under the Agreement, there will be distributed on the ______ day of each
month or, if such ______ day is not a Business Day, the next succeeding Business
Day (each, a "Distribution Date"), commencing on _____________, to the Person in
whose name this Class B Certificate is registered at the close of business on
the ____ day of the month in which such Distribution Date occurs (the "Record
Date"), such Certificateholder's fractional undivided interest in the amount to
be distributed to Class B Certificateholders on such Distribution Date.
The Holder of this Class B Certificate acknowledges and agrees that its
right to receive distributions in respect of this Certificate are subordinated
to the rights of Holders of the Class A Certificates, to the extent and in the
manner set forth in the Agreement.
It is the intent of the Company, the Servicer, the Trustee and the
Certificateholders that, for purposes of federal income, state and local income
and single business tax and any other income taxes, the Trust be treated as a
grantor trust and the Certificates be treated as interests in a grantor trust.
The Company, the Servicer, the Trustee and each Certificateholder or Certificate
Owner, by its acceptance of a Certificate or of a beneficial interest in a
Certificate, agree to treat, and to take
B-2
<PAGE>
no action inconsistent with the treatment of, the Certificates for such tax
purposes as interests in a grantor trust.
Distributions on this Class B Certificate will be made as provided in the
Agreement by the Trustee by wire transfer or check mailed to the Person
identified as the Holder of Record hereof in the Certificate Register, without
the presentation or surrender of this Class B Certificate or the making of any
notation hereon, except that with respect to Class B Certificates registered on
the Record Date in the name of the nominee of the Clearing Agency (initially
such nominee to be Cede & Co.), payments will be made by wire transfer in
immediately available funds to the account designated by such nominee. Except as
otherwise provided in the Agreement and notwithstanding the above, the final
distribution on this Class B Certificate will be made after due notice by the
Trustee of the pendency of such distribution and only upon presentation and
surrender of this Class B Certificate at the office or agency maintained for
that purpose by the Trustee in the Borough of Manhattan, The City of New York.
Reference is hereby made to the further provisions of this Class B
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been executed by
an authorized officer of the Trustee, by manual signature, this Class B
Certificate shall not entitle the Holder hereof to any benefit under the
Agreement or be valid for any purpose.
THIS CLASS B CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
B-3
<PAGE>
IN WITNESS WHEREOF, the Trustee, on behalf of the Trust and not in its
individual capacity, has caused this Class B Certificate to be duly executed.
CS FIRST BOSTON AUTO RECEIVABLES
TRUST 199_-__
By:
---------------------------------
not in its individual capacity
but solely as Trustee
Date: By:
------------------------------
Authorized Signatory
CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates referred to in the within-mentioned
Trust Agreement.
Date: By:
------------------------------
Authorized Signatory
B-4
<PAGE>
[REVERSE OF CLASS B CERTIFICATE]
The Class B Certificates do not represent an obligation of, or an interest
in, the Company, the Servicer, the Trustee or any of their respective
affiliates, and no recourse may be had against such parties or their assets
except as expressly set forth or contemplated herein or in the Agreement. In
addition, this Class B Certificate is not guaranteed by any governmental agency
or instrumentality and is limited in right of payment to certain collections and
recoveries with respect to the Receivables (and certain other amounts), all as
more specifically set forth herein and in the Agreement. A copy of the Agreement
may be examined by any Certificateholder upon written request during normal
business hours at the principal office of the Company and at such other places,
if any, designated by the Company.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company, the Servicer and the Trustee and the rights of the Certificateholders
under the Agreement at any time by the Company, the Servicer and the Trustee
with the consent of the Holders of Certificates evidencing not less than a
majority of the Certificate Balance. Any such consent by the Holder of this
Class B Certificate shall be conclusive and binding on such Holder and on all
future Holders of this Class B Certificate and of any Class B Certificate issued
upon the transfer hereof or in exchange here for or in lieu hereof, whether or
not notation of such consent is made upon this Class B Certificate. The
Agreement also permits the amendment thereof, in certain limited circumstances,
without the consent of the Holders of any of the Certificates.
No transfer of this Class B Certificate will be made unless such transfer
is exempt from the registration requirements of the Securities Act and any
applicable state securities laws or is made in accordance with the Securities
Act and such state securities laws. In the event that the Holder hereof desires
to make such a transfer, the Holder and such Holder's transferee will be
required to comply with certain procedures set forth in the Agreement, including
the delivery of certain certificates and investment letters. The Holder or Owner
hereof, by acceptance of this Certificate or of a beneficial interest in this
Certificate, does hereby agree to indemnify the Trustee, the Company, the
Servicer and the Certificate Registrar against any liability that may result if
any such transfer is not so exempt or is not made in accordance with federal and
state laws. In connection with any such transfer, the Trustee will also require
(i) a representation letter, in the form described in the Agreement, stating
that transferee is not a Plan and is not acting on behalf of a Plan or using the
assets of a Plan to effect such purchase
B-5
<PAGE>
or (ii) if such transferee is a Plan, an opinion of counsel acceptable to and in
form and substance satisfactory to the Trustee with respect to certain matters
described in the Agreement.
Except as provided in the Agreement, the Class B Certificates are issuable
only as registered certificates without coupons in a minimum denomination of
$1,000 and integral multiples of $1 in excess thereof. As provided in the
Agreement and subject to certain limitations therein set forth, Class B
Certificates are exchangeable for new Class B Certificates of authorized
denominations evidencing the same aggregate denomination, as requested by the
Holder surrendering the same. No service charge will be made for any such
registration to transfer or exchange, but the Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge payable in connection therewith.
The Trustee, the Certificate Registrar and any agent of the Trustee or the
Certificate Registrar may treat the Person in whose name this Class B
Certificate is registered as the owner hereof for all purposes, and none of the
Trustee, the Certificate Registrar or any such agent shall be affected by any
notice to the contrary.
The obligations and responsibilities created by the Agreement and the Trust
created thereby shall terminate upon the payment to Certificateholders of all
amounts required to be paid to them pursuant to the Agreement and the
disposition of all property held by the Trust. The Servicer of the Receivables
may at its option purchase the Trust property at a price specified in the
Agreement, and such purchase of the Receivables may at its option purchase the
Trust property at a price specified in the Agreement, and such purchase of the
Receivables and other property of the Trust will effect early retirement of the
Class B Certificates; provided, however, that such right of purchase is
exercisable only as of the last day of any Collection Period as of which the
Pool Balance is less than or equal to 10% of the Cutoff Date Pool Balance.
B-6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------------------------------------------------
(Please print or type name and address, including
postal zip code, of assignee)
the within Class B Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing _______________________ ___________________ to
transfer said Class B Certificate on the books of the Certificate Registrar,
with full power of substitution in the premises.
Dated:
------------------------------------
*/
Signature
Guaranteed:
------------------------------------
*/
- ----------
*/ NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Class B Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
B-7
<PAGE>
EXHIBIT C
Form of Depository Agreement
Letter of Representations
(To be Completed by Issuer and Trustee)
------------------------------
(Name of Issuer)
------------------------------
(Name of Trustee)
------------
(Date)
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street: 49th Floor
New York, NY 10041-0099
RE:
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
(Issue Description)
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the above-referenced issue (the "Securities"). Trustee will act as
trustee with respect to the Securities pursuant to a trust indenture dated
________, 199_ (the "Document"). ______________ (the "Underwriter") is
distributing the Securities through The Depository Trust Company ("DTC").
To induce DTC to accept the Securities as eligible for deposit at DTC, and
to act in accordance with its Rules with respect to the Securities, Issuer and
Trustee make the following representations to DTC:
1. Prior to closing on the Securities on _____________, 199_, there shall
be deposited with DTC one Security certificate registered in the name of DTC's
nominee, Cede & Co., for each stated maturity of the Securities in the
C-1
<PAGE>
face amounts set forth on Schedule I hereto, the total of which represents 100%
of the principal amount of such Securities. If, however, the aggregate principal
amount of any maturity exceeds $150 million, one certificate will be issued with
respect to each $150 million of principal amount and an additional certificate
will be issued with respect to any remaining principal amount. Each $150 million
certificate shall bear the following legend:
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent
for registration of transfer, exchange, or payment and any certificate issued is
registered in the name of Cede & Co., or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co., or
to such other entity as is requested by an authorized representative of DTC).
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
2. In the event of any solicitation of consents from or voting by holders
of the Securities, Issuer or Trustee shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall, to the extent possible, send notice of such record date to
DTC not less than 15 calendar days in advance of such record date. Notices to
DTC pursuant to this Paragraph by telecopy shall be sent to DTC's Reorganization
Department at (212) 709-6896 or (212) 709-6897, and receipt of such notices
shall be confirmed by telephoning (212) 709-6870. Notices to DTC pursuant to
this Paragraph by mail or by any other means shall be sent to DTC's
Reorganization Department as indicated in Paragraph 4.
3. In the event of a full or partial redemption, Issuer or Trustee shall
send a notice to DTC specifying: (a) the amount of the redemption or refunding;
(b) in the case of a refunding, the maturity date(s) established under the
refunding; and (c) the date such notice is to be mailed to Security holders or
published (the "Publication Date"). Such notice shall be sent to DTC by a secure
means (e.g., legible telecopy, registered or certified mail, overnight delivery)
in a timely manner designed to assure that such notice is in DTC's possession no
later than the close of business on the business day before or, if possible, two
business days before the Publication Date. Issuer or Trustee shall forward such
notice either in a separated secure transmission for each CUSIP number or in a
secure transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice.) The Publication Date shall be not less
than 30 days nor more than 60 days prior to the redemption date or, in the case
of an advance refunding, the date that the proceeds are
C-2
<PAGE>
deposited in escrow. Notices to DTC pursuant to this Paragraph by telecopy shall
be sent to DTC's Call Notification Department at (516) 227-4039 or (516)
227-4190. If the party sending the notice does not receive a telecopy receipt
from DTC confirming that the notice has been received, said party shall
telephone (516_ 227-4070. Notices to DTC pursuant to this Paragraph by mail or
by any other means shall be sent to:
Manager: Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities, notice by Issuer
or Trustee to Security holders specifying the terms of the tender and the
Publication Date of such notice shall e sent to DTC by a secure means in the
manner set forth in the preceding Paragraph. Notices to DTC pursuant to this
Paragraph and notices of other corporate actions (including mandatory tenders,
exchanges, and capital changes) by telecopy shall be sent to DTC's
Reorganization Department at (212) 709-1093 or (212) 709-1094, and receipt of
such notices shall be confirmed by telephoning (212) 709-6884. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager: Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
5. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities.
6. Trustee shall send DTC written notice with respect to the dollar amount
per $1,000 original face value (or other minimum authorized denomination if less
than $1,000 face value) payable on each payment date allocated as to the
interest and principal portions thereof preferably 5, but not less than 2,
business days prior to such payment date. Such notices, which shall also contain
the current pool factor and Trustee contact's name and telephone number, shall
be sent by telecopy to DTC's Dividend Department at (212) 709-1723, or if by
mail or by any other means to:
Manager: Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square; 22nd Floor
New York, NY 10004-2695
7. [Note: Issuer must represent one of the following, and cross out the
other:] [The interest accrual
C-3
<PAGE>
period is record date to record date.] [The interest accrual period is payment
date to payment date.]
8. Interest payments and principal payments that are part of periodic
principal-and-interest payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns in same-day funds on each payment date (or the
equivalent in accordance with existing arrangements between Issuer or Trustee
and DTC). Such payments shall be made payable to the order of Cede & Co. Absent
any other existing arrangements, such payments shall be addressed as follows:
Manager: Cash Receipts
Dividend Department
The Depository Trust Company
7 Hanover Square; 24th Floor
New York, NY 10004-2695
9. [Note: Issuer must represent one of the following, and cross out the
other.]
Securities Eligible for DTC's Same-Day Funds Settlement ("SDFS") System.
Other principal payments (redemption payments) shall be made in same-day funds
by Trustee in the manner set forth in the SDFS Paying Agent Operating
Procedures, a copy of which previously has been furnished to Trustee.
Securities Eligible for DTC's Next-Day Funds Settlement ("NDFS") System.
Other principal payments (redemption payments) shall be made in next-day funds
by Trustee to Cede & Co., as nominee of DTC, or its registered assigns, on each
payment date. Such payments shall be made payable to the order of Cede & Co.,
and shall be addressed as follows:
NDFS Redemptions Manager
Reorganization/Redemptions Department
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
10. DTC may direct Issuer or Trustee to use any other number or address as
the number or address to which notices or payments of interest or principal may
be sent.
11. In the event of a redemption, acceleration, or any other similar
transaction (e.g., tender made and accepted in response to Issuer's or Trustee's
invitation) necessitating a reduction in the aggregate principal amount of
Securities outstanding or an advance refunding of part of the Securities
outstanding, DTC, in its discretion: (a) may request Issuer or Trustee to issue
and authenticate a new Security certificate; or (b) may make an appropriate
notation on the Security certificate indicating the date and amount of such
reduction in principal except in the case of final maturity, in which case the
C-4
<PAGE>
certificate will be presented to Issuer or Trustee prior to payment, if
required.
12. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trustee
shall notify DTC of the availability of certificates. In such event, Issuer or
Trustee shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
13. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Trustee (at which time DTC will confirm with Issuer or Trustee the aggregate
principal amount of Securities outstanding). Under such circumstances, at DTC's
request Issuer and Trustee shall cooperate fully with DTC by taking appropriate
action to make available one or more separate certificates evidencing Securities
to any DTC Participant having Securities credited to its DTC accounts.
14. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having an interest
in the Securities shall be deemed to have notice of the provisions of the
Security certificates by virtue of submission of such certificate(s) to DTC.
15. Nothing herein shall be deemed to require Trustee to advance funds on
behalf of Issuer.
Notes: Very truly yours,
A. If there is a Trustee (as
defined in this Letter of --------------------------------------
Representations), Trustee as
well as Issuer must sign this
Letter. If there is no (Issuer)
Trustee, in signing this By:
Letter, Issuer itself ----------------------------------
undertakes to perform all of
the obligations set forth (Authorized Officer's
herein. Signature)
C-5
<PAGE>
B. Schedule B contains
statements that DTC believes --------------------------------------
accurately describe DTC, the
method of effecting book-entry (Trustee)
transfers of securities
distributed through DTC, and By:
certain related matters.
----------------------------------
(Authorized Officer's
Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By:
------------------------------
cc: Underwriter
Underwriter's Counsel
C-6
<PAGE>
SCHEDULE A
to Exhibit C
------------
<TABLE>
<CAPTION>
(Describe Issue)
CUSIP Principal Amount Maturity Date Interest
- ----- ---------------- ------------- --------
<S> <C> <C> <C>
Rate
</TABLE>
C-7
<PAGE>
SCHEDULE B
----------
SAMPLE COVERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
(Prepared by DTC-bracketed material may
be applicable only to certain issues)
1. The Depositary Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered pin the name of Cede & Co.
(DTC's partnership nominee). One fully-registered Security certificate will be
issued for [each issue of the Securities, [each] in the aggregate principal
amount of such issue, and will be deposited with DTC. [If, however, the
aggregate principal amount of [any] issue exceeds $150 million, one certificate
will be issued with respect to each $150 million of principal amount and an
additional certificate will be issued with respect to any remaining principal
amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing
C-8
<PAGE>
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participant through which the Beneficial Owner
entered into the transaction. Transfers of ownership interests in the Securities
are to be accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Securities, except in the event that
use of the book-entry system for the Securities is discontinued.
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
[6. Redemption notices shall be sent to Cede & Co. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.]
7. Neither DTC nor Cede & co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer
as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Securities are credited on the record date (identified in a listing attached
to the Omnibus Proxy).
8. Principal and interest payments on the Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on payable date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Agent, or the Issuer,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to
C-9
<PAGE>
DTC is the responsibility of the Issuer of the Agent, disbursement of such
payments to Direct Participants shall be the responsibility of DTC, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants.
[9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to the [Tender/Remarketing]
Agent, and shall effect delivery of such Securities by causing the Direct
Participant to transfer the Participant's interest in the Securities, on DTC's
records, to the [Tender/Remarketing] Agent. The requirement for physical
delivery of Securities in connection with a demand for purchase or a mandatory
purchase will be deemed satisfied when the ownership rights in the Securities
are transferred by Direct Participants on DTC's records.]
10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to the
Issuer or the Agent. Under such circumstances, in the event that a successor
securities depository is not obtained, Security certificates are required to be
printed and delivered.
11. The Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Issuer believes to be reliable,
but the Issuer takes no responsibility for the accuracy thereof.
C-10
<PAGE>
EXHIBIT D
[Form Of Accountants' Letter]
D-1
<PAGE>
EXHIBIT E
Form of Transferor Certificate
[DATE]
[Company]
[Company Address]
[Trustee]
[Trustee Address]
Re: CS First Boston Auto Receivables Trust 199__-__
Asset Backed Certificates, Class B
---------------------------------------------------
Ladies and Gentlemen:
In connection with our disposition of the above-referenced ___% Asset
Backed Certificates, Class B (the "Certificates") we certify that (a) we
understand that the Certificates, have not been registered under the Securities
Act of 1933, as amended (the "Act"), and are being transferred by us in a
transaction that is exempt from the registration requirements of the Act and (b)
we have not offered or sold any Certificates to, or solicited offers to buy any
Certificates from, any person, or otherwise approached or negotiated with any
person with respect thereto, in a manner that would be deemed, or taken any
other action which would result in, a violation of Section 5 of the Act.
Very truly yours,
[NAME OF TRANSFEROR]
By:______________________________
Authorized Officer
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<PAGE>
EXHIBIT F
Form of Investment Letter
[DATE]
[Company]
[Company Address]
[Trustee]
[Trustee Address]
Re: CS First Boston Auto Receivables Trust 199__-__
Asset Backed Certificates, Class B
-----------------------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above-referenced Asset Backed
Certificates, Class B (the "Certificates"), we certify that (a) we understand
that the Certificates are not being registered under the Securities Act of 1933,
as amended (the "Act"), or any state securities laws and are being transferred
to us in a transaction that is exempt from the registration requirements of the
Act and any such laws, (b) we are an "accredited investor," as defined in
Regulation D under the Act, and have such knowledge and experience in financial
and business matters that we are capable of evaluating the merits and risks of
investments in the Certificates, (c) we have had the opportunity to ask
questions of and receive answers from the Company concerning the purchase of the
Certificates and all matters relating thereto or any additional information
deemed necessary to our decision to purchase the Certificates, (d) we are not an
employee benefit plan or trust account that is subject to the Employee
Retirement Income Security Act of 1974, as amended, or section 4975 of the
Internal Revenue Code of 1986, as amended, nor are we acting on behalf of any
such Plan or using the assets of any such Plan to acquire Class B Certificates,
(e) we are acquiring the Certificates for investment for our own account and not
with a view to any distribution of such Certificates (but without prejudice to
our right at all times to sell or otherwise dispose of the Certificates in
accordance with clause (g) below), (f) we have not offered or sold any
Certificates to, or solicited offers to buy any Certificates from, any person,
or otherwise approached or negotiated with any person with respect thereto, or
taken any other action that would result in a violation of Section 5 of the Act
or any state
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<PAGE>
securities laws and (g) we will not sell, transfer or otherwise dispose of any
Certificates unless (1) such sale, transfer or other disposition is made
pursuant to an effective registration statement under the Act and in compliance
with any relevant state securities laws or is exempt from such registration
requirements and, if requested, we will at our expense provide an opinion of
counsel satisfactory to the addresses of this certificate that such sale,
transfer or other disposition may be made pursuant to an exemption from the Act,
(2) the purchaser or transferee of such Note has executed and delivered to you a
certificate to substantially the same effect as this certificate and (3) the
purchaser or transferee has otherwise complied with any conditions for transfer
set forth in the Pooling and Servicing Agreement dated as of _____________,
among Asset Backed Securities Corporation, as Company, ______________ as
Servicer, and ____________, as Trustee.
Very truly yours,
[NAME OF TRANSFEREE]
By:______________________________
Authorized Officer
F-2
<PAGE>
EXHIBIT G
Form of Rule 144A Letter
[DATE]
[Company]
[Company Address]
[Trustee]
[Trustee Address]
Re: CS First Boston Auto Receivables Trust 199__-__
Asset Backed Certificates, Class B
-----------------------------------------------
Ladies and Gentlemen:
In connection with our acquisition of the above-referenced ___% Asset
Backed Certificates, Class B (the "Certificates") we certify that (a) we
understand that the Certificates are not being registered under the Securities
Act of 1933, as amended (the "Act"), or any state securities laws and are being
transferred to us in a transaction that is exempt from the registration
requirements of the Act and any such laws, (b) we have such knowledge and
experience in financial and business matters that we are capable of evaluating
the merits and risks of investments in the Certificates, (c) we have had the
opportunity to ask questions of and receive answers from the Company concerning
the purchase of the Certificates and all matters relating thereto or any
additional information deemed necessary to our decision to purchase the
Certificates, (d) we are not an employee benefit plan, trust or account that is
subject to the Employee Retirement Income Security Act of 1974, as amended, or
section 4975 of the Internal Revenue Code of 1986, as amended, nor are we acting
on behalf of any such Plan or using the assets of any such Plan to acquire Class
B Certificates, (e) we have not, nor has anyone acting on our behalf, offered,
transferred, pledged, sold or otherwise disposed of the Certificates, any
interest in the Certificates or any other similar security to, or solicited any
offer to buy or accept a transfer, pledge or other disposition of the
Certificates, any interest in the Certificates or any other similar security
from or otherwise approached or negotiated with respect to the Certificates, any
interest in the Certificates or any other similar security with, any person in
any manner, or made any general solicitation by means of general advertising or
in any other manner, or taken any
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<PAGE>
other action that would constitute a distribution of the Certificates under the
Act or that would constitute a distribution of the Certificates under the Act or
that would render the disposition of the Certificates a violation of Section 5
of the act or any state securities laws or require registration pursuant
thereto, and we will not act, or authorize any person to act, in such manner
with respect to the Certificates, and (f) we are a "qualified institutional
buyer" as that term is defined in Rule 144A under the Act. We are aware that the
sale to us is being made in reliance on Rule 144A. We are acquiring the
Certificates for our own account or for resale pursuant to Rule 144A and
understand that such Certificates may be resold, pledged or transferred only (i)
to a person reasonably believed to be a qualified institutional buyer that
purchases for its own account or for the account of a qualified institutional
buyer to whom notice is given that the resale, pledge or transfer is being made
in reliance on Rule 144A or (ii) pursuant to another exemption from registration
under the Act.
Very truly yours,
[NAME OF TRANSFEREE]
By:______________________________
Authorized Officer
G-2
<PAGE>
EXHIBIT H
Form of Receivables Purchase Agreement
[to be supplied]
H-1
<PAGE>
EXHIBIT J
YIELD SUPPLEMENT AGREEMENT
[Date]
- ---------------------------
- ---------------------------
- ---------------------------
- ---------------------------
Ladies and Gentlemen:
Asset Backed Securities Corporation (the "Company") hereby confirm
arrangements made as of the date hereof with you to be effective upon receipt by
us of the enclosed copy of this letter agreement (the "Yield Supplement
Agreement"), executed by you. Capitalized terms used and not otherwise defined
herein shall have the meanings assigned thereto in the Pooling and Servicing
Agreement dated as of ________, ___ (the "Agreement"), among the Company,
_________, as servicer (the "Servicer"), and ________, as trustee (the
"Trustee").
1. On or prior to each Determination Date, by delivery of a Servicer's
Certificate pursuant to Section 3.09 of the Agreement, the Servicer shall notify
the Trustee of the Yield Supplement Amount for the related Distribution Date.
2. To the extent that the amount on deposit in the Yield Supplement Account
is less than the Yield Supplement Deposit Amount for the related Distribution
Date, we agree to make a payment to the Trustee of additional amounts until the
amount on deposit therein equals the Maximum Yield Supplement Amount by wire
transfer of same day funds, to such account as the Trustee may designate in
writing to us no later than 12:00 P.M., New York City time, on the Business Day
immediately preceding such Distribution Date.
3. Our agreement set forth in this Yield Supplement Agreement is our
primary obligation and such obligation is irrevocable, absolute and
unconditional, shall not be subject to any counterclaim, setoff or defense
(other than full and strict compliance by us with our obligations hereunder) and
shall remain in full force and effect without regard to, and shall not be
released, discharged or in any way affected by, any circumstances or condition
whatsoever.
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4. The Trustee's interest in this Yield Supplement Agreement shall
be transferable to any Trustee or successor Trustee under the Agreement.
5. This Yield Supplement Agreement will be governed by and construed
in accordance with the internal laws of [New York].
6. Except as otherwise provided int he Agreement, this Yield Supplement
Agreement shall terminate on the earlier to occur of (a) termination of the
Agreement pursuant to Section 10.01 and (b) the Final Scheduled Distribution
Date.
7. Except as otherwise provided herein, all notices pursuant to this Yield
Supplement Agreement shall be in writing and shall be effective upon receipt
thereof. All notices shall be directed as set forth below, or to such other
address or to the attention of such other person as the relevant party shall
have designated for such purpose in a written notice.
Asset Backed Securities Corporation
______________________________
______________________________
______________________________
Attention:______________________
The Trustee:
______________________________
______________________________
______________________________
Attention:______________________
8. This Yield Supplement Agreement may be executed in one or more
counterparts and by the different parties hereto on separate counterparts, all
of which shall be deemed to be one and the same document.
9. In consideration for all future payments, if any, of Yield Supplement
Amounts to the Trustee pursuant to Paragraph 2 hereof, the Trustee shall pay to
the Company on the Closing Date under the Agreement such amount as the Company
and the Trustee shall separately agree.
10. This Agreement may not be assigned by the Company except as
contemplated by this Section and the Agreement; provided, however, that
simultaneously with the execution and delivery of this Agreement, the Company
shall assign all of their right, title and interest herein to the Trustee for
the benefit of the Certificateholders as provided in Section 4.03 of the
Agreement, to which the Servicer hereby expressly consents. The Servicer agrees
to perform its obligations hereunder for the benefit of the Trust and that the
Trustee may enforce the provisions of this Agreement, exercise the rights of the
Company and enforce the obligations of the Servicer hereunder without the
consent of the Company.
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11. The Servicer and the Company agree to do and perform, from time to
time, any and all acts and to execute any and all further instruments required
or reasonably requested by the other party hereto or by the Trustee more fully
to effect the purposes of this Agreement.
If the foregoing satisfactory set forth the terms and conditions of our
agreement, please indicate your acceptance thereof by signing in the space
provided below and returning to us the enclosed duplicate original of this
letter.
Very truly yours,
------------------------------,
as Servicer
By:_______________________
Name:
Title:
Agreed and Accepted as of ____________, 19__
- ----------------------------------------,
as Trustee
By______________________________________
Name:
Title:
ASSET BACKED SECURITIES CORPORATION
By______________________________________
Name:
Title:
J-3
Exhibit 4.2.3
[Manufactured Homes]
- ------------------------------------------------------------------------------
------------------------------------------------------
ASSET BACKED SECURITIES CORPORATION,
DEPOSITOR
[NAME OF MASTER SERVICER],
MASTER SERVICER
and
[NAME OF TRUSTEE],
TRUSTEE
------------------------
STANDARD TERMS AND PROVISIONS
OF
POOLING AND SERVICING AGREEMENT
Dated as of ______ __, 199_
------------------------
CONDUIT MANUFACTURED HOUSING CONTRACT PASS-THROUGH
CERTIFICATES
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. DEFINITIONS.......................................... 6
ARTICLE II. CONVEYANCE OF CONTRACTS;
REPRESENTATIONS AND WARRANTIES....................... 21
SECTION 2.01. Conveyance of Contracts.................. 21
SECTION 2.02. Acceptance by Trustee.................... 24
SECTION 2.03. Representations, Warranties
and Covenants of the Master
Servicer ................................ 26
SECTION 2.05. Representations and Warranties
of the [Depositor] Regarding
the Contracts in the
Aggregate................................ 33
SECTION 2.06. Representations and Warranties
of the [Depositor] Regarding
the Contract Files....................... 34
SECTION 2.07. Repurchases of Contracts for Breach
of Representations and Warranties
[by the Depositor]....................... 34
SECTION 2.09. Assignment of Rights under
Warranty and Servicing
Agreements............................... 38
ARTICLE III. ADMINISTRATION AND SERVICING OF
CONTRACTS............................................ 38
SECTION 3.01. Master Servicer to Act as
Servicer................................. 38
SECTION 3.02. Enforcement of the Obligations
of Servicers............................. 40
SECTION 3.03. Successor Services....................... 41
SECTION 3.04. Termination of the Rights of
Servicers................................ 41
SECTION 3.05. Liability of the Master
Servicer................................. 42
SECTION 3.06. Rights of the Depositor and
the Trustee In Respect of the
Master Servicer.......................... 42
SECTION 3.07. Trustee to Act as Servicer............... 43
SECTION 3.08. Collection of Contract
Payments; Certificate Account............ 43
SECTION 3.09. Servicing Accounts....................... 46
SECTION 3.10. Collection of Taxes
Assessments and Similar Items;
Escrow Accounts.......................... 47
SECTION 3.11. Access to Certain
Documentation and Information
Regarding the Contracts.................. 48
SECTION 3.12. Permitted Withdrawals from the
Certificate Account...................... 48
</TABLE>
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<TABLE>
<S> <C>
SECTION 3.13. Maintenance of the Pool
Insurance Policy and Primary
Credit Insurance Policies;
Collection Thereunder.................... 50
SECTION 3.14. Maintenance of Hazard
Insurance, the Special Hazard
Insurance Policy and Other
Insurance................................ 52
SECTION 3.15. Enforcement of Due-On-Sale
Clauses; Assumption
Agreements............................... 54
SECTION 3.16. Realization Upon Defaulted
Contracts................................ 56
SECTION 3.17. Trustee to Cooperate; Release
of Contract Files........................ 57
SECTION 3.18. Documents, Records and Funds
in Possession of Master
Servicer to be Held for the
Depositor and the Trustee................ 59
SECTION 3.19. Servicing Compensation;
Retained Yield........................... 59
SECTION 3.20. Reports to the Trustee and the
Depositor; Certificate Account
Statements............................... 60
SECTION 3.21. Annual Statement as to
Compliance............................... 60
SECTION 3.22. Annual Independent Public
Accountant's Servicing Report............ 61
SECTION 3.23. Letters of Credit........................ 61
SECTION 3.24. Reserve Fund............................. 62
SECTION 3.25. Administration of Buydown
Funds.................................... 63
ARTICLE IV. ADVANCES BY THE MASTER SERVICER;
PERFORMANCE BOND..................................... 64
SECTION 4.01. Monthly Advance.......................... 64
SECTION 4.02. Advances for Attorneys' Fees............. 65
SECTION 4.03. Advances for Amounts Collected
by Servicer but Not Remitted............. 65
SECTION 4.04. Nonrecoverable Advances.................. 65
SECTION 4.05. Advances for Additional
Interest in Connection with
Principal Payments....................... 66
SECTION 4.06. Performance Bond......................... 66
ARTICLE V. THE CERTIFICATES..................................... 68
SECTION 5.01. The Certificates......................... 68
SECTION 5.02. Registration of Transfer and
Exchange of Certificates................. 69
SECTION 5.03. Mutilated Destroyed, Lost or
Stolen Certificates...................... 70
SECTION 5.04. Persons Deemed Owners.................... 70
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
SECTION 5.05. Access to List of
Certificateholders' Names and
Addresses................................ 70
SECTION 5.06. Maintenance of Office or
Agency................................... 71
ARTICLE VI. THE DEPOSITOR AND THE MASTER
SERVICER............................................. 71
SECTION 6.01. Respective Liabilities of the
Depositor and the Master
Servicer................................. 71
SECTION 6.02. Merger or Consolidation of the
Depositor and the Master
Servicer................................. 71
SECTION 6.03. Limitation on Liability of the
Depositor, the Master Servicer
and Others............................... 72
SECTION 6.04. Master Servicer Not to Resign............ 73
SECTION 6.05. Errors and Omissions
Insurance; Fidelity Bonds................ 74
ARTICLE VII. DEFAULT.............................................. 74
SECTION 7.01. Events of Default........................ 74
SECTION 7.02. Trustee to Act; Appointment of
Successor................................ 76
SECTION 7.03. Notification to
Certificateholders....................... 77
ARTICLE VIII. CONCERNING THE TRUSTEE............................... 77
SECTION 8.01. Duties of Trustee........................ 77
SECTION 8.02. Certain Matters Affecting the
Trustee.................................. 78
SECTION 8.03. Trustee Not Liable for
Contracts................................ 79
SECTION 8.04. Trustee May Own Certificates............. 79
SECTION 8.05. Master Servicer to Pay
Trustee's Fees and Expenses.............. 79
SECTION 8.06. Eligibility Requirements for
Trustee.................................. 80
SECTION 8.07. Resignation and Removal of the
Trustee.................................. 80
SECTION 8.08. Successor Trustee........................ 81
SECTION 8.09. Merger or Consolidation of
Trustee.................................. 81
SECTION 8.10. Appointment of Authenticating
Agent.................................... 82
SECTION 8.11. Appointment of Co-Trustee or
Separate Trustee......................... 83
SECTION 8.12. Tax Returns.............................. 85
SECTION 8.13. Appointment of Custodians................ 85
</TABLE>
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<TABLE>
<S> <C>
ARTICLE IX. TERMINATION.......................................... 86
SECTION 9.01. Termination upon Repurchase of
Contracts................................ 86
SECTION 9.02. Final Distribution on the
Certificates............................. 86
ARTICLE X. MISCELLANEOUS PROVISIONS............................. 87
SECTION 10.01. Amendment................................ 87
SECTION 10.02. Recordation of Agreement;
Counterparts............................. 87
SECTION 10.03. Governing Law............................ 88
[SECTION 10.04. Intention of Parties .................... 88
SECTION 10.05. Notices.................................. 88
SECTION 10.06. Severability of Provisions............... 88
SECTION 10.07. Assignment............................... 89
SECTION 10.08. Limitation on Rights of
Certificateholders....................... 89
SECTION 10.09. Inspection and Audit Rights.............. 90
SECTION 10.10. Certificates Nonassessable and
Fully Paid............................... 90
SECTION 10.11. REMIC Treatment.......................... 90
</TABLE>
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<PAGE>
THESE STANDARD TERMS AND PROVISIONS OF POOLING AND SERVICING AGREEMENT, are
dated as of ________ __, 199 , among ASSET BACKED SECURITIES CORPORATION, as
depositor (the "Depositor"), [___________________], as master servicer (the
"Master Servicer") and [__________________], as trustee (the "Trustee") and are
incorporated by reference in the Reference Agreement (as hereinafter defined),
to the extent set forth therein. Upon execution of the Reference Agreement, this
document, as amended and supplemented by the Reference Agreement, represents the
agreement of the parties with respect to the sale and servicing of the Contracts
to the Trust named in such Reference Agreement.
In consideration of the mutual agreements herein contained, the Depositor,
the Master Servicer and the Trustee agree, in addition to the matters set forth
in the Reference Agreement, as follows:
ARTICLE I.
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
Administrative Fee: With respect to any Contract, the percentage rate per
annum of the Principal Balance of each Contract that is payable to the Depositor
out of each payment on account of interest of such Contract, exclusive of any
Retained Yield, Servicing Fee and servicing compensation payable to the Servicer
of such Contract. The Administrative Fee is reserved for the administration of
the Trust Fund, and may be fixed or variable, as specified in the Reference
Agreement.
Agreement: This Standard Terms and Provisions of Pooling and Servicing,
together with the Reference Agreement with respect to a Series, and all
amendments or supplements hereto or thereto.
Alternative Credit Support: Any method of credit support, other than the
methods of Credit Support specified herein and other than Subordinated
Certificates, as provided for in the applicable Reference Agreement.
[Appraised Value: In the case of a Manufactured Home that is new and was
purchased by the Obligor 18 months or less after the date of manufacture of such
Financed Property, the Appraised Value shall be the purchase price of the
Financed Property to the Obligor plus sales tax, if any. In the case of (a) a
previously occupied Financed Property or (b) a Financed Property that is new but
was purchased by the Obligor more than 18 months after the date of manufacture
of such Financed
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<PAGE>
property, the Appraised Value shall be (i) if the Financed Property is not
located on a retailer's premises, the lesser of (a) the purchase price paid by
the Obligor, plus sales tax, if any, or (b) the on-site value of the Financed
Property as determined by an independent appraiser certified by NADA and
approved by the [Master Servicer], plus an amount equal to the amount of sales
tax, if any, which would be payable on such on-site value, or (ii) if the
Financed Property is part of a retailer's inventory, the lesser of (a) the
purchase price paid by the Obligor plus sales tax, if any, or (b) book value
(including specific value additions) published by NADA for the unit, plus filing
and recording fees and an amount equal to the amount of sales tax, if any, which
would be payable on such book value.]
APR: The annual percentage rate of interest borne by a Contract, which may
be fixed or variable, as specified in the related Reference Agreement.
Authenticating Agent: The Authenticating Agent appointed pursuant to
Section 8.10 hereof and identified in the Reference Agreement, which is
authorized by the Trustee to act on behalf of the Trustee to authenticate the
Certificates. The Authenticating Agent may be the Depositor or any Person
directly or indirectly controlling or controlled by or under common control with
the Depositor.
Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a day
on which banking institutions in [ ], New York or [ ] are authorized or
obligated by law or executive order to be closed.
[Buydown Funds: Any amount contributed by the seller of a Manufactured
Home, the Depositor, or another source in order to enable the Obligor to reduce
the payments required to be made by the Obligor from the Obligor's funds in the
early years of a Contract.]
[Buydown Contract: Any Contract as to which a specified amount of interest
is paid out of related Buydown Funds in accordance with a buydown agreement.]
Certificate: Any one of the certificates executed by the Depositor and
authenticated by or on behalf of the Trustee in substantially the form or forms
attached as Exhibits to the Reference Agreement. The Certificates may be issued
in such Classes or Subclasses and with such characteristics as are specified in
the applicable Reference Agreement.
Certificate Account: The non-interest-bearing deposit account or accounts
created and maintained by the Master Servicer pursuant to Section 3.08, in the
name of the Trustee for the benefit of Certificateholders for deposit of
payments and
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<PAGE>
collections in respect of the Contracts pursuant to Section 3.08 hereof, which
account or accounts must be an Eligible Account or Accounts.
Certificate Register and Certificate Registrar: Respectively, the register
maintained pursuant to Section 5.02 hereof and the registrar appointed and
identified in the Reference Agreement.
Certificateholder or Holder: The person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purposes of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or the Master Servicer or any affiliate thereof shall be
deemed not to be outstanding and the interest evidenced thereby shall not be
taken into account in determining whether the requisite percentage of
Certificates necessary to effect any such consent has been obtained.
Class: With respect to a Series of Certificates, all of the Certificates of
such Series designated in the applicable Reference Agreement as a class.
Code: The Internal Revenue Code of 1986, including any successor or
amendatory provisions.
Contract File: The documents listed in Section 2.01 hereof pertaining to a
particular Contract and any additional documents required to be added to the
Contract File pursuant to this Agreement.
[Contract Schedule: The list of Contracts transferred to the Trustee as
part of the Trust Fund for the Certificates and from time to time subject to
this Agreement, as from time to time amended by the Trustee (or by a Custodian
as the duly appointed agent of the Trustee) to reflect the addition of
Replacement Contracts and the deletion of Contracts pursuant to the provisions
of this Agreement and the Reference Agreement), attached to the Reference
Agreement. Such schedule will set forth the following information with respect
to each Contract:
(i) the loan number;
(ii) the street address of the Manufactured Home;
(iii) the APR;
(iv) the original term;
(v) the original Principal Balance;
(vi) the first payment date;
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(vii) the current monthly payment in effect as of the Cut-off
Date;
(viii) the Principal Balance as of the Cut-off Date;
(ix) the Loan-to-Value Ratio at origination; and
(x) the Retained Yield.]
Such schedule shall also set forth the total of the amounts described under
(viii) above for all of the Contracts, together with the aggregate principal
balance as of the Cut-off Date of the Buy-Down Contracts, and any additional
information required by the Reference Agreement. Such schedule may be in the
form of more than one list collectively setting forth all of the information
required.
Contracts. either a conditional sales contract or installment loan
agreement secured by a first lien on a single-family (one- to four-family)
residential manufactured home transferred and assigned to the Trustee pursuant
to the provisions hereof and of the Reference Agreement as from time to time are
held as part of the Trust Fund; the Contracts so held being identified in the
Contract Schedule attached as a Schedule to the Reference Agreement.
Corporate Trust Office: The principal office of the Trustee in the
[_______________] at which at any particular time its corporate business shall
be administered, which office at the date of the execution of this Agreement is
located at ____________.
Credit Support: The Pool Insurance Policy, Primary Credit Insurance Policy,
Special Hazard Insurance Policy, Letters of Credit, the Reserve Fund or the
Alternative Credit Support specified in the Reference Agreement.
Custodial Account: If so specified in the Reference Agreement with respect
to a Series, the non-interest-bearing deposit account or accounts created and
maintained by the Master Servicer pursuant to Section 3.08 in lieu of the
Certificate Account in the name of the Trustee for the benefit of the
Certificateholders, which account or account must be an Eligible Account or
Accounts. Amounts in such Custodial Account will be remitted, net of amounts
withdrawn pursuant to Section 3.12, to a Certificate Account maintained by the
Trustee pursuant to such Reference Agreement.
Custodial Agreement: The Custodial Agreement, if any, from time to time in
effect, among the Master Servicer, the Trustee and the Custodian named therein
(if the Trustee is not the Custodian) in substantially the form set forth as an
Exhibit to the Reference Agreement.
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<PAGE>
Custodian: The Custodian or Custodians identified in the Reference
Agreement and named pursuant to one or more Custodial Agreements as may from
time to time be in effect, or its successor in interest. The Custodian may be
the Trustee or any person directly or indirectly controlling or controlled by or
under common control with the Trustee, or an independent entity.
Cut-off-Date: The first day of the month of the initial issuance of a
Series of Certificates, as specified in the related Reference Agreement.
Deleted Contract: With respect to a Series of Certificates, a Contract
replaced or to be replaced by a Replacement Contract.
Delivery Date: The date of settlement of the sale of the Certificates to
the original purchasers thereof, as specified in the Reference Agreement with
respect to a Series of Certificates.
Depositor: Asset Backed Securities Corporation, a Delaware corporation, or
its successor in interest.
Determination Date: Unless otherwise specified in the related Reference
Agreement, the 20th day (or if such 20th day is not a Business Day, the Business
Day immediately preceding such 20th day) of the month of the related
Distribution Date.
Distribution Date: Unless otherwise specified in the related Reference
Agreement, the 25th day of each calendar month after the initial issuance of the
Series of Certificates, or if such 25th day is not a Business Day, the next
succeeding Business Day.
Due Date: Unless otherwise specified in the Reference Agreement, the first
day of the month in which the related Distribution Date occurs.
Eligible Account: An account (i) that is maintained with a depository
institution or trust company incorporated under the laws of the United States or
of any state thereof and the amounts deposited therein shall be held in the form
of Eligible Investments or (ii) meeting the requirements established for a
Servicing Account.
Eligible Investments: Unless otherwise specified in the Reference Agreement
with respect to a Series, at any time, any one or more of the following
obligations, instruments and securities:
(i) obligations of the United States or any agency thereof, provided
such obligations are backed by the full faith and credit of the United
States;
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<PAGE>
(ii) general obligations of or obligations guaranteed by any state of
the United States or the District of Columbia receiving one of the two
highest ratings of the Rating Agency, or such lower ratings as will not
result in the downgrading or withdrawal of the ratings then assigned to the
Certificates by the Rating Agency;
(iii) commercial or finance company paper which is then rated in the
highest commercial or finance company paper rating categories of the Rating
Agency, or such lower category as will not result in the downgrading or
withdrawal of the ratings then assigned to the Certificates by the Rating
Agency;
(iv) certificates of deposit, demand or time deposits, federal funds
or bankers' acceptances issued by any depository institution or trust
company incorporated under the laws of the United States or of any state
thereof and subject to supervision and examination by federal and/or state
banking authorities, provided that the commercial paper and/or long term
debt obligations of such depository institution or trust company (or in the
case of the principal depository institution in a holding company system,
the commercial paper or long term debt obligations of such holding company)
are then rated in the highest rating categories of each of the Rating
Agencies, in the case of commercial paper, or in the second highest
category in the case of long term debt obligations, or such lower
categories as will not result in the downgrading or withdrawal of the
rating then assigned to the Certificates by the Rating Agency;
(v) demand or time deposits or certificates of deposit issued by any
bank or trust company or savings and loan association and fully insured by
the FDIC or the FSLIC;
(vi) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation acceptable to the Rating Agency at the time of
the issuance or investing in such guaranteed reinvestment agreements;
(vii) repurchase obligations with respect to any security described in
(i) and (ii) above or any other security issued or guaranteed by an agency
or instrumentality of the United States, in either case entered into with a
depository institution or trust company (acting as principal) described in
(iv) above;
(viii) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States or any state
thereof which, at the time of such investment or contractual commitment
providing for such investment are then rated in one of the two highest
categories of the Rating Agency, or in such lower rating category as will
not
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result in the downgrading or withdrawal of the ratings then assigned to the
Certificates by the Rating Agency; and
(ix) such other investments acceptable to the Rating Agency with
respect to manufactured housing pass-through certificates rated by the
Rating Agency in the same rating category as the Certificates of the
related Series.
Event of Default: As defined in Section 7.01 hereof.
FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.
FHA: The Federal Housing Administration, or any successor thereto.
FHLMC: The Federal Home Loan Mortgage Corporation, or any successor
thereto.
FNMA: The Federal National Mortgage Association, a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, or any successor thereto.
FSLIC: The Federal Savings and Loan Insurance Corporation, or any successor
thereto.
Guarantee Amount: The amount of the Limited Guarantee as specified in the
related Reference Agreement.
Insurance Policy: With respect to any Contract included in the Trust Fund
for a Series, any Primary Credit Insurance Policy, any Pool Insurance Policy or
Special Hazard Insurance Policy, including all riders and endorsements thereto,
as specified in the Reference Agreement with respect to such Series.
Insurance Proceeds: Amounts paid pursuant to any Primary Credit Insurance
Policy or the Pool Insurance Policy, with respect to a Series and amounts paid
pursuant to such Series, when the related property has not been restored, and
amounts paid by any insurer pursuant to any other insurance policy covering a
Contract.
Insured Expenses: Expenses covered by the Pool Insurance Policy, any
Primary Credit Insurance Policy or the Special Hazard Insurance Policy, any
replacement insurance policy or policies for any of the foregoing insurance
policies for any of the foregoing insurance policies, or any other insurance
policy with respect to the Contract.
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L/C Bank: The issuer, if any, of the Letter of Credit with respect to a
Series of Certificates, as specified in the related Reference Agreement.
Letter of Credit: If so specified in the Reference Agreement with respect
to a Series of Certificates, the irrevocable stand-by letter of credit issued by
the L/C Bank in favor of the Trustee for the benefit of the Certificateholders,
terms of which, to the extent not specified herein, shall be as specified in
such Letter of Credit and in the Reference Agreement with respect to such
Series.
Limited Guarantee: The limited guarantee issued by the Limited Guarantor as
described in the related Reference Agreement in favor of the Trustee for the
benefit of Certificateholders of a Series pursuant to the related Reference
Agreement.
Limited Guarantee Fee: The fee specified in the related Reference Agreement
payable to the Limited Guarantor.
Limited Guarantor: The issuer of the Limited Guarantee as specified in the
related Reference Agreement.
Liquidating Contract: A Contract (including a contract formerly held in the
Trust Fund which has been assigned to the L/C Bank in considerations of payments
under the Letter of Credit) as to which, as of the close of business on the
Business Day next preceding the Due Date, the outstanding principal balance has
been accelerated (and as to which any applicable rights of any Person having and
interest in the Manufactured Home to reinstate the Contract shall have expired)
and, with respect to which, for satisfaction of such accelerated balance, the
holder thereof has a claim to liquidated proceeds of the security for such
Contract, including (without limitation) (a) from Repossession or other
realization as provided by applicable law, (b) from claims under related private
credit insurance or hazard insurance, and/or (c) from claims against any public
or governmental authority on account of a taking or condemnation of any such
property.
Liquidation Expenses: Expenses incurred by the Master Servicer (or the
related Servicer) in connection with the liquidation of any defaulted Contract
and not recovered by the Master Servicer (or the related Servicer) under the
Pool Insurance Policy, if any, with respect to a Series or any Primary Credit
Insurance Policy for reasons other than the Master Servicer's failure to comply
with Section 3.13 hereof, or under any Alternative Credit Support, or with
respect to a Series of Certificates as to which credit support is provided by a
Letter of Credit, expenses incurred by the L/C Bank, such expenses including,
without limitation, legal fees and expenses, any unreimbursed amount expended by
the Master Servicer pursuant to Section 3.14 hereof respecting the related
Contract and any
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related and unreimbursed expenditures for Taxes, for rental payments due for the
site on which the Manufactured Home is located or for property restoration or
preservation to the extent not previously reimbursed under any (hazard)
insurance policy or under the Special Hazard Insurance Policy, if any, with
respect to a Series, for reasons other than the Master Servicer's failure to
comply with Section 3.14 hereof.
Liquidation Proceeds: Amounts (other than Insurance Proceeds, payments
under the Letter of Credit or the proceeds of any Alternative Credit Support)
received in connection with the liquidation of defaulted Contracts, whether
through trustee's sale, foreclosure sale or otherwise or amounts received in
connection with any condemnation or partial release of a Manufactured Home.
Loan-to-Value Ratio: As of any date, the fraction, expressed as a
percentage, the numerator of which is the current principal balance of the
related Contract at the date of determination and the denominator of which is
the Appraised Value of the related Manufactured Home.
Manufactured Home: The unit of manufactured housing, together with all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
Master Servicer:
[______________________________], a [____________] corporation, or its successor
in interest, or any successor master servicer appointed as herein provided.
Monthly Advance: The aggregate of (i) the advances made by the Master
Servicer on any Distribution Date pursuant to Section 4.01 or 4.03 hereof, the
amount of any such advances being equal to the aggregate of payments of
principal and interest on the Contracts [(in the case of Buydown Contracts,
exclusive of any such payments required by such Buydown Contract to be made out
of Buydown Funds)] that were due on the Due Date and delinquent as of the close
of business on the Business Day next preceding the related Distribution Date and
as to which the related Servicer, if any, has made no advance, after adjustment
or any delinquent interest payment to interest at the Pass- Through Rate [(after
giving effect to the application of any Buydown Funds)], less the aggregate
amount of any such delinquent payments that the Master Servicer has determined
would constitute a Nonrecoverable Advance if made and (ii) any advances made by
the Master Servicer on any Distribution Date pursuant to Section 4.05.
NADA: National Automobile Dealers Association.
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Nonrecoverable Advance: Any portion of the Monthly Advance previously made
or proposed to be made by the Master Servicer (other than that portion of a
Monthly Advance made pursuant to Section 4.05 hereof) that, in the good faith
judgment of the Master Servicer, will not or, in the case of a current
delinquency, would not be, ultimately recoverable by the Master Servicer from
Insurance Proceeds, Liquidation Proceeds, payments under a Letter of Credit,
amounts in the Reserve Fund, or from proceeds of any Alternative Credit Support,
or otherwise. The determination by the Master Servicer that it has made a
Nonrecoverable Advance or that any proposed advance, if made, would constitute a
Nonrecoverable Advance, shall be evidenced by an Officers' Certificate of the
Master Servicer delivered to the Trustee and the Depositor, setting forth the
reasons for such determination as specified in Section 4.04 hereof.
Nonsubserviced Contract: Any Contract that is not subject to a Servicing
Agreement on the date of issuance of a Series of Certificates or thereafter.
Obligor: The person or persons obligated to make payments required by the
Contract.
Officers' Certificate: A certificate signed by the Chairman of the Board,
the Vice Chairman of the Board, the President or a Vice President or Assistant
Vice President, and by the Treasurer, the Secretary, or one of the Assistant
Treasurers or Assistant Secretaries of the Depositor or the Master Servicer, as
the case may be, and delivered to the Trustee, as required by this Agreement.
Opinion of Counsel: A written opinion of counsel, who may be counsel for
the Depositor or the Master Servicer, acceptable to the Trustee.
Pass-Through Rate: As to each Contract, the annual rate of interest, which
may be fixed or variable, as specified in the related Reference Agreement, to be
distributed to the Certificateholders in the manner specified in such Reference
Agreement. Any regular monthly remittance or accrual of interest shall be based
upon annual interest at such rate on the Principal Balance of such Contract
divided by twelve.
Paying Agent: The Paying Agent identified in the Reference Agreement with
respect to a Series, authorized to make distributions on behalf of the Trustee.
Performance Bond: With respect to a Series of Certificates, the bond,
guaranty or similar form of insurance coverage obtained by the Master Servicer
pursuant to Section 4.06 hereof providing a guaranty of the performance of the
Master Servicer's obligations under this Agreement.
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Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.
Pool Insurance Policy: If so specified in the Reference Agreement with
respect to a Series of Certificates for which credit support is provided by a
Pool Insurance Policy, the policy of contract pool guaranty insurance obtained
pursuant to Section 3.13 [, a form of which is attached as an Exhibit to such
Reference Agreement,] or any replacement insurance policy obtained pursuant to
Section 3.13 hereof.
Pool Insurer: With respect to a Series of Certificates for which credit
support is provided by a Pool Insurance Policy, the insurer specified in the
Reference Agreement with respect to a Series, or any successor thereto or the
named insurer in any replacement policy obtained pursuant to Section 3.13
hereof.
Primary Credit Insurance Policy: Each primary policy of credit insurance
with respect to a Contract, or any replacement policy therefor [covering losses
up to ___% of the outstanding Principal Balance of the related Contract existing
from time-to-time and having such terms and conditions as are customary in the
manufactured housing finance industry].
Principal Balance: As of the time of any determination, the principal
balance of a Contract remaining to be paid by the Obligor [or from any Buydown
Funds], after deduction of all payments due on or before the Cut-off Date,
reduced by all amounts distributed or advanced to the Certificateholders or, if
so specified in the related Reference Agreement, remitted or advanced to the
Trustee and reported as allocable to principal.
Principal Prepayment: Any Obligor payment or other recovery of principal on
a Contract that is received in advance of its scheduled Due Date and is not
accompanied by an amount as to interest representing scheduled interest due on
any dates in any month or months subsequent to the month of prepayment.
Purchase Price: Unless otherwise specified in the Reference Agreement, with
respect to any Contract required to be purchased pursuant to the applicable
provisions of this Agreement, an amount equal to the sum of (i) the lesser of
(a) 100% of the Principal Balance of such Contract and (b) in the event that the
Depositor elects to treat the Trust Fund with respect to the related Series of
Certificates as one or more REMICs under the Code and payment of such amount
results in a prohibited transaction tax, the adjusted basis (as defined in the
Code) of the Trust Fund in such Contract as of the date of purchase, plus (ii)
one month's interest on such Principal Balance at the Pass-Through Rate (so long
as advances on account
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of interest have been made on account of such Contract, otherwise, accrued and
unpaid interest on the Contract at the Pass-Through Rate to the first day of the
month following repurchase), plus (iii) if such purchase is being made by a
Servicer and advances on account of interest have been made on account of such
Contract, the sum of all advances made with respect to such Contract by the
Master Servicer for which the Master Servicer has not been reimbursed.
Purchase Year: With respect to a Series of Certificates to which the
provisions of Section 2.03(b) are applicable, as specified in the Reference
Agreement with respect to such Series, the fiscal year ending on the date
specified in the Reference Agreement commencing with the year next succeeding
the year of the initial issuance of such Certificates.
Qualified Insurer: A credit insurance company duly qualified as such under
the laws of the state of its principal place of business and each other state
having jurisdiction over such insurer in connection with the insurance policy
issued by such insurer, duly authorized and licensed by the insurance regulatory
authority of the state of its principal place of business and, to the extent
required by applicable law, each such other state, to transact a mortgage
guaranty insurance business in such state and each such other state and to write
the insurance provided by the insurance policy issued by it [and approved as an
insurer by FHLMC or FNMA] and whose claims-paying ability is acceptable to the
Rating Agency.
Rating Agency: Any nationally recognized statistical rating organization,
or any successor thereto, that rated the Certificates of a Series at the request
of the Depositor at the time of their initial issuance. If such organization or
successor is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical rating organization or other comparable Person designated
by the Depositor, notice of which designation shall be given to the Trustee and
Master Servicer.
[Registrar of Titles: The agency, department or office having the
responsibility for maintaining records of titles in the jurisdiction in which a
particular Manufactured Home is located.]
REMIC: A real estate mortgage investment conduit, as defined in the Code.
Replacement Contract: A Contract substituted by the Depositor or the
related Servicer for a Deleted Contract which must, on the date of such
substitution, meet the requirements specified in the related Reference
Agreement. Such substitution must take place within the time period specified in
the Reference
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Agreement and must satisfy the terms and conditions for substitution set forth
therein.
Repossession: Any action taken or to be taken pursuant to the UCC or other
applicable laws in connection with recovery on a defaulted Contract, including
repossession of the related Manufactured Home with or without judicial
proceedings, sale of such Manufactured Home at public or private sale, retention
of such Manufactured Home in satisfaction of the Obligor's obligations under the
defaulted Contract, or a levy on and sheriff's sale of the related Manufactured
Home in enforcement of a judgment on the defaulted Contract or by voluntary
surrender or otherwise.
Required Insurance Policy: With respect to any Contract, any insurance
policy that is required to be maintained from time to time under this Agreement
or the related Warranty and Servicing Agreement in respect of such Contract.
Reserve Fund: If provided for in the Reference Agreement with respect to a
Series, the fund established and maintained pursuant to Section 3.25 hereof and
such Reference Agreement.
Responsible Officer: When used with respect to the Trustee, the Chairman or
Vice Chairman of the Board of Directors or Trustees, the Chairman or Vice
Chairman of the Executive or Standing Committee of the Board of Directors or
Trustees, the President, the Chairman of the Committee on Trust Matters, any
Vice President, any Assistant Vice President, the Secretary, any Assistant
Secretary, the Treasurer, any Assistant Treasurer, the Assistant Trust Officer,
the Controller and any Assistant Controller or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's knowledge of
and familiarity with the particular subject.
Retained Yield: As set forth in the Reference Agreement, the portion of all
interest accrued at the applicable APR (which may differ among Contracts, as
specified in such Reference Agreement) or the outstanding principal balance of
each Contract from time to time outstanding that is retained by the Depositor
hereunder, which is payable to the Depositor out of the interest portion of all
payments or collections received on or with respect to the Contract and, as the
context requires, any similar amounts payable to a Servicer.
Series: A separate series of Certificates issued pursuant to this
Agreement, which Certificates may, as provided in the related Reference
Agreement, be divided into one or more
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Classes or Subclasses with the characteristics specified in such Reference
Agreement.
Servicer: With respect to any Contract, the Master Servicer if no person
executed a Warranty and Servicing Agreement applicable to such Contract;
otherwise any Person who executed a Warranty and Servicing Agreement applicable
to such Contract.
Servicer Advance: The meaning specified in Section 3.09 hereof.
Servicer Remittance Date: The 18th day of each month, or if such day is not
a Business Day, the Business Day immediately preceding such 18th day.
Servicing Account: A custodial demand deposit account or accounts
established by the Servicer pursuant to Section 3.09 hereof with (i) a
depository institution the long term unsecured debt obligation of which are
rated by the rating agency in one of its two highest rating categories at the
time of any deposit therein, or (ii) the deposits in which are fully insured by
the FDIC or the FSLIC, or (iii) in a depository institution in which such
accounts are insured by the FDIC or the FSLIC (to the limits established by the
FDIC or the FSLIC) the uninsured deposits in which are otherwise several such
that, as evidenced by an Opinion of Counsel, delivered to the Trustee, the
Certificateholders have a claim with respect to the funds in such account or a
perfected first security interest against any collateral (which shall be limited
to Eligible Investments) securing such funds that is similar to claims of any
other depositors or creditors of the depository institution with which such
account is maintained or (iv) any other account or accounts acceptable to the
Rating Agency rating the Certificates of the related Series.
Servicing Fee: With respect to each interest payment on a Contract, the
amount of each interest payment in excess of the Pass-Through Rate, after
deduction of the Administrative Fee, the Retained Yield, and any servicing
compensation payable to the related Servicer pursuant to the related Warranty
and Servicing Agreement, as the case may be or, in the case of a Nonsubserviced
Contract, to the Master Servicer.
Servicing Officer: Any officer of the Master Servicer involved in or
responsible for, the administration and servicing of the Contracts whose name
appears on a list of servicing officers furnished to the Trustee by the Master
Servicer pursuant to Section 2.03, as such list may from time to time be
amended.
Single Certificate: A Certificate in the denomination and representing the
interest in the Trust Fund specified in the Reference Agreement.
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Special Hazard Insurance Policy: If so specified in the Reference
Agreement, credit support which is provided by a Special Hazard Insurance Policy
[, a specimen of which is attached as an Exhibit to the Reference Agreement, or
any replacement policy obtained pursuant to Section 3.14 hereof].
Special Hazard Insurer: With respect to a Series of Certificates for which
credit support is provided by a Special Hazard Insurance Policy the insurer
named in the related Reference Agreement, or any successor thereto, or the named
insurer in any replacement policy obtained pursuant to Section 3.14 hereof.
Subordinated Certificates: Any Certificates of a Series, the rights of the
holders of which to receive distributions on or with respect to the Contracts in
the Trust Fund for such Series are subordinated to the rights of the holders of
one or more Classes or Subclasses of such Series to receive such distributions,
as set forth in the related Reference Agreement.
Taxes: Motor vehicle registration fees or taxes, real estate, personal
property or other ad valorem taxes, and all other similar fees and taxes imposed
by a governmental unit with respect to the ownership or use of a Manufactured
Home.
Title Documents: With respect to any Manufactured Home, the certificate of
title for, or other evidence of ownership of, such Manufactured Home issued by
the Registrar of Titles in the jurisdiction in which such Manufactured Home is
located.
Trust Fund: With respect to a Series of Certificates the corpus of the
trust created by this Agreement consisting of the Contracts and other property
specified in the related Reference Agreement.
Trust Receipt: The meaning specified in Section 3.17 hereof.
Trustee: [_______________], a [_______________] corporation, not in its
individual capacity, but solely as trustee under this Agreement, and any
successor thereto, as provided herein.
Uninsured Cause: With respect to any Series of Certificates for which
credit support is provided by a Special Hazard Insurance Policy, any cause of
damage to a Manufactured Home is not fully reimbursable by the hazard insurance
policies or by the Special Hazard Insurance Policy required to be maintained
pursuant to Section 3.14 hereof.
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UCC: The Uniform Commercial Code (or in the case of the State of Louisiana,
other laws providing for the perfection and enforcement of security interests in
manufactured housing) as in effect in the relevant jurisdiction.
VA: The United States Veterans Administration, or any successor thereto.
Voting Rights: The portion of the aggregate voting rights evidenced by the
Certificates of a Series that is allocated to any particular Certificate, as
specified in the Reference Agreement.
Warranty and Servicing Agreement: A Master Seller's Warranty and Servicing
Agreement, providing for the origination, sale and servicing of Contracts in
such form as has been approved by the Depositor, each containing representations
and warranties in respect of the Contracts sold and serviced thereunder.
The meaning of certain defined terms used in this Agreement shall, when
applied to a particular Series of Certificates and certain defined terms
applicable to such Series. In the event of a conflict or ambiguity created by
the terms defined herein and the terms defined in the related Reference
Agreement, the terms defined in the Reference Agreement shall control.
ARTICLE II.
CONVEYANCE OF CONTRACTS;
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Conveyance of Contracts.
The Depositor, concurrently with the execution and delivery of a Reference
Agreement, shall, in the manner specified below and in such Reference Agreement
sell, transfer, assign, set over and otherwise convey to the Trustee, without
recourse, all the right, title and interest of the Depositor in and to the
Contracts listed on the Contract Schedule attached to such Reference Agreement,
including all interest and principal received or receivable by the Depositor on
or with respect to the Contracts after the Cut-off Date, but not including
payments of principal and interest due and payable on the Contracts on or before
the Cut-Off Date and other than with respect to any Retained Yield specified in
the Reference Agreement together with all its right, title and interest in and
to the proceeds of any related Insurance Policies under which the Trustee is not
named as loss payee and any other insurance policies with respect to the
Contracts.
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In connection with any such transfer and assignment, the Depositor shall
deliver to , and deposit with, the Trustee, or to any Custodian appointed by the
Trustee pursuant to this Agreement as the agent of the Trustee, the following
documents or instruments with respect to each Contract so assigned:
[(i) the Contract, endorsed without recourse by the Depositor to order
of the Trustee, as trustee for the benefit of the Certificateholders of the
related Series, signed in the name of the Depositor by an Authorized
Officer, with all intervening endorsements showing a complete chain of
title from the originator thereof to the Depositor; and if the Contract or
any other material document or instrument relating to the Contract has been
signed on behalf of the Mortgagor by another person, the original power of
attorney or other instrument that authorized and empowered such person to
sign; or, if a copy of the original power of attorney or other instrument
certified by the public recording office in these instances where the
public recording office retains the original;]
(ii) the original Title Documents, as recorded, with evidence of
recording indicated thereon, or a copy of the Mortgage certified by the
public recording office in those instances where the public recording
office retains the original;
(iii) evidence that the security interest granted under the Contract
has been perfected under applicable state law (except for any Title
Documents or UCC financing statements not returned from the applicable
public office, in which case, the Depositor will delivery a copy of such
Title Documents or UCC financing statements together with its certificate
indicating that the originals of such Title Documents and UCC financing
statements were delivered to such public office, and shall promptly upon
receipt of the originals of such Title Documents and UCC financing
statements from such public office deliver such originals to the Trustee
(or, the Custodian)); and
(iv) a power of attorney, if any executed by the Obligor under a
Contract authorizing the Depositor to execute an assignment of the
Obligor's interest in the related property in the event of a default under
the Contract.
(v) an assignment (which may be included in a blanket assignment) of
each Contract in recordable form to the Trustee, as trustee for the benefit
of the Certificateholders of the related Series;
(vi) any Insurance Policies;
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(vii) the original assignment or assignments of the Contract, together
with originals or all intervening assignments, with evidence or recording
thereon;
(viii) the original copy of all assumption and modification
agreements, if any, with respect to such Contract;
(ix) the original commitment or certificate of Primary Credit
Insurance Policy, if any;
(x) any Letters of Credit;
(xi) any Alternative Credit Support.
In the event that, in connection with any Contract, the Depositor cannot
deliver the original recorded [Title Documents] or an original recorded
assignment of the [Title Documents] with evidence of recording thereon
concurrently with the execution and delivery of the Reference Agreement solely
because of a delay caused by the public recording office where such [Title
Documents] has been delivered for recordation, the Depositor shall deliver, or
cause the related Servicer to deliver, to the Trustee (or to a Custodian on
behalf of the Trustee), an Officers' Certificate or a certificate of the related
Servicer, with a photocopy of such [Title Documents] or assignment of the [Title
Documents] attached thereto, stating that such [Title Documents] or assignment
of the [Title Documents] has been delivered to the appropriate public recording
official for recordation. The Depositor shall promptly deliver, or cause the
related Servicer to deliver, to the Trustee (or to a Custodian on behalf of the
Trustee) such [Title Documents] or assignment of the [Title Documents] with
evidence of recording indicated thereon upon receipt thereof from the public
recording official or from the related Servicer. From time to time the Servicers
or the Master Servicer may forward to the Trustee (or to a Custodian on behalf
of the Trustee) additional original documents evidencing an assumption or
modification of a Contract.
[The Trustee (or a Custodian on behalf of the Trustee) shall cause to be
recorded in the appropriate public office each assignment referred to in this
Section 2.01. If any assignment is returned unrecorded to the Trustee (or to
such Custodian) because of any defect therein, the Trustee shall promptly notify
the Master Servicer and the Depositor. The Master Servicer shall promptly notify
the related Servicer of such defect and request that such Servicer cure or
correct such defect and cause such assignment to be recorded in accordance with
this paragraph or, if such Servicer does not cure or correct such defect of in
the event such defect cannot be cured, be cured, that such Servicer either (a)
substitute a replacement Contract or Contracts for the related Contract, which
substitution must occur within the time period specified in the Reference
Agreement and which shall be
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subject to the conditions set forth in Section 2.04 and terms and conditions
with respect to substitution in the Reference Agreement; or (b) repurchase such
contract at the Purchase Price therefor, in the manner provided in Section 2.02
hereof.]
In the case of Contracts that have been prepaid in full after the Cut-off
Date and prior to the date of execution and delivery of the Reference Agreement,
the Depositor, in lieu of delivering the above documents to the Trustee, will
deposit in the Certificate Account the amount with respect to such payment that
is required to be deposited in the Certificate Account pursuant to Section 3.08
hereof.
All original documents relating to the Contracts that are not delivered to
the Trustee or the respective Custodian, if any, are and shall be held in trust
for the benefit of the Trustee on behalf of the Certificateholders.
SECTION 2.02. Acceptance by Trustee.
The Trustee (or the respective Custodian as the duly appointed agent of the
Trustee) will hold the documents referred to in Section 2.01 above and the other
documents constituting a part of the Contract Files delivered to it (or to such
Custodian) with respect to a Series in trust for the use and benefit of all
present and future Certificateholders of such Series. Upon request by any Holder
of a Certificate of such Series, the Trustee will provide an initial
certification acknowledging receipt of the proper number of Contract Files and
that they appear regular on their face on and as of the state of this Agreement.
The Trustee shall, for the benefit of the Holders of the Certificates of such
Series, review, or cause a Custodian on its behalf to review, each Contract File
within 60 days after the execution and delivery of the related Reference
Agreement, to ascertain that all required documents have been executed, received
and recorded, if applicable, and that such documents relate to the Contracts
identified in the Contract Schedule attached to such Reference Agreement. If, in
the course of such review, the Trustee (or any such Custodian) finds any
document or documents constituting a part of a Contract File to be defective in
any material respect, the Trustee shall promptly so notify the Master Servicer
and the Depositor. The Master Servicer shall promptly notify the related
Servicer of such defect and request that such Servicer correct or cure such
defect within 60 days from the date the Master Servicer was notified of such
defect and, if such Servicer does not correct or cure such defect within such
period, then such Servicer, if and to the extent that such Servicer is obligated
to do so under the related Warranty and Servicing Agreement, shall either (a)
substitute for the related Contract a Replacement Contract or Contracts, which
substitution shall be accomplished within the time period specified in the
Reference Agreement, in the manner and subject to the conditions set forth in
this Section and in the Reference Agreement; or
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(b) purchase such Contract from the Trustee within 90 days from the date the
Master Servicer was notified of such defect at the Purchase Price of such
Contract. The Purchase Price for any such Contract shall be deposited by such
Servicer in the Certificate Account maintained by the Master Servicer pursuant
to Section 3.08 hereof and, upon receipt by the Trustee of written notification
of such deposit signed by a Servicing Officer, the Trustee shall release, or
shall cause the related Custodian to release, the related Contract File to such
Servicer, and shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be necessary to vest in such
Servicer or its designee title to any Contract released pursuant hereto. It is
understood and agreed that the obligation of the Servicer to substitute for or
to purchase any Contract as to which a material defect in a constituent document
exists shall constitute the sole remedy respecting such defect available to the
Trustee on behalf of the Certificateholders, except as set forth below.
If so specified in the Reference Agreement, in the event that a Servicer
fails to repurchase any Contract that it is required to purchase pursuant to
this Section 2.02, the Master Servicer shall purchase such Contract at the
Purchase Price and in the manner set forth above, within five Business Days of
the Master Servicer's receipt of written demand therefor from the Trustee. Upon
receipt by the Trustee of written notification of the deposit of the Purchase
Price pursuant to Section 3.08 hereof, signed by a Servicing Officer, the
Trustee shall release, or shall cause the Custodian to release, the related
Contract File to the Master Servicer, and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in the Master Servicer or its designee title to any
Contract purchased pursuant hereto. Notwithstanding anything contained herein or
in such Reference Agreement to the contrary, the Master Servicer shall not be
entitled to substitute a Replacement Contract or Contracts in satisfaction of
such repurchase obligation.
The Trustee shall retain (or to cause a Custodian to retain) possession and
custody of each Contract File in accordance with and subject to the terms and
conditions set forth herein. The Master Servicer shall promptly deliver to the
Trustee, upon the execution or receipt thereof, the originals of any Special
Hazard Insurance Policy, any Pool Insurance Policy, any Performance Bond, any
Alternative Credit Support and any certificates of renewal thereof, and such
other documents or instruments that constitute part of the Contract File that
come into the possession of the Master Servicer from time to time.
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SECTION 2.03. Representations, Warranties and Covenants of the
Master Servicer .
(a) The Master Servicer hereby represents, warrants and covenants to the
Depositor and the Trustee that, as of the date of the Reference Agreement:
(i) the Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is duly authorized and qualified to transact any and all business
contemplated by this Agreement and is, or will be, in compliance with the
laws of any state in which a Manufactured Home is located or is otherwise
not required under applicable law to effect such qualification and, in any
event, is, or will be, in compliance with the laws of any such state, to
the extent necessary to ensure the enforceability of each Contract and the
servicing of the Contracts in accordance with the terms of this Agreement;
(ii) the Master Servicer has the full corporate power and authority to
service each Contract, and to execute, deliver and perform, and to enter
into and consummate the transactions contemplated by this Agreement and has
duly authorized the execution, delivery and performance of this Agreement;
and this Agreement, assuming the due authorization, execution and delivery
thereof by the Depositor and the Trustee, constitutes a legal, valid and
binding obligation of the Master Servicer, enforceable against the Master
Servicer in accordance with its terms, except that (a) the enforceability
thereof may be limited by bankruptcy, insolvency, moratorium, receivership
and other similar laws relating to creditors' rights and (b) the remedy of
specific performance and injunctive and other forms of equitable defenses
and to the discretion of the court before which any proceeding therefor may
be brought;
(iii) neither the execution and delivery of this Agreement by the
Master Servicer, the servicing of the Contracts by the Master Servicer
hereunder, the consummation of any other of the transactions herein
contemplated, nor the fulfillment of or compliance with the terms hereof,
will (A) result in a material breach of any term or provision of the
certificate of incorporation or by-laws of the Master Servicer or (B)
conflict with, result in a material breach, violation or acceleration of,
or result in a default under, the terms of any other agreement or
instrument to which the Master Servicer is a party or by which it may be
bound, or any statute, order or regulation applicable to the Master
Servicer of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Master Servicer; and the
Master Servicer is not a party to, bound by, or in breach or violation of
any indenture or
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other agreement or instrument, or subject to or in violation of any
statute, order or regulation or any court, regulatory body, administrative
agency or governmental body having jurisdiction over it, which materially
and adversely affects, or may in the future materially and adversely
affect, (x) the ability of the Master Servicer to perform its obligations
under this Agreement or (y) the business, operations, financial condition,
properties or assets of the Master Servicer;
(iv) the Master Servicer is, and will remain, subject to supervision
and examination by any state or federal authority as may be applicable and
will remain in good standing and qualified to do business where so required
by applicable law;
(v) no litigation is pending or, to the best of the Master Servicer's
knowledge, threatened, against the Master Servicer that, if determined
adversely to the Master Servicer, would adversely affect the execution,
delivery or enforceability of this Agreement or the ability of the Master
Servicer to service the Contracts or to perform any of its other
obligations hereunder in accordance with the terms hereof or that would
have a material adverse effect on the financial condition of the Master
Servicer;
(vi) the Master Servicer will at all times comply with all reasonable
rules and requirements of the insurer under each Required Insurance Policy;
(vii) no information, certificate of an officer, statement furnished
in writing or report delivered to the Depositor, any affiliate of the
Depositor or the Trustee by the Master Servicer will contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the information, certificate, statement or report not misleading;
(viii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Master Servicer of, or compliance by the Master Servicer
with, this Agreement or the consummation of the transactions contemplated
hereby;
(ix) in the performance of its servicing obligations hereunder, the
Master Servicer will not, by act or omission, materially impair the value
of any Contract; and
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(x) the Master Servicer has examined each existing, and will examine
each new Warranty and Servicing Agreement, and is, or will be, familiar
with the terms thereof. The terms of each existing Warranty and Servicing
Agreement and each Servicer thereunder are acceptable to the Master
Servicer and any new Warranty and Servicing Agreements or Servicers will
comply with the provisions of Sections 3.02 hereof.
(b) With the provisos and limitations as to remedies set forth in this
Section 2.03(b), if so specified in the Reference Agreement, the Master Servicer
hereby represents and warrants to the Depositor and the Trustee with respect to
each Contract that no action has been taken or failed to be taken, no event has
occurred and no state of facts exists or has existed on or prior to the Delivery
Date pursuant to the Reference Agreement (whether or not known to the Master
Servicer on or prior to such date) that has resulted, or that will result, in an
exclusion from denial of, or defense to coverage under a Primary Credit
Insurance Policy for any Contract, the Pool Insurance Policy or the Special
Hazard Insurance Policy (including, without limitation, any exclusions, denials
or defenses that would limit or reduce the availability of the timely payment of
the full amount of the loss otherwise due thereunder to the insured, whether
arising out of actions, representations, errors, omissions, negligence, or fraud
of the Master Servicer, a Servicer of such Contract, the related Obligor or any
party involved in the application for such coverage, including the appraisal,
plans and specifications and other exhibits or documents submitted therewith to
the insurer under such insurance policy, or for any other reason under such
coverage, but not including the failure of such insurer to pay by reason of such
insurer's breach of such insurance policy or such insurer's financial inability
to pay or by reason of a determination that the loss suffered was a loss not
insured by the terms and provisions of such insurance policy), and covenants
that within 90 days of its discovery or its receipt of notice of breach of this
representation and warranty as provided in Section 2.03(c) hereof, the Master
Servicer shall cure such breach in all material respects or, subject to the
limitations set forth in the next following paragraph, shall purchase the
Contract from Trustee; provided, however, that: (1) any such purchase by the
Master Servicer shall be at the Purchase Price and be accomplished in the manner
set forth in Section 2.03(d) hereof; (2) no such purchase shall be required so
long as the Master Servicer either (i) is diligently pursuing remedies against
the appropriate insurer or insurers or against the Servicer of the related
Contract or is contesting in good faith the denial of liability by the
appropriate insurer or insurers and either (A) the related Contract is not in
default with regard to payments due thereunder or (B) delinquent payments of
principal and interest under the related Contract and any premiums on any
applicable Primary Credit Insurance Policy and any related escrow
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payments in respect of such Contract are being advanced on a current basis by
the Master Servicer or the Servicer of the related Contract, or (ii) pays to the
appropriate payee the amount in respect of such Contract that the insurer under
any applicable Primary Credit Insurance Policy, the Pool Insurer, under the Pool
Insurance Policy and the Special Hazard Insurer under the Pool Insurance Policy
would, in the aggregate, be liable to pay, absent a denial of liability by any
of them; (3) any payment made by the Master Servicer pursuant to clause (ii)
above shall be counted as an amount paid by the Master Servicer to purchase
Contracts in determining the limitations stated in the next paragraph of this
Section 2.03(b); and (4) the obligations of the Master Servicer to purchase any
Contract as to which such a breach has occurred and is continuing shall be
subject to the limitations set forth in the next paragraph and shall constitute
the sole remedy against the Master Servicer respecting such breach available to
Certificateholders or the Trustee on behalf of Certificateholders.
In respect of Contracts that the Master Servicer becomes obligated to
purchase solely because of a breach of the representation and warranty set forth
in this Section 2.03(b), the Master Servicer's obligation to purchase shall be
limited to (X) in the first Purchase Year, the purchase of Contracts having an
aggregate Net Purchase Price (as defined below) not exceeding an amount equal to
3% of the aggregate Principal Balance of the Contracts as of the Cut-off Date
specified in the Reference Agreement, (Y) in the second Purchase Year, the
purchase of Contracts having an aggregate Net Purchase Price not exceeding an
amount equal to the lesser of (i) 2% of the aggregate Principal Balance of the
Contracts as of the Cut-off Date and (ii) the excess of the maximum amount set
forth in clause (X) above over the aggregate Net Purchase Price of the Contracts
that the Master Servicer has become obligated to purchase during the first
Purchase Year and has purchased and (Z) in the third through fifth Purchase
Years, inclusive and on a cumulative basis, the purchase of Contracts having an
aggregate Net Purchase Price not exceeding an amount equal to the lesser of (i)
1% of the aggregate Principal Balance of the Contracts as of the Cut-off Date
and (ii) the excess of the maximum amount set forth in clause (Y) above over the
aggregate Ne Purchaser Price of the Contracts that the Master Servicer has
become obligated to purchase during the second Purchase Year and has purchased.
After the fifth Purchase Year, the Master Servicer shall not be obligated to
purchase any Contracts solely because of a breach of the representation and
warranty set forth in this Section 2.03(b). The Net Purchase Price of such a
Contract shall be the Purchase Price less the amount of Liquidation Proceeds, if
any, realized by the Master Servicer from any source (including, without
limitation, any insurer or the related Servicer) in the disposition of such
Contract net of related Liquidation Expenses incurred by the Master Servicer.
For the purpose of determining the Purchase Year in which the Master Servicer is
or is not, as
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the case may be, obligated to purchase a Contract in accordance with this
paragraph and for the purpose of determining the aggregate Net Purchase Price of
Contracts to be purchased in a Purchase Year or Purchase Years, as the case may
be, in accordance with this paragraph (the purchase of a particular Contract
being at the Purchase Price and being accomplished in the manner set forth in
Section 2.03(d) hereof), the date of a purchase and the date on which
Liquidation Proceeds are realized by the Master Servicer in the disposition of a
Contract shall be deemed to be the date on which the Master Servicer received
notice of or discovered the related breach of the representation or warranty set
forth in this Section 2.03(b).
(c) Upon discovery by the Depositor, the Master Servicer or the Trustee of
a breach of the representation and warranty set forth in Section 2.03(a) or
2.03(b) here of that materially and adversely affects the interests of the
Certificateholders in the related Contract, the party discovering such breach
shall give prompt written notice to the other parties.
(d) The Purchase Price for any Contract purchased by the Master Servicer
pursuant to Section 2.03(a) or 2.03(b) hereof shall be deposited by the Master
Servicer in the Certificate Account pursuant to Section 3.08 hereof, and, upon
receipt by the Trustee of written notification of such deposit signed by a
Servicing Officer, the Trustee shall release (or shall cause the applicable
Custodian to release) the related Contract File to the Master Servicer and shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as shall be necessary to vest title in the Master Servicer or
its designee, as the case may be, in any Contract released pursuant thereto.
Notwithstanding anything contained herein or in the Reference Agreement to the
contrary, the Master Servicer shall not be entitled to substitute a Replacement
Contract or Contracts in satisfaction of such repurchase obligation.
(e) The representations and warranties set forth in Section 2.03(a) or
2.03(b) hereof shall survive delivery of the respective Contract Files to the
Trustee, or to a Custodian, as the duly appointed agent of the Trustee.
[SECTION 2.04. Representations, Warranties, and Covenants of the
[Depositor] as to the Contracts
The [Depositor] hereby represents and warrants to the Trustee with respect
to each Contract as of the date of the Reference Agreement, unless otherwise
specified in such Reference Agreement, that:
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(i) as of the Cut-off Date specified in the Reference Agreement, no
Contract is more than 30 days delinquent in payment of principal and
interest;
(ii) the information set forth in Contract Schedule attached to the
Reference Agreement is true and correct in all material respects at the
date or dates respecting which such information is furnished;
(iii) the terms of the Contract have not been waived, altered or
modified in any respect, except by instruments or documents identified in
the Contract File;
(iv) the Contract is the legal, valid and binding obligation of the
Obligor thereunder and is enforceable in accordance with its terms (except
as such enforceability may be limited by laws affecting the enforcement of
creditors' rights generally);
(v) the Contract is not subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, except for any
right of set-off provided to the Obligor as a matter of applicable state
and federal law or regulation, nor will the operation of any of the terms
of the contract, or the exercise of any right thereunder, render the
Contract either unenforceable, in whole or in part, or subject to any right
of rescission or set-off, except as stated above, counterclaim or defense,
and no such right of rescission, set-off, counterclaim or defense has been
asserted with respect thereto as of the date of this Agreement;
(vi) the Manufactured Home securing the Contract is covered by a
[_____] Insurance Policy in the amount required by Section [______]. All
premiums now due on such insurance have been paid in full,
(vii) the Contract was originated by a manufactured housing dealer in
the regular course of its business and was purchased by [__________] in the
regular course of its business, or the Contract was originated by the
[__________] in the regular course of its business;
(viii) the Contract was not originated in and is not subject to the
laws of any jurisdiction whose laws would make the transfer of the Contract
from the Depositor to the Trustee or under this Agreement or pursuant to
transfers of Certificates unlawful;
(ix) all requirements of any federal, state or local law, including,
without limitation, usury, truth in lending and equal credit opportunity
laws, applicable to the Contract have been complied with;
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(x) the Contract has not been satisfied or subordinated in whole or in
part or rescinded, and the Manufactured Home securing the Contract has not
been released from the lien of the Contract in whole or in part;
(xi) the Contract creates a valid, subsisting and enforceable first
priority security interest in favor of the Depositor in the Manufactured
Home covered thereby, such security interest has been assigned by the
Company to the Trust, and the Trustee will have a valid and perfected first
priority security interest in such Manufactured Home. The Company will
maintain such first priority security interest so long as such Contract is
the property of the Trust;
(xii) all parties to the Contract had the capacity to execute the
Contract;
(xiii) the [Depositor] purchased the Contract for value and took
possession thereof in the ordinary course of its business, without
knowledge that the Contract was subject to a security interest. No Contract
has been sold, assigned or pledged by the [Depositor] to any other person,
and immediately prior to the transfer of the Contract to the Trust by the
[Depositor], the [Depositor] had good and marketable title thereto free and
clear of any encumbrance, equity, loan, pledge, charge, claim or security
interest and was the sole owner thereof with full right to transfer the
Contract to the Trust;
(xiv) as of the Cut-off Date, there was no default, breach, violation
or event permitting acceleration existing under the Contract and no event
which, with notice and the expiration of any grace or cure period, would
constitute such a default, breach, violation or event permitting
acceleration under such Contract [except any payment delinquencies
permitted by clause (b) above), and the [Depositor] has not waived any such
default, breach, violation or event permitting acceleration except any
payment delinquencies permitted by clause (b) above;
(xv) as of the Closing Date there are, to the best of the
[Depositor's] knowledge, no liens or claims which have been filed for work,
labor or materials affecting the Manufactured Home securing the Contract
which are or may be liens prior to, or equal or coordinate with, the lien
of the Contract;
(xvi) the Contract contains customary and enforceable provisions such
as to render the rights and remedies of the holder thereof adequate for the
realization against the collateral of the benefits of the security;
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(xvii) there is only one original executed Contract, which has been
endorsed in blank and delivered to the Trustee on or before the Closing
Date;
(xviii) at the time of origination of the Contract, the related
Manufactured Home was such Obligor's primary residence;
(xix) the related Manufactured Home is not considered or classified as
part of the real estate on which it is located under the laws of the
jurisdiction in which it is located and, as of the Closing Date, such
Manufactured Home is, to the best of the Company's knowledge, free of
damage and in good repair;
(xx) if the related Manufactured Home is located in a state in which
notation of a security interest on the title document is required or
permitted to perfect such security interest, the Title Documents show, or
if a new or replacement title document with respect to such Manufactured
Home is being applied for such Title Document will be issued within 180
days and will show, the [Depositor] as the holder of a first priority
security interest in such Manufactured Home. If the related Manufactured
Home is located in a state in which the filing of a financing statement or
the making of a future filing under the UCC is required to perfect a
security interest in manufactured housing, such filings or recordings have
been duly made and show the [Depositor] as secured party. In either case,
the Trustee has the same rights as the secured party of record would have
(if such secured party were still the owner of the Contract against all
Persons claiming an interest in such Manufactured Home; and
(xxi) each Contract is a "qualified mortgage" under Section
850G9(a)(3) of the Code.]
SECTION 2.05. Representations and Warranties of the [Depositor]
Regarding the Contracts in the Aggregate.
The [Depositor] represents and warrants that:
(i) the Contracts have the following characteristics as of the Cut-off
Date: (i) not more than ___% of the Contracts by remaining principal
balance are located in any one state; (ii) no contract has a remaining
maturity of less than ____ months or more than ___ months; (iii) the final
Due Date on the Contract with the latest maturity is in _________, _____;
(iv) approximately ___% of the Principal Balance of the Contracts as of the
Cut-off Date is attributable to loans for purchases of new Manufactured
Homes and approximately ___% is attributable to
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loans for purchases of used Manufactured Homes; and (v) no Contract was
originated before __________, _____;
(ii) the Computer Tape made available by the [_______________] as of
the close of business on ___________________ was complete and accurate as
of its date and includes a description of the same Contracts that are
described in the Contract Schedule;
(iii) By the Closing Date, the Company has caused the portions of its
records relating to the Contracts constituting part of the Trust to be
clearly and unambiguously marked to indicate that such Contracts constitute
part of the Trust Fund;
(iv) No adverse selection procedures have been employed in selecting
the Contracts.]
SECTION 2.06. Representations and Warranties of the [Depositor]
Regarding the Contract Files.
The [Depositor] represents and warrants that:
(i) immediately prior to the Closing Date, the [Depositor] will have
possession of each original Contract and the related Contract File, and
there are and there will be no custodial agreements in effect materially
and adversely affecting the rights of the [Depositor] or the [Depositor] to
make, or cause to be made, any delivery required hereunder;
(ii) the transfer, assignment and conveyance of the Contracts and the
Contract Files by [______________] to the [Depositor] and by the
[Depositor] pursuant to this Agreement are not subject to the bulk transfer
or any similar statutory provisions in effect in any applicable
jurisdiction.]
SECTION 2.07. Repurchases of Contracts for Breach of
Representations and Warranties [by the
Depositor].
It is understood and agreed that the representations and warranties set
forth in Section[s] 2.04 [2.05 and 2.06] shall survive delivery of the
respective Contract Files to the Trustee or to a custodian, as the duly
appointed agent of the Trustee.
Upon discovery by the Depositor, the Master Servicer or the Trustee (or
upon notice thereof from any Certificateholder) of a breach or breaches of any
of the representations and warranties set forth in Section[s] 2.04[, 2.05 and
2.06] that materially and adversely affects, in the reasonable judgment of the
Trustee, the interests of the Certificateholders in the
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related contract, the party discovering such breach or breaches shall give
prompt written notice to the other parties. The Master Servicer shall promptly
notify the related Servicer of such breach and request that such Servicer
correct or cure such breach within 60 days from the date the Master Servicer was
notified of such breach and, if such Servicer does not correct or cure such
breach with such period, or if such breach cannot be so cured, that such
Servicer, if and to the extent that such Servicer is obligated to do so under
the related Warranty and Servicing Agreement, either (a) remove such Contract (a
"Deleted Contract") from the Trust Fund and substitute in its place a
Replacement Contract or Contracts, which substitution shall be accomplished
within the time period specified in the Reference Agreement, in the manner and
subject to the conditions set forth in this Section and in the Reference
Agreement; or (b) repurchase the affected Contract or Contracts from the
Trustee. Any such purchase by such Servicer shall be at the Purchase Price and
be accomplished in the manner set forth in Section 2.02 hereof. Any such
substitution shall be accomplished in the manner set forth in the following
paragraph, subject to the terms and conditions set forth in the Reference
Agreement with respect to such substitution.
Subject to the terms and conditions set forth in the Reference Agreement
with respect to such substitution, as to any Replacement Contract or Contracts,
the related Servicer shall deliver to the Trustee (or to a Custodian, as the
duly appointed agent of the Trustee) for such Replacement Contract or Contracts,
the Title Documents, the related assignment of the contract, and such other
documents and agreements as are required by Section 2.01, with the title
Documents endorsed as required by Section 2.01. No substitution will be made in
any calendar month after the Distribution Date for such month. Monthly payments
due with respect to Replacement Contracts in the month of substitution shall not
be part of the related Trust Fund and will be retained by the Master Servicer
and remitted by the Master Servicer to the related Servicer on the next
succeeding Distribution Date. For the month of substitution, distributions to
Certificateholders will include the monthly payment due on such Deleted contract
for such month and thereafter such Servicer shall be entitled to retain all
amounts received in respect of such Deleted Contract. The Trustee (or the
related Custodian, as the duly appointed agent of the Trustee) shall amend the
Contract Schedule to reflect the removal of such Deleted Contract and the
substitution of the Replacement Contract or Contracts. Upon such substitution,
the Replacement Contract or Contracts shall be subject to the terms of this
Agreement and the related Warranty and Servicing Agreement in all respects, the
Servicer shall be deemed to have made the representations and warranties with
respect to such Contract contained in the related Warranty and Servicing
Agreements and the Depositor and the Master Servicer shall be deemed to have
made with respect to such Replacement Contract or Contracts, as of the date of
substitution, the
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covenants, representations and warranties set forth in this section as to the
Depositor and Section 2.03 as to the Master Servicer. Upon any such
substitution, the Trustee shall release, or shall cause the applicable Custodian
to release, the Contract File relating to such Deleted Contract to the related
Servicer and shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be necessary to vest title
in such Servicer or its designee, as the case may be, to any Deleted Contract
substituted for pursuant to Section 2.07.
Subject to the terms and conditions set forth in the Reference Agreement
with respect to such substitution, for any month in which a Servicer substitutes
one or more Replacement Contracts for one or more Deleted Contracts, as of the
date of substitution is less than the aggregate Principal Balance of all such
Deleted Contracts (after application of scheduled principal portion of the
monthly payments due in the month of substitution). The amount of such shortage
shall be deposited into the Certificate Account by such Servicer in the month of
substitution pursuant to Section 3.08, without any reimbursement therefor.
In the event that a Servicer shall have repurchased a Contract, upon
receipt by the Trustee of written notification of the deposit of the Purchase
Price pursuant to Section 3.08, signed by a Servicing Officer, the Trustee shall
release, or shall cause the Custodian to release, the related Contract File to
such Servicer and the Trustee shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall be necessary to
vest title in such Servicer or its designee, as the case may be, to any contract
purchased pursuant to Section 2.07. In the event that the related Servicer does
not repurchase or substitute for a Contract as to which a breach has occurred
and is continuing, the Depositor shall either repurchase such Contract or
substitute a Replacement Contract, in the manner specified in Section 2.07. It
is understood and agreed that the obligation of the related Servicer or the
Depositor to repurchase any Contract as to which a breach has occurred and is
continuing shall constitute the sole remedy respecting such breach available to
Certificateholders or the Trustee on behalf of Certificateholders, except as
provided in Section 2.03(b).
SECTION 2.08. Representation and Warranties of Servicers.
(a) Upon the discovery by the Depositor, the Master Servicer or the Trustee
of a breach or breaches of any of the representations and warranties made in a
Warranty and Servicing Agreement in respect of any Contract, which breach or
breaches, individually or in the aggregate, materially and adversely affect, in
the reasonable judgment of the Trustee, the interests of the Certificateholders,
the party discovering such breach
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shall give prompt written notice to the other parties. The Master Servicer shall
promptly notify the related Servicer of such breach and request that such
Servicer cure such breach within 90 days from the date the Master Servicer
discovers, or was notified of, such breach, and if such Servicer does not cure
such breach in all material respects, then such Servicer, if and to the extent
that such Servicer is obligated to do so under the related Warranty and
Servicing Agreement, shall either (a) substitute a Replacement Contract or
Contracts for the related Contract, which substitution must occur within the
time period specified in the Reference Agreement and shall be subject to the
conditions set forth in section 2.07 and the terms and conditions with respect
to such substitution set forth in the Reference Agreement, or (b) purchase such
Contract from the Trustee of written notification of the deposit of the Purchase
Price pursuant to Section 3.08 by the Servicer signed by a Servicing Officer,
the Trustee shall release or shall cause the Custodian to release the related
Contract File to such Servicer and shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall be necessary to
vest title to any Contract purchased pursuant to this Section 2.08(a) in such
Servicer or its respective designees. Except as set forth in 2.039b) hereof, it
is understood and agreed that the obligation of such Servicer to substitute for
or to purchase any Contract as to which such breach (or breaches) has occurred
and is continuing shall constitute the sole remedy respecting such breach or
breaches available to the Trustee on behalf of the Certificateholders.
(b) In the case of a Contract that the Master Servicer becomes obligated to
purchase pursuant to Section 2.03(b) hereof and a Servicer becomes obligated to
purchase pursuant to Section 2.08(a) hereof, the Master Servicer shall, so long
as all advances are being made in respect of such Contract pursuant to Section
3.09, Section 4.01 or Section 4.03 hereof, first require the Servicer to
substitute for or to purchase such Contract pursuant to Section 2.08(a) hereof,
second, if such Servicer has defaulted in its obligation to substitute for or to
purchase such Contract (but without relieving it of its obligation to make such
purchase), present claims under the relevant Required Insurance Policies to the
extent the Master Servicer believes any such Required Insurance Policy may cover
the loss in respect of such Contract is not fully covered by the Required
Insurance Policies, subject to the limitations set forth in Section 2.03(b)
hereof, purchase such Contract in accordance with Sections 2.03(b) and 2.03(b)
hereof. If all advances are not being made in respect of such Contract pursuant
to Section 3.09, Section 4.01 or Section 4.03 hereof, the Servicer or Seller
does not substitute for or purchase such Contract pursuant to Section 2.08(a)
hereof within seven days after such request and any claims presented under any
Required Insurance Policies in accordance with the next preceding sentence are
not paid in full within 14 days after such request,
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the Master Servicer shall, hereof, purchase such Contract in accordance with
Sections 2.03(b) and 2.03(d) hereof.
SECTION 2.09. Assignment of Rights under Warranty and
Servicing Agreements.
The Depositor hereby assigns to the Trustees all its rights, title and
interest in respect of each Warranty and Servicing Agreement applicable to a
Contract identified in the Contract Schedule attached to the Reference Agreement
insofar as such Warranty and Servicing Agreement relates to the representations
and warranties made by the related Servicer in respect of such Contract and any
remedies provided thereunder for any breach of such representations and
warranties, as well as insofar as the provisions of such Warranty and Servicing
Agreement relate to the administration and servicing of the Contracts serviced
thereunder, which right, title and interest may be enforced by the Master
Servicer on behalf of the Depositor, the Trustee and the Certificateholders. The
Master Servicer shall enforce the provisions of the Warranty and Servicing
Agreements relating to the administration and servicing of the Contracts
serviced thereunder in accordance with the provisions of Article III.
ARTICLE III.
ADMINISTRATION AND SERVICING
OF CONTRACTS
SECTION 3.01. Master Servicer to Act as Servicer.
For and on behalf of the Trustee and the Certificateholders, the Master
Servicer shall service and administer the Contracts in accordance with prudent
servicing standards and procedures generally accepted in the manufactured home
finance industry, except as otherwise expressly provided in this Agreement. In
connection with such servicing and administration, the Master Servicer, subject
to the immediately preceding sentence shall have full power and authority,
acting alone and/or through Servicers as provided in Section 3.02 hereof, to do
or cause to be done any and all things that it may deem necessary or desirable
in connection with such servicing and administration, including but not limited
to the power and authority, subject to the terms hereof (i) to execute and
deliver, on behalf of the Certificateholders and the Trustee, customary consents
or waivers and others instruments and documents, (ii) to consent to transfers of
any Manufactured Home and assumptions of the Contracts, (iii) to collect any
Insurance Proceeds and Liquidation Proceeds, and (iv) to effectuate foreclosure
or other conversion of the ownership of the Manufactured Home securing any
Contract; provided that the Master Servicer shall take no action that is
inconsistent with or
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prejudices the interests of the Trustee or the Certificateholders in any
Contract or the rights and interests of the Depositor, the Trustee and the
Certificateholders under this Agreement. Without limiting the generality of the
foregoing, the Master Servicer, in its own name or in the name of the Depositor
and the Trustee, is hereby authorized and empowered by the Depositor and the
Trustee, when the Master Servicer believes it appropriate in its best judgment,
to execute and deliver, on behalf of the Trustee, the Depositor, the
Certificateholders or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Contracts, and with respect to the
Manufactured Homes. The Depositor and the Trustee shall furnish the Master
Servicer with any powers of attorney and other documents necessary to service
and administer the Contracts.
In accordance with the standards of the preceding paragraph, the Master
Servicer, with respect to any Nonsubserviced Contract and otherwise, to the
extent the related Servicer does not do so, shall advance or cause to be
advanced funds as necessary for the purpose of effecting the timely payment of
taxes and assessments on the Manufactured Homes, which advances shall be
reimbursable in the first instance from related collections from the Obligors
pursuant to Section 3.08 hereof, and further as Liquidation Expenses as provided
in Section 3.16 hereof and may be withdrawn from the Certificate Account
pursuant to Section 3.12 hereof. All costs incurred by the Master Servicer or by
the related Servicers in effecting the timely payment of taxes and assessments
on the Manufactured Homes shall not, for the purpose of calculating monthly
distributions to the Certificateholders, be added to the Principal Balance under
the related Contracts, notwithstanding that the terms of such Contracts so
permit.
In the event that the Depositor elects to treat the related Trust Fund as a
REMIC as defined in the Code in the Reference Agreement the Master Servicer
shall (unless otherwise specified in such Reference Agreement) act as agent on
behalf of the Trust and that in such capacity it shall: (a) prepare and file, or
cause to be prepared and filed, a federal tax return using a calendar year as
the taxable year for the Trust Fund when and as required by the applicable
provisions of the Code; (b) make an election, on behalf of the Trust Fund, to be
treated as a REMIC on the federal tax return of the Trust Fund for its first
taxable year, in accordance with the applicable provisions of the Code; (c)
prepare and forward, or cause to be prepared and forwarded, to the
Certificateholders all information reports as and when required to be provided
to them in accordance with the applicable provisions of the Code; (d) conduct
the affairs of the Trust Fund so as to maintain the status thereof as a REMIC
under the applicable provisions of the Code; (e) not knowingly or intentionally
take any action or omit to take any action that would cause the termination of
the REMIC status of the Trust
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Fund; and (f) pay the amount of the any federal income tax, including prohibited
transaction penalty taxes, imposed on the Trust Fund when and as the same shall
be due and payable.
SECTION 3.02. Enforcement of the Obligations of Servicers.
(a) For purposes of this Agreement, the Master Servicer shall be deemed to
have received the payments on the Contracts referred to in Sections 3.08, 3.09
and 3.10 hereof when the related Servicer has received such payments and shall
remain obligated to deposit such payments in accordance with Section 3.08, 3.09
and 3.10 hereof, regardless of whether such payments are remitted by the
Servicer to the Master Servicer, subject to the provisions of Section 4.03. The
Master Servicer and the Servicer may enter into amendments to the Warranty and
Servicing Agreements; provided, however, that any such amendments shall be
otherwise consistent and shall not violate the provisions of this Agreement; and
provided further, that the substance of any such material amendment or material
change shall be transmitted promptly to the Trustee.
(b) As part of its servicing activities hereunder, the Master Servicer, for
the benefit of the Depositor, the Trustee and the Certificateholders, shall
supervise, administer, monitor and oversee the servicing of the Contracts that
are not serviced by it directly, and shall enforce the obligations of each
Servicer under the related Warranty and Servicing Agreement, including, without
limitation, the obligation of the Servicer to make advances in respect of
delinquent payments as required by a Warranty and Servicing Agreement,
including, without limitation, the obligation of the Servicer to make advances
in respect of delinquent payments as required by Warranty and Servicing
Agreement, to purchase a Contract on account of defective documentation, as
described in Section 2.02 hereof, or on account of a breach of a representation
or warranty, as described in Section 2.05(a) hereof. Such enforcement, shall
include, without limitation, the legal prosecution of claims, termination of
Warranty and Servicing Agreement, as appropriate, and the pursuit of other
appropriate remedies, and shall be in such form and carried out to such an
extent and at such time as the Master Servicer, in its good faith business
judgment, would require were it the owner of the related Contracts. The Master
Servicer shall pay the costs of such enforcement at its own expense, but shall
be reimbursed therefor only (i) from a general recovery resulting from such
enforcement only to the extent, if any, that such recovery exceeds all amounts
due in respect of the related Contracts or (ii) from a specific recovery of
costs, expenses or attorneys fees against the party against whom such
enforcement is directed.
(c) During the term of the Reference Agreement, the Master Servicer shall
consult fully with each of the Servicers as may be necessary from time to time
to perform and carry out the
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Master Servicer's obligations hereunder and receive, review and evaluate all
reports, information and other data that are provided to the Master Servicer by
each Servicer and otherwise exercise reasonable efforts to cause each Servicer
to perform and observe the covenants, obligations and conditions to be performed
or observed by it under its Warranty and Servicing Agreement. If any Servicer
materially breaches or fails to perform or observe any material obligations or
conditions of its Warranty and Sub- servicing Agreement, the Master Servicer
shall promptly deliver to the Depositor and to the Trustee and Officers'
Certificate certifying that such Servicer is in default and describing the
events and circumstances giving rise to the default and what action (if any) has
been, or is to be, taken by the Servicer to cure the default and setting forth
the action to be taken by the Master Servicer.
SECTION 3.03. Successor Services.
Upon the request of a Servicer, the Master Servicer or the related Servicer
shall be entitled to terminate or assign the rights of the Servicer under the
related Warranty and Servicing Agreement in accordance with the terms and
conditions of such Warranty and Servicing Agreement. The Master Servicer will
not unreasonably withhold its consent to the transfer of the servicing
obligations and without any limitation by virtue of this Agreement; provided,
however, that in the event of termination or assignment of the rights of the
Servicer under any Warranty and Servicing Agreement by the Master Servicer or
the Servicer, the Master Servicer shall act in accordance with Section 3.04; and
provided, further that no assignment of the Servicer's rights and obligations
under a Warranty and Servicing Agreement may be effected without the consent of
the Trustee. No such termination shall effect the right of a Servicer to receive
any retained yield provided for in the Warranty and Servicing Agreement.
SECTION 3.04. Termination of the Rights of Servicers.
If the Master Servicer terminates the rights of a Servicer under any
Warranty and Servicing Agreement, the Master Servicer shall assume the
obligations of the related Servicer under the terminated Warranty and Servicing
Agreement, or at the Master Servicer's election, enter into a substitute
servicing agreement with another manufacture housing finance service company
acceptable to the Trustee and the Master Servicer under which such manufacture
housing finance service company shall assume, satisfy, perform and carry out all
liabilities, duties, responsibilities and obligations that are to be, or
otherwise were to have been, satisfied, performed and carried out by the
terminated Servicer, regardless of whether such liabilities, duties,
responsibilities or obligations shall have accrued before or after the
termination of the rights of such Servicer, including but not limited to, the
Servicer's obligations to
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purchase certain Contracts and any other liabilities or obligations of the
Servicer arising from the breach of any representations and warranties contained
in the related Warranty and Servicing Agreement; provided, however, that any
such substitute servicer and any such substitute servicing shall satisfy the
requirements of Section 3.02. If the Master Servicer does not elect to enter
into a substitute servicing agreement with a successor servicer, the Master
Servicer shall nevertheless assume, satisfy, perform and carry out all
liabilities, duties, responsibilities and obligations which otherwise were to
have been satisfied, performed and carried out by the servicer under such
terminated Warranty and Servicing Agreement until a substitute Servicer has been
appointed and designated and a substitute servicing agreement has been entered
into by the Master Servicer and such substitute Servicer.
SECTION 3.05. Liability of the Master Servicer.
Notwithstanding the provisions of any Warranty and Servicing Agreement, any
of the provisions of this Agreement relating to agreements or arrangements
between the Master Servicer or a Servicer or reference to actions taken through
a Servicer or otherwise, the Master Servicer shall remain obligated and liable
to the Depositor, the Trustee and the Certificateholders of the related Series
for the servicing and administering of the Contracts included in the Trust Fund
for such Series in accordance with the provisions of this Agreement without
diminution of such obligation or liability by virtue of such Warranty and
Servicing Agreements or agreements or arrangements or by virtue of
indemnification from the Servicer and to the same extent and under the same
terms and conditions as if the Master Servicer alone were servicing and
administering the Contracts. The Master Servicer shall be entitled to enter into
any agreement with the Depositor or a Servicer for indemnification of the Master
Servicer and nothing contained in this Agreement shall be deemed to limit or
modify such indemnification.
SECTION 3.06. Rights of the Depositor and the Trustee In Respect
of the Master Servicer.
The Master Servicer shall afford the Depositor and the Trustee, upon
reasonable notice, during normal business hours, access to all records
maintained by the Master Servicer in respect of its rights and obligations
hereunder and access to officers of the Master Servicer responsible for such
obligations. The Depositor may, but is not obligated to, enforce the obligations
of the Master Servicer hereunder and may, but is not obligated to, perform, or
cause a designee to perform, any defaulted obligation of the Master Servicer
hereunder or exercise the rights of the Master Servicer hereunder; provided that
the Master Servicer shall not be relieved of any of its obligations hereunder by
virtue of such performance by the Depositor or its
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designee. The Depositor shall not have any responsibility or liability for any
action or failure to act by the Master Servicer and is not obligated to
supervise the performance of the Master Servicer hereunder or otherwise.
SECTION 3.07. Trustee to Act as Servicer.
In the event that the Master Servicer shall for any reason no longer be the
Master Servicer hereunder (including by reason of an Event of Default), the
Trustee or its designee shall thereupon assume all of the rights and obligations
of the Master Servicer under each Warranty and Servicing Agreement that may have
been assigned to the Trustee pursuant to Section 2.06 hereof or any substitute
servicing agreement that may have been entered into by the Master Servicer
pursuant to Section 3.04 hereof. The Trustee, its designee or any successor
master servicer shall be deemed to have assumed all of the Master Servicer's
interest therein and to have replaced the Master Servicer under each Warranty
and Servicing Agreement or substitute servicing agreement, except that the
Master Servicer shall not thereby be relieved of any liability or obligations
under the Warranty and Servicing Agreement or substitute servicing agreement.
The Master Servicer shall, upon request of the Trustee, but at the expense
of the Master Servicer, deliver to the assuming party all documents and records
relating to each Warranty and Servicing Agreement or substitute servicing
agreement and the Contracts then being serviced thereunder and an accounting of
amounts collected and held by it and otherwise use its best efforts to effect
the orderly and efficient transfer of the Warranty and Servicing Agreement or
substitute servicing agreement to the assuming party.
SECTION 3.08. Collection of Contract Payments; Certificate
Account.
The Master Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Contracts and shall, to the
extent such procedures shall be consistent with this Agreement and the terms and
provisions of the Pool Insurance Policy, the Special Hazard Insurance Policy,
any related Primary Credit Insurance Policy, Letters of Credit or any
Alternative Credit Support, follow such collection procedures as it follows with
respect to installment sales contracts or installment loan agreements comparable
to the Contracts and held in its own portfolio and serviced by the Master
Servicer. Consistent with the foregoing, the Master Servicer may at its
discretion (i) waive any late payment charge or any prepayment charge or penalty
interest in connection with the prepayment of a Contract and (ii) only upon
determining that the coverage of such Mortgage Loan by the Pool Insurance
Policy, the Special Hazard Insurance Policy, any related Primary Credit
Insurance Policy, Letter of Credit or Alternative Credit Support, will not be
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affected, extend the due dates for payments due on a Contract for a period not
greater than 125 days. In the event of any such arrangement, the Master Servicer
shall make timely advances on the related Contract during the scheduled period
in accordance with the amortization schedule of such Contract without
modification thereof by reason of such arrangements.
The Master Servicer shall establish and maintain, in the name of the
Trustee on behalf of the Certificateholders, the Certificate Account, in which
the Master Servicer, except as otherwise set forth in the Reference Agreement,
shall deposit on a daily basis, or as and when received from the Servicers
except as otherwise specifically provided herein, the following payments and
collections received or made by it subsequent to the Cut-off Date (other than in
respect of principal of and interest on the Contracts due on or before the
Cut-off Date):
(i) all payments on account of principal, including Principal
Prepayments, on the Contracts;
(ii) all payments on account of interest (net of any portion thereof
retained by the related Servicer, if any, as servicing compensation and any
retained yield payable to the Servicer) on the Contracts;
(iii) all Insurance Proceeds and Liquidation Proceeds, other than
proceeds to be applied to the restoration or repair of the Manufactured
Homes or released to the Obligor in accordance with the Master Servicer's
normal servicing procedures;
(iv) all amounts required to be deposited therein from the Reserve
Fund pursuant to Section 3.25 and the Reference Agreement;
(v) all payments received by the Trustee under any Letter of Credit
and any payments under any Alternative Credit Support;
(vi) all Monthly Advances made by the Master Servicer pursuant to
Sections 4.01, 4.03 or 4.05 hereof and all Servicer Advances, as described
in Section 3.09 hereof;
(vii) any amount required to be deposited by the Master Servicer
pursuant to the second succeeding paragraph of this Section 3.08 in
connection with any losses on Eligible Investments;
(viii) any amounts required to be deposited by the Master Servicer
pursuant to Sections 3.13, 3.14 and 3.23 hereof;
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(ix) all proceeds of any Contracts or property acquired in respect of
the Contracts purchased pursuant to Sections 2.02, 2.07, 2.08, 3.15 or 9.01
hereof and all amounts required to be deposited in connection with the
substitution of Replacement Contracts pursuant to Sections 2.02, 2.07 or
2.08 hereof; and
(x) any Buydown Funds and _______ required to be deposited by the
Master Servicer in the Certificate Account pursuant to Section 3.26 hereof.
The foregoing requirements for deposit by the Master Servicer in the Certificate
Account shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, payments in the nature of prepayment
or late payment charges or assumption fees need not be deposited by the Master
Servicer in the Certificate Account. In the event that the Master Servicer shall
deposit in the Certificate Account any amount not required to be deposited
therein, it may at any time withdraw such amount from the Certificate Account,
any provision herein to the contrary notwithstanding. Such withdrawal may be
accomplished by delivering an Officers' Certificate to the Trustee which
describes the amounts deposited in error in the Certificate Account. If the
facts set forth on the face of such Officer's Certificate indicate that amounts
deposited were not required to be deposited under the terms of this Section
3.08, the Trustee shall, in writing, authorize the Master Servicer to withdraw
such amount from the Certificate Account. All funds deposited by the Master
Servicer in the Certificate Account shall be held by the Master Servicer in
trust for the Certificateholders until disbursed in accordance with the
Reference Agreement or withdrawn in accordance with Section 3.12.
The Master Servicer may cause the institution maintaining the Certificate
Account to invest the funds in the Certificate Account in Eligible Investments,
which shall mature not later than the Business Day next preceding the
Distribution Date next following the date of such investment (except that if
such Eligible Investment is an obligation of the institution that maintains the
Certificate Account, then such Eligible Investment shall mature not later than
such Distribution Date) and shall not be sold or disposed of prior to its
maturity. All such Eligible Investments shall be made in the name of the Trustee
(in its capacity as such) or its nominee. All income and gain realized from any
such investment shall be for the benefit of the Master Servicer and shall be
subject to its withdrawal or order from time to time. The amount of any losses
incurred in respect of any such investments shall be deposited in the
Certificate Account by the Master Servicer out of its own funds immediately as
realized.
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The Master Servicer shall give notice to the Trustee and the Depositor of
the location of the Certificate Account, and of any change thereof, prior to the
use thereof.
If so specified in the Reference Agreement with respect to a Series,
amounts to be deposited in the Certificate Account pursuant to this Section 3.08
shall instead be deposited by the Master Servicer in a Custodial Account and
remitted, net of amounts withdrawn pursuant to Section 3.12 hereof, by wire
transfer of immediately available funds to the Certificate Account established
by the Trustee pursuant to the Reference Agreement on the date specified in such
Reference Agreement.
SECTION 3.09. Servicing Accounts.
In those cases where a Servicer is servicing a Contract pursuant to a
Warranty and Servicing Agreement, the Servicer will, pursuant to the Warranty
and Servicing Agreement, be required to establish and maintain one or more
Servicing Accounts. The Servicer will be required thereby to deposit into the
Servicing Account on a daily basis all proceeds of Contracts received by the
Servicer, subject to withdrawal to the extent permitted by such Warranty and
Servicing Agreement. All amounts held in the Servicing Accounts shall be held in
trust for the Trustee for the benefit of the Certificateholders. On the Servicer
Remittance date, the Servicer will, pursuant to the related Warranty and
Servicing Agreement, be required to remit to the Master Servicer for deposit in
the Certificate Account an amount equal to the sum of (i) all amounts received
by the Servicer with respect to the Contracts serviced by it as of the Servicer
Remittance Date, except (a) any monthly payment prepaid for a Due Date
subsequent to the month in which the Servicer Remittance Date occurs, (b) any
amounts received by such Servicer with respect to such Contracts that constitute
a late recovery with respect to an advance previously made by such Servicer with
respect to such Contracts, and (c) any Retained Yield payable to such Servicer
under the terms of such Warranty and Servicing Agreement; (ii) all partial
Principal Prepayments received in the calendar month prior to the month of the
Servicer Remittance Date or applied as of the Due Date in the month of the
Servicer Remittance Date; (iii) all Principal Prepayments in full received in
the calendar month prior to the month of the Servicer Remittance Date, in each
case together with a full month's interest thereon at the APR (net of the
related servicing compensation and any Retained Yield payable to such Servicer
under the terms of such Warranty and Servicing Agreement) whether or not
received from the Obligor; (iv) all Insurance Proceeds and Liquidation Proceeds
(net of Liquidation Expenses) received in the calendar month prior to the month
of the Servicer Remittance Date; and (v) with respect to each Contract for which
the monthly payment due on the immediately preceding Due Date was delinquent as
of the Servicer Remittance Date, an amount equal to such payment net of the
servicing compensation and any Retained
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Yield payable to such Servicer (a "Servicer Advance"). The Servicer may deduct
from each remittance, as provided above, an amount equal to the servicing fee to
which it is then entitled pursuant to the Servicing Agreement, to the extent not
previously paid to or retained by it. Any installments as to which the Servicer
has not made an advance will be subject to the Master Servicer's obligation to
advance set forth herein.
SECTION 3.10. Collection of Taxes Assessments and Similar Items;
Escrow Accounts.
In addition to the Certificate Account, the Master Servicer shall, and,
pursuant to the Warranty and Servicing Agreements, the Servicers will be
required to, establish and maintain one or more custodial accounts (each, an
"Escrow Account") and deposit and retain therein all collections from the
Obligors (or advances by Servicers or the Master Servicer) for the payment of
Taxes, assessments, hazard insurance premiums, Primary Credit Insurance Policy
premiums, if applicable, or comparable items for the account of the Obligors.
Escrow Accounts shall be Eligible Accounts.
Withdrawals of amounts so collected from the Escrow Accounts may be made
only to effect timely payment of Taxes, assessments, hazard insurance premiums,
Primary Credit Insurance Policy, or comparable items, to reimburse the Master
Servicer or Servicer out of related collections for any payments made pursuant
to Section 3.01 hereof (with respect to the Taxes and assessments), 3.13 hereof
(with respect to the Primary Insurance Policy) and 3.14 hereof (with respect to
hazard insurance), to refund to any Obligors any sums as may be determined to be
overages, to pay interest, if required, to Obligors on balances in the Escrow
Account or to clear and terminate the Escrow Account as the termination of this
Agreement in accordance with Section 9.01 hereof. As part of its servicing
duties, the Master Servicer shall, and the Servicers will, pursuant to the
Warranty and Servicing Agreements, be required to, pay to the Obligors interest
on funds in the Escrow Account, to the extent required by law.
The Master Servicer shall, with respect to each Nonsubserviced Contract and
with respect to each Contract serviced under a Warranty and Servicing Agreement,
to the extent the related Servicer does not do so, advance the payments referred
to in the preceding paragraph that are not timely paid by the Obligors;
provided, however, that the Master Servicer shall be required to so advance only
to the extent that such advances, in the good faith judgement of the Master
Servicer, will be recoverable by the Master Servicer out of Insurance Proceeds,
Liquidation Proceeds or otherwise; and provided, further, that such payments
shall be advanced when the Tax, premium or other cost for which such payment is
intended is due.
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SECTION 3.11. Access to Certain Documentation and
Information Regarding the Contracts.
[In order to permit Certificateholders to comply with Section 171 and 1276
of the Code, the Master Servicer shall, upon request of any Certificateholder,
furnish such Certificateholder with a statement setting forth the number and
principal balance of Contracts that were originated before July 18, 1984 and
before September 27, 1985.]
The Master Servicer shall provide the Depositor and the Trustee access to
all records and documentation regarding the Contracts and all accounts,
insurance policies and other matters relating to this Agreement, such access
being afforded without charge, but only upon reasonable request and during
normal business hours at the offices of the Master Servicer designated by it.
SECTION 3.12. Permitted Withdrawals from the Certificate
Account.
The Master Servicer may, from time to time, make withdrawals from the
Certificate Account for the following purposes, and for such other purposes as
are set forth in the related Reference Agreement:
(i) to pay to itself as servicing compensation that portion of any
payment as to interest that equals the Servicing Fee with respect to such
Contract for the period with respect to which such interest payment was
made, and, as additional servicing compensation, earnings on the amounts in
the Certificate Account credited to the Certificate Account, and to pay any
Retained Yield and the Administrative Fee to the Depositor (for
disbursement in accordance with Section 3.19 hereof).
(ii) to reimburse itself for advances made pursuant to Sections 3.09,
3.10, and Sections 4.01, 4.02 and 4.03 hereof, such right of reimbursement
pursuant to this subclause (ii) being limited to amounts received on
particular Contracts (including, for this purpose, Insurance Proceeds,
Liquidation Proceeds, amounts representing proceeds of other insurance
policies, if any, covering the related Manufactured Home, which represent
(a) late recoveries of payments of principal and/or interest respecting
which any such advance was made in the case of advances pursuant to
Sections 3.09, 4.01, 4.02 and 4.03 hereof, and (b) late recoveries of the
payments for which such advances were made in the case of advances pursuant
to Section 3.10 hereof;
(iii) to reimburse itself for any Nonrecoverable Advances;
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(iv) to reimburse itself from Insurance Proceeds and Liquidation
Proceeds for amount expended by it pursuant to Section 3.16 hereof in good
faith in connection with the restoration of property damaged by an
Uninsured Cause;
(v) to reimburse itself from Insurance Proceeds for Insured Expenses
and to pay any unpaid servicing compensation to itself, any Retained Yield
and any Administrative Fee to the Depositor from Insurance Proceeds, such
payment of servicing compensation, Retained Yield and Administrative Fee to
be made in accordance with Section 3.19 hereof and being limited to the
amount, if any, by which the aggregate of Liquidation Proceeds and
Insurance Proceeds received in connection with the liquidation of a
defaulted Contract is, after the deduction of Insured Expenses, servicing
compensation payable to the Servicer of such Contract, if any, and any
amounts deducted pursuant to subclause (iv) above in excess of the
Principal Balance of such Contract, together with accrued and unpaid
interest thereon at the Pass-Through Rate;
(vi) to reimburse itself from Liquidation Proceeds for Liquidation
Expenses and, to the extent that Liquidation Proceeds after such
reimbursement, and any other reimbursement pursuant to subclause (iv) above
are in excess of the Principal Balance of the related Contract together
with accrued and unpaid interest thereon at the Pass-Through Rate, to pay
out of such excess the amount of any unpaid servicing compensation with
respect to the related Contract to itself and any Retained Yield and the
Administrative Fee to the Depositor (for disbursement in accordance with
Section 3.19 hereof);
(vii) to pay to itself, a Servicer or the Depositor, as the case may
be, with respect to each Contract or property acquired in respect thereof
that has been purchased pursuant to Section 2.02, 2.04, 2.05, 3.15, or 9.01
hereof, all amounts received thereon and not taken into account in
determining the related Principal Balance of such repurchased Contract;
(viii) to reimburse itself or the Depositor for expenses incurred by
and reimbursable to it or the Depositor pursuant to Section 6.03 hereof;
(ix) to make deposits into the Reserve Fund, as required by the
Reference Agreement;
(x) to make payments to the Certificateholders, or remittances to the
Trustee in the amounts, and in the manner, specified in the Reference
Agreement;
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(xi) to pay to itself any interest earned on or investment income with
respect to funds in Certificate Account (all such interest or income to be
withdrawn monthly on such Distribution Date); and
(xii) to clear and terminate the Certificate Account upon termination
of this Agreement pursuant to Section 9.01 hereof.
The Master Servicer shall keep and maintain separate accounting, on a
Contract by Contract basis, for the purpose of justifying any withdrawal from
the Certificate Account pursuant to such subclauses (i), (ii), (iv), (v), and
(vi).
SECTION 3.13. Maintenance of the Pool Insurance Policy and
Primary Credit Insurance Policies; Collection
Thereunder.
If so specified in the Reference Agreement, the Master Servicer shall
exercise its best reasonable efforts to maintain the Pool Insurance Policy in
full force and effect throughout the terms of this Agreement, unless coverage
thereunder has been exhausted through payment of claims. The Master Servicer
shall pay the premiums for the Pool Insurance Policy on a timely basis. In the
event that the Pool Insurer shall cease to be a Qualified Insurer because it
shall not be qualified to transact a mortgage guaranty insurance business under
the laws of the state of its principal place of business or any other state that
has jurisdiction over the Pool Insurer in connection with the Pool Insurance
Policy or if the Pool Insurance Policy is cancelled or terminated for any reason
(other than the exhaustion of the total coverage), the Master Servicer shall
exercise its best reasonable efforts to obtain from another Qualified Insurer a
replacement policy comparable to the Pool Insurance Policy with a total coverage
that is equal to the then existing coverage of the Pool Insurance Policy;
provided, however, that if the cost of any such replacement policy shall be
greater than the cost of the Pool Insurance Policy, the amount of coverage of
such replacement policy shall, unless the Depositor consents to coverage at a
higher level, be reduced to a level such that the premium rate therefor shall
not exceed the premium rate on such Pool Insurance Policy. In the event the Pool
Insurer shall cease to be a Qualified Insurer, the Master Servicer agrees to
review, not less often than monthly, the financial condition of the Pool Insurer
with a view towards determining whether recoveries under the Pool Insurance
Policy are jeopardized for reasons related to the financial condition of the
Pool Insurer. If the Master Servicer determines that recoveries are so
jeopardized, it shall exercise its best reasonable efforts to obtain, from
another Qualified Insurer, a replacement pool insurance policy, subject to the
cost limitation set forth above. Prior to obtaining any replacement pool
insurance policy, the Master Servicer shall notify the Depositor of the
replacement pool insurance policy the Master
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Servicer intends to obtain and, if the Depositor so directs, obtain a
replacement pool insurance policy approved by the Depositor.
The Master Servicer shall not take, or permit any Servicer to take, any
action that would result in loss of coverage under any applicable Primary Credit
Insurance Policy of any loss which, but for the actions of the Master Servicer
or Servicer, would have been covered thereunder. The Master Servicer shall use
its best reasonable efforts to keep in full force and effect such Primary Credit
Insurance Policy applicable to a Nonsubserviced Contract, and shall use its best
reasonable efforts to cause each Servicer to keep in full force and effect, each
Primary Credit Insurance Policy applicable to a Contract being serviced by it,
until, in the case of a Primary Credit Insurance Policy, [(i) the principal
balance of the related Contract is reduced to [80%] or less of the Appraised
Value, in the case of a Contract having a Loan-to-Value Ratio at origination in
excess of [80%], and (ii) the principal balance of the related Contract is
reduced to [75%] or less of its Appraised Value. The Master Servicer agrees to
pay, with respect to each Nonsubserviced Contract, and otherwise, to the extent
the related Servicer does not do so, the premiums for each Primary Credit
Insurance Policy on a timely basis and shall use its best reasonable efforts to
cause itself or the Servicer to be named as loss payee. In the event that the
insurer under any Primary Credit Insurance Policy shall cease to be qualified to
transact a [manufactured housing] insurance business under the laws of the state
of its organization or any other state that has jurisdiction over such insurer
(or if such insurer's claims paying ability shall cease to be acceptable to the
Rating Agency) or such Primary Credit Insurance Policy is cancelled or
terminated for any reason, the Master Servicer shall exercise its best
reasonable efforts to obtain, or to cause the related Servicer to obtain, from
another Qualified Insurer, a replacement policy comparable to such Primary
Credit Insurance Policy with a total coverage that is equal to the then existing
coverage of such Primary Credit Insurance Policy. The Master Servicer shall not
cancel or refuse to renew any such Primary Credit Insurance Policy with respect
to a Nonsubserviced Contract, or consent to the cancellation or refusal to renew
any such Primary Credit Insurance Policy applicable to any other Contract, which
is in effect at the date of the initial issuance of the Certificates pursuant to
the Reference Agreement and is required to be kept in force hereunder unless the
replacement Primary Credit Insurance Policy for such cancelled or non-renewed
policy is maintained with an insurer whose claims-paying ability is acceptable
to the Rating Agency. In connection with any assumption and modification
agreement entered into by the Master Servicer or a Servicer pursuant to Section
3.15, the Master Servicer shall promptly notify the insurer under the related
Primary Credit Insurance Policy. If such Primary Credit Insurance Policy is
terminated as a result of such assumption, the Master Servicer
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shall obtain a replacement primary Credit Insurance Policy, as provided above.
In connection with its activities as administrator and servicer of the
Contracts, the Master Servicer agrees to present, on behalf of itself, the
Depositor, the Trustee and the Certificateholders, claims to the Pool Insurer
under the Pool Insurance Policy, to the insurer under any Primary Credit
Insurance Policies, to take such reasonable action as shall be necessary to
permit recovery under the Pool Insurance Policy or any Primary Credit Insurance
Policies respecting defaulted Contracts. Pursuant to Section 3.08 hereof, any
amounts collected by the Master Servicer under the Pool Insurance Policy or any
Primary Credit Insurance Policy shall be deposited in the Certificate Account,
subject to the withdrawal pursuant to Section 3.12 hereof. In those cases in
which a Contract is serviced by a Servicer, the Servicer, on behalf of itself,
the Master Servicer, the Depositor, the Trustee, and the Certificateholders,
will, pursuant to the related Warranty and Servicing Agreement, be required to
present claims to the insurer under the Primary Credit Insurance Policy and
deposit all collection thereunder in the related Service Account for deposit in
the Certificate Account.
SECTION 3.14. Maintenance of Hazard Insurance, the Special
Hazard Insurance Policy and Other Insurance.
The Master Servicer shall, with respect to Nonsubserviced Contracts and,
with respect to any other Contract, to the extent that the related Servicer does
not do so, cause to be maintained for each Contract, hazard insurance with
extended coverage in an amount that is at least equal to the maximum insurable
value of the Manufactured Home securing such Contract or its Principal Balance,
whichever is less. Such insurance shall also cover losses arising from direct
and sudden accidental loss to any transportable Manufactured Home caused by
collision when such Manufactured Home is being transported and losses arising
from alteration, conversion or concealment of any Manufactured Home. The Master
Servicer shall also, with respect to Nonsubserviced Contracts and, with respect
to any other Contract, to the extent that the related Servicer does not do so,
cause to be maintained on property acquired upon repossession or voluntary
surrender, hazard insurance with extended coverage in an amount that is at least
equal to the maximum insurable value of the Manufactured Homes that are a part
of such property and in compliance with the requirements of the Special Hazard
Insurance Policy, liability insurance and, to the extent described below, flood
insurance. Pursuant to Section 3.08 hereof, any amounts collected by the Master
Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Manufactured Home or property thus acquired
or amounts released to the Obligor in accordance with the Master Servicer's
normal servicing procedures) shall be deposited in the
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Certificate Account, subject to withdrawal pursuant to Section 3.12 hereof. Any
cost incurred by the Certificateholders or the related Servicer in maintaining
any such insurance shall not, for the purpose of calculating monthly
distributions to the Master Servicer or remittances to the Trustee, be added to
the Principal Balance of the Contract, notwithstanding that the terms of the
Contract so permit. Such costs shall be recoverable by the Master Servicer out
the related Servicer or of late payments by the related Obligor or out of
Insurance Proceeds or Liquidation Proceeds to the extent permitted by the
applicable Warranty and Servicing Agreement and by Section 3.12 hereof. It is
understood and agreed that no earthquake or other additional insurance is to be
required of any Obligor or maintained on any Manufactured Home acquired in
respect of a Contract other than pursuant to such applicable laws and
regulations as shall at any time be in force an as shall require such additional
insurance. If the Manufactured Home is located at the time of origination of the
Contract in a federally designated special flood hazard area, the Master
Servicer shall cause flood insurance to be maintained with respect to a
Nonsubserviced Contract and, with respect to any other Contract, shall cause
such flood insurance to be maintained, in the event the related Servicer shall
fail to do so. Such flood insurance shall be in an amount equal to the lesser of
(i) the unpaid Principal Balance of the related Contract and (ii) the maximum
amount of such insurance available for the related Manufactured Home under the
national flood insurance program, if the area in which such Manufactured Home is
located is participating in such program.
In the event that the Master Servicer shall obtain and maintain a blanket
policy insuring against hazard losses on all of the Contracts, it shall
conclusively be deemed to have satisfied its obligations as set forth in the
first sentence of this Section 3.14, it being understood and agreed that such
policy may contain a deductible clause, in which case the Master Servicer shall,
in the event that there shall not have been maintained on the related
Manufactured Home a policy complying with the first sentence of this Section
3.14, and there shall have been a loss that would have been covered by such
policy, deposit in the Certificate Account the amount not otherwise payable
under the blanket policy because of such deductible clause. In connection with
its activities as administrator and servicer of the Contracts, the Master
Servicer agrees to present, on behalf of itself, the Depositor, the Trustee and
the Certificateholders, claims under any such blanket policy.
As long as the Pool Insurance Policy is in effect, the Master Servicer
covenants and agrees to exercise its best reasonable efforts to maintain the
Special Hazard Insurance Policy in full force and effect, unless coverage
thereunder has been exhausted through payment of claims, and to pay the premium
for the Special Hazard Insurance Policy on a timely basis. In the event that the
Special Hazard Insurance Policy shall be
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cancelled or terminated for any reason (other than the exhaustion of total
policy coverage), the Master Servicer shall exercise its best reasonable efforts
to obtain from another insurer, the claims-paying ability of which shall be
acceptable to the Rating Agency, a replacement policy comparable to the Special
Hazard Insurance Policy with a total coverage that is equal to the then existing
coverage of the Special Hazard Insurance Policy; provided, however, that if the
cost of any replacement policy shall be greater than the cost of the Special
Hazard Insurance Policy, the amount of coverage of such replacement policy
shall, unless the Depositor consents to coverage at a higher level, be reduced
to a level such that the cost of such replacement policy shall not exceed the
cost of the Special Hazard Insurance Policy. Prior to obtaining any replacement
Special Hazard Insurance Policy, the Master Servicer shall notify the Depositor
of the replacement Special Hazard Insurance Policy the Master Servicer intends
to obtain and, if the Depositor so directs, obtain a replacement Special Hazard
Insurance Policy approved by the Depositor. In connection with its activities as
administrator and servicer of the Contracts, the Master Servicer agrees to
present, on behalf of itself, the Depositor, the Trustee and the
Certificateholders, claims to the Special Hazard Insurer under the Special
Hazard Insurance Policy and, in this regard, to take such reasonable action as
shall be necessary to permit recovery under the Special Hazard Insurance Policy
the Master Servicer intends to obtain and, if the Depositor so directs, obtain a
replacement Special Hazard Insurance Policy approved by the Depositor. In
connection with its activities as administrator and servicer of the Contracts,
the Master Servicer agrees to present, on behalf of itself, the Depositor, the
Trustee and the Certificateholders, claims to the Special Hazard Insurer under
the Special Hazard Insurance Policy and, in this regard, to take such reasonable
action as shall be necessary to permit recovery under the Special Hazard
Insurance Policy defaulted Contracts. Pursuant to Section 3.08 hereof, any
amounts collected by the Master Servicer under the Special Hazard Insurance
Policy that are in the nature of Insurance Proceeds shall be deposited in the
Certificate Account, subject to withdrawal pursuant to Section 3.12 hereof. Any
other amounts collected by the Master Servicer under the Special Hazard
Insurance Policy shall be applied by it towards the restoration of the related
property to a condition requisite to the presentation of claims on the related
Contracts to the Pool Insurer under the Pool Insurance Policy.
SECTION 3.15. Enforcement of Due-On-Sale Clauses; Assumption
Agreements.
(a) When any property subject to a Contract has been conveyed by the
Obligor, the Master Servicer shall, with respect to Nonsubserviced Contracts
and, with respect to any other Contracts, to the extent the related Servicer
does not do so, to the extent that it has knowledge of such conveyance, enforce
any due-on-sale clause contained in any Contract, to the extent
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permitted under applicable law and governmental regulations, but only to the
extent that such enforcement will not adversely affect or jeopardize coverage
under any Required Insurance Policy. In the event that the Master Servicer or
the related Servicer is prohibited by law from enforcing any such due-on-sale
clause, or if coverage under any Required Insurance Policy would be adversely
effected, the Master Servicer is authorized subject to Section 3.15(b), to take
or enter into an assumption and modification agreement from or with the person
to whom such property has been or is about to be conveyed, pursuant to which
such person becomes liable under the Contract and, unless prohibited by
applicable state law, the Obligor remains liable thereon, provided that the
Contract shall continue to be covered (if so covered before the Master Servicer
enters such agreement) by the applicable Required Insurance Policies. The Master
Servicer, subject to Section 3.15(b), is also authorized with the prior approval
of the insurers under any Required Insurance Policies to enter into a
substitution of liability agreement with such person, pursuant to which the
original Obligor is released from liability and such person is substituted as
Obligor and becomes liable under the Contract. Notwithstanding the foregoing,
(i) the Master Servicer shall not be deemed to be in default under this Section
3.15 (a) by reason of any transfer or assumption which the Master Servicer is
restricted by law from preventing, for any reason whatsoever.
(b) Subject to the Master Servicer's duty to enforce any due-on-sale clause
to the extent set forth in Section 3.15(a) hereof and to such other limitations
or conditions specified in the related Warranty and Servicing Agreement, if any,
in any case in which a Manufactured Home has been conveyed to a Person by an
Obligor, and such Person is to enter into an assumption agreement or
modification agreement or supplement to the Contract that requires the signature
of the Trustee, or if an instrument of release signed by the Trustee is required
releasing the Obligor from liability on the Contract, the Master Servicer shall
deliver or cause to be delivered to the Trustee for signature the assumption
agreement with the Person to whom the Manufactured Home is to be conveyed and
such modification agreement or supplement to the Contract or other instruments
as are reasonable or necessary to carry out the terms of the Contract or
otherwise to comply with any applicable laws regarding assumptions or the
transfer of the Manufactured Home to such Person. The Master Servicer shall also
deliver or cause to be delivered to the Trustee with the foregoing documents a
letter explaining the nature of such documents and the reason or reasons why the
Trustee's signature is required. With such letter, the Master Servicer shall
deliver to the Trustee a certificate of a Servicing Officer certifying that: (i)
a Servicing Officer has examined and approved such documents as to form and
substance, (ii) the Trustee's execution and delivery thereof will not conflict
with or violate any terms of this Agreement or cause the unpaid balance and
interest on the Contract to be uncollectible
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in whole or in party, (iii) any required consents of insurers under any Required
Insurance Policies have been obtained and (iv) subsequent to the closing of the
transaction involving the assumption or transfer (A) the Contract will continue
to be secured by a first mortgage lien pursuant to the terms of the Contract,
(B) such transaction will not adversely affect the coverage under any Required
Insurance Policies, (C) the Contract will fully amortize over the remaining term
thereof, (D) the interest rate payable under the Contract will not be altered
nor will the term of the Contract be increased and (E) if the seller/transferor
of the Manufactured Home is to be released from liability on the Contract, such
release will not (based on the Master Servicer's good faith determination)
adversely affect the collectibility of the Contract. Upon receipt of such
certificate, the Trustee shall execute any necessary instruments for such
assumption or substitution of liability. Upon the closing of the transactions
contemplated by such document, the Master Servicer shall cause the originals of
the assumption agreement, the release (if any), or the modification or
supplement to the Contract to be delivered to the Trustee (or the related
Custodian, as the duly appointed agent of the Trustee) and deposited with the
Contract File for such Contract. Any fee collected by the Master Servicer for
entering into an assumption or substitution of liability agreement will be
retained by the Master Servicer as additional servicing compensation.
In the event that the Master Servicer, in connection with any such
assumption or modification agreement or supplement to the Contract, is unable to
deliver the certificate of the Servicing Officer set forth above, the Master
Servicer shall purchase, or cause the related Servicer to purchase the related
Contract in the manner, and at the Purchase Price, set forth in Section 2.03
hereof.
SECTION 3.16. Realization Upon Defaulted Contracts.
In the event that a Contract comes into and continues in default and no
satisfactory arrangement can be made for collection of delinquent payments
pursuant to Section 3.06 hereof, the Master Servicer shall take all steps
necessary for Repossession. In connection with such Repossession, the Master
Servicer shall, consistent with Section 3.13 hereof, follow such practices and
procedures as shall be normal and usual in its general servicing of installment
sales contacts and installment loan agreements for manufactured housing. The
foregoing is subject to the provision that the Master Servicer shall not be
required to expend its own funds in connection with any Repossession or like
procedure or towards the restoration of any property unless it shall determine
(i) that such restoration and/or Repossession will increase the proceeds of
liquidation of the Contract to Certificateholders after reimbursements to itself
for such expenses and (ii) that such expenses will be recoverable to it either
through Liquidation Proceeds (respecting which it
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shall have priority for purposes of withdrawals from the Certificate Account
pursuant to Section 3.12 hereof) or through Insurance Proceeds (respecting which
it shall have similar priority). The Master Servicer shall be responsible for
all other costs and expenses incurred by it in any such proceedings; provided,
however, that it shall be entitled to reimbursement thereof from the proceeds of
liquidation of the related Manufactured Home, as contemplated in Section 3.12
hereof. Notwithstanding the foregoing, the Master Servicer shall not be entitled
to recover legal expenses incurred in connection with any Repossession or like
procedure where the Contract is reinstated and such Repossession or like
procedure where the Contract is reinstated and such repossession or like
procedure is terminated prior to completion, other than from sums received from
the Obligor with respect to such expenses. The decision of the Master Servicer
to repossess a defaulted Contract shall be subject to instructions from the
Trustee not to repossess upon such Contract, upon a determination by the Trustee
that the proceeds of such Repossession would not exceed the costs and expenses
of bringing such a proceeding.
SECTION 3.17. Trustee to Cooperate; Release of Contract Files.
Upon the payment in full of any Contract, or the receipt by the Master
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Master Servicer will immediately notify the
Trustee by a certification (which certification shall include a statement to the
effect that all amounts received or to be received in connection with such
payment which are required to be deposited in the Certificate Account pursuant
to Section 3.08 hereof have been or will be so deposited) of a Servicing Officer
and shall request delivery to it of the Contract File. Upon receipt of such
certification and request, the Trustee shall promptly release (or shall cause
the related Custodian to release) the related Contract File to the Master
Servicer, and the Depositor and the Trustee shall execute and deliver to the
Master Servicer the request for reconveyance or release or satisfaction of
mortgage or such instrument releasing the lien of the Contract. No expenses
incurred in connection with any instrument of satisfaction shall be chargeable
to the Certificate Account or the related Servicing Account. From time to time
and as shall be appropriate for the servicing or Repossession of any Contract,
including for such purpose, collection under the Pool Insurance Policy, The
Special Hazard Insurance Policy, any Primary Credit Insurance Policy or any
policy of flood insurance, any fidelity bond or errors or omissions policy, or
for the purposes of effecting a partial release of any Manufactured Home from
the lien of the Contract or the making of any corrections to the Contract or any
of the other documents included in the Contract File, the Trustee shall, upon
request of the Master Servicer and the delivery to the Trustee of a receipt
signed by a Servicing Officer (the "Trust Receipt"), release (or cause the
related
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Custodian to release) the Contract File to the Master Servicer, or to the
related Servicer if the Master Servicer so requests. Subject to the further
limitations set forth below, the Master Servicer shall cause the Contract File
or documents so released to be returned to the Trustee, or the Custodian, as the
case may be, when the need therefor by the Master Servicer or Servicer no longer
exists, unless the Contract is liquidated and the proceeds thereof are deposited
in the Certificate Account, in which case the Trustee shall, upon the Trustee's
receipt of a certification (which certification shall include a statement to
such effect), deliver the Trust Receipt to the Master Servicer. If a Servicer or
the Master Servicer at any time seeks to initiate a Repossession in respect of
any Manufactured Home as authorized by the related Warranty and Servicing
Agreement, or this Agreement, as the case may be, the Master Servicer shall
deliver or cause to be delivered to the Depositor and the Trustee, for
signature, as appropriate, any court pleadings, requests for trustee's sale or
other documents necessary to effectuate such Repossession or any legal action
brought to obtain judgment against the Obligor on the Contract or to obtain a
deficiency judgement or to enforce any other remedies or rights provided by the
Contract or otherwise available at law or in equity. Together with such
documents or pleadings, the Master Servicer shall deliver to the Depositor and
the Trustee a certificate of a Servicing Officer requesting that such pleadings
or documents to be executed by the Trustee and a Servicing officer shall certify
as to the reason such documents or pleadings are required and that the execution
and delivery thereof by the Trustee will not invalidate the insurance coverage
under any Required Insurance Policy or invalidate or otherwise affect the lien
of the Contract except for the termination of such lien upon completion of
Repossession. Notwithstanding the foregoing, the Master Servicer shall cause
possession of any Contract File or of the documents therein that shall have been
released by the Trustee, or the Custodian, as the case may be, to be returned to
the Trustee or Custodian within 21 calendar days after possession thereof shall
have been released by the Trustee or Custodian unless (i) the Contract has been
liquidated and the Insurance Proceeds or Liquidation Proceeds relating to the
Contract have been deposited in the Certificate Account, and the Master Servicer
shall have delivered to the Trustee a certificate of a Servicing Officer
certifying to such effect or (ii) the Contract File or document shall have been
delivered to an attorney or to a public trustee or other public official as
required by law for purposes of initiating or pursuing legal action or other
proceedings for the Repossession of the Manufactured Home and the Master
Servicer shall have delivered to the Trustee a certificate of a Servicing
Officer certifying as to the name and address of the Person to which the
Contract File or the documents therein were delivered and the purpose or
purposes of such delivery.
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SECTION 3.18. Documents, Records and Funds in Possession of Master Servicer
to be Held for the Depositor and the Trustee.
Notwithstanding any other provisions of this Agreement, the Master Servicer
shall transmit to the Trustee as required by this Agreement all documents and
instruments coming into the possession of the Master Servicer from time to time
and shall account fully to the Trustee for any funds received by the Master
Servicer or which otherwise are collected by the Master Servicer as Liquidation
proceeds or Insurance Proceeds in respect of any Contract. All Contract Files
and funds collected or held by, or under the control of, the Master Servicer in
respect of any contracts, whether from the collection of principal and interest
payments or from Liquidation Proceeds or Insurance Proceeds, including but not
limited to, any funds on deposit in the Certificate Account, shall be held by
the Master Servicer for and on behalf of the Depositor, the Trustee and the
Certificateholders and shall be and remain the sole and exclusive property of
the Trustee, subject to the applicable provisions of this Agreement. The Master
Servicer also agrees that it shall not create, incur or subject any Contract
File or any funds that are deposited in the Certificate Account or any Servicing
or Escrow Account, or any funds that otherwise become due or payable to the
Trustee, to any claim, lien, security interest, judgment, levy, writ of
attachment or other encumbrance, or assert by legal action or otherwise any
claim or right of set-off against any Contract File or any funds collected on,
or in connection with, a Contract, except, however, that the Master Servicer
shall be entitled to set-off against and, deduct from any such funds any amounts
that are properly due and payable to the Master Servicer under this Agreement.
SECTION 3.19. Servicing Compensation; Retained Yield.
As compensation for its activities hereunder,the Master Servicer shall be
entitled to withdraw from the Certificate Account the amounts specified in
sub-clauses (i), (v) and (vi) of Section 3.12 hereof and in the related
Reference Agreement as payable to it. The Depositor (or at its direction, its
designee) shall be entitled to receive the Retained Yield and the Administrative
Fee specified and in such subclauses and in the Reference Agreement.
Additional servicing compensation in the form of prepayment charges,
assumption fees, late payment charges or otherwise shall be retained by the
Master Servicer or the related Servicer, as the case may be, to the extent not
required to be deposited in the Certificate Account pursuant to Section 3.08
hereof or in the Servicing Account pursuant to the related Servicing Agreement.
The Master Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder (including payment of
premiums for Primary
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Credit Insurance Policies, to the extent such premiums are not required to be
paid by the related Obligors or the related Servicer, payment of any premiums
for hazard insurance, as required by Section 3.14 hereof, payment of the
premiums for the Pool Insurance Policy, as required by Section 3.13 hereof and
maintenance of the other forms of insurance coverage required by Section 3.14
hereof) and shall be entitled to reimbursement therefore except as specifically
provided in Section 3.12, 3.16 and 4.04 hereof.
SECTION 3.20. Reports to the Trustee and the Depositor;
Certificate Account Statements.
On each Distribution Date, the Master Servicer shall forward to the Trustee
and the Depositor a statement, certified by a Servicing Officer, setting forth
the status of the Certificate Account as of the close of business on such
Distribution Date and showing, for the period covered by such statement, the
aggregate of deposits in or withdrawals from the Certificate Account for each
category of deposit specified in Section 3.08 hereof and each category of
withdrawal specified in Section 3.12 hereof.
SECTION 3.21. Annual Statement as to Compliance.
The Master Servicer shall deliver to the Depositor and the Trustee on or
before April 30 of each year, commencing on April 30 not less than nine months
after the Delivery Date specified in the Reference Agreement, an Officers'
Certificate stating, as to each signer thereof, that (i) a review of the
activities of the Master Servicer during the preceding calendar year and of the
performance of the Master Servicer under this Agreement has been made under such
officer's supervision, (ii) to the best of such officer's knowledge, based on
such review, the Master Servicer has fulfilled all its obligations under this
Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof, (iii) a Servicing Officer has
conducted an examination of the activities of each Servicer during the
immediately preceding year and its performance under the related Warranty and
Servicing Agreement, and (iv) to the best of such Servicing Officer's knowledge,
based on such examination, each Servicer has performed and fulfilled its duties,
responsibilities and obligations under the related Warranty and Servicing
Agreement in all material respects throughout such year, or if there has been a
default in the performance or fulfillment of any, such duties, responsibilities
or obligations, specifying each such default known to such Servicing Officer and
the nature and status thereof.
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SECTION 3.22. Annual Independent Public Accountant's Servicing
Report.
On or before April 30 of each year, commencing on April 30 not less than
nine months after the Delivery Date specified in the Reference Agreement, the
Master Servicer, at its expense, shall cause a firm of independent public
accountants that is a member of the American Institute of Certified Public
Accountants to furnish a statement to the Depositor and the Trustee to the
effect that such firm has examined certain documents and records relating to the
servicing of the Contracts and that, on the basis of an examination conducted
substantially in compliance with the Uniform Single Audit Program for Mortgage
Bankers, with respect to the servicing of installment loan agreements and
installment sales contracts, such servicing has been conducted in compliance
with such agreements except for such significant exceptions or errors in records
that, in the opinion of such firm, the Uniform Single Attestation Program for
Mortgage Bankers requires it to report. In rendering such statement, such firm
may rely, as to matters relating to direct servicing of Contracts by Servicers,
upon comparable statements for examinations conducted substantially in
compliance with the Uniform Single Attestation Program for Mortgage Bankers,
with respect to the servicing of installment loan agreements and installment
sales contracts (rendered within one year of such statement) of independent
public accountants with respect to the related Servicer.
SECTION 3.23. Letters of Credit.
If so specified in the Reference Agreement, the Depositor shall obtain, in
favor of the Trustee on behalf of the Certificateholders, such irrevocable,
stand-by Letters of Credit, with such terms and provisions, as are set forth in
the Related Reference Agreement. In the event that an L/C Bank shall be required
to make any payments under a Letter of Credit, the Master Servicer shall notify
the Trustee, no later than the Determination Date next preceding the related
Distribution Date, such notice specifying the amount of such required payment.
Unless otherwise set forth in the related Reference Agreement, not later than
the close of business on the Business Day preceding the Distribution Date, the
Trustee shall draw upon the Letter of Credit in the amount of such required
payment to the extent of the amount available thereunder and deposit in the
Certificate Account, in immediately available funds, the amount drawn under the
Letter of Credit.
If at any time an L/C Bank makes a payment covering the amount of the
outstanding principal balance of a Liquidating Contract, the Trustee shall
release (or shall cause the related Custodian to release) the related Contract
File to such L/C Bank or its designee and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
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be necessary to vest in such L/C Bank or its designee all right, title and
interest in such Contract, and the L/C Bank or its designee will thereupon
acquire such Liquidating Contract, together with related security interests and
documents, free of any further obligation to the Trustee or the
Certificateholders of such Series with respect thereto except as may be provided
in such Letter of Credit and in the related Reference Agreement.
The Depositor shall have the power to substitute for any Letter of Credit
another irrevocable standby letter of credit, provided that no such substitution
shall be made unless the substitute letter of credit contains provisions that
are in all material respects the same as, or more favorable to the
Certificateholders than, the original Letter of Credit and provided further that
such substitution will not result in a reduction of the then outstanding rating
of the Certificates, or the withdrawal of such rating, by the Rating Agency
rating such Certificates, as evidenced by written confirmation to that effect by
such Rating Agency.
Any replacement of a Letter of Credit pursuant to this Section 3.23 shall
be accompanied by a written Opinion of Counsel to the issuer of such substitute
letter of credit, addressed to the Master Servicer and the Trustee, to the
effect that such substitute letter of credit constitutes a legal, valid and
binding obligation of the issuer thereof, enforceable in accordance with its
terms (subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium and other similar laws from time to time in effect
relating to creditors' rights generally) and concerning such other matters as
the Master Servicer and the Trustee shall reasonably request.
SECTION 3.24. Reserve Fund.
If so specified in the Reference Agreement, the Master Servicer shall
establish and maintain with the Trustee, in the manner specified in the
Reference Agreement a separate investment account (the "Reserve Fund"). The
Reserve Fund will not be included in the Trust Fund. All amounts shall be
deposited into, withdrawn and distributed from the Reserve Fund in accordance
with the provisions of the Reference Agreement.
The Master Servicer, on behalf of the Holders of the Subordinated
Certificates, will cause a valid and perfected first priority security interest
under the Uniform Commercial Code, as in effect in the [State of __________]
from time to time to be maintained in the Reserve Fund, the amounts deposited
therein and the investments thereof (other than any income from the investment
of funds in the Reserve Fund) in order to secure the full and timely performance
with respect to the subordination of the Subordinated Certificates pursuant to
the provisions of the Reference Agreement.
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Amounts held in the Reserve Fund from time to time shall continue to be the
property of the Holders of the Subordinated Certificates until withdrawn from
the Reserve Fund in accordance with the provisions of the Reference Agreement.
Amounts held in the Reserve Fund shall be invested by the Trustee at the
direction of the Master Servicer for the benefit of the Holders of the
Subordinated Certificates in one or more Eligible Investments in the manner set
forth in the related Reference Agreement.
SECTION 3.25. Administration of Buydown Funds.
With respect to each Buydown Contract included in the Trust Fund, the
related Servicer shall deposit Buydown Funds in an account that satisfies the
requirements for a Servicing Account (the "Buydown Account"). On each Servicer
Remittance Date, such Servicer will, as to each Buydown Contract serviced by it,
withdraw from the Buydown Account in an amount equal to an aggregate amount of
payments that, when added, as required by such buydown plan, to the amount
required to be paid by the related obligor on each Due Date in accordance with
such related Obligor on each Due Date in accordance with such buydown plan, is
equal to the full monthly payment due on such Due Date and deposit that amount
in the Certificate Account, for distribution in accordance with the provisions
of Section 3.08 and Section 3.12.
If the Obligor on a Buydown Contract prepays such loan in its entirety
during the period (the "Buydown Period") when Buydown Funds are required to be
applied to such Buydown Contract, the Servicer shall withdraw from the Buydown
Account and remit to the Master Servicer for deposit in the Certificate Account
the Buydown Funds such Buydown Contract remaining in the Buydown Account, for
distribution in accordance with the provisions of Section 3.08 and Section 3.12.
If the Mortgagor on a Buydown Contract defaults on such loan during the Buydown
Period and the property securing such Buydown Contract is sold in the
liquidation thereof (either by the Master Servicer, the Pool Insurer or the
insurer under any related Primary Credit Insurance Policy), the Servicer shall
withdraw from the Buydown Account and remit to the Master Servicer or deposit in
the Certificate Account or, if so instructed by the Master Servicer pay to (i)
the Pool Insurer if the Manufactured Home has been transferred to the Pool
Insurer pursuant to the Pool Insurance Policy and 100% of the related claim
under the Pool Insurance Policy is paid or (ii) the insurer under any related
Primary Credit Insurance Policy if the Manufactured Home is transferred to such
insurer and such insurer pays all of the loss incurred in respect of such
default, the Buydown Funds for such Buydown Contract still held in the Buydown
Account. Any amount remitted pursuant to the preceding sentence will reduce the
amount owed on the Contract for purposes of calculating Liquidation Proceeds.]
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ARTICLE IV.
ADVANCES BY THE MASTER SERVICER; PERFORMANCE BOND
SECTION 4.01. Monthly Advance.
Subject to the conditions of this Article IV, the Master Servicer, as
required below, shall make a monthly Advance to the Certificate Account, in the
amount, if any, of the aggregate scheduled installments of principal and
interest, after adjustment of such interest payment to the Pass-Through Rate for
such Contract, on the Contracts that were due on the Due Date but which were not
received or advanced by the Servicers (including the Master Servicer, in its
capacity as Servicer of Nonsubserviced Contracts) and remitted to the
Certificate Account on or prior to the Servicer Remittance Date. Each Monthly
Advance shall be remitted to the Certificate Account no later than the close of
business on the Business Day immediately preceding the related Distribution Date
in immediately available funds. The Master Servicer shall be obligated to make
any such Monthly Advance only to the extent that such advance, in the good faith
judgement of the Master Servicer, is reimbursable from Insurance Proceeds,
Liquidation Proceeds payments under a Letter of Credit or under any Alternative
Credit Support, or otherwise. On the Determination Date immediately preceding
the related Distribution Date, the Master Servicer shall determine whether and
to what extent any Servicers have failed to make any advances of principal or
any interest in respect of scheduled installments of principal and interest that
were due on the Due Date and whether such deficiencies, if advanced by the
Master Servicer, would be reimbursable from Insurance Proceeds, Liquidation
Proceeds or otherwise. If the Master Servicer shall have determined that it is
not obligated to make the entire Monthly Advance because all of a lesser portion
of such Monthly Advance would not be reimbursable from Insurance Proceeds,
Liquidation Proceeds or otherwise, the Master Servicer shall promptly deliver to
the Trustee an Officer's Certificate setting forth the reasons for the Master
Servicer's determination.
In lieu of making all or a portion of such Monthly Advance, the Master
Servicer may cause to be made an appropriate entry in its records relating to
the Certificate Account that funds in such account being held for future
distribution or withdrawal have been used by the Master Servicer in discharge of
its obligation to make any such Monthly Advance. Any funds being held in the
Certificate Account for future distribution to the Certificateholders shall be
replaced by the Master Servicer by deposit, in the manner set forth above, in
the Certificate Account no later than the close of business on the Business Day
immediately preceding the related Distribution Date, to the extent that funds in
the Certificate Account on such Distribution Date are less than the amounts
required to be distributed to the Certificateholders on such Distribution Date.
The Master
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Servicer shall be entitled to be reimbursed from the Certificate Account for all
Monthly Advances made pursuant to this Section as provided in Section 3.12.
SECTION 4.02. Advances for Attorneys' Fees.
The Master Servicer shall, with respect to any Nonsubserviced Contract, and
otherwise, to the extent not made by the related Servicer, make advances from
time to time for attorneys' fees and court costs incurred, or which reasonably
can be expected to be incurred, for the Repossession of any Manufactured Home,
unless the Master Servicer has made a good faith determination that such
advances are not recoverable from Insurance Proceeds or Liquidation Proceeds
relating to the Contract, payments under the Letter of Credit or under any
Alternative Credit Support or otherwise. If the Master Servicer shall make a
good faith determination that such advances are not so reimbursable, the Master
Servicer shall promptly deliver to the Trustee an Officers' Certificate setting
forth the reasons for such determination. The Master Servicer shall be entitled
to reimbursement for any such advance as provided in Section 3.12 hereof.
SECTION 4.03. Advances for Amounts Collected by Servicer but Not
Remitted.
In the event that any Servicer fails to remit to the Certificate Account on
the Servicer Remittance Date the full amount of the funds in the custody or
under the control of the Servicer that the Servicer is required to remit under
the terms of the related Warranty and Servicing Agreement, then the Master
Servicer, upon and subject to the terms of this Article IV, shall advance and
remit to the Certificate Account, no later than the close of business on the
Business Day immediately preceding the related Distribution Date,in the manner
specified in Section 4.01 hereof, an amount equal to the portion of the required
remittance that was not so remitted. The Master Servicer shall be obligated to
make such advance only the extent that such advance in the good faith judgement
of the Master Servicer is reimbursable from Insurance Proceeds, Liquidation
Proceeds, or otherwise. If the Master Servicer at any time makes a determination
that such advance is not or would not be so reimbursable, the Master Servicer
shall promptly deliver to the Trustee an Officer's Certificate setting forth the
reasons for such determination. The Master Servicer shall be entitled to
reimbursement for any such advance as provided in Section 3.12.
SECTION 4.04. Nonrecoverable Advances.
Any Monthly Advance or other advance previously made by the Master Servicer
under Sections 4.01, 4.02 and 4.03 of this Agreement that the Master Servicer
shall ultimately determine in its good faith judgment to be not recoverable from
Insurance
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Proceeds, Liquidation Proceeds, payments under the Letter of Credit or under any
Alternative Credit Support, or otherwise, shall be a Nonrecoverable Advance. The
determination by the Master Servicer that it has made a Nonrecoverable Advance
shall be evidenced by an Officers' Certificate of the Master Servicer promptly
delivered to the Trustee setting forth the reasons for such determination.
Following the Trustee's receipt of the Officers' Certificate, the Master
Servicer shall be entitled to reimbursement for such Nonrecoverable Advance as
provided in Section 3.12 hereof.
SECTION 4.05. Advances for Additional Interest in Connection
with Principal Payments.
In the event that any Contract is the subject of a full or partial
Principal Prepayment and such full or partial Principal Prepayment does not
include interest on the Principal Balance through and including the last day of
the month during which such Principal Prepayment is made, the Master Servicer
shall, with respect to each Nonsubserviced Contract, and otherwise to the extent
that such interest shall not have been paid by the Servicer and deposited in the
Certificate Account on or before the Servicer Remittance Date next succeeding
the date of such full or partial Principal Prepayment, advance and deposit into
the Certificate Account, on or before the close of business on the Business Day
immediately preceding the related Distribution Date, an amount equal to such
additional interest, adjusted to the Pass-Through Rate. Such advance shall be
made regardless of whether the Contract requires the payment of such interest or
whether such amount is recoverable from Liquidation Proceeds, Insurance
Proceeds, payments under the Letter of Credit or under any Alternative Credit
Support, or otherwise or whether the Master Servicer shall have determined that
such advance, if made, would be Nonrecoverable Advance; and in case of such
advance, the Master Servicer shall not be entitled to any recovery or
reimbursement from the Depositor, the Trustee or the Certificateholders, but may
seek and obtain recovery from the Servicer that failed to make the advance,
through legal action or otherwise, to the extent provided in the related
Warranty and Servicing Agreement. Notwithstanding anything to the contrary
contained herein, the Master Servicer shall have no entitlement hereunder to any
retained yield payable to such Servicer with respect to any Contract serviced by
it hereunder.
SECTION 4.06. Performance Bond.
The performance of the obligations of the Master Servicer under this
Agreement are Guaranteed by the Performance Bond. In the event the
creditworthiness of the obligor under the Performance Bond is impaired such that
the Rating Agency advises the Depositor or the Trustee that the outstanding
rating of the Certificates would be lowered by the Rating Agency, the Master
Servicer shall secure as soon as practicable (and, in any event,
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within 30 days) a substitute guaranty or similar form of insurance coverage in
an amount equal to _____% of the outstanding Principal Balance of the Contracts
and issued by an entity the creditworthiness of which is determined by the
Rating Agency to be sufficient to maintain the outstanding rating of the
Certificates. Upon delivery of such substitute guaranty or similar form of
insurance coverage, all obligations under the Performance Bond shall be
discharged. Unless the Rating Agency confirms within such 30-day period that,
after giving effect to such substitution, it will not lower the outstanding
rating of the Certificates, the Master Servicer shall deposit cash with the
Trustee in a separate account (the "Guaranty Fund") in an amount equal to _____%
of the then outstanding Principal Balance of the Contracts. The amount so
deposited shall be held by the Trustee as security for the Certificates and
shall be invested by the Trustee in Eligible Investments. Upon such deposit, any
obligation under the Performance Bond or any substitute guaranty or similar form
of insurance coverage shall be discharged. In the event that the Master Servicer
fails to make any Monthly Advance required by the terms of this Agreement, the
Trustee shall withdraw the amount of such Monthly Advance from the Guaranty Fund
and deposit the amount so withdrawn in the Certificate Account. Any such
withdrawal shall not result in any waiver of the Trustee's rights hereunder with
respect to any Event of Default resulting from the Master Servicer's failure to
make such required payment. Earnings from the investment of any amounts
deposited with the Trustee pursuant to this Section 4.06 shall be for the
account of the Master Servicer. The amount of any losses incurred in respect of
any such investment shall be deposited by the Master Servicer into the Guaranty
Fund immediately, as realized.
The obligations of the Master Servicer under Section 2.03(b) hereof are
further guaranteed by the Performance Bond. In the event that the outstanding
credit rating of the commercial paper obligations of the obligor under the
Performance Bond is reduced by the Rating Agency with the result that the
outstanding rating of the Certificates would be reduced by the Rating Agency,
the Master Servicer shall secure as soon as practicable a substitute guaranty or
similar form of insurance coverage, which shall be (a) in an amount equal to the
amount of the Master Servicer's outstanding obligations under Section 2.03(b)
hereof and (b) issued by an entity that has an outstanding commercial paper
rating sufficient to maintain the outstanding rating of the Certificates. If a
substitute guaranty or other form of insurance coverage has not been issued to
the Trustee within thirty days after the Rating Agency notifies the Depositor or
the Trustee of its intent to lower the rating of the Certificates, the Master
Servicer shall deposit and maintain with the Trustee cash in an amount equal to
the amount of its outstanding obligations under Section 2.03(b) hereof. The
amount so deposited shall be held by the Trustee in a separate account as
security for the Certificates (the "Repurchase Fund") and shall
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be invested by the Trustee at the direction of the Master Servicer in Eligible
Investments. In the event that the Master Servicer fails to make any payment
required to be made pursuant to Section 2.03(b), the Trustee shall withdraw the
amount of such required payment from the Repurchase Fund and deposit the amount
so withdrawn in the Certificate Account. Any such withdrawal shall not result in
a waiver of the Trustee's rights with respect to any Event of Default resulting
from the Master Servicer's failure to make any such required payment. The Master
Servicer may withdraw any amounts on deposit with the Trustee in excess of its
outstanding obligations under Section 2.03(b) hereof and shall deposit cash in
the amount necessary to satisfy any deficiency in the Repurchase Fund upon
receipt of the Trustee's demand therefor. Earnings from the investment of any
amounts so deposited with the Trustee shall be for the account of the Master
Servicer. The amount of any losses incurred in respect of any such investment
shall be deposited by the Master Servicer into the Repurchase Fund immediately,
as realized.
ARTICLE V.
THE CERTIFICATES
SECTION 5.01. The Certificates.
The Certificates shall be substantially in the forms set forth in the
Reference Agreement. A Single Certificate shall evidence the interest in the
Trust Fund specified in the Reference Agreement. The Certificates may be issued
in one or more Classes and such Classes may be divided into one or more
Subclasses as provided in the Reference Agreement. One or more of such Classes
or Subclasses may be subordinated to any other one or more of such Classes or
Subclasses as provided in the Reference Agreement. One or more or such Classes
or Subclasses may receive unequal amounts of the principal and/or interest
payments made from the Contracts as specified in the Reference Agreement. The
timing of payments to any one or more of such Classes or Subclasses may be made
on a sequential or pro rata basis as provided in the Reference Agreement. The
Certificates shall be executed by manual or facsimile signature on behalf of the
Depositor by its President or one of its Executive Vice Presidents, Senior Vice
Presidents or First Vice Presidents under its seal imprinted thereon and
attested by the manual or facsimile signature of its Secretary or one of its
Assistant Secretaries. Certificates bearing the manual or facsimile signatures
of individuals who were, at the time when such signatures were affixed,
authorized to sign on behalf of the Depositor shall bind the Depositor,
notwithstanding that such individuals or any of them have ceased to be so
authorized prior to the authentication and delivery of such Certificates or did
not hold such offices at the date of such Certificate. No Certificate shall be
entitled to any benefit under this
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Agreement, or be valid for any purpose, unless there appears on such Certificate
a certificate of authentication substantially in the form set forth in Section
8.10 executed by the Trustee by manual signature, and such certificate of
authentication upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder. All Certificates shall be dated the date of their authentication.
SECTION 5.02. Registration of Transfer and Exchange of
Certificates.
The Trustee shall maintain, or cause to be maintained in accordance with
the provisions of Section 5.06 hereof, a Certificate Register in which, subject
to such reasonable regulations as it may prescribe, the Certificate Registrar
named in the Reference Agreement shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate, the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates in like aggregate interest in the
Trust Fund and of the same Class.
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of the same aggregate interest in the Trust Fund and of the
same Class, upon surrender of the Certificates to be exchanged at any such
office or agency. Whenever any Certificates are so surrendered for exchange, the
Depositor shall execute and the Trustee shall authenticate and deliver the
Certificates which the Certificateholder making the exchange is entitled to
receive. Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by the holder thereof or his attorney
duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
All Certificates surrendered for registration of transfer and exchange
shall be cancelled and subsequently destroyed by the Trustee or, at its
direction, by the Certificate Registrar.
Unless otherwise specified in the Reference Agreement, the Certificate
Registrar will provide the Master Servicer not later than the 15th Business Day
next preceding the Distribution Date the names and addresses of the
Certificateholders as of the Record Date and the interest of each of them in the
Trust Fund.
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SECTION 5.03. Mutilated Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate is surrendered to the Certificate
Registrar, or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate and (b) there is delivered to
the Master Servicer, the Certificate Registrar and the Trustee such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of notice to the Certificate Registrar or the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor and
interest in the Trust Fund. In connection with the issuance of any new
Certificate under this Section 5.03, the Certificate Registrar may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee and the Certificate Registrar) connected therewith.
Any duplicate Certificate issued pursuant to this Section 5.03 shall constitute
complete and indefeasible evidence of ownership in the Trust Fund, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
Prior to due presentation of a Certificate for registration of transfer,
the Master Servicer, the Trustee, the Certificate Registrar and any agent of the
Master Servicer, the Trustee or the Certificate Registrar may treat the person
in whose name any Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions as provided in the Reference Agreement
and for all other purposes whatsoever, and neither the Master Servicer, the
Trustee, the Certificate Registrar nor any agent of the Master Servicer, the
Trustee or the Certificate Registrar shall be affected by any notice to the
contrary.
SECTION 5.05. Access to List of Certificateholders' Names and
Addresses.
If the Trustee is not the Certificate Registrar and at any time requests
the Certificate Registrar in writing to provide a list of the names and
addresses of Certificateholders, the Certificate Registrar will furnish to the
Trustee, within 15 days after receipt of a request, such list as of the most
recent Record Date, in such form as the Trustee may reasonably require. If three
or more Certificateholders (a) request such information in writing from the
Trustee, (b) state that such Certificateholders desire to communicate with other
Certificateholders with respect to their rights under this Agreement or under
the Certificates and (c) provide a copy of the
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communication which such Certificateholders propose to transmit, then the
Trustee shall, within five Business Days after the receipt of such request,
afford such Certificateholders access during normal business hours to the most
recent list held by the Trustee, if any. If such list is as of a date more than
90 days prior to the date of receipt of such Certificateholders' request, the
Trustee shall promptly request from the Certificate Registrar a current list and
shall afford such Certificateholders access to such list promptly upon its
receipt by the Trustee. Every Certificateholder, by receiving and holding a
Certificate, agrees that neither the Certificate Registrar nor the Trustee shall
be held accountable by reason of the disclosure of any such information as to
the list of the Certificateholders hereunder, regardless of the source from
which such information was derived.
SECTION 5.06. Maintenance of Office or Agency.
The Trustee will maintain or cause to be maintained at their expense an
office or offices or agency or agencies where Certificates may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Trustee in respect of the Certificates and this Agreement may be
served. The Trustee initially appoints the Certificate Registrar designated in
the Reference Agreement for transfer and exchange of Certificates and designates
the office described in the Reference Agreement as its office for purposes of
receipt of such notices and demands. The Trustee will give prompt written notice
to the Certificateholders of any change in the location of the Certificate
Register or any such office or agency.
ARTICLE VI.
THE DEPOSITOR AND THE MASTER SERVICER
SECTION 6.01. Respective Liabilities of the Depositor and the
Master Servicer.
The Depositor and the Master Servicer shall each be liable in accordance
herewith only to the extent of the obligations specifically and respectively
imposed upon and undertaken by them herein.
SECTION 6.02. Merger or Consolidation of the Depositor and the
Master Servicer.
The Depositor and the Master Servicer will each keep in full effect its
existence, rights and franchises as a corporation under the laws of the State of
Delaware, and will each obtain and preserve its qualification to do business as
a foreign corporation in each jurisdiction in which such qualification is or
shall be necessary to protect the validity and enforceability
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of this Agreement, or any of the Contracts and to perform its respective duties
under this Agreement.
Any person into which the Depositor or the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger or consolidation to
which the Depositor or the Master Servicer shall be a party, or any Person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor of the Depositor or the Master Servicer, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to sell manufactured housing installment
sales contracts or installment loan agreements to, and to service manufactured
housing installment sales contracts or installment loan agreements on behalf of
FNMA.
Notwithstanding anything else in this Section 6.02 or in Section 6.04
hereof to the contrary, the Master Servicer may assign its rights and delegate
its duties and obligations under this Agreement in connection with a sale or
transfer of a substantial portion of its manufactured housing installment sales
contract or installment loan agreement portfolio; provided that such purchaser
or transferee accepting such assignment or delegation shall be a Person
qualified to service manufactured housing installment sales contracts or
installment loan agreements on behalf of FNMA, is reasonably satisfactory to the
Trustee and the Depositor, is willing to service the Contracts and executes and
delivers to the Depositor and the Trustee an agreement, in form and substance
reasonably satisfactory to the Depositor and the Trustee, which contains an
assumption by such Person of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Master Servicer
under this Agreement and a guaranty of the performance of such Person's
obligations under this Agreement, and provided further that the Rating Agency's
rating of the Certificates in effect immediately prior to such assignment, sale
or transfer will not be impaired as a result of such assignment, sale or
transfer, as evidenced by a letter from the Rating Agency to such effect. In the
case of any such assignment and delegation, the Master Servicer shall be
released from its obligations under this Agreement, except that the Master
Servicer shall remain liable for all liabilities and obligations incurred by it
as Master Servicer hereunder prior to the satisfaction of the conditions to such
assignment and delegation set forth in the preceding sentence.
SECTION 6.03. Limitation on Liability of the Depositor, the
Master Servicer and Others.
Neither the Depositor, the Master Servicer nor any of the directors,
officers, employees or agents of the Depositor or
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the Master Servicer shall be under any liability to the Certificateholders for
any action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor, the Master Servicer or any such
person against any breach of representations or warranties made by it herein or
protect the Depositor, the Master Servicer or any such person from any liability
which would otherwise be imposed by reasons of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder. The Depositor, the Master Servicer and any
director, officer, employee or agent of the Depositor or the Master Servicer may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder. The Depositor,
the Master Servicer and any director, officer, employee or agent of the
Depositor or the Master Servicer shall be indemnified by the Trust Fund and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to this Agreement or the Certificates, other than any
loss, liability or expense related to any specific Contract or Contracts (except
as any such loss, liability or expense shall be otherwise reimbursable pursuant
to this Agreement) and any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
hereunder. Neither the Depositor nor the Master Servicer shall be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to their respective duties hereunder and which in its opinion may
involve it in any expense or liability; provided, however, that either the
Depositor or the Master Servicer may in its discretion undertake any such action
that it may deem necessary or desirable in respect of this Agreement and the
rights and duties of the parties hereto and the interests of the Trustee and the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Fund, and the Depositor and the Master Servicer shall
be entitled to be reimbursed therefor out of the Certificate Account as provided
by Section 3.12 hereof.
SECTION 6.04. Master Servicer Not to Resign.
The Master Servicer shall not resign from the obligations and duties
imposed upon it hereunder except upon determination that such obligations and
duties hereunder are no longer permissible under applicable law. Any such
determination permitting the resignation of the Master Servicer shall be
evidenced by an Opinion of Counsel to such effect delivered to the Trustee. No
such resignation by the Master Servicer shall become effective until the Trustee
or a successor servicer shall
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have assumed the Master Servicer's responsibilities and obligations in
accordance with Section 7.02 hereof.
SECTION 6.05. Errors and Omissions Insurance; Fidelity Bonds.
The Master Servicer shall, for so long as it acts as servicer under this
Agreement, obtain and maintain in force (a) a policy or policies of insurance
covering errors and omissions in the performance of its obligations as servicer
hereunder, and (b) a fidelity bond in respect of its officer, employees and
agents. Each such policy or policies and bond shall, together, comply with the
requirements from time to time of FNMA for persons performing servicing for
mortgage loans purchased by FNMA. In the event that any such policy or bond
ceases to be in effect, the Master Servicer shall obtain a comparable
replacement policy or bond from an insurer or issuer, meeting the requirements
set forth above as of the date of such replacement.
ARTICLE VII.
DEFAULT
SECTION 7.01. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever reason for such Event of Default and whether it shall be
voluntary or involuntary or be 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):
(i) any failure by the Master Servicer to remit to the
Certificateholders or to the Trustee any payment (other than a payment
required to be made under Article IV hereof) required to be made under the
terms of this Agreement, which failure shall continue unremedied for a
period of five days after the date upon which written notice of such
failure shall have been given to the Master Servicer by the Trustee or the
Depositor or to the Master Servicer and the Trustee by the Holders of
Certificates not less than 25% of the Voting Rights evidenced by the
Certificates; or
(ii) any failure by the Master Servicer to observe or perform in any
material respect any other of the covenants or agreements on the part of
the Master Servicer in this Agreement contained and such failure shall
continue unremedied for a period of 60 days (except that such number of
days shall be 15 in the case of a failure to pay the premium for any
Required Insurance Policy) after the date on which written notice of such
failure shall have been given to the Master Servicer by the Trustee or the
Depositor, or to the Master Servicer and the Trustee by the Holders of
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Certificates evidencing not less than 25% of the Voting Rights evidenced by
the Certificates; or
(iii) if a representation or warranty set forth in Section 2.03(a)
hereof shall prove to be incorrect as of the time made in any respect that
materially and adversely affects the interests of the Certificateholders,
and the circumstances or condition in respect of which such representation
or warranty was incorrect shall not have been eliminated or cured within 30
days after the date on which written notice thereof shall have been given
to the Master Servicer by the Trustee or the Depositor; or
(iv) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Master
Servicer and such decree or order shall have remained in force undischarged
or unstayed for a period of 60 days; or
(v) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings of or
relating to the Master Servicer or of or relating to all or substantially
all of the property of the Master Servicer; or
(vi) the Master Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage
of, or commence a voluntary case under, any applicable insolvency or
reorganization statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations; or
(vii) any Rating Agency shall lower, or threaten to lower, the
outstanding rating of the Certificates because the existing or prospective
financial condition or manufactured housing installment sales contracts or
installment loan agreement servicing capability of the Master Servicer is
insufficient to maintain such outstanding rating.
If an Event of Default shall occur, then, and in each and every such case,
so long as such Event of Default shall not have been remedied, either the
Trustee, the Holders of Certificates evidencing not less than twenty-five
percent 25% of the Voting Rights evidenced by the Certificates, or the
Depositor, with the prior written approval of the Trustee, by notice in writing
to the Master Servicer, may terminate all of
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the rights and obligations of the Master Servicer under this Agreement and in
and to the Contracts and the proceeds thereof. On or after the receipt by the
Master Servicer of such written notice, all authority and power of the Master
Servicer hereunder, whether with respect to the Contracts or otherwise, shall
pass to and be vested in the Trustee or, if the Depositor so notifies the
Trustee and the Master Servicer, to the Depositor or its designee, pursuant to
and under this Section; and, without limitation, the Trustee, the Depositor and
any such designee of the Depositor is hereby authorized and empowered to execute
and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise,
any and all documents and other instruments, and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Contracts and related documents, or otherwise. Unless expressly provided in
such written notice, no such termination shall affect any obligation of the
Master Servicer pursuant to Section 2.03 to pay damages as a result of a Default
under this Article VII, to make payment under any Credit Support, or to pay
amounts owed pursuant to Article VIII. The Master Servicer agrees to cooperate
with the Trustee, the Depositor and any such designee of the Depositor in
effecting the termination of the Master Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the Trustee or the
Depositor or its designee, as the case may be, for administration by it of all
cash amounts which shall at the time be credited to the Certificate Account or
thereafter be received with respect to the Contracts.
SECTION 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of termination
pursuant to Section 7.01 hereof, the Trustee shall be the successor in all
respects to the Master Servicer in its capacity as master servicer under this
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Master Servicer by the terms and provisions hereof (except that if
the Trustee is acting as successor to the Master Servicer and is prohibited by
law from obligating itself to make advances regarding delinquent Contracts, then
the Trustee shall not be obligated to make advances pursuant to Section 3.01 and
Article IV hereof). As compensation therefor, the Trustee shall be entitled to
all funds relating to the Contracts that the Master Servicer would have been
entitled to charge to the Certificate Account if the Master Servicer had
continued to act hereunder. Notwithstanding the foregoing, if the Trustee has
become the successor to the Master Servicer in accordance with Section 7.01
hereof, the Trustee may, if it shall be unwilling to so act, or shall, if it is
unable to so act (exclusive of the obligations with respect to advances set
forth in Article IV hereof), appoint, or petition a court of
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competent jurisdiction to appoint, any established housing and home finance
servicing institution having a net worth of not less than that required by the
Rating Agency as the successor to the Master Servicer hereunder in the
assumption of all or any part of the responsibilities, duties or liabilities of
the Master Servicer hereunder. Pending appointment of a successor to the Master
Servicer hereunder, the Trustee, unless the Trustee is prohibited by law from so
acting, shall act in such capacity as hereinabove provided. In connection with
such appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Contracts as it and such
successor shall agree; provided, however, that no such compensation shall be in
excess of that permitted the Master Servicer hereunder. The Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession.
Any successor to the Master Servicer as servicer shall during the term of
its service as servicer maintain in force the policy or policies that the Master
Servicer is required to maintain pursuant to Section 6.05.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any termination or appointment of a successor to the Master
Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register.
(b) Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Certificateholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.
ARTICLE VIII.
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default and after the
curing of all Events of Default that may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Agreement. In case an Event of Default has occurred and remains uncured, the
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise as a
prudent investor would exercise or use under the circumstances in the conduct of
such investor's own affairs.
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The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement, shall examine them to determine whether they conform to the
requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own misconduct; provided, however, that:
(i) prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default that may have occurred, the duties and
obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be personally liable
except for the performance of such duties and obligations as are
specifically set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the Trustee and, in
the absence of bad faith on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or opinions furnished
to the Trustee and conforming to the requirements of this Agreement;
(ii) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith in
accordance with the direction of Certificateholders holding Certificates
aggregating not less than 25% of the interest in the Trust Fund evidenced
by each Class of Certificates relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Agreement.
SECTION 8.02. Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(i) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
certificate of auditors or any other certificate, statement, instrument,
opinion, report, notice, request, consent, order, appraisal, bond or other
paper or
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document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(ii) the Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in good faith and in
accordance with such Opinion of Counsel;
(iii) the Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Agreement;
(iv) prior to the occurrence of an Event of Default hereunder and
after the curing of all Events of Default that may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other
paper or document, unless requested in writing to do so by Holders of
Certificates aggregating not less than 25% of the interest in the Trust
Fund evidenced by each Class of Certificates; and
(v) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys.
SECTION 8.03. Trustee Not Liable for Contracts.
The recitals contained herein shall be taken as the statements of the
Depositor or the Master Servicer, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Agreement or of any Contract or related
document. The Trustee shall not be accountable for the use or application by the
Depositor or the Master Servicer of any funds paid to the Depositor or the
Master Servicer in respect of the Contracts or deposited in or withdrawn from
the Certificate Account by the Depositor or the Master Servicer.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Certificates with the same rights as it would have if it were not the
Trustee.
SECTION 8.05. Master Servicer to Pay Trustee's Fees and
Expenses.
The Master Servicer covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to,
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reasonable compensation (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) for all services
rendered by it in the execution of the trusts hereby created and in the exercise
and performance of any of the powers and duties hereunder of the Trustee, and
the Master Servicer will pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any of the provisions of this Agreement (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence, bad faith or willful misconduct.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation organized and
doing business under the laws of such state or the United States of America,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $50,000,000 and subject to supervision or
examination by federal or state authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 8.06 the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section 8.06, the Trustee
shall resign immediately in the manner and with the effect specified in Section
8.07 hereof.
SECTION 8.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the trusts hereby
created by (1) giving written notice of resignation to the Depositor and by
mailing notice of resignation by first class mail, postage prepaid, to the
Certificateholders at their addresses appearing on the Certificate Register, the
Certificate Registrar (if other than the Trustee) and any coregistrar, not less
than 60 days before the date specified in such notice when, subject to Section
8.08, such resignation is to take effect, and (2) appointing a successor trustee
in accordance with Section 8.08 and meeting the qualifications set forth in
Section 8.06.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.06 hereof and shall fail to resign after written
request therefor by the Depositor, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or
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any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor may remove the Trustee and appoint a successor
trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor trustee.
The trustee may also be removed at any time by the Holders of Certificates
evidencing not less than 50% of the Voting Rights evidenced by the Certificates.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section 8.07 shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.08 hereof.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07 hereof shall
execute, acknowledge and deliver to the Depositor and to its predecessor trustee
an instrument accepting such appointment hereunder and thereupon the resignation
or removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with the like effect as if originally named as trustee herein. The
Depositor, the Master Servicer and the predecessor trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties, and obligations.
No successor trustee shall accept appointment as provided in this Section
8.08 unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 8.06 hereof.
Upon acceptance of appointment by a successor trustee as provided in this
Section 8.08, the Master Servicer shall mail notice of the succession of such
trustee hereunder to all Holders of Certificates at their addresses as shown in
the Certificate Register. If the Master Servicer fails to mail such notice
within 10 days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
(Master Servicer).
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to
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the business of the Trustee, shall be the successor of the Trustee hereunder,
provided that such corporation shall be eligible under the provisions of Section
8.06 hereof without the execution or filing of any paper or further act on the
part of any of the parties hereto, anything herein to the contrary
notwithstanding.
SECTION 8.10. Appointment of Authenticating Agent.
At any time when any of the Certificates remain outstanding, the Trustee
may appoint an Authenticating Agent or Agents which shall be authorized to act
on behalf of the Trustee to authenticate Certificates, and Certificates so
authenticated shall be entitled to the benefits of this Agreement and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Agreement to the authentication
and delivery of Certificates by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Depositor and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $15,000,000, authorized under such laws to do trust
business and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section 8.10, the combined
capital and surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time an Authenticating Agent shall cease to be eligible
in accordance with the provisions of this Section 8.10, such Authenticating
Agent shall resign immediately in the manner and with the effect specified in
this Section 8.10.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section 8.10, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
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An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Depositor. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Depositor. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 8.10, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Depositor and shall mail
written notice of such appointment by first-class mail postage prepaid to all
Certificateholders as their names and addresses appear in the Certificate
Register. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section 8.10.
Any reasonable compensation paid to an Authenticating Agent for its
services under this Section 8.10 shall be a reimbursable expense pursuant to
Section 8.05 if paid by the Trustee.
If an appointment is made pursuant to this Section 8.10, the Certificates
may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
"This is one of the Certificates referred to in the within-mentioned
Agreement.
___________________________________
As Trustee
By: ___________________________________
Authenticating Agent
By: ___________________________________
Authorized Officer
SECTION 8.11. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Fund or property securing any Contract may at the time be
located, the Master Servicer and the Trustee acting jointly shall have the power
and
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shall execute and deliver all instruments to appoint one or more Persons
approved by the Trustee to act as co-trustee or co-trustees jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders, such title to the Trust Fund, or any part
thereof, and, subject to the other provisions of this Section 8.11, such powers,
duties, obligations, rights and trusts as the Master servicer and the Trustee
may consider necessary or desirable. If the Master Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a request
to do so, or in the case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 8.06 and no notice to
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 8.08.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or imposed
upon the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder or
as successor to the Master Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to
the Trust Fund or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-trustee, but
solely at the direction of the Trustee;
(ii) No trustee hereunder shall be held personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) The Master Servicer and the Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of
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this Article VIII. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Master Servicer and the Depositor.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 8.12. Tax Returns.
The Trustee, upon request, will furnish the Master Servicer with all such
information as may be reasonably required in connection with the preparation by
the Master Servicer of all tax returns of the Trust Fund, and the Trustee shall,
upon request, execute such returns.
SECTION 8.13. Appointment of Custodians.
The Trustee may, with the consent of the Depositor and the Master Servicer,
appoint one or more custodians to hold all or a portion of the Contract Files as
agent for the Trustee, by entering into a Custodial Agreement. Subject to
Article VIII, the Trustee agrees to comply with the terms of each Custodial
Agreement and to enforce the terms and provisions thereof against the Custodian
for the benefit of the Certificateholders. Each Custodian shall be a depository
institution subject to supervision by federal or state authority, shall have
combined capital and surplus of at least $10,000,000 and shall be qualified to
do business in the jurisdiction in which it holds any Contract File. Each
Custodial Agreement may be amended only as provided in Section 10.01 or as
provided in the Reference Agreement.
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ARTICLE IX.
TERMINATION
SECTION 9.01. Termination upon Repurchase of Contracts.
The obligations and responsibilities of the Depositor and the Trustee
created hereby and the Trust fund created hereby shall terminate upon the
earlier of (a) the repurchase by the Depositor (or by such other party specified
in the related Reference Agreement) of all Contracts and all property acquired
in respect of any Contract remaining in the Trust Fund at a price equal to the
price specified in the Reference Agreement, and unreimbursed Monthly Advances or
(b) the later of (i) the maturity or other liquidation (or any advance with
respect thereto) of the last Contract remaining in the Trust Fund and the
disposition of all property acquired upon Repossession and (ii) the distribution
to Certificateholders of all amounts in the Certificate Account required to be
distributed to them pursuant to this Agreement; provided, however, that in no
event shall the trust created hereby continue beyond the expiration of 21 years
from the death of the last survivor of the descendants of Mr. Joseph P. Kennedy,
former Ambassador of the United States to Great Britain, living on the date of
execution of this Agreement. The right of the Depositor to repurchase all
Contracts pursuant to clause (a) above shall be conditioned upon the unpaid
Principal Balances of such Contracts, at the time of any such repurchase,
aggregating less than an amount equal to the percentage of the aggregate unpaid
Principal Balance of the Contracts constituting the Trust Fund on the Cut-off
Date set forth in the Reference Agreement.
SECTION 9.02. Final Distribution on the Certificates.
Notice of any termination, specifying the Distribution Date upon which the
Certificateholders may surrender their Certificates for payment of the final
distribution and cancellation, shall be given promptly by the Master Servicer by
letter to Certificateholders mailed not earlier than the date specified in the
Reference Agreement. Any such notice shall specify (a) the Distribution Date
upon which final distribution of the Certificates will be made upon presentation
and surrender of Certificates at the office therein designated, (b) the amount
of such final distribution and (c) if applicable, that the Record Date otherwise
applicable to such Distribution Date is not applicable, distributions being made
only upon presentation and surrender of the Certificates at the office therein
specified. If applicable, the Master Servicer will give such notice to the
Certificate Registrar and the Custodian at the time such notice is given to
Certificateholders. In the event such notice is given, the Master Servicer shall
deposit in the Certificate Account on the applicable Distribution Date an amount
equal to the final distribution in respect of the Certificates. Upon
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certification to the Trustee by a Servicing Officer following such final
deposit, the Trustee shall promptly release or shall cause the applicable
Custodian to release to the Master Servicer in accordance with the reason for
the final distribution, the Contract Files for the Contracts.
In the event that all of the Certificateholders shall not surrender their
Certificates for cancellation within six months after the date specified in the
above mentioned written notice, the Master Servicer shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice all the Certificates shall not have been
surrendered for cancellation, the Master Servicer may take appropriate steps, or
may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto.
ARTICLE X.
MISCELLANEOUS PROVISIONS
SECTION 10.01. Amendment.
This Agreement may be amended from time to time by the Depositor, the
Master Servicer and the Trustee, without the consent of any of the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions herein, to amend any provision hereof to the extent necessary or
desirable to maintain the rating or ratings assigned to each Class of
Certificates by the Rating Agency, or to make such other provisions with respect
to matters or questions arising under this Agreement as shall not be
inconsistent with any other provisions herein; provided that such action shall
not, as evidenced by an Opinion of Counsel, adversely affect in any material
respect the interests of any Certificateholder. This Agreement may also be
amended with the consent of Certificateholders in the manner set forth in the
Reference Agreement.
SECTION 10.02. Recordation of Agreement; Counterparts.
This Agreement is subject to recordation in all appropriate public offices
for records in all the counties or other comparable jurisdictions in which any
or all of the Manufactured Homes are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Master Servicer at its expense or direction by the Trustee, but only upon
direction of the Trustee accompanied by an Opinion of Counsel to the effect that
such recordation
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materially and beneficially affects the interests of Certificateholders.
For the purpose of facilitating the recordation of this Agreement as herein
provided and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts shall constitute but one and the same
instrument.
SECTION 10.03. Governing Law.
This Agreement shall be construed in accordance with and governed by the
substantive laws of the [State of __________] applicable to agreements made and
to be performed in the (State of ____________) and the obligations, rights and
remedies of the parties hereto and the Certificateholders shall be determined in
accordance with such laws.
[SECTION 10.04. Intention of Parties.
The execution and delivery of this Agreement shall constitute an
acknowledgment by the Depositor and the Trustee on behalf of the
Certificateholders that they intend hereby to establish (for federal income tax
purposes) a trust rather than an association taxable as a corporation. The
powers granted an obligations undertaken in this Agreement shall be construed so
as to further such intent.]
SECTION 10.05. Notices.
All demands and notices hereunder shall be given in writing and shall be
deemed to have been duly given if personally delivered at or mailed by
registered mail, postage prepaid, to (a) in the case of the Depositor, Asset
Backed Securities Corporation., __________________________, Attention:
____________, (b) in the case of the Master Servicer, [_____________________]
Attention: [________________] or such other address as may be hereafter
furnished to the Depositor and the Trustee by the Master Servicer in writing,
(c) in the case of the Trustee, [_____________________] Attention: ____________
[ ], or such other address as may hereafter be furnished to the Depositor and
the Master Servicer in writing by the Trustee.
SECTION 10.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the
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<PAGE>
other provisions of this Agreement or of the Certificates or the rights of the
Holders thereof.
SECTION 10.07. Assignment.
Notwithstanding anything to the contrary contained herein, except as
provided in Section 6.02 and 6.04, this Agreement may not be assigned by the
Master Servicer without the prior written consent of the Trustee and the
Depositor.
SECTION 10.08. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement of the Trust Fund, nor entitle such Certificateholder's
legal representative or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a petition or winding up of the Trust
Fund, or otherwise affect the rights, obligations and liabilities of the parties
hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
herein or in the Reference Agreement or in any manner otherwise control the
operation and management of the Trust Fund, or the obligations of the parties
hereto, nor shall anything herein set forth or contained in the terms of the
Certificates be construed so as to constitute the Certificateholder from time to
time as partners or members of an association; nor shall any Certificateholder
be under any liability to any third party by reason of any action taken by the
parties to this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of an Event
of Default and of the continuance thereof, as herein before provided, and unless
the Holders of Certificates evidencing not less than 25% of the Voting Rights
evidenced by the Certificates shall also have made written request upon the
Trustee to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses, and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Holders of any other of
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<PAGE>
the Certificates, or to obtain or seek to obtain priority over or preference to
any other such Holder or to enforce any right under this Agreement, except in
the manner herein provided and for the equal, ratable and common benefit of all
Certificateholders. For the protection and enforcement of the provisions of this
Section 10.08, each and every Certificateholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity.
SECTION 10.09. Inspection and Audit Rights.
The Master Servicer agrees that, on reasonable prior notice, it will permit
any representative of the Depositor or the Trustee during the Master Servicer's
normal business hours, to examine all the books of account, records, reports and
other papers of the Master Servicer relating to the Contracts, to make copies
and extracts therefrom, to cause such books to be audited by independent
certified public accountants selected by the Depositor or the Trustee and to
discuss its affairs, finances and accounts relating the Contracts with its
officers, employees and independent public accountants (and by this provision
the Master Servicer hereby authorizes said accountants to discuss with such
representative such affairs, finances and accounts), all at such reasonable
times and as often as may be reasonably requested. Any expense incident to the
exercise by the Depositor or the Trustee of any right under this Section 10.09
shall be borne by the Depositor or the Trustee, provided that if an audit is
made during the existence of an Event of Default, the expense incident to such
audit shall be borne by the Master Servicer.
SECTION 10.10. Certificates Nonassessable and Fully Paid.
It is the intention of the Trustee that Certificateholders shall not be
personally liable for obligations of the Trust Fund, that the interests in the
Trust Fund represented by the Certificates shall be nonassessable for any reason
whatsoever, and that the Certificates, upon due authentication thereof by the
Trustee pursuant to this Agreement, are and shall be deemed fully paid.
SECTION 10.11. REMIC Treatment.
The provisions of this Agreement shall be construed so as to carry out the
intention of the parties that the Trust Fund be treated as a REMIC at all times
until the Certificates are retired and this Agreement is terminated pursuant to
Article IX or Article XIV.
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<PAGE>
IN WITNESS WHEREOF, the Depositor, the Master Servicer and the Trustee have
caused their names to be signed hereto by their respective officers thereunto
duly authorized and their respective seals, duly attested, to be hereunto
affixed, all as of the day and year first above written.
ASSET BACKED SECURITIES
CORPORATION, as Depositor
By ______________________________
Title
[Seal]
Attest:____________________
Secretary
[NAME OF MASTER SERVICER],
as Master Servicer
By ______________________________
Title
[Seal]
Attest:_____________________
Assistant Secretary
[NAME OF TRUSTEE], as Trustee
By ______________________________
Title
[Seal]
Attest:_____________________
Assistant Secretary
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<PAGE>
State of New York )
) ss.:
County of New York )
On this ____the day of ________, 199_ before me, a notary public in and for said
State, appeared _________________, known to me to be an ________________ of
Asset Backed Securities Corporation, one of the corporations that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year in this certificate first above written.
______________________________
Notary Public
[Notarial Seal]
State of New York )
) ss.:
County of New York )
On this ____the day of ________, 199_ before me, a notary public in and for said
State, appeared _________________, known to me to be an _______________ of State
[_______________], the [_______________] corporation that executed the within
instrument, and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year in this certificate first above written.
______________________________
Notary Public
[Notarial Seal]
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<PAGE>
State of New York )
) ss.:
County of New York )
On this ____the day of ________, 199_ before me, a notary public in and for said
State, personally appeared _________________, known to me to be an
_______________ of [_______________], one of the corporations that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the
day and year in this certificate first above written.
______________________________
Notary Public
[Notarial Seal]
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Exhibit 4.2.4
- ------------------------------------------------------------------------------
------------------------------------------------------------
ASSET BACKED SECURITIES CORPORATION,
DEPOSITOR
[Name of Master Servicer],
MASTER SERVICER
and
[Name of Trustee],
TRUSTEE
------------------------
STANDARD TERMS AND PROVISIONS
OF
POOLING AND SERVICING AGREEMENT
Dated as of , 199_
------------------------
CONDUIT MORTGAGE PASS-THROUGH CERTIFICATES
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Administrative Fee......................................................... 1
Agreement.................................................................. 1
Alternative Credit Support................................................. 1
Appraised Value............................................................ 1
Authenticating Agent....................................................... 1
Business Day............................................................... 2
Buydown Funds.............................................................. 2
Buydown Mortgage Loan...................................................... 2
Certificate................................................................ 2
Certificate Account........................................................ 2
Certificate Register and Certificate Registrar............................. 2
Certificateholder or Holder................................................ 2
Class...................................................................... 3
Code....................................................................... 3
Corporate Trust Office..................................................... 3
Credit Support............................................................. 3
Custodial Account.......................................................... 3
Custodial Agreement........................................................ 3
Custodian.................................................................. 3
Cut-off Date............................................................... 3
Deleted Mortgage Loan...................................................... 3
Delivery Date.............................................................. 3
Depositor.................................................................. 4
Determination Date......................................................... 4
Distribution Date.......................................................... 4
Due Date................................................................... 4
Eligible Account........................................................... 4
Eligible Investments....................................................... 4
Event of Default........................................................... 5
FDIC....................................................................... 5
FHA........................................................................ 5
FHA Certificate of Mortgage Insurance...................................... 5
FHA Loan................................................................... 6
FHA Regulations............................................................ 6
FHLMC...................................................................... 6
FNMA....................................................................... 6
FSLIC...................................................................... 6
Insurance Policy........................................................... 6
Insurance Proceeds......................................................... 6
Insured Expenses........................................................... 6
L/C Bank................................................................... 7
Letter of Credit........................................................... 7
Liquidating Loan........................................................... 7
Liquidation Expenses....................................................... 7
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Liquidation Proceeds....................................................... 8
Loan-to-Value Ratio........................................................ 8
Master Servicer............................................................ 8
Monthly Advance............................................................ 8
Mortgage................................................................... 8
Mortgage File.............................................................. 8
Mortgage Loan Schedule..................................................... 8
Mortgage Loans............................................................. 9
Mortgage Note.............................................................. 10
Mortgage Rate.............................................................. 10
Mortgaged Property......................................................... 10
Mortgagor.................................................................. 10
Mortgagor Bankruptcy Bond.................................................. 10
Nonrecoverable Advance..................................................... 10
Nonsubserviced Mortgage Loan............................................... 10
Officers' Certificate...................................................... 10
Opinion of Counsel......................................................... 10
Pass-Through Rate.......................................................... 11
Paying Agent............................................................... 11
Performance Bond........................................................... 11
Person..................................................................... 11
Pool Insurance Policy...................................................... 11
Pool Insurer............................................................... 11
Primary Mortgage Insurance Policy.......................................... 11
Principal Balance.......................................................... 11
Principal Prepayment....................................................... 11
Purchase Price............................................................. 12
Purchase Year.............................................................. 12
Qualified Insurer.......................................................... 12
Rating Agency.............................................................. 12
REMIC...................................................................... 13
Replacement Mortgage Loan.................................................. 13
Required Insurance Policy.................................................. 13
Reserve Fund............................................................... 13
Responsible Officer........................................................ 13
Retained Yield............................................................. 13
Series..................................................................... 13
Servicer................................................................... 14
Servicer Advance........................................................... 14
Servicer Remittance Date................................................... 14
Servicing Account.......................................................... 14
Servicing Fee.............................................................. 14
Servicing Officer.......................................................... 14
Single Certificate......................................................... 14
Special Hazard Insurance Policy............................................ 15
Special Hazard Insurer..................................................... 15
Subordinated Certificates.................................................. 15
Trust Fund................................................................. 15
Trust Receipt.............................................................. 15
Trustee.................................................................... 15
Uninsured Cause............................................................ 15
VA......................................................................... 15
VA Loan.................................................................... 15
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
VA Loan Guaranty Certificate............................................... 15
VA Regulations............................................................. 16
Voting Rights.............................................................. 16
Warranty and Servicing Agreement........................................... 16
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
REPRESENTATIONS AND WARRANTIES
SECTION 2.01 Conveyance of Mortgage Loans............................. 16
SECTION 2.02 Acceptance by Trustee.................................... 19
SECTION 2.03 Representations, Warranties and
Covenants of the Master Servicer....................... 20
SECTION 2.04 Representations, Warranties and
Covenants of the Depositor as to the
Mortgage Loans......................................... 25
SECTION 2.05 Representations and Warranties of Servicers.............. 28
SECTION 2.06 Assignment of Rights under Warranty
and Servicing Agreements............................... 30
ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
SECTION 3.01 Master Servicer to Act as Master Servicer................ 30
SECTION 3.02 Enforcement of the Obligations
of Servicers........................................... 32
SECTION 3.03 Successor Servicers...................................... 33
SECTION 3.04 Termination of the Rights of Servicers................... 33
SECTION 3.05 Liability of the Master Servicer......................... 34
SECTION 3.06 Rights of the Depositor and the Trustee
In Respect of the Master Servicer...................... 34
SECTION 3.07 Trustee to Act as Servicer............................... 35
SECTION 3.08 Collection of Mortgage Loan Payments;
Certificate Account.................................... 35
SECTION 3.09 Servicing Accounts....................................... 38
SECTION 3.10 Collection of Taxes, Assessments and Similar
Items; Escrow Accounts................................. 39
SECTION 3.11 Access to Certain Documentation and
Information Regarding the Mortgage Loans............... 40
SECTION 3.12 Permitted Withdrawals from the Certificate
Account................................................ 40
SECTION 3.13 Maintenance of the Pool Insurance Policy,
Primary Mortgage Insurance Policies,
FHA Insurance and VA Loan Guarantees;
Collections Thereunder................................. 42
SECTION 3.14 Maintenance of Hazard Insurance, the
Special Hazard Insurance Policy and
Other Insurance........................................ 44
SECTION 3.15 Enforcement of Due-on-Sale Clauses;
Assumption Agreements.................................. 47
SECTION 3.16 Realization Upon Defaulted Mortgage Loans................ 49
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 3.17 Trustee to Cooperate; Release of Mortgage
Files.................................................. 49
SECTION 3.18 Documents, Records and Funds in Possession
of Master Servicer to be Held for the
Depositor and the Trustee.............................. 51
SECTION 3.19 Servicing Compensation; Retained Yield................... 52
SECTION 3.20 Reports to the Trustee and the Depositor;
Certificate Account Statements......................... 52
SECTION 3.21 Annual Statement as to Compliance........................ 52
SECTION 3.22 Annual Independent Public Accountants'
Servicing Report....................................... 53
SECTION 3.23 Maintenance of the Mortgagor Bankruptcy Bond;
Collections Thereunder................................. 54
SECTION 3.24 Letter of Credit......................................... 54
SECTION 3.25 Reserve Fund............................................. 55
SECTION 3.26 Administration of Buydown Funds.......................... 56
ARTICLE IV
ADVANCES BY THE MASTER SERVICER; PERFORMANCE BOND
SECTION 4.01 Monthly Advances......................................... 57
SECTION 4.02 Advances for Attorneys' Fees............................. 58
SECTION 4.03 Advances for Amounts Collected by Servicer
but Not Remitted....................................... 58
SECTION 4.04 Nonrecoverable Advances.................................. 59
SECTION 4.05 Advances for Additional Interest In
Connection with Principal Prepayments.................. 59
SECTION 4.06 Performance Bond......................................... 60
ARTICLE V
THE CERTIFICATES
SECTION 5.01 The Certificates......................................... 61
SECTION 5.02 Registration of Transfer and Exchange of
Certificates........................................... 62
SECTION 5.03 Mutilated, Destroyed, Lost or Stolen
Certificates........................................... 63
SECTION 5.04 Persons Deemed Owners.................................... 63
SECTION 5.05 Access to List of Certificateholders' Names
and Addresses.......................................... 64
SECTION 5.06 Maintenance of Office or Agency.......................... 64
ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
SECTION 6.01 Respective Liabilities of the Depositor
and the Master Servicer................................ 65
SECTION 6.02 Merger or Consolidation of the Depositor
and the Master Servicer................................ 65
SECTION 6.03 Limitation on Liability of the Depositor,
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
the Master Servicer and Others......................... 66
SECTION 6.04 Master Servicer Not to Resign............................ 67
SECTION 6.05 Errors and Omissions Insurance; Fidelity
Bonds.................................................. 67
ARTICLE VII
DEFAULT
SECTION 7.01 Events of Default........................................ 67
SECTION 7.02 Trustee to Act; Appointment of Successor................. 69
SECTION 7.03 Notification to Certificateholders....................... 70
ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01 Duties of Trustee........................................ 71
SECTION 8.02 Certain Matters Affecting the Trustee.................... 72
SECTION 8.03 Trustee Not Liable for Mortgage Loans.................... 73
SECTION 8.04 Trustee May Own Certificates............................. 73
SECTION 8.05 Master Servicer to Pay Trustee's Fees and
Expenses............................................... 73
SECTION 8.06 Eligibility Requirements for Trustee..................... 73
SECTION 8.07 Resignation and Removal of the Trustee................... 74
SECTION 8.08 Successor Trustee........................................ 74
SECTION 8.09 Merger or Consolidation of Trustee....................... 75
SECTION 8.10 Appointment of Authenticating Agent...................... 75
SECTION 8.11 Appointment of Co-Trustee or Separate
Trustee................................................ 77
SECTION 8.12 Tax Returns.............................................. 78
SECTION 8.13 Appointment of Custodians................................ 79
ARTICLE IX
TERMINATION
SECTION 9.01 Termination upon Repurchase by the
Depositor.............................................. 79
SECTION 9.02 Final Distribution on the Certificates................... 80
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01 Amendment................................................ 80
SECTION 10.02 Recordation of Agreement; Counterparts................... 81
SECTION 10.03 Governing Law............................................ 81
SECTION 10.04 Intention of Parties..................................... 81
SECTION 10.05 Notices.................................................. 81
SECTION 10.06 Severability of Provisions............................... 82
SECTION 10.07 Assignment............................................... 82
SECTION 10.08 Limitation on Rights of Certificateholders............... 82
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 10.09 Inspection and Audit Rights.............................. 83
SECTION 10.10 Certificates Nonassessable and Fully Paid................ 84
SECTION 10.11 REMIC Treatment.......................................... 84
</TABLE>
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<PAGE>
THESE STANDARD TERMS AND PROVISIONS OF POOLING AND SERVICING AGREEMENT, are
dated as of ________, 199_, among ASSET BACKED SECURITIES CORPORATION, as
depositor (the "Depositor"), [Name of Master Servicer], as master servicer (the
"Master Servicer") and [Name of Trustee], as trustee (the "Trustee") and are
incorporated by reference in the Reference Agreement (as hereinafter defined),
to the extent set forth therein. Upon execution of the Reference Agreement, this
document, as amended and supplemented by the Reference Agreement, represents the
agreement of the parties with respect to the sale and servicing of the Mortgage
Loans to the Trust named in such Reference Agreement.
In consideration of the mutual agreements herein contained, the Depositor,
the Master Servicer and the Trustee agree, in addition to the matters set froth
in the Reference Agreement, as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
Administrative Fee: With respect to any Mortgage Loan, the percentage rate
per annum of the Principal Balance of each Mortgage Loan that is payable to the
Depositor out of each payment on account of interest of such Mortgage Loan,
exclusive of any Retained Yield, Servicing Fee and servicing compensation
payable to the Servicer of such Mortgage Loan. The Administrative Fee is
reserved for the administration of the Trust Fund, and may be fixed or variable,
as specified in the Reference Agreement.
Agreement: This Standard Terms and Provisions of Pooling and Servicing,
together with the Reference Agreement with respect to a Series, and any and all
amendments or supplements hereto or thereto.
Alternative Credit Support: Any method of credit support, other than the
methods of Credit Support specified herein and other than Subordinated
Certificates, as provided for in the applicable Reference Agreement.
Appraised Value: The appraised value of the Mortgaged Property based upon
the appraisal made for the originator at the time of the origination of the
related Mortgage Loan, or the sales price of the Mortgaged Property at the time
of such origination, whichever is less.
<PAGE>
Authenticating Agent: The Authenticating Agent appointed pursuant to
Section 8.10 hereof and identified in the Reference Agreement, which is
authorized by the Trustee to act on behalf of the Trustee to authenticate the
Certificates. The Authenticating Agent may be the Depositor or any Person
directly or indirectly controlling or controlled by or under common control with
the Depositor.
Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a day
on which banking institutions in New York are authorized or obligated by law or
executive order to be closed.
Buydown Funds: Any amount contributed by the seller of a Mortgaged
Property, the Depositor, the Seller or another source in order to enable the
Mortgagor to reduce the payments required to be made by the Mortgagor from the
Mortgagor's funds in the early years of a Mortgage Loan.
Buydown Mortgage Loan: Any Mortgage Loan as to which a specified amount of
interest is paid out of related Buydown Funds in accordance with a buydown
agreement.
Certificate: Any one of the certificates executed by the Depositor and
authenticated by or on behalf of the Trustee in substantially the form or forms
attached as Exhibits to the Reference Agreement. The Certificates may be issued
in such Classes or Subclasses and with such characteristics as are specified in
the applicable Reference Agreement.
Certificate Account: The non-interest-bearing deposit account or accounts
created and maintained by the Master Servicer pursuant to Section 3.08, in the
name of the Trustee for the benefit of Certificateholders for deposit of
payments and collections in respect of the Mortgage Loans pursuant to Section
3.08 hereof, which account or accounts must be an Eligible Account or Accounts.
Certificate Register and Certificate Registrar: Respectively, the register
maintained pursuant to Section 5.02 hereof, and the registrar appointed and
identified in the Reference Agreement.
Certificateholder or Holder: The person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purposes of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or the Master Servicer or any affiliate thereof shall be
deemed not to be outstanding and the interest evidenced thereby shall not be
taken into account in determining whether the requisite percentage of
Certificates necessary to effect any such consent has been obtained.
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<PAGE>
Class: With respect to a Series of Certificates, all of the Certificates of
such Series designated in the applicable Reference Agreement as a class.
Code: The Internal Revenue Code of 1986, including any successor or
amendatory provisions.
Corporate Trust Office: The principal office of the Trustee in [name of
state] at which at any particular time its corporate business shall be
administered, which office at the date of the execution of this Agreement is
located at [address].
Credit Support: The Pool Insurance Policy, the Special Hazard Insurance
Policy, the Letter of Credit, the Mortgagor Bankruptcy Bond, the Reserve Fund or
the Alternative Credit Support specified in the Reference Agreement.
Custodial Account: If so specified in the Reference Agreement with respect
to a Series, the non-interest-bearing deposit account or accounts created and
maintained by the Master Servicer pursuant to Section 3.08 in lieu of the
Certificate Account in the name of the Trustee for the benefit of the
Certificateholders, which account or accounts must be an Eligible Account or
Accounts. Amounts in such Custodial Account will be remitted, net of amounts
withdrawn pursuant to Section 3.12, to a Certificate Account maintained by the
Trustee pursuant to such Reference Agreement.
Custodial Agreement: The Custodial Agreement, if any, from time to time in
effect, among the Master Servicer, the Trustee and the Custodian named therein
(if the Trustee is not the Custodian) in substantially the form set forth as an
Exhibit to the Reference Agreement.
Custodian: The Custodian or Custodians identified in the Reference
Agreement and named pursuant to one or more Custodial Agreements as may from
time to time be in effect, or its successor in interest. The Custodian may be
the Trustee, or any Person directly or indirectly controlling or controlled by
or under common control with the Trustee, or an independent entity.
Cut-off Date: The first day of the month of the initial issuance of a
Series of Certificates, as specified in the related Reference Agreement.
Deleted Mortgage Loan: With respect to a Series of Certificates, a Mortgage
Loan replaced or to be replaced by a Replacement Mortgage Loan.
Delivery Date: The date of settlement of the sale of the Certificates to
the original purchasers thereof, as specified in the Reference Agreement with
respect to a Series of Certificates.
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<PAGE>
Depositor: Asset Backed Securities Corporation, a Delaware corporation, or
its successor in interest.
Determination Date: The 20th day (or if such 20th day is not a Business
Day, the Business Day immediately preceding such 20th day) of the month of the
related Distribution Date.
Distribution Date: The 25th day of each calendar month after the initial
issuance of the Series of Certificates, or if the 25th day is not a Business
Day, the next succeeding Business Day, unless otherwise specified in the
applicable Reference Agreement.
Due Date: Unless otherwise specified in the Reference Agreement, the first
day of the month in which the related Distribution Date occurs.
Eligible Account: An account (i) that is maintained with a depository
institution or trust company incorporated under the laws of the United States or
of any state thereof and the amounts deposited therein shall be held in the form
of Eligible Investments of (ii) meeting the requirements established for a
Servicing Account.
Eligible Investments: Unless otherwise specified in the Reference Agreement
with respect to a Series, at any time, any one or more of the following
obligations, instruments and securities:
(i) obligations of the United States or any agency thereof, provided
such obligations are backed by the full faith and credit of the United States;
(ii) general obligations of or obligations guaranteed by any state of
the United States or the District of Columbia receiving one of the two highest
ratings of the Rating Agency, or such lower ratings as will not result in the
downgrading or withdrawal of the ratings then assigned to the Certificates by
the Rating Agency;
(iii) commercial or finance company paper which is then rated in the
highest commercial or finance company paper rating categories of the Rating
Agency, or such lower category as will not result in the downgrading or
withdrawal of the ratings then assigned to the Certificates by the Rating
Agency;
(iv) certificates of deposit, demand or time deposits, federal funds
or bankers' acceptances issued by any depository institution or trust company
incorporated under the laws of the United States or of any state thereof and
subject to supervision and examination by federal and/or state banking
authorities, provided that the commercial paper and/or long term
-4-
<PAGE>
debt obligations of such depository institution or trust company (or in the case
of the principal depository institution in a holding company system, the
commercial paper or long term debt obligations of such holding company) are then
rated in the highest rating category of the Rating Agencies, in the case of
commercial paper, or in the second highest category in the case of long term
debt obligations, or such lower categories as will not result in the downgrading
or withdrawal of the rating then assigned to the Certificates by the Rating
Agency;
(v) demand or time deposits or certificates of deposit issued by any
bank or trust company or savings and loan association and fully insured by the
FDIC or the FSLIC;
(vi) guaranteed reinvestment agreements issued by any bank, insurance
company or other corporation acceptable to the Rating Agency at the time of the
issuance of or investing in such guaranteed reinvestment agreements;
(vii) repurchase obligations with respect to any security described in
(i) and (ii) above or any other security issued or guaranteed by an agency or
instrumentality of the United States, in either case entered into with a
depository institution or trust company (acting as principal) described in (iv)
above;
(viii) securities bearing interest or sold at a discount issued by any
corporation or sold at a discount issued by any corporation incorporated under
the laws of the Untied States or any state thereof which, at the time of such
investment or contractual commitment providing for such investment are then
rated in one of the two highest categories of the Rating Agency, or in such
lower rating category as will not result in the downgrading or withdrawal of the
ratings then assigned to the Certificates by the Rating Agency; and
(ix) such other investments acceptable to the Rating Agency with
respect to mortgage pass-through certificates rated by the Rating Agency in the
same rating category as the Certificates of the related Series.
Event of Default: As defined in Section 7.01 hereof.
FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.
FHA: The Federal Housing Authority of the United States Department of
Housing and Urban Development or any successor department or agency of the
United States of America.
FHA Certificate of Mortgage Insurance: A Mortgage Insurance Certificate
(FHA Form No. 9100-1) evidencing that the FHA has insured the holder of the
related Mortgage Loan against
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loss sustained by reason of a default by the Mortgagor in the payment of
principal and interest thereon, or any other form of certificate hereafter
issued by the FHA evidencing similar coverage.
FHA Loan: A Mortgage Loan covered by a FHA Certificate of Mortgage
Insurance.
FHA Regulations: The regulations promulgated by the FHA from time to time
establishing the conditions to the issuance of an FHA Certificate of Mortgage
Insurance and the requirements for maintaining the insurance evidenced by such
certificate in effect and for the filing and payment of claims thereon.
FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.
FNMA: The Federal National Mortgage Association, a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, or any successor thereto.
FSLIC: The Federal Savings and Loan Insurance Corporation, or any successor
thereto.
Insurance Policy: With respect to any Mortgage Loan included in the Trust
Fund for a Series, any Primary Mortgage Insurance Policy, Pool Insurance Policy,
Special Hazard Insurance Policy, FHA Certificate of Mortgage Insurance, VA Loan
Guaranty Certificate or Mortgagor Bankruptcy Bond, including all riders and
endorsements thereto, as specified in the Reference Agreement with respect to
such Series.
Insurance Proceeds: Amounts paid pursuant to any Primary Mortgage Insurance
Policy, FHA Certificate of Mortgage Insurance, VA Loan Guaranty Certificate, or
the Pool Insurance Policy, Mortgagor Bankruptcy Bond, if any, with respect to a
Series and amounts paid pursuant to the Special Hazard Insurance Policy with
respect to such Series, when the related property has not been restored, and
amounts paid by any insurer pursuant to any other insurance policy covering a
Mortgage Loan.
Insured Expenses: Expenses covered by the Pool Insurance Policy, any
Primary Insurance Policy, the Mortgagor Bankruptcy Bond or the Special Hazard
Insurance Policy, any replacement insurance policy or policies for any of the
foregoing insurance policies, or any other insurance policy with respect to the
Mortgage Loans.
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L/C Bank: The issuer, if any, of the Letter of Credit with respect to a
Series of Certificates, as specified in the related Reference Agreement.
Letter of Credit: If so specified in the Reference Agreement with respect
to a Series of Certificates, the irrevocable stand-by letter of credit issued by
the L/C Bank in favor of the Trustee for the benefit for the Certificateholders,
terms of which, to the extent not specified herein, shall be as specified in
such Letter of Credit and in the Reference Agreement with respect to such
Series.
Liquidating Loan: A Mortgage Loan (including a mortgage loan formerly held
in the Trust Fund which has been assigned to the L/C Bank in consideration of
payments under the Letter of Credit) as to which, as of the close of business on
the Business Day next preceding the Due Date, the outstanding principal balance
under the related Mortgage Note has been accelerated (and as to which any
applicable rights of any Person having an interest in the Mortgaged Property to
reinstate the Mortgage Loan shall have expired ) and, with respect to which, for
satisfaction of such liquidated proceeds of the security for such Mortgage Loan,
including (without limitation) (a) from deed in lieu of foreclosure, sale in
foreclosure, trustee's sale or other realization as provided by applicable law
of real property subject to the related Mortgage and any security agreements,
(b) from claims under related private mortgage insurance or hazard insurance,
and/or (c) from claims against any public or governmental authority on account
of a taking or condemnation of any such property.
Liquidation Expenses: Expenses incurred by the Master Servicer (or the
related Servicer) in connection with the liquidation of any defaulted Mortgage
Loan and not recovered by the Master Servicer (or the related Servicer) under an
FHA Certificate of Mortgage Insurance or VA Loan Guaranty Certificate for
reasons other than the failure of the Master Servicer (or the related Servicer)
to comply with FHA Regulations or VA Regulations, as the case may be, the Pool
Insurance Policy, if any, with respect to a Series or any Primary Insurance
Policy for reasons other than the Master Servicer's failure to comply with
Section 3.13 hereof, or under any Alternative Credit Support, or with respect to
a Series of Certificates as to which credit support is provided by a Letter of
Credit, expenses incurred by the L/C Bank, such expenses including, without
limitation, legal fees and expenses, any unreimbursed amount expended by the
Master Servicer pursuant to Section 3.14 hereof in respect of the related
Mortgage and any related and unreimbursed expenditures for real estate property
taxes or for property restoration or preservation to the extent not previously
reimbursed under any hazard insurance policy or under the Special Hazard
Insurance Policy, if any, with respect to a Series, for reasons other than the
Master Servicer's failure to comply with Section 3.14 hereof.
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Liquidation Proceeds: Amounts (other than Insurance Proceeds, payments
under the Letter of Credit or the proceeds of any Alternative Credit Support)
received in connection with the liquidation of defaulted Mortgage Loans, whether
through trustee's sale, foreclosure sale or otherwise, or amounts received in
connection with any condemnation or partial release of a Mortgaged Property.
Loan-to-Value Ratio: As of any date, the fraction, expressed as a
percentage, the numerator of which is the current principal balance of the
related Mortgage Loan at the date of determination and the denominator of which
is the Appraised Value of the related Mortgaged Property.
Master Servicer: [Name of Master Servicer], a [ ] corporation, or its
successor in interest, or any successor master servicer appointed as herein
provided.
Monthly Advance: The aggregate of (i) the advances made by the Master
Servicer on any Distribution Date pursuant to Section 4.01 or 4.03 hereof, the
amount of any such advances being equal to the aggregate of payments of
principal and interest on the Mortgage Loans (in the case of Buydown Mortgage
Loans, exclusive of any such payments required by such Buydown Mortgage Loan to
be made out of Buydown Funds) that were due on the Due Date and delinquent as of
the close of business on the Business Day next preceding the related
Distribution Date and as to which the related Servicer, if any, has made no
advance, after adjustment of any delinquent interest payment to interest at the
Pass-Through Rate (after giving effect to the application of any Buydown Funds),
less the aggregate amount of any such delinquent payments that the Master
Servicer has determined would constitute a Nonrecoverable Advance if made and
(ii) any advances made by the Master Servicer on any Distribution Date pursuant
to Section 4.05.
Mortgage: The mortgage, deed of trust or other instrument creating a first
lien on an estate in fee simple interest in real property securing a Mortgage
Note.
Mortgage File: The mortgage documents listed in Section 2.01 hereof
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
Mortgage Loan Schedule: The list of Mortgage Loans transferred to the
Trustee as part of the Trust Fund for the Certificates and from time to time
subject to this Agreement, as from time to time amended by the Trustee (or by a
Custodian as the duly appointed agent of the Trustee) to reflect the addition of
Replacement Mortgage Loans and the deletion of Deleted Mortgage Loans pursuant
to the provisions of this Agreement and the Reference Agreement), attached to
the Reference Agreement.
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Such schedule will set forth the following information with respect to each
Mortgage Loan:
(i) the loan number;
(ii) the street address of the Mortgaged Property;
(iii) the Mortgage Rate:
(iv) the original term;
(v) the original principal balance;
(vi) the first payment date;
(vii) the current monthly payment in effect as of the Cut-off Date;
(viii) the principal balance as of the Cut-off Date;
(ix) the Loan-to-Value Ratio at origination;
(x) a code indicating whether the residential dwelling at the time of
origination was represented to be a primary residence, a second or vacation
home, or an investment property;
(xi) a code indicating whether the residential dwelling is a single
family dwelling, a two-to-four family dwelling, or a condominium unit in a
high-rise or low-rise development;
(xii) a code indicating the number of units in the residential
dwelling; and
(xiii) the Retained Yield.
Such schedule shall also set forth the total of the amounts described under
(viii) above for all of the Mortgage Loans, together with the aggregate
principal balance as of the Cut-Off Date of the Buy-Down Mortgage Loans, if any,
included in the related Trust Fund, and any additional information required by
the Reference Agreement. Such schedule may be in the form of more than one list
collectively setting forth all of the information required.
Mortgage Loans: Such of the mortgage loans transferred and assigned to the
Trustee pursuant to the provisions hereof and of the Reference Agreement as from
time to time are held as a part of the Trust Fund, the Mortgage Loans so held
being
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identified in the Mortgage Loan Schedule attached as Schedule I to the Reference
Agreement.
Mortgage Note: The originally executed note or other evidence of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
Mortgage Rate: The annual rate of interest borne by a Mortgage Note, which
may be fixed or variable, as specified in the related Reference Agreement.
Mortgaged Property: The underlying property securing a Mortgage Loan.
Mortgagor: The obligor on a Mortgage Note.
Mortgagor Bankruptcy Bond: If so provided for in the applicable Reference
Agreement, the bankruptcy bond obtained pursuant to Section 3.23.
Nonrecoverable Advance: Any portion of the Monthly Advance previously made
or proposed to be made by the Master Servicer (other than that portion of a
Monthly Advance made pursuant to Section 4.05 hereof) that, in the good faith
judgment of the Master Servicer, will not or, in the case of a current
delinquency, would not be, ultimately recoverable by the Master Servicer from
Insurance Proceeds, Liquidation Proceeds, payments under the Letter of Credit,
amounts in the Reserve Fund, or from proceeds of any Alternative Credit Support,
or otherwise. The determination by the Master Servicer that it has made a
Nonrecoverable Advance or that any proposed advance, if made, would constitute a
Nonrecoverable Advance, shall be evidenced by an Officers' Certificate of the
Master Servicer delivered to the Trustee and the Depositor, setting forth the
reasons for such determination as specified in Section 4.04 hereof.
Nonsubserviced Mortgage Loan: Any Mortgage Loan that is not subject to a
Servicing Agreement on the date of issuance of a Series of Certificates or
thereafter.
Officers' Certificate: A certificate signed by the Chairman of the Board,
the Vice Chairman of the Board, the President or a Vice President or Assistant
Vice President, and by the Treasurer, the Secretary or one of the Assistant
Treasurers or Assistant Secretaries of the Depositor or the Master Servicer, as
the case may be, and delivered to the Trustee, as required by this Agreement.
Opinion of Counsel: A written opinion of counsel, who may be counsel for
the Depositor or the Master Servicer, acceptable to the Trustee.
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Pass-Through Rate: As to each Mortgage Loan, the annual rate of interest,
which may be fixed or variable, as specified in the related Reference Agreement,
to be distributed to the Certificateholders in the manner specified in such
Reference Agreement. Any regular monthly remittance or accrual of interest shall
be based upon annual interest at such rate on the Principal Balance of such
Mortgage Loan divided by twelve.
Paying Agent: The Paying Agent identified in the Reference Agreement with
respect to a Series, authorized to make distributions on behalf of the Trustee.
Performance Bond: With respect to a Series of Certificates, the bond,
guaranty or similar form of insurance coverage obtained by the Master Servicer
pursuant to Section 4.06 hereof providing a guaranty of the performance of the
Master Servicer's obligations under this Agreement.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.
Pool Insurance Policy: If so specified in the Reference Agreement with
respect to a Series of Certificates for which credit support is provided by a
Pool Insurance Policy, the policy of mortgage pool guaranty insurance obtained
pursuant to Section 3.13, a form of which is attached as an Exhibit to such
Reference Agreement, or any replacement insurance policy obtained pursuant to
Section 3.13 hereof.
Pool Insurer: With respect to a Series of Certificates for which credit
support is provided by a Pool Insurance Policy, the insurer specified in the
Reference Agreement with respect to a Series, or any successor thereto or the
named insurer in any replacement policy obtained pursuant to Section 3.13
hereof.
Primary Mortgage Insurance Policy: Each primary policy of mortgage guaranty
insurance with respect to a Mortgage Loan, or any replacement policy therefor.
Principal Balance: As of the time of any determination, the principal
balance of a Mortgage Loan remaining to be paid by the Mortgagor or from any
Buydown Funds, after deduction of all payments due on or before the Cut-off
Date, reduced by all amounts distributed or advanced to the Certificateholders
or, if so specified in the related Reference Agreement, remitted or advanced to
the Trustee and reported as allocable to principal.
Principal Prepayment: Any Mortgagor payment or other recovery of principal
on a Mortgage Loan that is received in advance of its scheduled Due Date and is
not accompanied by an
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amount as to interest representing scheduled interest due
on any date or dates in any month or months subsequent to the month of
prepayment.
Purchase Price: Unless otherwise specified in the Reference Agreement, with
respect to any Mortgage Loan required to be purchased pursuant to the applicable
provisions of this Agreement, an amount equal to the sum of (i) the lesser of
(a) 100% of the Principal Balance of such Mortgage Loan and (b) in the event
that the Depositor elects to treat the Trust Fund with respect to the related
Series of Certificates as a REMIC under the Code, the adjusted basis (as defined
in the Code) of the Trust Fund in such Mortgage Loan as of the date of purchase,
plus (ii) one month's interest on such Principal Balance at the Pass- Through
Rate (so long as advances on account of interest have been made on account of
such Mortgage Loan, otherwise, accrued and unpaid interest on the Mortgage Note
at the Pass-Through Rate to the first day of the month following repurchase),
plus (iii) if such purchase is being made by a Servicer and advances on account
of interest have been made on account of such Mortgage Loan, the sum of all
advances made with respect to such Mortgage Loan by the Master Servicer for
which the Master Servicer has not been reimbursed.
Purchase Year: With respect to a Series of Certificates to which the
provisions of Section 2.03(b) are applicable, as specified in the Reference
Agreement with respect to such Series, the fiscal year ending on the date
specified in the Reference Agreement commencing with the year next succeeding
the year of the initial issuance of such Certificates.
Qualified Insurer: A mortgage guaranty insurance company duly qualified as
such under the laws of the state of its principal place of business and each
other state having jurisdiction over such insurer in connection with the
insurance policy issued by such insurer, duly authorized and licensed by the
insurance regulatory authority of the state of its principal place of business
and, to the extent required by applicable law, each such other state, to
transact a mortgage guaranty insurance business in such state and each other
state and to write the insurance provided by the insurance policy issued by it
and approved as an insurer by FHLMC or FNMA and whose claims-paying ability is
acceptable to the Rating Agency.
Rating Agency: Any nationally recognized statistical rating organization,
or any successor thereto, that rated the Certificates of a Series at the request
of the Depositor at the time of their initial issuance. If such organization or
successor is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical rating organization or other comparable Person designated
by the Depositor, notice of which designation shall be given to the Trustee and
Master Servicer.
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REMIC: A real estate mortgage investment conduit, as defined in the Code.
Replacement Mortgage Loan: A Mortgage Loan substituted by the Depositor or
the related Servicer for a Deleted Mortgage Loan which must, on the date of such
substitution, meet the requirements specified in the related Reference
Agreement. Such substitution must take place within the time period specified in
the Reference Agreement and must satisfy the terms and conditions for
substitution set forth therein.
Required Insurance Policy: With respect to any Mortgage Loan, any insurance
policy that is required to be maintained from time to time under this Agreement
or the related Warranty and Servicing Agreement in respect of such Mortgage
Loan.
Reserve Fund: If provided for in the Reference Agreement with respect to a
Series, the fund established and maintained pursuant to Section 3.25 hereof and
such Reference Agreement.
Responsible Officer: When used with respect to the Trustee, [the Chairman
or Vice Chairman of the Board of Directors or Trustees, the Chairman or Vice
Chairman of the Executive or Standing Committee of the Board of Directors or
Trustees, the President, the Chairman of the Committee on Trust Matters,] any
Vice President, any Assistant Vice President, the Secretary, any Assistant
Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant
Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any
Assistant Controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject.
Retained Yield: As set forth in the Reference Agreement, the portion of all
interest accrued at the applicable Mortgage Rate (which may differ among
Mortgage Loans, as specified in such Reference Agreement) of the outstanding
principal balance of each Mortgage Loan from time to time outstanding that is
retained by the Depositor hereunder, which is payable to the Depositor out of
the interest portion of all payments or collections received on or with respect
to the Mortgage Loan and, as the context requires, any similar amounts payable
to a Servicer under the terms of the related Warranty and Servicing Agreement.
Series: A separate series of Certificates issued pursuant to this
Agreement, which Certificates may, as provided in the related Reference
Agreement, be divided into one or more
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Classes or Subclasses with the characteristics specified in such Reference
Agreement.
Servicer: With respect to any Mortgage Loan, any Person who executed a
Warranty and Servicing Agreement applicable to such Mortgage Loan.
Servicer Advance: The meaning specified in Section 3.09 hereof.
Servicer Remittance Date: The __th day of each month, or if such day is not
a Business Day, the Business Day immediately preceding such __th day.
Servicing Account: A custodial demand deposit account or accounts
established by the Servicer pursuant to Section 3.09 hereof with (i) a
depository institution the long term unsecured debt obligations of which are
rated by the Rating Agency in one of its two highest rating categories at the
time of any deposit therein, or (ii) the deposits in which are fully insured by
the FDIC, or the FSLIC, or (iii) a depository institution in which such accounts
are insured by the FDIC or the FSLIC (to the limits established by the FDIC or
the FSLIC) the uninsured deposits in which are otherwise several such that, as
evidenced by an Opinion of Counsel, delivered to the Trustee, the
Certificateholders have a claim with respect to the funds in such account or a
perfected first security interest against any collateral (which shall be limited
to Eligible Investments) securing such funds that is similar to claims of any
other depositors or creditors of the depository institution with which such
account is maintained or (iv) any other account or accounts acceptable to the
Rating Agency rating the Certificates of the related Series.
Servicing Fee: With respect to each interest payment on a Mortgage Loan,
the amount of each interest payment in excess of the Pass-Through Rate, after
deduction of the Administrative Fee, the Retained Yield, and any servicing
compensation payable to the related Servicer (or, in the case of a
Nonsubserviced Loan, to the Master Servicer) pursuant to the related Warranty
and Servicing Agreement, as the case may be.
Servicing Officer: Any officer of the Master Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name appears on a list of servicing officers furnished to the Trustee by the
Master Servicer pursuant to Section 2.03, as such list may from time to time be
amended.
Single Certificate: A Certificate in the denomination and representing the
interest in the Trust Fund specified in the Reference Agreement.
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Special Hazard Insurance Policy: If so specified in the Reference
Agreement, credit support which is provided by a special hazard insurance
policy, a specimen of which is attached as an Exhibit to the Reference
Agreement, or any replacement policy obtained pursuant to Section 3.14 hereof.
Special Hazard Insurer: With respect to a Series of Certificates for which
credit support is provided by a Special Hazard Insurance Policy, the insurer
named in the related Reference Agreement, or any successor thereto, or the named
insurer in any replacement policy obtained pursuant to Section 3.14 hereof.
Subordinated Certificates: Any Certificates of a Series, the rights of the
holders of which to receive distributions on or with respect to the Mortgage
Loans in the Trust Fund for such Series are subordinated to the rights of the
holders of one or more Classes or Subclasses of such Series to receive such
distributions, as set forth in the related Reference Agreement.
Trust Fund: With respect to a Series of Certificates the corpus of the
trust created by this Agreement consisting of the Mortgage Loans and other
property specified in the related Reference Agreement.
Trust Receipt: The meaning specified in Section 3.17 hereof.
Trustee: [Name of Trustee], a [ ] corporation, not in its individual
capacity, but solely as trustee under this Agreement, and any successor thereto,
as provided herein.
Uninsured Cause: With respect to any Series of Certificates for which
credit support is provided by a Special Hazard Insurance Policy, any cause of
damage to Mortgaged Property such that the complete restoration of such
Mortgaged Property is not fully reimbursable by the hazard insurance policies or
by the Special Hazard Insurance Policy required to be maintained pursuant to
Section 3.14 hereof.
VA: The Veterans Administration, an agency of the United States of America,
or any successor department or agency.
VA Loan: A Mortgage Loan covered by a VA Loan Guaranty Certificate.
VA Loan Guaranty Certificate: A loan guaranty certificate (VA Form No.
26-1866a) or any similar certificate or instrument issued by the VA pursuant to
VA Regulations, evidencing that the VA has guaranteed the payment of a portion
of the principal and interest on a VA Loan.
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VA Regulations: The regulations promulgated by the VA from time to time
establishing the conditions to the issuance of a VA Loan Guaranty Certificate
and the requirements for maintaining the guaranty evidenced by such certificate
in effect for the filing and payment of claims thereon.
Voting Rights: The portion of the aggregate voting rights evidenced by the
Certificates of a Series that is allocated to any particular Certificate, as
specified in the Reference Agreement.
Warranty and Servicing Agreement: A Master Seller's Warranty and Servicing
Agreement, providing for the origination, sale and servicing of Mortgage Loans
in such form as has been approved by the Depositor, each containing
representations and warranties in respect of the Mortgage Loans sold and
serviced thereunder.
The meaning of certain defined terms used in this Agreement shall, when
applied to a particular Series of Certificates and certain defined terms
applicable to such Series, be as defined in the Reference Agreement with respect
to such Series.
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
REPRESENTATIONS AND WARRANTIES
SECTION 2.01 Conveyance of Mortgage Loans.
The Depositor, concurrently with the execution and delivery of a Reference
Agreement, shall, in the manner specified below and in such Reference Agreement
sell, transfer, assign, set over and otherwise convey to the Trustee, without
recourse, all the right, title and interest of the Depositor in and to the
Mortgage Loans listed on the Mortgage Loan Schedule attached to such Reference
Agreement, including all interest and principal received or receivable by the
Depositor on or with respect to the Mortgage Loans after the Cut-off Date, but
not including payments of principal and interest due and payable on the Mortgage
Loans on or before the Cut-off Date and other than with respect to any Retained
Yield specified in the Reference Agreement together with all its right, title
and interest in and to the proceeds of any related Insurance Policies under
which the Trustee is not named as loss payee and any other insurance policies
with respect to the Mortgage Loans.
In connection with any such transfer and assignment, the Depositor shall
deliver to, and deposit with, the Trustee, or to any Custodian appointed by the
Trustee pursuant to this
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Agreement as the agent of the Trustee, the following documents or instruments
with respect to each Mortgage Loan so assigned:
(i) the Mortgage Note, endorsed without recourse by the Depositor
to order of the Trustee, as trustee for the benefit of the
Certificateholders of the related Series, signed in the name of the
Depositor by an Authorized Officer, with all intervening endorsements
showing a complete chain of title from the originator thereof to the
Depositor; and if the Mortgage Note or Mortgage or any other material
document or instrument relating to the Mortgage Loan has been signed
on behalf of the Mortgagor by another person, the original power of
attorney or other instrument that authorized and empowered such person
to sign, or, a copy of the original power of attorney or other
instrument certified by the public recording office in those instances
where the public recording office retains the original;
(ii) the original Mortgage, as recorded, with evidence of
recording indicated thereon, or a copy of the Mortgage certified by
the public recording office in those instances where the public
recording office retains the original;
(iii) an assignment (which may be included in a blanket
assignment) of the Mortgage in recordable form to the Trustee, as
trustee for the benefit of the Certificateholders of the related
Series;
(iv) any Insurance Policies;
(v) the original policy of title insurance or, if such policy has
not been delivered to the Depositor prior to the Delivery Date, an
original binder of title insurance;
(vi) the original assignment or assignments of the Mortgage,
together with originals of all intervening assignments, with evidence
of recording thereon;
(vii) the original copy of all assumption and modification
agreements, if any, with respect to such Mortgage Loan;
(viii) the original commitment or certificate of Primary Mortgage
Insurance Policy, if any;
(ix) the Letter of Credit, if any; and
(x) any Alternative Credit Support.
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In the event that, in connection with any Mortgage Loan, the Depositor
cannot deliver the original recorded Mortgage or an original recorded assignment
of the Mortgage with evidence of recording thereon concurrently with the
execution and delivery of the Reference Agreement solely because of a delay
caused by the public recording office where such Mortgage has been delivered for
recordation, the Depositor shall deliver, or cause the related Servicer to
deliver, to the Trustee (or to a Custodian on behalf of the Trustee), an
Officers' Certificate or a certificate of the related Servicer, with a photocopy
of such Mortgage or assignment of the Mortgage attached thereto, stating that
such Mortgage or assignment of the Mortgage has been delivered to the
appropriate public recording official for recordation. The Depositor shall
promptly deliver, or cause the related Servicer to deliver, to the Trustee (or
to a Custodian on behalf of the Trustee) such Mortgage or assignment of the
Mortgage with evidence of recording indicated thereon upon receipt thereof from
the public recording official or from the related Servicer. From time to time
the Servicers or the Master Servicer may forward to the Trustee (or to a
Custodian on behalf of the Trustee) additional original documents evidencing an
assumption or modification of a Mortgage Loan.
The Trustee (or a Custodian on behalf of the Trustee) shall cause to
berecorded in the appropriate public office for real property records each
assignment referred to in this Section 2.01. If any assignment is returned
unrecorded to the Trustee (or to such Custodian) because of any defect therein,
the Trustee shall promptly notify the Master Servicer and the Depositor. The
Master Servicer shall promptly notify the related Servicer of such defect and
request that such Servicer cure or correct such defect and cause such assignment
to be recorded in accordance with this paragraph or, if such Servicer does not
cure or correct such defect or in the event such defect cannot be so cured, that
such Servicer either (a) substitute a Replacement Mortgage Loan or Loans for the
related Mortgage Loan, which substitution must occur within the time period
specified in the Reference Agreement and which shall be subject to the
conditions set forth in Section 2.04 and terms and conditions with respect to
substitution in the Reference Agreement; or (b) repurchase such Mortgage Loan at
the Purchase Price therefor, in the manner provided in Section 2.02 hereof.
In the case of Mortgage Loans that have been prepaid in full after the
Cut-off Date and prior to the date of execution and delivery of the Reference
Agreement, the Depositor, in lieu of delivering the above documents to the
Trustee, will deposit in the Certificate Account the amount with respect to such
payment that is required to be deposited in the Certificate Account pursuant to
Section 3.08 hereof.
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All original documents relating to the Mortgage Loans that are not
delivered to the Trustee or the respective Custodian, if any , are and shall be
held in trust for the benefit of the Trustee on behalf of the
Certificateholders.
SECTION 2.02 Acceptance by Trustee.
The Trustee (or the respective Custodian as the duly appointed agent of the
Trustee) will hold the documents referred to in Section 2.01 above and the other
documents constituting a part of the Mortgage Files delivered to it (or to such
Custodian) with respect to a Series in trust for the use and benefit of all
present and future Certificateholders of such Series. Upon request by any Holder
of a Certificate of such Series, the Trustee will provide an initial
certification acknowledging receipt of the proper number of Mortgage Files and
that they appear regular on their face on and as of the date of this Agreement.
The Trustee shall, for the benefit of the Holders of the Certificates of such
Series, review, or cause a Custodian on its behalf to review, each Mortgage File
within 60 days after the execution and delivery of the related Reference
Agreement, to ascertain that all required documents have been executed, received
and recorded, if applicable, and that such documents relate to the Mortgage
Loans identified in the Mortgage Loan Schedule attached to such Reference
Agreement. If, in the course of such review, the Trustee (or any such Custodian)
finds any document or documents constituting a part of a Mortgage File to be
defective in any material respect, the Trustee shall promptly so notify the
Master Servicer and the Depositor. The Master Servicer shall promptly notify the
related Servicer of such defect and request that such Servicer correct or cure
such defect within 60 days from the date the Master Servicer was notified of
such defect and, if such Servicer does not correct or cure such defect within
such period, that such Servicer, if and to the extent that such Servicer is
obligated to do so under the related Warranty and Servicing Agreement, either
(a) substitute for the related Mortgage Loan a Replacement Mortgage Loan or
Loans, which substitution shall be accomplished within the time period specified
in the Reference Agreement, in the manner and subject to the conditions set
forth in this Section and in the Reference Agreement; or (b) purchase such
Mortgage Loan from the Trustee within 90 days from the date the Master Servicer
was notified of such defect at the Purchase Price of such Mortgage Loan. The
Purchase Price for any such Mortgage Loan shall be deposited by such Servicer in
the Certificate Account maintained by the Master Servicer pursuant to Section
3.08 hereof and, upon receipt by the Trustee of written notification of such
deposit signed by a Servicing Officer, the Trustee shall release, or shall cause
the related Custodian to release, the related Mortgage File to such Servicer,
and shall execute and deliver such instruments of transfer or assignment, in
each case without recourse, as shall be necessary to vest in such Servicer or
its designee title to any Mortgage Loan released pursuant hereto. It is
understood and
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agreed that the obligation of the Servicer to substitute for or to purchase any
Mortgage Loan as to which a material defect in a constituent document exists
shall constitute the sole remedy respecting such defect available to the Trustee
on behalf of the Certificateholders, except as set forth below.
If so specified in the Reference Agreement, in the event that a Servicer
fails to repurchase any Mortgage Loan that it is required to purchase pursuant
to this Section 2.02, the Master Servicer shall purchase such Mortgage Loan at
the Purchase Price and in the manner set forth above, within five Business Days
of the Master Servicer's receipt of written demand therefor from the Trustee.
Upon receipt by the Trustee of written notification of the deposit of the
Purchase Price pursuant to Section 3.08 hereof, signed by a Servicing Officer,
the Trustee shall release, or shall cause the Custodian to release, the related
Mortgage File to the Master Servicer and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in the Master Servicer or its designee title to any
Mortgage Loan purchased pursuant hereto. Notwithstanding anything contained
herein or in such Reference Agreement to the contrary, the Master Servicer shall
not be entitled to substitute a Replacement Mortgage Loan or Loans in
satisfaction of such repurchase obligation.
The Trustee shall retain (or cause a Custodian to retain) possession
and custody of each Mortgage File in accordance with and subject to the terms
and conditions set forth herein. The Master Servicer shall promptly deliver to
the Trustee, upon the execution or receipt thereof, the originals of any Special
Hazard Insurance Policy, any Pool Insurance Policy, any Mortgagor Bankruptcy
Bond, any Performance Bond, any Alternative Credit Support and any certificates
of renewal thereof, and such other documents or instruments that constitute part
of the Mortgage File that come into the possession of the Master Servicer from
time to time.
SECTION 2.03 Representations, Warranties and Covenants of the Master Servicer.
(a) The Master Servicer hereby represents, warrants and covenants to
the Depositor and the Trustee that, as of the date of the Reference Agreement:
(i) the Master Servicer is a corporation duly organized, validly
existing and in good standing under the laws of the State of [ ] and
is duly authorized and qualified to transact any and all business
contemplated by this Agreement and is, or will be, in compliance with
the laws of any state in which a Mortgaged Property is located or is
otherwise not required under applicable law to effect such
qualification and, in any event, is, or will be, in
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compliance with the laws of any such State, to the extent
necessary to ensure the enforceability of each Mortgage Loan and
the servicing of the Mortgage Loans in accordance with the terms of
this Agreement;
(ii) the Master Servicer has the full corporate power and
authority to service each Mortgage Loan, and to execute, deliver and
perform, and to enter into and consummate the transactions
contemplated by this Agreement and has duly authorized the execution,
delivery and performance of this Agreement; and this Agreement,
assuming the due authorization, execution and delivery hereof by the
Depositor and the Trustee, constitutes a legal, valid and binding
obligation of the Master Servicer, enforceable against the Master
Servicer in accordance with its terms, except that (a) the
enforceability hereof may be limited by bankruptcy, insolvency,
moratorium, receivership and other similar laws relating to creditors'
rights and (b) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding
therefor may be brought;
(iii) neither the execution and delivery of this Agreement by the
Master Servicer, the servicing of the Mortgage Loans by the Master
Servicer hereunder, the consummation of any other of the transactions
herein contemplated, nor the fulfillment of or compliance with the
terms hereof, will (A) result in a material breach of any term or
provision of the certificate of incorporation or by-laws of the Master
Servicer or (B) conflict with, result in a material breach, violation
or acceleration of, or result in a default under, the terms of any
other agreement or instrument to which the Master Servicer is a party
or by which it may be bound, or any statute, order or regulation
applicable to the Master Servicer of any court, regulatory body,
administrative agency or governmental body having jurisdiction over
the Master Servicer; and the Master Servicer is not a party to, bound
by, or in breach or violation of any indenture or other agreement or
instrument, or subject to or in violation of any statute, order or
regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it, which materially and
adversely affects, or may in the future materially and adversely
affect, (x) the ability of the Master Servicer to perform its
obligations under this Agreement or (y) the business, operations,
financial condition, properties or assets of the Master Servicer;
(iv) the Master Servicer is, and will remain, subject to
supervision and examination by any state or
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federal authority as may be applicable and will remain in good
standing and qualified to do business where so required by applicable
law and is, and will remain, an approved servicer of conventional
mortgage loans for FNMA or FHLMC;
(v) no litigation is pending or, to the best of the Master
Servicer's knowledge, threatened, against the Master Servicer that, if
determined adversely to the Master Servicer, would adversely affect
the execution, delivery or enforceability of this Agreement or the
ability of the Master Servicer to service the Mortgage Loans or to
perform any of its other obligations hereunder in accordance with the
terms hereof or that would have a material adverse effect on the
financial condition of the Master Servicer;
(vi) the Master Servicer will at all times comply in the
performance of its obligations under this Agreement with FHA
Regulations and VA Regulations, as applicable, and with all reasonable
rules and requirements of the insurer under each Required Insurance
Policy;
(vii) no information, certificate of an officer, statement
furnished in writing or report delivered to the Depositor, any
affiliate of the Depositor or the Trustee by the Master Servicer will
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the information, certificate,
statement or report not misleading;
(viii) no consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance by the Master Servicer of, or compliance by the Master
Servicer with, this Agreement or the consummation of the transactions
contemplated hereby;
(ix) in the performance of its servicing obligations hereunder,
the Master Servicer will not, by act or omission, materially impair
the value of any Mortgage Loan; and
(x) the Master Servicer has examined each existing, and will
examine each new Warranty and Servicing Agreement, and is, or will be,
familiar with the terms thereof. The terms of each existing Warranty
and Servicing Agreement and each Servicer thereunder are acceptable to
the Master Servicer and any new Warranty and Servicing Agreements or
Servicers will comply with the provisions of Section 3.02 hereof.
(b) With the provisos and limitations as to remedies set forth in this
Section 2.03(b), if so specified in the Reference agreement, the Master Servicer
hereby represents
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and warrants to the Depositor and the Trustee with respect to each Mortgage Loan
that no action has been taken or failed to be taken, no event has occurred and
no state of facts exists or has existed on or prior to the Delivery Date
pursuant to the Reference Agreement (whether or not known to the Master Servicer
on or prior to such date) that has resulted, or that will result, in an
exclusion from, denial of, or defense to coverage under a Primary Mortgage
Insurance Policy for any Mortgage Loan, the Pool Insurance Policy, the Special
Hazard Insurance Policy or the Mortgagor Bankruptcy Bond (including, without
limitation, any exclusions, denials or defenses that would limit or reduce the
availability of the timely payment of the full amount of the loss otherwise due
thereunder to the insured, whether arising out of actions, representations,
errors, omissions, negligence, or fraud of the Master Servicer, a Servicer of
such Mortgage Loan, the related Mortgagor or any party involved in the
application for such coverage, including the appraisal, plans and specifications
and other exhibits or documents submitted therewith to the insurer under such
insurance policy, or for any other reason under such coverage, but not including
the failure of such insurer to pay by reason of such insurer's financial
inability to pay or by reason of a determination that the loss suffered was a
loss not insured by the terms and provisions of such insurance policy), and
covenants that within 90 days of its discovery or its receipt of notice of
breach of this representation and warranty as provided in Section 2.03(c)
hereof, the Master Servicer shall cure such breach in all material respects or,
subject to the limitations set forth in the next following paragraph, shall
purchase the Mortgage Loan from the Trustee; provided, however, that: (1) any
such purchase by the Master Servicer shall be at the Purchase Price and be
accomplished in the manner set forth in Section 2.03(d) hereof; (2) no such
purchase shall be required so long as the Master Servicer either (i) is
diligently pursuing remedies against the appropriate insurer or insurers or
against the Servicer of the related Mortgage Loan or is contesting in good faith
the denial of liability by the appropriate insurer or insurers and either (A)
the related Mortgage Loan is not in default with regard to payments due
thereunder or (B) delinquent payments of principal and interest under the
related Mortgage Loan and any premiums on any applicable Primary Mortgage
Insurance Policy and any related escrow payments in respect of such Mortgage
Loan are being advanced on a current basis by the Master Servicer or the
Servicer of the related Mortgage Loan, or (ii) pays to the appropriate payee the
amount in respect of such Mortgage Loan that the insurer under any applicable
Primary Mortgage Insurance Policy, the Pool Insurer under the Pool Insurance
Policy, the Special Hazard Insurer under the Special Hazard Insurance Policy and
the issuer of the Mortgagor Bankruptcy Bond would, in the aggregate, be liable
to pay, absent a denial of liability by any of them; (3) any payment made by the
Master Servicer pursuant to clause (ii) above shall be counted as an amount paid
by the Master Servicer to purchase Mortgage Loans in determining the
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limitations stated in the next paragraph of this Section 2.03(b); and (4) the
obligations of the Master Servicer to purchase any Mortgage Loan as to which
such a breach has occurred and is continuing shall be subject to the limitations
set forth in the next paragraph and shall constitute the sole remedy against the
Master Servicer in respect of such breach available to Certificateholders or the
Trustee on behalf of Certificateholders.
[In respect of Mortgage Loans that the Master Servicer becomes obligated to
purchase solely because of a breach of the representation and warranty set forth
in this Section 2.03(b), the Master Servicer's obligation to purchase shall be
limited to (X) in the first Purchase Year, the purchase of Mortgage Loans having
an aggregate Net Purchase Price (as defined below) not exceeding an amount equal
to [3%] of the aggregate Principal Balance of the Mortgage Loans as of the
Cut-off Date specified in the Reference Agreement, (Y) in the second Purchase
Year, the purchase of Mortgage Loans having an aggregate Net Purchase Price not
exceeding an amount equal to the lesser of (i) [2%] of the aggregate Principal
Balance of the Mortgage Loans as of the Cutoff Date and (ii) the excess of the
maximum amount set forth in clause (X) above over the aggregate Net Purchase
Price of the Mortgage Loans that the Master Servicer has become obligated to
purchase during the first Purchase Year and has purchased and (Z) in the third
through fifth Purchase Years, inclusive and on a cumulative basis, the purchase
of Mortgage Loans having an aggregate Net Purchase Price not exceeding an amount
equal to the lesser of (i) [1%] of the aggregate Principal Balance of the
Mortgage Loans as of the Cut-off Date and (ii) the excess of the maximum amount
set forth in clause (Y) above over the aggregate Net Purchase Price of the
Mortgage Loans that the Master Servicer has become obligated to purchase during
the second Purchase Year and has purchased. After the fifth Purchase Year, the
Master Servicer shall not be obligated to purchase any Mortgage Loans solely
because of a breach of the representation and warranty set forth in this Section
2.03(b). The Net Purchase Price of such a Mortgage Loan shall be the Purchase
Price less the amount of Liquidation Proceeds, if any, realized by the Master
Servicer from any source (including, without limitation, any insurer or the
related Servicer) in the disposition of such Mortgage Loan net of related
Liquidation Expenses incurred by the Master Servicer. For the purpose of
determining the Purchase Year in which the Master Servicer is or is not, as the
case may be, obligated to purchase a Mortgage Loan in accordance with this
paragraph and for the purpose of determining the aggregate Net Purchase Price of
Mortgage Loans to be purchased in a Purchase Year or Purchase Years, as the case
may be, in accordance with this paragraph (the purchase of a particular Mortgage
Loan being at the Purchase Price and being accomplished in the manner set forth
in Section 2.03(d) hereof), the date of a purchase and the date on which
Liquidation Proceeds are realized by the Master Servicer in the disposition of a
Mortgage Loan shall be deemed to
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be the date on which the Master Servicer received notice of or discovered the
related breach of the representation or warranty set forth in this Section
2.03(b).]
(c) Upon discovery by the Depositor, the Master Servicer or the
Trustee of a breach of the representation and warranty set forth in Section
2.03(a) or 2.03(b) hereof that materially and adversely affects the interests of
the Certificateholders in the related Mortgage Loan, the party discovering such
breach shall give prompt written notice to the other parties.
(d) The Purchase Price for any Mortgage Loan purchased by the Master
Servicer pursuant to Section 2.03(a) or 2.03(b) hereof shall be deposited by the
Master Servicer in the Certificate Account pursuant to Section 3.08 hereof, and,
upon receipt by the Trustee of written notification of such deposit signed by a
Servicing Officer, the Trustee shall release (or shall cause the applicable
Custodian to release) the related Mortgage File to the Master Servicer and shall
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as shall be necessary to vest title in the Master Servicer or
its designee, as the case may be, in any Mortgage Loan released pursuant hereto.
Notwithstanding anything contained herein or in the Reference Agreement to the
contrary, the Master Servicer shall not be entitled to substitute a Replacement
Mortgage Loan or Loans in satisfaction of such repurchase obligation.
(e) The representations and warranties set forth in Section 2.03(a) or
2.03(b) hereof shall survive delivery of the respective Mortgage Files to the
Trustee, or to a Custodian, as the duly appointed agent of the Trustee.
SECTION 2.04 Representations, Warranties and Covenants of the Depositor as to
the Mortgage Loans.
The Depositor hereby represents and warrants to the Trustee with respect to
each Mortgage Loan as of the date of the Reference Agreement, unless otherwise
specified in such Reference Agreement, that:
(i) as of the Cut-off Date specified in the Reference Agreement, no
Mortgage Loan is more than 30 days delinquent in payment of principal and
interest;
(ii) the information set forth in the Mortgage Loan Schedule attached
to the Reference Agreement is true and correct in all material respects at the
date or dates in respect of which such information is furnished;
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(iii) as of the date of the initial issuance of the Certificates
pursuant to the Reference Agreement, if such Mortgage Loan is secured
by a Mortgaged Property that is a vacation or second home, such
Mortgage Loan is the subject of a Primary Mortgage Insurance Policy
that insures at least 25% of the principal balance thereof; if such
Mortgage Loan had a Loan-to-Value Ratio at origination in excess of
80%, such Mortgage Loan is the subject of a Primary Mortgage Insurance
Policy that insures that portion of the principal balance thereof that
exceeds the amount equal to 75% of the Appraised Value of the related
Mortgaged Property; and such Mortgage Loan does not have an initial
Loan-to-Value Ratio in excess of 95%;
(iv) the Mortgaged Property consists of a single parcel of real
property with a detached single-family residence erected thereon, or a
two-to-four-family dwelling or an individual condominium unit that
conforms with applicable FNMA requirements regarding such dwellings;
and the residence or dwelling is not a mobile home or a manufactured
dwelling;
(v) No Buydown Mortgage Loan involves Buydown Funds in excess of
20% of its Principal Balance at the Cutoff Date specified in the
Reference Agreement, and Buydown Mortgage Loans, if included in the
Trust Fund, in the aggregate do not represent in excess of 5% of the
aggregate Principal Balance of the Mortgage Loans at the Cut-off Date;
and
(vi) as of the date of the initial issuance of the Certificates
pursuant to the Reference Agreement, the Depositor has good title to
each Mortgage Loan and each such Mortgage Loan is free of offsets,
defenses or counterclaims;
It is understood and agreed that the representations and warranties set
forth in this Section 2.04 shall survive delivery of the respective Mortgage
Files to the Trustee or to a Custodian, as the duly appointed agent of the
Trustee.
Upon discovery by the Depositor, the Master Servicer or the Trustee (or
upon notice thereof from any Certificateholder) of a breach or breaches of any
of the representations and warranties set forth in this Section 2.04 that
materially and adversely affects, in the reasonable judgment of the Trustee, the
interests of the Certificateholders in the related Mortgage Loan, the party
discovering such breach or breaches shall give prompt written notice to the
other parties. The Master Servicer shall promptly notify the related Servicer of
such breach and request that such Servicer correct or cure such breach within 60
days from the date the Master Servicer was notified of such breach and, if such
Servicer does not correct or cure such breach within such period, or if such
breach cannot be so cured, that such
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Servicer, if and to the extent that such Servicer is obligated to do so under
the related Warranty and Servicing Agreement, either (a) remove such Mortgage
Loan (a "Deleted Mortgage Loan") from the Trust Fund and substitute in its place
a Replacement Mortgage Loan or Loans, which substitution shall be accomplished
within the time period specified in the Reference Agreement, in the manner and
subject to the conditions set forth in this Section and in the Reference
Agreement; or (b) repurchase the affected Mortgage Loan or Mortgage Loans from
the Trustee. Any such purchase by such Servicer shall be at the Purchase Price
and be accomplished in the manner set forth in the following paragraph, subject
to the terms and conditions set forth in the Reference Agreement with respect to
such substitution.
Subject to the terms and conditions set forth in the Reference Agreement
with respect to such substitution, as to any Replacement Mortgage Loan or Loans,
the related Servicer shall deliver to the Trustee (or to a Custodian, as the
duly appointed agent of the Trustee) for such Replacement Mortgage Loan or
Loans, the Mortgage Note, the Mortgage, the related assignment of the Mortgage,
and such other documents and agreements as are required by Section 2.01. No
substitution will be made in any calendar month after the Determination Date for
such month. Monthly payments due with respect to Replacement Mortgage Loans in
the month of substitution shall not be part of the related Trust Fund and will
be retained by the Master Servicer and remitted by the Master Servicer to the
related Servicer on the next succeeding Distribution Date. For the month of
substitution, distributions to Certificateholders will include the monthly
payment due on such Deleted Mortgage Loan for such month and thereafter such
Servicer shall be entitled to retain all amounts received in respect of such
Deleted Mortgage Loan. The Trustee (or the related Custodian, as the duly
appointed agent of the Trustee) shall amend the Mortgage Loan Schedule to
reflect the removal of such Deleted Mortgage Loan and the substitution of the
Replacement Mortgage Loan or Loans. Upon such substitution, the Replacement
Mortgage Loan or Loans shall be subject to the terms of this Agreement and the
related Warranty and Servicing Agreement in all respects, the Servicer shall be
deemed to have made the representations and warranties with respect to such
Replacement Mortgage Loan or Loans, as of the date of substitution, the
covenants, representations and warranties set forth in this Section as to the
Depositor and Section 2.03 as to the Master Servicer. Upon any such
substitution, the Trustee shall release, or shall cause the applicable Custodian
to release, the Mortgage File relating to such Deleted Mortgage Loan to the
related Servicer and shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be necessary to vest title
in such Servicer or its designee, as the case may be, to any Deleted Mortgage
Loan substituted for pursuant to this Section 2.04.
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Subject to the terms and conditions set forth in the Reference Agreement
with respect to such substitution, for any month in which a Servicer substitutes
one or more Replacement Mortgage Loans for one or more Deleted Mortgage Loans,
the Master Servicer will determine the amount (if any) by which the aggregate
principal balance of all such Replacement Mortgage Loans as of the date of
substitution is less than the aggregate Principal Balance of all such Deleted
Mortgage Loans (after application of the scheduled principal portion of the
monthly payments due in the month of substitution). The amount of such shortage
shall be deposited into the Certificate Account by such Servicer in the month of
substitution pursuant to Section 3.08, without any reimbursement therefor.
In the event that a Servicer shall have repurchased a Mortgage Loan, upon
receipt by the Trustee of written notification of the deposit of the Purchase
Price pursuant to Section 3.08, signed by a Servicing Officer, the Trustee shall
release, or shall cause the Custodian to release, the related Mortgage File to
such Servicer and the Trustee shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall be necessary to
vest title in such Servicer or its designee, as the case may be, to any Mortgage
Loan purchased pursuant to this Section 2.04. In the event that the related
Servicer does not repurchase or substitute for a Mortgage Loan as to which a
breach has occurred and is continuing, the Depositor shall either repurchase
such Mortgage Loan or substitute a Replacement Mortgage Loan, in the manner
specified in this Section 2.04. It is understood and agreed that the obligation
of the related Servicer or the Depositor to repurchase any Mortgage Loan as to
which a breach has occurred and is continuing shall constitute the sole remedy
with respect to such breach available to Certificateholders or the Trustee on
behalf of Certificateholders, except as provided in Section 2.03(b).
SECTION 2.05 Representations and Warranties of Servicers.
(a) Upon the discovery by the Depositor, the Master Servicer or the
Trustee of a breach or breaches of any of the representations and warranties
made in a Warranty and Servicing agreement in respect of any Mortgage Loan,
which breach or breaches, individually or in the aggregate, materially and
adversely affect, in the reasonable judgment of the Trustee, the interests of
the Certificateholders, the party discovering such breach shall give prompt
written notice to the other parties. The Master Servicer shall promptly notify
the related Servicer of such breach and request that such Servicer cure such
breach within 90 days from the date the Master Servicer discovers, or was
notified of, such breach, and if such Servicer does not cure such breach in all
material respects, that such Servicer, if and to the extent that such Servicer
is obligated to do so under the related Warranty and Servicing Agreement, either
(a) substitute a
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Replacement Mortgage Loan or Loans for the related Mortgage Loan, which
substitution must occur within the time period specified in the Reference
Agreement and shall be subject to the conditions set forth in Section 2.04 and
the terms and conditions with respect to such substitution set forth in the
Reference Agreement, or (b) purchase such Mortgage Loan from the Trustee at the
Purchase Price and in the manner set forth in Section 2.02 hereof. Upon receipt
by the Trustee of written notification of the deposit of the Purchase Price
pursuant to Section 3.08 by the Servicer signed by a Servicing Officer, the
Trustee shall release or shall cause the Custodian to release the related
Mortgage File to such Servicer and shall execute and deliver such instruments of
transfer or assignment, in each case without recourse, as shall be necessary to
vest title to any Mortgage Loan purchased pursuant to this Section 2.05(a) in
such Servicer or its respective designees. Except as set forth in 2.03(b)
hereof, it is understood and agreed that the obligation of such Servicer to
substitute for or to purchase any Mortgage Loan as to which such breach (or
breaches) has occurred and is continuing shall constitute the sole remedy with
respect to such breach or breaches available to the Trustee on behalf of the
Certificateholders.
(b) In the case of a Mortgage Loan that the Master Servicer becomes
obligated to purchase pursuant to Section 2.03(b) hereof and a Servicer becomes
obligated to purchase pursuant to Section 2.05(a) hereof, the Master Servicer
shall, so long as all advances are being made in respect of such Mortgage Loan
pursuant to Section 3.09, Section 4.01 or Section 4.03 hereof, first require the
Servicer to substitute for or to purchase such Mortgage Loan pursuant to Section
2.05(a) hereof, second, if such Servicer has defaulted in its obligation to
substitute for or to purchase such Mortgage Loan (but without relieving it of
its obligation to make such purchase), present claims under the relevant
Required Insurance Policies to the extent the Master Servicer believes any such
Required Insurance Policy may cover the loss in respect of such Mortgage Loan,
and, third, if any loss in respect of such Mortgage Loan is not fully covered by
the Required Insurance Policies, subject to the limitations set forth in Section
2.03(b) hereof, purchase such Mortgage Loan in accordance with Sections 2.03(b)
and 2.03(d) hereof. If all advances are not being made in respect of such
Mortgage Loan pursuant to Section 3.09, Section 4.01 or Section 4.03 hereof, the
Servicer or Seller does not substitute for or purchase such Mortgage Loan
pursuant to Section 2.05(a) hereof within seven days after such request and any
claims presented under any Required Insurance Policies in accordance with the
next preceding sentence are not paid in full within 14 days after such request,
the Master Servicer shall, subject to the limitations set forth in Section
2.03(b) hereof, purchase such Mortgage Loan in accordance with Sections 2.03(b)
and 2.03(d) hereof.
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SECTION 2.06 Assignment of Rights under Warranty and Servicing Agreements.
The Depositor hereby assigns to the Trustee all its right, title and
interest in respect of each Warranty and Servicing Agreement applicable to a
Mortgage Loan identified in the Mortgage Loan Schedule attached to the Reference
Agreement insofar as such Warranty and Servicing Agreement relates to the
representations and warranties made by the related Servicer in respect of such
Mortgage Loan and any remedies provided thereunder for any breach of such
representations and warranties, as well as insofar as the provisions of such
Warranty and Servicing Agreement relate to the administration and servicing of
the Mortgage Loans serviced thereunder, which right, title and interest may be
enforced by the Master Servicer on behalf of the Depositor, the Trustee and the
Certificateholders. The Master Servicer shall enforce the provisions of the
Warranty and Servicing Agreements relating to the administration and servicing
of the Mortgage Loans serviced thereunder in accordance with the provisions of
Article III.
ARTICLE III
ADMINISTRATION AND SERVICING
OF MORTGAGE LOANS
SECTION 3.01 Master Servicer to Act as Master Servicer.
For and on behalf of the Trustee and the Certificateholders, the Master
Servicer shall service and administer the Mortgage Loans in accordance with
prudent mortgage loan servicing standards and procedures generally accepted in
the mortgage banking industry and generally in accordance with FNMA guidelines,
except as otherwise expressly provided in this Agreement. Each FHA Loan and VA
Loan at any time subject to this Agreement shall be serviced and administered by
the Master Servicer in accordance with applicable FHA and VA Regulations,
respectively. In connection with such servicing and administration, the Master
Servicer, subject to the immediately preceding sentence, shall have full power
and authority, acting alone and/or through Servicers as provided in Section 3.02
hereof, to do or cause to be done any and all things that it may deem necessary
or desirable in connection with such servicing and administration, including but
not limited to, the power and authority, subject to the terms hereof (i) to
execute and deliver, on behalf of the Certificateholders and the Trustee,
customary consents or waivers and other instruments and documents, (ii) to
consent to transfers of any Mortgaged Property and assumptions of the Mortgage
Notes and related Mortgages (but only in the manner provided in this Agreement
and applicable FHA and VA Regulations), (iii) to collect any Insurance Proceeds
and Liquidation Proceeds, and (iv) to effectuate foreclosure or other
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conversion of the ownership of the Mortgaged Property securing any Mortgage
Loan; provided that the Master Servicer shall take no action that is
inconsistent with or prejudices the interests of the Trustee or the
Certificateholders under this Agreement. Without limiting the generality of the
foregoing, the Master Servicer, in its own name or in the name of the Depositor
and the Trustee, is hereby authorized and empowered by the Depositor and the
Trustee, when the Master Servicer believes it appropriate in its best judgment,
to execute and deliver , on behalf of the Trustee, the Depositor, the
Certificateholders or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Mortgage Loans, and with respect to
the Mortgaged Properties. The Depositor and the Trustee shall furnish the Master
Servicer with any powers of attorney and other documents necessary or
appropriate to enable the Master Servicer to service and administer the Mortgage
Loans.
In accordance with the standards of the preceding paragraph, the Master
Servicer, with respect to any Nonsubserviced Mortgage Loan and otherwise, to the
extent the related Servicer does not do so, shall advance or cause to be
advanced funds as necessary for the purpose of effecting the timely payment of
taxes and assessments on the Mortgaged Property, which advances shall be
reimbursable in the first instance from related collections from the Mortgagors
pursuant to Section 3.08 hereof, and further as Liquidation Expenses as provided
in Section 3.16 hereof and may be withdrawn from the Certificate Account
pursuant to Section 3.12 hereof. All costs incurred by the Master Servicer or by
the related Servicers in effecting the timely payment of taxes and assessments
on the Mortgaged Properties shall not, for the purpose of calculating monthly
distributions to the Certificateholders, be added to the Principal Balance under
the related Mortgage Loans, notwithstanding that the terms of such Mortgage
Loans so permit.
In the event that the Depositor elects to treat the related Trust Fund as a
REMIC (as defined in the Code) in the Reference Agreement, the Master Servicer
shall (unless otherwise specified in such Reference Agreement) act as agent on
behalf of the Trust Fund and that in such capacity it shall: (a) prepare and
file, or cause to be prepared and filed, a federal tax return using a calendar
year as the taxable year for the Trust Fund when and as required by the
applicable provisions of the Code; (b) make an election, on behalf of the Trust
Fund, to be treated as a REMIC on the federal tax return of the Trust Fund for
its first taxable year, in accordance with the applicable provisions of the
Code; (c) prepare and forward, or cause to be prepared and forwarded, to the
Certificateholders all information reports as and when required to be provided
to them in accordance with the applicable provisions of the Code; (d) conduct
the affairs of the Trust Fund so as to maintain the status thereof as a REMIC
under the applicable provisions of the Code; (e) not knowingly or
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intentionally take any action or omit to take any action that would cause the
termination of the REMIC status of the Trust Fund; and (f) pay the amount of any
federal income tax, including prohibited transaction penalty taxes, imposed on
the Trust Fund when and as the same shall be due and payable.
SECTION 3.02 Enforcement of the Obligations of Servicers.
(a) For purposes of this Agreement, the Master Servicer shall be
deemed to have received the payments on the Mortgage Loans referred to in
Sections 3.08, 3.09 and 3.10 hereof when the related Servicer has received such
payments and shall remain obligated to deposit such payments in accordance with
Section 3.08, 3.09 and 3.10 hereof, regardless of whether such payments are
remitted by the Servicer to the Master Servicer, subject to the provisions of
Section 4.03. The Master Servicer and the Servicer may enter into amendments to
the Warranty and Servicing Agreements; provided, however, that any such
amendments shall be otherwise consistent with and shall not violate the
provisions of this Agreement; and provided further, that the substance of any
such material amendment or material change shall be transmitted promptly to the
Trustee.
(b) As part of its servicing activities hereunder, the Master
Servicer, for the benefit of the Depositor, the Trustee and the
Certificateholders, shall supervise, administer, monitor and oversee the
servicing of the Mortgage Loans that are not serviced by it directly, and shall
enforce the obligations of each Servicer under the related Warranty and
Servicing Agreement, including, without limitation, the obligation of the
Servicer to make advances in respect of delinquent payments as required by a
Warranty and Servicing Agreement, to purchase a Mortgage Loan on account of
defective documentation, as described in Section 2.02 hereof, or on account of a
breach of a representation or warranty, as described in Section 2.05(a) hereof.
Such enforcement, shall include, without limitation, the legal prosecution of
claims, termination of Warranty and Servicing Agreements, as appropriate, and
the pursuit of other appropriate remedies, and shall be in such form and carried
out to such an extent and at such time as the Master Servicer, in its good faith
business judgement, would require were it the owner of the related Mortgage
Loans. The Master Servicer shall pay the costs of such enforcement at its own
expense, but shall be reimbursed therefor only (i) from a general recovery
resulting from such enforcement only to the extent, if any, that such recovery
exceeds all amounts due in respect of the related Mortgage Loans or (ii) from a
specific recovery of costs, expenses or attorneys' fees against the party
against whom such enforcement is directed.
(c) During the term of the Reference Agreement, the Master Servicer
shall consult fully with each of the Servicers as may be necessary from time to
time to perform and
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carry out the Master Servicer's obligations hereunder and receive, review and
evaluate all reports, information and other data that are provided to the Master
Servicer by each Servicer and otherwise exercise reasonable efforts to cause
each Servicer to perform and observe the covenants, obligations and conditions
to be performed or observed by it under its Warranty and Servicing Agreement. If
any Servicer materially breaches or fails to perform or observe any material
obligations or conditions of its Warranty and Servicing Agreement, the Master
servicer shall promptly deliver to the Depositor and to the Trustee an Officers'
Certificate certifying that such Servicer is in default and describing the
events and circumstances giving rise to the default and what action (if any) has
been, or is to be, taken by the Servicer to cure the default and setting forth
the action to be taken by the Master Servicer.
SECTION 3.03 Successor Servicers.
Upon the request of a Servicer, the Master Servicer or the related Servicer
shall be entitled to terminate or assign the rights of the Servicer under the
related Warranty and Servicing Agreement in accordance with the terms and
conditions of such Warranty and Servicing Agreement. The Master Servicer will
not unreasonably withhold its consent to the transfer of the servicing
obligations; provided, however, that in the event of termination or assignment
of the rights of the Servicer under any Warranty and Servicing Agreement by the
Master Servicer or the Servicer, the Master Servicer shall act in accordance
with Section 3.04; and provided, further that no assignment of the Servicer's
rights and obligations under a Warranty and Servicing Agreement may be effected
without the consent of the Trustee. No such termination shall effect the right
of a Servicer to receive any retained yield provided for in the Warranty and
Servicing Agreement.
SECTION 3.04 Termination of the Rights of Servicers.
If the Master Servicer terminates the rights of a Servicer under any
Warranty and Servicing Agreement, the Master Servicer shall assume the
obligations of the related Servicer under the terminated Warranty and Servicing
Agreement, or at the Master Servicer's election, enter into a substitute
servicing agreement with another mortgage loan service company acceptable to the
Trustee and the Master Servicer under which such mortgage loan service company
shall assume, satisfy, perform and carry out all liabilities, duties,
responsibilities and obligations that are to be, or otherwise were to have been,
satisfied, performed and carried out by the terminated Servicer, regardless of
whether such liabilities, duties, responsibilities or obligations shall have
accrued before or after the termination of the rights of such Servicer,
including but not limited to, the Servicer's obligations to purchase certain
Mortgage Loans and any other liabilities or obligations of the Servicer arising
from the
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breach of any representations and warranties contained in the related Warranty
and Servicing Agreement; provided, however that any such substitute servicing
shall satisfy the requirements of Section 3.02. If the Master Servicer does not
elect to enter into a substitute servicing agreement with a successor servicer,
the Master Servicer shall nevertheless assume, satisfy, perform and carry out
all liabilities, duties, responsibilities and obligations which otherwise were
to have been satisfied, performed and carried out by the Servicer under such
terminated Warranty and Servicing Agreement until a substitute Servicer has been
appointed and designated and a substitute servicing agreement has been entered
into by the Master Servicer and such substitute servicer.
SECTION 3.05 Liability of the Master Servicer.
Notwithstanding the provisions of any Warranty and Servicing Agreement, any
of the provisions of this Agreement relating to agreements or arrangements
between the Master Servicer or a Servicer or reference to actions taken through
a Servicer or otherwise, the Master Servicer shall remain obligated and liable
to the Depositor, the Trustee and the Certificateholders of the related Series
for the servicing and administering of the Mortgage Loans included in the Trust
Fund for such Series in accordance with the provisions of this Agreement without
diminution of such obligation or liability by virtue of such Warranty and
Servicing Agreements or agreements or arrangements or by virtue of
indemnification from the Servicer and to the same extent and under the same
terms and conditions as if the Master Servicer alone were servicing and
administering the Mortgage Loans. The Master Servicer shall be entitled to enter
into any agreement with the Depositor or a Servicer for indemnification of the
Master Servicer and nothing contained in this Agreement shall be deemed to limit
or modify such indemnification.
SECTION 3.06 Rights of the Depositor and the Trustee in Respect of the Master
Servicer.
The Master Servicer shall afford the Depositor and the Trustee, upon
reasonable notice, during normal business hours, access to all records
maintained by the Master Servicer in respect of its rights and obligations
hereunder and access to officers of the Master Servicer responsible for such
obligations. The Depositor may, but is not obligated to, enforce the obligations
of the Master Servicer hereunder and may, but is not obligated to, perform, or
cause a designee to perform, any defaulted obligation of the Master Servicer
hereunder or exercise the rights of the Master Servicer hereunder; provided that
the Master Servicer shall not be relieved of any of its obligations hereunder by
virtue of such performance by the Depositor or its
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designee. The Depositor shall not have any responsibility or liability for any
action or failure to act by the Master Servicer and is not obligated to
supervise the performance of the Master Servicer hereunder or otherwise.
SECTION 3.07 Trustee to Act as Servicer.
In the event that the Master Servicer shall for any reason no longer be the
Master Servicer hereunder (including by reason of an Event of Default), the
Trustee or its designee shall thereupon assume all of the rights and obligations
of the Master Servicer under each Warranty and Servicing Agreement that may have
been assigned to the Trustee pursuant to Section 2.06 hereof or any substitute
servicing agreement that may have been entered into by the Master Servicer
pursuant to Section 3.04 hereof. The Trustee, its designee or any successor
master servicer shall be deemed to have assumed all of the Master Servicer's
interest therein and to have replaced the Master Servicer under each Warranty
and Servicing Agreement or substitute servicing agreement, except that the
Master Servicer shall not thereby be relieved of any liability or obligations
under the Warranty and Servicing Agreement or substitute servicing agreement.
The Master Servicer shall, upon request of the Trustee, but at the expense
of the Master Servicer, deliver to the assuming party all documents and records
relating to each Warranty and Servicing Agreement or substitute servicing
agreement and the Mortgage Loans then being serviced thereunder and an
accounting of amounts collected and held by it and otherwise use its best
efforts to effect the orderly and efficient transfer of the Warranty and
Servicing Agreement or substitute servicing agreement to the assuming party.
SECTION 3.08 Collection of Mortgage Loan Payments; Certificate Account.
The Master Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans and shall, to
the extent such procedures shall be consistent with this Agreement and the terms
and provisions of the Pool Insurance Policy, the Mortgagor Bankruptcy Bond, the
Special Hazard Insurance Policy, any FHA Certificate of Mortgage Loan Insurance
or VA Loan Guaranty Certificate (and applicable FHA and VA Regulations relating
thereto), the Letter of Credit or any Alternative Credit Support, follow such
collection procedures as it follows with respect to mortgage loans comparable to
the Mortgage Loans and held in its own portfolio and serviced by the Master
Servicer. Consistent with the foregoing, the Master Servicer may in its
discretion (i) waive any late payment charge or any prepayment charge or penalty
interest in connection with the prepayment of a Mortgage Loan and (ii) only upon
determining that the coverage of such Mortgage Loan by the Pool Insurance
Policy, the Mortgagor Bankruptcy Bond, the Special Hazard
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Insurance Policy, any related Primary Mortgage Insurance Policy, FHA Certificate
of Mortgage Loan Insurance or VA Loan Guaranty Certificate, Letter of Credit or
Alternative Credit Support, will not be affected, extend the due dates for
payments due on a Mortgage Note for a period not greater than 125 days. In the
event of any such arrangement, the Master Servicer shall make timely advances on
the related Mortgage Loan during the scheduled period in accordance with the
amortization schedule of such Mortgage Loan without modification thereof by
reason of such arrangements.
The Master Servicer shall establish and maintain, in the name of the
Trustee on behalf of the Certificateholders, the Certificate Account, in which
the Master Servicer shall deposit on a daily basis, or as and when received from
the Servicers except as otherwise specifically provided herein, the following
payments and collections received or made by it subsequent to the Cut-off Date
(other than in respect of principal of and interest on the Mortgage Loans due on
or before the Cut-off Date):
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (net of any portion
thereof retained by the related Servicer, if any, as servicing
compensation and any retained yield payable to the Servicer) on the
Mortgage Loans;
(iii) all Insurance Proceeds and Liquidation Proceeds, other than
proceeds to be applied to the restoration or repair of the Mortgaged
Property or released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures;
(iv) all amounts required to be deposited therein from the
Reserve Fund pursuant to Section 3.25 and the Reference Agreement;
(v) all payments received by the Trustee under the Letter of
Credit and any payments under any Alternative Credit Support;
(vi) all Monthly Advances made by the Master Servicer pursuant to
Sections 4.01, 4.03 or 4.05 hereof and all Servicer Advances, as
described in Section 3.09 hereof;
(vii) any amount required to be deposited by the Master Servicer
pursuant to the second succeeding paragraph of this Section 3.08 in
connection with any losses on Eligible Investments;
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(viii) any amounts required to be deposited by the Master
Servicer pursuant to Sections 3.13, 3.14 and 3.23 hereof
(ix) all proceeds of any Mortgage Loans or property acquired in
respect of the Mortgage Loans purchased pursuant to Sections 2.02,
2.04, 2.05, 3.15 or 9.01 hereof and all amounts required to be
deposited in connection with the substitution of Replacement Mortgage
Loans pursuant to Sections 2.02, 2.04 or 2.05 hereof;
(x) any Buydown Funds required to be deposited by the Master
Servicer in the Certificate Account pursuant to Section 3.26 hereof.
The foregoing requirements for deposit by the Master Servicer in the Certificate
Account shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, payments in the nature of prepayment
or late payment charges or assumption fees need not be deposited by the Master
Servicer in the Certificate Account. In the event that the Master Servicer shall
deposit in the Certificate Account any amount not required to be deposited
therein, it may at any time withdraw such amount from the Certificate Account,
any provision herein to the contrary notwithstanding. Such withdrawal may be
accomplished by delivering an Officers' Certificate to the Trustee which
describes the amounts deposited in error in the Certificate Account. If the
facts set forth on the face of such Officers' Certificate indicate that amounts
deposited were not required to be deposited under the terms of this Section
3.08, the Trustee shall, in writing, authorize the Master Servicer to withdraw
such amount from the Certificate Account. All funds deposited by the Master
Servicer in the Certificate Account shall be held by the Master Servicer in
trust for the Certificateholders until disbursed in accordance with the
Reference Agreement or withdrawn in accordance with Section 3.12.
The Master Servicer may cause the institution maintaining the Certificate
Account to invest the funds in the Certificate Account in Eligible Investments,
which shall mature not later than the Business Day next preceding the
Distribution Date next following the date of such investment (except that if
such Eligible Investment is an obligation of the institution that maintains the
Certificate Account, then such Eligible Investment shall mature not later than
such Distribution Date) and shall not be sold or disposed of prior to its
maturity. All such Eligible Investments shall be made in the name of the Trustee
(in its capacity as such) or its nominee. All income and gain realized from any
such investment shall be for the benefit of the Master Servicer and shall be
subject to its withdrawal or order from time to time. The amount of any losses
incurred in respect of any such investments shall be deposited in the
Certificate
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Account by the Master Servicer out of its own funds immediately as realized.
The Master Servicer shall give notice to the Trustee and the Depositor of
the location of the Certificate Account, and of any change thereof, prior to the
use thereof.
If so specified in the Reference Agreement with respect to a Series,
amounts to be deposited in the Certificate Account pursuant to this Section 3.08
shall instead be deposited by the Master Servicer in a Custodial Account and
remitted, net of amounts withdrawn pursuant to Section 3.12 hereof, by wire
transfer of immediately available funds to the Certificate Account established
by the Trustee pursuant to the Reference Agreement on the date specified in such
Reference Agreement.
SECTION 3.09 Servicing Accounts.
In those cases where a Servicer is servicing a Mortgage Loan pursuant to a
Warranty and Servicing Agreement, the Servicer will, pursuant to the Warranty
and Servicing Agreement, be required to establish and maintain one or more
Servicing Accounts. The Servicer will be required thereby to deposit into the
Servicing Account on a daily basis all proceeds of Mortgage Loans received by
the Servicer, subject to withdrawal to the extent permitted by such Warranty and
Servicing Agreement. All amounts held in the Servicing Accounts shall be held in
trust for the Trustee for the benefit of the Certificateholders. On the Servicer
Remittance Date, the Servicer will, pursuant to the related Warranty and
Servicing Agreement, be required to remit to the Master Servicer for deposit in
the Certificate Account an amount equal to the sum of (i) all amounts received
by the Servicer with respect to the Mortgage Loans serviced by it as of the
Servicer Remittance Date, except (a) any monthly payment prepaid for a Due Date
subsequent to the month in which the Servicer Remittance Date occurs, (b) any
amounts received by such Servicer with respect to such Mortgage Loans that
constitute a late recovery with respect to an advance previously made by such
Servicer with respect to such Mortgage Loans, and (c) any Retained Yield payable
to such Servicer under the terms of such Warranty and Servicing Agreement; (ii)
all partial Principal Prepayments received in the calendar month prior to the
month of the Servicer Remittance Date or applied as of the Due Date in the month
of the Servicer Remittance Date; (iii) all Principal Prepayments in full
received in the calendar month prior to the month of the Servicer Remittance
Date, in each case together with a full month's interest thereon at the Mortgage
Rate (net of the related servicing compensation and any Retained Yield payable
to such Servicer under the terms of such Warranty and Servicing Agreement)
whether or not received from the Mortgagor; (iv) all Insurance Proceeds and
Liquidation Proceeds (net of Liquidation Expenses) received in the calendar
month prior to the month of the Servicer Remittance Date; and (v) with respect
to each
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Mortgage Loan for which the monthly payment due on the immediately preceding Due
Date was delinquent as of the Servicer Remittance Date, an amount equal to such
payment net of the servicing compensation and any Retained Yield payable to such
Servicer (a "Servicer Advance"). The Servicer may deduct from each remittance,
as provided above, an amount equal to the servicing fee to which it is then
entitled pursuant to the Warranty and Servicing Agreement, to the extent not
previously paid to or retained by it. Any installments as to which the Servicer
has not made an advance will be subject to the Master Servicer's obligation to
advance set forth herein.
SECTION 3.10 Collection of Taxes, Assessments and Similar Items; Escrow
Accounts.
In addition to the Certificate Account, the Master Servicer shall, and,
pursuant to the Warranty and Servicing Agreements, the Servicers will be
required to, establish and maintain one or more custodial accounts (each, an
"Escrow Account") and deposit and retain therein all collections from the
Mortgagors (or advances by Servicers or the Master Servicer) for the payment of
taxes, assessments, hazard insurance premiums, Primary Mortgage Insurance Policy
premiums, if applicable, or comparable items for the account of the Mortgagors.
Escrow Accounts shall be Eligible Accounts.
Withdrawals of amounts so collected from the Escrow Accounts may be made
only to effect timely payment of taxes, assessments, hazard insurance premiums,
Primary Mortgage Insurance Policy, or FHA Certificate of Mortgage Loan
Insurance, if applicable, or comparable items, to reimburse the Master Servicer
or Servicer out of related collections for any payments made pursuant to
Sections 3.01 hereof (with respect to taxes and assessments), 3.13 hereof (with
respect to the Primary Insurance Policy) and 3.14 hereof (with respect to hazard
insurance), to refund to any Mortgagors any sums as may be determined to be
overages, to pay interest, if required, to Mortgagors on balances in the Escrow
Account or to clear and terminate the Escrow Account at the termination of this
Agreement in accordance with Section 9.01 hereof. As part of its servicing
duties, the Master Servicer shall, and the Servicers will, pursuant to the
Warranty and Servicing Agreements, be required to, pay to the Mortgagors
interest on funds in the Escrow Account to the extent required by law.
The Master Servicer shall, with respect to each Nonsubserviced Mortgage
Loan and with respect to each Mortgage Loan serviced under a Warranty and
Servicing Agreement, to the extent the related Servicer does not do so, advance
the payments referred to in the preceding paragraph that are not timely paid by
the Mortgagors; provided, however, that the Master Servicer shall be required to
so advance only to the extent that such advances, in the good faith judgment of
the Master Servicer, will
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be recoverable by the Master Servicer out of Insurance Proceeds, Liquidation
Proceeds or otherwise; and provided, further, that such payments shall be
advanced when the tax, premium or other cost for which such payment is intended
is due.
SECTION 3.11 Access to Certain Documentation and Information Regarding the
Mortgage Loans.
In order to permit Certificateholders to comply with Sections 171 and 1276
of the Code, the Master Servicer shall, upon request of any Certificateholder,
furnish such Certificateholder with a statement setting forth the number and
principal balance of Mortgage Loans that were originated before [July 18, 1984]
and before [September 27, 1985].
The Master Servicer shall provide the Depositor and the Trustee access to
all records and documentation regarding the Mortgage Loans and all accounts,
insurance policies and other matters relating to this Agreement, such access
being afforded without charge, but only upon reasonable request and during
normal business hours at the offices of the Master Servicer designated by it.
SECTION 3.12 Permitted Withdrawals from the Certificate Account.
The Master Servicer may, from time to time, make withdrawals from the
Certificate Account for the following purposes:
(i) to pay to itself as servicing compensation that portion of
any payment as to interest that equals the Servicing Fee with respect
to such Mortgage Loan for the period with respect to which such
interest payment was made, and, as additional servicing compensation,
earnings on the amounts in the Certificate Account credited to the
Certificate Account, and to pay any Retained Yield and the
Administrative Fee to the Depositor (for disbursement in accordance
with Section 3.19 hereof);
(ii) to reimburse itself for advances made pursuant to Sections
3.09, 3.10, 4.01, 4.02 and 4.03 hereof, such right of reimbursement
pursuant to this subclause (ii) being limited to amounts received on
particular Mortgage Loans (including, for this purpose, Insurance
Proceeds, Liquidation Proceeds, amounts representing proceeds of other
insurance policies, if any) covering the related Mortgaged Property,
which represent (a) late recoveries of payments of principal and/or
interest in respect of which any such advance was made in the case of
advances pursuant to Sections 3.09, 4.01, 4.02 and 4.03 hereof, and
(b) late recoveries of the payments for which such advances were made
in the case of advances pursuant to Section 3.10 hereof;
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(iii) to reimburse itself for any Nonrecoverable Advances;
(iv) to reimburse itself from Insurance Proceeds and Liquidation
Proceeds for amounts expended by it pursuant to Section 3.16 hereof in
good faith in connection with the restoration of property damaged by
an Uninsured Cause;
(v) to reimburse itself from Insurance Proceeds for Insured
Expenses and to pay any unpaid servicing compensation to itself, any
Retained Yield and any Administrative Fee to the Depositor from
Insurance Proceeds, such payment of servicing compensation, Retained
Yield and Administrative Fee to be made in accordance with Section
3.19 hereof and being limited to the amount, if any, by which the
aggregate of Liquidation Proceeds and Insurance Proceeds received in
connection with the liquidation of a defaulted Mortgage Loan is, after
the deduction of Insured Expenses, servicing compensation payable to
the Servicer of such Mortgage Loan, if any, and any amounts deducted
pursuant to subclause (iv) above, in excess of the Principal Balance
of such Mortgage Loan, together with accrued and unpaid interest
thereon at the Pass-Through Rate;
(vi) to reimburse itself from Liquidation Proceeds for
Liquidation Expenses and, to the extent that Liquidation Proceeds
after such reimbursement, and any other reimbursement pursuant to
subclause (iv) above are in excess of the Principal Balance of the
related Mortgage Loan together with accrued and unpaid interest
thereon at the Pass-Through Rate, to pay out of such excess the amount
of any unpaid servicing compensation with respect to the related
Mortgage Loan to itself and any Retained Yield and the Administrative
Fee to the Depositor (for disbursement in accordance with Section 3.19
hereof);
(vii) to pay to itself, a Servicer or the Depositor, as the case
may be, with respect to each Mortgage Loan or property acquired in
respect thereof that has been purchased pursuant to Section 2.02,
2.04, 2.05, 3.15 or 9.01 hereof, all amounts received thereon and not
taken into account in determining the related Principal Balance of
such repurchased Mortgage Loan;
(viii) to reimburse itself or the Depositor for expenses incurred
by and reimbursable to it or the Depositor pursuant to Section 6.03
hereof;
(ix) to make deposits into the Reserve Fund, as required by the
Reference Agreement;
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(x) to make payments to the Certificateholders, or remittances to
the Trustee in the amounts, and in the manner, specified in the
Reference Agreement;
(xi) to pay to itself any interest earned on or investment income
with respect to funds in the Certificate Account (all such interest or
income to be withdrawn monthly on such Distribution Date); and
(xii) to clear and terminate the Certificate Account upon
termination of this Agreement pursuant to Section 9.01 hereof.
The Master Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Certificate Account pursuant to such subclauses (i), (ii),
(iv), (v) and (vi).
SECTION 3.13 Maintenance of the Pool Insurance Policy, Primary Mortgage
Insurance Policies, FHA Insurance and VA Loan Guarantees;
Collections Thereunder.
If so specified in the Reference Agreement, the Master Servicer shall
exercise its reasonable best efforts to maintain the Pool Insurance Policy in
full force and effect throughout the term of this Agreement, unless coverage
thereunder has been exhausted through payment of claims. The Master Servicer
shall pay the premiums for the Pool Insurance Policy on a timely basis. In the
event that the Pool Insurer shall cease to be a Qualified Insurer because it
shall not be qualified to transact a mortgage guaranty insurance business under
the laws of the state of its principal place of business or any other state that
has jurisdiction over the Pool Insurer in connection with the Pool Insurance
Policy or if the Pool Insurance Policy is cancelled or terminated for any reason
(other than the exhaustion of the total coverage), the Master Servicer shall
exercise its reasonable best efforts to obtain from another Qualified Insurer a
replacement policy comparable to the Pool Insurance Policy with a total coverage
that is equal to the then existing coverage of the Pool Insurance Policy;
provided, however, that if the cost of any such replacement policy shall be
greater than the cost of the Pool Insurance Policy, the amount of coverage of
such replacement policy shall, unless the Depositor consents to coverage at a
higher level, be reduced to a level such that the premium rate therefor shall
not exceed the premium rate on such Pool Insurance Policy. In the event the Pool
Insurer shall cease to be a Qualified Insurer because it is approved as an
insurer by neither FHLMC nor FNMA, the Master Servicer agrees to review, not
less often than monthly, the financial condition of the Pool Insurer. If the
Master Servicer determines that recoveries are so jeopardized, it shall exercise
its reasonable best efforts to obtain, from another Qualified Insurer, a
replacement pool insurance policy, subject to the cost limitation set forth
above.
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Prior to obtaining any replacement pool insurance policy, the Master Servicer
shall notify the Depositor of the replacement pool insurance policy the Master
Servicer intends to obtain and, if the Depositor so directs, obtain a
replacement pool insurance policy approved by the Depositor.
The Master Servicer shall not take, or permit any Servicer to take, any
action that would result in loss of coverage under any applicable Primary
Mortgage Insurance Policy, FHA Certificate of Mortgage Loan Insurance or VA Loan
Guaranty Certificate of any loss which, but for the actions of the Master
Servicer or Servicer, would have been covered thereunder. The Master Servicer
shall use its reasonable best efforts to keep in full force and effect each such
Primary Mortgage Insurance Policy, FHA Certificate of Mortgage Loan Insurance or
VA Loan Guaranty Certificate applicable to a Nonsubserviced Mortgage Loan, and
shall use its reasonable best efforts to cause each Servicer to keep in full
force and effect, each Primary Mortgage Insurance Policy applicable to a
Mortgage Loan being serviced by it, until, in the case of a Primary Mortgage
Insurance Policy, (i) the principal balance of the related Mortgage Loan is
reduced to 80% or less of the Appraised Value, in the case of a Mortgage Loan
having a Loan-to-Value Ratio at origination in excess of 80%, and (ii) the
principal balance of the related Mortgage Loan is reduced to 75% or less of its
Appraised Value, and, in the case of an FHA Certificate of Mortgage Loan
Insurance or VA Loan Guaranty Certificate, until the related Mortgage Loan is
fully paid. The Master Servicer agrees to pay, with respect to each
Nonsubserviced Mortgage Loan, and otherwise, to the extent the related Servicer
does not do so, the premiums for each Primary Mortgage Insurance Policy or FHA
Certificate of Mortgage Loan Insurance on a timely basis and shall use its
reasonable best efforts to cause itself or the Servicer to be named as loss
payee. In the event that the insurer under any Primary Mortgage Insurance Policy
shall cease to be qualified to transact a mortgage guaranty insurance business
under the laws of the state of its organization or any other state that has
jurisdiction over such insurer (or if such insurer's claims-paying ability shall
cease to be acceptable to the Rating Agency) or such Primary Mortgage Insurance
Policy is cancelled or terminated for any reason, the Master Servicer shall
exercise its reasonable best efforts to obtain, or to cause the related Servicer
to obtain, from another Qualified Insurer, a replacement policy comparable to
such Primary Mortgage Insurance Policy with a total coverage that is equal to
the then existing coverage of such Primary Mortgage Insurance Policy. The Master
Servicer shall not cancel or refuse to renew any such Primary Mortgage Insurance
Policy with respect to a Nonsubserviced Mortgage Loan, or consent to the
cancellation or refusal to renew any such Primary Mortgage Insurance Policy
applicable to any other Mortgage Loan, which is in effect at the date of the
initial issuance of the Certificates pursuant to the Reference Agreement and is
required to be kept in force hereunder unless the replacement Primary Mortgage
Insurance
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Policy for such cancelled or non-renewed policy is maintained with an insurer
whose claims-paying ability is acceptable to the Rating Agency. In connection
with any assumption and modification agreement entered into by the Master
Servicer or a Servicer pursuant to Section 3.15, the Master Servicer shall
promptly notify the insurer under the related Primary Mortgage Insurance Policy.
If such Primary Mortgage Insurance Policy is terminated as a result of such
assumption, the Master Servicer shall obtain a replacement Primary Mortgage
Insurance Policy as provided above.
In connection with its activities as administrator and servicer of the
Mortgage Loans, the Master Servicer agrees to present, on behalf of itself, the
Depositor, the Trustee and the Certificateholders, claims to the Pool Insurer
under the Pool Insurance Policy, to the insurer under any Primary Mortgage
Insurance Policies, to FHA and the VA, as applicable, and, in this regard, to
permit recovery under the Pool Insurance Policy, any Primary Mortgage Insurance
Policies and any FHA Certificate of Mortgage Loan Insurance or any VA Loan
Guaranty Certificate with respect to defaulted Mortgage Loans. Pursuant to
Section 3.08 hereof, any amounts collected by the Master Servicer under the Pool
Insurance Policy, any Primary Mortgage Insurance Policy, any FHA Certificate of
Mortgage Loan Insurance or any VA Loan Guaranty Certificate shall be deposited
in the Certificate Account, subject to withdrawal pursuant to Section 3.12
hereof. If the Master Servicer is required to receive FHA debentures as the
method of payment on an FHA insurance claim, the Master Servicer shall deposit
cash into the Certificate Account in an amount equal to the face value of such
FHA debentures, whereupon such FHA debentures will become the property of the
Master Servicer. In those cases in which a Mortgage Loan is serviced by a
Servicer, the Servicer, on behalf of itself, the Master Servicer, the Depositor,
the Trustee and the Certificateholders, will, pursuant to the related Warranty
and Servicing Agreement, be required to present claims to the insurer under the
Primary Mortgage Insurance Policy and to FHA and the VA, as applicable, and
deposit all collections thereunder (including, in the case of the payment of an
FHA insurance claim in FHA debentures, cash in an amount equal to the face value
of such FHA debentures) in the related Servicing Account for deposit in the
Certificate Account.
SECTION 3.14 Maintenance of Hazard Insurance, the Special Hazard Insurance
Policy and Other Insurance.
The Master Servicer shall, with respect to Nonsubserviced Mortgage Loans
and, with respect to any other Mortgage Loan, to the extent that the related
Servicer does not do so, cause to be maintained for each Mortgage Loan, hazard
insurance with extended coverage in an amount that is at least equal to the
maximum insurable value of improvements securing such Mortgage Loan or its
Principal Balance, whichever is less. Each such policy of standard hazard
insurance shall contain, or
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have an accompanying endorsement that contains, a standard mortgagee clause
complying in form and substance to applicable FNMA guidelines or FHA or VA
Regulations, as the case may be. The Master Servicer shall also, with respect to
Nonsubserviced Mortgage Loans and, with respect to any other Mortgage Loan, to
the extent that the related Servicer does not do so, cause to be maintained on
property acquired upon foreclosure or deed in lieu of foreclosure of any
Mortgage Loan, hazard insurance with extended coverage in an amount that is at
least equal to the maximum insurable value of the improvements that are a part
of such property and in compliance with the requirements of the Special Hazard
Insurance Policy, liability insurance and, to the extent described below, flood
insurance. Pursuant to Section 3.08 hereof, any amounts collected by the Master
Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or property thus
acquired or amounts released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures) shall be deposited in the Certificate
Account, subject to withdrawal pursuant to Section 3.12 hereof. Any cost
incurred by the Master Servicer or the related Servicer in maintaining any such
insurance shall not, for the purpose of calculating monthly distributions to the
Certificateholders or remittances to the Trustee, be added to the Principal
Balance of the Mortgage Loan, notwithstanding that the terms of the Mortgage
Loan so permit. Such costs shall be recoverable by the Master Servicer or the
related Servicer out of late payments by the related Mortgagor or out of
Insurance Proceeds or Liquidation Proceeds to the extent permitted by the
applicable Warranty and Servicing Agreement and by Section 3.12 hereof. It is
understood and agreed that no earthquake or other additional insurance is to be
required of any Mortgagor or maintained on property acquired in respect of a
Mortgage other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. If the
Mortgaged Property is located at the time of origination of the Mortgage Loan in
a federally designated special flood hazard area, the Master Servicer shall
cause flood insurance to be maintained with respect to a Nonsubserviced Mortgage
Loan and, with respect to any other Mortgage Loan, shall cause such flood
insurance to be maintained, in the event the related Servicer shall fail to do
so. Such flood insurance shall be in an amount equal to the lesser of (i) the
unpaid Principal Balance of the related Mortgage Loan and (ii) the maximum
amount of such insurance available for the related Mortgaged Property under the
national flood insurance program, if the area in which such Mortgaged Property
is located is participating in such program.
In the event that the Master Servicer shall obtain and maintain a blanket
policy insuring against hazard losses on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations as set forth in the
first sentence of this Section 3.14, it being understood and agreed that such
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policy may contain a deductible clause, in which case the Master Servicer shall,
in the event that there shall not have been maintained on the related Mortgaged
Property a policy complying with the first sentence of this Section 3.14, and
there shall have been a loss that would have been covered by such policy,
deposit in the Certificate Account the amount not otherwise payable under the
blanket policy because of such deductible clause. In connection with its
activities as administrator and servicer of the Mortgage Loans, the Master
Servicer agrees to present, on behalf of itself, the Depositor, the Trustee and
the Certificateholders, claims under any such blanket policy.
As long as the Pool Insurance Policy is in effect, the Master Servicer
covenants and agrees to exercise its reasonable best efforts to maintain the
Special Hazard Insurance Policy in full force and effect, unless coverage
thereunder has been exhausted through payment of claims, and to pay the premium
for the Special Hazard Insurance Policy on a timely basis. In the event that the
Special Hazard Insurance Policy shall be cancelled or terminated for any reason
(other than the exhaustion of total policy coverage), the Master Servicer shall
exercise its reasonable best efforts to obtain from another insurer, the
claims-paying ability of which shall be acceptable to the Rating Agency, a
replacement policy comparable to the Special Hazard Insurance Policy with a
total coverage that is equal to the then existing coverage of the Special Hazard
Insurance Policy; provided, however, that if the cost of any replacement policy
shall be greater than the cost of the Special Hazard Insurance Policy, the
amount of coverage of such replacement policy shall, unless the Depositor
consents to coverage at a higher level, be reduced to a level such that the cost
of such replacement policy shall not exceed the cost of the Special Hazard
Insurance Policy. Prior to obtaining any replacement Special Hazard Insurance
Policy, the Master Servicer shall notify the Depositor of the replacement
Special Hazard Insurance Policy the Master Servicer intends to obtain and, if
the Depositor so directs, obtain a replacement Special Hazard Insurance Policy
approved by the Depositor. In connection with its activities as administrator
and servicer of the Mortgage Loans, the Master Servicer agrees to present, on
behalf of itself, the Depositor, the Trustee and the Certificateholders, claims
to the Special Hazard Insurer under the Special Hazard Insurance Policy and, in
this regard, to take such reasonable action as shall be necessary to permit
recovery under the Special Hazard Insurance Policy with respect to defaulted
Mortgage Loans. Pursuant to Section 3.08 hereof, any amounts collected by the
Master Servicer under the Special Hazard
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Insurance Policy that are in the nature of Insurance Proceeds shall be deposited
in the Certificate Account, subject to withdrawal pursuant to Section 3.12
hereof. Any other amounts collected by the Master Servicer under the Special
Hazard Insurance Policy shall be applied by it towards the restoration of the
related property to a condition requisite to the presentation of claims on the
related Mortgage Loan to the Pool Insurer under the Pool Insurance Policy.
SECTION 3.15 Enforcement of Due-on-Sale Clauses; Assumption Agreements.
(a) When any property subject to a Mortgage has been conveyed by the
Mortgagor, the Master Servicer shall, with respect to Nonsubserviced Mortgage
Loans and, with respect to any other Mortgage Loans, to the extent the related
Servicer does not do so, to the extent that it has knowledge of such conveyance,
enforce any due-on-sale clause contained in any Mortgage Note or Mortgage, to
the extent permitted under applicable law and governmental regulations, but only
to the extent that such enforcement will not adversely affect or jeopardize
coverage under any Required Insurance Policy. In the event that the Master
Servicer or the related Servicer is prohibited by law from enforcing any such
due-on-sale clause, or if coverage under any Required Insurance Policy would be
adversely affected, the Master Servicer is authorized subject to Section
3.15(b), to take or enter into an assumption and modification agreement from or
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable under the Mortgage Note and, unless
prohibited by applicable state law, the Mortgagor remains liable thereon,
provided that the Mortgage Loan shall continue to be covered (if so covered
before the Master Servicer enters such agreement) by the applicable Required
Insurance Policies. The Master Servicer, subject to Section 3.15(b), is also
authorized with the prior approval of the insurers under any Required Insurance
Policies to enter into a substitution of liability agreement with such person,
pursuant to which the original Mortgagor is released from liability and such
person is substituted as Mortgagor and becomes liable under the Mortgage Note.
Notwithstanding the foregoing, the Master Servicer shall not be deemed to be in
default under this Section 3.15(a) by reason of any transfer or assumption which
the Master Servicer is restricted by law from preventing for any reason
whatsoever.
(b) Subject to the Master Servicer's duty to enforce any due-on-sale
clause to the extent set forth in Section 3.15(a) hereof and to such other
limitations or conditions specified in the related Warranty and Servicing
Agreement, if any, in any case in which a Mortgaged Property has been conveyed
to a Person by a Mortgagor, and such Person is to enter into an assumption
agreement or modification agreement or supplement to the Mortgage Note or
Mortgage that requires the signature of the Trustee, or if an instrument of
release signed by the Trustee is required releasing the Mortgagor from liability
on the Mortgage Loan, the Master Servicer shall deliver or cause to be delivered
to the Trustee for signature the assumption agreement with the
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Person to whom the Mortgaged Property is to be conveyed and such modification
agreement or supplement to the Mortgage Note or Mortgage or other instruments as
are reasonable or necessary to carry out the terms of the Mortgage Note or
Mortgage or otherwise to comply with any applicable laws regarding assumptions
or the transfer of the Mortgaged Property to such Person. The Master Servicer
shall also deliver or cause to be delivered to the Trustee with the foregoing
documents a letter explaining the nature of such documents and the reason or
reasons why the Trustee's signature is required. With such letter, the Master
Servicer shall deliver to the Trustee a certificate of a Servicing Officer
certifying that: (i) a Servicing Officer has examined and approved such
documents as to form and substance, (ii) the Trustee's execution and delivery
thereof will not conflict with or violate any terms of this Agreement or cause
the unpaid balance and interest on the Mortgage Loan to be uncollectible in
whole or in part, (iii) any required consents of insurers under any Required
Insurance Policies have been obtained and (iv) subsequent to the closing of the
transaction involving the assumption or transfer (A) the Mortgage Loan will
continue to be secured by a first mortgage lien pursuant to the terms of the
Mortgage, (B) such transaction will not adversely affect the coverage under any
Required Insurance Policies, (C) the Mortgage Loan will fully amortize over the
remaining term thereof, (D) the interest rate on the Mortgage Loan will not be
altered nor will the term of the Mortgage Loan be increased and (E) if the
seller/transferor of the Mortgaged Property is to be released from liability on
the Mortgage Loan, such release will not (based on the Master Servicer's good
faith determination) adversely affect the collectibility of the Mortgage Loan.
Upon receipt of such certificate, the Trustee shall execute any necessary
instruments for such assumption or substitution of liability. Upon the closing
of the transactions contemplated by such documents, the Master Servicer shall
cause the originals of the assumption agreement, the release (if any), or the
modification or supplement to the Mortgage Note or Mortgage to be delivered to
the Trustee (or the related Custodian, as the duly appointed agent of the
Trustee) and deposited with the Mortgage File for such Mortgage Loan. Any fee
collected by the Master Servicer for entering into an assumption or substitution
of liability agreement will be retained by the Master Servicer as additional
servicing compensation.
In the event that the Master Servicer, in connection with any such
assumption or modification agreement or supplement to the Mortgage Note, is
unable to deliver the certificate of the Servicing Officer set forth above, the
Master Servicer shall purchase, or cause the related Servicer to purchase the
related Mortgage Loan in the manner, and at the Purchase Price, set forth in
Section 2.03 hereof.
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SECTION 3.16 Realization Upon Defaulted Mortgage Loans.
The Master Servicer shall foreclose upon or otherwise comparably convert
the ownership of properties securing such of the Mortgage Loans as come into and
continue in default and as to which no satisfactory arrangements can be made for
collection of delinquent payments pursuant to Section 3.06 hereof, or shall
cause the related Servicer to do so, as provided in the related Warranty and
Servicing Agreement. In connection with such foreclosure or other conversion,
the Master Servicer shall, consistent with Section 3.13 hereof, follow such
practices and procedures as it shall deem necessary or advisable, as shall be
normal and usual in its general mortgage servicing activities and as are in
accordance with applicable FNMA guidelines, FHA or VA Regulations, as
applicable, and the requirements of the insurers under any other Required
Insurance Policy; provided, however, that the Master Servicer shall not be
required to expend its own funds in connection with any foreclosure or towards
the restoration of any property unless it shall determine (i) that such
restoration and/or foreclosure will increase the proceeds of liquidation of the
Mortgage Loan to the Certificateholders after reimbursement to itself of such
expenses and (ii) that such expenses will be recoverable to it either through
Liquidation Proceeds with respect to which it shall have priority for purposes
of withdrawals from the Certificate Account pursuant to Section 3.12 hereof) or
through Insurance Proceeds (with respect to which it shall have similar
priority). The Master Servicer shall be responsible for all other costs and
expenses incurred by it in any such proceedings; provided, however, that it
shall be entitled to reimbursement thereof from the proceeds of liquidation of
the related Mortgaged Property, as contemplated in Section 3.12 hereof.
Notwithstanding the foregoing, the Master Servicer shall not be entitled to
recover legal expenses incurred in connection with foreclosure proceedings where
the Mortgage Loan is reinstated and such foreclosure proceedings are terminated
prior to completion, other than from sums received from the Mortgagor with
respect to such expenses. The decision of the Master Servicer to foreclose on a
defaulted Mortgage Loan shall be subject to instructions from the Trustee not to
foreclose upon such Mortgage Loan, upon a determination by the Trustee that the
proceeds of such foreclosure would not exceed the costs and expenses of bringing
such a proceeding.
SECTION 3.17 Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the Master
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Master Servicer will immediately notify the
Trustee by a certification (which certification shall include a statement to the
effect that all amounts received or to be received in connection with such
payment which are required to be deposited in the Certificate Account pursuant
to Section 3.08 hereof have
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been or will be so deposited) of a Servicing Officer and shall request delivery
to it of the Mortgage File. Upon receipt of such certification and request, the
Trustee shall promptly release (or shall cause the related Custodian to release)
the related Mortgage File to the Master Servicer, and the Depositor and the
Trustee shall execute and deliver to the Master Servicer the request for
reconveyance, deed of reconveyance or release or satisfaction of mortgage or
such instrument releasing the lien of the Mortgage, together with the Mortgage
Note with written evidence of cancellation thereon. No expenses incurred in
connection with any instrument of satisfaction or deed of reconveyance shall be
chargeable to the Certificate Account or the related Servicing Account. From
time to time and as shall be appropriate for the servicing or foreclosure of any
Mortgage Loan, including for such purpose, collection under the Pool Insurance
Policy, the Mortgagor Bankruptcy Bond, the Special Hazard Insurance Policy, any
Primary Mortgage Insurance Policy or any policy of flood insurance, any fidelity
bond or errors or omissions policy, or for the purposes of effecting a partial
release of any Mortgaged Property from the lien or the Mortgage or the making of
any corrections to the Mortgage Note or the Mortgage or any of the other
documents included in the Mortgage File, the Trustee shall, upon request of the
Master Servicer and the delivery to the Trustee of a receipt signed by a
Servicing Officer substantially in the form of Exhibit B hereto (the "Trust
Receipt"), release (or cause the related Custodian to release) the Mortgage File
to the Master Servicer, or to the related Servicer if the Master Servicer so
requests. Subject to the further limitations set forth below, the Master
Servicer shall cause the Mortgage File or documents so released to be returned
to the Trustee, or the Custodian, as the case may be, when the need therefor by
the Master Servicer or Servicer no longer exists, unless the Mortgage Loan is
liquidated and the proceeds thereof are deposited in the Certificate Account, in
which case the Trustee shall, upon the Trustee's receipt of a certification
(which certification shall include a statement to such effect), deliver the
Trust Receipt to the Master Servicer. If a Servicer or the Master Servicer at
any time seeks to initiate a foreclosure proceeding in respect of any Mortgaged
Property as authorized by the related Warranty and Servicing Agreement, or this
Agreement, as the case may be, the Master Servicer shall deliver or cause to be
delivered to the Depositor and the Trustee, for signature, as appropriate, any
court pleadings, requests for Trustee's sale or other documents necessary to
effectuate such foreclosure or any legal action brought to obtain judgment
against the Mortgagor on the Mortgage Note or the Mortgage or to obtain a
deficiency judgment or to enforce any other remedies or rights provided by the
Mortgage Note or the Mortgage or otherwise available at law or in equity.
Together with such documents or pleadings, the Master Servicer shall deliver to
the Depositor and the Trustee a certificate of a Servicing Officer requesting
that such pleadings or documents to be executed by the Trustee and a Servicing
Officer shall certify as to the reason such documents
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or pleadings are required and that the execution and delivery thereof by the
Trustee will not invalidate the insurance coverage under any Required Insurance
Policy or invalidate or otherwise affect the lien of the Mortgage except for the
termination of such lien upon completion of the foreclosure. Notwithstanding the
foregoing, the Master Servicer shall cause possession of any Mortgage File or of
the documents therein that shall have been released by the Trustee, or the
Custodian, as the case may be, to be returned to Trustee or Custodian within 21
calendar days after possession thereof shall have been released by the Trustee
or Custodian unless (i) the Mortgage Loan has been liquidated and the Insurance
Proceeds or Liquidation Proceeds relating to the Mortgage Loan have been
deposited in the Certificate Account, and the Master Servicer shall have
delivered to the Trustee a certificate of a Servicing Officer certifying to such
effect or (ii) the Mortgage File or document shall have been delivered to an
attorney or to a public trustee or other public official as required by law for
purposes of initiating or pursuing legal action or other proceedings for the
foreclosure of the Mortgaged Property and the Master Servicer shall have
delivered to the Trustee a certificate of a Servicing Officer certifying as to
the name and address of the Person to which the Mortgage File or the documents
therein were delivered and the purpose or purposes of such delivery.
SECTION 3.18 Documents, Records and Funds in Possession of Master Servicer to be
Held for the Depositor and the Trustee.
Notwithstanding any other provisions of this Agreement, the Master Servicer
shall transmit to the Trustee as required by this Agreement all documents and
instruments coming into the possession of the Master Servicer from time to time
and shall account fully to the Trustee for any funds received by the Master
Servicer or which otherwise are collected by the Master Servicer as Liquidation
Proceeds or Insurance Proceeds in respect of any Mortgage Loan. All Mortgage
Files and funds collected or held by, or under the control of, the Master
Servicer in respect of any Mortgage Loans, whether from the collection of
principal and interest payments or from Liquidation Proceeds or Insurance
Proceeds, including but not limited to, any funds on deposit in the Certificate
Account, shall be held by the Master Servicer for and on behalf of the
Depositor, the Trustee and the Certificate- holders and shall be and remain the
sole and exclusive property of the Trustee, subject to the applicable provisions
of this Agreement. The Master Servicer also agrees that it shall not create,
incur or subject any Mortgage File or any funds that are deposited in the
Certificate Account or any Servicing or Escrow Account, or any funds that
otherwise are or may become due or payable to the Trustee, to any claim, lien,
security interest, judgment, levy, writ of attachment or other encumbrance, or
assert by legal action or otherwise any claim or right of setoff against any
Mortgage File or any funds collected on, or in
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connection with, a Mortgage Loan, except, however, that the Master Servicer
shall be entitled to set-off against and deduct from any such funds any amounts
that are properly due and payable to the Master Servicer under this Agreement.
SECTION 3.19 Servicing Compensation; Retained Yield.
As compensation for its activities hereunder, the Master Servicer shall be
entitled to withdraw from the Certificate Account the amounts specified in
subclauses (i), (v) and (vi) of Section 3.12 hereof as payable to it. The
Depositor (or at its direction, its designee) shall be entitled to receive the
Retained Yield and the Administrative Fee specified in such subclauses in the
Reference Agreement.
Additional servicing compensation in the form of prepayment charges,
assumption fees, late payment charges or otherwise shall be retained by the
Master Servicer or the related Servicer, as the case may be, to the extent not
required to be deposited in the Certificate Account pursuant to Section 3.08
hereof or in the Servicing Account pursuant to the related Servicing Agreement.
The Master Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder (including payment of
premiums for Primary Mortgage Insurance Policies, FNMA Certificates of Mortgage
Loan Insurance or VA Loan Guaranty Certificates, if any, to the extent such
premiums are not required to be paid by the related Mortgagors or the related
Servicer, payment of any premiums for hazard insurance, as required by Section
3.14 hereof, payment of the premiums for the Pool Insurance Policy, as required
by Section 3.13 hereof, payment of the premiums for the Mortgagor Bankruptcy
Bond, as required by Section 3.23 hereof and maintenance of the other forms of
insurance coverage required by Section 3.14 hereof) and shall not be entitled to
reimbursement therefor except as specifically provided in Sections 3.12, 3.16
and 4.04 hereof.
SECTION 3.20 Reports to the Trustee and the Depositor; Certificate Account
Statements.
On each Distribution Date, the Master Servicer shall forward to the Trustee
and the Depositor a statement, certified by a Servicing Officer, setting forth
the status of the Certificate Account as of the close of business on such
Distribution Date and showing, for the period covered by such statement, the
aggregate of deposits in or withdrawals from the Certificate Account for each
category of deposit specified in Section 3.08 hereof and each category of
withdrawal specified in Section 3.12 hereof.
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SECTION 3.21 Annual Statement as to Compliance.
The Master Servicer shall deliver to the Depositor and the Trustee on or
before April 30 of each year, commencing on April 30 not less than nine months
after the Delivery Date specified in the Reference Agreement, an Officers'
Certificate stating, as to each signer thereof, that (i) a review of the
activities of the Master Servicer during the preceding calendar year and of the
performance of the Master Servicer under this Agreement has been made under such
officer's supervision, (ii) to the best of such officer's knowledge, based on
such review, the Master Servicer has fulfilled all its obligations under this
Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof, (iii) a Servicing Officer is
conducting an examination of the activities of each Servicer during the
immediately preceding year and its performance under the related Warranty and
Servicing Agreement, and (iv) to the best of such Servicing Officer's knowledge,
based on such examination, each Servicer has performed and fulfilled its duties,
responsibilities and obligations under the related Warranty and Servicing
Agreement in all material respects throughout such year, or if there has been a
default in the performance or fulfillment of any such duties, responsibilities
or obligations, specifying each such default known to such Servicing Officer and
the nature and status thereof.
SECTION 3.22 Annual Independent Public Accountants' Servicing Report.
On or before April 30 of each year, commencing on April 30 not less than
nine months after the Delivery Date specified in the Reference Agreement, the
Master Servicer, at its expense, shall cause a firm of independent public
accountants that is a member of the American Institute of Certified Public
Accountants to furnish a statement to the Depositor and the Trustee to the
effect that such firm has examined certain documents and records relating to the
servicing of the Mortgage Loans and that, on the basis of an examination
conducted substantially in compliance with the Uniform Single Audit Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC, such
servicing has been conducted in compliance with such agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
the Uniform Single Audit Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC requires it to report. In rendering such statement,
such firm may rely, as to matters relating to direct servicing of Mortgage Loans
by Servicers, upon comparable statements for examinations conducted
substantially in compliance with the
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Uniform Single Audit Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC (rendered within one year of such statement) of
independent public accountants With respect to the related Servicer.
SECTION 3.23 Maintenance of the Mortgagor Bankruptcy Bond; Collections
Thereunder.
If so specified in the Reference Agreement, the Master Servicer shall
exercise its reasonable best efforts to maintain and keep the Mortgagor
Bankruptcy Bond in full force and effect throughout the term of this Agreement,
unless coverage has been exhausted through payment of claims, and to pay the
premiums for the Mortgagor Bankruptcy Bond on a timely basis. At the request of
the Depositor, coverage under the Mortgagor Bankruptcy Bond shall be cancelled
or reduced by the Master Servicer to the extent permitted by the Rating Agency,
provided the outstanding rating of the Certificates by the Rating Agency at the
time of such cancellation or reduction is not reduced.
In connection with its activities as administrator and servicer of the
Mortgage Loans, the Master Servicer agrees to present, on behalf of itself, the
Depositor, the Trustee and the Certificateholders, claims to the issuer of the
Mortgagor Bankruptcy Bond and, in this regard, to take such reasonable action as
shall be necessary to permit recovery under the Mortgagor Bankruptcy Bond.
Pursuant to Section 3.08 hereof, any amounts collected by the Master Servicer
under the Mortgagor Bankruptcy Bond shall be deposited in the Certificate
Account, subject to withdrawal pursuant to Section 3.12 hereof.
SECTION 3.24 Letter of Credit.
If so specified in the Reference Agreement, the Depositor shall obtain, in
favor of the Trustee on behalf of the Certificateholders, an irrevocable,
stand-by Letter of Credit, the terms and provisions of which are as set forth in
the Reference Agreement. In the event that the L/C Bank shall be required to
make any payments under the Letter of Credit, the Master Servicer shall notify
the Trustee, no later than the Determination Date next preceding the related
Distribution Date, such notice specifying the amount of such required payment.
Not later than the close of business on the Business Day preceding the
Distribution Date, the Trustee shall draw upon the Letter of Credit in the
amount of such required payment to the extent of the amount available thereunder
and deposit in the Certificate Account, in immediately available fluids, the
amount drawn under the Letter of Credit.
If at any time the L/C Bank makes a payment covering the amount of the
outstanding principal balance of a Liquidating Loan, the Trustee shall release
(or shall cause the related Custodian to release) the related Mortgage File to
the L/C Bank
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or its designee and shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be necessary to vest in the
L/C Bank or its designee all right, title and interest in such Mortgage Loan,
and the L/C Bank or its designee will thereupon acquire such Liquidating Loan,
together with related security interests and documents, free of any further
obligation to the Trustee or the Certificateholders of such Series with respect
thereto except as may be provided in such Letter of Credit and in the Reference
Agreement.
The Depositor shall have the power to substitute for any Letter of Credit
another irrevocable standby letter of credit, provided that no such substitution
shall be made unless the substitute letter of credit contains provisions that
are in all material respects the same as, or more favorable to the
Certificateholders than, the original Letter of Credit and provided further that
such substitution will not result in a reduction of the then outstanding rating
of the Certificates, or the withdrawal of such rating, by the Rating Agency
rating such Certificates, as evidenced by written confirmation to that effect by
such Rating Agency.
Any replacement of the Letter of Credit pursuant to this Section 3.24 shall
be accompanied by a written Opinion of Counsel to the issuer of such substitute
letter of credit, addressed to the Master Servicer and the Trustee, to the
effect that such substitute letter of credit constitutes a legal, valid and
binding obligation of the issuer thereof, enforceable in accordance with its
terms (subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium and other similar laws from time to time in effect
relating to creditors' rights generally) and concerning such other matters as
the Master Servicer and the Trustee shall reasonably request.
SECTION 3.25 Reserve Fund.
If so specified in the Reference Agreement, the Master Servicer shall
establish and maintain with the Trustee, in the manner specified in the
Reference Agreement, a separate investment account (the "Reserve Fund"). The
Reserve Fund will not be included in the Trust Fund. All amounts shall be
deposited into, withdrawn and distributed from the Reserve Fund in accordance
with the provisions of the Reference Agreement.
The Master Servicer, on behalf of the Holders of the Subordinated
Certificates, will cause a valid and perfected first priority security interest
under the Uniform Commercial Code as in effect in the [ ] from time to time to
be maintained in the Reserve Fund, the amounts deposited therein and the
investments thereof (other than any income from the investment of funds in the
Reserve Fund) in order to secure the
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full and timely performance with respect to the subordination of the
Subordinated Certificates for the benefit of the Holders of the Subordinated
Certificates pursuant to the provisions of the Reference Agreement.
Amounts held in the Reserve Fund from time to time shall continue to be the
property of the Holders of the Subordinated Certificates until withdrawn from
the Reserve Fund in accordance with the provisions of the Reference Agreement.
Amounts held in the Reserve Fund shall be invested by the Trustee at the
direction of the Master Servicer for the benefit of the Holders of the
Subordinated Certificates in one or more Eligible Investments in the manner set
forth in the related Reference Agreement.
SECTION 3.26 Administration of Buydown Funds.
With respect to each Buydown Mortgage Loan included in the Trust Fund, the
related Servicer shall deposit Buydown Funds in an account that satisfies the
requirements for a Servicing Account (the "Buydown Account"). On each Servicer
Remittance Date, such Servicer will, as to each Buydown Mortgage Loan serviced
by it, withdraw from the Buydown Account in an amount equal to an aggregate
amount of payments that, when added, as required by such buydown plan, to the
amount required to be paid by the related mortgagor on each Due Date in
accordance with such buydown plan, is equal to the full monthly payment due on
such Due Date and deposit that amount in the Certificate Account for
distribution in accordance with the provisions of Section 3.08 and Section 3.12.
If the Mortgagor on a Buydown Mortgage Loan prepays such loan in its
entirety during the period (the "Buydown Period") when Buydown Funds are
required to be applied to such Buydown Mortgage Loan, the Servicer shall
withdraw from the Buydown Account and remit to the Master Servicer for deposit
in the Certificate Account the Buydown Funds remaining in the Buydown Account
for distribution in accordance with the provisions of Section 3.08 and Section
3.12. If the Mortgagor on a Buydown Mortgage Loan defaults on such loan during
the Buydown Period and the property securing such Buydown Mortgage Loan is sold
in the liquidation thereof (either by the Master Servicer, the Pool Insurer or
the insurer under any related Primary Mortgage Insurance Policy), the Servicer
shall withdraw from the Buydown Account and remit to the Master Servicer or
deposit in the Certificate Account or, if so instructed by the Master Servicer
pay to (i) the Pool Insurer if the Mortgaged Property has been transferred to
the Pool Insurer pursuant to the Pool Insurance Policy and 100% of the related
claim under the Pool Insurance Policy is paid or (ii) the insurer under any
related Primary Mortgage Insurance Policy if the Mortgaged Property is
transferred to such insurer and such insurer pays all of the loss incurred in
respect of such default, the Buydown Funds for such
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Buydown Mortgage Loan still held in the Buydown Account. Any amount remitted
pursuant to the preceding sentence will reduce the amount owed on the Mortgage
Loan for purposes of calculating Liquidation Proceeds.
ARTICLE IV
ADVANCES BY THE MASTER SERVICER; PERFORMANCE BOND
SECTION 4.01 Monthly Advances.
Subject to the conditions of this Article IV, the Master Servicer, as
required below, shall make a Monthly Advance to the Certificate Account, in the
amount, if any, of the aggregate scheduled installments of principal and
interest, after adjustment of such interest payment to the Pass-Through Rate for
such Mortgage Loan on the Mortgage Loans that were due on the Due Date but which
were not received or advanced by the Servicers (including the Master Servicer,
in its capacity as Servicer of Nonsubserviced Mortgage Loans) and remitted to
the Certificate Account on or prior to the Servicer Remittance Date. Each
Monthly Advance shall be remitted to the Certificate Account no later than the
close of business on the Business Day immediately preceding the related
Distribution Date in immediately available funds. The Master Servicer shall be
obligated to make such Monthly Advance only to the extent that such advance, in
the good faith judgment of the Master Servicer, is reimbursable from Insurance
Proceeds, Liquidation Proceeds, payments under the Letter of Credit or under any
Alternative Credit Support, or otherwise. On the Determination Date immediately
preceding the related Distribution Date, the Master Servicer shall determine
whether and to what extent any Servicers have failed to make any advances of
principal or any interest in respect of scheduled installments of principal and
interest that were due on the Due Date and whether such deficiencies, if
advanced by the Master Servicer, would be reimbursable from Insurance Proceeds,
Liquidation Proceeds or otherwise. If the Master Servicer shall have determined
that it is not obligated to make the entire Monthly Advance because all or a
lesser portion of such Monthly Advance would not be reimbursable from Insurance
Proceeds, Liquidation Proceeds or otherwise, the Master Servicer shall promptly
deliver to the Trustee an Officer's Certificate setting forth the reasons for
the Master Servicer's determination.
In lieu of making all or a portion of such Monthly Advance, the Master
Servicer may cause to be made an appropriate entry in its records relating to
the Certificate Account that funds in such account being held for future
distribution or withdrawal have been used by the Master Servicer in discharge of
its obligation to make any such Monthly Advance. Any funds being held in the
Certificate Account for future distribution to the Certificateholders shall be
replaced by the Master Servicer by
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deposit, in the manner set forth above, in the Certificate Account no later than
the close of business on the Business Day immediately preceding the related
Distribution Date, to the extent that funds in the Certificate Account on such
Distribution Date are less than the amounts required to be distributed to the
Certificateholders on such Distribution Date. The Master Servicer shall be
entitled to be reimbursed from the Certificate Account for all Monthly Advances
made pursuant to this Section as provided in Section 3.12.
SECTION 4.02 Advances for Attorneys' Fees.
The Master Servicer shall, with respect to any Nonsubserviced Mortgage
Loan, and otherwise, to the extent not made by the related Servicer, make
advances from time to time for attorneys' fees and court costs incurred, or
which reasonably can be expected to be incurred, for the foreclosure of any
Mortgage Loan or for any transaction in which the Trustee is expected to receive
a deed-in-lieu of foreclosure, unless the Master Servicer has made a good faith
determination that such advances are not recoverable from Insurance Proceeds or
Liquidation Proceeds relating to the Mortgage Loan, payments under the Letter of
Credit or under any Alternative Credit Support or otherwise. If the Master
Servicer shall make a good faith determination that such advances are not so
reimbursable, the Master Servicer shall promptly deliver to the Trustee an
Officers' Certificate setting forth the reasons for such determination. The
Master Servicer shall be entitled to reimbursement for any such advance as
provided in Section 3.12 hereof.
SECTION 4.03 Advances for Amounts Collected by Servicer but Not Remitted.
In the event that any Servicer fails to remit to the Certificate Account on
the Servicer Remittance Date the full amount of the funds in the custody or
under the control of the Servicer that the Servicer is required to remit under
the terms of the related Warranty and Servicing Agreement, then the Master
Servicer, upon and subject to the terms of this Article IV, shall advance and
remit to the Certificate Account, no later than the close of business on the
Business Day immediately preceding the related Distribution Date, in the manner
specified in Section 4.01 hereof, an amount equal to the portion of the required
remittance that was not so remitted. The Master Servicer shall be obligated to
make such advance only to the extent that such advance in the good faith
judgment of the Master Servicer is reimbursable from Insurance Proceeds,
Liquidation Proceeds, or otherwise. If the Master Servicer at any time makes a
determination that such advance is not or would not be so reimbursable, the
Master Servicer shall promptly deliver to the Trustee an Officer's Certificate
setting forth the reasons for such determination. The Master Servicer shall be
entitled to reimbursement for any such advance as provided in Section 3.12.
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SECTION 4.04 Nonrecoverable Advances.
Any Monthly Advance or other advance previously made by the Master Servicer
under Sections 4.01, 4.02 and 4.03 of this Agreement that the Master Servicer
shall ultimately determine in its good faith judgment to be not recoverable from
Insurance Proceeds, Liquidation Proceeds, payments under the Letter of Credit or
under any Alternative Credit Support, or otherwise, shall be a Nonrecoverable
Advance. The determination by the Master Servicer that it has made a
Nonrecoverable Advance shall be evidenced by an Officer's Certificate of the
Master Servicer promptly delivered to the Trustee setting forth the reasons for
such determination. Following the Trustee's receipt of the Officer's
Certificate, the Master Servicer shall be entitled to reimbursement for such
Nonrecoverable Advance as provided in Section 3.12 hereof.
SECTION 4.05 Advances for Additional Interest in Connection with Principal
Prepayments.
In the event that any Mortgage Loan is the subject of a full or partial
Principal Prepayment and such full or partial Principal Prepayment does not
include interest on the Principal Balance through and including the last day of
the month during which such Principal Prepayment is made, the Master Servicer
shall, with respect to each Nonsubserviced Mortgage Loan, and otherwise to the
extent that such interest shall not have been paid by the Servicer and deposited
in the Certificate Account on or before the Servicer Remittance Date next
succeeding the date of such full or partial Principal Prepayment, advance and
deposit into the Certificate Account, on or before the close of business on the
Business Day immediately preceding the related Distribution Date, an amount
equal to such additional interest, adjusted to the Pass-Through Rate. Such
advance shall be made regardless of whether the Mortgage Note or Mortgage
requires the payment of such interest or whether such amount is recoverable from
Liquidation Proceeds, Insurance Proceeds, payments under the Letter of Credit or
under any Alternative Credit Support, or otherwise or whether the Master
Servicer shall have determined that such advance, if made, would be a
Nonrecoverable Advance; and in case of such advance, the Master Servicer shall
not be entitled to any recovery or reimbursement from the Depositor, the Trustee
or the Certificateholders, but may seek and obtain recovery from the Servicer
that failed to make the advance, through legal action or otherwise, to the
extent provided in the related Warranty and Servicing Agreement. Notwithstanding
anything to the contrary contained herein, the Master Servicer shall have no
entitlement hereunder to any retained yield payable to such Servicer with
respect to any Mortgage Loan serviced by it hereunder.
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SECTION 4.06 Performance Bond.
The performance of the obligations of the Master Servicer under this
Agreement are guaranteed by the Performance Bond. In the event the
creditworthiness of the obligor under the Performance Bond is impaired such that
the Rating Agency advises the Depositor or the Trustee that the outstanding
rating of the Certificates would be lowered by the Rating Agency, the Master
Servicer shall secure as soon as practicable (and, in any event, within 30 days)
a substitute guaranty or similar form of insurance coverage in an amount equal
to ____% of the outstanding Principal Balance of the Mortgage Loans and issued
by an entity the creditworthiness of which is determined by the Rating Agency to
be sufficient to maintain the outstanding rating of the Certificates. Upon
delivery of such substitute guaranty or similar form of insurance coverage, all
obligations under the Performance Bond shall be discharged. Unless the Rating
Agency confirms within such 30-day period that, after giving effect to such
substitution, it will not lower the outstanding rating of the Certificates, the
Master Servicer shall deposit cash with the Trustee in a separate account (the
"Guaranty Fund") in an amount equal to ___% of the then outstanding Principal
Balance of the Mortgage Loans. The amount so deposited shall be held by the
Trustee as security for the Certificates and shall be invested by the Trustee in
Eligible Investments. Upon such deposit, any obligations under the Performance
Bond or any substitute guaranty or similar form of insurance coverage shall be
discharged. In the event that the Master Servicer fails to make any Monthly
Advance required by the terms of this Agreement, the Trustee shall withdraw the
amount of such Monthly Advance from the Guaranty Fund and deposit the amount so
withdrawn in the Certificate Account. Any such withdrawal shall not result in
any waiver of the Trustee's rights hereunder with respect to any Event of
Default resulting from the Master Servicer's failure to make any such required
payment. Earnings from the investment of any amounts deposited with the Trustee
pursuant to this Section 4.06 shall be for the account of the Master Servicer.
The amount of any losses incurred in respect of any such investments shall be
deposited by the Master Servicer into the Guaranty Fund immediately, as
realized.
The obligations of the Master Servicer under Section 2.03(b) hereof are
further guaranteed by the Performance Bond. In the event that the outstanding
credit rating of the commercial paper obligations of the obligor under the
Performance Bond is reduced by the Rating Agency with the result that the
outstanding rating of the Certificates would be reduced by the Rating Agency,
the Master Servicer shall secure as soon as practicable a substitute guaranty or
similar form of insurance coverage, which shall be (a) in amount equal to the
amount of the Master Servicer's outstanding obligations under Section 2.03(b)
hereof and (b) issued by an entity that has an outstanding commercial paper
rating sufficient to maintain the outstanding rating of the
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Certificates. If a substitute guaranty or other form of insurance coverage has
not been issued to the Trustee within thirty days after the Rating Agency
notifies the Depositor or the Trustee of its intent to lower the rating of the
Certificates, the Master Servicer shall deposit and maintain with the Trustee
cash in an amount equal to the amount of its outstanding obligations under
Section 2.03(b) hereof. The amount so deposited shall be held by the Trustee in
a separate account as security for the Certificates (the "Repurchase Fund") and
shall be invested by the Trustee at the direction of the Master Servicer in
Eligible Investments. In the event that the Master Servicer fails to make any
payment required to be made pursuant to Section 2.03(b), the Trustee shall
withdraw the amount of such required payment from the Repurchase Fund and
deposit the amount so withdrawn in the Certificate Account. Any such withdrawal
shall not result in a waiver of the Trustee's rights with respect to any Event
of Default resulting from the Master Servicer's failure to make any such
required payment. The Master Servicer may withdraw any amounts on deposit with
the Trustee in excess of its outstanding obligations under Section 2.03(b)
hereof and shall deposit cash in the amount necessary to satisfy any deficiency
in the Repurchase Fund upon receipt of the Trustee's demand therefor. Earnings
from the investment of any amounts so deposited with the Trustee shall be for
the account of the Master Servicer. The amount of any losses incurred in respect
of any such investment shall be deposited by the Master Servicer into the
Repurchase Fund immediately, as realized.
ARTICLE V
THE CERTIFICATES
SECTION 5.01 The Certificates.
The Certificates shall be substantially in the forms set forth in the
Reference Agreement. A Single Certificate shall evidence the interest in the
Trust Fund specified in the Reference Agreement. The Certificates may be issued
in one or more Classes and such Classes may be divided into one or more
Subclasses as provided in the Reference Agreement. One or more of such Classes
or Subclasses may be subordinated to any other one or more of such Classes or
Subclasses as provided in the Reference Agreement. One or more of such Classes
or Subclasses may receive unequal amounts of the principal and/or interest
payments made from the Mortgage Loans as specified in the Reference Agreement.
The timing of payments to any one or more of such Classes or Subclasses may be
made on a sequential or pro rata basis as provided in the Reference Agreement.
The Certificates shall be executed by manual or facsimile signature on behalf of
the Depositor by its President or one of its Executive Vice Presidents, Senior
Vice Presidents or First Vice Presidents under its seal imprinted thereon and
attested by the
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manual or facsimile signature of its Secretary or one of its Assistant
Secretaries. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures were affixed, authorized
to sign on behalf of the Depositor shall bind the Depositor, notwithstanding
that such individuals or any of them have ceased to be so authorized prior to
the authentication and delivery of such Certificates or did not hold such
offices at the date of such Certificate. No Certificate shall be entitled to any
benefit under this Agreement, or be valid for any purpose, unless there appears
on such Certificate a certificate of authentication substantially in the form
set forth in Section 8.10 executed by the Trustee by manual signature, and such
certificate of authentication upon any Certificate shall be conclusive evidence,
and the only evidence, that such Certificate has been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their
authentication.
SECTION 5.02 Registration of Transfer and Exchange of Certificates.
The Trustee shall maintain, or cause to be maintained in accordance with
the provisions of Section 5.06 hereof, a Certificate Register in which, subject
to such reasonable regulations as it may prescribe, the Certificate Registrar
named in the Reference Agreement shall provide for the registration of
Certificates and of transfers and exchanges of Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate, the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates in like aggregate interest in the
Trust Fund and of the same Class.
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of the same aggregate interest in the Trust Fund and of the
same Class, upon surrender of the Certificates to be exchanged at any such
office or agency. Whenever any Certificates are so surrendered for exchange, the
Depositor shall execute and the Trustee shall authenticate and deliver the
Certificates which the Certificateholder making the exchange is entitled to
receive. Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Trustee duly executed by the holder thereof or his attorney
duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
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All Certificates surrendered for registration of transfer and exchange
shall be cancelled and subsequently destroyed by the Trustee or, at its
direction, by the Certificate Registrar.
Unless otherwise specified in the Reference Agreement, the Certificate
Registrar will provide the Master Servicer not later than the 15th Business Day
next preceding the Distribution Date the names and addresses of the
Certificateholders as of the Record Date and the interest of each of them in the
Trust Fund.
SECTION 5.03 Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate is surrendered to the Certificate
Registrar, or the Certificate Registrar receives evidence to its satisfaction of
the destruction, loss or theft of any Certificate and (b) there is delivered to
the Master Servicer, the Certificate Registrar and the Trustee such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of notice to the Certificate Registrar or the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor and
interest in the Trust Fund. In connection with the issuance of any new
Certificate under this Section 5.03, the Certificate Registrar may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the fees
and expenses of the Trustee and the Certificate Registrar) connected therewith.
Any duplicate Certificate issued pursuant to this Section 5.03 shall constitute
complete and indefeasible evidence of ownership in the Trust Fund, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 5.04 Persons Deemed Owners.
Prior to due presentation of a Certificate for registration of transfer,
the Master Servicer,the Trustee, the Certificate Registrar and any agent of the
Master Servicer, the Trustee or the Certificate Registrar may treat the person
in whose name any Certificate is registered as the owner of such Certificate for
the purpose of receiving distributions as provided in the Reference Agreement
and for all other purposes whatsoever, and neither the Master Servicer, the
Trustee, the Certificate Registrar nor any agent of the Master Servicer, the
Trustee or the Certificate Registrar shall be affected by any notice to the
contrary.
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SECTION 5.05 Access to List of Certificateholders' Names and Addresses.
If the Trustee is not the Certificate Registrar and at any time requests
the Certificate Registrar in writing to provide a list of the names and
addresses of Certificateholders, the Certificate Registrar will furnish to the
Trustee, within 15 days after receipt of a request, such list as of the most
recent Record Date, in such form as the Trustee may reasonably require.
If three or more Certificateholders (a) request such information in writing
from the Trustee, (b) state that such Certificateholders desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates and (c) provide a copy of the communication which such
Certificateholders propose to transmit, then the Trustee shall, within five
Business Days after the receipt of such request, afford such Certificateholders
access during normal business hours to the most recent list held by the Trustee,
if any. If such list is as of a date more than 90 days prior to the date of
receipt of such Certificateholders' request, the Trustee shall promptly request
from the Certificate Registrar a current list and shall afford such
Certificateholders access to such list promptly upon its receipt by the Trustee.
Every Certificateholder, by receiving and holding a Certificate, agrees that
neither the Certificate Registrar nor the Trustee shall be held accountable by
reason of the disclosure of any such information as to the list of the
Certificateholders hereunder, regardless of the source from which such
information was derived.
SECTION 5.06 Maintenance of Office or Agency.
The Trustee will maintain or cause to be maintained at its expense an
office or offices or agency or agencies where Certificates may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Trustee in respect of the Certificates and this Agreement may be
served. The Trustee initially appoints the Certificate Registrar designated in
the Reference Agreement for transfer and exchange of Certificates and designates
the office described in the Reference Agreement as its office for purposes of
receipt of such notices and demands. The Trustee will give prompt written notice
to the Certificateholders of any change in the location of the Certificate
Register or any such office or agency.
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ARTICLE VI
THE DEPOSITOR AND THE MASTER SERVICER
SECTION 6.01 Respective Liabilities of the Depositor and the Master Servicer.
The Depositor and the Master Servicer shall each be liable in accordance
herewith only to the extent of the obligations specifically and respectively
imposed upon and undertaken by them herein.
SECTION 6.02 Merger or Consolidation of the Depositor and the Master Servicer.
The Depositor and the Master Servicer will each keep in full effect its
existence, rights and franchises as a corporation under the laws of the State of
[Delaware], and will each obtain and preserve its qualification to do business
as a foreign corporation in each jurisdiction in which such qualification is or
shall be necessary to protect the validity and enforceability of this Agreement,
or any of the Mortgage Loans and to perform its respective duties under this
Agreement.
Any person into which the Depositor or the Master Servicer may be merged or
consolidated, or any corporation resulting from any merger or consolidation to
which the Depositor or the Master Servicer shall be a party, or any Person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor of the Depositor or the Master Servicer, as the case may be,
hereunder,without the execution or filing of any paper or any further act on the
part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to, and to service
mortgage loans on behalf of, FNMA or FHLMC.
Notwithstanding anything else in this Section 6.02 or in Section 6.04
hereof to the contrary, the Master Servicer may assign its rights and delegate
its duties and obligations under this Agreement in connection with a sale or
transfer of a substantial portion of its mortgage servicing portfolio; provided
that such purchaser or transferee accepting such assignment or delegation shall
be a Person qualified to service mortgage loans on behalf of FNMA or FHLMC, is
reasonably satisfactory to the Trustee and the Depositor, is willing to service
the Mortgage Loans and executes and delivers to the Depositor and the Trustee an
agreement, in form and substance reasonably satisfactory to the Depositor and
the Trustee, which contains an assumption by such Person of the due and punctual
performance and observance of each covenant and condition to be performed or
observed by the Master Servicer under this Agreement and a guaranty of the
performance of such Person's obligations under this Agreement,
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and provided further that the Rating Agency's rating of the Certificates in
effect immediately prior to such assignment, sale or transfer will not be
impaired as a result of such assignment, sale or transfer. In the case of any
such assignment and delegation, the Master Servicer shall be released from its
obligations under this Agreement, except that the Master Servicer shall remain
liable for all liabilities and obligations incurred by it as Master Servicer
hereunder prior to the satisfaction of the conditions to such assignment and
delegation set forth in the preceding sentence.
SECTION 6.03 Limitation on Liability of the Depositor, the Master Servicer and
Others.
Neither the Depositor, the Master Servicer nor any of the directors,
officers, employees or agents of the Depositor or the Master Servicer shall be
under any liability to the Certificateholders for any action taken or for
refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgement; provided, however, that this provision
shall not protect the Depositor, the Master Servicer or any such person against
any breach of representations or warranties made by it herein or protect the
Depositor, the Master Servicer or any such person from any liability which 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 hereunder. The Depositor, the Master Servicer and any director,
officer, employee or agent of the Depositor or the Master Servicer may rely in
good faith on any document of any kind prima facie properly executed and
submitted by any Person in respect of any matters arising hereunder. The
Depositor, the Master Servicer and any director, officer, employee or agent of
the Depositor or the Master Servicer shall be indemnified by the Trust Fund and
held harmless against any loss, liability or expense incurred in connection with
any legal action relating to this Agreement or the Certificates, other than any
loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence in the
performance of duties hereunder or by reason of reckless disregard of
obligations and duties hereunder. Neither the Depositor nor the Master Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
that is not incidental to their respective duties hereunder and which in its
opinion may involve it in any expense or liability; provided, however, that
either the Depositor or the Master Servicer may in its discretion undertake any
such action that it may deem necessary or desirable in respect of this Agreement
and the rights and duties of the parties hereto and the interests of the Trustee
and the Certificateholder hereunder. In such event, the legal expenses and costs
of such action and any liability
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resulting therefrom shall be expenses, costs and liabilities of the Trust Fund,
and the Depositor and the Master Servicer shall be entitled to be reimbursed
therefor out of the Certificate Account as provided by Section 3.12 hereof.
SECTION 6.04 Master Servicer Not to Resign.
The Master Servicer shall not resign from the obligations and duties
imposed upon it hereunder except upon determination that such obligations and
duties hereunder are no longer permissible under applicable law. Any such
determination permitting the resignation of the Master Servicer shall be
evidenced by an Opinion of Counsel to such effect delivered to the Trustee. No
such resignation by the Master Servicer shall become effective until the Trustee
or a successor servicer shall have assumed the Master Servicer's
responsibilities and obligations in accordance with Section 7.02 hereof.
SECTION 6.05 Errors and Omissions Insurance; Fidelity Bonds.
The Master Servicer shall, for so long as it acts as servicer under this
Agreement, obtain and maintain in force (a) a policy or policies of insurance
covering errors and omissions in the performance of its obligations as servicer
hereunder, and (b) a fidelity bond in respect of its officers, employees and
agents. Each such policy or polices and bond shall, together, comply with the
requirements from time to time of FNMA or FHLMC for persons performing servicing
for mortgage loans purchased by FNMA or FHLMC. In the event that any such policy
or bond ceases to be in effect, the Master Servicer shall obtain a comparable
replacement policy or bond from an insurer or issuer meeting the requirements
set forth above as of the date of such replacement.
ARTICLE VII
DEFAULT
SECTION 7.01 Events of Default.
"Event of Default" wherever used herein, means any one of the following
events (whatever reason for such Event of Default and whether it shall be
voluntary or involuntary or be 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):
(i) any failure by the Master Servicer to remit to the
Certificateholders or to the Trustee any payment (other than a payment
required to be made under Article IV hereof) required to be made under
the terms of this Agreement, which failure shall continue unremedied
for a period of 5 days after the date upon which written notice of
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such failure shall have been given to the Master Servicer by the
Trustee or the Depositor or to the Master Servicer and the Trustee by
the Holders of Certificates evidencing not less than 25% of the Voting
Rights evidenced by the Certificates; or
(ii) any failure by the Master Servicer to observe or preform in
any material respect any other of the covenants or agreement on the
part of the Master Servicer in this Agreement contained and such
failure shall continue unremedied for a period of 60 days (except that
such number of days shall be 15 in the case of a failure to pay a
premium for any Required Insurance Policy) after the date on which
written notice of such failure shall have been given to the Master
Servicer by the Trustee or the Depositor, or to the Master Servicer
and the Trustee by the Holders of Certificates evidencing not less
than 25% of the Voting Rights evidenced by the Certificates; or
(iii) if a representation or warranty set forth in Section
2.03(a) hereof shall prove to be incorrect as of the time made in any
respect that materially and adversely affects the interest of the
Certificateholders, and the circumstances or condition in respect of
which such representation or warranty was incorrect shall not have
been eliminated or cured within 30 days after the date on which
written notice thereof shall have been given to the Master Servicer by
the Trustee or the Depositor; or
(iv) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings,
or for the winding-up or liquidation of its affairs, shall have been
entered against the Master Servicer and such decree or order shall
have remained in force undischarged or unstayed for a period of 60
days; or
(v) the Master Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshalling of assets and liabilities or similar proceedings
of or relating to the Master Servicer or of or relating to all or
substantially all of the property of the Master Servicer; or
(vi) the Master Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take
advantage of, or commence a voluntary case under, any applicable
insolvency or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payment of its
obligations; or
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(vii) any Rating Agency shall lower, or threaten to lower, the
outstanding rating of the Certificates because the existing or
prospective financial condition or mortgage loan servicing capability
of the Master Servicer is insufficient to maintain such outstanding
rating.
If an Event of Default shall occur, then, and in each and every such case,
so long as such Event of Default shall not have been remedied, either the
Trustee, the Holders of Certificates evidencing not less than twenty-five
percent (25%) of the Voting Rights evidenced by the Certificates, or the
Depositor, with the prior written approval of the Trustee, by notice in writing
to the Master Servicer, may terminate all of the rights and obligations of the
Master Servicer under this Agreement and in and to the Mortgage Loans and the
proceeds thereof. On or after the receipt by the Master Servicer of such written
notice, all authority and power for the Master Servicer hereunder, whether with
respect to the Mortgage Loans or otherwise, shall pass to and be vested in the
Trustee or, if the Depositor so notifies the Trustee and the Master Servicer, to
the Depositor or its designee, pursuant to and under this Section and, without
limitation, the Trustee, the Depositor and any such designee of the Depositor
are hereby authorized and empowered to execute and deliver, on behalf of the
Master Servicer, as attorney-in-fact or otherwise, any and all documents and
other instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Mortgage Loans and
related documents, or otherwise. Unless expressly provided in such written
notice, no such termination shall affect any obligation of the Master Servicer
pursuant to Section 2.03 to pay damages as a result of a Default under this
Article VII, to make payment under any Credit Support, or to pay amounts owed
pursuant to Article VIII. the Master Servicer agrees to cooperate with the
Trustee, the Depositor and any such designee of the Depositor in effecting the
termination of the Master Servicer's responsibilities and rights hereunder,
including, without limitation, the transfer to the Trustee or the Depositor or
its designee, as the case may be, for administration by it of all cash amounts
which shall at the time be credited to the Certificate Account or thereafter be
received with respect to the Mortgage Loans.
SECTION 7.02 Trustee to Act; Appointment of Successor.
On and after the time the Master Servicer receives a notice of termination
pursuant to Section 7.01 hereof, the Trustee shall be the successor in all
respects to the Master Servicer in its capacity as master servicer under this
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Master Servicer by the terms and provisions hereof (except that if
the Trustee is acting as
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successor to the Master Servicer and is prohibited by law from obligating itself
to make advances regarding delinquent Mortgage Loans, then the Trustee shall not
be obligated to make advances pursuant to Section 3.01 and Article IV hereof).
As compensation therefor, the Trustee shall be entitled to all funds relating to
the Mortgage Loans that the Master Servicer would have been entitled to charge
to the Certificate Account if the Master Servicer had continued to act
hereunder. Notwithstanding the foregoing, if the Trustee has become the
successor to the Master Servicer in accordance with Section 7.01 hereof, the
Trustee may, if it shall be unwilling to so act, or shall,if it is unable to so
act (exclusive of the obligations with respect to advances set forth in Article
IV hereof), appoint, or petition a court of competent jurisdiction to appoint,
any established mortgage loan servicing institution having a net worth of not
less than that required by the Rating Agency as the successor to the Master
Servicer hereunder in the assumption of all or any part of the responsibilities,
duties or liabilities of the Master Servicer hereunder. Pending appointment of a
successor to the Master Servicer hereunder, the Trustee, unless the Trustee is
prohibited by law from so acting, shall act in such capacity as hereinabove
provided. In connection with such appointment and assumption, the Trustee may
make such arrangements for the compensation of such successor out of payments on
Mortgage Loans as it and such successor shall agree; provided, however, that no
such compensation shall be in excess of that permitted the Master Servicer
hereunder. The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
Any successor to the Master Servicer as servicer shall during term of its
service as servicer maintain in force the policy or policies that the Master
Servicer is required to maintain pursuant to Section 6.05.
SECTION 7.03 Notification to Certificateholders.
(a) Upon any termination or appointment of a successor to the Master
Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register.
(b) Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Certificateholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.
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ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01 Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default and after the
curing of all Events of Default that may have occurred, undertakes to perform
such duties and only such duties as are specifically set forth in this
Agreement. In case an Event of Default has occurred and remains uncured, the
Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise as a
prudent investor would exercise or use under the circumstances in the conduct of
such investor's own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement, shall examine them to determine whether they conform to the
requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own misconduct; provided, however, that:
(i) prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default that may have occurred, the
duties and obligations of the Trustee shall be determined solely by
the express provisions of this Agreement, the Trustee shall not be
personally liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement, no
implied covenants or obligations shall be read into this Agreement
against the Trustee and, in the absence of bad faith on the part of
the Trustee, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Trustee and conforming
to the requirements of this Agreement;
(ii) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith
in accordance with the direction of Certificateholders holding
Certificates aggregating not
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less than 25% of the interest in the Trust Fund evidenced by each
Class of Certificates relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under
this Agreement.
SECTION 8.02 Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(i) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;
(ii) the Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken or suffered or omitted by it hereunder in
good faith and in accordance with such Opinion of Counsel;
(iii) the Trustee shall not be personally liable for any action
taken, suffered or omitted by it in good faith and believed by it in
good faith to be authorized or within the discretion or rights or
powers conferred upon it by this Agreement;
(iv) prior to the occurrence of an Event of Default hereunder and
after the curing of all Events of Default that may have occurred, the
Trustee shall not be bound to make any investigation into the facts or
matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing so to do by
Holders of Certificates aggregating not less than 25% of the interest
in the Trust Fund evidenced by each Class of Certificates; and
(v) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through
agents or attorneys.
SECTION 8.03 Trustee Not Liable for Mortgage Loans.
The recitals contained herein shall be taken as the statements of the
Depositor or the Master Servicer, as the case may be, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Agreement or of any Mortgage Loan or related
document. The Trustee shall not be accountable for
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the use or application by the Depositor or the Master Servicer of any funds paid
to the Depositor or the Master Servicer in respect of the Mortgage Loans or
deposited in or withdrawn from the Certificate Account by the Depositor or the
Master Servicer.
SECTION 8.04 Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Certificates with the same rights as it would have if it were not the
Trustee.
SECTION 8.05 Master Servicer to Pay Trustee's Fees and Expenses.
The Master Servicer covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, reasonable compensation (which shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) for all services rendered by it in the execution of
the trusts hereby created and in the exercise and performance of any of the
powers and duties hereunder of the Trustee, and the Master Servicer will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement (including the reasonable compensation
and the expenses and disbursements of its counsel and of all persons not
regularly in its employ) except any such expense, disbursement or advance as may
arise from its negligence, bad faith or willful misconduct.
SECTION 8.06 Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation organized and
doing business under the laws of such state or the United States of America,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $50,000,000 and subject to supervision or
examination by federal or state authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purposes of this
Section 8.06 the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section 8.06, the Trustee
shall resign immediately in the manner and with the effect specified in Section
8.07 hereof.
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SECTION 8.07 Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged from the trusts hereby
created by (1) giving written notice of resignation to the Depositor and by
mailing notice of resignation by first class mail, postage prepaid, to the
Certificateholders at their addresses appearing on the Certificate Register, the
Certificate Registrar (if other than the Trustee) and any co-registrar, not less
than 60 days before the date specified in such notice when, subject to Section
8.08, such resignation is to take effect, and (2) appointing a successor trustee
in accordance with Section 8.08 and meeting the qualifications set forth in
Section 8.06.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.06 hereof and shall fail to resign after written
request therefor by the Depositor, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the Trustee so
removed and one copy of the successor trustee. The Trustee may also be removed
at any time by the Holders of Certificates evidencing not less than 50% of the
Voting Rights evidenced by the Certificates.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section 8.07 shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.08 hereof.
SECTION 8.08 Successor Trustee.
Any successor trustee appointed as provided in Section 8.07 hereof shall
execute, acknowledge and deliver to the Depositor and to its predecessor trustee
an instrument accepting such appointment hereunder and thereupon the resignation
or removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with the like effect as if originally named as trustee herein. The
Depositor, the Master Servicer and the predecessor trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor trustee all
such rights, powers, duties and obligations.
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No successor trustee shall accept appointment as provided in this Section
8.08, unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 8.06 hereof.
Upon acceptance of appointment by a successor trustee as provided in this
Section 8.08, the Master Servicer shall mail notice of the succession of such
trustee hereunder to all Holders of Certificates at their addresses as shown in
the Certificate Register. If the Master Servicer fails to mail such notice
within 10 days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Depositor.
SECTION 8.09 Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided that such corporation shall be eligible under
the provisions of Section 8.06, hereof, without the execution or filing of any
paper or further act on the part of any of the parties hereto, anything herein
to the contrary notwithstanding.
SECTION 8.10 Appointment of Authenticating Agent.
At any time when any of the Certificates remain outstanding, the Trustee
may appoint an Authenticating Agent or Agents which shall be authorized to act
on behalf of the Trustee to authenticate Certificates, and Certificates so
authenticated shall be entitled to the benefits of this Agreement and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Whenever reference is made in this Agreement to the authentication
and delivery of Certificates by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Depositor and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $15,000,000, authorized under such laws to do trust
business and subject to supervision or examination by Federal or State
authority. If such Authenticating Agent publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section 8.10, the combined
capital and
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surplus of such Authenticating Agent shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published. If
at any time an Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section 8.10, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section 8.10.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section 8.10, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Depositor. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Depositor. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 8.10, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Depositor and shall mail
written notice of such appointment by first-class mail, postage prepaid to all
Certificateholders as their names and addresses appear in the Certificate
Register. Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section 8.10.
Any reasonable compensation paid to an Authenticating Agent for its
services under this Section 8.10 shall be a reimbursable expense pursuant to
Section 8.05 if paid by the Trustee.
If an appointment is made pursuant to this Section 8.10, the Certificates
may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication in the following
form:
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"This is one of the Certificates referred to in the
within-mentioned Agreement.
______________________________
As Trustee
By: ______________________________
Authenticating Agent
By: ______________________________
Authorized Officer
SECTION 8.11 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Fund or property securing any Mortgage Note may at any time be
located, the Master Servicer and the Trustee acting jointly shall have the power
and shall execute and deliver all instruments to appoint one or more Persons
approved by the Trustee to act as co-trustee or co- trustees jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders, such title to the Trust Fund, or any part
thereof, and, subject to the other provisions of this Section 8.11, such powers,
duties, obligations, rights and trusts as the Master Servicer and the Trustee
may consider necessary or desirable. If the Master Servicer shall not have
joined in such appointment within 15 days after the receipt by it of a request
to do so, or in the case an Event of Default shall have occurred and be
continuing, the Trustee alone shall have the power to make such appointment. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 8.06 and no notice to
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required under Section 8.08.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) All rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
(whether as Trustee hereunder or as successor to the Master Servicer
hereunder), the Trustee shall be
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incompetent or unqualified to perform such act or acts, in which event
such rights, powers, duties and obligations (including the holding of
title to the Trust Fund or any portion thereof in any such
jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Trustee;
(ii) No trustee hereunder shall be held personally liable by
reason of an act or omission of any other trustee hereunder; and
(iii) The Master Servicer and the Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Master Servicer and the Depositor.
Any separate trustee or co-trustee may, at any time, constitute the Trustee
its agent or attorney-in-fact, with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 8.12 Tax Returns.
The Trustee, upon request, will furnish the Master Servicer with all such
information as may be reasonably required in connection with the preparation by
the Master Servicer of all tax returns of the Trust Fund, and the Trustee shall,
upon request, execute such returns.
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SECTION 8.13 Appointment of Custodians.
The Trustee may, with the consent of the Depositor and the Master Servicer,
appoint one or more Custodians to hold all or a portion of the Mortgage Files as
agent for the Trustee, by entering into a Custodial Agreement. Subject to
Article VIII, the Trustee agrees to comply with the terms and provisions thereof
against the Custodian for the benefit of the Certificateholders. Each Custodian
shall be a depository institution subject to supervision by federal or state
authority, shall have combined capital and surplus of at least $10,000,000 and
shall be qualified to do business in the jurisdiction in which it holds any
Mortgage File. Each Custodial Agreement may be amended only as provided in
Section 10.01 or as provided in the Reference Agreement.
ARTICLE IX
TERMINATION
SECTION 9.01 Termination upon Repurchase by the Depositor.
The obligations and responsibilities of the Depositor and the Trustee
created hereby and the Trust Fund created hereby shall terminate upon the
earlier of (a) the repurchase by the Depositor of all Mortgage Loans and all
property acquired in respect of any Mortgage Loan remaining in the Trust Fund at
a price equal to the price specified in the Reference Agreement, and
unreimbursed Monthly Advances or (b) the later of (i) the maturity or other
liquidation (or any advance with respect thereto) of the last Mortgage Loan
remaining in the Trust Fund and the disposition of all property acquired upon
foreclosure or by deed in lieu of foreclosure of any Mortgage Loan and (ii) the
distribution to Certificateholders of all amounts in the Certificate Account
required to be distributed to them pursuant to this Agreement; provided,
however, that in no event shall the trust created hereby continue beyond the
expiration of 21 years from the death of the last survivor of the descendants of
Mr. Joseph P. Kennedy, former Ambassador of the United States to Great Britain,
living on the date of execution of this Agreement. The right of the Depositor to
repurchase all Mortgage Loans pursuant to clause (a) above shall be conditioned
upon the unpaid Principal Balances of such Mortgage Loans, at the time of any
such repurchase, aggregating less than an amount equal to the percentage of the
aggregate unpaid Principal Balance of the Mortgage Loans constituting the Trust
Fund on the Cut-off Date set forth in the Reference Agreement.
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SECTION 9.02 Final Distribution on the Certificates.
Notice of any termination, specifying the Distribution Date upon which the
Certificateholders may surrender their Certificates for payment of the final
distribution and cancellation, shall be given promptly by the Master Servicer by
letter to Certificateholders mailed not earlier than the date specified in the
Reference Agreement. Any such notice shall specify (a) the Distribution Date
upon which final distribution of the Certificates will be made upon presentation
and surrender of Certificates at the office therein designated, (b) the amount
of such final distribution and (c) if applicable, that the Record Date otherwise
applicable to such Distribution Date is not applicable, distributions being made
only upon presentation and surrender of the Certificates at the office therein
specified. If applicable, the Master Servicer will give such notice to the
Certificate Registrar and the Custodian at the time such notice is given to
Certificateholders. In the event such notice is given, the Master Servicer shall
deposit in the Certificate Account on the applicable Distribution Date an amount
equal to the final distribution in respect of the Certificates. Upon
certification to the Trustee by a Servicing Officer following such final
deposit, the Trustee shall promptly release or shall cause the applicable
Custodian to release to the Master Servicer in accordance with the reason for
the final distribution, the Mortgage Files for the Mortgage Loans.
In the event that all of the Certificateholders shall not surrender their
Certificates for cancellation within six months after the date specified in the
above mentioned written notice, the Master Servicer shall give a second written
notice to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice all the Certificates shall not have been
surrendered for cancellation, the Master Servicer may take appropriate steps, or
may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain subject
hereto.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01 Amendment.
This Agreement may be amended from time to time by the Depositor, the
Master Servicer and the Trustee, without the consent of any of the
Certificateholders, to cure any ambiguity, to correct or supplement any
provisions herein, or to make such other provisions with respect to matters or
questions arising
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under this Agreement as shall not be inconsistent with any other provisions
herein; provided that such action shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of any
Certificateholder. This Agreement may also be amended with the consent of
Certificateholders in the manner set forth in the Reference Agreement.
SECTION 10.02 Recordation of Agreement; Counterparts.
This Agreement is subject to recordation in all appropriate public offices
for real property records in all the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Master Servicer at its expense or direction by the
Trustee, but only upon direction of the Trustee accompanied by an Opinion of
Counsel to the effect that such recordation materially and beneficially affects
the interests of Certificateholders.
For the purpose of facilitating the recordation of this Agreement as herein
provided and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts shall constitute but one and the same
instrument.
SECTION 10.03 Governing Law.
This Agreement shall be construed in accordance with and governed by the
substantive laws of the [State of New York] applicable to agreements made and to
be performed in the [State of New York] and the obligations, rights and remedies
of the parties hereto and the Certificateholders shall be determined in
accordance with such laws.
SECTION 10.04 Intention of Parties.
The execution and delivery of this Agreement shall constitute an
acknowledgement by the Depositor and the Trustee on behalf of the
Certificateholders that they intend hereby to establish (for federal income tax
purposes) a trust rather than an association taxable as a corporation. The
powers granted and obligations undertaken in this Agreement shall be construed
so as to further such intent.
SECTION 10.05 Notices.
All demands and notices hereunder shall be in writing and shall be deemed
to have been duly given if personally delivered at or mailed by registered mail,
postage prepaid, to (a) in the case of the Depositor, Asset Backed Securities
Corporation, Park Avenue Plaza, 55 East 52nd Street, New York,
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New York 10055, Attention: [ ], (b) in the case of the Master Servicer, [name
and address of Master Servicer], Attention: [ ], or such other address as may be
hereafter furnished to the Depositor and the Trustee by the Master Servicer in
writing, (c) in the case of the Trustee, [name and address of Trustee],
Attention: [ ], or such other address as may hereafter be furnished to the
Depositor and the Master Servicer in writing by the Trustee.
SECTION 10.06 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 10.07 Assignment.
Notwithstanding anything to the contrary contained herein, except as
provided in Sections 6.02 and 6.04, this Agreement may not be assigned by the
Master Servicer without the prior written consent of the Trustee and the
Depositor.
SECTION 10.08 Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the Trust Fund, nor entitle such Certificateholder's
legal representative or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a petition or winding up of the Trust
Fund, or otherwise affect the rights, obligations and liabilities of the parties
hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
herein or in the Reference Agreement) or in any manner otherwise control the
operation and management of the Trust Fund, or the obligations of the parties
hereto, nor shall anything herein set forth or contained in the terms of the
Certificates be construed so as to constitute the Certificateholders from time
to time as partners or members of any association; nor shall any
Certificateholder be under any liability to any third party by reason of any
action taken by the parties of this Agreement pursuant to any provision hereof.
No Certificateholder shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of an
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Event of Default and of the continuance thereof, as herein before provided, and
unless the Holders of Certificates evidencing not less than 25% of the Voting
Rights evidenced by the Certificates shall also have made written request upon
the Trustee to institute such action, suit or proceeding in its own name as
Trustee hereunder and shall have offered to the Trustee such reasonable
indemnity as it may require against the costs, expenses, and liabilities to be
incurred therein or thereby, and the Trustee, for 60 days after its receipt of
such notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding; it being understood and intended,
and being expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to effect, disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder or to enforce any
right under this Agreement, except in the manner herein provided and for the
equal, ratable and common benefit of all Certificateholders. For the protection
and enforcement of the provisions of this Section 10.08, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
SECTION 10.09 Inspection and Audit Rights.
The Master Servicer agrees that, on reasonable prior notice, it will permit
any representative of the Depositor or the Trustee during the Master Servicer's
normal business hours, to examine all the books of account, records, reports and
other papers of the Master Servicer relating to the Mortgage Loans, to make
copies and extracts therefrom, to cause such books to be audited by independent
certified public accountants selected by the Depositor or the Trustee and to
discuss its affairs, finances and accounts relating the Mortgage Loans with its
officers, employees and independent public accountants (and by this provision
the Master Servicer hereby authorizes said accountants to discuss with such
representative such affairs, finances and accounts), all at such reasonable
times and as often as may be reasonably requested. Any expense incident to the
exercise by the Depositor or the Trustee of any right under this Section 10.09
shall be borne by the Depositor or the Trustee, provided that if an audit is
made during the existence of an Event of Default, the expense incident to such
audit shall be borne by the Master Servicer.
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SECTION 10.10 Certificates Nonassessable and Fully Paid.
It is the intention of the Trustee that Certificateholders shall
not be personally liable for obligations of the Trust Fund, that the interests
in the Trust Fund represented by the Certificates shall be nonassessable for any
reason whatsoever, and that the Certificates, upon due authentication thereof by
the Trustee pursuant to this Agreement, are and shall be deemed fully paid.
SECTION 10.11 REMIC Treatment.
The provisions of this Agreement shall be construed so as to carry out the
intention of the parties that the Trust Fund be treated as a REMIC at all times
until the Certificates are retired and this Agreement is terminated pursuant to
Article IX or Article XIV.
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IN WITNESS WHEREOF, the Depositor, the Master Servicer and the Trustee have
caused their names to be signed hereto to their respective officers thereunto
duly authorized and their respective seals, duly attested, to be hereunto
affixed, all as of the day and year first above written.
ASSET BACKED SECURITIES
CORPORATION, as Depositor
By:_____________________________
Title
[Seal]
Attest:_____________________________
Secretary
[
], as Master
Servicer
By:_____________________________
Title
[Seal]
Attest:_____________________________
Assistant Secretary
[ ],
as Trustee
By:_____________________________
Title
[Seal]
Attest:_____________________________
Assistant Secretary
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<PAGE>
State of New York }
} ss.:
County of New York }
On this _____ day of _________________ before me, a notary public in and for
said State, appeared ___________________, known to be to be an
____________________ of Asset Backed Securities Corporation, one of the
corporations that executed the within instrument, and also known to me to be the
person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set by hand and affixed by official seal the
day and year in this certificate first above written.
___________________________________________
Notary Public
[Notarial Seal]
State of }
} ss.:
County of }
On this _____ day of _________________ before me, a notary public in and for
said State, appeared ___________________, known to be to be an
____________________ of [ ], the corporation that executed the within
instrument, and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set by hand and affixed by official seal the
day and year in this certificate first above written.
___________________________________________
Notary Public
[Notarial Seal]
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State of }
} ss.:
County of }
On this _____ day of _________________ before me, a notary public in and for
said State, appeared ___________________, known to be to be an
____________________ of [ ], one of the corporations that executed the within
instrument, and also known to me to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.
IN WITNESS WHEREOF, I have hereunto set by hand and affixed by official seal the
day and year in this certificate first above written.
___________________________________________
Notary Public
[Notarial Seal]
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Exhibit 4.3.2
VERSION A
ASSET BACKED SECURITIES CORPORATION,
Depositor
[NAME OF MASTER SERVICER]
Master Servicer
and
[NAME OF TRUSTEE]
Trustee
----------------------------------
REFERENCE AGREEMENT
incorporating by reference
CERTAIN STANDARD TERMS AND CONDITIONS
OF POOLING AND SERVICING
Dates as of , 199__
----------------------------------
Conduit Manufactured Housing Contract
Pass-Through Certificates, Series ___
___% Pass-Through Rate
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
- ------- ----
ARTICLE XI.
CONVEYANCE OF TRUST FUND;
DESCRIPTION OF THE CERTIFICATES
SECTION 11.01. Designation.......................................... 2
SECTION 11.02. Conveyance of Trust Fund; Issuance of
Certificates......................................... 2
SECTION 11.03. Delivery of Documents................................ 3
SECTION 11.04. Denominations........................................ 6
SECTION 11.05. Principal Balance.................................... 6
SECTION 11.06. Distributions on the Certificates.................... 7
SECTION 11.07. Place and Notice for Final Distribution
on Certificates...................................... 7
SECTION 11.08. Pass-Through Rate.................................... 7
SECTION 11.09. Distribution Dates................................... 7
SECTION 11.10. Record Dates......................................... 7
SECTION 11.11. Contracts............................................ 7
SECTION 11.12. Forms Generally...................................... 7
[SECTION 11.13. Termination at Option of the
Depositor............................................ 8
SECTION 11.14. Substitution......................................... 8
SECTION 11.15. Wire Transfer Eligibility............................ 8
SECTION 11.16. Required Rating...................................... 8
SECTION 11.17. Pool Insurance Policy................................ 8
SECTION 11.18. Special Hazard Insurance Policy...................... 9
SECTION 11.19. Performance Bon...................................... 9
SECTION 11.20. Warranty and Servicing Agreements.................... 9
SECTION 11.21. Custodial Agreements................................. 9
SECTION 11.22. Retained Yield; Administrative Fee;
Servicing Compensation............................... 9
SECTION 11.23. Cut-off Date......................................... 9
SECTION 11.24. Certificate Registrar................................ 9
SECTION 11.25. Authenticating Agent................................. 10
SECTION 11.26. Paying Agent......................................... 10
[SECTION 11.27. Limited Guarantor.................................... 10
SECTION 11.28. Limited Guarantee and Guarantee Amount............... 10
SECTION 11.29. Limited Guarantee Fee................................ 10
[SECTION 11.30. Applicability of Certain Provisions of
Standard Terms....................................... 10
ARTICLE XII.
DEFINITIONS
APR ............................................................... 10
Administrative Fee................................................... 10
Agreement............................................................ 10
Authenticating Agent................................................. 11
Certificate.......................................................... 11
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Certificate Registrar................................................ 11
Certificateholder.................................................... 11
Contracts............................................................ 11
Contract Schedule.................................................... 11
Deleted Contract..................................................... 11
Delivery Date........................................................ 11
Denomination......................................................... 11
Distribution Date.................................................... 11
Due Date............................................................. 11
[Insurance Policy.................................................... 11
Insurer.............................................................. 11
Optional Termination................................................. 11
Optional Termination Date............................................ 11
Pass-Through Rate.................................................... 12
[Performance Bond.................................................... 12
Pool Insurance Policy................................................ 12
Repurchase Price..................................................... 12
Retained Yield....................................................... 12
Single Certificate................................................... 12
Special Hazard Insurance Policy...................................... 12
Special Hazard Insurer............................................... 12
Substitute Contract.................................................. 12
Trust Fund........................................................... 13
Voting Rights........................................................ 13
ARTICLE XIII.
PAYMENTS AND STATEMENTS TO CERTIFICATEHOLDERS
SECTION 13.01. Certificate Account.................................. 13
SECTION 13.02. Distributions........................................ 13
SECTION 13.03. Monthly Statements to
Certificateholders................................... 14
ARTICLE XIV.
OPTIONAL TERMINATION
SECTION 14.01. Repurchase at the Option of the
[Depositor].......................................... 15
SECTION 14.02. Procedure Upon Optional Termination.................. 16
ARTICLE XV.
MISCELLANEOUS
SECTION 15.01. Standard Terms....................................... 17
SECTION 15.02. Ratification of Standard Terms....................... 17
SECTION 15.03. Amendment............................................ 17
SECTION 15.04. Counterparts......................................... 18
SECTION 15.05. Governing Law........................................ 18
SECTION 15.06. Recordation of Agreement............................. 18
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SECTION 15.07. Severability of Provisions........................... 19
SECTION 15.08. Declaration of Trust; Tax Treatment;
Construction......................................... 19
EXHIBITS
Form of Class A Certificate..........................................A-1
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REFERENCE AGREEMENT, dated as of ___________, 199__ by
and among ASSET BACKED SECURITIES CORPORATION, a Delaware
corporation, as Depositor (the "Depositor"),
[________________________________________________________],
a [___________________] corporation, as master servicer (the "Master Servicer"),
and [________________________], a ___________ corporation, as trustee (together
with its successors in trust thereunder as provided in the Agreement referred to
below, the "Trustee").
PRELIMINARY STATEMENT
The Depositor has duly authorized the execution and delivery of this
Reference Agreement and the incorporation herein, to the extent permitted
herein, of the Standard Terms and Provisions of Pooling and Servicing (the
"Standard Terms") attached hereto, to provide for the issuance of its Conduit
Manufactured Housing Contract Pass-Through Certificates, Series __, issued as
provided herein and delivered by the Trustee to the Depositor as provided
hereunder. The Reference Agreement, incorporating the Standard Terms, is
sometimes referred to herein as the Agreement. All references herein to Sections
or Articles of the Agreement shall be construed to mean Sections or Articles of
this Reference Agreement or of the Standard Terms as the Section numbers and
context may require, and capitalized terms used herein shall have the meanings
ascribed to them in the Standard Terms or this Reference Agreement. The
Depositor is the owner of the Contracts (as hereinafter defined) and the other
property being conveyed by it to the Trustee as part of the Trust Fund (as
hereinafter defined) and has duly authorized the execution and delivery of this
Agreement to provide for the conveyance to the Trustee of the Trust Fund. All
covenants and agreements made by the Depositor herein and in the Standard Terms
are for the benefit and security of the Certificateholders. The Depositor is
entering into this Reference Agreement and the Standard Terms, and the Trustee
is accepting the trusts created hereby and thereby, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged.
W I T N E S S E T H T H A T:
In consideration of the mutual agreements herein contained, the
Depositor, the Master Servicer and the Trustee agree as follows:
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ARTICLE XI.
CONVEYANCE OF TRUST FUND;
DESCRIPTION OF THE CERTIFICATES
SECTION 11.01. Designation.
The Certificates shall be designated generally as the Conduit
Manufactured Housing Contract Pass-Thorough Certificates, Series ____, ___%
Pass-Through Rate (the "Certificates").
SECTION 11.02. Conveyance of Trust Fund; Issuance of
Certificates.
In exchange for the Certificates, the Depositor hereby sells,
transfers, assigns, delivers, sets over and otherwise conveys to the Trustee,
without recourse, for the benefit of all present and future Holders of the
Certificates, all of the Depositor's right, title and interest (other than with
respect to any Retained Yield specified in Section 11.22) in and to (a) the
Contracts listed in Schedule I to this Agreement, which the Depositor causes to
be delivered to the Trustee, together with the Contract Files relating to the
Contracts and the other property in respect of such Contracts, as specified in
Section 2.01, and the proceeds thereof payable after the Cut-off Date, net of
any amounts payable to the Servicers, the Master Servicer and the Depositor in
accordance with the provisions of the Standard Terms, (b) property that secured
a Contract and has been acquired by Repossession, (c) the Insurance Policies, if
any, relating to the Contracts, (d) [the Performance Bond and the proceeds
thereof, as provided in Section 3.17, (e)] the Depositor's rights under the
Warranty and Servicing Agreements with respect to the Contracts, (f) the
Certificate Account and all amounts deposited therein pursuant to the applicable
provisions of the Agreement, net of amounts payable to the Servicers, the Master
Servicer and the Depositor, as provided in Sections 3.18 and 3.19, and net of
any Retained Yield and Administrative Fee payable to the Depositor, as specified
in Sections 3.19 and 11.22, and (g) all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or other liquid property.
The Trustee acknowledges the transfer and assignment to it of the
Contracts and the delivery of the Contract Files to it (or, with respect to
Contracts subject to a Custodial Agreement, to the respective Custodian on its
behalf) and the other property included in the Trust Fund, all to the extent
provided above and in Section 2.01, and, concurrently with such delivery, has
delivered to or upon the order of the Depositor, in exchange for the Contracts,
Certificates duly authenticated and duly executed by the Trustee in authorized
Denominations evidencing the entire ownership of the Trust Fund. The Trustee
agrees to hold the Trust Fund and exercise the rights referred to above for the
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benefit of all present and future Holders of the Certificates and to perform the
duties set forth herein and in the Standard Terms to the best of its ability, to
the end that the interests of the Holders of the Certificates may be adequately
and effectively protected.
SECTION 11.03. Delivery of Documents.
In connection with the foregoing conveyance, the creation of the
Trust Fund and the issuance of the Certificates pursuant to Sections 11.02 and
2.01, the Depositor hereby delivers to and/or deposits with the Trustee the
following documents, instruments and property related to the Certificates:
(1) Opinion of Counsel. Opinion(s) of Counsel (in which such counsel
is entitled to rely upon certificates, opinions or representations as to matters
of fact by Authorized Officers of the Depositor or the Trustee and governmental
officials and, as to matters involving the laws of any state other than the
state in which such counsel is admitted to practice, upon an Opinion of Counsel
satisfactory to the Trustee) addressed to the Trustee to the effect that:
(a) ____ the Depositor has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power to own its properties, to conduct
its business as now conducted by it and to enter into and perform its
obligations under this Agreement;
(b) assuming due execution and delivery thereof by the
Trustee, this Agreement, as executed and delivered by the Depositor, is
the valid, legal and binding obligation of the Depositor, enforceable in
accordance with its terms subject to bankruptcy, reorganization,
insolvency and other laws affecting the enforcement of creditors' rights
generally and to general principles of equity;
(c) the Certificates, assuming that they have been duly and
validly authorized, executed, delivered and issued by the Trustee, will,
when authenticated by the Certificate Registrar pursuant to this Agreement
and delivered to or upon the order of the Depositor, be valid, legal and
binding instruments, entitled to the benefits of this Agreement;
(d) immediately prior to the conveyance thereof to the
Trustee, the Depositor had the corporate power and authority to convey the
Contracts and other property included in the Trust Fund to the Trustee
pursuant to this Agreement;
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(e) such action has been taken with respect to delivery of
possession of the Contracts and other property included in the Trust Fund
on the Delivery Date and with respect to the execution and delivery of all
requisite documents as is necessary to make effective the conveyance of
such property to the Trustee, with either the details of such action
recited therein, or the absence of any such action being necessary to make
such conveyance effective stated therein;
(f) the Depositor has effectively conveyed to the Trustee all of its
right, title and interest in and to the Contracts and other property
included in the Trust Fund on the Delivery Date;
(g) this Agreement is not required to be qualified under the Trust
Indenture Act of 1939; the Trust Fund created by this Agreement is not
required to be registered under the Investment Company Act of 1940, as
amended; the Registration Statement is effective under the Securities Act
of 1933, as amended (the "Securities Act"), and to the best of such
counsel's knowledge, no stop order suspending such effectiveness has been
issued;
(h) no consent, approval, authorization or order of any state or
Federal court or governmental agency or body is required for the
consummation by the Depositor of the transactions contemplated herein,
except such as may under the blue sky laws of any jurisdiction in
connection with the acquisition of Certificates and such other approvals
as have been obtained; and
(I) the issue and sale of the Certificates and the fulfillment of
the terms of this Agreement will not conflict with or result in a breach
or violation of, any term or provision of, or constitute a default under,
the certificate of incorporation or by-laws of the Depositor, or, to the
knowledge of such counsel, any indenture or other agreement or instrument
to which the Depositor is a party or by which it is bound, or any statute
or regulation applicable to the Depositor or, to the knowledge of such
counsel, any order of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Depositor.
(2) The Contracts. The Contracts included in the
Trust Fund, in the manner specified in Section 2.01.
(3) Performance Bond, Special Hazard Insurance Policy
and Pool Insurance Policy. The Performance Bond, the Special
Hazard Insurance Policy and the Pool Insurance Policy.
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(4) Officers' Certificate of Insurers. An Officers' Certificate of
the Pool Insurer, to the effect that the Pool Insurance Policy is in full force
and effect, subject to its terms and conditions, with respect to the Contracts
specified in such Officers' Certificate, an Officers' Certificate of the Special
Hazard Insurer, to the effect that the Insurance Policy issued by such Insurer
is in full force and effect, subject to its terms and conditions, with respect
to the Contracts and an Officers' Certificate of the issuer of the Performance
Bond to the effect that the Performance Bond is in full force and effect with
respect to the obligations of the Master Servicer under this Agreement.
(5) Opinion of Counsel for Insurers. An Opinion of Counsel for each
Insurer dated the Delivery Date, to the effect that:
(a) the Insurer is duly organized, validly existing under the laws
of the state of its incorporation, is duly qualified to do business in all
jurisdictions where the nature of its operations as contemplated by the
Insurance Policy issued by such Insurer legally requires such
qualification, and has the power and authority (corporate and other) to
issue, and to take all action required of it under, such Insurance Policy;
(b) the execution, delivery and performance by the Insurer of the
Insurance Policy issued by such Insurer has been duly authorized by all
necessary corporate action on the part of the Insurer, and under present
law does not and will not contravene any law or governmental regulation or
order presently binding on the Insurer or the charter or the by-laws of
the Insurer or contravene any provision of or constitute a default under
any indenture, contract or other instrument to which the Insurer is a
party or by which the Insurer is bound;
(c) the execution, delivery and performance by the Insurer of the
Insurance Policy issued by such Insurer does not require the consent or
approval of, the giving of notice to, the registration with, or the taking
of any other action in respect of, any federal, state or other
governmental agency or authority that has not previously been effected;
and
(d) the Insurance Policy issued by such Insurer has been duly issued
and constitutes a legal, valid and binding agreement of the Insurer,
enforceable against the Insurer in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity.
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(7) Opinion of Counsel to the Master Servicer. An Opinion of Counsel
to the Master Servicer, dated not later than the Delivery Date, to the effect
that:
(a) the Master Servicer is a duly organized and validly existing
corporation in good standing under the laws of the State of ___________;
the Master Servicer is duly qualified to do business as a foreign
corporation in and is in good standing under the laws of each jurisdiction
where the nature of its operations as contemplated by this Agreement
requires such qualification;
(b) the Master Servicer has the corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby; the execution, delivery and performance of this Agreement have
been duly authorized by all requisite corporate action on the part of the
Master Servicer and (I) do not conflict with or result in, or will not
conflict with or result in, a breach of the [certificate] [articles] of
incorporation or by-laws of the Master Servicer, or, to such counsel's
knowledge, any of the provisions of any indenture, mortgage, contract or
other instrument to which the Master Servicer is a party or by which it is
bound or (ii) do not result in the creation or imposition of any lien,
charge or encumbrance upon any of its property pursuant to the terms of
any such indenture, mortgage, contract or other instruments; and
(c) this Agreement constitutes a legal, valid and binding agreement
of the Master Servicer, enforceable against the Master Servicer in
accordance with its terms, subject, as to enforceability, to applicable
bankruptcy, reorganization, insolvency, moratorium and other laws
affecting creditors' rights generally and to principles of equity.
SECTION 11.04. Denominations.
A Single Certificate will be issued in a minimum denomination of
$____________. The Certificates will be issued in fully registered form only in
minimum Denominations of $__________ and integral multiples thereof [and one
Certificate may be issued in such denomination as may be necessary to represent
the remainder of the Principal Balance of the Contracts on the Cut-off Date.]
SECTION 11.05. Principal Balance.
The Principal Balance of the Contracts on the Cut-off Date,
exclusive of principal payments due and payable on or before such date, is
$__________.
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SECTION 11.06. Distributions on the Certificates.
On each Distribution Date, the Master Servicer shall make
distributions to the Certificateholders in the amounts and in the manner
specified in Article XIII and in the forms of the Certificates.
SECTION 11.07. Place and Notice for Final Distribution
on Certificates.
(a) The final distribution made on each Certificate on any
Distribution Date shall be distributable upon presentation and surrender thereof
at the office or agency of the Master Servicer maintained for such purpose in
the Borough of Manhattan, City and State of New York pursuant to Section 5.02.
(b) Notice of final distribution on any Certificate on any
Distribution Date or Optional Termination Date shall be mailed no later than the
tenth day prior to the applicable Distribution Date or Optional Termination
Date.
SECTION 11.08. Pass-Through Rate.
The Pass-Through Rate is _____%.
SECTION 11.09. Distribution Dates.
The Distribution Dates for the Certificates are the ______ day of
each month, or, if such day is not a Business Day, the next succeeding Business
Day, commencing __________ ___, 199_.
SECTION 11.10. Record Dates.
The Record Date for each Distribution Date will be the close of
business on the last day of the month preceding the month in which the
applicable Distribution Date occurs or, if such day is not a Business Day, the
next preceding Business Day.
SECTION 11.11. Contracts.
The Contracts transferred and assigned to the Trustee by the Depositor
are the Contracts identified in the Contract Schedule attached hereto as
Schedule I.
SECTION 11.12. Forms Generally.
The Certificates and the Certificate Registrar's certificate of
authentication shall be in substantially the forms set forth in Exhibit A
hereto, with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Agreement or as may in the
judgment of the Master Servicer, the Trustee or the Depositor be necessary,
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appropriate or convenient to comply, or facilitate compliance, with applicable
laws, and may have such letters, numbers or other marks of identification and
such legends or endorsements placed thereon as may be required to comply with
the rules of any securities exchange on which any of the Certificates may be
listed, or as may, consistently herewith, be determined by the officers
executing such Certificates, as evidenced by their execution thereof.
The definitive Certificates shall be printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which any
of the Certificates may be listed, all as determined by the officers executing
such Certificates, as evidenced by their execution thereof.
[SECTION 11.13. Termination at Option of the
Depositor.
The Depositor may, at its option, repurchase from the Trust Fund all
Contracts remaining outstanding on any Distribution Date on or after the date on
which the Principal Balance of such Contracts is less than __% of the Principal
Balance of the Contracts on the Cut-off Date in the manner and at the Repurchase
Price provided in Article XIV.]
SECTION 11.14. Substitution.
The Depositor or the Servicer of a Contract may substitute for such
Contract a Substitute Contract or Contracts, pursuant to Section 2.02, 2.04 or
2.08, which substitution shall be accomplished in the manner and subject to the
conditions set forth in Section 2.07.
SECTION 11.15. Wire Transfer Eligibility.
The minimum Denomination eligible for wire transfer on each
Distribution Date is $____________.
SECTION 11.16. Required Rating.
The Certificates shall have been rated " " by
__________________________________.
SECTION 11.17. Pool Insurance Policy.
A specimen of the Pool Insurance Policy with respect to the
Contracts, naming the Trustee as loss payee, is attached as hereto as Exhibit [
]. The Pool Insurer is _________________, a _______________ corporation.
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SECTION 11.18. Special Hazard Insurance Policy.
A specimen of the Special Hazard Insurance Policy with
respect to the Contracts, naming the Trustee as loss payee, is
attached as Exhibit [ ] hereto. The Special Hazard Insurer is
_______________________, a ____________ corporation.
SECTION 11.19. Performance Bond.
A specimen of the Performance Bond is attached as Exhibit [ ]
hereto. The Performance Bond has been issued by ____________________, a
_______________________ corporation.
SECTION 11.20. Warranty and Servicing Agreements.
The Warranty and Servicing Agreements with respect to the Contracts
included in the Trust Fund are listed on Schedule [ ] hereto.
SECTION 11.21. Custodial Agreements.
The Custodial Agreements with respect to the Contracts included in
the Trust Fund are listed on Schedule [ ] hereto.
SECTION 11.22. Retained Yield; Administrative Fee;
Servicing Compensation.
On each Distribution Date, the Master Servicer shall remit to the
Depositor, by wire transfer of immediately available funds, from payments of
interest and other collections with respect to interest on the Contracts
deposited in the Certificate Account a Retained Yield equal to ____% of the
Principal Balance of each Contract and an Administrative Fee equal to _____% of
the Principal Balance of each Contract as provided in Section 3.19. The Master
Servicer shall be entitled to retain an amount in respect of each interest
payment on a Contract equal to the excess of each interest payment on such
Contract over the sum of (I) the Retained Yield, (ii) the Administrative Fee and
(iii) the Pass-Through Rate, as provided in Section 3.19, and such other amounts
as provided in accordance with the provisions of the Standard Terms.
SECTION 11.23. Cut-off Date.
The Cut-off Date is ___________, 199__.
SECTION 11.24. Certificate Registrar.
The Certificate Registrar is the Trustee.
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SECTION 11.25. Authenticating Agent.
The Authenticating Agent is the Trustee.
SECTION 11.26. Paying Agent.
The Paying Agent is the Master Servicer.
[SECTION 11.27. Limited Guarantor.
The Limited Guarantor is ____________________.
SECTION 11.28. Limited Guarantee and Guarantee Amount.
[Relevant description and amounts to be provided.]
SECTION 11.29. Limited Guarantee Fee.
The Limited Guarantee Fee is ____________________.]
[SECTION 11.30. Applicability of Certain Provisions of
Standard Terms.
The provisions of Section 2.03(b) shall be applicable to the
Certificates; the provisions of Sections 3.23 and 3.24 shall not be applicable
to the Certificates.]
ARTICLE XII.
DEFINITIONS
Article One of the Standard Terms provides that the meaning of certain defined
terms used in this Agreement shall, when applied to a particular Series of
Certificates, be as defined herein. With respect to the Certificates, the
following definitions shall apply:
APR: The annual percentage rate of interest on a Contract.
Administrative Fee: The percentage rate per annum of the Principal
Balance from time to time of each Contract that is payable to the Depositor out
of each interest payment on a Contract as compensation for the performance of
duties related to the administration of the Trust Fund, which percentage is set
forth in Article XI.
Agreement: The Standard Terms and Provisions of Pooling and
Servicing together with this Reference Agreement, and all amendments and
supplements hereto.
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Authenticating Agent: The authenticating agent
specified in Section 11.26.
Certificate: Any one of the Certificates executed by or on behalf of
the Depositor and authenticated by or on behalf of the Trustee in substantially
the form set forth in Exhibit A hereto.
Certificate Registrar: The registrar appointed and identified in
Section 11.25.
Certificateholder: The registered holder of a Certificate.
Contracts: The Contracts listed on the Contract
Schedule attached hereto.
Contract Schedule: The list of Contracts transferred on the Delivery
Date to the Trustee as part of the Trust Fund for the Certificates, which list
is attached hereto as Schedule I.
Deleted Contract: A Contract replaced or to be replaced
by a Substitute Contract.
Delivery Date: ________________________, 199__.
Denomination: For each Certificate, the amount designated as such on
the face thereof, the aggregate of the Denominations of the Certificates being
equal to the aggregate of the Principal Balances of the Contracts on the Cut-off
Date, exclusive of principal payments due and payable on or before such date.
Distribution Date: The _______ day of each month, or if such day is
not a Business Day, the Business Day immediately following such day, commencing
____________ _____, 199__.
Due Date: The first day of the month in which the
related Distribution Date occurs.
[Insurance Policy: Any one of the Pool Insurance
Policy or Special Hazard Insurance Policy.]
Insurer: Any one of the Pool Insurer, the Special
Hazard Insurer and the issuer of the Performance Bond, as the
context may require.
Optional Termination: The repurchase of the Contracts
by the Depositor pursuant to Section 14.01.
Optional Termination Date: The Distribution Date fixed
by the Depositor for the repurchase of the Contracts pursuant to
Article XIV.
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Pass-Through Rate: The annual rate of interest set forth on the face
of the Certificates. Any monthly remittance of interest at such rate shall be
based upon annual interest at such rate on the Principal Balance of the related
Contract divided by twelve.
[Performance Bond: The performance letter issued by
__________, a specimen of which is attached hereto as Exhibit _____.
Pool Insurance Policy: The policy of pool credit insurance, naming
the Trustee as loss payee, a specimen of which is attached hereto as Exhibit ___
or any replacement policy therefor obtained pursuant to Section [3.13].
Repurchase Price: The price, calculated as set forth in
Section 14.01, to be paid by the Depositor in connection with the
repurchase of the Contracts pursuant to an Optional Termination.
Retained Yield: The percentage rate per annum of the Principal
Balance from time to time of each Contract that is retained by the Depositor and
payable out of each interest payment on a Contract, which percentage is set
forth in Article XI and in the Contract Schedule.
Single Certificate: A Certificate issued in a minimum
Denomination of $_________ as set forth in Section [11.04].
Special Hazard Insurance Policy: The policy of special hazard
insurance, naming the Trustee as loss payee, a specimen of which is attached as
Exhibit ___ to this Agreement or any replacement policy obtained pursuant to
Section [3.14].
Special Hazard Insurer: The insurer named in Article
XI or the named insurer in any replacement policy obtained
pursuant to Section [3.14].
Substitute Contract: A Contract substituted by the Depositor or the
related Servicer for a Deleted Contract which must, on the date of such
substitution, (I) have an Outstanding Principal Balance, after deduction of the
principal portion of the monthly payment due in the month of substitution [or in
the case of a substitution of more than one Contract for a Deleted Contract, an
aggregate Outstanding Principal Balance], not in excess of the Outstanding
Principal Balance of the Deleted Contract [and not less than _____% of
Outstanding Principal Balance of the Deleted Contract] (the amount of any
shortage will be deposited by the Depositor or the Servicer in the Certificate
Account and distributed by the Master Servicer to Certificateholders in the
month of substitution); (ii) have an APR not less than the APR of the Deleted
Contract but not greater than ____% in excess of the APR of the Deleted
Contract; (iii) have a remaining term to maturity not greater than _____ years
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and not more than _____ years less than the remaining term of the Deleted
Contract; and (iv) comply with each representation and warranty set forth in
Section 2.04 or in the related Warranty and Servicing Agreement.
Trust Fund: The corpus of the trust created by this Agreement
consisting of (I) the Contracts described in the Contract Schedule, exclusive of
the Retained Yield, (ii) all distributions thereon payable after the Cut-off
Date, other than as provided herein, (iii) property that secured a Contract and
has been acquired by foreclosure or deed in lieu of foreclosure, (iv) amounts
remitted from time to time to the Master Servicer and held from time to time by
the Master Servicer in the Certificate Account, net of the amounts payable to
the Master Servicer, as provided in this Agreement, (v) the rights of the
Certificateholders in the Primary Credit Insurance Policies, the Pool Insurance
Policy, the Special Hazard Insurance Policy and any other insurance policies
with respect to the Contracts, (vi) the rights of the Certificateholders in the
Performance Bond and the proceeds thereof and (vii) the Depositor's rights under
the Warranty and Servicing Agreements with respect to the Contracts included in
the Trust Fund.
Voting Rights: The portion of the aggregate voting rights of all the
Certificates, evidenced by a Certificate, which is obtained by dividing the
Denomination of such Certificate by the aggregate Denominations of all of the
Certificates.
ARTICLE XIII.
PAYMENTS AND STATEMENTS TO
CERTIFICATEHOLDERS
SECTION 13.01. Certificate Account.
The Master Servicer shall, prior to the Delivery Date, establish and
maintain, in the name of the Trustee on behalf of the Certificateholders, the
Certificate Account, into which the Master Servicer shall deposit not later than
each Distribution Date, the amounts specified in Section [3.08]. All
distributions to be made from time to time to the Certificateholders out of
funds in the Certificate Account shall be made by the Master Servicer.
SECTION 13.02. Distributions.
Subject to Sections [9.01 and 14.02] respecting the final
distribution, on each Distribution Date, the Master Servicer shall distribute
from the Certificate Account to each Certificateholder of record on the related
Record Date, the amount to be distributed to such Certificateholder pursuant to
the respective Certificate or Certificates held by such
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Certificateholder. Such distribution shall be made by check mailed on the
Distribution Date to the address of each Certificateholder appearing in the
Certificate Register, except that, with respect to any Holder eligible for wire
transfer, as provided in Section [11.15], distributions shall be made on the
Distribution Date by wire transfer in immediately available funds, provided that
such Certificateholder, not less than two Business Days prior to the related
Distribution Date, shall have furnished the Master Servicer with appropriate
wiring instructions. Distributions may also be made by such other means of
payment as to which each Certificateholder and the Master Servicer shall agree.
SECTION 13.03. Monthly Statements to
Certificateholders.
Prior to or concurrently with each distribution from the Certificate
Account to the Certificateholders made on a Distribution Date, the Master
Servicer shall cause to be forwarded by mail to each Certificateholder and to
the Trustee a statement setting forth:
(I) the amount of such distribution representing principal on
the Contracts, separately identifying the aggregate amount of any
Principal Prepayments included therein, and the portion of such
distribution, if any, representing a Monthly Advance of principal;
(ii) the amount of such distribution representing interest on
the Contracts and the portion of such distribution, if any, representing a
Monthly Advance of interest;
(iithe amount of servicing compensation received by the Servicers
and the Master Servicer with respect to the monthly period preceding the
related Distribution Date and such other customary information as the
Master Servicer deems necessary or desirable to enable Certificateholders
to prepare their tax returns;
(iv) the amount of Retained Yield and the
Administrative Fee paid to the Depositor;
(v) the aggregate Principal Balance of the Contracts on the
Due Date of the month of such distribution, after giving effect to
payments on the Contracts due on the Due Date and distributed to
Certificateholders on the Distribution Date;
(vi) the book value of any collateral acquired on
behalf of Certificateholders through Repossession or
otherwise of any Manufactured Home;
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(vii) the number and aggregate Principal Balance of Contracts
(1) more than 30 days delinquent; (2) more than 60 days delinquent; and (3)
in foreclosure as of the close of business on a date not earlier than the
Due Date; and
(viii) the amount of coverage remaining under the Pool
Insurance Policy and the Special Hazard Insurance Policy after giving
effect to any amount with respect thereto distributed to Certificateholders
on the Distribution Date.
In the case of information furnished pursuant to clauses (I) through
(iv) above, the amounts shall be expressed as a dollar amount per Single
Certificate.
Upon reasonable advance notice in writing, the Master Servicer shall
provide to each Certificateholder that is a savings and loan association, bank
or insurance company certain reports and access to information and documentation
regarding the Contracts sufficient to permit such Certificateholders to comply
with applicable regulations of the Federal Home Loan Bank Board or other
regulatory authorities with respect to their investment in the Certificates;
provided, however, that the Master Servicer shall be entitled to be reimbursed
by such Certificateholders for the actual expenses incurred by the Master
Servicer in providing such reports and access.
Within a reasonable period of time after the end of each calendar
year, the Master Servicer shall cause to be furnished to each Person who at any
time during the calendar year was a Certificateholder, a statement containing
the information set forth in clauses (I) through (iv) of this Section 13.03
aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder. Such obligation of the Master Servicer
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Master Servicer pursuant to any
requirements of the Code as from time to time in effect.
ARTICLE XIV.
OPTIONAL TERMINATION
SECTION 14.01. Repurchase at the Option of the
[Depositor].
To the extent specified in Article XI, the Contracts included in the
Trust Fund shall be subject to repurchase at the option of the [Depositor] as
permitted herein on any Optional Termination Date at the Repurchase Price
specified herein.
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[The Repurchase Price for any such Optional Termination shall be
equal to the aggregate Principal Balance of the Contracts as of the date of
repurchase, together with accrued and unpaid interest thereon at the
Pass-Through Rate through the last day of the month of such repurchase, plus the
appraised value of any property acquired in respect thereof. The right of the
[Depositor] to repurchase the Contracts is conditioned on the [Depositor's]
having previously given notice of termination as required by Section 14.02]
SECTION 14.02. Procedure Upon Optional Termination.
(a) In case of any Optional Termination pursuant to Section
14.01, the [Depositor] shall, at least 20 days prior to the date notice is to be
mailed to the Certificateholders (unless a shorter period shall be satisfactory
to the Master Servicer and the Trustee), notify the Master Servicer and the
Trustee of such Optional Termination Date, and of the Repurchase Price of the
Contracts to be repurchased.
(b) Any repurchase by the [Depositor] of the Contracts shall
be made on the Optional Termination Date by deposit of the Repurchase Price into
the Certificate Account on or before the Distribution Date on which such
repurchase is effected. Upon receipt by the Trustee of an Officers' Certificate
of the Master Servicer certifying as to the deposit of the Repurchase Price into
the Certificate Account, the Trustee and each co-trustee and separate trustee,
if any, then acting as such under this Agreement, shall, upon request of the
[Depositor] and at the expense of the [Depositor], execute and deliver all such
instruments of transfer or assignment, in each case without recourse, as shall
be reasonably requested by the [Depositor] to vest title in the Contracts so
repurchased to the [Depositor] and shall transfer or deliver or shall cause the
applicable Custodian to transfer or deliver to the [Depositor] or its designee
the repurchased Contracts. Any distributions on the Contracts received by the
Trustee or the Master Servicer subsequent to the Optional Termination Date shall
be promptly remitted by it to the [Depositor].
(c) Notice of any Optional Termination pursuant to the provisions of
this Article XIV, specifying the Distribution Date upon which the final
distribution shall be made, shall be given promptly by the Master Servicer by
first class mail to Holders of the Certificates mailed no earlier than the 15th
day and not later than the 10th day preceding the Optional Termination Date.
Such notice shall specify (A) the Distribution Date upon which final
distribution on the Certificates will the made upon presentation and surrender
of the Certificates at the office or agency of the Master Servicer therein
designated, (B) the amount of such final distribution and (C) that the Record
Date otherwise applicable to such Distribution Date is not applicable, such
distribution being made only upon presentation and surrender of
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the Certificates at the office or agency of the Master Servicer maintained for
such purposes (the address of which shall be set forth in such notice). The
Master Servicer shall give such notice to the Certificate Registrar at the time
such notice is given to Holders of the Certificates. Upon deposit in the
Certificate Account on the applicable Distribution Date of an amount equal to
the Repurchase Price pursuant to Section 14.01 and presentation and surrender of
the Certificates, the Master Servicer shall cause to be distributed to Holders
of Certificates an amount equal to the Repurchase Price. Payments received by
the Master Servicer with respect to the Contracts in excess of the Repurchase
Price, after giving effect to any amounts to be retained or distributed by it
pursuant to Section [3.12], shall be promptly remitted by the Master Servicer to
the [Depositor].
ARTICLE XV.
MISCELLANEOUS
SECTION 15.01. Standard Terms.
The Standard Terms attached hereto is hereby incorporated herein by
reference, to the extent specified herein, and hereby forms a part of this
instrument with the same force and effect as if set forth in full herein. In the
event that any term or provision contained herein shall conflict or be
inconsistent with any term or provision contained in the Standard Terms, the
terms and provisions of this Reference Agreement shall govern.
SECTION 15.02. Ratification of Standard Terms.
As incorporated by reference into this Reference Agreement, the
Standard Terms is in all respects ratified and confirmed, and the Standard Terms
and this Reference Agreement shall be read, taken and construed as one and the
same instrument.
SECTION 15.03. Amendment.
In addition to the amendments permitted by Section 10.01, this
Agreement may be amended from time to time by the Depositor, the Master Servicer
and the Trustee with the consent of the Holders of Certificates evidencing, in
the aggregate, not less than 66% of the Voting Rights of all the Certificates
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or of modifying in any
manner the rights of the Holders of the Certificates; provided, however, that no
such amendment may, without the consent of the Holders of Certificates
evidencing 100% of the Voting Rights of the Certificates: (I) reduce in any
manner the amount of, delay the timing of or change the
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manner in which payments received on Contracts are required to be distributed
with respect to any Certificate, or (ii) reduce the aforesaid percentages of
Certificates, the Holders of which are required to consent to any such
amendments.
Promptly after the execution of any amendment to this Agreement
requiring the consent of Certificateholders, the Trustee shall furnish written
notification of the substance of such amendment to each Certificateholder.
It shall not be necessary for the consent of Certificateholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
SECTION 15.04. Counterparts.
For the purpose of facilitating the recordation of this Reference
Agreement as herein provided and for other purposes, this Reference Agreement
may be executed in any number of counterparts, each of which when so executed
shall be deemed to be an original, but all of such counterparts shall together
constitute but one and the same instrument.
SECTION 15.05. Governing Law.
This Reference Agreement shall be construed in accordance with and
governed by the substantive laws of the [State of ____________________]
applicable to agreements made and to be performed in the [State of
_______________] and the obligations, rights and remedies of the parties hereto
and of the Certificateholders shall be determined in accordance with such laws.
SECTION 15.06. Recordation of Agreement.
This Reference Agreement is subject to recordation in all
appropriate public offices for records in all the counties or other comparable
jurisdictions in which any or all of the Manufactured Homes are situated, and in
any other appropriate public recording office or elsewhere, such recordation to
be effected by the Master Servicer at the expense of the [Depositor] or upon
direction by the Trustee, but only upon direction by the Trustee accompanied by
an Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of Certificateholders.
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SECTION 15.07. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Reference Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 15.08. Declaration of Trust; Tax Treatment;
Construction.
The Trustee hereby declares that it will hold the Trust Fund in
trust upon and subject to the conditions set forth herein for the use and
benefit of the Holders subject to the obligations of the Trustee. It is the
intention of the parties hereto, and each Holder by its acceptance of a
Certificate shall be deemed to agree, that the Trust will be created as a
grantor trust for federal income tax purposes and all transactions contemplated
by this Agreement will be reported, to the extent applicable, on all applicable
tax returns consistently with such treatment. The provisions of this Agreement
shall be construed, and the affairs of the Trust shall be conducted as provided
herein, so as to achieve treatment of the Trust as a grantor trust for federal
income tax purposes.
IN WITNESS WHEREOF, the Depositor, the Master Servicer and the
Trustee have caused their names to be signed hereto by their respective officers
thereunto duly authorized and their respective seals, duly attested, to be
hereunto affixed, all as of the day and year first above written.
ASSET BACKED SECURITIES
CORPORATION,
as Depositor
By _______________________
[SEAL]
ATTEST:
[NAME OF TRUSTEE],
as Trustee
By _______________________
[SEAL]
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ATTEST:
[NAME OF MASTER SERVICER],
as Master Servicer
By _______________________
[SEAL]
ATTEST:
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STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __________ day of __________, 199__, before me personally
appeared ___________________, to me known, who being by me duly sworn, did
depose and say that he resides at ____________________, that he is the
________________ of Asset Backed Securities Corporation, one of the corporations
described in and which executed the above instrument; that he knows the seal of
said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation; and that he signed his name thereto by like order.
________________________________
Notary Public
[NOTARIAL SEAL]
STATE OF _________)
) ss.:
COUNTY OF ________)
On this __________ day of __________, 199__, before me personally
appeared ___________________, to me known, who being by me duly sworn, did
depose and say that he resides at ____________________, that he is the
________________ of [
], the [ _______________ ] corporation described in and which
executed the above instrument; that he knows the seal of said banking
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said banking
corporation; and that he signed his name thereto by like order.
________________________________
Notary Public
[NOTARIAL SEAL]
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STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this __________ day of __________, 199__, before me personally
appeared ___________________, to me known, who being by me duly sworn, did
depose and say that he resides at ____________________, that he is the
________________ of [Name of Master Servicer], one of the corporations described
in and which executed the above instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation;
and that he signed his name thereto by like order.
________________________________
Notary Public
[NOTARIAL SEAL]
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EXHIBIT A
[Form of Face of Certificate]
PRINCIPAL IN RESPECT OF THIS CERTIFICATE IS DISTRIBUTABLE MONTHLY AS
SET FORTH HEREIN; ACCORDINGLY, THE UNPAID PRINCIPAL BALANCE OF THE CONTRACTS AT
ANY TIME MAY BE LESS THAN THE PRINCIPAL AMOUNT SET FORTH ON THIS CERTIFICATE.
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN OR OBLIGATION OF ASSET BACKED
SECURITIES CORPORATION OR OF ANY OF ITS AFFILIATES EXCEPT AS SET FORTH HEREIN
AND IN THE AGREEMENT.
CONDUIT MANUFACTURED HOUSING CONTRACT PASS-THROUGH CERTIFICATES,
SERIES ____
_______% PASS-THROUGH RATE
evidencing an undivided interest in a trust fund consisting of certain
manufactured housing conditional sales contracts and installment sales
agreements transferred by
ASSET BACKED SECURITIES CORPORATION [The following information is
provided solely for purposes of applying federal income tax original issue
discount ("OID") rules to this instrument:
OID: ____%
ISSUE DATE: _____________, 199_
YIELD (ASSUMING NO PREPAYMENTS): ____%
SHORT ACCRUAL PERIOD YIELD COMPUTATION: EXACT
OID ALLOCABLE TO SHORT ACCRUAL PERIOD: ___%
CUSIP: ______________
ISSUE PRICE: ___________%]
Certificate No. ___________ $__________ DENOMINATION
First Distribution Final Scheduled
Date: _____, 199_ Distribution Date: __________, 199__
THIS CERTIFIES THAT ___________________ is the registered owner of
the pro rata undivided interest obtained by dividing the Denomination set forth
above by the aggregate Denominations of all the Certificates in the Trust Fund
referred to below consisting of certain manufactured housing conditional sales
contracts and installment sales agreements (the "Contracts") sold to the Trust
by Asset Backed Securities Corporation (the "Depositor"), exclusive of a portion
of the interest payable on each Contract the ownership of which has been
retained by the Depositor (the "Retained Yield"), and certain related property
transferred to the Trust by the Depositor. The Trust Fund was created pursuant
to the Standard Terms and Provisions of Pooling and Servicing, dated
<PAGE>
as of __________, 199__ (the "Standard Terms") and the Reference Agreement,
dated as of __________, 199__ (the "Reference Agreement and, together with the
Standard Terms, the "Agreement") each among the Depositor,
_________________________________, as master servicer (the "Master Servicer")
and __________________________, as trustee (the "Trustee," which term includes
any successor entity under the Agreement), a summary of certain of the pertinent
provisions of which is set forth hereinbelow. The aggregate Principal Balance of
the Contracts included in the Trust Fund as of __________, 199__ (the "Cut-off
Date"), exclusive of payments due on or before such date, was $__________. This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Agreement, to which Agreement the Holder of this Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.
Reference is hereby made to the further provisions of this
Certificate and the Agreement set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as trough fully set forth
at this place.
Unless the certificate of authentication hereon has been executed by
or on behalf of the Trustee by manual signature, this Certificate shall not be
entitled to any benefit under the Agreement or be valid or obligatory for any
purpose.
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IN WITNESS WHEREOF, the Trustee has caused this Certificate to be
duly executed under its corporate seal.
Date: [NAME OF TRUSTEE],
as Trustee
By: ______________________________
[TITLE]
[SEAL]
ATTEST
- ----------------------------
Authorized officer of
[Name of Trustee]
[Form of certificate of Authentication)
THIS is ONE OF THE CERTIFICATES REFERRED TO IN THE WITHIN-
MENTIONED AGREEMENT
[_______________________________]
REGISTRAR
By _____________________________
AUTHORIZED OFFICER
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(FORM OF REVERSE OF CERTIFICATE]
ASSET BACKED SECURITIES CORPORATION
CONDUIT MANUFACTURED HOUSING CONTRACT
PASS-THROUGH CERTIFICATES, SERIES _____
_____% PASS-THROUGH RATE
This Certificate is one of a duly authorized issue of Certificates
of Asset Backed Securities Corporation designated as its Conduit Manufactured
Housing Contract Pass-Through Certificates, Series ___, ___% Pass-Through Rate
(the "Certificates") issued under and subject to the terms, provisions and
conditions of the Agreement. Reference is hereby made to the Agreement for a
statement of the respective rights thereunder of the Depositor, the Master
Servicer, the Trustee and the Holders of the Certificates and the terms upon
which the Certificates are authenticated and delivered. This Certificate
represents the undivided interest obtained by dividing the Denomination set
forth on the face hereof by the aggregate Denominations of all Certificates in
(I) the Contracts and the proceeds thereof payable after the Cut-off Date, net
of any amounts payable to the Depositor, the Master Servicer and the Servicers
in accordance with the provisions of the Agreement, (ii) the Certificate Account
and all amounts deposited therein pursuant to the applicable provisions of the
Agreement, net of the Retained Yield, the Administrative Fee and amounts payable
to the Servicers, the Master Servicer and the Depositor, as provided in the
Agreement, (iii) property acquired by repossession or otherwise with respect to
the Contracts and (iv) the interest of the Certificateholders in the [Pool
Insurance Policy, the Performance Bond, Special Hazard Insurance Policy,
Alternative Credit Support], and all proceeds thereof as provided in the
Agreement (such Contracts, funds, property and interests are herein collectively
called the "Trust Fund").
The Master Servicer shall distribute on the ___ day of each month,
or, if such _____ day is not a Business Day, the Business Day immediately
following such _____ day (the "Distribution Date"), commencing __________ _____,
199__, to the Person in whose name this Certificate is registered at the close
of business on the last Business Day of the month immediately preceding the
month of such distribution (the "Record Date"), an amount equal to the product
of the undivided interest evidenced by this Certificate in the Trust Fund and
the aggregate of (I) all previously undistributed payments or other receipts on
account of principal (including Principal Prepayments, if any) and interest on
the Contracts, exclusive of the Retained Yield, subject at any time to the
Agreement, including any Liquidation Proceeds, received by the Master Servicer
after the Cut-off Date as set forth on the face hereof, or received on or prior
to the Cut-off Date but due thereafter,
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and prior to the Determination Date except: (a) payments that were due and
payable on or before the Cut-off Date; (b) Principal Prepayments and Liquidation
Proceeds and all proceeds of any Contracts or property acquired in respect
thereof repurchased pursuant to Sections 2.02, 2.04, 2.05 and 9.01 of the
Agreement received during the month of distribution and all related payments of
interest representing interest for the month of distribution or any portion
thereof; (c) payments, other than Principal Prepayments, that represent early
receipt of scheduled payments of principal and interest due on or after the
first day of the month of distribution; (d) late payments of principal or
interest in respect of which there are any unreimbursed Monthly Advances; (e)
amounts representing reimbursement for certain losses and expenses, all as
described in the Agreement; (f) that portion of each payment of interest on each
Contract in excess of interest at the Pass-Through Rate set forth above on the
unpaid principal balance of such Contract outstanding for the period for which
such payment was received; and (g) to the extent specified in the Agreement,
that portion of the Liquidation Proceeds of Contracts in excess of the unpaid
principal balances thereof and unpaid interest thereon; and (ii) the Monthly
Advance, if any, made by the Master Servicer for the related period. For the
purposes hereof, amounts received by the Master Servicer in connection with the
liquidation of Contracts through repossession, sale or otherwise shall be deemed
to be payments on account of principal of Contacts.
Distributions on this Certificate will be made by the Master
Servicer by check mailed to the address of the Holder hereof entitled thereto at
the address appearing in the Certificate Register or, if eligible for wire
transfer as set forth in Section [11.15] of the Agreement, by wire transfer in
immediately available funds or by such other means of payment as the Holder
hereof and the Master Servicer shall agree upon. Except as otherwise provided in
the Agreement, the final distribution on this Certificate will be made, in the
applicable manner described above, after due notice by the Master Servicer of
the pendency of such final distribution and only upon presentation and surrender
of this Certificate at the office or agency designated in such notice.
As provided in the Agreement, deductions and withdrawals from the
Certificate Account may be made by the Master Servicer from time to time for
purposes other than distributions to the Certificateholders, such purposes
including payment of the Retained Yield and Administrative Fee to the Depositor
and reimbursement to the Master Servicer of Monthly Advances and of certain
expenses incurred by it.
The Agreement permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Master Servicer, the Depositor and the Trustee and the rights of the
Certificateholders under
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the Agreement at any time by the Depositor, the Master Servicer and the Trustee
with the consent of the Holders of Certificates evidencing Voting Rights
aggregating not less than 66% of the Voting Rights of all the Certificates;
provided, however, that no such amendment may, without the consent of the
Holders of all Certificates then outstanding, (I) reduce in any manner the
amount of, delay the timing of or change the manner in which payments received
on Contracts are required to be distributed in respect of any Certificate, or
(ii) reduce the aforesaid percentages of Certificates, the Holders of which are
required to consent to any such amendments. Any such consent by the Holder of
this Certificate shall be conclusive and binding on such Holder and upon all
future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent is made upon this Certificate. The Agreement also permits the
Master Servicer, the Depositor and the Trustee to amend certain terms and
conditions set forth in the Agreement without the consent of Holders of the
Certificates issued thereunder.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable on the
Certificate Register maintained by the Trustee upon surrender of this
Certificate for registration of transfer at the office or agency maintained for
that purpose by the Trustee in New York, New York, duly endorsed by, or
accompanied by a written instrument of transfer in a form satisfactory to the
Trustee duly executed by, the Holder hereof or such Holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of authorized
denomina tions and for the same aggregate Denomination and undivided interest
will be issued to the designated transferee or transferees.
The Certificates are issuable only in registered form in minimum
Denominations of $_______, and integral multiples of $____ in excess thereof,
and one Certificate may be issued in such Denomination as may be necessary to
represent the remainder of the aggregate Principal Balance of the Contracts on
the Cutoff Date. As provided in the Agreement and subject to certain limitations
therein set forth, this Certificate is exchangeable for one or more new
Certificates of authorized Denominations evidencing a like aggregate undivided
interest, as requested by the Holder surrendering the same.
No service charge will be made for such registrations, transfers or
exchanges, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. The Master
Servicer, the Certificate Registrar and the Trustee and any agent of the Master
Servicer, the Certificate Registrar or the Trustee may treat the Person in whose
name this Certificate is registered as the owner hereof for all purposes, and
neither the Master Servicer, the
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Certificate Registrar nor the Trustee nor any such agent thereof shall be
affected by notice to the contrary.
The obligations created by the Agreement and the Trust Fund created
thereby (other than the obligation of the Master Servicer to provide for
payments to Certificateholders pursuant to the Agreement) shall terminate upon
the earlier of (a) the repurchase by the [Depositor] from the Trust Fund of all
Contracts remaining In the Trust Fund and all property acquired with respect
thereto and (b) the later of (I) the maturity or other liquidation of the last
Contract subject thereto and the disposition of all property acquired upon
repossession and (ii) the distribution to Certificateholders of all amounts in
the Certificate Account required to be distributed to them pursuant to the
Agreement. Any such purchase by the [Depositor] will be made at a price equal to
the aggregate outstanding Principal Balance of the Contracts as of the date of
repurchase, together with accrued and unpaid interest thereon at the
Pass-Through Rate to the last day of the month of such repurchase, plus the
appraised value of any property acquired in respect thereof. The Agreement
permits, but does not require, the [Depositor] to make such purchase on any
Distribution Date, subject to the condition that the aggregate Principal Balance
of the Contracts at the time of purchase is less than __% of the aggregate
Principal Balance of the Contracts on the Cut-off Date. The exercise of such
right will effect early retirement of the Certificates.
Any term used herein that is defined in the Agreement shall have the
meaning assigned in the Agreement, and nothing herein shall be deemed
inconsistent with that meaning.
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ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto__________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address, including postal
zip code, or assignee)
the undivided interest in the Trust Fund evidenced by the within Certificate and
hereby authorize(s) the transfer of registration of such interest to the
assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Certificate of a
like Denomination and undivided interest in the Trust Fund to the above names
assignee and to deliver such Certificate to the following address:
________________________________________________________________________________
________________________________________________________________________________
Dated: _________
Social Security or _________________________________
other Tax Identifi- Signature by or on behalf of assignor
cation No. of Assignee (signature must be signed as registered)
______________________ _________________________________
Signature Guaranteed
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DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the
information of the Master Servicer;
Distribution shall be made by the wire transfer in
immediately available funds to _________________________________________________
________________________________________________________________________________
the account of _____________________________________, account number
______________________, or, if mailed by check, to ________________. This
information is provided by the assignee named above, or its agent.
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Schedule I
CONTRACT SCHEDULE
[Each Contract shall be identified by loan number, address of the
Manufactured Home and name of the Obligor. The following details shall be set
forth as to each Contract: (I) the Principal Balance at the time of its
origination, (ii) the adjusted Principal Balance as of the Cut-off Date, (iii)
the APR, (iv) the scheduled monthly payment of principal and interest, (v) the
first payment date, (vi) the original term, (vii) the Contract Loan-to-Value
Ratio at origination and (viii) the Retained Yield.]
Exhibit 4.4.3
- --------------------------------------------------------------------------------
FORM OF TRUST AGREEMENT
between
ASSET BACKED SECURITIES CORPORATION,
as Company,
and
[---------------------]
as Trustee
CS FIRST BOSTON AUTO RECEIVABLES
SECURITIES TRUST
199_ - __
Dated as of _________________
- --------------------------------------------------------------------------------
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Table of Contents
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ARTICLE I
Definitions...........................................................1
SECTION 1.01. Defined Terms..........................................1
SECTION 1.02. Other Definitional Provisions..........................9
ARTICLE II
Organization..........................................................9
SECTION 2.01. Name...................................................9
SECTION 2.02. Office.................................................9
SECTION 2.03. Purposes and Powers....................................9
SECTION 2.04. Appointment of Trustee................................10
SECTION 2.05. Conveyance of Underlying Securities...................10
SECTION 2.06. Declaration of Trust; Tax Treatment; Construction.....11
SECTION 2.07. Title to Trust Property...............................11
SECTION 2.08. Situs of Trust........................................11
SECTION 2.09. Representations and Warranties of the Company.........12
ARTICLE III
Trust Certificates and Transfer of Interests.........................13
SECTION 3.01. Initial Ownership.....................................13
SECTION 3.02. The Trust Certificates................................13
SECTION 3.03. Authentication of Trust Certificates..................13
SECTION 3.04. Registration of Transfer and Exchange of
Trust Certificates....................................13
SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust
Certificates..........................................14
SECTION 3.06. Persons Deemed Owners.................................14
SECTION 3.07. Access to List of Certificateholders' Names and
Addresses.............................................14
SECTION 3.08. Maintenance of Office or Agency.......................15
SECTION 3.09. Appointment of Paying Agent...........................15
SECTION 3.10. Book-Entry Trust Certificates.........................15
SECTION 3.11. Notices to Clearing Agency............................16
SECTION 3.12. Definitive Trust Certificates.........................16
ARTICLE IV
Actions by Trustee...................................................17
SECTION 4.01. Prior Notice to Owners with Respect to
Certain Matters.......................................17
SECTION 4.02. Action by Owners with Respect to Sale of
Trust Estate..........................................17
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SECTION 4.03. Action by Owners with Respect to Bankruptcy...........17
SECTION 4.04. Restrictions on Owners' Power.........................17
SECTION 4.05. Majority Control......................................18
ARTICLE V
Collections; Distributions; Certain Duties...........................18
SECTION 5.01. Establishment of Trust Accounts.......................18
SECTION 5.02. Collections...........................................20
SECTION 5.03. Application of Trust Funds............................20
SECTION 5.04. Reserve Account.......................................20
SECTION 5.05. Distributions.........................................22
SECTION 5.06. Method of Payment.....................................22
SECTION 5.07. Accounting and Reports to the Owners, the
Internal Revenue Service and Others...................22
SECTION 5.08. Signature on Return...................................23
SECTION 5.09. Statements to Certificateholders......................23
ARTICLE VI
Authority and Duties of Trustee......................................23
SECTION 6.01. General Authority.....................................23
SECTION 6.02. General Duties........................................23
SECTION 6.03. Action upon Instruction...............................24
SECTION 6.04. No Duties Except as Specified in this Agreement
or in Instructions....................................24
SECTION 6.05. No Action Except Under Specified Documents or
Instructions..........................................25
SECTION 6.06. Restrictions..........................................25
ARTICLE VII
Concerning the Trustee...............................................25
SECTION 7.01. Acceptance of Trust and Duties........................25
SECTION 7.02. Furnishing of Documents...............................26
SECTION 7.03. Representations and Warranties........................26
SECTION 7.04. Reliance; Advice of Counsel...........................27
SECTION 7.05. Not Acting in Individual Capacity.....................27
SECTION 7.06. Trustee Not Liable for Trust Certificates or
Underlying Securities.................................27
SECTION 7.07. Trustee May Own Trust Certificates....................28
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ARTICLE VIII
Compensation of Trustee.............................................28
SECTION 8.01. Trustee's Fees and Expenses..........................28
SECTION 8.02. Indemnification......................................28
SECTION 8.03. Payments to the Trustee..............................28
ARTICLE IX
Termination of Trust Agreement......................................28
SECTION 9.01. Termination of Trust Agreement.......................28
SECTION 9.02. Dissolution upon Bankruptcy of the Company...........30
ARTICLE X
Successor Trustees and Additional Trustees..........................31
SECTION 10.01. Eligibility Requirements for Trustee................31
SECTION 10.02. Resignation or Removal of Trustee...................31
SECTION 10.03. Successor Trustee...................................32
SECTION 10.04. Merger or Consolidation of Trustee..................32
SECTION 10.05. Appointment of Co-Trustee or Separate Trustee.......32
ARTICLE XI
Miscellaneous.......................................................33
SECTION 11.01. Supplements and Amendments..........................33
SECTION 11.02. No Legal Title to Trust Estate in Owners............34
SECTION 11.03. Limitations on Rights of Others.....................35
SECTION 11.04. Notices.............................................35
SECTION 11.05. Severability........................................35
SECTION 11.06. Separate Counterparts...............................35
SECTION 11.07. Successors and Assigns..............................35
SECTION 11.08. Covenants of the Company............................35
SECTION 11.09. No Petition.........................................36
SECTION 11.10. No Recourse.........................................36
SECTION 11.11. Headings............................................36
SECTION 11.12. GOVERNING LAW.......................................36
SECTION 11.13. Trust Certificate Transfer Restrictions.............36
SCHEDULE I - UNDERLYING SECURITIES..........................................S-1
EXHIBIT A - FORM OF TRUST CERTIFICATE.......................................A-1
EXHIBIT B - CERTIFICATE OF TRUST OF
CS FIRST BOSTON AUTO RECEIVABLES TRUST 199_-_......................B-1
EXHIBIT C - FORM OF CERTIFICATE DEPOSITORY AGREEMENT........................C-1
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EXHIBIT D - FORM OF STATEMENT...............................................D-1
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TRUST AGREEMENT dated as of _______________________, between ASSET BACKED
SECURITIES CORPORATION, a Delaware corporation (the "Company"), and
________________, a Delaware banking corporation, as trustee (the "Trustee").
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. Whenever used in this Agreement, the following
terms, unless the context requires otherwise, shall have the meanings set forth
below:
"Agreement" shall mean this Trust Agreement, as the same may be amended and
supplemented from time to time.
"Available Amount" means, with respect to any Distribution Date, the amount
of funds on deposit in the Reserve Account on such Distribution Date before
giving effect to any reduction thereto on such date.
"Basic Documents" shall mean the Certificate Depository Agreement and the
other documents and certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
11.13.
"Book-Entry Trust Certificate" shall mean a beneficial interest in the
Trust Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 3.11.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions or trust companies in The City of New York are
authorized or obligated by law, regulation or executive order to remain closed.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code ss. 3801 et seq., as the same may be amended from time to
time.
"Certificate Balance" equals, initially, $___________ and, thereafter,
equals such initial Certificate Balance reduced by all amounts allocable to
principal previously distributed to Certificateholders.
"Certificate Depository Agreement" shall mean the agreement dated
_______________, among the Trust, the Trustee and The Depository Trust Company,
as the initial Clearing Agency, substantially in the form attached hereto as
Exhibit C, relating to the Trust Certificates, as the same may be amended and
supplemented from time to time.
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"Certificate Distribution Account" shall have the meaning assigned to such
term in Section 5.01.
"Certificate of Trust" shall mean the Certificate of Trust, substantially
in the form of Exhibit B, filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Owner" shall mean, with respect to a Book-Entry Trust
Certificate, the Person who is the beneficial owner of such Book-Entry Trust
Certificate, as reflected on the books of the Clearing Agency or on the books of
a Person maintaining an account with such Clearing Agency (directly as a
Clearing Agency Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).
"Certificate Pool Factor" means, as of the close of business on the last
day of a Collection Period, a seven-digit decimal figure equal to the
Certificate Balance (after giving effect to any reductions therein to be made on
the immediately following Distribution Date) divided by the initial Certificate
Balance. The Certificate Pool Factor will be 1.0000000 as of the Closing Date;
thereafter, the Certificate Pool Factor will decline to reflect reductions in
the Certificate Balance.
"Certificate Register" and "Certificate Registrar" shall mean the register
mentioned in and the registrar appointed pursuant to Section 3.04.
"Certificateholder" shall mean a Person in whose name a Trust Certificate
is registered.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distributable
Amount and the Certificateholders' Interest Distributable Amount for such date.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the sum of the Certificateholders' Monthly
Interest Distributable Amount for the preceding Distribution Date and any
outstanding Certificateholders' Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that is actually
deposited in the Certificate Distribution Account on such preceding Distribution
Date, plus 30 days' interest on such excess, to the extent permitted by law, at
the Pass-Through Rate.
"Certificateholders' Interest Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date. Interest with respect
to the Certificates shall be computed on the basis of a 360-day year consisting
of twelve 30- day months for all purposes of this Agreement and the Basic
Documents.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, 30 days of interest (or, in the case of the
first Distribution Date, interest accrued from and including the Closing Date to
but excluding _________) at the Pass-Through Rate on the Certificate Balance on
the last day of the preceding Collection Period (or, in the case of the first
Distribution Date, on the Closing Date).
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"Certificateholders' Monthly Principal Distributable Amount" means that
portion of all collections on Underlying Securities allocable to principal
received during the related Collection Period.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Certificateholders' Monthly
Principal Distributable Amount and any outstanding Certificateholders' Principal
Carryover Shortfall from the preceding Distribution Date, over the amount in
respect of principal that is actually deposited in the Certificate Distribution
Account on such current Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance. In addition, on the Final
Scheduled Distribution Date, the principal required to be included in the
Certificateholders' Principal Distributable Amount will equal the amount that is
necessary (after giving effect to the other amounts to be deposited in the
Certificate Distribution Account on such Distribution Date and allocable to
principal) to reduce the Certificate Balance to zero.
"Clearing Agency" shall mean an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" shall mean a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means ________________________.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
Treasury Regulations promulgated thereunder.
"Collection Account" shall have the meaning assigned to such term in
Section 5.01.
"Collection Period" means a calendar month.
"Company" shall mean Asset Backed Securities Corporation, a Delaware
corporation, and any successor in interest.
"Corporate Trust Office" shall mean, with respect to the Trustee, the
principal corporate trust office of the Trustee located at
_____________________, or at such other address as the Trustee may designate by
notice to the Owners and the Company, or the principal corporate trust office of
any successor Trustee at the address designated by such successor Trustee by
notice to the Owners and the Company.
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"Cutoff Date" means ________________________.
"Definitive Trust Certificates" shall have the meaning set forth in Section
3.11.
"Delivery" when used with respect to Trust Account Property means:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC and are susceptible of
physical delivery, transfer thereof to the Trustee or its nominee or custodian
by physical delivery to the Trustee or its nominee or custodian endorsed to, or
registered in the name of, the Trustee or its nominee or custodian or endorsed
in blank, and, with respect to a certificated security (as defined in Section
8-102 of the UCC) transfer thereof (i) by delivery of such certificated security
endorsed to, or registered in the name of, the Trustee or its nominee or
custodian or endorsed in blank to a financial intermediary (as defined in
Section 8-313 of the UCC) and the making by such financial intermediary of
entries on its books and records identifying such certificated securities as
belonging to the Trustee or its nominee or custodian and the sending by such
financial intermediary of a confirmation of the purchase of such certificated
security by the Trustee or its nominee or custodian, or (ii) by delivery thereof
to a "clearing corporation" (as defined in Section 8-102(3) of the UCC) and the
making by such clearing corporation of appropriate entries on its books reducing
the appropriate securities account of the transferor and increasing the
appropriate securities account of a financial intermediary by the amount of such
certificated security, the identification by the clearing corporation of the
certificated securities for the sole and exclusive account of the financial
intermediary, the maintenance of such certificated securities by such clearing
corporation or a "custodian bank" (as defined in Section 8-102(4) of the UCC) or
the nominee of either subject to the clearing corporation's exclusive control,
the sending of a confirmation by the financial intermediary of the purchase by
the Trustee or its nominee or custodian of such securities and the making by
such financial intermediary of entries on its books and records identifying such
certificated securities as belonging to the Trustee or its nominee or custodian
(all of the foregoing, "Physical Property"), and, in any event, any such
Physical Property in registered form shall be in the name of the Trustee or its
nominee or custodian; and such additional or alternative procedures as may
hereafter become appropriate to effect the complete transfer of ownership of any
such Trust Account Property (as defined herein) to the Trustee or its nominee or
custodian, consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any securities issued by the U.S. Treasury, the Federal
Home Loan Mortgage Corporation or by the Federal National Mortgage Association
that is a book-entry security held through the Federal Reserve System pursuant
to Federal book-entry regulations, the following procedures, all in accordance
with applicable law, including applicable Federal regulations and Articles 8 and
9 of the UCC: book-entry registration of such Trust Account Property to an
appropriate book-entry account maintained with a Federal Reserve Bank by a
financial intermediary which is also a "depository" pursuant to applicable
Federal regulations and issuance by such financial intermediary of a deposit
advice or other written confirmation of such book-entry registration to the
Trustee or its nominee or custodian of the purchase by the Trustee
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or its nominee or custodian of such book-entry securities; the making by such
financial intermediary of entries in its books and records identifying such
book-entry security held through the Federal Reserve System pursuant to Federal
book-entry regulations as belonging to the Trustee or its nominee or custodian
and indicating that such custodian holds such Trust Account Property solely as
agent for the Trustee or its nominee or custodian; and such additional or
alternative procedures as may hereafter become appropriate to effect complete
transfer of ownership of any such Trust Account Property to the Trustee or its
nominee or custodian, consistent with changes in applicable law or regulations
or the interpretation thereof; and
(c) with respect to any item of Trust Account Property that is an
uncertificated security under Article 8 of the UCC and that is not governed by
clause (b) above, registration on the books and records of the issuer thereof in
the name of the financial intermediary, the sending of a confirmation by the
financial intermediary of the purchase by the Trustee or its nominee or
custodian of such uncertificated security, the making by such financial
intermediary of entries on its books and records identifying such uncertificated
certificates as belonging to the Trustee or its nominee or custodian.
"Distribution Date" means, with respect to each Collection Period, the
__________ day of the following month or, if such day is not a Business Day, the
immediately following Business Day, commencing on _______________.
"ERISA" shall have the meaning assigned thereto in Section 11.13.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one to the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution shall have a credit rating from each
Rating Agency in one of its generic rating categories that signifies investment
grade.
"Eligible Institution" means (a) the corporate trust department of the
Trustee or (b) a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), which (1) has either (A) a long-term
unsecured debt rating of AAA or better by Standard & Poor's and A1 or better by
Moody's or (B) a certificate of deposit rating of A-1+ by Standard Poor's and
P-1 or better by Moody's or any other long-term, short-term or certificate of
deposit rating acceptable to the Rating Agencies and (2) whose deposits are
insured by the FDIC. If so qualified, the Trustee may be considered an Eligible
Institution for the purposes of clause (b) of this definition.
"Eligible Investments" mean book-entry securities, negotiable instruments
or securities represented by instruments in bearer or registered form which
evidence;
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(a) direct obligations of, and obligations fully guaranteed as to timely
payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States of America or any state thereof (of any domestic branch of a
foreign bank) and subject to supervision and examination by federal or state
banking or depository institution authorities; provided, however, that at the
time of the investment or contractual commitment to invest therein, the
commercial paper or other short-term unsecured debt obligations thereof (other
than such obligations the rating of which is based on the credit of a Person
other than such depository institution or trust company) shall have a credit
rating of A-1+ from Standard & Poor's and P1 from Moody's;
(c) commercial paper having, at the time of the investment or contractual
commitment to invest therein, a rating of A-1+ from Standard & Poor's and P1
from Moody's;
(d) investments in money market funds having a rating of AAA-m or AAAm-G
from Standard & Poor's and Aaa from Moody's;
(e) bankers' acceptances issued by any depository institution or trust
company referred to in clause (b) above;
(f) repurchase obligations with respect to any security that is a direct
obligation of, or fully guaranteed by, the United States of America or any
agency or instrumentality thereof the obligations of which are backed by the
full faith and credit of the United States of America, in either case entered
into with a depository institution or trust company (acting as principal)
described in clause (b);
(g) any other investment with respect to which the Trustee or the Company
has received written notification from the Rating Agencies that the acquisition
of such investment as an Eligible Investment will not in a withdrawal or
downgrading of the ratings of the Certificates.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Expenses" shall have the meaning assigned to such term in Section 8.02.
"Final Scheduled Distribution Date" means the _______________ Distribution
Date.
"Holder" means the Person in whose name such Certificate is registered on
the Certificate Register.
"Indemnified Parties" shall have the meaning assigned to such term in
Section 8.02.
"Initial Certificate Balance" shall mean $________________.
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"Lien" means any security interest, lien, pledge, equity or encumbrance of
any kind, other than tax liens, mechanics' liens and any liens that attach to an
Underlying Security by operation of law.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"Obligor" means, with respect to any Underlying Security, the Person
obligated to make payments under the terms of such Underlying Security.
"Original Pool Balance" means the Pool Balance as of the Cutoff Date.
"Owner" shall mean each Holder of a Trust Certificate.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
"Pass-Through Rate" means __________% per annum.
"Paying Agent" shall mean any paying agent or co-paying agent appointed
pursuant to Section 3.09, which initially shall be ________________.
"Payment Determination Date" means, with respect to any Distribution Date,
the Business Day immediately preceding such Distribution Date.
"Physical Property" has the meaning assigned to such term in the definition
of "Delivery" above.
"Pool Balance" means, as of the close of business on the last day of a
Collection Period, the aggregate principal balance of the Underlying Securities
as of such day.
"Purchase Amount" means the amount, as of the close of business on the last
day of a Collection Period, required to pay an Underlying Security in full under
the terms thereof, including interest to the end of the month of purchase.
"Rating Agency" means Moody's or Standard & Poor's or, if neither such
organization nor a successor thereto remains in existence, any nationally
recognized statistical rating organization or other comparable Person designated
by the Company, notice of which designation shall be given to the Trustee and
the Servicer.
"Record Date" shall mean, with respect to any Distribution Date, the close
of business on the day immediately preceding such Distribution Date.
"Reserve Account" shall have the meaning assigned to such term in Section
5.01.
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"Reserve Account Initial Deposit" means an amount equal to the Specified
Reserve Account Balance on the Closing Date (which is equal to $______________).
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Specified Reserve Account Balance" means [state formula].
"Standard & Poor's" means Standard & Poor's Ratings Services, a division of
McGraw-Hill, Inc.
"Total Distribution Amount" means, for each Distribution Date, the
aggregate of all distributions received by the Trustee on the Underlying
Securities, for the Collection Period immediately preceding such Distribution
Date.
"Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Accounts" shall mean any or all of the Certificate Distribution
Account, the Collection Account or the Reserve Account, as applicable.
"Trust Certificate" shall mean a certificate evidencing the beneficial
interest of a Certificate Owner in the Trust, substantially in the form attached
hereto as Exhibit A.
"Trust Estate" shall mean all right, title and interest of the Trust in and
to the property and rights assigned to the Trust pursuant to Article II and all
funds on deposit from time to time in the Trust Accounts.
"Trustee" shall mean _______________, a Delaware banking corporation, not
in its individual capacity but solely as Trustee under this Agreement, and any
successor Trustee hereunder.
"Underlying Security" means any one of the securities described on Schedule
I hereto, transferred to the Trustee by the Company pursuant to Section 2.05 and
held as part of the Trust Estate.
"Underwriter" shall mean that underwriter named in and a party to the
Certificate Underwriting Agreement dated _______________, with the Company,
pursuant to which the Trust Certificates will be offered publicly.
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SECTION 1.02. Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(b) As used in this Agreement and in any certificate or other document made
or delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement or in any such certificate or other document, and accounting terms
partly defined in this Agreement or in any such certificate or other document to
the extent not defined herein or therein, shall have the respective meanings
given to them under generally accepted accounting principles. To the extent that
the definitions of accounting terms in this Agreement or in any such certificate
or other document are inconsistent with the meanings of such terms under
generally accepted accounting principles, the definitions contained in this
Agreement or in any such certificate or other document shall control.
(c) The words "hereof", "herein", "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Section and Exhibit references
contained in this Agreement are references to Sections and Exhibits in or to
this Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation".
(d) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(e) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
ARTICLE II
Organization
SECTION 2.01. Name. The Trust created hereby shall be known as "CS First
Boston Auto Receivables Securities Trust 199_-_", in which name the Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.02. Office. The office of the Trust shall be in care of the
Trustee at the Corporate Trust Office or at such other address in Delaware as
the Trustee may designate by written notice to the Owners and the Company.
SECTION 2.03. Purposes and Powers. (a) The purpose of the Trust is to
engage in the following activities:
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(i) to issue the Trust Certificates pursuant to this Agreement and to
sell the Trust Certificates;
(ii) with the proceeds of the sale of the Trust Certificates, to
purchase the Underlying Securities, to fund the Reserve Account and to pay
the organizational, start-up and transactional expenses of the Trust and to
pay the balance to the Company;
(iii) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(iv) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
(v) subject to compliance with the Basic Documents, to engage in such
other activities as may be required in connection with conservation of the
Trust Estate and the making of distributions to the Owners.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.04. Appointment of Trustee. The Company hereby appoints the
Trustee as trustee of the Trust effective as of the date hereof, to have all the
rights, powers and duties set forth herein.
SECTION 2.05. Conveyance of Underlying Securities. (a) In consideration of
the Trustee's delivery on the Closing Date to or upon the order of the Company
of $__________, the Company, concurrently with the execution and delivery of
this Agreement, does hereby sell, transfer, assign, set over and otherwise
convey to the Trustee, in trust, for the use and benefit of the
Certificateholders, without recourse, all the right, title and interest of the
Company including any security interest therein, in, to and under the Underlying
Securities, all payments and all proceeds therefrom, and all other assets
constituting the Trust Estate.
(b) It is intended that the conveyance of the Company's right, title and
interest in and to the Underlying Securities and all other assets constituting
the Trust Estate pursuant to this Agreement shall constitute, and be construed
as, an absolute sale of the Underlying Securities by the Depositor to the
Trustee for the benefit of the Certificateholders. Furthermore, it is not
intended that such conveyance be deemed a pledge of the Underlying Securities
and the other assets constituting the Trust Estate by the Company to the Trustee
to secure a debt or other obligation of the Company. However, in the event that,
notwithstanding the aforementioned intent of the parties, the Underlying
Securities and the other assets constituting the Trust Estate are held to be the
property of the Company, or if for any other reason this Agreement is held or
deemed to create a security interest in the Underlying Securities and the other
assets constituting the Trust Estate, then it is intended as follows: (a) this
Agreement shall also be deemed to be a security agreement within the meaning of
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Articles 8 and 9 of the Uniform Commercial Code as in effect from time to time
in the States of New York and Delaware; (b) the conveyance provided for in this
Section shall be deemed to be a grant by the Company to the Trustee of a
security interest in all the Company's right, title and interest in and to the
Underlying Securities and all amounts payable to the holders of the Underlying
Securities after the Closing Date in accordance with the terms thereof and all
proceeds of the conversion, voluntary or involuntary, of the foregoing into
cash, instruments, securities or other property, including without limitation
all amounts from time to time held or invested in any Trust Account, whether in
the form of cash, instruments, securities or other property; (c) the possession
by the Trustee or its agent of the Underlying Securities and such other items of
property as constitute instruments, money, negotiable documents or chattel paper
shall be deemed to be "possession by the secured party" for purposes of
perfecting the security interest pursuant to Section 9-305 of the Uniform
Commercial Code; and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed notifications to, or acknowledgments, receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the Trustee
for the purpose of perfecting such security interest under applicable law.
Notwithstanding the foregoing, the parties to this Agreement intend the transfer
pursuant to this section to be a true, absolute and unconditional sale of the
Underlying Securities and all such other assets constituting the Trust Estate by
the Company to the Trustee.
SECTION 2.06. Declaration of Trust; Tax Treatment; Construction. The
Trustee hereby declares that it will hold the Trust Estate in trust upon and
subject to the conditions set forth herein for the use and benefit of the
Owners, subject to the obligations of the Trust under the Basic Documents. It is
the intention of the parties hereto, and each Certificateholder by its
acceptance of a Trust Certificate shall be deemed to agree, that the Trust will
be created as a grantor trust for federal income tax purposes and all
transactions contemplated by this Agreement will be reported, to the extent
applicable, on all applicable tax returns consistently with such treatment. The
provisions of this Agreement shall be construed, and the affairs of the Trust
shall be conducted as provided herein, so has to achieve treatment of the Trust
as a grantor trust for federal income tax purposes.
SECTION 2.07. Title to Trust Property. Legal title to all the Trust Estate
shall be vested at all times in the Trust as a separate legal entity except
where applicable law in any jurisdiction requires title to any part of the Trust
Estate to be vested in a trustee or trustees, in which case title shall be
deemed to be vested in the Trustee, a co-trustee and/or a separate trustee, as
the case may be.
SECTION 2.08. Situs of Trust. The Trust will be located and administered in
the State of Delaware. All bank accounts maintained by the Trustee on behalf of
the Trust shall be located in the State of Delaware or the State of New York.
The Trust shall not have any employees in any state other than Delaware;
provided, however, that nothing herein shall restrict or prohibit the Trustee
from having employees within or without the State of Delaware. Payments will be
received by the Trust only in Delaware or New York, and payments will be made by
the Trust only from Delaware or New York. The only office of the Trust will be
at the Corporate Trust Office in Delaware.
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SECTION 2.09. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Trustee that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
organization, with the power and authority to own its properties and to
conduct its business as such properties are currently owned and such
business is presently conducted;
(ii) The Company is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its
property or the conduct of its business shall require such qualifications;
(iii) The Company has the power and authority to execute and deliver
this Agreement and to carry out its terms; the Company has full power and
authority to sell and assign the property to be sold and assigned to and
deposited with the Trust, and the Company has duly authorized such sale and
assignment and deposit to the Trust by all necessary corporate action; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Company by all necessary corporate action;
(iv) The Company has the full power and authority to purchase the
Trust Certificates that the Company has agreed to purchase pursuant to
Section 3.10;
(v) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation or bylaws of the Company, or any indenture, agreement or
other instrument to which the Company is a party or by which it is bound;
nor result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Basic Documents); nor violate any
law or, to the best of the Company's knowledge, any order, rule or
regulation applicable to the Company of any court or of any federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Company or its properties; and
(vi) There are no proceedings or investigations pending or, to the
Company's best knowledge, threatened before any court, regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Company or its properties: (A) asserting the
invalidity of this Agreement, (B) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement or (C) seeking any
determination or ruling that might materially and adversely affect the
performance by the Company of its obligations under, or the validity or
enforceability of, this Agreement.
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ARTICLE III
Trust Certificates and Transfer of Interests
SECTION 3.01. Initial Ownership. Upon the formation of the Trust by the
contribution by the Company pursuant to Section 2.05 and until the issuance of
the Trust Certificates, the Company shall be the sole beneficiary of the Trust.
SECTION 3.02. The Trust Certificates. The Trust Certificates shall be
issued in minimum denominations of $20,000 and in integral multiples of $1 in
excess thereof; provided, however, that the Trust Certificates issued to the
Company pursuant to Section 3.10 may be issued in such denomination as required
to include any residual amount. The Trust Certificates shall be executed on
behalf of the Trust by manual or facsimile signature of an authorized officer of
the Trustee. Trust Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be validly issued and entitled
to the benefit of this Agreement, notwithstanding that such individuals or any
of them shall have ceased to be so authorized prior to the authentication and
delivery of such Trust Certificates or did not hold such offices at the date of
authentication and delivery of such Trust Certificates.
A transferee of a Trust Certificate shall become a Certificateholder and
shall be entitled to the rights and subject to the obligations of a
Certificateholder hereunder upon such transferee's acceptance of a Trust
Certificate duly registered in such transferee's name pursuant to Section 3.04.
SECTION 3.03. Authentication of Trust Certificates. On the Closing Date,
the Trustee shall cause the Trust Certificates in an aggregate principal amount
equal to the Initial Certificate Balance to be executed on behalf of the Trust,
authenticated and delivered to or upon the written order of the Company, signed
by its chairman of the board, its president, any vice president, secretary or
any assistant treasurer, without further corporate action by the Company, in
authorized denominations. No Trust Certificate shall entitle its Holder to any
benefit under this Agreement or be valid for any purpose unless there shall
appear on such Trust Certificate a certificate of authentication substantially
in the form set forth in Exhibit A, executed by the Trustee by manual signature;
such authentication shall constitute conclusive evidence that such Trust
Certificate shall have been duly authenticated and delivered hereunder. All
Trust Certificates shall be dated the date of their authentication.
SECTION 3.04. Registration of Transfer and Exchange of Trust Certificates.
The Certificate Registrar shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 3.08, a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Trust Certificates and of transfers and
exchanges of Trust Certificates as herein provided. _______________ shall be the
initial Certificate Registrar.
Upon surrender for registration of transfer of any Trust Certificate at the
office or agency maintained pursuant to Section 3.08, the Trustee shall execute,
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Trust Certificates in authorized
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denominations of a like aggregate amount dated the date of authentication by the
Trustee or any authenticating agent. At the option of a Holder, Trust
Certificates may be exchanged for other Trust Certificates of authorized
denominations of a like aggregate amount upon surrender of the Trust
Certificates to be exchanged at the office or agency maintained pursuant to
Section 3.08.
Every Trust Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Trustee and the Certificate Registrar duly executed by
the Holder or such Holder's attorney duly authorized in writing. Each Trust
Certificate surrendered for registration of transfer or exchange shall be
cancelled and subsequently disposed of by the Trustee in accordance with its
customary practice.
No service charge shall be made for any registration of transfer or
exchange of Trust Certificates, but the Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Trust
Certificates.
The preceding provisions of this Section notwithstanding, the Trustee shall
not make, and the Certificate Registrar shall not register transfers or
exchanges of, Trust Certificates for a period of 15 days preceding the due date
for any payment with respect to the Trust Certificates.
SECTION 3.05. Mutilated, Destroyed, Lost or Stolen Trust Certificates. If
(a) any mutilated Trust Certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Trust Certificate and (b)
there shall be delivered to the Certificate Registrar and the Trustee such
security or indemnity as may be required by them to save each of them harmless,
then in the absence of notice that such Trust Certificate has been acquired by a
bona fide purchaser, the Trustee on behalf of the Trust shall execute,
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Trust Certificate, a new Trust Certificate of like
tenor and denomination. In connection with the issuance of any new Trust
Certificate under this Section, the Trustee or the Certificate Registrar may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith. Any duplicate Trust
Certificate issued pursuant to this Section shall constitute conclusive evidence
of ownership in the Trust, as if originally issued, whether or not the lost,
stolen or destroyed Trust Certificate shall be found at any time.
SECTION 3.06. Persons Deemed Owners. Prior to due presentation of a Trust
Certificate for registration of transfer, the Trustee, the Certificate Registrar
or any Paying Agent may treat the Person in whose name any Trust Certificate is
registered in the Certificate Register as the owner of such Trust Certificate
for the purpose of receiving distributions pursuant to Section 5.05 and for all
other purposes whatsoever, and none of the Trustee, the Certificate Registrar or
any Paying Agent shall be bound by any notice to the contrary.
SECTION 3.07. Access to List of Certificateholders' Names and Addresses.
The Trustee shall furnish or cause to be furnished to the Company, within 15
days after receipt by the Trustee of a written request therefor from the
Company, a list, in such form as the Company may reasonably require, of the
names and addresses of the Certificateholders as of the most recent Record Date.
If
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three or more Certificateholders or one or more Holders of Trust Certificates
evidencing not less than 25% of the Certificate Balance apply in writing to the
Trustee, and such application states that the applicants desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Trust Certificates and such application is accompanied by a copy of
the communication that such applicants propose to transmit, then the Trustee
shall, within five Business Days after the receipt of such application, afford
such applicants access during normal business hours to the current list of
Certificateholders. Each Holder, by receiving and holding a Trust Certificate,
shall be deemed to have agreed not to hold any of the Company, the Certificate
Registrar or the Trustee accountable by reason of the disclosure of its name and
address, regardless of the source from which such information is derived.
SECTION 3.08. Maintenance of Office or Agency. The Trustee shall maintain
in the Borough of Manhattan, The City of New York, an office or offices or
agency or agencies where Trust Certificates may be surrendered for registration
of transfer or exchange and where notices and demands to or upon the Trustee in
respect of the Trust Certificates and the Basic Documents may be served. The
Trustee initially designates ______________ as its office for such purposes. The
Trustee shall give prompt written notice to the Company and to the
Certificateholders of any change in the location of the Certificate Register or
any such office or agency.
SECTION 3.09. Appointment of Paying Agent. The Paying Agent shall make
distributions to Certificateholders from the Certificate Distribution Account
pursuant to Section 5.05 and shall report the amounts of such distributions to
the Trustee. Any Paying Agent shall have the revocable power to withdraw funds
from the Certificate Distribution Account for the purpose of making the
distributions referred to above. The Trustee may revoke such power and remove
the Paying Agent if the Trustee determines in its sole discretion that the
Paying Agent shall have failed to perform its obligations under this Agreement
in any material respect. The Paying Agent initially shall be _______________,
and any co-paying agent chosen by _______________ and acceptable to the Trustee.
_______________ shall be permitted to resign as Paying Agent upon 30 days'
written notice to the Trustee. In the event that _______________ shall no longer
be the Paying Agent, the Trustee shall appoint a successor to act as Paying
Agent (which shall be a bank or trust company). The Trustee shall cause such
successor Paying Agent or any additional Paying Agent appointed by the Trustee
to execute and deliver to the Trustee an instrument in which such successor
Paying Agent or additional Paying Agent shall agree with the Trustee that, as
Paying Agent, such successor Paying Agent or additional Paying Agent will hold
all sums, if any, held by it for payment to the Certificateholders in trust for
the benefit of the Certificateholders entitled thereto until such sums shall be
paid to such Certificateholders. The Paying Agent shall return all unclaimed
funds to the Trustee and upon removal of a Paying Agent such Paying Agent shall
also return all funds in its possession to the Trustee. The provisions of
Sections 7.01, 7.03, 7.04 and 8.01 shall apply to the Trustee also in its role
as Paying Agent for so long as the Trustee shall act as Paying Agent and, to the
extent applicable, to any other paying agent appointed hereunder. Any reference
in this Agreement to the Paying Agent shall include any co-paying agent unless
the context requires otherwise.
SECTION 3.10. Book-Entry Trust Certificates. The Trust Certificates, upon
original issuance, will be issued in the form of a typewritten Trust Certificate
or Trust Certificates representing Book-Entry Trust Certificates, to be
delivered to The Depository Trust Company, the
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initial Clearing Agency, by, or on behalf of, the Trust; provided, however, that
one Definitive Trust Certificate may be issued to the Company pursuant to
Section 3.10. Such Trust Certificate or Trust Certificates shall initially be
registered on the Certificate Register in the name of Cede & Co., the nominee of
the initial Clearing Agency, and no Certificate Owner will receive a definitive
Trust Certificate representing such Certificate Owner's interest in such Trust
Certificate, except as provided in Section 3.13. Unless and until definitive,
fully registered Trust Certificates (the "Definitive Trust Certificates") have
been issued to Certificate Owners pursuant to Section 3.13:
(a) The provisions of this Section shall be in full force and effect;
(b) The Certificate Registrar, the Trustee and the Paying Agent shall be
entitled to deal with the Clearing Agency for all purposes of this Agreement
(including the payment of principal of and interest on the Trust Certificates
and the giving of instructions or directions hereunder) as the sole Holder of
the Trust Certificates and shall have no obligation to the Certificate Owners;
(c) To the extent that the provisions of this Section conflict with any
other provisions of this Agreement, the provisions of this Section shall
control;
(d) The rights of Certificate Owners shall be exercised only through the
Clearing Agency and shall be limited to those established by law and agreements
between such Certificate Owners and the Clearing Agency and/or the Clearing
Agency Participants. Pursuant to the Certificate Depository Agreement, unless
and until Definitive Trust Certificates are issued pursuant to Section 3.13, the
initial Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of and interest on
the Trust Certificates to such Clearing Agency Participants; and
(e) Whenever this Agreement requires or permits actions to be taken based
upon instructions or directions of Holders of Trust Certificates evidencing a
specified percentage of the Certificate Balance, the Clearing Agency shall be
deemed to represent such percentage only to the extent that it has received
instructions to such effect from Certificate Owners and/or Clearing Agency
Participants owning or representing, respectively, such required percentage of
the beneficial interest in the Trust Certificates and has delivered such
instructions to the Trustee.
SECTION 3.11. Notices to Clearing Agency. Whenever a notice or other
communication to the Certificateholders is required under this Agreement, unless
and until Definitive Trust Certificates shall have been issued to Certificate
Owners pursuant to Section 3.13, the Trustee shall give all such notices and
communications specified herein to be given to Certificateholders to the
Clearing Agency, and shall have no obligations to the Certificate Owners.
SECTION 3.12. Definitive Trust Certificates. If (i) the Company advises the
Trustee in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities with respect to the Trust Certificates
and the Company is unable to locate a qualified successor, (ii) the Company at
its option advises the Trustee in writing that it elects to terminate the
book-entry system through the Clearing Agency or (iii) after the occurrence of
an Event of Default, Certificate Owners representing beneficial interests
aggregating at least a majority of the Certificate Balance
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advise the Clearing Agency in writing that the continuation of a book-entry
system through the Clearing Agency is no longer in the best interest of the
Certificate Owners, then the Clearing Agency shall notify all Certificate Owners
and the Trustee of the occurrence of such event and of the availability of the
Definitive Trust Certificates to Certificate Owners requesting the same. Upon
surrender to the Trustee of the typewritten Trust Certificate or Trust
Certificates representing the Book-Entry Trust Certificates by the Clearing
Agency, accompanied by registration instructions, the Trustee shall execute and
authenticate the Definitive Trust Certificates in accordance with the
instructions of the Clearing Agency. Neither the Certificate Registrar nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Trust Certificates, the Trustee shall recognize
the Holders of the Definitive Trust Certificates as Certificateholders. The
Definitive Trust Certificates shall be printed, lithographed or engraved or may
be produced in any other manner that is reasonably acceptable to the Trustee, as
evidenced by its execution thereof.
ARTICLE IV
Actions by Trustee
SECTION 4.01. Prior Notice to Owners with Respect to Certain Matters. With
respect to the following matters, the Trustee shall not take action unless at
least 30 days before the taking of such action, the Trustee shall have notified
the Certificateholders in writing of the proposed action and the Owners shall
not have notified the Trustee in writing prior to the 30th day after such notice
is given that such Owners have withheld consent or provided alternative
direction:
(a) the initiation of any claim or lawsuit by the Trust or the compromise
of any action, claim or lawsuit brought by or against the Trust;
(b) the election by the Trust to file an amendment to the Certificate of
Trust (unless such amendment is required to be filed under the Business Trust
Statute); or
(c) the appointment of a successor Certificate Registrar, or the consent to
the assignment by the Certificate Registrar of its obligations under this
Agreement.
SECTION 4.02. Action by Owners with Respect to Sale of Trust Estate. The
Trustee shall not have the power, except upon the direction of the Owners and as
expressly provided herein or in the Basic Documents, to sell the Underlying
Securities.
SECTION 4.03. Action by Owners with Respect to Bankruptcy. The Trustee
shall not have the power to commence a voluntary proceeding in bankruptcy
relating to the Trust without the unanimous prior approval of all Owners and the
delivery to the Trustee by each such Owner of a certificate certifying that such
Owner reasonably believes that the Trust is insolvent.
SECTION 4.04. Restrictions on Owners' Power. The Owners shall not direct
the Trustee to take or to refrain from taking any action if such action or
inaction would be contrary to any
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obligation of the Trust or the Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.03, nor shall the Trustee be
obligated to follow any such direction, if given.
SECTION 4.05. Majority Control. Except as expressly provided herein, any
action that may be taken by the Owners under this Agreement may be taken by the
Holders of Trust Certificates evidencing not less than a majority of the
Certificate Balance. Except as expressly provided herein, any written notice to
the Owners delivered pursuant to this Agreement shall be effective if signed by
Holders of Trust Certificates evidencing not less than a majority of the
Certificate Balance at the time of the delivery of such notice.
ARTICLE V
Collections; Distributions; Certain Duties
SECTION 5.01. Establishment of Trust Accounts. (a)(i) The Trustee, for the
benefit of the Certificateholders, shall establish and maintain in the name of
the Trustee an Eligible Deposit Account (the "Collection Account"), bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Certificateholders.
(ii) The Trustee, for the benefit of the Certificateholders, shall
establish and maintain in the name of the Trustee an Eligible Deposit Account
(the "Reserve Account"), bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders.
(iii) The Trustee, for the benefit of the Certificateholders, shall
establish and maintain in the name of the Trust an Eligible Deposit Account (the
"Certificate Distribution Account"), bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the
Certificateholders.
(b) Funds on deposit in the Trust Accounts shall be invested (1) by the
Trustee in Eligible Investments maturing on or prior to the next succeeding
Distribution Date, selected in writing by the Company or an investment manager
selected by the Company, which investment manager shall have agreed to comply
with the terms of this Agreement as it relates to investing such funds or (2) by
an investment manager in Eligible Investments maturing on or prior to the next
succeeding Distribution Date, selected by such investment manager, provided that
(A) such investment manager shall be selected by the Company, (B) such
investment manager shall have agreed to comply with the terms of this Agreement
as it relates to investing such funds, (C) any investment so selected by such
investment manager shall be made in the name of the Trustee and shall be settled
by a Delivery to the Trustee that complies with the terms of this Agreement as
it relates to investing such funds, and (D) prior to the settlement of any
investment so selected by such investment manager the Trustee shall affirm that
such investment is an Eligible Investment. It is understood and agreed that the
Trustee shall not be liable for any loss arising from an investment in Eligible
Investments made in accordance with this Section 5.01(b). All such Eligible
Investments shall be held by the Trustee for the benefit of the
Certificateholders; provided, that on each Payment Determination Date all
interest and other investment income (net
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of losses and investment expenses) on funds on deposit in the Trust Accounts
shall be deposited into the Collection Account and shall be deemed to constitute
a portion of the Interest Distribution Amount for the related Distribution Date.
Funds on deposit in the Trust Accounts shall be invested in Eligible Investments
that will mature (A) not later than the Business Day immediately preceding the
next Distribution Date or (B) on such next Distribution Date if either (x) such
investment is held in the trust department of the institution with which the
applicable Trust Account is then maintained and is invested in a time deposit of
_____________________ rated at least A-1 by Standard & Poor's and P-1 by Moody's
(such account being maintained within the trust department of
_____________________) or (y) the Trustee (so long as the short-term unsecured
debt obligations of the Trustee are either (i) rated at least P-1 by Moody's and
A-1 by Standard & Poor's on the date such investment is made or (ii) guaranteed
by an entity whose short-term unsecured debt obligations are rated at least P-1
by Moody's and A-1 by Standard & Poor's on the date such investment is made) has
agreed to advance funds on such Distribution Date to the Certificate
Distribution Account in the amount payable on such investment on such
Distribution Date pending receipt thereof to the extent necessary to make
distributions on such Distribution Date. The guarantee referred to in clause (y)
of the preceding sentence shall be subject to the Rating Agency Condition. For
the purpose of the foregoing, unless the Trustee affirmatively agrees in writing
to make such advance with respect to such investment prior to the time an
investment is made, it shall not be deemed to have agreed to make such advance.
Funds deposited in the Trust Accounts on a day which immediately precedes a
Distribution Date upon the maturity of any Eligible Investments are not required
to be invested overnight.
(c)(i) The Trustee shall possess all right, title and interest in all funds
on deposit from time to time in the Trust Accounts and in all proceeds thereof.
Except as otherwise expressly provided herein, the Trust Accounts shall be under
the sole dominion and control of the Trustee for the benefit of the
Certificateholders. If, at any time, any of the Trust Accounts ceases to be an
Eligible Deposit Account, the Trustee shall within 10 Business Days (or such
longer period not to exceed 30 calendar days, as to which each Rating Agency may
consent) establish a new Trust Account as an Eligible Deposit Account and shall
transfer any cash and/or any investments to such new Trust Account.
(ii) With respect to the Trust Account Property, the Trustee agrees
that:
(A) any Trust Account Property that is held in deposit accounts
shall be held solely in Eligible Deposit Accounts, subject to the last
sentence of Section 5.01(c)(i); and each such Eligible Deposit Account
shall be subject to the exclusive custody and control of the Trustee,
and the Trustee shall have sole signature authority with respect
thereto;
(B) any Trust Account Property that constitutes Physical Property
shall be delivered to the Trustee in accordance with paragraph (a) of
the definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Trustee or a financial intermediary (as
such term is defined in Section 8-313(4)) of the UCC acting solely for
the Trustee;
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(C) any Trust Account Property that is a book-entry security held
through the Federal Reserve System pursuant to Federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Trustee,
pending maturity or disposition, through continued book-entry
registration of such Trust Account Property as described in such
paragraph; and
(D) any Trust Account Property that is an "uncertificated
security" under Article VIII of the UCC and that is not governed by
clause (C) above shall be delivered to the Trustee in accordance with
paragraph (c) of the definition of "Delivery" and shall be maintained
by the Trustee, pending maturity or disposition, through continued
registration of the Trustee's (or its nominee's) ownership of such
security.
SECTION 5.02. Collections. The Trustee shall remit within two Business Days
of receipt thereof, but in no event later than the Payment Determination Date
immediately preceding each Distribution Date, to the Collection Account all
payments by or on behalf of the Obligors with respect to the Underlying
Securities as collected during the Collection Period.
SECTION 5.03. Application of Trust Funds. (a) On each Payment Determination
Date, the Trustee shall calculate all amounts required to be deposited in the
Certificate Distribution Account as follows:
(i) to the Certificate Distribution Account, from the Total
Distribution Amount, the Certificateholders' Interest Distributable Amount;
(ii) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clause (i), the
Certificateholders' Principal Distributable Amount;
(iii) to the Reserve Account, the portion, if any, of the Total
Distribution Amount remaining after the application of clauses (i) and
(ii).
(b) On each Distribution Date, the Trustee shall make distributions from
the Collection Account for deposit in the applicable account by 11:00 a.m. (New
York time), to the extent of the Total Distribution Amount, to the accounts and
in the order of priority listed in clauses (a)(i) though (iii) above.
SECTION 5.04. Reserve Account. (a) On the Closing Date, the Trustee will
deposit, on behalf of the Company, the Reserve Account Initial Deposit into the
Reserve Account from the net proceeds of the sale of the Certificates.
(b) If the amount on deposit in the Reserve Account on any Distribution
Date (after giving effect to all deposits thereto or withdrawals therefrom on
such Distribution Date) is greater than the
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Specified Reserve Account Balance for such Distribution Date, the Trustee shall
distribute the amount of such excess to the Company.
(c) (i) In the event that the Certificateholders' Distributable Amount for
a Distribution Date exceeds the sum of the amounts deposited into the
Certificate Distribution Account pursuant to Section 5.03(a)(i) and (ii) on such
Distribution Date, the Trustee shall withdraw from the Reserve Account on such
Distribution Date an amount equal to such excess, to the extent of funds
available therein up to the Available Amount, and deposit such amount into the
Certificate Distribution Account on such Distribution Date.
(ii) In the event that the Certificateholders' Principal Distributable
Amount on the Final Scheduled Distribution Date exceeds the amount deposited in
the Certificate Distribution Account pursuant to Section 5.03(a)(ii), the
Trustee shall withdraw from the Reserve Account on such Distribution Date an
amount equal to such excess, to the extent of funds available therein after
giving effect to paragraph (c)(i) above, and deposit such amount into the
Certificate Distribution Account.
(d) Subject to Section 9.01, amounts will continue to be applied pursuant
to Section 5.03(a) following payment in full of the Certificate Balance until
the Pool Balance is reduced to zero. Following the payment in full of the
Certificate Balance and of all other amounts owing or to be distributed
hereunder to Certificateholders and the termination of the Trust, any amount
remaining on deposit in the Reserve Account shall be distributed to the Company.
(e) On the Final Scheduled Distribution Date, if the amount of funds
remaining in the Reserve Account (after all other distributions to be made from
the Reserve Account pursuant to this Section have been made, other than
paragraphs (b) and (d)) is in excess of the amounts described below, a portion
of such excess according to the following schedule shall be deposited in the
Certificate Distribution Account for distribution to Certificateholders:
(i) with respect to all such funds in the Reserve Account in excess of
$________ but which do not exceed $_______________, 20% of such amount;
(ii) with respect to all such funds in the Reserve Account in excess
of $________ but which do not exceed $_______________, 40% of such amount;
(iii) with respect to all such funds in the Reserve Account in excess
of $________ but which do not exceed $_______________, 60% of such amount;
(iv) with respect to all such funds in the Reserve Account in excess
of $________ but which do not exceed $_______________, 80% of such amount;
and
(v) with respect to all such funds in the Reserve Account in excess of
$________, 100% of such amount.
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The amounts to be deposited in the Certificate Distribution Account pursuant to
the preceding sentence are in excess of all amounts otherwise required to be
deposited in the Certificate Distribution Account pursuant to this Agreement,
notwithstanding anything to the contrary contained herein.
SECTION 5.05. Distributions. (a) On each Distribution Date, the Trustee
will distribute to Certificateholders, on a pro rata basis, amounts deposited in
the Certificate Distribution Account pursuant to Sections 5.03 and 5.04 with
respect to such Distribution Date.
(b) In the event that any withholding tax is imposed on the Trust's payment
(or allocations of income) to an Owner, such tax shall reduce the amount
otherwise distributable to the Owner in accordance with this Section. The
Trustee is hereby authorized and directed to retain from amounts otherwise
distributable to the Owners sufficient funds for the payment of any tax that is
legally owed by the Trust (but such authorization shall not prevent the Trustee
from contesting any such tax in appropriate proceedings and withholding payment
of such tax, if permitted by law, pending the outcome of such proceedings). The
amount of any withholding tax imposed with respect to an Owner shall be treated
as cash distributed to such Owner at the time it is withheld by the Trust and
remitted to the appropriate taxing authority. If there is a possibility that
withholding tax is payable with respect to a distribution (such as a
distribution to a non-U.S. Owner), the Trustee may in its sole discretion
withhold such amounts in accordance with this paragraph (b).
SECTION 5.06. Method of Payment. Subject to Section 9.01(c), distributions
required to be made to Certificateholders on any Distribution Date shall be made
to each Certificateholder of record on the preceding Record Date either by wire
transfer in immediately available funds to the account of such Holder at a bank
or other entity having appropriate facilities therefor, if such
Certificateholder shall have provided to the Certificate Registrar appropriate
written instructions at least five Business Days prior to such Distribution Date
and such Holder's Trust Certificates in the aggregate evidence a denomination of
not less than $____________, or, if not, by check mailed to such
Certificateholder at the address of such holder appearing in the Certificate
Register.
SECTION 5.07. Accounting and Reports to the Owners, the Internal Revenue
Service and Others. The Trustee shall (a) deliver to each Owner, as may be
required by the Code and applicable Treasury Regulations, such information as
may be required to enable each Owner to prepare its federal and state income tax
returns, (b) file such tax returns relating to the Trust as from time to time
may be required or appropriate under any applicable state or federal statute or
any rule or regulation thereunder, (c) cause such tax returns to be signed in
the manner required by law and (d) collect or cause to be collected any
withholding tax as described in and in accordance with Section 5.05(b) with
respect to income or distributions to Owners.
SECTION 5.08. Signature on Return. The Trustee shall sign on behalf of the
Trust the tax returns of the Trust unless applicable law requires an Owner to
sign such documents, in which case such documents shall be signed by the
Company.
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SECTION 5.09. Statements to Certificateholders. (a) On each Distribution
Date, the Trustee shall provide to each certificateholder of record as of the
most recent Record Date (with a copy to the Rating Agencies and each Paying
Agent) a statement substantially in the form of Exhibit D setting forth at least
the following information as to the Certificates to the extent applicable:
(i) the amount of such distribution allocable to principal allocable to the
Certificates;
(ii) the amount of such distribution allocable to interest allocable to the
Certificates;
(iii) the Certificate Balance and the Certificate Pool Factor as of the
close of business on the last day of the preceding Collection Period, after
giving effect to payments allocated to principal reported under clause (i)
above;
(iv) the balance of the Reserve Account on the related Payment
Determination Date after giving effect to deposits and withdrawals to be made on
the next following Distribution Date, if any; and
(v) the Pool Balance as of the close of business on the last day of the
related Collection Period, after giving effect to payments allocated to
principal reported under subsection (i) above.
Each amount set forth reconciling amounts on the Distribution Date
statement under clauses (i) or (ii) above shall be expressed as a dollar amount
per $1,000 of original principal balance of a Certificate.
ARTICLE VI
Authority and Duties of Trustee
SECTION 6.01. General Authority. The Trustee is authorized and directed to
execute and deliver the Basic Documents to which the Trust is to be a party and
each certificate or other document attached as an exhibit to or contemplated by
the Basic Documents to which the Trust is to be a party, in each case, in such
form as the Company shall approve, as evidenced conclusively by the Trustee's
execution thereof. In addition to the foregoing, the Trustee is authorized, but
shall not be obligated, to take all actions required of the Trust pursuant to
the Basic Documents. The Trustee is further authorized from time to time to take
such action as the Company recommends with respect to the Basic Documents.
SECTION 6.02. General Duties. It shall be the duty of the Trustee to
discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Agreement and the Basic Documents to which the Trust is a
party and to administer the Trust in the interest of the Owners, subject to the
Basic Documents and in accordance with the provisions of this Agreement.
SECTION 6.03. Action upon Instruction. (a) Subject to Article IV and in
accordance with the terms of the Basic Documents, the Owners may by written
instruction direct the Trustee in the
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management of the Trust. Such direction may be exercised at any time by written
instruction of the Owners pursuant to Article IV.
(b) The Trustee shall not be required to take any action hereunder or under
any Basic Document if the Trustee shall have reasonably determined, or shall
have been advised by counsel, that such action is likely to result in liability
on the part of the Trustee or is contrary to the terms hereof or of any Basic
Document or is otherwise contrary to law.
(c) Whenever the Trustee is unable to decide between alternative courses of
action permitted or required by the terms of this Agreement or under any Basic
Document, the Trustee shall promptly give notice (in such form as shall be
appropriate under the circumstances) to the Owners requesting instructions as to
the course of action to be adopted, and to the extent the Trustee acts in good
faith in accordance with any written instruction received from the Owners, the
Trustee shall not be liable on account of such action to any Person. If the
Trustee shall not have received appropriate instruction within 10 days of such
notice (or within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances) it may, but shall be
under no duty to, take or refrain from taking such action not inconsistent with
this Agreement or the Basic Documents as it shall deem to be in the best
interests of the Owners, and shall have no liability to any Person for such
action or inaction.
(d) In the event that the Trustee is unsure as to the application of any
provision of this Agreement or any Basic Document, or any such provision is
ambiguous as to its application or is, or appears to be, in conflict with any
other applicable provision, or in the event that this Agreement permits any
determination by the Trustee or is silent or is incomplete as to the course of
action that the Trustee is required to take with respect to a particular set of
facts, the Trustee may give notice (in such form as shall be appropriate under
the circumstances) to the Owners requesting instruction and, to the extent that
the Trustee acts or refrains from acting in good faith in accordance with any
such instruction received, the Trustee shall not be liable with respect to any
such action or inaction to any Person. If the Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may, but shall be under no duty to, take or refrain
from taking such action not inconsistent with this Agreement or the Basic
Documents as it shall deem to be in the best interests of the Owners, and shall
have no liability to any Person for such action or inaction.
SECTION 6.04. No Duties Except as Specified in this Agreement or in
Instructions. The Trustee shall not have any duty or obligation to manage, make
any payment with respect to, register, record, sell, dispose of, or otherwise
deal with the Trust Estate, or to otherwise take or refrain from taking any
action under, or in connection with, any document contemplated hereby to which
the Trustee is a party, except as expressly provided by the terms of this
Agreement or in any document or written instruction received by the Trustee
pursuant to Section 6.03; and no implied duties or obligations shall be read
into this Agreement or any Basic Document against the Trustee. The Trustee shall
have no responsibility for filing any financing or continuation statement in any
public office at any time or to otherwise perfect or maintain the perfection of
any security interest or lien granted to it hereunder or to prepare or file any
Securities and Exchange Commission filing for the Trust or to record this
Agreement or any Basic Document. The Trustee nevertheless agrees that it
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will, at its own cost and expense, promptly take all action that may be
necessary to discharge any liens on any part of the Trust Estate that result
from actions by, or claims against, the Trustee that are not related to the
ownership or the administration of the Trust Estate.
SECTION 6.05. No Action Except Under Specified Documents or Instructions.
The Trustee shall not manage, control, use, sell, dispose of or otherwise deal
with any part of the Trust Estate except (i) in accordance with the powers
granted to and the authority conferred upon the Trustee pursuant to this
Agreement, (ii) in accordance with the Basic Documents and (iii) in accordance
with any document or instruction delivered to the Trustee pursuant to Section
6.03.
SECTION 6.06. Restrictions. The Trustee shall not take any action (a) that
is inconsistent with the purposes of the Trust set forth in Section 2.03 or (b)
that, to the actual knowledge of the Trustee, would result in the Trust's
becoming taxable as a corporation for federal income tax purposes. The Owners
shall not direct the Trustee to take action that would violate the provisions of
this Section.
ARTICLE VII
Concerning the Trustee
SECTION 7.01. Acceptance of Trust and Duties. The Trustee accepts the
trusts hereby created and agrees to perform its duties hereunder with respect to
such trusts, but only upon the terms of this Agreement. The Trustee also agrees
to disburse all moneys actually received by it constituting part of the Trust
Estate upon the terms of the Basic Documents and this Agreement. The Trustee
shall not be answerable or accountable hereunder or under any Basic Document
under any circumstances, except (i) for its own willful misconduct or negligence
or (ii) in the case of the inaccuracy of any representation or warranty
contained in Section 7.03 expressly made by the Trustee. In particular, but not
by way of limitation (and subject to the exceptions set forth in the preceding
sentence):
(a) The Trustee shall not be liable for any error of judgment made by a
Trust Officer of the Trustee;
(b) The Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in accordance with the instructions of any Owner
transmitted pursuant to the terms hereof;
(c) No provision of this Agreement or any Basic Document shall require the
Trustee to expend or risk funds or otherwise incur any financial liability in
the performance of its rights or powers hereunder or under any Basic Document if
the Trustee shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured or provided to it;
(d) Under no circumstances shall the Trustee be liable for indebtedness
evidenced by or arising under any of the Basic Documents;
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(e) The Trustee shall not be responsible for or in respect of the validity
or sufficiency of this Agreement or for the due execution hereof by the Company,
or for the form, character, genuineness, sufficiency, value or validity of any
of the Trust Estate, or for or in respect of the validity or sufficiency of the
Basic Documents, other than the certificate of authentication on the Trust
Certificates, and the Trustee shall in no event assume or incur any liability,
duty or obligation to any Owner, other than as expressly provided for herein or
expressly agreed to in the Basic Documents;
(f) The Trustee shall not be liable for the default or misconduct of the
Company under any of the Basic Documents or otherwise, and the Trustee shall
have no obligation or liability to perform the obligations of the Trust under
this Agreement or the Basic Documents that are required to be performed by the
Company; and
(g) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Agreement, or to institute, conduct or defend any
litigation under this Agreement or otherwise or in relation to this Agreement or
any Basic Document, at the request, order or direction of any of the Owners,
unless such Owners have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Trustee therein or thereby. The right of the Trustee to perform
any discretionary act enumerated in this Agreement or in any Basic Document
shall not be construed as a duty, and the Trustee shall not be answerable for
other than its negligence or willful misconduct in the performance of any such
act.
SECTION 7.02. Furnishing of Documents. The Trustee shall furnish to the
Owners promptly upon receipt of a written request therefor, duplicates or copies
of all reports, notices, requests, demands, certificates, financial statements
and any other instruments furnished to the Trustee under the Basic Documents.
SECTION 7.03. Representations and Warranties. The Trustee hereby represents
and warrants to the Company, for the benefit of the Owners, that:
(a) It is a banking corporation duly organized and validly existing in good
standing under the laws of the State of Delaware. It has all requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement.
(b) It has taken all corporate action necessary to authorize the execution
and delivery by it of this Agreement, and this Agreement will be executed and
delivered by one of its officers who is duly authorized to execute and deliver
this Agreement on its behalf.
(c) None of the execution and delivery by it of this Agreement, the
consummation by it of the transactions contemplated hereby or compliance by it
with any of the terms or provisions hereof will contravene any federal or
Delaware law, governmental rule or regulation governing the banking or trust
powers of the Trustee or any judgment or order binding on it, or constitute any
default under its charter documents or bylaws or any indenture, mortgage,
contract, agreement or instrument to which it is a party or by which any of its
properties may be bound.
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SECTION 7.04. Reliance; Advice of Counsel. (a) The Trustee shall incur no
liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond, or
other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Trustee may accept a certified copy
of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of determination of which is not specifically
prescribed herein, the Trustee may for all purposes hereof rely on a
certificate, signed by the president or any vice president or by the treasurer
or other authorized officers of the relevant party, as to such fact or matter,
and such certificate shall constitute full protection to the Trustee for any
action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in the
performance of its duties and obligations under this Agreement or the Basic
Documents, the Trustee (i) may act directly or through its agents or attorneys
pursuant to agreements entered into with any of them, and the Trustee shall not
be liable for the conduct or misconduct of such agents or attorneys if such
agents or attorneys shall have been selected by the Trustee with reasonable
care, and (ii) may consult with counsel, accountants and other skilled Persons
to be selected with reasonable care and employed by it. The Trustee shall not be
liable for anything done, suffered or omitted in good faith by it in accordance
with the written opinion or advice of any such counsel, accountants or other
such Persons and not contrary to this Agreement or any Basic Document.
SECTION 7.05. Not Acting in Individual Capacity. Except as provided in this
Article VII, in accepting the trusts hereby created ____________________ acts
solely as Trustee hereunder and not in its individual capacity, and all Persons
having any claim against the Trustee by reason of the transactions contemplated
by this Agreement or any Basic Document shall look only to the Trust Estate for
payment or satisfaction thereof.
SECTION 7.06. Trustee Not Liable for Trust Certificates or Underlying
Securities. The recitals contained herein and in the Trust Certificates (other
than the signature and countersignature of the Trustee on the Trust
Certificates) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee makes no
representations as to the validity or sufficiency of this Agreement, of any
Basic Document or of the Trust Certificates (other than the signature and
countersignature of the Trustee on the Trust Certificates) or of any Underlying
Security or any related documents. The Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity and
enforceability of any Underlying Security, or the perfection and priority of any
security interest created by any Underlying Security or the maintenance of any
such perfection and priority, or for or with respect to the sufficiency of the
Trust Estate or its ability to generate the payments to be distributed to
Certificateholders under this Agreement, including, without limitation: the
existence and contents of any Underlying Security on any computer or other
record thereof; the validity of the assignment of any Underlying Security to the
Trust or of any intervening assignment; the completeness of any Underlying
Security; the performance or enforcement of any Underlying Security; or the
compliance by the Company with any warranty or representation made under any
Basic Document or in any related document or the accuracy of any such warranty
or representation.
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SECTION 7.07. Trustee May Own Trust Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of Trust
Certificates and may deal with the Company in banking transactions with the same
rights it would have if it were not Trustee.
ARTICLE VIII
Compensation of Trustee
SECTION 8.01. Trustee's Fees and Expenses. The Trustee shall receive as
compensation for its services hereunder such fees as have been separately agreed
upon before the date hereof between the Company and the Trustee, and the Trustee
shall be entitled to be reimbursed by the Company for its other reasonable
expenses hereunder, including the reasonable compensation, expenses and
disbursements of such agents, representatives, experts and counsel as the
Trustee may employ in connection with the exercise and performance of its rights
and its duties hereunder.
SECTION 8.02. Indemnification. The Company shall be liable as primary
obligor for, and shall indemnify the Trustee and its successors, assigns, agents
and servants (collectively, the "Indemnified Parties") from and against, any and
all liabilities, obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may at any time be imposed on, incurred by or
asserted against the Trustee or any Indemnified Party in any way relating to or
arising out of this Agreement, the Basic Documents, the Trust Estate, the
administration of the Trust Estate or the action or inaction of the Trustee
hereunder, except only that the Company shall not be liable for or required to
indemnify an Indemnified Party from and against Expenses arising or resulting
from any of the matters described in the third sentence of Section 7.01. The
indemnities contained in this Section shall survive the resignation or
termination of the Trustee or the termination of this Agreement. In the event of
any claim, action or proceeding for which indemnity will be sought pursuant to
this Section, the Trustee's choice of legal counsel shall be subject to the
approval of the Company, which approval shall not be unreasonably withheld.
SECTION 8.03. Payments to the Trustee. Any amounts paid to the Trustee
pursuant to this Article VIII shall be deemed not to be a part of the Trust
Estate immediately after such payment.
ARTICLE IX
Termination of Trust Agreement
SECTION 9.01. Termination of Trust Agreement. (a) This Agreement (other
than Article VIII) and the Trust shall terminate and be of no further force or
effect (i) upon the final distribution by the Trustee of all moneys or other
property or proceeds of the Trust Estate in accordance with the terms of Article
V, (ii) at the time provided in Section 9.02 or (iii) at the time provided in
Section 9.03. The bankruptcy, liquidation, dissolution, death or incapacity of
any Owner, other than the Company as described in Section 9.02, shall not (x)
operate to terminate this Agreement or the Trust
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or (y) entitle such Owner's legal representatives or heirs to claim an
accounting or to take any action or proceeding in any court for a partition or
winding up of all or any part of the Trust or Trust Estate or (z) otherwise
affect the rights, obligations and liabilities of the parties hereto.
(b) Except as provided in Section 9.01(a), none of the Company or any Owner
shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Distribution
Date upon which Certificateholders shall surrender their Trust Certificates to
the Paying Agent for payment of the final distribution and cancellation, shall
be given by the Trustee by letter to Certificateholders mailed within five
Business Days of receipt of notice of such termination from the Company given
pursuant to Section 9.03, stating (i) the Distribution Date upon or with respect
to which final payment of the Trust Certificates shall be made upon presentation
and surrender of the Trust Certificates at the office of the Paying Agent
therein designated, (ii) the amount of any such final payment and (iii) that the
Record Date otherwise applicable to such Distribution Date is not applicable,
payments being made only upon presentation and surrender of the Trust
Certificates at the office of the Paying Agent therein specified. The Trustee
shall give such notice to the Certificate Registrar (if other than the Trustee)
and the Paying Agent at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Trust Certificates, the Paying Agent
shall cause to be distributed to Certificateholders amounts distributable on
such Distribution Date pursuant to Section 5.05.
In the event that all of the Certificateholders shall not surrender their
Trust Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Trustee shall give a second written
notice to the remaining Certificateholders to surrender their Trust Certificates
for cancellation and receive the final distribution with respect thereto. If
within one year after the second notice all the Trust Certificates shall not
have been surrendered for cancellation, the Trustee may take appropriate steps,
or may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Trust Certificates, and the
cost thereof shall be paid out of the funds and other assets that shall remain
subject to this Agreement. Any funds remaining in the Trust after exhaustion of
such remedies shall be distributed by the Trustee to the Company, subject to
applicable laws with respect to escheat of funds.
(d) Upon the winding up of the Trust and its termination, the Trustee shall
cause the Certificate of Trust to be cancelled by filing a certificate of
cancellation with the Secretary of State in accordance with the provisions of
Section 3810 of the Business Trust Statute.
(e) Upon any sale of the assets of the Trust pursuant to Section 9.02, the
Trustee shall deposit the proceeds from such sale after all payments and
reserves therefrom have been made (the "Insolvency Proceeds") in the Collection
Account. On the Distribution Date on which the Insolvency Proceeds are deposited
in the Collection Account (or, if such proceeds are not so deposited on a
Distribution Date, on the Distribution Date immediately following such deposit),
the Trustee shall make the following deposits (after the application on such
Distribution Date of the Total Distribution Amount and funds on deposit in the
Reserve Account pursuant to Sections 5.03 and 5.04) from the Insolvency Proceeds
and any funds remaining on deposit in the Reserve Account (including the
proceeds of any sale of investments therein as described in the following
sentence):
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(i) to the Certificate Distribution Account, any portion of the
Certificateholders' Interest Distributable Amount not otherwise deposited into
the Certificate Distribution Account on such Distribution Date; and
(ii) to the Certificate Distribution Account, the Certificate Balance
(after giving effect to the reduction in the Certificate Balance to result from
the deposits made in the Certificate Distribution Account on such Distribution
Date).
Any investments on deposit in the Reserve Account which will not mature on or
before such Distribution Date shall be sold by the Trustee at such time as will
result in the Trustee receiving the proceeds from such sale not later than the
Payment Determination Date preceding such Distribution Date. Any Insolvency
Proceeds remaining after the deposits described above shall be paid to the
Company.
SECTION 9.02. Dissolution upon Bankruptcy of the Company. (a) In the event
that an Insolvency Event shall occur with respect to the Company, this Agreement
shall be terminated in accordance with Section 9.01 90 days after the date of
such Insolvency Event, unless, before the end of such 90-day period, the Trustee
shall have received written instructions from Holders of Certificates (other
than the Company) representing more than 50% of the Certificate Balance (not
including the Certificate Balance of the Trust Certificates held by the Company)
to the effect that each such party disapproves of the liquidation of the
Underlying Securities and termination of the Trust. Promptly after the
occurrence of any Insolvency Event with respect to the Company, (A) the Company
shall give the Trustee written notice of such Insolvency Event and (B) the
Trustee shall, upon receipt of such written notice from the Company, give prompt
written notice to the Certificateholders of the occurrence of such event;
provided, however, that any failure to give a notice required by this sentence
shall not prevent or delay, in any manner, the termination of the Trust pursuant
to the first sentence of this Section 9.02. Upon termination pursuant to this
Section, the Trustee shall promptly sell the assets of the Trust (other than the
Trust Accounts and the Certificate Distribution Account) in a commercially
reasonable manner and on commercially reasonable terms. The proceeds of such a
sale of the assets of the Trust shall be treated as collections made under this
Agreement.
SECTION 9.03 Optional Purchase of All Underlying Securities. As of the last
day of any Collection Period immediately preceding a Distribution Date as of
which the then outstanding Pool Balance is 10% or less of the Original Pool
Balance, the Company shall have the option to purchase the Trust Estate, other
than the Trust Accounts. To exercise such option, the Company shall deposit in
the Collection Account an amount equal to the aggregate Purchase Amount for the
Underlying Securities, plus the appraised value of any such other property held
by the Trust other than the Trust Accounts, such value to be determined by an
appraiser approved by the Trustee, and shall succeed to all interests in and to
the Trust. Notwithstanding the foregoing, the Company shall not be permitted to
exercise such option unless the amount to be deposited in the Collection Account
pursuant to the preceding sentence is greater than or equal to the sum of the
Certificate Balance and all accrued but unpaid interest (including any overdue
interest and premium) thereon.
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ARTICLE X
Successor Trustees and Additional Trustees
SECTION 10.01. Eligibility Requirements for Trustee. The Trustee shall at
all times be a corporation satisfying the provisions of Section 3807(a) of the
Business Trust Statute; authorized to exercise corporate trust powers; having a
combined capital and surplus of at least $50,000,000 and subject to supervision
or examination by federal or state authorities; and having (or having a parent
that has) a rating of at least [Baa3] by [Moody's]. If such corporation shall
publish reports of condition at least annually pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this Section, the Trustee
shall resign immediately in the manner and with the effect specified in Section
10.02.
SECTION 10.02. Resignation or Removal of Trustee. The Trustee may at any
time resign and be discharged from the trusts hereby created by giving written
notice thereof to the Company. Upon receiving such notice of resignation, the
Company shall promptly appoint a successor Trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. If no successor Trustee shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 10.01 and shall fail to resign after written request
therefor by the Company, or if at any time the Trustee shall be legally unable
to act, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take charge
or control of the Trustee or its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Company may remove the
Trustee. If the Company shall remove the Trustee under the authority of the
immediately preceding sentence, the Company shall promptly appoint a successor
Trustee by written instrument, in duplicate, one copy of which instrument shall
be delivered to the outgoing Trustee so removed and one copy to the successor
Trustee, and shall pay all fees owed to the outgoing Trustee.
Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section shall not become
effective until acceptance of appointment by the successor Trustee pursuant to
Section 10.03 and payment of all fees and expenses owed to the
outgoing Trustee. The Company shall provide notice of such resignation or
removal of the Trustee to each of the Rating Agencies.
SECTION 10.03. Successor Trustee. Any successor Trustee appointed pursuant
to Section 10.02 shall execute, acknowledge and deliver to the Company and to
its predecessor Trustee
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an instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor under this Agreement, with like effect as if originally named as
Trustee. The predecessor Trustee shall upon payment of its fees and expenses
deliver to the successor Trustee all documents, statements and monies held by it
under this Agreement; and the Company and the predecessor Trustee shall execute
and deliver such instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the successor Trustee
all such rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor Trustee shall be eligible
pursuant to Section 10.01.
Upon acceptance of appointment by a successor Trustee pursuant to this
Section, the Company shall mail notice thereof to all Certificateholders and the
Rating Agencies. If the Company shall fail to mail such notice within 10 days
after acceptance of such appointment by the successor Trustee, the successor
Trustee shall cause such notice to be mailed at the expense of the Company.
SECTION 10.04. Merger or Consolidation of Trustee. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, without the execution
or filing of any instrument or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, that such
corporation shall be eligible pursuant to Section 10.01 and, provided, further,
that the Trustee shall mail notice of such merger or consolidation to the Rating
Agencies.
SECTION 10.05. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Estate may at the time be located, the Company and the Trustee
acting jointly shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Company and Trustee
to act as co-trustee, jointly with the Trustee, or as separate trustee or
separate trustees, of all or any part of the Trust Estate, and to vest in such
Person, in such capacity, such title to the Trust or any part thereof and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Company and the Trustee may consider
necessary or desirable. If the Company shall not have joined in such appointment
within 15 days after the receipt by it of a request to do so, the Trustee alone
shall have the power to make such appointment. No co-trustee or separate trustee
under this Agreement shall be required to meet the terms of eligibility as
successor Trustee under Section 10.01 and no notice of the appointment of any
co-trustee or separate trustee shall be required under Section 10.03.
Each separate trustee and co-trustee shall, to the extent permitted by law,
be appointed and act subject to the following provisions and conditions:
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(a) All rights, powers, duties and obligations conferred or imposed upon
the Trustee shall be conferred upon and exercised or performed by the Trustee
and such separate trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately without the
Trustee joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed, the
Trustee shall be incompetent or unqualified to perform such act or acts, in
which event such rights, powers, duties and obligations (including the holding
of title to the Trust Estate or any portion thereof in any such jurisdiction)
shall be exercised and performed singly by such separate trustee or co-trustee,
but solely at the direction of the Trustee;
(b) No trustee under this Agreement shall be personally liable by reason of
any act or omission of any other trustee under this Agreement; and
(c) The Company and the Trustee acting jointly may at any time accept the
resignation of or remove any separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Each
such instrument shall be filed with the Trustee and a copy thereof given to the
Company.
Any separate trustee or co-trustee may at any time appoint the Trustee as
its agent or attorney-in-fact with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor co-trustee or separate trustee.
ARTICLE XI
Miscellaneous
SECTION 11.01. Supplements and Amendments. This Agreement may be amended by
the Company and the Trustee, with prior written notice to the Rating Agencies,
without the consent of any of the Certificateholders, to cure any ambiguity, to
correct or supplement any provisions in this Agreement or for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions in this Agreement or modifying in any manner the rights of the
Certificateholders; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel, adversely affect in any material respect the interest
of any Certificateholder.
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<PAGE>
This Agreement may also be amended from time to time by the Company and the
Trustee, with prior written notice to the Rating Agencies, with the consent of
the Holders of Certificates evidencing not less than a majority of the
Certificate Balance, for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Certificateholders; provided, however,
that no such amendment shall (a) increase or reduce in any manner the amount of,
or accelerate or delay the timing of, collections of payments on Underlying
Securities or distributions that shall be required to be made for the benefit of
the Certificateholders or (b) reduce the aforesaid percentage of the Certificate
Balance required to consent to any such amendment, without the consent of the
holders of all the outstanding Certificates.
Promptly after the execution of any such amendment or consent, the Trustee
shall furnish written notification of the substance of such amendment or consent
to each Certificateholder, and each of the Rating Agencies.
It shall not be necessary for the consent of Certificateholders, pursuant
to this Section to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents (and any other consents of
Certificateholders provided for in this Agreement or in any other Basic
Document) and of evidencing the authorization of the execution thereof by
Certificateholders shall be subject to such reasonable requirements as the
Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of Trust,
the Trustee shall cause the filing of such amendment with the Secretary of
State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Trustee shall be entitled to receive and rely upon an
Opinion of Counsel stating that the execution of such amendment is authorized or
permitted by this Agreement. The Trustee may, but shall not be obligated to,
enter into any such amendment that affects the Trustee's own rights, duties or
immunities under this Agreement or otherwise.
In connection with the execution of any amendment to this Trust Agreement
or any amendment of any other agreement to which the Issuer is a party, the
Trustee shall be entitled to receive and conclusively rely upon an Opinion of
Counsel to the effect that such amendment is authorized or permitted by the
Basic Documents and that all conditions precedent in the Basic Documents for the
execution and delivery thereof by the Issuer or the Trustee, as the case may be,
have been satisfied.
SECTION 11.02. No Legal Title to Trust Estate in Owners. The Owners shall
not have legal title to any part of the Trust Estate. The Owners shall be
entitled to receive distributions with respect to their undivided ownership
interest therein only in accordance with Articles V and IX. No transfer, by
operation of law or otherwise, of any right, title or interest of the Owners to
and in their ownership interest in the Trust Estate shall operate to terminate
this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the Trust
Estate.
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<PAGE>
SECTION 11.03. Limitations on Rights of Others. Except for Section 2.07,
the provisions of this Agreement are solely for the benefit of the Trustee, the
Company and the Owners and nothing in this Agreement (other than Section 2.07
hereof), whether express or implied, shall be construed to give to any other
Person any legal or equitable right, remedy or claim in the Trust Estate or
under or in respect of this Agreement or any covenants, conditions or provisions
contained herein.
SECTION 11.04. Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt by the intended recipient or three Business Days after
mailing if mailed by certified mail, postage prepaid (except that notice to the
Trustee shall be deemed given only upon actual receipt by the Trustee), if to
the Trustee, addressed to the Corporate Trust Office; and if to the Company,
addressed to Asset Backed Securities Corporation, _______________, Attention
_______________; or, as to each party, at such other address as shall be
designated by such party in a written notice to each other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder listed in the Certificate Register. Any notice so mailed within the time
prescribed in this Agreement shall be conclusively presumed to have been duly
given, whether or not the Certificateholder receives such notice.
SECTION 11.05. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provisions in any other jurisdiction.
SECTION 11.06. Separate Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.07. Successors and Assigns. All covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, each of the
Company and its permitted assignees, the Trustee and its successors and each
Owner and its successors and permitted assigns, all as herein provided. Any
request, notice, direction, consent, waiver or other instrument or action by an
Owner shall bind the successors and assigns of such Owner.
SECTION 11.08. Covenants of the Company. In the event that any litigation
with claims in excess of $1,000,000 to which the Company is a party which shall
be reasonably likely to result in a material judgment against the Company that
the Company will not be able to satisfy shall be commenced by an Owner, during
the period beginning nine months following the commencement of such litigation
and continuing until such litigation is dismissed or otherwise terminated (and,
if such litigation has resulted in a final judgment against the Company, such
judgment has been satisfied), the Company shall not pay any dividend to
Collateralized Mortgage Securities Corporation, or make any distribution on or
in respect of its capital stock to Collateralized Mortgage Securities
Corporation, or repay the principal amount of any indebtedness of the Company
held by Collateralized Mortgage Securities Corporation, unless (i) after giving
effect to such payment, distribution or repayment, the
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<PAGE>
Company's liquid assets shall not be less than the amount of actual damages
claimed in such litigation or (ii) the Rating Agency Condition shall have been
satisfied with respect to any such payment, distribution or repayment. The
Company will not at any time institute against the Trust any bankruptcy
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Trust Certificates, the Trust
Agreement or any of the Basic Documents.
SECTION 11.09. No Petition. The Trustee, by entering into this Agreement,
and each Owner, by accepting a Trust Certificate or a beneficial interest
therein, hereby covenant and agree that they will not at any time institute
against the Company or the Trust, or join in any institution against the Company
or the Trust of, any bankruptcy proceedings under any United States federal or
state bankruptcy or similar law in connection with any obligations relating to
the Trust Certificates, this Agreement or any of the Basic Documents.
SECTION 11.10. No Recourse. Each Owner, by accepting a Trust Certificate or
a beneficial interest therein, acknowledges that such Owner's Trust Certificates
represent beneficial interests in the Trust only and do not represent interests
in or obligations of the Company, the Trustee or any of their respective
Affiliates and no recourse may be had against such parties or their assets,
except as may be expressly set forth or contemplated in this Agreement, the
Trust Certificates or the Basic Documents.
SECTION 11.11. Headings. The headings of the various Articles and Sections
herein are for convenience of reference only and shall not define or limit any
of the terms or provisions hereof.
SECTION 11.12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.13. Trust Certificate Transfer Restrictions. The Trust
Certificates may not be acquired by or for the account of (i) an employee
benefit plan (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) that is subject to the provisions of
Title I of ERISA, (ii) a plan described in Section 4975(e)(1) of the Code or
(iii) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan"). By accepting and
holding a Trust Certificate, the Holder thereof shall be deemed to have
represented and warranted that it is not a Benefit Plan.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Trust Agreement to be duly executed by their respective officers
hereunto duly authorized, as of the day and year first above written.
ASSET BACKED SECURITIES CORPORATION,
as Company,
By ___________________________
Name:
Title:
____________________________________________
not in its individual capacity but solely
as Trustee,
By ___________________________
Name:
Title:
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<PAGE>
SCHEDULE I
Schedule of Underlying Securities
[To be Delivered to the Trustee at Closing]
S-1
<PAGE>
EXHIBIT A
FORM OF TRUST CERTIFICATE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
NUMBER $____________
R- CUSIP NO. ________
CS FIRST BOSTON AUTO RECEIVABLES SECURITIES TRUST 199__-__
_______% ASSET BACKED CERTIFICATE
evidencing a fractional undivided interest in the Trust, as defined below, the
property of which consists of a pool of Underlying Securities.
(This Trust Certificate does not represent an interest in or an obligation of CS
First Boston Corporation or any of its affiliates, except to the extent
described below.)
THIS CERTIFIES THAT ___________________ is the registered owner of
______________ DOLLARS nonassessable, fully-paid, fractional undivided interest
in CS First Boston Auto Receivables Securities Trust 199__-__ (the "Trust"),
formed pursuant to a Trust Agreement dated as of _________________ (the "Trust
Agreement"), between Asset Backed Securities Corporation, a Delaware corporation
(the "Company") and ___________________, as Trustee (the "Trustee").
A-1
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Certificates referred to in the within-mentioned Trust
Agreement.
_______________________________
as Trustee
By: _______________________________
Authorized Signatory
A-2
<PAGE>
The Trust was created pursuant to the Trust Agreement, a summary of certain
of the pertinent provisions of which is set forth below. To the extent not
otherwise defined herein, the capitalized terms used herein have the meanings
assigned to them in the Trust Agreement.
This Certificate is one of the duly authorized Certificates designated as
the _______% Asset Backed Certificates (herein called the "Trust Certificates")
issued by the Trust. This Trust Certificate is issued under and is subject to
the terms, provisions and conditions of the Trust Agreement, to which Trust
Agreement the Holder of this Trust Certificate by virtue of its acceptance
hereof assents and by which such Holder is bound. The property of the Trust
consists of a pool of all monies due under such Underlying Securities on or
after the Cutoff Date, certain bank accounts and the proceeds thereof, and
certain other rights under the Trust Agreement and all proceeds of the
foregoing.
Under the Trust Agreement, there will be distributed on the ___________ day
of each month or, if such _________ day is not a Business Day, the next Business
Day (each, a "Distribution Date"), commencing on __________________, to the
Person in whose name this Trust Certificate is registered at the close of
business on the day immediately preceding such Distribution Date (the "Record
Date"), such Certificateholder's fractional undivided interest in the amount to
be distributed to Certificateholders on such Distribution Date.
It is the intent of the Company and the Trustee that, for purposes of
federal income, state and local income and single business tax and any other
income taxes, the Trust will be treated as a grantor trust. The
Certificateholders, by acceptance of a Trust Certificate, agree to treat, and to
take no action inconsistent with the treatment of, the Trust.
Each Certificateholder or Certificate Owner, by its acceptance of a Trust
Certificate or, in the case of a Certificate Owner, a beneficial interest in a
Trust Certificate, covenants and agrees that such Certificateholder or
Certificate Owner, as the case may be, will not at any time institute against
the Company, or join in any institution against the Company of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding, or other
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Trust Certificates, the Trust
Agreement or any of the Basic Documents.
Distributions on this Trust Certificate will be made as provided in the
Trust Agreement by the Trustee by wire transfer or check mailed to the
Certificateholder of record in the Certificate Register without the presentation
or surrender of this Trust Certificate or the making of any notation hereon,
except that with respect to Trust Certificates registered on the Record Date in
the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Except as otherwise provided in
the Trust Agreement and notwithstanding the above, the final distribution on
this Trust Certificate will made after due notice by the Trustee of the pendency
of such distribution and only upon presentation and surrender of this Trust
Certificate at the office or agency maintained for that purpose by the Trustee
in the Borough of Manhattan, The City of New York.
A-3
<PAGE>
Reference is hereby made to the further provisions of this Trust
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have been executed by
an authorized officer of the Trustee, by manual signature, this Trust
Certificate shall not entitle the Holder hereof to any benefit under the Trust
Agreement or be valid for any purpose.
THIS TRUST CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND
THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.
A-4
<PAGE>
IN WITNESS WHEREOF, the Trustee, on behalf of the Trust and not in its
individual capacity, has caused this Trust Certificate to be duly executed.
CS FIRST BOSTON AUTO RECEIVABLES
SECURITIES TRUST 199__-__
By: __________________________, not in its individual
capacity but solely as Trustee
Dated: _____________ By: ______________________________________
Authorized Signatory
A-5
<PAGE>
[REVERSE OF TRUST CERTIFICATE]
The Trust Certificates do not represent an obligation of, or an interest
in, the Company, the Trustee or any of their respective Affiliates, and no
recourse may be had against such parties or their assets except as expressly set
forth or contemplated herein or in the Trust Agreement or the Basic Documents.
In addition, this Trust Certificate is not guaranteed by any governmental agency
or instrumentality and is limited in right of payment to collections with
respect to the Underlying Securities (and certain other amounts), all as more
specifically set forth herein and in the Trust Agreement. A copy of the Trust
Agreement may be examined by any Certificateholder upon written request during
normal business hours at the principal office of the Company and at such other
places, if any, designated by the Company.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Certificateholders under the Trust Agreement at
any time by the Company and the Trustee with the consent of Holders of the Trust
Certificates evidencing not less than a majority of the Certificate Balance. Any
such consent by the Holder of this Trust Certificate shall be conclusive and
binding on such Holder and on all future Holders of this Trust Certificate and
of any Trust Certificate issued upon the transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent is made upon this
Trust Certificate. The Trust Agreement also permits the amendment thereof, in
certain limited circumstances, without the consent of the Holders of any of the
Trust Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Trust Certificate is registerable in the
Certificate Register upon surrender of this Trust Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Trustee in the Borough of Manhattan, The City of New York, accompanied by
a written instrument of transfer in form satisfactory to the Trustee and the
Certificate Registrar, duly executed by the Holder hereof or such Holder's
attorney duly authorized in writing, and thereupon one or more new Trust
Certificates of authorized denominations evidencing the same aggregate interest
in the Trust will be issued to the designated transferee. The initial
Certificate Registrar appointed under the Trust Agreement is
____________________________.
Except as provided in the Trust Agreement, the Trust Certificates are
issuable only as registered Trust Certificates without coupons in denominations
of $20,000 and in integral multiples of $1 in excess thereof. As provided in the
Trust Agreement and subject to certain limitations therein set forth, Trust
Certificates are exchangeable for new Trust Certificates of authorized
denominations evidencing the same aggregate denomination, as requested by the
Holder surrendering the same. No service charge will be made for any such
registration of transfer or exchange, but the Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge payable in connection therewith.
A-6
<PAGE>
The Trustee, the Certificate Registrar and any agent of the Trustee or the
Certificate Registrar may treat the Person in whose name this Certificate is
registered as the owner hereof for all purposes, and none of the Trustee, the
Certificate Registrar or any such agent shall be affected by any notice to the
contrary.
The obligations and responsibilities created by the Trust Agreement and the
Trust created thereby shall terminate upon the payment to Certificateholders of
all amounts required to be paid to them pursuant to the Trust Agreement and the
disposition of all property held as part of the Trust Estate. The Company may at
its option purchase the Trust Estate at the price specified in the Trust
Agreement, and such purchase of the Underlying Securities and other property of
the Trust will effect an early retirement of the Trust Certificates; however,
such right of purchase is exercisable only as of the last day of any Collection
Period as of which the Pool Balance is less than or equal to 10% of the Original
Pool Balance.
The Trust Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity or which uses plan assets to acquire Trust Certificates
(each, a "Benefit Plan"). By accepting and holding this Trust Certificate, the
Holder hereof shall be deemed to have represented and warranted that it is not a
Benefit Plan.
A-7
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
______________________________________________________________________________
(Please print or type name and address, including postal zip code, of assignee)
the within Trust Certificate, and all rights thereunder, and hereby
irrevocably constitutes and appoints _____________________ attorney to transfer
said Trust Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:
____________________________*
Signature Guaranteed:
____________________________*
____________
* NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS IT APPEARS UPON THE FACE OF THE WITHIN TRUST CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION, ENLARGEMENT OR ANY CHANGE WHATEVER.
SUCH SIGNATURE MUST BE GUARANTEED BY A MEMBER FIRM OF THE NEW YORK
STOCK EXCHANGE OR A COMMERCIAL BANK OR TRUST COMPANY.
<PAGE>
EXHIBIT B
CERTIFICATE OF TRUST OF
CS FIRST BOSTON AUTO RECEIVABLES SECURITIES TRUST 199__-__
THIS Certificate of Trust of CS FIRST BOSTON AUTO RECEIVABLES SECURITIES
TRUST 199__-__ (the "Trust"), dated ____________________, is being duly executed
and filed by ___________________, a Delaware banking corporation, as trustee, to
form a business trust under the Delaware Business Trust Act (12 Del. Code. ss.
3801 et seq.).
1. Name: The name of the business trust formed hereby is CS FIRST BOSTON
AUTO RECEIVABLES SECURITIES TRUST 199__-__.
2. Delaware Trustee. The name and business address of the trustee of the
Trust in the State of Delaware is _______________________. Attention:
______________________.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the Trust,
has executed this Certificate of Trust as of the date first above written.
__________________________________, not
in its individual capacity but solely as owner
trustee under a Trust Agreement dated as of
_________________________.
By: __________________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
[Form of Certificate Depository Agreement]
Letter of Representations
[To be Completed by Issuer and Trustee]
-----------------------------------
[Name of Issuer]
-----------------------------------
[Name of Trustee]
----------------------
(Date)
Attention: General Counsel's Office
The Depository Trust Company
55 Water Street; 49th Floor
New York, NY 10041-0099
Re: _____________________________________________________________
_____________________________________________________________
_____________________________________________________________
(Issue Description)
Ladies and Gentlemen:
This letter sets forth our understanding with respect to certain matters
relating to the above-referenced issue (the "Securities"). Trustee will act as
trustee with respect to the Securities pursuant to a trust indenture dated
____________________ (the "Document"). ______________________ (the
"Underwriter") is distributing the Securities through the Depository Trust
Company ("DTC"). To induce DTC to accept the Securities as eligible for deposit
at DTC, and to act in accordance with its Rules with respect to the Securities,
Issuer and Trustee make the following representations to DTC:
1. Prior to closing on the Securities on _______________________ there
shall be deposited with DTC one Security certificate registered in the name of
DTC's nominee. Cede & Co. ___________ stated maturity of the Securities in the
face amounts set forth on Schedule A hereto, the total of which represents 100%
of the principal amount of such Securities. If, however, the
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<PAGE>
aggregate principal amount of any maturity exceeds $200 million, one Certificate
will be issued with respect to each $200 million of principal amount and an
additional Certificate will be issued with respect to any remaining principal
amount. Each $200 million Certificate shall bear the following legend:
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent
for registration of transfer, exchange, or payment, and any Certificate issued
is registered in the name of Cede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
2. In the event of any solicitation of consents from or voting by holders
of the Securities, Issuer or Trustee shall establish a record date for such
purposes (with no provision for revocation of consents or votes by subsequent
holders) and shall, to the extent possible, send notice of such record date to
DTC not less than 15 calendar days in advance of such record date. Notices to
DTC pursuant to this Paragraph by telecopy shall be sent to DTC's Reorganization
Department at (212) 709-6896 or (212) 709-6897, and receipt of such notices
shall be confirmed by telephoning (212) 709-6370. Notices to DTC pursuant to
this Paragraph by mail or by any other means shall be sent to DTC's
Reorganization Department as indicated in Paragraph 4.
3. In the event of a full or a partial redemption, Issuer or Trustee shall
send a notice to DTC specifying: (a) the amount of the redemption or refunding;
(b) in the case of refunding the maturity date(s) established under the
refunding; and (c) the date such notice is to be mailed to Security holders or
published (the "Publication Date"). Such notice shall be sent to DTC by a secure
means (e.g., legible telecopy, registered or certified mail, overnight delivery)
in a timely manner designed to assure that such notice is in DTC's possession no
later than the close of business on the business day before or, if possible, two
business days before the Publication Date. Issuer or Trustee shall forward such
notice either in a separate secure transmission for each CUSIP number or in a
secure transmission for multiple CUSIP numbers (if applicable) which includes a
manifest or list of each CUSIP number submitted in that transmission. (The party
sending such notice shall have a method to verify subsequently the use of such
means and the timeliness of such notice.) The Publication Date shall be not less
than 30 days nor more than 60 days prior the redemption date or, in the case of
an advance refunding, the date that the proceeds are deposited in escrow.
Notices to DTC pursuant to this Paragraph by telecopy shall be sent to DTC's
Call Notification Department at (516) 227-4039 or (516) 227-4191. If the party
sending the notice does not receive a telecopy receipt from DTC confirming that
the notice has been received, such party shall telephone (516) 227-4070. Notices
to DTC pursuant to this Paragraph by mail or by any other means shall be sent
to:
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Manager, Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, NY 11530-4719
4. In the event of an invitation to tender the Securities, notice by Issuer
or Trustee to Security holders specifying the terms of the tender and the
Publication Date of such notice shall be sent to DTC by a secure means in the
manner set forth in the preceding Paragraph. Notices to DTC pursuant to this
Paragraph and notices of other corporate actions (including mandatory tenders,
exchanges, and capital changes) by telecopy shall be sent to DTC's
Reorganization Department at (212) 709-1093 or (212) 709-1094, and receipt of
such notices shall be confirmed by telephone (212) 709-6884. Notices to DTC
pursuant to the above by mail or by any other means shall be sent to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, NY 10004-2695
5. All notices and payment advices sent to DTC shall contain the CUSIP
number of the Securities.
6. Trustee shall send DTC written notice with respect to the dollar amount
per $1,000 original face value (or other minimum authorized denomination if less
than $1,000 face value) payable on each payment date allocated as to the
interest and principal portions thereof preferably 5, but not less than 2,
business days prior to such payment date. Such notices, which shall also contain
the current pool factor and Trustee contact's name and telephone number, shall
be sent by telecopy to DTC's Dividend Department at (212) 709-1723, or if by
mail or by any other means to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 22nd Floor
New York, NY 10004-2695
7. [Note: Issuer must represent one of the following, and cross out the
other.] [The interest accrual period is record date to record date.] [The
interest accrual period is payment date to payment date.]
8. Interest payments and principal payments that are part of periodic
principal-and-interest payments shall be received by Cede & Co., as nominee of
DTC, or its registered assigns in same-day funds on each payment date (or the
equivalent in accordance with existing arrangements between Issuer or Trustee
and DTC). Such payments shall be made payable to the order of Cede & Co. Absent
any other existing arrangements, such payments shall be addressed as follows:
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Manager, Cash Receipts
Dividend Department
The Depository Trust Company
7 Hanover Square; 24th Floor
New York, NY 10004-2695
9. [Note: Issuer must represent one of the following, and cross out the
other.]
Securities Eligible for DTC's Same-Day Funds Settlement ("SDFS") System.
Other principal payments (redemption payments) shall be made in same-day
funds by Trustee in the manner set forth in the SDFS Paying Agent Operating
Procedures, a copy of which previously has been furnished to Trustee.
Securities Eligible for DTC's Next-Day Funds Settlement ("NDFS") System.
Other principal payments (redemption payments) shall made in next-day funds
by Trustee to Cede & Co., as nominee of DTC, or its registered assigns, on each
payment date. Such payments shall be made payable to the order of Cede & Co.,
and shall be addressed as follows:
NDFS Redemptions Manager
Reorganization/Redemptions Department
The Depository Trust Company
7 Hanover Square; 23rd Floor
New York, NY 10004-2695
10. DTC may direct Issuer or Trustee to use any other number or address as
the number or address to which notices or payments of interest or principal may
be sent.
11. In the event of a redemption, acceleration, or any other similar
transaction (e.g., tender made and accepted in response to Issuer's or Trustee's
invitation) necessitating a reduction in the aggregate principal amount of
Securities outstanding or an advance refunding of part of the Securities
outstanding, DTC, in its discretion: (a) may request Issuer or Trustee to issue
and authenticate a new Security Certificate; or (b) may make an appropriate
notation on the Security Certificate indicating the date and amount of such
reduction in principal except in the case of final maturity, in which case the
Certificate will be presented to Issuer or Trustee prior to payment, if
required.
12. In the event that Issuer determines that beneficial owners of
Securities shall be able to obtain certificated Securities, Issuer or Trustee
shall notify DTC of the availability of certificates. In such event, Issuer or
Trustee shall issue, transfer, and exchange certificates in appropriate amounts,
as required by DTC and others.
13. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to Issuer
or Trustee (at which time DTC will confirm with Issuer or Trustee the aggregate
principal amount of Securities outstanding). Under such circumstances, at DTC's
request Issuer and Trustee shall cooperate fully with DTC by taking
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<PAGE>
appropriate action to make available one or more separate certificates
evidencing Securities to any DTC Participant having Securities credited to its
DTC accounts.
14. Issuer: (a) understands that DTC has no obligation to, and will not,
communicate to its Participants or to any person having an interest in the
Securities any information contained in the Security Certificate(s); and (b)
acknowledges that neither DTC's Participants nor any person having
an interest in the Securities shall be deemed to have notice of the provisions
of the Security certificates by virtue of submission of such Certificate(s) to
DTC.
15. Nothing herein shall be deemed to require Trustee to advance funds on
behalf of Issuer.
Notes: Very truly yours,
A. If there is a Trustee (as defined in
this Letter of Representations), Trustee ______________________________
as well as Issuer must sign this Letter. (Issuer)
If there is no Trustee, in signing this
Letter Issuer itself undertakes to By: __________________________
perform all of the obligations set forth (Authorized Officer's Signature)
herein.
B. Schedule B contains statements that ______________________________
DTC believes accurately describe DTC, (Trustee)
the method of effecting book-entry
transfers of securities distributed
through DTC, and certain related By: __________________________
matters. (Authorized Officer's Signature)
Received and Accepted:
THE DEPOSITORY TRUST COMPANY
By: _______________________________
cc: Underwriter
Underwriter's Counsel
C-5
<PAGE>
SCHEDULE A
(Describe Issue)
CUSIP Principal Amount Maturity Date Interest Rate
- ----- ---------------- ------------- -------------
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<PAGE>
SCHEDULE B
SAMPLE OFFERING DOCUMENT LANGUAGE
DESCRIBING BOOK-ENTRY-ONLY ISSUANCE
(Prepared by DTC-bracketed material may be applicable only to certain issues)
1. The Depository Trust Company ("DTC"), New York, NY, will act as
securities depository for the securities (the "Securities"). The Securities will
be issued as fully-registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully-registered Security Certificate will be
issued for [each issue of the Securities, [each] in the aggregate principal
amount of [any] issue exceeds $150 million, one Certificate will be issued with
respect to each $150 million of principal amount and an additional Certificate
will be issued with respect to any remaining principal amount of such issue.]
2. DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934. DTC holds securities that its participants ("Participants") deposit
with DTC. DTC also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations, and certain other organizations. DTC is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks, and trust companies that clear through or
maintain a custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The Rules applicable to DTC and its
Participants are on file with the Securities and Exchange Commission.
3. Purchases of Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Securities on DTC's
records. The ownership interest of each actual purchaser of each Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants records. Beneficial Owners will not receive written confirmation
from DTC of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participant through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in the Securities are to be accomplished by entries made on the books
of Participants acting on behalf of Beneficial Owners. Beneficial Owners will
not receive certificates representing their ownership interests in Securities,
except in the event that use of the book-entry system for the Securities is
discontinued.
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<PAGE>
4. To facilitate subsequent transfers, all Securities deposited by
Participants with DTC are registered in the name of DTC's partnership nominee,
Cede & Co. The deposit of Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Securities are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
5. Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
6. Redemption notices shall be sent to Cede & Co. If less than all of the
Securities within an issue are being redeemed, DTC's practice is to determine by
lot the amount of the interest of each Direct Participant in such issue to be
redeemed.
7. Neither DTC nor Cede & Co. will consent or vote with respect to
Securities. Under its usual procedures, DTC mails an Omnibus Proxy to the Issuer
as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Securities are credited on the record date (identified in a listing attached
to the Omnibus Proxy).
8. Principal and interest payments on the Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on payable date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payment on payable date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Agent, or the Issuer,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of principal and interest to DTC is the responsibility of
the Issuer or the Agent, disbursement of such payments to Direct Participants
shall be the responsibility of DTC, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
9. A Beneficial Owner shall give notice to elect to have its Securities
purchased or tendered, through its Participant, to the [Tender/Remarketing]
Agent, and shall effect delivery of such Securities by causing the Direct
Participant to transfer the Participant's interest in the Securities, on DTC's
records, to the [Tender/Remarketing] Agent. The requirement for physical
delivery of Securities in connection with a demand for purchase or a mandatory
purchase will be deemed satisfied when the ownership rights in the Securities
are transferred by Direct Participants on DTC's records.
10. DTC may discontinue providing its services as securities depository
with respect to the Securities at any time by giving reasonable notice to the
Issuer or the Agent. Under such
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circumstances, in the event that a successor securities depository is not
obtained, Security certificates are required to be printed and delivered.
11. The Issuer may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Security certificates will be printed and delivered.
12. The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources that the Issuer believes to be reliable,
but the Issuer takes no responsibility for the accuracy thereof.
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<PAGE>
EXHIBIT D
FORM OF STATEMENT
[To be supplied]
D-1
Exhibit 4.4.4
================================================================================
FORM OF TRUST AGREEMENT
between
ASSET BACKED SECURITIES CORPORATION,
as Depositor
and
[OWNER TRUSTEE NAME],
as Owner Trustee
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ]
Dated as of [ ], 199[ ]
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
ARTICLE I Definitions and Usage......................................................... 1
SECTION 1.01 Defined Terms........................................................... 1
SECTION 1.02 Other Definitional Provisions and Rules of Construction................. 10
ARTICLE II Conveyance of the CRB Securities; Original Issuance of Certificates........... 11
SECTION 2.01 Creation and Declaration of Trust; Conveyance of the
CRB Securities....................................................... 11
SECTION 2.02 Acceptance by Owner Trustee............................................. 12
SECTION 2.03 Representations and Warranties of the Depositor......................... 12
SECTION 2.04 Agreement to Authenticate and Deliver Certificates...................... 14
SECTION 2.05 Federal Income Tax Allocations.......................................... 14
ARTICLE III Administration of the Trust Property; Distributions and Reports to
Certificateholders............................................................ 15
SECTION 3.01 Administration of the Trust Property.................................... 15
SECTION 3.02 CRB Collection Account, Certificate Account and Note Account............ 15
SECTION 3.03 Investment of Funds in the CRB Collection Account, Certificate
Account and Note Account............................................. 17
SECTION 3.04 Permitted Withdrawals from the CRB Collection Account................... 17
SECTION 3.05 Distributions........................................................... 17
SECTION 3.06 Compliance with Withholding Requirements................................ 18
SECTION 3.07 Statements to Certificateholders........................................ 19
SECTION 3.08 Reports of the Owner Trustee; [CRB Collection] [Certificate]
Account.............................................................. 20
SECTION 3.09 Access to Certain Documentation and Information......................... 20
ARTICLE IV The Certificates.............................................................. 20
SECTION 4.01 The Certificates........................................................ 20
SECTION 4.02 Registration of Transfer and Exchange of Certificates................... 21
SECTION 4.03 Mutilated, Destroyed, Lost or Stolen Certificates....................... 22
SECTION 4.04 Persons Deemed Owners................................................... 22
SECTION 4.05 Maintenance of Office or Agency......................................... 22
SECTION 4.06 ERISA Considerations.................................................... 23
</TABLE>
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<TABLE>
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<S> <C>
SECTION 4.07 Authenticating Agent.................................................... 23
SECTION 4.08 Book-Entry Certificates................................................. 24
SECTION 4.09 Notices to Clearing Agency.............................................. 25
SECTION 4.10 Definitive Certificates................................................. 25
ARTICLE V The Owner Trustee............................................................. 26
SECTION 5.01 Duties of the Owner Trustee............................................. 26
SECTION 5.02 Certain Matters Affecting the Owner Trustee............................. 28
SECTION 5.03 Owner Trustee Not Liable for Certificates............................... 29
SECTION 5.04 Owner Trustee May Own Certificates...................................... 29
SECTION 5.05 Owner Trustee's Fees and Expenses....................................... 30
SECTION 5.06 Eligibility Requirements for Owner Trustee.............................. 30
SECTION 5.07 Resignation and Removal of the Owner Trustee............................ 30
SECTION 5.08 Successor Owner Trustee................................................. 31
SECTION 5.09 Merger or Consolidation of Owner Trustee................................ 32
SECTION 5.10 Appointment of Co-Owner Trustee or Separate Owner Trustee............... 32
SECTION 5.11 Accounting and Reports to the Holders, the Internal Revenue
Service and Others...................................................... 33
SECTION 5.12 Signature on Returns; Tax Matters Partner............................... 34
SECTION 5.13 Representations and Warranties of Owner Trustee......................... 34
SECTION 5.14 Limitation of Powers and Duties......................................... 35
ARTICLE VI The Depositor................................................................. 35
SECTION 6.01 Liability of the Depositor.............................................. 36
SECTION 6.02 Merger, Consolidation or Conversion of the Depositor.................... 36
SECTION 6.03 Limitation on Liability of the Depositor and Others..................... 36
ARTICLE VII Termination; Optional Purchase of CRB Securities.............................. 36
SECTION 7.01 Termination............................................................. 36
SECTION 7.02 Optional Purchase of CRB Securities..................................... 37
ARTICLE VIII Miscellaneous................................................................. 38
SECTION 8.01 Amendment; Waiver....................................................... 38
SECTION 8.02 Limitation on Rights of Certificateholders.............................. 39
SECTION 8.03 Governing Law........................................................... 40
SECTION 8.04 Notices................................................................. 40
SECTION 8.05 Severability of Provisions.............................................. 41
SECTION 8.06 Notice to Each Rating Agency............................................ 41
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
SECTION 8.07 No Petition............................................................. 41
SECTION 8.08 No Recourse............................................................. 41
SECTION 8.09 Grant of Security Interest.............................................. 42
SECTION 8.10 Successors and Assigns.................................................. 43
SECTION 8.11 Article and Section Headings............................................ 43
SECTION 8.12 Certificates Nonassessable and Fully Paid............................... 43
</TABLE>
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<PAGE>
TRUST AGREEMENT dated as of [ ], 199[ ], between ASSET BACKED SECURITIES
CORPORATION, as depositor (the "Depositor"), and [OWNER TRUSTEE NAME], not in
its individual capacity but solely as trustee (the "Owner Trustee").
In consideration of the mutual agreements herein contained, the Depositor
and the Owner Trustee agree as follows:
ARTICLE I
Definitions and Usage
SECTION 1.01 Defined Terms. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
"Affiliate" means, as to any specified Person, (i) any other Person,
directly or indirectly, controlling, controlled by or under common control with
such specified Person and (ii) any officer, director or partner of such
specified Person. The term "control", with respect to any Person, means
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting securities or by contract or otherwise.
"Aggregate Collateral Balance" means as of any date of determination, the
aggregate of the outstanding principal amounts of all the CRB Securities. As of
the Cutoff Date, the Aggregate Collateral Balance shall be $[__].
"Agreement" means this Trust Agreement and all amendments hereof and
supplements hereto.
"Ancillary Arrangement" means the [Ancillary Arrangement] dated as of
[ ], 199[ ], between [_____] and [_____].
"Available Funds" means, as of any date of determination, the aggregate
amount then on deposit in the CRB Collection Account, net of any portion thereof
which represents amounts payable pursuant to clauses (iii) and (iv) of Section
3.04.
"Basic Documents" means the Indenture, the Note Depository Agreement, the
Certificate Depository Agreement and the other documents and certificates
delivered in connection therewith.
"Benefit Plan" has the meaning specified in Section 4.06.
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<PAGE>
"Book-Entry Certificates" means a beneficial interest in the Certificates,
ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 4.08.
"Business Day" means any day other than a Saturday or a Sunday or a day on
which banking institutions in New York, New York, or in the city in which the
Corporate Trust Office of the Owner Trustee is located, are authorized or
obligated by law, regulation or executive order to be closed.
"Certificate" means any one of the certificates issued by the Trust and
executed and authenticated by the Owner Trustee substantially in the form
attached hereto as Exhibit A.
"Certificate Account" means the segregated, non-interest-bearing trust
account or accounts, which shall at all times be Eligible Accounts, created and
maintained by the Owner Trustee pursuant to Section 3.02(b). Funds deposited in
the Certificate Account shall be held in trust for the Certificateholders for
the uses and purposes set forth in this Agreement.
"Certificate Available Funds" means, as of any date of determination, an
amount equal to (i) the amount of Available Funds, less (ii) the Note Interest
Distributable Amount, less (iii) the Note Principal Distributable Amount.
["Certificate Interest Amount" means, as to any Distribution Date, an
amount equal to the sum of (i) the amount of interest accrued at the Certificate
Rate for the related Collection Period on the Certificate Principal Balance on
the immediately preceding Distribution Date, (or, in the case of the first
Distribution Date, on the Closing Date), after giving effect to all
distributions on such prior Distribution Date, and (ii) any unpaid Interest
Amounts from prior Distribution Dates, together with interest thereon, to the
extent permitted by law, at the Certificate Rate.]
"Certificate Interest Distributable Amount" means [the Certificate Interest
Amount] [insert Certificate Interest Distributable Amount formula].
"Certificate Principal Balance" means, as of any date of determination, the
Initial Certificate Principal Balance, less all payments made with respect to
the Certificates in accordance with Section 3.05(a)(iii) on previous
Distribution Dates.
"Certificate Rate" means [[_____]% per annum] [the sum of (i) the Group 1
Certificate Percentage of the Group 1 CRB Interest Rate and (ii) the Group 2
Certificate Percentage of the Group 2 CRB Interest Rate] [insert interest
formula].
"Certificate Register" means the register maintained pursuant to Section
4.02.
"Certificateholder" or "Holder" means the Person in whose name a
Certificate is registered in the Certificate Register, except that, solely for
the purpose of giving any consent
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pursuant to this Agreement, any Certificate registered in the name of the
Depositor shall be deemed not to be Outstanding and the Percentage Interest
evidenced thereby shall not be taken into account in determining whether the
requisite amount of Percentage Interests necessary to effect such consent has
been obtained; provided, however, that if any such Person owns 100% of the
Percentage Interests evidenced by such Certificates, all such Certificates shall
be deemed to be Outstanding.
"Class [A-1] Notes" means the Class [A-1] [Adjustable Rate] [Variable Rate]
[Floating Rate] [ %] Asset Backed Notes, issued pursuant to the Indenture and
substantially in the form of Exhibit A of the Indenture.
"Class [A-2] Notes" means the Class [A-2] [Adjustable Rate] [Variable Rate]
[Floating Rate] [ %] Asset Backed Notes, issued pursuant to the Indenture and
substantially in the form of Exhibit B of the Indenture.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means [ ], 199[ ].
"Code" means the Internal Revenue Code of 1986, as amended, and Treasury
Regulations promulgated thereunder.
"Collateral Holder" means the registered holder of any CRB Security, which,
following the execution and delivery of this Agreement by the parties hereto,
shall be the Owner Trustee.
"Corporate Trust Office" means the principal corporate trust office of the
Owner Trustee in the State of New York at which, at any particular time, its
corporate trust business with respect to this Agreement and the Trust shall be
administered, which office at the date of the execution of this Agreement is
located at [__________].
"CRB Security" or "Card Receivables Backed Security" means any one of the
credit card receivables backed certificates issued by [_____] and transferred to
the Owner Trustee by the Depositor pursuant to Section 2.01, as from time to
time are held as a part of the Trust Property and as are more fully described in
the CRB Security Schedule attached hereto as Exhibit B.
"CRB Security Schedule" means the schedule attached as Exhibit B hereto
identifying the CRB Securities and setting forth the following information as to
each CRB Security: (i) the original principal amount as of the date the CRB
Securities were originally issued and, if
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different, the current principal amount as of the Cutoff Date; and (ii) the
fractional undivided interest evidenced thereby as compared to the Aggregate
Collateral Balance as of such dates.
"CRB Security Statement" means the servicing report or other statement
setting forth the amount of interest and, if applicable, principal payable on
each CRB Security Payment Date with respect to the CRB Securities that is
required to be furnished to each holder of CRB Securities with respect to each
CRB Security Payment Date pursuant to the related Pooling and Servicing
Agreement.
"CRB Collection Account" means the segregated, non-interest-bearing trust
account or accounts, which shall at all times be Eligible Accounts, created and
maintained by the Owner Trustee pursuant to Section 3.02(a). Funds deposited in
the CRB Collection Account shall be held in trust for the Certificateholders
(subject to the rights of the Noteholders pursuant to the Indenture and the
Notes) for the uses and purposes set forth in this Agreement.
"CRB Security Amortization Event" means a Rapid Amortization Event, Early
Amortization Event, Payout Event or Economic Payout Event as such terms are
defined in the Pooling and Servicing Agreements.
"CRB Security Payment Date" means the dates on which payments are due in
respect of the CRB Securities, as specified in the related Pooling and Servicing
Agreement.
"Cutoff Date" means [ ], 199[ ].
"Definitive Certificates" has the meaning specified in Section 4.08.
"Depositor" means Asset Backed Securities Corporation, a Delaware
corporation.
"Depository Agreement" means the Depository Agreement dated as of the
Closing Date among the Trust, the Owner Trustee and DTC, as the initial Clearing
Agency, substantially in the form attached hereto as Exhibit D.
"Determination Date" has the meaning specified in Section 3.07.
"Distribution Date" means the [second] [third] Business Day following each
CRB Security Payment Date, commencing on [ ], 199[ ]
"Distribution Date Statement" has the meaning specified in Section 3.07.
"DTC" means The Depositary Trust Company, as the initial Clearing Agency.
"Eligible Account" means either (i) an account maintained with a Federal or
state chartered depository institution or trust company, the unsecured debt
obligations of which (or, in the
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case of a depository institution or trust company that is the principal
subsidiary of a holding company, the unsecured debt obligations of which holding
company) are rated by the Rating Agency in one of its generic rating categories
which signifies investment grade at the time any amounts are held in deposit
therein, (ii) an account the deposits in which are insured by the FDIC to the
limits established by such corporation, provided that any such deposits not so
insured shall be otherwise maintained such that (as evidenced by an Opinion of
Counsel delivered to the Owner Trustee and to each Rating Agency) the
Certificateholders have a claim with respect to the funds in such account or a
perfected first priority security interest against any collateral (which shall
be limited to Eligible Investments) fully securing such funds that is superior
to claims of any other depositors or creditors of the depository institution or
trust company with which such account is maintained, or (iii) a trust account
maintained with a Federal or state chartered depository institution or trust
company acting in its fiduciary capacity or (iv) such other account that will
not cause each Rating Agency to downgrade or withdraw the rating of the
Certificates as evidenced by a letter from each Rating Agency to such effect
delivered to the Owner Trustee.
"Eligible Investments" means any one or more of the following (any of which
may be obligations of, or may be purchased from the Depositor or the Owner
Trustee if the indicated requirements are met):
(i) direct obligations of, or obligations fully guaranteed as to
principal and interest by, the United States of America or any agency or
instrumentality thereof, provided such obligations are backed by the full
faith and credit of the United States;
(ii) repurchase obligations (the collateral for which is held by a
third party or the Owner Trustee) with respect to any security described in
clause (i) above, provided that the long-term unsecured obligations of the
party agreeing to repurchase such obligations are at the time rated by each
Rating Agency in its highest long-term rating category;
(iii) certificates of deposit, time deposits, demand deposits and
bankers' acceptances of any bank or trust company incorporated under the
laws of the United States or of any state thereof or the District of
Columbia, including the Owner Trustee and any Affiliate thereof, provided
that the long-term debt obligations of such bank or trust company (or, in
the case of the principal depository institution in a depository
institution holding company, the long-term unsecured debt obligations of
the depository institution holding company) at the date of acquisition
thereof have been rated by each Rating Agency in its highest long-term
rating category or the short-term unsecured debt obligations of which are
rated "A1" or the equivalent.
(iv) commercial paper of any corporation incorporated under the laws
of the United States or any state thereof or the District of Columbia which
on the date of investment or contractual commitment to invest has been
rated by each Rating Agency in its highest short-term rating category;
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(v) investment in money market funds having a rating from each Rating
Agency in the highest investments category granted thereby (including funds
for which the Owner Trustee or the Depositor or any of their respective
Affiliates is investment manager or advisor); and
(vi) any other obligation or security acceptable to each Rating Agency
(as certified by a letter from each Rating Agency to the Owner Trustee).
"ERISA" has the meaning specified in Section 4.06.
"FDIC" means the Federal Deposit Insurance Corporation.
"[Group 1] Certificate Percentage" means a fraction, expressed as a
percentage, (i) the numerator of which is the [Group 1] CRB Security Collateral
Balance [as of the Cutoff Date] and (ii) the denominator of which is the sum of
the [Group 1] CRB Security Collateral Balance [as of the Cutoff Date] and the
[Group 2] CRB Security Collateral Balance [as of the Cutoff Date].
"[Group 1] CRB Interest Amount" means, with respect to any Distribution
Date, an amount equal to (i) the aggregate amount actually distributed in
respect of the [Group 1] CRB Securities on the immediately preceding CRB
Security Payment Date and identified as allocable to interest in the related CRB
Security Statement, plus (ii) the interest portion of the purchase price paid by
the Depositor in connection with the repurchase of any [Group 1] CRB Securities
pursuant to Section 2.03 since the preceding Distribution Date.
"[Group 1] CRB Interest Rate" means [ %] [insert [Group 1] Interest Rate
formula].
"[Group 1] CRB Principal Amount" means, with respect to any Distribution
Date, an amount equal to (i) the aggregate amount actually distributed in
respect of the [Group 1] CRB Securities on the immediately preceding CRB
Security Payment Date and identified as allocable to principal in the related
CRB Security Statement, plus (ii) the principal portion of the purchase price
paid by the Depositor in connection with the repurchase of any [Group 1] CRB
Securities pursuant to Section 2.03 since the preceding Distribution Date.
"[Group 1] CRB Securities" means the CRB Securities identified as a [Group
1] CRB Security in the CRB Security Schedule attached hereto as Exhibit C.
"[Group 1] CRB Security Collateral Balance" means, as of any date of
determination, the aggregate of the outstanding principal amounts of all the
[Group 1] CRB Securities. As of the Cutoff Date, the [Group 1] CRB Security
Collateral Balance shall be $[_____].
"[Group 2] Certificate Percentage" means a fraction, expressed as a
percentage, (i) the numerator of which is the [Group 2] CRB Security Collateral
Balance [as of the Cutoff Date] and
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(ii) the denominator of which is the sum of the [Group 1] CRB Security
Collateral Balance [as of the Cutoff Date] and the [Group 2] CRB Security
Collateral Balance [as of the Cutoff Date].
"[Group 2] CRB Interest Amount" means, as to any Distribution Date, an
amount equal to (i) the aggregate amount actually distributed in respect of the
[Group 2] CRB Securities on the immediately preceding CRB Security Payment Date
and identified as allocable to interest in the related CRB Security Statement,
plus (ii) the interest portion of the purchase price paid by the Depositor in
connection with the repurchase of any [Group 2] CRB Securities pursuant to
Section 2.03 since the preceding Distribution Date.
"[Group 1] CRB Interest Rate" means [ %] [insert [Group 1] Interest Rate
formula].
"[Group 2] CRB Principal Amount" means, as to any Distribution Date, an
amount equal to (i) the aggregate amount actually distributed in respect of the
[Group 2] CRB Securities on the immediately preceding CRB Security Payment Date
and identified as allocable to principal in the related CRB Security Statement,
plus (ii) the principal portion of the purchase price paid by the Depositor in
connection with the repurchase of any [Group 2] CRB Securities pursuant to
Section 2.03 since the preceding Distribution Date.
"[Group 2] CRB Securities" means the CRB Securities identified as a [Group
2] CRB Security in the CRB Security Schedule attached hereto as Exhibit C.
"[Group 2] CRB Security Collateral Balance" means, as of any date of
determination, the aggregate of the outstanding principal amounts of all the
[Group 2] CRB Securities. As of the Cutoff Date, the [Group 2] CRB Security
Collateral Balance shall be $[_____].
"Indenture" means the Indenture dated as of [ ], 199[ ], between the
Trust and [Indenture Trustee Name], as Indenture Trustee.
"Indenture Trustee" means [Indenture Trustee Name], a [_____] banking
corporation, not in its individual capacity, but solely as Indenture Trustee
pursuant to the Indenture and any successor Indenture Trustee thereunder.
"Initial Certificate Principal Balance" means the aggregate principal
balance of the Certificates on the Closing Date.
"Interest Distribution Amount" means, as to any Distribution Date, an
amount equal to (i) the aggregate amount actually distributed in respect of the
CRB Securities on the immediately preceding CRB Security Payment Date and
identified as allocable to interest in the related CRB Security Statement plus
(ii) the interest portion of the purchase price paid by the Depositor in
connection with the repurchase of any CRB Securities pursuant to Section 2.03
since the preceding Distribution Date.
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"Lien of the Indenture" means all right, title and interest of the
Indenture Trustee in and to the Trust Property granted by the Owner Trustee to
the Indenture Trustee pursuant to the Indenture for the benefit of the
Noteholders.
"Majority in Interest" means the Holders of Certificates evidencing, in the
aggregate, at least 51% of the Percentage Interests evidenced by all
Certificates.
"Moody's" means Moody's Investors Service, Inc.
"Note" means a Class [A-1] Note or a Class [A-2] Note.
"Note Account" means the segregated, non-interest-bearing trust account or
accounts, which shall at all times be Eligible Accounts, created and maintained
by the Owner Trustee pursuant to the Indenture and Section 3.02(c) hereof.
"Note Distributable Amount" means, with respect to any Distribution Date,
the sum of the Note Principal Distributable Amount and the Note Interest
Distributable Amount for such Distribution Date.
"Note Interest Distributable Amount" has the meaning specified in the
Indenture.
"Note Principal Distributable Amount" has the meaning specified in the
Indenture.
"Noteholder" means a Person in whose name a Note is registered.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President, any Vice President, the Treasurer, the Secretary, or one
of the Assistant Treasurers or Assistant Secretaries of the Depositor, as
required by this Agreement.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Depositor, which opinion is reasonably acceptable to the Owner Trustee.
"Outstanding" means, with respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement but excluding:
(i) Certificates theretofore canceled by the Owner Trustee or
delivered to the Owner Trustee for cancellation; and
(ii) Certificates in exchange for which or in lieu of which other
Certificates have been executed and delivered pursuant to this Agreement
unless proof satisfactory to the Owner Trustee is presented that any such
Certificates are held by a holder in due course.
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"Owner Trust Accounts" means any or all of the CRB Collection Account, the
Certificate Account or the Note Account, as applicable.
"Owner Trust Estate" means all right, title and interest of the Owner
Trustee, as trustee, in and to the Trust property and rights assigned to the
Trust pursuant to Article II, and all funds on deposit from time to time in the
Owner Trust Accounts.
"Owner Trustee" means [Owner Trustee Name], a [_____] banking corporation,
not in its individual capacity but solely as owner trustee under this Agreement,
and any successor Owner Trustee hereunder.
"Percentage Interest" means, with respect to any Certificate, the undivided
beneficial ownership interest in the Trust Property evidenced by such
Certificate.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.
"Plan Assets Regulation" means the plan assets regulation adopted by the
Department of Labor under ERISA and codified at 29 C.F.R. ss. 2510.3-101.
"Pooling and Servicing Agreement[s]" means the Pooling and Servicing
Agreement[s] pursuant to which the CRB Securities were issued, attached hereto
as Exhibit C.
"Principal Distribution Amount" means, as to any Distribution Date, an
amount equal to (i) the aggregate amount, if any, actually distributed in
respect of the CRB Securities on the immediately preceding CRB Security Payment
Date and identified as allocable to principal in the related CRB Security
Statement, plus (ii) the principal portion of the purchase price paid by the
Depositor in connection with the repurchase of any of the CRB Securities
pursuant to Section 2.03 since the preceding Distribution Date.
"Rating Agency" means each of [S&P] and [Moody's]. [References herein to
the highest rating categories of any Rating Agency shall mean such ratings
without any modifiers.]
"Record Date" means, with respect to any Distribution Date, the close of
business on the last day immediately preceding such Distribution Date (or, in
the case of Definitive Certificates, the last day of the month preceding the
month in which such Distribution Date occurs).
"Responsible Officer", when used with respect to the Owner Trustee, means
the Chairman or Vice Chairman of the Board of Directors or Owner Trustees, the
Chairman or Vice Chairman of the Executive or Standing Committee of the Board of
Directors or Owner Trustees, the President, the Chairman of the Committee on
Trust Matters, any Vice President, any Assistant Vice President, the Secretary,
any Assistant Secretary, the Treasurer, any Assistant Treasurer, any Trust
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Officer or Assistant Trust Officer, the Controller and any Assistant Controller
or any other officer of the Owner Trustee customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc.
"Treasury Regulations" means regulations, including proposed or temporary
regulations, promulgated under the Code. References in any document or
instrument to specific provisions of proposed or temporary regulations shall
include analogous provisions of final Treasury Regulations or other successor
Treasury Regulations.
"Trust" means the trust created by this Agreement and denominated as Card
Account Trust, Series 199[ ]-[ ].
"Trust Property" means the corpus of the Trust, which shall consist of: (i)
the CRB Securities described in the CRB Security Schedule; (ii) all
distributions thereon on and after the Cutoff Date; and (iii) the CRB Collection
Account, the Certificate Account, the Note Account and such assets that are
deposited therein from time to time and any investments thereof, together with
any and all income, proceeds and payments with respect thereto.
SECTION 1.02 Other Definitional Provisions and Rules of Construction. (a)
All terms defined in this Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement as a whole and not to any
particular provision of this Agreement; Article, Section and Exhibit references
contained in this Agreement are references to Articles, Sections and Exhibits in
or to this Agreement unless otherwise specified; and the term "including" shall
mean "including without limitation".
(c) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(d) Any agreement, instrument or statute defined or referred to herein or
in any agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns.
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ARTICLE II
Conveyance of the CRB Securities;
Original Issuance of Certificates
SECTION 2.01 Creation and Declaration of Trust; Conveyance of the CRB
Securities. (a) The Depositor, concurrently with the execution and delivery of
this Agreement, does hereby sell, transfer, assign, set over and otherwise
convey to the Owner Trustee, in trust, for the use and benefit of the
Certificateholders, without recourse, all the right, title and interest of the
Depositor including any security interest therein, in, to and under the CRB
Securities, all payments and all proceeds therefrom, and all other assets
constituting the Trust Property.
(b) In connection with such transfer and assignment, the Depositor does
hereby deliver to, and deposit with, the Owner Trustee the following:
(i) confirmation of DTC of the sale by the Depositor of the CRB
Securities to the Owner Trustee and of the making by DTC of entries on its
records identifying the CRB Securities as belonging to the Owner Trustee;
and
(ii) a copy of the Pooling and Servicing Agreement together with all
exhibits and amendments thereto.
(c) It is intended that the conveyance of the Depositor's right, title and
interest in and to the CRB Securities and all other assets constituting the
Trust Property pursuant to this Agreement shall constitute, and be construed as,
an absolute sale of the CRB Securities by the Depositor to the Owner Trustee for
the benefit of the Certificateholders, subject to the rights of the Noteholders
pursuant to the Indenture and the Notes. Furthermore, it is not intended that
such conveyance be deemed a pledge of the CRB Securities and the other assets
constituting the Trust Property by the Depositor to the Owner Trustee to secure
a debt or other obligation of the Depositor. However, in the event that,
notwithstanding the aforementioned intent of the parties, the CRB Securities and
the other assets constituting the Trust Property are held to be the property of
the Depositor, or if for any other reason this Agreement is held or deemed to
create a security interest in the CRB Securities and the other assets
constituting the Trust Property, then it is intended as follows: (a) this
Agreement shall also be deemed to be a security agreement within the meaning of
Articles 8 and 9 of the Uniform Commercial Code as in effect from time to time
in the State of New York; (b) the conveyance provided for in this Section shall
be deemed to be a grant by the Depositor to the Owner Trustee of a security
interest in all the Depositor's right, title and interest in and to the CRB
Securities and all amounts payable to the holders of the CRB Securities after
the Closing Date in accordance with the terms thereof and all proceeds of the
conversion, voluntary or involuntary, of the foregoing into cash, instruments,
securities or other property, including without limitation all amounts from time
to time held or invested in the Certificate Account, whether in the form of
cash, instruments, securities or other property, (c) the possession by the Owner
Trustee or its agent of the CRB Securities and such
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other items of property as constitute instruments, money, negotiable documents
or chattel paper shall be deemed to be "possession by the secured party" for
purposes of perfecting the security interest pursuant to Section 9-305 of the
Uniform Commercial Code; and (d) notifications to persons holding such property,
and acknowledgments, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Owner Trustee for the purpose of
perfecting such security interest under applicable law. Notwithstanding the
foregoing, the parties to this Agreement intend the transfer pursuant to this
section to be a true, absolute and unconditional sale of the CRB Securities and
all such other assets constituting the Trust Property by the Depositor to the
Owner Trustee.
(d) If the CRB Securities are reissued as definitive certificates as
provided in the Pooling and Servicing Agreement, the Owner Trustee shall cause
such definitive certificates to be issued in its name as Owner Trustee on behalf
of the Trust and shall thereafter maintain possession of such definitive
certificates during the term of this Agreement unless otherwise required to
surrender such definitive certificates for final payment as provided in the
Pooling and Servicing Agreement.
SECTION 2.02 Acceptance by Owner Trustee. The Owner Trustee hereby
acknowledges the receipt by it of the CRB Securities and the documents referred
to in Section 2.01(b)(ii) and declares that it holds and will hold such CRB
Securities, such other documents and all other assets and documents delivered to
it pursuant to this Agreement, and that it will hold all such assets and all
such other assets comprising the Trust Property in trust for the exclusive use
and benefit of all present and future Certificateholders, subject to the Lien of
the Indenture and the rights of all present and future Noteholders pursuant to
the Indenture and the Notes, and for the purposes and subject to the terms and
conditions set forth in this Agreement.
SECTION 2.03 Representations and Warranties of the Depositor. The Depositor
hereby represents and warrants to the Owner Trustee that as of the Closing Date:
(a) With respect to the CRB Securities:
(i) the information set forth in the CRB Security Schedule is true and
correct in all material respects as of the date or dates such information
is furnished;
(ii) immediately prior to the sale and assignment herein contemplated,
the Depositor was the sole owner of the CRB Securities free and clear of
any lien, pledge, charge or encumbrance of any kind;
(iii) the Depositor acquired its ownership in the CRB Securities in
good faith without notice of any adverse claim; and
(iv) the Depositor has not assigned any interest in the CRB Securities
or any distributions thereon, except as contemplated herein.
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The representations and warranties set forth in this Section 2.03(a) shall
survive the transfer and assignment of the CRB Securities. Upon discovery by the
Depositor or the Owner Trustee of a breach of any of the foregoing
representations and warranties which materially and adversely affects the Lien
of the Indenture or the interests of the Certificateholders or the Noteholders
in the CRB Securities, the Depositor or the Owner Trustee shall give prompt
written notice to the other, to the Certificateholders and to each Rating
Agency. Within 90 days of its discovery or its receipt of notice of any such
breach, the Depositor shall cure such breach in all material respects or, if
such breach cannot be cured, the Depositor shall repurchase the affected CRB
Securities from the Owner Trustee if the Depositor is so directed by a Majority
in Interest of the Certificateholders. Any such repurchase of a CRB Security by
the Depositor shall be accomplished prior to the Distribution Date next
following the receipt of such direction by a Majority in Interest of the
Certificateholders at a price equal to the sum of (i) the outstanding principal
amount of such CRB Security as of the date of such repurchase and (ii) all
unpaid accrued interest on such CRB Security to the date of such repurchase at [
] per annum (the "Purchase Price"). The payment of the Purchase Price in
connection with repurchased CRB Securities shall be considered a prepayment in
full of such CRB Securities and shall be delivered to the Owner Trustee for
deposit in the Certificate Account in accordance with the provisions of Section
3.02. Upon such deposit into the CRB Collection Account, such CRB Securities
shall be released to the Depositor, and the Owner Trustee shall execute and
deliver such instruments of transfer or assignment, in each case without
recourse, as shall be reasonably requested and provided by the Depositor to vest
in the Depositor, or its designee or assignee, title to the CRB Securities
repurchased pursuant hereto. The Depositor shall be entitled to all amounts
received by the Owner Trustee in respect of any repurchased CRB Security to the
extent the distribution of such amounts would not make the total amount
distributed in respect of any such repurchased CRB Security greater than the
Purchase Price therefor. The obligation of the Depositor to cure or repurchase
the CRB Securities as to which a breach specified in this Section 2.03(a) has
occurred and is continuing shall constitute the sole remedy respecting such
breach against the Depositor available to Certificateholders or the Owner
Trustee on behalf of Certificateholders.
(b) With respect to the Depositor:
(i) the Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware with full
power and authority to execute, deliver and perform this Agreement;
(ii) the Certificates will be free and clear of any right, charge,
security interest, or lien or claim in favor of the Depositor;
(iii) this Agreement has been duly authorized, executed and delivered
by the Depositor and assuming due authorization, execution and delivery by
the Owner Trustee, constitutes the valid, legal and binding obligation of
the Depositor, enforceable against it in accordance with its terms, except
as enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
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relating to or affecting creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(iv) neither the execution nor the delivery of this Agreement nor the
issuance, delivery and sale of the Certificates, nor the consummation of
any other of the transactions contemplated herein nor the performance of
its obligations under this Agreement or the Certificates will result in the
breach of any term or provision of the certificate of incorporation or
bylaws of the Depositor or conflict with, result in a breach, violation or
acceleration of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, the terms of any
material contract, indenture or other agreement or instrument to which the
Depositor is a party or by which it is bound or any of its assets is bound,
or any statute, order or regulation applicable to the Depositor of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over the Depositor; and
(v) there are no actions or proceedings against, or investigations of,
the Depositor pending, or, to the knowledge of the Depositor, threatened,
before any court, administrative agency or other tribunal (A) asserting the
invalidity of this Agreement or the Certificates, (B) seeking to prevent
the issuance of the Certificates or the consummation of any of the
transactions contemplated by this Agreement or (C) which might materially
and adversely affect the validity or enforceability of this Agreement or
the Certificates.
SECTION 2.04 Agreement to Authenticate and Deliver Certificates. The Owner
Trustee acknowledges the transfer, delivery and assignment to it of the Trust
Property, and concurrently with such transfer and delivery, the Owner Trustee
has executed, authenticated and delivered, to or upon the order of the
Depositor, the Certificates duly executed and authenticated by the Owner Trustee
in authorized denominations evidencing ownership of the entire Trust Property
and registered in such names as the Depositor shall direct in writing, all in
accordance with the terms and subject to the conditions hereof.
SECTION 2.05 Federal Income Tax Allocations. Net income of the Trust for
any month as determined for federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof) shall be
allocated:
(a) among the Holders as of the first day following the end of such month,
in proportion to their ownership of principal amount of Certificates on such
date, net income in an amount up to the sum of [insert amounts distributable to
and Holders] the portion of the market discount on the CRB Securities accrued
during such month that is allocable to the excess, if any, of the initial
aggregate principal amount of the Certificates over their initial aggregate
issue price, such sum to be reduced by an amortization by the Trust of premium
on CRB Securities that corresponds to any excess of the issue price of
Certificates over their principal amount; and
(b) to the Depositor, to the extent of any remaining net income.
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the net income of the Trust for any month is insufficient for the allocations
described in clause (a) above, subsequent net income shall first be allocated to
make up such shortfall before being allocated as provided in the preceding
sentence.
ARTICLE III
Administration of the Trust Property;
Distributions and Reports to Certificateholders
SECTION 3.01 Administration of the Trust Property. The Owner Trustee shall
administer the Trust Property for the benefit of the Certificateholders, subject
to the rights of the Noteholders pursuant to the Notes and the Indenture. The
Owner Trustee shall make reasonable effort to collect all payments required to
be made pursuant to the terms of the CRB Securities and the Pooling and
Servicing Agreement in a manner consistent with the terms of the Pooling and
Servicing Agreements and such CRB Securities. In connection with its receipts of
any funds distributed in respect of a CRB Security on any CRB Security Payment
Date, the Owner Trustee shall review the related CRB Security Statement and
shall confirm that the principal and interest payments received on such CRB
Security Payment Date are equal to the distribution amount shown on the related
CRB Security Statement. If (i) the amount of any distribution on a CRB Security
varies from the amount reported to the Owner Trustee on the applicable CRB
Security Statement for such distribution, (ii) the Owner Trustee shall not have
received a distribution on any CRB Security by the close of business on the date
on which such distribution was to be received by the Owner Trustee or (iii) the
Owner Trustee shall gain actual knowledge of any other default or event of
default under the Pooling and Servicing Agreement, then the Owner Trustee shall
promptly notify the Depositor and the Certificateholders and shall proceed in
accordance with the provisions hereof, including Section 5.01(c), (d) and (e).
SECTION 3.02 CRB Collection Account, Certificate Account and Note Account.
(a) CRB Collection Account. The Owner Trustee, for the benefit of the
Certificateholders subject to the rights of the Noteholders pursuant to the
Notes and the Indenture, shall establish and maintain one or more non-interest
bearing Eligible Accounts (collectively, the "CRB Collection Account"), entitled
[ ], as Owner Trustee, in trust for the registered holders of Certificates in
Card Account Trust, Series, 199[ ]-[ ]. The Owner Trustee, on behalf of the
Certificateholders, shall possess all right, title and interest (subject to the
Lien of the Indenture) in all funds deposited from time to time in the CRB
Collection Account and in all proceeds thereof. The Owner Trustee shall upon
receipt deposit in the CRB Collection Account all amounts collected and payments
received in respect of the CRB Securities, including:
(i) all distributions received on the CRB Securities subsequent to the
Cutoff Date; and
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(ii) any amount required to be deposited in the CRB Collection Account
pursuant to Section 2.03(a) in connection with the repurchase of a CRB
Security by the Depositor.
If, at any time, the CRB Collection Account ceases to be an Eligible
Account, the Owner Trustee shall within five Business Days establish a new CRB
Collection Account meeting the conditions specified above and transfer any cash
and any investments on deposit in the CRB Collection Account to such new CRB
Collection Account, and from the date such new CRB Collection Account is
established, it shall be the CRB Collection Account.
(b) Certificate Account. The Owner Trustee, for the benefit of the
Certificateholders shall establish and maintain one or more non-interest bearing
Eligible Accounts (collectively, the "Certificate Account"), entitled [ ], as
Owner Trustee, in trust for the registered holders of Certificates in Card
Account Trust, Series, 199[ ]-[ ]. The Owner Trustee, on behalf of the
Certificateholders, shall possess all right, title and interest in all funds
deposited from time to time in the Certificate Account and in all proceeds
thereof. The Owner Trustee shall transfer from the CRB Collection Account to the
Certificate Account certain amounts on deposit therein after [payment to the
Indenture Trustee] [withdrawal therefrom and deposit in the Note Account]
certain amounts for the benefit of the Noteholders, pursuant to clause (i) of
Section 3.04 and clauses (i) and (iv) of Section 3.05 and the terms of the
Indenture.
If, at any time, the Certificate Account ceases to be an Eligible Account,
the Owner Trustee shall within five Business Days establish a new Certificate
Account meeting the conditions specified above and transfer any cash and any
investments on deposit in the Certificate Account to such new Certificate
Account, and from the date such new Certificate Account is established, it shall
be the Certificate Account.
(c) Note Account. The Owner Trustee, for the benefit of the Noteholders
shall establish and maintain one or more non-interest bearing Eligible Accounts
(collectively, the "Note Account"), entitled [ ], as Owner Trustee. The Owner
Trustee shall transfer from the CRB Collection Account to the Note Account
certain amounts on deposit therein in accordance with clause (i) of Section 3.04
and clauses (i) and (iv) of Section 3.05 and the terms of the Indenture.
If, at any time, the Note Account ceases to be an Eligible Account, the
Owner Trustee shall within five Business Days establish a new Note Account
meeting the conditions specified above and transfer any cash and any investments
on deposit in the Note Account to such new Note Account, and from the date such
new Note Account is established, it shall be the Note Account.
(d) The Owner Trustee shall give written notice to the Depositor and each
Rating Agency of the location of each Eligible Account constituting the CRB
Collection Account, the Certificate Account and the Note Account upon
establishment thereof and prior to any change thereof.
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SECTION 3.03 Investment of Funds in the CRB Collection Account, Certificate
Account and Note Account. The Depositor, on behalf of the Trust, may direct in
writing any depository institution maintaining the Owner Trust Accounts to
invest the funds in such Owner Trust Accounts in one or more Eligible
Investments, which shall mature not later than the Business Day immediately
preceding the next Distribution Date (or, if the Owner Trustee in its commercial
capacity is the obligor of such Eligible Investments and the Owner Trust
Accounts is maintained by the Owner Trustee, such Eligible Investments shall
mature not later than the next Distribution Date) and shall not be sold or
disposed of prior to their respective maturities; provided, however, that if the
Depositor fails to select any such Eligible Investment, the Owner Trustee shall
direct such institution to invest such funds in demand deposits meeting the
requirements described in item (iii) of the definition of Eligible Investments.
All such Eligible Investments shall be made in the name of the Owner Trustee, in
trust for the Holders of the Certificates, or its nominee. All proceeds of any
such investment shall be deposited in the Owner Trust Accounts may not be
reinvested and may only be withdrawn and applied for the purposes set forth
herein.
SECTION 3.04 Permitted Withdrawals from the CRB Collection Account. The
Owner Trustee, may from time to time withdraw funds from the CRB Collection
Account for the following purposes:
(i) to make [payments to the Indenture Trustee] [deposits in the Note
Account] for the benefit of the Noteholders in the amounts and in the
manner provided for in the Indenture and pursuant to the terms of the
Notes;
(ii) to make [payments to Certificateholders] [deposits in the
Certificate Account for distribution to the Certificateholders] in the
amounts and in the manner provided for in Section 3.05;
(iii) to reimburse the Owner Trustee, to the extent of the net
proceeds recovered on any defaulted CRB Securities, prior to the
distribution of such proceeds to Certificateholders, for any unreimbursed
expenses incurred with respect to the exercise of remedies in respect of
such CRB Securities pursuant to Section 5.01;
(iv) to reimburse the Depositor for expenses incurred by and
reimbursable to the Depositor pursuant to Section 6.03;
(v) to clear and terminate the CRB Collection Account upon the
termination of this Agreement.
SECTION 3.05 Distributions. (a) On each Distribution Date, the Owner
Trustee shall withdraw from the CRB Collection Account all Available Funds then
on deposit therein and shall deposit such Available Funds (in each case to the
extent of the remaining Available Funds) in the Note Account or the Certificate
Account, as the case may be, for the following purposes and in the following
order of priority:
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(i) to pay [into the Note Account] [the Indenture Trustee] for the
benefit of the Noteholders an amount equal to the Note Interest
Distributable Amount for such Distribution Date;
(ii) to pay into the Certificate Account for distribution to the
Holders of the Certificates the Certificate Interest Distributable Amount
for such Distribution Date;
(iii) to pay to the Owner Trustee a pro rata portion of the Owner
Trustee's annual fee for services;
(iv) to pay [into the Note Account] [to the Indenture Trustee] for the
benefit of the Noteholders an amount equal to the Note Principal
Distributable Amount for such Distribution Date;
(v) to pay into the Certificate Account for distribution to the
Holders of the Certificates the Certificate Principal Distributable Amount
for such Distribution Date; and
(vi) to pay to the Owner Trustee any unreimbursed expenses incurred by
the Owner Trustee but not covered by the Owner Trustee's annual fee.
(b) All distributions from the Certificate Account made with respect to the
Certificates on each Distribution Date shall be allocated pro rata among the
Outstanding Certificates based upon their respective Percentage Interests in
respect of the aggregate Outstanding principal amount of the Certificates.
Payments to the Certificateholders on each Distribution Date will be made to the
Certificateholders of record on the related Record Date (other than as provided
in Section 7.01 with respect to the final distribution). Distributions to any
Certificateholder on any Distribution Date shall be made by wire transfer of
immediately available funds, at the expense of the Certificateholder requesting
such wire transfer by deducting a wire transfer fee from the related transfer,
to the account of such Certificateholder at a bank or other entity having
appropriate facilities therefor, if such Certificateholder shall have so
notified the Owner Trustee in writing at least five Business Days prior to the
related Record Date and such Certificateholder shall hold Certificates with an
aggregate Certificate Principal Balance as of the Closing Date of at least
$1,000,000 or in such other manner as shall be agreed to by the Owner Trustee
and such Certificateholder, or otherwise by check mailed by first class mail to
the address of such Certificateholder appearing in the Certificate Register.
Final distribution on each Certificate will be made in like manner, but only
upon present and surrender of such Certificate at the Corporate Trust Office or
such other location specified in the notice to Certificateholders of such final
distribution.
SECTION 3.06 Compliance with Withholding Requirements. Notwithstanding any
other provision of this Agreement to the contrary, the Owner Trustee shall
comply with all Federal income tax withholding requirements respecting
distributions to, or receipts of amounts on behalf of, Certificateholders that
the Owner Trustee reasonably believes are applicable under the Code. The consent
of Certificateholders shall not be required for such withholding. In the event
the Owner
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Trustee does withhold any amount from interest or principal distribution thereof
to any Certificateholder pursuant to federal withholding requirements, the Owner
Trustee shall indicate in the statement required pursuant to Section 3.07 the
amount so withheld.
SECTION 3.07 Statements to Certificateholders. On the second Business Day
preceding each Distribution Date (each, a "Determination Date"), the Depositor
(or its designee) shall prepare and forward a statement (a "Distribution Date
Statement") to the Owner Trustee, who in turn shall forward such statement by
mail to each Rating Agency and each Certificateholder. Each such Distribution
Date Statement shall set forth the following information:
(i) the Certificate Available Funds for such Distribution Date;
(ii) the Certificate Interest Distributable Amount for such
Distribution Date;
(iii) the Certificate Principal Distributable Amount, if any, for such
Distribution Date;
(iv) the Certificate Principal Balance after giving effect to
distributions of principal of such Certificates on such Distribution Date;
and
(v) the amount of any withdrawals made from the CRB Collection Account
since the immediately preceding Distribution Date pursuant to clauses (ii)
through (iv) of Section 3.04, together with a general description of the
purpose of each such withdrawal.
In the case of the information furnished pursuant to clauses (i) and (iv)
above, the foregoing amounts shall also be stated as a dollar amount per $1,000
principal amount of the Certificates.
In addition, the Owner Trustee promptly shall furnish to Certificateholders
copies of any notices, statements, reports or other communications received by
the Owner Trustee as the Collateral Holder.
On or before January 31 of each calendar year, beginning with calendar year
199[ ], the Owner Trustee shall furnish by first class mail to each Person who
at any time during the previous calendar year was a Certificateholder of record
a statement containing the information required to be contained in the regular
report to Certificateholders, as set forth in clauses (ii) and (iii) above,
aggregated for such calendar year or the applicable portion thereof during which
such Person was a Certificateholder which statement shall contain sufficient
information to allow Certificateholders to calculate their United States federal
income tax liability with respect to the Certificates. Such obligation of the
Owner Trustee shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Owner Trustee
pursuant to any requirements of the Code.
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The Owner Trustee shall furnish to each Certificateholder during the term
of this Agreement such periodic, special or other reports or information,
whether or not provided for herein, as shall be necessary, reasonable or
appropriate with respect to the Certificateholder or otherwise with respect to
the purposes of this Agreement, all such reports or information to be provided
by and in accordance with such applicable instructions and directions as the
Certificateholder may reasonably require and at the expense of such
Certificateholder.
SECTION 3.08 Reports of the Owner Trustee; [CRB Collection] [Certificate]
Account. Upon request of a Certificateholder, the Owner Trustee shall make
available to Certificateholders a statement setting forth the status of the [CRB
Collection] [Certificate] Account as of the close of business on the
Distribution Date immediately preceding such request, and showing, for the
period covered by such statement, the aggregate of deposits into and withdrawals
from the [CRB Collection] [Certificate] Account.
SECTION 3.09 Access to Certain Documentation and Information. The Owner
Trustee shall provide the Certificateholders with access to a copy of each
report received by it as Collateral Holder under the Pooling and Servicing
Agreement with respect to the CRB Securities. The Owner Trustee shall also
provide the Depositor with access to each such report and to all written
reports, documents and records required to be maintained by the Owner Trustee in
respect of its duties hereunder. The Owner Trustee shall keep a certified copy
or duplicate original of this Agreement on file at its Corporate Trust Office
for inspection by any Certificateholder. The Owner Trustee shall provide, at the
written request of three or more Certificateholders or one or more
Certificateholders evidencing Percentage Interests of not less than 25% of the
Certificates, access to the current list of the names and addresses of all
Certificateholders for the purpose of communicating with other
Certificateholders with respect to their rights under this Agreement or under
the Certificates. Such access shall be afforded without charge but only upon
reasonable request evidenced by prior written notice to the Owner Trustee and
during normal business hours at offices designated by the Owner Trustee.
ARTICLE IV
The Certificates
SECTION 4.01 The Certificates. (a) The Certificates shall be substantially
in the respective forms set forth in Exhibits A hereto. The Certificates shall,
on original issue, be executed and authenticated by the Owner Trustee and
delivered by the Owner Trustee to or upon the order of the Depositor upon
receipt by the Owner Trustee of the CRB Securities and any other documents
specified in Section 2.01.
(b) The Certificates shall be issuable in fully registered form only, in
the minimum original principal amounts of $1,000 and integral multiples thereof.
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(c) The Certificates shall be executed by manual signature on behalf of the
Owner Trustee in its capacity as trustee hereunder by a Responsible Officer.
Certificates bearing the manual signatures of individuals who were at any time
the proper officers of the Owner Trustee shall bind the Owner Trustee,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificate. No Certificates shall be
entitled to any benefit under this Agreement, or be valid for any purpose,
unless there appears on such Certificate a certificate of authentication
substantially in the form provided for herein executed by the Owner Trustee by
manual signature, and such certificate upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates issued on the Closing
Date shall be dated the Closing Date. All Certificates issued thereafter shall
be dated the date of their authentication.
SECTION 4.02 Registration of Transfer and Exchange of Certificates. (a) The
Owner Trustee shall keep at one of the offices or agencies to be maintained by
the Owner Trustee in accordance with Section 4.05 a Certificate Register in
which, subject to such reasonable regulations as it may prescribe, the Owner
Trustee shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided.
(b) Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Owner Trustee shall execute and deliver, in the name
of the designated transferee or transferees, one or more new Certificates in
authorized denominations and of the same aggregate Percentage Interest.
(c) At the option of the Certificateholders, each Certificate may be
exchanged for a Certificate of like aggregate original principal amount, series,
class, original issue date and maturity, in different authorized denominations
upon surrender of the Certificates to be exchanged at the office maintained by
the Owner Trustee pursuant to Section 4.05. Whenever any Certificates are so
surrendered for exchange, the Owner Trustee shall execute, authenticate and
deliver the Certificates that the Certificateholder making the exchange is
entitled to receive. Each Certificate presented or surrendered for registration
of transfer or exchange shall (if so required by the Owner Trustee) be duly
endorsed by, or be accompanied by a written instrument of transfer in the form
satisfactory to the Owner Trustee, duly executed by the Holder thereof or his
attorney duly authorized in writing.
(d) Certificates delivered upon any exchange will evidence the same
obligations, and will be entitled to the same rights and privileges, as the
Certificates surrendered.
(e) No service charge shall be imposed for any registration of transfer or
exchange of Certificates, but the Owner Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
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(f) All Certificates surrendered for registration of transfer and exchange
shall be canceled and destroyed by the Owner Trustee in accordance with its
standard procedures without liability on its part.
SECTION 4.03 Mutilated, Destroyed, Lost or Stolen Certificates. If (a)(i)
any mutilated Certificate is surrendered to the Owner Trustee or (ii) the
Depositor and the Owner Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Certificate and of the ownership thereof and
(b) there is delivered to the Owner Trustee and the Depositor such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of receipt by either the Owner Trustee or the Depositor of written
notice that such Certificate has been acquired by a bona fide purchaser, the
Owner Trustee shall execute and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor, form, terms and principal amount, as applicable, bearing a number not
contemporaneously Outstanding, so that neither gain nor loss in interest shall
result from such exchange or substitution.
Upon the issuance of any new Certificate under this Section 4.03, the Owner
Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Owner Trustee) connected
therewith.
Any duplicate Certificate issued pursuant to this Section 4.03 shall
constitute complete and indefeasible evidence of the rights of a Holder of the
originally issued Certificate as if such duplicate Certificate was originally
issued, whether or not the lost, stolen or destroyed Certificate shall be, at
any time, enforceable by anyone and shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Certificates
duly issued hereunder. All Certificates surrendered to the Owner Trustee under
the terms of this Section 4.03 shall be canceled and destroyed by the Owner
Trustee in accordance with its standard procedures without liability on its
part. The provisions of this Section 4.03 are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Certificates.
SECTION 4.04 Persons Deemed Owners. The Owner Trustee and the Depositor and
any agent of either of them may treat the Person in whose name any Certificate
is registered as the owner of such Certificate for the purpose of receiving
distributions pursuant to Section 3.05 and for all other purposes whatsoever,
and neither the Owner Trustee, the Depositor nor any such agent shall be
affected by notice to the contrary.
SECTION 4.05 Maintenance of Office or Agency. The Owner Trustee will
maintain at its expense in the Borough of Manhattan, The City of New York, State
of New York, an office or agency where Certificates may be surrendered for
registration of transfer or exchange and presented for final distribution and
where notices and demands to or upon the Trust Property in respect of the
Certificates and this Agreement may be served. Such office or agency shall
initially be
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maintained at [_____]. The Owner Trustee will give prompt written notice to the
Certificateholders and the Depositor of any change in the location of any such
office or agency.
SECTION 4.06 ERISA Considerations. No Certificate may be acquired by an
employee benefit plan, as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), that is subject to the
provisions of Title I of ERISA, a plan described in Section 4975(e)(i) of the
Code or any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan"). Each
Certificateholder, by virtue of the acquisition and holding of a Certificate,
will be deemed to have represented and warranted to the Depositor and the Owner
Trustee that such Certificateholder is not a Benefit Plan.
SECTION 4.07 Authenticating Agent. (a) The Owner Trustee may appoint one or
more authenticating agents with respect to the Certificates which shall be
authorized to act on behalf of the Owner Trustee in authenticating the
Certificates in connection with the issuance, delivery, registration of
transfer, exchange or repayment of the Certificates.
Whenever reference is made in this Agreement to the authentications of
Certificates by the Owner Trustee or the Owner Trustee's certificate of
authentication, such reference shall be deemed to include authentication on
behalf of the Owner Trustee by an authenticating agent and a certificate of
authentication executed on behalf of the Owner Trustee by an authenticating
agent. Each authenticating agent must be acceptable to the Depositor.
(b) Any institution succeeding to the corporate agency business of any
authenticating agent shall continue to be an authenticating agent without the
execution or filing of any power or any further act on the part of the Owner
Trustee or such authenticating agent. An authenticating agent may at any time
resign by giving notice of resignation to the Owner Trustee and to the
Depositor. The Owner Trustee may at any time terminate the agency of an
authenticating agent by giving notice of termination to such authenticating
agent and to the Depositor. Upon receiving such a notice of resignation or upon
such a termination, or in case at any time an authenticating agent shall cease
to be acceptable to the Owner Trustee or the Depositor, the Owner Trustee
promptly may appoint a successor authenticating agent. Any successor
authenticating agent, upon acceptance of its appointment hereunder, shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an authenticating agent. No successor
authenticating agent shall be appointed unless acceptable to the Owner Trustee
and the Depositor. The Depositor agrees to pay to each authenticating agent from
time to time reasonable compensation for its services under this Section. In the
event the Owner Trustee acts as authenticating agent hereunder, the provisions
of Article V shall be applicable to the Owner Trustee in such other capacity as
authenticating agent.
(c) Pursuant to an appointment made under this Section, the Certificates
may have endorsed thereon, in lieu of the Owner Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
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This is one of the Certificates described in the Trust Agreement referred
to herein.
------------------------------
------------------------------
as Authenticating Agent
for the Owner Trustee,
By
---------------------------
Authorized Officer
SECTION 4.08 Book-Entry Certificates. The Certificates, upon original
issuance, shall be issued in the form of one or more typewritten Certificates
representing the Book-Entry Certificates, to be delivered to DTC, the initial
Clearing Agency, by, or on behalf of, the Trust. The Certificates shall
initially be registered on the Certificate Register in the name of Cede & Co.,
the nominee of the initial Clearing Agency, and no Certificateholder will
receive a Definitive Certificate (as defined below) representing such
Certificateholder's interest in the Certificates, except as provided in Section
4.10. Unless and until definitive, fully registered Certificates ("Definitive
Certificates") have been issued to the applicable Certificateholder pursuant to
Section 4.10.:
(a) the provisions of this Section shall be in full force and effect;
(b) the Depositor and the Owner Trustee may deal with the Clearing
Agency and the Clearing Agency Participant for all purposes (including the
making of distributions in respect of the Certificates) as the authorized
representatives of the respective Certificateholders;
(c) to the extent that the provisions of this Section conflict with
any other provisions of this Agreement, the provisions of this Section
shall control;
(d) the rights of the respective Certificateholders shall be exercised
only through the Clearing Agency and the Clearing Agency participants and
shall be limited to those established by law and agreements between such
Certificateholders and the Clearing Agency and/or the Clearing Agency
Participants pursuant to the Depository Agreement. Unless and until
Definitive Certificates are issued pursuant to Section 4.10, the initial
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions of principle and
interest and any other amounts on the related Certificates to such Clearing
Agency Participants; and
(e) whenever this agreement requires or permits actions to be taken
with the consent of, or at the direction of, Certificateholders evidencing
a specified percentage of the aggregate principal amount of Outstanding
Certificates, the Clearing Agency shall be deemed to represent such
percentage only to the extent that it has received instructions to such
effect
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from Certificateholders and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the principal amount of Certificates and has delivered
instructions to the Owner Trustee.
SECTION 4.09 Notices to Clearing Agency. Whenever any notice or other
communication is required to be given to Certificateholders with respect to
which Book-Entry Certificates have been issued, unless and until Definitive
Certificates shall have been issued to the related Certificateholders, the Owner
Trustee shall give all such notices and communications to the Clearing Agency.
SECTION 4.10 Definitive Certificates. If Book-Entry Certificates have been
issued and (a) the Depositor advised the Owner Trustee that DTC is no longer
willing or able to discharge properly its responsibilities under the Depository
Agreement with respect to the Certificates and the Owner Trustee or the
Depositor is unable to locate a qualified successor, (b) the Depositor, at its
option, advises the Owner Trustee that it elects to terminate the book-entry
system with respect to the Certificates through the Clearing Agency or (c) after
the occurrence of a payment default with respect to the CRB Securities,
Certificateholders representing at least a majority of the outstanding principal
amount of Certificates advise the Clearing Agency (which shall then notify the
Owner Trustee) in writing that the continuation of a book-entry system with
respect to the Certificates through the Clearing Agency is no longer in the best
interests of the holders of such Certificates, then the Owner Trustee shall
cause the Clearing Agency to notify all holders of Certificates, through the
Clearing Agency, of the occurrence of any such event and of the availability of
Definitive Certificates to Certificateholders requesting the same. Upon
surrender to the Owner Trustee of any such Certificates representing Book-Entry
Certificates by the Clearing Agency, accompanied by instructions for
re-registration, the Owner Trustee shall execute authenticate and deliver such
Certificates as Definitive Certificates to such Certificateholders in accordance
with the instructions of the Clearing Agency. None of the Trust, the Depositor
or the Owner Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in relying on,
such instructions. Upon the issuance of such Definitive Certificate, all
references herein to obligations imposed upon or to be performed by the Clearing
Agency shall be deemed to be imposed upon and performed by the Owner Trustee, to
the extent applicable with respect to such Definitive Certificates and the Owner
Trustee shall recognize the Holders of such Definitive Certificates as
Certificateholders hereunder.
Upon the issuance of Definitive Certificates, distributions of amounts in
respect of such Definitive Certificates shall thereafter be made by the Owner
Trustee on each Distribution Date in accordance with the procedures set forth in
Section 3.05 directly to holders of Definitive Certificates in whose names the
Definitive Certificates were registered at the close of business on the related
Record Date. Such distributions shall be made by check mailed to the address of
such holder as it appears on the Certificate Register maintained by the Owner
Trustee (or, as provided in Section 3.05, by wire transfer); provided, however,
that the final payment on any such Definitive Certificate shall be made only
upon presentation and surrender of such Definitive Certificate at the office or
agency specified in the notice of final distribution to Certificateholders.
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ARTICLE V
The Owner Trustee
SECTION 5.01 Duties of the Owner Trustee. (a) The Owner Trustee undertakes
to perform such duties and only such duties as are specifically set forth in
this Agreement. The Owner Trustee shall have the authority to exercise the
rights and powers vested in it by this Agreement. Any permissive right of the
Owner Trustee set forth in this Agreement shall not be construed as a duty.
(b) The Owner Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Owner Trustee which are specifically required to be furnished to it
pursuant to any provision of this Agreement or to it in its capacity as
Collateral Holder pursuant to the Pooling and Servicing Agreement, shall examine
them to determine whether they conform to the requirements of this Agreement or
the Pooling and Servicing Agreement. If any such instrument is found not to
conform to the requirements of this Agreement or the Pooling and Servicing
Agreement in a material manner, the Owner Trustee shall take such action as a
Majority in Interest of Certificateholders shall direct, and the Owner Trustee
will provide notice thereof to the Depositor, the Certificateholders and each
Rating Agency.
(c) In the event of a default in respect of the CRB Securities, the Owner
Trustee shall proceed to enforce its rights as a holder of the CRB Securities
under the Pooling and Servicing Agreement, unless otherwise directed by a
Majority in Interest of Certificates affected thereby. The Owner Trustee may, in
its discretion, and will, if so directed by a Majority in Interest of
Certificates affected thereby, proceed to enforce any rights which it may have
as a holder of CRB Securities. In addition, a Majority in Interest of
Certificates may together direct the time, method and place of conducting any
proceeding for any remedy available to the Owner Trustee as a holder of CRB
Securities. Notwithstanding the foregoing, the Owner Trustee shall in no event
exercise any of its rights as a Collateral Holder in an manner inconsistent with
the terms of paragraphs (d) and (e) of this Section 5.01.
(d) In the event that:
(i) the Owner Trustee has the right to vote or give consent in respect
of the CRB Securities or receives a request from the trustee or the issuer
of the CRB Securities for its consent to any amendment, modification or
waiver under any document relating to the CRB Securities, or receives any
other solicitation for any action with respect to the CRB Securities,
(ii) the Depositor notifies the Owner Trustee of its determination
that taking any such action is primarily intended to maintain the initial
value or credit rating of the CRB
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Securities, and any additional consequences that might arise as a result of
taking any such action are incidental, and
(iii) either
(A) the CRB Security are in default,
(B) the Depositor notifies the Owner Trustee of its determination
that the CRB Securities will probably have their credit rating
downgraded (or be in default) in the reasonably foreseeable future
absent such action or
(C) the Depositor delivers to the Owner Trustee an opinion of tax
counsel to the effect that the Trust will continue to qualify as a
grantor trust under the Code if any such action were to be taken,
then, (x) the Owner Trustee shall mail a notice of such proposed action,
including a description thereof, to each Certificateholder of record as of such
date, (y) the Owner Trustee shall request instructions from the
Certificateholders as to whether or not to take such action and (z) the Owner
Trustee shall vote, give consent or otherwise act as Collateral Holder with
respect to a particular matter in the same proportion as the Certificates of the
Trust were actually voted with respect to such matter (or, if such a
proportional action is not permitted, in accordance with the instructions of
Holders of a Majority in Interest of the Certificates) as of a date determined
by the Owner Trustee prior to the date on which such action is required,
provided that the Owner Trustee shall have no liability for any failure to act
resulting from Certificateholders' late return of, or failure to return,
directions requested by the Owner Trustee from the Certificateholders. If each
of the conditions set forth in clauses (ii) and (iii) of the next preceding
sentence are not satisfied, then the Owner Trustee shall abstain from taking any
action with respect to any vote, consent or other action that is referred to in
clause (i) of the next preceding sentence.
(e) Notwithstanding anything to the contrary contained herein, the Owner
Trustee shall be under no obligation to exercise or enforce any of the rights or
powers vested in it by this Agreement or as the Collateral Holder, at the
request, order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Owner Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Owner Trustee in compliance with such request, order or
direction or if such request, order or direction is in conflict with any rule of
law or this Agreement. In the event of any default under this Agreement by the
Depositor or any default under the CRB Securities, subject to compliance with
paragraph (d) above, the Owner Trustee may in its discretion proceed to protect
and enforce the rights of Certificateholders by any action, suit or proceeding
deemed proper by the Owner Trustee which is not inconsistent with any request or
direction by the Holders of a Majority in Interest of the Certificates affected
thereby.
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(f) No provision of this Agreement shall be construed to relieve the Owner
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct or from liability for any negligent action or any
negligent failure to act in respect of the Trust Property, the CRB Securities or
the Pooling and Servicing Agreement in any capacity other than as Owner Trustee;
provided, however, that:
(i) the duties and obligations of the Owner Trustee shall be
determined solely by the express provisions of this Agreement, the Owner
Trustee shall not be liable except for the performance of such duties and
obligations as are specifically set forth in this Agreement, no implied
covenants or obligations shall be read into this Agreement against the
Owner Trustee and, in the absence of bad faith or negligence on the part of
the Owner Trustee, the Owner Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed therein,
upon any certificates, opinions, documents and other statements furnished
to the Owner Trustee that conform on their face to the requirements of this
Agreement;
(ii) the Owner Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Owner Trustee, unless it shall be proved that the Owner
Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Owner Trustee shall not be personally liable with respect to
any action taken, suffered or omitted to be taken by it in good faith and
believed by it to be authorized or within its discretion or authority
hereunder or in accordance with the direction of the Holders of
Certificates evidencing Percentage Interests aggregating not less than 66-
2/3% of all the Certificates relating to the time, method and place of
conducting any proceeding for any remedy available to the Owner Trustee, or
exercising any trust or power conferred upon the Owner Trustee, under this
Agreement.
SECTION 5.02 Certain Matters Affecting the Owner Trustee. Except as
otherwise provided in Section 5.01:
(i) the Owner Trustee may request and rely upon and shall be protected
in acting or refraining from acting upon any resolution, Officer's
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond or other paper or document reasonably believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(ii) the Owner Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken or suffered or omitted by it hereunder in good faith
and in accordance therewith;
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(iii) except for the duties and obligations of the Owner Trustee
expressly created by this Agreement, the Owner Trustee shall be under no
obligation to exercise any of the trusts or powers vested in it by this
Agreement or to make any investigation of matters arising hereunder or to
institute, conduct or defend any litigation hereunder or in relation hereto
at the request, order or direction of any of the Certificateholders,
pursuant to the provisions of this Agreement, or if such request or
direction is in conflict with any rule of law or this Agreement, unless
such Certificateholders shall have offered to the Owner Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may
be incurred therein or thereby; nothing contained herein shall, however,
relieve the Owner Trustee of the obligation, to use the same degree of care
and skill in its exercise of rights and remedies hereunder on behalf of
Certificateholders as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(iv) the Owner Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys;
(v) the Owner Trustee shall not be personally liable for any loss
resulting from the investment of funds held in the CRB Collection Account
pursuant to Section 3.03; and
(vi) the Owner Trustee shall not be deemed to have notice or knowledge
of any matter unless a Responsible Officer assigned to and working in the
Corporate Trust Office has actual knowledge thereof or unless written
notice thereof is received by the Owner Trustee at the Corporate Trust
Office and such notice references the Certificates generally or this
Agreement.
SECTION 5.03 Owner Trustee Not Liable for Certificates. The recitals
contained herein and in the Certificates, other than the signature of the Owner
Trustee on the Certificates and the certificate of authentication, shall be
taken as the statements of the Depositor, and the Owner Trustee assumes no
responsibility for their correctness. The Owner Trustee makes no representations
or warranties as to the validity or sufficiency of this Agreement or of the
Certificates or of the CRB Securities or related documents, other than the
signature of the Owner Trustee on the Certificates and the certificate of
authentication. The Owner Trustee shall not be accountable hereunder or under
the Certificates, except (i) for its own bad faith or negligence or (ii) in the
case of the inaccuracy of any representation or warranty contained in Section
5.12 expressly made by the Owner Trustee.
SECTION 5.04 Owner Trustee May Own Certificates. The Owner Trustee in its
individual or any other capacity may become the owner or pledgee of Certificates
with the same rights it would have if it were not Owner Trustee; provided,
however, that in determining whether the Holders of the required Percentage
Interest shall have consented to any action hereunder requiring such consent,
the Owner Trustee's interest shall be excluded.
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SECTION 5.05 Owner Trustee's Fees and Expenses. The Depositor covenants and
agrees to pay to the Owner Trustee on the Closing Date, and the Owner Trustee
shall be entitled to receive from time to time out of amounts collected and
payments received in respect of the CRB Securities, reasonable compensation
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by it
in the execution of the trusts hereby created and in the exercise and
performance of any of the powers and duties hereunder or of the Owner Trustee,
and the Depositor will pay or reimburse the Owner Trustee upon its request for
all reasonable expenses, disbursements and advances incurred or made by the
Owner Trustee in accordance with any of the provisions of this Agreement
(including the reasonable compensation and the expenses and disbursements of its
counsel and of all persons not regularly in its employ), except any such
expense, disbursement or advance as may arise from the Owner Trustee's willful
misfeasance, negligence or bad faith. The Owner Trustee and any director,
officer, employee or agent of the Owner Trustee shall be indemnified by the
Depositor and held harmless against any loss, liability or expense incurred in
connection with any legal action relating to this Agreement or the Certificates,
or the performance of any of the Owner Trustee's duties hereunder, other than
any loss, liability or expense incurred by reason of willful misfeasance, bad
faith or negligence in the performance of duties hereunder or by reason of
reckless disregard of obligations and duties hereunder; provided that (i) with
respect to any such loss, liability or expense, the Owner Trustee shall have
given to the Depositor written notice thereof promptly after the Owner Trustee
shall have knowledge thereof and (ii) while maintaining control over its own
defense, the Owner Trustee shall cooperate and consult fully with the Depositor.
Such indemnity shall survive the termination or discharge of this Agreement and
the resignation or removal of the Owner Trustee. Any payment hereunder made by
the Depositor to the Owner Trustee shall be from the Depositor's own funds,
without reimbursement from the Trust Property therefor.
SECTION 5.06 Eligibility Requirements for Owner Trustee. The Owner Trustee
shall at all times be a corporation or a national banking association organized
and doing business under the laws of any state or the United States of America
or the District of Columbia, authorized under such laws to exercise corporate
trust powers, having a combined capital and surplus of at least $50,000,000 and
the long-term debt obligations of which are rated in one of the four highest
categories assigned long-term debt obligations by one of the Rating Agencies,
and is subject to supervision or examination by federal or state authority. If
such corporation or association publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of conditions so published. In
the event that any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Owner Trustee shall resign
immediately in the manner and with the effect specified in Section 5.07. The
corporation or national banking association serving as Owner Trustee may have
normal banking and trust relationships with the Depositor and its Affiliates;
provided, however, that such corporation shall not be an Affiliate of the
Depositor.
SECTION 5.07 Resignation and Removal of the Owner Trustee.
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(a) Subject to the last sentence of this subsection (a), the Owner Trustee
may at any time resign and be discharged from the Trust hereby created by giving
notice thereof to the Depositor, the Certificateholders and each Rating Agency.
Upon receiving such notice of resignation, the Depositor (with the consent of a
Majority in Interest of Certificateholders) shall as promptly as possible (and
in any event within 30 days after the date of such notice of resignation)
appoint a successor trustee by written instrument, in duplicate, which
instrument shall be delivered to the resigning Owner Trustee and to the
successor trustee. A copy of such instrument shall be delivered to the
Certificateholders and each Rating Agency by the Depositor. If no successor
trustee shall have been so appointed and have accepted appointment within 30
days after the giving of such notice of resignation, the resigning Owner Trustee
may petition any court of competent jurisdiction for the appointment of a
successor trustee for the Certificates.
(b) If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 5.06 and shall fail to resign after
written request therefor by the Depositor or a Majority in Interest of the
Certificateholders, or if at any time the Owner Trustee shall become incapable
of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the
Owner Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Owner Trustee or of its property or affairs for
the purpose of rehabilitation, reorganization, conservation or liquidation, then
the Depositor (with the consent of a Majority in Interest of Certificateholders)
may remove the Owner Trustee and appoint a successor trustee by written
instrument, in duplicate, which instrument shall be delivered to the Owner
Trustee so removed and to the successor trustee. A copy of such instrument shall
be delivered to the Certificateholders and each Rating Agency by the Depositor.
(c) The Holders of Certificates representing not less than a Majority in
Interest of Certificateholders may at any time remove the Owner Trustee and
appoint a successor trustee upon 30 days' notice to the Owner Trustee by written
instrument or instruments, in triplicate, signed by such Holders or their
attorneys-in-fact duly authorized, one complete set of which instruments shall
be delivered to the Depositor, one complete set to the Owner Trustee so removed
and one complete set to the successor trustee so appointed. A copy of such
instrument shall be delivered to the Certificateholders and each Rating Agency
by the Depositor.
(d) Any resignation or removal of the Owner Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 5.08.
SECTION 5.08 Successor Owner Trustee. (a) Any successor trustee appointed
as provided in Section 5.07 shall execute, acknowledge and deliver to each of
the Depositor, the Certificateholders and its predecessor trustee and each
Rating Agency an instrument accepting such appointment hereunder, and thereupon
the resignation or removal of the predecessor Owner Trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as Owner Trustee herein. The predecessor Owner Trustee
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shall deliver to the successor trustee the CRB Securities and all related
documents and statements held by it hereunder, and the Depositor and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for more fully and certainly vesting
and confirming in the successor trustee all the rights, powers, duties and
obligations of the Owner Trustee under this Agreement.
No successor trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor trustee shall be eligible
under the provisions of Section 5.06.
(b) Upon acceptance of appointment by a successor trustee as provided in
this Section, the Depositor shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register.
SECTION 5.09 Merger or Consolidation of Owner Trustee. Any corporation into
which the Owner Trustee may be merged or converted or with which it may be
consolidated or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all the corporate trust business of the Owner
Trustee, shall be the successor of the Owner Trustee hereunder, provided such
corporation shall be eligible under the provisions of Section 5.06, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding. The Owner
Trustee shall provide notice of any such merger to each Rating Agency.
SECTION 5.10 Appointment of Co-Owner Trustee or Separate Owner Trustee.
(a) Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Property or property securing the same may at the time be located,
the Depositor and the Owner Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Owner Trustee to act as co-trustee or co-trustees, jointly with
the Owner Trustee, or separate trustee or separate trustees, of all or any part
of the Trust Property, and to vest in such Person or Persons, in such capacity,
such title to the Trust Property, or any part thereof, and subject to the other
provisions of this Section 5.10, such powers, duties, obligations, rights and
trusts as the Depositor and the Owner Trustee may consider necessary or
desirable. If the Depositor shall not have joined in such appointment within 15
days after the receipt by it of a request so to do, the Owner Trustee alone
shall have the power to make such appointment. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 5.06 hereunder and no notice to Holders of Certificates or
Rating Agencies of the appointment of co-trustee(s) or separate trustee(s) shall
be required under Section 5.08.
(b) In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 5.10, all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee
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shall be conferred or imposed upon and exercised or performed by the Owner
Trustee and such separate trustee or co-trustee jointly (it being understood
that such separate trustee or co-trustee is not authorized to act separately
without the Owner Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts are to be
performed, the Owner Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust Property or any portion thereof in
any such jurisdiction) shall be exercised and performed by such separate trustee
or co-trustee at the direction of the Owner Trustee. The Depositor and the Owner
Trustee acting jointly may at any time accept the resignation or remove any
separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article V. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Every such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Depositor.
(d) Any separate trustee or co-trustee may, at any time, constitute and
appoint the Owner Trustee as its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Owner Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 5.11 Accounting and Reports to the Holders, the Internal Revenue
Service and Others. The Owner Trustee shall (a) maintain (or cause to be
maintained) the books of the Trust on a calendar year basis and the accrual
method of accounting, (b) deliver to each Holder, as may be required by the Code
and applicable Treasury Regulations, such information as may be required
(including Schedule K-1) to enable each Holder to prepare its federal and state
income tax returns, (c) file such tax returns relating to the Trust (including a
partnership information return, IRS Form 1065) and make such elections as from
time to time may be required or appropriate under any applicable state or
federal statute or any rule or regulation thereunder so as to maintain the
Trust's characterization as a partnership for federal income tax purposes, (d)
cause such tax returns to be signed in the manner required by law and (e)
collect or cause to be collected any withholding tax required to be collected
under the Code and applicable Treasury Regulations as with respect to income or
distributions to Holders. The Owner Trustee shall elect under Section 1278 of
the Code to include in income
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currently any market discount that accrues with respect to the CRB Securities.
The Owner Trustee shall not make the election provided under Section 754 of the
Code.
SECTION 5.12 Signature on Returns; Tax Matters Partner. (a) The Owner
Trustee shall sign on behalf of the Trust the tax returns of the Trust unless
applicable law requires a Holder to sign such documents, in which case such
documents shall be signed by the Depositor.
(b) The Depositor shall be designated the "tax matters partner" of the
Trust pursuant to Section 6231(a)(7)(A) of the Code and applicable Treasury
Regulations.
SECTION 5.13 Representations and Warranties of Owner Trustee. (a) The Owner
Trustee represents and warrants that:
(i) the Owner Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
association;
(ii) the Owner Trustee has full power, authority and right to execute,
deliver and perform its duties and obligations under this Agreement and the
Certificates and has taken all necessary action to authorize the execution,
delivery and performance by it (or, with respect to the Certificates, by it
and an authenticating agent on its behalf, if applicable) of this Agreement
and the Certificates;
(iii) the execution and delivery of this Agreement and the
Certificates by the Owner Trustee and its performance of the compliance
with the terms of this Agreement, and the Certificates will not violate the
Owner Trustee's articles of incorporation, association or other
constitutive documents or By-laws or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the breach or acceleration of, any material contract,
agreement or other instrument to which the Owner Trustee is a party or
which may be applicable to the Owner Trustee or any of its assets;
(iv) as of the Closing Date, each of this Agreement and the
Certificates have been duly executed and delivered by the Owner Trustee
(and, with respect to the Certificates, by an authenticating agent on its
behalf, if applicable) and this Agreement constitutes the legal, valid and
binding obligation of the Owner Trustee, enforceable in accordance with its
terms, except as enforcement may be limited by the applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights
of creditors generally and general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law);
(v) the Owner Trustee is not in violation, and the execution and
delivery of this Agreement and the Certificates by the Owner Trustee and
its performance and compliance with the respective terms of this Agreement
and the Certificates will not
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constitute a violation, of any order or decree of any court or any order or
regulation of any federal, state, municipal or governmental agency having
jurisdiction over the Owner Trustee or its properties, which violation
would reasonably be expected to have a material adverse effect on the
condition (financial or otherwise) or operations of the Owner Trustee or
its properties or on the performance of its duties thereunder);
(vi) there are no actions or proceedings against, or investigations
of, the Owner Trustee pending, or, to the knowledge of the Owner Trustee,
threatened, before any court, administrative agency or other tribunal (A)
that could reasonably be expected to prohibit its entering into this
Agreement or to render the Certificates invalid, (B) seeking to prevent the
issuance of the Certificates or the consummation of any of the transactions
contemplated hereunder or (C) that could reasonably be expected to prohibit
or materially and adversely affect the performance by the Owner Trustee of
its obligations under, or the validity or enforceability of this Agreement
or the Certificates; and
(vii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Owner Trustee of, or compliance by the Owner Trustee
with, this Agreement or the Certificates, or for consummation of the
transactions contemplated herein, except for such consents, approvals,
authorizations and orders, if any, as have been obtained prior to the
Closing Date.
(b) Within 30 days of the earlier of discovery by the Owner Trustee or
receipt by the Owner Trustee of notice from the Depositor or any
Certificateholder of a breach of any representation or warranty of the Owner
Trustee set forth in paragraph (a) above that materially and adversely affects
the interests of the Certificateholders, the Owner Trustee shall promptly cure
such breach in all material respects.
SECTION 5.14 Limitation of Powers and Duties. The Trust is constituted
solely for the purposes of acquiring and holding the CRB Securities, issuing the
Certificates and the Notes, making distributions thereon and other activities
incidental thereto. The Owner Trustee is not authorized to acquire any other
investments or engage in any activities not authorized herein and, in
particular, the Owner Trustee is not authorized (i) to sell, assign, transfer,
exchange, pledge, set-off or otherwise dispose of any of the CRB Securities or
interests therein, including to Certificateholders (except the creation of the
Lien of the Indenture and except upon termination of the Trust in accordance
with Article VII or in accordance with Section 5.01), (ii) to do anything that
would cause the Trust to fail or cease to qualify as a "grantor trust" for
Federal income tax purposes or (iii) to do anything that would cause the assets
of a Trust to be treated as "plan assets" as determined pursuant to the Plan
Assets Regulation.
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ARTICLE VI
The Depositor
SECTION 6.01 Liability of the Depositor. The Depositor shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
upon and undertaken by the Depositor herein.
SECTION 6.02 Merger, Consolidation or Conversion of the Depositor. Subject
to the following paragraph, the Depositor will keep in full effect its
existence, rights and franchises as a corporation under the laws of the
jurisdiction of its incorporation, and will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement and the Certificates and to perform its duties
under this Agreement.
The Depositor may be merged or consolidated with or into any Person, or
transfer all or substantially all of its assets to any Person, in which case any
Person resulting from any merger or consolidation to which the Depositor shall
be a party, or any Person succeeding to the business of the Depositor, shall be
the successor of the Depositor hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 6.03 Limitation on Liability of the Depositor and Others. Neither
the Depositor nor any of the directors, officers, employees or agents of the
Depositor shall be under any liability to the Trust, the Owner Trustee or the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement or for errors in judgment;
provided, however, that this provision shall not protect the Depositor or any
such person against any breach of warranties or representations made herein, or
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence. The Depositor and any director,
officer, employee or agent of the Depositor may rely in good faith on any
document of any kind which, prima facie, is properly executed and submitted by
any Person respecting any matters arising hereunder. The Depositor and any
director, officer, employee or agent of the Depositor shall be indemnified and
held harmless by the Trust Property against any loss, liability or expense
incurred in connection with any legal action relating to this Agreement or the
Certificates, other than any loss, liability or expense incurred by reason of
any breach of warranties or representations made by it herein, or willful
misfeasance, bad faith or gross negligence. The Depositor shall not be under any
obligation to appear in, prosecute or defend any legal action unless such action
is related to its duties under this Agreement and which in its opinion does not
involve it in any expense or liability.
ARTICLE VII
Termination; Optional Purchase
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of CRB Securities
SECTION 7.01 Termination. (a) The respective obligations and
responsibilities of the Depositor and the Owner Trustee created hereby with
respect to the Certificates (other than the obligation to make certain payments
and to send certain notices to Certificateholders as hereinafter set forth)
shall terminate immediately upon the occurrence of the last action required to
be taken by the Owner Trustee on the Distribution Date pursuant to this Article
VII following the earlier to occur of (i) the final distribution by the Owner
Trustee of all money or other property or proceeds of the Trust Property in
accordance with the terms hereof and the terms of the Indenture and the Notes,
and (ii) the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of St. James, living on the date hereof.
(b) Notice of any termination, specifying the Distribution Date upon which
all Certificateholders may surrender their Certificates to the Owner Trustee for
payment and cancellation, shall be given promptly by the Owner Trustee by letter
to Certificateholders mailed no later than the first day of the month of such
final distribution specifying (i) the Distribution Date upon which final payment
of the Certificates will be made upon presentation and surrender of Certificates
at the office or agency appointed by the Owner Trustee for that purpose, (ii)
the amount of any such final payment and (iii) that the Record Date otherwise
applicable to such Distribution Date is not applicable and that payments shall
be made only upon presentation and surrender of the Certificates at the office
or agency of the Owner Trustee therein specified. Upon presentation and
surrender of the Certificates, the Owner Trustee shall cause to be distributed
to Certificateholders an amount equal to the amount otherwise distributable on
such Distribution Date.
(c) Any funds not distributed on the final Distribution Date because of the
failure of any Certificateholders to tender their Certificates shall be set
aside and held in trust for the account of the appropriate nontendering
Certificateholders, whereupon the Trust Property shall terminate. If any
Certificates as to which notice of the termination date has been given pursuant
to this Section 7.01 shall not have been surrendered for cancellation within six
months after the time specified in such notice, the Owner Trustee shall mail a
second notice to the remaining Certificateholders, at their last addresses shown
in the Certificate Register, to surrender their Certificates for cancellation in
order to receive, from such funds held, the final distribution with respect
thereto. If within one year after the second notice any Certificate shall not
have been surrendered for cancellation, the Owner Trustee shall directly or
through an agent, take reasonable steps to contact the remaining
Certificateholders concerning surrender of their Certificates. The costs and
expenses of maintaining such funds and of contacting Certificateholders shall be
paid out of the assets which remain held. If within two years after the second
notice any Certificates shall not have been surrendered for cancellation, the
Owner Trustee shall pay to the Depositor all amounts distributable to the
Holders thereof and the Depositor shall thereafter hold such amounts for the
benefit of such Holders. No interest shall accrue or be payable to any
Certificateholder on any amount held as a result of such Certificateholder's
failure to surrender its Certificate(s) for final payment thereof in accordance
with this Section 7.01.
37
<PAGE>
SECTION 7.02 Optional Purchase of CRB Securities. As of any Distribution
Date as of which the then outstanding Aggregate Collateral Balance is [5%] or
less of the Aggregate Collateral Balance as of the Cutoff Date, the Depositor
shall have the option to purchase the outstanding CRB Securities. To exercise
such option, the Depositor shall deposit in the CRB Collection Account an amount
equal to the aggregate unpaid principal balance of the then outstanding CRB
Securities together with any accrued interest thereon through the related CRB
Security Payment Date, and shall succeed to all interests of the Trust, the
Owner Trustee and the Certificateholders in and to such CRB Securities. The
Owner Trustee shall apply such funds deposited in the CRB Collection Account by
the Depositor pursuant to this Section 7.02 in order to retire the Certificates
as of such Distribution Date.
ARTICLE VIII
Miscellaneous
SECTION 8.01 Amendment; Waiver. (a) This Agreement may be amended from time
to time by the Depositor and the Owner Trustee without the consent of any of the
Certificateholders (i) to cure any ambiguity, (ii) to correct or supplement any
provisions herein which may be defective or inconsistent with any other
provisions herein, (iii) to add any other provisions with respect to matters or
questions arising under this Agreement not inconsistent with the terms of this
Agreement or (iv) if such amendment, as evidenced by an Opinion of Counsel
delivered to the Owner Trustee, is reasonably necessary to comply with any
requirements imposed by the Code or other written official announcement or
interpretation relating to federal income tax laws or any such proposed action
which, if made effective, would apply retroactively to the Trust Property at
least from the effective date of such amendment; provided that such action
(except any amendment described in (iv) above) shall not, as evidenced by an
Opinion of Counsel delivered to the Owner Trustee, adversely affect in any
material respect the rights of any Certificateholder.
(b) Without limiting the generality of the foregoing, this Agreement may
also be amended from time to time by the Depositor and the Owner Trustee with
the consent of the Holders of Certificates evidencing not less than 66-2/3% of
the then outstanding aggregate 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 this Agreement or of modifying in any manner the rights of
the Certificateholders; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments required to
be distributed on any such Certificate without he consent of the Holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
Holders of Certificates in a manner other than as described in clause (i),
without the consent of the Holders of Certificates evidencing not less than
66-2/3% of the then outstanding aggregate principal amount or (iii) change the
aforesaid percentages of Certificates the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all such
Certificates then outstanding.
38
<PAGE>
(c) Promptly after the execution of any such amendment, the Owner Trustee
shall furnish a written statement describing the substance of the amendment to
each Certificateholder and each Rating Agency.
It shall not be necessary for the consent of Certificateholders under this
Section 8.01 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Owner Trustee may prescribe.
(d) Notwithstanding the foregoing, no amendment or modification to this
Agreement shall be permitted unless the Owner Trustee receives an Opinion of
Counsel that such amendment or modification will not alter the status of the
trust for United States federal income tax purposes.
(e) The Holders of Certificates representing not less than a Majority in
Interest of Certificateholders may, on behalf of all Certificateholders, waive
in writing any default by the Depositor or the Owner Trustee in the performance
of its obligations hereunder and any consequences thereof, except a default by
the Owner Trustee in failing to distribute amounts received in respect of the
CRB Securities and except a default in respect of a covenant or provision the
modification or amendment of which would require the consent of the Holder of
each Outstanding Certificate affected thereby. Upon any such waiver of a past
default, such default shall cease to exist; provided, however, that no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereto.
SECTION 8.02 Limitation on Rights of Certificateholders. (a) The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Property, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Property, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
(b) No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Property, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of any association; nor shall any Certificateholder be under
any liability to any third party by reason of any action taken by the parties to
this Agreement pursuant to any provision hereof.
(c) No Certificateholder shall have any right by virtue of any provision of
this Agreement to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Agreement, unless (i) the Holders of
Certificates evidencing Percentage Interests aggregating not less than 25% of
all the Certificates shall have made written request upon the Owner Trustee to
institute such action, suit or proceeding in its own name as Owner Trustee
hereunder and shall have
39
<PAGE>
offered to the Owner Trustee such reasonable indemnity as it may require against
the costs, expenses and liabilities to be incurred therein or thereby, (ii) the
Owner Trustee, for 60 days after its receipt of such notice, request and offer
of indemnity, shall have neglected or refused to institute any such action, suit
or proceeding and (iii) no direction inconsistent with such written request
shall have been given to the Owner Trustee during such 60-day period by the
Holders of Certificates evidencing a majority of Percentage Interests of all the
Certificates. It is understood and agreed that the Owner Trustee shall be under
no obligation to make any investigation of matters arising under this Agreement
or to institute conduct or defend any litigation hereunder or in relation hereto
at the request, order or direction of any Certificateholders unless such
Certificateholders have offered to the Owner Trustee the reasonable indemnity
referred to above. It is further understood and agreed, and expressly covenanted
by each Certificateholder with every other Certificateholder and the Owner
Trustee, that no one or more Holders of Certificates shall have any right in any
manner whatever by virtue of any provision of this Agreement to affect, disturb
or prejudice the rights of the Holders of any other Certificates, or to obtain
or seek to obtain priority over or preference to any other such Holder, or to
enforce any right under this Agreement, except in the manner herein provided.
For the protection and enforcement of the provisions of this Section, each and
every Certificateholder and the Owner Trustee shall be entitled to such relief
as can be given either at law or in equity.
SECTION 8.03 Governing Law. This Agreement and the Certificates shall be
construed in accordance with the laws of the State of New York without reference
to such state's principles of conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby, and
the obligations, rights and remedies of the parties hereunder shall be
determined in accordance with such laws.
SECTION 8.04 Notices. All demands, notices and directions hereunder shall
be in writing and shall be deemed effective upon receipt if personally delivered
at or mailed by registered or first class mail, postage prepaid, by express
delivery service or by telecopy when confirmed in writing, to:
(a) in the case of the Depositor,
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Attention: ________________________
(b) in the case of the Owner Trustee,
___________________________________
___________________________________
___________________________________
Attention: ________________________
40
<PAGE>
or, in each case, such other address as may hereafter be furnished by any party
to the others. Any notice required or permitted to be mailed to a
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 8.05 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
SECTION 8.06 Notice to Each Rating Agency. The Owner Trustee shall use its
best efforts promptly to provide notice to each Rating Agency with respect to
each of the following of which it has actual knowledge:
(i) any material change or amendment to this Agreement;
(ii) the resignation or termination of the Owner Trustee;
(iii) the final payment to Holders of the Certificates; and
(iv) any change in the location of the CRB Collection Account.
In addition, the Owner Trustee shall promptly furnish to each Rating Agency
copies of each report to Certificateholders described in Section 3.07. Any such
notice pursuant to this Section shall be in writing and shall be deemed to have
been duly given if personally delivered or mailed by first class mail, postage
prepaid, or by express delivery service to each Rating Agency at the address
provided to the Owner Trustee from time to time.
SECTION 8.07 No Petition. Each of the Owner Trustee and the Depositor, by
entering into this Agreement, and each Certificateholder, by accepting a
Certificate, hereby covenant and agree that they will not at any time institute
against the Trust, or join in any institution against the Trust of, any
bankruptcy proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Certificates, or
this Agreement. The Owner Trustee covenants and agrees that it will have secured
a written acknowledgment (which need not be a separate document) from any Person
proposing to provide any service by such Person, that such Person will not at
any time institute against the Trust, or join in any institution against the
Trust of, any bankruptcy proceedings under any United States federal or state
bankruptcy or similar law in connection with the provision of such service.
41
<PAGE>
SECTION 8.08 No Recourse. Each Certificateholder by accepting a Certificate
acknowledges that such Certificateholder's Certificates represent beneficial
interests in the Trust only and do not represent interests in or obligations of
the Depositor, the Owner Trustee, or any Affiliate, employee or agent of the
foregoing Persons and no recourse may be had against such Persons or their
respective assets, except as may be expressly set forth in this Agreement or the
Certificates.
SECTION 8.09 Grant of Security Interest. It is the express intent of the
parties to this Agreement that the conveyance of the CRB Securities by the
Depositor to the Owner Trustee be, and be construed as, a sale of the CRB
Securities by the Depositor and not a pledge of any CRB Securities by the
Depositor to secure a debt or other obligation of the Depositor. However, in the
event that, notwithstanding the aforementioned intent of the parties, any CRB
Securities are held to be property of the Depositor, then, (a) it is the express
intent of the parties that such conveyance be deemed a pledge of such CRB
Securities by the Depositor to the Owner Trustee to secure a debt or other
obligation of the Depositor and (b)(1) this Agreement shall also be deemed to be
a security agreement within the meaning of Articles 8 and 9 of the Uniform
Commercial Code as in effect from time to time in the State of New York; (2) the
conveyance provided for in Section 2.01 shall be deemed to be a grant by the
Depositor to the Owner Trustee of a security interest in all the Depositor's
right, title and interest in and to such CRB Securities and all amounts payable
to the holders of such CRB Securities in accordance with the terms thereof and
all proceeds of the conversion, voluntary or involuntary, of the foregoing into
cash, instruments, securities or other property, including all amounts from time
to time held or invested in the CRB Collection Account, whether in the form of
cash, instruments, securities or other property; (3) the obligations secured by
such security agreement shall be deemed to be all the Depositor's obligations
under this Agreement, including the obligation to provide to the
Certificateholders the benefits of this Agreement; and (4) notifications to
persons holding such property, and acknowledgments, receipts or confirmations
from persons holding such property, shall be deemed notifications to, or
acknowledgements, receipts or confirmation from, financial intermediaries,
bailees or agents (as applicable) of the Owner Trustee for the purpose of
perfecting such security interest under applicable law. Accordingly, the
Depositor hereby grants to the Owner Trustee a security interest in the CRB
Securities and all other property described in clause (2) of the immediately
preceding sentence for the purpose of securing to the Owner Trustee the
performance by the Depositor of the obligations described in clause (3) of the
immediately preceding sentence. Notwithstanding the foregoing, the parties to
this Agreement intend the transfer pursuant to Section 2.01 to be true, absolute
and unconditional sale of the CRB Securities and assets constituting the Trust
Property by the Depositor to the Owner Trustee. The depositor and the Owner
Trustee shall to the extent consistent with this Agreement take such actions as
may be necessary to ensure that, if this Agreement were deemed to create a
security interest in the CRB Securities, such security interest would be deemed
to be a perfected security interest of first priority under applicable law and
will be maintained as such for so long as any of the CRB Securities remain
outstanding. Without limiting the generality of the foregoing, the Owner Trustee
shall file, or shall cause to be filed, all filings necessary to maintain the
effectiveness of any original filings necessary under the Uniform Commercial
Code as in effect in any jurisdiction to perfect the Owner Trustee's security
interest in or lien on the CRB Securities, including (x) continuation statements
and (y) such other statements as may be occasioned by (A) any change of name of
the Depositor or the Owner
42
<PAGE>
Trustee, (B) any change of location of the place of business or the chief
executive office of the Depositor or (C) any transfer of any interest of the
Depositor in any CRB Security.
SECTION 8.10 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the respective successors and
assigns of the parties hereto, and all such provisions shall inure to the
benefit of the Certificate holders.
SECTION 8.11 Article and Section Headings. The article and section headings
herein are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
SECTION 8.12 Certificates Nonassessable and Fully Paid. It is the intention
of this Agreement that Certificateholders shall not be personally liable for
obligations of the Trust Property, that the beneficial ownership interests
represented by the Certificates shall be nonassessable for any losses or
expenses of the Trust Property or for any reason whatsoever, and that
Certificates, upon execution, authentication and delivery thereof by the Owner
Trustee pursuant to Section 2.04, are and shall be deemed fully paid.
IN WITNESS WHEREOF, the Depositor and the Owner Trustee have caused their
names to be signed hereto by their respective officers thereunto duly
authorized, all as of the day and year first above written.
ASSET BACKED SECURITIES
CORPORATION., as Depositor
by: ___________________________________
Name:
Title:
[OWNER TRUSTEE NAME], not in its
individual capacity but solely as Owner
Trustee
by: ___________________________________
Name:
Title:
43
<PAGE>
EXHIBIT A
---------
NUMBER $
R- CUSIP NO.
SEE REVERSE FOR CERTAIN DEFINITIONS
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE PRINCIPAL BALANCE OF THIS CERTIFICATE IS DISTRIBUTABLE IN INSTALLMENTS
AS SET FORTH IN THE TRUST AGREEMENT. ACCORDINGLY, THE OUTSTANDING PRINCIPAL
BALANCE OF THIS CERTIFICATE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE
FACE HEREOF.
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST IN, AND
IS NOT GUARANTEED BY THE DEPOSITOR OR THE OWNER TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THIS CERTIFICATE, THE CRB SECURITIES OR THE
UNDERLYING ACCOUNTS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR ANY
OTHER PERSON.
THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT
PLAN.
A-1
<PAGE>
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ]
[ %] [FLOATING RATE] [ADJUSTABLE RATE] [VARIABLE RATE]
ASSET BACKED CERTIFICATE
evidencing a fractional undivided beneficial ownership interest in the Trust, as
defined below, the property of which included certain CRB Securities created
pursuant to a Pooling and Servicing Agreement[s] dated as of [ ], 199[ ],
among [_____], as seller, [_____], as servicer, and [_____], as trustee, and
distributions thereon, deposited in trust by Asset Backed Securities Corp. (the
"Depositor").
THIS CERTIFIES THAT [_____], is the registered owner of [ ] DOLLARS
nonassessable, fully-paid, fractional undivided interest in Card Account Trust,
Series 199[ ]-[ ] formed by the Depositor. The Certificates have a pass-through
rate of [[ %] per annum] [insert interest rate formula].
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates described in the Trust Agreement referred
to herein.
[OWNER TRUSTEE NAME], not in _____________________________________
its individual capacity but solely as _____________________________________
Owner Trustee, or as Authenticating Agent for the Owner
Trustee,
by by
__________________ __________________
Authorized Officer Authorized Officer
The Trust was created pursuant to a Trust Agreement dated as of [ ],
199[ ] (the "Trust Agreement"), between the Depositor and [_____], a New York
banking corporation, not in its individual capacity but solely as Owner Trustee
(the "Owner Trustee"). Reference is hereby made to the Trust Agreement for
information with respect to the interests, rights, benefits, obligations,
proceeds and duties evidenced hereby and the rights, duties and obligations of
the Owner Trustee with respect hereto. A copy of the Trust Agreement may be
obtained from the Owner Trustee by written request sent to the Corporate Trust
Office. Capitalized terms used but not defined herein have the meanings assigned
to them in the Trust Agreement.
This Certificate is one of the duly authorized Certificates designated as
"[ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed
Certificates" (herein called the "Certificates") pursuant to the Trust
Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Trust Agreement, to which the acceptance hereof
assents and by which such Holder is bound. The Trust Property consists of: (i)
certain CRB Securities described
A-2
<PAGE>
in the Trust Agreement; (ii) all distributions thereon on and after the Cutoff
Date; and (iii) the CRB Collection Account and such assets that are deposited
therein from time to time and any investments thereof, together with any and all
income, proceeds and payments with respect thereto.
Pursuant to the terms of the Trust Agreement, distributions will be made on
each Distribution Date, commencing on [ ], 199[ ], to the Person in whose
name this Certificate is registered on the applicable Record Date, in an amount
equal to such Certificateholder's fractional undivided interest in the amount
required to be distributed to the Holders of the Certificates on such
Distribution Date. The Record Date applicable to any Distribution Date is the
close of business on the day immediately preceding such Distribution Date (or,
in the event Definitive Certificates are issued, the last day of the month
preceding the month in which such Distribution Date occurs).
Each Certificateholder, by its acceptance of a Certificate, covenants and
agrees that such Certificateholder will not at any time institute against the
Trust, or join in any institution against the Trust of, any bankruptcy
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Certificates or the Trust
Agreement.
Distributions made on this Certificate will be made as provided in the
Trust Agreement by the Owner Trustee by wire transfer in immediately available
funds, or check mailed to the Certificateholder of record in the Certificate
Register without the presentation or surrender of this Certificate or the making
of any notation hereon, except that with respect to Certificates registered on
the Record Date in the name of the nominee of the Clearing Agency (initially,
such nominee shall be Cede & Co.), payments will be made by wire transfer in
immediately available funds to the account designated by such nominee. Except as
otherwise provided in the Trust Agreement and notwithstanding the above, the
final distribution on this Certificate will be made after due notice by the
Owner Trustee of the pendency of such distribution and only upon presentation
and surrender of this Certificate at the Corporate Trust Office or such other
location as may be specified in such notice.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Owner Trustee, by manual signature, this Certificate shall not
entitle the holder hereof to any benefit under the Trust Agreement or be valid
for any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE HOLDER HEREOF SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-3
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee has caused this Certificate to be
duly executed as of the date set forth below.
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ],
by [OWNER TRUSTEE NAME],
not in its individual capacity but solely as
Owner Trustee
by: ________________________________________
Authorized Officer
Dated: [ ], 199[ ]
A-4
<PAGE>
(REVERSE OF TRUST CERTIFICATE)
The Certificates are limited in right of distribution to certain
collections and recoveries respecting the CRB Securities, all as more
specifically set forth herein and in the Trust Agreement. The registered Holder
hereof, by its acceptance hereof, agrees that it will look solely to the Trust
Property (to the extent of its rights therein) for distributions hereunder. As
provided in the Trust Agreement, withdrawals from the CRB Collection Account may
be made from time to time for purposes other than, and, in certain cases, prior
to, distributions to Certificateholders, such purposes including reimbursement
of certain expenses incurred with respect to the Trust Property.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor and the Owner Trustee and the rights of the Certificateholders under
the Trust Agreement at any time by the Depositor and the Owner Trustee with the
consent of the Holders of Certificates evidencing at least 66-2/3% of the then
outstanding aggregate principal amount subject to certain provisions set forth
in the Trust Agreement. Any such consent by the Holder of this Certificate (or
any predecessor Certificate) shall be conclusive and binding on such Holder and
upon all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Trust Agreement also
permits the amendment thereof, in certain limited circumstances, without the
consent of the Holders of any of the Certificates.
The Certificates are issuable in fully registered form only in minimum
original principal amounts of $1,000 and integral multiples thereof. As provided
in the Trust Agreement and subject to certain limitations therein set forth,
Certificates are exchangeable for new Certificates of the same principal amount,
class, original issue date and maturity, in authorized denominations as
requested by the Holder surrendering the same.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Owner Trustee in the Borough of Manhattan, the City of New York, duly
endorsed by or accompanied by an assignment in the form below and by such other
documents as required by the Trust Agreement, and thereupon one or more new
Certificates of the same class in authorized denominations evidencing the same
principal amount will be issued to the designated transferee or transferees. The
initial Certificate Registrar appointed under the Trust Agreement is [_____],
New York, New York.
No service charge will be made for any registration of transfer or
exchange, but the Owner Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Certificates.
A-5
<PAGE>
The Depositor and the Owner Trustee and any agent of the Depositor or the
Owner Trustee may treat the Person in whose name this Certificate is registered
as the owner hereof for all purposes, and neither the Depositor, the Owner
Trustee, nor any such agent shall be affected by any notice to the contrary.
The Trust and the obligations of the Depositor and the Owner Trustee
created by the Trust Agreement with respect to the Certificates shall terminate
upon distribution (or provision for distribution) to the Certificateholders of
all amounts held by or on behalf of the Owner Trustee and required to be
distributed to them pursuant to the Trust Agreement following the earlier to
occur of (i) the final distribution by the Owner Trustee of all moneys or other
property or proceeds of the Trust Property in accordance with the terms of the
Trust Agreement and (ii) the expiration of 21 years from the death of the last
survivor of the descendants of Joseph P. Kennedy, the late Ambassador of the
United States to the Court of St. James, living on the date hereof.
The Depositor may at its option purchase the outstanding CRB Securities at
a price specified in the Trust Agreement, and such purchase of the CRB
Securities will effect early retirement of the Certificates; however, the
Depositor may exercise such right of purchase only as of a Distribution Date as
of which the then outstanding Aggregate Collateral Balance is [5%] or less of
the Aggregate Collateral Balance as of the Cutoff Date.
The Certificates may not be acquired by or for the account of (i) an
employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to
the provisions of Title I of ERISA, (ii) a plan described in Section 4975(e)(i)
of the Code or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
acquiring and holding this Certificate, the Holder hereof shall be deemed to
have represented and warranted that it is not a Benefit Plan.
A-6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the Undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________
Please print or type name and address, including postal zip code, or assignee)
________________________________________________________________
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________ Attorney to
transfer said Trust Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
_________________________________*
Signature Guaranteed:
_________________________________*
* NOTICE: The signature to this assignment must correspond with the name as
it appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-7
<PAGE>
EXHIBIT B
---------
CRB SECURITY SCHEDULE
[To come]
Issuer
Servicer
Trustee
Designation
Principal Amount to be Sold to
Trust
(i) Original Principal Amount
as of date of Issuance
(ii) Fractional Undivided
interest was compared to
Aggregate Collateral
Balance
B-1
<PAGE>
EXHIBIT C
---------
POOLING AND SERVICING AGREEMENT
[To come]
C-1
<PAGE>
EXHIBIT D
---------
FORM OF DEPOSITORY AGREEMENT[S]
[To come]
D-1
Exhibit 4.4.5
================================================================================
[FORM OF TRUST AGREEMENT]
between
ASSET BACKED SECURITIES CORPORATION,
Depositor
and
[TRUSTEE NAME],
as Trustee
Dated as of [ ], 199[ ]
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions and Usage.........................................1
SECTION 1.01 Defined Terms............................................1
SECTION 1.02 Other Definitional Provisions and Rules of Construction..8
ARTICLE II Conveyance of the CRB Certificates;Original Issuance of
Certificates..................................................8
SECTION 2.01 Creation and Declaration of Trust; Conveyance of the
CRB Certificates.........................................8
SECTION 2.02 Acceptance by Trustee...................................10
SECTION 2.03 Representations and Warranties of the Depositor.........10
SECTION 2.04 Agreement to Authenticate and Deliver Certificates......12
ARTICLE III Administration of the Trust Property; Distributions and
Reports to Certificateholders................................12
SECTION 3.01 Administration of the Trust Property....................12
SECTION 3.02 Certificate Account.....................................12
SECTION 3.03 Investment of Funds in the Certificate Account..........13
SECTION 3.04 Permitted Withdrawals from the Certificate Account......13
SECTION 3.05 Distributions...........................................14
SECTION 3.06 Compliance with Withholding Requirements................15
SECTION 3.07 Statements to Certificateholders........................15
SECTION 3.08 Reports of the Trustee; Certificate Account.............16
SECTION 3.09 Access to Certain Documentation and Information.........16
ARTICLE IV The Certificates.............................................17
SECTION 4.01 The Certificates........................................17
SECTION 4.02 Registration of Transfer and Exchange of Certificates...17
SECTION 4.03 Mutilated, Destroyed, Lost or Stolen Certificates.......18
SECTION 4.04 Persons Deemed Owners...................................19
SECTION 4.05 Maintenance of Office or Agency.........................19
SECTION 4.06 ERISA Considerations....................................19
SECTION 4.07 Authenticating Agent....................................19
SECTION 4.08 Book-Entry Certificates.................................20
SECTION 4.09 Notices to Clearing Agency..............................21
SECTION 4.10 Definitive Certificates.................................21
</TABLE>
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<TABLE>
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ARTICLE V The Trustee..................................................22
SECTION 5.01 Duties of the Trustee...................................22
SECTION 5.02 Certain Matters Affecting the Trustee...................24
SECTION 5.03 Trustee Not Liable for Certificates.....................25
SECTION 5.04 Trustee May Own Certificates............................25
SECTION 5.05 Trustee's Fees and Expenses.............................25
SECTION 5.06 Eligibility Requirements for Trustee....................26
SECTION 5.07 Resignation and Removal of the Trustee..................26
SECTION 5.08 Successor Trustee.......................................27
SECTION 5.09 Merger or Consolidation of Trustee......................28
SECTION 5.10 Appointment of Co-Trustee or Separate Trustee...........28
SECTION 5.11 Tax Returns.............................................29
SECTION 5.12 Representations and Warranties of Trustee...............29
SECTION 5.13 Limitation of Powers and Duties.........................30
ARTICLE VI The Depositor................................................31
SECTION 6.01 Liability of the Depositor..............................31
SECTION 6.02 Merger, Consolidation or Conversion of the Depositor....31
SECTION 6.03 Limitation on Liability of the Depositor and Others.....31
ARTICLE VII Termination; Optional Purchase of CRB Certificates...........32
SECTION 7.01 Termination.............................................32
SECTION 7.02 Optional Purchase of CRB Certificates...................33
ARTICLE VIII Miscellaneous................................................33
SECTION 8.01 Amendment; Waiver.......................................33
SECTION 8.02 Limitation on Rights of Certificateholders..............34
SECTION 8.03 Governing Law...........................................35
SECTION 8.04 Notices.................................................35
SECTION 8.05 Severability of Provisions..............................36
SECTION 8.06 Notice to Each Rating Agency............................36
SECTION 8.07 No Petition.............................................36
SECTION 8.08 No Recourse.............................................37
SECTION 8.09 Grant of Security Interest..............................37
SECTION 8.10 Successors and Assigns..................................38
SECTION 8.11 Article and Section Headings............................38
SECTION 8.12 Certificates Nonassessable and Fully Paid...............38
</TABLE>
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TRUST AGREEMENT dated as of [ ____ ], 199[ ], between ASSET BACKED
SECURITIES CORPORATION, as depositor (the "Depositor"), and [TRUSTEE NAME], not
in its individual capacity but solely as trustee (the "Trustee")
In consideration of the mutual agreements herein contained, the Depositor
and the Trustee agree as follows:
ARTICLE I
Definitions and Usage
SECTION 1.01 Defined Terms. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
following meanings:
"Affiliate" means, as to any specified Person, (i) any other Person,
directly or indirectly, controlling, controlled by or under common control with
such specified Person and (ii) any officer, director or partner of such
specified Person. The term "control", with respect to any Person, means
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of such Person, whether through the ownership of
voting securities or by contract or otherwise.
"Aggregate Collateral Balance" means as of any date of determination, the
aggregate of the outstanding principal amounts of all of the CRB Certificates.
As of the Cutoff Date, the Aggregate Collateral Balance shall be $[ _______ ].
"Agreement" means this Trust Agreement and all amendments hereof and
supplements hereto.
"Available Funds" means, as of any date of determination, the aggregate
amount then on deposit in the Certificate Account, net of any portion thereof
which represents amounts payable pursuant to clauses (ii) and (iii) of Section
3.04.
"Benefit Plan" has the meaning specified in Section 4.02(d).
"Book-Entry Certificates" means a beneficial interest in the Certificates,
ownership and transfers of which shall be made through book entries by a
Clearing Agency as described in Section 4.08.
"Business Day" means any day other than a Saturday or a Sunday or a day on
which banking institutions in New York, New York, or in the city in which the
Corporate Trust Office of the Trustee is located, are authorized or obligated by
law, regulation or executive order to be closed.
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"Certificate" means any one of the certificates executed and authenticated
by the Trustee substantially in the forms attached thereto as Exhibits A and B.
"Certificate Account" means the segregated, noninterest- bearing trust
account or accounts, which shall at all times be Eligible Accounts, created and
maintained by the Trustee pursuant to Section 3.02. Funds deposited in the
Certificate Account shall be held in trust for the Certificateholders for the
uses and purposes set forth in this Agreement.
"Certificate Register" means the register maintained pursuant to Section
4.02.
"Certificateholder" or "Holder" means the Person in whose name a
Certificateholder is registered in the Certificate Register, except that, solely
for the purpose of giving any consent pursuant to this Agreement, any
Certificate registered in the name of the Depositor shall be deemed not to be
Outstanding and the Percentage Interest evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage Interests
necessary to effect such consent has been obtained; provided, however, that if
any such Person owns 100% of the Percentage Interests evidenced by a Class of
Certificates, all such Certificates shall be deemed to be Outstanding.
"Class" means all Certificates bearing the same designation as set forth in
Section 4.01.
"[Class [A]] Certificate" means any one of the certificates issued by the
Trust and executed and authenticated by the Trustee substantially in the form
attached hereto as Exhibit A.
"[Class [A]] Certificate Principal Balance" means, with respect to the
[Class [A]] Certificates as of any date of determination, the Initial
Certificate Principal Balance thereof less all payments made with respect to the
Certificates of such Class in accordance with Section 3.05(a)(iii) on previous
Distribution Dates.
"[Class [A]] Certificate Rate" means [[ ]% per annum] [insert Class [A]
interest formula].
"[Class [A]] Interest Amount" means, as to any Distribution Date, an amount
equal to the sum of (i) the amount of interest accrued at the [Class [A]]
Certificate Rate for the related Collection Period on the [Class [A]]
Certificate Principal Balance on the immediately preceding Distribution Date,
(or, in the case of the first Distribution Date, on the Closing Date), after
giving effect to all distributions on such prior Distribution Date, and (ii) any
unpaid [Class [A]] Interest Amounts from prior Distribution Dates, together with
interest thereon, to the extent permitted by law, at the [Class [A]] Certificate
Rate.
"[Class [B]] Certificate" means any one of the certificates issued by the
Trust and executed and authenticated by the Trustee substantially in the form
attached hereto as Exhibit B.
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"[Class [B]] Certificate Principal Balance" means, with respect to the
[Class [B]] Certificates as of any date of determination, the Initial
Certificate Principal Balance thereof less all payments made with respect to the
Certificates of such Class in accordance with Section 3.05(a)(iii) on previous
Distribution Dates.
"[Class [B]] Certificate Rate" means [[ ]% per annum] [insert Class [B]
interest formula].
"[Class [B]] Interest Amount" means, as to any Distribution Date, an amount
equal to the sum of (i) the amount of interest accrued at the [Class [B]]
Certificate Rate for the related Collection Period on the [Class [B]]
Certificate Principal Balance on the immediately preceding Distribution Date,
(or, in the case of the first Distribution Date, on the Closing Date), after
giving effect to all distributions on such prior Distribution Date, and (ii) any
unpaid [Class [B]] Interest Amounts from prior Distribution Dates, together with
interest thereon, to the extent permitted by law, at the [Class [B]] Certificate
Rate.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Closing Date" means [ ] 199[ ].
"Code" means the Internal Revenue Code of 1986, as amended, and Treasury
Regulations promulgated thereunder.
"CRB Certificate" means any one of the [ _______ ] issue issued by [ ______
] and transferred to the Trustee by the Depositor pursuant to Section 2.01, as
from time to time are held as a part of the Trust Property and as are more fully
described in the CRB Certificate Schedule attached hereto as Exhibit C.
"CRB Certificate Schedule" means the schedule attached as Exhibit C hereto
identifying the CRB Certificates and setting forth the following information as
to each CRB Certificate: (i) the original principal amount as of the date the
CRB Certificates were originally issued and, if different, the current principal
amount as of the Cutoff Date; and (ii) the fractional undivided interest
evidenced thereby as compared to the Aggregate Collateral Balance as of such
dates.
"CRB Certificate Statement" means the servicing report or other statement
setting forth the amount of interest and, if applicable, principal payable on
each Payment Date with respect to the CRB Certificates that is required to be
furnished to each holder of CRB Certificates with respect to each Payment Date
pursuant to the related Pooling and Servicing Agreement.
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"Collateral Holder" means the registered holder of any CRB Certificate,
which following the execution and delivery of this Agreement by the parties
hereto shall be the Trustee.
"Corporate Trust Office" means the principal corporate trust office of the
Trustee in the State of New York at which at any particular time its corporate
trust business with respect to this Agreement and the Trust shall be
administered, which office at the date of the execution of this Agreement is
located at Four Albany Street, New York, New York 10006.
"Cutoff Date" means [ ], 199[ ].
"Definitive Certificates" has the meaning specified in Section 4.08.
"Depositor" means Asset Backed Securities Corp., a Delaware corporation.
"Depository Agreement" means the Depository Agreement dated as of the
Closing Date among the Trust, the Trustee and DTC, as the initial Clearing
Agency, substantially in the form attached hereto as Exhibit E.
"Determination Date" has the meaning specified in Section 3.07.
"Distribution Date" means the [second] [third] Business Day following each
Payment Date, commencing on [ ___________ ], 199[ ].
"Distribution Date Statement" has the meaning specified in Section 3.07.
"DTC" means The Depositary Trust Company, as the initial Clearing Agency.
"Eligible Account" means either (i) an account maintained with a Federal or
state chartered depository institution or trust company the unsecured debt
obligations of which (or, in the case of a depository institution or trust
company that is the principal subsidiary of a holding company, the unsecured
debt obligations of such holding company) are rated by the Rating Agency in one
of its generic rating categories which signifies investment grade at the time
any amounts are held in deposit therein, (ii) an account the deposits in which
are insured by the FDIC to the limits established by such corporation, provided
that any such deposits not so insured shall be otherwise maintained such that
(as evidenced by an Opinion of Counsel delivered to the Trustee and to each
Rating Agency) the Certificateholders have a claim with respect to the funds in
such account or a perfected first priority security interest against any
collateral (which shall be limited to Eligible Investments) fully securing such
funds that is superior to claims of any other depositors or creditors of the
depository institution or trust company with which such account is maintained,
or (iii) a trust account maintained with a Federal or state chartered depository
institution or trust company acting in its fiduciary capacity or (iv) such other
account that will not cause each Rating Agency to downgrade or withdraw the
rating of the Certificates as evidenced by a letter from each Rating Agency to
such effect delivered to the Trustee.
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"Eligible Investments" means any one or more of the following (any of which
may be obligations of, or may be purchased from the Depositor or the Trustee if
the indicated requirements are met):
(i) direct obligations of, or obligations fully guaranteed as to
principal and interest by, the United States of America or any agency or
instrumentality thereof, provided such obligations are backed by the full
faith and credit of the United States;
(ii) repurchase obligations (the collateral for which is held by a
third party or the Trustee) with respect to any security described in
clause (i) above, provided that the long-term unsecured obligations of the
party agreeing to repurchase such obligations are at the time rated by each
Rating Agency in its highest long-term rating category;
(iii) certificates of deposit, time deposits, demand deposits and
bankers' acceptances of any bank or trust company incorporated under the
laws of the United States or of any state thereof or the District of
Columbia, including the Trustee and any Affiliate thereof, provided that
the long-term debt obligations of such bank or trust company (or, in the
case of the principal depository institution in a depository institution
holding company, the long-term unsecured debt obligations of the depository
institution holding company) at the date of acquisition thereof have been
rated by each Rating Agency in its highest long-term rating category or the
short-term unsecured debt obligations of which are rated "A1" or the
equivalent.
(iv) commercial paper of any corporation incorporated under the laws
of the United States or any state thereof or the District of Columbia which
on the date of investment or contractual commitment to invest has been
rated by each Rating Agency in its highest short-term rating category;
(v) investment in money market funds having a rating from each Rating
Agency in the highest investments category granted thereby (including funds
for which the Trustee or the Depositor or any of their respective
Affiliates is investment manager or advisor); and
(vi) any other obligation or security acceptable to each Rating Agency
(as certified by a letter from each Rating Agency to the Trustee).
"ERISA" has the meaning specified in Section 4.06.
"FDIC" means the Federal Deposit Insurance Corporation.
"Initial [Class [A]] Certificate Principal Balance" means With respect to
the [Class [A]] Certificates, the aggregate principal balance of the [Class [A]]
Certificates on the Closing Date as set forth in Section 4.01.
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"Initial [Class [B]] Certificate Principal Balance" means With respect to
the [Class [B]] Certificates, the aggregate principal balance of the [Class [B]]
Certificates on the Closing Date as set forth in Section 4.01.
"Interest Distribution Amount" means, as to any Distribution Date, an
amount equal to (i) the aggregate amount actually distributed on the CRB
Certificates on the immediately preceding Payment Date and identified as
allocable to interest in the related CRB Certificate Statement plus (ii) the
interest portion of the purchase price paid by the Depositor in connection with
the repurchase of any CRB Certificates pursuant to Section 2.03 since the
preceding Distribution Date.
"Majority in Interest" means the Holders of Certificates evidencing, in the
aggregate, at least 51% of the Percentage Interests evidenced by all
Certificates.
"Moody's" means Moody's Investors Service, Inc.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the President, any Vice President, the Treasurer, the Secretary, or one
of the Assistant Treasurers or Assistant Secretaries of the Depositor, as
required by this Agreement.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Depositor, which opinion is reasonably acceptable to the Trustee.
"Outstanding" means, with respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement but excluding:
(i) Certificates theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation; and
(ii) Certificates in exchange for which or in lieu of which other
Certificates have been executed and delivered pursuant to this Agreement
unless proof satisfactory to the Trustee is presented that any such
Certificates are held by a holder in due course.
"Payment Date" means the dates on which payments are due in respect of the
CRB Certificates, as specified in the related Pooling and Servicing Agreement.
"Percentage Interest" means, with respect to any Certificate, the undivided
beneficial ownership interest in the Trust Property evidenced by Certificates of
the same Class as such Certificate or by all Certificates, in either case as
specified more fully herein.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government, or any agency or political subdivision thereof.
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"Plan Assets Regulation" means the plan assets regulation adopted by the
Department of Labor under ERISA and codified at 29 C.F.R. ss. 2510.3-101.
"Pooling and Servicing Agreement" means the Pooling and Servicing
Agreement dated as of [ ], among [ ], as seller, [ ], as servicer, and
[ ], as trustee, pursuant to which the CRB Certificates were issued,
attached hereto as Exhibit D.
"Principal Distribution Amount" means, as to any Distribution Date, an
amount equal to (i) the aggregate amount, if any, actually distributed on the
CRB Certificates on the immediately preceding Payment Date and identified as
allocable to principal in the related CRB Certificate Statement plus (ii) the
principal portion of the purchase price paid by the Depositor in connection with
the repurchase of any of the CRB Certificates pursuant to Section 2.03 since the
preceding Distribution Date.
"Rating Agency" means each of [S&P and Moody's]. References herein to the
highest rating categories of any Rating Agency shall mean such ratings without
any modifiers.
"Record Date" means, with respect to any Distribution Date, the close of
business on the last day immediately preceding such Distribution Date (or, in
the case of Definitive Certificates, the last day of the month preceding the
month in which such Distribution Date occurs).
"Responsible Officer", when used with respect to the Trustee, means the
Chairman or Vice Chairman of the Board of Directors or Trustees, the Chairman or
Vice Chairman of the Executive or Standing Committee of the Board of Directors
or Trustees, the President, the Chairman of the Committee on Trust Matters, any
Vice President, any Assistant Vice President, the Secretary, any Assistant
Secretary, the Treasurer, any Assistant Treasurer, any Trust Officer or
Assistant Trust Officer, the Controller and any Assistant Controller or any
other officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"S&P" means Standard & Poor's Corporation.
"Treasury Regulations" means regulations, including proposed or temporary
regulations, promulgated under the Code. References in any document or
instrument to specific provisions of proposed or temporary regulations shall
include analogous provisions of final Treasury Regulations or other successor
Treasury Regulations.
"Trust" means the trust created by this Agreement and denominated as Card
Account Trust, Series 199[ ]-[ ].
"Trust Property" means the corpus of the Trust, which shall consist of: (i)
the CRB Certificates described in the CRB Certificate Schedule; (ii) all
distributions thereon on and after the
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Cutoff Date; and (iii) the Certificate Account and such assets that are
deposited therein from time to time and any investments thereof, together with
any and all income, proceeds and payments with respect thereto.
"Trustee" means [ ], a New York banking corporation, not in its
individual capacity but solely as Trustee hereunder.
SECTION 1.02 Other Definitional Provisions and Rules of Construction. (a)
All terms defined in this Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto unless
otherwise defined therein.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement as a whole and not to any
particular provision of this Agreement; Article, Section and Exhibit references
contained in this Agreement are references to Articles, Sections and Exhibits in
or to this Agreement unless otherwise specified; and the term "including" shall
mean "including without limitation".
(c) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(d) Any agreement, instrument or statute defined or referred to herein or
in any agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a Person are also to its permitted successors and assigns.
ARTICLE II
Conveyance of the CRB Certificates;
Original Issuance of Certificates
SECTION 2.01 Creation and Declaration of Trust; Conveyance of the CRB
Certificates. (a) The Depositor, concurrently with the execution and delivery of
this Agreement, does hereby sell, transfer, assign, set over and otherwise
convey to the Trustee, in trust, for the use and benefit of the
Certificateholders, without recourse, all the right, title and interest of the
Depositor including any security interest therein, in, to and under the CRB
Certificates, all payments and all proceeds therefrom, and all other assets
constituting the Trust Property.
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(b) In connection with such transfer and assignment, the Depositor
does hereby deliver to, and deposit with, the Trustee the following:
(i) confirmation of DTC of the sale by the Depositor of the CRB
Certificates to the Trustee and of the making by DTC of entries on its
records identifying the CRB Certificates as belonging to the Trustee; and
(ii) a copy of the Pooling and Servicing Agreement together with all
exhibits and amendments thereto.
(c) It is intended that the conveyance of the Depositor's right, title and
interest in and to the CRB Certificates and all other assets constituting the
Trust Property pursuant to this Agreement shall constitute, and be construed as,
an absolute sale of the CRB Certificates by the Depositor to the Trustee for the
benefit of the Certificateholders. Furthermore, it is not intended that such
conveyance be deemed a pledge of the CRB Certificates and the other assets
constituting the Trust Property by the Depositor to the Trustee to secure a debt
or other obligation of the Depositor. However, in the event that,
notwithstanding the aforementioned intent of the parties, the CRB Certificates
and the other assets constituting the Trust Property are held to be the property
of the Depositor, or if for any other reason this Agreement is held or deemed to
create a security interest in the CRB Certificates and the other assets
constituting the Trust Property, then it is intended s follows: (a) this
Agreement shall also be deemed to be a security agreement within the meaning of
Articles 8 and 9 of the Uniform Commercial Code as in effect from time to time
in the State of New York; (b) the conveyance provided for in this Section shall
be deemed to be a grant by the Depositor to the Trustee of a security interest
in all the Depositor's right, title and interest in and to the CRB Certificates
and all amounts payable to the holders of the CRB Certificates after the Closing
Date in accordance with the terms thereof and all proceeds of the conversion,
voluntary or involuntary, of the foregoing into cash, instruments, securities or
other property, including without limitation all amounts from time to time held
or invested in the Certificate Account, whether in the form of cash,
instruments, securities or other property, (c) the possession by the Trustee or
its agent of the CRB Certificates and such other items of property as constitute
instruments, money, negotiable documents or chattel paper shall be deemed to be
"possession by the secured party" for purposes of perfecting the security
interest pursuant to Section 9-305 of the Uniform Commercial Code; and (d)
notifications to persons holding such property, and acknowledgments, receipts or
confirmations from, financial intermediaries, bailees or agents (as applicable)
of the Trustee for the purpose of perfecting such security interest under
applicable law. Notwithstanding the foregoing, the parties to this Agreement
intend the transfer pursuant to this section to be a true, absolute and
unconditional sale of the CRB Certificates and all such other assets
constituting the Trust Property by the Depositor to the Trustee.
(d) If the CRB Certificates are reissued as definitive certificates as
provided in the Pooling and Servicing Agreement, the Trustee shall cause such
definitive certificates to be issued in its name as Trustee on behalf of the
Trust and shall thereafter maintain possession of such definitive certificates
during the term of this Agreement unless otherwise required to surrender such
definitive certificates for final payment as provided in the Pooling and
Servicing Agreement.
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SECTION 2.02 Acceptance by Trustee. The Trustee hereby acknowledges the
receipt by it of the CRB Certificates and the documents referred to in Section
2.01(b)(ii) and declares that it holds and will hold such CRB Certificates; such
other documents and all other assets and documents delivered to it pursuant to
this Agreement, and that it will hold all such assets and all such other assets
comprising the Trust Property in trust for the exclusive use and benefit of all
present and future Certificateholders and for the purposes and subject to the
terms and conditions set forth in this Agreement. It is the intention of the
parties hereto, and each Holder by its acceptance of a Certificate shall be
deemed to agree, that the Trust will be created as a grantor trust for federal
income tax purposes and all transactions contemplated by this Agreement will be
reported, to the extent applicable, on all applicable tax returns consistently
with such treatment. The provisions of this Agreement shall be construed, and
the affairs of the Trust shall be conducted as provided herein, so as to achieve
treatment of the Trust as a grantor trust for federal income tax purposes.
SECTION 2.03 Representations and Warranties of the Depositor. The Depositor
hereby represents and warrants to the Trustee that as of the Closing Date:
(a) With respect to the CRB Certificates:
(i) the information set forth in the CRB Certificate Schedule is true
and correct in all material respects as of the date or dates such
information is furnished;
(ii) immediately prior to the sale and assignment herein contemplated,
the Depositor was the sole owner of the CRB Certificates free and clear of
any lien, pledge, charge or encumbrance of any kind;
(iii) the Depositor acquired its ownership in the CRB Certificates in
good faith without notice of any adverse claim; and
(iv) the Depository has not assigned any interest in the CRB
Certificates or any distributions thereon, except as contemplated herein.
The representations and warranties set forth in this Section 2.03(a) shall
survive the transfer and assignment of the CRB Certificates. Upon discovery by
the Depositor or the Trustee of a breach of any of the foregoing representations
and warranties which materially and adversely affects the interests of the
Certificateholders in the CRB Certificates, the Depositor or the Trustee shall
give prompt written notice to the other, to the Certificateholders and to each
Rating Agency. Within 90 days of its discovery or its receipt of notice of any
such breach, the Depositor shall cure such breach in all material respects or,
if such breach cannot be cured, the Depositor shall repurchase the affected CRB
Certificates from the Trustee if the Depositor is so directed by a Majority in
Interest of the Certificateholders. Any such repurchase of a CRB Certificate by
the Depositor shall be accomplished prior to the Distribution Date next
following the receipt of such direction by a Majority in Interest of the
Certificateholders at a price equal to the sum of (i) the outstanding principal
amount
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of such CRB Certificate as of the date of such repurchase and (ii) all unpaid
accrued interest on such CRB Certificate to the date of such repurchase at [ ]
per annum (the "Purchase Price"). The payment of the Purchase Price in
connection with repurchased CRB Certificates shall be considered a prepayment in
full of such CRB Certificates and shall be delivered to the Trustee for deposit
in the Certificate Account in accordance with the provisions of Section 3.02.
Upon such deposit into the Certificate Account, such CRB Certificates shall be
released to the Depositor, and the Trustee shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be reasonably requested and provided by the Depositor to vest in the Depositor,
or its designee or assignee, title to the CRB Certificates repurchased pursuant
hereto. The Depositor shall be entitled to all amounts received by the Trustee
in respect of any repurchased CRB Certificate to the extent the distribution of
such amounts would not make the total amount distributed in respect of any such
repurchased CRB Certificate greater than the Purchase Price therefor. The
obligation of the Depositor to cure or repurchase the CRB Certificates as to
which a breach specified in this Section 2.03(a) has occurred and is continuing
shall constitute the sole remedy respecting such breach against the Depositor
available to Certificateholders or the Trustee on behalf of Certificateholders.
(b) With respect to the Depositor:
(i) the Depositor is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware with full
power and authority to execute, deliver and perform this Agreement;
(ii) the Certificates will be free and clear of any right, charge,
security interest, or lien or claim in favor of the Depositor;
(iii) this Agreement has been duly authorized, executed and delivered
by the Depositor and assuming due authorization, execution and delivery by
the Trustee, constitutes the valid, legal and binding obligation of the
Depositor, enforceable against it in accordance with its terms, except as
enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally or by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(iv) neither the execution nor the delivery of this Agreement nor the
issuance, delivery and sale of the Certificates, nor the consummation of
any other of the transactions contemplated herein nor the performance of
its obligations under this Agreement or the Certificates will result in the
breach of any term or provision of the certificate of incorporation or
bylaws of the Depositor or conflict with, result in a breach, violation or
acceleration of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, the terms of any
material contract, indenture or other agreement or instrument to which the
Depositor is a party or by which it is bound or any of its assets is bound,
or any statute, order or regulation applicable to the Depositor of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over the Depositor; and
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(v) there are no actions or proceedings against, or investigations of,
the Depositor pending, or, to the knowledge of the Depositor, threatened,
before any court, administrative agency or other tribunal (A) asserting the
invalidity of this Agreement or the Certificates, (B) seeking to prevent
the issuance of the Certificates or the consummation of any of the
transactions contemplated by this Agreement or (C) which might materially
and adversely affect the validity or enforceability of this Agreement or
the Certificates.
SECTION 2.04 Agreement to Authenticate and Deliver Certificates. The
Trustee acknowledges the transfer, delivery and assignment to it of the Trust
Property, and concurrently with such transfer and delivery, the Trustee has
executed, authenticated and delivered, to or upon the order of the Depositor,
the Certificates duly executed and authenticated by the Trustee in authorized
denominations evidencing ownership of the entire Trust Property and registered
in such names as the Depositor shall direct in writing, all in accordance with
the terms and subject to the conditions hereof.
ARTICLE III
Administration of the Trust Property;
Distributions and Reports to Certificateholders
SECTION 3.01 Administration of the Trust Property. The Trustee shall
administer the Trust Property for the benefit of the Certificateholders. The
Trustee shall make reasonable effort to collect all payments required to be made
pursuant to the terms of the CRB Certificates and the Pooling and Servicing
Agreement in a manner consistent with the terms of the Pooling and Servicing
Agreement and such CRB Certificates. In connection with its receipts of any
funds distributed in respect of a CRB Certificate on any Payment Date, the
Trustee shall review the related CRB Certificate Statement and shall confirm
that the principal and interest payments received on such Payment Date are equal
to the distribution amount shown on the related CRB Certificate Statement. If
(i) the amount of any distribution on a CRB Certificate varies from the amount
reported to the Trustee on the applicable CRB Certificate Statement for such
distribution, (ii) the Trustee shall not have received a distribution on any CRB
Certificate by the close of business on the date on which such distribution was
to be received by the Trustee of (iii) the Trustee shall gain actual knowledge
of any other default or event of default under the Pooling and Servicing
Agreement, the Trustee shall promptly notify the Depositor and the
Certificateholders and shall proceed in accordance with the provisions hereof,
including Section 5.01(c), (d) and (e).
SECTION 3.02 Certificate Account. (a) The Trustee, for the benefit of the
Certificateholders, shall establish and maintain one or more non-interest
bearing Eligible Accounts (collectively, the "Certificate Account"), entitled [
________ ], as Trustee, in trust for the registered holders of Certificates in
Card Account Trust, Series, 199[ ]-[ ]. The Trustee, on behalf of the
Certificateholders, shall possess all right, title and interest in all funds
deposited from time to time n the Certificate Account and in all proceeds
thereof. The Trustee shall upon receipt deposit in the
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Certificate Account all amounts collected and payments received in respect of
the CRB Certificates, including:
(i) all distributions received on the CRB Certificates subsequent to
the Cutoff Date; and
(ii) any amount required to be deposited in the Certificate Account
pursuant to Section 2.03(a) in connection with the repurchase of a CRB
Certificate by the Depositor.
If, at any time, the Certificate Account ceases to be an Eligible Account,
the Trustee shall within five Business Days establish a new Certificate Account
meeting the conditions specified above and transfer any cash and any investments
on deposit in the Certificate Account to such new Certificate Account, and from
the date such new Certificate Account is established, it shall be the
Certificate Account.
(b) The Trustee shall give written notice to the Depositor and each
Rating Agency of the location of each Eligible Account constituting the
Certificate Account upon establishment thereof and prior to any change
thereof.
SECTION 3.03 Investment of Funds in the Certificate Account. The Depositor,
on behalf of the Trust, may direct in writing any depository institution
maintaining the Certificate Account to invest the funds in such Certificate
Account in one or more Eligible Investments, which shall mature not later than
the Business Day immediately preceding the next Distribution Date (or, if the
Trustee in its commercial capacity is the obligor of such Eligible Investments
and the Certificate Account is maintained by the Trustee, such Eligible
Investments shall mature not later than the next Distribution Date) and shall
not be sold or disposed of prior to their respective maturities; provided,
however, that if the Depositor fails to select any such Eligible Investment, the
Trustee shall direct such institution to invest such funds in demand deposits
meeting the requirements described in item (iii) of the definition of Eligible
Investments. All such Eligible Investments shall be made in the name of the
Trustee, in trust for the Holders of the Certificates, or its nominee. All
proceeds of any such investment shall be deposited in the Certificate Account,
may not be reinvested and may only be withdrawn an applied for the purposes set
forth herein.
SECTION 3.04 Permitted Withdrawals from the Certificate Account. The
Trustee, may from time to time withdraw funds from the Certificate Account for
the following purposes:
(i) to make payments to Certificateholders in the amounts and in the
manner provided for in Section 3.05;
(ii) to reimburse the Trustee, to the extent of the net proceeds
recovered on any defaulted CRB Certificates, prior to the distribution of
such proceeds to Certificateholders, for any unreimbursed expenses incurred
with respect to the exercise of remedies in respect of such CRB
Certificates pursuant to Section 5.01;
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(iii) to reimburse the Depositor for expenses incurred by and
reimbursable to the Depositor pursuant to Section 6.03;
(iv) to clear and terminate the Certificate Account upon the
termination of this Agreement.
SECTION 3.05 Distributions. (a) On each Distribution Date, the Trustee
shall withdraw from the Certificate Account all Available Funds then on deposit
and shall distribute such Available Funds (in each case to the extent of the
remaining Available Funds) for the following purposes and in the following order
of priority:
(i) to pay to the Holders of the [Class [A]] Certificates the [Class
[A]] Interest Amount for such Distribution Date and to pay to the Holders
of the [Class [B]] Certificates the [Class [B]] Interest Amount for such
Distribution Date, without preference or priority one over the other;
(ii) to pay to the Trustee a pro rata portion of the Trustee's annual
fee for services;
(iii) to pay to the Holders of the [Class [A]] Certificates the [Class
[A]] Principal Distribution Amount for such Distribution Date and to pay to
the Holders of the [Class [B]] Certificates the [Class [B]] Principal
Distribution Amount for such Distribution Date, without preference or
priority one over the other; and
(iv) to pay to the Trustee any unreimbursed expenses incurred by the
Trustee but not covered by the Trustee's annual fee.
(b) All distributions made with respect to each Class on each Distribution
Date shall be allocated pro rata among the Outstanding Certificates of such
Class based upon their respective Percentage Interests in respect of such Class.
Payments to the Certificateholders of each Class on each Distribution Date will
be made to the Certificateholders of record on the related Record Date (other
than as provided in Section 7.01 with respect to the final distribution).
Distributions to any Certificateholder on any Distribution Date shall be made by
wire transfer of immediately available funds, at the expense of the
Certificateholder requesting such wire transfer by deducting a wire transfer fee
from the related transfer, to the account of such Certificateholder at a bank or
other entity having appropriate facilities therefor, if such Certificateholder
shall have so notified the Trustee in writing at least five Business Days prior
to the related Record Date and such Certificateholder at a bank or other entity
having appropriate facilities therefor, if such Certificateholder shall have so
notified the Trustee in writing at least five Business Days prior to the related
Record Date and such Certificateholder shall hold Certificates with an aggregate
Certificate Principal Balance as of the Closing Date of at least $1,000,000 or
in such other manner as shall be agreed to by the Trustee and such
Certificateholder, or otherwise by check mailed by first class mail to the
address of such Certificateholder appearing in the Certificate Register. Final
distribution on each Certificate will be
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made in like manner, but only upon present and surrender of such Certificate at
the Corporate Trust Office or such other location specified in the notice to
Certificateholders of such final distribution.
SECTION 3.06 Compliance with Withholding Requirements. Notwithstanding any
other provision of this Agreement to the contrary, the Trustee shall comply with
all Federal income tax withholding requirements respecting distributions to, or
receipts of amounts on behalf of, Certificateholders that the Trustee reasonably
believes are applicable under the Code. The consent of Certificateholders shall
not be required for such withholding. In the event the Trustee does withhold any
amount from interest or principal distribution thereof to any Certificateholder
pursuant to federal withholding requirements, the Trustee shall indicate in the
statement required pursuant to Section 3.07 the amount so withheld.
SECTION 3.07 Statements to Certificateholders. On the second Business Day
preceding each Distribution Date (each, a "Determination Date"), the Depositor
(or its designee) shall prepare and forward a statement (a "Distribution Date
Statement") to the Trustee, who in turn shall forward such statement by mail to
each Rating Agency and each Certificateholder. Each such Distribution Date
Statement shall set forth the following information:
(i) the Available Funds for such Distribution Date;
(ii) the Interest Distribution Amount for such Distribution Date;
(iii) the Principal Distribution Amount, if any, for such Distribution
Date;
(iv) with respect to such Distribution Date, the [Class [A]] Interest
Amount, the [Class [A]] Principal Distribution Amount and the aggregate
amount of distributions made to the [Class [A]] Certificateholders on such
Distribution Date in respect of each such item pursuant to Section 3.05;
(v) with respect to such Distribution Date, the [Class [B]] Interest
Amount, the [Class [B]] Principal Distribution Amount and the aggregate
amount of distributions made to the [Class [B]] Certificateholders on such
Distribution Date in respect of each such item pursuant to Section 3.05;
(vi) the [Class [A]] Certificate Principal Balance and the [Class [B]]
Certificate Principal Balance, after giving effect to distributions of
principal of such Certificates on such Distribution Date; and
(vii) the amount of any withdrawals made from the Certificate Account
since the immediately preceding Distribution Date pursuant to clauses (ii)
through (iv) of Section 3.04, together with a general description of the
purpose of each such withdrawal.
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In the case of the information furnished pursuant to clauses (i), (iv) and
(v) above, the foregoing amounts shall also be stated as a dollar amount per
$1,000 principal amount of the applicable Class.
In addition, the Trustee promptly shall furnish to Certificateholders
copies of any notices, statements, reports or other communications received by
the Trustee as the Collateral Holder.
On or before January 31 of each calendar year, beginning with calendar year
199[ ], the Trustee shall furnish by first class mail to each Person who at any
time during the previous calendar year was a Certificateholder of record a
statement containing the information required to be contained in the regular
report to Certificateholders, as set forth in clauses (iv) and (v) above,
aggregated for such calendar year or the applicable portion thereof during which
such Person was a Certificateholder which statement shall contain sufficient
information to allow Certificateholders to calculate their United States federal
income tax liability with respect to the Certificates. Such obligation of the
Trustee shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trustee pursuant to any
requirements of the Code.
The Trustee shall furnish to each Certificateholder during the term of this
Agreement such periodic, special or other reports or information, whether or not
provided for herein, as shall be necessary, reasonable or appropriate with
respect to the Certificateholder or otherwise with respect to the purposes of
this Agreement, all such reports or information to be provided by and in
accordance with such applicable instructions and directions as the
Certificateholder may reasonably require and at the expense of such
Certificateholder.
SECTION 3.08 Reports of the Trustee; Certificate Account. Upon request of a
Certificateholder, the Trustee shall make available to Certificateholders a
statement setting forth the status of the Certificate Account as of the close of
business on the Distribution Date immediately preceding such request, and
showing, for the period covered by such statement, the aggregate of deposits
into and withdrawals from the Certificate Account.
SECTION 3.09 Access to Certain Documentation and Information. (a) The
Trustee shall provide the Certificateholders with access to a copy of each
report received by it as Collateral Holder under the Pooling and Servicing
Agreement with respect to the CRB Certificates. The Trustee shall also provide
the Depositor with access to each such report and to all written reports,
documents and records required to be maintained by the Trustee in respect of its
duties hereunder. The Trustee shall keep a certified copy or duplicate original
of this Agreement on file at its Corporate Trust Office for inspection by any
Certificateholder. The Trustee shall provide, at the written request of three or
more Certificateholders or one or more Certificateholders evidencing Percentage
Interests of not less than 25% of the Certificates, access to the current list
of the names and addresses of all Certificateholders for the purpose of
communicating with other Certificateholders with respect to their rights under
this Agreement or under the Certificates. Such access shall be afforded without
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charge but only upon reasonable request evidenced by prior written notice to the
Trustee and during normal business hours at offices designated by the Trustee.
ARTICLE IV
The Certificates
SECTION 4.01 The Certificates. (a) The [Class [A]] Certificates and the
[Class [B]] Certificates shall be substantially in the respective forms set
forth in Exhibits A and B hereto. The Certificates shall, on original issue, be
executed and authenticated by the Trustee and delivered by the Trustee to or
upon the order of the Depositor upon receipt by the Trustee of the CRB
Certificates and any other documents specified in Section 2.01.
(b) The Certificates shall be issuable in fully registered form only, in
the minimum original principal amounts of $1,000 and integral multiples thereof.
(c) The Certificates shall be executed by manual Signature on behalf of the
Trustee in its capacity as trustee hereunder by a Responsible Officer.
Certificates bearing the manual signatures of individuals who were at any time
the proper officers of the Trustee shall bind the Trustee, notwithstanding that
such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Certificates or did not hold such offices at
the date of such Certificate. No Certificates shall be entitled to any benefit
under this Agreement, or be valid for any purpose, unless there appears on such
Certificate a certificate of authentication substantially in the form provided
for herein executed by the Trustee by manual signature, and such certificate
upon any Certificate shall be conclusive evidence, and the only evidence, that
such Certificate has been duly authenticated and delivered hereunder. All
Certificates issued on the Closing Date shall be dated the Closing Date. All
Certificates issued thereafter shall be dated the date of their authentication.
SECTION 4.02 Registration of Transfer and Exchange of Certificates. (a) The
Trustee shall keep at one of the offices or agencies to be maintained by the
Trustee in accordance with Section 4.05 a Certificate Register in which, subject
to such reasonable regulations as it may prescribe, the Trustee shall provide
for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided.
(b) Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Trustee shall execute and deliver, in the name of
the designated transferee or transferees, one or more new Certificates in
authorized denominations and of the same Class and aggregate Percentage
Interest.
(c) At the option of the Certificateholders, each Certificate may be
exchanged for a Certificate of like aggregate original principal amount, series,
class, original issue date and maturity, in different authorized denominations
upon surrender of the Certificates to be exchanged at the office
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maintained by the Trustee pursuant to Section 4.05. Whenever any Certificates
are so surrendered for exchange, the Trustee shall execute, authenticate and
deliver the Certificates that the Certificateholder making the exchange is
entitled to receive. Each Certificate presented or surrendered for registration
of transfer or exchange shall (if so required by the Trustee) be duly endorsed
by, or be accompanied by a written instrument of transfer in the form
satisfactory to the Trustee, duly executed by the Holder thereof or his attorney
duly authorized in writing.
(d) Certificates delivered upon any exchange will evidence the same
obligations, and will be entitled to the same rights and privileges, as the
Certificates surrendered.
(e) No service charge shall be imposed for any registration of transfer or
exchange of Certificates of any Class, but the Trustee may require payment of a
sum sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
(f) All Certificates surrendered for registration of transfer and exchange
shall be cancelled and destroyed by the Trustee in accordance with its standard
procedures without liability on its part.
SECTION 4.03 Mutilated, Destroyed, Lost or Stolen Certificates. If (a)(i)
any mutilated Certificate is surrendered to the Trustee or (ii) the Depositor
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Certificate and of the ownership thereof and (b) there is
delivered to the Trustee and the Depositor such security or indemnity as may be
required by them to save each of them harmless, then, in the absence of receipt
by either the Trustee or the Depositor of written notice that such Certificate
has been acquired by a bona fide purchaser, the Trustee shall execute and
deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Certificate, a new Certificate of like tenor, form, terms and principal
amount, as applicable, bearing a number not contemporaneously Outstanding, so
that neither gain nor loss in interest shall result from such exchange or
substitution.
Upon the issuance of any new Certificate under this Section 4.03, the
Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Any duplicate Certificate issued pursuant to this Section 4.03 shall
constitute complete and indefeasible evidence of the rights of a Holder of the
originally issued Certificate as if such duplicate Certificate was originally
issued, whether or not the lost, stolen or destroyed Certificate shall be, at
any time, enforceable by anyone and shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other Certificates
of the respective Class, if any, duly issued hereunder. All Certificates
surrendered to he Trustee under the terms of this Section 4.03 shall be
cancelled and destroyed by the Trustee in accordance with its standard
procedures without liability on its part. The provisions of this Section 4.03
are exclusive and shall preclude (to the extent lawful)
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all other rights and remedies with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Certificates.
SECTION 4.04 Persons Deemed Owners. The Trustee and the Depositor and any
agent of either of them may treat the Person in whose name any Certificate is
registered as the owner of such Certificate for the purpose of receiving
distributions pursuant to Section 3.05 and for all other purposes whatsoever,
and neither the Trustee, the Depositor nor any such agent shall be affected by
notice to the contrary.
SECTION 4.05 Maintenance of Office or Agency. The Trustee will maintain at
its expense in the Borough of Manhattan, The City of New York, State of New
york, an office or agency where Certificates may be surrendered for registration
of transfer or exchange and presented for final distribution and where notices
and demands to or upon the Trust Property in respect of the Certificates and
this Agreement may be served. Such office or agency shall initially be
maintained at [ ]. The Trustee will give prompt written notice to the
Certificateholders and the Depositor of any change in the location of any such
office or agency.
SECTION 4.06 ERISA Considerations. No Certificate may be acquired by an
employee benefit plan, as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), that is subject to the
provisions of Title I of ERISA, a plan described in Section 4975(e)(i) of the
Code or any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity (each, a "Benefit Plan"). Each
Certificateholder, by virtue of the acquisition and holding of a Certificate,
will be deemed to have represented and warranted to the Depositor and the
Trustee that such Certificateholder is not a Benefit Plan.
SECTION 4.07 Authenticating Agent. (a) The Trustee may appoint one or more
authenticating agents with respect to the Certificates which shall be authorized
to act on behalf of the Trustee in authenticating the Certificates in connection
with the issuance, delivery, registration of transfer, exchange or repayment of
the Certificates.
Whenever reference is made in this Agreement to the authentications of
Certificates by the Trustee or the Trustee's certificate of authentication, such
reference shall be deemed to include authentication on behalf of the Trustee by
an authenticating agent and a certificate of authentication executed on behalf
of the Trustee by an authenticating agent. Each authenticating agent must be
acceptable to the Depositor.
(b) Any institution succeeding to the corporate agency business of any
authenticating agent shall continue to be an authenticating agent without the
execution or filing of any power or any further act on the part of the Trustee
or such authenticating agent. An authenticating agent may at any time resign by
giving notice of resignation to the Trustee and to the Depositor. the Trustee
may at any time terminate the agency of an authenticating agent by giving notice
of termination to such authenticating agent and to the Depositor. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
an authenticating agent shall cease
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to be acceptable to the Trustee or the Depositor, the Trustee promptly may
appoint a successor authenticating agent. Any successor authenticating agent,
upon acceptance of its appointment hereunder, shall become vested with all the
rights, powers and duties of its predecessor hereunder, with like effect as if
originally named as an authenticating agent. No successor authenticating agent
shall be appointed unless acceptable to the Trustee and the Depositor. The
Depositor agrees to pay to each authenticating agent from time to time
reasonable compensation for its services under this Section. In the event the
Trustee acts as authenticating agent hereunder, the provisions of Article V
shall be applicable to the Trustee in such other capacity as authenticating
agent.
(c) Pursuant to an appointment made under this Section, the Certificates
may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the [Class [A]] [Class [B]] Certificates described in the
Trust Agreement referred to herein.
_______________________
_______________________
as Authenticating Agent
for the Trustee,
By _____________________
Authorized Officer
SECTION 4.08 Book-Entry Certificates. The Certificates, upon original
issuance, shall be issued in the form of one or more typewritten Certificates
for each Class representing the Book-Entry Certificates, to be delivered to DTC,
the initial Clearing Agency, by, or on behalf of, the Trust. The Certificates
shall initially be registered on the certificate Register in the name of Cede &
Co., the nominee of the initial Clearing Agency, and no Certificateholder will
receive a Definitive Certificate (as defined below) representing such
Certificateholder's interest in the Certificates, except as provided in Section
4.10. Unless and until definitive, fully registered Certificates ("Definitive
Certificates") have been issued to the applicable Certificateholder pursuant to
Section 4.10.:
(a) the provisions of this Section shall be in full force and effect;
(b) the Depositor and the Trustee may deal with the Clearing Agency
and the Clearing Agency Participant for all purposes (including the making
of distributions in respect of the Certificates) as the authorized
representatives of the respective Certificateholders;
(c) to the extent that the provisions of this Section conflict with
any other provisions of this Agreement, the provisions of this Section
shall control;
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(d) the rights of the respective Certificateholders shall be exercised
only through the Clearing Agency and the Clearing Agency participants and
shall be limited to those established by law and agreements between such
Certificateholders and the Clearing Agency and/or the Clearing Agency
Participants pursuant to the Depository Agreement. Unless and until
Definitive Certificates are issued pursuant to Section 4.10, the initial
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit distributions of principle and
interest and any other amounts on the related Certificates to such Clearing
Agency Participants; and
(e) whenever this agreement requires or permits actions to be taken
with the consent of, or at the direction of, Certificateholders evidencing
a specified percentage of the aggregate principal amount or notional
amount, as the case may be, of Outstanding Certificates of any Class, the
Clearing Agency shall be deemed to represent such percentage only to the
extent that is has received instructions to such effect from
Certificateholders and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the principal amount or notional amount, as the case may be, of
the applicable Class of Certificates and has delivered instructions to the
Trustee.
SECTION 4.09 Notices to Clearing Agency. Whenever any notice or other
communication is required to be given to Certificateholders with respect to
which Book-Entry Certificates have been issued, unless and until Definitive
Certificates shall have been issued to the related Certificateholders, the
Trustee shall give all such notices and communications to the Clearing Agency.
SECTION 4.10 Definitive Certificates. If Book-Entry Certificates have been
issued with respect to any Class and (a) the depositor advised the Trustee that
DTC is no longer willing or able to discharge properly its responsibilities
under the Depository Agreement with respect to such Class and the Trustee or the
Depositor is unable to locate a qualified successor, (b) the Depositor, at its
option, advises the Trustee that it elects to terminate the book-entry system
with respect to such Class through the Clearing Agency or (c) after the
occurrence of a payment default with respect to the CRB Certificates,
Certificateholders representing at least a majority of the outstanding principal
amount of Certificate of such Class advise the Clearing Agency (which shall then
notify the Trustee) in writing that the continuation of a book-entry system with
respect to the Certificates of such Class through the Clearing Agency is no
longer in the best interests of the holders of such Certificates, then the
Trustee shall cause the Clearing Agency to notify all holders of such
Certificates, through the Clearing Agency, of the occurrence of any such event
and of the availability of Definitive Certificates to holders of such
Certificates requesting the same. Upon surrender to the Trustee of any such
Certificates representing Book-Entry Certificates by the Clearing Agency,
accompanied by instructions for re-registration, the Trustee shall execute
authenticate and deliver such Certificates as Definitive Certificates to such
Certificateholders in accordance with the instructions of the Clearing Agency.
None of the Trust, the Depositor or the Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of such Definitive
Certificate, all references herein to obligations imposed upon
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or to be performed by the Clearing Agency shall be deemed to be imposed upon and
performed by the Trustee, to the extent applicable with respect to such
Definitive Certificates and the Trustee shall recognize the Holders of such
Definitive Certificates as Certificateholders hereunder.
Upon the issuance of Definitive Certificates, distributions of amount in
respect of such Definitive Certificates shall thereafter be made by the Trustee
on each Distribution Date in accordance with the procedures set forth in Section
3.05 directly to holders of Definitive Certificates in whose names the
Definitive Certificates were registered at the close of business on the related
Record Date. Such distributions shall be made by check mailed to the address of
such holder as it appears on the Certificate Register maintained by the Trustee
(or, as provided in Section 3.05, by wire transfer); provided, however, that the
final payment on any such Definitive Certificate shall be made only upon
presentation and surrender of such Definitive Certificate at the office or
agency specified in the notice of final distribution to Certificateholders.
ARTICLE V
The Trustee
SECTION 5.01 Duties of the Trustee. (a) The Trustee undertakes to perform
such duties and only such duties as are specifically set forth in this
Agreement. The Trustee shall have the authority to exercise the rights and
powers vested in it by this Agreement. Any permissive right of the Trustee set
forth in this Agreement shall not be construed as a duty.
(b) The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished to it pursuant to any
provision of this Agreement or to it in its capacity as Collateral Holder
pursuant to the Pooling and Servicing Agreement, shall examine them to determine
whether they conform to the requirements of this Agreement or the pooling and
Servicing Agreement. If any such instrument is found not to conform to the
requirements of this Agreement or the Pooling and Servicing Agreement in a
material manner, the Trustee shall take such action as a Majority in Interest of
Certificateholders shall direct, and the Trustee will provide notice thereof to
the Depositor, the Certificateholders and each Rating Agency.
(c) In the event of a default in respect of the CRB Certificates, the
Trustee shall proceed to enforce its rights as a holder of the CRB Certificates
under the Pooling and Servicing Agreement, unless otherwise directed by a
Majority in Interest of each Class of Certificates affected thereby. The Trustee
may, in its discretion, and will, if so directed by a Majority in Interest of
each Class of Certificates affected thereby, proceed to enforce any rights which
it may have as a holder of CRB Certificates. In addition, a Majority in Interest
of each Class of Certificates may together direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee as a holder of
CRB Certificates. Notwithstanding the foregoing, the Trustee shall in no event
exercise
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any of its rights as a Collateral Holder in an manner inconsistent with the
terms of paragraphs (d) and (e) of this Section 5.01.
(d) In the event that (i) the Trustee has the right to vote or give consent
in respect of the CRB Certificates or receives a request from the trustee or the
issuer of the CRB Certificates for its consent to any amendment, modification or
waiver under any document relating to the CRB Certificates, or receives any
other solicitation for any action with respect to the CRB Certificates, (ii) the
Depositor notifies the Trustee of its determination that taking any such action
is primarily intended to maintain the initial value or credit rating of the CRB
Certificates, and any additional consequences that might arise as a result of
taking any such action are incidental, and (iii) either (A) the CRB Certificate
are in default, (B) the Depositor notifies the Trustee of its determination that
the CRB Certificates will probably have their credit rating downgraded (or be in
default) in the reasonably foreseeable future absent such action or (C) the
Depositor delivers to the Trustee an opinion of tax counsel to the effect that
the Trust will continue to qualify as a grantor trust under the Code if any such
action were to be taken, then, (x) the Trustee shall mail a notice of such
proposed action, including a description thereof, to each Certificateholder of
record as of such date, (y) the Trustee shall request instructions from the
Certificateholders as to whether or not to take such action and (z) the Trustee
shall vote, give consent or otherwise act as Collateral Holder with respect to a
particular matter in the same proportion as the Certificates of the Trust were
actually voted with respect to such matter (or, if such a proportional action is
not permitted, in accordance with the instructions of Holders of a Majority in
Interest of the Certificates) as of a date determined by the Trustee prior to
the date on which such action is required, provided that the Trustee shall have
no liability for any failure to act resulting from Certificateholders' late
return of, or failure to return, directions requested by the Trustee from the
Certificateholders. If each of the conditions set forth in clauses (ii) and
(iii) of the next preceding sentence are not satisfied, then the Trustee shall
abstain from taking any action with respect to any vote, consent or other action
that is referred to in clause (i) of the next preceding sentence.
(e) Notwithstanding anything to the contrary contained herein, the Trustee
shall be under no obligation to exercise or enforce any of the rights or powers
vested in it by this Agreement or as the Collateral Holder, at the request,
order or direction of any of the Certificateholders, unless such
Certificateholders have offered to the Trustee security or indemnity
satisfactory to it against the costs, expenses and liabilities that may be
incurred by the Trustee in compliance with such request, order or direction or
if such request, order or direction is in conflict with any rule of law or this
Agreement. In the event of any default under this Agreement by the Depositor or
any default under the CRB Certificates, subject to compliance with paragraph (d)
above, the Trustee may in its discretion proceed to protect and enforce the
rights of Certificateholders by any action, suit or proceeding deemed proper by
the Trustee which is not inconsistent with any request or direction by the
Holders of a Majority in Interest of the Certificates of each Class affected
thereby.
(f) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct or from
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liability for any negligent action or any negligent failure to act in respect of
the Trust Property, the CRB Certificates or the Pooling and Servicing Agreement
in any capacity other than as Trustee; provided, however, that:
(i) the duties and obligations of the Trustee shall be determined
solely by the express provisions of this Agreement, the Trustee shall not
be liable except for the performance of such duties and obligations as are
specifically set forth in this Agreement, no implied covenants or
obligations shall be read into this Agreement against the Trustee and, in
the absence of bad faith or negligence on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates,
opinions, documents and other statements furnished to the Trustee that
conform on their face to the requirements of this Agreement;
(ii) the Trustee shall not be personally liable for an error of
judgment made in good faith by a Responsible Officer or Responsible
Officers of the Trustee, unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in good faith and
believed by it to be authorized or within its discretion or authority
hereunder or in accordance with the direction of the Holders of
Certificates evidencing Percentage Interests aggregating not less than
66-2/3% of all the Certificates relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Agreement.
SECTION 5.02 Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 5.01:
(i) the Trustee may request and rely upon and shall be protected in
acting or refraining from acting upon any resolution, Officer's
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond or other paper or document reasonably believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(ii) the Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered or omitted by it hereunder in good faith and in
accordance therewith;
(iii) except for the duties and obligations of the Trustee expressly
created by this Agreement, the Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this Agreement or to
make any investigation of matters arising hereunder or to institute,
conduct or defend any litigation hereunder or in relation hereto at the
request, order or direction of any of the Certificateholders, pursuant to
the provisions of this
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Agreement, or if such request or direction is in conflict with any rule of
law or this Agreement, unless such Certificateholders shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby; nothing contained
herein shall, however, relieve the Trustee of the obligation, to use the
same degree of care and skill in its exercise of rights and remedies
hereunder on behalf of Certificateholders as a prudent man would exercise
or use under the circumstances in the conduct of his own affairs;
(iv) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys;
(v) the Trustee shall not be personally liable for any loss resulting
from the investment of funds held in the Certificate Account pursuant to
Section 3.03; and
(vi) the Trustee shall not be deemed to have notice or knowledge of
any matter unless a Responsible Officer assigned to and working in the
Corporate Trust Office has actual knowledge thereof or unless written
notice thereof is received by the Trustee at the Corporate Trust Office and
such notice references the Certificates generally or this Agreement.
SECTION 5.03 Trustee Not Liable for Certificates. The recitals contained
herein and in the Certificates, other than the signature of the Trustee on the
Certificates and the certificate of authentication, shall be taken as the
statements of the Depositor, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations or warranties as to the
validity or sufficiency of this Agreement or of the Certificates or of the CRB
Certificates or related documents, other than the signature of the Trustee on
the Certificates and the certificate of authentication. The Trustee shall not be
accountable hereunder or under the Certificates, except (i) for its own bad
faith or negligence or (ii) in the case of the inaccuracy of any representation
or warranty contained in Section 5.12 expressly made by the Trustee.
SECTION 5.04 Trustee May Own Certificates. The Trustee in its individual or
any other capacity may become the owner or pledgee of Certificates with the same
rights it would have if it were not Trustee; provided, however, that in
determining whether the Holders of the required Percentage Interest shall have
consented to any action hereunder requiring such consent, the Trustee's interest
shall be excluded.
SECTION 5.05 Trustee's Fees and Expenses. The Depositor covenants and
agrees to pay to the Trustee on the Closing Date, and the Trustee shall be
entitled to receive from time to time out of amounts collected and payments
received in respect of the CRB Certificates, reasonable compensation (which
shall not be limited by any provision of law in regard to the compensation of a
trustee of an express trust) for all services rendered by it in the execution of
the trusts hereby created and in the exercise and performance of any of the
powers and duties hereunder or of the Trustee, and the Depositor will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the
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provisions of this Agreement (including the reasonable compensation and the
expenses and disbursements of its counsel and of all persons not regularly in
its employ), except any such expense, disbursement or advance as may arise from
the Trustee's willful misfeasance, negligence or bad faith. The Trustee and any
director, officer, employee or agent of the Trustee shall be indemnified by the
Depositor and held harmless against any loss, liability or expense incurred in
connection with any legal action relating to this Agreement or the Certificates,
or the performance of any of the Trustee's duties hereunder, other than any
loss, liability or expense incurred by reason of willful misfeasance, bad faith
or negligence in the performance of duties hereunder or by reason of reckless
disregard of obligations and duties hereunder; provided that (i) with respect to
any such loss, liability or expense, the Trustee shall have given to the
Depositor written notice thereof promptly after the Trustee shall have knowledge
thereof and (ii) while maintaining control over its own defense, the Trustee
shall cooperate and consult fully with the Depositor. Such indemnity shall
survive the termination or discharge of this Agreement and the resignation or
removal of the Trustee. Any payment hereunder made by the Depositor to the
Trustee shall be from the Depositor's own funds, without reimbursement from the
Trust Property therefor.
SECTION 5.06 Eligibility Requirements for Trustee. The Trustee shall at all
times be a corporation or a national banking association organized and doing
business under the laws of any state or the United States of America or the
District of Columbia, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000 and the
long-term debt obligations of which are rated in one of the four highest
categories assigned long-term debt obligations by one of the Rating Agencies,
and is subject to supervision or examination by federal or state authority. If
such corporation or association publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising or
examining authority, then for the purposes of this Section the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of conditions so published. In
the event that any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, the Trustee shall resign immediately in the
manner and with the effect specified in Section 5.07. The corporation or
national banking association serving as Trustee may have normal banking and
trust relationships with the Depositor and its Affiliates; provided, however,
that such corporation shall not be an Affiliate of the Depositor.
SECTION 5.07 Resignation and Removal of the Trustee.
(a) Subject to the last sentence of this subsection (a), the Trustee may at
any time resign and be discharged from the Trust hereby created by giving notice
thereof to the Depositor, the Certificateholders and each Rating Agency. Upon
receiving such notice of resignation, the Depositor (with the consent of a
Majority in Interest of Certificateholders) shall as promptly as possible (and
in any event within 30 days after the date of such notice of resignation)
appoint a successor trustee by written instrument, in duplicate, which
instrument shall be delivered to the resigning Trustee and to the successor
trustee. A copy of such instrument shall be delivered to the Certificateholders
and each Rating Agency by the Depositor. If no successor trustee shall have been
so appointed and have accepted appointment within 30 days after the giving of
such notice of resignation, the resigning
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Trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee for the Certificates.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 5.06 and shall fail to resign after written
request therefor by the Depositor or a Majority in Interest of the
Certificateholders, or if at any time the Trustee shall become incapable of
acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Trustee
or of its property shall be appointed, or any public officer shall take charge
or control of the Trustee or of its property or affairs for the purpose of
rehabilitation, reorganization, conservation or liquidation, then the Depositor
(with the consent of a Majority in Interest of Certificateholders) may remove
the Trustee and appoint a successor trustee by written instrument, in duplicate,
which instrument shall be delivered to the Trustee so removed and to the
successor trustee. A copy of such instrument shall be delivered to the
Certificateholders and each Rating Agency by the Depositor.
(c) The Holders of Certificates representing not less than a Majority in
Interest of Certificateholders may at any time remove the Trustee and appoint a
successor trustee upon 30 days' notice to the Trustee by written instrument or
instruments, in triplicate, signed by such Holders or their attorneys-in-fact
duly authorized, one complete set of which instruments shall be delivered to the
Depositor, one complete set to the Trustee so removed and one complete set to
the successor trustee so appointed. A copy of such instrument shall be delivered
to the Certificateholders and each Rating Agency by the Depositor.
(d) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor trustee as
provided in Section 5.08.
SECTION 5.08 Successor Trustee. (a) Any successor trustee appointed as
provided in Section 5.07 shall execute, acknowledge and deliver to each of the
Depositor, the Certificateholders and its predecessor trustee and each Rating
Agency an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with the like effect as if originally named as Trustee
herein. The predecessor Trustee shall deliver to the successor trustee the CRB
Certificates and all related documents and statements held by it hereunder, and
the Depositor and the predecessor Trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for more
fully and certainly vesting and confirming in the successor trustee all the
rights, powers, duties and obligations of the Trustee under this Agreement.
No successor trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor trustee shall be eligible
under the provisions of Section 5.06.
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(b) Upon acceptance of appointment by a successor trustee as provided in
this Section, the Depositor shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register.
SECTION 5.09 Merger or Consolidation of Trustee. Any corporation into which
the Trustee may be merged or converted or with which it may be consolidated or
any corporation resulting from any merger, conversion or consolidation to which
the Trustee shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation shall be eligible
under the provisions of Section 5.06, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding. The Trustee shall provide notice of any
such merger to each Rating Agency.
SECTION 5.10 Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions hereof, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Trust Property or property securing the same may at the time be located,
the Depositor and the Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or
separate trustee or separate trustees, of all or any part of the Trust Property,
and to vest in such Person or Persons, in such capacity, such title to the Trust
Property, or any part thereof, and subject to the other provisions of this
Section 5.10, such powers, duties, obligations, rights and trusts as the
Depositor and the Trustee may consider necessary or desirable. If the Depositor
shall not have joined in such appointment within 15 days after the receipt by it
of a request so to do, the Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 5.06
hereunder and no notice to Holders of Certificates or Rating Agencies of the
appointment of co-trustee(s) or separate trustee(s) shall be required under
Section 5.08.
(b) In the case of any appointment of a co-trustee or separate trustee
pursuant to this Section 5.10, all rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act), except to
the extent that under any law of any jurisdiction in which any particular act or
acts are to be performed, the Trustee shall be incompetent or unqualified to
perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust Property or any portion
thereof in any such jurisdiction) shall be exercised and performed by such
separate trustee or co-trustee at the direction of the Trustee. The Depositor
and the Trustee acting jointly may at any time accept the resignation or remove
any separate trustee or co-trustee.
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(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article V. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Depositor.
(d) Any separate trustee or co-trustee may, at any time, constitute and
appoint the Trustee as its agent or attorney-in-fact, with full power and
authority, to the extent not prohibited by law, to do any lawful act under or in
respect of this Agreement on its behalf and in its name. If any separate trustee
or co-trustee shall die, become incapable of acting, resign or be removed, all
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 5.11 Tax Returns. The Trustee will prepare or cause to be prepared,
sign and file or cause to be filed all tax or informational returns required to
be prepared and filed on behalf of the Trust under any Federal, state or local
income tax laws.
SECTION 5.12 Representations and Warranties of Trustee. (a) The Trustee
represents and warrants that:
(i) the Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
association;
(ii) the Trustee has full power, authority and right to execute,
deliver and perform its duties and obligations under this Agreement and the
Certificates and has taken all necessary action to authorize the execution,
delivery and performance by it (or, with respect to the Certificates, by it
and an authenticating agent on its behalf, if applicable) of this Agreement
and the Certificates;
(iii) the execution and delivery of this Agreement and the
Certificates by the Trustee and its performance of the compliance with the
terms of this Agreement, and the Certificates will not violate the
Trustee's articles of incorporation, association or other constitutive
documents or By-laws or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or
result in the breach or acceleration of, any material contract, agreement
or other instrument to which the Trustee is a party or which may be
applicable to the Trustee or any of its assets;
(iv) as of the Closing Date, each of this Agreement and the
Certificates have been duly executed and delivered by the Trustee (and,
with respect to the Certificates, by an
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authenticating agent on its behalf, if applicable) and this Agreement
constitutes the legal, valid and binding obligation of the Trustee,
enforceable in accordance with its terms, except as enforcement may be
limited by the applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally and
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
(v) the Trustee is not in violation, and the execution and delivery of
this Agreement and the Certificates by the Trustee and its performance and
compliance with the respective terms of this Agreement and the Certificates
will not constitute a violation, of any order or decree of any court or any
order or regulation of any federal, state, municipal or governmental agency
having jurisdiction over the Trustee or its properties, which violation
would reasonably be expected to have a material adverse effect on the
condition (financial or otherwise) or operations of the Trustee or its
properties or on the performance of its duties thereunder);
(vi) there are no actions or proceedings against, or investigations
of, the Trustee pending, or, to the knowledge of the Trustee, threatened,
before any court, administrative agency or other tribunal (A) that could
reasonably be expected to prohibit its entering into this Agreement or to
render the Certificates invalid, (B) seeking to prevent the issuance of the
Certificates or the consummation of any of the transactions contemplated
hereunder or (C) that could reasonably be expected to prohibit or
materially and adversely affect the performance by the Trustee of its
obligations under, or the validity or enforceability of this Agreement or
the Certificates; and
(vii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Trustee of, or compliance by the Trustee with, this
Agreement or the Certificates, or for consummation of the transactions
contemplated herein, except for such consents, approvals, authorizations
and orders, if any, as have been obtained prior to the Closing Date.
(b) Within 30 days of the earlier of discovery by the Trustee or
receipt by the Trustee of notice from the Depositor or any
Certificateholder of a breach of any representation or warranty of the
Trustee set forth in paragraph (a) above that materially and adversely
affects the interests of the Certificateholders, the Trustee shall promptly
cure such breach in all material respects.
SECTION 5.13 Limitation of Powers and Duties. The Trust is constituted
solely for the purposes of acquiring and holding the CRB Certificates, issuing
the Certificates, making distributions thereon and other activities incidental
thereto. The Trustee is not authorized to acquire any other investments or
engage in any activities not authorized herein and, in particular, the Trustee
is not authorized (i) to sell, assign, transfer, exchange, pledge, set-off or
otherwise dispose of any of the CRB Certificates or interests therein, including
to Certificateholders (except upon termination of
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the Trust in accordance with Article VII or in accordance with Section 5.01),
(ii) to do anything that would cause the Trust to fail or cease to qualify as a
"grantor trust" for Federal income tax purposes or (iii) to do anything that
would cause the assets of a Trust to be treated as "plan assets" as determined
pursuant to the Plan Assets Regulation.
ARTICLE VI
The Depositor
SECTION 6.01 Liability of the Depositor. The Depositor shall be liable in
accordance herewith only to the extent of the obligations specifically imposed
upon and undertaken by the Depositor herein.
SECTION 6.02 Merger, Consolidation or Conversion of the Depositor. Subject
to the following paragraph, the Depositor will keep in full effect its
existence, rights and franchises as a corporation under the laws of the
jurisdiction of its incorporation, and will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which such qualification is or shall be necessary to protect the validity and
enforceability of this Agreement and the Certificates and to perform its duties
under this Agreement.
The Depositor may be merged or consolidated with or into any Person, or
transfer all or substantially all of its assets to any Person, in which case any
Person resulting from any merger or consolidation to which the Depositor shall
be a party, or any Person succeeding to the business of the Depositor, shall be
the successor of the Depositor hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
SECTION 6.03 Limitation on Liability of the Depositor and Others. Neither
the Depositor nor any of the directors, officers, employees or agents of the
Depositor shall be under any liability to the Trust, the Trustee or the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement or for errors in judgment;
provided, however, that this provision shall not protect the Depositor or any
such person against any breach of warranties or representations made herein, or
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence. The Depositor and any director,
officer, employee or agent of the Depositor may rely in good faith on any
document of any kind which, prima facie, is properly executed and submitted by
any Person respecting any matters arising hereunder. The Depositor and any
director, officer, employee or agent of the Depositor shall be indemnified and
held harmless by the Trust Property against any loss, liability or expense
incurred in connection with any legal action relating to this Agreement or the
Certificates, other than any loss, liability or expense incurred by reason of
any breach of warranties or representations made by it herein, or willful
misfeasance, bad faith or gross negligence. The Depositor shall not be under any
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obligation to appear in, prosecute or defend any legal action unless such action
is related to its duties under this Agreement and which in its opinion does not
involve it in any expense or liability.
ARTICLE VII
Termination; Optional Purchase
of CRB Certificates
SECTION 7.01 Termination. (a) The respective obligations and
responsibilities of the Depositor and the Trustee created hereby with respect to
the Certificates (other than the obligation to make certain payments and to send
certain notices to Certificateholders as hereinafter set forth) shall terminate
immediately upon the occurrence of the last action required to be taken by the
Trustee on the Distribution Date pursuant to this Article VII following the
earlier to occur of (i) the final distribution by the Trustee of all money or
other property or proceeds of the Trust Property in accordance with the terms
hereof and (ii) the expiration of 21 years from the death of the last survivor
of the descendants of Joseph P. Kennedy, the late Ambassador of the United
States to the Court of St. James, living on the date hereof.
(b) Notice of any termination, specifying the Distribution Date upon which
all Certificateholders may surrender their Certificates to the Trustee for
payment and cancellation, shall be given promptly by the Trustee by letter to
Certificateholders mailed no later than the first day of the month of such final
distribution specifying (i) the Distribution Date upon which final payment of
the Certificates will be made upon presentation and surrender of Certificates at
the office or agency appointed by the Trustee for that purpose, (ii) the amount
of any such final payment and (iii) that the Record Date otherwise applicable to
such Distribution Date is not applicable and that payments shall be made only
upon presentation and surrender of the Certificates at the office or agency of
the Trustee therein specified. Upon presentation and surrender of the
Certificates, the Trustee shall cause to be distributed to Certificateholders an
amount equal to the amount otherwise distributable on such Distribution Date.
(c) Any funds not distributed on the final Distribution Date because of the
failure of any Certificateholders to tender their Certificates shall be set
aside and held in trust for the account of the appropriate nontendering
Certificateholders, whereupon the Trust Property shall terminate. If any
Certificates as to which notice of the termination date has been given pursuant
to this Section 7.01 shall not have been surrendered for cancellation within six
months after the time specified in such notice, the Trustee shall mail a second
notice to the remaining Certificateholders, at their last addresses shown in the
Certificate Register, to surrender their Certificates for cancellation in order
to receive, from such funds held, the final distribution with respect thereto.
If within one year after the second notice any Certificate shall not have been
surrendered for cancellation, the Trustee shall directly or through an agent,
take reasonable steps to contact the remaining Certificateholders concerning
surrender of their Certificates. The costs and expenses of maintaining such
funds and of contacting Certificateholders shall be paid out of the assets which
remain held. If within two years
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after the second notice any Certificates shall not have been surrendered for
cancellation, the Trustee shall pay to the Depositor all amounts distributable
to the Holders thereof and the Depositor shall thereafter hold such amounts for
the benefit of such Holders. No interest shall accrue or be payable to any
Certificateholder on any amount held as a result of such Certificateholder's
failure to surrender its Certificate(s) for final payment thereof in accordance
with this Section 7.01.
SECTION 7.02 Optional Purchase of CRB Certificates. As of any Distribution
Date as of which the then outstanding Aggregate Collateral Balance is 5% or less
of the Aggregate Collateral Balance as of the Cutoff Date, the Depositor shall
have the option to purchase the outstanding CRB Certificates. To exercise such
option, the Depositor shall deposit in the Certificate Account an amount equal
to the aggregate unpaid principal balance of the then outstanding CRB
Certificates together with any accrued interest thereon through the related
Payment Date, and shall succeed to all interests of the Trust, the Trustee and
the Certificateholders in and to such CRB Certificates. The Trustee shall apply
such funds deposited in the Certificate Account by the Depositor pursuant to
this Section 7.02 in order to retire the Certificates as of such Distribution
Date.
ARTICLE VIII
Miscellaneous
SECTION 8.01 Amendment; Waiver. (a) This Agreement may be amended from time
to time by the Depositor and the Trustee without the consent of any of the
Certificateholders (i) to cure any ambiguity, (ii) to correct or supplement any
provisions herein which may be defective or inconsistent with any other
provisions herein, (iii) to add any other provisions with respect to matters or
questions arising under this Agreement not inconsistent with the terms of this
Agreement or (iv) if such amendment, as evidenced by an Opinion of Counsel
delivered to the Trustee, is reasonably necessary to comply with any
requirements imposed by the Code or other written official announcement or
interpretation relating to federal income tax laws or any such proposed action
which, if made effective, would apply retroactively to the Trust Property at
least from the effective date of such amendment; provided that such action
(except any amendment described in (iv) above) shall not, as evidenced by an
Opinion of Counsel delivered to the Trustee, adversely affect in any material
respect the rights of any Certificateholder.
(b) Without limiting the generality of the foregoing, this Agreement may
also be amended from time to time by the Depositor and the Trustee with the
consent of the Holders of Certificates evidencing not less than 66-2/3% of the
then outstanding aggregate principal amount or notional amount, as the case may
be, of the Certificates of each Class adversely affected thereby for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Certificateholders of such Class; provided, however, that no such amendment
shall (i) reduce in any manner the amount of, or delay the timing of, payments
required to be distributed on any such Certificate without he consent of the
Holder of such Certificate, (ii) adversely affect in any material respect the
interests of
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the Holders of any Class of Certificates in a manner other than as described in
clause (i), without the consent of the Holders of Certificates of such Class
evidencing not less than 66-2/3% of the then outstanding aggregate principal
amount or notional amount, as applicable, of such Class or (iii) change the
aforesaid percentages of Certificates the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all such
Certificates then outstanding of the given Class.
(c) Promptly after the execution of any such amendment, the Trustee shall
furnish a written statement describing the substance of the amendment to each
Certificateholder and each Rating Agency.
It shall not be necessary for the consent of Certificateholders under this
Section 8.01 to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
(d) Notwithstanding the foregoing, no amendment or modification to this
Agreement shall be permitted unless the Trustee receives an Opinion of Counsel
that such amendment or modification will not alter the status of the trust for
United States federal income tax purposes.
(e) The Holders of Certificates representing not less than a Majority in
Interest of Certificateholders may, on behalf of all Certificateholders, waive
in writing any default by the Depositor or the Trustee in the performance of its
obligations hereunder and any consequences thereof, except a default by the
Trustee in failing to distribute amounts received in respect of the CRB
Certificates and except a default in respect of a covenant or provision the
modification or amendment of which would require the consent of the Holder of
each Outstanding Certificate affected thereby. Upon any such waiver of a past
default, such default shall cease to exist; provided, however, that no such
waiver shall extend to any subsequent or other default or impair any right
consequent thereto.
SECTION 8.02 Limitation on Rights of Certificateholders. (a) The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Property, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust Property, nor
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.
(b) No Certificateholder shall have any right to vote (except as expressly
provided for herein) or in any manner otherwise control the operation and
management of the Trust Property, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of any association; nor shall any Certificateholder be under
any liability to any third party by reason of any action taken by the parties to
this Agreement pursuant to any provision hereof.
34
<PAGE>
(c) No Certificateholder shall have any right by virtue of any provision of
this Agreement to institute any suit, action or proceeding in equity or at law
upon or under or with respect to this Agreement, unless (a) the Holders of
Certificates evidencing Percentage Interests aggregating not less than 25% of
all the Certificates shall have made written request upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, (b) the Trustee, for 60 days after its receipt of such notice, request
and offer of indemnity, shall have neglected or refused to institute any such
action, suit or proceeding and (c) no direction inconsistent with such written
request shall have been given to the Trustee during such 60-day period by the
Holders of Certificates evidencing a majority of Percentage Interests of all the
Certificates. It is understood and agreed that the Trustee shall be under no
obligation to make any investigation of matters arising under this Agreement or
to institute conduct or defend any litigation hereunder or in relation hereto at
the request, order or direction of any Certificateholders unless such
Certificateholders have offered to the Trustee the reasonable indemnity referred
to above. It is further understood and agreed, and expressly covenanted by each
Certificateholder with every other Certificateholder and the Trustee, that no
one or more Holders of Certificates shall have any right in any manner whatever
by virtue of any provision of this Agreement to affect, disturb or prejudice the
rights of the Holders of any other Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner herein provided. For the protection
and enforcement of the provisions of this Section, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity.
SECTION 8.03 Governing Law. This Agreement and the Certificates shall be
construed in accordance with the laws of the State of New York without reference
to such state's principles of conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby, and
the obligations, rights and remedies of the parties hereunder shall be
determined in accordance with such laws.
SECTION 8.04 Notices. All demands, notices and directions hereunder shall
be in writing and shall be deemed effective upon receipt if personally delivered
at or mailed by registered or first class mail, postage prepaid, by express
delivery service or by telecopy when confirmed in writing, to:
(a) in the case of the Depositor,
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Attention: Ms. Gina Hubbell, Director and Vice
President; and
(b) in the case of the Trustee,
35
<PAGE>
______________________
______________________
______________________
______________________
Attention:____________
or, in each case, such other address as may hereafter be furnished by any party
to the others. Any notice required or permitted to be mailed to a
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 8.05 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Holders thereof.
SECTION 8.06 Notice to Each Rating Agency. The Trustee shall use its best
efforts promptly to provide notice to each Rating Agency with respect to each of
the following of which it has actual knowledge:
(i) any material change or amendment to this Agreement;
(ii) the resignation or termination of the Trustee;
(iii) the final payment to Holders of the Certificates; and
(iv) any change in the location of the Certificate Account.
In addition, the Trustee shall promptly furnish to each Rating Agency
copies of each report to Certificateholders described in Section 3.07. Any such
notice pursuant to this Section shall be in writing and shall be deemed to have
been duly given if personally delivered or mailed by first class mail, postage
prepaid, or by express delivery service to each Rating Agency at the address
provided to the Trustee from time to time.
SECTION 8.07 No Petition. Each of the Trustee and the Depositor, by
entering into this Agreement, and each Certificateholder, by accepting a
Certificate, hereby covenant and agree that they will not at any time institute
against the Trust, or join in any institution against the Trust of, any
bankruptcy proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Certificates, or
this Agreement. The Trustee covenants and agrees that it will have secured a
written acknowledgement (which need not be a
36
<PAGE>
separate document) from any Person proposing to provide any service by such
Person, that such Person will not at any time institute against the Trust, or
join in any institution against the Trust of, any bankruptcy proceedings under
any United States federal or state bankruptcy or similar law in connection with
the provision of such service.
SECTION 8.08 No Recourse. Each Certificateholder by accepting a Certificate
acknowledges that such Certificateholder's certificates represent beneficial
interests in the Trust only and do not represent interests in or obligations of
the Depositor, the Trustee, or any Affiliate, employee or agent of the foregoing
Persons and no recourse may be had against such Persons or their respective
assets, except as may be expressly set forth in this Agreement or the
Certificates.
SECTION 8.09 Grant of Security Interest. It is the express intent of the
parties to this Agreement that the conveyance of the CRB Certificates by the
Depositor to the Trustee be, and be construed as, a sale of the CRB Certificates
by the Depositor and not a pledge of any CRB Certificates by the Depositor to
secure a debt or other obligation of the Depositor. However, in the event that,
notwithstanding the aforementioned intent of the parties, any CRB Certificates
are held to be property of the Depositor, then, (a) it is the express intent of
the parties that such conveyance be deemed a pledge of such CRB Certificates by
the Depositor to the Trustee to secure a debt or other obligation of the
Depositor and (b)(1) this Agreement shall also be deemed to be a security
agreement within the meaning of Articles 8 and 9 of the Uniform Commercial Code
as in effect from time to time in the State of New York; (2) the conveyance
provided for in Section 2.01 shall be deemed to be a grant by the Depositor to
the Trustee of a security interest in all the Depositor's right, title and
interest in and to such CRB Certificates and all amounts payable to the holders
of such CRB Certificates in accordance with the terms thereof and all proceeds
of the conversion, voluntary or involuntary, of the foregoing into cash,
instruments, securities or other property, including all amounts from time to
time held or invested in the Certificate Account, whether in the form of cash,
instruments, securities or other property; (3) the obligations secured by such
security agreement shall be deemed to be all the Depositor's obligations under
this Agreement, including the obligation to provide to the Certificateholders
the benefits of this Agreement; and (4) notifications to persons holding such
property, and acknowledgements, receipts or confirmations from persons holding
such property, shall be deemed notifications to, or acknowledgements, receipts
or confirmation from, financial intermediaries, bailees or agents (as
applicable) of the Trustee for the purpose of perfecting such security interest
under applicable law. Accordingly, the Depositor hereby grants to the Trustee a
security interest in the CRB Certificates and all other property described in
clause (2) of the immediately preceding sentence for the purpose of securing to
the Trustee the performance by the Depositor of the obligations described in
clause (3) of the immediately preceding sentence. Notwithstanding the foregoing,
the parties to this Agreement intend the transfer pursuant to Section 2.01 to be
true, absolute and unconditional sale of the CRB Certificates and assets
constituting the Trust Property by the Depositor to the Trustee. The depositor
and the Trustee shall to the extent consistent with this Agreement take such
actions as may be necessary to ensure that, if this Agreement were deemed to
create a security interest in the CRB Certificates, such security interest would
be deemed to be a perfected security interest of first priority under applicable
law and will be maintained as such for so long as any of the CRB Certificates
remain outstanding. Without limiting
37
<PAGE>
the generality of the foregoing, the Trustee shall file, or shall cause to be
filed, all filings necessary to maintain the effectiveness of any original
filings necessary under the Uniform Commercial Code as in effect in any
jurisdiction to perfect the Trustee's security interest in or lien on the CRB
Certificates, including (x) continuation statements and (y) such other
statements as may be occasioned by (A) any change of name of the Depositor or
the Trustee, (B) any change of location of the place of business or the chief
executive office of the Depositor or (C) any transfer of any interest of the
Depositor in any CRB Certificate.
SECTION 8.10 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the respective successors and
assigns of the parties hereto, and all such provisions shall inure to the
benefit of the Certificate holders.
SECTION 8.11 Article and Section Headings. The article and section headings
herein are for convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
SECTION 8.12 Certificates Nonassessable and Fully Paid. It is the intention
of this Agreement that Certificateholders shall not be personally liable for
obligations of the Trust Property, that the beneficial ownership interests
represented by the Certificates shall be nonassessable for any losses or
expenses of the Trust Property or for any reason whatsoever, and that
Certificates, upon execution, authentication and delivery thereof by the Trustee
pursuant to Section 2.04, are and shall be deemed fully paid.
IN WITNESS WHEREOF, the Depositor and the Trustee have caused their names
to be signed hereto by their respective officers thereunto duly authorized, all
as of the day and year first above written.
ASSET BACKED SECURITIES CORP.,
as Depositor
by ________________________
Name:
Title:
[TRUSTEE NAME],
not in its individual capacity
but solely as Trustee
by ________________________
Name:
Title:
38
<PAGE>
39
<PAGE>
EXHIBIT A
---------
NUMBER $
R- CUSIP NO.
SEE REVERSE FOR CERTAIN DEFINITIONS
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE PRINCIPAL BALANCE OF THIS CERTIFICATE IS DISTRIBUTABLE IN INSTALLMENTS
AS SET FORTH IN THE TRUST AGREEMENT. ACCORDINGLY, THE OUTSTANDING PRINCIPAL
BALANCE OF THIS CERTIFICATE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE
FACE HEREOF.
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST IN, AND
IS NOT GUARANTEED BY THE DEPOSITOR OR THE TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES. NONE OF THIS CERTIFICATE, THE CRB CertificateS OR THE UNDERLYING
ACCOUNTS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR ANY OTHER
PERSON.
THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT
PLAN.
A-1
<PAGE>
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ]
[CLASS [A]] [ %] [FLOATING RATE] [ADJUSTABLE RATE] [VARIABLE RATE]
ASSET BACKED CERTIFICATE
evidencing a fractional undivided beneficial ownership interest in the Trust, as
defined below, the property of which included certain CRB Certificates created
pursuant to a Pooling and Servicing Agreement dated as of [ ______ ], among [
_______ ], as seller, [ _______ ], as servicer, and [ ], as trustee, and
distributions thereon, deposited in trust by Asset Backed Securities Corp. (the
"Depositor").
THIS CERTIFIES THAT [ ________________ ] is the registered owner of [ ________ ]
DOLLARS nonassessable, fully-paid, fractional undivided interest in Card Account
Trust, Series 199[ ]-[ ] formed by the Depositor. The [Class [A]] Certificates
have a pass-through rate of [[ %] per annum] [insert interest rate formula].
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the [Class [A]] Certificates described in the
Trust Agreement referred to herein.
[TRUSTEE NAME], not in its __________________________
individual capacity but solely as __________________________
Trustee, or as Authenticating Agent
for the Trustee,
by by
_____________________ _____________________
Authorized Officer Authorized Officer
The Trust was created pursuant to a Trust Agreement dated as of [ _____ ],
199[ ] (the "Trust Agreement"), between the Depositor and [ ________ ], a New
York banking corporation, not in its individual capacity but solely as Trustee
(the "Trustee"). Reference is hereby made to the Trust Agreement for information
with respect to the interests, rights, benefits, obligations, proceeds and
duties evidenced hereby and the rights, duties and obligations of the Trustee
with respect hereto. A copy of the Trust Agreement may be obtained from the
Trustee by written request sent to the Corporate Trust Office. Capitalized terms
used but not defined herein have the meanings assigned to them in the Trust
Agreement.
This Certificate is one of the duly authorized Certificates designated as
"[Class [A]] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed
Certificates" (herein called the "Certificates") pursuant to the Trust
Agreement. The Trust is also issuing [Class [B]] [ %] [Floating Rate]
[Adjustable Rate] [Variable Rate] Asset Backed Certificates (the "[Class [B]]
Certificates"). This Certificate is issued under and is subject to the terms,
provisions and conditions of the Trust Agreement, to which the acceptance hereof
assents and by which such Holder is bound.
A-2
<PAGE>
The Trust Property consists of: (i) certain CRB Certificates described in the
Trust Agreement; (ii) all distributions thereon on and after the Cutoff Date;
and (iii) the Certificate Account and such assets that are deposited therein
from time to time and any investments thereof, together with any and all income,
proceeds and payments with respect thereto.
Pursuant to the terms of the Trust Agreement, distributions will be made on
each Distribution Date, commencing on [ _______ ], 199[ ], to the Person in
whose name this Certificate is registered on the applicable Record Date, in an
amount equal to such Certificateholder's fractional undivided interest in the
amount required to be distributed to the Holders of the [Class [A]] Certificates
on such Distribution Date. The Record Date applicable to any Distribution Date
is the close of business on the day immediately preceding such Distribution Date
(or, in the event Definitive Certificates are issued, the last day of the month
preceding the month in which such Distribution Date occurs).
Each Certificateholder, by its acceptance of a Certificate, covenants and
agrees that such Certificateholder will not at any time institute against the
Trust, or join in any institution against the Trust of, any bankruptcy
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Certificates or the Trust
Agreement.
Distributions made on this Certificate will be made as provided in the
Trust Agreement by the Trustee by wire transfer in immediately available funds,
or check mailed to the Certificateholder of record in the Certificate Register
without the presentation or surrender of this Certificate or the making of any
notation hereon, except that with respect to Certificates registered on the
Record Date in the name of the nominee of the Clearing Agency (initially, such
nominee shall be Cede & Co.), payments will be made by wire transfer in
immediately available funds to the account designated by such nominee. Except as
otherwise provided in the Trust Agreement and notwithstanding the above, the
final distribution on this Certificate will be made after due notice by the
Trustee of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the Corporate Trust Office or such other
location as may be specified in such notice.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee, by manual signature, this Certificate shall not entitle
the holder hereof to any benefit under the Trust Agreement or be valid for any
purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE HOLDER HEREOF SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
A-3
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ],
by [TRUSTEE NAME],
not in its individual capacity
but solely as Trustee
by:________________________
Authorized Officer
Dated:
A-4
<PAGE>
(REVERSE OF TRUST CERTIFICATE)
The Certificates are limited in right of distribution to certain
collections and recoveries respecting the CRB Certificates, all as more
specifically set forth herein and in the Trust Agreement. The registered Holder
hereof, by its acceptance hereof, agrees that it will look solely to the Trust
Property (to the extent of its rights therein) for distributions hereunder. As
provided in the Trust Agreement, withdrawals from the Certificate Account may be
made from time to time for purposes other than, and, in certain cases, prior to,
distributions to Certificateholders, such purposes including reimbursement of
certain expenses incurred with respect to the Trust Property.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor and the Trustee and the rights of the Certificateholders under the
Trust Agreement at any time by the Depositor and the Trustee with the consent of
the Holders of Certificates evidencing at least 66-2/3% of the then outstanding
aggregate principal amount subject to certain provisions set forth in the Trust
Agreement. Any such consent by the Holder of this Certificate (or any
predecessor Certificate) shall be conclusive and binding on such Holder and upon
all future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent is made upon this Certificate. The Trust Agreement also permits
the amendment thereof, in certain limited circumstances, without the consent of
the Holders of any of the Certificates.
The [Class [A]] Certificates are issuable in fully registered form only in
minimum original principal amounts of $1,000 and integral multiples thereof. As
provided in the Trust Agreement and subject to certain limitations therein set
forth, Certificates are exchangeable for new Certificates of the same principal
amount, class, original issue date and maturity, in authorized denominations as
requested by the Holder surrendering the same.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trustee in the Borough of Manhattan, the City of New York, duly endorsed by
or accompanied by an assignment in the form below and by such other documents as
required by the Trust Agreement, and thereupon one or more new Certificates of
the same class in authorized denominations evidencing the same principal amount
will be issued to the designated transferee or transferees. The initial
Certificate Registrar appointed under the Trust Agreement is [ ], New York, New
York.
No service charge will be made for any registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Certificates.
A-5
<PAGE>
The Depositor and the Trustee and any agent of the Depositor or the Trustee
may treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Depositor, the Trustee, nor any such
agent shall be affected by any notice to the contrary.
The Trust and the obligations of the Depositor and the Trustee created by
the Trust Agreement with respect to the Certificates shall terminate upon
distribution (or provision for distribution) to the Certificateholders of all
amounts held by or on behalf of the Trustee and required to be distributed to
them pursuant to the Trust Agreement following the earlier to occur of (i) the
final distribution by the Trustee of all moneys or other property or proceeds of
the Trust Property in accordance with the terms of the Trust Agreement and (ii)
the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of St. James, living on the date hereof.
The Depositor may at its option purchase the outstanding CRB Certificates
at a price specified in the Trust Agreement, and such purchase of the CRB
Certificates will effect early retirement of the Certificates; however, the
Depositor may exercise such right of purchase only as of a Distribution Date as
of which the then outstanding Aggregate Collateral Balance is [5%] or less of
the Aggregate Collateral Balance as of the Cutoff Date.
The Certificates may not be acquired by or for the account of (i) an
employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to
the provisions of Title I of ERISA, (ii) a plan described in Section 4975(e)(i)
of the Code or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
acquiring and holding this Certificate, the Holder hereof shall be deemed to
have represented and warranted that it is not a Benefit Plan.
A-6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the Undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
________________________________________________________________________________
Please print or type name and address, including postal zip code, or assignee)
________________________________________________________________________________
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
________________________________________________________________ Attorney to
transfer said Trust Certificate on the books of the Certificate Registrar, with
full power of substitution in the premises.
Dated:
____________________________*
Signature Guaranteed:
____________________________*
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
A-7
<PAGE>
EXHIBIT B
---------
NUMBER $
R- CUSIP NO.
SEE REVERSE FOR CERTAIN DEFINITIONS
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE PRINCIPAL BALANCE OF THIS CERTIFICATE IS DISTRIBUTABLE IN INSTALLMENTS
AS SET FORTH IN THE TRUST AGREEMENT. ACCORDINGLY, THE OUTSTANDING PRINCIPAL
BALANCE OF THIS CERTIFICATE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE
FACE HEREOF.
THIS CERTIFICATE DOES NOT EVIDENCE AN OBLIGATION OF, OR AN INTEREST IN, AND
IS NOT GUARANTEED BY THE DEPOSITOR OR THE TRUSTEE OF ANY OF THEIR RESPECTIVE
AFFILIATES. NONE OF THIS CERTIFICATE, THE CRB CertificateS OR THE UNDERLYING
ACCOUNTS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR ANY OTHER
PERSON.
THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT
PLAN.
B-1
<PAGE>
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ]
[CLASS [B]] [ %] [FLOATING RATE] [ADJUSTABLE RATE] [VARIABLE RATE]
ASSET BACKED CERTIFICATE
evidencing a fractional undivided beneficial ownership interest in the Trust, as
defined below, the property of which included certain CRB Certificates created
pursuant to a Pooling and Servicing Agreement dated as of [ ______ ], among [
_______ ], as seller, [ _______ ], as servicer, and [ ], as trustee, and
distributions thereon, deposited in trust by Asset Backed Securities Corp. (the
"Depositor").
THIS CERTIFIES THAT [ _____________ ] is the registered owner of [ ________ ]
DOLLARS nonassessable, fully-paid, fractional undivided interest in Card Account
Trust, Series 199[ ]-[ ] formed by the Depositor. The [Class [A]] Certificates
have a pass-through rate of [[ %] per annum] [insert interest rate formula].
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the [Class [B]] Certificates described in the Trust
Agreement referred to herein.
[TRUSTEE NAME], not in its __________________________
individual capacity buy solely as __________________________
Trustee, or as Authenticating Agent
for the Trustee,
by by
__________________________ __________________________
Authorized Officer Authorized Officer
The Trust was created pursuant to a Trust Agreement dated as of [______ ],
199[ ] (the "Trust Agreement"), between the Depositor and [________], a New York
banking corporation, not in its individual capacity but solely as Trustee (the
"Trustee"). Reference is hereby made to the Trust Agreement for information with
respect to the interests, rights, benefits, obligations, proceeds and duties
evidenced hereby and the rights, duties and obligations of the Trustee with
respect hereto. A copy of the Trust Agreement may be obtained from the Trustee
by written request sent to the Corporate Trust Office. Capitalized terms used
but not defined herein have the meanings assigned to them in the Trust
Agreement.
This Certificate is one of the duly authorized Certificates designated as
"[Class [B]] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed
Certificates" (herein called the "Certificates"). The Trust is also issuing
[Class [A]] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed
Certificates (the "[Class [A]] Certificate") pursuant to the Trust
B-2
<PAGE>
Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Trust Agreement, to which Trust Agreement the
Holder of this Certificate by virtue of the acceptance hereof assents and by
which such Holder is bound. The Trust Property consists of: (i)certain CRB
Certificates described in the Trust Agreement; (ii) all distributions thereon on
and after the Cutoff Date; and (iii) the Certificate Account and such assets
that are deposited therein from time to time and any investments thereof,
together with any and all income, proceeds and payments with respect thereto.
Pursuant to the terms of the Trust Agreement, distributions will be made on
each Distribution Date, commencing on [ _____ ], 199[ ], to the Person in whose
name this Certificate is registered on the applicable Record Date, in an amount
equal to such Certificateholder's fractional undivided interest in the amount
required to be distributed to the Holders of the [Class [B]] Certificates on
such Distribution Date. The Record Date applicable to any Distribution Date is
the close of business on the day immediately preceding such Distribution Date
(or, in the event Definitive Certificates are issued, the last day of the month
preceding the month in which such Distribution Date occurs).
Each Certificateholder, by its acceptance of a Certificate, covenants and
agrees that such Certificateholder will not at any time institute against the
Trust, or join in any institution against the Trust of, any bankruptcy
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Certificates or the Trust
Agreement.
Distributions made on this Certificate will be made as provided in the
Trust Agreement by the Trustee by wire transfer in immediately available funds,
or check mailed to the Certificateholder of record in the Certificate Register
without the presentation or surrender of this Certificate or the making of any
notation hereon, except that with respect to Certificates registered on the
Record Date in the name of the nominee of the Clearing Agency (initially, such
nominee shall be Cede & Co.), payments will be made by wire transfer in
immediately available funds to the account designated by such nominee. Except as
otherwise provided in the Trust Agreement and notwithstanding the above, the
final distribution on this Certificate will be made after due notice by the
Trustee of the pendency of such distribution and only upon presentation and
surrender of this Certificate at the Corporate Trust Office or such other
location as may be specified in such notice.
Reference is hereby made to the further provisions of this Certificate set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee, by manual signature, this Certificate shall not entitle
the holder hereof to any benefit under the Trust Agreement or be valid for any
purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF
B-3
<PAGE>
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE HOLDER HEREOF
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed as of the date set forth below.
CARD ACCOUNT TRUST, SERIES
199[ ]-[ ],
by [TRUSTEE NAME], not in its
individual capacity but solely
as Trustee,
by:_______________________
Authorized Officer
Dated:
B-4
<PAGE>
(REVERSE OF TRUST CERTIFICATE)
The Certificates are limited in right of distribution to certain
collections and recoveries respecting the CRB Certificates, all as more
specifically set forth herein and in the Trust Agreement. The registered Holder
hereof, by its acceptance hereof, agrees that it will look solely to the Trust
Property (to the extent of its rights therein) for distributions hereunder. As
provided in the Trust Agreement, withdrawals from the Certificate Account may be
made from time to time for purposes other than, and, in certain cases, prior to,
distributions to Certificateholders, such purposes including reimbursement of
certain expenses incurred with respect to the Trust Property.
The Trust Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Depositor and the Trustee and the rights of the Certificateholders under the
Trust Agreement at any time by the Depositor and the trustee with the consent of
the Holders of Certificates evidencing at least 66-2/3% of then outstanding
aggregate notional amount subject to certain provisions set forth in the Trust
Agreement. Any such consent by the Holder of this Certificate (or any
predecessor Certificate) shall be conclusive and binding on such Holder and upon
all future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent is made upon this Certificate. The Trust Agreement also permits
the amendment thereof, in certain limited circumstances, without the consent of
the Holders of any of the Certificates.
The [Class [B]] Certificates are issuable in fully registered form only in
minimum original notional amounts of $1,000 and integral multiples thereof. As
provided in the Trust Agreement and subject to certain limitations therein set
forth, Certificates are exchangeable for new Certificates of the same notional
amount, class, original issue date and maturity, in authorized denominations as
requested by the Holder surrendering the same.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Trustee in the Borough of Manhattan, the City of New York, duly endorsed by
or accompanied by an assignment in the form below and by such other documents as
required by the Trust Agreement, and thereupon one or more new Certificates of
the same class in authorized denominations evidencing the same notional amount
will be issued to the designated transferee or transferees. The initial
Certificate Registrar appointed under the Trust Agreement is [ ], New York, New
York.
No service charge will be made for any registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection with any
transfer or exchange of Certificates.
B-5
<PAGE>
The Depositor and the Trustee and any agent of the Depositor or the Trustee
may treat the Person in whose name this Certificate is registered as the owner
hereof for all purposes, and neither the Depositor, the Trustee, nor any such
agent shall be affected by any notice to the contrary.
The Trust and the obligations of the Depositor and the Trustee created by
the Trust Agreement with respect to the Certificates shall terminate upon
distribution (or provision for distribution) to the Certificateholders of all
amounts held by or on behalf of the Trustee and required to be distributed to
them pursuant to the Trust Agreement following the earlier to occur of (i) the
final distribution by the Trustee of all moneys or other property or proceeds of
the Trust Property in accordance with the terms of the Trust Agreement and (ii)
the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late Ambassador of the United States to
the Court of St. James, living on the date hereof.
The Depositor may at its option purchase the outstanding CRB Certificates
at a price specified in the Trust Agreement, and such purchase of the CRB
Certificates will effect early retirement of the Certificates; however, the
Depositor may exercise such right of purchase only as of a Distribution Date as
of which the then outstanding Aggregate Collateral Balance is [5%] or less of
the Aggregate Collateral Balance as of the Cutoff Date.
The Certificates may not be acquired by or for the account of (i) an
employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to
the provisions of Title I of ERISA, (ii)a plan described in Section 4975(e)(i)
of the Code or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
acquiring and holding this Certificate, the Holder hereof shall be deemed to
have represented and warranted that it is not a Benefit Plan.
B-6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- ------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- ------------------------------------------------------------------------------
the within Trust Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
- -------------------------------------------------------- Attorney to transfer
said Trust Certificate on the books of the Certificate Registrar, with full
power of substitution in the premises.
Dated:
*
---------------------
Signature Guaranteed:
*
---------------------
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Trust Certificate in every particular,
without alteration, enlargement or any change whatever. Such signature must be
guaranteed by a member firm of the New York Stock Exchange or a commercial bank
or trust company.
B-7
<PAGE>
EXHIBIT C
---------
CRB CERTIFICATE SCHEDULE
[To come]
C-1
<PAGE>
EXHIBIT D
---------
POOLING AND SERVICING AGREEMENT
[To come]
D-1
<PAGE>
EXHIBIT E
---------
FORM OF DEPOSITORY AGREEMENT
[To come]
E-1
<PAGE>
E-2
Exhibit 4.4.6
================================================================================
ASSET BACKED SECURITIES CORPORATION
Depositor
and
--------------------------------
Trustee
--------------------------------
DEPOSIT TRUST AGREEMENT
Dated as of ____, 199__
--------------------------------
Conduit Mortgage Pass-Through Certificates
Series
$______ Class A-1 Certificates
$______ Class A-2 Certificates (Notional Amount)
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I.
Definitions............................. 1
ARTICLE II.
Conveyance of the Mortgage Certificates; Original
Issuance of Certificates....................... 5
Section 2.01. Conveyance of the Mortgage Certificates.................... 5
Section 2.02. Representations and Warranties of the
Depositor.................................................. 5
Section 2.03. Issuance of Certificates................................... 8
Section 2.04. Payment to Depositor....................................... 9
ARTICLE III.
Administration of the Mortgage Certificates............. 9
Section 3.01. Collection of Payments on the Mortgage
Certificates; Certificate Account .......................... 9
Section 3.02. Distributions............................................... 10
Section 3.03. Statements to Certificateholders............................ 10
Section 3.04. Annual Statement as to Compliance........................... 11
Section 3.05. Annual Independent Public Accountants'
Report...................................................... 11
Section 3.06. Access to Certain Documentation and
Information................................................. 12
ARTICLE IV.
The Certificates........................... 12
Section 4.01. The Certificates............................................ 12
Section 4.02. Registration of Transfer and Exchange of
Certificates................................................ 13
Section 4.03. Mutilated, Destroyed, Lost or Stolen
Certificates................................................ 13
Section 4.04. Persons Deemed Owners....................................... 14
ARTICLE V.
The Trustee............................. 14
Section 5.01. Liability of the Trustee.................................... 14
i
<PAGE>
Section 5.02. Representations and Warranties of the
Trustee..................................................... 15
Section 5.03. Merger or Consolidation of the Trustee...................... 15
Section 5.04. Limitation on Liability of the Trustee
and Others.................................................. 15
Section 5.05. Delegation of Duty by Trustee............................... 16
Section 5.06. Trustee's Fees and Expenses................................. 16
Section 5.07. Resignation and Removal of the Trustee...................... 17
Section 5.08. Successor Trustee........................................... 18
Section 5.09. Qualification of Trustee and Corporate
Trust Office................................................ 19
Section 5.10. Trustee or Depositor May Own
Certificates................................................ 19
ARTICLE VI.
Termination............................. 20
Section 6.01. Termination Upon Final Distribution to
Certificateholders.......................................... 20
Section 6.02. Failure of Certificateholders to
Surrender Certificates...................................... 20
ARTICLE VII.
Miscellaneous Provisions....................... 21
Section 7.01. Amendment................................................... 21
Section 7.02. Limitation on Rights of
Certificateholders.......................................... 21
Section 7.03. Limitation on Liability of the Depositor
and Others.................................................. 22
Section 7.04. Governing Law............................................... 23
Section 7.05. Notices..................................................... 23
Section 7.06. Severability of Provisions.................................. 23
Section 7.07. Certificates Nonassessable and Fully
Paid........................................................ 24
Section 7.08. Declaration of Trust; Tax Treatment;
Construction ............................................... 24
Signatures and Seals
Acknowledgements
Exhibit A - Form of Certificate
Exhibit B - Schedule of Mortgage Certificates
ii
<PAGE>
DEPOSIT TRUST AGREEMENT (the "Agreement"), dated as of _______,
199__ by and between ASSET BACKED SECURITIES CORPORATION, a Delaware
Corporation, as depositor (the "Depositor"), and _________________________, a
________________ corporation, as trustee (the "Trustee").
In consideration of the mutual agreements herein contained, the
Depositor and the Trustee agree as follows:
ARTICLE I.
Definitions
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
Business Day: Any day other than (i) a Saturday or a Sunday, or (ii)
a day on which commercial banking institutions in New York, New York or
_____________, ______________________ are authorized or obligated by law or
executive order to be closed.
Certificate: Any one of the Class A-1 Certificates or Class A-2
Certificates, each evidencing undivided percentage ownership interests in the
Class A-1 Distribution Amount and Class A-2 Distribution Amount, respectively,
and executed by the Trustee in substantially the form set forth in Exhibit A
hereto.
Certificate Account: The custodial account created and maintained
with the Trustee pursuant to Section 3.01. Funds deposited in the Certificate
Account shall be held in trust for the Certificateholders for the uses and
purposes set forth in Article III hereof.
Certificate Register: The meaning provided in Section
4.02.
Certificateholder or Holder: The person in whose name a Certificate
is registered in the Certificate Register, except that, solely for the purpose
of giving any consent pursuant to this Agreement, any Certificate registered in
the name of the Depositor or the Trustee or any affiliate of either of them
shall be deemed not to be outstanding.
Class A-1 Certificates: A Certificate designated as a Class A-1
Certificate and evidencing a Percentage Interest in each Class A-1 Distribution
Amount.
Class A-2 Certificates: A Certificate designated as a Class A-2
Certificate and evidencing a Percentage Interest in each Class A-2 Distribution
Amount.
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<PAGE>
Class A-1 Distribution Amount: As to any Distribution Date, an
amount equal to (i) ___% of the Mortgage Certificate Principal Distribution and
(ii) ___% of the Mortgage Certificate Interest Distribution.
Class A-2 Distribution Amount: As to any Distribution Date, an
amount equal to (i) ___% of the Mortgage Certificate Principal Distribution and
(ii) ___% of the Mortgage Certificate Interest Distribution.
Closing Date: ____, 199__
Corporate Trust Office: The principal corporate trust office of the
Trustee in the City of New York at which at any particular time its corporate
trust business shall be administered, which office at the date of the execution
of this instrument is located at ______________________________________.
Cut-off Date: ______, 199__.
Deleted Mortgage Certificate: A Mortgage Certificate replaced or to be
replaced by a Replacement Mortgage Certificate.
Denomination: For each Certificate, the amount designated as such on
the face thereof. The aggregate of the Denominations of Class A-1 Certificates
is equal to the aggregate of the principal balances of the Mortgage Certificates
as of the month of the Closing Date net of any distributions of principal
scheduled to be made thereon during such month. The Denominations of the Class
A-2 Certificates shall be their Notional Amounts; the aggregate Notional Amount
for the Class A-2 Certificates for any month will be equal to the aggregate
outstanding principal balance of the Mortgage Certificates for that month.
Depositor: Asset Backed Securities Corporation, a
Delaware Corporation, or its successor in interest.
Determination Date: The Business Day preceding any
Distribution Date.
Distribution Date: The __th day of each month, or if such day is not
a Business Day, the Distribution Date with respect to the payments affected
shall be the following Business Day.
Distribution Period: As to any Distribution date, the period
beginning at 1:00 p.m., _________ time, on the last day of the previous
Distribution Period (or, in the case of the first Distribution Date, beginning
on the Closing Date) and ending at 12:59 p.m., __________ time, on such
Distribution Date.
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<PAGE>
Mortgage Certificate Interest Distribution: As to each Distribution
Date, the distributions of interest with respect to the Mortgage Certificates
that have become cleared funds in the hands of the Trustee during the related
Distribution Period, net of any amounts retained by the Trustee pursuant to
Section 5.06 hereof.
Mortgage Certificate Principal Distribution: As to each Distribution
Date, the distributions of principal with respect to the Mortgage Certificates
that have become cleared funds in the hands of the Trustee during the related
Distribution Period.
Mortgage Certificates: The conventional mortgage pass-
through certificates transferred to the Trustee by the Depositor
described in the Mortgage Certificate Schedule.
Mortgage Certificate Schedule: The schedule attached as Exhibit B
hereto, such schedule setting forth as to each Mortgage Certificate (i) the
issuer thereof and the series designation, (ii) its guarantor, if any, (iii) the
original balance, (iv) the pass-through rate, (v) the principal balance at the
Cutoff Date after giving effect to the principal component of the scheduled
distribution for the month of the Closing Date, (vi) the maturity date and (vii)
its issue date, as from time to time amended by the Trustee to reflect the
addition of Replacement Mortgage Certificates and the deletion of Deleted
Mortgage Certificates.
New York Presenting Agent: ________________________,
or such office located within the Borough of Manhattan, City and
State of New York of a bank or trust company as the Trustee may
designate.
Notional Amount: With respect to the Class A-2 Certificates, their
Denominations. The aggregate original Notional Amount for the Class A-2
Certificates for any month will be equal to the aggregate outstanding principal
balance of the Mortgage Certificates. The Notional Amount is used solely for
purposes of the determination of interest payments and certain other rights and
obligations of Holders of Class A-2 Certificates, and Holders of Class A-2
Certificates shall not have any interest in, or be entitled to any payment with
respect to, principal payments on the Mortgage Certificates.
Officers' Certificate: A certificate signed by the Chairman of the
Board, the President or a Vice President, Assistant Vice President and by the
Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Trustee, as required by this Agreement.
Opinion of Counsel: A written opinion of counsel, who
may be counsel for the Depositor or the Trustee.
-3-
<PAGE>
Outstanding: With respect to the Certificates, as of
the date of determination, all Certificates theretofore executed
and delivered under this Agreement except:
(i) Certificates theretofore cancelled by the
Trustee or delivered to the Trustee for cancellation; and
(ii) _____ Certificates in exchange for or in lieu of which other
Certificates have been executed and delivered pursuant this Agreement
unless proof satisfactory to the Trustee is presented that any such
Certificates are held by a holder in due course.
Percentage Interest: As to any Class A-1 Certificates or Class A-2
Certificates, the percentage interest in each Class A-1 Distribution Amount or
Class A-2 Distribution Amount represented thereby, such percentage interest
being equal to the percentage obtained by dividing the Denomination of such
Class A-1 Certificates or Class A-2 Certificates by the aggregate Denominations
of all Class A-1 Certificates or Class A-2 Certificates, respectively.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency of political subdivision thereof.
Rating Agencies: [Standard & Poor's Ratings Group] and
[Moody's Investors Services Inc.], and any successors thereto,
respectively.
Record Date: The last Business Day of the month
preceding the month of the related Distribution Date.
Replacement Mortgage Certificate: A Mortgage Certificate substituted
by the Depositor for a Deleted Mortgage Certificate which must, on the date of
such substitution, meet the requirements for a Replacement Mortgage Certificate
set forth in Section 2.02 hereof.
Responsible Officer: With respect to the Trustee, the
Chairman or Vice Chairman of the Board of Directors or any Vice
President (Executive, Senior, Regular, Assistant or other), any
Trust Officer or any Banking Officer in its Corporate Trust
Department.
Servicing Fee: The fee payable to the Trustee pursuant
to Section 5.06 hereof.
Single Certificate: With respect to the Class A-1
Certificates, a Certificate in a Denomination of $____. With
respect to the Class A-2 Certificates, a Certificate in a
Denomination of $___________.
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<PAGE>
Trust Fund: At any time, the corpus of the trust created by this
Agreement consisting of (i) the Mortgage Certificates described in the Mortgage
Certificate Schedule, (ii) all distributions thereon other than as provided
herein, and (iii) amounts paid from time to time by the Trustee in the
Certificate Account.
Trustee: __________________________________, a banking
corporation or its successor in interest, or any successor
trustee appointed as herein provided.
ARTICLE II.
Conveyance of the Mortgage Certificates; Original
Issuance of Certificates
Section 2.01. Conveyance of the Mortgage Certificates.
The Depositor, concurrently with the execution and delivery hereof,
does hereby sell, transfer, assign, set-over and otherwise convey to Trustee, in
trust, for the use and benefit of the Certificateholders, without recourse, all
the rights, title and interest of the Depositor in and to the Mortgage
Certificates and all distribution with respect thereto and received subsequent
to the Cutoff Date, except as otherwise provided herein. The Depositor has
caused each Mortgage Certificate to be delivered to, and has caused each
Mortgage Certificate to be delivered to, and has used its best efforts to cause
each Mortgage Certificate to be registered in the name of, the Trustee or its
nominee. The transfer of the Mortgage Certificates is absolute and is intended
by the parties hereto as a sale. The Trustee acknowledges that each Mortgage
Certificates has been so delivered on or before the Closing Date. Except as
provided in Sections 2.02, 3.01, 5.08 and 6.01 hereof, the Trustee shall not
assign, sell, dispose of or transfer any interest in any Mortgage Certificate or
permit the Mortgage Certificates to be subjected to any lien, claim or
encumbrance arising by, through or under the Trustee or any person claiming by,
through or under Trustee. In conjunction with such sale, the Depositor shall
deliver to the Trustee a certificate of an independent firm of nationally
recognized certified public accountants verifying that (a) the principal amount
of the Mortgage Certificates equals or exceeds the principal amount of the
Certificates (not including any notional principal amount of the Class A-2
Certificates) and (b) the coupon rate of all of the Mortgage Certificates equals
or exceeds ___%.
Section 2.02. Representations and Warranties of the Depositor.
The Depositor hereby represents and warrants to the Trustee that:
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<PAGE>
(a) the Depositor is the owner of each Mortgage Certificate free and
clear of any liens or the adverse interests of any person:
(b) the Depositor has acquired its ownership in such
Mortgage Certificates in good faith without notice of any
adverse claim;
(c) the Depositor has not assigned any interest in such Mortgage
Certificates or any distributions thereon, except as contemplated herein
(or if any such interest has been assigned, it has been released);
(d) the information set forth with respect to each
Mortgage Certificate in the Mortgage Certificate Schedule is
correct;
(e) the Depositor is a corporation organized, existing and in good
standing under the laws of the State of Delaware, with full power and
authority to execute, deliver and perform this Agreement and the
transactions contemplated thereby, and has taken all necessary action to
authorize the execution, delivery and performance by it of this Agreement;
and
(f) this Agreement has been duly executed and delivered by the
Depositor and constitutes the valid, legal and binding agreement of the
Depositor, enforceable in accordance with its terms, except that (a) such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) the remedy of specific performance and
other forms of equitable relief may be subject to certain equitable
defenses and to the discretion of the court before which any proceeding
thereof may be brought.
The representations and warranties set forth in this Section 2.02
shall survive the transfer and assignment of the Mortgage Certificates. Upon
discovery by the Depositor or the Trustee of a breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other. Within 30 days or, with the prior written
consent of a Responsible Officer of the Trustee, such longer period specified in
such consent, of its discovery or its receipt of notice of breach, the
Depositor, with respect to breaches of the representations and warranties set
forth in clauses (a) through (d) inclusive, shall cure such breach in all
material respects or shall repurchase each affected Mortgage Certificate from
the Trustee, and, with respect to breaches of the representations and warranties
set forth in clauses (e) and (f), shall repurchase all the Mortgage Certificates
from the Trustee to the extent such breach or breaches, individually or in
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<PAGE>
the aggregate, materially and adversely affect the interest of the
Certificateholders in the Mortgage Certificates. Any such repurchase by the
Depositor shall be accomplished at a price payable to the Trustee equal to the
sum of (i) the outstanding principal balance of the Mortgage Certificates to be
repurchased on the date of such repurchase, and (ii) all interest accrued but
unpaid to the Trustee on such principal balance, at the rate of interest borne
by such Mortgage Certificate, through the distribution date for such Mortgage
Certificate of the Distribution Period in which such repurchase was made. The
payment of the purchase price for any repurchased Mortgage Certificate shall be
considered a prepayment in full of the related Mortgage Certificate and shall be
deposited by the Depositor in the Certificate Account in accordance with the
provisions of Sections 3.01 hereof and, upon such deposit into the Certificate
Account, the related Mortgage Certificate shall be released to the Depositor,
and the Trustee shall execute and deliver such instruments of transfer or
assignment, in each case without recourse, as shall be reasonably requested by
the Depositor to vest in the Depositor, or its designee or assignee, title to
any Mortgage Certificate repurchased pursuant hereto.
In lieu of its obligation to repurchase a Mortgage Certificate as to
which a breach has occurred and is continuing, the Depositor may remove such
Mortgage Certificate (a "Deleted Mortgage Certificate") from the Trust Fund and
substitute in its place a Replacement Mortgage Certificate; provided, however,
that no such substitution pursuant to this Section 2.02 may be effected unless
the Trustee shall have received: (i) an Opinion of Counsel satisfactory to it to
the effect that such substitution would not result in the Trust being considered
an "investment company" as such term is defined in the Investment Company Act of
1940, as amended, and (ii) an Opinion of Counsel satisfactory to it that such
substitution will not result in the classification of the Trust as an
association taxable as a corporation for federal or state income tax purposes
and that each holder of a Certificate will be treated as an owner of an
undivided interest in the income and corpus attributable to the Trust and as the
equitable owner of the Percentage Interest in the Mortgage Certificates and
other property included in the Trust evidenced by such Certificate.
[Each such replacement Mortgage Certificate shall, on the date of
substitution, have (i) a pass-through rate equal to the pass-through rate of the
Deleted Mortgage Certificate for which it is substituted, (ii) an outstanding
principal balance equal to or greater than the principal balance of the Deleted
Mortgage Certificate for which it is substituted, (iii) a remaining term to
maturity no less than the remaining term to maturity of the Deleted Mortgage
Certificate for which it is substituted and (iv) the same or an equivalent
rating as the rating of the Deleted Mortgage Certificate for which it is
substituted.]
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<PAGE>
Monthly payments due with respect to a replacement Mortgage
Certificate in the month of substitution are not part of the Trust Fund and will
be retained by the Trustee and remitted by the Trustee to the Depositor on the
next succeeding Distribution Date. For the month of substitution, distributions
to Certificateholders will include the monthly payment due on the related
Deleted Mortgage Certificate for such month and thereafter the Depositor shall
be entitled to retain all amounts received in respect of such Deleted Mortgage
Certificate. The Trustee shall amend the Mortgage Certificate Schedule to
reflect the removal of such Deleted Mortgage Certificate and the substitution of
the Replacement Mortgage Certificate or Certificates. Upon such substitution,
the Replacement Mortgage Certificate or Certificates shall be subject to the
terms of this Agreement in all respects, and the Depositor shall be deemed to
have made with respect to such Replacement Mortgage Certificate or Certificates,
as of the Date of Substitution, the covenants, representations and warranties
set forth in this Section 2.02, and the Trustee shall release such Deleted
Mortgage Certificate to the Depositor and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest title in the Depositor or its designee, as the case may be,
to any Deleted Mortgage Certificate substituted for pursuant to this Section
2.02.
The obligation of the Depositor to repurchase or to substitute for
any Mortgage Certificate as to which a breach has occurred and is continuing
shall constitute the sole remedy respecting such breach available to
Certificateholders or the Trustee on behalf of Certificateholders. The Trustee
may take legal action to enforce the Depositor's obligation to repurchase or
substitute for such Mortgage Certificates. The reasonable legal fees and
expenses incurred by the Trustee in connection with any such legal action shall
be reimbursable to the Trustee out of the proceeds of any such action and shall
be retained by the Trustee prior to the deposit of any remaining proceeds in the
Certificate Account pending distribution thereof to Certificateholders in
accordance with Section 3.02 hereof.
Section 2.03. Issuance of Certificates.
The Trustee acknowledges the transfer and delivery to it of the
Mortgage Certificates and declares that it holds and will hold such Mortgage
Certificates in trust for the benefit of all present and future
Certificateholders and, that concurrently with such transfer and delivery, it
has caused to be executed and delivered to or upon the order of the Depositor,
the Certificates duly executed by the Trustee in authorized Denominations,
registered in such names as the Depositor has requested. If so requested by the
Depositor and conditioned upon receipt by the Trustee of registration
instructions and blank Certificates from the Depositor at least three Business
Days prior to such date, the Trustee shall make such Certificates available to
the
-8-
<PAGE>
Depositor or its agent at least one full Business Day prior to the Closing Date.
Section 2.04. Payment to Depositor.
The Trustee hereby acknowledges that interest and principal payments
on the Mortgage Certificates due on or prior to the Cutoff Date are not the
property of the Trust Fund. The Trustee shall remit any such interest or
principal to the Depositor in immediately available funds no later than the
Business Day on which such interest or principal is received by the Trustee as
long as such funds are cleared funds in the hands of the Trustee by 1 p.m.,
__________ time, on such Business Day and, if not so received on such date or if
not received in immediately available funds, on the next succeeding Business
Day.
ARTICLE III.
Administration of the Mortgage Certificates
Section 3.01. Collection of Payments on the Mortgage Certificates; Certificate
Account.
The Trustee, for the benefit of the Certificateholders, shall
establish and maintain a separate non-interest-bearing custodial account in the
trust department of a depository institution (which may be the Trustee)
organized under the laws of the United States or any state thereof the deposits
of which are insured to the full extent permitted by law by the Federal Deposit
Insurance Corporation or the Federal Savings and Loan Insurance Corporation (the
"Certificate Account"). The Trustee shall deposit in the Certificate Account, as
soon as practicable after receipt, each distribution of interest and principal
and all other payments or amounts made to the Trustee with respect to the
Mortgage Certificates. If the Trustee shall not have received a distribution
with respect to a Mortgage Certificate by the [ __________ ] Business Day after
the date on which such distribution was due and payable pursuant to the terms of
such Mortgage Certificate, the Trustee shall request the issuer or guarantor, if
any, of such Mortgage Certificate to make such payment as promptly as possible
and legally permitted and shall, subject to the penultimate sentence of this
paragraph, take such legal action against such issuer or guarantor, if any, as
the Trustee shall deem appropriate under the circumstances, including the
prosecution of any claims in connection therewith. The reasonable legal fees and
expenses incurred by the Trustee in connection with the prosecution of any such
legal action shall be reimbursable to the Trustee out of the proceeds of any
such action and shall be retained by the Trustee prior to the deposit of any
remaining proceeds in the Certificate Account pending distribution thereof to
Certificateholders in accordance with Section 3.02 hereof. Any amounts retained
by the Trustee shall
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reduce the Mortgage Certificate Interest Distribution and the Mortgage
Certificate Principal Distribution in an amount equal to the product obtained by
multiplying the amount retained by the percentage of the total distribution
represented by the Mortgage Certificate Interest Distribution and Mortgage
Certificate Principal Distribution, respectively. In the event that the Trustee
has reason to believe that the proceeds of any such legal action may be
insufficient to reimburse it for its projected legal fees and expenses, the
Trustee shall notify the Certificateholders that it is not obligated to pursue
any such available remedies unless adequate indemnity for its legal fees and
expenses is provided to the Trustee, and the Trustee shall take such action as
shall be appropriate under the circumstances, provided however, that nothing
herein shall effect the rights of the Trustee under the second paragraph of
Section 5.06 hereof. All income or gain on the amounts deposited in the
Certificate Account shall be for the benefit of the Trustee.
Section 3.02. Distributions.
On each Distribution Date, the Trustee shall distribute to each
Certificateholder of record on the preceding Record Date by check mailed to each
Certificateholder entitled thereto at the address appearing in the Certificate
Register to be maintained with the Trustee or, at the request of a
Certificateholder, by wire transfer to the account of such Certificateholder;
provided, however, that the final distribution in retirement of a Certificate
shall be made only upon presentation and surrender of such Certificate at the
office of the Trustee specified in the notice to Certificateholders of such
final distribution. Wire transfers shall be made at the expense of
Certificateholders requesting such wire transfers by deducting a wire transfer
fee from the related transfer.
Section 3.03. Statements to Certificateholders.
With or prior to each distribution on the Certificates the Trustee
shall forward by mail a statement to each Certificateholder stating:
(i) the amount of principal distributable on such
Distribution Date to the Holder of a Single Certificate of the same Class as the
Certificate held by the Certificateholder receiving such notice;
(ii) the amount of interest distributable on such
Distribution Date to the Holder of a Single Certificate of the same Class as the
Certificate held by the Certificateholder receiving such notice;
(iii) the total amount of principal distributed;
(iv) the total amount of interest distributed;
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(v) the aggregate principal balance of the Mortgage
Certificates as of such Distribution Date after giving effect to the
distribution of principal made thereon in the prior Distribution Period;
(vi) the amount, if any, retained by the Trustee pursuant to
Section 3.01 and the reductions in the Mortgage Certificate Interest
Distribution and the Mortgage Certificate Principal Distribution resulting
therefrom; and
(vii) the amount of fees deducted by the Trustee in accordance
with Section 5.06 hereof.
On or before March 1st of each calendar year, beginning with
calendar year 199__, the Trustee shall prepare and deliver by first class mail
to each Person who at any time during the previous calendar year was a
Certificateholder of record a statement containing the information required to
be contained in the regular monthly report to Certificateholders, as set forth
in subclauses (i), (ii), (iii), (iv), (vi), (vii) and (viii) above aggregated
for such calendar year or the applicable portion thereof during which such
Person was a Certificateholder, together with such other information as the
Trustee deems necessary or desirable to enable the Certificateholders to prepare
their tax returns. The Depositor shall provide to the Trustee any reasonable and
necessary information to enable Certificateholders to prepare their tax returns.
Section 3.04. Annual Statement as to Compliance.
The Trustee shall deliver, with each annual report delivered
pursuant to Section 3.03 above, an Officers' Certificate stating that (a) a
review of the activities of the Trustee during the preceding calendar year and
of its performance under this Agreement has been made under the supervision of
the officer signing such certificate and (b) to the best of such officer's
knowledge, based on such review, the Trustee has fully performed its obligations
under this Agreement throughout such year, or, if there has been a default in
the performance of any such obligation, specifying each such default known to
such officer, the nature and status thereof and the steps, if any, taken to
remedy such default.
Section 3.05. Annual Independent Public Accountants' Report.
On or before December 31 of each calendar year, beginning with
December 31, 199__, the Trustee, at its expense, shall cause a firm of
nationally recognized independent public accountants to prepare and furnish a
statement to each Certificateholder to whom reports are mailed pursuant to
Sections 3.03 hereof to the effect that such firm has examined the necessary
documents and records relating to the Mortgage Certificates and the
Certificates, including, but not limited to,
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the Agreement, and the statements prepared and delivered by the Trustee pursuant
to Section 3.03 hereof and that, on the basis of such examination, nothing came
to their attention that caused them to believe that the statements prepared and
delivered pursuant to Section 3.03 have not been prepared in accordance with
such Section except for (a) such exceptions as such firm shall believe to be
immaterial and (b) such other exceptions as shall be set forth in such
statement.
Section 3.06. Access to Certain Documentation and Information.
The Trustee shall provide access to the Certificateholders of a copy
of each report received by it with respect to each of the Mortgage Certificates
and access to all reports, documents and records maintained by the Trustee in
respect of its duties hereunder, such access being afforded without charge but
only upon reasonable request and during normal business hours at offices
designated by the Trustee.
ARTICLE IV.
The Certificates
Section 4.01. The Certificates.
The Certificates shall be substantially in the form set forth in
Exhibit A hereto. The Class A-1 Certificates will be offered in fully registered
form, in minimum denominations of $_________ original principal amount and
multiples of $_________ in excess thereof. The Class A-2 Certificates will be
offered in fully registered form, in minimum denominations of $________ original
notional amount and multiples of $_______ in excess thereof. The Certificates
shall, on original issue, be executed by the Trustee, not in its individual
capacity but solely as Trustee, and countersigned and delivered by the Trustee
to or upon the order of the Depositor upon receipt by the Trustee of the
Mortgage Certificates registered in its name. The Certificates shall be executed
by manual or facsimile signature on behalf of the Trustee by an authorized
officer under its seal imprinted thereon. Certificates bearing the manual or
facsimile signatures of individuals who were, at the time when such signatures
were affixed, authorized to sign on behalf of the Trustee shall bind the
Trustee, notwithstanding that such individuals or any of them have ceased to be
so authorized prior to the execution and delivery of such Certificates. No
Certificates shall be entitled to any benefit under this Agreement, or be valid
for any purpose, unless such Certificate shall have been executed by the Trustee
and authenticated by the Registrar substantially in the form set forth in
Exhibit A hereto, and such executed authentication upon any Certificate shall be
conclusive evidence, and the only evidence, that such Certificate has been duly
authorized and delivered hereunder.
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All Certificates shall be dated the date of their execution and delivery.
Section 4.02. Registration of Transfer and Exchange of Certificates.
The Trustee shall cause to be kept as its Corporate Trust Office a
Certificate Register in which, subject to such reasonable regulations as it may
prescribe, the Trustee shall provide for the registration of Certificates and of
transfers of Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at
the Corporate Trust Office, the Trustee shall execute and deliver, in the name
of the designated transferee or transferees, one or more new Certificates in
authorized Denominations.
At the option of the Certificateholders, Certificates may be
exchanged for other Certificates of authorized Denominations upon surrender of
the Certificates to be exchanged at the Corporate Trust Office of the Trustee.
Whenever any Certificates are so surrendered for exchange, the Trustee shall
execute and deliver the Certificates that the Certificateholder making the
exchange is entitled to receive. Each Certificate presented or surrendered for
registration of transfer or exchange shall (if so required by the Trustee) be
duly endorsed by, or be accompanied by a written instrument of transfer in the
form satisfactory to, the Trustee duly executed by, the Holder thereof or his
attorney duly authorized in writing.
All Certificates surrendered for registration of transfer and
exchange shall be destroyed by the Trustee without liability on its part.
Section 4.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (i) any mutilated Certificate is surrendered to the Trustee or
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Certificate and of the ownership thereof, and (ii) there is
delivered to the Trustee such security or indemnity as may be required by it to
save it harmless, then, in the absence of receipt by the Trustee of written
notice that such Certificate has been acquired by a bona fide purchaser, the
Trustee shall execute and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor. Upon the issuance of any new Certificate under this Section 4.03, the
Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Any duplicate Certificate issued pursuant to this Section 4.03 shall constitute
complete
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and indefeasible evidence of ownership of a like Percentage Interest as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time. All Certificates surrendered to the Trustee under
the terms of this Section 4.03 shall be destroyed by the Trustee without
liability on its part.
Section 4.04. Persons Deemed Owners.
Prior to due presentation of a Certificate for registration of
transfer, the Trustee and any agent of the Trustee may treat the Person in whose
name any Certificate is registered as the owner of such Certificate for the
purpose of receiving distributions pursuant to Section 3.02 and for all other
purposes whatsoever, and neither the Trustee nor any agent of the Trustee shall
be affected by notice to the contrary.
ARTICLE V.
The Trustee
Section 5.01. Liability of the Trustee.
The Trustee shall be liable in accordance herewith only to the
extent provided in Section 5.04 and only to the extent of the obligations
specifically imposed upon and undertaken by the Trustee herein.
The Trustee, upon receipt of all certificates, opinions, documents
or other instruments furnished to the Trustee which are specifically required to
be furnished pursuant to any provision of this Agreement, shall determine
whether they are in the form required by this Agreement; provided, however, that
the Trustee shall not be responsible for the accuracy or content of any such
certificate, opinion, document or other instrument furnished pursuant to this
Agreement.
The Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, request, consent,
order, appraisal, bond or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties.
The Trustee may consult with counsel and any Opinion of Counsel
shall be full and complete authorization and protection in respect of any action
taken or suffered or omitted by it hereunder in good faith and in accordance
with such Opinion of Counsel.
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Section 5.02. Representations and Warranties of the Trustee.
The Trustee represents and warrants that:
(i) the Trustee is a banking corporation
organized, existing and in good standing under the laws of the
__________________________;
(ii) the Trustee has full power, authority and right to
execute, deliver and perform this Agreement, and has taken all necessary action
to authorize the execution, delivery and performance by it of this Agreement;
and
(iii) this Agreement has been duly executed and delivered by
the Trustee and constitutes the valid, legal and binding agreement of the
Trustee, enforceable in accordance with its terms, except that (a) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (b) that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to certain equitable defenses and
to the discretion of the court before which any proceeding therefor may be
brought.
Section 5.03. Merger or Consolidation of the Trustee.
Any Person into which the Trustee may be merged or consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any Person succeeding to the business of the
Trustee shall be the successor of the Trustee hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding. The Trustee may sell
and any Person may purchase all or substantially all of the assets of the
Trustee; provided that such Person assumes in writing all of the obligations and
liabilities of the Trustee hereunder.
Section 5.04. Limitation on Liability of the Trustee and Others.
In entering into this Agreement the Trustee acts solely as trustee
hereunder and not in its individual capacity; and all persons having any claim
under this Agreement by reason of the transactions contemplated hereby shall
look only to the Trust Fund for payment or satisfaction thereof, subject to this
Section 5.04. The Trustee shall not be responsible for the validity or
sufficiency of any assignment or registration of the Mortgage Certificates, or
for any depreciation in the value of the Trust Fund, subject to this Section
5.04.
Neither the Trustee nor any of the directors, officers, employees or
agents of the Trustee shall be under any liability to the Trust Fund or the
Certificateholders for any action taken,
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or for refraining from the taking of any action, in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Trustee or any such person against liability for any
breach of warranty or representations made herein or 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 hereunder. The Trustee and any director, officer,
employee or agent of the Trustee shall be indemnified by the Trust Fund and held
harmless against any loss, liability or expense, including reasonable attorneys'
fees, incurred in connection with investigating, preparing or defending any
legal action, commenced or threatened, relating to this Agreement or the
Mortgage Certificates, other than any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or negligence in the performance of
duties hereunder or by reason of willful disregard of obligations and duties
hereunder. The Trustee shall not be under any obligation to appear in, prosecute
or defend any legal action which is not incidental to a default by the issuer or
guarantor, if any, of the Mortgage Certificates under the circumstances
described in Section 3.01 or of the Depositor pursuant to Section 2.02;
provided, however, that the Trustee shall at the request of Holders of
Certificates evidencing Percentage Interests aggregating not less than 66-2/3%
of each Class of Certificates undertake any legal action that the Trustee or the
Certificateholders making such request shall specify with respect to this
Agreement and the rights and duties of the parties hereto and the interests of
the Certificateholders hereunder. In such event the legal fees and expenses of
such action and any liability therefrom shall be borne by Certificateholders
pursuant to indemnity furnished by them as a precondition to the Trustee's
obligation to take any such action pursuant to any such request.
Section 5.05. Delegation of Duty by Trustee.
In carrying out its obligations under this Agreement, the Trustee
may employ agents, attorneys, accountants and auditors, and shall not be
answerable for the default or misconduct of any such agents, attorneys,
accountants or auditors if such agents, attorneys, accountants or auditors shall
have been selected with reasonable care.
Section 5.06. Trustee's Fees and Expenses.
On each Distribution Date, the Trustee shall deduct, from
distributions of interest with respect to the Mortgage Certificates, a servicing
fee equal to the product of one-twelfth of ____% and the aggregate unpaid
principal balance of the Mortgage Certificates during the Distribution Period
prior to the Distribution Date, on the basis of the applicable pool factors (or,
if such pool factors are not available, on the basis of reports provided to the
Trustee by the services of such Mortgage
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Certificates) for the Mortgage Certificates during such Distribution Period (the
"Servicing Fee"). The Servicing Fee payable on each Distribution Date shall be
reduced to the extent that the aggregate amount in the Certificate Account is
less than the amount required to make the Mortgage Certificate Principal
Distribution and the Mortgage Certificate Interest Distribution. In the event
that on any Distribution Date the Trustee does not receive the full amount of
the Servicing Fee described in the preceding sentence, the amount of the
deficiency shall be carried forward and included as part of the Servicing Fee to
be deducted by the Trustee from the Servicing Account on each succeeding
Distribution Date until paid in full. The Trustee shall in no event acquire any
lien upon the Trust Fund, or any claim against the Holders, by reason of its
nonreceipt of the Servicing Fee, and the Trustee shall, unless and until the
effective date of any resignation of the Trustee under Section 5.07, continue to
perform its obligations hereunder notwithstanding such nonreceipt.
The Trustee shall be required to pay all expenses, except as
expressly provided herein, incurred by it or its agents in connection with its
activities hereunder (including expenses relating to retaining the independent
accountants referred to in Section 3.05, the annual fees for maintaining the
rating of the Certificates and compensation of any registrar or coregistrar) and
shall not be entitled to reimbursement therefor except as specifically provided
herein.
No provision of this Agreement or of the Certificates shall require
the Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or thereunder, or in
the exercise of any of its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate indemnity against such
risk or liability is not reasonably assured to it.
Section 5.07. Resignation and Removal of the Trustee.
The Trustee may at any time resign and be discharged of the trust
created by this Agreement by (1) executing an instrument in writing resigning as
Trustee of such trust, filing the same with the Depositor and mailing a copy of
a notice of resignation to all Holders then of record, the Certificate Registrar
(if other than the Trustee) and any coregistrar, not less than 60 days before
the date specified in such instrument when, subject to Section 5.08, such
registration is to take effect, and (2) appointing a successor Trustee in the
manner and meeting the qualifications hereinafter provided. Upon any such
resignation or discharge, the Trustee shall notify the Rating Agencies.
If at any time the Trustee shall become incapable of
acting, or shall be adjudged a bankrupt or insolvent, or a
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receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Depositor may remove the Trustee and appoint a successor trustee by written
instrument, in duplicate; one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee.
The Holders of Certificates evidencing Percentage Interests
aggregating not less than 66-2/3% of each Class of Certificates may at any time
remove the Trustee and appoint a successor trustee by written instrument or
instruments, in triplicate, signed by such Holders or their attorneys-in-fact
duly authorized, one complete set to the Trustee so removed and one complete set
to the successor so appointed.
Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section shall become
effective upon acceptance of appointment by the successor trustee and the
satisfaction of the other conditions as provided in Section 5.08 hereof.
Section 5.08. Successor Trustee.
Any successor trustee, appointed as provided in Section 5.07 hereof,
shall execute, acknowledge and deliver to the Depositor and to the predecessor
Trustee an instrument accepting such appointment hereunder, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Trustee
herein. The predecessor Trustee shall transfer to the successor trustee the
Mortgage Certificates in accordance with the requirements of applicable law and
shall turn over all related documents and statements held hereunder. In
addition, the predecessor Trustee and, upon request of the successor trustee,
the Depositor, shall execute and deliver such instruments and do such other
things as may reasonably be required for more fully and certainly vesting and
confirming in the successor trustee all such rights, powers, duties and
obligations, subject, however, to the payment of all amounts due the predecessor
Trustee under this Agreement.
Upon acceptance of appointment by a successor trustee as provided in
this Section 5.08, the Depositor shall mail notice of the succession of such
Trustee hereunder to all Holders of Certificates at their addresses as shown in
the Certificate Register. If the Depositor fails to mail such notice within 10
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be mailed at the expense of the Depositor.
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No successor trustee shall accept appointment as provided in this
Section unless (1) at the time of such acceptance such successor trustee shall
be qualified to serve as trustee under Section 5.09, (2) at such time, it shall
accept compensation, as evidenced in writing, not in excess of that provided
under Section 5.06 and (3) it has been determined, as evidenced by a letter from
each of the Rating Agencies that initially rated the Certificates, that the then
current rating of the Certificates by such Rating Agencies or, in the absence of
any such rating, as evidenced by a letter from each nationally recognized rating
agency then rating the Certificates, the then current ratings of the
Certificates by such rating agency would not be affected thereby.
Section 5.09. Qualification of Trustee and Corporate Trust Office.
The Trustee hereunder shall at all times be a banking corporation
having its principal office in New York, New York or _________________________
and organized and doing business under the laws of the United States, or any
state thereof, authorized under such laws to exercise corporate trust powers,
having at all times a combined capital and surplus of not less than $50,000,000
and subject to examination or supervision by Federal or state authority. In case
at any time the Trustee shall cease to be qualified in accordance with this
Section, the Trustee shall immediately resign in the manner and with the effect
specified in Section 5.07. So long as this Agreement remains in effect, the
Trustee shall make arrangements with the New York Presenting Agent to maintain
in New York, New York an office where Certificates may be presented for payment.
The Trustee shall give each Certificateholder at least thirty days' notice by
first-class mail of any change in the location of its Corporate Trust Office or
in the location of the New York Presenting Agent where Certificates may be
presented for transfer, exchange and payment.
No Trustee hereunder shall be personally liable hereunder by reason
of any act or failure to act of any predecessor or successor trustee hereunder.
Section 5.10. Trustee or Depositor May Own Certificates.
The Trustee and the Depositor, in their individual, or in any other,
capacities may become the owners or pledgees of the Certificates with the same
rights as either of them would have if they were not Trustee or Depositor.
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ARTICLE VI.
Termination
Section 6.01. Termination Upon Final Distribution to Certificateholders.
This Agreement and the respective obligations and responsibilities
of the Depositor and the Trustee created hereby shall terminate upon the final
distribution to Certificateholders of all amounts required to be distributed
pursuant to Article III; provided, however, that in no event shall the trust
created hereby continue beyond the expiration of 21 years from the death of the
survivor of the descendants of Joseph P. Kennedy, the late ambassador of the
United States to the Court of St. James, living on the date hereof. Payment of
such final distribution shall only be made to Certificateholders upon surrender
of Certificates as provided in Section 6.02. The Trustee shall notify the Rating
Agencies of the Distribution Date on which the final distribution on the
Certificates is made within five days of such Distribution Date.
Section 6.02. Failure of Certificateholders to Surrender Certificates.
Written notice of any termination, specifying the Distribution Date
upon which the Certificateholders may surrender their Certificates for payment
of the final distribution and cancellation, shall be given by the Trustee to
Certificateholders mailed not earlier than the 1st day and not later than the
10th day of the month of such final distribution specifying (a) the Distribution
Date upon which final payment of the Certificates will be made upon presentation
and surrender of Certificates at the office therein designated, (b) the amount
of any such final payment and (c) that the Record Date otherwise applicable to
such Distribution Date is not applicable, payments being made only upon
presentation and surrender of the Certificates at the office therein specified.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the final
Distribution Date specified pursuant to this Section, the Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after such notice all the Certificates shall not
have been surrendered for cancellation, the Trustee may take appropriate steps,
or may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the final distribution due such Certificateholder.
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ARTICLE VII.
Miscellaneous Provisions
Section 7.01. Amendment.
This Agreement may be amended from time to time by the Trustee and
the Depositor, without the consent of any of the Certificateholders, to cure any
ambiguity, to correct or supplement any provisions herein, or to make such other
provisions with respect to matters or questions arising under this Agreement as
shall not be inconsistent with any other provisions herein; provided that such
action shall not, as evidenced by an Opinion of Counsel, adversely affect in any
material respect the interests of any Certificateholder. This Agreement may also
be amended from time to time by the Trustee and the Depositor with the consent
of the Holders of Certificates evidencing Percentage Interests aggregating not
less than 66-2/3% of each Class of Certificates affected thereby for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, delay the timing of, or change the manner in
which payments received on the Mortgage Certificates are required to be
distributed on any Certificate without the consent of the Holder of such
Certificate or (ii) reduce the aforesaid percentage of the Certificates of each
Class the Holders of which are required to consent to any such amendment without
the consent of the Holders of all Certificates then Outstanding.
Promptly after the execution of any amendment to this Agreement
requiring the consent of Certificateholders, the Trustee shall furnish written
notification of the substance of such amendment to each Certificateholder and to
the Rating Agencies.
It shall not be necessary for the consent of Certificateholders
under this Section to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
regulations as the Trustee may prescribe.
Section 7.02. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate
to terminate this Agreement or the Trust Fund, or entitle such
Certificateholder's legal representatives or heirs to claim an accounting or to
take any action or proceeding in any court for a partition or winding up of the
Trust Fund, nor
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otherwise affect the rights, obligations and liabilities of any
of the parties hereto.
No Certificateholder shall have any right to vote (except as
provided in Section 7.01) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the Certificates,
be construed so as to constitute the Certificateholders from time to time as
partners or members of an association; nor shall any Certificateholder be under
any liability to any third person by reason of any action taken by the parties
to this Agreement pursuant to any provision hereof.
Except in the case of an action, suit or proceeding against the
Trustee in respect to a breach or alleged breach of its duties and
responsibilities hereunder, no Certificateholder shall have any right by virtue
of any provisions of this Agreement to institute an action, suit or proceeding
in equity or at law upon or under or with respect to this Agreement unless such
Holder previously shall have given to the Trustee a written notice of the basis
of such action, suit or proceeding, and unless also the Holders of Certificates
evidencing Percentage Interests aggregating not less than 51% of the same Class
of Certificates shall have made written request upon the Trustee to institute
such action, suit or proceeding in its own name as Trustee hereunder and shall
have offered to the Trustee such expenses and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity, shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other Holder of a
Certificate of the same Class and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates of the same Class, or to obtain or
seek to obtain priority over or preference to any other such Holder of
Certificates of the same Class, or to enforce any right under this Agreement,
except in the manner herein provided and for the equal, ratable and common
benefit of all Holders of Certificates of the same Class. For the protection and
enforcement of the provisions of this Section, each and every Certificateholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.
Section 7.03. Limitation on Liability of the Depositor and Others.
Neither the Depositor nor any of the directors, officers, employees
or agents of the Depositor shall be under any liability to the Trust Fund or the
Certificateholders for any
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action taken, or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor or any such Person against any
liability which 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 hereunder. Except as provided in Section
2.02, the Depositor shall not have any responsibility or liability for any
action or failure to act by the Trustee or by the issuer or the guarantee, if
any, of the Trustee or by the issuer or the guarantor, if any, of the Mortgage
Certificates and is not obligated to supervise the performance of the Trustee or
of such issuer or the guarantor, if any, under this Agreement or otherwise.
Section 7.04. Governing Law.
This Agreement shall be construed in accordance with the laws of the
State of New York applicable to agreements made and to be performed in the State
of New York, and the obligations, rights and remedies of the parties hereto and
the Certificateholders shall be determined in accordance with such laws.
Section 7.05. Notices.
All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given if personally delivered at
or mailed by registered mail, postage prepaid, to (a) in the case of the
Depositor, Asset Backed Securities Corporation, Attention: _______________,
__________, or to such other address as may hereafter be furnished to the
Trustee, or (b) in the case of the Trustee, _________________, Attention:
___________________, ______________, or (c) in the case of the Rating Agencies,
________________________, Attention: _________________________ or to such other
address as may hereafter be furnished to the Depositor in writing by the Trustee
or such Rating Agencies. Any notice required or permitted to be mailed to a
Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given whether or not the Certificateholder receives
such notice.
Section 7.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms
of this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the
-23-
<PAGE>
other provisions of this Agreement or of the Certificates or the
rights of the Holders thereof.
Section 7.07. Certificates Nonassessable and Fully Paid.
It is intended that Certificateholders shall not be personally
liable for obligations of the Trust, that the Percentage Interests represented
by the Certificates shall be nonassessable for any losses or expenses of the
Trust or for any reason whatsoever, and that Certificates upon authentication
thereof by the Trustee pursuant to Section 2.02 are and shall be deemed fully
paid for by such Certificateholder.
Section 7.08. Declaration of Trust; Tax Treatment; Construction.
The Trustee hereby declares that it will hold the Trust Fund in
trust upon and subject to the conditions set forth herein for the use and
benefit of the Holders subject to the obligations of the Trustee. It is the
intention of the parties hereto, and each Holder by its acceptance of a
Certificate shall be deemed to agree, that the Trust will be created as a
grantor trust for federal income tax purposes and all transactions contemplated
by this Agreement will be reported, to the extent applicable, on all applicable
tax returns consistently with such treatment. The provisions of this Agreement
shall be construed, and the affairs of the Trust shall be conducted as provided
herein, so as to achieve treatment of the Trust as a grantor trust for federal
income tax purposes.
-24-
<PAGE>
IN WITNESS WHEREOF, the Depositor and the Trustee have caused their
names to be signed hereto by their respective officers thereunto duly authorized
all as of the day and year first above written.
ASSET BACKED SECURITIES CORPORATION,
as Depositor
By_________________________________
___________________________________
as Trustee
By_________________________________
-25-
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this __________ day of ___________, 199__, before me personally
appeared ______________, to me known, who being by me duly sworn, did depose and
say, that he resides at _______________, that he is the __________________ of
Asset Backed Securities Corporation, one of the corporations described in and
which executed the above instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
_________________________________
Notary Public
[NOTARIAL SEAL]
STATE OF NEW YORK )
)ss.:
COUNTY OF NEW YORK )
On this ___ day of ____, 199__, before me personally appeared
_______________, to me known, who being by me duly sworn, did depose and say,
that he resides at ______________, that he is the ____________ of
__________________________, the banking corporation described in and which
executed the above instrument; and that he signed his name thereto by order of
the Board of Directors of said corporation.
_________________________________
Notary Public
[NOTARIAL SEAL]
-26-
<PAGE>
Exhibit A
(Form of Face of Certificate)
CONDUIT MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES
("Certificates") CLASS ___ -___
Evidencing an undivided Percentage Interest in the Class ___ -___
Distribution Amount from a Trust, the corpus of which consists of certain
mortgage pass-through certificates issued by one or more trusts established by
one or more private entities (the "Mortgage Certificates") and transferred to
such Trust by
Asset Backed Securities Corporation
THIS CERTIFICATE DOES NOT REPRESENT AN INTEREST IN
OR OBLIGATION OF ASSET BACKED SECURITIES CORPORATION
OR OF ANY OF ITS AFFILIATES, __________ OR ANY OF ITS
AFFILIATES OR OF ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
[THE NOTIONAL AMOUNT FOR THE CLASS A-2 CERTIFICATES IS EQUAL TO THE UNPAID
PRINCIPAL BALANCE OF THE MORTGAGE CERTIFICATES, BUT IS USED SOLELY FOR PURPOSES
OF DETERMINING INTEREST PAYMENTS AND CERTAIN OTHER RIGHTS AND OBLIGATIONS OF
HOLDERS OF CLASS A-2 CERTIFICATES AND DOES NOT REPRESENT ANY INTEREST IN
PRINCIPAL PAYMENTS OF THE MORTGAGE CERTIFICATES].
No. __________________ ISSUE DATE: ___________________, 199__
ISSUE PRICE:__________________________%
Denomination $________________
Aggregate Denominations of all
Class __ -__ Certificates $_________________
A-1
<PAGE>
This certifies that ________________ is the registered owner of the
undivided Percentage Interest obtained by dividing the Denomination of this
Certificate specified above by the aggregate Denominations of all Class ___ -___
Certificates specified above in each Class ___ -___ Distribution Amount from the
property of a trust (the "Trust") consisting of certain mortgage pass-through
certificates (the "Mortgage Certificates") and transferred to the Trust by Asset
Backed Securities Corporation (the "Depositor"). The Trust was created pursuant
to a deposit trust agreement dated as of _____, 199___ (the "Agreement") between
the Depositor and ________________________, as trustee (the "Trustee," which
term includes any successor entity under the Agreement), a summary of certain of
the pertinent provisions of which is set forth hereinbelow. To the extent not
defined herein, capitalized terms used herein have the meanings assigned to them
in the Agreement. This Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement, to which Agreement the Holder of
this Certificate by virtue of the acceptance hereof assents and by which such
Holder is bound.
The Agreement requires the distribution on each monthly Distribution
Date (as defined in the Agreement) commencing on ____, 199__, to the person in
whose name this Certificate is registered at the close of business on the last
Business Day of the month preceding the month of such distribution (the "Record
Date"), an amount equal to the product of the Percentage Interest evidenced by
this Certificate and the Class ___ -___ Distribution Amount for such
Distribution Date. Pursuant to the Agreement, the Class __ -__ Distribution
Amount for a particular Distribution Date consists of ___% of the principal
distributions on the Mortgage Certificates that become cleared funds in the
hands of the Trustee during the related Distribution Period and ___% of the
interest distributions, net of the Servicing Fee, as set forth in Section 5.06
of the Agreement, on the Mortgage Certificates received during such Distribution
Period.
Distributions on this Certificate will be made, after deducting any
amounts retained by the Trustee pursuant to Section 3.01 and any amounts payable
to the Trustee pursuant to Section 5.06 of the Agreement, by the Trustee by
check mailed to each Certificateholder entitled thereto at the address appearing
in the Certificate Register to be maintained with the Trustee or, at the request
of a Certificateholder, by wire transfer to the account of such
Certificateholder; provided, however, that the final distribution in retirement
of the Certificates will be made only upon presentation and surrender of the
Certificates at the office of the New York Presenting Agent specified in the
notice to Certificateholders of such final distribution. Wire transfers will be
made at the expense of Certificateholders requesting such wire transfers by
deducting a wire transfer fee from the related transfer.
A-2
<PAGE>
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof which provisions shall for all
purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Trustee has caused this certificate to be
duly executed as of the date hereof.
Date: ______________________________
not in its individual capacity
but solely as Trustee
By_________________________________
[Title]
A-3
<PAGE>
(Form of Certificate of Authentication)
THIS IS ONE OF THE CERTIFICATES REFERRED TO IN
THE WITHIN-MENTIONED AGREEMENT
_______________________________________
REGISTRAR
BY ____________________________________
AUTHORIZED SIGNATORY
A-4
<PAGE>
(Form of Reverse of the Certificates)
This Certificate is one of a duly authorized issue of Conduit
Mortgage Pass-Through Certificates, Series 199__-___ ("Certificates") (herein
called the "Certificates") issued in two classes (the "Class A-1 Certificates"
and the Class A-2 Certificates"), all under the Agreement to which reference is
hereby made for a statement of the respective rights thereunder of the
Depositor, the Trustee and the Holders of the Certificates and the terms upon
which the Certificates are authenticated and delivered. The Certificates are
limited in right of payment to the Percentage Interests represented thereby in
distributions on the underlying Mortgage Certificates, all as more specifically
set forth herein and in the Agreement.
The Class A-1 Certificates will be offering in fully registered
form, in minimum denominations of $___ original principal amount and multiples
of $___ in excess thereof. The Class A-2 Certificates will be offered in fully
registered form, in minimum denominations of $____ original notional amount and
multiples of $____ in excess thereof. The transfer of any Certificate may be
registered in the Certificate Register of the Trustee upon surrender of such
Certificate at the office of the New York Presenting Agent, or the Corporate
Trust Office of the Trustee in __________________________, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing, and thereupon one or more new Certificates in registered form and
authorized Denominations will be issued to the designated transferee or
transferees.
The Trustee may deem and treat the person in whose name this Certificate is
registered as the absolute owner thereof for all purposes, whether or not such
Certificate shall be overdue and notwithstanding any notation of ownership or
other writing thereon, and the Trustee shall not be affected by any notice to
the contrary.
The Agreement permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Trustee and the rights of the Holders of the Certificates under the Agreement at
any time by the Depositor and the Trustee with the consent of the Holders of
Certificates evidencing Percentage Interests aggregating not less than 66-2/3%
of each Class of Certificates affected thereby; provided, however, that no such
amendment may (i) reduce in any manner the amount of, delay the timing of or
change the manner in which payments received on the Mortgage Certificates are
required to be distributed in respect of any Certificate without the consent of
the Holder of such Certificate or (ii) reduce the
A-5
<PAGE>
aforesaid percentage of Certificates, the Holders of which are required to
consent to any such amendment. The Agreement also contains provisions permitting
the Holders of Certificates evidencing aggregate specified Percentage Interests
of each Class of Certificates to waive compliance by the Trustee with certain
provisions of the Agreement and certain past defaults under the Agreement and
their consequences. Any such consent and waiver by the Holder of this
Certificate shall be conclusive and binding upon such Holder and upon all future
Holders of this Certificate and of any Certificate issued upon the registration
of transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent or waiver is made upon this Certificate. The Agreement
also permits the Trustee to amend or waive certain terms and conditions set
forth in the Agreement without the consent of Holders of the Certificates issued
thereunder.
A-6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s),
assign(s) and transfer(s) unto _________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address, including postal zip
code, of assignee)
the Percentage Interest in each Class -__ Distribution Amount evidenced by the
within Certificate and hereby authorize(s) the transfer of registration of such
interest to the assignee on the Certificate Register.
I (we) further direct the Trustee to issue a new Certificate of a
like Percentage Interest to the above named assignee and to deliver such
Certificate to the following
address:________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Dated:_________________
----------------------------------------
Tax Identification: Signature by or on behalf of assignor
No. of Assignee: (signature must be signed as registered)
- ----------------------- ----------------------------------------
Signature Guaranteed
DISTRIBUTION INSTRUCTIONS
The assignee should include the following for the information of the
Trustee:
Distribution shall be mailed by check to __________ or, if made by
wire transfer in immediately available funds to ________________________________
________________________________________________________________________________
the account of ________________________________________________,
account number ________.
This information is provided by ______________________, the assignee
named above, or ___________________________, or its agent.
A-7
Exhibit 5.1.1
June 28, 1996
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Re: Asset Backed Securities Corporation
Registration Statement on Form S-3
(Registration No. 333-00365)
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Asset Backed Securities Corporation, a
Delaware corporation (the "Registrant"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission") on January
23, 1996, of the Registration Statement on Form S-3 (File No. 333-00365), as
amended by Amendment No. 1 filed with the Commission on May 28, 1996 and
Amendment No. 2 filed with the Commission on June 28, 1996 (the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of certificates (the "Certificates") and notes
(the "Notes") (such Certificates and Notes are referred to herein, collectively,
as the "Securities") issued by one or more trusts (each, a "Trust") the Primary
Assets of which shall consist of either (i) one or more pools of motor vehicle
installment loan agreements or motor vehicle retail installment sale contracts
secured by new and used automobiles, vans and light duty trucks (the
"Receivables"), and security interests in the vehicles financed thereby, or (ii)
certain asset backed certificates or notes (the "Collateral Certificates")
representing an interest in a trust fund the primary assets of which consist of
one or more pools of motor vehicle installment loan agreements or motor vehicle
retail installment sale contracts secured by new and used automobiles, vans and
light duty trucks and security interests in the vehicles financed thereby. As
described in the Registration Statement, the Securities will be issued from time
to time in series (each, a "Series"). Each Series of Certificates issued by a
Trust the Primary Assets of which consist of Receivables will be formed by the
Registrant pursuant to a pooling and servicing agreement (a "Pooling and
Servicing Agreement") among the Registrant, the Servicer named therein and the
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 2
Trustee named therein. Each Series of Certificates issued by a Trust the Primary
Assets of which consist of Collateral Certificates will be formed by the
Registrant pursuant to a trust agreement (a "Trust Agreement") between the
Registrant and the Trustee named therein. Each Series of Notes will be issued by
a Trust pursuant to (i) either a Pooling and Servicing Agreement or a Trust
Agreement and (ii) an indenture (an "Indenture") between the Trust and the
Indenture Trustee named therein. The Pooling and Servicing Agreement, Trust
Agreement and/or Indenture pursuant to which a Series of Securities is issued
are referred to herein, as applicable, as the "Governing Document" or "Governing
Documents" with respect to such Series of Securities. Capitalized terms used but
not otherwise defined herein are defined in the Registration Statement or in the
forms of Pooling and Servicing Agreement, Trust Agreement or Indenture filed as
exhibits to the Registration Statement. The Securities of each Series are to be
sold as described in the Registration Statement, any amendment thereto, and the
prospectus and prospectus supplement relating to such Securities (the
"Prospectus" and the "Prospectus Supplement", respectively).
In that connection, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we have deemed necessary for the purposes of
this opinion. In our examination, we have assumed the following: (a) the
genuineness of all signatures; (b) the authenticity of all documents submitted
to us as originals; (c) the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such documents; and (d) the truth, accuracy and completeness of the
information, representations and warranties in the records, documents,
instruments and certificates we have reviewed. As to any facts material to the
opinions expressed herein, which were not known to us, we have relied upon
certificates, statements and representations of officers and other
representatives of the Registrant and others.
Based on and subject to the foregoing and assuming that each
Governing Document with respect to each Series of Securities is executed and
delivered in substantially the related form that we have examined and that the
transactions contemplated to occur under the Registration Statement and the
related Governing Document or Governing Documents with respect to such Series of
Securities in fact occur in accordance with the terms thereof, we are of the
opinion that when
(i) the Registration Statement becomes effective pursuant to the
provisions of the Act,
(ii) the issuance and principal terms of such Securities have been
duly authorized by appropriate corporate action,
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 3
(iii) the Governing Document or Governing Documents with respect to
such Series of Securities have been duly completed, executed and delivered
by the parties thereto substantially in the forms filed as exhibits to the
Registration Statement reflecting the terms established as described above
and
(iv) such Securities have been duly executed, authenticated and
delivered in accordance with the terms and conditions of the related
Governing Document or Governing Documents with respect to such Series of
Securities, and in the manner described in the Registration Statement, any
amendment thereto and the Prospectus and Prospectus Supplement relating
thereto,
such Securities (a) in the case of Certificates will be legally issued and will
duly evidence all the beneficial ownership interest in the related Trust and (b)
in the case of Notes will be legally issued and binding obligations of the
related Trust, except as enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance,
moratorium or other laws relating to or affecting the rights of creditors
generally and general principles of equity, including concepts of materiality,
reasonableness, good faith and fair dealing, and the possible unavailability of
specific performance or injunctive relief, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
We know that we are referred to under the heading "Legal Matters" in
the Prospectus and the Prospectus Supplement forming a part of the Registration
Statement and we hereby consent to such use of our name in the Registration
Statement and to the use of this opinion for filing with the Registration
Statement as Exhibit 5.1.1 thereto. In giving such consent, we do not consider
that we are "experts" within the meaning of the term as used in the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
We are members of the bar of the State of New York and we do not
express any opinion as to any laws other than the law of the State of New York
and the federal law of the United States of America.
Very truly yours,
/s/ Sidley & Austin
Exhibit 5.1.2
June 28, 1996
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Re: Asset Backed Securities Corporation
Registration Statement on Form S-3
(Registration No. 333-00365)
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Asset Backed Securities Corporation, a
Delaware corporation (the "Registrant"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission") on January
23, 1996, of the Registration Statement on Form S-3 (File No. 333-00365), as
amended by Amendment No. 1 filed with the Commission on May 28, 1996 and
Amendment No. 2 filed with the Commission on June 28, 1996 (the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of Conduit Mortgage and Manufactured Housing
Contract Pass-Through Certificates (the "Certificates"). The Certificates are
issuable in series (each, a "Series") under separate pooling and servicing
agreements (the "Pooling and Servicing Agreements") among the Registrant, the
Master Servicer named therein and the Trustee named therein. The Certificates of
each Series are to be sold as described in the Registration Statement, any
amendment thereto, and the prospectus and prospectus supplement relating to such
Series (the "Prospectus" and "Prospectus Supplement", respectively).
In this connection, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we deemed necessary for the purposes of this
opinion. In our examination, we have assumed the following: (a) the genuineness
of all signatures; (b) the authenticity of all documents submitted to us as
originals; (c) the conformity to original documents of all documents submitted
to us as certified or photostatic copies and the authenticity of the originals
of such documents; and (d) the truth,
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 2
accuracy and completeness of the information, representations and warranties
contained in the records, documents, instruments and certificates we have
reviewed. As to any facts material to the opinions expressed herein, which were
not known to us, we have relied upon certificates, statements and
representations of officers and other representatives of the Registrant and
others.
Based on and subject to the foregoing and assuming that the Pooling
and Servicing Agreement with respect to each Series of Certificates is executed
and delivered substantially in the form that we have examined and that the
transactions contemplated to occur under the Registration Statement and such
Pooling and Servicing Agreement with respect to such Series of Certificates in
fact occur in accordance with the terms thereof, we are of the opinion that when
(i) the Registration Statement becomes effective under the Act,
(ii) the issuance and principal terms of such Series of Certificates
has been duly authorized by appropriate corporate action,
(iii) such Pooling and Servicing Agreement with respect to such
Series of Certificates has been duly completed, executed and delivered by
the parties thereto substantially in the form filed as an exhibit to the
Registration Statement reflecting the terms established as described
above, and
(iv) such Certificates of such Series have been duly executed,
authenticated and delivered in accordance with the terms and conditions of
the Pooling and Servicing Agreement relating to such Series and sold in
the manner described in the Registration Statement, any amendment thereto
and the Prospectus and Prospectus Supplement relating thereto,
the Certificates of such Series will be legally issued and will duly evidence
all the beneficial ownership interest in the Trust created by the related
Pooling and Servicing Agreement.
We know that we are referred to under the heading "Legal Matters" in
the Prospectus and the Prospectus Supplement forming a part of the Registration
Statement and we hereby consent to such use of our name in the Registration
Statement and to the use of this opinion for filing with the Registration
Statement as Exhibit 5.1.2 thereto. In giving such consent, we do not consider
that we are "experts" within the meaning of the term as used in the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 3
We are members of the bar of the State of New York and we do not
express any opinion as to any laws other than the law of the State of New York
and the federal law of the United States of America.
Very truly yours,
/s/ Sidley & Austin
Exhibit 5.1.3
June 28, 1996
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Re: Asset Backed Securities Corporation
Registration Statement on Form S-3
(Registration No. 333-00365)
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel for Asset Backed Securities Corporation, a
Delaware corporation (the "Registrant"), in connection with the preparation and
filing with the Securities and Exchange Commission (the "Commission") on January
23, 1996, of the Registration Statement on Form S-3 (File No. 333-00365), as
amended by Amendment No. 1 filed with the Commission on May 28, 1996 and
Amendment No. 2 filed with the Commission on June 28, 1996 (the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of (i) certificates (the "Receivables Pooling
Certificates") issued by a Trust (as defined below) the Base Assets of which
consist of a portfolio of receivables arising in consumer or corporate credit
card, revolving credit, charge card and debit card accounts, (ii) certificates
(the "CRB Backed Certificates") issued by a Trust, the Base Assets of which
consist of certain credit card security backed certificates (such Receivables
Pooling Certificates and CRB Backed Certificates are referred to herein,
collectively, as the "Certificates") and (iii) notes (the "Notes") issued by a
Trust, the Base Assets of which consist of certain credit card security backed
certificates (such Certificates and Notes are referred to herein, collectively,
as the "Securities"). As described in the Registration Statement, the Securities
will be issued from time to time in series (each, a "Series"). Each Series of
Receivables Pooling Certificates will be issued by a Trust to be formed by the
Registrant pursuant to a pooling and servicing agreement (a "Pooling and
Servicing Agreement") among the Registrant, the Servicer named therein and the
Trustee named therein. Each Series of CRB Backed Certificates will be issued by
a Trust to be formed pursuant to a trust agreement (a "Trust Agreement") between
the Registrant
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 2
and the Trustee named therein. Each Series of Notes will be issued by a Trust
formed pursuant to a Trust Agreement and pursuant to an indenture (an
"Indenture") between the Trust and the Indenture Trustee named therein (each
trust formed pursuant to either a Pooling and Servicing Agreement or a Trust
Agreement, a "Trust"). The Pooling and Servicing Agreement, Trust Agreement
and/or Indenture pursuant to which a Series of Securities is issued are referred
to herein, as applicable, as the "Governing Document" or "Governing Documents"
with respect to such Series of Securities. Capitalized terms used but not
otherwise defined herein are defined in the Registration Statement or in the
forms of Pooling and Servicing Agreement, Trust Agreement or Indenture filed as
exhibits to the Registration Statement. The Securities of each Series are to be
sold as described in the Registration Statement, any amendment thereto, and the
prospectus and prospectus supplement relating to such Securities (the
"Prospectus" and the "Prospectus Supplement", respectively).
In that connection, we have examined originals, or copies certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we have deemed necessary for the purposes of
this opinion. In our examination, we have assumed the following: (a) the
genuineness of all signatures; (b) the authenticity of all documents submitted
to us as originals; (c) the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such documents; and (d) the truth, accuracy and completeness of the
information, representations and warranties in the records, documents,
instruments and certificates we have reviewed. As to any facts material to the
opinions expressed herein, which were not known to us, we have relied upon
certificates, statements and representations of officers and other
representatives of the Registrant and others.
Based on and subject to the foregoing and assuming that each
Governing Document with respect to each Series of Securities is executed and
delivered in substantially the related form that we have examined and that the
transactions contemplated to occur under the Registration Statement and the
related Governing Document or Governing Documents with respect to such Series of
Securities in fact occur in accordance with the terms thereof, we are of the
opinion that when
(i) the Registration Statement becomes effective pursuant to the
provisions of the Act,
(ii) the issuance and principal terms of such Securities have been
duly authorized by appropriate corporate action,
(iii) the Governing Document or Governing Documents with respect to
such Series of Securities have been duly completed, executed and delivered
by the parties thereto
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 3
substantially in the forms filed as exhibits to the Registration Statement
reflecting the terms established as described above and
(iv) such Securities have been duly executed, authenticated and
delivered in accordance with the terms and conditions of the related
Governing Document or Governing Documents with respect to such Series of
Securities, and in the manner described in the Registration Statement, any
amendment thereto and the Prospectus and Prospectus Supplement relating
thereto,
such Securities (a) in the case of Certificates will be legally issued and will
duly evidence all the beneficial ownership interest in the related Trust and (b)
in the case of Notes, will be legally issued and binding obligations of the
related Trust, except as enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance,
moratorium or other laws relating to or affecting the rights of creditors
generally and general principles of equity, including concepts of materiality,
reasonableness, good faith and fair dealing, and the possible unavailability of
specific performance or injunctive relief, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
We know that we are referred to under the heading "Legal Matters" in
the Prospectus and the Prospectus Supplement forming a part of the Registration
Statement, and we hereby consent to such use of our name in the Registration
Statement and to the use of this opinion for filing with the Registration
Statement as Exhibit 5.1.3 thereto. In giving such consent, we do not consider
that we are "experts" within the meaning of the term as used in the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
We are members of the bar of the State of New York and we do not
express any opinion as to any laws other than the law of the State of New York
and the federal law of the United States of America.
Very truly yours,
/s/ Sidley & Austin
Exhibit 8.1.1
June 28, 1996
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Re: Asset Backed Securities Corporation
Registration Statement on Form S-3
(Registration No. 333-00365)
-----------------------------------
Ladies and Gentlemen:
We have acted as special federal tax counsel for Asset Backed
Securities Corporation, a Delaware corporation (the "Registrant"), in connection
with the preparation and filing with the Securities and Exchange Commission (the
"Commission") on January 23, 1996 of the Registration Statement on Form S-3
(File No. 333-00365), as amended by Amendment No. 1 filed with the Commission on
May 28, 1996 and Amendment No. 2 filed with the Commission on June 28, 1996 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of certificates (the
"Certificates") and notes (the "Notes") (such Certificates and Notes are
referred to herein collectively as the "Securities") issued by one or more
trusts (each, a "Trust") the Primary Assets of which shall consist of either (i)
one or more pools of motor vehicle installment loan agreements or motor vehicle
retail installment sale contracts secured by new and used automobiles, vans and
light duty trucks (the "Receivables") or (ii) certain asset backed certificates
or notes (the "Collateral Certificates") representing an interest in a trust
fund the primary assets of which consist of one or more pools of motor vehicle
installment loan agreements or motor vehicle retain installment sale contracts
secured by new and used automobiles, vans and light duty trucks and security
interests in the vehicles financed thereby. As described in the Registration
Statement, the Securities will be issued from time to time in series (each, a
"Series"). Each Series of Certificates issued by a Trust the Primary Assets of
which consist of Receivables will be formed by the Registrant pursuant to a
pooling and servicing agreement (a "Pooling and Servicing Agreement") by and
among the Registrant, the Servicer named therein and the Trustee named therein.
Each Series of Certificates
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 2
issued by a Trust the Primary Assets of which consist of Collateral Certificates
will be formed by the Registrant pursuant to a trust agreement (a "Trust
Agreement") by and between the Registrant and the Trustee named therein. Each
Series of Notes will be issued by a Trust pursuant to (i) either a Pooling and
Servicing Agreement or a Trust Agreement and (ii) an indenture (an "Indenture")
by and between the Trust and the Indenture Trustee named therein. Capitalized
terms used but not otherwise defined herein are defined in the Registration
Statement or in the forms of Pooling and Servicing Agreement, Trust Agreement or
Indenture filed as exhibits to the Registration Statement. The Securities of
each Series are to be sold as described in the Registration Statement, any
amendment thereto, and the prospectus and prospectus supplement relating to such
Securities (the "Prospectus" and the "Prospectus Supplement", respectively).
In that connection, we have examined and are familiar with originals
or copies, certified or otherwise identified to our satisfaction, of such
documents, corporate records and other instruments as we have deemed necessary
for the purposes of this opinion. In our examination, we have assumed the
following: (a) the genuineness of all signatures; (b) the authenticity of all
documents submitted to us as originals; (c) the conformity to original documents
of all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents; and (d) the truth, accuracy and
completeness of the information, representations and warranties contained in the
records, documents, instruments and certificates we have reviewed. As to any
facts material to the opinions expressed herein, which were not known to us, we
have relied upon certificates, statements and representations of officers and
other representatives of the Registrant and others.
Based on and subject to the foregoing and assuming that the Pooling
and Servicing Agreement or Trust Agreement with respect to each Series of
Certificates, and the Indenture and either the Pooling and Servicing Agreement
or the Trust Agreement with respect to each Series of Notes, are executed and
delivered in substantially the forms we have examined and that the transactions
contemplated to occur under the Registration Statement and such Pooling and
Servicing Agreement or Trust Agreement with respect to each Series of
Certificates, and the Indenture and either the Pooling and Servicing Agreement
or the Trust Agreement with respect to each Series of Notes, in fact occur in
accordance with the terms thereof, we are of the opinion that the description
set forth under the caption "Certain Federal Income Tax Consequences" in the
Prospectus included as part of the Registration Statement correctly describes
the material aspects of the federal income tax treatment to United States
investors as of the date hereof of an investment in the Securities and where
expressly indicated therein, to Non-United States Holders (as defined in the
Registration Statement) of the Securities.
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 3
Members of our firm are admitted to the Bar of the State of New York
and we express no opinion as to the laws of any jurisdiction other than the
federal laws of the United States of America.
We know that we are referred to under the heading "Certain Federal
Income Tax Consequences" in the Prospectus forming a part of the Registration
Statement, and we hereby consent to such use of our name in the Registration
Statement and to the use of this opinion for filing with the Registration
Statement as Exhibit 8.1.1 thereto. In giving such consent, we do not consider
that we are "experts" within the meaning of the term as used in the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
Very truly yours,
/s/ Sidley & Austin
Exhibit 8.1.2
June 28, 1996
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Re: Asset Backed Securities Corporation
Registration Statement on Form S-3
(Registration No. 333-00365)
-----------------------------------
Ladies and Gentlemen:
We have acted as special federal tax counsel to Asset Backed
Securities Corporation, a Delaware corporation (the "Registrant"), in connection
with the preparation and filing with the Securities and Exchange Commission (the
"Commission") on January 23, 1996 of the Registration Statement on Form S-3
(File No. 333-00365), as amended by Amendment No. 1 filed with the Commission on
May 28, 1996 and Amendment No. 2 filed with the Commission on June 28, 1996 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of Conduit Mortgage and
Manufactured Housing Contract Pass-Through Certificates (the "Certificates").
The Certificates are issuable in series (each, a "Series") under separate
Pooling and Servicing Agreements (the "Pooling and Servicing Agreements") by and
among the Registrant, the Master Servicer named therein and the Trustee named
therein. Capitalized terms used but not otherwise defined herein are defined in
the form of Pooling and Servicing Agreement filed as an exhibit to the
Registration Statement. The Certificates of each Series are to be sold as
described in the Registration Statement, any amendment thereto, and the
prospectus and prospectus supplement relating to such Certificates (the
"Prospectus" and the "Prospectus Supplement", respectively).
In that connection, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we have deemed necessary for the purposes of
this opinion. In our examination, we have assumed the
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 2
following: (a) the genuineness of all signatures; (b) the authenticity of all
documents submitted to us as originals; (c) the conformity to original documents
of all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents; and (d) the truth, accuracy and
completeness of the information, representations and warranties contained in the
records, documents, instruments and certificates we have reviewed. As to any
facts material to the opinions expressed herein, which were not known to us, we
have relied upon certificates, statements and representations of officers and
other representatives of the Registrant and others.
Based on and subject to the foregoing, and assuming that the Pooling
and Servicing Agreement is executed and delivered in substantially the form we
have examined and that the transactions contemplated to occur under the
Registration Statement and such Pooling and Servicing Agreement in fact occur in
accordance with the terms thereof, we are of the opinion that the description
set forth under the caption "Certain Federal Income Tax Consequences" in the
Prospectus included as part of the Registration Statement correctly describes
the material aspects of the federal income tax treatment to United States
investors as of the date hereof of an investment in the Certificates and where
expressly indicated therein, to Non-United States Holders (as defined in the
Registration Statement) of the Certificates.
Members of our firm are admitted to the Bar of the State of New York
and we express no opinion as to the laws of any jurisdiction other than the
federal laws of the United States of America.
We know that we are referred to under the heading "Certain Federal
Income Tax Consequences" in the Prospectus forming a part of the Registration
Statement, and we hereby consent to such use of our name in the Registration
Statement and to the use of this opinion for filing with the Registration
Statement as Exhibit 8.1.2 thereto. In giving such consent, we do not consider
that we are "experts" within the meaning of the term as used in the Act or the
rules and regulations of the Commission issued thereunder, with respect to any
part of the Registration Statement, including this opinion as an exhibit or
otherwise.
Very truly yours,
/s/ Sidley & Austin
Exhibit 8.1.3
June 28, 1996
Asset Backed Securities Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Re: Asset Backed Securities Corporation
Registration Statement on Form S-3
(Registration No. 333-00365)
-----------------------------------
Ladies and Gentlemen:
We have acted as special federal tax counsel for Asset Backed
Securities Corporation, a Delaware corporation (the "Registrant"), in connection
with the preparation and filing with the Securities and Exchange Commission (the
"Commission") on January 23, 1996 of the Registration Statement on Form S-3
(File No. 333-00365), as amended by Amendment No. 1 filed with the Commission on
May 28, 1996 and Amendment No. 2 filed with the Commission on June 28, 1996 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of (i) certificates (the
"Receivables Pooling Certificates") issued by a Trust (as defined below) the
Base Assets of which consist of a portfolio of receivables arising in consumer
or corporate credit card, revolving credit, charge card and debit card accounts,
(ii) certificates (the "CRB Backed Certificates") issued by a Trust, the Base
Assets of which consist of certain credit card security backed certificates
(such Receivables Pooling Certificates and CRB Backed Certificates, the
"Certificates") and (iii) notes (the "Notes") issued by a Trust, the Base Assets
of which consist of certain credit card security backed certificates (such
Certificates and Notes are referred to herein, collectively, as the
"Securities"). As described in the Registration Statement, the Securities will
be issued from time to time in series (each, a "Series"). Each Series of
Receivables Pooling Certificates will be issued by a Trust to be formed by the
Registrant pursuant to a pooling and servicing agreement (a "Pooling and
Servicing Agreement") by and among the Registrant, the Servicer named therein
and the Trustee named therein. Each Series of CRB Backed Certificates will be
issued by a Trust to be formed pursuant to a trust agreement (a "Trust
Agreement") by and between the
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 2
Registrant and the Trustee named therein. Each Series of Notes will be issued by
a Trust formed pursuant to Trust Agreement and pursuant to an indenture (an
"Indenture") by and between the Trust and the Indenture Trustee named therein
(each trust formed pursuant to either a Pooling and Servicing Agreement or a
Trust Agreement is referred to herein as a "Trust"). Capitalized terms used but
not otherwise defined herein are defined in the forms of Pooling and Servicing
Agreement, Trust Agreement or Indenture filed as exhibits to the Registration
Statement. The Securities of each Series are to be sold as described in the
Registration Statement, any amendment thereto, and the prospectus and prospectus
supplement relating to such Securities (the "Prospectus" and the "Prospectus
Supplement", respectively).
In that connection, we have examined originals or copies, certified
or otherwise identified to our satisfaction, of such documents, corporate
records and other instruments as we have deemed necessary for the purposes of
this opinion. In our examination, we have assumed: (a) the genuineness of all
signatures; (b) the authenticity of all documents submitted to us as originals;
(c) the conformity to original documents of all documents submitted to us as
certified or photostatic copies and the authenticity of the originals of such
documents; and (d) the truth, accuracy and completeness of the information,
representations and warranties contained in the records, documents, instruments
and certificates we have reviewed. As to any facts material to the opinions
expressed herein, which were not independently established or verified, we have
relied upon certificates, statements and representations of officers and other
representatives of the Registrant and others.
Based on and subject to the foregoing and assuming that the Pooling
and Servicing Agreement with respect to each Series of Receivables Pooling
Certificates, the Trust Agreement with respect to each Series of CRB Backed
Certificates, and the Trust Agreement and the Indenture with respect to each
Series of Notes, is executed and delivered in substantially the forms we have
examined and that the transactions contemplated to occur under the Registration
Statement, the Pooling and Servicing Agreement with respect to each Series of
Receivables Pooling Certificates, the Trust Agreement with respect to each
Series of CRB Backed Certificates, and the Trust Agreement and the Indenture
with respect to each Series of Notes, in fact occur in accordance with the terms
thereof, we are of the opinion that the description set forth under the caption
"Certain Federal Income Tax Consequences" in the Prospectus included as part of
the Registration Statement correctly describes the material aspects of the
federal income tax treatment to United States investors as of the date hereof of
an investment in the Securities and where expressly indicated therein, to
Non-United States Holders (as defined in the Registration Statement) of the
Securities.
Members of our firm are admitted to the Bar of the State of New York
and we express no opinion as to the laws of any jurisdiction other than the
federal laws of the United States of America.
<PAGE>
Asset Backed Securities Corporation
June 28, 1996
Page 3
We know that we are referred to under the heading "Certain Federal
Income Tax Consequences" in the Prospectus forming part of the Registration
Statement, and we hereby consent to such use of our name in the Registration
Statement and to the use of this opinion for filing with the Registration
Statement as Exhibit 8.1.3 thereto. In giving such consent, we do not consider
that we are "experts" within the meaning of the term as used in the Act or the
rules and regulations of the Commission issued thereunder with respect to any
part of the Registration Statement, including the opinion as an exhibit or
otherwise.
Very truly yours,
/s/ Sidley & Austin
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
- --------------------------------------------------------------------------------
Subject to Completion
Prospectus Supplement to Prospectus Dated _________________, 199_
$
CS First Boston Auto Receivables Trust 199_-___
$ % Asset Backed Notes, Class A-1
$ % Asset Backed Notes, Class A-2
$ % Asset Backed Certificates
----------------
Asset Backed Securities Corporation
Company
----------------
CS First Boston Auto Receivables Trust 199_ - __ (the "Trust") will be
formed pursuant to a trust agreement (the "Trust Agreement") dated as of
__________, 199_ (the "Cutoff Date"), between Asset Backed Securities
Corporation (the "Company"), as depositor, and __________ (the "Owner Trustee"),
as owner trustee. The Trust will issue $__________ aggregate principal amount of
__________% Asset Backed Notes, Class A-1 (the "Class A-1 Notes") and
$_______________ aggregate principal amount of __________% Asset Backed Notes,
Class A-2 (the "Class A-2 Notes" and, collectively with the Class A-1 Notes, the
"Notes") pursuant to an indenture (the "Indenture"), dated as of the Cutoff
Date, between the Trust and __________, (the "Indenture Trustee") as indenture
trustee. The Trust also will issue $________ aggregate principal amount of
__________% Asset Backed Certificates (the "Certificates" and, collectively with
the Notes, the "Securities").
(Continued on following page)
----------------
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF, OR
INTERESTS IN, CS FIRST BOSTON CORPORATION, THE COMPANY, THE SERVICER, THE
SELLER, OR ANY OF THEIR RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE
CERTIFICATES OR THE RECEIVABLES ARE INSURED OR GUARANTEED BY CS FIRST BOSTON
CORPORATION, THE COMPANY, THE SERVICER, THE SELLER, ANY OF THEIR RESPECTIVE
AFFILIATES OR ANY GOVERNMENTAL AGENCY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
Prospective investors should consider the factors set forth under Risk
Factors on page S-11 of this Prospectus Supplement and on page 14 of the
accompanying Prospectus.
----------------
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
----------------
<TABLE>
<CAPTION>
Price to the Underwriting Proceeds to the
Public(1) Discount Company(1)(2)
--------- -------- -------------
<S> <C> <C> <C>
Per Class A-1 Note.................. % % %
Per Class A-2 Note.................. % % %
Per Certificate..................... % % %
Total $ $ $
</TABLE>
(1) Plus accrued interest, if any, from ______________, 199_.
(2) Before deducting expenses, estimated to be $____________.
----------------
The Notes and the Certificates are offered subject to prior sale and
subject to the right of CS First Boston Corporation (the "Underwriter")
to reject orders in whole or in part. It is expected that delivery of
the Notes and the Certificates will be made through the Same Day Funds
System of the Depository Trust Company on or about _______, 199_.
CS First Boston
The date of this Prospectus Supplement is __________, 199_.
<PAGE>
(Continued from preceding page)
The assets of the Trust will consist primarily of a pool of motor vehicle
installment loan agreements and motor vehicle retail installment sale contracts
(collectively, the "Receivables") secured by new or used automobiles, vans and
light duty trucks, certain monies due or received thereunder on and after the
Cutoff Date, security interests in the vehicles financed thereby, and a de
minimus amount of certain other property ancillary thereto, in each case, as
more fully described herein. The Receivables will be transferred to the Trust by
the Company pursuant to the Trust Agreement. The Company will purchase the
Receivables from ________ (in such capacity, the "Seller") pursuant to a
receivables purchase agreement (the "Receivables Purchase Agreement"), dated as
of_________, 199_ . The Notes will be secured by the assets of the Trust
pursuant to the Indenture. The Trust may also draw on funds on deposit in a
Reserve Account, to the extent described herein, to meet shortfalls in amounts
due to holders of the Securities ("Securityholders") on any Distribution Date.
The Reserve Account will not be part of the Trust.
Interest on each class of Notes will accrue at the fixed per annum rates
specified above and generally will be payable on the __ day of each month,
commencing _______, 199_ (each, a "Distribution Date"). Principal of the Notes
will be payable on each Distribution Date to the extent described herein;
however, no principal will be paid on the Class A-2 Notes until the Class A-1
Notes have been paid in full. The Certificates represent fractional undivided
interests in the Trust. Interest on the Certificates will accrue at the fixed
per annum rates specified above and generally will be payable on each
Distribution Date. No distributions of principal will be made on the
Certificates until all of the Notes have been paid in full. To the extent not
previously paid, the Class A-1 Notes will be payable in full on _______, 199_,
the Class A-2 Notes will be payable in full on ________, 199_, and the
Certificates will be payable in full on ________,199_.
--------------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS
IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE SECURITIES, AND THERE CAN BE
NO ASSURANCE THAT ONE WILL DEVELOP. THE UNDERWRITER EXPECTS, BUT IS NOT
OBLIGATED, TO MAKE A MARKET IN THE SECURITIES. THERE IS NO ASSURANCE THAT ANY
SUCH MARKET WILL DEVELOP OR CONTINUE.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
---------------------
UNTIL ________________, ______ ALL DEALERS EFFECTING TRANSACTIONS IN THE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE REQUIRED TO
DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
S-2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") of which this Prospectus Supplement is a part under the Securities
Act of 1933, as amended. This Prospectus Supplement does not contain all of the
information set forth in the Registration Statement, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement which is
available for inspection without charge at the public reference facilities of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and the regional offices of the Commission at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such information can be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports as are required under the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Commission
thereunder.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http:\\www.sec.gov).
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
monthly and annual unaudited reports containing information concerning the
Receivables will be prepared by the Servicer and sent on behalf of the Trust
only to Cede & Co., as nominee of The Depository Trust Company and registered
holder of the Notes and the Certificates. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and "--Statements to Securityholders" in
the accompanying Prospectus (the "Prospectus").
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer............................. CS First Boston Auto Receivables Trust
199_-___, a trust (the "Trust" or the
"Issuer") to be formed pursuant to a
trust agreement (the "Trust Agreement")
dated as of ___________, 199_ (the
"Cutoff Date"), between the Company and
the Owner Trustee.
Company............................ The Company is a special-purpose
Delaware corporation organized for the
purpose of causing the issuance of the
Securities and other securities issued
under the Registration Statement backed
by receivables or underlying securities
of various types and acting as settlor
or depositor with respect to trusts,
custody accounts or similar arrangements
or as general or limited partner in
partnerships formed to issue securities.
It is not expected that the Company will
have any significant assets. The Company
is an indirect, wholly owned finance
subsidiary of Collateralized Mortgage
Securities Corporation which is a wholly
owned subsidiary of CS First Boston
Securities Corporation, which is a
wholly owned subsidiary of CS First
Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First
Boston, Inc. nor any of their affiliates
has guaranteed, will guarantee or is or
will be otherwise obligated with respect
to any Series of Securities.
The Company's principal executive office
is located at Park Avenue Plaza, 55 East
52nd Street, New York, New York 10055,
and its telephone number is (212)
909-2000.
Seller............................. _______ (in such capacity, "the
Seller"). See "The Seller and the
Servicer" herein.
Servicer........................... _______ (in such capacity, the
"Servicer") as servicer under the
servicing agreement (the "Servicing
Agreement") dated as of the Cutoff Date,
between the Servicer and the Issuer. See
"The Seller and the Servicer" herein.
Indenture Trustee.................. ____________________, as trustee under
the Indenture (the "Indenture Trustee").
Owner Trustee...................... ____________________, as trustee under
the Trust Agreement (the "Owner
Trustee").
The Notes.......................... The Trust will issue $______ aggregate
principal amount of ___% Asset Backed
Notes, Class A-1 (the "Class A-1 Notes")
and $______ aggregate principal amount
of ___% Asset Backed Notes, Class A-2
(the "Class A-2 Notes" and, collectively
with the Class A-1 Notes, the "Notes")
on ___, 199_ (the "Closing Date")
pursuant to an indenture (the
"Indenture") dated as of the Cutoff Date
between the Issuer and the Indenture
Trustee.
Under the terms of the Indenture, the
Notes will be secured by the assets of
the Trust.
The Certificates................... The Trust will issue $____ aggregate
principal amount of ___% Asset Backed
Certificates (the "Certificates" and,
collectively with the Notes, the
"Securities") on the Closing Date. The
Certificates represent fractional
undivided interests in the Trust and
will be issued pursuant to the Trust
Agreement.
The Receivables.................... On the Closing Date, the Company will
convey to the Trust the Receivables in
an aggregate principal balance of
approximately $_______________ as of the
Cutoff Date, pursuant to the Trust
Agreement. See "The Transfer and
Servicing Agreements -- Sale
S-4
<PAGE>
and Assignment of Receivables" and "The
Receivables Pool" herein and "The
Receivables Pools" in the Prospectus.
On or before the Closing Date, the
Company will purchase the Receivables
from the Seller pursuant to a
receivables purchase agreement (the
"Receivables Purchase Agreement"), dated
as of ____________,199_. See "The
Transfer and Servicing Agreements-the
Receivables Purchase Agreement" herein.
The Receivables arise from motor vehicle
installment contracts (each, a
"Contract") originated or purchased by
the Seller in the ordinary course of
business. The Receivables have been
selected from Contracts owned by the
Seller based on the criteria specified
in the Receivables Purchase Agreement
and described herein under "The
Receivables Pool". Approximately __% of
the Receivables were originated in
____________ and approximately __% of
the Receivables were originated in
__________. As of the Cutoff Date, the
weighted average APR of the Receivables
was approximately ____%, the weighted
average remaining term to maturity of
the Receivables was approximately ____
months and the weighted average original
term to maturity of the Receivables was
approximately ____ months. No Receivable
has a scheduled maturity later than
______________ (the "Final Scheduled
Maturity Date").
Pursuant to the terms of the Trust
Agreement, the Company will assign the
representations and warranties made by
the Seller in the Receivables Purchase
Agreement to the Owner Trustee for the
benefit of holders of the Certificates
and will make certain limited
representations and warranties with
respect to the Receivables. Pursuant to
the terms of the Receivables Purchase
Agreement, the Seller will make certain
representations and warranties regarding
the characteristics of the Receivables
and will undertake to repurchase any
Receivable with respect to which an
uncured breach of any representation or
warranty exists, if such breach
materially and adversely affects the
interests of the Owner Trustee and the
Certificateholders in such Receivable
and if such breach is not cured by the
Seller in a timely manner. To the extent
that the Seller does not repurchase a
Receivable in the event of a breach of
its representations and warranties with
respect to such Receivable, the Company
will not be required to repurchase such
Receivable unless such breach also
constitutes a breach of one of the
Company's representations and warranties
with respect to such Receivable and such
breach materially and adversely affects
the interests of the Certificateholders
in any such Receivable. See "The
Transfer and Servicing Agreements"
herein. Neither the Seller nor the
Company will have any other obligation
with respect to the Receivables or the
Certificates.
Trust Property.................... The assets of the Trust (the "Trust
Property") include (i) the Receivables,
(ii) all monies (including accrued
interest) received on or with respect to
the Receivables on or after the Cutoff
Date, (iii) all amounts and property
from time to time held in or credited to
the Collection Account, (iv) security
interests in the Financed Vehicles and
any accessions thereto, (v) the right to
receive proceeds from claims on physical
damage, credit life and disability
insurance policies covering Financed
Vehicles or Obligors, as the case may
be, (vi) any property that shall have
secured a Receivable and that shall have
been acquired by or on behalf of the
Trustee, (vii) all of the Seller's right
to all documents contained in the files
pertaining to the Receivables, (viii)
the right to draw on funds on deposit in
the Reserve Account, to the extent
described herein, to meet shortfalls in
amounts due to Securityholders, and (ix)
any and all proceeds of the foregoing.
The Reserve Account will not be property
of the Trust. See "The
Certificates--Distribution, and "The
Trust".
Risk Factors....................... For a discussion of risk factors that
should be considered with respect to an
investment in the Securities, see "Risk
Factors" herein and in the related
Prospectus.
S-5
<PAGE>
Terms of the Notes
A. Distribution Dates......... Payments of interest and principal on
the Notes will be made on the ___ day of
each month or, if any such day is not a
Business Day, on the next succeeding
Business Day (each, a "Distribution
Date") commencing ____________, 199_.
Payments will be made to holders of
record of the Notes (the "Noteholders")
as of the day immediately preceding such
Distribution Date (each, a "Record
Date"). A "Business Day" is a day other
than a Saturday, a Sunday or day on
which banking institutions or trust
companies in The City of New York or the
city in which the corporate trust office
of the Indenture Trustee is located are
authorized by law, regulation or
executive order to be closed.
B. Interest Rates............. Interest will accrue on the Class A-1
Notes at a fixed per annum rate of ____%
(the "Class A-1 Rate") and on the Class
A-2 Notes at a fixed per annum rate of
____% (the "Class A-2 Rate"), in each
case, calculated on the basis of a
360-day year consisting of twelve 30-day
months. The Class A-1 Rate and the Class
A-2 rate are sometimes referred to
herein collectively as the "Interest
Rates".
C. Interest................... Interest on the outstanding principal
amount of the Class A-1 Notes and the
Class A-2 Notes in respect of any
Distribution Date will accrue at the
Class A-1 Rate and the Class A-2 Rate,
respectively, from and including the
most recent Distribution Date on which
interest payments were distributed to
Noteholders (or, in the case of the
first Distribution Date, from and
including the Closing Date) to but
excluding such Distribution Date.
Interest will be paid to the Noteholders
on each Distribution Date, to the extent
of the Total Distribution Amount (as
defined herein) after payment of the
Servicing Fee and from the Reserve
Account. See "The Notes -- Payments of
Interest" herein.
D. Principal................. Principal of the Class A-1 Notes will be
payable on each Distribution Date in an
amount equal to the Total Distribution
Amount remaining following payment of
the Servicing Fee and the Noteholders'
Interest Distributable Amount (as
defined herein) on such date. On each
Distribution date from and including the
Distribution Date on which the Class A-1
Notes are paid in full, principal of the
Class A-2 Notes will be payable on each
Distribution Date in an amount equal to
the Total Distribution Amount remaining
following payment of the Servicing Fee,
the Noteholders' Interest Distributable
Amount and, on the Distribution Date on
which the Class A-1 Notes are paid in
full, any amount distributed as
principal to holders of the Class A-1
Notes. No principal payment will be made
on the Class A-2 Notes until the Class
A-1 have been paid in full.
The outstanding principal amount, if
any, of the Class A-1 Notes will be
payable in full on ____________, 199_
(the "Class A-1 Final Scheduled Payment
Date") and the outstanding principal
amount, if any, of the Class A-2 Notes
will be payable in full on ____________,
199_ (the "Class A-2 Final Scheduled
Payment Date").
See "The Notes -- Payments of Principal"
herein.
E. Optional Redemption........ The Class A-2 Notes may be redeemed in
whole, but not in part, on a
Distribution Date on which the Servicer
exercises its option to purchase the
Receivables. Under the terms of the
Servicing Agreement, the Servicer may
purchase the Receivables when the
aggregate principal balance of the
Receivables (the "Pool Balance") has
been reduced to 10% or less of the Pool
Balance as of the Cutoff Date. The
redemption price for the Class A-2 Notes
will equal the unpaid principal amount
of the Class A-2 Notes plus accrued
interest at the Class A-2 Rate.
S-6
<PAGE>
Terms of the Certificates
A. Distribution Dates......... Distributions with respect to the
Certificates will be made on each
Distribution Date to holders of record
of the Certificates (the
"Certificateholders", and, collectively
with the Noteholders, the
"Securityholders") as of the related
Record Date.
B. Certificate
Pass-Through Rate........... Interest will accrue on the Certificates
at a fixed per annum rate of ___% (the
"Certificate Pass-Through Rate"),
calculated on the basis of a 360-day
year consisting of twelve 30-day months.
C. Interest................... On each Distribution Date, the Owner
Trustee will distribute pro rata to
Certificateholders accrued interest at
the Certificate Pass-Through Rate on the
Certificate Balance as of the preceding
Distribution Date (after giving effect
to distributions made on such
Distribution Date) generally to the
extent of funds available following
payment of the Servicing Fee and the
Noteholders' Distributable Amount (as
defined herein) from the Total
Distribution Amount and the Reserve
Account. Interest on the Certificates in
respect of any Distribution Date will
accrue from the most recent Distribution
Date (or, in the case of the first
Distribution Date, the Closing Date) to
but excluding such Distribution Date.
See "The Certificates -- Distributions
of Interest" herein.
D. Principal .................. On each Distribution Date on and after
the date on which the Class A-2 Notes
are paid in full, principal of the
Certificates will be payable in an
amount generally equal to the Total
Distribution Amount remaining after
payment of the Servicing Fee, the
Noteholders' Distributable Amount (on
the Distribution Date on which the
outstanding principal amount of the
Class A-2 Notes is reduced to zero) and
the Certificateholders' Interest
Distributable Amount (as defined
herein).
The outstanding principal amount, if
any, of the Certificates will be payable
full on ____________, 199_ (the "Final
Scheduled Distribution Date").
See "The Certificates -- Distributions
of Principal" and "Description of the
Transfer and Servicing Agreements --
Distributions" herein.
E. Optional Prepayment.............If the Servicer exercises its option to
purchase the Receivables, which it may
do when the Pool Balance is 10% or less
of the Pool Balance as of the Cutoff
Date, the Certificateholders will
receive an amount in respect of the
Certificates equal to the Certificate
Balance plus accrued interest at the
Certificate Pass-Through Rate, and the
Certificates will be retired. See "The
Certificates -- Optional Prepayment" and
"The Notes -- Optional Redemption"
herein.
Reserve Account.........................The Reserve Account will be created with
an initial deposit by the Company on the
Closing Date of cash or Eligible
Investments having a value of at least
$________ (the "Reserve Account Initial
Deposit"). Funds will be withdrawn from
the Reserve Account on any Distribution
Date if, and to the extent that, the
Total Distribution Amount for the
related Collection Period remaining
after payment of the Servicing Fee is
less than the Noteholders' Distributable
Amount and will be deposited in the Note
Distribution Account (as defined herein)
for distribution to the Noteholders. In
addition, funds will be withdrawn from
the Reserve Account to the extent that
the portion of the Total Distribution
Amount remaining after payment of the
Servicing Fee and the Noteholders'
Distributable Amount (as defined herein)
is less than the Certificateholders'
Distributable Amount (as defined herein)
and will be deposited in the Certificate
Distribution Account for distribution to
the Certificateholders.
S-7
<PAGE>
Funds in any Reserve Account may be
invested in securities that will not
mature prior to the date of such next
scheduled distribution with respect to
the Certificates and will not be sold
prior to maturity to meet any
shortfalls. Thus, the amount of
available funds on deposit in the
Reserve Account at any time may be less
than the balance of the Reserve Account.
If the amount required to be withdrawn
from the Reserve Account to cover
shortfalls in collections on the related
Receivables exceeds the amount of
available funds on deposit in the
Reserve Account, a temporary shortfall
in the amounts distributed to the
Certificateholders could result.
On each Distribution Date, the amount
available in the Reserve Account will be
reinstated up to the Specified Reserve
Account Balance by the deposit thereto
of the amount, if any, remaining in the
Collection Account after payment on such
date of the Servicing Fee, the
Noteholders' Distributable Amount and
the Certificateholders' Distributable
Amount. The "Specified Reserve Account
Balance" with respect to any
Distribution Date generally will be
equal to [state formula]. Certain
amounts in the Reserve Account on any
Distribution Date (after giving effect
to all distributions to be made on such
Distribution Date) in excess of the
Specified Reserve Account Balance for
such Distribution Date will be released
to the Company and will no longer be
available to the Securityholders.
The Reserve Account will be maintained
with the Indenture Trustee as a
segregated trust account, but will not
be part of the Trust. See "The Transfer
and Servicing Agreements -- Reserve
Account" herein.
Collection Account................. Except under certain conditions
described in the Prospectus under
"Description of the Transfer and
Servicing Agreements -- Collections,"
the Servicer will be required to remit
collections received with respect to the
Receivables within two Business Days of
receipt thereof to one or more accounts
in the name of the Indenture Trustee
(the "Collection Account"). Pursuant to
the Indenture, the Indenture Trustee
will withdraw funds on deposit in the
Collection Account and apply such funds
on each Distribution Date to the
following (in the priority indicated):
(i) the Servicing Fee for the related
Collection Period and any overdue
Servicing Fees to the Servicer, (ii) the
Noteholders' Interest Distributable
Amount to the Note Distribution Account,
(iii) the Noteholders' Principal
Distributable Amount to the Note
Distribution Account, (iv) the
Certificateholders' Interest
Distributable Amount to the Certificate
Distribution Account, (v) after the
Class A-2 Notes have been paid in full,
the Certificateholders' Principal
Distribution Amount to the Certificate
Distribution Account and (vi) the
remaining balance, if any, to the
Reserve Account. See "The Transfer and
Servicing Agreements -- Distributions"
and" -- Reserve Account" herein.
Advances........................... If a shortfall should occur in any
Collection Period between the amount due
as interest on the Receivables during
such Collection Period (assuming the
Receivables were paid on their
respective scheduled payment dates) and
the amount actually received in respect
of the Receivables during such
Collection Period and allocable to
interest, the Servicer will advance an
amount equal to such shortfall (an
"Advance"). The Servicer will be
reimbursed for Advances (i) from
collections and other amounts received
on the Receivables with respect to which
such Advances were made; (ii) from
collections and other amounts received
in respect of other Receivables; or
(iii) by reducing the Repurchase Amount
(as defined herein) due from the
Servicer by the amount of any
unreimbursed Advances, in each case, in
accordance with the terms of the
Servicing Agreement. The Servicer may
elect not to make an Advance with
respect to any Receivable to the extent
that the Servicer determines, in its
sole discretion, that it is unlikely to
be able to recover such Advances from
future collections and other payments in
respect of the Receivables. See "The
Transfer and Servicing
Agreements--Advances" herein.
S-8
<PAGE>
Certain Legal Aspects.............. The Seller shall repurchase certain
Receivables with respect to which any
prior security interest in such
Receivable is found to exist, any laws
have been violated, or the Seller's
security interest in the respective
Financed Vehicle has not been properly
assigned to the Trustee. The Trustee's
security interest in a Financed Vehicle
may be not be properly assigned in the
event of (i) the relocation or resale of
such Financed Vehicle in another state
without the Servicer's re-perfecting the
Trustee's security interest, (ii) the
imposition certain tax or possessory
liens, or (iii) fraud or negligence. In
addition, certain consumer protection
laws allow an Obligor (as defined
herein) under a Receivable to assert
certain claims and defenses against a
holder of the Receivable thus possibly
rendering a Receivable partly or wholly
uncollectible. See "Risk Factors --
Security Interests in the Financed
Vehicles" herein and "Risk Factors --
Certain Legal Aspects -- Security
Interests in Financed Vehicles" and
"Certain Legal Aspects of the
Receivables" in the Prospectus.
Tax Status......................... In the opinion of Sidley & Austin
("Federal Tax Counsel"), the Trust will
not be an association (or publicly
traded partnership) taxable as a
corporation for federal income tax
purposes. Federal Tax Counsel has also
advised the Trust that the Notes will be
classified as debt for federal income
tax purposes. The Trust will agree, and
the owners of beneficial interests in
the Notes will agree by their purchase
of Notes, to treat the Notes as debt for
federal tax purposes. The Trust will
also agree, and the related owners of
beneficial interests in the Certificates
("Certificate Owners") will agree by
their purchase of Certificates, to treat
the Trust as a partnership for purposes
of federal and state income tax,
franchise tax and any other tax measured
in whole or in part by income, with the
assets of the partnership being the
assets held by the Trust, the partners
of the partnership being the Certificate
Owners (including, to the extent
relevant, the Seller in its capacity as
recipient of distributions from any
Reserve Fund), and the Notes being debt
of the partnership. See "Certain Federal
Income Tax Consequences" in the
Prospectus for additional information
concerning the application of federal
income tax laws to the Trust and the
Securities.
ERISA Considerations............... Subject to the considerations discussed
under "ERISA Considerations" herein and
in the Prospectus, the Notes are
eligible for purchase by employee
benefit plans. The Certificates may not
be acquired by employee benefit plans
subject to the Employee Retirement
Income Security Act of 1974, as amended,
or by "plans" as defined in Section 4975
of the Internal Revenue Code of 1986, as
amended. See "ERISA Considerations"
herein and in the Prospectus.
Ratings of the Securities.......... It is a condition to the issuance of the
Notes and Certificates that the Class
A-1 Notes be rated at least "______" or
its equivalent, the Class A-2 Notes be
rated at least "_______" or its
equivalent and the Certificates be rated
at least "__________" or its equivalent,
in each case by at least two nationally
recognized rating agencies.
A rating is not a recommendation to
purchase, hold or sell the Notes or
Certificates, inasmuch as such rating
does not comment as to market price or
suitability for a particular investor. A
rating addresses the likelihood that
principal of and interest on a
particular class of Notes or the
Certificates, as applicable, will be
paid pursuant to its terms. There can be
no assurance that a rating will not be
lowered or withdrawn by a rating agency
if circumstances so warrant. See "Risk
Factors -- Ratings of the Securities"
herein.
S-9
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following risk factors before investing in the Securities.
Limited Liquidity of Securities. There is currently no secondary market for
the Securities. CS First Boston Corporation (the "Underwriter") currently
intends to make a market in the Securities, but is under no obligation to do so.
There can be no assurance that a secondary market will develop or, if a
secondary market does develop, that it will provide Securityholders with
liquidity of investment or that it will continue for the life of the Securities.
Removal of Servicer After a Servicer Default. If a Servicer Default occurs,
the Indenture Trustee or the Noteholders may remove the Servicer without the
consent of the Owner Trustee or the Certificateholders, in the manner described
in the Prospectus under "Description of the Transfer and Servicing Agreements -
Rights upon Servicer Default". Neither the Owner Trustee nor the
Certificateholders will have the ability to remove the Servicer if a Servicer
Default occurs. In addition, the Noteholders have the ability with certain
specific exceptions, to waive defaults by the Servicer, including defaults that
might have a materially adverse effect on Certificateholders. See "Description
of the Transfer and Servicing Agreements - Waiver of Past Defaults" in the
Prospectus.
Subordination of Certificates, Limited Assets of Trust. Distributions of
interest and principal on the Certificates will be subordinated in priority of
payment to interest and principal due on the Notes. Consequently,
Certificateholders will not receive any distributions with respect to a
Collection Period until full amount of interest on and principal of the Notes
distributable on such Distribution Date has been deposited in the Note
Distribution Account. The Certificateholders will not receive any distributions
of principal until after the Notes have been paid in full. See "The Transfer and
Servicing Agreements -- Distributions" herein.
The Trust will not have any significant assets or sources of funds other
than the Receivables, the proceeds thereof and access to funds in the Reserve
Account. Securityholders must rely on payments on the Receivables (and any
related Advances) and, if and to the extent available, amounts on deposit in the
Reserve Account. Although any funds available in the Reserve Account on each
Distribution Date will be applied to cover shortfalls in distribution of
interest and principal on the Notes and the Certificates, the funds to be
deposited in the Reserve Account are limited in amount. If the Reserve Account
is exhausted, the Trust will depend solely on current distributions on the
Receivables to make payments on the Notes and the Certificates. See "The Trust"
and "The Transfer and Servicing Agreements -- Reserve Account" herein.
Funds in any Reserve Account may be invested in securities that will not
mature prior to the date of such next scheduled distribution with respect to the
Securities and will not be sold prior to maturity to meet any shortfalls. Thus,
the amount of available funds on deposit in the Reserve Account at any time may
be less than the balance of the Reserve Account. If the amount required to be
withdrawn from the Reserve Account to cover shortfalls in collections on the
related Receivables exceeds the amount of available funds on deposit in the
Reserve Account, a temporary shortfall in the amounts distributed to the
Securityholders could result.
Lack of Security Interests in the Financed Vehicles. To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
be appointed custodian of the Receivables and the related documents by the
Trustee, but will not stamp the Receivables to reflect the sale and assignment
of the Receivables to the Trust or amend the certificates of title of the
Financed Vehicles even if to do so would only involve a de minimus expense. In
the absence of amendments to the certificates of title, the Trustee may not have
perfected security interests in the Financed Vehicles securing the Receivables
in some states. See "Risk Factors -- Certain Legal Aspects -- Security Interests
in Financed Vehicles" and "Certain Legal Aspects of the Receivables" in the
Prospectus.
Ratings of the Securities. It is a condition to the issuance of the Notes
and the Certificates that the Class A-1 Notes be rated at least "___________" or
its equivalent, the Class A-2 Notes be rated at least "________" or its
equivalent and the Certificates be rated at least "_________" or its equivalent,
in each case by at least two nationally recognized rating agencies (the "Rating
Agencies"). A rating is not a recommendation to purchase, hold or sell
Securities, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The ratings of the Securities address the
likelihood of the timely payment of interest on, and the ultimate repayment of
principal of, the
S-10
<PAGE>
Securities pursuant to their terms. There can be no assurance that a rating will
be retained for any given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if in its judgment circumstances in the
future so warrant. In the event that a rating is subsequently lowered or
withdrawn, no person or entity will be required to provide any additional credit
enhancement. The ratings of the Notes are based primarily on the credit quality
of the Receivables, the subordination provided by the Certificates and the
availability of funds in the Reserve Account. The ratings of the Certificates
are based primarily on the credit quality of the Receivables and the
availability of funds in the Reserve Account.
Trust's Limited Relationship to the Company. The Company is generally not
obligated to make any payments in respect of the Notes, the Certificates or the
Receivables. The Company has assigned the representations and warranties of the
Seller under the Receivables Purchase Agreement to the Trustee. In addition the
Company has made certain limited representations and warranties regarding the
characteristics of the Receivables and is required under the Trust Agreement to
repurchase Receivables with respect to which such representations and warranties
have been breached. It is not anticipated that the Company will have any
significant assets with which to fund such repurchases.
Trust's Limited Relationship to the Seller and the Servicer. Neither the
Seller nor the Servicer is generally obligated to make any payments in respect
of the Notes, the Certificates or the Receivables (except to the extent the
Servicer is obligated to make Advances with respect to the Receivables). If
_______ were to cease acting as Servicer, delays in processing payments on the
Receivables and information in respect thereof could occur and result in delays
in payment to the Securityholders. The Seller has made certain representations
and warranties regarding the characteristics of the Receivables and is required
under the Receivables Purchase Agreement to repurchase Receivables with respect
to which such representations and warranties have been breached. See "The
Transfer and Servicing Agreements - The Receivables Purchase Agreement".
[Geographic Concentration of Assets. Discuss impact on Securityholders of
material concentration of trust assets in one or a few states, if applicable.]
[Limited number of Loan Originators. Discuss impact on Securityholders of
material concentration of loans originated by one or a few dealers, if
applicable.]
[Concentration of Credit Risk. Discuss impact on Securityholders of
material concentration of credit risk, if applicable.]
[Interest Only Securities. Discuss risks associated with interest only
securities, including any disproportionate prepayment or credit risks, if
applicable.]
[Principal Only Securities. Discuss risks associated with principal only
securities, including any disproportionate prepayment or credit risks, if
applicable.]
THE TRUST
General
The Issuer, CS First Boston Auto Receivables Trust 199_-_, is a business
trust formed under the laws of the State of Delaware pursuant to the Trust
Agreement for the transactions described in this Prospectus Supplement. After
its formation, the Trust will not engage in any activity other that (i)
acquiring, holding and managing the Receivables and the other assets of the
Trust and proceeds therefrom, (ii) issuing the Notes and the Certificates, (iii)
making payments on the Notes and the Certificates, and (iv) engaging in other
activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
The Trust initially will be capitalized with equity equal to $____________.
Certificates with an original principal balance of $____________ (which
represents approximately [1]% of the initial Certificate Balance) will be sold
to ____________ and the remaining Certificates will be sold to third party
investors which are expected to be unaffiliated with the Seller, the Servicer
and the Trust. The proceeds from the initial sale of the Notes and Certificates
will be used by the Trust to purchase the Receivables from the Company pursuant
to the Trust Agreement. The Servicer will service
S-11
<PAGE>
the Receivables pursuant to the Servicing Agreement and will be compensated for
acting as Servicer. See "The Transfer and Servicing Agreements -- Servicing
Compensation" herein.
If the protection provided to the Securityholders by the Reserve Account is
insufficient, the Trust will look only to the Obligors on the Receivables and
the proceeds from the repossession and sale of Financed Vehicles that secure
defaulted Receivables to fund distributions of principal and interest on the
Securities. In such event, certain factors, such as the Trust's not having a
first priority perfected security interest in some of the Financed Vehicles, may
affect the Trust's ability to realize on the collateral securing the Receivables
and thus may reduce the proceeds to be distributed to Securityholders with
respect to the Securities. See "The Transfer and Servicing Agreements --
Distributions" and "--Reserve Account" herein and "Certain Legal Aspects of the
Receivables" in the Prospectus.
The Trust's principal offices are located in ________________________,
Delaware, in care of ____________________, as Owner Trustee, at the address
listed below under "--The Owner Trustee".
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Notes and the Certificates had
taken place on such date:
<TABLE>
<S> <C>
Class A-1 Notes........................ $
Class A-2 Notes........................
Certificates........................... _______________________
Total............................... $______________________
</TABLE>
The Owner Trustee
____________________ is the Owner Trustee under the Trust Agreement.
________________________ is a banking corporation and its principal offices are
located at __________________________. The Owner Trustee's liability in
connection with the issuance and sale of the Notes and Certificates is limited
solely to the express obligations of the Owner Trustee set forth in the Trust
Agreement and the Servicing Agreement. The Seller, the Company and their
respective affiliates may maintain normal commercial banking relations with the
Owner Trustee and its affiliates.
THE RECEIVABLES POOL
The pool of Receivables conveyed to the Trust (the "Receivables Pool") was
originated or purchased by the Seller in the ordinary course of business, and
were or will be selected from the Seller's portfolio for inclusion in the
Receivables Pool based on several criteria, including the following: (i) as of
the Cutoff Date each Receivable had, or will have, an outstanding gross balance
of at least $1,000; (ii) as of the Cutoff Date, no Receivable will be more than
90 days past due; and (iii) as of the Cutoff Date, no Obligor on any Receivable
was noted in the records of the Seller as being the subject of a bankruptcy
proceeding. Certain additional criteria that each Receivable must meet are set
forth in the Prospectus under "The Receivables Pools". No selection procedures
believed by the Seller to be adverse to Securityholders were, or will be, used
in selecting the Receivables.
[Describe differences, if any, in contracts related to new vehicles and
contracts related to used vehicles]
The composition, [ownership status,] distribution by APR and geographic
distribution of the Receivables as of the Cutoff Date are as set forth in the
following tables.
Composition of the Receivables as of the Cutoff Date
<TABLE>
<CAPTION>
Weighted Aggregate principal Number of Weighted Average Weighted Average Average Principal
Average APR Balance Receivables Remaining Term Original Term Balance
<S> <C> <C> <C> <C> <C>
% $ months months $
</TABLE>
S-12
<PAGE>
Ownership Status of the Receivables
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of
Receivables Balance Aggregate
----------- ------- Principal Balance
-----------------
<S> <C> <C> <C>
New Vehicles......
Used Vehicles.....
-------- -------- --------
Total........
======== ======== ========
</TABLE>
Distribution of Receivables by APR as of the Cutoff Date
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of Aggregate
APR Range Receivables Balance Principal Balance
<S> <C> <C> <C>
0.00% to 3.00%
3.01% to 4.00%
4.01% to 5.00%
5.01% to 6.00%
6.01% to 7.00%
7.01% to 8.00%
8.01% to 9.00%
9.01% to 10.00%
10.01% to 11.00%
11.01% to 12.00%
12.01% to 13.00%
13.01% to 14.00%
14.01% to 15.00%
15.01% to 16.00%
16.01% to 17.00%
17.01% to 18.00%
18.01% to 19.00%
Greater than 20.00% ____________ ____________ ______________
Total
======== ======== ========
</TABLE>
Geographic Distribution of the Receivables as of the Cutoff Date (1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of Aggregate
Receivables Balance Principal Balance
----------- ------- -----------------
<S> <C> <C> <C>
New York...........
California.........
Other.............. ____________ ____________ ______________
Total.........
======== ======== ========
</TABLE>
(1) Based on billing addresses of the Obligers as of the Cutoff Date.
By aggregate principal balance, approximately ___% of the Receivables
constitute Precomputed Receivables and ___% of the Receivables constitute Simple
Interest Receivables. See "The Receivables Pools" in the Prospectus for a
description of the characteristics of Precomputed Receivables and Simple
Interest Receivables. As of the Cutoff Date, approximately ___% of the
Receivables by aggregate principal balance, constituting ___% of the number of
Receivables, represent used vehicles.
Delinquencies, Repossessions and Net Losses
Set forth below is certain information concerning the delinquency,
repossession and net loss experience of the Seller pertaining to retail new and
used automobile, van and light duty truck receivables. The delinquency,
repossession and credit loss data presented in the following tables are for
illustrative purposes only. There is no assurance that the Seller's delinquency,
repossession and credit loss experience with respect to automobile, van and
light duty truck
S-13
<PAGE>
receivables in the future, or the experience of the Trust with respect to the
Receivables, will be similar to that set forth below. Delinquencies,
repossessions and net losses on new and used automobiles, vans and light duty
trucks are affected by social and economic conditions generally and, in
particular, in the States of ______ and _______, where ___% and ___%,
respectively, of the Financed Vehicles were purchased.
<TABLE>
<CAPTION>
Delinquency Experience (1)
At December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Portfolio Outstanding at End of Period
Delinquencies at End of Period(2)
30-59 Days
60-89 Days
90 Days or More
Total Delinquencies
Total Delinquencies as a Percentage of
Portfolio Outstanding at End of Period
<FN>
- ----------------
(1) Except as indicated, all amounts and percentages are based on the gross amount scheduled to be paid on each contract, including
unearned finance and other charges.
(2) The period of delinquency is based on the number of days payments are contractually past due.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Credit Loss/Repossession Experience(1)
At December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Average Amount Outstanding During the
Period
Average Number of Contracts
Outstanding during the Period
Repossessions as a Percentage of
Average Number of Contracts
Outstanding
Net Losses as a Percentage of
Liquidations (2)(3)
Net Losses as a Percentage of Average
Amount Outstanding(3)
</TABLE>
- ----------------
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance
and other charges.
(2) Net losses are equal to the aggregate of the net balances of all contracts
that were determined to be uncollectible in the period, less any recoveries
on contracts charged off in the period or any prior periods, excluding any
losses resulting from the failure to recover commissions to dealers with
respect to contracts that are prepaid or charged off.
(3) Liquidations represent a reduction in the outstanding balances of the
contracts as a result of monthly cash payments and charge-offs.
THE SELLER AND THE SERVICER
[Information regarding the Seller and the Servicer to be supplied.]
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Weighted Average Life of the
Securities" in the Prospectus. In addition, holders of the Class A-2 Notes
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<PAGE>
will not receive any principal payments until the Class A-1 Notes are paid in
full, and holders of the Certificates will not receive any principal payments
until the Class A-1 Notes and the Class A-2 Notes have been paid in full. See
"The Notes -- Payments of Principal" and "The Certificates -- Distributions of
Principal" herein. As the rate of payment of principal of each class of Notes
and the Certificates depends on the rate of payment (including prepayments) of
the principal balance of the Receivables, final payment of the Class A-1 Notes
or the Class A-2 Notes and the final distribution in respect of the Certificates
could occur significantly earlier than the Class A-1 Final Scheduled Payment
Date, the Class A-2 Final Scheduled Payment Date or the Final Scheduled
Distribution Date, as applicable. Securityholders will bear the risk of being
able to reinvest principal payments on the Securities at yields at least equal
to the yield on their Securities.
THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the Notes.
The following summary describes the material terms of the Notes and the
Indenture. The summary does not purport to be a complete description of all
terms of the Notes and the Indenture and therefore is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture. The following summary supplements the description of the general
terms and provisions of the Notes of any given Series and the related Indenture
set forth under the headings "Description of the Notes" and "Certain Information
Regarding the Securities" in the Prospectus, to which description reference is
hereby made.
Payments of Interest
Interest on the principal balance of the Class A-1 Notes and the Class A-2
Notes will accrue at the Class A-1 Rate and Class A-2 Rate, respectively, and
will be payable to the holders of the Class A-1 Notes and the Class A-2 Notes
monthly on each Distribution Date. Interest with respect to any Distribution
Date will accrue from and including the most recent Distribution Date on which
interest was distributed to Noteholders (or, with respect to the first
Distribution Date, from and including the Closing Date) to but excluding such
Distribution Date. Interest on each class of Notes will be calculated on the
basis of a 360-day year of twelve 30-day months. Interest accrued but not paid
on any Distribution Date will be due on the next Distribution Date, together
with interest on such amount at the applicable Interest Rate (to the extent
lawful). Interest payments on the Notes will generally be derived from the Total
Distribution Amount remaining after the payment of the Servicing Fee and from
the Reserve Account. See "The Transfer and Servicing Agreements --
Distributions" and "-- Reserve Account" herein. Interest payments to holders of
both classes of Notes will have the same priority. Under certain circumstances,
the amount available for such payments could be less than the amount of interest
payable on the Notes on any Distribution Date, in which case the holders of each
class of Notes will receive their ratable share (based on the aggregate amount
of interest due on such class of Notes) of the aggregate amount available for
distribution in respect of interest on the Notes.
Payments of Principal
On each Distribution Date for as long as the Class A-1 Notes are
outstanding, principal of the Class A-1 Notes will be distributed to holders of
the Class A-1 Notes in an amount equal to the Total Distribution Amount
remaining after payment of the Servicing Fee and the Noteholder's Interest
Distributable Amount. On each Distribution Date from and including the
Distribution Date on which the Class A-1 Notes are paid in full and for as long
as the Class A-2 Notes are outstanding, principal will be distributed to holders
of the Class A-2 Notes in an amount equal to the Total Distribution Amount
remaining after payment of the Servicing Fee, the Noteholders' Interest
Distributable Amount and, on the Distribution Date on which the outstanding
principal amount of the Class A-1 Notes is reduced to zero, any amounts
distributed as principal to holders of the Class A-1 Notes. No principal will be
paid on the Class A-2 Notes until the Class A-1 Notes have been paid in full.
See "The Transfer and Servicing Agreements -- Distributions" and "-- Reserve
Account" herein.
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 and 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 actual date on
which the aggregate outstanding principal
S-15
<PAGE>
amount of either the Class A-1 Notes or the Class A-2 Notes is paid in full may
be earlier than the applicable Final Scheduled Payment Date set forth above due
to a variety of factors, including those described under "Weighted Average Life
of the Securities" herein and in the Prospectus.
Optional Redemption
The Class A-2 Notes may be redeemed in whole, but not in part, on a
Distribution Date on which the Servicer exercises its option to purchase the
Receivables, which the Servicer may do after the aggregate outstanding principal
amount of the Receivables is reduced to 10% or less of the Pool Balance as of
the Cutoff Date. See "Description of the Transfer and Servicing Agreements --
Termination" in the Prospectus. The redemption price for the Class A-2 Notes
will equal the unpaid principal amount of the Class A-2 Notes plus accrued and
unpaid interest thereon to the redemption date.
THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Certificates. The following summary describes the
material terms of the Certificates and the Trust Agreement. This summary does
not purport to be a complete description of all terms of the Certificates and
therefore is subject to, and qualified in its entirety by reference to, all the
provisions of the Certificates and the Trust Agreement. The following summary
supplements the description of the general terms and provision of the
Certificates of any given Series and the related Trust Agreement set forth in
the Prospectus, to which description reference is hereby made.
Distributions of Interest
Interest on the principal balance of the Certificates will accrue at the
Certificate Pass-Through Rate. Interest with respect to any Distribution Date
will accrue from and including the most recent Distribution Date on which
interest was distributed to Certificateholders (or, with respect to the first
Distribution Date, from and including the Closing Date) to but excluding such
Distribution Date and will be calculated on the basis of a 360-day year of
twelve 30-day months. Interest accrued but not distributed on any Distribution
Date will be due on the next Distribution Date, together with interest on such
amount at the Certificate Pass-Through Rate (to the extent lawful). Interest
distributions with respect to the Certificates generally will be funded from the
portion of the Total Distribution Amount and funds in the Reserve Account
remaining after the distribution of the Servicing Fee and the Noteholders'
Distributable Amount. See "The Transfer and Servicing Agreements --
Distributions" and " -- Reserve Account" herein.
Distributions of Principal
Certificateholders will not be entitled to distributions of principal on
any Distribution Date until the Notes have been paid in full. On each
Distribution Date on and after the Distribution Date on which the Class A-2
Notes are paid in full, the Certificateholders will be entitled to distributions
of principal in a maximum amount equal to the lesser of (i) the Total
Distribution Amount plus any funds in the Reserve Account remaining after
payment of the Servicing Fee, the Noteholders' Distributable Amount (on the
Distribution Date on which the outstanding principal amount of the Class A-2
Notes is reduced to zero) and the Certificateholders' Interest Distributable
Amount and (ii) the outstanding Certificate Balance. See "The Transfer and
Servicing Agreements -- Distributions" and "-- Reserve Account" herein.
Optional Prepayment
If the Servicer exercises its option to purchase the Receivables, which it
may do when the aggregate outstanding principal amount of the Receivables is
reduced to 10% or less of the Pool Balance as of the Cutoff Date, the
Certificateholders will receive an amount in respect of the Certificates equal
to the outstanding Certificate Balance, together with accrued interest thereon
at the Certificate Pass-Through Rate to the redemption date, which distribution
S-16
<PAGE>
shall effect an early retirement of the Certificates. See "Description of the
Transfer and Servicing Agreements -- Termination" in the Prospectus.
THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes the material terms of the Servicing
Agreement, the Receivables Purchase Agreement and the Trust Agreement
(collectively, the "Transfer and Servicing Agreements"). Forms of the Transfer
and Servicing Agreements have been filed as exhibits to the Registration
Statement. A copy of the Transfer and Servicing Agreements will be filed with
the Commission following the issuance of the Securities. This summary does not
purport to be a complete description of all terms of the Transfer and Servicing
Agreements and therefore is subject to, and is qualified in its entirety by
reference to, all the provisions of the Transfer and Servicing Agreements. The
following summary supplements the description of the general terms and
provisions of Transfer and Servicing Agreements (as such term is used in the
Prospectus) set forth under the heading "Description of the Transfer and
Servicing Agreements" in the Prospectus, to which description reference is
hereby made.
Sale and Assignment of Receivables
Certain information with respect to the conveyance of the Receivables to
the Seller to the Company and from the Company to the Trust on the Closing Date
is set forth under "Description of the Transfer and Servicing Agreements -- Sale
and Assignment of Receivables" in the Prospectus. See also "The Receivables
Pool" herein and "The Receivables Pools" in the Prospectus for additional
information regarding the Receivables and certain obligations of the Seller and
the Servicer with respect to the Receivables.
Accounts
In addition to the Accounts referred to under "Description of the Transfer
and Servicing Agreements -- Accounts" in the Prospectus, the Servicer with also
establish and maintain the Reserve Account with the Indenture Trustee, in the
name of the Indenture Trustee on behalf of the Noteholders and the
Certificateholders.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period in an amount equal to 1.00% per annum of the Pool Balance as
of the first day of such Collection Period. The Servicing Fee (together with any
portion of the Servicing Fee that remains unpaid from prior Distribution Dates)
will be paid on each Distribution Date solely to the extent of the Interest
Distribution Amount; however, the Servicing Fee will be paid to the Servicer
prior to the distribution of any portion of the Interest Distribution Amount to
Noteholders and Certificateholders. See "Description of the Transfer and
Servicing Agreements -- Servicing Compensation and Payment of Expenses" in the
Prospectus.
Distributions
Deposits to Collection Account. On or about the _____ Business Day of each
month, the Servicer will provide the Indenture Trustee with certain information
with respect to the related Collection Period, including the aggregate amount of
collections on the Receivables, Advances and Repurchase Amounts, as well as the
Total Distribution Amount, the Interest Distribution Amount and the Principal
Distribution Amount.
On or before each Distribution Date, the Servicer will cause the Total
Distribution Amount to be deposited into the Collection Account. The "Total
Distribution Amount" for a Distribution Date will equal the sum of the Interest
Distribution Amount and the Principal Distribution Amount (excluding the portion
thereof attributable to Realized Losses). "Realized Losses" means the excess of
the principal balance of any Liquidated Receivable over Liquidation Proceeds to
the extent allocable to principal.
The "Interest Distribution Amount" for a Distribution Date will equal the
sum of the following amounts with respect to the related Collection Period: (i)
that portion of all collections on the Receivables allocable to interest, (ii)
all proceeds of the liquidation of defaulted Receivables ("Liquidated
Receivables"), net of expenses incurred by the Servicer in connection with such
liquidation and any amounts required by law to be remitted to the related
Obligor (such
S-17
<PAGE>
net amount "Liquidation Proceeds"), to the extent allocable to interest; (iii)
all recoveries in respect of Liquidated Receivables that were written off in
prior Collection Periods; (iv) all Advances made by the Servicer; (v) the
Repurchase Amount of each Receivable that was repurchased by the Seller or the
Company during the related Collection Period, to the extent allocable to
interest; and (vi) Investment Earnings for such Distribution Date.
The "Principal Distribution Amount" for a Distribution Date will equal the
sum of the following amounts with respect to the related Collection Period: (i)
that portion of all collections on the Receivables allocable to principal; (ii)
Liquidation Proceeds to the extent attributable to the principal, plus all
Realized Losses with respect to such Liquidated Receivables; (iii) all
Precomputed Advances made by the Servicer of principal due on the Precomputed
Receivables; (iv) to the extent attributable to principal, the Repurchase Amount
received with respect to each Receivable repurchased by the Seller or the
Company; (v) partial prepayments relating to refunds of extended warranty
protection plan costs or of physical damage, credit life or disability insurance
policy premiums, but only if such costs or premiums were financed by the
respective Obligor as of the date of the original Contract; and (vi) on the
Final Scheduled Distribution Date, any amounts advanced by the Servicer with
respect to principal on the Receivables.
The Interest Distribution Amount and the Principal Distribution Amount on
any Distribution Date shall exclude the following:
(i) amounts realized on Precomputed Receivables to the extent that the
Servicer has previously made an unreimbursed Precomputed Advance;
(ii) Liquidation Proceeds with respect to a particular Precomputed
Receivable to the extent of any unreimbursed Precomputed Advances thereon;
(iii) all payments and proceeds (including Liquidation Proceeds) of
any Receivables the Repurchase Amount of which has been included in the
Total Distribution Amount in a prior Collection Period;
(iv) amounts received in respect of interest on Simple Interest
Receivables during the related Collection Period in excess of the amount of
interest that would have been due during the Collection Period on Simple
Interest Receivables at their respective APRs (assuming that a payment is
received on each Simple Interest Receivable on the due date thereof); and
(v) Liquidation Proceeds with respect to a Simple Interest Receivable
attributable to accrued and unpaid interest thereon (but not including
interest for the then current Collection Period) to the extent of any
unreimbursed Simple Interest Advances.
Deposits to the Distribution Accounts. On each Distribution Date, the
Servicer will instruct the Trustee to make the following deposits and
distributions, to the extent of the Total Distribution Amount, in the following
order of priority:
(i) to the Servicer, from the Interest Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection Periods;
(ii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clause (i), the Noteholders'
Interest Distributable Amount;
(iii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) and (ii), the
Noteholders' Principal Distributable Amount;
(iv) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) through
(iii), the Certificateholders' Interest Distributable Amount;
(v) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) through
(iv), the Certificateholders' Principal Distributable Amount; and
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<PAGE>
(vi) to the Reserve Account, the Total Distribution Amount remaining
after the application of clauses (i) through (v).
For purposes hereof, the following terms shall have the following meanings:
"Noteholders' Distributable Amount" means, with respect to any Distribution
Date, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for such Distribution Date and the Noteholders' Interest Carryover
Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with respect to
any Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to but
excluding such Distribution Date) on the Class A-1 Notes and the Class A-2 Notes
at the Class A-1 Rate and the Class A-2 Rate, respectively, on the outstanding
principal balance of the Notes of such class on the immediately preceding
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date) after giving effect to all payments of principal to the
Noteholders of such class on or prior to such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, (i) the excess of the Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date, plus any outstanding
Noteholders' Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that is actually deposited in the Note
Distribution Account on such preceding Distribution Date, plus (ii) interest on
the amount of interest due but not paid to Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the respective Interest
Rates borne by each class of the Notes from such preceding Distribution Date to
but excluding such current Distribution Date. The Noteholders' Interest
Carryover Shortfall with respect to the initial Distribution Date is zero.
"Noteholders' Principal Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date; provided, however,
that the Noteholders' Principal Distributable Amount shall not exceed the
outstanding principal balance of the Notes. In addition, (i) on the Class A-1
Final Scheduled Payment Date, the Noteholder's Principal Distributable Amount
will not be less than the amount that is necessary (after giving effect to all
other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
principal balance of the Class A-1 Notes to zero; and (ii) on the Class A-2
Final Scheduled Payment Date the Noteholders' Principal Distributable Amount
will not be less than the amount that is necessary (after giving effect to all
other amounts to be deposited in the Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
principal balance of the Class A-2 Notes to zero.
"Noteholders' Monthly Principal Distributable Amount" means, with respect
to any Distribution Date for as long as the Class A-1 Notes or the Class A-2
Notes are outstanding, 100% of the Principal Distribution Amount; provided,
however, that on the Distribution Date on which the principal balance of the
Class A-2 Notes is reduced to zero, the portion, if any, of the Principal
Distribution Amount that is not applied to the principal of the Class A-2 Notes
will be applied to the Certificate Balance.
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Principal Carryover
Shortfall from the preceding Distribution Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account. The
Noteholders' Principal Carryover Shortfall with respect to the Initial
Distribution Date is zero.
"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 Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
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<PAGE>
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, 30 days of interest (or, in the case of the
first Distribution Date, interest accrued from and including the Closing Date to
but excluding such Distribution Date) at the Certificate Pass-Through Rate on
the Certificate Balance on the last day of the preceding Collection Period (or,
in the case of the first Distribution Date, on the Closing Date) after giving
effect to all distributions of principal to the Certificateholders on or prior
to such Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Certificate
Pass-Through Rate from such preceding Distribution Date to but excluding such
current Distribution Date. The Certificateholders' Interest Carryover Shortfall
with respect to the initial Distribution Date is zero.
"Certificateholders' Principal Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carryover shortfall as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal Distributable
Amount shall not exceed the Certificate Balance. In addition, on the Final
Scheduled Distribution Date, the principal required to be distributed to
Certificateholders will include the lesser of (a)(i) any scheduled payments of
principal due and remaining unpaid on each Precomputed Receivable and (ii) any
principal due and remaining unpaid on each Simple Interest Receivable, in each
case, in the Trust as of the Final Scheduled Maturity Date or (b) the amount
that is necessary (after giving effect to the other amounts to be deposited in
the Certificate Distribution Account on such Distribution Date and allocable to
principal) to reduce the Certificate Balance to zero.
"Certificateholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date prior to the Distribution Date on which the
Notes are paid in full, zero; and with respect to any Distribution Date
commencing on the Distribution Date on which the Notes are paid in full, 100% of
the Principal Distribution Amount (less, on the Distribution Date on which the
Notes are paid in full, the portion thereof payable as principal of the Notes).
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Certificateholders' Monthly
Principal Distributable Amount and any outstanding Certificateholders' Principal
Carryover Shortfall from the preceding Distribution Date, over the amount in
respect of principal that is actually deposited in the Certificate Distribution
Account. The Certificateholders' Principal Carryover Shortfall with respect to
the initial Distribution Date is zero.
"Certificate Balance" equals, initially, $______ and, thereafter, equals
the initial Certificate Balance, reduced by all amounts allocable to principal
previously distributed to Certificateholders.
On each Distribution Date, all amounts on deposit in the Note Distribution
Account generally will be paid in the following order of priority:
(i) without regard to Class, to the applicable Noteholders, accrued
and unpaid interest on the outstanding principal balance of the applicable
class of Notes at the applicable Interest Rate;
(ii) to the Class A-1 Noteholders in reduction of principal until the
principal balance of the Class A-1 Notes has been reduced to zero; and
(iii) to the Class A-2 Noteholders in reduction of principal until the
principal balance of the Class A-2 Notes has been reduced to zero.
On each Distribution Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders.
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<PAGE>
Reserve Account
The Reserve Account will be created by the deposit thereto by the Company
on the Closing Date of the Reserve Account Initial Deposit and will be increased
up to the Specified Reserve Account Balance by the deposit thereto on each
Distribution Date on the amount, if any, remaining from the Total Distribution
Amount after payment of the Servicing Fee, the Noteholders' Distributable Amount
and the Certificateholders' Distributable Amount. If the amount on deposit in
the Reserve Account on any Distribution Date (after giving effect to all
deposits thereto or withdrawals therefrom on such Distribution Date), is greater
than the Specified Reserve Account Balance for such Distribution Date, the
Servicer will instruct the Indenture Trustee to distribute an amount equal to
such excess to the Company. Upon any distribution to the Company of amounts from
the Reserve Account, neither the Noteholders nor the Certificateholders will
have any rights in, or claim to, such amounts.
Amounts held from time to time in the Reserve Account will continue to be
held for the benefit of the Noteholders and Certificateholders. Funds will be
withdrawn from cash in the Reserve Account to the extent that the Total
Distribution Amount (after the payment of the Servicing Fee) with respect to any
Collection Period is less than the Noteholders' Distributable Amount and will be
deposited to the Note Distribution Account for distribution to the Noteholders.
In addition, funds will be withdrawn from cash in the Reserve Account to the
extent that the portion of the Total Distribution Amount remaining after the
payment of the Servicing Fee and the deposit of the Noteholders' Distributable
Amount to the Note Distribution Account is less than the Certificateholders'
Distributable Amount and will be deposited to the Certificate Distribution
Account for distribution to the Certificateholders.
The subordination of the Certificates and access to funds in the Reserve
Account are intended to enhance the likelihood of receipt by Noteholders of the
full amount of principal and interest due to them and to decrease the likelihood
that the Noteholders will experience losses. In addition, the Reserve Account is
intended to enhance the likelihood of receipt by Certificateholders of the full
amount of principal and interest due to them and to decrease the likelihood that
the Certificateholders will experience losses. However, in certain
circumstances, the Reserve Account could be depleted. In addition, subject to
certain conditions, funds in the Reserve Account may be invested in securities
that will not mature prior to a particular Distribution Date and will not be
sold prior to maturity to meet any shortfalls that might occur on such
Distribution Date. Thus, the amount of cash in the Reserve Account at any time
may be less than the balance of the Reserve Account. If the amount required to
be withdrawn from the Reserve Account to cover shortfalls in collections on the
Receivables exceeds the amount of cash in the Reserve Account, a temporary
shortfall in the amounts distributed to the Noteholders or the
Certificateholders could result, which could, in turn, increase the average life
of the Notes or the Certificates.
Advances
If a shortfall should occur in any Collection Period between (i) the
aggregate amount of interest due on the Receivables during such Collection
Period, assuming each Receivable was paid on its scheduled payment date under
the related Contract, and (ii) the amount actually received on or in respect of
the Receivables during such Collection Period and allocable to interest, the
Servicer will deposit an amount (an "Advance") equal to such deficiency in the
Collection Amount on or before the applicable Distribution Date. The Servicer
will be allowed to recover any Advances so made (a) from collections and other
amounts received on the Receivables with respect to which such Advances were
made, (b) from collections or any other amounts received in respect of any other
Receivables and (c) by reducing any Repurchase Amount due from the Servicer by
the amount of any unreimbursed Advances, in each case in accordance with the
terms of the Servicing Agreement. The Servicer may elect not to make an Advance
with respect to any Receivable to the extent that the Servicer determines that
it is unlikely to be able to recover such Advance from payments on or with
respect to the Receivables or from any other source.
The Receivables Purchase Agreement
On or prior to the Closing Date, the Seller will transfer and assign to the
Company pursuant to the Receivables Purchase Agreement, all of its right, title
and interest in and to Receivables in the outstanding principal amount of
$_________ including its security interests in the related Financed Vehicles.
Each Receivable will be identified in a schedule appearing as an exhibit to the
Receivables Purchase Agreement (the "Schedule of Receivables"). The Seller will
sell the Receivables to the Company without recourse, except that, as described
in the following paragraph, the Seller will be required to repurchase
Receivables with respect to which it is in breach of a representation or
warranty, if such
S-21
<PAGE>
breach materially and adversely affects the right of the related Trust and
Securityholders in and to such Receivables. Concurrently with or subsequent to
the transfer and assignment of the Receivables to the Company, the Company will
transfer and assign the Receivables to the Trust, and Trustee will execute,
authenticate and deliver the Certificates. The net proceeds from the sale of the
Notes and the Certificates will be applied to the purchase of the Receivables.
In the Receivables Purchase Agreement, the Seller will represent and
warrant to the Company, among other things, that (i) the information set forth
in the Schedule of Receivables is correct in all material respects as of the
Cutoff Date; (ii) the Obligor on each Receivable is contractually required to
maintain physical damage insurance covering the related Financed Vehicle in
accordance with the Seller's normal requirements; (iii) on the Closing Date, to
the best of its knowledge, the Receivables are free and clear of all security
interests, liens, charges and encumbrances, and no offsets, defenses or
counterclaims have been asserted or threatened; (iv) at the Closing Date, each
of the Receivables is, or will be, secured by a perfected, first-priority
security interest in the related Financed Vehicle in favor of the Seller; and
(v) each Receivable, at the time it was originated, complied and, on the Closing
Date 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.
ERISA CONSIDERATIONS
The Notes
The Notes may be purchased by an "employee benefit plan" as defined in and
subject to the provisions of Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or a "plan" as described in Section 4975 (e)
(1) of the Internal Revenue Code of 1986, as amended (the "Code") (each such
"employee benefit plan" and "plan," a "Plan"). A fiduciary of a Plan must
determine that the purchase of a Note is consistent with its fiduciary duties
under ERISA and does not result in a nonexempt prohibited transaction as defined
in Section 406 of ERISA or Section 4975 of the Code. For additional information
regarding treatment of the Notes under ERISA, see "ERISA Considerations" in the
Prospectus.
The Certificates
The Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title I
of ERISA, (b) a plan described in Section 4975(e)(l) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the respective
underwriting agreements relating to the Notes and the Certificates (the
"Underwriting Agreements"), the Company has agreed to cause the Trust to sell to
CS First Boston Corporation (the "Underwriter"), and the Underwriter has agreed
to purchase, all of the Securities.
The Underwriter proposes to offer the Securities to the public initially at
the public offering prices set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such prices less a concession of ___% per
Class A-1 Note, ___% per Class A-2 Note and ___% per Certificate; and, the
Underwriter and such dealers may allow a discount of ___% per Class A-1 Note,
___% per Class A-2 Note and ___% per Certificate on sales to certain other
dealers; and after the initial public offering of the Securities, such public
offering prices and the concessions and discounts to dealers may be changed by
the Underwriter.
The Underwriting Agreements provide that the Seller will indemnify the
Underwriter against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriter may be required to
make in respect thereof.
S-22
<PAGE>
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriter.
The closing of the sale of the Certificates is conditioned on the closing
of the sale of the Notes, and the closing of the sale of the Notes is
conditioned on the closing of the sale of the Certificates.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter within the period
during which there is an obligation to deliver a Prospectus Supplement and
Prospectus, the Company or the Underwriter will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus Supplement and the
Prospectus.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
LEGAL MATTERS
Certain legal matters relating to the Securities will be passed upon by
Sidley & Austin, New York, New York.
S-23
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Business Day............................................................................. S-6
Certificate Balance...................................................................... S-22
Certificate Pass-Through-Rate............................................................ S-7
Certificateholders....................................................................... S-7
Certificateholders' Distributable Amount................................................. S-8
Certificateholders' Interest Carryover Shortfall......................................... S-21
Certificateholders' Interest Distributable Amount........................................ S-21
Certificateholders' Monthly Interest Distributable Amount................................ S-21
Certificateholders' Monthly Principal Distributable Amount............................... S-21
Certificateholders' Principal Carryover Shortfall........................................ S-22
Certificateholders' Principal Distributable Amount....................................... S-21
Certificates.............................................................................Cover
Class A-1 Final Scheduled Payment Date................................................... S-6
Class A-1 Notes..........................................................................Cover
Class A-1 Rate........................................................................... S-6
Class A-2 Final Scheduled Payment Date................................................... S-6
Class A-2 Notes..........................................................................Cover
Class A-2 Rate........................................................................... S-6
Closing Date............................................................................. S-4
Code..................................................................................... S-23
Collection Account....................................................................... S-8
Commission............................................................................... S-3
Company.................................................................................. S-4
Cutoff Date.............................................................................. S-4
Distribution Date........................................................................ S-6
ERISA.................................................................................... S-9
Federal Tax Counsel...................................................................... S-9
Final Scheduled Distribution Date........................................................ S-7
Final Scheduled Maturity Date............................................................ S-5
Indenture................................................................................Cover
Indenture Trustee........................................................................Cover
Interest Distribution Amount............................................................. S-17
Interest Rates........................................................................... S-6
Issuer................................................................................... S-4
Liquidated Receivables................................................................... S-19
Liquidation Proceeds..................................................................... S-19
Noteholders.............................................................................. S-6
Noteholders' Distributable Amount........................................................ S-7
Noteholders' Interest Carryover Shortfall................................................ S-20
Noteholders' Interest Distributable Amount............................................... S-20
Noteholders' Monthly Interest Distributable Amount....................................... S-20
Noteholders' Monthly Principal Distributable Amount...................................... S-21
Noteholders' Principal Carryover Shortfall............................................... S-21
Noteholders' Principal Distributable Amount.............................................. S-20
Notes....................................................................................Cover
Owner Trustee............................................................................Cover
Plan..................................................................................... S-23
Pool Balance............................................................................. S-7
Principal Distribution Amount............................................................ S-17
Prospectus............................................................................... S-3
Rating Agencies.......................................................................... S-11
Realized Losses.......................................................................... S-17
Receivables.............................................................................. S-2
</TABLE>
S-24
<PAGE>
<TABLE>
<S> <C>
Record Date.............................................................................. S-6
Reserve Account.......................................................................... S-22
Securities...............................................................................Cover
Securityholders.......................................................................... S-2
Seller................................................................................... S-4
Servicer................................................................................. S-4
Servicing Agreement...................................................................... S-4
Specified Reserve Account Balance........................................................ S-8
Total Distribution Amount................................................................ S-6
Transfer and Servicing Agreements........................................................ S-16
Trust....................................................................................Cover
Trust Agreement..........................................................................Cover
Trust Property........................................................................... S-5
Underwriting.............................................................................Cover
Underwriting Agreements.................................................................. S-24
</TABLE>
S-25
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or CS First Boston. This Prospectus Supplement and the Prospectus do not
constitute an offer of any securities other than those to which they relate or
an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
-----------------------------
TABLE OF CONTENTS
Page
Prospectus Supplement
Summary......................................................................S-4
Risk Factors ...............................................................S-11
The Trust...................................................................S-12
The Receivables Pool........................................................S-13
The Seller and the Servicer.................................................S-15
Weighted Average Life of the Securities.....................................S-15
The Notes...................................................................S-16
The Certificates............................................................S-17
The Transfer and Servicing Agreements.......................................S-18
ERISA Considerations........................................................S-23
Underwriting................................................................S-24
Legal Matters...............................................................S-24
Index of Terms..............................................................S-25
Prospectus
Prospectus Supplement..........................................................2
Reports to Securityholders.....................................................2
Available Information..........................................................2
Incorporation of Certain Documents by Reference................................2
Summary of Terms...............................................................4
Rick Factors..................................................................14
The Trusts....................................................................17
The Receivables Pools.........................................................19
The Collateral Certificates...................................................21
Weighted Average Life of the Securities.......................................23
Pool Factors and Trading Information..........................................24
The Seller and the Servicer...................................................25
Use of Proceeds...............................................................25
Description of the Notes......................................................25
Description of the Certificates...............................................31
Certain Information Regarding the Securities..................................32
Description of the Transfer and Servicing Agreements..........................36
Certain Legal Aspects of the Receivables......................................48
Certain Federal Income Tax Consequences.......................................53
State and Local Tax Considerations............................................77
ERISA Considerations..........................................................79
Plan of Distribution..........................................................85
Legal Matters.................................................................86
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the securities described in this Prospectus
Supplement, whether or not participating in this distribution, may be required
to deliver this Prospectus Supplement and the Prospectus. This is in addition to
the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
S-26
================================================================================
$[__________]
CS FIRST BOSTON
AUTO RECEIVABLES
AND RECEIVABLES
SECURITIES TRUST
$[__________] [_]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[__________] [_]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[__________] [_]% [Floating Rate]
Asset Backed Certificates, Class [ ]
ASSET BACKED SECURITIES CORPORATION
(COMPANY)
----------
PROSPECTUS SUPPLEMENT
[__], 199[ ]
----------
[GRAPHICS OMITTED]
================================================================================
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
- --------------------------------------------------------------------------------
Subject to Completion
Prospectus Supplement to Prospectus dated 199
CS First Boston Auto Receivables Trust 199_-___
$ % Asset Backed Certificates, Class A
----------------
Asset Backed Securities Corporation
Company
----------------
CS First Boston Auto Receivables Trust 199 - (the "Trust") will be formed
pursuant to a pooling and servicing agreement (the "Pooling and Servicing
Agreement"), dated as of _______________, 199_ (the "Cutoff Date"), among Asset
Backed Securities Corporation (the "Company") as depositor, _________ (in such
capacity, the "Servicer"), as servicer, and _________________ (the "Trustee") as
trustee, and will issue $____________ aggregate principal amount of ____ % Asset
Backed Certificates, Class A (the "Class A Certificates") and $_______________
aggregate principal amount of _____ % Asset Backed Certificates, Class B (the
"Class B Certificates" and, collectively with the Class A Certificates, the
"Certificates"). Only the Class A Certificates are being offered hereby.
(Continued on following page)
----------------
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO
NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN CS FIRST BOSTON CORPORATION, THE
COMPANY, THE SERVICER, THE SELLER, OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE CERTIFICATES NOR THE RECEIVABLES ARE INSURED OR GUARANTEED BY CS
FIRST BOSTON CORPORATION, THE COMPANY, THE SERVICER, THE SELLER, ANY OF THEIR
RESPECTIVE AFFILIATES OR ANY GOVERNMENTAL AGENCY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
Prospective investors should consider the factors set forth under "Risk
Factors" on page S-10 of this Prospectus Supplement and on page 14 of the
accompanying Prospectus.
----------------
Prospective investors should consider the limitations discussed under
"ERISA Considerations" herein and in the accompanying Prospectus.
----------------
<TABLE>
<CAPTION>
Price to the Underwriting Proceeds to the
Public(1) Discount Company(1)(2)
--------- -------- -------------
<S> <C> <C> <C>
Per Class A Certificate............................ % % %
$ $ $
</TABLE>
(1)Plus accrued interest, if any, from ______________, 199_.
(2)Before deducting expenses, estimated to be $____________.
----------------
The Class A Certificates are offered subject to prior sale and subject to
the right of CS First Boston Corporation (the "Underwriter") to reject orders in
whole or in part. It is expected that delivery of the Class A Certificates will
be made through the Same Day Funds System of the Depository Trust Company on or
about _______________, 199_.
[LOGO] CS FIRST BOSTON
The date of this Prospectus Supplement is , 199 .
<PAGE>
(Continued from preceding page)
The assets of the Trust will consist primarily of a pool of motor vehicle
installment loan agreements and motor vehicle retail installment sale contracts
(collectively, the "Receivables") secured by new or used automobiles, vans and
light duty trucks, certain monies due or received thereunder on and after the
Cutoff Date, security interests in the vehicles financed thereby, and a de
minimus amount of certain other property ancillary thereto, in each case, as
more fully described herein. The Receivables will be transferred to the Trust by
the Company pursuant to the Pooling and Servicing Agreement. The Company will
purchase the Receivables from ________ (in such capacity, the "Seller") pursuant
to a receivables purchase agreement (the "Receivables Purchase Agreement"),
dated as of __________, 199_ . The Trust may also draw on funds on deposit in a
Reserve Account, to the extent described herein, to meet shortfalls in amounts
due to Certificateholders on any Distribution Date. The Reserve Account will not
be part of the Trust.
The Class A Certificates will evidence in the aggregate an undivided
ownership interest in approximately % of the Trust. The Class B Certificates,
which are not being offered hereby, will evidence in the aggregate an undivided
ownership interest in approximately _______% of the Trust. Principal and
interest at the applicable Pass-Through Rate generally will be distributed to
holders of Certificates on the ________ day of each month, commencing
__________, 199_. The rights of the holders of Class B Certificates to receive
distributions are subordinated to the rights of the holder of Class A
Certificates to the extent described herein. The outstanding principal amount,
if any, of the Certificates will be due and payable on ______________, 199_.
----------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CLASS A CERTIFICATES MAY NOT
BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT
CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT SHALL CONTROL.
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND THERE CAN
BE NO ASSURANCE THAT ONE WILL DEVELOP. THE UNDERWRITER EXPECTS, BUT IS NOT
OBLIGATED, TO MAKE A MARKET IN THE CERTIFICATES. THERE IS NO ASSURANCE THAT ANY
SUCH MARKET WILL DEVELOP OR CONTINUE.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
UNTIL __________________________, _________ ALL DEALERS EFFECTING
TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
S-2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") of which this Prospectus Supplement is a part under the Securities
Act of 1933, as amended. This Prospectus Supplement does not contain all of the
information set forth in the Registration Statement, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement which is
available for inspection without charge at the public reference facilities of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and the regional offices of the Commission at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such information can be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports as are required under the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Commission
thereunder.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Trust only to Cede & Co., as
nominee of The Depository Trust Company and registered holder of the Class A
Certificates. See "Certain Information Regarding the Securities -- Book-Entry
Registration" and "-- Statements to Securityholders" in the accompanying
Prospectus (the "Prospectus").
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer............................. CS First Boston Auto Receivables Trust
199_-___, a trust (the "Trust" or the
"Issuer") to be formed pursuant to a
pooling and servicing agreement (the
"Pooling and Servicing Agreement") dated
as of ___________, 199_ (the "Cutoff
Date"), among the Company, the Servicer
and the Trustee.
Company............................ The Company is a special-purpose
Delaware corporation organized for the
purpose of causing the issuance of the
Certificates and other securities issued
under the Registration Statement backed
by receivables or underlying securities
of various types and acting as settlor
or depositor with respect to trusts,
custody accounts or similar arrangements
or as general or limited partner in
partnerships formed to issue securities.
It is not expected that the Company will
have any significant assets. The Company
is an indirect, wholly owned finance
subsidiary of Collateralized Mortgage
Securities Corporation which is a wholly
owned subsidiary of CS First Boston
Securities Corporation, which is a
wholly owned subsidiary of CS First
Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First
Boston, nor any of their affiliates has
guaranteed, will guarantee or is or will
be otherwise obligated with respect to
any Series of Securities.
The Company's principal executive office
is located at Park Avenue Plaza, 55 East
52nd Street, New York, New York 10055,
and its telephone number is (212)
909-2000.
Seller............................. _______ (in such capacity, "the
Seller"). See "The Seller and the
Servicer" herein.
Servicer........................... _______ (in such capacity, the
"Servicer"). See "The Seller and the
Servicer" herein.
Trustee............................ _______, as trustee under the Pooling
and Servicing Agreement (the "Trustee").
See "The Trustee" herein.
The Certificates................... The Trust will issue $_________
aggregate principal amount of _____%
Asset Backed Certificates, Class A (the
"Class A Certificates") and
$____________ aggregate principal amount
of % Asset Backed Certificates, Class B
(the "Class B Certificates" and,
collectively with the Class A
Certificates, the "Certificates") on
____________, 199_ (the "Closing Date").
Each Certificate will represent a
fractional undivided interest in the
Trust. The Class A Certificates will
evidence in the aggregate an undivided
ownership interest in approximately __%
of the Trust (the "Class A Percentage")
and the Class B Certificates will
evidence in the aggregate an undivided
ownership interest in approximately __%
of the Trust (the "Class B Percentage").
Only the Class A Certificates are being
offered hereby. The Class B Certificates
will be subordinated to the Class A
Certificates to the extent described
herein. See "The Certificates" herein.
The Receivables.................... On the Closing Date, the Company will
convey the Receivables to the Trust in
an aggregate principal balance of
approximately $_______________ as of the
Cutoff Date. The Company will convey the
Receivables, and the Servicer will agree
to service the Receivables, pursuant to
the Pooling and Servicing Agreement. See
"The Pooling and Servicing Agreement --
Sale and Assignment of Receivables" and
"The Receivables Pool" herein and "The
Receivables Pools" in the Prospectus.
S-4
<PAGE>
On or before the Closing Date, the
Company will purchase the Receivables
from the Seller pursuant to a
receivables purchase agreement (the
"Receivables Purchase Agreement"), dated
as of ____________,199_. See "The
Receivables Purchase Agreement" herein.
The Receivables arise from motor vehicle
installment contracts (each, a
"Contract") originated or purchased by
the Seller in the ordinary course of
business. The Receivables have been
selected from Contracts owned by the
Seller based on the criteria specified
in the Receivables Purchase Agreement
and described herein under "The
Receivables Pool". Approximately __% of
the Receivables were originated in
____________ and approximately __% of
the Receivables were originated in
__________. As of the Cutoff Date, the
weighted average APR of the Receivables
was approximately ____%, the weighted
average remaining term to maturity of
the Receivables was approximately ____
months and the weighted average original
term to maturity of the Receivables was
approximately ____ months. No Receivable
has a scheduled maturity later than
______________ (the "Final Scheduled
Maturity Date").
Pursuant to the terms of the Pooling and
Servicing Agreement, the Company will
assign to the Trustee the
representations and warranties made by
the Seller pursuant to the Receivables
Purchase Agreement for the benefit of
holders of the Certificates and will
make certain limited representations and
warranties with respect to the
Receivables. Pursuant to the terms of
the Receivables Purchase Agreement, the
Seller will make certain representations
and warranties regarding the
characteristics of the Receivables and
will undertake to repurchase any
Receivable with respect to which an
uncured breach of any representation or
warranty exists, if such breach
materially and adversely affects the
interests of the Trustee and the
Certificateholders in such Receivable
and if such breach is not cured by the
Seller in a timely manner. To the extent
that the Seller does not repurchase a
Receivable in the event of a breach of
its representations and warranties with
respect to such Receivable, the Company
will not be required to repurchase such
Receivable unless such breach also
constitutes a breach of one of the
Company's representations and warranties
with respect to such Receivable and such
breach materially and adversely affects
the interests of the Certificateholders
in any such Receivable. See "The Pooling
and Servicing Agreement," and "The
Receivables Purchase Agreement" herein.
Neither the Seller nor the Company will
have any other obligation with respect
to the Receivables or the Certificates.
Trust Property..................... The assets of the Trust (the "Trust
Property") include (i) the Receivables,
(ii) all monies (including accrued
interest) received on or with respect to
the Receivables on or after the Cutoff
Date, (iii) all amounts and property
from time to time held in or credited to
the Collection Account, (iv) security
interests in the Financed Vehicles and
any accessions thereto, (v) the right to
receive proceeds from claims on physical
damage, credit life and disability
insurance policies covering Financed
Vehicles or Obligors, as the case may
be, (vi) any property that shall have
secured a Receivable and that shall have
been acquired by or on behalf of the
Trustee, (vii) all of the Seller's right
to all documents contained in the files
pertaining to the Receivables, (viii)
the right to draw on funds on deposit in
the Reserve Account, to the extent
described herein, to meet shortfalls in
amounts due to Certificateholders, and
(ix) any and all proceeds of the
foregoing. The Reserve Account will not
be property of the Trust. See "The
Certificates--Distribution,"
"--Subordination of the Class B
Certificates; Reserve Account," and "The
Trust".
S-5
<PAGE>
Risk Factors ...................... For a discussion of risk factors that
should be considered with respect to an
investment in the Certificates, see
"Risk Factors" herein and in the related
Prospectus.
Terms of the Certificates
A. Distribution Dates.......... Distributions of interest and principal
on the Certificates will be made on the
____ day of each month or, if such day
is not a Business Day, on the next
succeeding Business Day (each, a
"Distribution Date"), commencing
_________, 199_. Distributions will be
made to holders of record of the
Certificates (the "Certificateholders")
as of the day immediately preceding such
Distribution Date (each, a "Record
Date"). A "Business Day" is a day other
than a Saturday, a Sunday or day on
which banking institutions or trust
companies in The City of New York or the
city in which the corporate trust office
of the Trustee is located are authorized
by law, regulation or executive order to
be closed.
B. Pass-Through Rates.......... Interest will accrue on the Class A
Certificates at the rate of ___% per
annum (the "Class A Pass-Through Rate")
and on the Class B Certificates at the
rate of ___% per annum (the "Class B
Pass-Through Rate"), in each case,
calculated on the basis of a 360-day
year consisting of twelve 30-day months.
C. Interest.................... On each Distribution Date, the Trustee
will distribute pro rata to holders of
the Class A Certificates (the "Class A
Certificateholders") accrued interest at
the Class A Pass-Through Rate on the
Class A Certificate Balance as of the
preceding Distribution Date (after
giving effect to distributions made on
such Distribution Date), to the extent
of funds available therefor, following
payment of the Servicing Fee, from (i)
the Class A Percentage of the Interest
Distribution Amount, (ii) the Reserve
Account, and (iii) the Class B
Percentage of the Total Distribution
Amount.
D. Principal................... Principal of the Class A Certificates
will be payable on each Distribution
Date, pro rata to the Class A
Certificateholders, in a maximum amount
equal to the Class A Principal
Distributable Amount for the calendar
month preceding such Distribution Date
or, in the case of the first
Distribution Date, the period from and
including the Cutoff Date through the
last day of the calendar month
immediately preceding such Distribution
Date (the "Collection Period"). The
Class A Principal Distributable Amount
with respect to any Distribution Date
will equal the Class A Percentage of the
Principal Distribution Amount for the
related Collection Period and generally
will be payable to the extent of funds
available therefor, following payment of
the Servicing Fee and the Class A
Interest Distributable Amount, from (i)
the Class A Percentage of the Principal
Distribution Amount (exclusive of the
portion thereof attributable to Realized
Losses), (ii) the Reserve Account, and
(iii) the Class B Percentage of the
Total Distribution Amount.
On each Distribution Date, subject to
the prior distribution on such date of
the Servicing Fee, the Class A Interest
Distributable Amount and the Class A
Principal Distributable Amount, the
Trustee will distribute to holders of
the Class B Certificates (the "Class B
Certificateholders") (i) the Class B
Interest Distributable Amount to the
extent of funds available therefor from
the Class B Percentage of the Interest
Distribution Amount and the Reserve
Account and (ii) the Class B Principal
Distributable Amount to the extent of
funds available therefor from the Class
B Percentage of the Principal
Distribution Amount and the Reserve
Account.
The outstanding principal amount of the
Class A Certificates and the Class B
Certificates, if any, will be payable in
full on ____________, 199_ (the "Final
Scheduled Distribution Date").
See "The Pooling and Servicing Agreement
-- Distributions -- Calculation of
Amounts to be Distributed" herein.
S-6
<PAGE>
E. Optional Prepayment......... If the Servicer exercises its option to
purchase the Receivables, which it may
do after the aggregate principal balance
of the Receivables (the "Pool Balance")
declines to 10% or less of the Pool
Balance as of the Cutoff Date, the Class
A Certificateholders will receive an
amount equal to the Class A Certificate
Balance together with accrued interest
at the Class A Pass-Through Rate, the
Class B Certificateholders will receive
an amount equal to the Class B
Certificate Balance together with
accrued interest at the Class B
Pass-Through Rate, and the Certificates
will be retired. See "The Certificates
-- Optional Prepayment" herein.
Collection Account................. Except under certain conditions
described in the Prospectus under
"Description of the Transfer and
Servicing Agreements -- Collections,"
the Servicer will be required to remit
collections received with respect to the
Receivables within two Business Days of
receipt thereof to one or more accounts
in the name of the Trustee (the
"Collection Account"). Pursuant to the
Pooling and Servicing Agreement, the
Trustee will withdraw funds on deposit
in the Collection Account and apply such
funds on each Distribution Date to the
following (in the priority indicated):
(i) the Servicing Fee for the related
Collection Period and any overdue
Servicing Fees to the Servicer, (ii) the
Class A Interest Distributable Amount to
the Class A Certificateholders, (iii)
the Class A Principal Distributable
Amount to the Class A
Certificateholders, (iv) Class B
Interest Distributable Amount to the
Class B Certificateholders, (v) the
Class B Principal Distributable Amount
to the Class B Certificateholders and
(vi) the remaining balance, if any, to
the Reserve Account. See "The Pooling
and Servicing Agreement --
Distributions" herein.
Credit Enhancement................. Subordination. The rights of the Class B
Certificateholders to receive
distributions to which they would
otherwise be entitled with respect to
the Receivables are subordinated to the
rights of the Class A
Certificateholders, as described more
fully herein. See "The Pooling and
Servicing Agreement -- Distributions"
and "-- Subordination of the Class B
Certificates; Reserve Account" herein.
Reserve Account. The Reserve Account
will be created with an initial deposit
by the Company on the Closing Date of
cash or Eligible Investments having a
value of at least $________ (the
"Reserve Account Initial Deposit").
Funds will be withdrawn from the Reserve
Account on any Distribution Date if, and
to the extent that, the Total
Distribution Amount for the related
Collection Period remaining after
payment of the Servicing Fee is less
than the Class A Distributable Amount.
Such funds will be distributed to the
Class A Certificateholders. In addition,
after giving effect to any such
withdrawal and distribution to the Class
A Certificateholders, funds will be
withdrawn from the Reserve Account if,
and to the extent that, the portion of
the Total Distribution Amount remaining
after payment of the Servicing Fee and
the Class A Distributable Amount is less
than the Class B Distributable Amount.
Such funds will be distributed to the
Class B Certificateholders.
Funds in any Reserve Account may be
invested in securities that will not
mature prior to the date of such next
scheduled distribution with respect to
the Certificates and will not be sold
prior to maturity to meet any
shortfalls. Thus, the amount of
available funds on deposit in the
Reserve Account at any time may be less
than the balance of the Reserve Account.
If the amount required to be withdrawn
from the Reserve Account to cover
shortfalls in collections on the related
Receivables exceeds the amount of
available funds on deposit in the
Reserve Account, a temporary shortfall
in the amounts distributed to the
Certificateholders could result.
On each Distribution Date, the Reserve
Account will be reinstated up to the
Specified Reserve Account Balance by the
deposit thereto of the portion, if any,
of the Total Distribution Amount
remaining after payment of the Servicing
Fee, the Class A Distributable Amount
and the Class B Distributable Amount.
The "Specified Reserve Account Balance"
with respect to any Distribution Date
generally will be equal to [state
formula]. Certain amounts in the Reserve
Account on any Distribution Date (after
S-7
<PAGE>
giving effect to all distributions to be
made on such Distribution Date) in
excess of the Specified Reserve Account
Balance for such Distribution Date will
be released to the Company and will no
longer be available to the
Certificateholders.
The Reserve Account will be maintained
with the Trustee as a segregated trust
account, but will not be part of the
Trust. See "The Pooling and Servicing
Agreement -- Subordination of the Class
B Certificates; Reserve Account" herein.
Advances........................... If a shortfall should occur in any
Collection Period between the amount due
as interest on the Receivables during
such Collection Period (assuming the
Receivables were paid on their
respective scheduled payment dates) and
the amount actually received in respect
of the Receivables during such
Collection Period and allocable to
interest, the Servicer will advance an
amount equal to such shortfall (an
"Advance"). The Servicer will be
reimbursed for Advances (i) from
collections and other amounts received
on the Receivables with respect to which
such Advances were made; (ii) from
collections and other amounts received
in respect of other Receivables; or
(iii) by reducing the Repurchase Amount
(as defined herein) due from the
Servicer by the amount of any
unreimbursed Advances, in each case in
accordance with the terms of the Pooling
and Servicing Agreement. The Servicer
may elect not to make an Advance with
respect to any Receivable to the extent
that the Servicer determines, in its
sole discretion, that it is unlikely to
be able to recover such Advances from
future collections and other payments in
respect of the Receivables. See "The
Certificates--Advances" herein.
Certain Legal Aspects.............. The Seller shall repurchase certain
Receivables with respect to which any
prior security interest in such
Receivable is found to exist, any laws
have been violated, or the Seller's
security interest in the respective
Financed Vehicle has not been properly
assigned to the Trustee. The Trustee's
security interest in a Financed Vehicle
may be not be properly assigned in the
event of (i) the relocation or resale of
such Financed Vehicle in another state
without the Servicer's re-perfecting the
Trustee's security interest, (ii) the
imposition certain tax or possessory
liens, or (iii) fraud or negligence. In
addition, certain consumer protection
laws allow an Obligor (as defined
herein) under a Receivable to assert
certain claims and defenses against a
holder of the Receivable thus possibly
rendering a Receivable partly or wholly
uncollectible. See "Risk Factors --
Security Interests in the Financed
Vehicles" herein and "Risk Factors --
Certain Legal Aspects -- Security
Interests in Financed Vehicles" and
"Certain Legal Aspects of the
Receivables" in the Prospectus.
Tax Status......................... In the opinion of Sidley & Austin
("Federal Tax Counsel"), the Trust will
be classified as a grantor trust for
federal income tax purposes and will not
be classified as an association taxable
as a corporation. Subject to the
discussion under "Certain Federal Income
Tax Consequences" in the Prospectus,
each Owner of a beneficial interest in
the Certificates must include in income
its pro rata share of interest and other
income from the Receivables and, subject
to certain limitations, may deduct its
pro rata share of fees and other
deductible expenses paid by the Trust.
See "Certain Federal Income Tax
Consequences" in the Prospectus for
additional information concerning the
application of federal income tax laws
to the Trust and the Certificates.
ERISA Considerations............... Subject to the considerations discussed
under "ERISA Considerations" herein and
in the Prospectus, the Class A
Certificates will be eligible for
purchase by employee benefit plans
subject to the Employee Retirement
Income Security Act of 1974, as amended,
and "plans" as defined in Section 4975
of the Internal Revenue Code of 1986, as
amended. See "ERISA Considerations"
herein and in the Prospectus.
Ratings of the Certificates........ It is a condition to the issuance of the
Class A Certificates that they be rated
at least "_____" or its equivalent by at
least two nationally recognized rating
agencies. A rating is not a
recommendation to purchase, hold or sell
the Class A Certificates, inasmuch as
such rating does not comment as to
market price or suitability for a
S-8
<PAGE>
particular investor. The ratings address
the likelihood that principal of and
interest on the Class A Certificates
will be paid pursuant to their terms.
There can be no assurance that a rating
will not be lowered or withdrawn by a
rating agency if circumstances so
warrant. See "Risk Factors -- Ratings of
the Class A Certificates" herein.
S-9
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following risk factors before investing in the Class A Certificates.
Limited Liquidity of Certificates. There is currently no secondary market
for the Class A Certificates. CS First Boston Corporation (the "Underwriter")
currently intends to make a market in the Class A Certificates, but is under no
obligation to do so. There can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide the Class A
Certificateholders with liquidity of investment or that it will continue for the
life of the Class A Certificates.
Limited Assets of Trust. The Trust will not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
Receivables and access to funds in the Reserve Account. Certificateholders
generally must rely on payments on the Receivables (and related Advances, if
any, by the Servicer) for distributions of interest and principal on the
Certificates. Although funds in the Reserve Account will be generally available
on each Distribution Date to cover shortfalls in distributions of interest and
principal on the Certificates, amounts to be deposited in the Reserve Account
are limited in amount. If the Reserve Account is exhausted, the Trust will
depend solely on current distributions on the Receivables to make distributions
on the Certificates.
Funds in any Reserve Account may be invested in securities that will not
mature prior to the date of such next scheduled distribution with respect to the
Certificates and will not be sold prior to maturity to meet any shortfalls.
Thus, the amount of available funds on deposit in the Reserve Account at any
time may be less than the balance of the Reserve Account. If the amount required
to be withdrawn from the Reserve Account to cover shortfalls in collections on
the related Receivables exceeds the amount of available funds on deposit in the
Reserve Account, a temporary shortfall in the amounts distributed to the
Certificateholders could result.
Lack of Security Interests in the Financed Vehicles. To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
be appointed custodian of the Receivables and the related documents by the
Trustee, but will not stamp the Receivables to reflect the sale and assignment
of the Receivables to the Trust or amend the certificates of title of the
Financed Vehicles even if to do so would only involve a de mimimus expense. In
the absence of amendments to the certificates of title, the Trustee may not have
perfected security interests in the Financed Vehicles securing the Receivables
in some states. See "Risk Factors -- Certain Legal Aspects -- Security Interests
in Financed Vehicles" and "Certain Legal Aspects of the Receivables" in the
Prospectus.
Ratings of the Class A Certificates. It is a condition to the issuance of
the Class A Certificates that they be rated at least "_____" or its equivalent
by at least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell the Class A
Certificates, inasmuch as a rating does not comment as to market price or
suitability for a particular investor. The ratings of the Class A Certificates
address the likelihood of the timely payment of interest on, and the ultimate
repayment of principal of, the Class A Certificates pursuant to their terms.
There can be no assurance that a rating will be retained for any given period of
time or that a rating will not be lowered or withdrawn entirely by a Rating
Agency if in its judgment circumstances in the future so warrant. In the event
that a rating is subsequently lowered or withdrawn, no person or entity will be
required to provide any additional credit enhancement. The ratings of the Class
A Certificates are based primarily on the credit quality of the Receivables, the
subordination of the Class B Certificates and the availability of funds in the
Reserve Account.
Trust's Limited Relationship to the Company. The Company is generally not
obligated to make any payments in respect of the Certificates or the
Receivables. The Company has assigned the representations and warranties of the
Seller under the Receivables Purchase Agreement to the Trustee. In addition the
Company has made certain representations and warranties regarding the
characteristics of the Receivables and is required under the Pooling and
Servicing Agreement to repurchase Receivables with respect to which such
representations and warranties have been breached. It is not anticipated that
the Company will have any significant assets with which to fund such
repurchases.
Trust's Limited Relationship to the Seller and the Servicer. Neither the
Seller nor the Servicer is generally obligated to make any payments in respect
of the Certificates or the Receivables (except to the extent that the Servicer
is obligated to make Advances with respect to the Receivables). If _______ were
to cease acting as Servicer, delays in processing payments on the Receivables
and information in respect thereof could occur and result in delays in payment
to the Class A Certificateholders. The Seller has made certain representations
and warranties regarding the
S-10
<PAGE>
characteristics of the Receivables and is required under the Receivables
Purchase Agreement to repurchase Receivables with respect to which such
representations and warranties have been breached. See "The Receivables Purchase
Agreement -- Sale and Assignment of Receivables herein and "Description of the
Receivables Purchase Agreements --Sale and Assignment of Receivables" in the
Prospectus.
[Geographic Concentration of Assets. Discuss impact on Certificateholders
of material concentration of trust assets in one or a few states, if
applicable.]
[Limited number of Loan Originators. Discuss impact on Certificateholders
of material concentration of loans originated by one or a few dealers, if
applicable.]
[Concentration of Credit Risk. Discuss impact on Certificateholders of
material concentration of credit risk, if applicable.]
[Interest Only Securities. Discuss risks associated with interest only
Certificates, including any disproportionate prepayment or credit risks, if
applicable.]
[Principal Only Securities. Discuss risks associated with principal only
Certificates, including any disproportionate prepayment or credit risks, if
applicable.]
THE TRUST
General
The Company will establish the Trust by selling and assigning the Trust
Property to the Trustee in exchange for the Certificates. The Servicer will
service the portion of such assets consisting of the Receivables pursuant to the
Pooling and Servicing Agreement and will be compensated for acting as the
Servicer. See "The Pooling and Servicing Agreement -- Servicing Compensation"
herein and "The Transfer and Servicing Agreements -- Servicing Compensation and
Payment of Expenses" in the Prospectus.
If the protection provided to Certificateholders by the Reserve Account
and, in the case of the Class A Certificateholders, the subordination of the
Class B Certificates is insufficient, the Trust will look only to the Obligors
on the Receivables and the proceeds from the repossession and sale of Financed
Vehicles that secure defaulted Receivables to fund distributions of principal
and interest on the Certificates. In such event, certain factors, such as the
Trust's not having first priority perfected security interests in some of the
Financed Vehicles, may affect the Trust's ability to realize on the collateral
securing the Receivables and thus may reduce the proceeds to be distributed to
Certificateholders with respect to the Certificates. See "The Pooling and
Servicing Agreement -- Distributions" and "--Subordination of the Class B
Certificates, Reserve Account" herein and "Certain Legal Aspects of the
Receivables" in the Prospectus.
Each Certificate represents a fractional undivided ownership interest in
the Trust. The assets of the Trust (the "Trust Property") include (i) the
Receivables, (ii) all monies (including accrued interest) received on or with
respect to the Receivables on or after the Cutoff Date, (iii) all amounts and
property from time to time held in or credited to the Collection Account, (iv)
security interests in the Financed Vehicles and any accessions thereto, (v) the
right to receive proceeds from claims on physical damage, credit life and
disability insurance policies covering Financed Vehicles or Obligors, as the
case may be, (vi) any property that shall have secured a Receivable and that
shall have been acquired by or on behalf of the Trustee, (vii) all of the
Seller's right to all documents contained in the files pertaining to the
Receivables, (viii) the right to draw on funds on deposit in the Reserve
Account, to the extent described herein, to meet shortfalls in amounts due to
Certificateholders, and (ix) any and all proceeds of the foregoing. The Reserve
Account will be maintained by the Trustee for the benefit of the
Certificateholders, but will not be part of the Trust.
S-11
<PAGE>
The Trustee
__________ is Trustee under the Pooling and Servicing Agreement. __________
is a __________ banking corporation, and its principal offices are located at
__________. The Company, the Seller or any of their respective affiliates may
maintain normal commercial banking relations with the Trustee and its
affiliates.
THE RECEIVABLES POOL
The pool of Receivables conveyed to the Trust (the "Receivables Pool") were
originated or purchased by the Seller in the ordinary course of business, and
were or will be selected from the Seller's portfolio for inclusion in the
Receivables Pool based on several criteria, including the following: (i) as of
the Cutoff Date each Receivable had, or will have, an outstanding gross balance
of at least $1,000; (ii) as of the Cutoff Date, no Receivable will be more than
90 days past due; and (iii) as of the Cutoff Date, no Obligor on any Receivable
was noted in the records of the Seller as being the subject of a bankruptcy
proceeding. Certain additional criteria that each Receivable must meet are set
forth in the Prospectus under "The Receivables Pools". No selection procedures
believed by the Seller to be adverse to Certificateholders were or will be used
in selecting the Receivables.
[Describe differences, if any, in contracts related to new vehicles and
contracts related to used vehicles]
The composition, [ownership status,] distribution by APR and geographic
distribution of the Receivables as of the Cutoff Date are as set forth in the
following tables.
Composition of the Receivables as of the Cutoff Date
<TABLE>
<CAPTION>
Weighted Aggregate principal Number of Weighted Average Weighted Average Average Principal
Average APR Balance Receivables Remaining Term Original Term Balance
<S> <C> <C> <C> <C> <C>
% $ months months $
</TABLE>
Ownership Status of the Receivables
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of Aggregate
APR Range Receivables Balance Principal Balance
<S> <C> <C> <C>
New Vehicles......
Used Vehicles.....
Total.....
</TABLE>
Distribution of Receivables by APR as of the Cutoff Date
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of Aggregate
APR Range Receivables Balance Principal Balance
----------- ------- -----------------
<S> <C> <C> <C>
0.00% to 3.00%
3.01% to 4.00%
4.01% to 5.00%
5.01% to 6.00%
6.01% to 7.00%
7.01% to 8.00%
8.01% to 9.00%
9.01% to 10.00%
10.01% to 11.00%
11.01% to 12.00%
12.01% to 13.00%
13.01% to 14.00%
14.01% to 15.00%
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of Aggregate
APR Range Receivables Balance Principal Balance
----------- ------- -----------------
<S> <C> <C> <C>
15.01% to 16.00%
16.01% to 17.00%
17.01% to 18.00%
18.01% to 19.00%
Greater than 20.00%
----------- ------------ -------------
Total
=========== ============ =============
</TABLE>
Geographic Distribution of the Receivables as of the Cutoff Date (1)
<TABLE>
<CAPTION>
Number of Aggregate Principal Percentage of Aggregate
Receivables Balance Principal Balance
----------- ------- -----------------
<S> <C> <C> <C>
New York..............
California............
Other.................
----------- ------------ -------------
Total............
=========== ============ =============
</TABLE>
(1) Based on billing addresses of the Obligers as of the Cutoff Date.
By aggregate principal balance, approximately ___% of the Receivables
constitute Precomputed Receivables and ___% of the Receivables constitute Simple
Interest Receivables. See "The Receivables Pools" in the Prospectus for a
description of the characteristics of Precomputed Receivables and Simple
Interest Receivables. As of the Cutoff Date, approximately ___% of the
Receivables by aggregate principal balance, constituting ___% of the number of
Receivables, represent used vehicles.
Delinquencies, Repossessions and Net Losses
Set forth below is certain information concerning the delinquency,
repossession and net loss experience of the Seller pertaining to retail new and
used automobile, van and light duty truck receivables. The delinquency,
repossession and credit loss data presented in the following tables are for
illustrative purposes only. There is no assurance that the Seller's delinquency,
repossession and credit loss experience with respect to automobile, van and
light duty truck receivables in the future, or the experience of the Trust with
respect to the Receivables, will be similar to that set forth below.
Delinquencies, repossessions and net losses on new and used automobiles, vans
and light duty trucks are affected by social and economic conditions generally
and, in particular, in the States of ______ and _______, where ___% and ___%,
respectively, of the Financed Vehicles were purchased.
Delinquency Experience (1)
<TABLE>
<CAPTION>
At December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Portfolio Outstanding at End of Period
Delinquencies at End of Period(2)
30-59 Days
60-89 Days
90 Days or More
Total Delinquencies
Total Delinquencies as a Percentage of
Portfolio Outstanding at End of Period
</TABLE>
- ----------------
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance
and other charges.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
Credit Loss/Repossession Experience(1)
<TABLE>
<CAPTION>
At December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
S-13
<PAGE>
Average Amount Outstanding During the
Period
Average Number of Contracts
Outstanding during the Period
Repossessions as a Percentage of
Average Number of Contracts
Outstanding
Net Losses as a Percentage of
Liquidations (2)(3)
Net Losses as a Percentage of Average
Amount Outstanding(3)
</TABLE>
- ----------------
(1) Except as indicated, all amounts and percentages are based on the gross
amount scheduled to be paid on each contract, including unearned finance
and other charges.
(2) Net losses are equal to the aggregate of the net balances of all contracts
that were determined to be uncollectible in the period, less any recoveries
on contracts charged off in the period or any prior periods, excluding any
losses resulting from the failure to recover commissions to dealers with
respect to contracts that are prepaid or charged off.
(3) Liquidations represent a reduction in the outstanding balances of the
contracts as a result of monthly cash payments and charge-offs.
THE SELLER AND THE SERVICER
[Information regarding the Seller and the Servicer to be supplied.]
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
Information regarding certain maturity and prepayment considerations with
respect to the Certificates is set forth under "Weighted Average Life of the
Securities" in the Prospectus. As the rate of payment of principal of the
Certificates depends on the rate of payment (including prepayments) of the
principal balance of the Receivables, the final distribution in respect of the
Certificates could occur significantly earlier that the Final Scheduled
Distribution Date. Certificateholders will bear the risk of being able to
reinvest principal payments on the Certificates at yields at least equal to the
yield on the Certificates.
THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Pooling and
Servicing Agreement, a form of which has been filed as an exhibit to the
Registration Statement. A copy of the Pooling and Servicing Agreement will be
filed with the Commission following the issuance of the Certificates. The
following summary together with that under "The Pooling and Servicing Agreement"
describes the material terms of the Certificates and the Pooling and Servicing
Agreement. Such summaries do not purport to be a complete description of all
terms of the Certificates and the Pooling and Servicing Agreement and therefore
are subject to, and are qualified in their entirety by reference to, all the
provisions of the Certificates and the Pooling and Servicing Agreement. The
following summary supplements the description of the general terms and
provisions of the Certificates of any given Series and the related Pooling and
Servicing Agreement set forth in the Prospectus, to which description reference
is hereby made.
The "Class A Certificate Balance" initially will equal $__________ and, as
of any date of determination thereafter, will equal such initial Class A
Certificate Balance less the sum of all amounts previously distributed to Class
A Certificateholders allocable to principal. The "Class B Certificate Balance"
initially will equal $_________ and, as of any date of determination thereafter,
will equal such initial Class B Certificate Balance less the sum of all amounts
previously distributed to Class B Certificateholders allocable to principal and
any Realized Losses allocable to the Class B Certificates. The Class A
Certificates will evidence in the aggregate an undivided ownership interest in
approximately _____% of the Trust, and the Class B Certificates will evidence in
the aggregate an undivided ownership interest in approximately _____% of the
Trust. The Class B Certificates are not being offered hereby and initially will
be held by ______.
S-14
<PAGE>
Distributions
Deposits to Collection Account. On or about the ____ Business Day of each
month, the Servicer will provide the Trustee with certain information with
respect to the preceding Collection Period, including the aggregate amount of
collections on the Receivables, the Advances and Repurchase Amounts, as well as
the Total Distribution Amount, the Interest Distribution Amount, the Principal
Distribution Amount, the Class A Interest Distributable Amount, the Class A
Principal Distributable Amount, the Class B Interest Distributable Amount and
the Class B Principal Distributable Amount.
On or before each Distribution Date, the Servicer will cause the Total
Distribution Amount to be deposited into the Collection Account. The "Total
Distribution Amount" for any Distribution Date will equal the sum of the
Interest Distribution Amount and the Principal Distribution Amount for such date
(excluding the portion thereof attributable to Realized Losses). "Realized
Losses" means the excess of the principal balance of a Liquidated Receivable
over Liquidation Proceeds with respect thereto to the extent allocable to
principal.
The "Interest Distribution Amount" for a Distribution Date generally will
equal the sum of the following amounts with respect to the preceding Collection
Period: (i) that portion of all collections on the Receivables allocable to
interest; (ii) all proceeds of the liquidation of defaulted Receivables
("Liquidated Receivables"), net of expenses incurred by the Servicer in
connection with such liquidation and any amounts required by law to be remitted
to the obligor on such Liquidated Receivables (such net amount, "Liquidation
Proceeds"), to the extent attributable to interest due thereon; (iii) all
recoveries in respect of Liquidated Receivables that were written off in prior
Collection Periods; (iv) all Advances made by the Servicer; (v) the Repurchase
Amount of each Receivable that was repurchased by the Seller or the Company, to
the extent attributable to interest due thereon; and (vi) Investment Earnings
for such Distribution Date.
The "Principal Distribution Amount" for a Distribution Date generally will
equal the sum of the following amounts with respect to the preceding Collection
Period: (i) that portion of all collections on the Receivables allocable to
principal; (ii) Liquidation Proceeds to the extent attributable to principal,
plus the amount of Realized Losses with respect to the related Liquidated
Receivables; and (iii) the Repurchase Amount of each Receivable that was
repurchased by the Seller or the Company to the extent allocable to principal.
The Interest Distribution Amount and the Principal Distribution Amount on
any Distribution Date shall exclude the following:
(i) amounts received on Receivables to the extent that the Servicer
has previously made an unreimbursed Advance;
(ii) Liquidation Proceeds with respect to a particular Receivable to
the extent of any unreimbursed Advances thereon; and
(iii) all payments and proceeds (including Liquidation Proceeds) of
any Receivables the Repurchase Amount of which has been included in the
Total Distribution Amount in a prior Collection Period.
Calculation of Distributable Amounts. The "Class A Distributable Amount"
with respect to a Distribution Date will equal the sum of (i) the "Class A
Principal Distributable Amount", consisting of the Class A Percentage of the
Principal Distribution Amount, plus (ii) the "Class A Interest Distributable
Amount", consisting of thirty days' interest at the Class A Pass-Through Rate on
the Class A Certificate Balance as of the preceding Distribution Date (after
giving effect to distribution made on such Distribution Date). In addition, on
the Final Scheduled Distribution Date, the Class A Principal Distributable
Amount will include the lesser of (a) the Class A Percentage of (i) any
scheduled payments of principal due and remaining unpaid on each Precomputed
Receivable and (ii) any principal due and remaining unpaid on each Simple
Interest Receivable, in each case, in the Trust as of the Final Scheduled
Maturity Date or (b) the amount that is necessary (after giving effect to the
other amounts to be distributed to Class A Certificateholders on such
Distribution Date and allocable to principal) to reduce the Class A Certificate
Balance to zero.
The "Class B Distributable Amount" with respect to a Distribution Date will
equal the sum of (i) the "Class B Principal Distributable Amount", consisting of
the Class B Percentage of the Principal Distribution Amount, plus (ii) the
"Class B Interest Distributable Amount", consisting of thirty days' interest at
the Class B Pass-Through Rate on the Class B Certificate Balance as of the
preceding Distribution Date (after giving effect to distributions made on such
Distribution Date). In addition, on the Final Scheduled Distribution Date, the
Class B Principal Distributable Amount
S-15
<PAGE>
will include the lesser of (a) the Class B Percentage of (i) any scheduled
payments of principal due and remaining unpaid on each Precomputed Receivable
and (ii) any principal due and remaining unpaid on each Simple Interest
Receivable, in each case, in the Trust as of the Final Scheduled Maturity Date
or (b) the amount that is necessary (after giving effect to the other amounts to
be distributed to Class B Certificateholders on such Distribution Date and
allocable to principal) to reduce the Class B Certificate Balance to zero.
Amounts Distributed. The Class A Certificateholders will receive on any
Distribution Date, to the extent of available funds, the Class A Distributable
Amount and any outstanding Class A Interest Carryover Shortfall and Class A
Principal Carryover Shortfall as of the close of the preceding Distribution
Date.
On each Distribution Date on which the sum of the Class A Interest
Distributable Amount and any outstanding Class A Interest Carryover Shortfall
from the preceding Distribution Date (plus interest on such Class A Interest
Carryover Shortfall at the Class A Pass-Through Rate from such preceding
Distribution Date to the current Distribution Date, to the extent permitted by
law) exceeds the Class A Percentage of the Interest Distribution Amount (after
payment of the Servicing Fee) on such Distribution Date, the Class A
Certificateholders will be entitled to receive such amounts, first, from the
Class B Percentage of the Interest Distribution Amount; second, if such amounts
are insufficient, from amounts available in the Reserve Account, and, third, if
such amounts are insufficient, from the Class B Percentage of the Principal
Distribution Amount (excluding any portion thereof allocable to Realized
Losses). "Class A Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Class A Interest Distributable Amount for
the preceding Distribution Date, plus any outstanding Class A Interest Carryover
Shortfall on such preceding Distribution Date, over the amount of interest
actually distributed to Class A Certificateholders on such preceding
Distribution Date, plus interest on such excess at the Class A Pass-Through Rate
from such preceding Distribution Date to the current Distribution Date, to the
extent permitted by law. The Class A Interest Carryover Shortfall for the
initial Distribution Date is zero.
On each Distribution Date on which the sum of the Class A Principal
Distributable Amount and any outstanding Class A Principal Carryover Shortfall
from the preceding Distribution Date exceeds the Class A Percentage of the
Principal Distribution Amount on such Distribution Date, the Class A
Certificateholders will be entitled to receive such amounts, first, from the
Class B Percentage of the Principal Distribution Amount (other than any portion
thereof attributable to Realized Losses); second, if such amounts are
insufficient, from amounts available in the Reserve Account; and, third, if such
amounts are insufficient, from the Class B Percentage of the Interest
Distribution Amount. "Class A Principal Carryover Shortfall" means, with respect
to any Distribution Date, the excess of the Class A Principal Distributable
Amount for the preceding Distribution Date plus any outstanding Class A
Principal Carryover Shortfall on such preceding Distribution Date, over the
amount of principal actually distributed to Class A Certificateholders on such
preceding Distribution Date. The Class A Principal Carryover Shortfall for the
initial Distribution Date is zero.
THE POOLING AND SERVICING AGREEMENT
Sale and Assignment of Receivables
Certain information with respect to the conveyance of the Receivables by
the Seller to the Trust on the Closing Date pursuant to the Pooling and
Servicing Agreement is set forth under "Description of the Transfer and
Servicing Agreements -- Sale and Assignment of Receivables" in the Prospectus.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period in an amount equal to _____% per annum of the Pool Balance as
of the first day of such Collection Period. The Servicing Fee (together with any
portion of the Servicing Fee that remains unpaid from prior Distribution Dates)
will be paid on each Distribution Date solely to the extent of the Interest
Distribution Amount for the related Collection Period; however, the Servicing
Fee will be paid to the Servicer prior to the distribution of any portion of the
Interest Distribution Amount to Certificateholders. See "Description of the
Transfer and Servicing Agreements -- Servicing Compensation and Payment of
Expenses" in the Prospectus.
S-16
<PAGE>
Optional Prepayment
If the Servicer exercises its option to purchase the Receivables, which it
may do when the aggregate outstanding principal amount of the Receivables
declines to 10% or less of the Pool Balance as of the Cutoff Date, the Class A
Certificateholders will receive an amount in respect of the Class A Certificates
equal to the outstanding Class A Certificate Balance, together with accrued
interest to the redemption date at the Class A Pass-Through Rate, and the Class
B Certificateholders will receive an amount in respect of the Class B
Certificates equal to the outstanding Class B Certificate Balance, together with
accrued interest to the redemption date at the Class B Pass-Through Rate, which
distributions shall effect the early retirement of the Certificates. See
"Description of the Transfer and Servicing Agreements -- Termination" in the
Prospectus.
Subordination of the Class B Certificates; Reserve Account
Subordination of the Class B Certificates. The rights of the Class B
Certificateholders to receive distributions with respect to the Receivables
generally will be subordinated to the rights of the Class A Certificateholders
in the event of defaults or delinquencies on the Receivables as provided in the
Pooling and Servicing Agreement and described herein. The protection afforded to
the Class A Certificateholders through subordination will be effected by the
preferential right of the Class A Certificateholders to receive current
distributions with respect to the Receivables.
Reserve Account. The Reserve Account will be created by the deposit thereto
by the Company on the Closing Date of the Reserve Account Initial Deposit and
will be increased up to the Specified Reserve Account Balance by the deposit
thereto on each Distribution Date on the amount, if any, remaining from the
Total Distribution Amount after payment of the Servicing Fee, the Class A
Distributable Amount and the Class B Distributable Amount. If the amount on
deposit in the Reserve Account on any Distribution Date (after giving effect to
all deposits thereto or withdrawals therefrom on such date) is greater than the
Specified Reserve Account Balance for such Distribution Date, the Trustee will
release such excess to the Company. Upon any such distribution to the Company,
the Certificateholders will have no rights in, or claims to such amounts.
Amounts held from time to time in the Reserve Account will continue to be held
for the benefit of the Class A Certificateholders and the Class B
Certificateholders.
Funds in the Reserve Account will be invested in Eligible Investments, as
provided in the Pooling and Servicing Agreement. Funds in any Reserve Account
may be invested in securities that will not mature prior to the date of such
next scheduled distribution with respect to the Certificates and will not be
sold prior to maturity to meet any shortfalls. Thus, the amount of available
funds on deposit in the Reserve Account at any time may be less than the balance
of the Reserve Account. If the amount required to be withdrawn from the Reserve
Account to cover shortfalls in collections on the related Receivables exceeds
the amount of available funds on deposit in the Reserve Account, a temporary
shortfall in the amounts distributed to the Certificateholders could result. The
Reserve Account will not be part of or otherwise includible in the Trust and
will be a segregated trust account held by the Trustee.
Advances
If a shortfall should occur in any Collection Period between (i) the
aggregate amount of interest due on the Receivables during such Collection
Period, assuming each Receivable was paid on its scheduled payment date under
the related Contract, and (ii) the amount actually received on or in respect of
the Receivables during such Collection Period and allocable to interest, the
Servicer will deposit an amount (an "Advance") equal to such deficiency in the
Collection Amount on or before the applicable Distribution Date. The Servicer
will be allowed to recover any Advances so made (a) from collections and other
amounts received on the Receivables with respect to which such Advances were
made, (b) from collections or any other amounts received in respect of any other
Receivables and (c) by reducing any Repurchase Amount due from the Servicer by
the amount of any unreimbursed Advances, in each case in accordance with the
terms of the Pooling and Servicing Agreement. The Servicer may elect not to make
an Advance with respect to any Receivable to the extent that the Servicer
determines that it is unlikely to be able to recover such Advance from payments
on or with respect to the Receivables or from any other source.
THE RECEIVABLES PURCHASE AGREEMENT
On or prior to the Closing Date, the Seller will transfer and assign to the
Company pursuant to the Receivables Purchase Agreement, all of its right, title
and interest in and to Receivables in the outstanding principal amount of
$_________ including its security interests in the related Financed Vehicles.
Each Receivable will be identified
S-17
<PAGE>
in a schedule appearing as an exhibit to the Receivables Purchase Agreement (the
"Schedule of Receivables"). The Seller will sell the Receivables to the Company
without recourse, except that, as described in the following paragraph, the
Seller will be required to repurchase Receivables with respect to which it is in
breach of a representation or warranty, if such breach materially and adversely
affects the right of the related Trust and Certificateholders in and to such
Receivables. Concurrently with or subsequent to the transfer and assignment of
the Receivables to the Company, the Company will transfer and assign the
Receivables to the Trust, and Trustee will execute, authenticate and deliver the
Certificates. The net proceeds from the sale of the Certificates will be applied
to the purchase of the Receivables.
In the Receivables Purchase Agreement, the Seller will represent and
warrant to the Company, among other things, that (i) the information set forth
in the Schedule of Receivables is correct in all material respects as of the
Cutoff Date; (ii) the Obligor on each Receivable is contractually required to
maintain physical damage insurance covering the related Financed Vehicle in
accordance with the Seller's normal requirements; (iii) on the Closing Date, to
the best of its knowledge, the Receivables are free and clear of all security
interests, liens, charges and encumbrances, and no offsets, defenses or
counterclaims have been asserted or threatened; (iv) at the Closing date, each
of the Receivables is, or will be, secured by a perfected, first-priority
security interest in the related Financed Vehicle in favor of the Seller; and
(v) each Receivable, at the time it was originated, complied and, on the Closing
Date 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.
ERISA CONSIDERATIONS
Subject to the considerations set forth under "ERISA Considerations --
Senior Certificates Issued by Grantor Trusts" in the Prospectus, the Class A
Certificates may be purchased by an "employee benefit plan" as defined in and
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or a "plan" as defined in Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code") (each such "employee benefit plan" and "plan" a
"Plan"). A fiduciary of a Plan must determine that the purchase of a Class A
Certificate is consistent with its fiduciary duties under ERISA and does not
result in a nonexempt prohibited transaction as defined in Section 406 of ERISA
or Section 4975 of the Code. For additional information regarding treatment of
the Class A Certificates under ERISA, see "ERISA Considerations" in the
Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
relating to the Class A Certificates (the "Underwriting Agreement"), the Company
has agreed to cause the Trust to sell to the Underwriter, and the Underwriter
has agreed to purchase, the entire principal amount of the Class A Certificates.
The Underwriter proposes to offer the Class A Certificates to the public
initially at the public offering price set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such price less a concession of
% per Class A Certificates; the Underwriter and such dealers may allow a
discount of % per Class A Certificates on sales to certain other dealers;
and after the initial public offering of the Class A Certificates, the public
offering price and the concessions and discounts to dealers may be changed by
the Underwriter.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriter against certain liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriter.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter within the period
during which there is an obligation to deliver a Prospectus Supplement and
Prospectus, the Company or the Underwriter will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus Supplement and
Prospectus.
S-18
<PAGE>
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Certificates in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon by
Sidley & Austin, New York, New York.
S-19
<PAGE>
<TABLE>
<CAPTION>
INDEX OF TERMS
<S> <C>
Advance ................................................................................... S-8
Business Day............................................................................... S-6
Certificates............................................................................... Cover
Certificateholders......................................................................... S-6
Class A Certificate Balance ............................................................... S-14
Class A Certificateholders ................................................................ S-6
Class A Certificates....................................................................... Cover
Class A Distributable Amount............................................................... S-15
Class A Interest Carryover Shortfall....................................................... S-16
Class A Interest Distributable Amount...................................................... S-15
Class A Pass-Through Rate.................................................................. S-6
Class A Percentage......................................................................... S-4
Class A Principal Carryover Shortfall...................................................... S-16
Class A Principal Distributable Amount..................................................... S-15
Class B Certificate Balance................................................................ S-14
Class B Certificateholders................................................................. S-7
Class B Certificates....................................................................... Cover
Class B Distributable Amount............................................................... S-16
Class B Interest Distributable Amount...................................................... S-16
Class B Pass-Through Rate.................................................................. S-6
Class B Percentage......................................................................... S-4
Class B Principal Distributable Amount..................................................... S-16
Closing Date............................................................................... S-4
Code....................................................................................... S-19
Collection Account......................................................................... S-7
Collection Period.......................................................................... S-6
Commission................................................................................. S-3
Company.................................................................................... S-4
Cutoff Date................................................................................ Cover
Distribution Date.......................................................................... S-6
ERISA...................................................................................... S-9
Federal Tax Counsel........................................................................ S-9
Final Scheduled Distribution Date.......................................................... S-7
Final Scheduled Maturity Date.............................................................. S-5
Interest Distribution Amount............................................................... S-15
Liquidated Receivables..................................................................... S-15
Liquidation Proceeds....................................................................... S-15
Plan....................................................................................... S-19
Pool Balance............................................................................... S-7
Pooling and Servicing Agreement............................................................ Cover
Principal Distribution Amount.............................................................. S-15
Prospectus................................................................................. S-3
Rating Agencies............................................................................ S-10
Realized Losses............................................................................ S-15
Receivables................................................................................ S-2
Receivables Pool........................................................................... S-12
Receivables Purchase Agreement............................................................. S-2
Record Date................................................................................ S-6
Reserve Account............................................................................ S-7
Reserve Account Initial Deposit............................................................ S-7
Seller..................................................................................... S-2
Servicer................................................................................... Cover
Specified Reserve Account Balance.......................................................... S-8
</TABLE>
S-20
<PAGE>
<TABLE>
<S> <C>
Total Distribution Amount.................................................................. S-15
Trust...................................................................................... Cover
Trust Property............................................................................. S-6
Trustee.................................................................................... Cover
Underwriter................................................................................ Cover
Underwriting Agreement..................................................................... S-19
</TABLE>
S-21
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or CS First Boston. This Prospectus Supplement and the Prospectus do not
constitute an offer of any securities other than those to which they relate or
an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
-----------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
Prospectus Supplement
<S> <C>
Summary................................................................ S-4
Risk Factors .......................................................... S-10
The Trust.............................................................. S-11
The Receivables Pool................................................... S-12
The Seller and the Servicer............................................ S-14
Weighted Average Life of the Cetificates............................... S-14
The Certificates....................................................... S-14
The Pooling and Servicing Agreements................................... S-17
The Receivables Purchase Agreements.................................... S-18
ERISA Considerations................................................... S-19
Underwriting........................................................... S-19
Legal Matters.......................................................... S-19
Index of Terms......................................................... S-20
Prospectus
Prospectus Supplement.................................................... 2
Reports to Securityholders............................................... 2
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
Summary of Terms......................................................... 4
Rick Factors............................................................. 14
The Trusts............................................................... 17
The Receivables Pools.................................................... 19
The Collateral Certificates.............................................. 21
Weighted Average Life of the Securities.................................. 23
Pool Factors and Trading Information..................................... 24
The Seller and the Servicer.............................................. 25
Use of Proceeds.......................................................... 25
Description of the Notes................................................. 25
Description of the Certificates.......................................... 31
Certain Information Regarding the Securities............................. 32
Description of the Transfer and Servicing Agreements..................... 36
Certain Legal Aspects of the Receivables................................. 48
Certain Federal Income Tax Consequences.................................. 53
State and Local Tax Considerations....................................... 77
ERISA Considerations..................................................... 79
Plan of Distribution..................................................... 85
Legal Matters............................................................ 86
</TABLE>
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the securities described in this Prospectus
Supplement, whether or not participating in this distribution, may be required
to deliver this Prospectus Supplement and the Prospectus. This is in addition to
the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
$[_______________]
CS FIRST BOSTON
AUTO RECEIVABLES
AND RECEIVABLES
SECURITIES TRUSTS
$[_______________] [_____]% [Floating Rate]
Asset Backed Certificates, Class A
ASSET BACKED SECURITIES CORPORATION
(COMPANY)
----------
PROSPECTUS SUPPLEMENT
[_____], 199[ ]
----------
[LOGO] CS FIRST BOSTON
================================================================================
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
- --------------------------------------------------------------------------------
Subject to Completion
Prospectus Supplement to Prospectus Dated __________________, 199_
CS First Boston Auto Receivables Securities Trust
199_-___
$ ______________ % Asset Backed Certificates, Class A
----------------
Asset Backed Securities Corporation
Company
----------------
CS First Boston Auto Receivables Securities Trust 199__ -___ (the "Trust")
will be formed pursuant to a trust agreement (the "Trust Agreement"), dated as
of __________, 199_ (the "Cutoff Date"), between Asset Backed Securities
Corporation (the "Company") as depositor, and ________________, (the "Trustee")
as trustee, and will issue $____________ aggregate principal amount of ____ %
Asset Backed Certificates, Class A (the "Class A Certificates") and
$_____________aggregate principal amount of ____ % Asset Backed Certificates,
Class B (the "Class B Certificates" and, collectively with the Class A
Certificates, the "Certificates"). Only the Class A Certificates are being
offered hereby.
(Continued on following page)
----------------
THE CLASS A CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY
AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN CS FIRST BOSTON CORPORATION,
THE COMPANY, THE TRUSTEE, ANY SELLER, OR ANY OF THEIR RESPECTIVE AFFILIATES.
NONE OF THE CLASS A CERTIFICATES, THE COLLATERAL CERTIFICATES (AS DEFINED
HEREIN), OR THE RECEIVABLES ARE INSURED OR GUARANTEED BY CS FIRST BOSTON
CORPORATION, THE COMPANY, THE TRUSTEE, ANY SELLER, ANY OF THEIR RESPECTIVE
AFFILIATES OR ANY GOVERNMENTAL AGENCY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" ON PAGE S-9 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 10 OF THE
ACCOMPANYING PROSPECTUS.
----------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
----------------
<TABLE>
<CAPTION>
Price to the Underwriting Proceeds to the
Public(1) Discount Company(1)(2)
--------- -------- -------------
<S> <C> <C> <C>
Per Class A Certificate.... % % %
$ $ $
</TABLE>
(1) Plus accrued interest, if any, from ______________, 199_.
(2) Before deducting expenses, estimated to be $____________.
----------------
The Class A Certificates are offered subject to prior sale and subject to
the right of CS First Boston Corporation (the "Underwriter") to reject orders in
whole or in part. It is expected that delivery of the Class A Certificates will
be made through the Same Day Funds System of the Depository Trust Company on or
about _______________, 199_.
[LOGO] CS FIRST BOSTON
The date of this Prospectus Supplement is ________________, 199__.
<PAGE>
(Continued from preceding page)
The assets of the Trust will consist primarily of certain asset backed
certificates or notes (collectively, "Collateral Certificates"), each issued
pursuant to a pooling and servicing agreement, sale and servicing agreement,
trust agreement or indenture (each, an "Underlying Agreement"). Each Collateral
Certificate represents an interest in a trust fund created pursuant to such
Underlying Agreement consisting of a pool of motor vehicle installment loan
agreements and motor vehicle retail installment sale contracts (collectively,
the "Receivables") secured by new or used automobiles, vans and light duty
trucks, security interests in the vehicles financed thereby, and a de minimus
amount of certain other property ancillary thereto. The Collateral Certificates
[will be transferred to the Trust by the Company pursuant to the Trust
Agreement] [will be purchased by the Trust with funds received from the Company
in exchange for the Certificates]. [The [Trust] [Company] will purchase the
Collateral Certificates] from certain Sellers (each, a "Seller"). The Trust may
also draw on funds on deposit in a Reserve Account, to the extent described
herein, to meet shortfalls in amounts due to Certificateholders on any
Distribution Date. The Reserve Account will not be part of the Trust.
The Class A Certificates will evidence in the aggregate an undivided
ownership interest in approximately ___% of the Trust. The Class B Certificates,
which are not being offered hereby, will evidence in the aggregate an undivided
ownership interest in approximately _______% of the Trust. Principal and
interest at the applicable Pass-Through Rate generally will be distributed to
holders of Certificates on the ________ day of each month, commencing
__________, 199_. The rights of the holders of Class B Certificates to receive
distributions are subordinated to the rights of the holder of Class A
Certificates to the extent described herein. The outstanding principal amount,
if any, of the Certificates will be due and payable on ______________, 199_.
----------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CLASS A CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. INFORMATION WITH RESPECT TO EACH
COLLATERAL CERTIFICATE IS CONTAINED IN SCHEDULE I AND APPENDIX A HERETO. SALES
OF THE CLASS A CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS
RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO THE EXTENT ANY
STATEMENTS IN THIS PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS IN THE
PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND THERE CAN
BE NO ASSURANCE THAT ONE WILL DEVELOP. THE UNDERWRITER EXPECTS, BUT IS NOT
OBLIGATED, TO MAKE A MARKET IN THE CERTIFICATES. THERE IS NO ASSURANCE THAT ANY
SUCH MARKET WILL DEVELOP OR CONTINUE.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED CERTIFICATES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
UNTIL ____________, ______ ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS
A CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
----------------
S-2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement"), of which this Prospectus Supplement is a part under the Securities
Act of 1933, as amended. This Prospectus Supplement does not contain all of the
information set forth in the Registration Statement, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement which is
available for inspection without charge at the public reference facilities of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and the regional offices of the Commission at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such information can be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Trustee
will also file or cause to be filed with the Commission such periodic reports as
are required under the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and the rules and regulations of the Commission thereunder.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, monthly and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Trustee and sent on behalf of the Trust only to Cede & Co., as
nominee of The Depository Trust Company and registered holder of the Class A
Certificates. See "Certain Information Regarding the Securities -- Book-Entry
Registration" and "-- Statements to Securityholders" in the accompanying
Prospectus (the "Prospectus").
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer ............................. CS First Boston Auto Receivables
Securities Trust 199_-___, a trust (the
"Trust" or the "Issuer") to be formed
pursuant to a trust agreement (the
"Trust Agreement") dated as of
___________, 199_ (the "Cutoff Date"),
between the Company and the Trustee.
Company ............................ The Company is a special-purpose
Delaware corporation organized for the
purpose of causing the issuance of the
Certificates and other securities issued
under the Registration Statement backed
by receivables or underlying securities
of various types and acting as settlor
or depositor with respect to trusts,
custody accounts or similar arrangements
or as general or limited partner in
partnerships formed to issue securities.
It is not expected that the Company will
have any significant assets. The Company
is an indirect, wholly owned finance
subsidiary of Collateralized Mortgage
Securities Corporation which is a wholly
owned subsidiary of CS First Boston
Securities Corporation, which is a
wholly owned subsidiary of CS First
Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First
Boston, Inc. nor any of their affiliates
has guaranteed, will guarantee or is or
will be otherwise obligated with respect
to any Series of Securities.
The Company's principal executive office
is located at Park Avenue Plaza, 55 East
52nd Street, New York, New York 10055,
and its telephone number is (212)
909-2000.
Trustee ............................ _______, as trustee under the Trust
Agreement (the "Trustee"). See "The
Trustee" herein.
The Certificates ................... The Trust will issue $_________
aggregate principal amount of _____%
Asset Backed Certificates, Class A (the
"Class A Certificates") and
$____________ aggregate principal amount
of % Asset Backed Certificates, Class B
(the "Class B Certificates" and,
collectively with the Class A
Certificates, the "Certificates") on
____________, 199_ (the "Closing Date").
Each Certificate will represent a
fractional undivided interest in the
Trust. The Class A Certificates will
evidence in the aggregate an undivided
ownership interest in approximately __%
of the Trust (the "Class A Percentage")
and the Class B Certificates will
evidence in the aggregate an undivided
ownership interest in approximately __%
of the Trust (the "Class B Percentage").
Only the Class A Certificates are being
offered hereby. The Class B Certificates
will be subordinated to the Class A
Certificates to the extent described
herein. See "The Certificates" herein.
The Collateral Certificates ........ The Collateral Certificates are
described in Schedule I hereto. The
Collateral Certificates consist of
certain asset backed certificates or
notes, each issued pursuant to a pooling
and servicing agreement, sale and
servicing agreement, trust agreement or
indenture (each, an "Underlying
Agreement"). Each Collateral Certificate
represents an interest in a trust fund
(an "Underlying Trust Fund") created
pursuant to such Underlying Agreement.
The assets of each Underlying Trust Fund
consist primarily of a pool of motor
vehicle installment loan agreements and
motor vehicle retail installment sale
contracts (collectively, the
"Receivables") secured by new or used
automobiles, vans and light duty trucks,
certain monies due or received
thereunder, security interests in the
vehicles financed thereby, and certain
other property. Holders
S-4
<PAGE>
of a Collateral Certificate are entitled
to receive distributions of interest and
principal in respect thereof as
described herein.
Trust Property ..................... The assets of the Trust (the "Trust
Property") include (i) the Collateral
Certificates, (ii) all monies (including
accrued interest) received on or with
respect to the Collateral Certificates
on or after the Cutoff Date, (iii) all
amounts and property from time to time
held in or credited to the Collection
Account, (iv) the right to draw on funds
on deposit in the Reserve Account, to
the extent described herein, to meet
shortfalls in interest due to
Certificateholders, and (v) any and all
proceeds of the foregoing. The Reserve
Account will not be property of the
Trust. See "The
Certificates--Distribution,"
"--Subordination of the Class B
Certificates; Reserve Account," and "The
Trust".
Risk Factors ....................... For a discussion of risk factors that
should be considered with respect to an
investment in the Certificates, see
"Risk Factors" herein and in the related
Prospectus.
Terms of the Certificates
A. Distribution Dates .......... Distributions of interest and principal
on the Certificates will be made on the
__ day of each month or, if such day is
not a Business Day, on the next
succeeding Business Day (each, a
"Distribution Date"), commencing
_________, 199_. Distributions will be
made to holders of record of the
Certificates (the "Certificateholders")
as of the day immediately preceding such
Distribution Date (each, a "Record
Date"). A "Business Day" is a day other
than a Saturday, a Sunday or day on
which banking institutions or trust
companies in The City of New York or the
city in which the corporate trust office
of the Trustee is located are authorized
by law, regulation or executive order to
be closed.
B. Pass-Through Rates .......... Interest will accrue on the Class A
Certificates at the rate of ___% per
annum (the "Class A Pass-Through Rate")
and on the Class B Certificates at the
rate of ___% per annum (the "Class B
Pass-Through Rate" or, with the Class A
Pass-Through Rate, each a "Pass-Through
Rate"), in each case, calculated on the
basis of a 360-day year consisting of
twelve 30-day months.
C. Interest .................... On each Distribution Date, the Trustee
will distribute pro rata to holders of
the Class A Certificates (the "Class A
Certificateholders") accrued interest at
the Class A Pass- Through Rate on the
Class A Certificate Balance as of the
preceding Distribution Date (after
giving effect to distributions made on
such Distribution Date), to the extent
of funds available therefor from (i) the
Class A Percentage of the Interest
Distribution Amount, (ii) the Reserve
Account, and (iii) the Class B
Percentage of the Total Distribution
Amount.
D. Principal ................... Principal of the Class A Certificates
will be payable on each Distribution
Date, pro rata to the Class A
Certificateholders, in a maximum amount
equal to the Class A Principal
Distributable Amount for the calendar
month preceding such Distribution Date
or, in the case of the first
Distribution Date, the period from and
including the Cutoff Date through the
last day of the calendar month
immediately preceding such Distribution
Date (the "Collection Period"). The
Class A Principal Distributable Amount
with respect to any Distribution Date
will equal the Class A Percentage of the
Principal Distribution Amount for the
related Collection Period.
On each Distribution Date the Class A
Interest Distributable Amount and the
Class A Principal Distributable Amount,
the Trustee will distribute to holders
of the Class B
S-5
<PAGE>
Certificates (the "Class B
Certificateholders") (i) the Class B
Interest Distributable Amount to the
extent of funds available therefor from
the Class B Percentage of the Interest
Distribution Amount and the Reserve
Account and (ii) the Class B Principal
Distributable Amount.
The outstanding principal amount of the
Class A Certificates and the Class B
Certificates, if any, will be payable in
full on ____________, 199_ (the "Final
Scheduled Distribution Date").
See "The Trust Agreement --
Distributions -- Calculation of Amounts
to be Distributed" herein.
E. Optional
Prepayment ................ If the Company exercises its option to
purchase the Collateral Certificates,
which it may do after the aggregate
principal balance of the Collateral
Certificates (the "Pool Balance")
declines to 10% or less of the Pool
Balance as of the Cutoff Date, the Class
A Certificateholders will receive an
amount equal to the Class A Certificate
Balance together with accrued interest
at the Class A Pass-Through Rate, the
Class B Certificateholders will receive
an amount equal to the Class B
Certificate Balance together with
accrued interest at the Class B
Pass-Through Rate, and the Certificates
will be retired. See "The Certificates
-- Optional Prepayment" herein.
Collection Account ................. Except under certain conditions
described in the Prospectus under
"Description of the Transfer and
Servicing Agreements -- Collections,"
the Trustee will be required to remit
collections received with respect to the
Collateral Certificates within two
Business Days of receipt thereof to one
or more accounts in the name of the
Trustee (the "Collection Account").
Pursuant to the Trust Agreement, the
Trustee will withdraw funds on deposit
in the Collection Account and apply such
funds on each Distribution Date to the
following (in the priority indicated):
(i) the Class A Interest Distributable
Amount to the Class A
Certificateholders, (ii) the Class A
Principal Distributable Amount to the
Class A Certificateholders, (iii) the
Class B Interest Distributable Amount to
the Class B Certificateholders, (iv) the
Class B Principal Distributable Amount
to the Class B Certificateholders and
(v) the remaining balance, if any, to
the Reserve Account. See "The Trust
Agreement -- Distributions" herein.
Credit Enhancement ................. Subordination. The rights of the Class B
Certificateholders to receive
distributions to which they would
otherwise be entitled with respect to
the Collateral Certificates are
subordinated to the rights of the Class
A Certificateholders, as described more
fully herein. See "The Trust Agreement
-- Distributions" and "-- Subordination
of the Class B Certificates; Reserve
Account" herein.
Reserve Account. The Reserve Account
will be created with an initial deposit
by the Company on the Closing Date of
cash or Eligible Investments having a
value of at least $________ (the
"Reserve Account Initial Deposit").
Funds will be withdrawn from the Reserve
Account on any Distribution Date if, and
to the extent that, the Total
Distribution Amount for the related
Collection Period is less than the Class
A Distributable Amount. Such funds will
be distributed to the Class A
Certificateholders. In addition, after
giving effect to any such withdrawal and
distribution to the Class A
Certificateholders, funds will be
withdrawn from the Reserve Account if,
and to the extent that, the portion of
the Total Distribution Amount remaining
after payment of the Class A
Distributable Amount is less than the
Class B Distributable Amount. Such funds
will be distributed to the Class B
Certificateholders.
S-6
<PAGE>
Funds in the Reserve Account may be
invested in securities that will not
mature prior to the date of such next
scheduled distribution with respect to
the Certificates and will not be sold
prior to maturity to meet any
shortfalls. Thus, the amount of
available funds on deposit in the
Reserve Account at any time may be less
than the balance of the Reserve Account.
If the amount required to be withdrawn
from the Reserve Account to cover
shortfalls in collections on the related
Receivables exceeds the amount of
available funds on deposit in the
Reserve Account, a temporary shortfall
in the amounts distributed to the
Certificateholders could result.
On each Distribution Date, the Reserve
Account will be reinstated up to the
Specified Reserve Account Balance by the
deposit thereto of the portion, if any,
of the Total Distribution Amount
remaining after payment of the Class A
Distributable Amount and the Class B
Distributable Amount. The "Specified
Reserve Account Balance" with respect to
any Distribution Date generally will be
equal to [state formula]. Certain
amounts in the Reserve Account on any
Distribution Date (after giving effect
to all distributions to be made on such
Distribution Date) in excess of the
Specified Reserve Account Balance for
such Distribution Date will be released
to the Company and will no longer be
available to the Certificateholders.
The Reserve Account will be maintained
with the Trustee as a segregated trust
account, but will not be part of the
Trust. See "The Trust Agreement --
Subordination of the Class B
Certificates; Reserve Account" herein.
Tax Status ......................... In the opinion of Sidley & Austin
("Federal Tax Counsel"), the Trust will
be classified as a grantor trust for
federal income tax purposes and will not
be classified as an association taxable
as a corporation. Subject to the
discussion under "Certain Federal Income
Tax Consequences" in the Prospectus,
each holder of a beneficial interest in
the Certificates must include in income
its pro rata share of interest and other
income from the Collateral Certificates
and, subject to certain limitations, may
deduct its pro rata share of fees and
other deductible expenses paid by the
Trust. See "Certain Federal Income Tax
Consequences" in the Prospectus for
additional information concerning the
application of federal income tax laws
to the Trust and the Certificates.
ERISA Considerations ............... Subject to the considerations discussed
under "ERISA Considerations" herein and
in the Prospectus, the Class A
Certificates will be eligible for
purchase by employee benefit plans
subject to the Employee Retirement
Income Security Act of 1974, as amended,
and "plans" as defined in Section 4975
of the Internal Revenue Code of 1986, as
amended. See "ERISA Considerations"
herein and in the Prospectus.
Ratings of the Certificates ........ It is a condition to the issuance of the
Class A Certificates that they be rated
at least "_____" or its equivalent by at
least two nationally recognized rating
agencies. A rating is not a
recommendation to purchase, hold or sell
the Class A Certificates, inasmuch as
such rating does not comment as to
market price or suitability for a
particular investor. The ratings address
the likelihood that principal of and
interest on the Class A Certificates
will be paid pursuant to their terms.
There can be no assurance that a rating
will not be lowered or withdrawn by a
rating agency if circumstances so
warrant. See "Risk Factors -- Ratings of
the Class A Certificates" herein.
S-7
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following risk factors before investing in the Class A Certificates.
Limited Liquidity of Certificates. There is currently no secondary market
for the Class A Certificates. CS First Boston Corporation (the "Underwriter")
currently intends to make a market in the Class A Certificates, but is under no
obligation to do so. There can be no assurance that a secondary market will
develop or, if a secondary market does develop, that it will provide the Class A
Certificateholders with liquidity of investment or that it will continue for the
life of the Class A Certificates.
Limited Assets of Trust. The Trust will not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
Collateral Certificates and access to funds in the Reserve Account.
Certificateholders must rely on payments on the Collateral Certificates for
distributions of interest and principal on the Certificates. Although funds in
the Reserve Account will be available on each Distribution Date to cover
shortfalls in distributions of interest and principal on the Certificates,
amounts to be deposited in the Reserve Account are limited in amount. If the
Reserve Account is exhausted, the Trust will depend solely on distributions on
the Collateral Certificates to make distributions on the Certificates.
Funds in the Reserve Account may be invested in securities that will not
mature prior to the date of such next scheduled distribution with respect to the
Certificates and will not be sold prior to maturity to meet any shortfalls.
Thus, the amount of available funds on deposit in the Reserve Account at any
time may be less than the balance of the Reserve Account. If the amount required
to be withdrawn from the Reserve Account to cover shortfalls in collections on
the related Receivables exceeds the amount of available funds on deposit in the
Reserve Account, a temporary shortfall in the amounts distributed to the
Certificateholders could result.
Ratings of the Class A Certificates. It is a condition to the issuance of
the Class A Certificates that they be rated at least ______ or its equivalent by
at least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell the Class A
Certificates, inasmuch as a rating does not comment as to market price or
suitability for a particular investor. The ratings of the Class A Certificates
address the likelihood of the timely payment of interest on, and the ultimate
repayment of principal of, the Class A Certificates pursuant to their terms.
There can be no assurance that a rating will be retained for any given period of
time or that a rating will not be lowered or withdrawn entirely by a Rating
Agency if in its judgment circumstances in the future so warrant. In the event
that a rating is subsequently lowered or withdrawn, no person or entity will be
required to provide any additional credit enhancement. The ratings of the Class
A Certificates are based primarily on the credit quality of the Receivables, the
subordination of the Class B Certificates and the availability of funds in the
Reserve Account.
Trust's Limited Relationship to the Company. The Company is generally not
obligated to make any payments in respect of the Certificates or the Collateral
Certificates.
Considerations Regarding Collateral Certificates. Prospective investors in
the Certificates should consider carefully the factors set forth under the
caption "Risk Factors" or "Special Considerations" in the prospectuses relating
to the Collateral Certificates attached hereto as Appendix A for certain
additional considerations relating to the Collateral Certificates and
investments backed by Receivables. Neither the Company nor the Underwriter
participated in the preparation of the prospectuses relating to the Collateral
Certificates or the offering of the Collateral Certificates, and neither has
made any due diligence inquiry with respect to the information provided therein.
Although neither the Company nor the Underwriter is aware of any material
misstatements or omissions in any such prospectus, the information provided
therein or in the publicly available documents referred to below is not
guaranteed as to accuracy or completeness, and is not to be construed as a
representation, by the Company or the Underwriter. In particular, information
set forth in any prospectus relating to the Collateral Certificates speaks only
as of the date of such prospectus; there can be no assurance that events have
not occurred, which may or may not have been publicly disclosed, that would
affect the accuracy or completeness of any such statements.
S-8
<PAGE>
[Each originator of an Underlying Trust Fund is subject to the
informational requirements of the Exchange Act. Accordingly, such originator
files annual and periodic reports and other information with the Commission.
Copies of such reports and other information may be inspected and copies at
certain offices of the Commission at the addresses listed under "Available
Information" herein.]
[Geographic Concentration of Assets. Discuss impact on Certificateholders
of material concentration of trust assets in one or a few states, if
applicable.]
[Limited number of Loan Originators. Discuss impact on Certificateholders
of material concentration of loans originated by one or a few dealers, if
applicable.]
[Concentration of Credit Risk. Discuss impact on Certificateholders of
material concentration of credit risk, if applicable.]
[Interest Only Certificates. Discuss risks associated with interest only
Certificates, including any disproportionate prepayment or credit risks, if
applicable.]
[Principal Only Certificates. Discuss risks associated with principal only
Certificates, including any disproportionate prepayment or credit risks, if
applicable.]
THE TRUST
General
The Company will establish the Trust [by selling and assigning]
[transferring funds to be used by the Trust to purchase] the Trust Property (as
defined below) to the Trustee in exchange for the Certificates. The Trustee will
maintain such assets pursuant to the Trust Agreement and will be compensated for
acting as the Trustee. If the protection provided to Certificateholders by the
Reserve Account and, in the case of the Class A Certificateholders, the
subordination of the Class B Certificates is insufficient, the Trust will look
only to the Collateral Certificates to fund distributions of principal and
interest on the Certificates.
Each Certificate represents a fractional undivided ownership interest in
the Trust. The assets of the Trust (the "Trust Property") include (i) the
Collateral Certificates, (ii) all monies (including accrued interest) received
on or with respect to the Collateral Certificates on or after the Cutoff Date,
(iii) all amounts and property from time to time held in or credited to the
Collection Account, (iv) the right to draw on funds on deposit in the Reserve
Account, to the extent described herein, to meet shortfalls in interest due to
Certificateholders, and (v) any and all proceeds of the foregoing. The Reserve
Account will be maintained by the Trustee for the benefit of the
Certificateholders, but will not be part of the Trust.
The Trustee
__________ is Trustee under the Trust Agreement. __________ is a __________
banking corporation, and its principal offices are located at __________. The
Company or any of its affiliates may maintain normal commercial banking
relations with the Trustee and its affiliates.
WEIGHTED AVERAGE LIFE OF THE CERTIFICATES
Information regarding certain maturity and prepayment considerations with
respect to the Certificates is set forth under "Weighted Average Life of the
Securities" in the Prospectus. As the rate of payment of principal of the
Certificates depends on the rate of payment (including prepayments) of the
Collateral Certificates, the final distribution in respect of the Certificates
could occur significantly earlier than the Final Scheduled Distribution Date.
Certificateholders will bear the risk of being able to reinvest principal
payments on the Certificates at yields at least equal to the yield on the
Certificates.
S-9
<PAGE>
THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Certificates. The following summary describes the
material terms of the Certificates and the Trust Agreement. The summary does not
purport to be a complete description of all the terms of the Certficates and the
Trust Agreement and therefore is subject to, and is qualified in its entirety by
reference to, all the provisions of the Certificates and the Trust Agreement.
The following summary supplements the description of the general terms and
provisions of the Certificates of any given Series and the related Trust
Agreement set forth in the Prospectus, to which description reference is hereby
made.
The "Class A Certificate Balance" initially will equal $__________ and, as
of any date of determination thereafter, will equal such initial Class A
Certificate Balance less the sum of all amounts previously distributed to Class
A Certificateholders allocable to principal. The "Class B Certificate Balance"
initially will equal $_________ and, as of any date of determination thereafter,
will equal such initial Class B Certificate Balance less the sum of all amounts
previously distributed to Class B Certificateholders allocable to principal. The
Class A Certificates will evidence in the aggregate an undivided ownership
interest in approximately _____% of the Trust, and the Class B Certificates will
evidence in the aggregate an undivided ownership interest in approximately
_____% of the Trust. The Class B Certificates are not being offered hereby and
initially will be held by ______.
Distributions
Deposits to Collection Account. On or about the ____ Business Day of each
month, the Trustee will provide certain information with respect to the
preceding Collection Period, including the aggregate amount of collections on
the Collateral Certificates, as well as the Total Distribution Amount, the
Interest Distribution Amount, the Principal Distribution Amount, the Class A
Interest Distributable Amount, the Class A Principal Distributable Amount, the
Class B Interest Distributable Amount and the Class B Principal Distributable
Amount.
On or before each Distribution Date, the Trustee will cause the Total
Distribution Amount to be deposited into the Collection Account. The "Total
Distribution Amount" for any Distribution Date will equal the aggregate amount
of collections on the Collateral Certificates.
The "Interest Distribution Amount" for a Distribution Date generally will
equal the sum of (i) that portion of all collections on the Collateral
Certificates allocable to interest; and (ii) Investment Earnings, if any, for
such Distribution Date, each with respect to the preceding Collection Period.
The "Principal Distribution Amount" for a Distribution Date will equal that
portion of all collections on the Collateral Certificates allocable to principal
with respect to the preceding Collection Period.
Calculation of Distributable Amounts. The "Class A Distributable Amount"
with respect to a Distribution Date will equal the sum of (i) the "Class A
Principal Distributable Amount", consisting of the Class A Percentage of the
Principal Distribution Amount, plus (ii) the "Class A Interest Distributable
Amount", consisting of thirty days' interest at the Class A Pass-Through Rate on
the Class A Certificate Balance as of the preceding Distribution Date (after
giving effect to distribution made on such Distribution Date). In addition, on
the Final Scheduled Distribution Date, the Class A Principal Distributable
Amount will include the lesser of (a) the Class A Percentage of any payments of
principal on each Collateral Certificate and (b) the amount that is necessary
(after giving effect to the other amounts to be distributed to Class A
Certificateholders on such Distribution Date and allocable to principal) to
reduce the Class A Certificate Balance to zero.
S-10
<PAGE>
The "Class B Distributable Amount" with respect to a Distribution Date will
equal the sum of (i) the "Class B Principal Distributable Amount", consisting of
the Class B Percentage of the Principal Distribution Amount, plus (ii) the
"Class B Interest Distributable Amount", consisting of thirty days' interest at
the Class B Pass-Through Rate on the Class B Certificate Balance as of the
preceding Distribution Date (after giving effect to distributions made on such
Distribution Date). In addition, on the Final Scheduled Distribution Date, the
Class B Principal Distributable Amount will include the lesser of (a) the Class
B Percentage of any payments of principal on each Collateral Certificate and (b)
the amount that is necessary (after giving effect to the other amounts to be
distributed to Class B Certificateholders on such Distribution Date and
allocable to principal) to reduce the Class B Certificate Balance to zero.
Amounts Distributed. The Class A Certificateholders will receive on any
Distribution Date, to the extent of available funds, the Class A Distributable
Amount and any outstanding Class A Interest Carryover Shortfall as of the close
of the preceding Distribution Date.
On each Distribution Date on which the sum of the Class A Interest
Distributable Amount and any outstanding Class A Interest Carryover Shortfall
from the preceding Distribution Date (plus interest on such Class A Interest
Carryover Shortfall at the Class A Pass-Through Rate from such preceding
Distribution Date to the current Distribution Date, to the extent permitted by
law) exceeds the Class A Percentage of the Interest Distribution Amount on such
Distribution Date, the Class A Certificateholders will be entitled to receive
such amounts, first, from the Class B Percentage of the Interest Distribution
Amount; second, if such amounts are insufficient, from funds available in the
Reserve Account, and, third, if such amounts are insufficient, from the Class B
Percentage of the Principal Distribution Amount. "Class A Interest Carryover
Shortfall" means, with respect to any Distribution Date, the excess of the Class
A Interest Distributable Amount for the preceding Distribution Date, plus any
outstanding Class A Interest Carryover Shortfall on such preceding Distribution
Date, over the amount of interest actually distributed to Class A
Certificateholders on such preceding Distribution Date. The Class A Interest
Carryover Shortfall for the initial Distribution Date is zero.
DESCRIPTION OF THE COLLATERAL CERTIFICATES
General
This Prospectus Supplement sets forth certain relevant terms of the
Collateral Certificates. It does not purport to provide complete or updated
information with respect to all terms of such securities, the issuer thereof or
the Receivables relating thereto. Schedule I to this Prospectus Supplement
contains a summary of the terms of the Collateral Certificates. Appendix A to
this Prospectus Supplement contains excerpts from each prospectus pursuant to
which Collateral Certificates were offered and sold. This Prospectus Supplement
relates only to the Certificates offered hereby and does not relate to the
Collateral Certificates. Prospective investors are urged to read such schedule,
appendix and attachments, which are expressly made a part hereof. See "Risk
Factors--Considerations Regarding Collateral Certificates".
Although the Company has no reason to believe the information provided by
an originator of an Underlying Trust Fund or the prospectus relating to the
Collateral Certificates is not reliable, the Company has not verified either its
accuracy or its completeness. In particular, information set forth in any
prospectus relating to the Collateral Certificates speaks only as of the date of
such prospectus; there can be no assurance that events have not occurred which
would affect either the accuracy or the completeness of the information
contained therein. See "Risk Factors--Considerations Regarding Collateral
Certificates" and "--Certain Updated Information with Respect to the Collateral
Certificates".
Certain Updated Information with Respect to the Collateral Certificates
The originator of each Underlying Trust Fund is subject to the information
requirements of the Exchange Act. Accordingly, such originator files reports and
other information with respect to each Underlying Trust Fund, including monthly
servicer reports ("Servicer Reports") regarding the Collateral Certificates,
with the Commission. A summary of certain of the information included in the
most recent Servicer Reports filed with the Commission is included as
S-11
<PAGE>
Appendix B hereto. Copies of such reports and other information may be inspected
and copied at certain offices of the Commission at the address listed under
"Available Information" herein.
Neither the Company nor the Underwriter participated in the preparation of
such Servicer Reports, and the information provided therein or in the publicly
available documents referred to above is not guaranteed as to accuracy or
completeness, and is not to be construed as a representation, by the Company or
the Underwriter. In particular, information set forth in the Servicer Reports
speaks only as of the date of such Servicer Report; there can be no assurance
that events have not occurred that would affect the accuracy or completeness of
any statements included in such Servicer Reports or in the publicly available
documents filed by or on behalf of each Underlying Trust Fund.
[Underwriting Standards
If applicable, describe the underwriting standards used to originate the
assets backing the Collateral Certificates.]
THE TRUST AGREEMENT
Sale and Assignment of Receivables
Certain information with respect to the conveyance of the Collateral
Certificates by the [Seller][Company] to the Trust on the Closing Date pursuant
to the Trust Agreement is set forth under "Description of the Transfer and
Servicing Agreements -- Sale and Assignment of Receivables" in the Prospectus.
Optional Prepayment
If the Company exercises its option to purchase the Collateral
Certificates, which it may do when the aggregate outstanding principal amount of
the Collateral Certificates declines to 10% or less of the Pool Balance as of
the Cutoff Date, the Class A Certificateholders will receive an amount in
respect of the Class A Certificates equal to the outstanding Class A Certificate
Balance, together with accrued interest to the redemption date at the Class A
Pass-Through Rate, and the Class B Certificateholders will receive an amount in
respect of the Class B Certificates equal to the outstanding Class B Certificate
Balance, together with accrued interest to the redemption date at the Class B
Pass-Through Rate, which distributions shall effect the early retirement of the
Certificates. See "Description of the Transfer and Servicing Agreements --
Termination" in the Prospectus.
Subordination of the Class B Certificates; Reserve Account
Subordination of the Class B Certificates. The rights of the Class B
Certificateholders to receive distributions with respect to the Collateral
Certificates generally will be subordinated to the rights of the Class A
Certificateholders in the event of defaults or delinquencies on the Collateral
Certificates as provided in the Trust Agreement and described herein. The
protection afforded to the Class A Certificateholders through subordination will
be effected by the preferential right of the Class A Certificateholders to
receive current distributions with respect to the Collateral Certificates.
Reserve Account. The Reserve Account will be created by the deposit thereto
by the Company on the Closing Date of the Reserve Account Initial Deposit and
will be increased up to the Specified Reserve Account Balance by the deposit
thereto on each Distribution Date on the amount, if any, remaining from the
Total Distribution Amount after payment of the Class A Distributable Amount and
the Class B Distributable Amount. If the amount on deposit in the Reserve
Account on any Distribution Date (after giving effect to all deposits thereto or
withdrawals therefrom on such date) is greater than the Specified Reserve
Account Balance for such Distribution Date, the Trustee will release such excess
to the Company. Upon any such distribution to the Company, the
Certificateholders will have no rights in, or claims to such amounts. Amounts
held from time to time in the Reserve Account will continue to be held for the
benefit of the Class A Certificateholders and the Class B Certificateholders.
S-12
<PAGE>
Funds in the Reserve Account will be invested in Eligible Investments, as
provided in the Trust Agreement. Funds in the Reserve Account may be invested in
securities that will not mature prior to the date of such next scheduled
distribution with respect to the Certificates and will not be sold prior to
maturity to meet any shortfalls. Thus, the amount of available funds on deposit
in the Reserve Account at any time may be less than the balance of the Reserve
Account. If the amount required to be withdrawn from the Reserve Account to
cover shortfalls in collections on the related Receivables exceeds the amount of
available funds on deposit in the Reserve Account, a temporary shortfall in the
amounts distributed to the Certificateholders could result. The Reserve Account
will not be part of or otherwise includible in the Trust and will be a
segregated trust account held by the Trustee.
ERISA CONSIDERATIONS
Subject to the considerations set forth under "ERISA Considerations --
Prohibited Transaction Exemption for Senior Certificates Issued by Grantor
Trusts" in the Prospectus, the Class A Certificates may be purchased by an
"employee benefit plan" as defined in and subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or a "plan" as defined in
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code") (each
such "employee benefit plan" and "plan," a "Plan"). A fiduciary of a Plan must
determine that the purchase of a Class A Certificate is consistent with its
fiduciary duties under ERISA and does not result in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code. For
additional information regarding treatment of the Class A Certificates under
ERISA, see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
relating to the Class A Certificates (the "Underwriting Agreement"), the Company
has agreed to cause the Trust to sell to the Underwriter, and the Underwriter
has agreed to purchase, the entire principal amount of the Class A Certificates.
The Underwriter proposes to offer the Class A Certificates to the public
initially at the public offering price set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such price less a concession of
_____% per Class A Certificates; the Underwriter and such dealers may allow a
discount of _____% per Class A Certificates on sales to certain other dealers;
and after the initial public offering of the Class A Certificates, the public
offering price and the concessions and discounts to dealers may be changed by
the Underwriter.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriter against certain liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriter.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter within the period
during which there is an obligation to deliver a Prospectus Supplement and
Prospectus, the Company or the Underwriter will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus Supplement and
Prospectus.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Certificates in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
S-13
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon by
Sidley & Austin, New York, New York.
S-14
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Business Day.................................................................S-5
Certificates...............................................................Cover
Certificateholders...........................................................S-5
Class A Certificate Balance ................................................S-11
Class A Certificateholders ..................................................S-5
Class A Certificates.......................................................Cover
Class A Distributable Amount................................................S-11
Class A Interest Carryover Shortfall........................................S-12
Class A Interest Distributable Amount.......................................S-11
Class A Pass-Through Rate....................................................S-5
Class A Percentage...........................................................S-4
Class A Principal Distributable Amount......................................S-11
Class B Certificate Balance.................................................S-11
Class B Certificateholders...................................................S-6
Class B Certificates.......................................................Cover
Class B Distributable Amount................................................S-12
Class B Interest Distributable Amount.......................................S-12
Class B Pass-Through Rate....................................................S-5
Class B Percentage...........................................................S-4
Class B Principal Distributable Amount......................................S-12
Closing Date.................................................................S-4
Code........................................................................S-14
Collateral Certificates......................................................S-2
Collection Account...........................................................S-6
Collection Period............................................................S-5
Commission...................................................................S-3
Company....................................................................Cover
Cutoff Date................................................................Cover
Distribution Date............................................................S-5
ERISA.......................................................................S-14
Federal Tax Counsel..........................................................S-7
Final Scheduled Distribution Date............................................S-6
Interest Distribution Amount................................................S-11
Issuer.......................................................................S-4
Pass Through Rate............................................................S-5
Plan........................................................................S-14
Pool Balance.................................................................S-6
Principal Distribution Amount...............................................S-11
Prospectus...................................................................S-3
Rating Agencies..............................................................S-9
Receivables..................................................................S-2
Record Date..................................................................S-5
Reserve Account..............................................................S-6
Reserve Account Initial Deposit..............................................S-6
Servicer Reports............................................................S-13
Seller.......................................................................S-2
Specified Reserve Account Balance............................................S-7
Total Distribution Amount...................................................S-11
Trust........................................................................S-1
Trust Accounts..............................................................S-14
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
Trust Agreement............................................................Cover
Trust Property...............................................................S-5
Trustee....................................................................Cover
Underlying Agreement.........................................................S-2
Underlying Trust Fund........................................................S-2
Underwriter................................................................Cover
Underwriting Agreement.......................................................S-4
</TABLE>
S-16
<PAGE>
Schedule I
----------
Class __
CUSIP #___________ Rating: ______________
<TABLE>
<CAPTION>
[Monthly][Quarterly]
[Semi-Annual] Aggregate
Payment Dates Interest Payment Interest Payment Interest Rate
- ------------- ---------------- ---------------- -------------
<S> <C> <C> <C>
_____________ $________________ $__________________ ___________%
</TABLE>
I-1
<PAGE>
Appendix A
[To be Supplied]
A-1
<PAGE>
Appendix B
[To be Supplied]
B-1
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or CS First Boston. This Prospectus Supplement and the Prospectus do not
constitute an offer of any securities other than those to which they relate or
an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement
Summary.....................................................................S-4
Risk Factors ...............................................................S-9
The Trust..................................................................S-10
Weighted Average Life of the Cetificates...................................S-10
The Certificates...........................................................S-11
Description of the Collateral Certificates.................................S-12
The Trust Agreement .......................................................S-13
ERISA Considerations.......................................................S-14
Underwriting...............................................................S-14
Legal Matters..............................................................S-15
Index of Terms.............................................................S-16
Prospectus
Prospectus Supplement.........................................................2
Reports to Securityholders....................................................2
Available Information.........................................................2
Incorporation of Certain Documents by Reference...............................2
Summary of Terms..............................................................4
Rick Factors.................................................................14
The Trusts...................................................................17
The Receivables Pools........................................................19
The Collateral Certificates..................................................21
Weighted Average Life of the Securities......................................23
Pool Factors and Trading Information.........................................24
The Seller and the Servicer..................................................25
Use of Proceeds..............................................................25
Description of the Notes.....................................................25
Description of the Certificates..............................................31
Certain Information Regarding the Securities.................................32
Description of the Transfer and Servicing Agreements.........................36
Certain Legal Aspects of the Receivables.....................................48
Certain Federal Income Tax Consequences......................................53
State and Local Tax Considerations...........................................77
ERISA Considerations.........................................................79
Plan of Distribution.........................................................85
Legal Matters................................................................86
</TABLE>
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the securities described in this Prospectus
Supplement, whether or not participating in this distribution, may be required
to deliver this Prospectus Supplement and the Prospectus. This is in addition to
the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
$[ ]
CS FIRST BOSTON
AUTO RECEIVABLES
AND RECEIVABLES
SECURITIES TRUSTS
$[__________] [__]% [Floating Rate]
Asset Backed Certificates, Class A
ASSET BACKED SECURITIES CORPORATION
(COMPANY)
----------
PROSPECTUS SUPPLEMENT
[_________], 199[__]
----------
[LOGO] CS FIRST BOSTON
================================================================================
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
- --------------------------------------------------------------------------------
Subject to Completion
Prospectus Supplement to Prospectus Dated _________________, 199_
$
CS First Boston Auto Receivables Securities Trust 199_-___
$_________ % Asset Backed Notes, Class A-1
$_________ % Asset Backed Notes, Class A-2
$_________ % Asset Backed Certificates
----------------
Asset Backed Securities Corporation
Company
----------------
CS First Boston Auto Receivables Securities Trust 199___ -___ (the "Trust")
will be formed pursuant to a trust agreement (the "Trust Agreement") dated as of
__________, 199__ (the "Cutoff Date"), between Asset Backed Securities
Corporation (the "Company"), as depositor, and ____________ (the "Owner
Trustee"), as owner trustee. The Trust will issue $__________ aggregate
principal amount of ________% Asset Backed Notes, Class A-1 (the "Class A-1
Notes") and $______________ aggregate principal amount of __________% Asset
Backed Notes, Class A-2 (the "Class A-2 Notes" and, collectively with the Class
A-1 Notes, the "Notes") pursuant to an indenture (the "Indenture"), dated as of
the Cutoff Date, between the Trust and _______, (the "Indenture Trustee") as
indenture trustee. The Trust also will issue $_____ aggregate principal amount
of ________% Asset Backed Certificates (the "Certificates" and, collectively
with the Notes, the "Securities").
----------------
(Continued on following page)
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT
BENEFICIAL INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF, OR
INTERESTS IN, CS FIRST BOSTON CORPORATION, THE COMPANY, THE OWNER TRUSTEE, THE
INDENTURE TRUSTEE, ANY SELLER, OR ANY OF THEIR RESPECTIVE AFFILIATES. NONE OF
THE NOTES, THE CERTIFICATES OR THE COLLATERAL CERTIFICATES (AS DEFINED HEREIN)
ARE INSURED GUARANTEED BY CS FIRST BOSTON CORPORATION, THE COMPANY, ANY SELLER,
ANY OF THEIR RESPECTIVE AFFILIATES OR ANY GOVERNMENTAL AGENCY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER RISK
FACTORS ON PAGE S-10 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 10 OF THE
ACCOMPANYING PROSPECTUS.
----------------
Prospective investors should consider the limitations discussed under ERISA
Considerations herein and in the accompanying Prospectus.
----------------
<TABLE>
<CAPTION>
Price to the Underwriting Proceeds to the
Public(1) Discount Company(1)(2)
--------- -------- -------------
<S> <C> <C> <C>
Per Class A-1 Note......... % % %
Per Class A-2 Note......... % % %
Per Certificate............ % % %
Total ..................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from ______________, 199_.
(2) Before deducting expenses, estimated to be $____________.
----------------
The Notes and the Certificates are offered subject to prior sale and
subject to the right of CS First Boston Corporation (the "Underwriter") to
reject orders in whole or in part. It is expected that delivery of the Notes and
the Certificates will be made through the Same Day Funds System of the
Depository Trust Company on or about _______, 199_.
CS First Boston
The date of this Prospectus Supplement is __________, 199_.
<PAGE>
(Continued from preceding page)
The assets of the Trust will consist primarily of certain asset backed
certificates or notes (collectively, "Collateral Certificates"), each issued
pursuant to a pooling and servicing agreement, sale and servicing agreement,
trust agreement or indenture (each, an "Underlying Agreement"). Each Collateral
Certificate represents an interest in a trust fund created pursuant to such
Underlying Agreement consisting of a pool of motor vehicle installment loan
agreements and motor vehicle retail installment sales contracts (collectively,
the "Receivables") secured by new or used automobiles, vans and light duty
trucks, certain monies due or received thereunder on and after the Cutoff Date,
security interests in the vehicles financed thereby, and a de minimus amount of
certain other property ancillary thereto, in each case as more fully described
herein. The Collateral Certificates [will be transferred to the Trust by the
Company pursuant to the Trust Agreement][will be purchased by the Trust with
funds received from the Company in exchange for the Certificates]. The [Trust]
[Company] will purchase the Collateral Certificates] from a certain seller or
sellers (each, a "Seller"). The Notes will be secured by the assets of the Trust
pursuant to the Indenture. The Trust may also draw on funds on deposit in a
Reserve Account, to the extent described herein, to meet shortfalls in interest
due to Securityholders on any Distribution Date. The Reserve Account will not be
part of the Trust.
Interest on each class of Notes will accrue at the fixed per annum rates
specified above and generally will be payable on the __ day of each month,
commencing ______, 199_ (each, a "Distribution Date"). Principal of the Notes
will be payable on each Distribution Date to the extent described herein;
however, no principal will be paid on the Class A-2 Notes until the Class A-1
Notes have been paid in full. The Certificates represent fractional undivided
interests in the Trust. Interest on the Certificates will accrue at the fixed
per annum rate specified above and generally will be payable on each
Distribution Date. No distributions of principal will be made on the
Certificates until all of the Notes have been paid in full. To the extent not
previously paid, the Class A-1 Notes will be payable in full on _______, 199_,
the Class A-2 Notes will be payable in full on _______, 199_, and the
Certificates will be payable in full on _______,199_.
--------------------
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. INFORMATION WITH RESPECT TO
EACH COLLATERAL CERTIFICATE IS CONTAINED IN SCHEDULE I AND APPENDIX A HERETO.
SALES OF THE NOTES OR THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO
THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS
IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE SECURITIES, AND THERE CAN BE
NO ASSURANCE THAT ONE WILL DEVELOP. THE UNDERWRITER EXPECTS, BUT IS NOT
OBLIGATED, TO MAKE A MARKET IN THE SECURITIES. THERE IS NO ASSURANCE THAT ANY
SUCH MARKET WILL DEVELOP OR CONTINUE.
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS WILL ALSO BE USED BY THE
UNDERWRITER AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND
SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH
THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.]
---------------------
UNTIL _____________________, _______ ALL DEALERS EFFECTING TRANSACTIONS IN
THE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
S-2
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), on behalf of the Trust, a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement"), of which this Prospectus Supplement is a part under the Securities
Act of 1933, as amended. This Prospectus Supplement does not contain all of the
information set forth in the Registration Statement, certain parts of which have
been omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement which is
available for inspection without charge at the public reference facilities of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and the regional offices of the Commission at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such information can be
obtained from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Trustee
will also file or cause to be filed with the Commission such periodic reports as
are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
REPORTS TO SECURITY HOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
monthly and annual unaudited reports containing information concerning the
Receivables will be prepared by the Trustee and sent on behalf of the Trust only
to Cede & Co., as nominee of The Depository Trust Company and registered holder
of the Notes and the Certificates. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and "--Statements to Securityholders" in
the accompanying Prospectus (the "Prospectus").
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the detailed
information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer ............................. CS First Boston Auto Receivables
Securities Trust 199_-___, a trust (the
"Trust" or the "Issuer") to be formed
pursuant to a trust agreement (the
"Trust Agreement") dated as of
___________, 199_ (the "Cutoff Date"),
between the Company and the Owner
Trustee.
Company ............................ The Company is a special-purpose
Delaware corporation organized for the
purpose of causing the issuance of the
Securities and other securities issued
under the Registration Statement backed
by receivables or underlying securities
of various types and acting as settlor
or depositor with respect to trusts,
custody accounts or similar arrangements
or as general or limited partner in
partnerships formed to issue securities.
It is not expected that the Company will
have any significant assets. The Company
is an indirect, wholly owned finance
subsidiary of Collateralized Mortgage
Securities Corporation which is a wholly
owned subsidiary of CS First Boston
Securities Corporation, which is a
wholly owned subsidiary of CS First
Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First
Boston, Inc. nor any of their affiliates
has guaranteed, will guarantee or is or
will be otherwise obligated with respect
to any Series of Securities.
The Company's principal executive office
is located at Park Avenue Plaza, 55 East
52nd Street, New York, New York 10055,
and its telephone number is (212)
909-2000.
Indenture Trustee .................. ____________________, as trustee under
the Indenture (the "Indenture Trustee").
Owner Trustee ...................... ____________________, as trustee under
the Trust Agreement (the "Owner
Trustee").
The Notes .......................... The Trust will issue $______ aggregate
principal amount of ___% Asset Backed
Notes, Class A-1 (the "Class A-1 Notes")
and $______ aggregate principal amount
of ___% Asset Backed Notes, Class A-2
(the "Class A-2 Notes" and, collectively
with the Class A-1 Notes, the "Notes")
on ___, 199_ (the "Closing Date")
pursuant to an indenture (the
"Indenture") dated as of the Cutoff Date
between the Issuer and the Indenture
Trustee.
Under the terms of the Indenture, the
Notes will be secured by the assets of
the Trust.
The Certificates ................... The Trust will issue $____ aggregate
principal amount of ___% Asset Backed
Certificates (the "Certificates" and,
with the Notes, the "Securities") on the
Closing Date. The Certificates represent
fractional undivided interests in the
Trust and will be issued pursuant to the
Trust Agreement.
The Collateral Certificates ........ The Collateral Certificates are
described in Schedule I hereto. The
Collateral Certificates consist of
certain asset backed certificates or
notes, each issued pursuant to a pooling
and servicing agreement, sale and
servicing agreement, trust agreement or
indenture (each, an "Underlying
Agreement"). Each Collateral Certificate
represents an interest in a trust fund
(an "Underlying Trust Fund") created
pursuant to such Underlying Agreement.
The assets of each Underlying Trust Fund
consist primarily of a pool of motor
vehicle installment loan agreements and
motor vehicle retail
S-4
<PAGE>
installment sale contracts
(collectively, the "Receivables")
secured by new or used automobiles, vans
and light duty trucks, certain monies
due or received thereunder, security
interests in the vehicles financed
thereby, and certain other property.
Holders of a Collateral Certificate are
entitled to receive distributions of
interest and principal in respect
thereof as described herein.
Trust Property ..................... The assets of the Trust (the "Trust
Property") include (i) the Collateral
Certificates, (ii) all monies (including
accrued interest) received on or with
respect to the Collateral Certificates
on or after the Cutoff Date, (iii) all
amounts and property from time to time
held in or credited to the Collection
Account, (iv) the right to draw on funds
on deposit in the Reserve Account, to
the extent described herein, to meet
shortfalls in interest due to
Certificateholders, and (v) any and all
proceeds of the foregoing. The Reserve
Account will not be property of the
Trust. See "The
Certificates--Distributions of
Interest", "--Distributions of
Principal" and "The Trust".
Risk Factors ....................... For a discussion of risk factors that
should be considered with respect to an
investment in the Securities, see "Risk
Factors" herein and in the related
Prospectus.
Terms of the Notes
A. Distribution Dates ........... Payments of interest and principal on
the Notes will be made on the ___ day of
each month or, if any such day is not a
Business Day, on the next succeeding
Business Day (each, a "Distribution
Date") commencing ____________, 199_.
Payments will be made to holders of
record of the Notes (the "Noteholders")
as of the day immediately preceding such
Distribution Date (each, a "Record
Date"). A "Business Day" is a day other
than a Saturday, a Sunday or day on
which banking institutions or trust
companies in The City of New York or the
city in which the corporate trust office
of the Indenture Trustee is located are
authorized by law, regulation or
executive order to be closed.
B. Interest Rates ............... Interest will accrue on the Class A-1
Notes at a per annum rate of ____% (the
"Class A-1 Rate") and on the Class A-2
Notes at a per annum rate of ____% (the
"Class A-2 Rate"), in each case,
calculated on the basis of a 360-day
year consisting of twelve 30- day
months. The Class A-1 Rate and the Class
A-2 rate are sometimes referred to
herein collectively as the "Interest
Rates".
C. Interest ..................... Interest on the outstanding principal
amount of the Class A-1 Notes and the
Class A-2 Notes in respect of any
Distribution Date will accrue at the
Class A-1 Rate and the Class A-2 Rate,
respectively, from and including the
most recent Distribution Date on which
interest payments were distributed to
Noteholders (or, in the case of the
first Distribution Date, from and
including the Closing Date) to but
excluding such Distribution Date.
Interest will be paid to the Noteholders
on each Distribution Date, to the extent
of the Total Distribution Amount (as
defined herein) and the Reserve Account.
See "The Notes -- Payments of Interest"
herein.
D. Principal ................... On each Distribution Date for as long as
the Class A-1 Notes are outstanding,
principal of the Class A-1 Notes will be
payable on each Distribution Date in an
amount equal to the Total Distribution
Amount remaining following payment of
the Noteholders' Interest Distributable
Amount (as defined herein) on such date.
On each Distribution Date from and
including the Distribution Date on which
the Class A-1 Notes are paid in full and
for as long as the Class A-2 Notes are
outstanding, principal of the Class A-2
Notes will be payable on each
Distribution Date in an amount equal to
the Total Distribution Amount remaining
following payment of the Noteholders'
Interest
S-5
<PAGE>
Distributable Amount and, on the
Distribution Date on which the Class A-1
Notes are paid in full, any amount
distributed as principal to holders of
the Class A-1 Notes. No principal
payment will be made on the Class A-2
Notes until the Class A-1 Notes have
been paid in full.
The outstanding principal amount, if
any, of the Class A-1 Notes will be
payable in full on ____________, 199_
(the "Class A-1 Final Scheduled Payment
Date") and the outstanding principal
amount, if any, of the Class A-2 Notes
will be payable in full on ____________,
199_ (the "Class A-2 Final Scheduled
Payment Date").
See "The Notes -- Payments of Principal"
herein.
E. Optional Redemption .......... The Class A-2 Notes may be redeemed in
whole, but not in part, on a
Distribution Date on which the Company
exercises its option to purchase the
Collateral Certificates. Under the terms
of the Trust Agreement, the Company may
purchase the Collateral Certificates
when the aggregate principal balance of
the Collateral Certificates (the "Pool
Balance") has been reduced to 10% or
less of the Pool Balance as of the
Cutoff Date. The redemption price for
the Class A-2 Notes will equal the
unpaid principal amount of the Class A-2
Notes plus accrued interest at the Class
A-2 Rate.
Terms of the Certificates
A. Distribution Dates ........... Distributions with respect to the
Certificates will be made on each
Distribution Date to holders of record
of the Certificates (the
"Certificateholders", and, collectively
with the Noteholders, the
"Securityholders") as of the related
Record Date.
B. Pass-Through Rate ............ Interest will accrue on the Certificates
at a per annum rate of ___% (the
"Certificate Pass-Through Rate"),
calculated on the basis of a 360-day
year consisting of twelve 30- day
months.
C. Interest ..................... On each Distribution Date, the Owner
Trustee will distribute pro rata to
Certificateholders accrued interest at
the Certificate Pass-Through Rate on the
Certificate Balance as of the preceding
Distribution Date (after giving effect
to distributions made on such
Distribution Date) generally to the
extent of funds available following
payment of the Noteholders'
Distributable Amount (as defined herein)
from the Total Distribution Amount and
the Reserve Account. Interest on the
Certificates in respect of any
Distribution Date will accrue from the
most recent Distribution Date (or, in
the case of the first Distribution Date,
the Closing Date) to but excluding such
Distribution Date. See "The Certificates
-- Distributions of Interest" herein.
D. Principal .................... On each Distribution Date on and after
the date on which the Class A-2 Notes
are paid in full, principal of the
Certificates will be payable in an
amount generally equal to the Total
Distribution Amount remaining after
payment of the Servicing Fee, the
Noteholders' Distributable Amount (on
the Distribution Date on which the
outstanding principal amount of the
Class A-2 Notes is reduced to zero) and
the Certificateholders' Interest
Distributable Amount.
The outstanding principal amount, if
any, of the Certificates will be payable
full on ____________, 199_ (the "Final
Scheduled Distribution Date").
See "The Certificates -- Distributions
of Principal" and "Description of the
Trust Agreement -- Distributions"
herein.
S-6
<PAGE>
E. Optional Prepayment .......... If the Company exercises its option to
purchase the Collateral Certificates,
which it may do when the Pool Balance is
10% or less of the Pool Balance as of
the Cutoff Date, the Certificateholders
will receive an amount in respect of the
Certificates equal to the Certificate
Balance plus accrued interest at the
Certificate Pass-Through Rate, and the
Certificates will be retired. See "The
Certificates -- Optional Prepayment" and
"The Notes -- Optional Redemption"
herein.
Reserve Account .................... The Reserve Account will be created with
an initial deposit by the Company on the
Closing Date of cash or Eligible
Investments having a value of at least
$________ (the "Reserve Account Initial
Deposit"). Funds will be withdrawn from
the Reserve Account on any Distribution
Date if, and to the extent that, the
Total Distribution Amount for the
related Collection Period is less than
the Noteholders' Interest Distributable
Amount and will be deposited in the Note
Distribution Account for distribution to
the Noteholders. In addition, funds will
be withdrawn from the Reserve Account to
the extent that the portion of the Total
Distribution Amount remaining after
payment of the Noteholders'
Distributable Amount is less than the
Certificateholders' Interest
Distributable Amount and will be
deposited in the Certificate
Distribution Account for distribution to
the Certificateholders.
Funds in the Reserve Account may be
invested in securities that will not
mature prior to the date of such next
scheduled distribution with respect to
the Notes or Certificates and will not
be sold prior to maturity to meet any
shortfalls. Thus, the amount of
available funds on deposit in the
Reserve Account at any time may be less
than the balance of the Reserve Account.
If the amount required to be withdrawn
from the Reserve Account to cover
shortfalls in collections on the related
Receivables exceeds the amount of
available funds on deposit in the
Reserve Account, a temporary shortfall
in the amounts distributed to the
Noteholders or Certificateholders could
result.
On each Distribution Date, the amount
available in the Reserve Account will be
reinstated up to the Specified Reserve
Account Balance by the deposit thereto
of the amount, if any, remaining in the
Collection Account after payment on such
date of the Noteholders' Distributable
Amount and the Certificateholders'
Distributable Account. The "Specified
Reserve Account Balance" with respect to
any Distribution Date generally will be
equal to [state formula]. Certain
amounts in the Reserve Account on any
Distribution Date (after giving effect
to all distributions to be made on such
Distribution Date) in excess of the
Specified Reserve Account Balance for
such Distribution Date will be released
to the Company and will no longer be
available to the Securityholders.
The Reserve Account will be maintained
with the Indenture Trustee as a
segregated trust account, but will not
be part of the Trust. See "The Trust
Agreement -- Reserve Account" herein.
Collection Account ................. Except under certain conditions
described in the Prospectus under
"Description of the Trust Agreement --
Collections," the Owner Trustee will be
required to remit collections received
with respect to the Collateral
Certificates within two Business Days of
receipt thereof to one or more accounts
in the name of the Owner Trustee (the
"Collection Account"). Pursuant to the
Trust Agreement, the Owner Trustee will
withdraw funds on deposit in the
Collection Account and apply such funds
on each Distribution Date to the
following (in the priority indicated):
(i) the Noteholders' Interest
Distributable Amount to the Note
Distribution Account, (ii) the
Noteholders' Principal Distributable
Amount to the Note Distribution Account,
(iii) the Certificateholders' Interest
Distributable Amount to the Certificate
Distribution
S-7
<PAGE>
Account, (iv) after the Class A-2 Notes
have been paid in full, the
Certificateholders' Principal
Distributable Amount to the Certificate
Principal Distributable Account and (v)
the remaining balance, if any, to the
Reserve Account. See "The Trust
Agreement -- Distributions" and" --
Reserve Account" herein.
Tax Status ......................... In the opinion of Sidley & Austin
("Federal Tax Counsel"), the Trust will
not be an association (or publicly
traded partnership) taxable as a
corporation for federal income tax
purposes. Federal Tax Counsel has also
advised the Trust that the Notes will be
classified as debt for federal income
tax purposes. The Trust will agree, and
the owners of beneficial interests in
the Notes will agree by their purchase
of Notes, to treat the Notes as debt for
federal tax purposes. The Trust will
also agree, and the related owners of
beneficial interests in the Certificates
("Certificate Owners") will agree by
their purchase of Certificates, to treat
the Trust as a partnership for purposes
of federal and state income tax,
franchise tax and any other tax measured
in whole or in part by income, with the
assets of the partnership being the
assets held by the Trust, the partners
of the partnership being the Certificate
Owners (including, to the extent
relevant, the Seller in its capacity as
recipient of distributions from any
Reserve Fund) and the Notes being debt
of the partnership. See "Certain Federal
Income Tax Consequences" in the
Prospectus for additional information
concerning the application of federal
income tax laws to the Trust and the
Securities.
ERISA Considerations ............... Subject to the considerations discussed
under "ERISA Considerations" herein and
in the Prospectus, the Notes are
eligible for purchase by employee
benefit plans. The Certificates may not
be acquired by employee benefit plans
subject to the Employee Retirement
Income Security Act of 1974, as amended,
or by "plans" as defined in Section 4975
of the Internal Revenue Code of 1986, as
amended. See "ERISA Considerations"
herein and in the Prospectus.
Ratings of the Securities .......... It is a condition to the issuance of the
Notes and Certificates that the Class
A-1 Notes be rated at least "______" or
its equivalent, the Class A-2 Notes be
rated at least "_______" or its
equivalent and the Certificates be rated
at least "__________" or its equivalent,
in each case by at least two nationally
recognized rating agencies.
A rating is not a recommendation to
purchase, hold or sell the Notes or
Certificates, inasmuch as such rating
does not comment as to market price or
suitability for a particular investor. A
rating addresses the likelihood that
principal of and interest on a
particular class of Notes or the
Certificates, as applicable, will be
paid pursuant to its terms. There can be
no assurance that a rating will not be
lowered or withdrawn by a rating agency
if circumstances so warrant. See "Risk
Factors -- Ratings of the Securities"
herein.
S-8
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective investors should carefully consider
the following risk factors before investing in the Securities.
Limited Liquidity of Securities. There is currently no secondary market for
the Securities. CS First Boston Corporation (the "Underwriter") currently
intends to make a market in the Securities, but is under no obligation to do so.
There can be no assurance that a secondary market will develop or, if a
secondary market does develop, that it will provide Securityholders with
liquidity of investment or that it will continue for the life of the Securities.
Subordination of Certificates; Limited Assets of Trust. Distributions of
interest and principal on the Certificates will be subordinated in priority of
payment to interest and principal due on the Notes. Consequently,
Certificateholders will not receive any distributions with respect to a
Collection Period until full amount of interest on and principal of the Notes
distributable on such Distribution Date has been deposited in the Note
Distribution Account. The Certificateholders will not receive any distributions
of principal until after the Notes have been paid in full. See "The Trust
Agreement -- Distributions" herein.
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Collateral Certificates
and access to funds in the Reserve Account. Securityholders must rely on
payments on the Collateral Certificates and, if and to the extent available,
amounts on deposit in the Reserve Account. Although any funds available in the
Reserve Account on each Distribution Date will be applied to cover shortfalls in
distribution of interest on the Notes and the Certificates, the funds to be
deposited in the Reserve Account are limited in amount. If the Reserve Account
is exhausted, the Trust will depend solely on distributions on the Collateral
Certificates to make distributions on the Notes and the Certificates. See "The
Trust" and "The Trust Agreement -- Reserve Account" herein.
Funds in the Reserve Account may be invested in securities that will not
mature prior to the date of such next scheduled distribution with respect to the
Notes or Certificates and will not be sold prior to maturity to meet any
shortfalls. Thus, the amount of available funds on deposit in the Reserve
Account at any time may be less than the balance of the Reserve Account. If the
amount required to be withdrawn from the Reserve Account to cover shortfalls in
collections on the related Receivables exceeds the amount of available funds on
deposit in the Reserve Account, a temporary shortfall in the amounts distributed
to the Noteholders or Certificateholders could result.
Ratings of the Securities. It is a condition to the issuance of the Notes
and the Certificates of the Notes and the Certificates that the Class A-1 Notes
be rated "___________" or its equivalent, the Class A-2 Notes be rated
"________" or its equivalent and the Certificates be rated "_________" or its
equivalent, in each case by at least two nationally recognized rating agencies
(the "Rating Agencies"). A rating is not a recommendation to purchase, hold or
sell Securities, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The ratings of the Securities address the
likelihood of the timely payment of interest on, and the ultimate repayment of
principal of, the Securities pursuant to their terms. There can be no assurance
that a rating will be retained for any given period of time or that a rating
will not be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant. In the event that a rating is
subsequently lowered or withdrawn, no person or entity will be required to
provide any additional credit enhancement. The ratings of the Notes are based
primarily on the credit quality of the Receivables, the subordination provided
by the Certificates and the availability of funds in the Reserve Account. The
ratings of the Certificates are based primarily on the credit quality of the
Receivables and the availability of funds in the Reserve Account.
Trust's Limited Relationship to the Company. The Company is generally not
obligated to make any payments in respect of the Certificates or the Collateral
Certificates.
Considerations Regarding Collateral Certificates. Prospective investors in
the Securities should consider carefully the factors set forth under the caption
"Risk Factors" or "Special Considerations" in the prospectuses relating to the
Collateral Certificates attached hereto as Appendix A for certain additional
considerations relating to the Collateral Certificates and investments backed by
Receivables. Neither the Company nor the Underwriter participated in the
preparation of the prospectuses relating to the Collateral Certificates or the
offering of the Collateral Certificates, and neither has made any due
S-9
<PAGE>
diligence inquiry with respect to the information provided therein. Although
neither the Company nor the Underwriter is aware of any material misstatements
or omissions in any such prospectus, the information provided therein or in the
publicly available documents referred to below is not guaranteed as to accuracy
or completeness, and is not to be construed as a representation, by the Company
or the Underwriter. In particular, information set forth in any prospectus
relating to the Collateral Certificates speaks only as of the date of such
prospectus; there can be no assurance that events have not occurred, which may
or may not have been publicly disclosed, that would affect the accuracy or
completeness of any such statements.
[Each originator of an Underlying Trust Fund is subject to the
informational requirements of the Exchange Act. Accordingly, such originator
files annual and periodic reports and other information with the Commission.
Copies of such reports and other information may be inspected and copies at
certain offices of the Commission at the addresses listed under "Available
Information" herein.]
[Geographic Concentration of Assets. Discuss impact on Securityholders of
material concentration of trust assets in one or a few states, if applicable.]
[Limited number of Loan Originators. Discuss impact on Securityholders of
material concentration of loans originated by one or a few dealers, if
applicable.]
[Concentration of Credit Risk. Discuss impact on Securityholders of
material concentration of credit risk, if applicable.]
[Interest Only Securities. Discuss risks associated with interest only
securities, including any disproportionate prepayment or credit risks, if
applicable.]
[Principal Only Securities. Discuss risks associated with principal only
securities, including any disproportionate prepayment or credit risks, if
applicable.]
THE TRUST
General
The Issuer, CS First Boston Auto Receivables Securities Trust 199_-_, is a
business trust formed under the laws of the State of Delaware pursuant to the
Trust Agreement for the transactions described in this Prospectus Supplement.
After its formation, the Trust will not engage in any activity other that (i)
acquiring, holding and managing the Collateral Certificates and the other assets
of the Trust and proceeds therefrom, (ii) issuing the Notes and the
Certificates, (iii) making payments on the Notes and the Certificates, and (iv)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected therewith.
The Trust initially will be capitalized with equity equal to $____________,
excluding amounts in the Reserve Account. Certificates with an original
principal balance of $____________ (which represents approximately [1]% of the
initial Certificate Balance) will be sold to ____________ and the remaining
Certificates will be sold to third party investors the are expected to be
unaffiliated with the Company and the Trust. The proceeds from the initial sale
of the Notes and Certificates will be used by the Trust to purchase the
Collateral Certificates from the Company pursuant to the Trust Agreement. The
Trustee will manage the Collateral Certificates pursuant to the Trust Agreement.
The Trust's principal offices are located in ________________________,
Delaware, in care of ____________________, as Owner Trustee, at the address
listed below under "--The Owner Trustee".
S-10
<PAGE>
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as of the
Cutoff Date, as if the issuance and sale of the Notes and the Notes and the
Certificates had taken place on such date:
<TABLE>
<S> <C>
Class A-1 Notes ............................. $
Class A-2 Notes .............................
Certificates ................................ _________________________
Total .............................. $________________________
</TABLE>
The Owner Trustee
____________________ is the Owner Trustee under the Trust Agreement.
________________________ is a banking corporation and its principal offices are
located at __________________________. The Owner Trustee's liability in
connection with the issuance and sale of the Notes and Certificates is limited
solely to the express obligations of the Owner Trustee set forth in the Trust
Agreement. The Seller, the Company and their respective affiliates may maintain
normal commercial banking release with the Owner Trustee and its affiliates.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Weighted Average Life of the
Securities" in the Prospectus. In addition, holders of the Class A-2 Notes will
not receive any principal payments until the Class A-1 Notes are paid in full,
and holders of the Certificates will not receive any principal payments until
the Class A-1 Notes and the Class A-2 Notes have been paid in full. See "The
Notes -- Payments of Principal" and "The Certificates -- Distributions of
Principal" herein. As the rate of payment of principal of each class of Notes
and the Certificates depends on the rate of payment (including prepayments) of
the Collateral Certificates, final payment of the Class A-1 Notes or the Class
A-2 Notes and the final distribution in respect of the Certificates could occur
significantly earlier than the Class A-1 Final Scheduled Payment Date, the Class
A-2 Final Scheduled Payment Date or the Final Scheduled Distribution Date, as
applicable. Securityholders will bear the risk of being able to reinvest
principal payments on the Securities at yields at least equal to the yield on
their Securities.
THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the
Securities. The following summary describes the material terms of the Notes and
the Indenture. The summary does not purport to be a complete description of all
term of the Notes and the Indenture and therefore is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture. The following summary supplements the description of the general
terms and provisions of the Notes of any given Series and the related Indenture
set forth under the headings "Description of the Notes" and "Certain Information
Regarding the Securities" in the Prospectus, to which description reference is
hereby made.
Payments of Interest
Interest on the principal balance of the Class A-1 Notes and the Class A-2
Notes will accrue at the Class A-1 Rate and Class A-2 Rate, respectively, and
will be payable to the holders of the Class A-1 Notes and the Class A-2 Notes
monthly on each Distribution Date. Interest with respect to any Distribution
Date will accrue from and including the most recent Distribution Date on which
interest was distributed to Noteholders (or, with respect to the first
Distribution Date, from and
S-11
<PAGE>
including the Closing Date) to but excluding such Distribution Date. Interest on
each class of Notes will be calculated on the basis of a 360-day year of twelve
30-day months. Interest accrued but not paid on any Distribution Date will be
due on the next Distribution Date, together with interest on such amount at the
applicable Interest Rate (to the extent lawful). Interest payments on the Notes
will generally be derived from the Total Distribution Amount and from the
Reserve Account. See "The Trust Agreement -- Distributions" and "-- Reserve
Account" herein. Interest payments to holders of both classes of Notes will have
the same priority. Under certain circumstances, the amount available for such
payments could be less than the amount of interest payable on the Notes on any
Distribution Date, in which case the holders of each class of Notes will receive
their ratable share (based on the aggregate amount of interest due on such class
of Notes) of the aggregate amount available for distribution in respect of
interest on the Notes.
Payments of Principal
On each Distribution Date for as long as the Class A-1 Notes are
outstanding, principal will be distributed to holders of the Class A-1 Notes in
an amount equal to the Total Distribution Amount remaining after payment of the
Noteholder's Interest Distributable Amount. On each Distribution Date from and
including the Distribution Date on which the Class A-1 Notes are paid in full
and for as long as the Class A-2 Notes are outstanding, principal will be
distributed to holders of the Class A-2 Notes in an amount equal to the Total
Distribution Amount remaining after payment of the Noteholders' Interest
Distributable Amount and, on the Distribution Date on which the outstanding
principal amount of the Class A-1 Notes is reduced to zero, any amounts
distributed as principal to holders of the Class A-1 Notes. No principal will be
paid on the Class A-2 Notes until the Class A-1 Notes have been paid in full.
See "The Trust Agreement -- Distributions" and "-- Reserve Account" herein.
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 and 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 actual date on
which the aggregate outstanding principal amount of either the Class A-1 Notes
or the Class A-2 Notes is paid in full may be significantly earlier than the
applicable Final Scheduled Payment Date set forth above due to a variety of
factors, including those described under "Weighted Average Life of the
Securities" herein and in the Prospectus.
Optional Redemption
The Class A-2 Notes may be redeemed in whole, but not in part, on a
Distribution Date on which the Company exercises its option to purchase the
Collateral Certificates, which the Company may do after the aggregate
outstanding principal amount of the Collateral Certificates is reduced to 10% or
less of the Pool Balance as of the Cutoff Date. See "Description of the Transfer
and Servicing Agreements -- Termination" in the Prospectus. The redemption price
for the Class A-2 Notes will equal the unpaid principal amount of the Class A-2
Notes plus accrued and unpaid interest thereon.
THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Securities. The following summary describes the
material terms of the Certificates and the Trust Agreement. This summary does
not purport to be a complete description of all of the terms of the Trust
Agreement and therefore is subject to, and qualified is its entirety by
reference to, all the provisions of the Certificates and the Trust Agreement.
The following summary supplements the description of the general terms and
provision of the Certificates of any given Series and the related Trust
Agreement set forth in the Prospectus, to which description reference is hereby
made.
Distributions of Interest
Interest on the principal balance of the Certificates will accrue at the
Certificate Pass-Through Rate. Interest with respect to any Distribution Date
will accrue from and including the most recent Distribution Date on which
interest was
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<PAGE>
distributed to Certificateholders (or, with respect to the first Distribution
Date, from and including the Closing Date) to but excluding such Distribution
Date and will be calculated on the basis of a 360-day year of twelve 30-day
months. Interest accrued but not distributed on any Distribution Date will be
due on the next Distribution Date, together with interest on such amount at the
Certificate Pass-Through Rate (to the extent lawful). Interest distributions
with respect to the Certificates generally will be funded from the portion of
the Total Distribution Amount and funds in the Reserve Account remaining after
the distribution of the Noteholders' Distributable Amount. See "The Trust
Agreements -- Distribution" and " -- Reserve Account" herein.
Distributions of Principal
Certificateholders will not be entitled to distributions of principal on
any Distribution Date until the Notes have been paid in full. On each
Distribution Date on and after the Distribution Date on which the Class A-2
Notes are paid in full, the Certificateholders will be entitled to distributions
of principal in a maximum amount equal to the lesser of (i) the Total
Distribution Amount plus any funds in the Reserve Account remaining after
payment of the Noteholders' Distributable Amount (on the Distribution Date on
which the outstanding principal amount of the Class A-2 Notes is reduced to
zero) and the Certificateholders' Interest Distributable Amount and (ii) the
outstanding Certificate Balance. See "The Trust Agreement -- Distributions" and
"-- Reserve Account" herein.
Optional Prepayment
If the Company exercises its option to purchase the Collateral
Certificates, which it may do when the aggregate outstanding principal amount of
the Collateral Certificates is reduced to 10% or less of the Pool Balance as of
the Cutoff Date, the Certificateholders will receive an amount in respect of the
Certificates equal to the outstanding Certificate Balance, together with accrued
interest thereon at the Certificate Pass-Through Rate, which distribution shall
effect an early retirement of the Certificates. See "Description of the Transfer
and Servicing Agreements -- Termination" in the Prospectus.
DESCRIPTION OF THE COLLATERAL CERTIFICATES
General
This Prospectus Supplement sets forth certain relevant terms of the
Collateral Certificates. It does not purport to provide complete or updated
information with respect to all terms of such securities, the issuer thereof or
the Receivables relating thereto. Schedule I to this Prospectus Supplement
contains a summary of the terms of the Collateral Certificates. Appendix A to
this Prospectus Supplement contains excerpts from each prospectus pursuant to
which Collateral Certificates were offered and sold. This Prospectus Supplement
relates only to the Certificates offered hereby and does not relate to the
Collateral Certificates. Prospective investors are urged to read such schedule,
appendix and attachments, which are expressly made a part hereof. See "Risk
Factors--Considerations Regarding Collateral Certificates".
Although the Company nor the Underwriter has any reason to believe the
information provided by an originator of an Underlying Trust Fund or the
prospectus relating to the Collateral Certificates is not reliable, neither the
Company nor the Underwriter has verified either its accuracy or its
completeness. In particular, information set forth in any prospectus relating to
the Collateral Certificates speaks only as of the date of such prospectus; there
can be no assurance that events have not occurred, which would affect either the
accuracy or the completeness of the information contained therein. See "Risk
Factors--Considerations Regarding Collateral Certificates" and "--Certain
Updated Information with Respect to the Collateral Certificates".
Certain Updated Information with Respect to the Collateral Certificates
The originator of each Underlying Trust Fund is subject to the information
requirements of the Exchange Act. Accordingly, such originator files reports and
other information with respect to each Underlying Trust Fund, including monthly
servicer reports ("Servicer Reports") regarding the Collateral Certificates,
with the Commission. A summary of certain of the information included in the
most recent Servicer Reports filed with the Commission is included as Appendix B
hereto. Copies of
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<PAGE>
such reports and other information may be inspected and copied at certain
offices of the Commission at the address listed under "Available Information"
herein.
Neither the Company nor the Underwriter participated in the preparation of
such Servicer Reports, and the information provided therein or in the publicly
available documents referred to above is not guaranteed as to accuracy or
completeness, and is not to be construed as a representation, by the Company or
the Underwriter. In particular, information set forth in the Servicer Reports
speaks only as of the date of such Servicer Report; there can be no assurance
that events have not occurred that would affect the accuracy or completeness of
any statements included in such Servicer Reports or in the publicly available
documents filed by or on behalf of each Underlying Trust Fund.
[Underwriting Standards
If applicable, describe the underwriting standard used to originate the
assets backing the Collateral Certificates.]
THE TRUST AGREEMENT
The following summary describes the material terms of the Trust Agreement.
A form of the Trust Agreement has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Securities. This summary does not purport to be a
complete description of all terms of the Trust Agreement and therefore is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Trust Agreement. The following summary supplements the description of the
general terms and provisions of Transfer and Servicing Agreements (as such term
is used in the Prospectus) set forth under the heading "Description of the
Transfer and Servicing Agreements" in the Prospectus, to which description
reference is hereby made.
Accounts
In addition to the Accounts referred to under "Description of the Transfer
and Servicing Agreements -- Accounts" in the Prospectus, the Owner Trustee will
also establish and maintain the Reserve Account on behalf of the Noteholders and
the Certificateholders.
Distributions
Deposits to Collection Account. On or about the _____ Business Day of each
month, the Owner Trustee will provide the Indenture Trustee with certain
information with respect to the related Collection Period, including the
aggregate amount of collections on the Collateral Certificates, as well as the
Total Distribution Amount, the Interest Distribution Amount and the Principal
Distribution Amount.
On or before each Distribution Date, the Owner Trustee will cause the Total
Distribution Account to be deposited into the Collection Account. The "Total
Distribution Amount" for a Distribution Date will equal the aggregate amount of
the distributions received on the Collateral Certificates.
The "Interest Distribution Amount" for a Distribution Date will equal the
sum of the portion of all collections on the Collateral Certificates allocable
to interest, and Investment Earnings for such Distribution Date in each case,
with respect to the related Collection Period. The "Principal Distribution
Amount" for a Distribution Date will equal the portion of all collections on the
Collateral Certificates allocable to principal, with respect to the related
collection period.
Deposits to the Distribution Accounts. On each Distribution Date, the Owner
Trustee will make the following deposits and distributions, to the extent of the
Total Distribution Amount, in the following order of priority:
(i) to the Note Distribution Account, from the Total Distribution
Amount, the Noteholders' Interest Distributable Amount;
S-14
<PAGE>
(ii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clause (i), the Noteholders'
Principal Distributable Amount;
(iii) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) and
(ii), the Certificateholders' Interest Distributable Amount;
(iv) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) through
(iii), the Certificateholders' Principal Distributable Amount; and
(v) to the Reserve Account, the Total Distribution Amount remaining
after the application of clauses (i) through (iv).
For purposes hereof, the following terms shall have the following meanings:
"Noteholders' Distributable Amount" means, with respect to any Distribution
Date, the sum of the Noteholders' Principal Distributable Amount and the
Noteholders' Interest Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for such Distribution Date and the Noteholders' Interest Carryover
Shortfall for such Distribution Date.
"Noteholders' Monthly Interest Distributable Amount" means, with respect to
any Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to but
excluding such Distribution Date) on the Class A-1 Notes and the Class A-2 Notes
at the Class A-1 Rate and the Class A-2 Rate, respectively, on the outstanding
principal balance of the Notes of such class on the immediately preceding
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date) after giving effect to all payments of principal to the
Noteholders of such class on or prior to such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, (i) the excess of the Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date, plus any outstanding
Noteholders' Interest Carryover Shortfall on such preceding Distribution Date,
over the amount in respect of interest that is actually deposited in the Note
Distribution Account on such preceding Distribution Date, plus (ii) interest on
the amount of interest due but not paid to Noteholders on the preceding
Distribution Date, to the extent permitted by law, at the respective Interest
Rates borne by each class of the Notes from such preceding Distribution Date to
but excluding such current Distribution Date. The Noteholders' Interest
Carryover Shortfall for the initial Distribution Date is zero.
"Noteholders' Principal Distributable Amount" means, with respect to any
Distribution Date for as long as the Class A-1 Notes or the Class A-2 Notes are
outstanding, 100% of the Principal Distribution Amount; provided, however, that
on the Distribution Date on which the principal balance of the Class A-2 Notes
is reduced to zero, the portion, if any, of the Principal Distribution Amount
that is not applied to the principal of the Class A-2 Notes will be applied to
the Certificate Balance; provided further, however, that the Noteholders'
Principal Distributable Amount shall not exceed the outstanding principal
balance of the Notes.
"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 Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, 30 days of interest (or, in the case of the
first Distribution Date, interest accrued from and including the Closing Date to
but excluding such Distribution Date) at the Certificate Pass-Through Rate on
the Certificate Balance on the last day of the preceding
S-15
<PAGE>
Collection Period (or, in the case of the first Distribution Date, on the
Closing Date) after giving effect to all distributions of principal to the
Certificateholders on or prior to such Distribution Date.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the Certificate
Pass-Through Rate from such preceding Distribution Date to but excluding such
current Distribution Date. The Certificateholders' Interest Carryover Shortfall
for the initial Distribution Date is zero.
"Certificateholders' Principal Distributable Amount" means, with respect to
any Distribution Date prior to the Distribution Date on which the Notes are paid
in full, zero; and with respect to any Distribution Date commencing on the
Distribution Date on which the Notes are paid in full, 100% of the Principal
Distribution Amount (less, on the Distribution Date on which the Notes are paid
in full, the portion thereof payable as principal of the Notes); provided,
however, that the Certificateholders' Principal Distributable Amount shall not
exceed the Certificate Balance.
"Certificate Balance" equals, initially, $______ and, thereafter, equals
the initial Certificate Balance, reduced by all amounts allocable to principal
previously distributed to Certificateholders.
On each Distribution Date, all amounts on deposit in the Note Distribution
Account generally will be paid in the following order of priority:
(i) to the applicable Noteholders, accrued and unpaid interest on the
outstanding principal balance of the applicable class of Notes at the
applicable Interest Rate;
(ii) to the Class A-1 Noteholders in reduction of principal until the
principal balance of the Class A-1 Notes has been reduced to zero; and
(iii) to the Class A-2 Noteholders in reduction of principal until the
principal balance of the Class A-2 Notes has been reduced to zero.
On each Distribution Date, all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders.
Reserve Account
The Reserve Account will be created by the deposit thereto by the Company
on the Closing Date of the Reserve Account Initial Deposit and will be increased
up to the Specified Reserve Account Balance by the deposit thereto on each
Distribution Date on the amount, if any, remaining from the Total Distribution
Amount after payment of the Noteholders' Distributable Amount and the
Certificateholders' Distributable Amount. If the amount on deposit in the
Reserve Account on any Distribution Date (after giving effect to all deposits
thereto or withdrawals therefrom on such Distribution Date), is greater than the
Specified Reserve Account Balance for such Distribution Date, the Owner Trustee
will distribute an amount equal to such excess to the Company. Upon any
distribution to the Company of amounts from the Reserve Account, neither the
Noteholders nor the Certificateholders will have any rights in, or claim to,
such amounts.
Amounts held from time to time in the Reserve Account will continue to be
held for the benefit of the Noteholders and Certificateholders. Funds will be
withdrawn from cash in the Reserve Account to the extent that the Total
Distribution Amount with respect to any Collection Period is less than the
Noteholders' Interest Distributable Amount and will be deposited to the Note
Distribution Account for distribution to the Noteholders. In addition, funds
will be withdrawn from cash in the Reserve Account to the extent that the
portion of the Total Distribution Amount remaining after the deposit of the
Noteholders' Distributable Amount to the Note Distribution Account is less than
the Certificateholders' Interest Distributable Amount and will be deposited to
the Certificate Distribution Account for distribution to the Certificateholders.
S-16
<PAGE>
The subordination of the Certificates and the Reserve Account are intended
to enhance the likelihood of receipt by Noteholders of the full amount of
interest due to them and to decrease the likelihood that the Noteholders will
experience losses. In addition, the Reserve Account is intended to enhance the
likelihood of receipt by Certificateholders of the full amount of interest due
to them and to decrease the likelihood that the Certificateholders will
experience losses. However, in certain circumstances, the Reserve Account could
be depleted. In addition, subject to certain conditions, funds in the Reserve
Account may be invested in securities that will not mature prior to a particular
Distribution Date and will not be sold prior to maturity to meet any shortfalls
that might occur on such Distribution Date. Thus, the amount of cash in the
Reserve Account at any time may be less than the balance of the Reserve Account.
If the amount required to be withdrawn from the Reserve Account to cover
shortfalls in collections on the Collateral Certificates exceeds the amount of
cash in the Reserve Account, a temporary shortfall in the amounts distributed to
the Noteholders or the Certificateholders could result.
ERISA CONSIDERATIONS
The Notes
The Notes may be purchased by an "employee benefit plan" as defined in and
subject to the provisions of Title I of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") or a "plan" as described in Section 4975(e)(1)
of the Internal Revenue Code of 1986, as amended (the "Code") (each such
"employee benefit plan" and "plan," a "Plan"). A fiduciary of a Plan must
determine that the purchase of a Note is consistent with its fiduciary duties
under ERISA and does not result in a nonexempt prohibited transaction as defined
in Section 406 of ERISA or Section 4975 of the Code. For additional information
regarding treatment of the Notes under ERISA, see "ERISA Considerations" in the
Prospectus.
The Certificates
The Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of Title I
of ERISA, (b) a plan described in Section 4975(e)(l) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the respective
underwriting agreements relating to the Notes and the Certificates (the
"Underwriting Agreements"), the Company has agreed to cause the Trust to sell to
CS First Boston Corporation (the "Underwriter"), and the Underwriter has agreed
to purchase, all of the Securities.
The Underwriter proposes to offer the Securities to the public initially at
the public offering prices set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such prices less a concession of ___% per
Class A-1 Note, ___% per Class A-2 Note and ___% per Certificate; however, the
Underwriter and such dealers may allow a discount of ___% per Class A-1 Note,
___% per Class A-2 Note and ___% per Certificate on sales to certain other
dealers; and after the initial public offering of the Securities, and public
offering prices and the concessions and discounts to dealers may be changed by
the Underwriter.
The Underwriting Agreements provide that the Seller will indemnify the
Underwriter against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriter may be required to
make in respect thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriter.
S-17
<PAGE>
The closing of the sale of the Certificates is conditioned on the closing
of the sale of the Notes, and the closing of the sale of the Notes is
conditioned on the closing of the sale of the Certificates.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter within the period
during which there is an obligation to deliver a Prospectus Supplement and
Prospectus, the Company or the Underwriter will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus Supplement and the
Prospectus.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the attached Prospectus will also be used by the
Underwriter after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.]
LEGAL MATTERS
Certain legal matters relating to the Securities will be passed upon by
Sidley & Austin, New York, New York.
S-18
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
Business Day.................................................................S-5
Certificate Balance.........................................................S-16
Certificate Pass-Through-Rate................................................S-6
Certificateholders...........................................................S-6
Certificateholders' Distributable Amount....................................S-15
Certificateholders' Interest Carryover Shortfall............................S-15
Certificateholders' Interest Distributable Amount...........................S-15
Certificateholders' Monthly Interest Distributable Amount...................S-15
Certificateholders' Principal Distributable Amount..........................S-16
Certificates................................................................S-12
Class A-1 Final Scheduled Payment Date.......................................S-6
Class A-1 Notes............................................................Cover
Class A-1 Rate...............................................................S-5
Class A-2 Final Scheduled Payment Date.......................................S-6
Class A-2 Notes............................................................Cover
Class A-2 Rate...............................................................S-5
Closing Date.................................................................S-4
Code........................................................................S-17
Collateral Certificates.....................................................S-13
Collection Account...........................................................S-7
Commission...................................................................S-3
Cutoff Date................................................................Cover
Distribution Date............................................................S-2
ERISA........................................................................S-8
Federal Tax Counsel..........................................................S-8
Final Scheduled Distribution Date............................................S-6
Indenture..................................................................Cover
Indenture Trustee..........................................................Cover
Interest Distribution Amount................................................S-14
Interest Rates...............................................................S-5
Noteholders..................................................................S-5
Noteholders' Distributable Amount...........................................S-15
Noteholders' Interest Carryover Shortfall...................................S-15
Noteholders' Interest Distributable Amount..................................S-15
Noteholders' Monthly Interest Distributable Amount..........................S-15
Noteholders' Principal Distributable Amount.................................S-15
Notes.......................................................................S-11
Owner Trustee..............................................................Cover
Plan........................................................................S-17
Pool Balance.................................................................S-6
Principal Distribution Amount...............................................S-14
Prospectus...................................................................S-3
Rating Agencies..............................................................S-9
Receivables..................................................................S-2
Record Date..................................................................S-5
Reserve Account..............................................................S-7
Reserve Account Initial Deposit..............................................S-7
Securities.................................................................Cover
Securityholders..............................................................S-6
Seller.......................................................................S-2
</TABLE>
S-19
<PAGE>
<TABLE>
<S> <C>
Specified Reserve Account Balance............................................S-7
Total Distribution Amount....................................................S-5
Trust......................................................................Cover
Trust Agreement............................................................Cover
Trust Property...............................................................S-5
Underlying Agreement.........................................................S-2
Underlying Trust Fund........................................................S-5
Underwriting...............................................................Cover
Underwriting Agreements.....................................................S-17
</TABLE>
S-20
<PAGE>
Schedule I
Class __
CUSIP #___________ Rating: ______________
<TABLE>
<CAPTION>
[Monthly][Quarterly]
[Semi-Annual] Aggregate
Payment Dates Interest Payment Interest Payment
------------- ---------------- ----------------
<S> <C> <C>
$___________________ $___________________
<CAPTION>
Aggregate Face
Amount Minimum
of Principal Authorized
Component Denomination Interest Rate
--------- ------------ -------------
<S> <C> <C>
$____________ $____________ ___________%
</TABLE>
I-1
<PAGE>
Appendix A
[To be Supplied]
A-1
<PAGE>
Appendix B
[To be Supplied]
B-1
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or CS First Boston. This Prospectus Supplement and the Prospectus do not
constitute an offer of any securities other than those to which they relate or
an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
----------
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary.....................................................................S-4
Risk Factors ...............................................................S-9
The Trust..................................................................S-10
Weighted Average Life of the Securities....................................S-11
The Notes..................................................................S-11
The Certificates...........................................................S-12
Description of the Collateral Certificates.................................S-13
The Trust Agreement........................................................S-14
ERISA Considerations.......................................................S-17
Underwriting...............................................................S-17
Legal Matters..............................................................S-18
Index of Terms.............................................................S-19
Prospectus
Prospectus Supplement.........................................................2
Reports to Securityholders....................................................2
Available Information.........................................................2
Incorporation of Certain Documents by Reference...............................2
Summary of Terms..............................................................4
Rick Factors.................................................................14
The Trusts...................................................................17
The Receivables Pools........................................................19
The Collateral Certificates..................................................21
Weighted Average Life of the Securities......................................23
Pool Factors and Trading Information.........................................24
The Seller and the Servicer..................................................25
Use of Proceeds..............................................................25
Description of the Notes.....................................................25
Description of the Certificates..............................................31
Certain Information Regarding the Securities.................................32
Description of the Transfer and Servicing Agreements.........................36
Certain Legal Aspects of the Receivables.....................................48
Certain Federal Income Tax Consequences......................................53
State and Local Tax Considerations...........................................77
ERISA Considerations.........................................................79
Plan of Distribution.........................................................85
Legal Matters................................................................86
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the securities described in this Prospectus
Supplement, whether or not participating in this distribution, may be required
to deliver this Prospectus Supplement and the Prospectus. This is in addition to
the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
$[__________]
CS FIRST BOSTON
AUTO RECEIVABLES
AND RECEIVABLES
SECURITIES TRUSTS
$[_________] [___]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[_________] [___]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[_________] [___]% [Floating Rate]
Asset Backed Certificates, Class [ ]
ASSET BACKED SECURITIES CORPORATION
(COMPANY)
-----------------
PROSPECTUS SUPPLEMENT
[________], 199[_]
-------------------
[LOGO] CS First Boston
================================================================================
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED , 1996
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated _____ , 19__ )
- --------------------------------------------------------------------------------
$__________ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Mortgage Pass-Through Certificates, Series _______
% Pass-Through Rate
Principal and interest payable on the ___day
of each month, beginning __________, 19__
-----------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF ASSET
BACKED SECURITIES CORPORATION OR ANY AFFILIATE THEREOF. NEITHER THE CERTIFICATES
NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
The Conduit Mortgage Pass-Through Certificate, Series ______ (the
"Certificates") offered herby evidence undivided fractional interests in a
trust to be created by Asset Backed Securities Corporation, a Delaware
corporation, (the "Depositor"), on or about _________________ , 199 (the
"Trust"). The Trust property will consist of a pool of [conventional]
[fixed-rate] [mortgage
(Continued on next page)
See "Risk Factors" beginning on p.S-8 herein and on p.14 of the Prospectus
for a discussion of certain factors that potential investors should consider in
determining whether to invest in the Certificates.
Prospective investors should consider the limitations discussed under
"ERISA Considerations" herein and in the accompanying Prospectus.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for
the Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"). See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.]
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
========================================================================================================================
<S> <C> <C> <C>
Per Certificate % % %
- ------------------------------------------------------------------------------------------------------------------------
Total $ $ $
========================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from
__________________, 19__.
(2) Before deduction of expenses payable by the Depositor estimated at
$__________________________.
-----------------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [their] [its] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be delivered to the offices of CS First
Boston, New York, New York, on or about _________________________________ , 19 .
- --------------------------------------------------------------------------------
CS First Boston
The date of this Prospectus Supplement is ____________________,19__
<PAGE>
(Continued from prior page)
loans [and]] [mortgage participation certificates evidencing participation
interests in such mortgage loans and meeting the requirements of the nationally
recognized rating agency or agencies rating the Certificates (collectively, the
"Rating Agency") for a rating in one of the two highest rating categories of
such Rating Agency] (the "Mortgage Loans") and certain related property to be
conveyed to the Trust by the Depositor (the "Trust Fund"). The Mortgage Loans
will be transferred to the Trust, pursuant to a Pooling and Servicing Agreement
(as defined herein), dated as of ___________________________, 19 , by the
Depositor in exchange for the Certificates and are more fully described in this
Prospectus Supplement and in the accompanying Prospectus. The Certificates
offered by this Prospectus Supplement constitute a separate series of the
Certificates being offered by the Depositor from time to time pursuant to its
Prospectus dated _________________, 199 , which accompanies this Prospectus
Supplement and of which this Prospectus Supplement forms a part. The Prospectus
contains important information regarding this offering that is not contained
herein, and prospective investors are urged to read the Prospectus and this
Prospectus Supplement in full.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS
THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
-----------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. THE UNDERWRITER MAY ALSO ACT AS AGENT IN SUCH
TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF
SALE.]
UNTIL ______________________ , 19 ____ , ALL DEALERS EFFECTING TRANSACTIONS
IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
-----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Trust can be inspected and copied at the Public Reference Room of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., and
at the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, NewYork 10048; and Citicorp Center 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements and
other
S-2
<PAGE>
information regarding registrants that file electronically with the
Commission. The address of such site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Monthly and annual unaudited reports containing information concerning the
Mortgage Loans will be prepared by the Master Servicer and sent on behalf of the
Trust to each registered holder of the Certificates. See "Description of the
Certificates - Reports to Certificateholders" in the Prospectus.
S-3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. An "Index of Terms" is included at the end of this Prospectus
Supplement. Capitalized terms used in this Prospectus Supplement and not defined
shall have the meanings given in the Prospectus. References to percentages of
the Mortgage Loans or to the principal balance of the Mortgage Loans in this
Prospectus Supplement are to percentages (except as otherwise indicated) by
aggregate principal balance as of the Cut-off Date.
Securities Offered.................... Conduit Mortgage Pass-Through
Certificates, Series ____________,
____% Pass-Through Rate (the
"Certificates").
Amount................................ $_______________________ (Approximate:
subject to a permitted variance of up
to 5%).
Description of the Certificates....... [______________________________]
Depositor............................. Asset Backed Securities Corporation, a
Delaware corporation (the "Depositor"),
and an affiliate of the Underwriter.
Seller................................ [_____________________________]
Master Servicer....................... _____________, a _________ corporation
(the "Master Servicer").
Denominations......................... The minimum denomination of a Certificate
(a "Single Certificate") will initially
represent approximately $___________
aggregate principal amount of the
Mortgage Loans.
Cut-off Date.......................... ______________________, 19 __.
Delivery Date......................... On or about _____________________, 19__.
Record Date........................... [With respect to each Distribution Date,
the last business day of the month
preceding the month in which such
Distribution Date occurs.]
Distribution Date..................... The ____ day of each month, or, if such
day is not a business day, the next
succeeding business day.
Interest Accrual Period............... [With respect to any Distribution Date,
the calendar month preceding the month
in which such Distribution Date occurs.
Interest for each Interest Accrual
Period is calculated based on a 360-day
year comprised of twelve 30-day
months.]
Collection Period..................... [With respect to a Distribution Date, the
period beginning on the day after the
Due Date in the month preceding the
month in which such Distribution Date
occurs and ending on the Due Date in
the month in which such Distribution
Date occurs.]
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S-4
<PAGE>
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Due Date.............................. [With respect to any Distribution Date
and/or any Mortgage Loan, as the case
may be, the first day of the month in
which such Distribution Date occurs, or
if such first day is not a business
day, the business day immediately
following such first day.]
Final Scheduled
Distribution Date..................... [______________________]. The Final
Scheduled Distribution Date has been
determined to be the Distribution Date
succeeding the latest maturity date of
any Mortgage Loan in the Mortgage Pool.
Interest.............................. Passed through monthly at a fixed rate of
__% per annum (the "Pass-Through
Rate"), on each Distribution Date,
commencing ________________, 19__.
Principal (including
Prepayments).......................... Passed through monthly on the
Distribution Date, commencing
_____________, 19 __. The rate of
distribution of principal of the
Certificates [(other than the Class R
Certificates)] will depend on the rate
of payment of principal of the Mortgage
Loans which, in turn, will depend on
the characteristics of the Mortgage
Loans, the level of prevailing interest
rates and other economic, geographic
and social factors. No assurance can be
given as to the actual payment
experience of the Mortgage Loans.
Mortgage Pool......................... The Mortgage Pool will consist of [fixed
rate], fully amortizing,
[level-payment] mortgage loans [and
mortgage participation certificates
evidencing participation interests in
such mortgage loans that meet the
requirements of the nationally
recognized rating agency or agencies
rating the Certificates (collectively
the "Rating Agency") for a rating in
one of the two highest rating
categories of such Rating Agency]
secured by mortgages on one- to
four-family residential properties
[located in the states of , and
_______] (the "Mortgage Loans"). All
Mortgage Loans will have original
maturities of at least [15 but no more
than 30] years. See "Description of the
Mortgage Pool and the Underlying
Properties" herein.
Certain Risk Factors.................. For a discussion of certain risk factors
that should be considered in connection
with an investment in the Certificates,
including those relating to [describe
risk factors specific to transaction],
see "Risk Factors" herein.
[Letter of Credit..................... The maximum liability of [_________]
under an irrevocable standby letter of
credit for the Mortgage Pool (the
"Letter of Credit"), net of
unreimbursed payments thereunder, will
be no more than [10%] of the initial
aggregate principal balance of the
Mortgage Pool (the "Letter of Credit
Percentage"). The maximum amount
available to be paid under the Letter
of Credit will be determined in
accordance with the Pooling and
Servicing Agreement referred to herein.
The duration of coverage and the amount
of frequency of any reduction in
coverage will be in compliance with the
requirements established by the Rating
Agency, in order to obtain a rating in
one of the two highest rating
categories of such Rating Agency. The
amount available under the Letter of
Credit shall be reduced by the amount
of unreimbursed payments thereunder.
See "Description of the
Certificates-Credit Support-The Letter
of Credit" in the Prospectus.]
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S-5
<PAGE>
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[Pool Insurance Policy................ Subject to the limitations described
herein, a pool insurance policy for
certain of the Mortgage Loans (the
"Pool Insurance Policy") will cover
losses due to default on such Mortgage
Loans in an initial amount of not less
than [5%] of the aggregate principal
balance as of the Cut-off Date of all
Mortgage Loans that are not covered as
to their entire outstanding principal
balance by primary policies of mortgage
guaranty insurance. The Pool Insurance
Policy will be subject to the
limitations described under
"Description of Insurance-the Pool
Insurance Policy" in the Prospectus.]
Hazard Insurance [and Special
Hazard Insurance Policy].............. All of the Mortgage Loans will be covered
by standard hazard insurance policies
insuring against losses due to various
causes, including fire, lightning and
windstorm. [An insurance policy (the
"Special Hazard Insurance Policy") will
cover losses with respect to the
Mortgage Loans that result from certain
other physical risks that are not
otherwise insured against (including
earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited
in scope and will cover losses in an
initial amount equal to the greater of
__________% of the aggregate principal
balance of the Mortgage Loans or times
the unpaid principal balance of the
largest Mortgage Loan.] Any hazard
losses not covered by [either] standard
hazard insurance policies [or the
Special Hazard Insurance Policy] will
not be insured against and [, to the
extent that the amount available under
any alternative method of credit
support is exhausted,] will be borne by
holders of the Certificates (the
"Certificateholders"). The hazard
insurance policies [and the Special
Hazard Insurance Policy] will be
subject to the limitations described
under "Description of Insurance-Hazard
Insurance" [and "-Special Hazard
Insurance Policies"] in the Prospectus.
[Mortgagor Bankruptcy Bond............ The Depositor will obtain a bond or
similar form of insurance coverage (the
"Mortgagor Bankruptcy Bond"), providing
coverage against losses that result
from proceedings with respect to
obligors under the Mortgage Loans (the
"Mortgagors") under the federal
Bankruptcy Code. See "Description of
the Certificates-Mortgagor Bankruptcy
Bond" herein and "Description of
Insurance-The Mortgagor Bankruptcy
Bond" in the Prospectus.]
[Optional Termination................. The Depositor may, at its option,
repurchase from the Trust all Mortgage
Loans remaining outstanding at such
time as the aggregate unpaid principal
balance of such Mortgage Loans is less
than [10%] of the aggregate principal
balance of the Mortgage Loans on the
Cut-off Date. The repurchase price will
equal the aggregate unpaid principal
balance of such Mortgage Loans together
with accrued interest thereon at the
Pass-Through Rate through the last day
of the month during which such
repurchase occurs, plus the appraised
value of any property acquired in
respect thereof. [Any such repurchase
will be effected in compliance with the
requirements of Section 860F(a)(iv) of
the Internal Revenue Code of 1986, as
amended (the "Code"), so as to
constitute a "qualifying liquidation"
thereunder.] See "Termination;
Repurchase of Mortgage Loans", herein
and "Description of the
Certificates-Termination; Repurchase of
Certificates in the Prospectus."]
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S-6
<PAGE>
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Advances.............................. The Servicers of the Mortgage Loans (and
the Master Servicer, with respect to
each Mortgage Loan that it services
directly and otherwise, to the extent
the related Servicer does not do so)
will be obligated to advance delinquent
installments of principal and interest
on the Mortgage Loans under certain
circumstances described herein and in
the Prospectus. See "Description of the
Certificates-Advances" in the
Prospectus.
Trustee............................... _____________________(the "Trustee"). See
"Description of the
Certificates-Trustee" herein.
Certificate Rating.................... It is a condition of issuance that the
Certificates be rated in one of the two
highest rating categories of [ ] (the
"Rating Agency"). A security rating is
not a recommendation to buy, sell or
hold securities and may be subject to
revision or withdrawal at any time by
the assigning rating organization. A
security rating does not address the
frequency of prepayments or the
possibility that Certificateholders
might suffer a lower than anticipated
yield. A security rating also does not
represent any assessment of the yield
to maturity that investors may
experience. See "Risk Factors" herein
and in the Prospectus, "Rating" herein
and "Yield Considerations" in the
Prospectus.
ERISA Considerations.................. See "ERISA Considerations" in the
Prospectus [and herein].
Legal Investment...................... The Certificates constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement
Act of 1984 (the "Enhancement Act"),
and, as such, are legal investments for
certain entities to the extent provided
in the Enhancement Act. See "Legal
Investment" in the Prospectus [and
herein].
Tax Aspects........................... The Depositor [intends] [does not intend]
to make an election to treat the Trust
as a Real Estate Mortgage Investment
Conduit (a "REMIC"), pursuant to the
Internal Revenue Code of 1986, as
amended. [The Certificates other than
the Class R Certificates (the "Regular
Certificates") will be treated as
regular interests in the REMIC and
generally will be treated as debt
instruments issued by the REMIC for
federal income tax purposes. Certain
Classes of the Regular Certificates may
be issued with original issue discount.
The prepayment assumption that will be
used in determining the rate of accrual
of any original issue discount on the
Regular Certificates for federal income
tax purposes (and whether such original
issue discount is de minimis), and that
may be used by a holder of a Regular
Certificate to amortize premium, will
be [ ]% of the Prepayment Assumption.
No representation is made that the
Mortgage Loans will prepay at such rate
or at any other rate. The holders of
the Residual Certificates will be
subject to special federal income tax
rules that may significantly reduce the
after-tax yield of such Certificates.
Further, significant restrictions apply
to the transfer of the Residual
Certificates.] See "Certain Federal
Income Tax Consequences" [herein] [and]
in the Prospectus.
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S-7
<PAGE>
RISK FACTORS
General
The rate of distributions in reduction of the principal balance of any
[Subclass or Class of] Certificates, the aggregate amount of distributions of
principal and interest on any Subclass or Class of Certificates and the yield to
maturity of any [Subclass or Class of] Certificates will be directly related to
the rate of payments of principal on the Mortgage Loans in the Trust Fund and
the amount and timing of Mortgagor defaults resulting in realized Losses. The
rate of principal payments on the Mortgage Loans will, in turn, be affected by
the amortization schedules of the Mortgage Loans, the rate of principal
prepayments (including partial prepayments and those resulting from refinancing)
thereon by Mortgagors, liquidations of defaulted Mortgage Loans, repurchases by
the Depositor, the Master Servicer or any Unaffiliated Seller of Mortgage Loans
as a result of certain breaches of representations and warranties and optional
purchase by the Depositor of all of the Mortgage Loans in connection with the
termination of the Trust Fund. See "Description of the Certificates Termination;
Repurchase of Mortgage Loans" herein and "The Trust Fund-Mortgage Loan
Program-Representations by Unaffiliated Sellers; Repurchases" and "Description
of the Certificates-Assignment of Mortgage Loans; and - Termination" in the
Prospectus. Mortgagors are permitted to prepay the Mortgage Loans, in whole or
in part, at any time without penalty.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment would generally be expected to increase.
Conversely, if interest rates on similar mortgage loans rise above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to decrease.
An investor that purchases any Certificates at a discount should consider
the risk that a slower than anticipated rate of principal payments on the
Mortgage Loans will result in an actual yield that is lower than such investor's
expected yield. An investor that purchases any Certificates at a premium should
consider the risk that a faster than anticipated rate of principal payments on
the Mortgage Loans will result in an actual yield that is lower than such
investor's expected yield.
[Additional risk factors will be added, as appropriate, including, without
limitation, (i) if an Interest Weighted Class of Certificates or a Principal
Weighted Class of Certificates is being offered, a discussion of the risks
associated with such Class, including any disproportionate share of credit or
prepayment risks that such Class will bear, (ii) a discussion of the
concentration of credit risk, if any, with respect to the Mortgage Loans due to,
among other things (w) a concentration of Mortgage Loans originated by one or a
few dealers, (x) a single mortgagor or lessee or cross-default, cross-
collateralization or similar provisions, (y) a concentration of properties with
brief or financially troubled operating histories or (z) a concentration of
properties within a state (or region of a state) and (iii) a discussion of the
basis risk associated with a Class of Certificates.]
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING PROPERTIES
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage
notes with aggregate unpaid principal balances outstanding as of the Cut-off
Date, after deducting payments of principal due on such date, of approximately
$_______. This amount is subject to a permitted variance of up to ____ %. The
average outstanding principal balance of the Mortgage Loans as of the Cut-off
Date will be $[ ______ ]. The Mortgage Pool will consist of _______________
- -year, [fixed-rate], fully-amortizing, [level-payment] Mortgage Loans, as more
fully described in the Prospectus.
The weighted average interest rate (individually, a "Mortgage Rate") of the
Mortgage Loans as of the Cut-off Date will be at least ____________ % but no
more than ________________ %. All Mortgage Loans will have Mortgage Rates of at
least _____________ % but no more than ____ %. The weighted average maturity of
the Mortgage Loans, as of the Cut-off Date, will be at least __ years but no
more than __ years. All Mortgage Loans will have original maturities of at least
__ but no more than
S-8
<PAGE>
________ years. None of the Mortgage Loans will have been originated prior to
_________, 19__ or after _______________, 19__. None of the Mortgage Loans will
have a scheduled maturity later than ___________.
The Mortgage Loans will have the following characteristics as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
[Tables to be added]
No more than __ % of the Mortgage Loans will have been originated before
___________________________ , and no more than __% of the Mortgage Loans will
have been originated before ___________________________ . See "Certain Federal
Income Tax Consequences-Mortgage Pools," "-Taxation of Owners of Trust
Fractional Certificates" and "-Market Discount and Premium" in the Prospectus
for information regarding such Mortgage Loans.
At least __% of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $____________.
No more than ___% of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ _____ .
No more than ___% of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of 80%, and no Mortgage Loan will have had a
loan-to-value ratio at origination in excess of 95%.
[All the Mortgage Loans with loan-to-value ratios at origination in excess
of 80% will be covered by a policy of private mortgage insurance until the
outstanding principal balance is reduced to 75% of the Original Value. ]
At least ___% of the Mortgage Loans will be secured by Mortgages on
single-family dwellings.
No more than___% of the Mortgage Loans will be secured by Mortgages on
condominiums.
No more than ___%, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided, and no more
than ____ % of the outstanding principal balance of any such Mortgage Loan will
be represented by Buy-Down Funds.
No more than ___%, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
At least ____ % of the Mortgage Loans will be secured by an owner-occupied
Mortgaged Property. Such determination will have been made on the basis of a
representation by the Mortgagor at the time of origination of the Mortgage Loan
that such Mortgagor then intended to occupy the underlying property or, in the
absence of such a representation, various factors indicating that the underlying
property is owner-occupied.
No more than [ ]% of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of ____________________.
[With respect to ARM Loans, specify the adjustment dates, the highest,
lowest and weighted average margin, and the maximum Mortgage Rate variation at
the time of any periodic adjustment and over the life of such ARM Loans.]
[With respect to Mortgage Loans which are secured by Multifamily
Properties, specify (i) whether such loans provide for interest only periods and
whether the principal amounts of such loans are amortized on the basis of a
period of time that extends beyond the related maturity dates thereof and (ii)
any materially different underwriting standards for such loans.]
S-9
<PAGE>
[With respect to Multi-Class Certificates, specify the method of
determining the Asset Value of each Trust Asset.]
[Specify whether the Depositor, the Master Servicer or the related
Servicer, as the case may be, has the right to substitute Mortgage Loans and the
period during which the Depositor, the Master Servicer or the related Servicer
may exercise such right.]
Specific information with respect to the Mortgage Loans will be available
to purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans and
distribution of Mortgage Loans by Mortgage Rate, and will be set forth in a
Current Report on Form 8-K that will be filed with the Securities and Exchange
Commission by the Depositor within 15 days after the issuance of the
Certificates.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms"), as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, _______________________, as master
servicer (the "Master Servicer"), and _____________________, as trustee (the
"Trustee"), a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus Supplement forms a part. Reference is made to
the accompanying Prospectus for important additional information regarding the
terms and conditions of the Pooling and Servicing Agreement and the
Certificates. Each of the Certificates at the time of issuance will qualify as a
"mortgage related security" within the meaning of the Secondary Mortgage Market
Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such Certificateholder;
provided, however, that the final distribution in retirement of the Certificates
will be made only upon presentation and surrender of the Certificates at the
office specified in the notice to Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the Master
Servicer maintained for that purpose in New York, New York. Certificates
surrendered to the Trustee for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee. No service charge will be made for any registration of transfer or
exchange of Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency is currently
located at _________ .
Trustee
The Trustee for the Certificates will be _____________________________, a
bank organized and existing under the laws of _______________ with its principal
office located at ____________________________________.
S-10
<PAGE>
The Master Servicer
The Master Servicer is a ______________________ corporation that commenced
operation in _________________ . The Master Servicer is a FNMA/FHLMC approved
seller-servicer based in __________ . As of ________ , the Master Servicer
serviced, for other investors and for its own account, approximately _______
mortgage loans with an aggregate principal balance in excess of $ _______ . The
Master Servicer conducts operations through _________ FHA approved branch
offices in _________ . The Master Servicer originated approximately $ ________
in mortgage loans in 19 _____ . The Master Servicer's consolidated stockholders'
equity as of ________ was approximately $ ______ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of such
information.
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates-Assignment of Mortgage Loans"
and "-Advances," in an amount acceptable to the nationally recognized
statistical rating organization or organizations rating the Certificates
(collectively, the "Rating Agency").
Servicing Compensation and Payment of Expenses
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to the
excess of each interest payment on a Mortgage Loan over the Pass-Through Rate,
less [(a)] any servicing compensation payable to the Servicer of such Mortgage
Loan under the terms of the agreement with the Master Servicer pursuant to which
such Mortgage Loan is serviced (the "Servicing Agreement") (including such
compensation paid to the Master Servicer as the direct servicer of a Mortgage
Loan for which there is no Servicer) [.] [, and (b) the amount payable to the
Depositor, as described below.] [Pursuant to the Pooling and Servicing
Agreement, on each Distribution Date, the Master Servicer will remit to the
Depositor in respect of each interest payment on a Mortgage Loan an amount equal
to one-twelfth of ____ % of the outstanding principal balance of such Mortgage
Loan before giving effect to any payments due on the preceding Due Date. The
Master Servicer will be permitted to withdraw from the Certificate Account, in
respect of each interest payment on a Mortgage Loan, an amount equal to
one-twelfth of ____ % of the outstanding principal balance of such Mortgage
Loan, before giving effect to any payments due on the preceding Due Date.] See
"Description of the Certificates-Servicing and Other Compensation and Payment of
Expenses" in the Prospectus for information regarding other possible
compensation to the Master Servicer and the Servicers. The Servicers and the
Master Servicer will pay all expenses incurred in connection with their
responsibilities under the Servicing Agreements and the Pooling and Servicing
Agreement (subject to limited reimbursement as described in the Prospectus),
including, without limitation, the various items of expense enumerated in the
Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be characterized
as an ownership interest in the interest payments on the Mortgage Loans
("Retained Yield") for federal income tax purposes, by reason of the extent to
which either the weighted average Mortgage Rate, or the stated interest rates on
the Mortgage Loans exceeds the Pass-Through Rate, and the tax consequences to
them of such a characterization. In this regard, there are no authoritative
guidelines for federal income tax purposes as to either the maximum amount of
servicing compensation that may be considered reasonable in the context of this
or similar transactions or whether the reasonableness of servicing compensation
should be determined on a weighted average or loan-by-loan basis. [The Depositor
intends to treat ___% of such servicing compensation and ___% of the amount
payable to it described above as Retained Yield for federal income tax purposes
in reports to the Certificateholders and to the Internal Revenue Service.] See
"Certain Federal Income Tax Consequences-Mortgage Pools" and "-Taxation of
Owners of Trust Fractional Certificates" in the Prospectus for information
regarding the characterization of servicing compensation [and the amounts
payable to the Depositor].
S-11
<PAGE>
[Termination; Repurchase of Mortgage Loans
The Pooling and Servicing Agreement provides that the Depositor may
purchase from the Trust all Mortgage Loans remaining in the Mortgage Pool and
thereby effect early retirement of the Certificates, provided that the aggregate
unpaid balances of the Mortgage Loans at the time of such repurchase is less
than [10%] of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date. The purchase price for any such optional repurchase shall be equal
to the outstanding principal balance of such Mortgage Loans, together with
accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property with
respect to the Mortgage Loans. [Any such repurchase will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code in order to
constitute a "qualifying liquidation" thereunder.] In no event will the Trust
continue beyond the expiration of 21 years from the death of the last survivor
of the persons named in the Pooling and Servicing Agreement.]
[Letter of Credit
The maximum liability of [ _____ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
[10%] of the aggregate principal balance of the Mortgage Loans as of the Cut-off
Date. The duration of coverage and the amount and frequency of any reduction in
coverage will be in compliance with the requirements established by the Rating
Agency rating the Certificates, in order to obtain a rating in one of the two
highest rating categories of the Rating Agency. The precise amount of coverage
under the Letter of Credit and the duration and frequency of reduction of such
coverage will be set forth in the Current Report on Form 8-K referred to above.
See "Description of the Certificates-Credit Support-The Letter of Credit" in the
Prospectus.]
[The Pool Insurance Policy
Subject to the limitations described under "Description of Insurance-Pool
Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover losses
by reason of default on the Mortgage Loans that are not covered as to their
entire outstanding principal balances by primary mortgage insurance, in an
amount equal to ___% of the aggregate principal balance of such Mortgage Loans
on the Cut-off Date.
The Pool Insurance Policy will be issued by _________ , a corporation (the
"Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At ______ , 19 , the Pool Insurer had insurance in force in the form
of primary policies covering approximately $___ billion of residential
mortgages. At such date, the Pool Insurer had total assets of approximately
$____ million, capital and surplus aggregating $___ million and statutory
contingency reserves of $___ million, resulting in total policyholders' reserves
of $___ million.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[The Special Hazard Insurance Policy
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by ______ , a ______________
corporation (the "Special Hazard Insurer"). Claims under such policy will be
limited to ___% of the aggregate principal balance of the Mortgage Loans or ____
times the principal balance of the Mortgage Loan with the highest outstanding
principal balance as of the Cut-off Date, whichever is greater. At ______, 198_,
the Special Hazard Insurer had total assets of approximately $___ million and
total policyholders' surplus of $____ million. The claims-paying ability of the
Special Hazard Insurer is presently rated by the Rating Agency. In accordance
with standard rating agency practice, the Rating Agency may, at any time, revise
or withdraw such rating.
S-12
<PAGE>
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
[Mortgagor Bankruptcy Bond
The Depositor will obtain a bond or similar form of insurance coverage (the
"Mortgage Bankruptcy Bond") for proceedings with respect to Mortgagors under the
federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover certain losses
resulting from a reduction by a bankruptcy court of scheduled payments of
principal and interest on a Mortgage Loan or a reduction by such court of the
principal amount of a Mortgage Loan and will cover certain unpaid interest on
the amount of such a principal reduction from the date of the filing of a
bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ ______ plus the greater of (i) % of the aggregate principal balances
of the Mortgage Loans secured by second residences and investor-owned residences
or (ii) ______ times the largest principal balance of any such Mortgage Loan.
The coverage provided by the Mortgagor Bankruptcy Bond will be reduced by
payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by ____________________, a
_______________________ corporation. At _______________, 19___, had admitted
assets of approximately $_________ and total policyholders' surplus of
approximately $_______.
The information set forth above concerning ___________________________
has been provided by it. The Depositor makes no representation as to the
accuracy or completeness of such information.]
Certificate Rating
It is a condition of issuance that the Certificates be rated in one of the
two highest rating categories of [ _____ ] (the "Rating Agency"). A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating
organization. A security rating does not address the frequency of prepayments or
the possibility that Certificateholders might suffer a lower than anticipated
yield. A security rating also does not represent any assessment of the yield to
maturity that investors may experience.
YIELD AND PREPAYMENT CONSIDERATIONS
Yield Considerations
[to be added, as applicable]
Weighted Average Life of the Certificates
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of the last dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Certificates
will be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans,
S-13
<PAGE>
100% SPA assumes a constant prepayment rate of 6% per annum each month. As used
in the table below, "0% SPA" assumes prepayment rates equal to 0% of SPA (no
prepayments). Correspondingly, "250% SPA" assumes prepayment rates equal to 250%
of SPA, and so forth. SPA does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the Mortgage Loans.
The assumed final Distribution Date with respect to the Certificates is [
_______________ ], which is the Distribution Date immediately following the
latest scheduled maturity date for any Mortgage Loan. The actual final
Distribution Date with respect to the Certificates will likely occur
significantly earlier than, and could occur later than, its assumed final
Distribution Date.
The following tables have been prepared on the basis of the following
assumed characteristics of the Mortgage Loans: [insert assumptions]
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the following tables, which are
hypothetical in nature and are 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 Mortgage Loans will prepay at a constant
level of SPA until maturity or that all of the Mortgage Loans will prepay at the
same level of SPA. Moreover, the diverse remaining terms to maturity of the
Mortgage Loans could produce slower or faster principal distributions than
indicated in the table at the various constant percentages of SPA specified,
even if the weighted average remaining term to maturity of the Mortgage Loans is
as assumed. Any difference between such assumptions and the actual
characteristics and performance of the Mortgage Loans, or actual prepayment or
loss experience, will affect the percentage of initial Certificate Principal
Balance outstanding over time and the weighted average life of the Certificates.
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average life of the Certificates, and sets forth the
percentage of the initial Certificate Principal Balance [or Notional Amount, as
applicable,] of the Certificates that would be outstanding after each of the
dates shown at various percentages of SPA.
[insert DEC tables]
The Depositor makes no representation that the Mortgage Loans will prepay
in the manner or at any of the rates assumed in the tables set forth above. Each
prospective investor must make its own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase the Certificates.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES]
[tax discussion to be added, as applicable]
[LEGAL INVESTMENT CONSIDERATIONS]
[legal investment discussion to be added, as applicable]
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations-Prohibited Transaction Class Exemption" in the Prospectus).]
S-14
<PAGE>
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below] [has]
[have severally] agreed to purchase from the Depositor [all] [the following
respective principal amounts] of the Certificates:
[Underwriter
<TABLE>
<CAPTION>
<S> <C>
CS First Boston Corporation................. $
--
-------------
Total.............................. $
=============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that the
Underwriter[s] will be obligated to purchase the entire principal amount of the
Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially at
the public offering price set forth on the cover page of this Prospectus
Supplement[, and through the Representative,] to certain dealers at such prices
less the following concessions and that the Underwriter[s] and such dealers may
allow the following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
Concession (Percent Discount (Percent of
of Principal Amount) Principal Amount)
-------------------- -----------------
<S> <C> <C>
% %
</TABLE>
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Certificates offered hereby in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered
hereby will be passed upon for the Depositor and for the Underwriter[s] by
Sidley & Austin, New York, New York.
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans underlying
the Certificates. Certain of the Mortgage Loans will be acquired in privately
negotiated transactions by the Depositor from one or more affiliates of the
Depositor, which will have acquired such Mortgage Loans from time to time in
privately negotiated transactions.
S-15
<PAGE>
<TABLE>
INDEX OF TERMS
<CAPTION>
Page on which Term
is defined in the
Term Prospectus Supplement
- ---- ---------------------
<S> <C>
[ARM Loans.........................................................prospectus]
[Buy-Down Funds....................................................prospectus]
Certificates...............................................................S-3
[Certificateholders........................................................S-5
Class..............................................................prospectus]
Code.......................................................................S-5
[Cut-off-Date......................................................prospectus]
Depositor..................................................................S-3
Distribution Date..........................................................S-4
Due Date...................................................................S-3
Enhancement Act............................................................S-6
Interest Accrual Period.............................................prospectus
Letter of Credit...........................................................S-4
Letter of Credit Percentage................................................S-4
Master Servicer............................................................S-3
Mortgage Loans.............................................................S-4
Mortgage Bankruptcy Bond..................................................S-11
[Mortgage Pool.....................................................prospectus]
Mortgage Rate..............................................................S-7
[Mortgaged Property................................................prospectus]
Mortgagors.................................................................S-5
[Multi-Class Certificates..........................................prospectus]
[Multifamily Property..............................................prospectus]
[Original Value....................................................prospectus]
Pass-Through Rate..........................................................S-4
Performance Bond..........................................................S-10
Pool Insurance Policy......................................................S-4
Pool Insurer..............................................................S-11
Pooling and Servicing Agreement............................................S-9
[Prepayment Assumption.............................................prospectus]
Rating Agency..............................................................S-4
Reference Agreement........................................................S-9
Regular Certificates.......................................................S-6
REMIC......................................................................S-6
Retained Yield............................................................S-10
Servicing Agreement.......................................................S-10
Single Certificate.........................................................S-3
SPA.......................................................................S-12
Special Hazard Insurance Policy...........................................S-15
Special Hazard Insurer....................................................S-11
Standard Terms.............................................................S-9
Trustee....................................................................S-9
[Underwriter.......................................................prospectus]
</TABLE>
S-16
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
<TABLE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<CAPTION>
<S> <C>
Available Information.....................................................S-2
Reports to Certifcateholders..............................................S-2
Summary of Terms..........................................................S-3
Risk Factors..............................................................S-7
Description of the Mortgage Pool and the Underlying
Properties................................................................S-7
Description of the Certificates...........................................S-7
Yield and Prepayment Considerations.......................................S-9
Certain Federal Income Tax Consequences..................................S-12
Legal Investment Considerations..........................................S-13
ERISA Considerations.....................................................S-13
Underwriting.............................................................S-13
Legal Matters............................................................S-13
Use of Proceeds..........................................................S-14
Index of Terms...........................................................S-14
PROSPECTUS
Prospectus Supplement.......................................................2
Additional Information......................................................2
Incorporation of Certain Information by Reference...........................2
Summary of Terms............................................................3
Risk Factors...............................................................14
The Trust Fund.............................................................16
The Depositor..............................................................25
Use of Proceeds............................................................25
Yield Considerations.......................................................26
Maturity and Prepayment Considerations.....................................27
Description of the Certificates............................................29
Credit Support.............................................................54
Description of Insurance...................................................58
Certain Legal Aspects of the Mortgage
Loans and Contracts.....................................................64
Certain Federal Income Tax Consequences....................................74
ERISA Considerations.......................................................97
Legal Investment..........................................................101
Plan of Distribution......................................................102
Legal Matters.............................................................103
Index of Terms............................................................104
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Asset Backed
Securities Corporation
Depositor
$____________
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -_
PROSPECTUS
CS FIRST BOSTON
- --------------------------------------------------------------------------------
S-17
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED , 1996
- --------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated ___________ , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Mortgage Pass-Through Certificates, Class A, Series
Principal and interest payable on the ____ th day
of each month, beginning ____________ , 19
-----------------------
Class A-1 __% of principal payments on the Mortgage Loans; __% of interest
payments at an __% pass-through rate on the Mortgage Loans (the "Pass-Through
Rate") (Interest at an __% annual rate on unpaid Class A-1 principal amount)
Class A-2 No principal payments on the Mortgage Loans; __% of interest
payments at an __% Pass-Through Rate on the Mortgage Loans (Interest at an __%
annual rate on the Class A-2 notional amount)
The Conduit Mortgage Pass-Through Certificates (the "Certificates") will be
composed of [two][three] classes (each, a "Class"), entitled Conduit Mortgage
Pass-Through Certificates, Class A (the "Class A Certificates"), [and] Conduit
Mortgage Pass-Through Certificates, Class B (the "Class B Certificates") [and
Conduit Mortgage Pass-Through Certificates, Class R (the "Class R
Certificates")]. The Class A Certificates offered hereby will be divided into
two subclasses (each, a "Subclass") entitled Class A-1 (the "Class A-1
Certificates") and Class A-2 (the "Class A-2 Certificates") and will evidence
undivided percentage ownership interests in a trust (the "Trust") composed of
(i) [conventional] [fixed-rate] [one- to four-family residential mortgage
loans,] [(ii) mortgage loans secured by multifamily residential rental
properties consisting of five or more dwelling units or apartment buildings
owned by cooperative housing corporations,] [(iii) loans made to finance the
purchase of certain rights relating to cooperatively owned properties secured by
a pledge of shares of a cooperative corporation and an assignment of a
proprietary lease or occupancy agreement on a cooperative dwelling ("Cooperative
Loans"),] [and (iv) mortgage participation certificates evidencing participation
interests in such loans and meeting the requirements of the nationally
recognized rating agency or agencies rating the certificates (collectively, the
"Rating Agency") for a rating in one of the two highest rating categories of
such Rating Agency] (collectively, the "Mortgage Loans") and certain related
property to be conveyed to the Trust by the Depositor (the "Trust Fund").
(Continued on next page)
See "Risk Factors" beginning on p.S-8 herein and on p.14 of the Prospectus
for a discussion of certain factors that potential investors should consider in
determining whether to invest in the Certificates.
Prospective investors should consider the limitations discussed under
"ERISA Considerations" herein and in the accompanying Prospectus.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for
the Class A Certificates [but [is] [are] under no obligation to do so]. There
can be no assurance that a secondary market will develop or, if it does develop,
that it will continue.
The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences" in
the Prospectus.
-----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================================
Price to Public (1) Underwriting Discount Proceeds to the Depositor (1)(2)
<S> <C> <C> <C>
Per Class A-1 Certificate % % %
- ------------------------------------------------------------------------------------------------------------------------------------
Per Class A-2 Certificate % % %
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ $ $
====================================================================================================================================
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deducting expenses payable by the Depositor estimated at $
-----------------------
The Class A Certificates are offered by the [several] Underwriter[s] when,
as and if issued and accepted by the Underwriter[s] and subject to [its] [their]
right to reject orders in whole or in part. It is expected that the Class A
Certificates, in definitive fully registered form, will be delivered to the
offices of CS First Boston, New York, New York, on or about ________ , 19 .
CS First Boston
-----------------------
The date of this Prospectus Supplement is ______ , 19 .
<PAGE>
(Continued from prior page)
The Mortgage Loans will be transferred to the Trust, pursuant to a Pooling
and Servicing Agreement (as defined herein) dated as of ______ , 199 , by Asset
Backed Securities Corporation, a Delaware corporation (the "Depositor"), in
exchange for the Certificates and are more fully described in this Prospectus
Supplement and in the accompanying Prospectus.
The Class A-1 Certificates evidence ownership of __% of each principal
payment on the Mortgage Loans and __% of each interest payment on the Mortgage
Loans (representing interest at a rate of __% per annum on the unpaid principal
amount of the Class A-1 Certificates). The Class A-2 Certificates evidence
ownership of _____ % of each interest payment at the Pass-Through Rate on the
Mortgage Loans (representing interest at a rate of ______ % per annum on the
notional amount of the Class A-2 Certificates). The Class A-2 Certificates are
not entitled to distributions in respect of principal. The rights of the Class B
Certificateholders to receive distributions with respect to the Mortgage Loans
will be subordinated to the rights of the Class A Certificateholders to the
extent described herein and in the Prospectus.
[The Class B Certificates are not offered hereby. The Depositor intends to
offer the Class B Certificates to sophisticated institutional investors from
time to time in transactions not requiring registration under the Securities Act
of 1933, as amended (the "Securities Act").]
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN ASSET
BACKED SECURITIES CORPORATION OR ANY AFFILIATE THEREOF. NEITHER THE CERTIFICATES
NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
The Mortgage Loans may be prepaid at any time without penalty. [A lower
rate of principal prepayments than anticipated would negatively affect the total
return to investors in Class A-1 Certificates, which are being offered at a
discount to their principal amount.] Yields on the Class A-2 Certificates will
be extremely sensitive to the prepayment experience on the Mortgage Loans, and
prospective investors in such Certificates should fully consider the associated
risks, including the risk that such investors, in circumstances of higher than
anticipated prepayment, could fail to fully recoup their initial investment. See
"The Mortgage Pool," "Yield Considerations" and "Maturity and Prepayment
Considerations" in this Prospectus Supplement.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES OFFERED HEREBY
MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
-----------------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER AFTER THE
COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED TO
MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. THE UNDERWRITER MAY ALSO ACT AS AGENT IN SUCH
TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF
SALE.]
UNTIL ________________ , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
S-2
<PAGE>
-----------------------
S-3
<PAGE>
ADDITIONAL INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Trust can be inspected and copied at the Public Reference Room of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., and
at the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Monthly and annual unaudited reports containing information concerning the
Mortgage Loans will be prepared by the Master Servicer and sent on behalf of the
Trust to each registered holder of the Certificates. See "Description of the
Certificates - Reports to Certificateholders" in the Prospectus.
S-4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
Prospectus. An "Index of Terms" is included at the end of this Prospectus
Supplement. Capitalized terms used in this Prospectus Supplement and not
otherwise defined shall have the meanings given in the Prospectus. References to
percentages of the Mortgage Loans or to the principal balance of the Mortgage
Loans in this Prospectus Supplement are to percentages (except as otherwise
indicated) by aggregate principal balance as of the Cut-off Date.
Securities Offered............... Conduit Mortgage Pass-Through Certificates,
Class A, Series ___ (the "Class A
Certificates").
$__________________ Original Principal
Amount Class A-1 Certificates
(approximate).
No Original Principal Amount Class A-2
Certificates.
The Class A-1 Certificates represent
undivided percentage interests in
approximately _______% of each principal
payment on the Mortgage Loans (the
"Principal Distribution") and undivided
percentage interests in approximately
_________% of each interest payment at
the Pass-Through Rate on the Mortgage
Loans (the "Interest Distribution")
(representing interest at a rate of
___________ % per annum on the unpaid
principal amount of the Class A-1
Certificates). The individual percentage
interest (the "Percentage Interest") of
any Class A-1 Certificate will be equal
to the percentage obtained by dividing
the original principal amount of such
Class A-1 Certificate by the aggregate
original principal amount of all Class
A-1 Certificates.
The Class A-2 Certificates represent
Percentage Interests in approximately
________ % of the Interest Distribution
(representing interest at a rate of
___________ % per annum on the unpaid
notional amount of the Class A-2
Certificates). The Class A-2
Certificates will not receive
distributions of principal with respect
to the Mortgage Loans. The Percentage
Interest of any Class A-2 Certificate
will be equal to the percentage obtained
by dividing the original notional amount
of such Class A-2 Certificate by the
aggregate original notional amount of
all Class A-2 Certificates. The notional
amount of the Class A-2 Certificates is
equal to the aggregate unpaid principal
amount of the Class A-1 Certificates,
and is used solely for purposes of
determining interest payments and
certain other rights of holders of the
Class A-2 Certificates and does not
represent any interest in such principal
payments.
The Class A Certificates represent in the
aggregate an approximate ___________ %
undivided interest in the Trust Fund. The
remaining approximate ___________ %
undivided interest in the Trust Fund is
evidenced by the Class B Certificates,
which are subordinated in certain
respects to the Class A Certificates, as
more fully described herein and in the
Prospectus. [The Class B Certificates are
not being offered hereby, and may be
retained by the Depositor or sold by the
Depositor at any time to one or more
sophisticated institutional investors in
privately negotiated transactions not
requiring registration under the
Securities Act of 1933, as amended (the
"Securities Act").]
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
Depositor........................ Asset Backed Securities Corporation, a
Delaware corporation (the "Depositor").
Seller........................... [ ]
Master Servicer.................. ___________, a ________ corporation (the
"Master Servicer").
Cut-off Date..................... , 19 .
Delivery Date.................... On or about , 19 .
Record Date...................... With respect to each Distribution Date,
[the last business day of the month
preceding the month in which such
Distribution Date occurs].
Distribution Date................ The ____ day of each month, or, if such day
is not a business day, the next
succeeding business day.
Interest Accrual Period.......... [With respect to any Distribution Date, the
calendar month preceding the month in
which such Distribution Date occurs.
Interest for each Interest Accrual Period
is calculated based on a 360-day year
comprised of twelve 30-day months.]
Collection Period................ [With respect to a Distribution Date, the
period beginning on the day after the Due
Date in the month preceding the month in
which such Distribution Date occurs and
ending on the Due Date in the month in
which such Distribution Date occurs.]
Due Date......................... [With respect to any Distribution Date
and/or any Mortgage Loan, as the case may
be, the first day of the month in which
such Distribution Date occurs, or if such
first day is not a business day, the
business day immediately following such
first day.]
Final Scheduled
Distribution Date............. [ ]. The Final Scheduled Distribution Date
has been determined to be the
Distribution Date succeeding the latest
maturity date of any Mortgage Loan in the
Mortgage Pool.
Denominations.................... The minimum denomination of a Class A-1
Certificate will represent approximately
$___________ aggregate principal balance
of the Mortgage Loans on the Cut-off
Date. The minimum denomination of a Class
A-2 Certificate will represent
approximately $___________ notional
amount.
Interest......................... Passed through monthly, on each
Distribution Date, commencing ________,
19 __. The Pass-Through Rate on the
Mortgage Loans[, as of the Cut-off Date,]
is ______% per annum. See "Description of
the Certificates" in the Prospectus.
Principal (including
prepayments) ................. Passed through monthly on the Distribution
Date, commencing on , 19 . The rate of
distribution of principal of the
Certificates [(other than the Class A-2
and Class R Certificates)] will depend on
the rate of payment of principal of the
Mortgage Loans which, in turn, will
depend on the characteristics of the
Mortgage Loans, the level of prevailing
interest rates and other economic,
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
geographic and social factors. No
assurance can be given as to the actual
payment experience of the Mortgage Loans
See "Description of the Certificates" in
the Prospectus.
Mortgage Pool.................... The Mortgage Pool will consist of [fixed
rate,] [fully-amortizing,]
[level-payment] mortgage loans secured by
Mortgages on [one- to four-family
residential properties, loans (the
"Cooperative Loans") made to finance the
purchase of certain rights relating to
cooperatively owned properties secured by
a pledge of shares of a cooperative
corporation (the "Cooperative") and an
assignment of a proprietary lease or
occupancy agreement on a cooperative
dwelling (a "Cooperative Dwelling" and,
collectively with one- to four-family
residential properties, "Single Family
Property"), or mortgage loans secured by
multifamily residential rental properties
consisting of five or more dwelling units
or apartment buildings owned by
cooperative housing corporations
("Multifamily Property")] [located in the
states _____ of and _____] [and mortgage
participation certificates evidencing
participation interests in such loans
that meet the requirements of the
nationally recognized rated agency or
agencies rating the certificates
(collectively, the "Rating Agency") for a
rating in one of the two highest rating
categories of such Rating Agency] (the
"Mortgage Loans"). All Mortgage Loans
will have original maturities of at least
____ but not more than ____ years. See
"Description of the Mortgage Pool and the
Underlying Properties" herein.*
Certain Risk Factors............. For a discussion of certain risk factors
that should be considered in connection
with an investment in the Class A
Certificates, including those relating to
[describe risk factors specific to
transaction], see "Risk Factors" herein.
Class B Certificates............. The rights of the Class B
Certificateholders to receive
distributions with respect to the
Mortgage Loans are subordinated to the
rights of the Class A Certificateholders
to receive such distributions to the
extent of the Subordinated Amount
described below. This subordination is
intended to enhance the likelihood of
regular receipt by Class A
Certificateholders of the full amount of
scheduled payments of principal and
interest and to decrease the likelihood
that the Class A Certificateholders will
experience losses. The extent of such
subordination (the "Subordinated Amount")
will be determined as follows: on the
Cut-off Date and on each anniversary of
the Cut-off Date until _____, the
Subordinated Amount will equal __% of the
original aggregate principal balance of
the Mortgage Loans less the amount of
"Aggregate Losses" (as defined in the
Prospectus) since the Cut-off Date
through the last day of the month
preceding such anniversary date; from the
__th anniversary of the Cut-off Date, the
Subordinated Amount will gradually
decline in accordance with a schedule set
forth in the Pooling and Servicing
Agreement.
[Reserve Fund.................... The protection afforded to the Class A
Certificateholders from the subordination
feature described above will be effected
both by the preferential right of the
Class
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to
be set forth will be substantially similar to the disclosure set forth in
Version E under "Summary of Terms-Contract Pool."
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
A Certificateholders to receive current
distributions with respect to the
Mortgage Loans (to the extent of the
Subordinated Amount) and by the
establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not included
in the Trust Fund. The Reserve Fund will
be created by the Depositor and shall be
funded by the retention of all of the
scheduled distributions of principal
otherwise distributable to the Class B
Certificateholders on each Distribution
Date until the Reserve Fund reaches an
amount (the "Required Reserve") that will
equal [; thereafter, the Reserve Fund
must be maintained at the following
levels: ]. See "Description of the
Certificates--Subordinated Certificates"
and "--Reserve Fund" in the Prospectus.]
[Optional Termination............ The Depositor may, at its option,
repurchase from the Trust all Mortgage
Loans remaining outstanding [at such time
as the aggregate unpaid principal balance
of such Mortgage Loans is less than 10%
of the aggregate principal balance of the
Mortgage Loans on the Cut-off Date]. The
repurchase price will equal [the
aggregate unpaid principal balance of
such Mortgage Loans, together with
accrued interest thereon at the
Pass-Through Rate through the last day of
the month during which such repurchase
occurs plus the appraised value of any
property with respect thereof]. Any such
termination will be effected in
compliance with the requirements of
Section 860F(a)(iv) of the Internal
Revenue Code of 1986, so as to constitute
a "qualifying liquidation" thereunder.
See "Description of the
Certificates--Termination; Repurchase of
Certificates" in the Prospectus.]
Advances......................... The Servicers of the Mortgage Loans (and
the Master Servicer, with respect to each
Mortgage Loan that it services directly
and otherwise, to the extent the related
Servicer does not do so) will be
obligated to advance delinquent
installments of principal and interest on
the Mortgage Loans under certain
circumstances. See "Description of
Certificates--Advances" in the
Prospectus.
Trustee.......................... _________________________ (the "Trustee").
See "Description of the
Certificates--Trustee" herein.
Certificate Rating............... It is a condition of issuance of the Class
A Certificates that they be rated in one
of the two highest rating categories of
the Rating Agency prior to issuance. A
security rating is not a recommendation
to buy, sell or hold securities and may
be subject to revision or withdrawal at
any time by the assigning rating
organization. A security rating does not
address the frequency of prepayments or
the possibility that Certificateholders
might suffer a lower than anticipated
yield. A security rating also does not
represent any assessment of the yield to
maturity that investors may experience.
See "Risk Factors" herein and in the
Prospectus, "Rating" herein, "Yield and
Prepayment Considerations" herein and
"Yield Considerations" in the Prospectus.
Legal Investment................. The Class A Certificates constitute
"mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal
investments for certain entities to the
extent provided in the Enhancement Act.
See "Legal Investment" [herein and] in
the Prospectus.
ERISA Considerations............. See "ERISA Considerations" in the
Prospectus [and herein].
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
Tax Aspects...................... The Depositor intends to make an election
to treat the Trust as a Real Estate
Mortgage Investment Conduit (a "REMIC")
pursuant to the Internal Revenue Code of
1986, as amended. [The Certificates other
than the Class R Certificates (the
"Regular Certificates") will be treated
as regular interests in the REMIC and
generally will be treated as debt
instruments issued by the REMIC for
federal income tax purposes. Certain
Classes of the Regular Certificates may
be issued with original issue discount.
The prepayment assumption that will be
used in determining the rate of accrual
of any original issue discount on the
Regular Certificates for federal income
tax purposes (and whether such original
issue discount is de minimis), and that
may be used by a holder of a Regular
Certificate to amortize premium, will be
[ ]% of the Prepayment Assumption. No
representation is made that the Mortgage
Loans will prepay at such rate or at any
other rate. The holders of the Residual
Certificates will be subject to special
federal income tax rules that may
significantly reduce the after-tax yield
of such Certificates. Further,
significant restrictions apply to the
transfer of the Residual Certificates.
See "Certain Federal Income Tax
Consequences" herein and in the
Prospectus.]
- --------------------------------------------------------------------------------
S-9
<PAGE>
RISK FACTORS
General
The rate of distributions in reduction of the principal balance of any
Subclass or Class of Certificates, the aggregate amount of distributions of
principal and interest on any Subclass or Class of Certificates and the yield to
maturity of any Subclass or Class of Certificates will be directly related to
the rate of payments of principal on the Mortgage Loans in the Trust Fund and
the amount and timing of Mortgagor defaults resulting in realized Losses. The
rate of principal payments on the Mortgage Loans will, in turn, be affected by
the amortization schedules of the Mortgage Loans, the rate of principal
prepayments (including partial prepayments and those resulting from refinancing)
thereon by Mortgagors, liquidations of defaulted Mortgage Loans, repurchases by
the Depositor, the Master Servicer or any Unaffiliated Seller of Mortgage Loans
as a result of certain breaches of representations and warranties and optional
purchase by the Depositor of all of the Mortgage Loans in connection with the
termination of the Trust Fund. See "Description of the Certificates -
Termination; Repurchase of Mortgage Loans" herein and "The Trust Fund-Mortgage
Loan Program-Representations by Unaffiliated Sellers; Repurchases" and
"Description of the Certificates-Assignment of Mortgage Loans; and -
Termination" in the Prospectus. Mortgagors are permitted to prepay the Mortgage
Loans, in whole or in part, at any time without penalty.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment would generally be expected to increase.
Conversely, if interest rates on similar mortgage loans rise above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to decrease.
An investor that purchases any Certificates at a discount should consider
the risk that a slower than anticipated rate of principal payments on the
Mortgage Loans will result in an actual yield that is lower than such investor's
expected yield. An investor that purchases any Certificates at a premium should
consider the risk that a faster than anticipated rate of principal payments on
the Mortgage Loans will result in an actual yield that is lower than such
investor's expected yield.
[Additional risk factors will be added, as appropriate, including, without
limitation, (i) if an Interest Weighted Class of Certificates or a Principal
Weighted Class of Certificates is being offered, a discussion of the risks
associated with such Class, including any disproportionate share of credit or
prepayment risks that such Class will bear, (ii) a discussion of the
concentration of credit risk, if any, with respect to the Mortgage Loans due to,
among other things (w) a concentration of Mortgage Loans originated by one or a
few dealers, (x) a single mortgagor or lessee or cross-default,
cross-collateralization or similar provisions, (y) a concentration of properties
with brief or financially troubled operating histories or (z) a concentration of
properties within a state (or region of a state) and (iii) a discussion of the
basis risk associated with a Class of Certificates.]
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING PROPERTIES**
The Mortgage Pool will consist of Mortgage Loans evidenced by notes with
aggregate unpaid principal balances outstanding as of the Cut-off Date, after
deducting payments of principal due on such date, of approximately $
__________________ . The amount is subject to a permitted variance of up to
__________ %. The average outstanding principal balance of the Mortgage Loans as
of the Cut-off Date will be $[ ______ ]. The Mortgage Pool will consist of [
____ ] -year, [fixed-] rate, fully-amortizing, ______[level-payment] Mortgage
Loans, as more fully described in the Prospectus.
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"Description of the Contract Pool."
S-10
<PAGE>
The weighted average interest rate of the Mortgage Loans as of the Cut-off
Date will be at least ___________ % but no more than ___________ %. All Mortgage
Loans will have interest rates of at least ___________ % but no more than
___________ %. The weighted average maturity of the Mortgage Loans, as of the
Cut-off Date, will be at least ____________ years but no more than ____________
years. All Mortgage Loans will have original maturities of at least
_____________ but no more than _____________ years. None of the Mortgage Loans
will have been originated prior to _____________ or after ______________ 19 .
None of the Mortgage Loans will have a scheduled maturity later than ________ .
The Mortgage Loans will have the following characteristics as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
No more than _____________ % of the Mortgage Loans will have been
originated before __________________________ . See "Certain Federal Income Tax
Consequences--Mortgage Pools." "--Taxation of Owners of Trust Fractional
Certificates" and "--Market Discount and Premium" in the Prospectus for
information regarding such Mortgage Loans.
At least _____________ % of the Mortgage Loans will be Mortgage Loans
each having outstanding principal balances of less than $ _______________ .
No more than _____________ % of the Mortgage Loans will be Mortgage Loans
each having outstanding principal balances of more than $ _______________.
No more than _____________ % of the Mortgage Loans will have had
loan-to-value ratios at origination in excess of 80%, and no Mortgage Loan will
have had a loan-to-value ratio at origination in excess of [95%].
[All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of private mortgage insurance until
the outstanding principal balance is reduced to 75% of the Original Value.]
[ ____________ % of the Mortgage Loans will be secured by Mortgages on
single-family dwellings] [ ____________ % of the Mortgage Loans will be secured
by Multifamily Properties][ ____________ % of the Mortgage Loans will be secured
by a pledge of shares of a Cooperative and an assignment of a proprietary lease
or occupancy agreement on a Cooperative Dwelling.]
No more than _____________% of the Mortgage Loans will be secured by
Mortgages on condominiums.
No more than _____________ %, by aggregate principal balance, of the
Mortgage Loans will be Mortgage Loans for which Buy-Down Funds have been
provided and no more than _____________ % of the principal balance of any such
Mortgage Loan will be represented by Buy-Down Funds.
No more than _________%, by aggregate principal balance, of the Mortgage
Loans will be GPM Loans.
At least ___________ % of the Mortgage Loans will be secured by an
owner-occupied Mortgaged Property. Such determination will have been made on the
basis of a representation by the Mortgagor at the time of origination of the
Mortgage Loan that he then intended to occupy the underlying property or, in the
absence of such a representation, various factors indicating that such
underlying property is owner-occupied.
No more than [__________]% of the Mortgage Loans will be secured by
Mortgages on properties located in any one zip code.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of ________________.
[With respect to ARM Loans, specify the adjustment dates, the highest, lowest
and weighted average margin, and the maximum Mortgage Rate variation at the time
of any periodic adjustment and over the life of such ARM Loans.]
S-11
<PAGE>
[With respect to Mortgage Loans which are secured by Multifamily Properties,
specify (i) whether such loans provide for interest only periods and whether the
principal amounts of such loans are amortized on the basis of a period of time
that extends beyond the related maturity dates thereof and (ii) any materially
different underwriting standards for such loans.]
[With respect to Multi-Class Certificates, specify the method of determining the
Asset Value of each Trust Asset.]
[Specify whether the Depositor, the Master Servicer or the related Servicer, as
the case may be, has the right to substitute Mortgage Loans and the period
during which the Depositor, the Master Servicer or the related Servicer may
exercise such right.]
Specific information with respect to the Mortgage Loans will be available
to purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans and
distribution of Mortgage Loans by Mortgage Rate, and will be set forth in a
Current Report on Form 8-K that will be filed with the Securities and Exchange
Commission by the Depositor within 15 days after the issuance of the
Certificates.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depository,______________, as master servicer
(the "Master Servicer"), and _____________ , as trustee (the "Trustee"), a form
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. The
Percentage Interest evidenced by each Class A-1 Certificate will be determined
by dividing the original principal amount of such Class A-1 Certificate by the
aggregate original principal amount of all Class A-1 Certificates. The
Percentage Interest evidenced by each Class A-2 Certificate will be determined
by dividing the original notional amount of such Class A-2 Certificate by the
aggregate original notional amount of all Class A-2 Certificates. The Class A
Certificates will be issued only in fully registered form in denominations of $
________________ and integral multiples of $ ______ in excess thereof.
The Master Servicer will allocate each month's distributions of principal
and interest on the Mortgage Loans at the Pass-Through Rate as follows:
_______________ % of the monthly Principal Distribution and ________________ %
of the Interest Distribution will be allocated to the Holders of the Class A-1
Certificates (such sum being the "Class A-1 Distribution Amount"); ____% of the
Interest Distribution will be allocated to the Holders of the Class A-2
Certificates (such amount being the "Class A-2 Distribution Amount"). Holders of
Class A-2 Certificates will not receive distributions of principal with respect
to the Mortgage Loans. On each Distribution Date, the Master Servicer will
distribute to each Holder of a Class A Certificate an amount equal to the
Certificateholder's Percentage Interest evidenced by the Class A Certificate in
the Class A-1 Distribution Amount or the Class A-2 Distribution Amount, as the
case may be. The remaining distribution will be made to the Holders of the Class
B Certificates, as more fully set forth below. Such distributions will be made
to Certificateholders of record on the Record Date for such Distribution Date.
On each Distribution Date, the Master Servicer will distribute to the Class
A Certificateholders, in the manner set forth above, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate undivided interest evidenced by all Class A
Certificates (such aggregate undivided interest being the sum of the
aggregate interests evidenced by the Class A Certificates in the Principal
Distribution and the Interest Distribution) (the "Senior Interest") in: (a)
until such time as the Subordinated Amount is reduced
S-12
<PAGE>
to zero, all scheduled payments of principal and interest (including
any advances thereof), adjusted to the applicable Pass-Through Rate, which
payments became due on the due date to which such Distribution Date relates
(the "Due Date"), whether or not such payments are actually received; and
(b) after the Subordinated Amount is reduced to zero, all payments of
principal and interest, adjusted to the applicable Pass-Through Rate, due
on such Due Date or due, but not previously received, since the time the
Subordinated Amount was reduced to zero, but only to the extent such
payments are actually received or advanced prior to the Determination Date;
(ii) the Senior Interest in all principal prepayments received during
the month prior to the month of distribution and, interest at the
Pass-Though Rate to the end of the month in which such principal
prepayments occur;
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date each such Mortgage Loan was repurchased, liquidated or foreclosed, and
(b) accrued but unpaid interest on such principal balance, adjusted to the
Pass-Through Rate, to the first day of the month following the month of
such repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders to the extent that there are sufficient eligible funds
available for distribution to such Class A Certificateholders on a Distribution
Date. Funds eligible for such purpose with respect to each Distribution Date
shall be as set forth in the Prospectus under "Payments on Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited therein
from the Reserve Fund and any Advances by the Servicers or the Master Servicer)
are not sufficient to make the full distribution of the Required Distribution on
any Distribution Date, the Master Servicer shall distribute on such Distribution
Date to the Class A Certificateholders the amount of funds eligible for
distribution to such Class A Certificateholders. If, on any Distribution Date,
prior to the time the Subordinated Amount has been reduced to zero, the Class A
Certificateholders do not receive the Required Distribution, the Holders of the
Class B Certificates will not receive any distributions on such Distribution
Date. Any amounts in the Certificate Account after the Required Distribution is
made to the Class A Certificateholders will be paid to the holders of the Class
B Certificates. Holders of the Class B Certificates will not be required to
refund any amounts that have previously been properly distributed to them
directly from the Certificate Account, regardless of whether there are
sufficient funds on such Distribution Date to make a full distribution to the
Class A Certificateholders. The subordination of distributions allocable to
Holders of the Class B Certificates is limited to the Subordinated Amount, which
will decrease over time as more fully set forth in the Pooling and Servicing
Agreement, and such subordination will apply on any Distribution Date only to
then current distributions allocable to the Class B Certificateholders.
Distributions to Holders of Class A and Class B Certificates will be made
on a pro rata basis, in accordance with the aggregate Percentage Interests of
each Class held by each Certificateholder of the related Class.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such Certificateholder,
provided, however, that the final distribution in retirement of the Class A
Certificates will be made only upon presentation and surrender of the Class A
Certificates at the office or agency specified in the notice of
Certificateholders of such final distribution.
The Class A Certificates will be transferable and exchangeable on a
Certificate Register to be maintained at the office or agency of the Master
Servicer maintained for the purpose in New York, New York. Class A Certificates
surrendered to the Trustee for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee. No service charge will be made for any registration of transfer or
exchange of Class A Certificates, but payment of a sum sufficient to cover any
tax or other governmental charge may be required. Such office or agency is
currently located at ___________________________ .
S-13
<PAGE>
Trustee
The Trustee for the Certificates will be ______________________, a bank
organized and existing under the laws of with its principal office located at
______________________________.
The Master Servicer
The Master Servicer is a _______________________ corporation that commenced
operations in ________________________ . The Master Servicer is a FNMA/FHLMC
approved seller-servicer based in ________________________ . As of
________________________ , the Master Servicer serviced, for other investors and
for its own account, approximately ________ mortgage loans with an aggregate
principal balance in excess of $ _______________________ . The Master Servicer
originated approximately $ ________________________ in mortgage loans in 19 .
The Master Servicer's consolidated stockholder's equity as of
________________________ was approximately $ _______________________ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of such
information.
The Master Servicer will obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond") insuring
against loss occasioned by the errors and omissions of the Master Servicer's
officers, employees and any other person acting on behalf of the Master Servicer
in its capacity as Master Servicer and guaranteeing the performance, among other
things, of the obligations of the Master Servicer to purchase certain Mortgage
Loans and to make advances as described in the Prospectus under "Description of
the Certificates--Assignment of Mortgage Loans" and "--Advances" in an amount
and form acceptable to the nationally recognized statistical rating organization
or organizations rating the Class A Certificates (collectively, the "Rating
Agency").
Servicing Compensation and Payment of Expenses
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Mortgage Loan, equal to the
excess of each interest payment on a Mortgage Loan over the Pass-Through Rate,
less [(a)] any serving compensation payable to the Servicer of such Mortgage
Loan under the terms of the agreement with the Master Servicer pursuant to which
such Mortgage Loan is serviced (the "Servicing Agreement") (including such
compensation paid to the Master Servicer as the direct servicer of a Mortgage
Loan for which there is no Servicer)[.] [, and (b) the amount payable to the
Depositor, as directed below.] [Pursuant to the Pooling and Servicing Agreement,
on each Distribution Date, the Master Servicer will remit to the Depositor in
respect of each interest payment on a Mortgage Loan an amount equal to
one-twelfth of _________ % of the outstanding principal balance of such Mortgage
Loan, before giving effect to any payments due on the preceding Due Date.] The
Master Servicer will be permitted to withdraw from the Certificate Account, in
respect of each interest payment on a Mortgage Loan, an amount equal to
one-twelfth of ________________ % of the outstanding principal balance of such
Mortgage Loan, before giving effect to any payments due on the preceding Due
Date.] See "Description of the Certificates--Servicing and Other Compensation
and Payment of Expenses" in the Prospectus for information regarding other
possible compensation to the Master Service and the Servicers. The Servicers and
the Master Servicer will pay all expenses incurred in connection with their
responsibilities under the Servicing Agreements and the Pooling and Servicing
Agreement (subject to limited reimbursement as described in the Prospectus),
including, without limitation, the various items of expense enumerated in the
Prospectus.
Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation and amounts payable to
Depositor might be characterized as an ownership interest in the interest
payments on the Mortgage Loans ("Retained Yield") for federal income tax
purposes, by reason of the extent to which either the weighted average Mortgage
Rate, or the stated interest rates on the Mortgage Loans exceeds the
Pass-Through Rate, and the tax consequences to them of such a characterization.
In this regard, there are no authoritative guidelines for federal income tax
purposes as to either the maximum amount of servicing compensation that may be
considered reasonable in the context of this or similar transactions or whether
the reasonableness of servicing compensation should be determined on a weighted
averaged or loan-by-loan basis. [The Depositor intends to treat
________________% of such servicing compensation and ________________-% of the
amount payable to it described above as Retained Yield for federal income tax
purposes in reports to the Certificateholders and to the Internal Revenue
Service.] See "Certain Federal Income Tax Consequences--Mortgage Pools"
S-14
<PAGE>
and "--Taxation of Owners of Trust Fractional Certificates" in the Prospectus
for information regarding the characterization of servicing compensation [and
the amounts payable to the Depositor].
[Termination; Repurchase of Mortgage Loans
The Pooling and Servicing Agreement provides that the Depositor may
purchase from the Trust all Mortgage Loans remaining in the Mortgage Pool and
thereby effect early retirement of the Certificates, provided that [the
aggregate unpaid balances of the Mortgage Loans at the time of such repurchase
is less than [10]% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date]. The purchase price for any such repurchase [will be the
outstanding principal balance of such Mortgage Loans together with accrued and
unpaid interest at the Pass-Through Rate to the last day of the month of such
repurchase, plus the appraiser value of any property acquired in respect
thereof.] Any such repurchase will be effected in compliance with the
requirements of Section 860F(a)(iv) of the Code in order to constitute a
"qualifying liquidation" thereunder. In no event will the Trust continue beyond
the expiration of 21 years from the death of the last survivor of the persons
named in the Pooling and Servicing Agreement.]
YIELD AND PREPAYMENT CONSIDERATIONS
Yield Considerations
[to be added, as applicable]
Prepayment Experience on the Mortgage Loans
The rate of principal payments on the Class A-1 Certificates, the aggregate
amount of each interest payment on the Class A-1 Certificates and Class A-2
Certificates and the yield to maturity of the Class A-1 and Class A-2
Certificates will correspond directly to the rate of payments of principal on
the Mortgage Loans (including, for this purpose, scheduled amortization,
payments resulting from liquidation due to default, casualty, condemnation and
the like and repurchases by the Servicers under the circumstances described
herein and in the Prospectus). The rate of principal payments on pools of
mortgages or loans are influenced by a variety of economic, geographic, social
and other factors. In general, however, if prevailing interest rates fall
significantly below the interest rates on the Mortgage Loans, the Mortgage Loans
are likely to be subject to higher prepayment rates than if prevailing rates
remain at or above the interest rates on the Mortgage Loans. The rate of payment
of principal may also be affected by any repurchase of the Mortgage Loans by the
Servicers. See "Termination; Repurchase of Mortgage Loans" herein and
"Description of the Certificates--Assignment of Mortgage Loans" in the
Prospectus. In any such event, the repurchase price would be passed through to
Certificateholders as a prepayment of principal. See "Maturity and Prepayment
Considerations" in the Prospectus.
[[All] [ %] of the Mortgage Loans contain "due-on-sale" provisions.
Consequently, acceleration of mortgage payments as a result of transfers of the
related mortgaged property will affect the level of prepayments on the Mortgage
Loans. In addition, Mortgagors may prepay the Mortgage Loans at any time without
penalty.]
[As the Class A-1 Certificates are being offered at discounts from their
original principal amounts, if the purchaser of a Class A-1 Certificate
calculates is anticipated yield to maturity based on an assumed rate of payment
of principal that is faster than that actually received on the Mortgage Loans,
its actual yield to maturity will be lower than that so calculated.] Since the
Class A-2 Certificates are being offered without any original principal amount,
if the purchaser of a Class A-2 Certificate calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is slower than
that actually received on the Mortgage Loans, its actual yield to maturity will
be lower than that so calculated.
The timing of changes in the rate of prepayments of the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments is consistent with an investor's expectation. In
general, the earlier a prepayment of principal on the Mortgage Loans the greater
the effect on an investor's yield to maturity. As a result, the effect on an
investor's yield of principal payments occurring at a rate higher (or lower)
than the rate anticipated by the
S-15
<PAGE>
investor during the period immediately following the issuance of the
Certificates may not be offset by a subsequent like reduction (or increase) in
the rate of principal payments.
[BECAUSE THE CLASS A-1 CERTIFICATES ARE BEING OFFERED AT A DISCOUNT FROM
THEIR ORIGINAL PRINCIPAL AMOUNT, THE YIELD TO MATURITY ON SUCH CERTIFICATES WILL
BE SENSITIVE TO THE RATE OF PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOANS.]
BECAUSE THE CLASS A-2 CERTIFICATES ARE BEING OFFERED WITHOUT ANY PRINCIPAL
AMOUNT, THE YIELD TO MATURITY ON THE CLASS A-2 CERTIFICATES WILL BE EXTREMELY
SENSITIVE TO THE RATE OF PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOANS AND MAY
FLUCTUATE SIGNIFICANTLY FROM TIME TO TIME. PROSPECTIVE INVESTORS IN THE CLASS
A-2 CERTIFICATES SHOULD FULLY CONSIDER THE ASSOCIATED RISKS, INCLUDING THE RISK
THAT IF THE RATE OF PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOANS IS RAPID SUCH
INVESTORS MAY NOT FULLY RECOUP THEIR INITIAL INVESTMENT.
Weighted Average Lives of the Certificates
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of the last dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Certificates
will be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (no prepayments). Correspondingly, "250% SPA" assumes prepayment
rates equal to 250% of SPA, and so forth. SPA does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
The assumed final Distribution Date with respect to the Certificates is [
_______________ ], which is the Distribution Date immediately following the
latest scheduled maturity date for any Mortgage Loan. The actual final
Distribution Date with respect to the Certificates will likely occur
significantly earlier than, and could occur later than, its assumed final
Distribution Date.
The following tables have been prepared on the basis of the following
assumed characteristics of the Mortgage Loans: [insert assumptions]
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the following tables, which are
hypothetical in nature and are 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 Mortgage Loans will prepay at a constant
level of SPA until maturity or that all of the Mortgage Loans will prepay at the
same level of SPA. Moreover, the diverse remaining terms to maturity of the
Mortgage Loans could produce slower or faster principal distributions than
indicated in the table at the various constant percentages of SPA specified,
even if the weighted average remaining term to maturity of the Mortgage Loans is
as assumed. Any difference between such assumptions and the actual
characteristics and performance of the Mortgage Loans, or actual prepayment or
loss experience, will affect the percentage of initial Certificate Principal
Balance of each Class of Certificates outstanding over time and the weighted
average life of each such Class of Certificates.
S-16
<PAGE>
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average life of each such Class of Certificates, and sets
forth the percentages of the initial Certificate Principal Balance [or Notional
Amount, as applicable,] of each such Class of Certificates that would be
outstanding after each of the dates shown at various percentages of SPA.
[insert DEC tables]
The Depositor makes no representation that the Mortgage Loans will prepay
in the manner or at any of the rates assumed in the tables set forth above. Each
prospective investor must make its own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase the Class A
Certificates.
RATING
It is a condition of issuance of the Class A certificates that they be
rated in one of the two highest rating categories of the Rating Agency prior to
issuance. Such rating addresses the likelihood that the holders of the Class A
Certificates will receive payments required under the Pooling and Servicing
Agreement. In assigning such a rating, to mortgage pass-through certificates,
the Rating Agency takes into consideration the credit quality of mortgage pool,
including any credit support providers, structural and legal aspects associated
with such certificates, and the extent to which the payment stream on such
mortgage pool is adequate to make required payments on such certificates. Such
rating does not, however, represent an assessment of the likelihood that
principal prepayments will be made by mortgagors or the degree to which such
payments might differ from that originally anticipated. As a result, holders of
the Class A Certificates might suffer a lower than anticipated yield, and
holders of the Class A-2 Certificates might fail, in circumstances of extreme
prepayment, to recoup their original investment.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. A security rating does not address the frequency
of prepayments or the possibility that Certificateholders might suffer a lower
than anticipated yield. A security rating also does not represent any assessment
of the yield to maturity that investors may experience.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES]
[tax discussion to be added, as applicable]
[LEGAL INVESTMENT CONSIDERATIONS]
[legal investment discussion to be added, as applicable]
S-17
<PAGE>
[ERISA CONSIDERATIONS]*
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus), a
Class A Certificate of an Exempt Series must entitle its holder to pass-through
payments of both principal and interest on the Mortgage Loans. Because holders
of Class A-2 Certificates are only entitled to pass-through payments of interest
(but not principal), PTCE 83-1 will not exempt Plans which acquire the Class A-2
Certificates from the prohibited transaction rules of ERISA. Any Plan fiduciary
who proposes to cause a Plan to purchase Class A Certificates should consult
with its counsel with respect to the potential consequences under ERISA and the
Code of the Plan's acquisition and ownership of Class A Certificates. However,
the other PTCE's or the Underwriter's PTE may be applicable. See "ERISA
Considerations--Prohibited Transaction Class Exemption" in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Class A Certificates:
<TABLE>
<CAPTION>
Class A-1 Class A-2
[Underwriter Certificates Certificates Total
------------ ------------ ------------ -----
<S> <C> <C> <C>
CS First Boston Corporation $ $ $
Total........................... $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that the
Underwriter[s] will be obligated to purchase the entire principal amount of the
Class A Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Class A Certificates to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement [, and through the Representative,] to certain dealers at
such prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
Concession (Percent Discount (Percent of
of Principal Amount) Principal Amount)
-------------------- -----------------
<S> <C> <C>
Class A-1.............................. % %
Class A-2.............................. % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act.
- --------
* If the Series of Certificates offered pursuant to this Version B Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"ERISA Considerations" or in the Prospectus under "ERISA Considerations."
S-18
<PAGE>
[If and to the extent required by applicable law or regulation, this Prospectus
Supplement and the Prospectus will also be used by the Underwriter after the
completion of the offering in connection with offers and sales related to
market-making transactions in the Certificates offered hereby in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered hereby
will be passed upon for the Depositor and for the Underwriter[s] by Sidley &
Austin, New York, New York.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the Class A
Certificates towards the simultaneous purchase of the Mortgage Loans underlying
the Certificates. Certain of the Mortgage Loans will be acquired in privately
negotiated transactions by the Depositor from one or more affiliates of the
Depositor, which will have acquired such Mortgage Loans from time to time in the
open market or in privately negotiated transactions.
S-19
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
Page on which Term
is defined in the
Term Prospectus Supplement
- ---- ---------------------
<S> <C>
[Aggregate Losses...................................................prospectus]
[ARM Loans..........................................................prospectus]
[Asset Value........................................................prospectus]
[Buy Down Funds.....................................................prospectus]
[Certificate Registration...........................................prospectus]
[Certificate Principal Balance......................................prospectus]
Certificates................................................................S-1
Class A Certificates........................................................S-1
Class A-1 Certificates......................................................S-1
Class A-2 Certificates......................................................S-1
Class A-1 Distribution Amount..............................................S-11
Class A-2 Distribution Amount..............................................S-11
Class B Certificates........................................................S-1
Class B-1 Certificates......................................................S-1
Class R Certificates........................................................S-1
Commission..................................................................S-2
Contracts...................................................................S-5
Cooperative.................................................................S-1
Cooperative Dwelling........................................................S-5
Cooperative Loans...........................................................S-5
[Cut-off-Date.......................................................prospectus]
Depositor...................................................................S-1
[Determination Date.................................................prospectus]
[Distribution Date..................................................prospectus]
Due Date...................................................................S-12
Enhancement Act.............................................................S-7
Exchange act................................................................S-2
[Final Scheduled Distribution Date..................................prospectus]
[Interest Accrual Period............................................prospectus]
Interest Distribution.......................................................S-3
Master Servicer.............................................................S-4
[Mortgage Pool......................................................prospectus]
Mortgage Loans..............................................................S-1
Multifamily Property........................................................S-5
[Notional Amount....................................................prospectus]
[Original Value.....................................................prospectus]
Pass-Through Rate...........................................................S-1
Percentage Interest.........................................................S-3
Performance Bond............................................................S-3
Pooling and Servicing Agreement............................................S-11
Principal Distribution......................................................S-3
[Principal Weighted Class...........................................prospectus]
Rating Agency...............................................................S-1
[Record Date........................................................prospectus]
Reference Agreement........................................................S-11
Regular Certificates........................................................S-7
REMIC.......................................................................S-7
Required Distribution......................................................S-12
Required Reserve............................................................S-6
Reserve Fund................................................................S-6
Retained Yield.............................................................S-13
</TABLE>
S-20
<PAGE>
<TABLE>
<S> <C>
Securities Act.............................................................S-1
Senior Interest...........................................................S-12
Single family Property.....................................................S-5
SPA.......................................................................S-15
Standard Terms............................................................S-11
Subclass...................................................................S-1
Subordinated Amount........................................................S-6
Trust......................................................................S-1
[Trust Asset.......................................................prospectus]
Trust Fund.................................................................S-1
Trustee....................................................................S-7
Underwriter...............................................................S-11
[Underwriting Agreement............................................Prospectus]
</TABLE>
S-21
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Additional Information....................................................S-2
Reports to Certificateholders.............................................S-2
Summary of Terms..........................................................S-3
Risk Factors..............................................................S-7
Description of the Mortgage Pool and
the Underlying Properties...............................................S-7
Description of the Certificates...........................................S-9
Yield and Prepayment Considerations......................................S-12
Rating...................................................................S-14
Certain Federal Income Tax Consequences..................................S-14
Legal Investment Considerations..........................................S-14
ERISA Considerations.....................................................S-15
Underwriting.............................................................S-15
Legal Matters............................................................S-16
Use of Proceeds..........................................................S-16
Index of Index...........................................................S-17
PROSPECTUS
Prospectus Supplement.......................................................2
Additional Information......................................................2
Incorporation of Certain Information by Reference...........................2
Summary of Terms............................................................3
Risk Factors...............................................................14
The Trust Fund.............................................................16
The Depositor..............................................................25
Use of Proceeds............................................................25
Yield Considerations.......................................................26
Maturity and Prepayment Considerations.....................................27
Description of the Certificates............................................29
Credit Support.............................................................54
Description of Insurance...................................................58
Certain Legal Aspects of the Mortgage
Loans and Contracts.....................................................64
Certain Federal Income Tax Consequences....................................74
ERISA Considerations.......................................................97
Legal Investment..........................................................101
Plan of Distribution......................................................102
Legal Matters.............................................................103
Index of Terms............................................................104
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Backed
Securities Corporation
Depositor
$
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -_
PROSPECTUS
CS FIRST BOSTON
- --------------------------------------------------------------------------------
S-22
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities are not to be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED , 1996
- -------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus dated , 19 )
- -------------------------------------------------------------------------------
$ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Mortgage Pass-Through Certificates, [Class A], Series
$[Variable Rate] [ %] Class A-1 Certificates $ % Class A-3 Certificates
$[Variable Rate] [ %] Class A-2 Certificates $ % Class A-4 Certificates
----------------------
The [Class A] Certificates (the "Certificates") offered hereby evidence
ownership interests in a trust to be created by Asset Backed Securities
Corporation, a Delaware corporation (the "Depositor"), on or about , 199
(the "Trust"). The Trust property will consist of a pool of [conventional]
[fixed rate] [mortgage
loans and] [mortgage participation certificates, evidencing participation
interests in such mortgage loans and meeting the requirements of the nationally
recognized rating agency or agencies rating the [Class A] Certificates
(collectively, the "Rating Agency") for a rating in one of the two highest
rating categories of such Rating Agency] (the "Mortgage Loans") and certain
related property to be conveyed to the Trust by the Depositor (the "Trust
Fund"). The Mortgage Loans will be transferred to the Trust, pursuant to a
Pooling and Servicing Agreement (as defined herein), dated as of , 199_
by the Depositor in exchange for the Certificates and are more fully described
in the Prospectus Supplement and in the accompanying Prospectus.
(Continued on next page)
See "Risk Factors" beginning on p.S-11 herein and on p.14 of the Prospectus
for a discussion of certain factors that potential investors should consider in
determining whether to invest in the Certificates.
Prospective investors should consider the limitations discussed under
"ERISA Considerations" herein and in the accompanying Prospectus.
The Underwriter[s] [do[es] not] intend to make a secondary market for the
[Class A] Certificates [but [is] [are] under no obligation to do so]. There can
be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
The Depositor has elected to treat the Trust Fund as a Real Estate Mortgage
Investment Conduit (a "REMIC"). See "Certain Federal Income Tax Consequences" in
the Prospectus.
----------------------
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF ASSET
BACKED SECURITIES CORPORATION OR ANY AFFILIATE THEREOF, NEITHER THE CERTIFICATES
NOR THE UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Final
Scheduled Price to Proceeds to the
Distribution Public (2) Underwritng Depositor
Interest Rate Date (1) Discount (2)(3)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Class A-1 (4) % % %
Certificate
- -------------------------------------------------------------------------------------------------------
Per Class A-2 (5) % % %
Certificate
- -------------------------------------------------------------------------------------------------------
Per Class A-3 % % %
Certificate
- -------------------------------------------------------------------------------------------------------
Per Class A-4 % % %
Certificate
- -------------------------------------------------------------------------------------------------------
Total % % %
========================================================================================================
</TABLE>
(1) These dates are calculated assuming, among other things, that there are no
prepayments and the Mortgage Loan characteristics are as described under
"Description of the Trust Fund--The Mortgage Pool" herein.
(2) Plus accrued interest, if any, at the applicable rate from , 199 .
(3) Before deduction of expenses payable by the Depositor estimated at $ .
(4) The Class A-1 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate of %
above the arithmetic mean of the London interbank offered rates for [ ]
month Eurodollar deposits ("LIBOR"), determined as set forth herein,
subject to a maximum interest rate of %.
(5) The Class A-2 Certificates will bear interest at the per annum rate of %
through , 19 , and thereafter at a variable per annum rate equal to
[ % - ( x LIBOR), determined as set forth herein, subject to a minimum
interest rate of %.]
----------------------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [its] [their] right to
reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be delivered to the offices of CS First
Boston, New York, New York, on or about 199 .
CS First Boston
- -------------------------------------------------------------------------------
The date of this Prospectus Supplement is ,19
<PAGE>
(Continued from prior page)
Interest on the Class A-1, Class A-2 and Class A-3 Certificates, at
the rate of interest set forth above for each such Class, will be
distributed [monthly] on each Distribution Date, commencing , 199 .
Distributions of interest on the Class A-4 Certificates will commence after
distributions in reduction of the Stated Principal Balance (as defined
herein) of the Class A-3 Certificates have reduced the Stated Principal
Balance of such Class to zero. Prior to that time, interest will accrue on
the Class A-4 Certificates and the amount so accrued will be added to the
Stated Principal Balance thereof on each Distribution Date. Distributions
in reduction of Stated Principal Balance of the Certificates of each Class
will be made on a pro rata basis among the Certificates of such Class, in
the order of their respective Final Scheduled Distribution Dates (as
defined herein), so that no distribution in reduction of the Stated
Principal Balance of any Certificate will be made until the Stated
Principal Balance of each Class of Certificates having a prior Final
Scheduled Distribution Date has been reduced to zero.
Scheduled distributions on the Mortgage Loans included in the Mortgage
Pool, together with certain other funds, as set forth more fully herein,
will be sufficient to make timely distributions of interest and
distributions in reduction of Stated Principal Balance on the [Class A]
Certificates and to reduce the Stated Principal Balance thereof to zero not
later than the Final Scheduled Distribution Dates set forth herein.
However, the actual final distribution on the [Class A] Certificates could
occur significantly earlier than the Final Scheduled Distribution Dates set
forth herein. The [Class A] Certificates will be subject to Special
Distributions under the circumstances specified herein. [The Depositor
intends to offer the Class B Certificates (as defined herein), which are
not offered hereby, to sophisticated institutional investors in
transactions not requiring registration under the Securities Act of 1933,
as amended. The rights of the Class B Certificateholders to receive
distributions with respect to the Mortgage Loans will be subordinated to
the rights of the Class A Certificateholders to the extent described herein
and in the Prospectus.]
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
----------------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKETMAKING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. THE UNDERWRITER MAY ALSO ACT AS AGENT IN SUCH
TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF
SALE.]
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Trust can be inspected and copied at the Public Reference Room of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., and
at the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
S-2
<PAGE>
- --------------------------------------------------------------------------------
Monthly and annual unaudited reports containing information concerning the
Mortgage Loans will be prepared by the Master Servicer and sent on behalf of the
Trust to each registered holder of the Certificates. See "Description of the
Certificates - Reports to Certificateholders" in the Prospectus.
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. An "Index of Terms" is included at the end of this Prospectus
Supplement. Capitalized terms used in this Prospectus Supplement and not defined
shall have the meanings given in the Prospectus. References to percentages of
the Mortgage Loans or to the principal balance of the Mortgage Loans in this
Prospectus Supplement are to percentages (except as otherwise indicated) by
aggregate principal balance as of the Cut-off Date.
Securities Offered............ Conduit Mortgage Pass-Through
Certificates, [Class A] Series __ (the
"[Class A] Certificates").
$[Variable] [%] Class A-1 Certificates.
$[Variable][%] Class A-2 Certificates.
$ % Class A-3 Certificates.
$ % Class A-4 Certificates.
[The Class A-1 and Class A-2
Certificates are Variable Rate
Certificates. The Class A-3 and Class
A-4 Certificates are Fixed Interest Rate
Certificates, as described herein.]
[The Class A-4 Certificates are Compound
Interest Certificates for the purposes
of this Prospectus Supplement.]
[The Class A Certificates represent, in
the aggregate, an approximate %
undivided interest in the Trust Fund.
The remaining approximate % undivided
interest in the Trust Fund is
represented by the Class B Certificates,
which are subordinated in certain
respects to the Class A Certificates, as
more fully described herein and in the
Prospectus. [The Class B Certificates
are not being offered hereby, and may be
retained by the Depositor or sold by the
Depositor at any time to one or more
sophisticated institutional investors in
privately negotiated transactions not
requiring registration under the
Securities Act of 1933, as amended (the
"Securities Act").]]
Denominations and Record
Dates......................... The [Class A] Certificates will be
issued in fully registered form in
minimum denominations of $ And
integral multiples of $ in excess
of such amount. [The Record Date for
each regular distribution on the [Class
A] Certificates is the close of business
on the [last] day of the [second] month
immediately preceding the applicable
Distribution Date.] [The Record Date for
each regular distribution on the
Variable Rate Certificates is the close
of business on the th day of the
month in which the applicable
Distribution Date occurs. The Record
Date for each regular distribution on
the Fixed Rate Certificates is the close
of business on the th day of the month
immediately preceding the month in which
the applicable Distribution Date
occurs.]
Depositor..................... Asset Backed Securities Corporation, a
Delaware corporation (The "Depositor").
Seller........................ [ ]
Master Servicer............... , A corporation (the
"Master Servicer")
Cut-off Date.................. , 19 .
Delivery Date................. On or about ,19 .
Date.......................... The [____ day of each month] [each ,
, and ], or, if such day is
not a business day, the next succeeding
business day.
- --------------------------------------------------------------------------------
S-3
<PAGE>
- --------------------------------------------------------------------------------
Collection Period............. [With respect to a Distribution Date,
the period beginning on the day after
the Due Date in the [month] [quarter]
preceding the month in which such
Distribution Date occurs and ending on
the Due Date in the month in which such
Distribution Date occurs.]
Due Date...................... [With respect to any Distribution Date
and/or any Mortgage Loan, as the case
may be, the first day of the [month]
[quarter] in which such Distribution
Date occurs, or if such first day is not
a business day, the business day
immediately following such first day.]
Interest Distributions........ [Interest will be distributed on each
Distribution Date on the Stated
Principal Balance (as defined herein) of
the Certificates at the applicable rate
of interest specified on the cover page
hereof (the "Interest Rate") for the
Class A-1, Class A-2 and Class A-3
Certificates, commencing , 19 .]
[Interest will be distributed on the
Class A-1 Certificates at the per annum
rate of % through , 19 , and
thereafter at a variable per annum rate
of % above LIBOR, determined as set
forth herein, subject to a maximum
interest rate of %. Interest will be
distributed on the Class A-2
Certificates at the per annum rate of
% through , 19 , and thereafter
at a variable per annum rate equal to
% - ( x LIBOR), determined as
set forth herein, subject to a minimum
interest rate of %. Interest will be
distributed on the Class A-3 and Class
A-4 Certificates (the "Fixed Rate
Certificates") at the respective per
annum rates specified on the cover page
hereof.] [Interest distributable on the
Fixed Rate Certificates on each
Distribution Date will accrue from the
[first day of the month preceding the
month in which the] prior Distribution
Date occurred (or from , 19 in
the case of the first Distribution Date)
through the last day of the month
preceding the then current Distribution
Date.] [Interest will accrue on the
Variable Rate Certificates from the
preceding Distribution Date (or from
, 19 in the case
of the first Distribution Date)
through the day preceding each
Distribution Date. Interest will accrue
on the Fixed Rate Certificates from the
th day of the month preceding the month
in which the prior Distribution Date
occurred (or from , 19 in the
case of the first Distribution Date)
through the th day of the month
preceding the month in which the
current Distribution Date occurs.]
Distributions of interest on the
Class A-4 Certificates will commence
after distributions in reduction of
Stated Principal Balance of the Class
A-3 Certificates have reduced the Stated
Principal Balance of such Class to zero.
Prior to that time, interest will accrue
on the Class A-4 Certificates and the
amount so accrued will be added to the
Stated Principal Balance thereof on each
Distribution Date. See "Description of
the Certificates-Distributions of
Interest" herein.
[The distribution of interest on the Class
A-3 Certificates (and the addition of
accrued interest to the Stated Principal
Balance of the Class A-4 Certificates
prior to the reduction of the Stated
Principal Balance of the Class A-3
Certificates to zero) one month after
the date to which interest accrues
thereon and the calculation of accrued
interest on such Certificates based on
the assumption that distributions in
reduction of Stated Principal Balance
are made one month prior to the date on
which such distributions actually are
made will reduce the effective yield to
the holders of the Class A-3
Certificates from that which would be
the case if interest distributable on
such Certificates on a Distribution Date
were to accrue to such Distribution
Date. See "Description of the [Class A]
Certificates-Distributions of Interest
[on the Class A Certificates]" herein.]
Distributions in Reduction of The Stated Principal Balance of a [Class
Stated Principal Balance...... A] Certificate at any time represents
the maximum specified dollar amount
(exclusive of interest at the related
Interest Rate) to which the holder
thereof is entitled from the cash flow
on the Mortgage Loans comprising the
Mortgage Pool and will decline to the
extent distributions in reduction of
Stated Principal Balance are received by
such holder. The Initial Stated
Principal Balance of each Class of
Certificates is set forth on the cover
of this Prospectus Supplement.
Allocation of distributions in reduction
of Stated Principal Balance will be made
to the [Subc] [C]lasses of the [Class A]
Certificates in the order of their
respective Final Scheduled Distribution
Dates, so that no distribution in
reduction of Stated Principal
- --------------------------------------------------------------------------------
S-4
<PAGE>
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Balance will be made to any [Subc]
[C]lass of [Class A] Certificates until
distributions in reduction of Stated
Principal Balance made to each [Subc]
[C]lass of [Class A] Certificates having
a prior Final Scheduled Distribution
Date have reduced the Stated Principal
Balance of such [Subc] [C]lass to zero.
Distributions in reduction of Stated
Principal Balance on the [Class A]
Certificates will be made on each
Distribution Date on which such
distributions are due in an aggregate
amount equal to the sum of (i) the
amount of interest accrued on the Class
A-4 Certificates from the [first day of
the month preceding the month in which
the prior] Distribution Date occured (or
from , 19 in the case of the first
Distribution Date) through the last day
of the month preceding the then current
Distribution Date but not then
distributable (the "Accrual Distribution
Amount"), (ii) the [Class A] Stated
Principal Distribution Amount (as
described below) [and (iii) % of
Excess Cash Flow (as defined herein), if
any]. The [Class A] Stated Principal
Distribution Amount with respect to a
Distribution Date equals the amount, if
any, by which the aggregate Stated
Principal Balance of the [Class A]
Certificates (before taking into account
the amount of interest accrued on the
Class A-4 Certificates to be added to
the Stated Principal Balance thereof on
such Distribution Date) exceeds the
Asset Value, as defined herein, of the
Mortgage Loans comprising the Mortgage
Pool as of the Business Day prior to
such Distribution Date. For purposes of
determining the Stated Principal
Distribution Amount, the Asset Value of
the Mortgage Loans comprising the
Mortgage Pool will be reduced by taking
into account [the Senior Interest (as
defined herein) in] all distributions of
principal thereof (including
prepayments) received or due to be
received by the Trustee or its nominee
during the period (a "Due Period")
ending on the Business Day prior to such
Distribution Date. See "Description of
the [Class A]
Certificates--Distributions in Reduction
of Stated Principal Balance" herein.
Final Scheduled Distribution
Date.......................... Class A-1 Certificates .
Class A-2 Certificates .
Class A-3 Certificates .
Class A-4 Certificates .
The Final Scheduled Distribution Date for
each [Subc][C]lass of [Class A]
Certificates is the latest date on which
the Stated Principal Balance of all the
Certificates of such [Subc] [C]lass will
have been reduced to zero, and is
calculated by assuming, among other
things, that [(i)] scheduled interest
and principal payments (with no
prepayments) on the Mortgage Loans
comprising the Mortgage Pool are timely
received [and (ii) such amounts are
reinvested at an assumed reinvestment
rate of % annum from , 19 to
, 19 and % per annum
thereafter (the "Assumed Reinvestment
Rate")]. Since the rate of distributions
in reduction of Stated Principal Balance
of each [Subc] [C]lass of [Class A]
Certificates will depend on the rate of
payment (including prepayments) on the
principal of the Mortgage Loans, the
actual final distribution of any [Subc]
[C]lass of [Class A] Certificates could
occur significantly earlier than its
Final Scheduled Distribution Date. The
rate of payments on the Mortgage Loans
will depend on their particular
characteristics, as well as on
prevailing interest rates from time to
time and other economic factors, and no
assurance can be given as to the actual
payment experience of the Mortgage
Loans. See "Yield Considerations"
herein.
[Special Distributions........ The [Class A] Certificates may receive
special distributions in reduction of
Stated Principal Balance ("Special
Distributions") on the first day of any
month, other than a month in which a
Distribution Date occurs, if, as a
result of principal prepayments on the
Mortgage Loans comprising the Mortgage
Pool and/or low reinvestment yields, the
Trustee determines, based on assumptions
specified in the Pooling and Servicing
Agreement, that interest requirements on
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S-5
<PAGE>
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any portion of the [Class A]
Certificates would not be met. The
amount of any such Special Distribution
would not exceed the amount of
distributions in reduction of Stated
Principal Balance of the [Class A]
Certificates that would otherwise be
required to be made on the next
Distribution Date. As a result, a
Special Distribution on the [Class A]
Certificates would not result in a
distribution to [Class A]
Certificateholders more than two months
earlier than the Distribution Date on
which such distribution would otherwise
have been received. The [Class A]
Certificates will be redeemable in the
same priority and manner as
distributions in reduction of Stated
Principal Balance are made on a
Distribution Date. See "Description of
the [Class A] Certificates--Special
Distributions" herein.
[Optional Termination......... On any Distribution Date on or after the
[later] of ____ or the date on which the
Stated Principal Balance of the [Class
A-3] Certificates has been reduced to
zero, the Depositor will have the right
to repurchase, in whole, but not in
part, the Mortgage Loans comprising the
Mortgage Pool. Additionally, on any
Distribution Date on which the aggregate
principal amount of the Mortgage Loans
comprising the Mortgage Pool is less
than [10%] of the aggregate principal
amount of such Mortgage Loans as of the
Cut-off Date, the Depositor will have
the right to repurchase, in whole, but
not in part, such Mortgage Loans. Any
such repurchase will be made at a
purchase price equal to [the aggregate
principal amount of such Mortgage Loans
plus accrued interest thereon to the
last day of the month of such
repurchase, together with the appraised
value of any property acquired in
respect of such Mortgage Loans]. Any
such termination will be effected in
compliance with the requirements of
Section 860F(a) (iv) of the Internal
Revenue Code of 1986, as amended (the
"Code"), so as to constitute a
"qualifying liquidation" thereunder. The
proceeds of any such repurchase will be
treated as a distribution on the
Mortgage Loans for purposes of
distributions to the Certificateholders.
In no event will the Trust continue
beyond the expiration of 21 years from
the death of the last survivor of the
person named in the Pooling and
Servicing Agreement.] See "Description
of the [Class A] Certificates--Optional
Termination" herein.]
Trust Fund.................... The Certificates evidence ownership
interest in the Trust Fund, the assets
of which will consist of the following:
A. Mortgage Pool.............. The Mortgage Pool will consist of
[fixed-rate,] fully amortizing,
[level-payment] mortgage loans [and
mortgage participation certificates
evidencing participation interests in
such mortgage loans that meet the
requirements of the nationally
recognized rating agency or agencies
rating the Certificates (collectively,
the "Rating Agency") for a rating in one
of the two highest rating categories of
such Rating Agency] secured by mortgages
on one- to four-family residential
properties located in the states of
, and (the "Mortgage
Loans"). All Mortgage Loans will have
original maturities of at least [15] but
no more than [30] years. See
"Description of the Trust Fund--The
Mortgage Pool" herein.*
B. Certificate Account........ There will be deposited in an account (the
"Certificate Account") to be established
with the Trustee all distributions on or
with respect to the Mortgage Loans
comprising the Mortgage Pool, together
with reinvestment income thereon [, the
amount of cash initially deposited
therein by the Depositor, and any
amounts withdrawn from any Reserve Fund,
GPM Fund or Buy-Down Fund (as described
below)]. Funds on deposit in the
Certificate Account will be available to
make distributions in reduction of
Stated Principal Balance and
distributions of interest on the [Class
A] Certificates on each Distribution
Date. See "Description of the Trust
Fund--Certificate Account" herein.
[C. Buy-Down Fund............. The Depositor will deliver to the Trustee
cash, a letter of credit or a guaranteed
investment contract to fund the Buy-Down
Fund for the [Class A] Certificates. The
Assumed Reinvestment Rate for the
Buy-Down Fund will be the same as that
of the Certificate Account. The Trustee
may withdraw excess funds in the
Buy-Down Fund on any Distribution Date.
See "Description of the Trust
Fund--Buy-Down Fund" herein.]
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S-6
<PAGE>
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[D. GPM Fund.................. The Depositor will deliver to the Trustee
cash, a letter of credit or a guaranteed
investment contract to fund the GPM Fund
for the [Class A] Certificates. The
Assumed Reinvestment Rate for the GPM
Fund will be the same as that of the
Certificate Account. The Trustee may
withdraw excess funds in the GPM on any
Distribution Date. See "Description of
the Trust Fund--GPM Fund" herein.]
[E. Reinvestment
Agreement............ .... All amounts on deposit in the Certificate
Account [and the GPM and Buy-Down Funds]
will be reinvested with by the
Trustee pursuant to a guaranteed
investment contract (the "Reinvestment
Agreement") at a rate of % per annum.
See "Description of the Trust
Fund--Reinvestment Agreement" herein.]
[F. Letter of Credit.......... The maximum liability of [ ] under an
irrevocable standby letter of credit,
for the Mortgage Pool (the "Letter of
Credit"), net of unreimbursed payments
thereunder, will be no more than [10%]
of the initial aggregate principal
balance of the Mortgage Pool (the
"Letter of Credit Percentage"). The
maximum amount available to be paid
under the Letter of Credit will be
determined in accordance with the
Pooling and Servicing Agreement referred
to herein. The duration of coverage and
the amount and frequency of any
reduction in coverage will be in
compliance with the requirements for a
rating in one of the two highest rating
categories of the Rating Agency. The
amount available under the Letter of
Credit shall be reduced by the amount of
unreimbursed payments thereunder. See
"Description of the Certificates--Credit
Support--The Letter of Credit" in the
Prospectus.]
- --------------
* If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interest in manufactured housing conditional sales
contracts and installment loan agreements ("Contracts"), the disclosure to
be set forth will be substantially similar to the disclosure set forth in
Version E under "Summary of Terms - Contract Pool."
- --------------------------------------------------------------------------------
S-7
<PAGE>
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[G. Pool Insurance Policy [Neither the Certificates nor the Mortgage
Loans will be insured or guaranteed by
any governmental agency.] Subject to the
limitations described herein, a pool
insurance policy for certain of the
Mortgage Loans (the "Pool Insurance
Policy"), will cover losses due to
default on such Mortgage Loans in an
initial amount of not less than [5%] of
the aggregate principal balance as of
the first day of the month of the
creation of the Trust (the "Cut-off
Date") of all Mortgage Loans that are
not covered as to their entire
outstanding principal balance by primary
policies of mortgage guaranty insurance.
See "Description of the Trust Fund-The
Pool Insurance Policy" herein. The Pool
Insurance Policy will be subject to the
limitations described under "Description
of Insurance-the Pool Insurance Policy"
in the Prospectus.]
[H. Hazard Insurance [and
Special Hazard
Insurance
Policy]................... All of the Mortgage Loans will be covered
by standard hazard insurance policies
insuring against losses due to various
causes, including fire, lightning and
windstorm. [An insurance policy (the
"Special Hazard Insurance Policy") will
cover losses with respect to the
Mortgage Loans that result from certain
other physical risks that are not
otherwise insured against (including
earthquakes and mudflows). The Special
Hazard Insurance Policy will be limited
in scope and will cover losses in an
initial amount equal to the greater of
% of the aggregate principal balance
of the Mortgage Loans or times the
unpaid principal balance of the largest
Mortgage Loan.] Any hazard losses not
covered by [either] standard hazard
insurance policies [or the Special
Hazard Insurance Policy] will not be
insured against and [, to the extent
that the amount available under the
Letter of Credit or any alternative
method of credit support is exhausted,]
will be borne by the Certificateholders.
See "Description of the Trust Fund--The
Special Hazard Insurance Policy" herein.
The hazard insurance policies [and the
Special Hazard Insurance Policy] will be
subject to the limitations described
under "Description of Insurance--Hazard
Insurance" and "--Special Hazard
Insurance Policies"] in the Prospectus.
[I. Mortgagor Bankruptcy
Bond................ The Depositor will obtain a bond or
similar form of insurance coverage (the
"Mortgagor Bankruptcy Bond"), providing
coverage against losses that result from
proceedings with respect to obligors
under the Mortgage Loans (the
"Mortgagor") under the federal
Bankruptcy Code. See "Description of the
Trust Fund--Mortgagor Bankruptcy Bond"
herein and "Description of
Insurance--The Mortgagor Bankruptcy
Bond" in the Prospectus.]
[Class B Certificates......... The rights of the Class B
Certificateholders to receive
distributions with respect to the
Mortgage Loans are subordinated to the
right of the Class A Certificateholders
to receive such distributions to the
extent of the Subordinated Amount
described below. This subordination is
intended to enhance the likelihood of
regular receipt by Class A
Certificateholders of the full amount of
scheduled distributions of interest and
distributions in reduction of Stated
Principal Balance and to decrease the
likelihood that the Class A
Certificateholders will experience
losses. The extent of such subordination
(the "Subordinated Amount") will be
determined as follows: on the Cut-off
Date and on each anniversary of the
Cut-off Date until , the Subordinated
Amount will equal % of the original
aggregate principal balance of the
Mortgage Loans less the amount of
"Aggregate Losses" (as defined in the
Prospectus) since the Cut-off Date
through the last day of the month
preceding such anniversary date; from
the th anniversary of the Cut-off Date
onward, the Subordinated Amount will
gradually decline in accordance with a
schedule set forth in the Pooling and
Servicing Agreement.]
[Reserve Fund................. The protection afforded to the Class A
Certificateholders from the
subordination feature described above
will be effected both by the
preferential right of the Class A
Certificateholders to receive current
distributions with respect to the
Mortgage Loans (to the extent of the
Subordinated Amount) and by the
establishment of a reserve (the "Reserve
Fund"). The Reserve Fund is not
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S-8
<PAGE>
- --------------------------------------------------------------------------------
included in the Trust Fund. The Reserve
Fund will be created by the Depositor
and shall be funded by the retention of
all of the scheduled distributions of
principal of the Mortgage Loans
otherwise distributable to the Class B
Certificateholders on each Distribution
Date until the Reserve Fund reaches an
amount (the "Required Reserve") that
will equal [; thereafter, the Reserve
Fund must be maintained at the following
levels: ]. See "Description of the
Certificates--Subordinated Certificates"
and "--Reserve Fund" in the Prospectus.]
Certain Risk Factors.......... For a discussion of certain risk factors
that should be considered in connection
with an investment in the Certificates,
including those relating to [describe
risk factors specific to transaction],
see "Risk Factors" herein.
Master Servicing and Servicing
Agreements.................. The Depositor will enter into a Master
Servicing Agreement with , which
will have entered into Servicing
Agreements with various entities (each a
"Servicer") with respect to the
servicing of the Mortgage Loans. Among
other things, the Servicers and the
Master Servicer are obligated under
certain circumstances to make advances
with respect to the Mortgage Loans, to
purchase any Mortgage Loans for which
mortgage insurance coverage is denied on
the grounds of fraud or
misrepresentation and to purchase
certain Mortgage Loans with respect to
which a breach of a representation or
warranty has occurred. The Depositor
will assign to the Trustee its rights
under the Master Servicing Agreement and
the Servicing Agreements with respect to
the Mortgage Loans.
Advances...................... Any Servicer of the Mortgage Loans (and
the Master Servicer, with respect to
each Mortgage Loan that it services
directly and otherwise, to the extent
the applicable Servicer does not do so)
will be obligated to advance delinquent
installments of principal and interest
on the Mortgage Loans under certain
circumstances. See "Description of the
Certificates--Advances" in the
Prospectus.
Substitution of Mortgage
Loans........................ Within three months following the date of
the issuance of the Certificates, the
Depositor may deliver to the Trustee
Mortgage Loans in substitution for any
one or more of the Mortgage Loans
initially included in the Trust Fund but
which do not conform in one or more
respects to the description thereof
contained in this Prospectus Supplement
or in the Current Report on Form 8-K
referred to herein. See "The Mortgage
Pool-Substitution of Mortgage Loans" in
the Prospectus.
Residual Certificates......... Upon the issuance of the Certificates,
[the Depositor will retain] an interest
in the Mortgage Pool [that] will be
represented by a class of certificates
(the "Residual Certificates") that the
Depositor will designate as "residual
interests" under Section 860G(a)(2) of
the Internal Revenue Code of 1986, as
amended (the "Code"). The Residual
Certificates will represent the right to
receive distributions equal to % of the
Excess Cash Flow, if any, with respect
to each Distribution Date. The Residual
Certificates are not being offered
hereby. [The Depositor may, but need
not, sell some or all of such Residual
Certificates after the date of issuance
of the Certificates to sophisticated
institutional investors in transactions
not requiring registration under the
Securities Act of 1933, as amended.]
Trustee....................... (the "Trustee"). See
"Description of the [Class A]
Certificates-Trustee" herein.
Legal Investment.............. The [Class A] Certificates constitute
"mortgage related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the
"Enhancement Act"), and, as such, are
legal investments for certain entities
to the extent provided in the
Enhancement Act. See "Legal Investment"
in the Prospectus.
Certificate Rating............ It is a condition of issuance that the
[Class A] Certificates be rated in one
of the two highest rating categories of
the Rating Agency prior to issuance. A
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S-9
<PAGE>
- --------------------------------------------------------------------------------
security rating is not a recommendation
to buy, sell or hold securities and may
be subject to revision or withdrawal at
any time by the assigning rating
organization. A security rating does not
address the frequency of prepayments or
the possibility that Certificateholders
might suffer a lower than anticipated
yield. A security rating also does not
represent any assessment of the yield to
maturity that investors may experience.
See "Risk Factors" herein and in the
Prospectus, "Rating" herein, "Yield and
Prepayment Considerations" herein and
"Yield Considerations" in the
Prospectus.
ERISA Limitations.............. See "ERISA Considerations" in the
Prospectus.
Tax Aspects................... The Depositor intends to make an Real
Estate Mortgage Investment Conduit (a
"REMIC"), pursuant to the Internal
Revenue Code of 1986, as amended. [The
Certificates other than the Residual
Certificates (the "Regular
Certificates") will be treated as
regular interests in the REMIC and
generally will be treated as debt
instruments issued by the REMIC for
federal income tax purposes. Certain
Classes of the Regular Certificates may
be issued with original issue discount.
The prepayment assumption that will be
used in determining the rate of accrual
of any original issue discount on the
Regular Certificates for federal income
tax purposes (and whether such original
issue discount is de minimis), and that
may be used by a holder of a Regular
Certificate to amortize premium, will be
[ ]% of the Prepayment Assumption. No
representation is made that the Mortgage
Loans will prepay at such rate or at any
other rate. The holders of the Residual
Certificates will be subject to special
federal income tax rules that may
significantly reduce the after-tax yield
of such Certificates. Further,
significant restrictions apply to the
transfer of the Residual Certificates.
See "Certain Federal Income Tax
Consequences" herein and in the
Prospectus.]
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S-10
<PAGE>
RISK FACTORS
General
The rate of distributions in reduction of the principal balance of any
Subclass or Class of Certificates, the aggregate amount of distributions of
principal and interest on any Subclass or Class of Certificates and the yield to
maturity of any Subclass or Class of Certificates will be directly related to
the rate of payments of principal on the Mortgage Loans in the Trust Fund and
the amount and timing of Mortgagor defaults resulting in realized Losses. The
rate of principal payments on the Mortgage Loans will, in turn, be affected by
the amortization schedules of the Mortgage Loans, the rate of principal
prepayments (including partial prepayments and those resulting from refinancing)
thereon by Mortgagors, liquidations of defaulted Mortgage Loans, repurchases by
the Depositor, the Master Servicer or any Unaffiliated Seller of Mortgage Loans
as a result of certain breaches of representations and warranties and optional
purchase by the Depositor of all of the Mortgage Loans in connection with the
termination of the Trust Fund. See "Description of the Certificates -
Termination; Repurchase of Mortgage Loans" herein and "The Trust Fund-Mortgage
Loan Program-Representations by Unaffiliated Sellers; Repurchases" and
"Description of the Certificates-Assignment of Mortgage Loans; and -
Termination" in the Prospectus. Mortgagors are permitted to prepay the Mortgage
Loans, in whole or in part, at any time without penalty.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment would generally be expected to increase.
Conversely, if interest rates on similar mortgage loans rise above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to decrease.
An investor that purchases any Certificates at a discount should consider
the risk that a slower than anticipated rate of principal payments on the
Mortgage Loans will result in an actual yield that is lower than such investor's
expected yield. An investor that purchases any Certificates at a premium should
consider the risk that a faster than anticipated rate of principal payments on
the Mortgage Loans will result in an actual yield that is lower than such
investor's expected yield.
[Additional risk factors will be added, as appropriate, including, without
limitation, (i) if an Interest Weighted Class of Certificates or a Principal
Weighted Class of Certificates is being offered, a discussion of the risks
associated with such Class, including any disproportionate share of credit or
prepayment risks that such Class will bear, (ii) a discussion of the
concentration of credit risk, if any, with respect to the Mortgage Loans due to,
among other things, (w) a concentration of Mortgage Loans originated by one or a
few dealers, (x) a single mortgagor or lessee or cross-default,
cross-collateralization or similar provisions, (y) a concentration of properties
with brief or financially troubled operating histories or (z) a concentration of
properties within a state (or region of a state) and (iii) a discussion of the
basis risk associated with a Class of Certificates.]
DESCRIPTION OF THE TRUST FUND
The Mortgage Pool*
The Mortgage Pool will consist of Mortgage Loans evidenced by mortgage
notes with aggregate unpaid principal balances outstanding as of the first day
of the month of the creation of the Trust (the "Cut-off Date"), after deducting
payments of principal due on such date, of approximately $ . This amount is
subject to a permitted variance of up to %. The average outstanding principal
balance of the Mortgage Loans as of the Cut-off Date will be $[ ]. [The Mortgage
Pool will consist of -year, [fixed-rate], fully-amortizing, [level-payment]
Mortgage Loans, as more fully described in the Prospectus.]
The weighted average interest rate (individually, a "Mortgage Rate") of the
Mortgage Loans as of the Cut-off Date will be at least % but no more than
%. All Mortgage Loans will have Mortgage Rates of at least % but no
Cut-off Date, will be at least years but no more than years. All
Mortgage Loans will have original maturities of at least but no more than
years. None of the Mortgage Loans will have been originated prior to or after
, 19 . None of the Mortgage Loans will have a scheduled maturity later
than .
The Mortgage Loans will have the following characteristics as of the
Cut-off Date (expressed as a percentage of the outstanding aggregate principal
balances of the Mortgage Loans having such characteristics relative to the
outstanding aggregate principal balances of all Mortgage Loans):
- --------
* If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E
under "Description of the Contract Pool."
S-11
<PAGE>
No more than % of the Mortgage Loans will have been originated before
, and no more than % of the Mortgage Loans will have been originated
before . See "Certain Federal Income Tax Consequences--Mortgage Pools,"
"--Taxation of Owners of Trust Fractional Certificates," and "--Market Discount
and Premium" in the Prospectus for information regarding such Mortgage Loans.
At least % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of less than $ .
No more than % of the Mortgage Loans will be Mortgage Loans each having
outstanding principal balances of more than $ .
No more than % of the Mortgage Loans will have had loan-to-value ratios
at origination in excess of [80]%, and no Mortgage Loan will have had a
loan-to-value ratio at origination in excess of 95%.
[All of the Mortgage Loans with loan-to-value ratios at origination in
excess of 80% will be covered by a policy of primary mortgage insurance until
the outstanding principal balance is reduced to 75% of the Original Value. ]
At least % of the Mortgage Loans will be secured by mortgages on
one-family dwellings.
No more than % of the Mortgage Loans will be secured by Mortgages on
condominiums.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be Mortgage Loans for which Buy-Down Funds have been provided, and no more
than % of the principal balance of any such Mortgage Loan will be
represented by Buy-Down Funds.
No more than %, by aggregate principal balance, of the Mortgage Loans
will be GPM Loans.
At least % of the Mortgage Loans will be secured by a Mortgage on an
owner-occupied Mortgaged Property. Such determination will have been made on the
basis of a representation by the Mortgagor at the time of origination of the
Mortgage Loan that such Mortgagor then intended to occupy the underlying
property or, in the absence of such a representation, on the basis of various
factors indicating that the underlying property is owner-occupied.
No more than [ ]% of the Mortgage Loans will be secured by Mortgages on
properties located in any one zip code.
The Mortgage Loans will be secured by Mortgages on properties located in
the states of .
[With respect to ARM Loans, specify the adjustment dates, the highest, lowest
and weighted average margin, and the maximum Mortgage Rate variation at the time
of any periodic adjustment and over the life of such ARM Loans.]
[With respect to Mortgage Loans which are secured by Multifamily Properties,
specify (i) whether such loans provide for interest only periods and whether the
principal amounts of such loans are amortized on the basis of a period of time
that extends beyond the related maturity dates thereof and (ii) any materially
different underwriting standards for such loans.]
Specific information with respect to the Mortgage Loans will be available
to purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Mortgage Loans
outstanding as of the Cut-off Date, and will also set forth tables reflecting
the following information regarding the Mortgage Loans: years of origination,
types of dwellings on the underlying properties, the sizes of Mortgage Loans and
distribution of Mortgage Loans by Mortgage Rate, and will be set forth in a
Current Report on Form 8-K that will be filed with the Securities and Exchange
Commission by the Depositor within 15 days after the issuance of the
Certificates.
Certificate Account
There will be deposited in an account (the "Certificate Account") to be
established with the Trustee all distributions on or with respect to the
Mortgage Loans comprising the Mortgage Pool, together with reinvestment income
thereon. [Until such time as the Subordinated Amount is reduced to zero, f]
[F]unds on deposit in the Certificate Account will be available to make
distributions in reduction of Stated Principal Balance and distributions of
interest on the Certificates on each Distribution Date, as more fully set forth
herein. [Any funds remaining in the Certificate Account on each Distribution
Date after making required distributions to holders of the Class A Certificates
on such Distribution Date will be distributed to the holders of the Class B
Certificates.] [Any amounts remaining in the Certificate Account on each
Distribution Date after making required distributions on the Class B
Certificates on such Distribution Date will be distributed to the holders of the
Residual Certificates.]
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<PAGE>
[Buy-Down Fund
The Depositor will deliver cash, a letter of credit or a guaranteed
investment contract to the Trustee to fund the Buy-Down Fund for the [Class A]
Certificates. [The Senior Interest in] Buy-Down Mortgage Loans not valued solely
on the basis of the scheduled monthly payments required of the Mortgagor will be
valued by taking into account funds available from the Buy-Down Fund and
reinvestment income thereon at the same Assumed Reinvestment Rate as that of the
Certificate Account.
The Trustee may withdraw excess funds from the Buy-Down Fund on any
Distribution Date. Any amounts so withdrawn shall be distributed [first, to
restore the amount in the Reserve Fund to the Required Reserve, and then to the
holders of the Class B Certificates to the extent of any deficiency in scheduled
distributions on such Class B Certificates on such Distribution Date. Any
amounts remaining will be distributed] to the holders of the Residual
Certificates.]
[GPM Fund
To the extent that [the Senior Interest in] a Mortgage Loan providing for
payments during a portion of its term that are less than the actual amounts of
principal and interest payable thereon (a "GPM Loan") is valued on the basis of
its maximum principal balance, rather than on the basis of scheduled payments by
the Mortgagor, the Depositor will deliver cash, a letter of credit or a
guaranteed investment contract to fund the GPM Fund for the [Class A]
Certificates. The Assumed Reinvestment Rate for the GPM Fund is the same as that
of the Certificate Account.
The Trustee may withdraw excess funds from the GPM Fund on any Distribution
Date. Any amounts so withdrawn shall be distributed [first, to restore the
amount in the Reserve Fund to the Required Reserve, and then to the holders of
the Class B Certificates to the extent of any deficiency in scheduled
distributions on such Class B Certificates on such Distribution Date. Any
amounts remaining will be distributed] to the holders of the Residual
Certificates.]
[Reinvestment Agreement
All amounts on deposit in the Certificate Account [, the Buy-Down Fund and
the GPM Fund] will be reinvested with by the Trustee pursuant to a
guaranteed investment contract (the "Reinvestment Agreement") at a rate of %
per annum.]
[Letter of Credit
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than
% of the aggregate principal balance of the Mortgage Loans on the Cut-off
Date. The duration of coverage and the amount and frequency of any reduction in
coverage will be in compliance with the requirements established by the Rating
Agency rating the Certificates in order to obtain a rating in one of the two
highest ratings categories of the Rating Agency. The precise amount of coverage
under the Letter of Credit and the duration and frequency of reduction of such
coverage will be set forth in the Current Report on Form 8-K referred to above.
See "Description of the Certificates--Credit Support--The Letter of Credit" in
the Prospectus.]
[The Pool Insurance Policy
Subject to the limitations described under "Description of Insurance--Pool
Insurance Policy" in the Prospectus, the Pool Insurance Policy will cover losses
by reason of default on the Mortgage Loans that are not covered as to their
entire outstanding principal balances by primary mortgage insurance, in an
amount equal to % of the aggregate principal balance of such Mortgage Loans
on the Cut-off Date.
The Pool Insurance Policy will be issued by , a corporation
(the "Pool Insurer"), which is engaged principally in the business of insuring
mortgage loans on residential properties against default in payment by the
Mortgagor. At , 19 , the Pool Insurer had insurance in force in the
form of primary policies covering approximately $ billion of residential
mortgages. At such date, the Pool Insurer had total assets of approximately
$ million, capital and surplus aggregating $ million and statutory
contingency reserves of $ million, resulting in total policyholders' reserves
of $ million. The claims-paying ability of the Pool Insurer is currently
rated by . In accordance with standard rating agency practice, may,
at any time, revise or withdraw such rating.
The information set forth above has been provided by the Pool Insurer. The
Depositor makes no representation as to the accuracy or completeness of such
information.]
[The Special Hazard Insurance Policy
The Special Hazard Insurance Policy will cover certain risks not otherwise
insured against under hazard insurance policies, subject to the limitations
described in the Prospectus, and will be issued by , corporation (the
"Special Hazard Insurer"). Claims under such policy will be limited to % of
the aggregate principal balance of the Mortgage Loans or twice the principal
balance of the Mortgage Loan with the highest outstanding principal balance at
the Cut-off Date,
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<PAGE>
whichever is greater. At , 19 , the Special Hazard Insurer had total
assets of approximately $ million and total policyholders' surplus of $ .
The claims-paying ability of the Special Hazard Insurer is presently rated
by . In accordance with standard rating agency practice,
may, at any time, revise or withdraw such rating.
The information set forth above has been provided by the Special Hazard
Insurer. The Depositor makes no representation as to the accuracy or
completeness of such information.]
[Mortgagor Bankruptcy Bond
The Depositor will obtain a bond or similar form of insurance coverage (the
"Mortgagor Bankruptcy Bond") for proceedings with respect to Mortgagors under
the federal Bankruptcy Code. The Mortgagor Bankruptcy Bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled
payments of principal and interest on a Mortgage Loan or a reduction by such
court of the principal amount of a Mortgage Loan and will cover certain unpaid
interest on the amount of such a principal reduction from the date of the filing
of a bankruptcy petition.
The initial amount of coverage provided by the Mortgagor Bankruptcy Bond
will be $ plus the greater of (i) % of the aggregate principal balances
of the Mortgage Loans secured by second residences and investor-owned residences
or (ii) times the largest principal balance of any such Mortgage Loan. The
coverage provided by the Mortgagor Bankruptcy Bond will be reduced by
payments thereunder.
The Mortgagor Bankruptcy Bond will be issued by , a
corporation. At , 19 , had admitted assets of approximately $ and
total policyholders' surplus of approximately $ .
The information set forth above concerning has been provided by it.
The Depositor makes no representation as to the accuracy or completeness of such
information.]
DESCRIPTION OF THE [CLASS A] CERTIFICATES
General
The Certificates will be issued pursuant to the Standard Terms and
Provisions of Pooling and Servicing (the "Standard Terms") as amended and
supplemented by a Reference Agreement to be dated as of the Cut-off Date (the
"Reference Agreement" and, together with the Standard Terms, the "Pooling and
Servicing Agreement") among the Depositor, , as master servicer (the
"Master Servicer"), and , as trustee (the "Trustee"), a form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part. Reference is made to the accompanying
Prospectus for important additional information regarding the terms and
conditions of the Pooling and Servicing Agreement and the Certificates. Each of
the [Class A] Certificates at the time of issuance will qualify as a "mortgage
related security" within the meaning of the Secondary Mortgage Market
Enhancement Act of 1984.
Distribution of principal and interest as set forth above will be made by
the Trustee by check mailed to each Certificateholder entitled thereto at the
address appearing in the Certificate Register to be maintained with the Trustee
or, if eligible for wire transfer as provided in the Pooling and Servicing
Agreement, by wire transfer to the account of such Certificateholder; provided,
however, that the final distribution in retirement of the Certificates will be
made only upon presentation and surrender of the Certificates at the office or
agency specified in the notice to Certificateholders of such final distribution.
The [Class A] Certificates will be transferable and exchangeable on a
Certificate Register to be maintained by the Trustee at the office or agency of
the Master Servicer maintained for that purpose in New York, New York. [Class A]
Certificates surrendered to the Trustee for registration of transfer or exchange
must be accompanied by a written instrument of transfer in form satisfactory to
the Trustee. No service charge will be made for any registration of transfer or
exchange of [Class A] Certificates, but payment of a sum sufficient to cover any
tax or other governmental charge may be required. Such office or agency of the
Master Servicer is currently located at . The Corporate Trust Office
of the Trustee is currently located at .
[Distributions Generally]
[On each Distribution Date, the Trustee will distribute to the Class A
Certificateholders, in the manner set forth below, an amount (the "Required
Distribution") equal to the sum of:
(i) the aggregate fractional undivided interest evidenced by all Class
A Certificates (the "Senior Interest") in: (a) until such time as the
Subordinated Amount is reduced to zero, all scheduled payments of principal
and interest (including any advances thereof), net of servicing fees and
other compensation payable to the Servicers and the Master Servicer, which
payments became due on the due date to which such Distribution Date relates
(the "Due Date"), whether or not such payments are actually received; and
(b) after the Subordinated Amount is reduced to zero, all payments of
principal and interest, net of servicing fees and other compensation
payable to the Servicers and the Master Servicer, but
S-14
<PAGE>
not previously received, since the time the Subordinated Amount was reduced
to zero, but only to the extent such payments are actually received or
advanced prior to the Determination Date;
(ii) the Senior Interest in all principal prepayments received during
the month prior to the month of distribution and, interest to the last day
of the month in which such principal prepayments occur, net of servicing
fees and other compensation payable to the Servicers and the Master
Servicer; and
(iii) the Senior Interest in the sum of (a) the outstanding principal
balance of each Mortgage Loan or property acquired in respect thereof that
was repurchased pursuant to the Pooling and Servicing Agreement or
liquidated or foreclosed during the monthly period ending on the day prior
to the Due Date to which such distribution relates, calculated as of the
date of each such Mortgage Loan as repurchased, liquidated or foreclosed,
and (b) accrued but unpaid interest on such principal balance, net of
servicing fees and other compensation payable to the Servicers and the
Master Servicer, to the first day of the month following the month of such
repurchase, liquidation or foreclosure.
The Required Distribution will be distributed to the Class A
Certificateholders, in the manner set forth below, to the extent that there are
sufficient eligible funds available for distribution to such Class A
Certificateholders on a Distribution Date. Funds eligible for such purpose with
respect to each Distribution Date shall be as set forth in the Prospectus under
"Payments on Mortgage Loans."
If the funds in the Certificate Account eligible for distribution to the
Class A Certificateholders (including all funds required to be deposited therein
from the Reserve Funds and any Advances by the Servicers or the Master Servicer)
are not sufficient to make the Required Distribution on any Distribution Date,
the Trustee shall distribute on such Distribution Date to the Class A
Certificateholders the amount of funds eligible for distribution to such Class A
Certificateholders, in the manner set forth below. If, on any Distribution Date,
prior to the time the Subordinated Amount has been reduced to zero, the Class A
Certificateholders do not receive the Required Distribution, the holders of the
Class B Certificates will not receive any distributions on such Distribution
Date. Any amounts in the Certificate Account after the Required Distribution is
made to the Class A Certificateholders will be distributed [first, to restore
the amount in the Reserve Fund to the Required Reserve, and then to the holders
of the Class B Certificates to the extent of any deficiency in the scheduled
distribution to such Certificateholders. Any excess will then be distributed to
the holders of the Residual Certificates, as set forth more fully below].
Holders of the Class B Certificates [or the Residual Certificates] will not be
required to refund any amounts that have previously been properly distributed to
them directly from the Certificate Account, regardless of whether there are
sufficient funds on such Distribution Date to make a full distribution to the
Class A Certificateholders. The subordination of distributions allocable to
holders of the Class B Certificates is limited to the Subordinated Amount, which
will decrease over time as more fully set forth herein and in the Pooling and
Servicing Agreement, and such subordination applies on any Distribution Date
only to then current distributions allocable to the Class B Certificateholders.
Distributions of Interest
The Certificates of each Class will bear interest at the Interest Rates
specified on the cover page hereof. Interest on the Class A-1 Certificates,
Class A-2 Certificates and Class A-3 Certificates will be distributable
[monthly] on each Distribution Date, commencing , 19 . [Interest
distributable on the Fixed Rate Certificates on each Distribution Date will
accrue from the [first day of the month preceding the month in which
the] prior Distribution Date occurred (or from , 19 (the "Accrual Date")
in the case of the first Distribution Date) through the [last] day [of the
month] preceding the then current Distribution Date. [Interest will accrue on
the Variable Rate Certificates from the preceding Distribution Date (or from
, 19 , in the case of the first Distribution Date) through the th day
of the month preceding each Distribution Date. Interest will accrue on the Fixed
Rate Certificates from the th day of the month [preceding the month] in which
the prior Distribution Date occurs (or from , 19 , in the case of the
first Distribution Date) through the th day of the month [preceding the month]
in which the current Distribution Date occurs.] Distributions of interest on
the Class A-4 Certificates will commence after distributions in reduction of
Stated Principal Balance of the Class A-3 Certificates have reduced the Stated
Principal Balance of such Class to zero. Prior to that time, interest will
accrue on the Class A-4 Certificates and the amount so accrued will be added to
the Stated Principal Balance thereof on each Distribution Date. [Interest
accrued on the [Sub] [C]lass of [Class A] Certificates currently receiving
distributions in reduction of Stated Principal Balance (and on the Class A-4
Certificates) during any period described above will be calculated on the
assumption that such distributions are made (and accrued interest added to the
Stated Principal Balance of the Class A-4 Certificates) on the [[first] day of
the month preceding] the next Distribution Date, and not on the Distribution
Date when actually made or added.
[Interest will accrue on the Class A-1 and Class A-2 Certificates through
, 19 at the rates of % and %, respectively. Commencing ,
19 , interest will accrue on the Variable Rate Certificates at rates
determined as set forth below. For each interest accrual period other than the
first interest accrual period
--Interest will accrue on the Class A-1 Certificates at a per annum rate of
% above LIBOR, subject to a maximum interest rate of %.
--Interest will accrue on the Class A-2 Certificates at a per annum rate
equal to %-- ( x LIBOR), subject to a minimum interest rate of %.
S-15
<PAGE>
The rate at which interest will accrue on the Class A-2 Certificates
will thus vary inversely with changes in LIBOR. Interest will accrue on the
Class A-2 Certificates at the minimum rate of % whenever LIBOR is % or
above, and the maximum rate at which interest will accrue on the Class A-2
Certificates will be % per annum, which would be the rate in effect if LIBOR
were determined to be %.
The following table illustrates the relationship between LIBOR rates
and the rate at which interest will accrue on the Class A-1 and Class A-2
Certificates.
LIBOR Class A-1 Class A-2
% % %
% % %
% % %
The [Trustee] will determine LIBOR for a given interest accrual period on
the second business day prior to the Distribution Date on which such interest
accrual period commences (an "Interest Rate Determination Date"). For this
purpose, a "business day" is any day on which banks in London and New York City
are open for the transaction of international business. Promptly after each
Interest Rate Determination Date, the Trustee will cause the Interest Rates, the
Stated Principal Balances of the Variable Rate Certificates for the interest
accrual period following such Determination Date, and the amounts of interest
payable on the Distribution Date following such interest accrual period in
respect of each $1,000 of such Stated Principal Balance, to be published in an
English language newspaper of general circulation published each business day in
New York City. The Stated Principal Balances and the Interest Rates on the
Variable Rate Certificates applicable to the then current and the immediately
preceding interest accrual periods may be obtained by telephoning the Trustee at
its Corporate Trust Office at .
The determination of the rates at which interest will accrue on the
Variable Rate Certificates after , 19 will be made in accordance with
the following provisions:
(i) On each Interest Rate Determination Date, the Trustee will
determine LIBOR on the basis of quotations [provided by [four] Reference
Banks as of 11:00 A.M. (London time) as such quotations appear on the
Reuters Screen LIBOR Page (as defined in the International Swap Dealers
Association, Inc. Code of Standard Wording, Assumptions and Provisions for
SWAPS, 1986 edition).] LIBOR as determined by the Trustee is the arithmetic
mean of such quotations (rounded upward, if necessary, to the nearest
multiple of of 1%).
(ii) If, on any Interest Rate Determination Date, at least two but
fewer than all of the Reference Banks provide quotations, LIBOR will be
determined in accordance with (i) above on the basis of the offered
quotations of those Reference Banks providing such quotations.
(iii) If, on any Interest Rate Determination Date, only one or none of
the Reference Banks provides such offered quotations, LIBOR will be the
higher of:
(a) LIBOR as determined on the previous Interest Rate
Determination Date; and
(b) the Reserve Interest Rate. The "Reserve Interest Rate" will
be the rate per annum (rounded upward as aforesaid) that the Trustee
determines to be either (x) the arithmetic mean of the offered
quotations that leading banks in New York City selected by the Trustee
(after consultation with the Depositor) are quoting on the relevant
Interest Rate Determination Date for [ ] month United States dollar
deposits to the principal London office of each of the
Reference Banks
or those of them (being at least two in number) to which such offered
quotations are, in the opinion of the Trustee, being so made or (y) in
the event that the Trustee can determine no such arithmetic mean, the
arithmetic mean of the offered quotations that leading banks in New
York City selected by the Trustee (after consultation with the
Depositor) are quoting on such Interest Rate Determination Date to
leading European banks for [ ] month United States dollar deposits;
provided, however, that if the banks selected as aforesaid by the
Trustee are not quoting as mentioned above, LIBOR for the next accrual
period will be LIBOR as specified in (a) above.
The rate at which interest will accrue on the Class A-1 Certificates will
in no event exceed % per annum, and the rate at which interest will accrue on
the Class A-2 Certificates will in no event be less than % per annum.
Each Reference Bank shall be a leading bank engaged in transactions in
Eurodollar deposits in the international Eurocurrency market, shall not control,
be controlled by, or be under common control with, the Depositor and shall have
an established place of business in London.
[The distribution of interest on the [Class A] Certificates (and the
addition of accrued interest to the Stated Principal Balance of the Class A-4
Certificates prior to the reduction of the Stated Principal Balance of the Class
A-3 Certificates to zero) [30] days after the date to which interest accrues
thereon and the calculation of accrued interest on the Certificates based on the
assumption that distributions in reduction of Stated Principal Balance of the
[Class A] Certificates are made [one month] prior to the actual Distribution
Date will reduce the effective yield to holders of the [Class A] Certificates
from
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<PAGE>
that which would otherwise be the case if interest distributable on the [Class
A] Certificates (or added to the Stated Principal Balance of the Class A-4
Certificates) on a Distribution Date were to accrue to such Distribution Date.]
[The effective yield to the Class A-3 and Class A-4 Certificateholders will
be less than the yield that would otherwise be produced if interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) on a Distribution Date were to accrue to
such Distribution Date because (i) on the first Distribution Date, [ ] months'
interest is distributable on the Certificates (or to be added to the Stated
Principal Balance of the Class A-4 Certificates) even though [ ] months will
have elapsed from the date on which interest begins to accrue on the
Certificates and (ii) on each succeeding Distribution Date, the interest
distributable on the Certificates (or to be added to the Stated Principal
Balance of the Class A-4 Certificates) is the interest accrued during the period
described above even though this accrual period ends [30] days prior to such
Distribution Date. In addition, during the first month of each interest accrual
period (other than the first such period) for the Class of Certificates on which
distributions in reduction of Stated Principal Balance are being distributed,
interest accrues on a principal balance that is less than the Stated Principal
Balance of such Class of Certificates, because interest due on such Class on a
Distribution Date is calculated on the Stated Principal Balance of such Class
since the preceding Distribution Date.]
Distributions in Reduction of Stated Principal Balance
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made on each Distribution Date on which distributions are
due in an aggregate amount equal to the sum of the Accrual Distribution Amount
and the [Class A] Stated Principal Distribution Amount. For purposes of
determining the [Class A] Stated Principal Distribution Amount, the Asset Value
of the Mortgage Loans comprising the Mortgage Pool will be reduced by taking
into account [the Senior Interest in] all distributions of principal thereof
(including prepayments) received or due to be received by the Trustee during the
Due Period prior to such Distribution Date.
Distributions in reduction of Stated Principal Balance on the [Class A]
Certificates will be made first to the Class A-1 Certificates until the Stated
Principal Balance of the Class A-1 Certificates has been reduced to zero; next
to the Class A-2 Certificates until the Stated Principal Balance of the Class
A-2 Certificates has been reduced to zero; next to the Class A-3 Certificates
until the Stated Principal Balance of the Class A-3 Certificates has been
reduced to zero; and then to the Class A-4 Certificates. Distributions in
reduction of Stated Principal Balance on [Certificates of a particular Class]
[Class A Certificates of a particular Subclass] will be made to the holder of
the Certificates of such [Class] [Subclass] either pro rata in the proportion
which the Stated Principal Balance of each Certificate of such [class]
[subclass] bears to the aggregate Stated Principal Balance of all the
Certificates of such [Class] [Subclass] or by random lot. Except as provided
herein, the Final Scheduled Distribution Date of each [Class] [Subclass] of
[Class A] Certificates has been determined based upon [the Senior Interest in]
scheduled payments of principal and interest on the Mortgage Loans comprising
the Mortgage Pool assuming no prepayments[, reinvestment income at the Assumed
Reinvestment Rate, and application of % of the Excess Cash Flow, as defined
herein, to the payment of Certificates.] The rate of prepayments on the Mortgage
Loans will depend on the prevailing level of interest rates and other economic
factors, and no assurance can be given as to the actual prepayment rate of any
Mortgage Loan.
The aggregate Asset Value of the Mortgage Loans comprising the Mortgage
Pool as of the Cut-off Date will be equal to at least 100% of the aggregate
Stated Principal Balance of the [Class A] Certificates as of the Cut-off Date.
The Asset Value of the Mortgage Loans comprising the Mortgage Pool will be
equal to the lesser of (a) the then present value of the [Senior Interest in
the] stream of remaining regularly scheduled monthly payments of principal and
interest on such Mortgage Loans [(after taking into account the applicable
portion of the Reserve Fund and the Buy-Down Fund)] together with Reinvestment
Income thereon from the assumed date of receipt of such payments to the next
succeeding Distribution Date at the Assumed Reinvestment Rate, discounted at the
rate of % per annum with the same frequency as distributions are made on the
Certificates and (b) the product of the Asset Value Cap calculated from time to
time in the manner provided in the Pooling and Servicing Agreement and the then
outstanding principal balance of such Mortgage Loan.
[ % of the Excess Cash Flow will be applied to the distributions on
[Class A] Certificates on each Distribution Date until such time that, even in
the event of excessive prepayments of the Mortgage Loans, sufficient funds will
be available to make distributions of interest on the [Class A] Certificates on
each succeeding Distribution Date. Thereafter, it will no longer be necessary to
provide for the possibility of a Special Distribution on the [Class A]
Certificates in respect of prepayments on such Mortgage Loans.]
On each Distribution Date, the distributions in reduction of Stated
Principal Balance on the [Class A] Certificates will be equal to the sum of the
Accrual Distribution Amount and the [Class A] Stated Principal Distribution
Amount. The [Class A] Stated Principal Distribution Amount will be the amount by
which (i) the Stated Principal Balance of the [Class A] Certificates (before
taking into account the amount of interest accrued on the Class A-4 Certificates
to be added to the Stated Principal Balance thereof on the Distribution Date),
exceeds (ii) the aggregate Asset Value of the Mortgage Loans comprising the
Mortgage Pool as of such Distribution Date.
[In addition, % of the Excess Cash Flow from the Mortgage Loans
comprising the Mortgage Pool will be applied to the distributions of the [Class
A] Certificates on each Distribution Date until ]. Excess Cash Flow as
of each
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<PAGE>
Distribution Date will be the amount, if any, by which (i) the [Senior Interest
in the] cash flow received from the Mortgage Loans and deposited in the
Certificate Account for the Certificates [and any amounts deposited in such
Certificate Account from any related Buy-Down Fund and GPM Fund on the date of
issuance of the Certificates], plus any Reinvestment Income thereon, [together
with any amounts otherwise distributable to the Class B Certificateholders or in
the Reserve Fund that are required to be distributed to holders of the Class A
Certificates] exceeds (ii) the sum of (a) the [Class A] Stated Principal
Distribution Amount on such Distribution Date and (b) all interest accrued,
whether or not then payable, on the Stated Principal Balance of the [Class A]
Certificates since the preceding Distribution Date, and (c) any Special
Distributions in reduction of Stated Principal Balance made since the preceding
Distribution Date (or since the date of issuance of the Certificates in the case
of the first Distribution Date). [On any Distribution Date, Excess Cash Flow not
so applied will be [distributed first to restore the amount in the Reserve Fund
to the Required Reserve, and then] to the holders of the Class B Certificates to
the extent of any current deficiency in scheduled distributions to such
Certificateholders on such Distribution Date.] [Any remaining Excess Cash Flow
will then be distributed to holders of the Residual Certificates. Any Excess
Cash Flow so distributed will not be available to make subsequent distributions
on the [Class A] Certificates.]
[Special Distributions
The [Class A] Certificates may receive special distributions in reduction
of Stated Principal Balance ("Special Distributions") as a consequence of
principal prepayments on the Mortgage Loans comprising the Mortgage Pool and/or
low yields then available for reinvestment. The Trustee will be required each
month to determine, based on assumptions specified in the Pooling and Servicing
Agreement, the amount that will be available in the Certificate Account for the
distribution of interest that will have accrued on such [Class A] Certificates
(the "Available Interest Amount") through the earlier of the last day of the
month of determination or the last day of the [second] month preceding the next
Distribution Date (the earlier of such dates being referred to as the "Available
Interest Accrual Date"). If the Available Interest Amount as so determined is
less than the amount of interest that will have accrued on such [Class A]
Certificates to the Available Interest Accrual Date, there will be distributed,
on the first day of the month succeeding the month of determination (the
"Special Distribution Date"), the portion of the Stated Principal Balance of the
[Class A] Certificates that will cause the Available Interest Amount to equal
the amount of interest that will have accrued to the Available Interest Accrual
Date on the Certificates to be outstanding immediately after such distribution.
The amount of the Special Distribution on the Certificates distributed on any
Special Distribution Date will not exceed the amount of distributions in
reduction of Stated Principal Balance on such Certificates that would otherwise
be required to be made on the next Distribution Date.
The Trustee will notify each registered holder of [Class A] Certificates to
receive a Special Distribution by letter mailed at least five days prior to the
date set for such Special Distribution.]
[Optional Termination
On any Distribution Date on or after the [later] of or the date on
which the Stated Principal Balance of the [Class A-3] Certificates has been
reduced to zero, the Depositor will have the right to repurchase, in whole, but
not in part, the Mortgage Loans comprising the Mortgage Pool. Additionally, on
any Distribution Date on which the aggregate principal amount of the Mortgage
Loans comprising the Mortgage Pool is less than [10]% of the aggregate principal
amount of such Mortgage Loans as of the Cut-off Date, the Depositor will have
the right to repurchase, in whole, but not in part, such Mortgage Loans. Any
such repurchase will be made at a purchase price equal to [the outstanding
principal balance of such Mortgage Loans, together with accrual and unpaid
interest thereon, net of servicing fees and other compensation, to the last day
of the month of such repurchase, plus the appraised value of any property
acquired in respect thereof]. Any such termination will be effected in
compliance with the requirements of Section 860F(a)(iv) of the Code so as to
constitute a "qualifying liquidation" thereunder. The proceeds of any such
repurchase will be treated as a distribution on the Mortgage Loans for purposes
of distributions to the Certificateholders. In no event will the Trust continue
beyond the expiration of 21 years from the death of the last survivor of the
persons named in the Pooling and Servicing Agreement.]
Trustee
The Trustee for the Certificates will be , a bank organized and
existing under the laws of the with its principal office located at
, .
The Master Servicer
The Master Servicer is a corporation that commenced operation in
, . The Master Servicer may be an affiliate of the Depositor. The
Master Servicer is a FNMA/FHLMC approved seller-servicer based in . As of
, the Master Servicer serviced, for other investors and for its own
account, approximately mortgage loans with an aggregate principal balance
in excess of $ . The Master Servicer originated approximately $ in
mortgage loans in 19 . The Master Servicer's consolidated stockholder's equity
as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of such
information.
S-18
<PAGE>
The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Mortgage Loans and to make advances, as described in the
Prospectus under "Description of the Certificates--Assignment of Mortgage Loans"
and "--Advances", in an amount acceptable to the Rating Agency.
Servicing Compensation and Payment of Expenses
The servicing compensation payable to the Master Servicer will be equal to
% of the outstanding principal balance of each Mortgage Loan in the Mortgage
Pool less [(a)] any servicing compensation to the servicer of each such Mortgage
Loan (the "Servicer") (including such compensation paid to the Master Servicer
as the direct Servicer of a Mortgage Loan for which there is no Servicer) under
the terms of an agreement with the Master Servicer pursuant to which the
Servicer services such Mortgage Loan (a "Servicing Agreement") [.] [, and (b)
the amount payable to the Depositor, as described below.] [Pursuant to the
Pooling and Servicing Agreement, on each Distribution Date, the Master Servicer
will remit to the Depositor in respect of each interest payment on a Mortgage
Loan an amount equal to one-twelfth of % of the outstanding principal balance
of such Mortgage Loan before giving effect to any payments due on the preceding
Due Date.] The Master Servicer will be permitted to withdraw from the
Certificate Account, in respect of each interest payment on a Mortgage Loan, an
amount equal to one-twelfth of % of the outstanding principal balance of such
Mortgage Loan, before giving effect to any payments due on the preceding Due
Date. ]Servicing compensation to the Servicers of the Mortgage Loans shall be
payable by withdrawal from the related Servicing Account (as defined in the
Prospectus) prior to deposit in the Certificate Account. In addition, each
Servicer (with respect to the Mortgage Loans serviced by it) and the Master
Servicer will be entitled to servicing compensation out of insurance proceeds or
liquidation proceeds. Additional servicing compensation in the form of
prepayment charges, assumption fees, late payment charges or otherwise shall be
retained by the Servicers and the Master Servicer to the extent not required to
be deposited in the Certificate Account. The Servicers and the Master Servicer
will pay all expenses incurred in connection with its responsibilities under the
Servicing Agreements and the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
the various items of expense enumerated in the Prospectus.
YIELD AND PREPAYMENT CONSIDERATIONS
Yield Considerations
[to be added, as applicable]
Prepayment Considerations
Principal payments on mortgage loans may be in the form of scheduled
amortization payments or prepayments (for this purpose, the term "prepayment"
includes prepayments and liquidation due to default or other dispositions of the
loans). Prepayments on the Mortgage Loans comprising the Mortgage Pool will be
passed through to the Trustee, as the assignee of the Mortgage Loans, and such
prepayments will be [available to be] applied to distributions in reduction of
the Stated Principal Balance on the [Class A] Certificates [, as more fully set
forth herein].
The rate of principal prepayments on pools of mortgage loans is influenced
by a variety of economic, geographic, social and other factors, including the
level of mortgage interest rates and the rate at which homeowners sell their
homes or default on their mortgages. In general, however, if prevailing interest
rates fall significantly below the interest rates on the Mortgage Loans
comprising the Mortgage Pool, the Certificates are likely to be subject to
higher prepayment rates than if prevailing rates remain at or above the interest
rates on the Mortgage Loans comprising the Mortgage Pool. In addition, as
homeowners move or default on their mortgages, their houses are generally sold
and the mortgages prepaid. As the rate of distributions in reduction of Stated
Principal Balance of each [Subc] [C]lass of [Class A] Certificates will depend
on the rate of payment (including prepayments) of the Mortgage Loans comprising
the Mortgage Pool, the actual final distribution made on any [Subc] [C]lass of
[Class A] Certificates is likely to occur earlier than its Final Scheduled
Distribution Date.
Weighted Average Lives of the Certificates
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of the last dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Certificates
will be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations. The weighted average life of a [Class A]
Certificate is determined by (i) multiplying the amount of each distribution in
reduction of Stated Principal Balance by the number of years from the date of
issuance of the [Class A] Certificate to the related Distribution Date, (ii)
summing the results and (iii) dividing the sum by the total distributions in
reduction of Stated Principal Balance made on the Class A Certificate [,
including, in the case of a Class A-4 Certificate, any interest accrued and
added to the Stated Principal Balance of such Certificate].
S-19
<PAGE>
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (no prepayments). Correspondingly, "250% SPA" assumes prepayment
rates equal to 250% of SPA, and so forth. SPA does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
The assumed final Distribution Date with respect to the Certificates is
[ ], which is the Distribution Date immediately following the latest scheduled
maturity date for any Mortgage Loan. The actual final Distribution Date with
respect to the Certificates will likely occur significantly earlier than, and
could occur later than, its assumed final Distribution Date.
The following tables have been prepared on the basis of the following
assumed characteristics of the Mortgage Loans: [insert assumptions]
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the following tables, which are
hypothetical in nature and are 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 Mortgage Loans will prepay at a constant
level of SPA until maturity or that all of the Mortgage Loans will prepay at the
same level of SPA. Moreover, the diverse remaining terms to maturity of the
Mortgage Loans could produce slower or faster principal distributions than
indicated in the table at the various constant percentages of SPA specified,
even if the weighted average remaining term to maturity of the Mortgage Loans is
as assumed. Any difference between such assumptions and the actual
characteristics and performance of the Mortgage Loans, or actual prepayment or
loss experience, will affect the percentage of initial Certificate Principal
Balance of each Class of Certificates outstanding over time and the weighted
average life of each such Class of Certificates.
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average life of each such Class of Certificates, and sets
forth the percentages of the initial Certificate Principal Balance [or Notional
Amount, as applicable,] of each such Class of Certificates that would be
outstanding after each of the dates shown at various percentages of SPA.
[insert DEC tables]
The Depositor makes no representation that the Mortgage Loans will prepay
in the manner or at any of the rates assumed in the tables set forth above. Each
prospective investor must make its own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase the Class A
Certificates.
CERTIFICATE RATING
It is a condition to the issuance of the [Class A] Certificates that they
be rated in one of the two highest categories of the Rating Agency. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating
organization. A security rating does not address the frequency of prepayments or
the possibility that Certificateholders might suffer a lower than anticipated
yield. A security rating also does not represent any assessment of the yield to
maturity that investors may experience.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES]
[tax discussion to be added, as applicable]
[LEGAL INVESTMENT CONSIDERATIONS]
[legal investment discussion to be added, as applicable]
[ERISA CONSIDERATIONS]*
- --------
* If the Series of Certificates offered pursuant to this Version C Prospectus
Supplement evidences interests in Contracts, the disclosure to be set forth
will be substantially similar to the disclosure set forth in Version E under
"ERISA Considerations."
S-20
<PAGE>
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or Nonexempt Series (see "ERISA
Considerations-Prohibited Transaction Class Exemption" in the Prospectus).]
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below] [has]
[have severally] agreed to purchase the [entire] [following respective] Stated
Principal Balance of each [Subc] [C]lass of the [Class A] Certificates:
<TABLE>
<CAPTION>
[Underwriters Class A-1 Class A-2 Class A-3 Class A-4
--------- --------- --------- ---------
<S> <C>
CS First Boston Corporation................. $ $ $ $
--------- --------- -------- --------
$ $ $ $
========= ========= ======== ========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that the
Underwriter[s] will be obligated to purchase all of the Certificates if any are
purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer each [Subc] [C]lass of the Certificates to
the public at the public offering prices set forth on the cover page of this
Prospectus Supplement and [through the Representative,] to certain dealers at
such prices less the following concessions and such dealers may allow the
following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
Concession Discount
(Percent of (Percent of
Principal Amount) Principal
----------------- Amount)
-----------
<S> <C> <C>
Class A-1 Certificates.............................. % %
Class A-2 Certificates.............................. % %
Class A-3 Certificates.............................. % %
Class A-4 Certificates.............................. % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended.
[If and to the extent required by applicable law or regulation, this Prospectus
Supplement and the Prospectus will also be used by the Underwriter after the
completion of the offering in connection with offers and sales related to
market-making transactions in the Certificates offered hereby in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
LEGAL MATTERS
Certain legal matters in connection with the Certificates offered
hereby will be passed upon for the Depositor and for the Underwriter[s] by
Sidley & Austin, New York, New York.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Mortgage Loans comprising
the Mortgage Pool. All of the Mortgage Loans will be acquired in privately
negotiated transactions by the Depositor from one or more affiliates of the
Depositor, which will have acquired such Mortgage Loans from time to time in the
open market or in privately negotiated transactions.
S-21
<PAGE>
INDEX OF TERMS
Page on which
Term is Defined
Term in the Prospectus Supplement
Accrual Date..........................................................S-17
Accrual Distribution Amount............................................S-5
[Aggregate Losses..............................................prospectus]
ARM Loans.......................................................prospectus
Asset Value.....................................................prospectus
Asset Value Cap.................................................prospectus
Assumed Reinvestment Rate..............................................S-6
Available Interest Accrual Date.......................................S-18
Available Interest Amount.............................................S-18
Business Day..........................................................S-17
Buy-Down Fund..........................................................S-7
Certificate............................................................S-1
Certificate Account...................................................S-12
Class A Certificates...................................................S-3
Class A Certiicateholder...............................................S-3
Class B Certificate.............................................prospectus
Class B Certificateholders......................................prospectus
Code...................................................................S-6
Commission.............................................................S-2
Contracts..............................................................S-7
Cut-off Date..........................................................S-11
Depositor..............................................................S-1
Determination Date..............................................prospectus
Distribution Date...............................................prospectus
Due Date..............................................................S-16
Due Period.............................................................S-5
Enhancement Act.......................................................S-10
Excess Cash Flow................................................prospectus
Exchange Act...........................................................S-2
Final Schedule Distribution Date................................prospectus
Fixed Rate Certificates................................................S-4
GPM Fund........................................................prospectus
GPM Loan..............................................................S-14
Initial Stated Interest Balance................................prospectus
Interest Accrual Period.........................................prospectus
Interest Rate..........................................................S-4
Interest Rate Determination Date......................................S-16
Letter of Credit.......................................................S-7
Letter of Credit Percentage............................................S-7
Master Servicer........................................................S-3
Mortgage Loans.........................................................S-7
[Mortgage Pool.................................................prospectus]
Mortgage Rate.........................................................S-11
Mortgagor..............................................................S-8
Mortgagor Bankruptcy Bond..............................................S-8
Multi-Class Certificates.......................................prospectus]
Original Value.................................................prospectus]
Performance Bond......................................................S-19
Pool Insurer..........................................................S-13
Pool Insurance Policy..................................................S-8
Pooling and Servicing Agreement.......................................S-14
[Prepayment Assumption.........................................prospectus]
Rating Agency..........................................................S-1
[Reference Banks...............................................prospectus]
Reference Agreement...................................................S-14
Regular Certificates..................................................S-10
Reinvestment Agreement................................................S-13
REMIC.................................................................S-10
S-22
<PAGE>
Required Distribution.................................................S-16
Required Reserve.......................................................S-9
Reserve Fund...........................................................S-9
Reserve Interest Rate.................................................S-16
Residual Certificates.................................................S-10
Securities Act.........................................................S-3
Senior Interest.......................................................S-15
Servicer...............................................................S-9
[Servicing Account.............................................prospectus]
Servicing Agreement...................................................S-19
SPA...................................................................S-21
Special Distribution Date.............................................S-18
Special Distributions..................................................S-6
Special Hazard Insurance Policy........................................S-8
Special Hazard Insurer................................................S-14
Standard Terms........................................................S-14
[Stated Principal Balance......................................prospectus]
[Stated Principal Distribution Amount..........................prospectus]
Subordinanted Amount...................................................S-9
Trust..................................................................S-1
Trust Fund.............................................................S-1
Trustee...............................................................S-10
[Underwriter...................................................prospectus]
[Variable Rate Certificate.....................................prospectus]
S-23
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Available Information..................................................S-2
Reports to Certificateholders..........................................S-2
Summary of Terms.......................................................S-3
Risk Factors..........................................................S-11
Description of the Trust Fund.........................................S-11
Description of the [Class A] Certificates.............................S-14
Yield and Prepayment Considerations...................................S-19
Certificate Rating....................................................S-20
Certain Federal Income Tax Consequences...............................S-21
Legal Investment Considerations.......................................S-21
ERISA Considerations..................................................S-21
Underwriting..........................................................S-21
Legal Matters.........................................................S-22
Use of Proceeds.......................................................S-22
Index of Terms........................................................S-23
PROSPECTUS
Prospectus Supplement....................................................2
Additional Information...................................................2
Incorporation of Certain Information by Reference........................2
Summary of Terms.........................................................3
Risk Factors............................................................14
The Trust Fund..........................................................16
The Depositor...........................................................25
Use of Proceeds.........................................................25
Yield Considerations....................................................26
Maturity and Prepayment Considerations..................................27
Description of the Certificates.........................................29
Credit Support..........................................................54
Description of Insurance................................................58
Certain Legal Aspects of the Mortgage
Loans and Contracts..................................................64
Certain Federal Income Tax Consequences.................................74
ERISA Considerations....................................................97
Legal Investment.......................................................101
Plan of Distribution...................................................102
Legal Matters..........................................................103
Index of Terms.........................................................104
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Backed
Securities Corporation
Depositor
$________________
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -_
PROSPECTUS
CS FIRST BOSTON
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED , 1996
- ------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus Dated , 19 )
- ------------------------------------------------------------------------------
$ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Mortgage Pass-Through Certificates, Series
Class -1 Certificates
$ Original Principal Amount (Approximate)
100% of principal payments of the Underlying Certificates
0% of interest payments on the Underlying Certificates
Class -2 Certificates
No Original Principal Amount
0% of principal payments on the Underlying Certificates
Interest at % Annual Rate on Class -2 Certificates notional amount
-----------------
The Conduit Mortgage Pass-Through Certificates, Series (the
"Certificates"), offered hereby evidence undivided percentage ownership
interests in a trust (the "Trust") composed of Conventional Mortgage
Pass-Through Certificates, each having a pass-through rate of % (the "Underlying
Certificates"). The mortgage pool underlying the Underlying Certificates
consists of conventional one- to four-family residential mortgage loans
originated and serviced by and certain related property. The Underlying
Certificates will be transferred to the Trust, pursuant to a Deposit Trust
Agreement dated as of 1, 199 , by Asset Backed Securities
Corporation, a Delaware corporation (the "Depositor"), in exchange for the
Certificates and are more fully described in this Prospectus Supplement and in
the accompanying Prospectus.
(Continued on next page)
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR INTEREST IN ASSET
BACKED SECURITIES CORPORATION OR ANY AFFILIATE THEREOF OR OF , ANY AFFILIATE
THEREOF OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
See "Risk Factors" beginning on p. S-6 herein and on p.14 of the Prospectus
for a discussion of certain factors that potential investors should consider in
determining whether to invest in the Certificates.
Prospective investors should consider the limitations discussed under
"ERISA Considerations" herein and in the accompanying Prospectus.
There is currently no secondary market for the Certificates and there is no
assurance that one will develop. The Underwriter[s] expect[s] to establish a
market in the Certificates, but [is] [are] under no obligation to do so. There
is no assurance that a secondary market will develop, or, if it does develop,
that it will continue.
The yield to maturity on the Certificates will depend on the rate of
principal payments (including prepayments) on the Underlying Certificates. The
mortgage loans underlying the Underlying Certificates are conventional loans and
may be prepaid at any time without penalty. A lower rate of principal than
anticipated would negatively affect the total return to investors in Class -1
Certificates, which are being offered at a discount to their principal amount.
The yield to maturity on the Class -2 Certificates will be extremely sensitive
to the rate of principal payments on the Underlying Certificates and may
fluctuate significantly from time to time. Investors should fully consider the
associated risks, including the risk that a rapid rate of principal payments
could result in the failure of investors in Class -2 Certificates to recoup
their initial investment. See "Yield Considerations".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Depositor (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class -1 Certificates % % %
- --------------------------------------------------------------------------------
Per Class -2 Certificates %(3) % %(3)
- --------------------------------------------------------------------------------
Total $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) Calculated as a percent of gross proceeds of the offering of each Class of
Certificates.
(2) Before deduction of expenses payable by the Depositor estimated at $[ ].
(3) Plus accrued interest, if any, on the Class -2 Certificates from 1, 199
(the "Cut-off Date").
-----------------
The Certificates are offered by the [several] Underwriter[s] when, as and if
issued and accepted by the Underwriter[s] and subject to [its] [their] rights to
reject orders in whole or in part. It is expected that the Certificates, in
definitive, fully registered form, will be delivered to the offices of CS First
Boston, New York, New York, on or about , 199 .
CS First Boston
- ------------------------------------------------------------------------------
The date of this Prospectus Supplement is , 19
<PAGE>
(Continued from Prior Page)
The Certificates will be issued in two classes, Class -1 (the "Class -1
Certificates") and Class -2 (the "Class -2 Certificates"). The Class -1
Certificates evidence ownership interests in all of the principal payments on
the Underlying Certificates. The Class -2 Certificates evidence ownership
interests in all of the interest payments on the Underlying Certificates, net of
a servicing fee as described herein (the "Servicing Fee"). Interest
distributions allocable to the Class -2 Certificates will be passed through
monthly at the annual rate of % (the "Annual Rate") on the then aggregate
outstanding notional amount of the Class -2 Certificates. The notional amount is
used solely for purposes of the determination of interest payments and certain
other rights and obligations of Holders of Class -2 Certificates and does not
represent an interest in principal payments on the Underlying Certificates.
Principal payments and interest at the Annual Rate will be distributed to
the holders of Certificates ("Certificateholders" or "Holders") entitled thereto
on the [last] day of the month (or if such day is not a business day, on the
next business day) (the "Distribution Date"), or under the circumstances
described herein, on the Distribution Date in the next month. The first
distribution will be made on , 199 .
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS
THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
-----------------
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES
RELATED TO MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY IN
WHICH THE UNDERWRITER ACTS AS PRINCIPAL. THE UNDERWRITER MAY ALSO ACT AS AGENT
IN SUCH TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE
TIME OF SALE.]
UNTIL , 19 , ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
-----------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Trust, can be inspected and copied at the Public Reference Room of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., and
at the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Monthly and annual unaudited reports containing information concerning the
Underlying Certificates will be prepared by the Master Servicer and sent on
behalf of the Trust to each registered holder of the Certificates. See
"Description of the Certificates - Reports to Certificateholders" in the
Prospectus.
S-2
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF THE TERMS
The following is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. An "Index of Terms" is included at the end of this
Prospectus Supplement. Capitalized terms used in this Prospectus Supplement and
not otherwise defined herein shall have the meanings given in the Prospectus.
Securities Offered ................ Conduit Mortgage Pass-Through
Certificates, Series ______ (the
"Certificates").
$ original principal amount
Class -1 Certificates (approximate). No
original Principal Amount Class -2
Certificates. The Class -1 Certificates
represent an undivided percentage
ownership interest in 100% of the
monthly principal payments on the
Underlying Certificates (the "Mortgage
Certificates Principal Distribution").
The Class -1 Certificates do not
evidence an ownership interest in the
monthly interest payments on the
Underlying Certificates.
The Class -2 Certificates represent an
undivided percentage ownership interest
in 100% of the monthly interest payment
on the Underlying Certificates (the
"Mortgage Certificate Interest
Certificate Interest Distribution"), net
of the Servicing Fee as described herein
(such net rate of interest on the Class
-2 Certificates then outstanding
notional amount being referred to herein
as the "Annual Rate"). The Annual Rate
is %. The notional amount for the
Class -2 Certificates is equal to the
aggregate unpaid principal balance of
the Class -1 Certificates, but is used
solely for purposes of determining
interest payments and certain other
rights and obligations of holders of
Class -2 Certificates and does not
represent any interest in principal
payments.
The Certificates will be issued pursuant
to a deposit trust agreement, dated as
1, 19 (the "Deposit Trust Agreement"),
between, as trustee (the
"Trustee") and Asset Backed Securities
Corporation (the "Depositor").
Depositor......................... Asset Backed Securities Corporation, a
Delaware corporation (the "Depositor").
Cut-off Date...................... , 19 .
Delivery Date..................... On or about , 19 .
Record Date....................... [With respect to each Distribution Date,
the last business day of the month
preceding the month in which such
Distribution Date occurs.]
Denominations...................... The Class -1 Certificates will be
offered in fully registered form, in
minimum denominations of $[ ]
original principal amount and multiples
of $[ ] in excess thereof. The
Class -2 Certificates will be offered in
fully registered form, in minimum
denominations of $[ ] original
notional amount and multiples of $[ ]
in excess thereof.
Principal.......................... The Class -1 Certificates will receive
all principal payments on the Underlying
Certificates (including prepayments).
The Class
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-2 Certificates receive no principal
payments on the Underlying Certificates.
The rate of distribution of principal of
the Certificates will depend on the rate
of payment of principal of the mortgage
loans underlying the Underlying
Certificates which, in turn, will depend
on the characteristics of such
underlying mortgage loans, the level of
prevailing interest rates and other
economic, geographic and social factors.
No assurance can be given as to the
actual payment experience of the
mortgage loans underlying the Underlying
Certificates.
Interest........................... The Class -2 Certificates will receive
all interest payments on the Underlying
Certificates, after deduction of the
Servicing Fee, as described herein. The
Class -1 Certificates will receive no
interest payments on the Underlying
Certificates.
Distribution Dates................. Distributions on the Underlying
Certificates that are received by the
Trustee and become cleared funds in the
hands of the Trustee prior to 1:00 p.m.
on the [last] day of each month
following the distribution date for the
Underlying Certificates, or, if such day
is not a business day, on the next
business day will be distributed to
Certificateholders on such day (each, a
"Distribution Date"). Distributions on
the Underlying Certificates that are
received by the Trustee and become
cleared funds in the hands of the
Trustee at or after 1:00 p.m. on any
Distribution Date will be distributed to
Certificateholders on the Distribution
Date in the next month. Distributions
will be made only if, and to the extent
that, payments are made on the
Underlying Certificates and received by
the Trustee. The first Distribution Date
will be , 19 . The Cut-off
Date will be , 19 .
Underlying Certificates............ % [Name of Underlying
Certificates] in the aggregate
outstanding principal balance of $[ ]
as of the Cut-off Date. Under the
terms of the Underlying Certificates,
the final payment thereon will not be
later than , . See
"Description of the Underlying
Certificates".
Certain Risk Factors............... For a discussion of certain risk factors
that should be considered in connection
with an investment in the Certificates,
including those relating to [describe
risk factors specific to transaction],
see "Risk Factors" herein.
Yield Considerations............... The rate of payment of principal of the
Class -1 Certificates, and the aggregate
amount of each distribution on and the
yield to maturity of all Certificates,
will depend on the rate of payment of
principal (including prepayments) of the
mortgage loans underlying the Underlying
Certificates. The mortgage loans
underlying the Underlying Certificates
are conventional mortgage loans and can
be prepaid at any time without penalty.
The rate of payment of principal varies
significantly from time to time and
between pools of mortgage loans at any
time and will be affected by a variety
of factors.
The yield to maturity on the Class -2
Certificates, which are being offered
without any original principal amount,
is extremely sensitive to the rate of
payment of principal of the mortgage
loans underlying the Underlying
Certificates and may fluctuate
significantly from time to time.
Investors should fully consider the
associated risks, including the risk
that if the rate of principal
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<PAGE>
- --------------------------------------------------------------------------------
payment is rapid such investors may not
recoup their initial investment. See
"Yield Considerations".
Optional Termination............ The mortgage loans underlying the
Underlying Certificates are subject to
repurchase at the option of
at such time as the
outstanding principal balance of such
mortgage loans is less than [10]% of
their outstanding principal balance as
of . The Depositor may, in the
event such option is exercised, or
otherwise, at such time as the
outstanding principal balance of the
Certificates is less than [10]% of their
aggregate principal balance as of the
Cut-off Date purchase the Certificates,
in whole, but not in part, at the
purchase price set forth herein. See
"Description of the
Certificates-Optional Termination"
herein.
Certificate Rating................. It is a condition of issuance of the
Certificates that they be rated
" " by the Rating Agency prior
to issuance. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to
revision or withdrawal at any time by
the assigning rating organization. A
security rating does not address the
frequency of prepayments or the
possibility that Certificateholders
might suffer a lower than anticipated
yield. A security rating also does not
represent any assessment of the yield to
maturity that investors may experience.
See "Risk Factors" herein and in the
Prospectus, "Rating" herein, "Yield and
Prepayment Considera tions" herein and
"Yield Considerations" in the
Prospectus.
Legal Investment................... The Certificates constitute
"mortgage-related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act (the "Enhancement
Act"), and, as such, are legal
investments for certain entities to the
extent provided in the Enhancement Act.
See "Legal Investment" in the
Prospectus.
Trustee............................ (the "Trustee"). See
"Description of the
Certificates-Trustee" herein.
ERISA Considerations............... See "ERISA Considerations" in the
Prospectus.
Tax Aspects........................ See "Certain Federal Income Tax
Consequences" in the Prospectus.
Purchasers of Class -1 Certificates
should see "Certain Federal Income Tax
Consequences-Mortgage Pools-Taxation of
Owners of Trust Fractional Certificates"
and "-Taxation of Owners of Trust
Fractional Certificates-Application of
Stripped Bond Rules" in the Prospectus
for discussions of certain tax
considerations particular to the Class
-1 Certificates. Purchasers of Class -2
Certificates should see "Certain Federal
Income Tax Consequences-Mortgage
Pools-Taxation of Owners of Trust
Interest Certificates" in the Prospectus
for discussions of certain tax
considerations particular to the Class
-2 Certificates.
S-5
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<PAGE>
RISK FACTORS
General
[The rate of distributions in reduction of the principal balance of any
Class of Certificates, the aggregate amount of distributions of principal and
interest on any Class of Certificates and the yield to maturity of any Class of
Certificates will be directly related to the rate of payments of principal on
the mortgage loans underlying the Underlying Certificates in the Trust Fund and
the amount and timing of mortgagor defaults resulting in realized losses with
respect to such loans. The rate of principal payments on the mortgage loans
underlying the Underlying Certificates will, in turn, be affected by the
amortization schedules of such mortgage loans underlying the Underlying
Certificates, the rate of principal prepayments (including partial prepayments
and those resulting from refinancing) thereon by mortgagors, liquidations of
defaulted mortgage loans underlying the Underlying Certificates, repurchases of
mortgage loans underlying the Underlying Certificates as a result of certain
breaches of representations and warranties by the related seller of such
mortgage loans and the optional purchase of all of such mortgage loans in
connection with the termination of the related trust. Mortgagors are permitted
to prepay the mortgage loans underlying the Underlying Certificates, in whole or
in part, at any time without penalty.]
[The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the mortgage rates on the
mortgage loans underlying the Underlying Certificates, the rate of prepayment
would generally be expected to increase. Conversely, if interest rates on
similar mortgage loans rise above the mortgage rates on the mortgage loans
underlying the Underlying Certificates, the rate of prepayment would generally
be expected to decrease.]
[An investor that purchases any Certificates at a discount should consider
the risk that a slower than anticipated rate of principal payments on the
mortgage loans underlying the Underlying Certificates will result in an actual
yield that is lower than such investor's expected yield. An investor that
purchases any Certificates at a premium should consider the risk that a faster
than anticipated rate of principal payments on the mortgage loans underlying the
Underlying Certificates will result in an actual yield that is lower than such
investor's expected yield.]
[Additional risk factors will be added, as appropriate, including, without
limitation, (i) if an Interest Weighted Class of Certificates or a Principal
Weighted Class of Certificates is being offered, a discussion of the risks
associated with such Class, including any disproportionate share of credit or
prepayment risks that such Class will bear, (ii) a discussion of the
concentration of credit risk, if any, with respect to the mortgage loans
underlying the Underlying Certificates due to, among other things (w) a
concentration of Mortgage Loans originated by one or a few dealers, (x) a single
mortgagor or lessee or cross-default, cross-collateralization or similar
provisions, (y) a concentration of properties with brief or financially troubled
operating histories or (z) a concentration of properties within a state (or
region of a state) and (iii) a discussion of the basis risk associated with a
Class of Certificates.]
DESCRIPTION OF THE UNDERLYING CERTIFICATES
The Underlying Certificates
The Underlying Certificates are backed by a pool of conventional one to
four-family residential mortgage loans, originated and serviced by ,
and certain related property conveyed to the trust by .
On the Closing Date, the Depositor will deliver to the Trustee Underlying
Certificates having an aggregate principal balance of $[ ] (subject to a
permitted variance of up to [5]%) and pass-through rates of [ ]%. The mortgage
loans underlying such Underlying Certificates are expected to have a weighted
average coupon of approximately % per annum based upon actual information
regarding the coupon rates on the mortgage loans.
The Underlying Certificates are expected to have a weighted average
remaining term to maturity of approximately years based upon actual information
regarding the remaining terms to maturity of the mortgage loans underlying the
Underlying Certificates that the Depositor anticipates delivering to the
Trustee. Under the terms of the Underlying Certificates, the final payment
thereon will not be later than , .
[additional disclosure with respect to the Underlying Certificates to be
added, as appropriate]
S-6
<PAGE>
[discussion of underwriting standards used to originate the mortgage loans
underlying the Underlying Certificates to be added with respect to Underlying
Certificates that comprise a material portion of the Trust Fund]
The information presented in this section has been derived from the Current
Report on Form 8-K filed by with respect to the Underlying Certificates and
certain other publicly available statistical information regarding the
Underlying Certificates and is derived from the expected balances as of the
Cut-off Date of the mortgage loans underlying the Underlying Certificates, such
balances being estimated using the method customarily employed by the Depositor.
Specific information with respect to the Underlying Certificates will be forth
in a Current Report on Form 8-K that will be filed by the Depositor, on behalf
of the Trust, with the Securities and Exchange Commission within 15 days after
the issuance of the Certificates. [Set forth additional information with respect
to the Underlying Certificates.] [A copy of the Prospectus with respect to the
Underlying Certificates will be made available to any registered holder of a
Certificate upon written request of such Certificateholder directed to .]
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to a deposit trust agreement,
dated as of , 19 (the "Deposit Trust Agreement"), between ,
as trustee (the "Trustee"), and the Depositor. Pursuant to the Deposit Trust
Agreement, the Depositor will transfer the Underlying Certificates to the
Trustee in exchange for the Certificates on or about , 19 (the
"Delivery Date"). The Underlying Certificates will be registered in the name of
the Trustee and payments on the Underlying Certificates will be made directly to
the Trustee.
The Certificates are to be issued in two classes, Class -1 Certificates
(the "Class -1 Certificates") and Class -2 Certificates (the "Class -2
Certificates"). The Class -1 Certificates evidence the Holders' beneficial
ownership of an undivided interest in all of the principal payments of the
Underlying Certificates. The Class -2 Certificates evidence the Holders'
beneficial ownership of an undivided interest in all of the interest payments on
the Underlying Certificates after deduction of the Servicing Fee (as defined
herein). Payments of interest on the Class -2 Certificates will be passed
through monthly to Holders thereof at a % Annual Rate on the outstanding
notional amount of such Certificates as of the month preceding the month in
which the related distribution of interest is to be made.
The outstanding principal amount or notional amount, as the case may be, of
each Class of Certificates for any month will be equal to the aggregate
outstanding principal balance of the Underlying Certificates for that month. The
notional amount is used solely for purposes of the determination of interest
payments and certain other rights and obligations of Holders of Class -2
Certificates, and Holders of Class -2 Certificates shall not have any interest
in, or be entitled to any payment with respect to, principal payments on the
Underlying Certificates. The aggregate original principal amount of the Class -1
Certificates and the aggregate original notional amount of the Class -2
Certificates will each be $ at the Cut-off Date.
Each Class -1 Certificate will evidence a Percentage Interest in the
monthly distributions of principal of the Underlying Certificates. Each Class -2
Certificate will evidence a Percentage Interest in the monthly distributions of
interest on the Underlying Certificates, net of the Servicing Fee. The
Percentage Interest evidenced by each Certificate will be determined by dividing
the denomination of such Certificate by the aggregate denominations of all
Certificates of the same Class. On each Distribution Date, the Trustee will
distribute to each Holder of a Certificate of a Class an amount equal to the
product of such Certificateholder's Percentage Interest evidenced by such
Certificate and the interest of such Class in the Mortgage Certificate Principal
Distribution or the Mortgage Certificate Interest Distribution, as applicable.
The Certificates will be issued only in fully registered form. The Class -1
Certificates will be issued in minimum denominations of $ and multiples of $
in excess thereof. The Class -2 Certificates will be issued in minimum
denominations of $ and multiples of $ in excess thereof.
Principal and interest at a % pass-through rate in respect of the
Underlying Certificates is required to be paid by the issuer of the Underlying
Certificates by check mailed directly to the registered holder thereof on the
day of each month. Payments of principal and interest will be collected by the
Trustee and held in a segregated non-interest-bearing trust account in the name
of and for the benefit of the Trust. Distributions on the Underlying
Certificates that are received by the Trustee and become cleared funds in the
hands of the Trustee prior to 1:00 p.m. on the day of the month or, if such a
day is not a business day, on the next business day, will be distributed to
Certificateholders on such day (each, a "Distribution Date"). Distributions on
the Underlying Certificates that are received by the Trustee and become cleared
funds in the hands
S-7
<PAGE>
of the Trustee at or after 1:00 p.m. on any Distribution Date will be
distributed to the Certificateholders on the Distribution Date in the next
month. In each case the distribution will be made to the Holders of record of
the Certificates on the close of business on the last business day of the month
preceding the month in which such distribution is made (the "Record Date"). The
first Distribution Date will be , 19 . Distribution of principal and interest
as set forth above will be made by the Trustee by check mailed to each
Certificateholder entitled thereto at the address appearing in the Certificate
Register to be maintained with the Trustee or, at the request of a
Certificateholder, by wire transfer to the account of such Certificateholder;
provided, however, that the final distribution in retirement of a Certificate
will be made only upon presentation and surrender of the Certificate at the
office of the Trustee specified in the notice to Certificateholders of such
final distribution. Wire transfers will be made at the expense of
Certificateholders requesting such wire transfers by deducting a wire transfer
fee from the related transfer.
The Certificates will be transferable and exchangeable on the Certificate
Register at the office or agency of the Trustee maintained for that purpose in
the City of New York. Certificates surrendered to the Trustee for registration
of transfer or exchange must be accompanied by a written instrument of transfer
in form satisfactory to the Trustee. No service charge will be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or other governmental charge may be required. Such
office or agency is currently located at .
Trustee
The Trustee for the Certificates will be , a bank organized and
existing under the laws of with its principal office located at .
Servicing Fee
The Deposit Trust Agreement provides for a servicing fee (the "Servicing
Fee") in an amount equal to % of each interest distribution on the Underlying
Certificates. The Servicing Fee will be deducted by the Trustee prior to making
any payment of interest to Holders of the Class -2 Certificates.
Optional Termination
The Deposit Trust Agreement provides that the Depositor may purchase
Certificates at such time as (i) the mortgage loans underlying the Underlying
Certificates are repurchased by , or (ii) the aggregate unpaid principal
balance of the Certificates is less than [10]% of the aggregate unpaid principal
balance of the Certificates as of the Cut-off Date.
In such event the Class -1 Certificates will be repurchased at % of their
outstanding principal amount and the Class -2 Certificates will be repurchased
at % of their outstanding notional amount, in each case, as of the date of such
repurchase. In no event will the Trust continue beyond the expiration of 21
years from the death of the last survivor of the persons named in the Deposit
Trust Agreement.
YIELD AND PREPAYMENT CONSIDERATIONS
Yield Considerations
[to be added, as applicable]
Prepayment Experience
Because principal payments on the mortgage loans underlying the Underlying
Certificates will be passed through to the holders of the Class -1 Certificates
and will reduce the notional amount of the Class -2 Certificates, the rate of
payment of principal of the Class -1 Certificates and the aggregate amount of
distributions on Class -1 Certificates and Class -2 Certificates will be
directly related to the rate of payment of principal of the mortgage loans
underlying the Underlying Certificates. The rate of principal payments on the
underlying mortgage loans will in turn be affected by the rate of principal
prepayments thereon (including, for this purpose, payments resulting from
liquidations of the mortgage loans due to defaults, casualties, condemnations or
other dispositions). The mortgage loans are conventional and can be prepaid at
any time without penalty. Prepayments with respect to the Underlying
Certificates may also occur as a result of guaranty payments and the optional
repurchase provision on the Underlying Certificates. Accordingly, the rate of
prepayments on
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<PAGE>
the underlying mortgage loans and rate of payment of principal of the Underlying
Certificates will depend upon future events and a variety of factors, and no
assurance can be given as to either such rate.
[The yield to maturity of any Certificates will be affected by the rate of
payment of principal of the Underlying Certificates. Specifically, as the Class
- -1 Certificates are being offered at significant discounts from their original
principal amounts, if the purchaser of a Class -1 Certificate calculates its
anticipated yield to maturity based on an assumed rate of payment of principal
that is faster than that actually received on the Underlying Certificates, its
actual yield to maturity will be lower than that so calculated. Conversely, as
the Class -2 Certificates are being offered without any original principal
amount, if the purchaser of a Class -2 Certificate calculates its anticipated
yield to maturity based on an assumed rate of payment of principal that is
slower than that actually received on the Underlying Certificates, its actual
yield to maturity will be lower than that so calculated.]
The timing of changes in the rate of prepayments on the mortgage loans
under the Underlying Certificates may significantly affect an investor's actual
yield to maturity, even if the average rate of principal payments is consistent
with an investor's expectation. In general, the earlier a prepayment of
principal on the mortgage loans underlying the Underlying Certificates the
greater the effect on an investor's yield to maturity. As a result, the effect
on an investor's yield of principal payments occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period immediately
following the issuance of the Certificates may not be offset by a subsequent
like reduction (or increase) in the rate of principal payments.
[Because the Class -1 Certificates are being offered at a discount from
their original principal amount, the yield to maturity thereon will be sensitive
to the rate of principal payments on the mortgage loans underlying the
Underlying Certificates.]
Because the Class -2 Certificates are being offered without any principal
amount, the yield to maturity on the Class -2 Certificates will be extremely
sensitive to prepayment experience on the mortgage loans underlying the
Underlying Certificates and may fluctuate significantly from time to time.
Prospective investors in the Class -2 Certificates should fully consider the
associated risks, including the risk that if the rate of payment is rapid such
investors may not fully recoup their initial investment.
Weighted Average Lives of the Certificates
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of the last dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Certificates
will be influenced by, among other things, the rate at which principal of the
mortgage loans underlying the Underlying Certificates is paid, which may be in
the form of scheduled amortization, prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (no prepayments). Correspondingly, "250% SPA" assumes prepayment
rates equal to 250% of SPA, and so forth. SPA does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
mortgage loans underlying the Underlying Certificates.
The assumed final Distribution Date with respect to the Certificates is
[ ], which is the Distribution Date immediately following the latest
scheduled maturity date for any mortgage loan underlying the Underlying
Certificates. The actual final Distribution Date with respect to the
Certificates will likely occur significantly earlier than, and could occur later
than, its assumed final Distribution Date.
The following tables have been prepared on the basis of the following
assumed characteristics of the mortgage loans underlying the Underlying
Certificates: [insert assumptions]
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<PAGE>
The actual characteristics and performance of the mortgage loans underlying
the Underlying Certificates will differ from the assumptions used in
constructing the following tables, which are hypothetical in nature and are
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 mortgage loans underlying the Underlying Certificates will prepay at a
constant level of SPA until maturity or that all of the mortgage loans
underlying the Underlying Certificates will prepay at the same level of SPA.
Moreover, the diverse remaining terms to maturity of the mortgage loans
underlying the Underlying Certificates could produce slower or faster principal
distributions than indicated in the table at the various constant percentages of
SPA specified, even if the weighted average remaining term to maturity of the
mortgage loans underlying the Underlying Certificates is as assumed. Any
difference between such assumptions and the actual characteristics and
performance of the mortgage loans underlying the Underlying Certificates, or
actual prepayment or loss experience, will affect the percentage of initial
Certificate Principal Balance of each Class of Certificates outstanding over
time and the weighted average life of each such Class of Certificates.
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average life of each such Class of Certificates, and sets
forth the percentages of the initial Certificate Principal Balance [or Notional
Amount, as applicable,] of each such Class of Certificates that would be
outstanding after each of the dates shown at various percentages of SPA.
[insert DEC tables]
The Depositor makes no representation that the mortgage loans underlying
the Underlying Certificates will prepay in the manner or at any of the rates
assumed in the tables set forth above. Each investor must make his own decision
as to the appropriate prepayment assumption to be used in deciding whether or
not to purchase any of the Certificates.
The actual rate of principal prepayments on pools of mortgage loans is
influenced by a variety of economic, tax, geographic, demographic, social, legal
and other factors and has fluctuated considerably in recent years. See "Yield
Considerations" in the Prospectus. In addition, the rate of principal
prepayments on the mortgage loans underlying the Underlying Certificates may
differ among pools of mortgage loans at any time because of specific factors
relating to the mortgage loans in the particular pool, including, among other
things, the age of the loans, the interest rates on the loans, the terms to
stated and remaining maturity of the loans, the geographic locations of the
properties securing the loans, the extent of the mortgagors' equity in real
property securing the loans, changes in mortgagors' housing needs, job
transfers, unemployment and servicing decisions.
Generally, however, if prevailing interest rates vary significantly from
the interest rates on the mortgage loans underlying the Underlying Certificates,
the Underlying Certificates are likely to be subject to higher or lower
prepayment rates than if prevailing rates remain at or near the interest rates
on the mortgage loans underlying the Underlying Certificates. In general, if
prevailing interest rates fall significantly below the interest rates on the
mortgage loans underlying the Underlying Certificates, the Underlying
Certificates are likely to be subject to higher prepayment rates than if
prevailing rates remain at or above the interest rates on the mortgage loans
underlying the Underlying Certificates. Conversely, if interest rates rise above
the interest rates on the mortgage loans underlying the Underlying Certificates,
the rate of prepayment would be expected to decrease.
The Depositor believes that the historical payment experience on such
securities is not necessarily indicative of the future payment experience on the
mortgage loans underlying the Underlying Certificates. Since the rate of
principal payments (including prepayments) on such mortgage loans will
significantly affect the yield to maturity on the Certificates, prospective
investors are urged to consult their investment advisors as to both the
anticipated rate of future principal payments (including prepayments) on the
underlying mortgage loans and the suitability of the Certificates to their
investment objectives.
Payment Delay
The effective yield to Certificateholders will be lower than the yield
otherwise produced by the Annual Rate and purchase price since the monthly
distributions on the Underlying Certificates will not be paid to the Holders
until on or after the [last] day of the month next succeeding the month of
accrual. See "Pooling and Servicing Agreement" in the Prospectus. To the extent
that a monthly distribution on an Underlying Certificate does not become cleared
funds in the hands of the Trustee prior to 1:00 p.m. on the Distribution Date in
the month such distribution is required to be made by the issuer of such
Underlying Certificates, the effective yield to the Certificateholders will be
further reduced since such distribution will not be paid to the Holders until
the Distribution Date in the next succeeding month. See "Description of the
Certificates".
S-10
<PAGE>
RATING
It is a condition to the issuance of the Certificates that they be rated
" " by the Rating Agency. Such rating addresses the likelihood that the
holders of the Certificates will receive payments required under the Deposit
Trust Agreement. In assigning such a rating to mortgage pass-through
certificates, the Rating Agency takes into consideration the credit quality of
the mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make required payments on such
certificates. Such rating does not, however, represent an assessment of the
likelihood that principal prepayments will be made by mortgagors or the degree
to which such payments might differ from that originally anticipated. As a
result, holders of the Certificates might suffer a lower than anticipated yield,
and holders of the Class -2 Certificates might fail, in circumstances of extreme
prepayment, to recoup their original investment.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. A security rating does not address the frequency of prepayments or
the possibility that Certificateholders might suffer a lower than anticipated
yield. A security rating also does not represent any assessment of the yield to
maturity that investors may experience.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES]
[tax discussion to be added, as applicable]
[LEGAL INVESTMENT CONSIDERATIONS]
[legal investment discussion to be added, as applicable]
[ERISA CONSIDERATIONS]
[Describe whether any exemption from "plan asset" treatment is available
with respect to the Series.]
[State whether the Series is an Exempt or a Nonexempt Series (see "ERISA
Considerations-Prohibited Transaction Class Exemption" in the Prospectus).]
To qualify for exemption under PTCE 83-1 (see "ERISA-Prohibited Transaction
Class Exemption" in the Prospectus), a certificate of an Exempt Series must
entitle its holder to pass-through payments of both principal and interest on
the Mortgage Loans. Because holders of Class -1 Certificates or Class -2
Certificates are only entitled to pass-through payments of principal (but not
interest) or interest (but not principal), PTCE 83-1 will not exempt Plans that
acquire the Class -1 Certificates or Class -2 Certificates from the prohibited
transaction rules of ERISA. Any Plan fiduciary who proposes to cause a Plan to
purchase Class -1 Certificates or Class -2 Certificates should consult with its
counsel with respect to the potential consequences under ERISA and the Code of
the Plan's acquisition and ownership of such Certificates. However, one of the
other PTCE's or the Underwriter's PTE may be applicable. See "ERISA
Considerations-Prohibited Transaction Class Exemption" in the Prospectus.
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor [, is acting as Representative.] The [Underwriter[s] named below]
[has] [have severally] agreed to purchase from the Depositor the [entire]
[following respective] principal amount[s] of the Certificates:
<TABLE>
<CAPTION>
Class -1 Class -2
[Underwriter Certificate Certificates Total
- ------------ ----------- ------------ -----
<S> <C> <C> <C>
CS First Boston Corporation................. $ $ $
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C> <C> <C>
Total................................ $ $ $ ]
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that the
Underwriter[s] will be obligated to purchase the entire principal amount of the
Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer each Class of the Certificates to the public
initially at the public offering prices set forth on the cover page of this
Prospectus Supplement [, and through the Representative,] to certain dealers at
such prices less the following concessions and that the Underwriter[s] and such
dealers may allow the following discounts on sales to certain other dealers:
<TABLE>
<CAPTION>
Concession Discount
(Percent of (Percent of
Gross Gross
Proceeds) Proceeds)
<S> <C> <C>
Class -1 Certificates............ % %
Class -2 Certificates............ % %
</TABLE>
After the initial public offering, the public offering prices and
concessions and discounts to dealers may be changed by the [Representative]
[Underwriter].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
All of the Underlying Certificates will be acquired in a privately
negotiated transaction by the Depositor from CS First Boston Corporation on
terms substantially similar to those that the Depositor would obtain in an arm's
length transaction. CS First Boston Corporation will have acquired such
Certificates in a privately negotiated transaction.
[If and to the extent required by applicable law or regulation, this Prospectus
Supplement and the Prospectus will also be used by the Underwriter after the
completion of the offering in connection with offers and sales related to
market-making transactions in the Certificates offered hereby in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
LEGAL MATTERS
Certain legal matters in connection with Certificates offered hereby will
be passed upon for the Depositor and for the Underwriter[s] by Sidley & Austin,
New York, New York.
USE OF PROCEEDS
The Depositor will apply substantially all of the net proceeds of the
offering of the Certificates towards the simultaneous purchase of the Underlying
Certificates.
[Disclose if a material portion of the Underlying Certificates are derived from
the Depositor's (or an affiliate's) unsold allotment or from the Depositor's (or
an affiliate's) previous offering(s).]
S-12
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
Page on which
Term is Defined in the
Term Prospectus Supplement
- ---- ---------------------
<S> <C>
Annual Rate.................................................................S-1
[Certificate Principal Balance......................................prospectus]
Certificates................................................................S-1
Certificateholders..........................................................S-1
Class-1 Certificates........................................................S-1
Class-2 Certificates........................................................S-1
Commission .................................................................S-2
Delivery Date...............................................................S-8
Deposit Trust Agreement.....................................................S-3
Depositor...................................................................S-1
Distribution Date...........................................................S-4
Enhancement Act.............................................................S-5
[ERISA..............................................................prospectus]
Exchange Act................................................................S-2
Interest Weighted Class of Certificates.............................prospectus]
Mortgage Certificate Interest Distribution..................................S-3
Mortgage Certificates Principal Distribution................................S-3
[Mortgage Loan......................................................prospectus]
[Principal Weighted Class of Certificates...........................prospectus]
Record Date.................................................................S-9
Servicing Fee...............................................................S-1
SPA........................................................................S-10
Trust.......................................................................S-1
Underlying Certificates.....................................................S-1
[Underwriter........................................................prospectus]
[Underwriting Agreement.............................................prospectus]
</TABLE>
S-13
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
----------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
<S> <C>
Available Information......................................................S-2
Reports to Certificateholders..............................................S-2
Summary of the Terms.......................................................S-3
Risk Factors...............................................................S-6
Description of the Underlying Certificates.................................S-6
Description of the Certificates............................................S-8
Yield and Prepayment Considerations........................................S-8
Rating....................................................................S-11
Certain Federal Income Tax Consequences...................................S-11
Legal Investment Considerations...........................................S-11
ERISA Considerations......................................................S-11
Underwriting..............................................................S-11
Legal Matters.............................................................S-12
Use of Proceeds...........................................................S-12
Index of Terms............................................................S-13
PROSPECTUS
Prospectus Supplement........................................................2
Additional Information.......................................................2
Incorporation of Certain Information by Reference............................2
Summary of Terms.............................................................3
Risk Factors................................................................14
The Trust Fund..............................................................16
The Depositor...............................................................25
Use of Proceeds.............................................................25
Yield Considerations........................................................26
Maturity and Prepayment Considerations......................................27
Description of the Certificates.............................................29
Credit Support..............................................................54
Description of Insurance....................................................58
Certain Legal Aspects of the Mortgage
Loans and Contracts.......................................................64
Certain Federal Income Tax Consequences.....................................74
ERISA Considerations........................................................97
Legal Investment...........................................................101
Plan of Distribution.......................................................102
Legal Matters..............................................................103
Index of Terms.............................................................104
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Backed
Securities Corporation
Depositor
$
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -_
PROSPECTUS
CS FIRST BOSTON
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities are not to be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED , 1996
- ------------------------------------------------------------------------------
P R O S P E C T U S S U P P L E M E N T
(To Prospectus Dated , 1995)
- ------------------------------------------------------------------------------
$ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Manufactured Housing Contract Pass-Through Certificates, Series
% Pass-Through Rate
Principal and interest payable on the th day
of each month, beginning , 19
____________________________
THE CERTIFICATES DO NOT REPRESENT AN INTEREST IN OR OBLIGATION OF ASSET
BACKED SECURITIES CORPORATION, OR ANY AFFILIATE THEREOF. [NEITHER THE
CERTIFICATES NOR THE UNDERLYING CONTRACTS ARE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.]
The Conduit Manufactured Housing Contract Pass-Through Certificates,
Series , % Pass-Through Rate (the "Certificates") offered hereby
evidence undivided fractional interests in a trust to be created by Asset Backed
Securities Corporation, a Delaware corporation (the "Depositor"), on or
about , 199 (the "Trust"). The Trust property will consist of
(Continued on next page)
See "Risk Factors" beginning on p. S-8 herein and on p.14 of the Prospectus
for a discussion of certain factors that potential investors should consider in
determining whether to invest in the Certificates.
Prospective investors should consider the limitations discussed under
"ERISA Considerations" herein and in the accompanying Prospectus.
The Underwriter[s] [do[es] not] intend[s] to make a secondary market for
the Certificates [but [is] [are] under no obligation to do so]. There can be no
assurance that a secondary market will develop, or if it does develop, that it
will continue.
[The Depositor has elected to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"). See "Certain Federal Income Tax
Consequences" in the Prospectus.]
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Price to Underwriting Proceeds to the
Public (1) Discount Depositor (1)(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Certificate % % %
- --------------------------------------------------------------------------------
Total $ $ $
================================================================================
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from , 19 .
(2) Before deduction of expenses payable by the Depositor estimated at $ .
The Certificates are offered by the [several] Underwriter[s] when, as and
if issued and accepted by the Underwriter[s] and subject to [their] [its] right
to reject orders in whole or in part. It is expected that the Certificates, in
definitive fully registered form, will be delivered to the offices of CS First
Boston, New York, New York, on or about , 199 .
- --------------------------------------------------------------------------------
CS First Boston
The date of this
Prospectus Supplement is , 1996.
<PAGE>
(Continued from prior page)
a pool of [conventional] [FHA Insured] [VA-guaranteed] [fixed-rate]
[variable-rate] manufactured housing conditional sales contracts and installment
loan agreements (the "Contracts") and certain related property to be conveyed to
the Trust by the Depositor (the "Trust Fund"). The Contracts will be transferred
to the Trust, pursuant to a Pooling and Servicing Agreement (as defined herein),
dated as of , 199 , by the Depositor in exchange for the Certificates and are
more fully described in this Prospectus Supplement and in the accompanying
Prospectus. The Certificates offered by this Prospectus Supplement constitute a
separate series of the Certificates being offered by the Depositor from time to
time pursuant to its Prospectus dated , 199 , which accompanies this Prospectus
Supplement and of which this Prospectus Supplement forms a part. The Prospectus
contains important information regarding this offering that is not contained
herein, and prospective investors are urged to read the Prospectus and this
Prospectus Supplement in full.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS
THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
____________________
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. THE UNDERWRITER MAY ALSO ACT AS AGENT IN SUCH
TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF
SALE.]
UNTIL , 19 , ALL DEALERS AFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
____________________
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Trust can be inspected and copied at the Public Reference Room of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., and
at the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Monthly and annual unaudited reports containing information concerning the
Contracts will be prepared by the Master Servicer and sent on behalf of the
Trust to each registered holder of the Certificates. See "Description of the
Certificates - Reports to Certificateholders" in the Prospectus.
S-2
<PAGE>
S-3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. An "Index of Terms" is included at the end of this Prospectus
Supplement. Capitalized terms used in this Prospectus Supplement and not defined
shall have the meanings given in the Prospectus. References to percentages of
the Contracts or to the principal balance of the Contracts in this Prospectus
Supplement are to percentages (except as otherwise indicated) by aggregate
principal balance as of the Cut-off Date.
Securities Offered........ Conduit Manufactured Housing Contract Pass-Through
Certificates, Series , % Pass-Through Rate (the
"Certificates").
Principal Amount.......... $ (approximate: subject to a
permitted variance of up to %).
Description of
Certificates............. [ ]
Depositor................. Asset Backed Securities Corporation, a Delaware
corporation (the "Depositor").
Seller.................... [ ]
Master Servicer........... , a _______ corporation,(the "Master
Servicer")
Record Date............... [With respect to each Distribution Date, the last
business day of the month preceding the month in
which such Distribution Date occurs.] Distribution
Date...................... [The ____ day of each month, or, if such day is
not a business day, the next succeeding business
day.]
Interest Accrual Period... [With respect to any Distribution Date, the
calendar month preceding the month in which such
Distribution Date occurs. Interest for each
Interest Accrual Period is calculated based on a
360-day year comprised of twelve 30-day months.]
Collection Period......... [With respect to a Distribution Date, the period
beginning on the day after the Due Date in the
month preceding the month in which such
Distribution Date occurs and ending on the Due
Date in the month in which such Distribution Date
occurs.]
Due Date.................. [With respect to any Distribution Date and/or any
Contract, as the case may be, the first day of the
month in which such Distribution Date occurs, or
if such first day is not a business day, the
business day immediately following such first
day.] Final Scheduled
Distribution Date......... [ ]. The Final Scheduled Distribution Date has
been determined to be the Distribution Date
succeeding the latest maturity date of any
Contract in the Contract Pool.
Denominations............. The minimum denomination of a Certificate (a
"Single Certificate") will initially represent
approximately $ aggregate principal amount of
Contracts (as hereinafter defined).
Cut-Off Date.............. , 19 .
Delivery Date............. On or about , 19 .
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
Interest.................. Passed through monthly at the rate of % per annum
(the "Pass-Through Rate"), on each Distribution
Date, commencing , 19 to those persons in
whose name the Certificates are registered as of
[the last Business Day of the month preceding the
Distribution Date] (the "Record Date"). [The
Pass-Through Rate for each Contract will equal th
annual percentage rate (the "APR") then borne by
such Contract less a fee for the servicing of the
Contract (the "Servicing Fee") [, less a fee for
the Limited Guarantee (the "Limited Guarantee
Fee")] [and less the excess interest (the "Excess
Interest")], as described herein under
"Description of the Certificates--Servicing
Compensation, [Limited Guarantee Fee] and Payment
of Expenses."
Principal (including
Prepayments).............. Passed through monthly on each Distribution Date,
commencing , 19 . The rate of distribution
of principal of the Certificates [(other than the
Class R Certificates)] will depend on the rate of
payment of principal of the Contracts which, in
turn, will depend on the characteristics of the
Contracts, the level of prevailing interest rates
and other economic, geographic and social factors.
No assurance can be given as to the actual payment
experience of the Contracts.
Contract Pool............. [Conventional] [FHA-insured] [VA-guaranteed]
[fixed rate] [variable rate] manufactured housing
conditional sales contracts and installment loan
agreements (collectively, the "Contracts") secured
by manufactured homes (as described herein) (the
"Manufactured Homes") [located in the states
of and ]. The Contracts have been
originated [or acquired] by. See "Description of the
Contract Pool" herein.
Certain Risk Factors...... For a discussion of certain risk factors that
should be considered in connection with an
investment in the Certificates, including those
relating to [describe risk factors specific to
transaction], see "Risk Factors" herein.
[Limited Guarantee........ Subject to the limitations described below, the
Limited Guarantee will cover the difference
between the amount available for distribution to
the Certificateholders [including Advances] on any
[monthly] Distribution Date and the amount due the
Certificateholders on such Distribution Date to
the extent such shortfall is attributable to
delinquent payments by borrowers on the Contracts
(each, an "Obligor") and losses on Defaulted
Contracts (as hereinafter defined). The first $ of
the Guarantee Amount, as defined below, will
consist of the general guarantee obligation of .
The obligation of will be backed by the Standby
Letter of Credit issued by and confirmed by ,
(as described below). The balance of the Guarantee
Amount consists of the Direct Letter of Credit
issued by and confirmed by , described below
(the Standby Letter of Credit and the Direct Letter
of Credit sometimes collectively are referred to
herein as the "Letters of Credit"). The amount of
the Limited Guarantee (the "Guarantee Amount") on
the first Distribution Date will be $ .
Thereafter, the Guarantee Amount available on any
Distribution Date, . See "The Limited
Guarantee."]
The Standby Letter of Credit (the "Standby Letter
of Credit") is an irrevocable obligation
supporting the obligation of under the Limited
Guarantee. If does not make a payment required of
it under the Limited Guarantee, the Trustee
immediately will draw such amount under the
Standby Letter of Credit. If for any reason does
not honor a draw under the Standby Letter of
Credit, is obligated to honor the Standby
Letter of Credit.
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
The Direct Letter of Credit (the "Direct Letter of
Credit") will be an irrevocable direct pay letter
of credit and will be issued by and confirmed
by .
[The initial Letters of Credit will expire no
earlier than .] The Master Servicer will be
required to replace or renew the Letters of Credit
prior to their expiration until the Trust Fund is
terminated. In the event the Master Servicer does
not renew or replace a Letter of Credit, prior to
its expiration, the Trustee will draw under such
Letter of Credit an amount equal to the required
coverage of that Letter of Credit on such date and
will transfer such funds to a separate trust fund
(the "Limited Guarantee Fund"). Thereafter the
Trustee will draw upon such funds on each
Distribution Date if and to the extent draws would
have been required under the corresponding Letter
of Credit. The Letters of Credit will not be
available to support any obligations of the
Depositor, the Master Servicer or the Unaffiliated
Seller. See "The Limited Guarantee."]
[Letter of Credit......... The maximum liability of under an irrevocable
standby letter of credit for the Contract Pool
(the "Letter of Credit"), net of unreimbursed
payments thereunder, will be no more than [ %] of
the initial aggregate principal balance of the
Contract Pool (the "Letter of Credit Percentage").
The maximum amount available to be paid under the
Letter of Credit will be determined in accordance
with the Pooling and Servicing Agreement referred
to herein. The duration of coverage and the amount
and frequency of any reduction in coverage will be
in compliance with the requirements established by
the Rating Agency, in order to obtain a rating in
one of the two highest rating categories of such
Rating Agency. The amount available under the
Letter of Credit shall be reduced by the amount of
unreimbursed payments thereunder. See "Credit
Support-Letters of Credit" in the Prospectus.]
Hazard Insurance.......... All of the Contracts will be covered by standard
hazard insurance policies with respect to each
Manufactured Home in an amount at least equal to
the lesser of its maximum insurable value or the
remaining principal balance on the related
Contract. The standard hazard insurance policies,
at a minimum, will provide for fire, lightning,
windstorm and extended coverage on terms and
conditions customary in manufactured housing
hazard insurance policies. See "Description of the
Certificates--Hazard Insurance Policies" herein.
[Optional Termination..... The [Depositor] may, at its option, repurchase
from the Trust all Contracts remaining outstanding
at such time as the aggregate unpaid principal
balance of such Contracts is less than [10%] of
the aggregate principal balance of the Contracts
on the Cut-off Date. The repurchase price will
equal the aggregate unpaid principal balance of
such Contracts together with accrued interest
thereon at the Pass-Through Rate through the last
day of the month during which such repurchase
occurs, plus the appraised value of any property
acquired in respect thereof. [Any such repurchase
will be effected in compliance with the
requirements of Section 860F(a)(iv) of the
Internal Revenue Code of 1986, as amended (the
"Code"), so as to constitute a "qualifying
liquidation" thereunder.] See "Description of the
Certificates--Termination; Repurchase of
Certificates" herein.
Advances.................. The Servicers of the Contracts (and the Master
Servicer, with respect to each Contract that it
services directly and otherwise, to the extent the
related Servicer does not do so) will be obligated
to advance delinquent installments of principal
and interest on the Contracts under certain
circumstances. See "Description of the
Certificates--Advances" in the Prospectus.
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
Security Interests and
Other Aspects of the
Contracts ............... In connection with the transfer of the Contracts
from the Depositor to the Trustee, the Depositor has
assigned the security interests in the Manufactured
Homes securing the Contracts to the Trustee. The
[Master Servicer] shall take such steps as are
necessary to perfect and maintain perfection of such
security interest in each Manufactured Home and, to
the extent such interest is perfected, the Trustee
will have a prior claim over subsequent purchasers
of the Manufactured Home and holders of subsequently
perfected security interests. Under most state laws
Manufactured Homes constitute personal property, and
perfection of a security interest in the
Manufactured Home is obtained, depending on
applicable state law, either by noting the security
interest on the certificate of title for the
Manufactured Home or by filing a financing statement
under the Uniform Commercial Code. [The certificates
of title or Uniform Commercial Code financing
statements will not be amended to identify the
Trustee as the new secured party because of the
administrative burden and expense.] In the absence
of such an endorsement, the Trustee may not have a
perfected security interest in Manufactured Homes
registered in certain states. In addition, if the
Manufactured Home were relocated to another state
without reperfection of the security interest, or if
the Manufactured Home were to become attached to its
site and a determination were made that the security
interest was subject to real estate title and
recording laws, or as a result of fraud or
negligence, the Trustee could lose its prior
preferred security interest in a Manufactured Home.
Federal and state consumer protection laws impose
requirements upon creditors in connection with
extensions of credit and collections on installment
sales contracts, and certain of these laws make an
assignee of such a contract, such as the Trustee,
liable to the obligor thereon for any violation by
the lender. The [Master Servicer] has agreed to
repurchase any Contract as to which it has failed to
perfect a security interest in the Manufactured Home
securing such Contract, or as to which a breach of
federal or state laws exists if such breach
materially adversely affects the Trustee's interest
in the Contract, unless such failure or breach has
been cured within [90] days from notice of such
breach. See "Special Considerations" herein and
"Certain Legal Aspects of the Mortgage Loans and
Contracts--The Contracts" in the Prospectus.
Trustee................... (the "Trustee"). See "Description of the
Certificates--Trustee" herein.
Certificate Rating........ It is a condition of issuance that the Certificates
be rated in one of the two highest rating categories
of a nationally recognized statistical rating agency
(the "Rating Agency"). A security rating is not a
recommendation to buy, sell or hold securities and
may be subject to revision or withdrawal at any time
by the assigning rating organization. A security
rating does not address the frequency of prepayments
or the possibility that Certificateholders might
suffer a lower than anticipated yield. A security
rating also does not represent any assessment of the
yield to maturity that investors may experience. See
"Risk Factors" herein and in the Prospectus,
"Rating" herein, "Yield and Prepayment
Considerations" herein and "Yield Considerations" in
the Prospectus.
Legal Investment.......... The Certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the "Enhancement
Act"), and, as such, are legal investments for
certain entities to the extent provided in the
Enhancement Act. See "Legal Investment" in the
Prospectus.
ERISA Considerations...... See "ERISA Considerations" [in the Prospectus] and
herein.
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
Tax Aspects............... The Depositor [intends] [does not intend] to make an
election to treat the Trust Fund as a Real Estate
Mortgage Investment Conduit (a "REMIC"), pursuant to
the Internal Revenue Code of 1986, as amended. [The
Certificates other than the Class R Certificates
(the "Regular Certificates") will be treated as
regular interests in the REMIC and generally will be
treated as debt instruments issued by the REMIC for
federal income tax purposes. Certain Classes of the
Regular Certificates may be issued with original
issue discount. The prepayment assumption that will
be used in determining the rate of accrual of any
original issue discount on the Regular Certificates
for federal income tax purposes (and whether such
original issue discount is de minimis), and that may
be used by a holder of a Regular Certificate to
amortize premium, will be [ ]% of the Prepayment
Assumption. No representation is made that the
Contracts will prepay at such rate or at any other
rate. The holders of the Residual Certificates will
be subject to special federal income tax rules that
may significantly reduce the after-tax yield of such
Certificates. Further, significant restrictions
apply to the transfer of the Residual Certificates.
See "Certain Federal Income Tax Consequences"
[herein and] in the Prospectus.
- --------------------------------------------------------------------------------
S-8
<PAGE>
RISK FACTORS
General
An investment in the Certificates may be affected by, among other things, a
downturn in regional or local economic conditions. These regional or local
economic conditions are often volatile, and historically have affected the
delinquency, loan loss and repossession experience of the Contracts. To the
extent that losses on the Contracts are not covered by [the Limited Guarantee]
[the Letter of Credit] [or] applicable insurance policies, if any,
Certificateholders will bear all risk of loss resulting from default by Obligors
and must rely on the value of the Manufactured Homes for recovery of the
outstanding principal and unpaid interest of the defaulted Contracts. See "The
Trust Fund--The Contracts" in the Prospectus.
[Limited Guarantee] [Limited Letter of Credit]
The Certificates will be secured in part by the [Limited Guarantee] [Letter
of Credit]. The [Guarantee Amount] [Letter of Credit Percentage] will be an
amount initially equal to and will decline hereafter [by the amount of
unreimbursed payments thereunder]. The [Limited Guarantee] [Letter of Credit]
will cover delinquent payments by Obligors and losses on defaulted Contracts.
Delinquency on the Contracts may be affected by local, regional and economic
considerations. If delinquency levels are high and the [Guarantee Amount]
[Letter of Credit Percentage] is reduced to zero, the Certificateholders will
bear all losses on the Contracts. See ["The Limited Guarantee"] ["Letter of
Credit"].
Prepayment Considerations
The prepayment experience on the Contracts may affect the average life of
the Certificates. Prepayments on the Contracts may be influenced by a variety of
economic, geographic, social and other factors, including repossessions, aging,
seasonality and interest rates of the Contracts. Other factors affecting
prepayment of Contracts include changes in housing needs, job transfers,
unemployment and servicing decisions. See ["Yield and Prepayment Considerations"
herein and] "Maturity and Prepayment Considerations" in the Prospectus.
Limitations on Ability to Realize upon Manufactured Homes
Each Contract is secured by a security interest in a Manufactured Home.
Perfection of security interests in the Manufactured Homes and enforcement of
rights to realize upon the value of the Manufactured Homes as collateral for the
Contracts are subject to a number of federal and state laws, including the
Uniform Commercial Code as adopted in each state (except Louisiana) and each
state's certificate of title statutes, but generally not its real estate laws.
The steps necessary to perfect the security interest in a Manufactured Home will
vary from state to state. In addition, numerous federal and state consumer
protection laws impose requirements on lending under conditional sales contracts
and installment loan agreements such as the Contracts, and the failure by the
lender or seller of goods to comply with such requirements could give rise to
liabilities of assignees for amounts due under such agreements and claims by
such assignees may be subject to set-off as a result of such lender's or
seller's noncompliance. These laws would apply to the Trustee as assignee of the
Contracts. Pursuant to the Pooling and Servicing Agreement, the seller will
warrant that each Contract complies with all requirements of law and will make
certain warranties relating to the validity, subsistence, perfection and
priority of the security interest in each Manufactured Home securing a Contract.
If the [Limited Guarantee or] [Letter of Credit Percentage] insurance policies
are exhausted and recovery of amounts due on the Contracts is dependent on
repossession and resale of Manufactured Homes securing Contracts that are in
default, certain other factors may limit the ability of the Certificateholders
to realize upon the Manufactured Homes or may limit the amount realized to less
than the amount due. See "Certain Legal Aspects of the Mortgage Loans and
Contracts--The Contracts" in the Prospectus.
[Additional risk factors will be added, as appropriate, including, without
limitation, (i) if an Interest Weighted Class of Certificates or a Principal
Weighted Class of Certificates is being offered, a discussion of the risks
associated with such Class, including any disproportionate share of credit or
prepayment risks that such Class will bear, (ii) a discussion of the
concentration of credit risk, if any, with respect to the Contracts due to,
among other things (x) a concentration of Contracts originated by one or a few
dealers or (y) a concentration of properties within a state (or region of a
state) and (iii) a discussion of the basis risk associated with a Class of
Certificates.]
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DESCRIPTION OF THE CONTRACT POOL
The contract pool (the "Contract Pool") will consist of [conventional]
[FHA-insured] [VA-guaranteed] fixed rate manufactured housing conditional sales
contracts and installment loan agreements (collectively, the "Contracts") having
an [approximate] aggregate principal balance as of the Cut-off Date of $ ,
secured by manufactured homes (the "Manufactured Homes"). The Manufactured Homes
will consist of manufactured homes within the meaning of 42 United States Code,
Section 5402(6), which defines a "manufactured home" as "a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is built
on a permanent chassis and designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of this paragraph except the size requirements and with respect to
which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under this chapter."
The weighted average annualized percentage rate (individually, an "APR") of
the Contracts as of the Cut-off Date will be at least % but no more
than %. All Contracts will have APRs of at least % but no more
than %. The weighted average maturity of the Contracts, as of the Cut-off
Date, will be at least years but no more than years. All
Contracts will have original maturities of at least years but no more
than years. None of the Contracts will have been originated prior to or
after , 19 . None of the Contracts will have a scheduled maturity later
than .
The Contracts will have the following characteristics as of the Cut-off
Date (expressed as a percentage of the outstanding aggregate principal balances
of the Contracts having such characteristics relative to the outstanding
aggregate principal balances of all Contracts):
Approximately % of the Contracts are secured by Manufactured Homes
which were new at the time the related Contract was originated and
approximately % of the Contracts are secured by Manufactured Homes which
were used at the time the related Contract was originated.
At least % of the Contracts will be Contracts each having
outstanding principal balances of less than $ .
No more than % of the Contracts will be Contracts each having
outstanding principal balances of more than $ .
No more than % of the Contracts will have had loan-to-value ratios
at origination (based on the retail sales prices of the unit or % of the
manufacturer's invoice price, if less, plus taxes, license fees and
insurance premiums in the case of a new Manufactured Home, or based on the
lesser of the total delivered sales price or the appraised value of the
unit, including taxes, fees and insurance, in the case of a used
Manufactured Home) in excess of %, and the Contracts have a weighted
average loan to value ratio as of the Cut-off Date of %.
The Contracts will be secured by Manufactured Homes located in the
states of . No more than [5]% of the Contracts will be secured by
Manufactured Homes located in any one five digit zip code.
[At the date of issuance of the Certificates, no Contract in the
Contract Pool was more than 30 days delinquent.]
[Description of the underwriting policies for conventional Contracts
to be provided.]
[With respect to Multi-Class Certificates, specify the method of
determining the Asset Value of each Trust Asset.]
[Specify whether the Depositor, the Master Servicer or the related
Servicer, as the case may be, has the right to substitute Contracts and the
period during which the Depositor, the Master Servicer or the related
Servicer may exercise such right.]
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Specific information with respect to the Contracts will be available
to purchasers of the Certificates offered hereby at or before the time of
issuance of such Certificates. Such specific information will include the
precise amount of the aggregate principal balances of the Contracts
outstanding as of the Cut-off Date, and will also set forth tables
reflecting the following information regarding the Contracts: years of
origination, types of dwellings on the underlying properties, the sizes of
Contracts and distribution of Contracts by APR, and will be set forth in a
Current Report on Form 8-K that will be filed with the Securities and
Exchange Commission by the Depositor within 15 days after the issuance of
the Certificates.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, to be dated as of the Cut-off Date (the "Pooling and Servicing
Agreement") among the Depositor, , as master servicer (the "Master
Servicer"), and , as trustee (the "Trustee"), a form of which has been
filed as an exhibit to the Registration Statement of which this Prospectus
Supplement forms a part. Reference is made to the accompanying Prospectus for
important additional information regarding the terms and conditions of the
Pooling and Servicing Agreement and the Certificates. Each of the Certificates
at the time of issuance will qualify as a "mortgage related security" within the
meaning of the Secondary Mortgage Market Enhancement Act of 1984.
Distributions of principal and interest as set forth above will be made by
the Master Servicer by check mailed to each Certificateholder entitled thereto
at the address appearing in the Certificate Register to be maintained with the
Trustee or, if eligible for wire transfer as provided in the Pooling and
Servicing Agreement, by wire transfer to the account of such Certificateholder,
provided, however, that the final distribution in retirement of the Certificates
will be made only upon presentation and surrender of the Certificates at the
office specified in the notice to Certificateholders of such final distribution.
The Certificates will be transferable and exchangeable on a Certificate
Register to be maintained by the Trustee at the office or agency of the Master
Servicer maintained for that purpose in New York, New York. Certificates
surrendered to the Trustee for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Trustee. No service charge will be made for any registration of transfer or
exchange of Certificates, but payment of a sum sufficient to cover any tax or
other governmental charge may be required. Such office or agency is currently
located at , .
[additional disclosure to be added, as appropriate]
Conveyance of Contracts
On the date of issuance of the Certificates, the Depositor will transfer,
assign, set over and otherwise convey to the Trustee all right, title and
interest of the Depositor in the Contracts, including all principal and interest
received on or with respect to the Contracts (other than receipts of principal
and interest due on the Contracts before the Cut-off Date), and all rights under
the hazard insurance policies on the related Manufactured Homes. The Contracts
will be described on a schedule attached to the Pooling and Servicing Agreement
(the "Contract Schedule"). The Contract Schedule will include the amount of
monthly payments due on each Contract as of the date of issuance of the
Certificates, the APR on each Contract and the maturity date of each Contract.
Prior to the conveyance of the Contracts to the Trustee, the Depositor will
cause to be reviewed all the Contract files, including the certificates of title
to, or other evidence of a perfected security interest in, the Manufactured
Homes, confirming the accuracy of the Contract Schedule delivered to the
Trustee.
[The Trustee, itself or through a custodian, will hold, on behalf of the
Certificateholders, the original Contracts and copies of documents and
instruments relating to each Contract and the security interest in the
Manufactured Home relating to each Contract.] In addition, in order to give
notice of the Trustee's right, title and interest in and to the Contracts, [the
Master Servicer, on behalf of] the Depositor, will deliver to the Trustee a
UCC-1 financing statement identifying the Trustee as the secured party and
identifying all the Contracts as collateral. The [Master Servicer] will file
such statement in the appropriate offices in the appropriate states. [The
Contracts will not be stamped or otherwise marked to reflect their assignment
from the Company to the Trustee. If a subsequent purchaser were able to take
physical possession of the
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Contracts without notice of such assignment, the Trustee's interest in the
Contracts could be defeated.] See "Certain Legal Aspects of the Mortgage Loans
and Contracts--The Contracts" in the Prospectus.
Trustee
The Trustee for the Certificates will be .
The Master Servicer
The Master Servicer is a corporation that commenced operation in
. The Master Servicer is [an FHA approved seller-servicer] based
in . As of , the Master Servicer serviced, for other investors and
for its own account, approximately mortgage loans with an aggregate principal
balance in excess of $ . The Master Servicer originated approximately
$ in mortgage loans in 19 . The Master Servicer's consolidated
stockholders' equity as of was approximately $ .
The information set forth above has been provided by the Master Servicer.
The Depositor makes no representation as to the accuracy or completeness of such
information.
[The Master Servicer shall obtain and maintain in effect a bond, corporate
guaranty or similar form of insurance coverage (the "Performance Bond"),
insuring against loss occasioned by the errors and omissions of the Master
Servicer's officers, employees and any other person acting on behalf of the
Master Servicer in its capacity as Master Servicer and guaranteeing the
performance, among other things, of the obligations of the Master Servicer to
purchase certain Contracts and to make advances, as described in the Prospectus
under "Description of the Certificates--Assignment of Contracts" and
"--Advances," in an amount acceptable to the nationally recognized statistical
rating organization or organizations rating the Certificates (collectively, the
"Rating Agency").
Servicing Compensation [, Limited Guarantee Fee] and Payment of Expenses
The servicing compensation payable to the Master Servicer will be equal to
an amount, payable out of each interest payment on a Contract, equal to the
excess of each interest payment on a Contract over the Pass-Through Rate, less
[(a)] any servicing compensation payable to the Servicer of such Contract under
the terms of the agreement with the Master Servicer pursuant to which such
Contract is serviced (the "Servicing Agreement") (including such compensation
paid to the Master Servicer as the direct servicer of a Contract for which there
is no Servicer)[.] [, and (b) the amount payable to the [Depositor,] [Master
Servicer], as described below] [.] [, and (c) the Limited Guarantee Fee.]
[Pursuant to the Pooling and Servicing Agreement, on each Distribution Date, the
Master Servicer will remit to the Depositor in respect of each interest payment
on a Contract an amount equal to one-twelfth of % of the outstanding principal
balance of such Contract before giving effect to any payments due on the
preceding Due Date. The Master Servicer will be permitted to withdraw from the
Certificate Account, in respect of each interest payment on a Contract, an
amount equal to one-twelfth of % of the outstanding principal balance of such
Contract before giving effect to any payments due on the preceding Due Date.]
See "Description of the Certificates--Servicing and Other Compensation and
Payment of Expenses" in the Prospectus for information regarding other possible
compensation to the Master Servicer and the Servicers. The Servicers and the
Master Servicer will pay all expenses incurred in connection with their
responsibilities under the Servicing Agreements and the Pooling and Servicing
Agreement (subject to limited reimbursement as described in the Prospectus),
including, without limitation, the various items of expense enumerated in the
Prospectus.
[Investors are advised to consult with their own tax advisors regarding the
likelihood that a portion of such servicing compensation might be characterized
as an ownership interest in the interest payments on the Contracts ("Retained
Yield") for federal income tax purposes, by reason of the extent to which either
the weighted average APR, or the stated interest rates on the Contracts exceeds
the Pass-Through Rate, and the tax consequences to them of such a
characterization. In this regard, there are no authoritative guidelines for
federal income tax purposes as to either the maximum amount of servicing
compensation that may be considered reasonable in the context of this or similar
transactions or whether the reasonableness of servicing compensation should be
determined on a weighted average or contract by contract basis. [The Depositor
intends to treat % of such servicing compensation and % of the amount
payable to it described above as Retained Yield for federal income tax purposes
in reports to the Certificateholders and to the Internal Revenue
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Service.] See "Certain Federal Income Tax Consequences--[ ] in the Prospectus
for information regarding the characterization of servicing compensation [and
the amounts payable to the Depositor].
[Termination; Repurchase of Contracts
The Pooling and Servicing Agreement provides that the [Depositor] [Master
Servicer] may purchase from the Trust all Contracts remaining in the Contract
Pool and thereby effect early retirement of the Certificates, provided that the
aggregate unpaid balances of the Contracts at the time of such repurchase is
less than [10%] of the aggregate principal balance of the Contracts on the
Cut-off Date. The purchase price for any such optional repurchases shall be
equal to the outstanding principal balance of such Contracts, together with
accrued interest at the Pass-Through Rate to the first day of the month
following such repurchase plus the appraised value of any acquired property with
respect to the Contracts. [Any such repurchase will be effected in compliance
with the requirements of Section 860F(a)(iv) of the Code in order to constitute
a "qualifying liquidation" thereunder.] In no event will the Trust continue
beyond the expiration of 21 years from the death of the last survivor of the
persons named in the Pooling and Servicing Agreement.]
Insurance
[FHA Insurance and VA Guarantee
% and % of the Contracts, respectively (by aggregate principal
balance as of Cut-Off Date) are subject to FHA insurance and VA guarantees. See
"Description of Insurance" in the Prospectus.]
[Primary Credit Insurance Policies
To be provided.]
[Pool Insurance Policies
To be provided.]
Hazard Insurance Policies
The Master Servicer will cause to be maintained one or more standard hazard
insurance policies with respect to each Manufactured Home in an amount at least
equal to the lesser of its maximum insurable value or the principal amount due
from the Obligor under the related Contract. Such standard hazard insurance
policies, will, at a minimum, provide fire and extended coverage on terms and
conditions customary in manufactured housing hazard insurance policies. If a
Manufactured Home, at the origination of the related Contract, was located
within a federally designated flood area, the Master Servicer also will cause
flood insurance to be maintained in an amount equal to the lesser of the amounts
described above or the maximum amount available for such Manufactured Home under
the federal flood insurance program.
All amounts collected by the Master Servicer under a standard hazard
insurance policy will be applied either to the restoration or repair of the
Manufactured Home or against the unpaid principal balance of the related
Contract upon foreclosure and repossession of the Manufactured Home, after
reimbursing the Master Servicer for amounts previously advanced by it for such
purposes. The Master Servicer may satisfy its obligation to cause the
maintenance of standard hazard and flood insurance policies by maintaining a
blanket policy insuring against hazard and flood losses on all the Manufactured
Homes. Such blanket policy may contain a deductible clause, in which case the
Master Servicer will be required to deposit in the Certificate Account any
amount deducted in connection with insurance claims on repossessed Manufactured
Homes.
[The Limited Guarantee
General
If amounts available in the Certificate Account [(following any Advances by
the Master Servicer)] for distribution to the Certificateholders is less than
the amount due to them as a result of defaulted Contracts and delinquent
payments of
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principal of and interest on the Contracts, the Limited Guarantee will be
available, to the extent of the Guarantee Amount, to fund such shortfall. The
Guarantee Amount on the first Distribution Date will equal $ . Thereafter,
the Guarantee Amount on any Distribution Date will equal [$ less amounts
previously paid with respect to the Limited Guarantee]. $ of the initial
Guarantee Amount will be covered by the general payment obligation of , which
obligation will be supported by the Standby Letter of Credit (described below).
The balance of the initial Guarantee Amount will be covered by the Direct Letter
of Credit.
Amounts required to be paid under the Limited Guarantee will be paid first
by under its general payment obligation (or pursuant to the Standby Letter
of Credit) and after such obligation is exhausted, from the Direct Letter of
Credit. If the Guarantee Amount is reduced to zero, the Certificateholders will
bear all losses on the Contracts. As a result, Certificateholders may be subject
to delays in payments of monthly principal and interest as a result of
delinquent payments by Obligors. In the event of a repossession and resale by
the Master Servicer (as Servicer on behalf of the Trustee) of a Manufactured
Home securing a Contract in default, the Trust Fund may not recover the entire
amount of principal and interest due on such Contract. See "The Trust Fund--The
Contracts" and "Certain Legal Aspects of the Mortgage Loans and Contracts" in
the Prospectus.]
Standby Letter of Credit
The Standby Letter of Credit will be an irrevocable standby letter of
credit supporting the payment and repurchase obligations of . The
Standby Letter of Credit will be obtained initially from , and will
terminate on . will confirm the Standby Letter of Credit issued
by , meaning that if for any reason does not honor a draw upon a
Standby Letter of Credit, will be obligated to honor such draw. The
amount of the Standby Letter of Credit on the Closing Date shall be $ .
On each subsequent Distribution Date, the requisite amount of the renewed
Standby Letter of Credit or replacement Standby Letter of Credit shall be the
amount of 's obligation under the Limited Guarantee on the
immediately preceding Distribution Date.
Direct Letter of Credit
The Direct Letter of Credit will be an irrevocable direct pay letter of
credit obtained initially from and will be confirmed by . The Direct
Letter of Credit will terminate on . The initial requisite amount of the
Direct Letter of Credit shall be $ and subsequently, the requisite
amount shall be .
Maintenance of Letters of Credit
The Letters of Credit will provide that, if the institution issuing such
Letter of Credit (the "L/C Bank") does not intend to renew such Letter of
Credit, it must give notice thereof to the Master Servicer and the Trustee at
least 45 days prior to the expiration of such Letter of Credit. The Master
Servicer must then obtain a replacement Letter of Credit. If, immediately prior
to the expiration of the Letter of Credit, the Master Servicer has not obtained
a replacement Letter of Credit issued or confirmed by a L/C Bank which is a
qualified bank (an institution whose unsecured long-term debt (or, in the case
of the principal bank in a bank holding company system, the unsecured long-term
debt of such bank or the bank holding company) has a rating satisfactory to the
Rating Agency for the maintenance of the " " rating of the Certificates,
the Trustee shall draw under such expiring Letter of Credit an amount equal to
the 's obligation under the Limited Guarantee, in the case of the
Standby Letter of Credit, or the difference between the Guarantee Amount and
the 's obligation under the Limited Guarantee, in the case of the Direct
Letter of Credit. The amounts so drawn will be deposited in a separate trust
fund (the "Limited Guarantee Fund") and will be available on each Distribution
Date if and to the extent that draws would have been required under the Standby
Letter of Credit or the Direct Letter of Credit, as the case may be. The funds
in the Limited Guarantee Fund remain the property of the issuer of such Letter
of Credit, subject to the right of the Master Servicer to make withdrawals. Upon
termination of the Pooling and Servicing Agreement, any funds remaining in the
Limited Guarantee Fund will be paid to the issuer of such Letter of Credit. In
addition, any recoveries of delinquent payments previously advanced pursuant to
the draws under a Letter of Credit, and any recoveries in defaulted Contracts
whose repurchase price was deposited in the Certificate Account pursuant to a
draw on a Letter of Credit, will be repaid to the L/C Bank if the Letter of
Credit will be reinstated by such amount, or else will be deposited in the
Limited Guarantee Fund. In the event of insolvency of the L/C Bank, the amount
available to the Trust Fund under the Letter of Credit or from the Limited
Guarantee Fund, as the case may be, may be reduced.
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In the event that the L/C Bank that issued or confirmed the Letter of
Credit ceases to be a qualified bank, the Master Servicer will use its best
efforts to obtain a substitute Letter of Credit issued or confirmed by a
qualified bank. If a substitute Letter of Credit issued or confirmed by a
qualified bank has not been obtained in 30 days, the Trustee will draw down the
requisite amount under such Letter of Credit and deposit such funds in the
Limited Guarantee Fund.]
[Letter of Credit
The maximum liability of [ ] under the Letter of Credit, net of
unreimbursed payments thereunder, for the Certificates will be no more than [ %]
of the aggregate principal balance of the Contracts on the Cut-off Date. The
duration of coverage and the amount and frequency of any reduction in coverage
will be in compliance with the requirements established by the Rating Agency
rating the Certificates, in order to obtain a rating in one of the two highest
rating categories of the Rating Agency. The precise amount of coverage under the
Letter of Credit and the duration and frequency of reduction of such coverage
will be set forth in the Current Report on Form 8-K referred to above. See
"Description of the Certificates--Credit Support--The Letter of Credit" in the
Prospectus.]
YIELD AND PREPAYMENT CONSIDERATIONS
Yield Considerations
[to be added, as applicable]
[Weighted Average Lives of the Certificates
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of the last dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Certificates
will be influenced by, among other things, the rate at which principal of the
Contracts is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
The model used in this Prospectus Supplement, the Manufactured Housing
Prepayment model (the "MHP"), is based on an assumed rate of prepayment each
month of the then unpaid principal balance of a pool of new Contracts. A
prepayment assumption of 100% MHP assumes constant prepayment rates of 3.7% per
annum of the then unpaid principal balance of such Contracts in the first month
of the life of the Contracts and an additional 0.1% per annum in each month
thereafter until the 24th month. Beginning in the 24th month and in each month
thereafter during the life of all of the Contracts, 100% MHP assumes a constant
prepayment rate of 6.0% per annum each month. As used in the following tables
"0% MHP" assumes no prepayments on the Contracts; "50% MHP" assumes the
Contracts will prepay at rates equal to 50% of the MHP assumed prepayment rates,
and so forth.
The assumed final Distribution Date with respect to the Certificates is
[ ], which is the Distribution Date immediately following the latest
scheduled maturity date for any Contract. The actual final Distribution Date
with respect to the Certificates will likely occur significantly earlier than,
and could occur later than, its assumed final Distribution Date.
The following tables have been prepared on the basis of the following
assumed characteristics of the Contracts: [insert assumptions]
The actual characteristics and performance of the Contracts will differ
from the assumptions used in constructing the following tables, which are
hypothetical in nature and are 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 Contracts will prepay at a constant level
of MHP until maturity or that all of the Contracts will prepay at the same level
of MHP. Moreover, the diverse remaining terms to maturity of the Contracts could
produce slower or faster principal distributions than indicated in the table at
the various constant percentages of MHP specified, even if the weighted average
remaining term to maturity of the Contracts is as assumed. Any difference
between such assumptions and the actual characteristics and performance of the
Contracts, or actual prepayment or loss experience, will affect the percentage
of initial Certificate Principal Balance of each Class of Certificates
outstanding over time and the weighted average life of each such Class of
Certificates.
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Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average life of each such Class of Certificates, and sets
forth the percentages of the initial Certificate Principal Balance [or Notional
Amount, as applicable,] of each such Class of Certificates that would be
outstanding after each of the dates shown at various percentages of MHP.
[insert tables]
There is no assurance, however, that prepayment of the Contracts will
conform to any level of the MHP, and no representation is made that the
Contracts will prepay at the prepayment rates shown or any other prepayment
rate. The rate of principal payments on pools of manufactured housing contracts
is influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates and the rate at which manufactured
homeowners sell their manufactured homes or default on their contracts. Other
factors affecting prepayment of contracts include changes in obligors' housing
needs, job transfers, unemployment and obligors' net equity in the manufactured
homes. In the case of mortgage loans secured by site-built homes, in general, if
prevailing interest rates fall significantly below the interest rates on such
mortgage loans, the mortgage loans are likely to be subject to higher prepayment
rates than if prevailing interest rates remained at or above the rates borne by
such mortgage loans. Conversely, if prevailing interest rates rise above the
interest rates on such mortgage loans, the rate of prepayment would be expected
to decrease. In the case of manufactured housing contracts, however, because the
outstanding principal balances are, in general, much smaller than mortgage loan
balances and the original term to maturity of each such contract is generally
shorter, the reduction or increase in the size of the monthly payment on a
contract arising from a change in the interest rate thereon is generally much
smaller. Consequently, changes in prevailing interest rates may not have a
similar effect, or may have a similar effect but to a smaller degree, on the
prepayment rates on manufactured housing contracts.
RATING
It is a condition to the issuance of the Certificates that they be rated in
one of the two highest categories of the Rating Agency prior to issuance. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the assigning rating
organization. A security rating does not address the frequency of prepayments or
the possibility that Certificateholders might suffer a lower than anticipated
yield. A security rating also does not represent any assessment of the yield to
maturity that investors may experience.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES]
[tax discussion to be added, as applicable]
[LEGAL INVESTMENT CONSIDERATIONS]
[legal investment discussion to be added, as applicable]
[ERISA CONSIDERATIONS
The acquisition of a Certificate by an employee benefit plan subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (a "Plan")
could result in prohibited transactions or other violations of the fiduciary
responsibility provisions of ERISA and section 4975 of the Internal Revenue Code
of 1986 (the "Code") if by virtue of such acquisition, assets held by the Trust
were deemed to be assets of the Plan. [The United States Department of Labor
("DOL") published final regulations concerning whether or not the assets of a
Plan will be deemed to include any of the underlying assets of an entity, for
purposes of the fiduciary responsibility provisions of ERISA, when a Plan
acquires an equity interest in such entity. The final regulations state that the
assets of a Plan which acquires an equity interest will not include any of the
underlying assets of the entity if the class of equity interests in question are
(1) held by 100 or more investors independent of the issuer and of each other,
(2) freely transferable, and (3) sold as part of an offering pursuant to an
effective registration statement under the Securities Act of 1933, and then
timely registered under section 12(b) or 12(g) of the Securities Exchange Act of
1934. It is expected that the Certificates will meet the criteria of the
regulations: The Underwriter[s] expect[s] (although no assurances can be given)
that the Certificates will be held by at least 100 independent investors at the
conclusion of the offering made by this Prospectus; there are no restrictions
imposed on the transfer of the Certificates; and the seller intends to cause the
registration requirements to be satisfied.] In addition, even
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if the Plan's assets are deemed to include the Contracts, certain exemptions
from the prohibited transaction rules could be applicable, depending in part
upon the type and circumstances of the Plan fiduciary making the decision to
acquire a Certificate. Included among these exemptions are DOL Prohibited
Transaction Exemptions 84-14 (Class Exemption for Plan Asset Transaction
Determined by Independent Qualified Professional Asset Managers), 91-38 (Class
Exemption for Certain Transactions Involving Bank Collective Investment Funds)
and 90-1 (Class Exemption for Certain Transactions Involving Insurance Company
Pooled Separate Accounts).
Employee benefit plans which are governmental plans (as defined in section
3(32) of ERISA), and certain church plans (as defined in section 3(33) of
ERISA), are not subject to ERISA requirements.
Any Plan fiduciary considering the purchase of Certificates should consult
its tax and/or legal advisors regarding these and other issues and their
potential consequences.]
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative]. The Underwriter[s] [named below] [has]
[have severally] agreed to purchase from the Depositor [all] [the following
respective principal amounts] of the Certificates:
[Underwriter
CS First Boston................................... $
----------
Total............................................. $ ]
==========
The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that the
Underwriter[s] will be obligated to purchase the entire principal amount of the
Certificates if any are purchased.
The Depositor has been advised [by the Representative] that the
Underwriter[s] propose[s] to offer the Certificates to the public initially at
the public offering prices set forth on the cover page of this Prospectus
Supplement, and [through the Representative,] to certain dealers at such prices
less the following concessions and that the Underwriter[s] and such dealers may
allow the following discounts on sales to certain other dealers:
Concession (Percent of Discount (Percent of
Principal Amount) Principal Amount)
----------------- -----------------
% %
After the initial public offering, the public offering prices and the
concessions and discounts to dealers may be changed by [the Underwriter] [the
Representative].
The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Certificates offered hereby in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
LEGAL MATTERS
Certain legal matters with respect to the Certificates offered hereby will
be passed upon for the Depositor and for the Underwriter[s] by Sidley & Austin,
New York, New York.
S-17
<PAGE>
USE OF PROCEEDS
The Depositor will apply all of the net proceeds of the offering of the
Certificates towards the simultaneous purchase of the Contracts underlying the
Certificates. Certain of the Contracts will be acquired in privately negotiated
transactions by the Depositor from one or more affiliates of the Depositor,
which will have acquired such Contracts from time to time in privately
negotiated transactions.
S-18
<PAGE>
<TABLE>
INDEX OF TERMS
<CAPTION>
Page on which
Term is defined in
Term the Prospectus Supplement
- ---- -------------------------
<S> <C>
[Advances...........................................................prospectus]
APR.........................................................................S-4
[Asset Value........................................................prospectus]
[Business Day.......................................................prospectus]
[Certificateholders.................................................prospectus]
Certificates................................................................S-3
Code........................................................................S-5
Commission..................................................................S-2
Contract Schedule..........................................................S-10
Contract Pool...............................................................S-9
Contracts...................................................................S-4
[Cut-off Date.......................................................prospectus]
[Defaulted Contracts................................................prospectus]
Depositor...................................................................S-3
Direct Letter of Credit.....................................................S-5
[Distribution Date..................................................prospectus]
DOL........................................................................S-15
[Due Date...........................................................prospectus]
Enhancement Act.............................................................S-6
ERISA......................................................................S-15
Excess Interest.............................................................S-4
Exchange Act................................................................S-2
Guarantee Amount............................................................S-4
[Interest Accrual Period............................................prospectus]
[Interest Weighted Class of Certifcates.............................prospectus]
L/C Bank...................................................................S-13
Letters of Credit...........................................................S-4
Letters of Credit Percentage................................................S-5
Limited Guarantee...........................................................S-5
Limited Guarantee Fee.......................................................S-4
Limited Guarantee Fund......................................................S-5
Manufactured Homes..........................................................S-4
Master Servicer.............................................................S-3
[Mortgage Loan......................................................prospectus]
[Mortgage Pool......................................................prospectus]
[Multi-Class Certificates...........................................prospectus]
Obligor.....................................................................S-4
Pass-Through Rate...........................................................S-4
Performance Bond...........................................................S-11
Plan.......................................................................S-15
Pooling and Servicing Agreement............................................S-10
[Prepayment Assumption..............................................prospectus]
[Principal Weighted Class of Certificates...........................prospectus]
Rating Agency...............................................................S-6
Record Date.................................................................S-4
Regular Certificates........................................................S-7
REMIC.......................................................................S-7
</TABLE>
S-19
<PAGE>
<TABLE>
<S> <C>
Residual Certificates.......................................................S-7
Retained Yield.............................................................S-11
Servicing Agreement........................................................S-11
Servicing Fee...............................................................S-4
Single Certificate..........................................................S-3
SPA........................................................................S-14
Standby Letter of Credit....................................................S-4
Trust.......................................................................S-1
[Trust Asset........................................................prospectus]
Trust Fund..................................................................S-1
Trustee.....................................................................S-6
[Underwriter........................................................prospectus]
[Underwriting Agreement.............................................prospectus]
</TABLE>
S-20
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
Available Information.......................................................S-2
Reports to Certificateholders...............................................S-2
Summary of terms............................................................S-3
Risk Factors................................................................S-8
Description of the Certificates............................................S-10
Yield and Prepayment Considerations........................................S-14
Rating.....................................................................S-15
Certain Federal Income Tax Consequences....................................S-15
Legal Investment Considerations............................................S-15
ERISA Considerations.......................................................S-15
Underwriting...............................................................S-16
Legal matters..............................................................S-16
Use of Proceeds............................................................S-16
Index of terms.............................................................S-17
PROSPECTUS
Prospectus Supplement.........................................................2
Additional Information........................................................2
Incorporation of Certain Information by Reference.............................2
Summary of Terms..............................................................3
Risk Factors.................................................................14
The Trust Fund...............................................................16
The Depositor................................................................25
Use of Proceeds..............................................................25
Yield Considerations.........................................................26
Maturity and Prepayment Considerations.......................................27
Description of the Certificates..............................................29
Credit Support...............................................................54
Description of Insurance.....................................................58
Certain Legal Aspects of the Mortgage
Loans and Contracts........................................................64
Certain Federal Income Tax Consequences......................................74
ERISA Considerations.........................................................97
Legal Investment............................................................101
Plan of Distribution........................................................102
Legal Matters...............................................................103
Index of Terms..............................................................104
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Backed
Securities Corporation
Depositor
$________
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -
PROSPECTUS
CS FIRST BOSTON
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED ____________, 1996
- --------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
(To Prospectus dated , 19 )
- --------------------------------------------------------------------------------
$ (Approximate)
Asset Backed Securities Corporation
Depositor
Conduit Mortgage Pass-Through Certificates, Series , [Class A]
Adjustable Pass-Through Rate
[ Master Servicer ]
-------------------------------
The Conduit Mortgage Pass-Through Certificates, Series will be comprised of
Class A Certificates and [one] [two] subclass[es] [(not offered hereby)] of
Class B Certificates (collectively, the "Certificates"). The Certificates, will
represent interests in the Master Trust Fund which will hold an interest in a
pool (the "Mortgage Pool") of adjustable rate, [conventional] mortgage loans
secured by [first mortgages or deeds of trust] [liens] on [one-to-four-unit
residential properties] [cooperative loans evidenced by promissory notes secured
by a lien on shares in cooperative housing corporations and on the related
proprietary leases] (the "Mortgage Loans") [originated] [acquired] by
___________ ("Master Servicer"), and certain other property held in trust for
the benefit of the Certificateholders. [ ] will act as Master Servicer.
(Continued on next page)
See "Risk Factors" beginning on p. S-9 herein and on p.14 of the Prospectus
for a discussion of certain factors that potential investors should consider in
determining whether to invest in the Certificates.
Prospective investors should consider the limitations discussed under
"ERISA Considerations" herein and in the accompanying Prospectus.
There is currently no secondary market for the Class A Certificates. There
can be no assurance that a secondary market for the Class A Certificates will
develop or, if it does develop, that it will continue.
An election will be made to treat the assets of the Subsidiary Trust Fund
(as defined herein) as a real estate mortgage investment conduit ("REMIC") for
purposes of federal income taxation (the "Subsidiary REMIC"). An election will
also be made to treat the assets represented by the "regular interests" in the
Subsidiary REMIC constituting a separate trust fund (the "Master Trust Fund") as
a separate REMIC (the "Master REMIC"). See "Certain Federal Income Tax
Consequences" herein.
THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN ASSET
BACKED SECURITIES CORPORATION, [THE MASTER SERVICER] OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
-------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[The Certificates will initially be delivered by the Depositor to in
exchange for the Mortgage Loans to be deposited by the Depositor into the
Subsidiary Trust Fund. The Class A Certificates may be sold or pledged by ,
directly or through one or more underwriters, from time to time at varying
prices to be determined at the time of such sale or pledge.] [The Underwriter[s]
propose[s] to offer the Class A Certificates from time to time for sale in
negotiated transactions or otherwise, at prices determined at the time of sale.]
See "Plan of Distribution" herein. Expenses attributable to issuance of the
Class A Certificates, estimated to be approximately $ will be paid by
[the Master Servicer] [the Depositor]. [The Depositor] will be paid a fee by
of $ in connection with the transaction.
[The Class A Certificates are offered by the [several] Underwriter[s] when,
as and if issued and accepted by the Underwriter[s] and subject to [its] [their]
right to reject orders in whole or in part. It is expected that the Class A
Certificates, in definitive fully registered form, will be delivered to the
offices of CS First Boston, New York, New York, on or about , 199 .]
The Certificates, when, as and if issued by the Depositor, are expected to
be available for delivery in New York, New York on or about , 199 .
CS First Boston
- --------------------------------------------------------------------------------
The Date of this Prospectus Supplement is , 19 .
<PAGE>
(Continued from prior page)
The Class A Certificates will evidence an initial interest of approximately
% in the Mortgage Loans. The remaining interest in the Mortgage Loans will be
evidenced by the Class B Certificates, which are subordinate to the Certificates
to the extent described herein and in the Prospectus. See "Description of the
Certificates--Distributions" and "--Subordination of the Class B Certificates;
Shifting Interest Credit Enhancement" herein and "Credit Support--Subordinated
Certificates" in the Prospectus.
Principal and interest on the Certificates are distributable on the [25th]
day of each month (or, if such 25th day is not a business day, the next
succeeding business day) commencing (each, a "Distribution Date"). After an
initial period, the Mortgage Rate on each Mortgage Loan will adjust
[semi-annually] to a rate equal to the Index (as defined below) plus the fixed
percentage applicable to such Mortgage Loan (the "Gross Margin"), subject to the
interest rate limitations applicable to the Mortgage Loans and the other
provisions set forth herein. The Class A Certificateholders will be entitled to
receive interest on the Class A Principal Balance (as defined herein) at the
Pass-Through Rate. The Pass-Through Rate will equal the weighted average of the
Subsidiary Pass-Through Rates. The initial Pass-Through Rate is approximately
%. The Subsidiary Pass-Through Rate with respect to each Mortgage Loan
prior to its first Adjustment Date (as defined herein) will equal the Mortgage
Rate less . On and after its first Adjustment Date, the Subsidiary
Pass-Through Rate with respect to each Mortgage Loan will equal the [description
of index, e.g. monthly weighted average cost of funds for member institutions of
the 11th District of the Federal Home Loan Bank System, as published by the
Federal Home Loan Bank of San Francisco] (the "Index") plus basis points
(the "Pass-Through Margin") but not more than the lesser of the Periodic
Mortgage Rate Cap (as defined herein) less the Servicing Fee Rate, or the
Maximum Subsidiary Pass-Through Rate (as defined herein).
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS
THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
-------------------------------
[UNTIL , ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS
UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.]
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. THE UNDERWRITER MAY ALSO ACT AS AGENT IN SUCH
TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF
SALE.]
-------------------------------
S-2
<PAGE>
AVAILABLE INFORMATION
The Master Trust Fund will be subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, the Depositor, on behalf of the Master Trust Fund, will
file periodic reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports will not contain audited financial
information with respect to the Master Trust Fund. Such reports and other
information filed by the Depositor on behalf of the Master Trust Fund can be
inspected and copied at the Public Reference Room of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C., and at the Commission's
regional offices at Seven World Trade Center, Suite 1300, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained at prescribed rates
from the Public Reference Section of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of such site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Monthly and annual unaudited reports containing information concerning the
Mortgage Loans will be prepared by the Master Servicer and sent on behalf of the
Trust to each registered holder of the Certificates. See "Description of the
Certificates - Reports to Certificateholders" in the Prospectus.
S-3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. An "Index of Terms" is included at the end of this
Prospectus Supplement. Capitalized terms used in this Prospectus Supplement and
not defined shall have the meanings ascribed thereto in the Prospectus.
References to percentages of the Mortgage Loans or to the principal balance of
the Mortgage Loans in this Prospectus Supplement are to percentages (except as
otherwise indicated) by aggregate principal balance as of the Cutoff Date.
Securities Offered.................. $___________ Conduit Mortgage
Pass-Through Certificates, Series____,
[Class A,] Adjustable Pass-Through Rate
(the "Class A Certificates").
Depositor........................... Asset Backed Securities Corporation, a
Delaware corporation (the "Depositor")
Seller.............................. [ ]
Master Servicer..................... _____________, a __________ corporation
(the "Master Servicer").
Cut-off Date........................
Delivery Date....................... On or about .
Description of the
Certificates..................... Two Classes of Certificates evidencing
fractional interests in a trust fund
(the "Master Trust Fund") consisting of
the Subsidiary Regular Interests (as
defined herein) which in the aggregate
generally represent an interest in (i)
all amounts distributable with respect
to the Mortgage Loans, (ii) amounts
held in the Certificate Account, (iii)
any property which secured a Mortgage
Loan and is acquired by foreclosure or
deed in lieu of foreclosure, and (iv)
certain other related property, as more
fully described herein and in the
Prospectus. The Class A Certificates
initially evidence in the aggregate an
interest in the Mortgage Loans (the
"Class A Percentage") of approximately
%. The remaining interest in the
Mortgage Loans will be represented by
the Class B Certificates, [which will
consist of two subclasses, Class B-1
(the "Class B-1 Certificates") and
Class B-2 (the "Class B-2
Certificates"); and, collectively,] the
"Class B Certificates"). [The Class B-1
Certificates will initially evidence an
approximate % interest in the Mortgage
Loans ("the Class B-1 Percentage") and
the Class B-2 Certificates will
initially evidence an approximate ___%
interest in the Mortgage Loans (the
"Class B-2 Percentage") (collectively,]
[the "Subordinate Percentage"). The
Class B Certificates will be
subordinated in certain respects to the
Class A Certificates, as more fully
described herein. The Class A
Percentage, [and] the Class B[-1
Percentage and the Class B-2]
Percentage will vary, as described
herein.
The Class A Certificates and the Class B
Certificates are collectively referred
to herein as the "Certificates". The
Class A Certificates represent the
Senior Certificates and the Class B
Certificates represent the Subordinate
Certificates, both as described in the
accompanying Prospectus. Only the Class
A Certificates are being offered
hereby.
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
Record Date......................... [With respect to each Distribution Date,
the last business day of the month
preceding the month in which such
Distribution Date occurs.]
Distribution Date................... [The ____ day of each month, or, if such
day is not a business day, the next
succeeding business day.]
Interest Accrual Period............. [With respect to any Distribution Date,
the calendar month preceding the month
in which such Distribution Date occurs.
Interest for each Interest Accrual
Period is calculated based on a 360-day
year comprised of twelve 30-day
months.]
Collection Period................... [With respect to a Distribution Date, the
period beginning on the day after the
Due Date in the month preceding the
month in which such Distribution Date
occurs and ending on the Due Date in
the month in which such Distribution
Date occurs.]
Due Date............................ [With respect to any Distribution Date
and/or any Mortgage Loan, as the case
may be, the first day of the month in
which such Distribution Date occurs, or
if such first day is not a business
day, the business day immediately
following such first day.]
Final Scheduled
Distribution Date................. [ ]. The Final Scheduled Distribution
Date has been determined to be the
Distribution Date succeeding the latest
maturity date of any Mortgage Loan in
the Mortgage Pool.
The Index........................... [Description e.g., the monthly weighted
average cost of funds for member
institutions of the 11th District of
the Federal Home Loan Bank System as
published by the Federal Home Loan Bank
of San Francisco. The Index published
in December, 1988 (reflecting the
related weighted average cost of funds
for November 1988) was % .]
Principal (including
(Prepayments).................... Passed through monthly on the
Distribution Date commencing .
On each Distribution Date the Class A
Certificateholders are entitled to
receive as payments of principal, in
addition to the Class A Percentage of
all scheduled payments on account of
principal, the Class A Prepayment
Percentage (as defined herein) of both
principal prepayments in part and
principal prepayments in full received
by the Master Servicer with respect to
such Mortgage Loans during the
preceding calendar month ("Principal
Prepayments"). See "Description of the
Certificates --Subordination of the
Class B Certificates; Shifting Interest
Credit Enhancement" herein. The rate of
distribution of principal of the
Certificates will depend on the rate of
payment of principal of the Mortgage
Loans which, in turn, will depend on
the characteristics of the Mortgage
Loans, the level of prevailing interest
rates and other economic, geographic
and social factors. No assurance can be
given as to the actual payment
experience of the Mortgage Loans. The
Class B-2 Certificates are the
residuals and they get principal
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
Interest............................ Interest accrued on each Mortgage Loan
will be passed through to
Certificateholders on the Distribution
Date occurring in the month in which
the Due Date occurs, commencing
_______________, at the Pass-Through
Rate. The Pass-Through Rate will equal
the weighted average of the Subsidiary
Pass-Through Rates. The initial
Pass-Through Rate is equal to
approximately __% per annum. Prior to
the first Adjustment Date (as defined
below) after the Cut-off Date for each
Mortgage Loan, the Subsidiary
Pass-Through Rate with respect to such
Mortgage Loan will equal the Mortgage
Rate less ____. On and after the first
Adjustment Date for a Mortgage Loan,
the Subsidiary Pass-Through Rate with
respect to each Mortgage Loan will
equal the Index applicable to such
Mortgage Loan plus basis points (the
"Pass-Through Margin"), subject to the
limitation that the Subsidiary
Pass-Through Rate shall not exceed the
lesser of the related Periodic Mortgage
Rate Cap thereof, less the Servicing
Fee Rate or the related Maximum
Subsidiary Pass-Through Rate thereof.
The Maximum Subsidiary Pass-Through
Rates will range from __% to __% per
annum. The Maximum Subsidiary
Pass-Through Rate with respect to a
particular Mortgage Loan is equal to
the Maximum Mortgage Rate for such
Mortgage Loan minus the Servicing Fee
Rate. The weighted average Maximum
Subsidiary Pass-Through Rate as of the
Cut-off Date will be approximately __%
per annum. Following an initial period
of ___ months, during which the rate of
interest on each Mortgage Loan (the
"Mortgage Rate") is fixed, the Mortgage
Rate on each Mortgage Loan will be
adjusted [monthly] [semi-annually]
[annually] on the adjustment dates
(each such date, an "Adjustment Date")
specified in the related mortgage note
(each such note, a "Mortgage Note") to
equal the sum of the Index and a fixed
percentage amount (a "Gross Margin") [,
subject to a semi-annual periodic
mortgage rate cap (the "Periodic
Mortgage Rate Cap") and a maximum rate
at which interest may accrue (the
"Maximum Mortgage Rate"), as described
more fully herein]. Each Mortgage Loan
will have been originated with an
initial Mortgage Rate below the sum of
the applicable Index and Gross Margin
for such Mortgage Loan (the "Initial
Mortgage Rate") and __% of the Mortgage
Loans as of the Cut-off Date are
expected to be accruing interest at
their Initial Mortgage Rates.] As of
the Cut-off Date, the Mortgage Loans
will bear interest at Mortgage Rates
which range from __% to__% per annum.
The Gross Margins for the Mortgage
Loans range as of the Cut-off Date from
to __________basis points. The weighted
average Gross Margin for the Mortgage
Loans as of the Cut-off Date will be
approximately basis points. [The
Periodic Mortgage Rate Cap for each
Mortgage Loan is the Mortgage Rate in
effect immediately prior to any
Adjustment Date plus or minus ______
basis points. The Maximum Mortgage
Rates will range from __% to __% per
annum.] The weighted average Maximum
Mortgage Rate as of the Cut-off Date
will be __% per annum. See "Description
of the Mortgage Pool and the Underlying
Mortgaged Properties" herein.
When a Mortgage Loan is prepaid, in whole
or in part, between scheduled payment
dates, the Mortgagor pays interest on
the amount prepaid only to the date of
prepayment and not thereafter. This
generally reduces the aggregate amount
of interest which would otherwise be
distributed to the Class A and Class B
Certificateholders. To mitigate any
such reduction in yield, [amounts
otherwise payable as the Servicing Fee
(as defined herein) for the period
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
during which any such Principal
Prepayment was made will be reduced by]
[to the extent funds that interest on
the Mortgage Loans exceeds the
Subsidiary Pass- Through Rate less the
Servicing Fee Rate for the period
during which any such prepayment is
made, the Pooling and Servicing
Agreement provides that] such amount,
if any, as may be necessary to assure
that the distributions made to the
Class A and Class B Certificateholders
on the related Distribution Date
include an amount equal to a full
month's interest with respect to each
prepaid Mortgage Loan at the applicable
Subsidiary Pass-Through Rate will be
paid to the Master Trust Fund. See
"Description of the Certificates--
Distributions" herein.
The Mortgage Loans.................. The Mortgage Pool will consist of
adjustable rate, [conventional]
mortgage loans [originated] [acquired]
by [the Master Servicer] and secured by
[first mortgages or deeds of trust] on
[one- to four-family residential
properties.] All Mortgage Loans will
have maturities of at least 15 but no
more than 30 years and are secured by
properties located in ___________. [All
Mortgage Loans with a Loan-to- Value
Ratio greater than 80% will have
private mortgage insurance.] See
"Description of the Mortgage Pool and
Underlying Mortgage Properties" herein.
Certain Risk Factors................ For a discussion of certain risk factors
that should be considered in connection
with an investment in the Certificates,
including those relating to [describe
risk factors specific to transaction],
see "Risk Factors" herein.
Subordination of the Class B
Certificates; Shifting Interest
Credit Enhancement................ The rights of the Class B
Certificateholders to receive
distributions with respect to the
Mortgage Loans are subordinated to such
rights of the Class A
Certificateholders to the extent of the
Subordinated Amount described below.
This subordination feature is intended
to enhance the likelihood of regular
receipt by the holders of the Class A
Certificates of the full amount of the
scheduled monthly payments of principal
and interest due them with respect to
the Mortgage Loans and to protect the
Class A Certificateholders against
losses.
As of each Determination Date, the
Subordinated Amount will equal the
Class B Principal Balance (as defined
herein) on such date reduced by the
excess of Aggregate Losses (as defined
herein) over cumulative Realized Losses
(as defined herein) borne by the Class
B Certificateholders as of such date,
if any. This subordination feature is
intended to enhance the likelihood of
regular receipt by the holders of the
Class A Certificates of the full amount
of the scheduled monthly payments of
principal and interest due them with
respect to the Mortgage Loans and to
protect the Class A Certificateholders
against losses. However, in certain
circumstances, the Subordinated Amount
could be depleted and payment
deficiencies could result. If, on any
Distribution Date when the Subordinated
Amount is greater than zero, the
aggregate amount of payments received
from the Mortgagors on the Mortgage
Loans and any Advances (as defined
herein) do not provide sufficient funds
to make full distributions to the Class
A Certificateholders, the amount of the
payment deficiency, plus interest
thereon at the applicable Subsidiary
Pass-Through Rate, to the extent of the
Subordinated Amount, will be added to
the amount
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
such Class A Certificateholders are
entitled to receive on the next
Distribution Date. The extent to which
the Class A Certificateholders and the
Class B Certificateholders bear
Realized Losses, and, in addition,
Special Hazard Realized Losses, is
described herein. See "Description of
the Certificates--Subordination of the
Class B Certificates; Shifting Interest
Credit Enhancement" herein.
The protection afforded to the holders of
the Class A Certificates will be
effected (i) by the preferential right
of such holders to receive the amounts
of principal and interest otherwise
distributable to the Class B
Certificateholders on each Distribution
Date with respect to the Mortgage Loans
out of available funds on deposit on
such date in the Certificate Account,
and (ii) by distributing to the Class A
Certificateholders a disproportionately
greater percentage (the "Class A
Prepayment Percentage") of Principal
Prepayments (as hereinafter defined)
and other payments with respect to the
Mortgage Loans. The Class A Prepayment
Percentage will decline from 100% after
_________________ provided certain
criteria respecting the Mortgage Pool
are met. See "Description of the
Certificates--Subordination of the
Class B Certificates; Shifting Interest
Credit Enhancement" herein.
Servicing Fee....................... ____________________ will act as Master
Servicer of the Mortgage Loans [and
will enter into a Servicing Agreement
on the Delivery Date pursuant to which
will subservice the Mortgage Loans].
will receive a servicing fee
(the "Servicing Fee") as compensation
for its services which is calculated
monthly and equals a fixed percentage
on the principal balance of each
Mortgage Loan (the "Servicing Fee
Rate"). The Servicing Fee Rate equals
basis points. See "Description of the
Mortgage Pool and Underlying Mortgaged
Properties--Servicing and
Sub-Servicing" and "Description of the
Certificates--Servicing Compensation
and Payment of Expenses" herein.
Advances............................ The Master Servicer will be obligated to
advance cash (the "Advances") to the
Subsidiary Trust Fund for distribution
in an amount equal to delinquent
installments of principal and interest
to the extent that the Master Servicer
determines such Advances will be
recoverable from future payments and
collections on the Mortgage Loans or
otherwise. See "Description of the
Certificates--Advances" in the
Prospectus.
Denominations....................... The minimum denomination of a Class A
Certificate (a "Single Certificate")
will initially represent $ of the
Cut-off Date Principal Balance,
provided that one Certificate may be
issued in such lesser amount as is
required so that the Class A
Certificateholders in the aggregate
equal the Class A Principal Balance (as
defined herein).
Optional Termination................
The holder of the Subsidiary Residual
Interest (as defined below) has the
option to purchase all of the Mortgage
Loans in the Subsidiary Trust Fund, and
thereby effect termination of the
Subsidiary Trust Fund and the Master
Trust Fund, on any Distribution Date on
which the aggregate principal balance
of the Mortgage Loans remaining in the
Subsidiary Trust Fund is less than % of
the Cut-off Date Principal Balance.
Additionally, subject to the foregoing
limitation, the holder of the Class
B[-2] Certificate has the option to
purchase all the Subsidiary Regular
Interests (as defined herein) in the
Master Trust
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
Fund. Either of the above purchases
would effect early retirement of the
Class A and Class B Certificates. See
"Description of the
Certificates--Optional Termination"
herein and "Description of the
Certificates--Termination" in the
Prospectus.
Trustee............................. (the "Trustee").
See "Description of the Certificates -
The Trustee" herein.
Certificate Rating.................. It is a condition of issuance that the
Class A Certificates 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 by the assigning rating
organization. A security rating does
not address the frequency of
prepayments or the possibility that
Certificateholders might suffer a lower
than anticipated yield. A security
rating also does not represent any
assessment of the yield to maturity
that investors may experience. See
"Risk Factors" herein and in the
Prospectus, "Rating" herein, "Yield and
Prepayment Considerations" herein and
"Yield Considerations" in the
Prospectus.
Legal Investment.................... The Class A Certificates constitute
"mortgage-related securities" for
purposes of the Secondary Mortgage
Market Enhancement Act of 1984 (the
"Enhancement Act") for so long as they
are rated as described herein, and, as
such, are legal investments for certain
entities to the extent provided in the
Enhancement Act. See "Legal Investment"
herein and in the Prospectus.
ERISA Considerations................ See "ERISA Considerations" herein and in
the Prospectus.
Tax Aspects......................... An election will be made to treat the
assets of the Subsidiary Trust Fund as
a REMIC (the "Subsidiary REMIC") for
federal income tax purposes. The [list
Subsidiary Regular interests] (the
"Subsidiary Regular Interests") will be
regular interests in the Subsidiary
REMIC and the [name class] will be
designated as the residual interests
(the "Subsidiary Residual Interest") in
the Subsidiary REMIC. The Subsidiary
Regular Interests will be the assets of
the Master Trust Fund and an election
will be made to treat such assets of
the Master Trust Fund as a REMIC (the
"Master REMIC"). The Class A
Certificates [and Class B-1
Certificates] will be regular interests
in the Master REMIC. The Class B[-2]
Certificate will be designated as the
residual interest in the Master REMIC.
[The Certificates other than the [Class
B[-2] Certificate] (the "Regular
Certificates") will be treated as
regular interests in the REMIC and
generally will be treated as debt
instruments issued by the REMIC for
federal income tax purposes. Certain
Classes of the Regular Certificates may
be issued with original issue discount.
The prepayment assumption that will be
used in determining the rate of accrual
of any original issue discount on the
Regular Certificates for federal income
tax purposes (and whether such original
issue discount is de minimis), and that
may be used by a holder of a Regular
Certificate to amortize premium, will
be [ ]% of the Prepayment Assumption.
No representation is made that the
Mortgage Loans will prepay at such rate
or at any other rate. [The holder of
the Class B[-2] Certificate will be
subject to special federal income tax
rules that may significantly reduce the
after-tax yield of such Certificate.
Further, significant restrictions apply
to the transfer
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
of the Class B[-2] Certificate.] See
"Certain Federal Income Tax
Consequences" [herein and] in the
Prospectus.]
- --------------------------------------------------------------------------------
S-10
<PAGE>
RISK FACTORS
General
The rate of distributions in reduction of the principal balance of any
Subclass or Class of Certificates, the aggregate amount of distributions of
principal and interest on any Subclass or Class of Certificates and the yield to
maturity of any Subclass or Class of Certificates will be directly related to
the rate of payments of principal on the Mortgage Loans in the Subsidiary Trust
Fund and the amount and timing of Mortgagor defaults resulting in Realized
Losses. The rate of principal payments on the Mortgage Loans will, in turn, be
affected by the amortization schedules of the Mortgage Loans, the rate of
principal prepayments (including partial prepayments and those resulting from
refinancing) thereon by Mortgagors, liquidations of defaulted Mortgage Loans,
repurchases by the Depositor, the Master Servicer or any Unaffiliated Seller of
Mortgage Loans as a result of certain breaches of representations and warranties
and optional purchase by the holder of the Subsidiary Residual Interest of all
of the Mortgage Loans or Subsidiary Regular Interests in connection with the
termination of the Subsidiary Trust Fund and the Master Trust Fund. See
"Description of the Certificates - Termination; Repurchase of Mortgage Loans"
herein and "The Trust Fund-Mortgage Loan Program-Representations by Unaffiliated
Sellers; Repurchases" and "Description of the Certificates-Assignment of
Mortgage Loans; and - Termination" in the Prospectus. Mortgagors are permitted
to prepay the Mortgage Loans, in whole or in part, at any time without penalty.
The rate of payments (including prepayments) on pools of mortgage loans is
influenced by a variety of economic, geographic, social and other factors. If
prevailing rates for similar mortgage loans fall below the Mortgage Rates on the
Mortgage Loans, the rate of prepayment would generally be expected to increase.
Conversely, if interest rates on similar mortgage loans rise above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment would generally be expected
to decrease.
An investor that purchases any Certificates at a discount should consider
the risk that a slower than anticipated rate of principal payments on the
Mortgage Loans will result in an actual yield that is lower than such investor's
expected yield. An investor that purchases any Certificates at a premium should
consider the risk that a faster than anticipated rate of principal payments on
the Mortgage Loans will result in an actual yield that is lower than such
investor's expected yield.
[Additional risk factors will be added, as appropriate, including, without
limitation, (i) if an Interest Weighted Class of Certificates or a Principal
Weighted Class of Certificates is being offered, a discussion of the risks
associated with such Class, including any disproportionate share of credit or
prepayment risks that such Class will bear, (ii) a discussion of the
concentration of credit risk, if any, with respect to the Mortgage Loans due to,
among other things (w) a concentration of Mortgage Loans originated by one or a
few dealers, (x) a single mortgagor or lessee or cross-default,
cross-collateralization or similar provisions, (y) a concentration of properties
with brief or financially troubled operating histories or (z) a concentration of
properties within a state (or region of a state) and (iii) a discussion of the
basis risk associated with a Class of Certificate.]
S-11
<PAGE>
DESCRIPTION OF THE MORTGAGE POOL
AND THE UNDERLYING MORTGAGED PROPERTIES(1)
General
The Mortgage Pool consists of all of the ownership interest held by the
Subsidiary Trust Fund in Mortgage Loans evidenced by adjustable rate promissory
notes (the "Mortgage Notes") having an aggregate principal balance at the
Cut-off Date of $_______________ . The Mortgage Notes are secured by first trust
deeds or mortgages on properties consisting primarily of detached single family
residential properties with the remaining properties consisting of units of FNMA
or FHLMC eligible condominiums and units in planned unit developments (the
"Mortgaged Properties"). All of the Mortgage Loans were originated by
_________________-. All of the Mortgage Loans were originated under one of two
origination programs, one of which is a limited documentation program that
relies primarily upon appraisals and credit reports and the other of which
generally conform to FNMA and FHLMC underwriting guidelines. The Mortgage Loans
have the additional characteristics described below and in the Prospectus. See
"The Mortgage Pools" in the Prospectus.
The Depositor will purchase the Mortgage Loans from __________ and will
cause such Mortgage Loans to be assigned to the Trustee. See "The Trust
Fund--Mortgage Loan Program" in the Prospectus. _________________ will act as
the master servicer (the "Master Servicer") for the Mortgage Loans pursuant to
the Standard Terms and Provisions of Pooling and Servicing and Reference
Agreement, dated as of (the "Pooling and Servicing Agreement"), among the
Depositor, the Master Servicer and __________________, as trustee (the
"Trustee"). The Mortgage Loans will be serviced by the Servicer pursuant to a
Servicing Agreement with the Master Servicer, and the Servicer will receive a
fee for such services specified in such Servicing Agreement; provided, however,
that the Master Servicer will remain liable for its servicing obligations under
the Pooling and Servicing Agreement as if the Master Servicer alone were
servicing such Mortgage Loans. See "The Trust Fund--The Mortgage Pools" in the
Prospectus and "--Servicing and Sub-Servicing" herein.
Each Mortgage Loan has a Mortgage Rate subject to [monthly]
[semi-annual] [annual] adjustment on the first day of the month specified in the
related Mortgage Note and on the first day of every month thereafter (each such
date, an "Adjustment Date"), equal to the sum of (i) the Index as most recently
[made available by the Federal Home Loan Bank of San Francisco (the "FHLB")] on
the day days, as specified for the particular Mortgage Note, prior to the
Adjustment Date and (ii) the applicable Gross Margin[; provided, however, that
any increase or decrease on any Adjustment Date will be limited by the Periodic
Mortgage Rate Cap, and in no-event will the Mortgage Rate be greater than the
Maximum Mortgage Rate]. The Index applicable on a Rate Adjustment Date is the
Index available days prior to the Adjustment Date. Effective with the first
payment due on a Mortgage Loan after each related Adjustment Date, the monthly
payment will be adjusted to an amount which will fully amortize the outstanding
principal balance of the Mortgage Loan in substantially equal payments over its
remaining term, and pay interest at the Mortgage Rate as so
- --------
(1) The description in this Prospectus Supplement of the Mortgage Pool and the
Mortgaged Properties is based upon the Mortgage Pool as it was constituted
at the close of business on the Cut-off Date, after deducting the scheduled
principal payments due on or before such date. Prior to the issuance of the
Certificates, Mortgage Loans may be removed from the Mortgage Pool if, as a
result of delinquencies or otherwise, the Depositor deems such removal
necessary or desirable. Other Mortgage Loans may be included in the
Mortgage Pool in lieu of the Mortgage Loans so replaced. In addition, under
certain circumstances the Depositor or the Master Servicer may substitute
Mortgage Loans for those in the Subsidiary Trust Fund. See "Description of
the Certificates--Substitution of Mortgage Loans" herein and "Description
of the Certificates-- Assignment of Mortgage Loans" in the Prospectus. The
Depositor believes that the information set forth herein with respect to
the Mortgage Pool is representative of the characteristics of such Mortgage
Pool as it will be constituted at the time the Certificates are issued,
although the range Mortgage Rates and maturities and certain other
characteristics of the Mortgage Loans in the Mortgage Pool may vary in
non-material respects from those set forth herein as a result of such
deletions, repurchases or substitutions.
S-12
<PAGE>
adjusted. [All] of the Mortgage Loans were originated with a Mortgage Rate below
the sum of the applicable Index and Gross Margin (the "Initial Mortgage Rate")
applicable for an initial period of months from the date of origination and __%
of the Mortgage Loans as of the Cut-off Date will bear interest at their Initial
Mortgage Rates. The weighted average number of months from the Cut-off Date to
the first Adjustment Date for the Mortgage Loans is approximately __ months.
[Due to the application of the Periodic Mortgage Rate Caps (even assuming no
increase in the applicable Index from the date of origination to the Adjustment
Date) or the Maximum Mortgage Rate, the Mortgage Rate on any Mortgage Loan, as
adjusted on any Adjustment Date, may be less than the sum of the then applicable
Index and Gross Margin, subject to rounding.] If the Index becomes unpublished
or is otherwise unavailable, the Master Servicer will select (or cause to be
selected) an alternative index for Mortgage Loans based upon comparable
information in compliance with applicable federal laws.
The Mortgage Loans were originated in _________________. All of the
Mortgage Loans will have [monthly] payments due on [the first day of each month]
(each a "Due Date"). At origination, of the Mortgage Loans had terms to stated
maturity of 30 years. The latest date on which any Mortgage Loan will mature is
__________________. All Mortgage Loans had Periodic Mortgage Rate Caps equal to
basis points. The Maximum Mortgage Rates range from __% to __% and the weighted
average Maximum Mortgage Rate is approximately __% as of the Cut-off Date.
[Mortgage Loans that are expected to constitute approximately __% of the
Initial Principal Balance of the Mortgage Pool as of the Cut-off Date will have
Mortgage Rates that will be convertible from an adjustable to a fixed Mortgage
Rate at the option of the mortgagor upon certain conditions on the [when
convertible] after origination of the related Mortgage Loan. In determining the
fixed rate applicable to a Mortgage Loan eligible for conversion, the Master
Servicer, acting on behalf of the Trustee, will _______________. To the extent
the applicable rate is not available, the Master Servicer will quote a fixed
rate based upon comparable information. In order to be eligible to convert the
applicable Mortgage Rate on such a Mortgage Loan from an adjustable to a fixed
Mortgage Rate, the mortgagor must complete and submit to the Master Servicer
certain conversion documents and a loan modification agreement, pay the
applicable conversion fee and not be in default under the Mortgage Note or the
security documents related to such Mortgage Loan. Upon conversion, the monthly
payments of principal and interest on such Mortgage Loan will be adjusted to
provide for fully amortizing, level monthly payments until maturity. [Should
interest rates decline so that the fixed Mortgage Rate applicable upon
conversion is significantly lower than the prevailing adjustable Mortgage Rate,
due to the application of Interest Rate Caps, or is significantly lower than the
applicable Maximum Mortgage Rate on such Mortgage Loan, mortgagors may have a
significant incentive to effect a conversion.] See "Description of the
Certificates--Purchase of Converted Mortgage Loans" herein.
The Mortgage Loans have the following characteristics (information provided
as of the Cut-off Date unless otherwise indicated): *
- --------
* The information presented in tabular form may be presented in paragraph
form, or ranges for such information may be provided.
S-13
<PAGE>
TYPES OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
Property Types Loans Balances Balance
- ------------------------------------------------------------------------ --------------- ---------------- -------------
<S> <C> <C> <C>
Single family detached.................................................. $ . %
Condominium.............................................................
Planned Unit Developments...............................................
Total........................................................ $ 100.00%
=============== ================ ======
</TABLE>
CURRENT LOAN AMOUNTS(1)
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
Current Loan Amounts Loans Balances Balance
- ------------------------------------------------------------------------ --------------- ---------------- -------------
<S> <C> <C> <C>
Up to $100,000.......................................................... $ . %
$100,001-150,000........................................................
150,001-200,000.........................................................
200,001-250,000.........................................................
250,001-300,000.........................................................
300,001-350,000.........................................................
350,001-400,000.........................................................
400,001-450,000.........................................................
Over $450,001...........................................................
Total(2)..................................................... $ 100.00%
=============== ================ ======
</TABLE>
- ---------------------
(1) The largest current loan amount is $________________ and the smallest
current loan amount is $_______________.
(2) The average outstanding principal balance is $__________________________ .
S-14
<PAGE>
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
Loan-to-Value Ratios Loans Balances Balance
- ------------------------------------------------------------------------ --------------- ---------------- -------------
<C> <C> <C> <C>
70.00% or less.......................................................... $ . %
70.01% to 75.00%........................................................
75.01% to 80.00%........................................................
80.01% to 85.00%........................................................
85.01% to 90.00%........................................................
Total(1).......................................................... $ 100.00%
=============== ================ ======
</TABLE>
- ---------------------
(1) The weighted average loan-to-value ratios of the Mortgage Loans, based on
the principal amount at origination and the principal amount as of the
Cut-off Date, respectively, and the lesser of the appraised value at
origination and the purchase price paid by the Mortgagor, was __% and __%,
respectively.
CURRENT MORTGAGE RATES
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
Mortgage Rates(1) Loans Balances Balance
- --------------------------------------------------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
. % or less........................................................ $ . %
. % or less........................................................
. % or less........................................................
. % or less........................................................
Total(2)............................................................. 100.00%
============== ============== ======
</TABLE>
- ---------------
(1) With respect to ___% of the Mortgage Pool Balance, the Mortgage Rate is the
original Mortgage Rate and does not reflect application of the Index.
(2) The weighted average Mortgage Rate is approximately ___% per annum.
S-15
<PAGE>
MORTGAGE LOAN GROSS MARGINS
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
Gross Margins Loans Balances Balance
- ------------------------------------------------------------------------ --------------- ---------------- -------------
<S> <C> <C> <C>
%.................................................................. $ . %
.................................................................
.................................................................
.................................................................
.................................................................
Total(1).......................................................... $ 100.00%
=============== ================ ======
</TABLE>
- ---------------------
(1) The weighted average Gross Margin is approximately per annum.
MONTH IN WHICH NEXT ADJUSTMENT DATE FALLS
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
Month(1) Loans Balances Balance
- ------------------------------------------------------------------------ --------------- ---------------- -------------
<S> <C> <C> <C>
................................................................. $ . %
.................................................................
.................................................................
.................................................................
.................................................................
Total(2).......................................................... $ 100.00%
=============== ================ ======
</TABLE>
- ---------------------
(1) The adjusted Mortgage Rate will be reflected in payments received by
Certificateholders on the 25th day of the month following the month in
which the Adjustment Date occurs.
(2) The weighted average number of months to the initial Adjustment Date is
______ months.
S-16
<PAGE>
LIFETIME MORTGAGE RATE CAPS
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
Lifetime Mortgage Rate Cap Loans Balances Balance
- ------------------------------------------------------------------------ --------------- ---------------- -------------
<S> <C> <C> <C>
%................................................................... $ . %
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
.................................................................
Total............................................................. $ 100.00%
=============== ================ ======
</TABLE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
Month(1) Loans Balances Balance
- ------------------------------------------------------------------------ --------------- ---------------- -------------
<S> <C> <C> <C>
% ................................................................. $ . %
.................................................................
.................................................................
.................................................................
.................................................................
Total............................................................. $ 100.00%
=============== ================ ======
</TABLE>
S-17
<PAGE>
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
States Loans Balances Balance
- ------------------------------------------------------------------------ --------------- ---------------- -------------
<S> <C> <C> <C>
% ................................................................. $ . %
.................................................................
.................................................................
.................................................................
.................................................................
Total............................................................. $ 100.00%
=============== ================ ======
</TABLE>
[Mortgage Loans for which the loan-to-value ratio at origination was
greater than 80% either (1) will be insured as to payment default for the amount
in excess of 75% of the principal balance by a Primary Mortgage Insurance Policy
until the principal balance of such Mortgage Loan is reduced below 80% of the
lesser of the appraised value at origination or the purchase price of the
Mortgaged Property, or (2) will be covered by a [DESCRIPTION OF ALTERNATIVE].]
Approximately ___% of the Mortgage Loans were made to refinance the related
Mortgaged Properties and approximately ___% of the Mortgage Loans have been made
to purchase the related Mortgaged Properties. Approximately ___% of the Mortgage
Loans will be secured by Mortgaged Properties represented to the originator in
the related loan application to be the primary residence of the mortgagor at the
time of origination. ___% of the Mortgage Loans are secured by Mortgaged
Properties which were second homes of the mortgagor at the time of origination
based on representations of the Mortgagor. ___% of the Mortgage Loans were made
to finance the purchase of homes represented by the mortgagor to have been
acquired for investment purposes.
At the date of issuance of the Certificates, no Mortgage Loan will be
delinquent in scheduled payments of principal and interest by more than 30 days
and no Mortgage Loan will have been, as of the Cut-off Date, more than 30 days
delinquent in scheduled payments of principal and interest more than once in the
previous year.
The Index
[DESCRIPTION OF APPLICABLE INDEX, e.g., The Index is currently published by
the FHLB on or about the last working day of each month and is designed to
represent the monthly weighted average cost of funds for savings institutions in
the 11th District of the Federal Home Loan Bank System (Arizona, California and
Nevada) for the month prior to publication. The Index is computed by the FHLB
for each month by dividing the cost of funds (interest paid during the month by
11th District savings institutions on savings, advances and other borrowings) by
the average of the total amount of those funds outstanding at the end of the
month and the prior month and annualizing and adjusting the result to reflect
the actual number of days in the particular month. If necessary, before these
calculations are made, the component figures are adjusted by the FHLB to
neutralize the effect of events such as member institutions leaving the 11th
District or acquiring institutions outside the 11th District. The Index has been
reported each month since August 1981.]
[The Index reflects the interest costs paid on all types of funds held by
11th District member institutions. The Index is weighted to reflect the relative
amount of each type of funds held at the end of the relevant month. There are
three major components of funds of 11th District institutions: (1) savings
deposits, (2) FHLB advances, and (3) all other borrowings, such as reverse
repurchase agreements and mortgage-backed bonds. Unlike most other interest rate
measures, the Index does not necessarily reflect current market rates, since the
component funds represent a variety of maturities whose costs may react in
different ways to changing conditions.]
S-18
<PAGE>
[A number of factors affect the performance of the Index which may cause
the Index to move in a manner different from indices tied to specific interest
rates, such as United States Treasury Bills or LIBOR. Because of the various
maturities of the liabilities upon which the Index is based, the Index may not
necessarily reflect the average prevailing market interest rates on new
liabilities of similar maturities. Additionally, the Index may not necessarily
move in the same direction as market interest rates at all times, since as
longer term deposits or borrowings mature and are renewed at prevailing market
interest rates, the Index is influenced by the differential between the prior
and the new rates on those deposits or borrowings. Moreover, as stated above,
the Index is designed to represent the average cost of funds for 11th District
savings institutions for the month prior to the month in which the Index is
published. In addition, such movement of the Index, as compared to other indices
tied to specific interest rates, may be affected by changes instituted by the
FHLB in the method used to calculate the Index. Information Bulletins announcing
the Index may be obtained by contacting the FHLB.]
[The following table sets forth the Index published in each month (with
respect to the 11th District cost of funds in the prior month) for the four most
recent calendar years and for 1988.
<TABLE>
<CAPTION>
19 19 19 19 19
-------------------- -------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C>
January........................... % % % % %
February..........................
March.............................
April.............................
May...............................
June..............................
July..............................
August............................
September.........................
October...........................
November..........................
December..........................
</TABLE>
[Master Servicer]
_____________________ is a ________, which was founded in
_________________. At _____________ had consolidated assets of $________ billion
and regulatory capital of $__________ million. As of ____________________, had
executive offices in __________ and _________ savings branches located
_______________.
_____________ is subject to comprehensive regulation, examination and
supervision by the [FHLBB and the FSLIC,] which regulation is intended primarily
for the benefit of depositors. [Deposits at ____________ are insured by the
FSLIC up to $100,000 for each insured account holder, the maximum permitted by
law.]
__________________ executive offices are located at __________ and its
telephone number at that address is ____________.
Loan Portfolio. [Description]
Loan Transactions. ___________________ primary lending __________________
is [description]. ______________ has concentrated efforts on __________.
S-19
<PAGE>
The following table sets forth certain information with respect to loan
originations, loan purchases and sales, and repayment experience during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------- ----------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Loans receivable at beginning of period...........................
Loans originated..................................................
Loans purchased...................................................
Loans obtained in Equitable acquisition...........................
Loans sold........................................................
Loan repayments...................................................
Other.............................................................
---------------- ----------------- -----------------
Net loan activity.................................................
---------------- ----------------- -----------------
Loan receivable at end of period..................................
================ ================= =================
</TABLE>
Loan Underwriting. has adopted written, nondiscriminatory underwriting
standards for use in originating and purchasing residential mortgage loans. has
represented to the Depositor that its underwriting standards are in substantial
conformity with standards set up by the FNMA and the FHLMC, which conformity
facilitates sales of such loans in the secondary market. A detailed loan
application is obtained or reviewed to determine the borrower's ability to
repay, and confirmation of the more significant information is obtained through
the use of credit reports, financial statements and verifications. An appraisal
of the property, conducted by an appraiser meeting the qualifications set forth
in FHLBB guidelines, is required to determine the adequacy of the collateral.
_____________ also requires that a survey be conducted and title insurance be
obtained, insuring the priority of its mortgage lien, and, for loans with a
loan-to-value ratio of 80% or more, that private mortgage insurance be obtained
if available. All loan applications must be reviewed by underwriters to ensure
that guidelines are met. Such guidelines are approved by _________________ Board
of Directors. _____________has represented to the Depositor that each Mortgage
Loan meets the credit, appraisal and underwriting standards established by and
described above.
[Approximately ____________% of the Mortgage Loans were originated under
the limited documentation program of . has represented that each of the Mortgage
Loans originated under a limited documentation program satisfies the standards
established and followed by for originating and acquiring mortgage loans under
its limited documentation program. Under the program, does not evaluate the
borrower's assets-to-liabilities ratio, but did verify the borrower's income and
availability of funds for down payment, and relies primarily on a credit report
on the borrower (which is required to be favorable) and at least one appraisal
as evidence of the value of the property securing the loan. The limited
documentation program was not available for loans secured by condominiums and
was available only for owner-occupied primary residences. Under such program,
loan-to-value ratios were limited to ___% for loans under $__________________
and to _____% for loans under $_________, except that for loans in certain
locations and having certain characteristics, lower maximum loan-to-value ratios
were established.
Loan Portfolio Qualify. In accordance with the requirements of the
Competitive Equality Banking Act of 1987 (the "CEBA"), the FHLBB in December
1987 adopted amendments to its classification of assets regulation. Prior to
December 1987, to monitor an insured institution's asset quality the FHLBB
defined certain assets of savings institutions as scheduled items and
established certain operating restrictions based upon ratios relating to such
assets. The regulation as amended eliminates entirely the "scheduled items"
classification, but retains the existing classification categories of
substandard, doubtful and loss, while altering the effects of the respective
classifications with respect to valuation allowance requirements and minimum
regulatory capital requirements. Specific loss reserves are no longer
S-20
<PAGE>
required for assets classified as doubtful and institutions are required to
charge off or set aside loss reserves for 100% of the amount of any asset, or
portion of an asset, classified as a loss. The amended regulation requires
institutions to classify their own assets and to establish prudent general
allowances for loan losses, subject to examiner review. Greater examiner
discretion, consistent with the asset classification practices of the banking
regulatory agencies, is permitted by the amended regulation. The amended
regulation also requires institutions to establish loss reserves for
off-balance-sheet items when loss becomes probable and estimable.
One measure of an institution's asset quality is the level of
non-performing loans in its portfolio. Non-performing loans consist of (i)
non-accrual loans, (ii) loans that are 90 or more days contractually past due as
to interest or principal but that are well-secured and in the process of
collection or renewal in the normal course of business, and (iii) loans that
have been renegotiated to provide a deferral of interest or principal because of
a deterioration in the financial condition of the borrower ("restructured
loans"). generally places conventional mortgage loans on non-accrual
status when more than 90 days past due. Where the underlying collateral is a
"home" (as defined in the Rules and Regulations for the Federal Home Loan Bank
System), the loan is placed on non-accrual status when the amount of interest
receivable plus all loan balances secured by the home exceeds 90% of the
appraised value of the security property, provided there is a reasonable
expectation of interest collection.
The following table sets forth information regarding the non-performing
loans as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
19 19 19
---------------------- ----------------------- ----------
(In Thousands)
<S> <C> <C> <C>
Non-accrual loans................................................. $ $ $
Accruing loans 90 days or more past due...........................
Restructured loans................................................
</TABLE>
Loan Servicing. The following table sets forth the dollar amounts of
conventional mortgage loans serviced by for itself and other lenders at the
dates indicated.
<TABLE>
<CAPTION>
At December 31,
19 19 19
---------------------- ----------------------- ----------
(In Thousands)
<S> <C> <C> <C>
Conventional mortgage loans.......................................
</TABLE>
Loss and Delinquency Experience. The following table sets forth the
delinquency and foreclosure experience of residential conventional mortgage
loans in the mortgage loan portfolio serviced by and other entities at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
19 19 19 19
------------------------ ----------------------- ---------------------- -----------------
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
of of Total of of Total of of Total of of Total
Loans Loans Loans Loans Loans Loans Loans Loans
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
Conventional mortgage loans delinquent for:
<S> <C> <C> <C> <C>
60-89 days............................. $ $ $ $
90 days and over.......................
In foreclosure.........................
Total............................ $ $ $ $
</TABLE>
S-21
<PAGE>
The allowance for loan losses is maintained at an amount management deems
adequate to cover estimated losses. In determining the level to be maintained,
management considers factors such as current economic trends in specific
geographic areas, historical loss experience, borrowers' ability to repay and
repayment performance and estimated collateral values, as well as considerations
such as the availability of indemnifications, mortgage insurance and
seller-provided recourse.
The statistics shown above represent the loss experience for the total
conventional mortgage loan portfolio (including residential and commercial
loans) for each of the periods presented, whereas the aggregate loss experience
on the Mortgage Loans will depend on the results obtained over the life of the
Mortgage Pool.
[With respect to Mortgage Loans which are secured by Multifamily
Properties, specify (i) whether such loans provide for interest only periods and
whether the principal amounts of such loans are amortized on the basis of a
period of time that extends beyond the related maturity dates thereof and (ii)
any materially different underwriting standards standards for such loans.]
[With respect to Multi-Class Certificates, specify the method of
determining the Asset Value of each Trust Asset.]
Servicing [and Sub-Servicing]
The Mortgage Loans will be serviced in accordance with procedures as
described generally in the accompanying Prospectus under the heading
"Description of the Certificates--Servicing by Unaffiliated Sellers."
[____________, as Master Servicer, will enter into a Servicing Agreement with
(the "Servicer") pursuant to which the Servicer will sub-service the Mortgage
Loans. ___________________ acquired the Mortgage Loans from the Servicer. The
Servicer has serviced the Mortgage Loans since their origination. The Servicing
Agreement can be terminated without cause, but in such event or a successor
master servicer would be required to pay a fee to the Servicer or sell the
Servicer's interest in the Servicing Agreement in an auction proceeding upon
termination. may determine to terminate the Servicer and to service the Mortgage
Loans itself or through other sub-servicers who may be affiliates of
_________________________.]
[The Servicing Agreement provides for servicing compensation equal to a
rate of basis points per annum on the outstanding principal balance of the
Mortgage Pool. In addition, the Servicer is entitled to retain certain late
payment fees, assumption fees and conversion fees related to the Mortgage Loans.
The Servicing Agreement does not require the Servicer to make Advances or to pay
any amount from its servicing compensation with respect to interest on Principal
Prepayments on Mortgage Loans.]
Except as described below, when any Mortgaged Property is conveyed by the
Mortgagor, the Master Servicer generally will enforce, and will cause any
Servicer to enforce, any due-on-sale clause contained in the Mortgage Loan, to
the extent permitted under applicable law and governmental regulations.
Acceleration of Mortgage Loans as a result of enforcement of such due-on-sale
provisions in connection with transfers of the related Mortgaged Properties will
affect the level of prepayments on the Mortgage Loans, thereby affecting the
weighted average life of the related Class A Certificates. See "Maturity and
Prepayment Considerations" in the Prospectus.
All of the Mortgage Loans include a rider to the Mortgage providing that
assumption of the remaining unpaid principal balance of the Mortgage Loan will
be permitted if the borrower provides information required to evaluate the
creditworthiness of the proposed transferee and the transferee is determined to
be creditworthy. In connection with such assumption, a reasonable fee may be
charged as a condition to the loan assumption and any such fee collected in
connection with a Mortgage Loan in the Subsidiary Trust Fund will be retained by
________________ [or the Servicer]. The assumption of Mortgage Loans by buyers
of the related Mortgaged Properties may also affect the level of prepayments on
the Mortgage Loans, thereby affecting the weighted average life of the Class A
Certificates.
S-22
<PAGE>
Insurance
A Standard Hazard Insurance Policy will be maintained with respect to each
Mortgage Loan in an amount equal to the maximum insurable value of the
improvements securing such Mortgage Loan or the principal balance of such
Mortgage Loan, whichever is less. See "Description of Insurance--Standard Hazard
Insurance Policies" in the Prospectus. [No Mortgage Pool Insurance Policy,
Special Hazard Insurance Policy or Mortgagor Bankruptcy Insurance will be
maintained with respect to the Mortgage Pool, nor will any Mortgage Loan
included in the Mortgage Pool be subject to FHA Insurance or a VA Guaranty.]
DESCRIPTION OF THE CERTIFICATES
General
The Certificates offered hereby will be issued pursuant to the Pooling and
Servicing Agreement, a form of which has been filed as an exhibit to the
Registration Statement. Reference is made to the Prospectus for additional
information regarding the terms and conditions of the Pooling and Servicing
Agreement. The following summaries do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, the provisions of the
Pooling and Servicing Agreement. When particular provisions or terms used in the
Pooling and Servicing Agreement are referred to, the actual provisions
(including definitions of terms) are incorporated by reference.
The Class A Certificates will be transferable and exchangeable at the
office of the Trustee located at . No service charge will be made for any
registration of transfer or exchange of the Class A Certificates on the
Certificate Register maintained by the Trustee, but the Trustee may require the
payment of a sum sufficient to cover any related tax or other governmental
charge. There is at present no market for the Class A Certificates and there can
be no assurance that a secondary market will develop or that if it does develop,
it will continue. Fluctuating market interest rates may affect the market value
of the Class A Certificates.
Distributions
Distributions of principal and interest on the Certificates will be made on
the [25th] day of each month, or, if such day is not a Business Day, the next
succeeding Business Day (each a "Distribution Date"), beginning _____________,
to the persons in whose names the Certificates are registered at the close of
business on the last day of the month preceding the month in which payment is
made (the "Record Date"). Certain calculations with respect to the Certificates
will be made on the [15th] day of each month, or if such day is not a Business
Day, the next succeeding Business Day (the "Determination Date").
Principal received on each Mortgage Loan will be passed through monthly as
described below on the Distribution Date occurring in the month in which the Due
Date occurs. Principal prepayments received during the period from the first day
of any month to the last day of such month (a "Prepayment Period") will be
passed through on the Distribution Date occurring in the month following
receipt. When a Mortgage Loan is prepaid, in whole or in part, between scheduled
payment dates, the Mortgagor pays interest on the amount prepaid only to the
date of prepayment and not thereafter. [The Master Servicer is not required to
pay any part of its servicing compensation to assure that distributions made to
Certificateholders on the related Distribution Date include an amount equal to
one full month's interest at the applicable Subsidiary Pass-Through Rate.]
Interest received by the Subsidiary Trust Fund on each Mortgage Loan will
be passed through monthly on the Distribution Date occurring in the month in
which the Due Date occurs, at the Subsidiary Pass-Through Rate for such Mortgage
Loan. The Pass-Through Rate with respect to each Distribution Date will equal
the weighted average of the Subsidiary Pass-Through Rates for the Mortgage Loans
[weighted on the basis of the principal balances thereof as of the Due Date
occurring in the month prior to the month in which such Distribution Date occurs
(after application of amounts due on such Due Date)]. Prior to the first
Adjustment Date with respect to each Mortgage Loan that occurs
S-23
<PAGE>
after the Cut-off Date, the Subsidiary Pass-Through Rate for such Mortgage Loan
will equal the Initial Mortgage Rate less . Thereafter, the Subsidiary
Pass-Through Rate with respect to each Mortgage Loan will equal the Index
applicable to each Mortgage Loan plus basis points (the "Pass-Through Margin")
subject to the limitation that the Subsidiary Pass-Through Rate shall not exceed
the lesser of the Periodic Mortgage Rate Cap thereof less the Servicing Fee Rate
and the Maximum Subsidiary Pass-Through Rate thereof. The Maximum Subsidiary
Pass-Through Rate with respect to a Mortgage Loan shall equal the Maximum
Mortgage Rate for such Mortgage Loan minus the Servicing Fee Rate. The Master
Servicer will receive a servicing fee (the "Servicing Fee") as compensation for
the servicing of each Mortgage Loan which is calculated monthly and equals a
fixed percentage of the principal balance of the Mortgage Loan (the "Servicing
Fee Rate"). [Prior to the first Adjustment Date with respect to a Mortgage Loan
that occurs after the Cut-off Date, the Servicing Fee Rate will be basis points
for such Mortgage Loan. Subsequent to the first Adjustment Date with respect to
a Mortgage Loan that occurs after the Cut-off Date, the Servicing Fee Rate shall
equal basis points. See "Description of the Mortgage Pool and the Underlying
Mortgaged Properties" above and "Servicing Compensation and Payment of Expenses"
below. The amount of interest on each Mortgage Loan available to be distributed
on each Distribution Date may be expected to change, among other reasons, as the
Mortgage Rate and the Subsidiary Pass-Through Rate vary with the Index and as
the Mortgage Rate reaches the Periodic Mortgage Rate Cap and the Maximum
Mortgage Rate (which will not be the same for all Mortgage Loans).
The Master Servicer will deposit in the Certificate Account the payments
and collections described in "Description of the Certificates--Payments on
Mortgage Loans" in the Prospectus.
On each Distribution Date, the amount required to be distributed to the
Class A Certificateholders will equal the lesser of the Class A Distribution
Amount and the Master Trust Fund Aggregate Distribution.
The "Class A Distribution Amount" means generally, as of any Distribution
Date, an amount equal to the sum of: (a) one month's interest at the
Pass-Through Rate on the Class A Certificate Principal Balance as of such
Distribution Date; (b) the outstanding balance of all previously due and unpaid
Interest Shortfalls (as defined below) owed to the Class A Certificateholders
with accrued interest thereon at the Pass-Through Rate; (c) the outstanding
balance of all previously due and unpaid Principal Shortfalls (as defined below)
owed to the Class A Certificateholders; (d) the Class A Percentage of each
scheduled payment of principal due on the preceding Due Date on the Mortgage
Loans; (e) the Class A Prepayment Percentage of any Principal Prepayments
received during the related Prepayment Period on the Mortgage Loans; (f) with
respect to Mortgage Loans which became Liquidated Loans during the related
Prepayment Period, the Class A Percentage of the aggregate principal balance of
such Mortgage Loans, net of certain related unreimbursed advances with respect
thereto; (g) the Class A Percentage of any insurance proceeds received during
the related Prepayment Period, net of certain related unreimbursed advances with
respect thereto; and (h) with respect to Mortgage Loans purchased by the Master
Servicer pursuant to the Pooling and Servicing Agreement during the related
Prepayment Period, the Class A Percentage of the aggregate principal Balances of
such Mortgage Loans, net of certain related unreimbursed advances with respect
thereto.
At any time when the Subordinated Amount is equal to zero, the amount
calculated under clauses (a) through (h) above shall not include any amount in
respect of Monthly Payments due on Mortgage Loans which were not actually
received (but shall include payments from funds attributable to advances by the
Master Servicer).
The "Master Trust Fund Aggregate Distribution" shall mean, on any
Distribution Date, the sum of all amounts distributed with respect to the
Subsidiary Regular Interests, as described below.
On each Distribution Date the aggregate amount required to be distributed
to the holders of the Subsidiary Regular Interests is equal to the lesser of (x)
the Subsidiary Trust Fund Regular Distribution and (y) the sum of (i) one
month's interest at the Subsidiary Pass-Through Rate on the principal balance of
each Mortgage Loan, (ii) each payment of the principal due on the related Due
Date on each Mortgage Loan, (iii) any delinquent Mortgagor payment of principal
and interest on such Mortgage Loan received prior to the related Determination
Date, after adjustment of the interest portion of such payment to the related
Subsidiary Pass-Through Rate and deduction of unreimbursed advances by the
Master Servicer with respect to the preceding delinquent payment, (iv) for each
Mortgage Loan which was the subject of a Principal Prepayment during the related
Prepayment Period, the amount of such Principal Prepayment, (v)
S-24
<PAGE>
for each Mortgage Loan which became a Liquidated Loan during the related
Prepayment Period, the principal balance of such Mortgage Loan, net of certain
unreimbursed advances by the Master Servicer, (vi) with respect to any Mortgage
Loan purchased by the Master Servicer pursuant to the Agreement, the principal
balance of such Mortgage Loan net of certain unreimbursed advances by the Master
Servicer, and (vii) amounts representing insurance proceeds with respect to a
Mortgage Loan.
The "Subsidiary Trust Fund Regular Distribution" means, generally, as of
any Distribution Date, an amount equal to the amount on deposit in the
Certificate Account as of the close of business on the related Determination
Date except: (a) amounts received on particular Mortgage Loans as late payments
or other recoveries of principal or interest (including Liquidation Proceeds,
insurance proceeds, and condemnation awards) and respecting which the Master
Servicer previously made an unreimbursed Advance of such amounts; (b) amounts
representing reimbursement for certain losses and expenses incurred by the
Master Servicer, as described in the Pooling and Servicing Agreement; (c) all
amounts representing scheduled monthly payments due after the immediately
preceding Due Date; (d) all Principal Prepayments (and interest thereon),
Liquidation Proceeds, insurance proceeds, condemnation awards and repurchase
proceeds received after the related Prepayment Period, including payments of
interest representing interest accrued after the last day of the related Due
Period; (e) all income from Eligible Investments held in the Certificate Account
for the account of the Master Servicer; and (f) certain amounts distributable to
the holder of the Subsidiary Residual Interest pursuant to the Pooling and
Servicing Agreement.
The "Class A Certificate Principal Balance" on any Distribution Date will
equal the portion of the unpaid principal balance of the Mortgage Loans
evidenced by the Class A Certificates as of the Cut-off Date (the "Initial Class
A Certificate Principal Balance") less the sum of payments or recoveries of, or
with respect to, principal of the Mortgage Loans previously distributed to the
Class A Certificateholders and any Realized Losses (as defined below) including,
subject to certain limitations, Special Hazard Realized Losses (as defined
below) previously allocated to the Class A Certificates. The Initial Class A
Certificate Principal Balance is expected to be approximately $ . See
"--Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement" herein.
The "Class B Principal Balance" on any Distribution Date will equal the
Scheduled Principal Balance (as defined below) of the Mortgage Loans minus the
Class A Certificate Principal Balance.
The "Scheduled Principal Balance" of the Mortgage Loans as of the time of
any determination will equal the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, after application of any scheduled principal
payments due on or before the Cut-off Date, whether or not received, reduced by
the principal portion of all scheduled payments of principal and interest due on
or before the date of determination, whether or not received, and by all
Principal Prepayments distributed to Certificateholders on or before the date of
determination, and further reduced by Realized Losses (as defined below) with
respect to the Mortgage Loans that have been allocated to one or more classes of
Certificates on or before the date of determination.
The "Class A Percentage" shall mean, as to any Distribution Date, the
lesser of 100% and the percentage obtained by dividing the Class A Certificate
Principal Balance by the Scheduled Principal Balance. The "Class A Prepayment
Percentage" shall initially be 100% and shall decline thereafter as provided
under "Subordination of the Class B Certificates; Shifting Interest Credit
Enhancement".
"Interest Shortfall" shall mean, as to any Distribution Date, any excess of
the amount computed pursuant to clause (a) of the term "Class A Distribution
Amount" over the amount of interest distributed to the Class A
Certificateholders on such Distribution Date. "Principal Shortfall" shall mean,
as to any Distribution Date the excess of the sum of the amounts computed
pursuant to clauses (a) through (h) of the term "Class A Distribution Amount"
over the amounts distributed to the Class A Certificateholders (the
"Shortfall"), less the related Interest Shortfall.
All distributions will be made by or on behalf of the Trustee to the
persons in whose names the Certificates are registered at the close of business
on each Record Date, which will be the last Business Day of the month preceding
the month in which the related Distribution Date occurs. Such distributions
shall be made either (i) by check mailed to the address of each
Certificateholder as it appears in the Certificate Register or (ii) to any
holder of Certificates having an
S-25
<PAGE>
initial principal balance in excess of $5,000,000, by wire transfer in
immediately available funds to the account of such Certificateholder specified
in writing to the Trustee.
[On the sixth day of any month or the next succeeding Business Day, the
Master Servicer or the Trustee will provide upon request the Class A Certificate
Principal Balance after giving effect to monthly payments due on the immediately
preceding Due Date.]
Subordination of The Class B Certificates;
Shifting Interest Credit Enhancement
The rights of the Class B Certificateholders to receive certain
distributions with respect to the Mortgage Loans are subordinate to such rights
of the Class A Certificateholders to the extent of the Subordinated Amount. As
of each Determination Date, the Subordinated Amount will equal the Class B
Principal Balance on such date, reduced by the excess, if any, of Aggregate
Losses over cumulative Realized Losses borne by the Class B Certificateholders.
Realized Losses shall not be allocated to the Class A Certificates until
after such time as the allocation of such Realized Losses to the Class B
Certificates has reduced the Class B Principal Balance to zero. At such time,
Realized Losses shall be allocated to the Class A Certificates, pro rata among
such Certificates in proportion to their outstanding Class A Certificate
Principal Balances immediately prior to the relevant Distribution Date.
[Notwithstanding the above, Special Hazard Realized Losses shall be allocated
first to the Class B Certificates only until such time as Special Hazard
Realized Losses equal the Special Hazard Subordination Amount, which will be __%
of the Cut-off Date Principal Balance. Thereafter, Special Hazard Realized
Losses shall be allocated to the Class A Certificates and the Class B
Certificates, pro rata among such Certificates in proportion to their
outstanding Principal Balances immediately prior to the relevant Distribution
Date.] Any allocation of Realized Losses (or Special Hazard Realized Losses) to
a Class A Certificate or a Class B Certificate on a Distribution Date shall be
made by reducing the Principal Balance thereof by the amount so allocated, which
allocation shall be deemed to have occurred on such Distribution Date. [Any
allocation to the Class B Certificates of a Realized Loss or a Special Hazard
Realized Loss prior to reducing the Special Hazard Subordination Amount to zero
shall have the effect of increasing the Class A Percentage of future payments of
principal on the Mortgage Loans and thereby decreasing the Subordinate
Percentage of such payments of principal.]
"Realized Loss" is defined in the Pooling and Servicing Agreement (i) with
respect to any Liquidated Loan, as the excess of the outstanding principal
balance of such Liquidated Loan over the Liquidation Proceeds, if any, received
in connection with such Liquidated Loan, after application of all withdrawals
permitted to be made by the Master Servicer pursuant to the Pooling and
Servicing Agreement, (ii) with respect to any Mortgage Loan which has become
subject to a valuation by a court of competent jurisdiction of the Mortgaged
Property in an amount less than the then outstanding indebtedness under the
Mortgage Loan, which valuation results from a proceeding under the United States
Bankruptcy Code, as amended from time to time (11 U.S.C.) (a "Deficient
Valuation"), as the excess of the outstanding principal balance of such Mortgage
Loan over the principal amount as reduced in the Deficient Valuation, or (iii)
with respect to any Mortgage Loan purchased by the Master Servicer or the
Depositor pursuant to the Pooling and Servicing Agreement, as the excess, if
any, of 100% of the principal balance of such Mortgage Loan, together with
accrued and unpaid interest at the applicable Subsidiary Pass-Through Rate to
the first day of the month following the month of such purchase, giving effect
to the amount of any unreimbursed Advances made by the Master Servicer with
respect to such Mortgage Loan, over the purchase price for such Mortgage Loan as
the same may be reduced pursuant to an Opinion of Counsel to prevent such amount
from being taxed to the Trust Fund as a "prohibited transaction", as defined in
Section 860F(a)(2) of the Code. Realized losses may result from, among other
things, Special Hazard Realized Losses. ["Special Hazard Realized Loss" means
with respect to any Mortgage Loan finally liquidated in connection with any
physical damage not covered under a Standard Hazard Insurance Policy or a flood
insurance policy, other than normal wear and tear or other circumstances set
forth in the Pooling and Servicing Agreement an amount equal to the unpaid
principal balance of the Mortgage Loan as of the date of such liquidation,
together with interest at the applicable Mortgage Rate, less the applicable
Servicing Fee, from the Due Date as to which interest was last paid to the Due
Date next succeeding such liquidation, less the proceeds, if any, received in
connection with such liquidation after application of all withdrawals from the
Certificate Account by the Master Servicer permitted pursuant to the Pooling and
Servicing
S-26
<PAGE>
Agreement.]
"Liquidated Loan" means a Mortgage Loan which, as of the close of business
on the Business Day next preceding the Due Date, has been liquidated through
deed in lieu of foreclosure, sale in foreclosure, trustee's sale or other
realization as provided by applicable law of real property subject to the
related Mortgage and any security agreements or with respect to which payment
under related private mortgage insurance or hazard insurance and/or from any
public or governmental authority on account of a taking or condemnation of any
such property has been received.
The protection afforded to the Class A Certificateholders will be effected
by the preferential right of the Class A Certificateholders to receive the
amount of principal and interest otherwise available for distribution to the
Class B Certificateholders on each Distribution Date out of available funds on
deposit in the distribution account for the Master Trust Fund and by
distributing to the Class A Certificateholders a disproportionately greater
percentage of Principal Prepayments received by the Master Trust Fund from the
Certificate Account, to the extent described herein (the "Class A Prepayment
Percentage"). This disproportionate distribution will have the effect of
accelerating the amortization of the Class A Certificates while increasing the
respective interest in the Mortgage Loan evidenced by the Class B Certificates.
Increasing the respective interest of the Class B Certificates relative to that
of the Class A Certificates is intended to preserve the availability of the
subordination provided by the Class B Certificates.
The Class A Prepayment Percentage for any Distribution Date occurring
before or in _______________ will, except as provided below, equal 100%. The
Class A Prepayment Percentage for any Distribution Date occurring subsequent to
________________ will be determined as follows: (a) for any Distribution Date
occurring subsequent to _______ and before or in _________________, the Class A
Prepayment Percentage will equal the Class A Percentage plus ____% of the
Subordinate Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
_____________. _________________, as of which the Step-down Criteria are
satisfied, the Class A Prepayment Percentage will be 100%; (b) for any
Distribution Date occurring subsequent to and before or in ________________, the
Class A Prepayment Percentage will equal the Class A Percentage plus ___% of the
Subordinate Percentage for such Distribution Date, except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
___________________ as of which the Step-down Criteria are satisfied, the Class
A Prepayment Percentage will be the Class A Prepayment Percentage in effect in
______; (c) for any Distribution Date occurring subsequent to and before or in
________________, the Class A Prepayment Percentage will equal the Class A
Percentage plus ___% of the Subordinate Percentage for such Distribution Date,
except that prior to the Distribution Date next succeeding the first
Distribution Date, if any, after _________________________ as of which the
Step-down Criteria are satisfied, the Class A Prepayment Percentage will be the
Class A Prepayment Percentage in effect in _____________; (d) for any
Distribution Date occurring subsequent to ______________________ and before or
in _______________, the Class A Prepayment Percentage will equal the Class A
Percentage plus __% of the Subordinated Percentage for such Distribution Date,
except that prior to the Distribution Date next succeeding the first
Distribution Date, if any, after _______________ as of which the Step-down
Criteria are satisfied, the Class A Prepayment Percentage will be the Class A
Prepayment Percentage in effect in ____________; and (e) for any Distribution
Date occurring subsequent to , the Class A Prepayment Percentage will equal the
Class A Percentage as of such Distribution Date except that prior to the
Distribution Date next succeeding the first Distribution Date, if any, after
_________ as of which the Step-down Criteria are satisfied, the Class A
Prepayment Percentage will be the Class A Prepayment Percentage in effect in
___________. The foregoing is subject to the following: (i) if on any
Distribution Date the distribution of all Principal Prepayments received in the
prior month to the holders of the Class A Certificates would reduce the
outstanding Class A Certificate Principal Balance below zero, the Class A
Prepayment Percentage for such Distribution Date will be limited to the
percentage necessary to reduce the Class A Principal Certificate Balance to zero
and thereafter the Class A Percentage shall be zero; and (ii) if the Class A
Percentage on any Distribution Date is greater than the initial Class A
Percentage, the Class A Prepayment Percentage for such Distribution Date shall
be 100%.
The Step-down Criteria shall be met as of any Distribution Date in the 12
months commencing subsequent to February of the year specified in the table
below provided that as of such Distribution Date (a) no more than one time
during the preceding months have the principal balances of outstanding Mortgage
Loans days or more delinquent (including loans in foreclosure and the book value
of owned real estate) exceeded ____% of the Scheduled Principal Balance at such
time, and (b) cumulative Advances deemed to be nonrecoverable as a percentage of
the principal amount of the Class B Certificates as of the Cut-off Date (the
"Subordinated Amount") do not exceed the amounts in the following table:
S-27
<PAGE>
<TABLE>
<CAPTION>
Cumulative
Non-Recoverable
Advances as a
Percentage of the
Year Subordinated Amount
- ----------------------------------------------------------------------------- ----------------------
<S> <C>
......................................................................
......................................................................
......................................................................
......................................................................
......................................................................
or thereafter................................................................
</TABLE>
The definition of "Step-down Criteria" may be amended by the
Depositor and the Trustee, with prior written notice of such amendment to the
Rating Agency, in a manner that will not result in the lowering or withdrawal of
the then current rating of the Class A Certificates. Such amendment shall not
require the consent of any Certificateholder.
[Purchase of Converted Mortgage Loans
The Pooling and Servicing Agreement provides that _____ is obligated to
purchase from the Subsidiary Trust Fund any Converted Mortgage Loan in the month
following the month in which the related Mortgagor exercises the conversion
option, for a price equal to the lesser of (a) 100% of the unpaid principal
balance of such Mortgage Loan, and (b) the Subsidiary Trust Fund's adjusted
federal income tax basis on the date such Mortgage Loan is to be purchased, in
each case plus accrued interest, if any, at the applicable Subsidiary
Pass-Through Rate in effect immediately prior to such conversion to the last day
of the month in which such Mortgage Loan became a Converted Mortgage Loan, net
of the applicable amounts due to the Master Servicer with respect to that
Mortgage Loan. _____________ will be obligated to deposit the amount of the
purchase price in the Certificate Account for distribution on the Distribution
Date in the month following the month of such conversion.
In the event ______________ defaults upon its obligation to repurchase any
Converted Mortgage Loan, the Trustee may attempt to sell the Mortgage Loan for
the price which was to be paid by the Master Servicer. A Converted Mortgage Loan
will remain in the Trust as a Mortgage Loan with a fixed Mortgage Rate unless
and until purchased by the Master Servicer or otherwise sold in accordance with
the Pooling and Servicing Agreement. So long as ____________ serves as Master
Servicer, the failure of the Master Servicer to repurchase a Converted Mortgage
Loan, after notice, is an Event of Default under the Pooling and Servicing
Agreement. The Trustee and a successor master servicer under the Pooling and
Servicing Agreement will not have any obligation to purchase any Converted
Mortgage Loan.]
Servicing Compensation and Payment of Expenses
The Servicing Fee payable to the Master Servicer will be payable out of
each interest payment on a Mortgage Loan and will be an adjustable amount equal
to one month's interest (or in the case of any payment of interest which
accompanies a Principal Prepayment made by the Mortgagor, interest for the
number of days covered by such payment of interest) at the applicable Servicing
Fee Rate on the principal balance of such Mortgage Loan. The Servicing Fee Rate
is not the same for each Mortgage Loan. The Servicing Fee Rate is basis points.
The Master Servicer will be permitted to retain or withdraw from the Certificate
Account, in respect of each interest payment received on a Mortgage Loan, the
Servicing Fee with respect to such Mortgage Loan, calculated on the basis of the
same principal amount and period respecting which the interest payment is
computed. In addition, _____________________ , as holder of the Subsidiary
Residual Interest Certificate, will receive an amount equal to (i) with respect
to each Mortgage Loan, the principal balance of such Mortgage Loan times the
difference, if any, between the Mortgage Rate (net of the Servicing Fee) and the
Subsidiary Pass-Through Rate, [less such amount as may be necessary to assure
that the distributions made to the Subsidiary Regular Certificateholder on the
related Distribution Date include an amount equal to one full month's interest
at the applicable Subsidiary Pass-Through Rate], and (ii) gains, if any, arising
from sale of Mortgaged Property acquired as a
S-28
<PAGE>
result of foreclosure in respect of a Mortgage Loan or arising from a repurchase
pursuant to an optional termination. See "Certain Federal Income Tax
Consequences" in the Prospectus. See "Description of the Certificates--Servicing
Compensation and Payment of Expenses" in the Prospectus for information
regarding other possible compensation to the Master Servicer.
The Master Servicer will pay all expenses incurred in connection with its
responsibilities under the Pooling and Servicing Agreement (subject to limited
reimbursement as described in the Prospectus), including, without limitation,
any amounts payable to the Servicer or any other sub-servicer, the fees and
expenses of the Trustee and the other various items of expense enumerated in the
Prospectus.
[Adjustment to Servicing Fee in Connection with Prepaid Mortgage Loans
When a Mortgage Loan is prepaid, in whole or in part, between schedule
payment dates, the Mortgagor pays interest on the amount prepaid only to the
date of prepayment and not thereafter. As a result, the aggregate amount of
interest which would otherwise be distributed to Certificateholders may be
reduced. To mitigate this reduction in yield, the Pooling and Servicing
Agreement provides that with respect to any such Principal Prepayment, the
Servicing Fee otherwise payable to the Master Servicer will be reduced in such
amount, if any, as may be necessary to assure that the distributions made to
Certificateholders on the related Distribution Date include an amount equal to
one full month's interest at the applicable Subsidiary Pass-Through Rate for
such Mortgage Loan. Thus, so long as there are sufficient funds otherwise
payable from the Servicing Fee on each Distribution Date, Certificateholders
will always receive a full month's interest with respect to any such principal
prepayments. See "Distributions" above.]
The Trustee
_____________, a ____________________ banking association, will act as
Trustee for the Certificates pursuant to the Pooling and Servicing Agreement.
The Trustee's principal executive offices are located at ___________, and its
telephone number is ( )_________.
Repurchase or Substitution of Mortgage Loans
Under certain circumstances, the Master Servicer may be required to
repurchase one or more Mortgage Loans from the Subsidiary Trust Fund. Generally,
the repurchase obligation arises when the documentation with respect to a
Mortgage Loan is discovered to be materially defective or when a breach of a
representation or warranty is discovered, which breach materially and adversely
affects the interests of Certificateholders. See "Description of the
Certificates-Assignment of Mortgage Loans" in the Prospectus.
In the event of a repurchase of a Mortgage Loan, the repurchase price would
be equal to the sum of the outstanding principal balance of such Mortgage Loan
on the date of repurchase plus interest accrued thereon at the Subsidiary
Pass-Through Rate to the first day of the month following the month in which
such repurchase is effected; provided, however, that if such repurchase at the
price so determined would result in net income to the Subsidiary Trust Fund or
the Master Trust Fund or the Master Trust Fund that would be subject to tax as
income derived from a "prohibited transaction," as defined in Section 860F(a)(2)
of the Code, or would otherwise subject the Subsidiary Trust Fund or the Master
Trust Fund to tax, then, notwithstanding the foregoing, the repurchase price for
such Mortgage Loan shall be the maximum amount such that the repurchase would
not result in such tax, as evidenced by an Opinion of Counsel, in form and
substance satisfactory to the Trustee, which shall be delivered in the event of
any such reduction.
Within a period of three months, or in the case of a "defective obligation"
within the meaning of Section 860(G)(a)(4)(B) of the Code, within two years from
the Delivery Date of the Certificates, the Depositor or the Master Servicer may,
instead of repurchasing a Mortgage Loan required to be repurchased pursuant to
the Pooling and Servicing Agreement, deliver a mortgage loan (a "Replacement
Mortgage Loan") in substitution for any Mortgage Loan that would otherwise have
been repurchased (a "Deleted Mortgage Loan"). Generally, the repurchase
obligation arises
S-29
<PAGE>
when the documentation with respect to a Mortgage Loan is discovered to be
materially defective or when a breach of a representation or warranty is
discovered, which breach materially and adversely affects the interests of
Certificateholders. See "Description of the Certificates--Assignment of Mortgage
Loans" in the Prospectus.
To the extent that the Depositor or the Master Servicer, as the case may
be, elects to deliver a Replacement Mortgage Loan for a Mortgage Loan it would
otherwise be obligated to repurchase, such Replacement Mortgage Loan must, on
the date of such substitution: (a) have an outstanding principal balance, after
deduction of payments due in the month of substitution, not in excess of the
principal balance of the Deleted Mortgage Loan; (b) have a Maximum Mortgage Rate
no lower than (and not more than 1% per annum higher than) the Maximum Mortgage
Rate of the Deleted Mortgage Loan; (c) have the same Index, Gross Margin,
Periodic Mortgage Rate Cap and frequency of Adjustment Dates as those of the
Deleted Mortgage Loan; (d) be accruing interest at a rate no lower than and have
the same Payment Adjustment Date as the Payment Adjustment Date of the Deleted
Mortgage Loan; (e) have a Loan-to-Value Ratio no higher than that of the Deleted
Mortgage Loan; (f) have a term to maturity no greater than (and not more than
one year less than) that of the Deleted Mortgage Loan; and (g) comply with each
representation and warranty with respect to Mortgage Loans in the Pooling and
Servicing Agreement. Upon any such substitution, the Depositor or the Master
Servicer, as the case may be, will deliver the Mortgage File relating to the
Replacement Mortgage Loan to the Trustee and the Trustee will release the
Deleted Mortgage Loan (or any property acquired in respect thereof) from the
Subsidiary Trust Fund.
For any month in which a Replacement Mortgage Loan is substituted for any
Deleted Mortgage Loan, the Master Servicer will determine the amount, if any, by
which the aggregate principal balance of all such Replacement Mortgage Loans as
of the date of substitution is less than the aggregate principal balance of all
such Deleted Mortgage Loans (after application of the scheduled principal
portion of the monthly payments due in such month). The amount of any such
shortage shall be deposited by the Depositor or the Master Servicer, as the case
may be, from its own funds into the Certificate Account in the month of
substitution, without any reimbursement therefor, and will be distributed to
Certificateholders on the Distribution Date in the month following such
substitution. See "Description of the Certificates--Distributions on
Certificates" in the Prospectus.
Voting Rights
At any time that any Class A Certificates or Class B Certificates are
outstanding, the voting rights of a Class A Certificate or Class B Certificate
are obtained by dividing the then outstanding principal balance of such
Certificate by the aggregate principal balances at such time of all the Class A
Certificates and Class B Certificates.
[Optional Termination
The Pooling and Servicing Agreement provides that the holder of the
Subsidiary Residual Interest Certificate, at its option, may purchase from the
Subsidiary Trust Fund all Mortgage Loans remaining in the Mortgage Pool and all
property acquired in respect of a Mortgage Loan, provided that the aggregate
unpaid balance of the Mortgage Loans at the time of any such repurchase is less
than ____% of the Cut-off Date Principal Balance. Additionally, subject to the
foregoing limitation, the holder of the Class B[-2] Certificate, at its option,
may purchase from the Master Trust Fund all Subsidiary Regular Interests
remaining in the Master Trust Fund and all other property in such Trust Fund,
provided that the Subsidiary Regular Interests at the time of any such
repurchase represent interests in less than % of the Cut-off Date Principal
Balance of the Mortgage Loans. The purchase price for any such repurchase will
be 100% of the unpaid principal balance of each Mortgage Loan or Subsidiary
Regular Interest, as the case may be, together with accrued and unpaid interest
with respect to each Mortgage Loan through the last day of the month of such
repurchase. Any property acquired in respect of a Mortgage Loan and remaining in
the applicable Trust Fund at the time such optional termination is effected will
be purchased at its appraised value. Either of the above purchases would thereby
effect early retirement of the Class A Certificates.]
S-30
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
Yield Considerations
The effective yield to holders of the Class A Certificates will depend
upon, among other things, the price at which the Class A Certificates are
purchased and the amount and rate at which principal, including both scheduled
and unscheduled payments thereof, is paid to Class A Certificateholders.
The rate of principal payments on the Class A Certificates, the aggregate
amount of each monthly interest payment on the Class A Certificates and the
yield to maturity of the Class A Certificates will be directly related to the
rate of payments of principal on the Mortgage Loans. Principal payments on the
Mortgage Loans may be in the form of scheduled principal payments or prepayments
(for this purpose, the term "prepayment" includes payments resulting from
optional prepayments by the Mortgagors, refinancings, liquidation of the
Mortgage Loans due to defaults, casualties, condemnations or the like and
repurchases by the Depositor or the Master Servicer, as the case may be). Any
such prepayments will result in distributions to Certificateholders of amounts
which would otherwise be distributed over the remaining term of the Mortgage
Loans. In general, the prepayment rate may be influenced by a number of
economic, geographic, social and other factors, including general economic
conditions and homeowner mobility. Other factors affecting prepayment of
mortgage loans include changes in Mortgagors' housing needs, job transfers,
unemployment, Mortgagors' net equity in the mortgaged properties and servicing
decisions.
The Mortgage Loans may be prepaid by the Mortgagors at any time without
payment of any prepayment fee or penalty. As described herein under "Description
of the Certificates--Subordination of the Class B Certificates; Shifting
Interest Credit Enhancement", all or a disproportionately large percentage of
principal prepayments on the Mortgage Loans will be distributed to the holders
of the Class A Certificates during at least the first fourteen years after the
Cut-off Date. In general, defaults on Mortgage Loans are expected to occur with
greater frequency in their early years, although little data is available with
respect to the rate of default on adjustable rate Mortgage loans. Increases in
the monthly payments on the Mortgage Loans in excess of those assumed in
underwriting such Mortgage Loans may result in a default rate higher than that
on conventional mortgage loans with fixed mortgage rates. Prepayments,
liquidations and purchases of the Mortgage Loans will result in distributions to
Certificateholders of amounts which would otherwise be distributed over the
remaining terms of the Mortgage Loans. Since the rate of payment of principal on
the Mortgage Loans will depend on future events and a variety of factors (as
described more fully herein and in the Prospectus under "Yield Considerations"
and "Maturity and Prepayment Considerations"), no assurance can be given as to
such rate or the rate of principal prepayments.
[Mortgage Loans that are expected to constitute approximately % of the
initial aggregate principal balance of the Mortgage Loans as of the Cut-off Date
will provide that the Mortgagor may, during a specified period of time, convert
the adjustable rate of the related Mortgage Loan to a fixed rate. The conversion
option may be exercised during periods of rising interest rates as Mortgagors
attempt to limit their risk of higher rates. If Mortgagors were to exercise
their conversion rights in such an interest rate environment, a purchase of the
Mortgage Loan by the Master Servicer would have the same effect on
Certificateholders as a prepayment at a time when prepayments generally would
not be expected. The availability of fixed rate mortgage loans at competitive
interest rates during periods of falling interest rates may also encourage
Mortgagors to exercise the conversion option. The convertible ARM loan is a
relatively new type of mortgage loan, so there can be no certainty as to the
rate at which conversions will take place or as to the rate of prepayments in
stable or changing interest rate environments. The Master Servicer is obligated
to purchase Converted Mortgage Loans. Consequently, the exercise of the
conversion option by Mortgagors will generally result in prepayment of principal
with respect to the Mortgage Pool.]
[The rate at which Mortgagors exercise their conversion rights and the
resulting purchase of Converted Mortgage Loans by the Master Servicer will
affect the rate of payment of principal, and hence the effective yield on the
Class A Certificates. The purchase price paid will be passed through to the
Certificateholders as principal in the month following the month of such
purchase. The effective yield on the Class A Certificates also will be affected
by the failure of the Master Servicer to purchase Converted Mortgage Loans and
the resulting retention of fixed rate Mortgage Loans in the Mortgage Pool. See
"Description of the Certificates--Purchase of Converted Mortgage Loans" herein.]
S-31
<PAGE>
The timing of changes in the rate of prepayments on the Mortgage Loans may
significantly affect an investor's actual yield to maturity, even if the average
rate of principal payments experienced over time is consistent with an
investor's expectations. In general, the earlier a prepayment of principal on
the Mortgage Loans, the greater will be the effect on the investor's yield to
maturity. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of the Certificates would
not be fully offset by a subsequent like reduction (or increase) in the rate of
principal payments.
All of the Mortgage Loans comprising the Mortgage Pool are adjustable rate
mortgage loans. The yield to maturity of the Class A Certificates will be
affected by the Mortgage Rates on the Mortgage Loans as they adjust from time to
time. The Depositor is not aware of any publicly available statistics relating
to the principal prepayment experience of adjustable rate mortgage loans over an
extended period of time, and the Depositor's experience with respect to
adjustable rate mortgage loans is insufficient to draw any conclusions with
respect to the expected prepayment rates on the Mortgage Loans comprising the
Mortgage Pool. The rate of payments (including prepayments) on adjustable rate
mortgage loans has fluctuated in recent years. As is the case with conventional
fixed-rate mortgage loans, adjustable rate mortgage loans may be subject to a
greater rate of principal prepayments in a declining interest rate environment.
For example, if prevailing mortgage rates fell significantly below the then
current Mortgage Rates on the Mortgage Loans or significantly below the Maximum
Mortgage Rates on the Mortgage Loans, the rate of prepayment would be expected
to increase due to the availability of fixed-rate mortgage loans at competitive
interest rates, which may encourage Mortgagors to refinance the Mortgage Loans
in order to obtain a lower fixed interest rate. Conversely, if prevailing
mortgage rates rose significantly above the then current Mortgage Rates on the
Mortgage Loans, the rate of prepayment on the Mortgage Loans would be expected
to decrease.
[The Mortgage Rates on the Mortgage Loans will adjust [semi-annually]
(although not on the same Adjustment Dates) and such semi-annual increases and
decreases in the Mortgage Rates on the Mortgage Loans will be limited by the
Periodic Mortgage Rate Cap and Maximum Mortgage Rates applicable to the Mortgage
Loans. In addition, such Mortgage Rates will be based on the Index (which may
not rise and fall consistently with interest rates on other types of adjustable
rate residential mortgage loans) plus the Gross Margin for the Mortgage Loans
(which may be different from then current margins on residential mortgage
loans). As a result, the Mortgage Rates on the Mortgage Loans at any time may
not equal the prevailing rates for similar adjustable rate mortgage loans, and
the rate of prepayment may be lower or higher than would otherwise be
anticipated. See "Yield Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.]
In addition, if on any Distribution Date, after taking into account any
Advances, amounts otherwise distributable to the Subsidiary Residual
Certificateholder and permitted withdrawals from the Certificate Account, there
are not sufficient funds to pay the principal and interest on the Class A
Certificates, the amount of the resulting shortfall, and in the case of interest
shortfalls, interest at the applicable Pass-Through Rate, will be added to the
amount the Class A Certificateholders are entitled to receive on the next
Distribution Date. See "Description of the Certificates--Distributions" herein.
If any shortfalls occur, the weighted average life of the Class A Certificates
will be increased over that which would result had such shortfalls not occurred.
The after-tax yield to Certificateholders may be affected by lags between
the time interest income accrues to the Certificateholders and the time the
related income is received. See "Certain Federal Income Tax Consequences" herein
and in the Prospectus.
The effective yield to the holders of Class A Certificates will be lower
than the yield otherwise produced by the Pass-Through Rate and purchase price
because monthly interest will not be payable to such holders until the 25th day
(or if such day is not a Business Day, then on the next succeeding Business Day)
of the month following the month in which interest accrues on the Mortgage
Loans.
S-32
<PAGE>
Weighted Average Lives of the Certificates
Weighted average life refers to the average amount of time that will elapse
from the date of issuance of a security to the date of distribution to the
investor of the last dollar distributed in reduction of principal of such
security (assuming no losses). The weighted average life of the Certificates
will be influenced by, among other things, the rate at which principal of the
Mortgage Loans is paid, which may be in the form of scheduled amortization,
prepayments or liquidations.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement, the
standard prepayment assumption ("SPA"), represents an assumed rate of prepayment
each month relative to the then outstanding principal balance of a pool of new
mortgage loans. A prepayment assumption of 100% SPA assumes constant prepayment
rates of 0.2% per annum of the then outstanding principal balance of such
mortgage loans in the first month of the life of the mortgage loans and an
additional 0.2% per annum in each month thereafter until the thirtieth month.
Beginning in the thirtieth month and in each month thereafter during the life of
the mortgage loans, 100% SPA assumes a constant prepayment rate of 6% per annum
each month. As used in the table below, "0% SPA" assumes prepayment rates equal
to 0% of SPA (no prepayments). Correspondingly, "250% SPA" assumes prepayment
rates equal to 250% of SPA, and so forth. SPA does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Mortgage Loans.
The assumed final Distribution Date with respect to the Certificates is
[ ], which is the Distribution Date immediately following the latest scheduled
maturity date for any Mortgage Loan. The actual final Distribution Date with
respect to the Certificates will likely occur significantly earlier than, and
could occur later than, its assumed final Distribution Date.
The following tables have been prepared on the basis of the following
assumed characteristics of the Mortgage Loans: [insert assumptions]
The actual characteristics and performance of the Mortgage Loans will
differ from the assumptions used in constructing the following tables, which are
hypothetical in nature and are 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 Mortgage Loans will prepay at a constant
level of SPA until maturity or that all of the Mortgage Loans will prepay at the
same level of SPA. Moreover, the diverse remaining terms to maturity of the
Mortgage Loans could produce slower or faster principal distributions than
indicated in the table at the various constant percentages of SPA specified,
even if the weighted average remaining term to maturity of the Mortgage Loans is
as assumed. Any difference between such assumptions and the actual
characteristics and performance of the Mortgage Loans, or actual prepayment or
loss experience, will affect the percentage of initial Certificate Principal
Balance of each Class of Certificates outstanding over time and the weighted
average life of each such Class of Certificates.
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average life of each such Class of Certificates, and sets
forth the percentages of the initial Certificate Principal Balance [or Notional
Amount, as applicable,] of each such Class of Certificates that would be
outstanding after each of the dates shown at various percentages of SPA.
[insert DEC tables]
The Depositor makes no representation that the Mortgage Loans will prepay
in the manner or at any of the rates assumed in the tables set forth above. Each
prospective investor must make its own decision as to the appropriate prepayment
assumption to be used in deciding whether or not to purchase the Certificates.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES]
S-33
<PAGE>
[tax discussion to be added, as applicable]
LEGAL INVESTMENT
The Class A Certificates will constitute, for so long as they are rated as
described below, "mortgage-related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 (the "Enhancement Act"), and, as such,
will be legal investments for certain entities to the extent provided in the
Enhancement Act. Such investments, however, will be subject to general
regulatory considerations governing investment practices under state and federal
law. Institutions whose investment activities are subject to review by certain
regulatory authorities may be, or may become, subject to restrictions, which may
be retroactively imposed by such regulatory authorities, on the investment by
such institutions in certain mortgage-related securities. Investors should
consult their own legal advisors to determine whether, and to what extent, the
Class A Certificates may be purchased by such investors. See "Legal Investment"
in the Prospectus.
RATING
It is a condition to the issuance of the Certificates that the Class A
Certificates 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 by the assigning rating
organization. A security rating does not address the frequency of prepayments or
the possibility that Certificateholders might suffer a lower than anticipated
yield. A security rating also does not represent any assessment of the yield to
maturity that investors may experience.
[The ratings of Moody's on mortgage pass-through Certificates address the
likelihood of the receipt by certificateholders of all distributions on the
underlying mortgage loans. Moody's rating opinions address the structural,
legal, issuer and tax-related aspects associated with the Certificates,
including the nature of the underlying mortgage loans. Moody's ratings on
pass-through Certificates do not represent any assessment of the likelihood of
principal prepayments by Mortgagors (including, in the case of the Class A
Certificates, prepayments resulting from the repurchase of Converted Mortgage
Loans) or of the degree to which such payments might differ from that originally
anticipated. Moody's rating of the Class A Certificates will not represent any
assessment of the Master Servicer's ability to repurchase Converted Mortgage
Loans. The rating does not address the possibility that Certificateholders might
suffer a lower than anticipated yield.]
ERISA CONSIDERATIONS
[A fiduciary of any employee benefit plan and certain other retirement
plans and arrangements (including individual retirement accounts, and annuities,
Keogh plans, and collective investment funds in which such funds, accounts,
annuities or arrangements are invested) that are subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or the Code should
carefully review with legal advisors whether the purchase or holding of
Certificates could give rise to a transaction that is prohibited or not
otherwise permissible either under ERISA or the Code. See "ERISA Considerations"
in the Prospectus.]
PLAN OF DISTRIBUTION
[The Master Servicer has agreed, pursuant to the Purchase Agreement dated
(the "Purchase Agreement"), to pay the Depositor a fee of $__ in connection with
the exchange of the Certificates and the residual interest in the Subsidiary
REMIC for the Mortgage Loans. The Depositor will sell the Certificates and such
residual interest to the Master Servicer in exchange for the Mortgage Loans
subject to the terms and conditions set forth in the Purchase Agreement.
Pursuant to the Purchase Agreement, the Depositor or its affiliates have certain
preferential rights in connection with resales of the Class A Certificates.]
[ _____________________ may be deemed, by virtue of the exchange, to be an
"Underwriter" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act") in connection with reoffers and sales by _____________ of the
Class A Certificates. Until , such reoffers and sales by Master Servicer will be
made pursuant to this Prospectus Supplement and the Prospectus, as amended and
supplemented as of the date of such reoffering. After such date, this Prospectus
Supplement and
S-34
<PAGE>
Prospectus may not be used in connection with such reoffers and sales. The
Depositor has been advised by that such reoffers and sales may be made by
_______________ from time to time in negotiated transactions or otherwise at
varying prices determined at the time of sale, and may be made to or through one
or more Underwriters, agents or dealers, including, without limitation, the
Depositor or one of its affiliates, who may receive compensation in the form of
underwriting discounts, concessions or commissions.]
[The Purchase Agreement provides that ____________- will indemnify the
Depositor and its affiliates against certain liabilities, including liabilities
under the Securities Act, or contribute to payments the Depositor and its
affiliates, as the case may be required to make in respect thereof.]
[The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] CS First Boston Corporation, an affiliate of the
Depositor[, is acting as Representative.] The [Underwriter[s] named below[ [has]
[have severally] agreed to purchase from the Depositor the [entire] [following
respective] principal amounts[s] of the Class A Certificates:
<TABLE>
<CAPTION>
Class A-1 Class A-2
Underwriter Certificates Certificates Total
- --------------------------------------------------------------- --------------------- ------------------------- ---------------
<S> <C> <C> <C>
CS First Boston Corporation.................................... $ $ $
Total............................................... $ $ $ ]
</TABLE>
[The Underwriting Agreement provides that the obligations of the
Underwriter[s] [is] [are] subject to certain conditions precedent, and that the
Underwriter[s] will be obligated to purchase the entire principal amount of the
Class A Certificates if any are purchased.]
The Underwriter[s] [[has] [have] advised the Depositor that the
Underwriter[s] propose[s] to offer the Class A Certificates from time to time
for sale in one or more negotiated transactions or otherwise at prices to be
determined at the time of sale. The Underwriter[s] may effect such transactions
by selling the Class A Certificates to or through dealers and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter[s] and any purchasers of the Class A
Certificates for whom they may act as agent.
The Underwriter[s] and any dealers that participate with the Underwriter[s]
in the distribution of the Certificates may be deemed to be underwriters, and
any discounts or commissions received by them and any profit on the resale of
Class A Certificates by them may be deemed to be underwriting discounts or
commissions, under the Securities Act.
[The Depositor has agreed to indemnify the Underwriter[s] against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments the Underwriter[s] may be required to make in respect thereof.]
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Certificates offered hereby in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Depositor and
for the Underwriter[s] by Sidley & Austin. The material federal income tax
consequences of the Class A Certificates will be passed upon for the Depositor
by Sidley & Austin.
S-35
<PAGE>
USE OF PROCEEDS
[The Certificates are being initially sold and delivered by the Depositor
to _____________ in exchange for the Mortgage Loans to be deposited by the
Depositor in the Subsidiary Trust Fund. Other than its fee in connection with
such exchange the Depositor will receive no other proceeds from the sale of the
Certificates. ______________ may subsequently sell the Certificates in one or
more transactions. It is expected that ____________ will use the proceeds of
such sale for general corporate purposes. See "Plan of Distribution" herein.]
[The Depositor will apply the net proceeds of the offering of the
Class A Certificates towards the simultaneous purchase of the Mortgage Loans
underlying the Certificates. Certain of the Mortgage Loans will be acquired in
privately negotiated transactions by the Depositor from one or more affiliates.]
S-36
<PAGE>
INDEX OF TERMS
Page on which
Term is defined in the
Term Prospectus Supplement
- --------------------------------------------------------------------------------
Adjustment Date..........................................................S-5
Advances.................................................................S-8
[Aggregate Losses................................................prospectus]
[Business Day....................................................prospectus]
CEBA....................................................................S-19
Certificates.............................................................S-1
[Certificate Account.............................................prospectus]
[Class A Certificateholders......................................prospectus]
Class A Certificates.....................................................S-3
Class A Certificate Principal Balance...................................S-24
Class A Distribution Amount.............................................S-23
Class A Prepayment Percentage...........................................S-26
Class A Percentage.......................................................S-3
Class B Certificates.....................................................S-3
Class B Principal Balance...............................................S-24
Class B-1 Percentage.....................................................S-3
Class B-2 Percentage.....................................................S-3
Commission...............................................................S-2
Deficient Valuation.....................................................S-25
Deleted Mortgage Loan...................................................S-28
Depositor................................................................S-3
Determination Date......................................................S-22
Distribution Date.......................................................S-22
Due Date................................................................S-12
[Eligible Investments............................................prospectus]
Enhancement Act..........................................................S-9
ERISA...................................................................S-33
Exchange Act.............................................................S-2
FHLB....................................................................S-11
Gross Margin.............................................................S-5
Index....................................................................S-1
Initial Class A Certificate Principal Balance...........................S-24
Initial Mortgage Rate...................................................S-11
Interest Shortfalls.....................................................S-24
[Interest Weighted Class of Certificates.........................prospectus]
Liquidated Loan.........................................................S-25
Master REMIC.............................................................S-1
Master Servicer..........................................................S-1
Master Trust Fund........................................................S-3
Master Trust Fund Aggregate Distribution................................S-23
Maximum Mortgage Rate....................................................S-5
Maximum Subsidiary Pass-Through Rate.....................................S-1
Mortgage Loans...........................................................S-1
Mortgage Note............................................................S-5
Mortgage Pool............................................................S-1
Mortgaged Properties....................................................S-11
S-37
<PAGE>
Mortgage Rate............................................................S-5
[Mortgage Rate Caps..............................................prospectus]
[Mortgagor.......................................................prospectus]
Pass-Through Margin......................................................S-5
Periodic Mortgage Rate Cap...............................................S-5
Pooling and Servicing Agreement.........................................S-11
Prepayment Period.......................................................S-22
Principal Prepayments....................................................S-4
Principal Shortfall.....................................................S-24
[Principal Weighted Class of Certificates........................prospectus]
Purchase Agreement......................................................S-33
[Rate Adjustment Date............................................prospectus]
Realized Loss...........................................................S-25
Record Date.............................................................S-22
Regular Certificates.....................................................S-9
REMIC....................................................................S-1
Replacement Mortgage Loan...............................................S-28
Scheduled Principal Balance.............................................S-24
Servicer................................................................S-21
Servicing Fee............................................................S-8
Servicing Fee Rate.......................................................S-8
Single Certificate.......................................................S-8
[Standard Hazard Insurance Policy................................prospectus]
[Special Hazard Realized Losses..................................prospectus]
[Step-down Criteria..............................................prospectus]
Subordinate Percentage...................................................S-3
[Subsidiary Trust Fund...........................................prospectus]
Subsidiary Trust Fund Regular Distribution..............................S-23
Subsidiary REMIC.........................................................S-1
Subordinate Amount......................................................S-26
Subordinate Percentage...................................................S-3
[Subsidiary Pass-Through Rate....................................prospectus]
Subsidiary Regular Interests.............................................S-3
Subsidiary REMIC.........................................................S-1
Subsidiary Residual Interest.............................................S-8
[Subsidiary Trust Fund...........................................prospectus]
[Trust Asset.....................................................prospectus]
Trustee.................................................................S-11
[Underwriting Agreement..........................................prospectus]
S-38
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Available Information...................................................S-2
Reports to Certificateholders...........................................S-2
Summary of Terms........................................................S-3
Risk Factors............................................................S-9
Description of the Mortgage Pool and
the Underlying Mortgaged Properties..................................S-10
Types of Mortgaged Properties..........................................S-12
Current Loan Amounts...................................................S-12
Loan-to-Value Ratios at Origination....................................S-13
Current Mortgage Rates.................................................S-13
Mortgage Loan Gross Margins............................................S-14
Month in which next Adjustment Date Falls..............................S-14
Lifetime Mortgage Rate Caps............................................S-15
Years of Origination...................................................S-15
Geographical Distribution of Mortgaged Properties......................S-16
Description of the Certificates........................................S-21
Yield and Prepayment Considerations....................................S-28
Legal Investment.......................................................S-31
Rating.................................................................S-31
ERISA Considerations...................................................S-32
Plan of Distribution...................................................S-32
Legal Matters..........................................................S-33
Use of Proceeds........................................................S-33
Index of Terms.........................................................S-34
PROSPECTUS
Prospectus Supplement.....................................................2
Additional Information....................................................2
Incorporation of Certain Information by Reference.........................2
Summary of Terms..........................................................3
Risk Factors.............................................................14
The Trust Fund...........................................................16
The Depositor............................................................25
Use of Proceeds..........................................................25
Yield Considerations.....................................................26
Maturity and Prepayment Considerations...................................27
Description of the Certificates..........................................29
Credit Support...........................................................54
Description of Insurance.................................................58
Certain Legal Aspects of the Mortgage
Loans and Contracts...................................................64
Certain Federal Income Tax Consequences..................................74
ERISA Considerations.....................................................97
Legal Investment........................................................101
Plan of Distribution....................................................102
Legal Matters...........................................................103
Index of Terms..........................................................104
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Backed
Securities Corporation
Depositor
$____________
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -_
PROSPECTUS
CS FIRST BOSTON
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information contained herein is subject to completion. These securities may not
be sold nor may offers to buy be accepted prior to the time a final prospectus
is delivered. This prospectus supplement shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED _____, 1996
PROSPECTUS SUPPLEMENT
- -------------------------------------------------------------------------------
(To Prospectus Dated ________________, 19 )
- -------------------------------------------------------------------------------
$__________________ (Approximate)
Asset Backed Securities Corporation
Depositor
[Adjustable Rate] Conduit Mortgage Pass-Through Certificates, Series
Class A-1 Certificates
-----------------
The [Adjustable Rate] Conduit Mortgage Pass-Through Certificates, Series
(the "Certificates") will be comprised of [three] classes of certificates:
[Class A-1,] [Class IO] [and] [Class R.] Only the Class A-1 Certificates are
offered hereby. The Certificates evidence 100% of the beneficial ownership
interest in a trust fund (the "Trust Fund") to be created by Asset Backed
Securities Corporation (the "Depositor"), the assets of which will consist
primarily of [(a) classes (or portions of classes) of mortgage pass-through
certificates (the "Mortgage Certificates"), each of which is part of one of
series of mortgage pass-through certificates initially sold by
__________________ and acquired by the Depositor in the secondary market,] [(b)
a Reserve Fund] [and] [(c) a Yield Support Agreement] provided by
____________________ .]
The Certificates will be issued pursuant to a [Pooling Trust Agreement
(the "Pooling Agreement") among the Depositor, as Certificate Administrator and
______________________________ ., as Trustee. See "Description of the
Certificates".
As more fully described herein, commencing with a rate of ____ % per
annum, interest will accrue, to the extent of funds available therefor, on the
Class A-1 Certificates at a per annum rate of _______ % in excess of the
[specify index], determined as set forth herein. The amount of interest accrued
on the Class A-1 Certificates will be reduced by the amount of certain
prepayment interest shortfalls and deferred interest as described herein under
"Description of Certificates--Distributions--Interest Distributions". Interest
generally will be paid __________ , to the extent funds are available therefor
as described herein on the ______ day of each ________________________________
or, if any such day is not a business day on the following business day,
beginning in ______________ . Each such day is referred to as a "Distribution
Date". See "Summary of Terms--Distribution Date" and "Description of the
Certificates" herein. Principal payments on the Class A-1 Certificates will be
made on each Distribution Date to the extent funds are available therefor, as
described herein, until the principal balance of the Class A-1 Certificates has
been reduced to zero. See "Description of the
Certificates-Distributions-Principal Distributions".
See "Risk Factors" beginning on p. S-13 herein and on p.14 of the
Prospectus for a discussion of certain factors that potential investors should
consider in determining whether to invest in the Certificates.
Prospective investors should consider the limitations discussed under
"ERISA Considerations" herein and in the accompanying Prospectus.(Continued on
next page)
THE CLASS A-1 CERTIFICATES DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF
ASSET BACKED SECURITIES CORPORATION , THE TRUSTEE, THE CERTIFICATE ADMINISTRATOR
OR ANY OF THEIR AFFILIATES. NEITHER THE CERTIFICATES NOR THE UNDERLYING MORTGAGE
LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR
BY ANY OTHER PARTY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Class A-1 Certificates will be offered by CS First Boston Corporation
("First Boston") from time to time to the public in negotiated transactions or
otherwise at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Class A-1 Certificates are anticipated to be
approximately $________ , plus accrued interest thereon at the Certificate Rate
from __________________ , but before deducting expenses payable by the
Depositor, estimated to be $____________ .
The Class A-1 Certificates are offered by First Boston when, as and if
delivered to and accepted by First Boston, subject to prior sale, withdrawal or
modification of the offer without notice, the approval of counsel and other
conditions. It is expected that the Class A-1 Certificates will be delivered
[only through the same day funds settlement system of the Depository Trust
Company] on or about __________________ ,19__.
CS First Boston
- -------------------------------------------------------------------------------
The date of this Prospectus Supplement is ____________, 19__
<PAGE>
(Continued from prior page)
Prospective investors should consider:
[o The yield on the Class A-1 Certificates will be sensitive to, among
other things, the rate and timing of principal payments on the Mortgage
Certificates (which likely will be different for different Mortgage
Certificates) and the level of [specify index.]]
[o As described under "Risk Factors--Basis Risk" and "Yield and Prepayment
Considerations--Basis Risk; [specify index]" herein, under some
prepayment and interest rate scenarios, an investor may not receive all
interest accrued at the Class A-1 Pass-Through Rate on the Class A-1
Certificates with respect to one or more Distribution Dates on such
Distribution Dates, or in certain cases, prior to the retirement of the
Class A-1 Certificates.]
The description of the Mortgage Certificates and the Mortgage Loans
contained in this Prospectus Supplement is qualified in its entirety by
reference to the actual terms and provisions of the Prospectuses and Prospectus
Supplements related to each of the Mortgage Certificates (collectively, the
"Underlying Disclosure Documents") and the Pooling and Servicing Agreements
relating to each of the Mortgage Certificates (collectively, the "Underlying
Pooling Agreements"). Copies of the Underlying Disclosure Documents and the
Underlying Pooling Agreements are available from First Boston by calling
___________________ at _______________ . Investors are urged to obtain copies of
such documents and read this Prospectus Supplement in conjunction therewith.
[The Class A-1 Certificates will be issued only in book-entry form, and
the purchasers thereof will not be entitled to receive definitive certificates
except in the limited circumstances set forth herein. The Class A-1 Certificates
will be registered in the name of Cede & Co., as nominee of The Depository Trust
Company, which will be the "holder" or "Certificateholder" of such Certificates,
as such terms are used herein. See "Description of the Certificates" herein.]
The Class A-1 Certificates may not be an appropriate investment for
individual investors. There is currently no secondary market for the Class A-1
Certificates and there can be no assurance that a secondary market will develop
or, if it does develop, that it will provide Certificateholders with liquidity
of investment at any particular time or for the life of the Class A-1
Certificates. First Boston intends to act as a market maker in the Class A-1
Certificates, subject to applicable provisions of federal and state securities
laws and other regulatory requirements, but is under no obligation to do so and
any such market making may be discontinued at any time. There can be no
assurance that any investor will be able to sell a Class A-1 Certificate at a
price which is equal to or greater than the price at which such Certificate was
purchased.
[An election will be made to treat the portion of the Trust Fund
consisting of the Mortgage Certificates as a real estate mortgage investment
conduit (the "REMIC") for federal income tax purposes. As described more fully
herein and in the Prospectus, the payments on the Class A-1 Certificates which
are derived from the Mortgage Certificates and the Class IO Certificates will
constitute "regular interests" in the REMIC and the Class R Certificate will
constitute the "residual interest" in the REMIC. See "Summary
Information--Federal Income Tax Status" and "Certain Federal Income Tax
Consequences" herein and "Certain Federal Income Tax Consequences" in the
Prospectus.]
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION
ABOUT THE CERTIFICATES OFFERED HEREBY. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS, AND PURCHASERS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
-----------------------
S-2
<PAGE>
[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES OFFERED HEREBY IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. THE UNDERWRITER MAY ALSO ACT AS AGENT IN SUCH
TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF
SALE.]
UNTIL _______ , 19__, ALL DEALERS AFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-----------------------
AVAILABLE INFORMATION
The Trust will be subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith will file reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports and other information
filed by the Trust can be inspected and copied at the Public Reference Room of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., and
at the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials can be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is (http://www.sec.gov).
REPORTS TO CERTIFICATEHOLDERS
Monthly and annual unaudited reports containing information concerning the
Mortgage Certificates will be prepared by the Master Servicer and sent on behalf
of the Trust to each registered holder of the Certificates. See "Description of
the Certificates - Reports to Certificateholders" in the Prospectus.
S-3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. An "Index of Terms" is included at the end of this Prospectus
Supplement. Capitalized terms used herein and not defined shall have the meaning
given in the Prospectus.
Securities Offered .......... $ ____________________________ initial
Principal Balance of [Adjustable Rate] Conduit
Mortgage Pass-Through Certificates, Series
_______, Class A-1, [evidencing a class of
"regular interests" in the REMIC] [and the
rights to certain amounts from the Reserve
Fund.]
Other Securities............. [Adjustable Rate] Conduit Mortgage
Pass-Through Certificates, Series , Class IO,
[evidencing a class of "regular interests" in
the REMIC], [and] the Class R Certificate,
[evidencing the "residual interest" in the
REMIC]. The Class IO Certificates and the
Class R Certificate are not offered hereby.
The Class A-1, Class IO and Class R
Certificates are referred to collectively
herein as the "Certificates".
Forms of Certificates;
Denominations.............. [The Class A-1 Certificates will be issued as
book-entry certificates, through the
facilities of The Depository Trust Company.
See "Description of the
Certificates--Book-Entry Form" herein. The
Class A-1 Certificates will be issued,
maintained and transferred in book-entry form
only in minimum denominations of $1,000
initial principal balance and integral
multiples of $1,000 initial principal balance
in excess thereof.]
Depositor.................... Asset Backed Securities Corporation, a
Delaware corporation (the "Depositor").
Certificate Administrator.... Certain administrative functions with respect
to the Certificates will be performed by .
Cut-off Date.................
Closing Date................. On or about ____________________.
Final Scheduled
Distribution Date..........
The Trust Fund............... The Class A-1 Certificates evidence interests
in a trust fund (the "Trust Fund"), the assets
of which will consist primarily of [(a)
classes (or portions of classes) of mortgage
pass-through certificates (the "Mortgage
Certificates"), each of which is part of one
of ____ series of mortgage pass-through
certificates initially sold by
__________________________________ and which
were acquired by the Depositor in the
secondary market, [(b) a Reserve Fund] [and]
[(c) a Yield Support Agreement provided by
____________________ .] [See "--The Reserve
Fund" and "--The Yield Support Agreement"
below.] The Trust Fund will be established and
the Certificates will be issued pursuant to a
[Pooling Trust Agreement] (the ____ "Pooling
Agreement"), dated as of ___________________ .
See "Description of the Class A-1
Certificates--General" herein.
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
Distribution Date............ Distributions on the Certificates will be made
_________ on the ____th day of each
_______________________, beginning in
________________, or, if any such day is not a
business day, the following business day. Each
such day on which distributions are made, a
"Distribution Date".
Record Date.................. The "Record Date" for each Distribution Date
will be the close of business on the last day
of the calendar month preceding the month in
which such Distribution Date occurs or, if
such last day is not a business day, the
preceding business day.
Distributions on
Certificates............... Interest Distributions on the Class A-1
Certificates. The amount of interest payable
on the Class A-1 Certificates on each
Distribution Date will be equal to the sum of
(x) the lesser of the Interest Accrual Amount
(as defined below) of the Class A-1
Certificates for such Distribution Date and
Interest Available Funds (as defined herein
under "Description of the
Certificates--Distributions--Interest
Distributions") for such Distribution Date and
(y) the lesser of the Interest Shortfall
Amount (as defined below) of the Class A-1
Certificates and the excess, if any, of the
Interest Available Funds for such Distribution
Date over the Interest Accrual Amount of the
Class A-1 Certificates for such Distribution
Date. The "Interest Accrual Amount" for the
Class A-1 Certificates on each Distribution
Date will equal the product of (i) one-twelfth
of the Class A-1 Pass-Through Rate for such
Distribution Date and (ii) the outstanding
Principal Balance thereof (subject to
reduction in respect of Deferred Interest and
Prepayment Interest Shortfalls incurred with
respect to the Mortgage Loans underlying the
Mortgage Certificates). The "Interest
Shortfall Amount" of the Class A-1
Certificates is equal to the sum of the
amounts for all previous Distribution Dates by
which the Interest Accrual Amount of the Class
A-1 Certificates exceeded the Interest
Available Funds for such Distribution Dates
(to the extent such amounts have not been paid
on subsequent Distribution Dates), together
with interest accrued thereon at the Class A-1
Pass-Through Rate in effect from time to time.
See "Description of the
Certificates--Distributions".
The "Class A-1 Pass-Through Rate" during the
initial Interest Accrual Period will be % per
annum. During each succeeding Interest Accrual
Period, the Class A-1 Pass-Through Rate will
be _______ % in excess of [specify index] on
the [second] day prior to the first day of
such Interest Accrual Period, or, if such
[second] day is not a business day, the
preceding business day (each, a "Reset Date"),
determined as described herein under
"Description of the Class A
Certificates--Determination of [specify
index]". The "Interest Accrual Period" with
respect to each Distribution Date is the
period from the __th day of the [ ________
month] preceding the month in which such
Distribution Date occurs through the __th day
of the month in which such Distribution Date
occurs. Interest on the Certificates will be
calculated on the basis of [specify interest
calculation convention].
See "Description of the
Certificates--Distributions".
[Due to the factors discussed under "Risk
Factors--Basis Risk", Interest Available Funds
may not always be sufficient to pay the full
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
Interest Accrual Amount with respect to the
Class A-1 Certificates on each Distribution
Date.]
Principal Distributions on the Class A-1
Certificates. Distributions in respect of
principal on the Class A-1 Certificates will
be made on each Distribution Date in an amount
equal to the sum of all amounts distributed in
respect of principal on the Mortgage
Certificates during the Collection Period
ending on such Distribution Date. The rate of
distribution of principal of the Certificates
[(other than the Class IO and Class R
Certificates)] will depend on the rate of
payment of principal of the mortgage loans
underlying the Mortgage Certificates which, in
turn, will depend on the characteristics of
such underlying mortgage loans, the level of
prevailing interest rates and other economic,
geographic and social factors. No assurance
can be given as to the actual payment
experience of the Mortgage Loans.
Interest Distributions on the Class IO
Certificates. The Interest Accrual Amount for
the Class IO Certificates on each Distribution
Date will equal the product of (i) one-twelfth
the Class IO Pass-Through Rate for such
Distribution Date and (ii) the outstanding
Principal Balance of the Class A-1
Certificates, subject to reduction in respect
of Deferred Interest and Prepayment Interest
Shortfalls.
During each Interest Accrual Period the "Class
IO Pass-Through Rate" will be equal to the
excess, if any, of (X) the weighted average of
the Weighted Average Mortgage Certificate
Pass-Through Rate for each of the Underlying
Series Distribution Dates that occurs in the
Collection Period related to such Interest
Accrual Period (determined as described
herein) (such weighted average, the "Mortgage
Certificate Pass-Through Rate") over (Y) the
Class A-1 Pass-Through Rate for such Interest
Accrual Period. The "Weighted Average Mortgage
Certificate Pass-Through Rate" with respect to
any Underlying Series Distribution Date will
be equal to the weighted average of the
pass-through rates of the Mortgage
Certificates applicable to such Underlying
Series Distribution Date, weighted on the
basis of the outstanding principal balances
thereof prior to distributions on such
Underlying Series Distribution Date. The
Weighted Average Mortgage Certificate
Pass-Through Rate with respect to the
Underlying Series Distribution Date in
_______________ is approximately __%. The
"Collection Period" with respect to each
Distribution Date is the period commencing on
the day after the previous Distribution Date
(or, in the case of the first Collection
Period, on _____________) and ending on such
Distribution Date. See "Description of the
Certificates--Distributions".
Certain Risk Factors......... For a discussion of certain risk factors that
should be considered in connection with an
investment in the Certificates, including
those relating to [describe risk factors
specific to transaction], see "Risk Factors"
herein.
[Reserve Fund................ On the Closing Date, the Depositor will
deposit or cause to be deposited into an
account (the "Reserve Fund") maintained by the
Certificate Administrator [(i) cash in the
amount of $ ____________ [and] [(ii) the Class
IO Certificates]. All distributions on the
Class IO Certificates will be made to the
Certificate Administrator for deposit into the
Reserve Fund.
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
Amounts on deposit in the Reserve Fund from
time to time will be available on each
Distribution Date to be paid to holders of the
Class A-1 Certificates to the extent that
distributions on account of interest received
on the Mortgage Certificates in the related
Collection Period are insufficient to pay such
holders' Interest Accrual Amount for such date
together with any overdue interest. No
assurance can be given that amounts on deposit
in the Reserve Fund from time to time will,
together with the balance of Interest
Available Funds on any Distribution Date, be
sufficient to allow the distribution of the
full Interest Accrual Amount with respect to
the Class A-1 Certificates on any such
Distribution Date. The Reserve Fund will be an
asset of the Trust Fund, but will not be an
asset of the REMIC. See "Description of the
Certificates--Reserve Fund" herein.]
[The Yield Support
Agreement.................. On the Closing Date, the Trustee will enter
into a yield support agreement (the "Yield
Support Agreement") with ____________________,
a ____________________ (the "Yield Support
Counterparty").
Pursuant to the terms of the Yield Support
Agreement, in the event that [specify index]
on any Reset Date (determined as described
herein under "Description of the
Certificates--Determination of [specify
index]") exceeds __% (which rate is equal to
[specify index] as set with respect to the
first Interest Accrual Period plus ____ %)
(the "Strike Rate"), the Yield Support
Counterparty will be obligated to pay to the
Certificate Administrator, for the benefit of
the holders of the Class A-1 Certificates, on
the Distribution Date related to the Interest
Accrual Period following such Reset Date, an
amount equal to ____________ of the product of
(x) the difference between [specify index] at
such Reset Date (determined as described
above) and the Strike Rate and (y) the
Principal Balance of the Class A-1
Certificates outstanding prior to
distributions on such Distribution Date.
Amounts paid by the Yield Support Counterparty
on any Distribution Date will be paid to the
Certificate Administrator for deposit into the
Reserve Fund. No assurance can be given that
amounts paid by the Yield Support Counterparty
on any Distribution Date will, together with
the balance of the Interest Available Funds
for such Distribution Date, be sufficient to
allow full distributions in respect of
interest on the Class A-1 Certificates on such
Distribution Date or on any future
Distribution Dates.
The Yield Support Agreement will terminate
upon the reduction of the Principal Balance of
the Class A-1 Certificates to zero. The Yield
Support Agreement may also be terminated by
the Trustee under the circumstances described
herein under "Description of the
Certificates--The Yield Support
Agreement--Termination".]
[Optional Repurchase of
the Mortgage Certificates.. The beneficial owner of the Class IO
Certificates will have the option to purchase
the Mortgage Certificates from the Trust Fund
on any Distribution Date on which the Mortgage
Certificate Balance is equal to __% or less of
the Mortgage Certificate Balance as of the
Cut-off Date. See "Description of the
Certificates--Optional Repurchase of the
Mortgage Certificates" herein.]
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
Ratings...................... It is a condition of the issuance of the
Certificates that the Class A-1 Certificates
be rated not lower than "_____" by
_______________ [ and] "_____" by
_______________ ("____" and, collectively with
______, the "Rating Agencies").
The ratings of _________ and _____ on mortgage
securities address the likelihood of the
receipt by the holders thereof of all
distributions of principal and interest to
which such holders are entitled. The Rating
Agencies note that the entitlement of the
Class A-1 Certificates to interest at a rate
in excess of the Mortgage Certificate
Pass-Through Rate is subject to the
availability of Interest Available Funds.
There is no assurance that such ratings will
continue for any period of time or that they
will not be revised or withdrawn entirely by
such rating agency if, in its judgment,
circumstances so warrant. A revision or
withdrawal of such ratings may have an adverse
effect on the market price of the Class A-1
Certificates. A security rating is not a
recommendation to buy, sell or hold
securities.
The Depositor has not requested a rating on
the Class A-1 Certificates from any other
rating agency, although data with respect to
the Mortgage Loans and Mortgage Certificates
may have been provided to other agencies
solely for their informational purposes. There
can be no assurance that if a rating is
assigned to the Class A-1 Certificates by any
other rating agency, such rating will be as
high as that assigned by _________ and ______.
See "Ratings".
A security rating is not a recommendation to
buy, sell or hold securities and may be
subject to revision or withdrawal at any time
by the assigning rating organization. A
security rating does not address the frequency
of prepayments or the possibility that
Certificateholders might suffer a lower than
anticipated yield. A security rating also does
not represent any assessment of the yield to
maturity that investors may experience. See
"Risk Factors" herein and in the Prospectus,
"Ratings" herein and "Yield Considerations" in
the Prospectus.
Mortgage Certificates........ [The assets of the REMIC will consist
primarily of ____ classes (or a portion of
such classes) of senior mortgage pass-through
certificates (the "Mortgage Certificates"),
each of which is a part of one of ____
separate series of mortgage pass-through
certificates sold by _________________________
(each an "Underlying Series"), identified in
the following table.
<TABLE>
<CAPTION>
===============================================
UNDERLYING SERIES
Class of Mortgage
Series Designation Certificates
------------------ -----------------
<S> <C>
===============================================
</TABLE>
[Each of the Mortgage Certificates evidences a
senior interest in a mortgage pool (each, an
"Underlying Mortgage Pool") previously formed
by ________ .
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
Payments on each Class of Mortgage
Certificates will be made on the 25th day of
each month (or if such day is not a business
day, the succeeding business day) (each, an
"Underlying Series Distribution Date")
primarily from amounts received in respect of
the mortgage loans that constitute the corpus
of the related Underlying Mortgage Pool (in
the aggregate, the "Mortgage Loans"). Such
amounts, together with any payments under the
Yield Support Agreement and payments from the
Reserve Fund, are the sole source of funds for
payments on the Class A-1 Certificates. As of
the Underlying Series Distribution Date
occurring in ______________ , after giving
effect to distributions and principal balance
reductions on such date, the Mortgage
Certificates had approximately the
characteristics set forth under "The Mortgage
Certificates".]
The Mortgage Loans........... [The Mortgage Loans are contained in __
separate pools of adjustable interest rate,
conventional, residential first mortgage loans
having approximately the characteristics set
forth in the table entitled "Selected Mortgage
Loan Data" under "Description of the Mortgage
Loans". The interest rate on each Mortgage
Loan is subject to adjustment periodically (as
specified in the related mortgage note) to a
rate equal to the sum (subject to rounding) of
(i) a specified index and (ii) an individual
gross margin, subject to certain limitations.
The Mortgage Loans are subject to overall
maximum interest rates. Some of the Mortgage
Loans are also subject to a minimum interest
rate. Some of the Mortgage Loans are subject
to negative amortization.
Some of the Mortgage Loans have mortgage
interest rates that may be converted to fixed
interest rates at the option of the Mortgagor.
Upon conversion to a fixed rate, such Mortgage
Loans generally are required to be purchased
by the Servicer of the related Underlying
Mortgage Pool. See "Description of the
Mortgage Loans" and "Yield and Prepayment
Considerations".]
[Optional Repurchase of Mortgage Loans. The
Underlying Mortgage Pool with respect to each
Mortgage Certificate is subject to special
termination (a "Special Termination") at such
time as the aggregate outstanding principal
balance of all the Mortgage Loans underlying
all the Mortgage Certificates of the related
Underlying Series is equal to or less than
____ % of the initial aggregate principal
balance of such mortgage loans. See "The
Mortgage Certificates--Special Termination"
herein. In addition, the Mortgage Loan
Servicer with respect to each Underlying
Series has the option to repurchase the
Mortgage Loans from the related Underlying
Mortgage Pool at such time as the aggregate
scheduled principal balance thereof is reduced
to less than ____ % of the original aggregate
principal balance thereof. See "The Mortgage
Certificates--Optional Termination" herein.
Any such repurchase may accelerate the rate at
which principal payments are made on the Class
A-1 Certificates.]
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
Certain Prepayment and
Yield Considerations....... No investment should be made in the Class A-1
Certificates unless an investor has considered
carefully the associated risks of investing in
such Class A-1 Certificates as discussed below
and under "Risk Factors" and "Yield and
Prepayment Considerations" herein.
Prepayments. The rate of principal payments on
the Class A-1 Certificates will be affected by
the rate of principal payments on the Mortgage
Loans (including, for this purpose,
prepayments, which may include amounts
received by virtue of condemnation, insurance
or foreclosure). If a Class A-1 Certificate is
purchased at a discount from its initial
principal balance by a purchaser that
calculates its anticipated yield to maturity
based on an assumed rate of payment of
principal that is faster than that actually
experienced on the Mortgage Loans, the actual
yield to maturity will be lower than that so
calculated. Furthermore, if a Certificate is
purchased at a premium by a purchaser that
calculates its anticipated yield to maturity
based on an assumed rate of payment of
principal that is slower than that actually
experienced on the Mortgage Loans, the actual
yield to maturity will be lower than that so
calculated.
Timing of Payments. The timing and amount of
payments, including prepayments, on the
Mortgage Loans may significantly affect an
investor's yield. In general, the earlier a
prepayment of principal on the Mortgage Loans,
the greater will be the effect on an
investor's yield to maturity. As a result, the
effect on an investor's yield of principal
prepayments occurring at a rate higher (or
lower) than the rate anticipated by the
investor during the period immediately
following the issuance of the Class A-1
Certificates will not be offset by a
subsequent like reduction (or increase) in the
rate of principal prepayments.
[Basis Risk; [specify index]. The interest
rate payable to the Holders of the Class A-1
Certificates is based on [specify index].
However, the Mortgage Certificates bear
interest at adjustable rates based on COFI,
CMT and CBE (the "Indices"). [Specify index]
and such Indices may respond to different
economic and market factors, and there is no
necessary correspondence between them. No
assurance can be given that amounts on deposit
in the Reserve Fund from time to time or
payments under the Yield Support Agreement
will be sufficient to make up any amount by
which the interest collected on the Mortgage
Certificates is less than the Interest Accrual
Amount of the Class A-1 Certificates.]
See "Risk Factors" and "Yield and Prepayment
Considerations" herein for a fuller discussion
of the factors affecting the yield to maturity
of the Class A-1 Certificates.
Liquidity.................... There is currently no secondary market for the
Class A-1 Certificates and there can be no
assurance that a secondary market will develop
or, if it does develop, that it will provide
Certificateholders with liquidity of
investment at any particular time or for the
life of the Class A-1 Certificates. There is
no assurance that any such market, if
established, will continue. Each
Certificateholder will receive monthly reports
- --------------------------------------------------------------------------------
S-10
<PAGE>
- --------------------------------------------------------------------------------
pertaining to the Class A-1 Certificates and
the Mortgage Certificates. There are a limited
number of sources which provide certain
information about mortgage-backed securities
in the secondary market; however, there can be
no assurance that any of these sources will
provide information about the Class A-1
Certificates or the Mortgage Certificates.
Investors should consider the effect of
limited information on the liquidity of the
Class A-1 Certificates.
Trustee...................... ___________________ (the "Trustee"). See
"Description of the Certificates - Trustee"
herein.
Legal Investment............. The Class A-1 Certificates will constitute
"mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act
of 1984 ("SMMEA") so long as they are rated in
one of the two highest rating categories by at
least one nationally recognized statistical
rating organization. As such, the Class A-1
Certificates are legal investments for certain
entities to the extent provided in SMMEA.
However, there are regulatory requirements and
considerations applicable to regulated
financial institutions and restrictions on the
ability of such institutions to invest in
certain types of mortgage related securities.
Prospective purchasers of the Class A-1
Certificates should consult their own legal,
tax and accounting advisors in determining the
suitability of and consequences to them of the
purchase, ownership and disposition of the
Class A-1 Certificates. See "Legal Investment
Considerations" in this Prospectus Supplement
and "Legal Investment" in the Prospectus.
ERISA Considerations......... A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code"), or a
governmental plan subject to any federal,
state or local law ("Similar Law") which is,
to a material extent, similar to the foregoing
provisions of ERISA or the Code (collectively,
a "Plan"), should carefully review with its
legal advisors whether the purchase or holding
of Class A-1 Certificates could give rise to a
transaction prohibited or not otherwise
permissible under ERISA, the Code or Similar
Law. See "ERISA Considerations" in this
Prospectus Supplement and in the Prospectus.
Federal Income Tax Status.... An election will be made to treat [the portion
of] the Trust Fund [consisting of the Mortgage
Certificates] as a REMIC for federal income
tax purposes. The [payments on the] Class A-1
Certificates [which are derived from the
Mortgage Certificates,] and the Class IO
Certificates, will be designated as regular
interests in the REMIC, and the Class R
Certificate will be designated as the residual
interest in the REMIC.
The arrangement under which the Reserve Fund
is held should not be treated as an
association taxable as a corporation. An
investor in the Class A-1 Certificates will be
treated for federal income tax purposes as
purchasing a REMIC regular interest and a
contractual right to receive amounts from the
Reserve Fund.] [The Certificates other than
the Class R Certificates (the "Regular
Certificates") will be treated as regular
interests in the REMIC and generally will be
treated as debt instruments issued by the
REMIC for federal income tax purposes. Certain
Classes of the Regular
- --------------------------------------------------------------------------------
S-11
<PAGE>
- --------------------------------------------------------------------------------
Certificates may be issued with original issue
discount. The prepayment assumption that will
be used in determining the rate of accrual of
any original issue discount on the Regular
Certificates for federal income tax purposes
(and whether such original issue discount is
de minimis), and that may be used by a holder
of a Regular Certificate to amortize premium,
will be [__]% of the Prepayment Assumption. No
representation is made that the Mortgage Loans
will prepay at such rate or at any other rate.
The holders of the Residual Certificates will
be subject to special federal income tax rules
that may significantly reduce the after-tax
yield of such Certificates. Further,
significant restrictions apply to the transfer
of the Residual Certificates. See "Certain
Federal Income Tax Consequences"
herein. See "Certain Federal Income Tax
Consequences"[herein and] in the
Prospectus.*]
- ----------------
* Depending on the terms of the A-1 Certificates and the arrangement under which
the Reserve Fund is held, the discussion of federal income tax consequences
contained in "Summary of Terms-Federal Income Tax Status" and in "Certain
Federal Income Tax Consequences" in this Prospectus Supplement may be revised
appropriately to reflect such terms.
- --------------------------------------------------------------------------------
S-12
<PAGE>
RISK FACTORS
Prospective investors should consider the following factors in connection
with a purchase of the Class A-1 Certificates.
General
An investment in certificates (such as the Class A-1 Certificates)
evidencing interests in mortgage loans may be affected, among other things, by a
decline in real estate values or a decline in mortgage market rates. Recently
such declines in real estate values have been experienced in several significant
market areas within the United States. If relevant residential real estate
markets should experience an overall decline in property values such that the
outstanding balances of the Mortgage Loans in a particular Underlying Mortgage
Pool become equal to or greater than the value of the related mortgaged
properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. To
the extent that such losses are not covered by the classes of certificates which
are subordinate to the Mortgage Certificates from that pool and the cash
available in the related Underlying Reserve Funds, holders of the Class A-1
Certificates will bear all risk of loss resulting from default by mortgagors and
will have to depend primarily on the value of the mortgaged properties for
recovery of the outstanding principal and unpaid interest of the defaulted
Mortgage Loans.
Basis Risk
The interest rate payable to the holders of the Class A-1 Certificates is
based on [specify index]. However, the underlying Mortgage Loans bear interest
based on the Indices calculated at various frequencies. [Specify index] and the
Indices respond to different economic and market factors, and there is not
necessarily a correlation between them. Thus, it is possible, for example, that
[specify index] may rise during periods in which the Indices are stable or are
falling or that, even if both [specify index] and the Indices rise during the
same period, [specify index] may rise much more sharply than the Indices. No
assurance can be given that amounts on deposit in the Reserve Fund from time to
time or payments under the Yield Support Agreement will be sufficient to make up
any amount by which the interest collected on the Mortgage Certificates is less
than the Interest Accrual Amount of the Class A-1 Certificates.]
Prepayment and Yield Considerations
The prepayment experience on the Mortgage Loans will affect the average
life of the Class A-1 Certificates. Prepayments on the Mortgage Loans may be
influenced by a variety of economic, geographic, social and other factors,
including the difference between the interest rates on the Mortgage Loans and
prevailing mortgage interest rates. Other factors affecting prepayment of
Mortgage Loans include changes in housing needs, job transfers, unemployment and
servicing decisions. See "Yield and Prepayment Considerations." In addition, the
yield on the Class A-1 Certificates will be sensitive to, among other things,
the level of [specify index].
Geographic Concentration
The following table sets forth the concentrations by state for each of the
Underlying Mortgage Pools that exceed % of the original aggregate principal
balance thereof as of the Underlying Series Cut-off Date. Such information was
derived from the Underlying Disclosure Documents. The Depositor did not prepare
or assist in the preparation of the Underlying Disclosure Documents and,
therefore, cannot confirm the accuracy or completeness of such information.
S-13
<PAGE>
GEOGRAPHIC CONCENTRATION
(Greater than _____% of Principal Balance)
<TABLE>
<CAPTION>
Percentage Percentage
as of as of
Underlying Underlying
Series Series
Cut-off Series Cut-off
Series Designation State Date Designation State Date
- ------------------ ------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C>
</TABLE>
[Additional risk factors will be added, as appropriate, including, without
limitation, (i) if an Interest Weighted Class of Certificates or a Principal
Weighted Class of Certificates is being offered, a discussion of the risks
associated with such Class, including any disproportionate share of credit or
prepayment risks that such Class will bear, (ii) a discussion of the
concentration of credit risk, if any, with respect to the mortgage loans
underlying the Mortgage Certificates due to, among other things (w) a
concentration of Mortgage Loans originated by one or a few delaers, (x) a single
mortgagor or lessee or cross-default, cross-collateralization or similar
provisions, (y) a concentration of properties with brief or financially troubled
operating histories or (z) a concentration of properties within a state (or
region of a state) and (iii) a discussion of the basis risk associated with a
Class of Certificates.]
DESCRIPTION OF THE CERTIFICATES
General
The [Adjustable Rate] Conduit Mortgage Pass-Through Certificates, Series
_______ will include the following [three] classes: the [Class A-1]
Certificates, the [Class IO] Certificates and the [Class R] Certificates
(collectively, the "Certificates"). Only the Class A-1 Certificates are offered
hereby.
The Certificates evidence 100% of the beneficial ownership interest in a
trust fund (the "Trust Fund"), the assets of which will consist primarily of
[(a) ____ classes (or portions of classes) of mortgage pass-through certificates
(the "Mortgage Certificates"), each of which is part of one of ____ series of
mortgage pass-through certificates initially sold by
and acquired by the Depositor in the secondary market,] [(b) a Reserve
Fund] [and] [(c) a Yield Support Agreement provided by ____________________ .]
[See "--The Reserve Fund" and "--The Yield Support Agreement" below.] The Trust
Fund will be established and the Certificates will be issued pursuant to a
[Pooling Trust Agreement] (the "Pooling Agreement"), dated as of
________________________ among the Depositor, the Certificate Administrator and
the Trustee.
[The Class A-1 Certificates will be issued as book-entry certificates (the
"Book-Entry Certificates") through the facilities of The Depository Trust
Company. See "--Book-Entry Form" below. The Class A-1 Certificates will be
issued, maintained and transferred only in minimum denominations of $1,000
initial principal balance and integral multiples of $1,000 initial principal
balance in excess thereof. The "Record Date" for distributions on the Class A-1
Certificates is ___________________, with respect to the initial Distribution
Date, and with respect to each subsequent Distribution Date, the last day of the
calendar month immediately preceding the month in which the applicable
Distribution Date occurs or, if such last day is not a business day, the
preceding business day. The undivided percentage interest (the "Percentage
Interest") represented by any Class A-1 Certificate will be equal to the
percentage obtained by dividing the initial Principal Balance of such Class A-1
Certificate by the aggregate initial Principal Balance of all Class A-1
Certificates.]
Distributions
S-14
<PAGE>
Distributions on the Certificates will be made ________ on the __th day of
each __________, beginning in ____ or, if any such day is not a business day,
the following business day (each such day on which distributions are made, a
"Distribution Date"). Distributions to a holder of a Class A-1 Certificate will
be made on each Distribution Date in an amount equal to such holder's Percentage
Interest multiplied by the amount, if any, to be distributed to the Class A-1
Certificates. Distributions will be made on each Distribution Date to holders of
record on the related Record Date, [which, unless Definitive Certificates are
issued under the circumstances described below under "--Book Entry Form", will
be Cede & Co. as nominee for DTC.]
Interest Distributions. Distributions in respect of interest on each Class
of Certificates (other than the Class R Certificates) on each Distribution Date
will be made only up to the amount of the Interest Available Funds for such
Distribution Date. The amount of interest payable on the Class A-1 Certificates
on each Distribution Date will be equal to the sum of (x) the lesser of the
Interest Accrual Amount of the Class A-1 Certificates for such Distribution Date
and Interest Available Funds for such Distribution Date and (y) the lesser of
the Interest Shortfall Amount of the Class A-1 Certificates and the excess, if
any, of the Interest Available Funds for such Distribution Date over the
Interest Accrual Amount of the Class A-1 Certificates for such Distribution
Date.
The "Interest Accrual Period" with respect to each Distribution Date is
the period commencing on the __th day of the [ _____ month] preceding the month
in which such Distribution Date occurs and ending on the th day of the month in
which such Distribution Date occurs.
The "Interest Accrual Amount" for the Class A-1 Certificates on each
Distribution Date will equal the product of (i)____ of the Class A-1
Pass-Through Rate for such Distribution Date and (ii) the outstanding Principal
Balance thereof, subject to reduction in respect of Deferred Interest and
Prepayment Interest Shortfalls incurred with respect to the Mortgage Loans
underlying the Mortgage Certificates. The "Class A-1 Pass-Through Rate" during
the initial Interest Accrual Period will be ____ % per annum. During each
succeeding Interest Accrual Period, the Class A-1 Pass-Through Rate will be
_____ % in excess of [specify index] determined (as described below under
"--Determination of [specify index]") ("[specify index]") on the [ _______ day
prior to the first day] of such Interest Accrual Period or, if such ________ day
is not a business day, the preceding business day (each, a "Reset Date"). The
"Interest Shortfall Amount" of the Class A-1 Certificates is equal to the sum of
the amounts for all previous Distribution Dates by which the Interest Accrual
Amount of the Class A-1 Certificates exceeded the Interest Available Funds for
such Distribution Dates (to the extent such amounts have not been paid on
subsequent Distribution Dates), together with interest accrued thereon at the
Class A-1 Pass-Through Rate in effect from time to time.
"Interest Available Funds" with respect to any Distribution Date will be
equal to the sum of (a) all payments in respect of interest received by the
Certificate Administrator on the Mortgage Certificates during the related
Collection Period, (b) interest earned on amounts invested in the Certificate
Account [and] [(c) all amounts on deposit in the Reserve Fund (including any
payments made by the Yield Support Counterparty on such Distribution Date under
the Yield Support Agreement) (up to the excess of the Interest Accrual Amount
and the Interest Shortfall Amount of the Class A-1 Certificates over the amount
described in clauses (a) and (b) above)]. Interest Available Funds will be
distributed on each Distribution Date first to pay the Interest Accrual Amount
of the Class A-1 Certificates and next to pay the Interest Shortfall Amount of
the Class A-1 Certificates. Any Interest Available Funds remaining after such
distributions will be deposited in the Reserve Fund.
Due to the factors discussed under "Risk Factors--Basis Risk", Interest
Available Funds may not always be sufficient to pay the full Interest Accrual
Amount with respect to Class A-1 Certificates on each Distribution Date.
The Interest Accrual Amount for the Class IO Certificates on each
Distribution Date will equal the product of (i) of the Class IO Pass-Through
Rate for such Distribution Date and (ii) the outstanding Principal Balance of
the Class A-1 Certificates, subject to reduction in respect of Deferred Interest
and Prepayment Interest Shortfalls. The Class R Certificates are not entitled to
distributions in respect of interest and, therefore, have no Interest Accrual
Amount. During each Interest Accrual Period the "Class IO Pass-Through Rate"
will be equal to the excess, if any, of (X) the weighted average of the Weighted
Average Mortgage Certificate Pass-Through Rate for each of the Underlying Series
Distribution Dates that occurs during the Collection Period related to such
Interest Accrual Period (determined as described herein) (such weighted average,
the "Quarterly Mortgage Certificate Pass-Through Rate") over (Y) the Class A-1
Pass-Through Rate for
S-15
<PAGE>
such Interest Accrual Period. The "Weighted Average Mortgage Certificate
Pass-Through Rate" with respect to any Underlying Series Distribution Date will
be equal to the weighted average of the pass-through rates of the Mortgage
Certificates applicable to such Underlying Series Distribution Date, weighted on
the basis of the outstanding principal balances of such classes prior to
distributions on such Underlying Series Distribution Date. The Weighted Average
Mortgage Certificate Pass-Through Rate with respect to the Underlying Series
Distribution Date in _______________ is approximately ____ %. The "Collection
Period" with respect to a Distribution Date is the period commencing on the day
after the preceding Distribution Date (or, in the case of the first Collection
Period, on __________________ ) and ending on such Distribution Date.
Interest on the Certificates will be calculated on the basis of [specify
interest calculation convention].
Deferred Interest allocated to the Mortgage Certificates on each
Underlying Series Distribution Date occurring during the Collection Period
related to any Distribution Date (as reported on the remittance reports relating
to such Mortgage Certificates) will be allocated between the Class A-1
Certificates and the Class IO Certificates on the related Distribution Date, pro
rata, based on the Interest Accrual Amounts of each thereof (before reduction
for such Deferred Interest). See "Description of the Underlying Mortgage Loans"
and "The Mortgage Certificates--Distributions on the Mortgage Certificates." The
amount of Deferred Interest allocated in reduction of the Interest Accrual
Amount of the Class A-1 Certificates will be added to the Principal Balance of
such Class as of such Distribution Date.
Prepayment Interest Shortfalls allocated to the Mortgage Certificates on
each Underlying Series Distribution Date occurring during the Collection Period
related to any Distribution Date (as reported on the remittance reports relating
to such Mortgage Certificates) will be allocated between the Class A-1
Certificates and the Class IO Certificates on the related Distribution Date, pro
rata, based on the Interest Accrual Amounts thereof (before reduction for such
interest shortfall on such Distribution Date). See "The Mortgage
Certificates--Distributions on the Mortgage Certificates" herein.
The "Principal Balance" of the Class A-1 Certificates as of any
Distribution Date will be equal to the Mortgage Certificate Balance as of the
preceding Distribution Date. The "Mortgage Certificate Balance" as of any
Distribution Date will be equal to the sum of the Mortgage Certificate Balances
(after giving effect to all distributions and other principal balance reductions
on the Mortgage Certificates and any Deferred Interest added to the principal
balance thereof during the Collection Period ending on such Distribution Date).
Neither the Class IO Certificates nor the Class R Certificate have any Principal
Balance and, therefore, neither is entitled to distributions in respect of
principal.
Determination Of [specify index]. [describe procedures for determining
index]
Historical [specify index]. Listed below are historical values of [specify
index] since :
[specify index]
Monthly Averages
<TABLE>
<CAPTION>
Year
--------------------------------------------------
Month(1) 199 199 199 199 199
- -------- ---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C>
</TABLE>
Principal Distributions. Distributions in respect of principal on the
Class A-1 Certificates will be made on each Distribution Date in an amount equal
to the sum of all amounts distributed in respect of principal on the Mortgage
Certificates during the Collection Period ending on such Distribution Date.
Principal payments on the Class A-1 Certificates will be made on each
Distribution Date to the extent funds are available therefor until the Principal
Balance of the Class A-1 Certificates has been reduced to zero.
[Reserve Fund
S-16
<PAGE>
The Pooling Agreement will require the Certificate Administrator to
establish a separate trust account, which it will hold for the benefit of the
Trustee on behalf of the holders of the Class A-1 Certificates (the "Reserve
Fund").
On the Closing Date, the Depositor will deposit or cause to be deposited
into the Reserve Fund, [(i) cash in the amount of $ ____________ [and] [(ii) the
Class IO Certificates]. All distributions on the Class IO Certificates will be
made to the Certificate Administrator for deposit into the Reserve Fund. In
addition, all payments by the Yield Support Counterparty pursuant to the Yield
Support Agreement will be deposited in the Reserve Fund. Amounts on deposit in
the Reserve Fund from time to time will be available on each Distribution Date
to be paid to holders of the Class A-1 Certificates to the extent that amounts
described in clauses (a) and (b) of the definition of Interest Available Funds
are insufficient to pay the Interest Accrual Amount and Interest Shortfall
Amount of the Class A-1 Certificates for such Distribution Date. The Reserve
Fund will be an asset of the Trust Fund, but will not be an asset of the REMIC.
Amounts in the Reserve Fund will be invested in "eligible assets," as defined in
the Pooling Agreement, at the discretion of the Certificate Administrator,
provided each such investment matures no later than the succeeding Distribution
Date.
The Depositor will not have any obligation to deposit additional monies in
the Reserve Fund after the Closing Date.
No assurance can be given that amounts on deposit in the Reserve Fund from
time to time will, together with the balance of Interest Available Funds on any
Distribution Date, be sufficient to allow the distribution of the full Interest
Accrual Amount with respect to the Class A-1 Certificates on any such
Distribution Date.
Due to the factors described under "Special Considerations--Basis Risk"
and "Yield and Prepayment Considerations--Basis Risk; [specify index]," changes
in the levels of COFI, CMT and CBE may not necessarily correlate with changes in
[specify index]. Accordingly, the Class IO Certificates (payments on which,
together with payments under the Yield Support Agreement, are the sole source of
payments into the Reserve Fund after the Closing Date) will not be entitled to
any payments under certain interest rate scenarios. See "--Distributions" above.
In addition, the Yield Support Counterparty will not be obligated to make any
payments under the Yield Support Agreement unless [specify index] exceeds the
Strike Rate. See "--The Yield Support Agreement" below. The following table,
which was prepared on the basis of the Modeling Assumptions, illustrates the
balances that would be available in the Reserve Fund on the date indicated under
the interest rate scenarios (the "Rate Scenarios") described in the following
paragraph and at the various percentages of CPR indicated. Each of the Rate
Scenarios set forth below assumes [describe assumptions].
"Rate Scenario I" [describe assumptions].
"Rate Scenario II" [describe assumptions].
"Rate Scenario III" [describe assumptions].
Projected Balance Available at
<TABLE>
<CAPTION>
Percent of CPR
-----------------------------------------------
% % %
------------- -------------- --------------
<S> <C> <C> <C>
Rate Scenario I ....
Rate Scenario II....
Rate Scenario III...
</TABLE>
[The Yield Support Agreement
The following is a summary of certain features of the Yield Support
Agreement (as defined below).
General. On the Closing Date, the Trustee, acting on behalf of the holders
of the Class A-1 Certificates, will enter into a yield support agreement (the
"Yield Support Agreement") with ____________________, a ____________________
S-17
<PAGE>
(the "Yield Support Counterparty"). The Yield Support Agreement will be governed
by and construed in accordance with the laws of .
Payment Terms. Pursuant to the terms of the Yield Support Agreement, in
the event that [specify index] on any Reset Date (determined as described below
under "--Determination of [specify index]") exceeds _____ % (which rate is equal
to [specify index] as set with respect to the first Interest Accrual Period plus
____ %) (the "Strike Rate"), the Yield Support Counterparty will be obligated to
pay to the Certificate Administrator, for the benefit of the holders of the
Class A-1 Certificates, on the Distribution Date related to the Interest Accrual
Period following such Reset Date, an amount equal to one-fourth of the product
of (x) the difference between [specify index] at such Reset Date (determined as
described above) and the Strike Rate and (y) the Principal Balance of the Class
A-1 Certificates outstanding prior to distributions on such Distribution Date.
Amounts paid by the Yield Support Counterparty on any Distribution Date will be
paid to the Certificate Administrator for deposit into the Reserve Fund.
No assurance can be given that amounts paid by the Yield Support
Counterparty on any Distribution Date will, together with the balance of the
Interest Available Funds for such Distribution Date, be sufficient to allow full
distributions in respect of interest on the Class A-1 Certificates on such
Distribution Date or on any future Distribution Dates. The obligations of the
Yield Support Counterparty with respect to the securities offered hereby are
limited to those specifically set forth in the Yield Support Agreement and are
subject to certain conditions as described in the Yield Support Agreement.
Termination. Unless earlier terminated as described below, the Yield
Support Agreement will terminate upon the reduction of the Principal Balance of
the Class A-1 Certificates to zero.
Pursuant to the Yield Support Agreement, certain events may occur in
respect of the Yield Support Counterparty that will give the Trustee the right
to terminate the Yield Support Agreement subject to the terms and provisions
thereof. The Trustee will have the right to terminate the Yield Support
Agreement if any of the following events occur:
(i) the Yield Support Counterparty fails to make any payment due
under the Yield Support Agreement and such nonpayment continues for
three business days after notice from the Trustee;
(ii) the Yield Support Counterparty fails to perform or observe its
obligations under such Yield Support Agreement (other than its
obligation to make any payment due under such Yield Support Agreement)
and such failure continues for a period of 30 days after notice from the
Trustee;
(iii) any representation made by the Yield Support Counterparty
under such Yield Support Agreement proves to have been incorrect or
misleading in any material respect as of the time it was made;
(iv) certain events of bankruptcy or insolvency occur with respect
to the Yield Support Counterparty;
(v) the Yield Support Counterparty undertakes certain mergers,
consolidations or transfers of its assets or is dissolved;
(vi) a withholding tax is imposed on payments by the Yield
Support Counterparty under such Yield Support Agreement; or
(vii) a change in law occurs after the Closing Date which makes it
unlawful for the Yield Support Counterparty to perform its obligations
in respect of the Yield Support Agreement.
Breakage Fee. If the Yield Support Agreement is terminated by the
Trustee, the market value of the Yield Support Agreement will be established by
the Trustee on the basis of market quotations of the cost to the Trust Fund of
entering into a replacement yield support agreement, in accordance with the
procedures set forth in the Yield Support Agreement (such amount, the "Breakage
Fee"). The Yield Support Counterparty will be required to pay the Trustee, for
the benefit of the holders of the Class A-1 Certificates the amount of any
Breakage Fee. Upon any such termination of the Yield
S-18
<PAGE>
Support Agreement, the Trustee will apply any Breakage Fee paid by the Yield
Support Counterparty to the purchase of a similar yield support agreement from
another counterparty.
The Yield Support Counterparty.
As of __________________ , the end of its most recent fiscal year, the
Yield Support Counterparty and its subsidiaries had, on a consolidated basis,
total assets of approximately $ ____________ , total liabilities of
approximately $ ____________ , and stockholders' equity of approximately $
___________ .
The Yield Support Counterparty's outstanding senior unsecured indebtedness
has been rated ____ by _______________, ____ by _______________, and ____ by
_______________.
Copies of the Yield Support Counterparty's annual reports are available
from _____________________ by contacting ______________________, at
____________________ .
The above information was provided by the Yield Support Counterparty. No
other information contained herein (including but not limited to the statements
concerning the Yield Support Agreement and the rights under the Yield Support
Agreement of the holders of the securities offered hereby) has been provided by
the Yield Support Counterparty.]
[Optional Repurchase of the Mortgage Certificates
The beneficial owner of the Class IO Certificates will have the option,
but not the obligation, to purchase the Mortgage Certificates from the Trust
Fund on any Distribution Date on which the Mortgage Certificate Balance is equal
to __% or less of the Mortgage Certificate Balance as of the Cut-off Date at a
price equal to the outstanding Principal Balance of the Class A-1 Certificates
together with accrued interest thereon at the then-applicable Class A-1
Pass-Through Rate through the following Distribution Date.]
Denominations
The Class A-1 Certificates will be issued in minimum denominations of
$[1,000] initial principal balance and integral multiples of $1,000 initial
principal balance in excess thereof.
[Book-Entry Form
The Class A-1 Certificates initially will be represented by one physical
certificate registered in the name of Cede & Co. ("Cede"), as nominee of DTC,
which will be the "holder" or "Certificateholder" of such Certificates, as such
terms are used herein. No person acquiring an interest in the Class A-1
Certificates (a "Beneficial Owner") will be entitled to receive a Class A-1
Certificate in certificated form (a "Definitive Certificate") representing such
person's interest in the Class A-1 Certificates, except as set forth below.
Unless and until Definitive Certificates are issued under the limited
circumstances described herein, all references to actions taken by
Certificateholders or holders shall refer to actions taken by DTC upon
instructions from its DTC Participants (as defined below), and all references
herein to distributions, notices, reports and statements to Certificateholders
or holders shall refer to distributions, notices, reports and statements to DTC
or Cede, as the registered holder of the Class A-1 Certificates, as the case may
be, for distribution to Beneficial Owners in accordance with DTC procedures.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities for its participating organizations
("DTC Participants") and to facilitate the clearance and settlement of
securities transactions among DTC Participants through electronic book-entries,
thereby eliminating the need for physical movement of certificates. DTC
Participants include securities brokers and dealers (including First Boston),
banks, trust companies and clearing corporations. Indirect access to the DTC
system also is available to banks, brokers, dealers, trust companies and other
S-19
<PAGE>
institutions that clear through or maintain a custodial relationship with a DTC
Participant, either directly or indirectly ("Indirect DTC Participants").
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make Class A-1 transfers of
Class A-1 Certificates among DTC Participants on whose behalf it acts with
respect to the Class A-1 Certificates and to receive and transmit distributions
of principal of and interest on the Class A-1 Certificates. DTC Participants and
Indirect DTC Participants with which Beneficial Owners have accounts with
respect to the Class A-1 Certificates similarly are required to make Class A-1
transfers and receive and transmit such payments on behalf of their respective
Beneficial Owners.
Beneficial Owners that are not DTC Participants or Indirect DTC
Participants but desire to purchase, sell or otherwise transfer ownership of, or
other interests in, Class A-1 Certificates may do so only through DTC
Participants and Indirect DTC Participants. In addition, Beneficial Owners will
receive all distributions of principal and interest from the Certificate
Administrator, or a paying agent on behalf of the Certificate Administrator,
through DTC Participants. DTC will forward such distributions to its DTC
Participants, which thereafter will forward them to Indirect DTC Participants or
Beneficial Owners. Beneficial Owners will not be recognized by the Trustee, the
Certificate Administrator or any paying agent as Certificateholders, as such
term is used in the Pooling and Servicing Agreement, and Beneficial Owners will
be permitted to exercise the rights of Certificateholders only indirectly
through DTC and its DTC Participants.
Because DTC can only act on behalf of DTC Participants, who in turn act
on behalf of Indirect DTC Participants and certain banks, the ability of a
Beneficial Owner to pledge Class A-1 Certificates to persons or entities that do
not participate in the DTC system, or to otherwise act with respect to such
Class A-1 Certificates, may be limited due to the lack of a physical certificate
for such Class A-1 Certificates. In addition, under a Class A-1 format,
Beneficial Owners may experience delays in their receipt of payments, since
distributions will be made by the Certificate Administrator, or a paying agent
on behalf of the Certificate Administrator, to Cede, as nominee for DTC.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under the Pooling Agreement only at the
direction of one or more DTC Participants to whose accounts with DTC the Class
A-1 Certificates are credited. Additionally, DTC has advised the Depositor that
it will take such actions with respect to specified voting interests only at the
direction of and on behalf of DTC Participants whose holdings of Class A-1
Certificates evidence such specified voting interests. DTC may take conflicting
actions with respect to voting interests to the extent that DTC Participants
whose holdings of Class A-1 Certificates evidence such voting interests
authorize divergent action.
Neither the Depositor, the Certificate Administrator nor the Trustee
will have any responsibility for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Class A-1
Certificates held by Cede, as nominee for DTC, or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests. In the
event of the insolvency of DTC, a DTC Participant or an indirect DTC Participant
in whose name Class A-1 Certificates are registered, the ability of the
Beneficial Owners of such Class A-1 Certificates to obtain timely payment and,
if the limits of applicable insurance coverage by the Securities Investor
Protection Corporation are exceeded or if such coverage is otherwise
unavailable, ultimate payment, of amounts distributable with respect to such
Class A-1 Certificates may be impaired.
The Class A-1 Certificates will be converted to Definitive Certificates
and re-issued to Beneficial Owners or their nominees, rather than to DTC or its
nominee, only if (i) the Certificate Administrator is advised that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to the Class A-1 Certificates and the Certificate Administrator is
unable to locate a qualified successor, (ii) the Certificate Administrator, at
its option, elects to terminate the book-entry system through DTC or (iii) after
the occurrence of a dismissal or resignation of the Certificate Administrator
under the Pooling Agreement, Beneficial Owners representing not less than 51% of
the voting interests of the outstanding Class A-1 Certificates advise the
Trustee through DTC, in writing, that the continuation of a book-entry system
through DTC (or a successor thereto) is no longer in the Beneficial Owners' best
interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Certificate Administrator (or, if the Certificate Administrator
has been dismissed, the Trustee) will be required to notify all Beneficial
Owners through DTC Participants of the availability of Definitive Certificates.
Upon surrender by DTC of the physical certificates
S-20
<PAGE>
representing the Class A-1 Certificates and receipt of instructions for
re-registration, the Certificate Administrator will reissue the Class A-1
Certificates as Definitive Certificates to Beneficial Owners. ]
Termination
The Trust Fund will terminate upon the earlier of (a) the distribution
to holders of the Certificates of all amounts required to be distributed to them
pursuant to the Pooling Agreement and (b) the termination of the Pooling
Agreement.
Certificate Account
All payments and collections in respect of the Mortgage Certificates
will be deposited in an account maintained by the Certificate Administrator (the
"Certificate Account") in the name of the Trustee with a depository institution
(which may be the Certificate Administrator) and in a manner acceptable to each
Rating Agency. See "Description of the Certificates --Payments on the Mortgage
Loans" and "--Collection of Payments on Mortgage Certificates" in the
Prospectus.
Any earnings on investment of amounts in the Certificate Account will be
available for distribution to the holders of the Certificates as Interest
Available Funds. The rate at which such funds are invested from time to time is
referred to herein as the "Reinvestment Rate".
Actions in Respect of the Mortgage Certificates
If at any time the Trustee, as the Mortgage Certificateholder, is
requested in such capacity to take any action or to give any consent, approval
or waiver, including without limitation in connection with an amendment of an
Underlying Pooling Agreement or if an event of default occurs under an
Underlying Pooling Agreement with respect to the Mortgage Loan Servicer or the
Mortgage Loan Trustee thereunder, the Pooling Agreement provides that the
Trustee, in its capacity as certificateholder, may take action in connection
with the enforcement of any rights and remedies available to it in such capacity
with respect thereto, will promptly notify all of the holders of the
Certificates and will act only in accordance with written directions of holders
of the Certificates evidencing in excess of 50% of the Voting Rights.
Voting Rights
Certain actions specified in the Prospectus that may be taken by holders
of the Certificates evidencing a specified percentage of all undivided interest
in the Trust Fund may be taken by holders of the Certificates entitled in the
aggregate to such percentage of the Voting Rights. At any time that any
certificates are outstanding, the "Voting Rights" under the Pooling Agreement
will be allocated [ %] to the Class R Certificate, ____ % to the Class IO
Certificate and the remainder to the Class A-1 Certificate.
Certificate Administrator
_______________ will act as Certificate Administrator. [Describe business
of Certificate Administrator]
Trustee
_______________ will act as the Trustee. [Describe business of Trustee]
THE MORTGAGE CERTIFICATES
General
The description of the Mortgage Certificates contained in this
Prospectus Supplement is a general summary of certain characteristics of the
Mortgage Certificates and does not purport to be complete. Such description is
subject to, and is qualified in its entirety by reference to, the actual terms
and provisions of the Prospectuses and Prospectus Supplements
S-21
<PAGE>
related to each of the Mortgage Certificates (collectively, the "Underlying
Disclosure Documents") and the Pooling and Servicing Agreements relating to each
of the Mortgage Certificates (collectively, the "Underlying Pooling
Agreements"). Copies of the Underlying Disclosure Documents and the Underlying
Pooling Agreements are available from First Boston by calling
___________________ at _______________ . Investors are urged to obtain copies of
such documents and read this Prospectus Supplement in conjunction therewith.
The assets of the REMIC will consist primarily of ____ classes (or
portions of classes) of senior mortgage pass-through certificates (the "Mortgage
Certificates"), each of which is a part of one of ____ separate series of
mortgage pass-through certificates (each an "Underlying Series").
[Each of the Mortgage Certificates was issued pursuant to a separate
Underlying Pooling Agreement, generally dated as of the first day of the month
of initial issuance of the related Underlying Series (as to each, the
"Underlying Series Cut-off Date"), generally among _________ , the servicer or
master servicer of the related Mortgage Loans (each, a "Mortgage Loan Servicer")
and the trustee of the related Mortgage Certificates (each, a "Mortgage Loan
Trustee").]
Certain characteristics of the Mortgage Certificates are described
below. Certain of the information with respect to the Mortgage Certificates has
been derived from the original offering documents relating to such Mortgage
Certificates and from publicly available data and other data available to the
Depositor with respect thereto. It should be noted that there may have been
material changes in facts and circumstances since the dates such documents were
prepared, including, but not limited to, changes in prepayment speeds and
prevailing interest rates and other economic factors, which may limit the
usefulness of, and be directly contrary to the assumptions used in preparing,
the information set forth in such documents.
The Mortgage Certificates were each issued on the dates set forth in the
following table for each such Mortgage Certificate, each in an offering
registered by _________ under the Securities Act of 1933, as amended (the
"Securities Act").
<TABLE>
<CAPTION>
Mortgage Certificates Date of Issuance
--------------------- ----------------
<S> <C>
</TABLE>
[Each Underlying Series consists of multiple classes of mortgage
pass-through certificates representing interests in separate trusts (each, an
"Underlying Trust Fund"), previously formed by ________ , each such Underlying
Trust Fund consisting, in part, of [a] [multiple] mortgage pools. Each of the
Mortgage Certificates evidences a senior interest in a separate mortgage pool
(each, an "Underlying Mortgage Pool"), which is part of one of the Underlying
Trust Funds, consisting primarily of adjustable interest rate, conventional,
one- to four-family, residential first mortgage loans (the "Mortgage Loans"),
sold by _________ to the related Mortgage Loan Trustee for the benefit of
holders of the certificates of the related Underlying Series. Except as set
forth in the following sentence, the Underlying Series relating to each class of
Mortgage Certificates includes at least one class of certificates (as to each
Underlying Series, the "Related Subordinated Certificates") which represents an
interest in the same Underlying Mortgage Pool as such class of Mortgage
Certificates and which is subordinated to such class of Mortgage Certificates.]
Each of the Mortgage Certificates has been assigned the ratings set
forth in the following table by the rating agencies identified therein:
[table to be added]
The following table sets forth expected approximate characteristics of the
Mortgage Certificates based on remittance reports received with respect to the
Underlying Series Distribution Dates occurring in ____.
S-22
<PAGE>
SUMMARY DESCRIPTION OF THE MORTGAGE CERTIFICATES
(Based on the ______ Remittance Reports)
<TABLE>
<CAPTION>
Mortgage
Certificate
Percentage Pass-
Interest of Class Current Through
Represented by Current Mortgage Rate
Mortgage Underlying Certificate as of the
Original Class Certificate in Mortgage Current Balance in Predominant Cut-off
Underlying Series Class Balance Trust Fund Pool Balance Class Balance Trust Fund Index Date
- ----------------- ----- ------------- ---------------- ------------ ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ % $ $ $ %
</TABLE>
On the Closing Date, the Principal Balance of the Class A-1 Certificates
will equal the aggregate principal balance of the Mortgage Certificates. In the
event that any of the actual characteristics as of the Cut-off Date of the
Mortgage Certificates varies materially from those described herein, revised
information regarding the Mortgage Certificates will be made available to
purchasers of the Class A-1 Certificates on or before the Closing Date.
[Distributions on the Mortgage Certificates
The following is a discussion of the characteristics of the Mortgage
Certificates in general. The precise characteristics of specific Mortgage
Certificates may vary from the general descriptions set forth below. There are
substantial variations among the Underlying Pooling Agreements for the various
Underlying Series. The following discussion does not purport to describe with
specificity the terms of any specific Underlying Pooling Agreement, but is
instead a general description of the major economic terms of the Mortgage
Certificates, with certain major variations from the general descriptions with
respect to certain Mortgage Certificates or groups of Mortgage Certificates
noted. Investors are urged to obtain the Underlying Pooling Agreements and the
Underlying Disclosure Documents from First Boston and read such agreements in
conjunction with this Prospectus Supplement.
[Describe distributions on Mortgage Certificates]
General
[to follow]
Interest Distributions
[to follow]
Principal Distributions
[to follow]
Credit Support
[to follow]
S-23
<PAGE>
Optional Termination
[to follow]
Assignment of Representations and Warranties
[to follow]
Payments on Mortgage Loans
[to follow]
Collection and Other Servicing Procedures
[to follow]
Advances
[to follow]
Mortgage Loan Trustee and Collateral Agent
[to follow]
DESCRIPTION OF THE MORTGAGE LOANS
General
[As of the Cut-off Date, the Mortgage Certificates represented
approximately $ ______________ of the beneficial interest in
______________________ separate Underlying Mortgage Pools which, in turn, were
comprised of mortgage loans having an aggregate principal balance as of such
date of approximately $ _____________ . [Describe terms of underlying Mortgage
Loans, including underwriting standards used to originate the mortgage loans
underlying the Mortgage Certificates that comprise a material portion of the
Trust Fund.] The mortgage loans in each Underlying Mortgage Pool are adjustable
rate, conventional, one-to-four family residential first mortgage loans having
approximately the characteristics set forth in the table below. The related
Mortgaged Properties include owner-occupied, vacation and investor-owned
properties, condominiums, cooperatives, and units in Planned Unit Developments.
With respect to some of the Mortgage Loans, the type of the related Mortgaged
Property was unknown as of the date of issuance of the related Mortgage
Certificates. Investors are urged to review the information concerning the
Mortgage Loans set forth in each of the Underlying Disclosure Documents. Such
information may not have been accurate when prepared. The information regarding
the Mortgage Loans set forth herein (including in the tables below) is based on
information contained in the Underlying disclosure Documents and on other
information made available in connection with the issuance of each of the
Mortgage Certificates. In addition, the information contained in the assumed
Mortgage Certificate Characteristics table is derived from information made
available in connection with the issuance of each of the Mortgage Certificates.
IT SHOULD BE NOTED THAT THERE MAY HAVE BEEN MATERIAL CHANGES IN FACTS AND
CIRCUMSTANCES SINCE THE DATE SUCH DOCUMENTS AND INFORMATION WERE PREPARED,
INCLUDING, BUT NOT LIMITED TO, PREVAILING INTEREST RATES AND OTHER ECONOMIC
FACTORS, WHICH MAY LIMIT THE USEFULNESS OF, AND EVEN BE DIRECTLY CONTRARY TO THE
ASSUMPTIONS USED IN PREPARING SUCH INFORMATION AND DOCUMENTS. In addition, the
Underlying Disclosure Documents do not provide information sufficient to
determine the percentage distribution of Mortgage Loans exhibiting many of the
characteristics described herein. The Depositor did not prepare or assist in the
preparation of the Underlying Disclosure Documents and, therefore, cannot
confirm the accuracy or completeness of such information.
S-24
<PAGE>
Mortgage Loan Delinquency Status
The following table summarizes the monthly delinquency, foreclosure and
REO information for the Mortgage Loans contained in each of the Underlying
Mortgage Pools for [__________] 19[__]. The information in the following table
has been prepared by the Depositor solely on the basis of the remittance reports
provided by the Mortgage Loan Trustees, and the Depositor makes no
representations as to its accuracy. Investors should consider the risk that any
of the delinquent Mortgage Loans may become defaulted loans and subsequently
liquidated loans, and that realized losses on such Mortgage Loans may be
allocated to the Mortgage Certificates. Defaults by mortgagors on the Mortgage
Loans may result in the failure of Mortgage Certificates on a given Underlying
Series Distribution Date to receive full payments in respect of interest or
principal.
DELINQUENCY STATUS
(BASED ON [__________] 19[__] REMITTANCE REPORT)
<TABLE>
<CAPTION>
DELINQUENCIES AS PERCENT OF POOL BALANCE
-----------------------------------------------
[__________] 19[__] 30 DAYS 60 DAYS 90+ DAYS FORECLOSURE REO(2)
------- ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C>
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
Series
</TABLE>
- ------------------
(1) Reflects the delinquencies as a percent of the Pool Balance of Mortgage
Loans in the related Mortgage Pool and mortgage loans in two other mortgage
pools in the same Underlying Trust Fund.
(2) NA = Not Available.
[YIELD AND PREPAYMENT CONSIDERATIONS
Prepayments and Excess Cash. The rate of principal payments on the Class
A-1 Certificates will be affected by the rate of principal payments on the
Mortgage Loans (including, for this purpose, prepayments, which may include
amounts received by virtue of condemnation, insurance or foreclosure).
S-25
<PAGE>
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, social, tax, legal and other factors. In general, if
prevailing interest rates fall significantly below the interest rates on the
Mortgage Loans, the Mortgage Loans are likely to be subject to higher
prepayments than if prevailing rates remain at or above the interest rates on
such Mortgage Loans. Conversely, if prevailing interest rates rise above the
interest rates on such Mortgage Loans, the rate of prepayments would be expected
to decrease. Other factors affecting prepayment of the Mortgage Loans include
changes in borrowers' housing needs, job transfers, unemployment, borrowers' net
equity in the mortgaged properties and servicing decisions.
All of the Mortgage Loans are adjustable rate mortgage loans ("ARMs"). The
Depositor is not aware of any publicly available statistics that set forth
principal prepayment experience or prepayment forecasts of ARMs over an extended
period of time. The prepayment experience of the Mortgage Certificates is
insufficient to draw any conclusions with respect to the expected prepayment
rates of the Mortgage Loans. The rate of principal prepayments with respect to
ARMs has fluctuated in recent years. As is the case with conventional fixed rate
mortgage loans, ARMs may be subject to a greater rate of principal prepayments
in a declining interest rate environment. For example, if prevailing interest
rates fall significantly, ARMs could be subject to higher prepayment rates than
if prevailing interest rates remain constant because the availability of fixed
rate mortgage loans at competitive interest rates may encourage mortgagors to
refinance their ARMs to "lock in" a lower fixed interest rate. No assurances can
be given as to the rate of prepayments on the Mortgage Loans in stable or
changing interest rate environments.
Excess Cash related to each of the Underlying Mortgage Pools (and other
mortgage pools that are part of the Underlying Trust Funds) will be allocated in
reduction of the Mortgage Certificate Principal Balances of the Certificates in
various ways. See "The Mortgage Certificates--Principal Distributions".
If a Class A-1 Certificate is purchased at a discount from its initial
principal amount by a purchaser that calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is faster than
that actually experienced on the Mortgage Loans, the actual yield to maturity
will be lower than that so calculated. Similarly, if a Certificate is purchased
at a premium by a purchaser that calculates its anticipated yield to maturity
based on an assumed rate of payment of principal that is slower than that
actually experienced on the Mortgage Loans, the actual yield to maturity will be
lower than that so calculated.
Timing of Payments. The timing of changes in the rate of prepayments on
the Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of principal payments is consistent with an
investor's expectations. In general, the earlier a prepayment of principal of
the Mortgage Loans, the greater the effect on an investor's yield to maturity.
The effect on an investor's yield of principal payments occurring at a rate
higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Certificates may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
Basis Risk; [specify index]. The interest rate payable to the Holders of
the Class A-1 Certificates is based on [specify index]. However, the Mortgage
Loans bear interest at adjustable rates based on the Indices. [Specify index]
and the Indices may respond to different economic and market factors, and there
is not necessarily a correlation between them. Thus, it is possible, for
example, that [specify index] may rise during periods in which the Indices of
the Mortgage Loans are stable or are falling, or that even if both [specify
index] and the Indices rise during the same period [specify index] may rise much
more rapidly and sharply than the Indices. There can be no assurance that funds
available in the Reserve Fund payments under the Yield Support Agreement will be
sufficient to make up any amount by which the interest collected on the Mortgage
Certificates is less than the Interest Accrual Amount of the Class A-1
Certificates.
Mortgage Certificates. The Trust Fund contains Mortgage Certificates which
were issued at different times, are backed by different pools of Mortgage Loans,
have different allocations of principal and interest and payment priorities
among various classes, and may perform differently in various interest and
prepayment rate environments. The performance characteristics of the Class A-1
Certificates will reflect a combination of the performance characteristics of
the various Mortgage Certificates. As a result, it will be difficult to predict
the likely yield and payment experience of the Class A-1 Certificates.
S-26
<PAGE>
Special Terminations. Each of the Underlying Mortgage Pools is subject to
termination as described under "Description of the Mortgage
Certificates--Special Termination". Any such termination may have the effect of
decreasing the weighted average life of the Class A-1 Certificates.
Convertible ARM Loans. As discussed above under "Description of the
Mortgage Loans," borrowers under certain of the Mortgage Loans have the option
to convert their Mortgage Loan to a fixed rate loan. As previously discussed,
the related Mortgage Loan Servicers are obligated to purchase any such converted
mortgage loans. Unless and until such a purchase is effected, a converted
mortgage loan will stay in the Underlying Mortgage Pool and the Mortgage
Interest Rate will be fixed rather than based on an Index. The yield on the
Class A-1 Certificates may thus be adversely affected. In addition, the purchase
of a Converted Mortgage Loan may affect the rate of principal payments on the
Class A-1 Certificates and, as a result, the yield on such Certificates.
Weighted Average Lives
The weighted average life of a security refers to the average amount of
time that will elapse from the date of its issuance until each dollar of
principal of such security will be distributed to the investor. The weighted
average life of a Class A-1 Certificate is determined by (a) multiplying the
amount of the reduction, if any, of the principal balance of such Certificate
from one Distribution Date (or, in the case of the first distribution, from
__________________ ) to the next Distribution Date by the number of years from
the date of issuance to the second such Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate amount of the reductions in
the principal balance of such Certificate referred to in clause (a). The
weighted average lives of the Class A-1 Certificates will be influenced by,
among other factors, the rate at which principal is paid on the Mortgage Loans.
CPR Model
Prepayments on mortgage loans are commonly measured relative to a
prepayment or model. The model used in this Prospectus Supplement, known as a
conditional or a constant prepayment rate ("CPR"), represents a rate of payment
of unscheduled principal on the Mortgage Loans expressed as an annualized
percentage of the outstanding principal balance of the Mortgage Loans at the
beginning of each period. CPR does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of mortgage loans, including the Mortgage Loans.
Weighted Average Life and Pre-Tax Yield Tables
For each of the following tables it was assumed (the "Modeling
Assumptions") that (i) the Mortgage Loans underlying each of the Mortgage
Certificates have, on a weighted average basis, the characteristics set forth in
the following table following this paragraph; (ii) each Mortgage Loan underlying
a Mortgage Certificate has a Mortgage Interest Rate as of the Cut-off Date,
remaining term to maturity and loan age equivalent to the weighted average
mortgage interest rate of such Mortgage Loans, the weighted average remaining
term to maturity and the weighted average loan age of such Mortgage Loans as of
the Cut-off Date, as reported, respectively, in the applicable Remittance
Reports prepared by the Mortgage Loan Servicers; (iii) scheduled monthly
payments of principal and interest on the Mortgage Loans will be timely received
on the first day of each month (with no defaults); (iv) principal prepayments on
the Mortgage Loans will be received on the last day of each month at the
percentages of CPR indicated; (v) all amounts due with respect to the Mortgage
Loans are applied to the payment of the Mortgage Certificates on the 25th of the
month as described in the applicable Underlying Disclosure Documents; (vi) no
Deferred Interest accrues with respect to any Mortgage Loan; (vii) for the first
Interest Accrual Period, the Class A-1 Pass-Through Rate is ______ %; (viii) the
Closing Date is __________________ ; (ix) each ___________ distribution on the
Class A-1 Certificates is made on the th day of the relevant month, commencing
on __________________ ; and (x) the Class A-1 Certificates are purchased at
par.]
S-27
<PAGE>
ASSUMED MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
Weighted Mortgage
Average Certificate Months Months
Mortgage Pass- Until Next Until Next
Mortgage Interest Servicing Periodic Through Remaining Gross Net Rate Payment
Certificates INDEX Rate Fee Cap Net Cap Seasoning Rate Term Margin Margin Adjustment Adjustment
- ------------ ----- -------- --------- -------- ------- --------- --------- --------- ------ ------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
S-28
<PAGE>
S-29
<PAGE>
Based on the Modeling Assumptions and the further assumptions that
(i)[specify index] with respect to each Interest Accrual Period is equal to
_______ %, (ii) CMT with respect to each Interest Accrual Period is equal to
_______ %, (iii) COFI with respect to each Interest Accrual Period is equal to
_______ % and (iv) the Reinvestment Rate with respect to each Interest Accrual
Period is equal to _______________, the following table indicates the
percentages of the initial Principal Balance of the Class A-1 Certificates that
would be outstanding after each of the dates shown at various constant
percentages of CPR. Such tables also indicate, based on such assumptions, the
weighted average life of the Class A-1 Certificates under each of the following
four scenarios (the "Termination Scenarios") concerning the Auction and Special
Terminations of the Underlying Series. See "Description of the
Certificates--Mandatory Auction" and "The Mortgage Certificates--Special
Termination".
"Termination Scenario I" [specify assumptions].
"Termination Scenario II" [specify assumptions].
"Termination Scenario III" [specify assumptions].
"Termination Scenario IV" [specify assumptions].
Percent of Original Principal Balance Outstanding
<TABLE>
<CAPTION>
Class A-1
CPR Prepayment Assumption
------------------------------------------------------
Distribution Date
- ------------------------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted Average Life (1)
Termination Scenario I
Termination Scenario II
Termination Scenario III
Termination Scenario IV
</TABLE>
- ------------
(1) The weighted average life of a Class A-1 Certificate is determined by (i)
multiplying the principal payment on the Class A-1 Certificates by the
number of years from the date of issuance of the Class A-1 Certificate to
the related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the aggregate principal payments on the Class A-1 Certificates.
S-30
<PAGE>
The following tables set forth, based upon the Modeling Assumptions, and
assuming the constant rate of CPR indicated in the heading for each table, the
projected yield to maturity, on a corporate bond equivalent basis, and the
projected Principal Balance of the Class A-1 Certificates as of _______________.
Projected Yield to Maturity and
Outstanding Principal Balance under Rate Scenario I
<TABLE>
<CAPTION>
Percent of CPR
-------------------------------------
% % %
----------- ----------- -----------
<S> <C> <C> <C>
Yield to Maturity.................. % % %
Outstanding Principal Balance as of
______________________................. $ $ $
Projected Yield to Maturity and
Outstanding Principal Balance under Rate Scenario II
<CAPTION>
Percent of CPR
-------------------------------------
% % %
----------- ----------- -----------
<S> <C> <C> <C>
Yield to Maturity.................. % % %
Outstanding Principal Balance as of
______________________................. $ $ $
Projected Yield to Maturity and
Outstanding Principal Balance under Rate Scenario III
<CAPTION>
Percent of CPR
-------------------------------------
% % %
----------- ----------- -----------
<S> <C> <C> <C>
Yield to Maturity.................. % % %
Outstanding Principal Balance as of
______________________................. $ $ $
</TABLE>
Each of the Rate Scenarios assumes that the levels of [specify index],
COFI and CMT rise significantly above current levels. The actual yield to an
investor will be significantly lower if the actual levels of such indices fall,
remain constant, or rise less than the amounts assumed in the Rate Scenarios. No
prediction can be made as to the actual level of any such index at any future
date.
The yields set forth in the above table were calculated by determining the
monthly discount rates which, when applied to the assumed stream of cash flows
to be paid on the Class A-1 Certificates, would cause the discounted present
value of such assumed stream of cash flows to equal the assumed purchase price
of the Class A-1 Certificates indicated in the Modeling Assumption above and
converting such monthly rates to corporate bond equivalent rates. Such
calculation does not take into account variations that may occur in the interest
rates at which investors may be able to reinvest funds received by them as
payments of principal of and interest on the Class A-1 Certificates and
consequently does not purport to reflect the return of any investment in the
Class A-1 Certificates when such reinvestment rates are considered.
S-31
<PAGE>
Actual Experience Will Vary from Assumptions
Discrepancies will exist between the characteristics of the actual
Mortgage Certificates and the underlying Mortgage Loans and the characteristics
assumed therefor in preparing the tables contained herein. To the extent that
the Mortgage Certificates and Mortgage Loans have characteristics which differ
from those assumed in preparing the tables, the Class A-1 Certificates may
mature earlier or later than indicated by the tables and the weighted average
lives and pre-tax yields may also differ. In addition, it is unlikely that the
Mortgage Loans will prepay at any constant rate or at the same rate, or that
[specify index] will remain constant at any level. The timing of changes in the
rate of prepayment and level of [specify index] may significantly affect the
yield realized by a holder of the Class A-1 Certificates.
THE MORTGAGE LOAN SERVICERS
The names of the Mortgage Loan Servicers related to each of the Mortgage
Certificates are set forth in the following table:
MORTGAGE LOAN SERVICERS
<TABLE>
<CAPTION>
Mortgage Certificates Servicer
- --------------------- --------
<S> <C>
</TABLE>
The preceding information with respect to the Mortgage Loan Servicers was
derived by the Depositor from publicly available information which the Depositor
believes to be reliable. However, the Depositor makes no representations with
respect thereto and assumes no responsibility for the accuracy or completeness
thereof.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General. An election will be made to treat the portion of the Trust Fund
consisting of the Mortgage Certificates as a REMIC for federal income tax
purposes. The [payments on the] Class A-1 Certificates [which are derived from
the Mortgage Certificates], and the Class IO Certificates will be designated as
regular interests in the REMIC, and the Class R Certificate will be designated
as the residual interest in the REMIC.
[A purchaser of the Class A-1 Certificates will be treated for tax
purposes as purchasing a REMIC regular interest and a contractual right to
receive amounts from the Reserve Fund. Under general tax principles, a purchaser
of more than one asset must allocate its purchase price between the assets based
on their relative fair market values on the date of purchase. An investor that
disposes of its Class A-1 Certificates must make a similar allocation of its
amount realized.
The Certificate Administrator intends to treat the value of the
contractual right to receive payments from the Reserve Fund as de minimis.
Consequently, the Certificate Administrator intends to report assuming that the
entire purchase price for the Class A-1 Certificates is allocated to the REMIC
regular interest. Based on this assumption, it is anticipated that the REMIC
regular interest will be issued [at a premium] [with de minimis original issue
discount] for federal income tax purposes. An investor in the Class A-1
Certificates that accounts for its investment using this method of allocation
would report amounts with respect to the Reserve Fund and Yield Support
Agreement as income when received or accrued, in accordance with such investor's
regular method of tax accounting.
The Internal Revenue Service may contend, however, that a portion of the
purchase price paid by an investor in the Class A-1 Certificates should be
allocated to the investor's rights with respect to the Reserve Fund. Under this
approach, the investor
S-32
<PAGE>
would allocate a lesser amount of its purchase price to the REMIC regular
interest than described in the preceding paragraph, which may result in the
creation of, or a greater amount of, original issue discount or market discount
with respect to the REMIC regular interest. The proper method of recovery of the
investor's purchase price allocated to its contractual rights with respect to
the Reserve Fund is not clear. Although not free from doubt, the contractual
arrangement relating to the Reserve Fund should constitute a "notional principal
contract" for federal income tax purposes. Investors should consult their own
tax advisors regarding an investment in the Class A-1 Certificates, in
particular with respect to the recovery of any purchase price allocated to such
notional principal contract.
Status of Class A-1 Certificates. The investment status of that portion of
the Class A-1 Certificates that constitutes a REMIC regular interest is
described in the Prospectus under "Certain Federal Income Tax
Consequences--REMIC Trust Funds--Characterization of Investments in REMIC
Certificates." The interest of an investor in the Class A-1 Certificates
relating to the Reserve Fund would not constitute:
o a "real estate asset" under Section 856(c)(5)(A) of the Internal
Revenue Code (the "Code") if held by a real estate investment trust;
o a "qualified mortgage" under Code Section 860G(a)(3) or a "permitted
investment" under Code Section 860G(a)(5) if held by a REMIC; or
o an asset described in Code Section 7701(a)(19)(C) if held by a thrift.
Income received from the Reserve Fund will not constitute income described in
Code Section 856(c)(3)(B) for a real estate investment trust.
Taxation of REMIC Regular Interest. The portion of the Class A-1
Certificates which constitutes a REMIC regular interest generally will be
treated as a newly originated debt instrument for federal income tax purposes.
Beneficial Owners of the Class A-1 Certificates will be required to report
income with respect to such REMIC regular interest in accordance with the
accrual method of accounting. The Prepayment Assumption (as defined in the
Prospectus) that the Certificate Administrator intends to use in determining the
rate of accrual of original issue discount or premium is 18% CPR. No
representation is made as to the actual rate at which prepayments will occur.
Taxation of Foreign Investors. To the extent the contractual arrangement
relating to the Reserve Fund constitutes a notional principal contract, income
or gain thereon will not be subject to U.S. withholding tax.]
See "Certain Federal Income Tax Consequences--General" and "--REMIC Trust
Funds" in the Prospectus.]
[LEGAL INVESTMENT CONSIDERATIONS
The Class A-1 Certificates will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA")
so long as they are rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization. As such, the
Class A-1 Certificates will constitute legal investments for certain entities to
the extent provided in SMMEA. However, institutions subject to the jurisdiction
of the Office of the Comptroller of the Currency, the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of
Thrift Supervision, the National Credit Union Administration or other federal or
state banking, insurance or other regulatory authorities should review
applicable rules, policies and guidelines of such authorities before purchasing
any of the Class A-1 Certificates, as such Certificates may be deemed to be
unsuitable investments, or may otherwise be restricted, under one or more of
these rules, policies and guidelines (in certain cases irrespective of SMMEA).
It should also be noted that certain states have enacted legislation limiting to
varying extent the ability of certain entities (in particular insurance
companies) to invest in "mortgage related securities." The appropriate
characterization of the Class A-1 Certificates under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase Class A-1 Certificates, may be subject to significant interpretive
uncertainties. Investors should consult with their own legal advisors in
determining whether and to what extent the Class A-1 Certificates constitute
legal investments for such investors. See "Legal Investment" in the Prospectus.]
S-33
<PAGE>
[ERISA CONSIDERATIONS
The Department of Labor has granted to First Boston an individual
administrative exemption Prohibited Transaction Exemption 89-90, 54 Fed. Reg.
42597 (Oct. 17, 1989) (the "Exemption"), from certain of the prohibited
transaction rules of ERISA and certain related excise taxes imposed by the Code
with regard to the initial purchase, the holding and the subsequent resale by
ERISA Plans of certificates in pass-through trusts that meet the conditions and
requirements of the Exemption. The Exemption should apply to the liquidation,
holding, and resale of the Class A-1 Certificates by an ERISA Plan, provided
that specified conditions (certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply to
the acquisition by an ERISA Plan of the Class A-1 Certificates are the
following: (1) the acquisition of the Certificates by an ERISA Plan is on terms
(including the price for such Certificates) that are at least as favorable to
the ERISA 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 ERISA Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust; (3) the Certificates acquired by the ERISA Plan
have received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from any of S&P, Fitch, Duff & Phelps
Credit Rating Co. or Moody's; (4) the sum of all payments made to First Boston
in connection with the distribution of the Class A-1 Certificates represents not
more than reasonable compensation for underwriting such Certificates; and (5)
the sum of all payments made to and retained by the Certificate Administrator
represents not more than reasonable compensation for the Certificate
Administrator's services under the Pooling Agreement and reimbursement of the
Certificate Administrator's reasonable expenses in connection therewith.
In addition, it is a condition that the ERISA Plan investing in the Class
A-1 Certificates be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Commission under the Securities Act.
The Exemption does not apply to the acquisition and holding of Class A-1
Certificates by ERISA Plans sponsored by the Issuer, First Boston, the Trustee,
the Certificate Administrator, or any affiliate of such parties. Moreover, the
Exception provides relief from certain self-dealing/conflict of interest
prohibited transactions, only if, among other requirements (i) an ERISA Plan's
investment in the Class A-1 Certificates does not exceed 25% of all of that
Class outstanding at the time of the acquisition and (ii) immediately after the
acquisition, no more than 25% of the assets of an ERISA Plan with respect to
which the person who has discretionary authority or renders advice are invested
in certificates representing an interest in a trust containing assets sold or
serviced by the same person.]
METHOD OF DISTRIBUTION
First Boston proposes to place the Class A-1 Certificates from time to
time in one or more negotiated transactions, or otherwise, at varying prices to
be determined in each case, at the time of sale. The Class A-1 Certificates are
offered subject to prior sale and acceptance and to certain other conditions.
[If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the Certificates offered hereby in which the
Underwriter acts as principal. The Underwriter may also act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and First
Boston by Sidley & Austin, New York, New York.
RATINGS
It is a condition to the issuance of the Class A-1 Certificates that such
Certificates be rated "____" by __________ and "____" by __________.
S-34
<PAGE>
The ratings of _________ and _____ on mortgage pass-through certificates
address the likelihood of the receipt by holders hereof of all distributions of
principal and interest to which such holders are entitled. The Rating Agencies
note that the entitlement of the Class A-1 Certificates to interest at a rate in
excess of the Mortgage Certificate Pass-Through Rate is subject to the
availability of Interest Available Funds. There is no assurance that such
ratings will continue for any period of time or that they will not be revised or
withdrawn entirely by such rating agency if, in its judgment, circumstances so
warrant. A revision or withdrawal of such ratings may have an adverse effect on
the market price of the Class A-1 Certificates. A security rating is not a
recommendation to buy, sell or hold securities.
_______ and _______ rating opinions address the structural, legal and
issuer aspects associated with the certificates, including the nature of the
underlying mortgage assets and the credit quality of the credit support
provider, if any. _________ and _______ ratings on pass-through certificates do
not represent any assessment of the likelihood that principal prepayments may
differ from those originally anticipated and consequently the timing of such
prepayments may adversely affect an investor's anticipated yield.
The Depositor has not requested a rating on the Certificates from any
other rating agency, although data with respect to the Mortgage Loans or the
Mortgage Certificates may have been provided to other agencies solely for their
informational purposes. There can be no assurance that if a rating is assigned
to the Class A-1 Certificates by any other rating agency, such rating will be as
high as that assigned by _________ or _____________ .
USE OF PROCEEDS
The proceeds from the sale of the Class A-1 Certificates (net of expenses
incurred in connection with the issuance of the Class A-1 Certificates) will be
used by the Depositor to purchase the Mortgage Certificates.
[Disclose if a material portion of the Mortgage Certificates are derived
from the Depositor's (or an affiliate's) unsold allotment or from the
Depositor's (or an affiliate's) previous offering(s).]
S-35
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
Page on which
Term is defined in the
Term Prospectus Supplement
- ---- ---------------------
<S> <C>
ARM's......................................................................S-16
Beneficial Owner...........................................................S-28
Book-Entry Certificates....................................................S-22
Breakage Fee...............................................................S-27
CEDE.......................................................................S-28
Certificate Account........................................................S-29
Certificates................................................................S-1
[Class A-1 Certificates.............................................prospectus]
Class A-1 Pass Through Rate.................................................S-6
[Class IO Certificates..............................................prospectus]
Class IO Pass-Through Rate..................................................S-7
[Class R Certificates...............................................prospectus]
[Closing Date.......................................................prospectus]
Code.......................................................................S-12
Collection Period...........................................................S-7
Commission..................................................................S-3
CPR........................................................................S-18
[Deferred Interest..................................................prospectus]
Definitive Certificate.....................................................S-28
Depositor...................................................................S-1
Distribution Date...........................................................S-5
DTC Participants...........................................................S-28
[Due Date...........................................................prospectus]
ERISA......................................................................S-12
Exchange Act................................................................S-3
Exemption..................................................................S-32
Indices....................................................................S-11
Indirect DTC Participants..................................................S-28
Interest Accrual Amount.....................................................S-5
Interest Accrual Period....................................................S-20
Interest Available Funds...................................................S-23
Interest Shortfall Amount...................................................S-6
[Interest Weighted Class of Certificates............................prospectus]
Modeling Assumptions.......................................................S-18
Mortgage Certificates.......................................................S-1
Mortgage Certificate Balance...............................................S-24
Mortgage Certificate Pass-Through Rate......................................S-7
[Mortgage Certificate Principal Balance.............................prospectus]
Mortgage Interest Rate..............................................prospectus]
Mortgage Loans.............................................................S-15
Mortgage Loan Servicer.....................................................S-14
Mortgage Loan Trustee......................................................S-14
Percentage Interest........................................................S-23
Plan.......................................................................S-12
</TABLE>
S-36
<PAGE>
<TABLE>
<S> <C>
Pooling Agreement...........................................................S-5
[Prepayment Interest Shortfalls.....................................prospectus]
Principal Balance..........................................................S-24
Quarterly Mortgage Certificate Pass-Through Rate...........................S-24
Record Date.................................................................S-5
Regular Certificates.......................................................S-12
Reinvestment Rate..........................................................S-20
Related Subordinated Certificates..........................................S-15
REMIC.......................................................................S-2
Reserve Fund...............................................................S-25
Reset Date..................................................................S-6
Rules......................................................................S-28
Similar Law................................................................S-12
SMMEA......................................................................S-11
Special Termination........................................................S-10
Strike Rate.................................................................S-7
Termination Scenarios......................................................S-20
Trust Fund..................................................................S-5
Trustee....................................................................S-11
Underlying Disclosure Documents.............................................S-2
Underlying Mortgage Pool....................................................S-9
Underlying Pooling Agreements...............................................S-2
Underlying Series...........................................................S-9
Underlying Series Cut-off Date.............................................S-14
Underlying Series Distribution Date.........................................S-7
Underlying Trust Fund......................................................S-15
Weighted Average Mortgage Certificate Pass-Through Rate.....................S-7
Yield Support Counterparty..................................................S-7
Yield Support Agreement.....................................................S-7
</TABLE>
S-37
<PAGE>
- -------------------------------------------------------------------------------
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or the Underwriters. This Prospectus Supplement and the Prospectus do
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction.
----------
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
<S> <C>
Available Information......................................................S-3
Reports to Certificateholders..............................................S-3
Summary of Terms...........................................................S-4
Risk Factors..............................................................S-13
Geographic Concentration..................................................S-14
Description of the Certificates...........................................S-14
The Mortgage Certificates.................................................S-21
Summary Description of the Mortgage Certificates..........................S-22
Description of the Mortgage Loans.........................................S-23
Delinquency Status........................................................S-25
Yield and Prepayment Considerations.......................................S-25
The Mortgage Loan Servicers...............................................S-32
Mortgage Loan Servicers...................................................S-32
Certain Federal Income Tax Consequences...................................S-32
Legal Investment Considerations...........................................S-33
ERISA Considerations......................................................S-33
Method of Distribution....................................................S-34
Legal Matters.............................................................S-34
Ratings...................................................................S-34
Use of Proceeds...........................................................S-35
Index of Terms............................................................S-36
<CAPTION>
PROSPECTUS
<S> <C>
Prospectus Supplement........................................................2
Additional Information.......................................................2
Incorporation of Certain Information by Reference............................2
Summary of Terms.............................................................3
Risk Factors................................................................14
The Trust Fund..............................................................16
The Depositor...............................................................25
Use of Proceeds.............................................................25
Yield Considerations........................................................26
Maturity and Prepayment Considerations......................................27
Description of the Certificates.............................................29
Credit Support..............................................................54
Description of Insurance....................................................58
Certain Legal Aspects of the Mortgage
Loans and Contracts.......................................................64
Certain Federal Income Tax Consequences.....................................74
ERISA Considerations........................................................97
Legal Investment...........................................................101
Plan of Distribution.......................................................102
Legal Matters..............................................................103
Index of Terms.............................................................104
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset Backed
Securities Corporation
Depositor
$_________
________ Conduit Mortgage
Pass-Through Certificates,
Series 199_ -_
PROSPECTUS
CS FIRST BOSTON
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- --------------------------------------------------------------------------------
Subject to Completion, Dated [ ], 199[ ]
Prospectus Supplement to Prospectus Dated [ ], 199[ ]
CARD ACCOUNT MASTER TRUST, 199[ ]-[ ]
$[ ] [(Approximate)] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate]
[Class A] Asset Backed [Senior/Subordinate] Certificates, Series 199[ ]-[ ]
[$[ ] [(Approximate)] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate]
[Class B] Asset Backed [Senior/Subordinate] Certificates, Series 199[ ]-[ ]]
Asset Backed Securities Corporation, Depositor
Seller [and Servicer] Name], as Seller [and Servicer] of the Receivables
[Servicer Name, as Servicer]
The [ %] [Floating Rate][Adjustable Rate] [Variable Rate] [Class A] Asset
Backed Certificates, Series 199[ ]-[ ] (the "[Class A] Certificates") [and the]
[ %] [Floating Rate] [Adjustable Rate] [Variable Rate] [Class B] Asset Backed
Certificates, Series 199[ ]-[ ] (the "[Class B] Certificates," and together with
the Class [A] Certificates, the "Certificates")] offered hereby represent
fractional undivided interests in the Card Account Master Trust, 199[ ]-[ ] (the
"Trust") formed pursuant to a [Master] Pooling and Servicing Agreement among
[Servicer Name,] [(the "Servicer"),] [Seller [and Servicer] Name], (the
"Seller"), Asset Backed Securities Corporation, (the "Depositor") and [Trustee
Name], as trustee (the "Trustee") (the "Agreement"). The property of the Trust
includes, among other assets, a portfolio of [consumer] [corporate] [revolving]
(Continued on the following page)
----------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF THE DEPOSITOR, THE SELLER, THE TRUSTEE, OR ANY AFFILIATE
THEREOF, EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN. A CERTIFICATE IS
NOT A DEPOSIT AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("THE FDIC"). THE RECEIVABLES ARE NOT INSURED OR
GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY
OR INSTRUMENTALITY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER UNDER "RISK
FACTORS" BEGINNING ON PAGE S-26 OF THIS PROSPECTUS SUPPLEMENT
AND PAGE 33 OF THE PROSPECTUS.
PROSPECTIVE INVESTORS SHOULD CONSIDER LIMITATIONS DISCUSSED UNDER "ERISA
CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================================
Price to Public Underwriting Discount Proceeds to the Depositor (1)
<S> <C> <C> <C>
Per [Class A] Certificate
- ------------------------------------------------------------------------------------------------------------------------------------
[Per [Class B] Certificate]
- ------------------------------------------------------------------------------------------------------------------------------------
Total
====================================================================================================================================
(1) Before deduction of expenses payable by the Depositor, estimated to be $[ ].
</TABLE>
----------
The Certificates are offered by the Underwriters when, as and if
issued by the Trust and accepted by the Underwriters and subject to the
Underwriters' right to reject orders in whole or in part. It is expected that
the Certificates will be [delivered in book-entry form] [available for delivery]
on or about [ ] through the facilities of [The Depository Trust Company] [CEDEL
S.A.] [or] [Euroclear System]] [(at the offices of[ ____ ]]. [The Certificates
will be offered in Europe and the United States of America.] ____ __________
Underwriters of the Certificates
[LOGO] CS FIRST BOSTON
The date of this Prospectus Supplement is [ ], 199[ ]
<PAGE>
(Continued from previous page)
[credit card] [charge card] [debit card] receivables ([collectively,] the
"Receivables") generated or to be generated from time to time in a portfolio of
[consumer] [corporate] [revolving] [credit card] [charge card] [debit card]
accounts [owned by the Seller] (the "Accounts"), all monies due in payment of
the Receivables and collections thereon and certain related property, as
described more fully herein. The [Seller] [Depositor] will own the remaining
undivided interest in the Trust not represented by the Certificates and the
other certificates or interests issued by the Trust. [The Trust will also issue
the Collateral Interest (as defined herein), [an uncertificated] undivided
interest in certain assets of the Trust and certain other property described
herein, which will be subordinated to the Certificates as described herein and
will be issued in the initial amount of $[ ______ ].] [The fractional undivided
interest in the Trust represented by the Class B Certificates will be
subordinated to fund payments with respect to the Class A Certificates to the
extent described herein. No principal payments will be made in respect of the
Class B Certificates until the final principal payment has been made in respect
of the Class A Certificates.] The Depositor [has offered] [from time to time may
offer] other series of certificates that evidence undivided interests in the
Trust which may have terms significantly different from the Certificates. The
issuance of additional series of certificates may impact the timing or amount of
payments received by the holders of the Certificates.
[Only the [Class A] Certificates [and the [Class B] Certificates] are
being offered hereby.]
Interest will accrue on the [Class A] Certificates at the rate of [[ ]%
per annum] [insert Class A Certificate Rate formula] (the "[Class A] Certificate
Rate"). [Interest will accrue on the [Class B] Certificates at the rate of [[ ]%
per annum] [insert [Class B] Certificate Rate formula] (the "[Class B]
Certificate Rate").] Interest with respect to the Certificates will be
distributed on the [ ] day of each [month] [quarter] [semi-annual period] (an
"Interest Period") (or if such a day is not a business day, the next succeeding
business day) commencing on [ ____ ] and on each [ ____ ] thereafter (each a
"Distribution Date").
Principal with respect to the [Class A] Certificates is scheduled to be
paid on the [ ____ ], 199[ ] Distribution Date, but may be paid earlier or later
under certain circumstances described herein. [Principal with respect to the
[Class B] Certificates is scheduled to be paid on the [ ____ ], 199[ ]
Distribution Date, but may be paid earlier or later under circumstances
described herein.] See "MATURITY CONSIDERATIONS" and "SERIES PROVISIONS -- Pay
Out Events" herein. [Principal payments will not be made in respect of the
[Class B] Certificates until the final principal payment has been paid in
respect of the [Class A] Certificates.] See -- "DESCRIPTION OF THE CERTIFICATES
- -- Principal Payments" herein.
The termination date for the Certificates is the [ ____ ], [ ]
Distribution Date (the "Termination Date"). The first Distribution Date with
respect to the Certificates is the [ ____ ], 199[ ] Distribution Date.
The Certificates initially will be represented by certificates which will
be [registered in the name of the Cede & Co., the nominee of The Depository
Trust Company] [definitive certificates]. The interests of holders of beneficial
interests in the Certificates will be [represented by book-entries on the
records of The Depository Trust Company and participating members thereof]
[registered on the Certificates]. [Definitive Certificates will be available to
Certificate Owners only under the limited circumstances described in the
Prospectus. See "DESCRIPTION OF THE CERTIFICATES -- Definitive Certificates" in
the Prospectus.]
----------
THE CERTIFICATES OFFERED HEREBY CONSTITUTE A SEPARATE SERIES OF ASSET
BACKED CERTIFICATES BEING OFFERED BY ASSET BACKED SECURITIES CORPORATION FROM
TIME TO TIME PURSUANT TO ITS PROSPECTUS DATED [ ____ ], 199[ ]. THIS PROSPECTUS
SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE OFFERING OF THE
CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS AND
INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
IN FULL. [NON-U.S. INVESTORS ARE ALSO URGED TO READ THE GLOBAL PROSPECTUS
SUPPLEMENT.] SALES OF THE CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS [AND,
IF A NON-U.S. PURCHASER, THE GLOBAL PROSPECTUS SUPPLEMENT].
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES, AND THERE CAN
BE NO ASSURANCE THAT ONE WILL DEVELOP. THE UNDERWRITERS EXPECT, BUT ARE NOT
OBLIGATED, TO MAKE A MARKET IN THE CERTIFICATES. THERE IS NO ASSURANCE THAT ANY
SUCH MARKET WILL DEVELOP OR CONTINUE. POTENTIAL INVESTORS SHOULD CONSIDER, AMONG
OTHER THINGS, THE INFORMATION SET FORTH IN "RISK FACTORS" HEREIN AND IN THE
PROSPECTUS.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE OFFERED CERTIFICATES IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.
UNTIL _____, _____, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS ACTING AS UNDERWRITERS TO DELIVER A PROSPECTUS SUPPLEMENT
AND PROSPECTUS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS AND SUBSCRIPTIONS.
S-2
<PAGE>
AVAILABLE INFORMATION
The Depositor, as originator of the Trusts, has filed with the Commission
a Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Securities being offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement, which is available for
inspection without charge at the public reference facilities of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
regional offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Certain capitalized terms used in this summary are
defined elsewhere in this Prospectus Supplement or in the Glossary of Terms in
the Prospectus.
Trust ....................... Card Account Master Trust (the "Trust").
Title of Securities ......... $[ ____ ] [ %][Floating Rate][Adjustable
Rate] [Variable Rate] [Class A] Asset Backed
Certificates, Series 199[ ]-[ ] (the "[Class
A] Certificates") [;and $[ ] [ %][Floating
Rate] [Adjustable Rate] [Variable Rate]
[Class B] Asset Backed Certificates, Series
199[ ]-[ ] (the "[Class B] Certificates," and
together with [Class A] Certificates, the
"Certificates")].
Initial Invested Amount ..... $[ ] (the "Initial Invested Amount").
[[Class A] Initial Invested
Amount ...................... $[ ] (the "[Class A] Initial Invested
Amount").]
[[Class B] Initial Invested
Amount ...................... $[ ] (the "[Class B] Initial Invested
Amount").]
[Collateral Initial Invested
Amount ...................... $[ ]("the Collateral Initial Invested
Amount").]
[Initial Cash Collateral
Amount ...................... $[ ]("the Initial Cash Collateral Amount").]
[Required Seller's Amount ... For any date [ ]% of the Invested Amount
("Required Seller's Amount").]
[Class A] Certificate
Rate ........................ The [Class A] Certificate Rate for an
Interest Period will be a rate per annum
equal to [insert Class A Certificate Rate
formula] for a period of [one] [three]
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
[six] months [(or following a Pay Out Event,
for a period of one month)].
[[Class B] Certificate
Rate ....................... The [Class B] Certificate Rate for an
Interest Period will be a rate per annum
equal to [insert Class B Certificate Rate
formula] for a period of [one] [three] [six]
months [(or following a Pay Out Event, for a
period of one month)].]
Interest Payment
Dates ....................... The [ ] day of each [month] [quarter]
[semi-annual period] (an "Interest Period")
(or if any such day is not a business day,
the next succeeding business day), commencing
on the [ ____ ], 199[ ] Distribution Date.
Risk Factors................. For a discussion of risk factors that should
be considered in respect of an investment in
the Certificates, see "Risk Factors" herein
an in the Prospectus.
[Class A] [Controlled
Amortization
Amount] [Controlled
Accumulation Amount] ........ For each Distribution Date with respect to
the [Class A] [Controlled Amortization]
[Accumulation] Period, $[ ][; except that if
the commencement of the [Class A] Controlled
Accumulation Period is delayed as described
herein under "SERIES PROVISIONS -- Principal
Payments," the [Class A] Controlled
Accumulation Amount for each Distribution
Date with respect to the [Class A]
Accumulation Period will be determined as
described under "DESCRIPTION OF THE
CERTIFICATES -- Application of Collections --
Payments of Principal."]
In general, on each Distribution Date during
the [Class A] [Accumulation Period]
[Controlled Amortization Period], collections
of Principal Receivables and certain other
amounts allocable to the [Class A]
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
Certificateholders' Interest will be
[deposited in the Principal Funding Account]
[distributed to the [Class A]
Certificateholders as repayment of principal
with respect to the [Class A] Certificates],
in an amount equal to the [Controlled
Accumulation Amount] [Controlled Amortization
Amount] and any [Controlled Accumulation
Amount] [Controlled Amortization Amount]
previously due but not [paid to
Certificateholders] [deposited in the
Principal Funding Account] on a prior
Distribution Date.
[On each Distribution Date with respect to
the [Class B] [Controlled Amortization
Period] [Accumulation Period] [which shall
commence after the principal amount of the
[Class A] Certificates has been paid in full]
collections of Principal Receivables and
certain other amounts allocable to the [Class
B] Certificateholders' Interest will be
[deposited in the Principal Funding Account]
[distributed to the [Class B]
Certificateholders as a repayment of
principal with respect to the [Class B]
Certificates], in an amount equal to the
[Controlled Amortization Amount] [Controlled
Accumulation Amount] and any [Controlled
Amortization Amount] [Controlled Accumulation
Amount] previously due but not [paid to
[Class B] Certificateholders] [deposited in
the Principal Funding Account] on a prior
Distribution Date. ]
[On the earlier to occur of a Pay Out Event
or the Expected Final Payment Date, amounts
on deposit in the Principal Funding Account
will be distributed to Certificateholders as
a repayment of principal in respect of the
Certificates.]
[Class A] Expected Final
Payment Date ............... The [ ], 199[ ] Distribution Date.
[Class B Expected Final
Payment Date ................ The [ ], 199[ ] Distribution Date.]
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
Cut-Off Date ..................... [ ], 199[ ].
Issuance Date .................... [ ], 199[ ].
The Certificates; the
Collateral Interest ........ Each of the Certificates offered hereby
represents an undivided interest in the
Trust. [The portion of the Trust assets
allocated to the Certificates will be further
allocated among] [the interests of the
holders (the "Class A Certificateholders") of
the Class A Certificates (the "Class A
Certificateholders' Interest"), and the
interests of the holders (the "Class B
Certificateholders") of the Class B
Certificates (the "Class B
Certificateholders' Interest")] [and the
interest of the holders of the [Seller's]
Certificate (the "[Seller's] Interest"), as
described below]. [The Class A
Certificateholders and the Class B
Certificateholders are sometimes collectively
referred to herein as the
Certificateholders.] [The Class A
Certificateholders' Interest and the Class B
Certificateholders' Interest are sometimes
collectively referred to herein as the
"Certificateholders' Interest".]
[In addition, an undivided interest in the
Trust (the "Collateral Interest") in the
initial amount of $[ ] (an amount that
represents [ ]% of the sum of the Initial
Invested Amount and the Initial Collateral
Invested Amount) constitutes the "Credit
Enhancement" for the Certificates. The
provider of such Credit Enhancement is the
"Collateral Interest Holder."]
The principal amount of the [Class A]
Certificateholders' Interest [and the Class B
Certificateholders' Interest] will remain
fixed at the aggregate initial principal
amount of the [Class A] Certificates [and the
Class B Certificates, respectively,] except
as otherwise provided herein. [The Class B
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
Certificateholders' Interest will decline in
certain circumstances as a result of (a) the
allocation to the Class B Certificateholders'
Interest of Defaulted Amounts otherwise
allocable to the Class A Certificateholders'
Interest and (b) the reallocation of
collections of Principal Receivables
otherwise allocable to the Class B
Certificateholders' Interest to fund certain
payments in respect of the Class A
Certificates. Any such reductions in the
Class B Certificateholders' Interest may be
reimbursed out of Excess Spread, if any,
[and] Excess Finance Charges allocable to
Series 199[ ]-[ ] [, and certain amounts
withdrawn from the Cash Collateral Account as
described herein].]
[During the Accumulation Period, for the sole
purpose of allocating collections of Finance
Charge Receivables and the Defaulted Amount
with respect to each Monthly Period, the
[Class A] Certificateholders' Interest [and
(after the Class B Principal Commencement
Date) the Class B Certificateholders'
Interest] will be further reduced by the
amount [on deposit in the Principal Funding
Account] (as so reduced, [the "Class A
Adjusted Invested Amount" and the "Class B
Adjusted Invested Amount," respectively, and
collectively,] the "Adjusted Invested
Amount").]
[During the Controlled Amortization Period,
for the sole purpose of allocating
collections of Finance Charge Receivables and
the Defaulted Amount with respect to each
Monthly Period, the [Class A]
Certificateholders' Interest [and (after the
Class B Principal Commencement Date) the
Class B Certificateholders' Interest] will be
further reduced as principal is paid to the
Certificateholders (as so reduced, [the
"Class A Adjusted Invested Amount" and the
"Class B Adjusted Invested Amount,"
respectively, and collectively,] the
"Adjusted Invested Amount").]
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
The Certificateholders' Interest [and the
Collateral Interest] will include the right
to receive (but only to the extent needed to
make required payments under the Agreement
and the Series Supplement and subject to any
reallocation of such amounts as described
herein) varying percentages of the
collections of Finance Charge Receivables and
Principal Receivables and will be allocated a
varying percentage of the Defaulted Amount
with respect to each Monthly Period. Finance
Charge Receivables collections and the
Defaulted Amount will be allocated to the
Certificates based on the Floating Allocation
Percentage. [Such amounts will be further
allocated to the Class A Certificates and the
Class B Certificates based on the Class A
Floating Percentage and the Class B Floating
Percentage, respectively.] Collections of
Principal Receivables will be allocated to
the Certificates based on the Principal
Allocation Percentage. Such percentage will
vary depending on whether the Certificates
are in their Revolving Period, [Accumulation
Period] [Controlled Amortization Period] or
Rapid Amortization Period. See also
"DESCRIPTION OF THE CERTIFICATES --
Allocation Percentages" herein. [Such amounts
will be further allocated to the Class A
Certificates and the Class B Certificates as
described herein. See "DESCRIPTION OF THE
CERTIFICATES -- Allocation Percentages"
herein.] [Following the occurrence of a Pay
Out Event and a withdrawal of funds from the
Cash Collateral Account, a portion of the
Certificateholders' Interest (corresponding
to the aggregate amount of such withdrawal)
will be allocated to the Cash Collateral
Depositor.]
[Issuance of Additional
Certificates] ............... [After the completion of the offering made
hereby, the Depositor may cause the Trustee
to issue additional Certificates of Series
199[ ]-[ ] ("Additional Certificates") from
time to time during the Revolving
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
Period, provided that certain conditions
described herein under "DESCRIPTION OF THE
CERTIFICATES -- Issuance of Additional
Certificates" are met. In connection with
each Issuance of Additional Certificates, the
outstanding principal amounts of the [Class
A] Certificates [and the Class B
Certificates] [and the aggregate amount of
the Collateral Interest] will be increased
pro rata. When issued, the Additional
Certificates [of a class] will be identical
in all respects to the other outstanding
Certificates [of that class]. See
"DESCRIPTION OF THE CERTIFICATES -- Issuance
of Additional Certificates" herein.]
Receivables ................. The Receivables arise in Accounts that have
been selected from the Seller's portfolio
based on selection criteria provided in the
Agreement as applied on [ ], 199[ ] (the
"Initial Cut-Off Date"). The aggregate amount
of Receivables in the Accounts as of the
Initial Cut-Off Date was $[ ], comprised of
$[ ] of principal receivables (the
"Principal Receivables") and $[ ] of finance
charge receivables (the "Finance Charge
Receivables").
The aggregate undivided interest in the
Principal Receivables evidenced by the
Certificates will never exceed the Investor
Amount, regardless of the total amount of
Principal Receivables at any time in the
Trust.
[On [ ], 199[ ] (the "Closing Date"),
the Depositor will purchase Receivables (the
"[Initial] Receivables") having an aggregate
principal balance of approximately $[ ] as of
[ ], 199[ ] (the "[Initial] Cut-Off
Date"), from the Seller pursuant to an
Agreement to be dated as of [ ],
199[ ].]
[On and following the Closing Date, pursuant
to the Agreement, the Depositor will be
obligated, subject only to the availability
thereof, to purchase from the
- --------------------------------------------------------------------------------
S-10
<PAGE>
Seller and sell to the Trust, and the
Trust will be obligated to purchase, subject
to the satisfaction of certain conditions set
forth therein, additional Receivables
generated from Subsequent Accounts (the
"Subsequent Receivables") from time to time
during the Funding Period having an aggregate
principal balance equal to approximately
$[____] (such amount being equal to an amount
on deposit in the Pre- Funding Account (the
"Pre-Funding Amount") on the Closing Date).
The Depositor will designate as a cut-off
date (each a "Subsequent Cut-off Date") the
date as of which particular Subsequent
Receivables are conveyed to the Trust. It is
expected that certain of the Subsequent
Receivables arising between the Initial
Cut-off Date and the Closing Date will be
conveyed to the Trust on the Closing Date and
that other Subsequent Receivables will be
conveyed to the Trust as frequently as daily
thereafter on dates specified by the
[Depositor] [Seller] (each date on which
Subsequent Receivables are conveyed to the
Trust being referred to as a "Subsequent
Transfer Date") occurring during the Funding
Period. ]
[The [Initial] Receivables will be selected[,
and the Subsequent Receivables will be
selected,] from the Receivables owned by the
Seller based on the criteria specified in the
Agreement and described herein.]
Subsequent Receivables may be originated at a
later date using credit criteria different
from those which were applied to the Initial
Receivables and may be of a different credit
quality and seasoning. In addition, following
the transfer of Subsequent Receivables to the
Trust, the characteristics of the entire pool
of Receivables included in the Trust may vary
significantly from those of the Initial
Receivables.
Denominations ............... The Certificates will be offered for purchase
in denominations of [$1,000] and integral
multiples
- --------------------------------------------------------------------------------
S-11
<PAGE>
- --------------------------------------------------------------------------------
thereof, [except that one Certificate may be
issued in a denomination that is not an
integral multiple of $1,000]. [Except in
certain limited circumstances as described in
the Prospectus under "DESCRIPTION OF THE
CERTIFICATES -- Definitive Certificates," the
Certificates will [only] be available in
[book-entry] [or] [definitive] form.]
[Registration of
Certificates ............... The Certificates initially will be issued in
book-entry form. Persons acquiring beneficial
ownership interests in the Certificates
("Certificate Owners") may elect to hold
their Certificate interests through [The
Depository Trust Company ("DTC"), in the
United States,] [or Centrale de Livraison de
Valeurs Mobilieres S.A. ("CEDEL")] [or the
Euroclear System ("Euroclear")] in Europe].
Transfers within [DTC], [CEDEL] [or]
[Euroclear], [as the case may be,] will be in
accordance with the usual rules and operating
procedures of the relevant system. The
Certificates will be evidenced by one or more
Certificates registered in the name of [Cede
& Co. ("Cede"), as the nominee of DTC] [or]
[one of the relevant depositaries
(collectively, the "European Depositaries")].
[Cross- market transfers between persons
holding directly or indirectly through DTC,
on the one hand, and counterparties holding
directly or indirectly through CEDEL or
Euroclear, on the other, will be effected in
DTC through [Citibank N.A. ("Citibank")] or
[Morgan Guaranty Trust Company of New York
("Morgan")], the relevant depositaries of
[CEDEL] [or] [Euroclear,] [respectively,] and
each a participating member of DTC.] [The
Certificates will be registered in the name
of Cede & Co.] [The interests of the
Certificateholders will be represented by
book-entries on the records of DTC and
participating members thereof.] No
Certificate Owner will be entitled to receive
a definitive certificate representing such
person's interest, except in the event that
Definitive Certificates (as defined herein)
are issued under the limited circumstances
described herein.]
- --------------------------------------------------------------------------------
S-12
<PAGE>
- --------------------------------------------------------------------------------
[All references in this Prospectus Supplement
to any Certificates reflect the rights of
Certificate Owners only as such rights may be
exercised through DTC and its participating
organizations for so long as such
Certificates are held by DTC. See "RISK
FACTORS-- Book-Entry Certificates" in the
Prospectus.]
Depositor ................... Asset Backed Securities Corporation.
[Seller ..................... Insert information regarding Seller.]
[Servicer ................... Insert information regarding Servicer, if
different from the Seller.]
Servicing Fee ............... The Servicing Fee Rate for the Certificates
[shall be [ %] per annum] [shall be, with
respect to any Distribution Date, equal to
one-twelfth of the product of [ %] and [the
sum of] the Adjusted Invested Amount [and the
[Collateral] Invested Amount], as of the last
day of the Monthly Period preceding such
Distribution Date]. The [Class A] Servicing
Fee, [and] [the Class B Servicing fee] [and]
[the [Collateral] Interest Servicing Fee]
will be paid on each Distribution Date.
Revolving Period and
[Controlled Amortization
Period] [Accumulation
Period] ..................... The "Revolving Period" with respect to the
Certificates means the period from and
including the [Initial] CutOff Date, to, but
not including, the earlier of (a) the day on
which the [Controlled Amortization Period]
[Accumulation Period] commences, and (b) in
the event that a Pay Out Event shall occur,
the day on which the Rapid Amortization
Period commences.
[Unless a Pay Out Event occurs and the Rapid
Amortization Period commences, the
Certificates will have an accumulation period
(the "Accumulation
- --------------------------------------------------------------------------------
S-13
<PAGE>
Period"), which will commence at the close of
business on [ ], 199[ ]; provided, that
subject to the conditions set forth herein,
the day on which the Revolving Period ends
and the Accumulation Period begins may be
delayed to no later than the close of
business on [ ], 199[ ]. The
Accumulation Period will end on the earliest
of (a) the commencement of a the Rapid
Amortization Period, (b) payment in full of
the Invested Amount of the Certificates and
(c) the Termination Date.]
[During the Accumulation Period, until the
Certificates are paid in full, collections of
Principal Receivables and certain other
amounts allocable to the Certificateholders'
Interest will be deposited on each
Distribution Date in a trust account (the
"Principal Funding Account") and used to make
principal distributions to the
Certificateholders when due.]
[The controlled amortization period with
respect to the Certificates (the "Controlled
Amortization Period"), is scheduled to
commence at the close of business on the last
day of the [ ]. The Controlled
Amortization Period will end on the earliest
of (a) the commencement of the Rapid
Amortization Period, (b) the payment in full
of the Invested Amount or (c) the Termination
Date. In general, on each Distribution Date
during the Controlled Amortization Period,
collections of Principal Receivables and
certain other amounts allocable to the
Certificateholders' Interest will be
distributed to the Certificateholders as a
repayment of principal with respect to the
Certificates, in a amount equal to the
Controlled Amortization Amount and any
Controlled Amortization Amount previously due
but not paid to Certificateholders on a prior
Distribution Date.]
During the Revolving Period, no principal
will be payable with respect to the
Certificates; rather, collections of
Principal Receivables and certain other
- --------------------------------------------------------------------------------
S-14
<PAGE>
- --------------------------------------------------------------------------------
amounts (other than Reallocated Principal
Receivables) otherwise allocable to the
Certificateholders [will] [may], subject to
certain limitations, be applied to cover
principal due to or for the benefit of the
certificateholders of other Series (Shared
Principal Collections"), or be paid from the
Trust to the holder of the [Seller's]
Certificate to maintain the Certificate
holders' Interest in the Trust.
[No principal will be payable to the [Class
A] Certificateholders until the [ ____ ],
199[ ] Distribution Date (the "Expected Final
Payment Date"), or after the occurrence of a
Pay Out Event and the commencement of the
Rapid Amortization Period, the first
Distribution Date with respect to the Rapid
Amortization Period[. No principal will be
payable to the [Class B] Certificateholders
until the Class A Invested Amount has been
paid in full.] [No principal will be payable
to the [Collateral] Interest Holder until the
[Class B] Invested Amount has been paid in
full]; provided that during the Revolving
Period or the [Controlled Amortization
Period] [Accumulation Period], certain
collections of Principal Receivables
allocable to the Certificateholders' Interest
will be paid to the [Collateral] Interest
Holder to the extent the [Collateral]
Invested Amount exceeds the Required
[Collateral] Invested Amount.]
[Funds on deposit in any Principal Funding
Account may be invested in permitted
investments or subject to a guaranteed rate
or investment contract or other arrangement
intended to assure a minimum return on the
investment of such funds. Investment earnings
on such funds may be applied to pay interest
on the Certificates.]
Additional Amounts
Available to Certificate
holders ..................... The [Class A] Required Amount means, with
respect to any Distribution Date, the amount,
if any, by which
- --------------------------------------------------------------------------------
S-15
<PAGE>
- --------------------------------------------------------------------------------
the sum of (i) current and overdue [Class A]
Monthly Interest, (ii) current and overdue
[Class A] Additional Interest, (iii) current
and overdue [Class A] Servicing Fee and (iv)
the [Class A] Default Amount with respect to
the related Distribution Date exceeds [Class
A] Available Funds. If the [Class A] Required
Amount is greater than zero, then Excess
Spread and Excess Finance Charges allocable
to Series 199[ ]-[ ] will be applied to fund
the deficiency. [If Excess Spread and Excess
Finance Charges allocable to Series 199[ ]-[
] with respect to such Distribution Date are
insufficient to fund the [Class A] Required
Amount, then amounts, if any, on deposit in
the Cash Collateral Account and available to
make payments with respect to the [Class A]
Certificates with respect to such
Distribution Date will then be used to fund
the remaining [Class A] Required Amount.] [If
[such amounts, if any, on deposit in the Cash
Collateral Account and available to make
payments with respect to the [Class A]
Certificates with respect to such
Distribution Date (together with] Excess
Spread and Excess Finance Charges with
respect to such Distribution Date[)] are
insufficient to fund the remaining [Class A]
Required Amount, then Principal Receivables
allocable to the [Class B] Invested Amount
with respect to the related Monthly Period
will be used to fund the remaining [Class A]
Required Amount ("Reallocated Principal
Receivables"). If such Reallocated Principal
Receivables with respect to such Monthly
Period (together with Excess Spread and
Excess Finance Charges [, and amounts, if
any, on deposit in the Cash Collateral
Account] available to make payments with
respect to the [Class A] Certificates) are
insufficient to fund the remaining [Class A]
Required Amount for the related Distribution
Date, then a portion of the [Collateral]
Invested Amount, if any, will be reduced by
the amount of such deficiency (but not more
than the [Class A] Default Amount for such
Monthly Period). [If such reduction would
cause the [Collateral] Invested Amount to be
reduced below
- --------------------------------------------------------------------------------
S-16
<PAGE>
- --------------------------------------------------------------------------------
zero, then the [Collateral] Invested Amount
will be reduced to zero and the [Class B]
Invested amount, if any, will be reduced by
the amount by which the [Collateral] Invested
Amount would have been reduced below zero
(but not by more than the excess of the
[Class A] Default Amount for such Monthly
Period over the amount of such reduction in
the Collateral Invested Amount) to avoid a
charge-off with respect to the [Class A]
Certificates. If the [Collateral] Invested
Amount is reduced to zero and the [Class B]
Invested Amount would be reduced to a
negative number, then the [Class A] Invested
amount will be reduced (but not by more than
the excess, if any, of the [Class A] Default
Amount for such Monthly Period over the
amount of such reductions in the [Collateral]
Invested Amount [and the [Class B] Invested
Amount] with respect to such Monthly Period)
(such reduction, a "[Class A] Charge-Off").
If the [Collateral] Invested Amount and the
[Class B] Invested Amount are reduced to
zero, then the [Class A] Certificateholders
will bear directly the credit and other risks
associated with their undivided interest in
the Trust. See "DESCRIPTION OF THE
CERTIFICATES -- Reallocation of Cash Flows;
[Class B] Invested Amount".
[The [Class B] Required Amount means, with
respect to any Distribution Date, the amount,
if any, by which the sum of (i) current and
overdue [Class B] Monthly Interest, (ii)
current and overdue [Class B] Additional
Interest, (iii) current and overdue [Class B]
Servicing Fee and (iv) the [Class B] Default
Amount, exceeds [Class B] Available Funds
(the [Class B] Required Amount together with
the [Class A] Required Amount being the
"Required Amount"). If the [Class B] Required
Amount is greater than zero, then Excess
Spread and Excess Finance Charges allocable
to the Series 199[ ]-[ ] (and not required to
pay the [Class A] Required Amount or
reimburse [Class A] Charge-Offs) will be
applied to fund the deficiency. [If Excess
- --------------------------------------------------------------------------------
S-17
<PAGE>
- --------------------------------------------------------------------------------
Spread and Excess Finance Charges allocable
to Series 199[ ]-[ ] with respect to such
Distribution Date and not required to pay the
[Class A] Required Amount are less than the
[Class B] Required Amount, then the amounts,
if any, on deposit in the Cash Collateral
Account and available to make payments with
respect to the [Class B] Certificates with
respect to such Distribution Date will be
withdrawn and applied to fund the [Class B]
Required Amount.] If [amounts, if any, in
deposit in the Cash Collateral Account and
available to make payments with respect to
the [Class B] Certificates with respect to
such Distribution Date (together with] Excess
Spread and Excess Finance Charges with
respect to such Distribution Date[ )] are
insufficient to fund the remaining [Class B]
Required Amount, then the [Collateral]
Invested Amount, if any, will be reduced by
the amount of such deficiency (but not more
than the [Class B] Default Amount for such
Monthly Period). If such reduction would
cause the [Collateral] Invested Amount to be
reduced below zero, then the [Class B]
Invested amount will be reduced by the amount
by which the [Collateral] Invested Amount
would have been reduced below zero (but not
by more than the excess of the [Class B]
Default Amount for such Monthly Period over
the reduction in the [Collateral] Invested
Amount with respect to such Monthly Period)
(such reduction, a "[Class B] Charge-Off").
In the event of a reduction of the [Class B]
Invested Amount, the amount of principal and
interest available to fund payments with
respect to the [Class B] Certificates will be
decreased.]
[Subordination of the
[Class B] Certificates ...... The fractional undivided interest in the
Trust represented by the [Class B]
Certificates [and the [Collateral] Interest]
will be subordinated to the extent necessary
to fund payments with respect to the [Class
A] Certificateholders' Interests until the
final payment of principal is made in respect
of the [Class A] Certificates. In addition,
as more fully described
- --------------------------------------------------------------------------------
S-18
<PAGE>
- --------------------------------------------------------------------------------
herein, the [Class B] Certificateholders'
Interest may be reduced, thereby reducing the
amount of principal and interest payable to
the [Class B] Certificateholders, if the
portion of the Defaulted Amount allocable to
the [Class A] Certificateholders' Interest
with respect to any Distribution Date exceeds
the amount of Collections of Finance Charge
Receivables and amounts available to be
withdrawn from the Cash Collateral Account,
in respect of the [Class A] Certificates on
such Distribution Date and applied to
reimburse such Defaulted Receivables.
Furthermore, collections of Principal
Receivables allocable to the [Class B]
Certificateholders' Interest ("Reallocated
Principal Receivables") with respect to any
Distribution Date may be applied to cover
shortfalls in amounts available to pay
interest due to the [Class A]
Certificateholders, the [Class A] Servicing
Fee and the portion of the Defaulted Amount
allocable to the [Class A]
Certificateholders' Interest with respect to
such Distribution Date. In the event such
Reallocated Principal Receivables are
reallocated to the [Class A] Certificates,
the [Class B] Invested Amount may be reduced,
thereby reducing the amount of principal and
interest payable to the [Class B]
Certificateholders.]
[Cash Collateral
Account...................... A cash collateral account (the "Cash
Collateral Account") will be established in
the name of the Trustee for the benefit of
the Certificateholders. The Cash Collateral
Account will be funded on the Issuance Date
in the amount of at least $[ ] or
such higher amount as is specified by any
Rating Agency (the "Initial Cash Collateral
Amount"), [of which not less than $[ ]
the ("Initial Shared Collateral Amount")
will be for the benefit of both the
[Class A] Certificates and the [Class B]
Certificates and the remaining $[ ]
(the "Initial [Class B] Collateral Amount")
will be for the exclusive benefit of the
[Class B] Certificates.] The Cash Collateral
- --------------------------------------------------------------------------------
S-19
<PAGE>
- --------------------------------------------------------------------------------
Account will serve as [additional] Credit
Enhancement with respect the Series 199[ ]-[
] Certificates.]
[On each Distribution Date, the Available
Shared Collateral Amount will be applied to
fund the following amounts in the following
priority: [(a)] with respect the [Class A]
Certificates, the excess, if any, of the
[Class A] Required Amount with respect to
such Distribution Date over the amount of
Excess Spread and Excess Finance Charges
allocated to the Series 199[ ]-[ ] and
available to fund such [Class A] Required
amount [and (b) with respect to the [Class B]
Certificates, the excess, if any, of the
[Class B] Required Amount with respect to the
related Monthly Period over the amount of
Excess Spread and Excess Finance Charges
allocated to Series 199[ ]-[ ] and available
to fund such [Class B] Required Amount].]
[On each Distribution Date, Excess Spread and
Excess Finance Charges available to Series
199[ ]-[ ] will be applied to increase the
amount on deposit in the Cash Collateral
Account (to the extent such amount is less
than the Required Cash Collateral Amount). In
addition, if on any Distribution Date the
amount on deposit in the Cash Collateral
Account exceeds the Required Cash Collateral
Amount such excess will be withdrawn and paid
to the Cash Collateral Depositor for
application in accordance with the
[Collateral Loan] Agreement.]
[On the first Special Payment Date following
an Pay Out Event, the Available Shared
Collateral Amount (after giving effect to
other withdrawals from the Cash Collateral
Account on such Distribution Date) will be
applied to pay principal of the [[Class A]]
Certificates [and the remainder of the
Available Cash Collateral Amount will be
applied to pay principal of the [Class B]
Certificates]. Following such withdrawals
from the Cash Collateral Account on such
Special Payment Date, the Cash Collateral
Account will be terminated
- --------------------------------------------------------------------------------
S-20
<PAGE>
- --------------------------------------------------------------------------------
and no further deposits to, or withdrawals
from, the Cash Collateral Account will be
made for the benefit of the Certificate
holders.]
[The Required Cash Collateral Amount may be
reduced without the consent of the
Certificate holders, if the [Seller]
[Depositor] shall have received written
notice from each Rating Agency that such
reduction will not have a Ratings Effect and
the [Seller] [Depositor] shall have delivered
to the Trustee a certificate of an authorized
officer to the effect that, based on the
facts known to such officer at such time, in
the reasonable belief of the [Seller]
[Depositor], such reduction will not cause a
Pay Out Event or an event that, after the
giving of notice or the lapse of time, would
constitute a Pay Out Event, to occur with
respect to Series 199[ ]-[ ].]
[Excess Finance
Charges ..................... The Certificates will be included in a group
of Series ("Group [ ____ ]") which [have been
and] will be issued by the Trust from time to
time. Subject to certain limitations, Excess
Finance Charges, if any, with respect to a
Series included in Group [ ____ ] will be
applied to cover any shortfalls with respect
to amounts payable from collections of
Finance Charge Receivables allocable to any
other Series in Group [ ].]
[Shared Principal
Collections ................. Collections of Principal Receivables and
certain other amounts otherwise allocable to
other Series, to the extent such collections
are not needed to make payments to or
deposits for the benefit of the
certificateholders of such other Series,
[will] [may] be applied to cover principal
payments due to or for the benefit of the
holders of the Certificates.]
- --------------------------------------------------------------------------------
S-21
<PAGE>
- --------------------------------------------------------------------------------
Rapid Amortization
Period; Principal
Payments .................... During the period beginning with the
occurrence of any Pay Out Event and ending on
the earlier of (i) the day after the Payment
Date on which the Invested Amount has been
paid in full and (ii) the Termination Date
(the "Rapid Amortization Period"),
collections of Principal Receivables
allocable to the Invested Amount will no
longer be paid from the Trust to the
Collateral Interest Holder or to Shared
Series as described above but instead will be
distributed on each Payment Date to the
Certificateholders beginning with the Payment
Date following the commencement of the Rapid
Amortization Period.
[Minimum [Seller's]
Percentage .................. The Minimum [Seller's] Percentage applicable
to the Certificates is [ %].]
Record Date ................. The last day of the month preceding any
Distribution Date.
Optional Repurchase ......... The Invested Amount will be subject to
optional purchase by the [Depositor] [Seller]
on any Distribution Date after the Adjusted
Invested Amount is less than or equal to [ ]%
of the Initial Invested Amount, unless
certain events as specified in the Agreement
have occurred. The purchase price on the
Distribution Date on which such purchase
occurs will be equal to the Adjusted Invested
Amount plus accrued and unpaid interest on
the Certificates as described herein.
[Mandatory Prepayment ....... The Certificates will be prepaid, in part,
pro rata on the basis of their initial
principal amounts, on the Distribution Date
on or immediately following the last day of
the Funding Period in the event that any
amount remains on deposit in the Pre-Funding
Account after giving effect to the purchase
of all Subsequent Receivables, including any
such purchase on such date
- --------------------------------------------------------------------------------
S-22
<PAGE>
- --------------------------------------------------------------------------------
(a "Mandatory Prepayment"). The aggregate
principal amount of Certificates to be
prepaid will be an amount equal to the
Certificates' Pre-Funded Percentage of the
amount then on deposit in the Pre-Funding
Account.]
[Pre-Funding Account ........ During the period (the "Funding Period") from
and including the Closing Date until the
earlier of (i) the date on which (a) the
amount on deposit in the Pre- Funding Account
is less that $[ ], (b) a Payout Event
occurs or (c) certain events of insolvency
occur with respect to the [Depositor] [or]
[Seller] [or] [the Servicer] or (ii) the
close of business on the [ ], 199[ ]
Payment Date, the Pre-Funded Amount will be
maintained as an account in the name of the
Trustee (the "Pre-Funding Account"). The
Pre-Funded Amount will initially equal
approximately $[ ], and during the
Funding Period, will be reduced by the amount
thereof used to purchase Subsequent
Receivables in accordance with the Agreement
and the amount thereof deposited in the
Reserve Account in connection with the
purchase of such Subsequent Receivables. The
Depositor expects that the Pre-Funded Amount
will be reduced to less than $[ ] by the
[ ], 199[ ] Distribution Date. Any
Pre-Funded Amount remaining at the end of the
Funding Period will be payable to the
Certificateholders [pro rata] in proportion
to the respective Pre-Funded Percentage of
each class of the Certificates.]
The duration of the Funding Period will in no
event exceed three months. The Pre-Funding
Amount will in no event exceed 15% of the
aggregate principal amount of the
Certificates. In no event will the Trust, as
a result of the Pre-Funding Account, be
required to register under the Investment
Company Act of 1940.
Final Payment of
Principal and Interest;
Termination of Trust ........
- --------------------------------------------------------------------------------
S-23
<PAGE>
- --------------------------------------------------------------------------------
The interest of the Certificateholders in the
Trust will terminate following the earlier of
(i) the day after the Payment Date on which
the Invested Amount is paid in full and (ii)
[ ], (the "Expected Termination Date").
All principal and interest will be due and
payable no later than the Expected ]
Termination Date.
Trustee ..................... [Insert information regarding Trustee.]
Tax Considerations .......... In the opinion of Sidley & Austin ("Federal
Tax Counsel"), although no transaction
closely comparable to that contemplated
herein has been the subject of any Treasury
regulation, revenue ruling or judicial
decision, based upon its analysis of the
factors discussed below, the Seller is
properly treated as the owner of the
Receivables for federal income tax purposes
and accordingly, the Certificates, when
issued, will be properly characterized for
federal income tax purposes as indebtedness
of the Seller that is secured by the
Receivables. The Seller, by entering into the
Agreement, each Certificateholder, by the
acceptance of a Certificate, and each
Certificate Owner, by virtue of accepting a
beneficial interest in a Certificate, will
agree to treat the Certificates (or the
beneficial interests therein) as indebtedness
of the Seller secured by the Receivables for
federal, state and local income and franchise
tax purposes and for the purposes of any
other tax imposed on or measured by income.
See "Certain Federal Income Tax Consequences"
in the Prospectus for additional information
concerning the application of federal income
tax laws to the Trust.
ERISA
Considerations .............. Under the regulations issued by the
Department of Labor, the Trust's assets would
not be deemed "plan assets" of any employee
benefit plan holding interests in the
Certificates if certain conditions are met,
such that the Certificates would constitute
"publicly-offered securities," including that
interests in the Certificates
- --------------------------------------------------------------------------------
S-24
<PAGE>
- --------------------------------------------------------------------------------
be held by at least 100 persons independent
of the Depositor and each other upon
completion of the public offering being made
hereby. [The Underwriters expect, although no
assurance can be given, that interests in the
Certificates will be held by at least 100
such persons, and it is anticipated that the
other conditions of the "publicly-offered
security" exception contained in the
regulations will be met.] If the Trust's
assets were deemed to be "plan assets" of
such a plan, there is uncertainty as to
whether existing exemptions from the
"prohibited transaction" rules of the
Employee Retirement Income Security Act of
1974, as amended ("ERISA") would apply to all
transactions involving the Trust's assets.
[Accordingly,] [Fiduciaries of] any employee
benefit plan [subject to ERISA or the
Internal Revenue Code of 1986, as amended
(the "Code")] contemplating purchasing
interests in Certificates should consult
their counsel before making a purchase. See
"ERISA Considerations" in the Prospectus.
Certificate Rating .......... It is a condition to the issuance of the
[Class A] Certificates that they be rated [in
the highest rating category] by a Rating
Agency, as defined herein. [It is a condition
to issuance of the [Class B] Certificates
that they be rated in [one of the three
highest rating categories] by a Rating Agency
as defined herein.] There is no assurance
that such rating will continue for any period
of time or that it will not be revised or
withdrawn entirely by such rating agency, if,
in its judgment, circumstances so warrant. A
revision or withdrawal of such rating may
have an adverse effect on the market price of
the Securities. A security rating is not a
recommendation to buy, sell or hold
securities.
- --------------------------------------------------------------------------------
S-25
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and in the Prospectus, prospective investors should carefully
consider the following risk factors before investing in any Class or Classes of
Securities of any such Series.
[Limited Liquidity. There is currently no market for the Certificates.
The Underwriters expect to make a market in the Certificates, but are not
obligated to do so. There can be no assurance that a secondary market will
develop or, if it does develop, that such market will provide Certificateholders
with liquidity of investment or that it will continue for the life of the
Certificates.]
[The Receivables, the Pre-Funding Account and the Risk of
Prepayment. On the Closing Date, the Depositor will transfer to the Trust the
approximately $[ ] of Initial Receivables and the approximately $[ ]
Pre-Funded Amount on deposit in the Pre-Funding Account. If the principal amount
of eligible Receivables originated by [Seller] and acquired by the Depositor
during the Funding Period is less than the Pre-Funded Amount, the Depositor will
have insufficient Receivables to sell to the Trust on the Subsequent Transfer
Dates, thereby resulting in a prepayment of principal to the Certificateholders
as described in the following paragraph. See "Social, Economic and Other
Factors" below. In addition, any conveyance of Subsequent Receivables is subject
to the satisfaction, on or before the related Subsequent Transfer Date, of
certain selection criteria.
[To the extent that amounts on deposit in the Pre-Funding Account
have not been fully applied to the conveyance of Subsequent Receivables to the
Trust by the end of the Funding Period, the Certificateholders will receive, on
the Distribution Date on or immediately following the last day of the Funding
Period, a prepayment of principal in an amount equal to the applicable
Pre-Funded Percentage, in respect of [a class of] the Certificates, of the
Pre-Funded Amount remaining in the Pre- Funding Account following the purchase
of any Subsequent Receivables on such Payment Date. It is anticipated that the
principal amount of Subsequent Receivables sold to the Trust will not be exactly
equal to the amount on deposit in the Pre-Funding Account and that therefore
there will be at least a nominal amount of principal prepaid to the
Certificateholders.]
[Each Subsequent Receivable must satisfy the eligibility criteria
specified in the Agreement at the time of its addition. However, Subsequent
Receivables may have been originated by the Seller at a later date using credit
criteria different from those which were applied to the Initial Receivables and
may be of a different credit quality and seasoning. Therefore, following the
transfer of Subsequent Receivables to the Trust, the characteristics of the
entire Receivables Pool included in the Trust may vary significantly from those
of the Initial Receivables. See "The Receivables" herein.]
S-26
<PAGE>
[Effect of Social, Economic and Other Factors on Risk of
Insufficient Receivables. The ability of the Trust to purchase Subsequent
Receivables is largely dependent upon a variety of social and economic factors.
Economic factors include interest rates, unemployment levels, the rate of
inflation and consumer perceptions of economic conditions generally. However,
the Depositor is unable to determine and has no basis to predict whether or to
which extent economic or social factors will affect the availability of
Subsequent Receivables.]
[Limited Rating of the Certificates. It is a condition to issuance
of the [Class A] Certificates that they be rated in the highest rating category
by one of Moody's Investors Service, Inc. ("Moody's") or by Standard & Poor's
Ratings Group, a division of McGraw-Hill, Inc. ("S&P") (each of S&P and Moody's
being hereinafter referred to as a "Rating Agency"). [It is a condition to the
issuance of the [Class B] Certificates that they be rated [in one of the three
highest rating categories] by at least one Rating Agency.] The rating of the
Certificates is based primarily on the value of the Receivables and the
availability of the Enhancement as support for the Certificates. The ratings of
the Certificates are not a recommendation to purchase, hold or sell
Certificates, and such ratings do not comment as to the marketability of the
Certificates, any market price or suitability for a particular investor. There
is no assurance that any rating will remain in effect for any given period of
time or that any rating will not be lowered or withdrawn entirely by a Rating
Agency, as the case may be, if in its judgment circumstances so warrant.]
[Limited Amounts of Credit Enhancement. Although Credit Enhancement
with respect to the [Class A] Certificates will be provided by the Cash
Collateral Account (up to the Required Shared Collateral Amount) [and, with
respect to the [Class B] Certificates, will be provided by the Cash Collateral
Account,] [and by the subordination in respect of certain payments of the
Collateral Interest to the [Class A] Certificates [and the [Class B]
Certificates]], the amount available thereunder is limited and will be reduced
by payments made pursuant thereto. If the amount available under [the Cash
Collateral Account has been reduced to zero,] [and the] Collateral Invested
Amount has been reduced to zero], then the [Class A] Certificateholders [and
[Class B] Certificateholders] will [each] bear directly the credit and other
risks associated with their respective undivided interests in the Trust.]
[Effect of Subordination of [Class B] Certificates; Delay and
Possible Reduction of Principal Payments. The [Class B]Certificates are
subordinated in right of payment of principal to the [Class A] Certificates.
Payments of principal in respect of the [Class B] Certificates will not commence
until after the final principal payment with respect to the [Class A]
Certificates has been made as described herein. Moreover, the [Class B] Invested
Amount may be reduced if the [Class A] Required Amount for any Monthly Period is
greater than zero and is not funded from Excess Spread and Excess Finance
Charges allocated to Series 199[ ]-[ ], [and] from amounts, if any, on deposit
in the Cash Collateral Account, [and] from reductions in the [Collateral]
Invested Amount, if any. To the extent the [Class B] Invested Amount is reduced,
the percentage of collections of Finance Charge Receivables allocable to the
[Class B] Certificateholders' Interest in future Monthly
S-27
<PAGE>
Periods will be reduced. Moreover, to the extent the amount of such reduction in
the [Class B] Invested Amount is not reimbursed, the amount of principal and
interest distributable to the [Class B] Certificateholders will be reduced. See
"DESCRIPTION OF THE CERTIFICATES -- Allocation Percentages" and "-- Reallocation
of Cash Flows; [Class B] Invested Amount" herein. If the [Class B] Invested
Amount is reduced to zero, then the [Class A] Certificateholders will bear
directly the credit and other risks associated with their undivided interest in
the Trust.]
[Effect of Discount Option and Risk of Delayed Rate of Collections
of Finance Charge Receivables. Pursuant to the Agreement, the Depositor has the
option to designate a fixed percentage of Receivables that otherwise would be
treated as Principal Receivables to be treated as Finance Charge Receivables.
Any such designation would result in an increase in the amount of Finance Charge
Receivables and a slower rate of payment of collections in respect of Principal
Receivables than otherwise would occur. Pursuant to the Agreement, the Depositor
can make such a designation without notice to, or the consent of, the
Certificateholders. The Depositor must provide [ ] days' prior written notice to
[the Servicer,] [the Seller,] [the Trustee], [any provider of Enhancement] and
each Rating Agency of any such designation, and such designation will become
effective only if (i) in the reasonable belief of the Depositor such designation
would not cause a Series 199[ ]-[ ] Pay Out Event to occur or an event which
with notice or the lapse of time or both would constitute a Series 199[ ]-[ ]
Pay Out Event and (ii) each Rating Agency confirms in writing its then current
rating on any outstanding Series.
[Limitations on Exercise of Rights due to Book-Entry Registration.
The Certificates initially will be represented by certificates registered in the
name of Cede, the nominee for DTC, and will not be registered in the names of
the Certificate Owners or their nominees. As a result, unless and until
Definitive Certificates are issued, Certificate Owners will not be recognized by
the Trustee as Certificateholders, as that term is used in the Agreement. Until
such time, Certificate Owners will only be able to exercise the rights of
Certificateholders indirectly through [DTC] [CEDEL] [or] [Euroclear] and [its]
[their respective] participating members.]
[Geographical Concentration of Assets. Discuss impact on
Certificateholders of material concentration of trust assets in one or a few
states, if applicable.]
[Concentration of Credit Risk. Discuss impact on Certificateholders of
material concentration of credit risk, if applicable.]
[Risks Attendant to Investments in Interest-only or Principal-only
Certificates. [If Certificates are Interest-only or Principal-only certificates,
discuss risks attendant thereto.]]
S-28
<PAGE>
MATURITY CONSIDERATIONS
The Agreement and the series supplement thereto (the "Series
Supplement") provide that [Class A] Certificateholders will not receive payments
of principal until the [first Distribution Date with respect to the Controlled
Amortization Period, which is the [ ____ ] Distribution Date] [[Class A]
Expected Final Payment Date,] unless a Pay Out Event shall occur. [Class A]
Certificateholders will receive payments of principal on each Distribution Date
following the Monthly Period in which a Pay Out Event occurs (each such
Distribution Date, a "Special Payment Date") until the [Class A] Invested Amount
has been paid in full or the Termination Date has occurred. [The [Class B]
Certificateholders will not begin to receive payments of principal until the
final principal payment on the [Class A] Certificates has been made.]
[On each Distribution Date with respect to the [Class A]
Accumulation Period, amounts equal to the lesser of (a) Available Principal
Collections for the related Monthly Period on deposit in the Collection Account,
(b) the sum of the applicable Controlled Accumulation Amount for such Monthly
Period and any applicable Deficit Controlled Accumulation Amount (the
"Controlled Deposit Amount") and (c) the [Class A] Adjusted Invested Amount will
be deposited in the Principal Funding Account until the Principal Funding
Account Balance is equal to the [Class A] Invested Amount. [After the Class A
Invested Amount has been paid in full, on each Distribution Date with respect to
the [Class B] Accumulation Period, amounts equal to the lesser of (a) Available
Principal Collections for the related Monthly Period on deposit in the
Collection Account, (b) the applicable Controlled Deposit Amount and (c) the
[Class B] Adjusted Invested Amount will be deposited in the Principal Funding
Account until the Principal Funding Account Balance equals the [Class B]
Invested Amount.] See "DESCRIPTION OF THE CERTIFICATES -- Principal Payments"
for a discussion of circumstances under which the commencement of the
Accumulation Period may be delayed.]
[On each Distribution Date during the Controlled Amortization
Period, the Certificateholders will be entitled to receive monthly payments of
principal, until the Certificates have been paid in full, in an amount equal to
the lesser of (a) Available Principal Collections for the related Monthly Period
on deposit in the Collection Account, (b) the Controlled Distribution Amount,
which is equal to the sum of the Controlled Amortization Amount and any existing
Deficit Controlled Amortization Amount and (c) the Invested Amount.]
[The [Depositor] [Seller] may, at or after the time at which the
[Controlled Amortization Period] [Accumulation Period] commences for Series
199[_]-[_], cause the Trust to issue another Series (or some portion thereof, to
the extent that the full principal amount of such other Series is not otherwise
outstanding at such time) as a Paired Series with respect to Series 199[ ]-[ ]
to be used to finance the increase in the Seller's Interest caused by the
accumulation of principal in the Principal Funding Account with respect to
Series 199[ ]-[ ]. No assurances can be given as to whether such other Series
will be issued and, if issued, the terms thereof. Because the
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<PAGE>
terms of the Certificates may vary from the terms of such other series, the Pay
Out Events with respect to such other series may vary from the Pay Out Events
with respect to Series 199[ ]-[ ] and may include Pay Out Events which are
unrelated to the status of [the Seller,] [or] [the Servicer] [or] the
Receivables, such as Pay Out Events related to the continued availability and
rating of certain providers of Enhancement to such other Series. If a Pay Out
Event does occur with respect to any such Paired Series prior to the payment in
full of the Certificates, the final payment of principal to the
Certificateholders may be delayed.]
Should a Pay Out Event occur with respect to the Certificates and
the Rapid Amortization Period commence, (a) [any amount on deposit in the
Principal Funding Account will be paid to the Certificateholders on the first
Special Payment Date, and] the Certificateholders will be entitled to receive
Available Principal Collections on each Distribution Date with respect to such
Rapid Amortization Period [or following the Expected Final Payment Date, as the
case may be,] as described herein until the [Class A] Invested Amount [and
[Class B] Invested Amount] [is] [are] paid in full or until the Termination Date
occurs and (b) any amount on deposit in the Excess Funding Account will be
released and treated as Shared Principal Collections to the extent needed to
cover principal payments due to or for the benefit of any Series entitled to the
benefits of Shared Principal Collections. In addition, on the first Special
Payment Date following the occurrence of an Pay Out Event, after giving effect
to any payment of principal on such date, (a) an amount equal to the lesser of
(i) the Available Shared Collateral Amount (after giving effect to any
withdrawal from the Cash Collateral Account on such date of amounts to fund the
[Class A] Required Amount [and the [Class B] Required Amount]) and (ii) the
unpaid principal amount of the [Class A] Certificates (less the Principal
Funding Account Balance allocable to the [Class A] Certificates), will be
withdrawn from the Cash Collateral Account and distributed to the [Class A]
Certificateholders as a payment of principal of the [Class A] Certificates, and
(b) an amount equal to the lesser of (i) the remainder of the Available Cash
Collateral Amount and (ii) the unpaid principal amount of the [Class B]
Certificates [(less the Principal Funding Account Balance, if any, allocable to
the [Class B] Certificates),] will be withdrawn from the Cash Collateral Account
and distributed to the [Class B] Certificateholders as a payment of principal of
the [Class B] Certificates.
The ability of Certificateholders to receive payments of principal
[on the applicable Expected Final Payment Date] [on each Distribution Date
during the Controlled Amortization Period] depends on the payment rates on the
Receivables, the amount of outstanding Receivables, delinquencies, charge-offs
and new borrowings on the Accounts, the potential issuance by the Trust of
additional Series and the availability of Shared Principal Collections. The
amount of outstanding Receivables and the delinquencies, charge-offs and new
borrowings on the Accounts may vary from month to month due to seasonal
variations, the availability of other sources of credit, legal factors, general
economic conditions and spending and borrowing habits of individual
accountholders. Monthly payment rates on the Receivables may vary because, among
other things, accountholders may fail to make a required minimum payment, may
only make payments as low as the minimum required amount or may make payments as
high as the entire outstanding balance. Monthly payment
S-30
<PAGE>
rates may also vary due to seasonal purchasing and payment habits of
accountholders and to changes in any terms of rebate programs in which
accountholders participate. The Depositor cannot predict, and no assurance can
be given, as to the accountholder monthly payment rates that will actually occur
in any future period, as to the actual rate of payment of principal of the
Certificates or whether the terms of any previously or subsequently issued
Series might have an impact on the amount or timing of any such payment of
principal. [The foregoing factors will affect both the Class A Certificates and
the [Class B] Certificates.]
There can be no assurance that collections of Principal Receivables
with respect to the Trust Portfolio, and thus the rate at which
Certificateholders could expect to receive payments of principal on the
Certificates during the Rapid Amortization Period [or the rate at which the
Principal Funding Account could be funded during the Accumulation Period,] [or
the rate at which payments of principal will be made during the Controlled
Amortization Period,] will be similar to the historical experience set forth in
the "Accountholder Monthly Payment Rates for the Identified Pool" table under
"The Identified Pool" herein. [The Depositor may shorten the [Class A]
Accumulation Period and, in such event, there can be no assurance that there
will be sufficient time to accumulate all amounts necessary to pay the [Class A]
Invested Amount on the [Class A] Expected Final Payment Date.]
The Trust, as a master trust, may issue additional Series from time
to time, and there can be no assurance that the terms of any such Series might
not have an impact on the timing or amount of payments received by
Certificateholders. Further, if a Pay Out Event occurs, the average life and
maturity of the [Class A] Certificates [and [Class B] Certificates,
respectively,] could be significantly reduced.
Due to the reasons set forth above, there can be no assurance [that
deposits in the Principal Funding Account will be made in accordance with the
applicable Controlled Accumulation Amount] [that payments of principal will be
made in accordance with the applicable Controlled Amortization Amount] or that
the actual number of months elapsed from the date of issuance of the [Class A]
Certificates [and the [Class B] Certificates] to their respective final
Distribution Dates will equal the expected number of months.
Master Trust Considerations
Impact of Additional Series. The Trust, as a master trust, may issue
additional Series from time to time. While the terms of any Series will be
specified in a Supplement, the provisions of a Supplement and, therefore, the
terms of any additional Series, will not be subject to the prior review by, or
consent of, holders of the Certificates of any previously issued Series. Such
terms may include methods for determining applicable investor percentages and
allocating collections, provisions creating different or additional security or
other Series Enhancements, provisions subordinating such Series to another
Series or other Series (if the Supplement relating to such Series so permits) to
such
S-31
<PAGE>
Series, and any other amendment or supplement to the Agreement which is made
applicable only to such Series. The obligation of the Trustee to issue any new
Series is subject to the following conditions, among others: (a) the [Seller]
[Depositor] shall have received written notice that such issue will not result
in any Rating Agency's reducing or withdrawing its rating of the Certificates of
any outstanding Series (any such reduction or withdrawal is referred to herein
as a "Ratings Effect") and (b) the [Seller] [Depositor] shall have delivered to
the Trustee and certain providers of Series Enhancement a certificate of an
authorized officer to the effect that, based on the facts known to such officer
at the time, in the reasonable belief of the [Seller] [Depositor], such issuance
will not at the time of its occurrence cause a Pay Out Event or an event that,
after the giving of notice or the lapse of time, would constitute a Pay Out
Event, to occur with respect to any Series. There can be no assurance, however,
that the terms of any other Series, including any Series issued from time to
time hereafter, might not have an impact on the timing or amount of payments
received by a Certificateholder.
Impact of Discount Option. Pursuant to the Agreement, the [Seller]
[Depositor] has the option from time to time to designate a fixed or variable
percentage of Receivables that otherwise would be treated as Principal
Receivables to be treated as Finance Charge Receivables. Any such designation
would result in an increase in the amount of Finance Charge Receivables and a
slower payment rate of collections in respect of Principal Receivables than
otherwise would occur. Pursuant to the Agreement, the [Seller] [Depositor] can
make such a designation without notice to or the consent of Certificateholders.
Thereafter, pursuant to the Agreement, the [Seller] [Depositor] may, without
notice to or the consent of Certificateholders, reduce or eliminate the
percentage of Receivables subject to such a designation. The [Seller]
[Depositor] must provide 30 days prior written notice to the Servicer, the
Trustee, any provider of Series Enhancement and each Rating Agency of any such
designation or reduction of Principal Receivables to be treated as Finance
Charge Receivables, and such designation or reduction will become effective only
if (i) the [Seller] [Depositor] shall have delivered to the Trustee and certain
providers of Series Enhancement a certificate of an authorized officer to the
effect that, based on the facts known to such officer at the time, in the
reasonable belief of the [Seller] [Depositor], such designation or reduction
would not at the time of its occurrence cause a Pay Out Event or an event that,
after the giving of notice or the lapse of time would constitute a Pay Out
Event, to occur with respect to any Series and (ii) the [Seller] [Depositor]
shall have received written notice from each Rating Agency that such designation
or reduction will not have a Ratings Effect and (iii) in the case of a reduction
or withdrawal, the [Seller] [Depositor] shall have delivered to the Trustee a
certificate of an authorized officer to the effect that, in the reasonable
belief of the [Seller] [Depositor], such reduction or withdrawal shall not have
adverse regulatory implications for the [Seller] [Depositor].
Impact of Addition of Trust Assets. The [Seller] [Depositor] expects,
and in some cases will be obligated, to designate Additional Accounts, the
Receivables in which will be conveyed
S-32
<PAGE>
to the Trust. Such Additional Accounts may include accounts originated using
criteria different from those which were applied to the Accounts previously
included in the Trust because such Additional Accounts were originated at a
different date or were part of a portfolio of accounts which were not part of
the Seller's portfolio at the time Accounts were previously conveyed to the
Trust or which were acquired from other institutions. Moreover, Additional
Accounts may or may not be accounts of the same type as those previously
included in the Trust. Consequently, there can be no assurance that such
Additional Accounts will be of the same credit quality as the Accounts
previously included in the Trust. In addition, such Additional Accounts may
consist of accounts which have characteristics different from the
characteristics of Accounts previously included in the Trust, including lower
periodic rate finance charges and other fees and charges, which may have the
effect of reducing the average yield on the portfolio of Accounts included in
the Trust, different payment rates and higher loss or delinquency experience,
which may have the effect of reducing the average yield on the portfolio of
accounts included in the Trust. The designation of Additional Accounts will be
subject to the satisfaction of certain conditions, including that (a) the
[Seller] [Depositor] shall have received written notice from each Rating Agency
that such addition will not have a Ratings Effect and (b) the [Seller]
[Depositor] shall have delivered to the Trustee and certain providers of Series
Enhancement a certificate of an authorized officer to the effect that, based on
the facts known to such officer at the time, in the reasonable belief of the
[Seller] [Depositor], such addition will not at the time of its occurrence cause
a Pay Out Event or an event that, after the giving of notice or the lapse of
time, would constitute a Pay Out Event, to occur with respect to any Series.
Although the addition of Participations will require an amendment to the Pooling
Agreement, no consent of Certificateholders will be required for any such
amendment.
THE IDENTIFIED POOL
General
A pool of [consumer] [corporate] [revolving] [credit] [charge]
[debit] card accounts owned by the Seller was identified (the "Identified
Pool"), from which the Accounts included in the Trust as of the Cut-Off Date
(the "Trust Portfolio") were selected based on the eligibility criteria
specified in the Agreement. Set forth below is certain information with respect
to the Identified Pool. There can be no assurance that the yield, loss and
delinquency experience with respect to the Receivables will be comparable to
that set forth below with respect to the entire Identified Pool.
Delinquency and Loss Experience
The following tables set forth the delinquency and loss experience
for the Identified Pool for each of the periods shown. Because the Trust
Portfolio is only a portion of the Identified Pool, actual delinquency and loss
experience with respect to the Receivables is expected to be different from that
set forth below for the Identified Pool.
S-33
<PAGE>
<TABLE>
<CAPTION>
Delinquency as Percentage of the Identified Pool
(Dollars in Thousands)
Year Ended
-----------------------------------------------------------------
At Month End
[ ] 31, 199[ ] 199[ ] 199[ ] 199[ ]
------------------- ------ ------ ------
Number of
Days
Delinquent Amount Percentage Amount Percentage Amount Percentage Amount Percentage
- ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 to 59
Days.....
60 to 89
Days.....
90 Days or
Greater..
Totals...
</TABLE>
<TABLE>
<CAPTION>
Loss Experience for the Identified Pool
(Dollars in Thousands)
Three Three
Months Months Year Ended
Ended Ended ------------------------------------
[ ], 19[ ] [ ], 199[ ] 199[ ] 199[ ] 199[ ]
------------- -------------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average Receivables Outstanding..
Gross Losses.....................
Gross Losses as a Percentage of Average Receivables
Outstanding......................
Recoveries.......................
Net Losses.......................
Net Losses as a Percentage of Average Receivables
Outstanding......................
</TABLE>
Revenue Experience
The following table sets forth the revenues from the Finance Charges
and Fees billed and Interchange received with respect to the Identified Pool for
each of the periods shown.
S-34
<PAGE>
<TABLE>
<CAPTION>
Revenue Experience for the Identified Pool
(Dollars in Thousands)
Three
Months Year Ended
Ended ------------------------------------
[ ], 199[ ] 199[ ] 199[ ] 199[ ] 199[ ]
-------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average Receivables Outstanding
Finance Charges
and Fees................
Yield from Finance Charges and Fees
Interchange.............
Yield from Interchange..
Yield from Finance Charges, Fees and
Interchange.............
</TABLE>
There can be no assurance that the yield experience with respect to
the Receivables will be comparable to that set forth above for the Identified
Pool. In addition, revenue from the Receivables will depend on the types of fees
and charges assessed on the Accounts, and could be adversely affected by future
changes made by the Seller in such fees and charges or by other factors.
Payment Rates
The following table sets forth the highest and lowest accountholder
monthly payment rates for the Identified Pool during any single month in each of
the periods shown and the average accountholder monthly payment rates for all
months during each of the periods shown, in each case calculated as a percentage
of average monthly account balances during the periods shown. Monthly payment
rates shown in the table are based on amounts which would be payments of
Principal Receivables and Finance Charge Receivables with respect to the
Accounts.
S-35
<PAGE>
1 VISA and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International Incorporated, respectively.
1] [private label] [other] credit card accounts, of which [ ]% were standard
accounts and [ ]% were premium accounts.
The following tables summarize the Trust Portfolio by various
criteria as of [_________], 19[__]. References to "Receivables Outstanding" in
the following tables include both Finance Charge Receivables and Principal
Receivables. Because the future composition of the Trust Portfolio may change
over time, these tables are not necessarily indicative of the composition of the
Trust Portfolio at any subsequent time.
S-36
<PAGE>
<TABLE>
<CAPTION>
Composition by Account Balance
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Percentage
Percentage of of Total
Number of Total Number Receivables Receivables
Account Balance Range Accounts Accounts Outstanding Outstanding
- --------------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Credit Balance................
No Balance
More than $0 and less than or
equal to $1,500 .........
$1500.01 -- $5,000...........
$5,000 -- $10,000.............
Over $10,000..................
</TABLE>
<TABLE>
<CAPTION>
Composition by Credit Limit
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Percentage
Percentage of of Total
Number of Total Number Receivables Receivables
Credit Limit Range Accounts Accounts Outstanding Outstanding
- --------------------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Less than or equal to $1,500 .
$1500.01 -- $5,000...........
$5,000 -- $10,000.............
Over $10,000..................
Total ...................
</TABLE>
S-37
<PAGE>
<TABLE>
<CAPTION>
Composition by Payment Status
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Percentage
Percentage of of Total
Number of Total Number of Receivables Receivables
Payment Status Accounts Accounts Outstanding Outstanding
-------------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Current to 29 days............
Past due 30 - 59 days.........
Past due 60 - 89 days.........
Past due 90+ days.............
Total...................
</TABLE>
<TABLE>
<CAPTION>
Composition by Account Age
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Percentage
Percentage of of Total
Number of Total Number Receivables Receivables
Account Age Accounts Accounts Outstanding Outstanding
----------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Not more than 6 months........
Over 6 months to 12 months....
Over 1 year to 2 years........
Over 2 years to 3 years.......
Over 3 years to 4 years.......
Over 4 years..................
Total...................
</TABLE>
S-38
<PAGE>
<TABLE>
<CAPTION>
Composition of Accounts by Accountholder Billing Address
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Percentage
Percentage of of Total
Number of Total Number Receivables Receivable
Location Accounts Accounts Outstanding Outstandin
-------- -------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
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................
North Dakota..................
Ohio..........................
Oklahoma......................
Oregon........................
Pennsylvania..................
Rhode Island..................
South Carolina................
South Dakota..................
Tennessee.....................
Texas.........................
Utah..........................
Vermont.......................
Virginia......................
Washington....................
West Virginia.................
Alabama.......................
Wyoming.......................
Other.........................
</TABLE>
S-39
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be paid to
the Depositor. The Depositor will use such proceeds to pay the Seller the
purchase price of the Receivables [and the Seller will use such proceeds for
general corporate purposes].
THE SELLER
[Insert description of the Seller.]
[THE SERVICER]
[Insert description of the Servicer, if different from the Seller.]
THE DEPOSITOR
The Depositor is a special-purpose Delaware corporation organized for the
purpose of issuing the Securities and other securities issued under the
Registration Statement backed by receivables or underlying securities of various
types and acting as settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not expected that the Depositor
will have any significant assets. The Depositor is an indirect, wholly owned
finance subsidiary of Collateralized Mortgage Securities Corporation which is a
wholly owned subsidiary of CS First Boston Securities Corporation, which is a
wholly owned subsidiary of CS First Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First Boston, Inc. nor any of their affiliates has
guaranteed, will guarantee or is or will be otherwise obligated with respect to
any Series of Securities.
The Depositor's principal executive office is located at Park Avenue
Plaza, 55 East 52nd Street, New York, New York 10055, and its telephone number
is (212) 909-2000.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement and the
Series Supplement. The following summary describes the material terms of the
Certificates, the Agreement and the Series Supplement. The summaries do not
purport to be complete descriptions of all of the terms of the Certificates, the
Agreement and the Series Supplement and therefore are subject to, and
S-40
<PAGE>
qualified in their entirety by reference to, all the provisions of the
Certificates, the Agreement and the Series Supplement. Reference should be made
to the Prospectus for additional information concerning the Certificates, the
Agreement and the Series Supplement.
Interest Payments
Interest on the [Class A] Certificates [and the [Class B]
Certificates] will accrue from the [Issuance Date] [Closing Date] on the [Class
A] Invested Amount [and [Class B] Invested Amount, respectively,] at the [Class
A] Certificate Rate [and [Class B] Certificate Rate, respectively]. Interest
will be distributed on [ _____ ] [and on the [ ____ ] day of each Interest
Period] [and on each Interest Payment Date thereafter] (or if any such day is
not a business day, the next succeeding business day), commencing on the [ ____
], 19[ ] Distribution Date, to Certificateholders in whose names the
Certificates were registered at the close of business on the last day of the
calandar month preceding the date of such payment (a "Record Date"). Interest
for any Interest Payment Date or Special Payment Date will accrue from and
including the preceding Interest Payment Date or Special Payment Date (or in the
case of the first Interest Payment Date, from and including the [Issuance Date]
[Closing Date]) to but excluding such Interest Payment Date or Special Payment
Date.
Interest payments or deposits with respect to the [Class A]
Certificates for each Distribution Date will be calculated on the [Class A]
Invested Amount as of the preceding Record Date (or in the case of the initial
Distribution Date, on the initial [Class A] Invested Amount) based upon the
[Class A] Certificate Rate. Interest payments or deposits with respect to each
Distribution Date will be calculated on the basis of [the actual number of days
in the period from and including the preceding Distribution Date (or in the case
of the initial Distribution Date the Closing Date) to but excluding such
Distribution Date and a 360-day year] [a 360-day year of twelve 30-day months].
On each Distribution Date, [Class A] Monthly Interest and [Class A] Monthly
Interest previously due but not deposited in the Interest Funding Account (as
defined below) or distributed in respect of [Class A] Certificates will be (i)
paid to [Class A] Certificateholders from [Class A] Available Funds if such
Distribution Date is an Interest Payment Date or Special Payment Date, or (ii)
deposited in an Eligible Deposit Account in the name of the Trustee and for the
benefit of the Certificateholders (the "Interest Funding Account"), if such
Distribution Date is not an Interest Payment Date or Special Payment Date. To
the extent [Class A] Available Funds allocated to the [Class A]
Certificateholders' Interest for such Monthly Period are insufficient to pay
such interest, Excess Spread and Excess Finance Charges allocated to Series 199[
]-[ ], amounts, if any, on deposit in the Cash Collateral Account up to the
Available Shared Collateral Amount and Reallocated Principal Receivables will be
used to make such payments.
"[Class A] Available Funds" means, with respect to any Monthly
Period, an amount equal to the sum of (i) the [Class A] Floating Percentage of
collections of Finance Charge Receivables allocated to the Certificates with
respect to such Monthly Period (including any investment earnings and certain
other amounts that are to be treated as collections of Finance Charge
Receivables in
S-41
<PAGE>
accordance with the Agreement and the Series Supplement, but excluding the
portion of collections of Finance Charge Receivables attributable to Interchange
that is allocable to Servicer Interchange); (ii) [if such Monthly Period relates
to a Distribution Date that occurs prior to the [Class B] Principal Commencement
Date,] the Principal Funding Investment Proceeds, if any, with respect to the
related Distribution Date; [and] (iii) amounts, if any, to be withdrawn from the
Reserve Account which are required to be included in [Class A] Available Funds
pursuant to the Series Supplement with respect to such Distribution Date; [and
(iv) Excess Spread, if any, for such Monthly Period].
[Interest payments on the [Class B] Certificates for each Payment
Date will be calculated on the [Class B] Invested Amount as of the preceding
Record Date (or in the case of the initial Interest Payment Date, on the initial
[Class B] Invested Amount) based upon the [Class B] Certificate Rate. Interest
will be calculated on the basis of [the actual number of days in the period from
and including the preceding Distribution Date (or in the case of the initial
Distribution Date the Closing Date) to but excluding such Distribution Date and
a 360-day year] [a 360-day year of twelve 30-day months]. On each Distribution
Date, [Class B] Monthly Interest and [Class B] Monthly Interest previously due
but not distributed to [Class B] Certificateholders will be paid from [Class B]
Available Funds for such Distribution Date and, if necessary, from Excess Spread
and Excess Finance Charges allocated to Series 199[ ]-[ ] and amounts, if any,
on deposit in the Cash Collateral Account up to the Available Cash Collateral
Amount.
["[Class B] Available Funds" means, with respect to any Monthly
Period, an amount equal to the sum of (i) the [Class B] Floating Percentage of
collections of Finance Charge Receivables allocated to the Certificates with
respect to such Monthly Period (including any investment earnings and certain
other amounts that are to be treated as collections of Finance Charge
Receivables in accordance with the Agreement, but excluding the portion of
collections of Finance Charge Receivables attributable to Interchange that is
allocable to Servicer Interchange); (ii) if such Monthly Period relates to a
Distribution Date that occurs on or after the [Class B] Principal Commencement
Date, the Principal Funding Investment Proceeds, if any, with respect to the
related Distribution Date; and (iii) amounts, if any, to be withdrawn from the
Reserve Account which are required to be included in [Class B] Available Funds
pursuant to the Series Supplement with respect to such Distribution Date; [and
(iv) Excess Spread, if any, for such Monthly Period].]
Principal Payments
During the Revolving Period (which begins on the Cut-Off Date and
ends on the day before the commencement of the [Controlled Amortization Period]
[Accumulation Period] or, if earlier, the Rapid Amortization Period), no
principal payments will be made to Certificateholders.
[On each Distribution Date during the Revolving Period, unless a
reduction in the Required Collateral Amount has occurred, collections of
Principal Receivables allocable to the Certificateholders' Interest and the
Collateral Indebtedness Interest will, subject to certain limitations,
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<PAGE>
including the allocation of any Reallocated Principal Collections with respect
to the related Monthly Period to pay the Required Amount, be paid to the Seller
to purchase additional Receivables in order to maintain the Invested Amount, and
if necessary, be treated as Shared Principal Collections. If a reduction in the
Required Collateral Amount has occurred, collections of Principal Receivables
allocable to the Collateral Indebtedness Amount will be applied in accordance
with the Collateral Agreement to reduce the Collateral Indebtedness Amount to
the Required Collateral Amount.]
[During the Accumulation Period (on or prior to the respective
Expected Final Payment Dates), principal will be deposited in the Principal
Funding Account as described below and on the [Class A] Expected Final Payment
Date will be distributed to [Class A] Certificateholders up to the [Class A]
Invested Amount [and then to [Class B] Certificateholders on the [Class B]
Expected Final Payment Date up to the [Class B] Invested Amount]. During any
Rapid Amortization Period, which will begin upon the occurrence of a Pay Out
Event, and until the Termination Date occurs, principal will be paid [first] to
the [Class A] Certificateholders until the [Class A] Invested Amount has been
paid in full[, and then to the [Class B] Certificateholders until the [Class B]
Invested Amount has been paid in full].]
[During the Controlled Amortization Period, which is scheduled to
begin on [ ], 199[ ], and during any Rapid Amortization Period, which will
begin upon the occurrence of a Pay Out Event, and until the Termination Date,
principal will be paid to the Certificateholders on each Distribution Date until
the Invested Amount has been paid in full.]
[On each Distribution Date during the Controlled Amortization
Period, unless an Rapid Amortization Period commences, the Certificateholders
will be entitled to receive [for each related Monthly Period since the previous
Interest Payment Date] the lesser of (a) collections of Principal Receivables
received during each such Period allocated to the Series 199[ ]-[ ] Certificates
[Shared Principal Collections allocated to Series 199[ ]-[ ]] [and]
[Miscellaneous Payments allocated to Series 199[ ]-[ ]] [other amounts].]
[On each Distribution Date with respect to the "[Class A]
Accumulation Period", amounts equal to the least of (a) Available Investor
Principal Collections for the related Distribution Date on deposit in the
Collection Account, (b) the applicable Controlled Deposit Amount for such
Distribution Date and (c) the [Class A] Adjusted Invested Amount, will be
deposited in the Principal Funding Account until the Principal Funding Account
Balance is equal to the [Class A] Invested Amount. Amounts on deposit in the
Principal Funding Account will be paid to the [Class A] Certificateholders on
the [Class A] Expected Final Payment Date. [After the Class A Invested Amount
has been paid in full, on each Distribution Date with respect to the "[Class B]
Accumulation Period", an amount equal to the least of (a) Available Investor
Principal Collections for the related Distribution Date on deposit in the
Collection Account (minus the portion of such Available Investor Principal
Collections applied to Class A Monthly Principal on such Distribution Date), (b)
the applicable Controlled Deposit Amount for such Monthly Period and (c) the
[Class B] Adjusted
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Invested Amount will be deposited in the Principal Funding Account until the
Principal Funding Account Balance equals the [Class B] Invested Amount. Amounts
on deposit in the Principal Funding Account in respect of the [Class B]
Certificates will be paid to the [Class B] Certificateholders on the [Class B]
Expected Final Payment Date.]
[If a Pay Out Event occurs with respect to Series 199[ ]-[ ] during
the Accumulation Period, the Rapid Amortization Period will commence and any
amount on deposit in the Principal Funding Account will be paid [first] to the
[Class A] Certificateholders on the first Special Payment Date [and then, to the
extent the Class A Invested Amount is paid in full, to the [Class B]
Certificateholders]. If, on any Expected Final Payment Date, monies on deposit
in the Principal Funding Account are insufficient to pay the scheduled principal
amount, a Pay Out Event will occur and the Rapid Amortization Period will
commence. [After payment in full of the Class A Invested Amount, the [Class B]
Certificateholders will be entitled to receive an amount equal to the [Class B]
Invested Amount.]
"Available Principal Collections" means, with respect to any Monthly
Period, an amount equal to the [sum of (a) (i)] an amount equal to the Principal
Allocation Percentage of all collections of Principal Receivables received
during such Monthly Period (minus the amount of Reallocated Principal
Collections with respect to such Monthly Period used to fund the [Class A]
Required Amount) [plus (b) the amount of Miscellaneous Payments, if any, for
such Monthly Period allocated to Series 199[ ]-[ ],] [plus (c) any Shared
Principal Collections with respect to other Series that are allocated to Series
199[ ]-[ ],] [plus (d) any other amounts which pursuant to the Series Supplement
are to be treated as Available Investor Principal Collections with respect to
the related Distribution Date].
[The Accumulation Period is scheduled to commence at the close of
business on [ ____ ]; however, the [Depositor] [Seller] may, upon notice to [the
Trustee,] [the Seller,] [the Servicer,] [the Depositor,] [each Rating Agency]
[and the Cash Collateral Holder] elect to postpone the commencement of the
Accumulation Period, and extend the length of the Revolving Period. The
Depositor may make such election only if the Accumulation Period Length
(determined as described below) is less than [ ] [twelve months]. On each
Determination Date until the Accumulation Period begins, the [Depositor]
[Seller] [Servicer] will determine the "Accumulation Period Length", which is
the number of months expected to be required to fully fund the Principal Funding
Account no later than the Expected Final Payment Date, based on (i) the expected
Monthly Period collections of Principal Receivables expected to be distributable
to the Certificateholders of all Series (excluding certain other Series),
assuming a principal payment rate no greater than the lowest Monthly Principal
payment rate on the Receivables for the preceding twelve months and (ii) the
amount of principal expected to be distributable to Certificateholders of all
Series (excluding certain other Series) which are not expected to be in their
revolving period during the Accumulation Period. If the Accumulation Period
Length is less than [ ] [twelve] months, the [Depositor] [Seller] may, at
its option, postpone the commencement of the Accumulation Period such that the
number of months included in the
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Accumulation Period will be equal to or exceed the Accumulation Period Length.
The effect of the foregoing calculation is to permit the reduction of the length
of the Accumulation Period based on the invested amounts of certain other Series
which are expected to be in their revolving periods during the Accumulation
Period or on increases in the principal payment rate occurring after the Series
Issuance Date. The [Depositor] [Seller] may not postpone or further postpone the
commencement date of the Accumulation Period after a Pay Out Event (as defined
with respect to each other outstanding Series) shall have occurred and is
continuing with respect to any other outstanding Series. The length of the
Accumulation Period will not be less than one month. If the commencement of the
Accumulation Period is delayed in accordance with the foregoing, and if a Pay
Out Event occurs after the date originally scheduled as the commencement of the
Accumulation Period, then it is probable that the Certificateholders would
receive some of their principal later than if the Accumulation Period had not
been delayed.]
On each Distribution Date with respect to the Rapid Amortization
Period until the [Class A] Invested Amount has been paid in full or the
Termination Date occurs, the [Class A] Certificateholders will be entitled to
receive Available Investor Principal Collections in an amount up to the [Class
A] Invested Amount. [After payment in full of the Class A Invested Amount, the
[Class B] Certificateholders will be entitled to receive on each Distribution
Date, Available Principal Collections until the earlier of the date on which the
[Class B] Invested Amount is paid in full or the Termination Date.] In addition,
on the first Special Payment Date following the occurrence of a Pay Out Event,
after giving effect to any payment of principal on such date, principal payments
will be made to the [Class A] Certificateholders [and the [Class B]
Certificateholders] from amounts on deposit in the Cash Collateral Account.
[On the Distribution Date following the Class A Expected Final
Payment (the "[Class B] Principal Commencement Date"), unless a Pay Out Event
has occurred, a withdrawal will be made from the Cash Collateral Account to pay
principal with respect to the [Class B] Certificates to the extent that the
[Class B] Initial Invested Amount minus the sum of the aggregate amount of
principal payments previously distributed to [Class B] Certificateholders or
deposited in the Principal Funding Account in respect of the [Class B]
Certificates exceeds the [Class B] Invested Amount on the last day of the
related Monthly Period (determined after giving effect to any change made to the
[Class B] Invested Amount as a result of unreimbursed charge-offs on the
following Distribution Date).]
[During the Rapid Amortization Period, collections of Principal
Receivables allocable to the Collateral Indebtedness will be deposited in the
Cash Collateral Account. Amounts will be retained in the Cash Collateral Account
at its required level and be made available to cover shortfalls with respect to
the Certificates. [In addition, on the first Special Payment Date following the
occurrence of any Pay Out Event, after giving effect to any payment of principal
on such date as described under "Application of Collections--Payments of
Principal," principal payments will be made
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<PAGE>
to the Certificateholders from amounts or deposit in the Cash Collateral Account
as described under "Cash Collateral Account" below.]]
[Subordination of the [Class B] Certificates]
[The [Class B] Certificateholders' Interest will be subordinated
(other than with respect to the Initial [Class B] Collateral Amount) to the
extent necessary to fund certain payments with respect to the Class A
Certificates. Certain principal payments otherwise allocable to the [Class B]
Certificateholders may be reallocated to the Class A Certificateholders and the
[Class B] Invested Amount may be decreased. To the extent the [Class B] Invested
Amount is reduced, the percentage of collections of Finance Charge Receivables
allocated to the [Class B] Certificateholders in subsequent Monthly Periods will
be reduced. Moreover, to the extent the amount of such reduction in the [Class
B] Invested Amount is not reimbursed, the amount of principal and interest
distributable to the [Class B] Certificateholders will be reduced.]
Allocation Percentages
Pursuant to the Agreement, the [Seller] [Servicer] will allocate among
the Certificateholders' Interest, the certificateholders' interest for all other
Series of certificates issued and outstanding and the Seller's Interest [and the
Collateral Interest], all collections of Finance Charge Receivables and
Principal Receivables and the Defaulted Amount with respect to each Monthly
Period.
Collection of Finance Charge Receivables and the Defaulted Amount
with respect to any Monthly Period will be allocated to Series 199[ ]-[ ] based
on the Floating Allocation Percentage. The "Floating Allocation Percentage"
means, with respect to any Monthly Period, the percentage equivalent (which
percentage shall never exceed 100%) of a fraction, the numerator of which is the
sum of the Adjusted Invested Amount and the Collateral Invested Amount, if any,
as of the last day of the preceding Monthly Period (or with respect to the first
Monthly Period, the Initial Invested Amount as of the Issuance Date) and the
denominator of which is the sum of the total amount of the Principal Receivables
in the Trust as of such day (or with respect to the first Monthly Period, the
total amount of Principal Receivables in the Trust on the Cut-Off Date) and the
principal amount on deposit in the Excess Funding Account as of such day. [Such
amounts so allocated will be further allocated between the [Class A]
Certificateholders and the [Class B] Certificateholders in accordance with the
[Class A] Floating Percentage and the [Class B] Floating Percentage,
respectively. The "[Class A] Floating Percentage" means, with respect to any
Monthly Period, the percentage equivalent (which percentage shall never exceed
100%) of a fraction, the numerator of which is equal to the [Class A] Adjusted
Investment Amount as of the close of business on the last day of the preceding
Monthly Period (or with respect to the first Monthly Period, as of the Issuance
Date) and the denominator of which is equal to the Adjusted Invested Amount as
of the close of business on such day (or with respect to the first Monthly
Period, the Initial Invested Amount). The "[Class B]
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<PAGE>
Floating Percentage" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is equal to the [Class B] Adjusted Invested Amount as of the
close of business on such day (or with respect to the first Monthly Period, the
Initial Invested Amount).]
Collections of Principal Receivables will be allocated to Series
199[ ]-[ ] based on the Principal Allocation Percentage. The "Principal
Allocation Percentage" means, with respect to any Monthly Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is (a) during the Revolving Period, the Invested Amount as of
the last day of the immediately preceding Monthly Period (or, in the case of the
first Monthly Period the Issuance Date) and (b) during the [Controlled
Amortization Period] [Accumulation Period] or the Rapid Amortization Period, the
Invested Amount as of the last day of the Revolving Period, and the denominator
of which is the greater of (i) the sum of the total amount of Principal
Receivables in the Trust as of the last day of the immediately preceding Monthly
Period and the principal amount on deposit in the Excess Funding Account as of
such last day (or, in the case of the first Monthly Period, the Cut-Off Date)
and (ii) the sum of the numerators used to calculate the principal allocation
percentages for all Series outstanding as of the date as to which such
determination is being made; provided, however, that because the Certificates
offered hereby are subject to being paired with a future Series, if a Pay Out
Event occurs with respect to such a Paired Series during the [Controlled
Amortization Period] [Accumulation Period] with respect to Series 199[ ]-[ ],
[the Depositor] [the Seller] [the Servicer] may, by written notice delivered to
the [the Trustee] [and] [the Seller] [and] [the Servicer], designate a different
numerator for the foregoing fraction, provided that such numerator is not less
than the Adjusted Invested Amount as of the last day of the revolving period for
such Paired Series and [the Depositor] [the Seller] [the Servicer] shall have
received written notice from each Rating Agency that such designation will not
have a Ratings Effect, and [the Depositor] [the Seller] [the Servicer] shall
have delivered to the Trustee a certificate of an authorized officer to the
effect that, based on the facts known to such officer at the time, in the
reasonable belief of [the Depositor] [the Seller] [the Servicer], such
designation will not cause a Pay Out Event or an event that, after the giving of
notice or the lapse of time, would constitute a Pay Out Event, to occur with
respect to Series 199[ ]-[ ].
[Such amounts so allocated to the Certificateholders will be further
allocated between the [Class A] Certificateholders and the [Class B]
Certificateholders based on the [Class A] Principal Percentage and the [Class B]
Principal Percentage, respectively. The "[Class A] Principal Percentage" means,
with respect to any Monthly Period (a) during the Revolving Period, the
percentage equivalent (which shall never exceed 100%) of a fraction, the
numerator of which is equal to the [Class A] Invested Amount as of the last day
of the immediately preceding Monthly Period (or, in the case of the first
Monthly Period, the [Class A] Initial Invested Amount), and the denominator of
which is equal to the Invested Amount as of such day, (or, in the case of the
first Monthly Period, the Initial Invested Amount) and (b) during the
[Controlled Amortization Period] [Accumulation Period] or the Rapid Amortization
Period, the percentage equivalent (which shall never exceed
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<PAGE>
100%) of a fraction, the numerator of which is the [Class A] Invested Amount as
of the last day of the Revolving Period, and the denominator of which is the
Invested Amount as of such last day. The "[Class B] Principal Percentage" means,
with respect to any Monthly Period, (i) during the Revolving Period, the
percentage equivalent (which percentage shall never exceed 100%) of a fraction,
the numerator of which is the [Class B] Invested Amount as of the last day of
the immediately preceding Monthly Period (or, in the case of the first Monthly
Period, the [Class B] Initial Invested Amount) and the denominator of which is
the Invested Amount as of such day (or, in the case of the first Monthly Period,
the Initial Invested Amount) and (ii) during the [Controlled Amortization
Period] [Accumulation Period] or the Rapid Amortization Period, the percentage
equivalent (which percentage shall never exceed 100%) of a fraction, the
numerator of which is the [Class B] Invested Amount as of the last day of the
Revolving Period, and the denominator of which is the Invested Amount as of such
last day.]
As used herein, the following terms have the meanings indicated:
"[Class A] Invested Amount" for any date means an amount equal to
(i) the [Class A] Initial Invested Amount, minus (ii) the aggregate amount of
principal payments made to the [Class A] Certificateholders on or prior to such
date and minus (iii) the excess, if any, of the aggregate amount of [Class A]
Investor Charge-Offs for all prior Distribution Dates over the aggregate amount
of any reimbursements of [Class A] Investor Charge-Offs for all Distribution
Dates prior to such date.
["[Class B] Invested Amount" for any date means an amount equal to
(i) the Initial [Class B] Invested Amount, minus (ii) the aggregate amount of
principal payments made to [Class B] Certificateholders on or prior to such date
(other than principal payments made from the proceeds of amounts received from
the Cash Collateral Account for the purpose of reimbursing previous reductions
in the [Class B] Invested Amount), minus (iii) the excess, if any, of the
aggregate amount of [Class B] Investor Charge-Offs for all prior Distribution
Dates over the aggregate amount of any reimbursement of [Class B] Investor
Charge-Offs for all Distribution Dates preceding such date, minus (iv) the
amount of Reallocated Principal Receivables for all prior Distribution Dates
which have been used to fund the [Class A] Required Amount with respect to such
Distribution Dates (excluding any Reallocated Principal Receivables that have
resulted in a reduction of the Collateral Invested Amount), minus (v) an amount
equal to the amount by which the [Class B] Invested Amount has been reduced to
fund the [Class A] Default Amount on all prior Distribution Dates as described
under "[Class A] Investor Charge-Offs" and plus (vi) the amount of Excess Spread
and Excess Finance Charges allocated to Series 199[ ]-[ ] and available on all
prior Distribution Dates for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (iii), (iv) and (v).]
"[Class A] Adjusted Invested Amount", for any date of determination,
means an amount equal to the then current [Class A] Invested Amount, minus the
funds on deposit in the Principal Funding Account of such date.
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<PAGE>
["[Class B] Adjusted Invested Amount", for any date of
determination, means (a) if such date occurs prior to the [Class B] Principal
Commencement Date, an amount equal to the [Class B] Invested Amount and (b) if
such date occurs on or after the [Class B] Principal Commencement Date, an
amount equal to the [Class B] Invested Amount minus the funds on deposit in the
Principal Funding Account on such date.]
["Collateral Indebtedness Amount" means an amount equal to (a) the
initial Collateral Indebtedness Amount, minus (b) the aggregate amount of
deposits made to the Cash Collateral Account from Principal Collections, minus
(c) the aggregate amount of Reallocated Principal Collections allocable to the
Collateral Indebtedness Amount for all prior Distribution Dates which have been
used to fund the Required Amount, minus (d) an amount equal to the aggregate
amount by which the Collateral Indebtedness Amount has been reduced to fund the
Investor Default Amount on all prior Distribution Dates as described under "--
Defaulted Receivables; Investor Charge-Offs", minus (e) an amount equal to the
product of the Collateral Floating Percentage and the Investor Default Amount
(the "Collateral Defaulted Amount") with respect to any Distribution Date that
is not funded out of Available Funds [and Excess Finance Charges allocated to
Series 199[ ]-[ ] and available for such purpose on such Distribution Date], and
plus (f) the aggregate amount of Available Funds [and Excess Finance Charges]
allocated and available to reimburse amounts deducted pursuant to the foregoing
clauses (c), (d) and (e) provided, however, that the Collateral Indebtedness
Amount may not be reduced below zero.]
["Collateral Invested Amount" means for any date, an amount equal to
(a) the amount withdrawn from the Cash Collateral Account and applied to the
payment of principal of the Certificates on the first Special Payment Date
following an Pay Out Event, minus (b) the aggregate amount of principal payments
made to the Collateral Interest Holder prior to such date minus (c) the amount
by which the Collateral Invested Amount has been reduced to fund the [Class A]
Default Amount [and the [Class B] Default Amount] on all prior Distribution
Dates as described below, minus (d) the amount by which the Collateral Invested
Amount has been reduced by Reallocated Principal Receivables applied to
reimburse the Required Amount and plus (e) the aggregate amount of Excess Spread
and Excess Finance Charges allocated to Series 199[ ]-[ ] and available on all
prior Distribution Dates for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (c) and (d). In the absence of the occurrence
of a Pay Out Event and a related withdrawal from the Cash Collateral Account to
pay principal of the Certificates, the Collateral Invested Amount will be zero.]
["Invested Amount", for any date, means an amount equal to the sum
of the [Class A] Invested Amount and the [Class B] Invested Amount] [and the
Collateral Invested Amount].]
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<PAGE>
[Principal Funding Account]
[The [Seller] [Servicer] [Depositor] will establish and maintain in
the name of the Trustee, on behalf of the Trust, the Principal Funding Account,
as an Eligible Account held for the benefit of the Certificateholders. During
the Accumulation Period, the Servicer will transfer collections in respect of
Principal Receivables, Shared Principal Collections allocated to Series 199[ ]-[
], [Miscellaneous Payments allocated to Series 199[ ]-[ ]] and other amounts
described herein to be treated in the same manner as collections of Principal
Receivables from the Collection Account to the Principal Funding Account.
[Unless a Pay Out Event has occurred with respect to the
Certificates, all amounts on deposit in the Principal Funding Account (the
"Principal Funding Account Balance") on any Distribution Date (after giving
effect to any deposits to, or withdrawals from the Principal Funding Account to
be made on such Distribution Date) will be invested until the following
Distribution Date by the Trustee at the direction of [the Seller] [the Servicer]
[the Depositor] in Eligible Investments. On each Distribution Date with respect
to the Accumulation Period [(on or prior to the [Class B] Expected Final Payment
Date)] the interest and other investment income (net of investment expenses and
losses) earned on such investments (the "Principal Funding Investment Proceeds")
will be withdrawn from the Principal Funding Account and will be treated as a
portion of [Class A] Available Funds, [prior to the [Class B] Principal
Commencement Date and, thereafter, [Class B] Available Funds]. If such
investments with respect to any such Distribution Date yield less than the
applicable Certificate Rate, the Principal Funding Investment Proceeds with
respect to such Distribution Date will be less than the Covered Amount for such
following Distribution Date. It is intended that any such shortfall will be
funded from [Class A] Available Funds [or [Class B] Available Funds, as the case
may be] (including a withdrawal from the Reserve Account, if necessary) [or a
withdrawal from the Cash Collateral Account] [other sources]. The Available
Reserve Account Amount at any time will be limited and there can be no assurance
that sufficient funds will be available to fund any such shortfall.
The "Covered Amount" shall mean [(a)] for any Distribution Date with
respect to the [Class A] Accumulation Period or the first Special Payment Date,
[if such Special Payment Date occurs prior to the [Class B] Principal
Commencement Date,] an amount equal to one [twelfth] [quarter] [half] of the
product of (i) the [Class A] Certificate Rate and (ii) the Principal Funding
Account Balance, if any, as of the preceding Distribution Date [and (b) for any
Distribution Date with respect to the [Class B] Accumulation Period or the first
Special Payment Date, if such Special Payment Date occurs on or after the [Class
B] Principal Commencement Date, an amount equal to one [twelfth] [quarter]
[half] of the product of (i) the [Class B] Certificate Rate and (ii) the
Principal Funding Account Balance, if any, as of the preceding Distribution
Date].
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<PAGE>
[Reserve Account]
The [Seller] [Servicer] [Depositor] will establish and maintain in
the name of the Trustee, on behalf of the Trust, an Eligible Deposit Account for
the benefit of the Certificateholders (the "Reserve Account"). The Reserve
Account is established to assure the subsequent distribution of interest on the
Certificates as provided in this Prospectus Supplement during the Accumulation
Period. On each Distribution Date from and after the Reserve Account Funding
Date, but prior to the termination of the Reserve Account, the Trustee, acting
pursuant to the [Servicer's] [Seller's] [Depositor's] instructions, will apply
Excess Spread and Excess Finance Charges allocated to Series 199[_]-[_] (to the
extent described below under "Application of Collections--Payment of Interest,
Fees and Other Items") to increase the amount on deposit in the Reserve Account
(to the extent such amount is less than the Required Reserve Account Amount).
[In addition, on each Distribution Date, the [Seller] [Depositor] will have the
option, but will not be required, to make a deposit in the Reserve Account (to
the extent that the amount on deposit in the Reserve Account is less than the
Required Reserve Account Amount).]
[The "Reserve Account Funding Date" will be the Distribution Date
with respect to the Monthly Period which commences no later than three months
prior to the Distribution Date with respect to the Monthly Period which
commences the [Class A] Accumulation Period or such earlier date as the Servicer
may designate. The "Required Reserve Account Amount" for any Distribution Date
on or after the Reserve Account Funding Date will be equal to the product of [
%] of the [Class A] Invested Amount as of the preceding Distribution Date and
the Reserve Account Factor as of such Distribution Date, or such lower amount
approved by each Rating Agency. On each Distribution Date, after giving effect
to any deposit to be made to, and any withdrawal to be made from, the Reserve
Account on such Distribution Date, the Trustee will withdraw from the Reserve
Account an amount equal to the excess, if any, of the amount on deposit in the
Reserve Account over the Required Reserve Account Amount and shall distribute
such excess to, or at the direction of, [the Seller] [the Depositor]. The
"Reserve Account Factor" for any Distribution Date will be equal to the
percentage (not to exceed 100%) equivalent of a fraction, the numerator of which
is the number of Monthly Periods scheduled to be included in the Accumulation
Period (as such may have been postponed at the option of the [Seller]
[Depositor] [Servicer]) as of such Distribution Date and the denominator of
which is [ ____ ].]
[Provided that the Reserve Account has not terminated as described
below, all amounts on deposit in the Reserve Account on any Distribution Date
(after giving effect to any deposits to, or withdrawals from, the Reserve
Account to be made on such Distribution Date) will be invested until the
following Distribution Date by the Trustee at the direction of the [Seller]
[Servicer] [Depositor] in Eligible Investments. The interest and other
investment income (net of investment expenses and losses) earned on such
investments will be retained in the Reserve Account (to the extent the amount on
deposit therein is less than the Required Reserve Account Amount) or deposited
in the Collection Account and treated as collections of Finance Charge
Receivables.]
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<PAGE>
[On or before each Distribution Date with respect to the
Accumulation Period (on or prior to the [Class A] Expected Final Payment Date)
and on the first Special Payment Date, a withdrawal will be made from the
Reserve Account, and the amount of such withdrawal will be deposited in the
Collection Account and included in [Class A] Available Funds, [prior to the
[Class B] Principal Commencement Date, and, thereafter, in [Class B] Available
Funds,] in an amount equal to the lesser of (a) the Available Reserve Account
Amount with respect to such Distribution Date or Special Payment Date and (b)
the excess, if any, of the Covered Amount with respect to such Distribution Date
or Special Payment Date over the Principal Funding Investment Proceeds with
respect to such Distribution Date or Special Payment Date; provided that the
amount of such withdrawal shall be reduced to the extent that funds otherwise
would be available to be deposited in the Reserve Account on such Distribution
Date or Special Payment Date. On each Distribution Date, the amount available to
be withdrawn from the Reserve Account (the "Available Reserve Account Amount")
will be equal to the lesser of the amount on deposit in the Reserve Account
(before giving effect to any deposit to be made to the Reserve Account on such
Distribution Date) and the Required Reserve Account Amount for such Distribution
Date.]
[The Reserve Account will be terminated following the earlier to
occur of (a) the termination of the Trust pursuant to the Agreement, (b) the
date on which the Certificates are paid in full and (c) if the Accumulation
Period has not commenced, the occurrence of a Pay Out Event with respect to
Series 199[ ]-[ ] or, if the Accumulation Period has commenced, the earlier of
the first Special Payment Date and the [[Class B]] Expected Final Payment Date.
Upon the termination of the Reserve Account, all amounts on deposit therein
(after giving effect to any withdrawal from the Reserve Account on such date as
described above) will be distributed to, or at the direction of, the Depositor.
Any amounts withdrawn from the Reserve Account and distributed to, or at the
direction of, the Depositor as described above will not be available for
distribution to the Certificateholders.]
Reallocation of Cash Flows; [Class B] Invested Amount
With respect to each Distribution Date, on each Determination Date,
the Servicer will determine the "[Class A] Required Amount," which will be equal
to the amount, if any, by which (a) the sum of (i) [Class A] [Monthly]
[Quarterly] [Semi-Annual] Interest for such Distribution Date, (ii) any [Class
A] [Monthly] [Quarterly] [Semi-Annual] Interest previously due but not paid to
[Class A] Certificateholders on a prior Distribution Date, (iii) any [Class A]
additional Interest, (iv) the [Class A] Servicing Fee for such Distribution Date
and any unpaid [Class A] Servicing Fee and (v) the [Class A] Default Amount, if
any, for such Distribution Date, exceeds the [Class A] Available Funds. If the
[Class A] Required Amount is greater than zero, Excess Spread and Excess Finance
Charges allocated to Series 199[ ]-[ ] and available for such purpose will be
used to fund the [Class A] Required Amount with respect to such Distribution
Date. If such Excess Spread and Excess Finance Charges available with respect to
such Distribution Date are less than the [Class A] Required Amount, then
amounts, if any, on deposit in the Cash Collateral Account available to pay
amounts in respect of the [Class A] Certificates will then be used to fund the
remaining [Class A] Required Amount. [If such Excess Spread and Excess Finance
Charges and amounts available from the Cash Collateral Account are insufficient
to fund the [Class A] Required Amount, then collections of Principal Receivables
allocable to the [Class B] Certificates for the related Monthly Period will then
be used to fund the remaining [Class A] Required
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Amount ("Reallocated Principal Receivables").] If Reallocated Principal
Receivables with respect to the related Monthly Period (together with Excess
Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] and amounts
available from the Cash Collateral Account) are insufficient to fund the [Class
A] Required Amount for such related Monthly Period, then the Collateral Invested
Amount, if any, will be reduced by the amount of such excess (but not by more
than the [Class A] Default Amount for such Distribution Date). In the event that
such reduction would cause the Collateral Invested Amount to be a negative
number, the Collateral Invested Amount will be reduced to zero, and the [Class
B] Invested Amount will be reduced by the amount by which the Collateral
Invested Amount would have been reduced below zero (but not by more than the
excess of the [Class A] Default Amount, if any, for such Distribution Date over
the amount of such reduction, if any, of the Collateral Invested Amount with
respect to such Distribution Date). In the event that such reduction would cause
the [Class B] Invested Amount to be a negative number, then the [Class B]
Invested Amount will be reduced to zero, and the [Class A] Invested Amount will
be reduced by the amount by which the [Class B] Invested Amount would have been
reduced below zero (but not by more than the excess, if any, of the [Class A]
Default Amount for such Distribution Date over the amount of the reductions, if
any, of the Collateral Invested Amount and the [Class B] Invested Amount with
respect to such Distribution Date as described above).] Any such reduction in
the [Class A] Invested Amount will have the effect of slowing or reducing the
return of principal and interest to the [Class A] Certificateholders. In such
case, the [Class A] Certificateholders will bear directly the credit and other
risks associated with their undivided interest in the Trust.
Reductions of the [Class A] [or [Class B]] Invested Amount shall
thereafter be reimbursed and the [Class A] [or Class B] Invested Amount will be
increased on each Distribution Date by the amount, if any, of Excess Spread and
Excess Finance Charges. See "APPLICATION OF COLLECTIONS -- Excess Spread; Excess
Finance Charges". When such reductions of the [Class A] and [Class B] Invested
Amount have been fully reimbursed, reductions of the [Collateral] Invested
Amount shall be reimbursed and the [Collateral] Invested Amount increased in a
similar manner.
Application of Collections
Payment of Interest, Fees and Other Items. On each Distribution
Date, the Trustee, acting pursuant to the [Seller's] [Servicer's] instructions,
will apply the [Class A] Available Funds [and [Class B] Available Funds] (each
as defined under "--Interest Payments" above) on deposit in the Collection
Account in the following priority:
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(A) On each Distribution Date, an amount equal to the [Class A] Available
Funds with respect to such Distribution Date will be distributed in the
following priority:
(i) an amount equal to [Class A] Monthly Interest for such
Distribution Date, plus the amount of any [Class A] Monthly Interest
previously due but not distributed to the [Class A] Certificateholders on
a prior Distribution Date, plus any additional interest with respect to
interest amounts that were due but not distributed to the [Class A]
Certificateholders on a prior Distribution Date at a rate equal to the
[Class A] Certificate Rate [plus [ %] per annum ("[Class A] Additional
Interest"),] will be:
[(x)] distributed to [Class A] Certificateholders [if such
Distribution Date is an Interest Payment Date or (y) deposited in
the Interest Funding Account, if such Distribution Date is not an
Interest Payment Date or Special Payment Date for distribution to
[Class A] Certificateholders on the next Interest Payment Date or
Special Payment Date];
(ii) an amount equal to the [Class A] Servicing Fee for such
Distribution Date, plus the amount of any [Class A] Servicing Fee
previously due but not distributed to the Servicer on a prior Distribution
Date, will be distributed to the Servicer (unless such amount has been
netted against deposits to the Collection Account);
(iii) an amount equal to the [Class A] Default Amount for such
Distribution Date will be treated as a portion of Available Investor
Principal Collections for such Distribution Date; and
(iv) the balance, if any, shall constitute Excess Spread and shall
be allocated and distributed as described under "--Excess Spread; Excess
Finance Charges" below.
[(B) On each Distribution Date, an amount equal to the [Class B] Available
Funds with respect to such Distribution Date will be distributed in the
following priority:]
[(i) an amount equal to [Class B] Monthly Interest for such
Distribution Date, plus the amount of any [Class B] Monthly Interest
previously due but not distributed to the [Class B] Certificateholders on
a prior Distribution Date, plus any additional interest with respect to
interest amounts that were due but not distributed to the [Class B]
Certificateholders on a prior Distribution Date at a rate equal to the
[Class B] Certificate Rate plus [ %] per annum ("[Class B] Additional
Interest"), will be:]
[(x)] distributed to [Class B] Certificateholders [if such
Distribution Date is an Interest Payment Date or (y) deposited in
the Interest Funding Account, if such Distribution Date is not an
Interest Payment Date or Special Payment Date for
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distribution to [Class B] Certificateholders on the next Interest Payment
Date or Special Payment Date];]
[(ii) an amount equal to the [Class B] Servicing Fee for such
Distribution Date, plus the amount of any [Class B] Servicing Fee
previously due but not distributed to the Servicer on a prior Distribution
Date, will be distributed to the Servicer (unless such amount has been
netted against deposits to the Collection Account); and]
[(iii)the balance, if any, shall constitute Excess Spread and shall
be allocated and distributed as described under "--Excess Spread; Excess
Finance Charges" below.]
"[Class A] Monthly Interest" means, with respect to any Distribution
Date, an amount equal to the product of (i) a fraction, the numerator of which
is the actual number of days in the period from and including the prior
Distribution Date to but excluding such Distribution Date and the denominator of
which is 360, (ii) the [Class A] Certificate Rate and (iii) the [Class A]
Invested Amount as of the preceding Record Date.
["[Class B] Monthly Interest" means, with respect to any
Distribution Date, an amount equal to the product of (i) a fraction, the
numerator of which is the actual number of days in the period from and including
the prior Distribution Date to but excluding such Distribution Date and the
denominator of which is 360, (ii) the [Class B] Certificate Rate and (iii) the
[Class B] Invested Amount as of the preceding Record Date.]
"Excess Spread" means, with respect to any Distribution Date, an
amount equal to the sum of the amounts described in clause (A)(iv) above [and
clause (B)(iii) above,] [in the definition of [Class A] Monthly Interest [and
[Class B] Monthly Interest]].
Excess Spread; Excess Finance Charges. On each Distribution Date,
the Trustee, acting pursuant to the Servicer's instructions, will apply Excess
Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] with respect to
the related Monthly Period to make the following distributions in the following
priority to the extent funds are available:
[(a)] an amount equal to the [Class A] Required Amount, if any, with
respect to such Distribution Date will be used to fund any deficiency
pursuant to clauses (A) (i), (ii) and (iii) above in such order of
priority;
[(b)] [an amount equal to the aggregate amount of [Class A] Investor
Charge-Offs which have not been previously reimbursed (after giving effect
to the allocation on such Distribution Date of certain other amounts
applied for that purpose) will be treated as a portion of Available
Investor Principal Collections for such Distribution Date as described
under "--Payments of Principal" below;]
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[(c)] [an amount equal to the [Class B] Required Amount, if any,
with respect to such Distribution Date will be used first (I) to fund any
deficiency pursuant to clauses (B) (i) and (ii) above under "--Payment of
Interest, Fees and Other Items" in such order of priority, and (II) second
to pay any [Class B] Default Amount with respect to such Distribution
Date].
[(d)] [an amount equal to the aggregate by which the [Class B]
Invested Amount has been reduced pursuant to clauses (iii), (iv) and (v)
of the definition of "[Class B] Invested Amount" under "--Allocation
Percentages" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) shall be treated as
a portion of Available Investor Principal Collections for such
Distribution Date;]
[(e)] [an amount equal to [the "Cash Collateral Fee" (as described
in the Loan Agreement (the "[Loan] Agreement") among the [Depositor]
[Seller], the cash collateral depositor (the "Cash Collateral Depositor")
and the Trustee) for such Distribution Date shall be distributed to the
Cash Collateral Depositor for application in accordance with the [Loan]
Agreement;]
[(f)] [an amount equal to the aggregate amount by which the
Collateral Invested Amount has been reduced pursuant to clauses (c) and
(d) of the definition of "Collateral Invested Amount" under "--Allocation
Percentages" above (but not in excess of the aggregate amount of such
reductions which have not been previously reimbursed) shall be treated as
a portion of Available Principal Collections for such Distribution Date;]
[(g)] [an amount equal to the Monthly Servicing Fee due but not paid
to the Servicer on such Distribution Date or a prior Distribution Date
shall be paid to the Servicer;]
[(h)] [an amount up to the excess, if any, of the Required Cash
Collateral Amount over the remaining Available Cash Collateral Amount
shall be deposited into the Cash Collateral Account;]
[(i)] [on each Distribution Date from and after the Reserve Account
Funding Date, but prior to the date on which the Reserve Account
terminates, an amount up to the excess, if any, of the Required Reserve
Account Amount over the Available Reserve Account Amount shall be
deposited into the Reserve Account;]
[(j)] [an amount equal to the aggregate of any other amounts then
due to the Collateral Interest Holder pursuant to the [Loan] Agreement (to
the extent such amounts are payable pursuant to the [Loan] Agreement out
of Excess Spread and Excess Finance Charges) shall be distributed to the
Collateral Interest Holder for application in accordance with the [Loan]
Agreement; and
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[(k)] the balance, if any, will constitute a portion of Excess
Finance Charges for such Distribution Date and will be available for
allocation to other Series in Group [ ] or to the [Seller] [Depositor] as
described in "Description of the Certificates -- Sharing of Excess Finance
Charges" in the Prospectus.
Payments of Principal. On each Distribution Date, the Trustee,
acting pursuant to the [Seller's] [Servicer's] instructions, will distribute
Available Principal Collections (see "--Principal Payments" above) on deposit in
the Collection Account in the following priority:
(i) on each Distribution Date with respect to the Revolving Period,
all such Available Principal Collections will be distributed [or
deposited] in the following priority:
[(a)] [an amount equal to the excess, if any, of the
Collateral Invested Amount over the Required Collateral Invested
Amount will be paid to the Collateral Interest Holder; and]
[(b)] [the balance] [such Available Principal Collections]
will be treated as Shared Principal Collections and applied in
accordance with the Agreement and the Series Supplement.]
(ii) on each Distribution Date with respect to the [Controlled
Amortization Period] [Accumulation Period] or the Rapid Amortization
Period, all such Available Principal Collections will be distributed [or
deposited] in the following priority:
[(a)] [an amount equal to [Class A] Monthly Principal, up to
the [Class A] Adjusted Invested Amount on such Distribution Date
will be distributed to [Class A] Certificateholders [if such
Distribution Date is a Principal Distribution Date or deposited in
the Principal Funding Account if such Distribution Date is not a
Principal Distribution Date] (during the [Class A] Accumulation
Period) or distributed to the [Class A] Certificateholders (during
the Rapid Amortization Period)[; and]]
[(b) for each Distribution Date after the [Class A] Adjusted
Invested Amount has been paid in full, an amount equal to [Class B]
Monthly Principal, up to the [Class B] Adjusted Invested Amount on
such Distribution Date, will be distributed to [Class B]
Certificateholders [if such Distribution Date is a Principal
Distribution Date or deposited in the Principal Funding Account if
such Distribution Date is not a Principal Distribution Date] (during
the [Class B] Accumulation Period) or distributed to the Class B
Certificateholders (during the Rapid Amortization Period);]
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[(a)] [an amount equal to [Class A] Monthly Principal, up to
the [Class A] Adjusted Invested Amount on such Distribution Date
will be deposited in the Principal Funding Account (during the
[Class A] Accumulation Period) or distributed to the [Class A]
Certificateholders (during the Rapid Amortization Period)[; and]]
[(b) for each Distribution Date beginning on the [Class B]
Principal Commencement Date, an amount equal to [Class B] Monthly
Principal for such Distribution Date, up to the [Class B] Adjusted
Invested Amount on such Distribution Date, will be deposited in the
Principal Funding Account (during the [Class B] Accumulation Period)
or distributed to the [Class B] Certificateholders (during the Rapid
Amortization Period)].
(c) for each Distribution Date with respect to the Rapid
Amortization Period, beginning with the Distribution Date on which
the Invested Amount is paid in full, an amount equal to the balance,
if any, of such Available Principal collections then on deposit in
the Collection Account, to the extent of the Collateral Invested
Amount, if any, shall be distributed to the Collateral Interest
Holder for application in accordance with the [Loan] Agreement; and
(d) for each Distribution Date, after giving effect to
paragraphs (a), (b) and (c) above, an amount equal to the balance,
if any, of such Available Principal Collections will be allocated to
Shared Principal Collections and applied in accordance with the
Agreement.
"[Class A] Monthly Principal" with respect to any Distribution Date
relating to the [Class A] [Controlled Amortization Period] [Accumulation Period]
or the Rapid Amortization Period will equal the lesser of (i) the Available
Principal Collections on deposit in the Collection Account with respect to such
Distribution Date, (ii) for each Distribution Date with respect to the [Class A]
[Controlled Amortization Period] [Accumulation Period], [and on or prior to the
[Class A] Expected Final Payment Date,] the [Controlled Distribution Amount]
[Controlled Deposit Amount] for such Distribution Date and (iii) the [Class A]
Adjusted Invested Amount on such Distribution Date.
["[Class B] Monthly Principal" with respect to any Distribution Date
relating to the [Class B] [Controlled Amortization Period] [Accumulation Period]
or the Rapid Amortization Period, after the [Class A] Certificates have been
paid in full, will equal the lesser of (i) the Available Principal Collections
on deposit in the Collection Account with respect to such Distribution Date
(minus the portion of such Available Principal Collections applied to [Class A]
Monthly Principal on such Distribution Date), (ii) for each Distribution Date
with respect to the [Class B] [Controlled Amortization Period] [Accumulation
Period], [and on or prior to the [Class B] Expected Final Payment Date,] the
[Controlled Distribution Amount] [Controlled Deposit Amount] for such
Distribution Date and (iii) the [Class B] Adjusted Invested Amount on such
Distribution Date.]
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["Controlled Accumulation Amount" means [(a)] for any Distribution
Date with respect to the [Class A] Accumulation Period, $[ ____ ]; provided,
however, that, if the commencement of the [Class A] Accumulation Period is
delayed as described above under "--Principal Payments", the Accumulation Amount
for each Distribution Date may be different for each Distribution Date with
respect to the [Class A] Accumulation Period and will be determined by the
[Seller] [Servicer] [Depositor] in accordance with the [Agreement] [and the
Series Supplement] based on the principal payment rates for the Accounts and on
the invested amounts of other Principal Sharing Series that are scheduled to be
in their revolving periods and then scheduled to create Shared Principal
Collections during the [Class A] Accumulation Period[; and (b) for any
Distribution Date with respect to the [Class B] Accumulation Period, an amount
equal to [$ ____ ] [the [Class B] Invested Amount] as of the [Class B] Principal
Commencement Date].]]
["Deficit Controlled Accumulation Amount" means (a) on the first
Distribution Date with respect to the [Class A] Accumulation Period [or the
[Class B] Accumulation Period,] the excess, if any, of the Controlled
Accumulation Amount for such Distribution Date over the amount [deposited in the
Principal Funding Account on such Distribution Date] [distributed from the
Collection Account as [Class A] Monthly Principal [or [Class B] Monthly
Principal, as the case may be,] for such Distribution Date] and (b) on each
subsequent Distribution Date with respect to the [Class A] Accumulation Period
[or the [Class B] Accumulation Period,] the excess, if any, of the Controlled
Deposit Amount for such subsequent Distribution Date plus any Deficit Controlled
Accumulation Amount for the prior Distribution Date over the amount [deposited
in the Principal Funding Account on such Distribution Date] [distributed from
the Collection Account as [Class A] Monthly Principal [or [Class B] Monthly
Principal, as the case may be,] for such subsequent Distribution Date].]]
["Controlled Deposit Amount" means, for any Distribution Date with
respect to the Accumulation Period, an amount equal to the sum of the Controlled
Accumulation Amount for such Distribution Date and any Deficit Controlled
Accumulation Amount for the immediately preceding Distribution Date.]
[Cash Collateral Account]
[The Trust will have the benefit of the Cash Collateral Account for
the benefit of the Certificateholders [and the Collateral Interest Holder], as
their interests appear in the Series Supplement, and in the case of the
Collateral Interest Holder, in the [Loan] Agreement (which interest, in the case
of the Collateral Interest Holder, will be subordinated to the interests of the
Certificateholders as provided in the Series Supplement). The Cash Collateral
Account will be one or more Eligible Deposit Accounts. Funds on deposit in the
Cash Collateral Account will be invested in certain Eligible Investments that
mature on or before the business day immediately preceding the next Distribution
Date. [On each Distribution Date, all interest and earnings (net of losses and
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investment expenses) accrued since the preceding Distribution Date on funds on
deposit in the Cash Collateral Account shall be paid to the Collateral Interest
Holder for application in accordance with the [Loan] Agreement.]]
[The Cash Collateral Account will be funded on the Issuance Date in
the Initial Cash Collateral Amount which amount will include the proceeds of an
advance to be made by one or more lenders to be selected by the [Depositor]
(such lender or lenders, the "Collateral Interest Holders"). Such advance will
be repaid pursuant to the [Loan] Agreement. The Cash Collateral Account will be
terminated following the earliest to occur of (a) the date on which the
Certificates are paid in full, (b) the date on which the entire Available Cash
Collateral Amount is distributed to the Certificateholders as a result of the
occurrence of any Pay Out Event, (c) the Termination Date and (d) the
termination of the Trust pursuant to the Agreement.]
[On each Distribution Date, the amount available to be withdrawn
from the Cash Collateral Account (the "Available Cash Collateral Amount") will
be equal to the lesser of the amount on deposit in the Cash Collateral Account
(before giving effect to any deposit to be made to, or withdrawal from, the Cash
Collateral Account on such Distribution Date) or the Required Cash Collateral
Amount.]
[The "Required Cash Collateral Amount" means, with respect to any
Distribution Date, the lesser of the (a) [the sum of] [the Required Shared
Collateral Amount] [and] [the Initial [Class B] Collateral Amount] as of such
Distribution Date and (b) the adjusted Invested Amount as of such Distribution
Date.]
[The "Required Shared Collateral Amount" means, with respect to any
Distribution Date, the product of (a) the Adjusted Invested Amount as of such
Distribution Date after taking into account distributions made on such date and
(b) [ ]% or such higher percentage as is specified by each Rating Agency;
provided, however, that (i) if there are any withdrawals from the Cash
Collateral Account to fund the [Class A] Required Amount [or the [Class B]
Required Amount,] or a Pay Out Event occurs with respect to Series 199[ ]-[ ],
then the Required Shared Collateral Amount for any Distribution Date shall equal
the Required Shared Collateral Amount on the Distribution Date immediately
preceding such withdrawal or Pay Out Event and (ii) notwithstanding the
foregoing, the Required Shared Collateral Amount with respect to any
Distribution Date will not be less than $[ ].]
[The Required Shared Collateral Amount [and the Initial [Class B]
Collateral Amount] may be reduced without the consent of the Certificateholders,
if the [Depositor] [Seller] shall have received written notice from each Rating
Agency that such reduction will not have a Ratings Effect and the [Depositor]
[Seller] shall have delivered to the Trustee a certificate of an authorized
officer to the effect that, based on the facts known to such officer at the
time, in the reasonable belief of the [Depositor] [Seller], such reduction will
not cause a Pay Out Event or an event that, after the giving
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of notice of the lapse of time, would constitute a Pay Out Event, to occur with
respect to Series 199[ ]-[ ].]
[On each Distribution Date, one or more withdrawals will be made
from the Cash Collateral Account in an amount up to the Available Shared
Collateral Amount, to fund the following amounts in the following priority:]
[(a)] the excess, if any, of the [Class A] Required Amount
with respect to the related Distribution Date over the amount of
Excess Spread and Excess Finance Charges allocated to Series
199[_]-[_] and available to fund such [Class A] Required Amount will
be used first to fund any deficiency in current [Class A] Monthly
Interest, overdue [Class A] Monthly Interest and any current or
overdue [Class A] Additional Interest, second to fund any deficiency
in the [Class A] Servicing Fee and any overdue [Class A] Servicing
Fee and third to pay the [Class A] Default Amount, if any, for such
Distribution Date[; and]
[(b) the excess, if any, of the [Class B] Required Amount with
respect to the related Distribution Date over the amount of Excess
Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] and
available to fund such [Class B] Required Amount will be used first
to fund any deficiency in current [Class B] Monthly Interest,
overdue [Class B] Monthly Interest and any current or overdue [Class
B] Additional Interest, second to fund any deficiency in the [Class
B] Servicing Fee and any overdue [Class B] Servicing Fee, and third
to pay the [Class B] Default Amount, if any, for such Distribution
Date.]
On each Distribution Date, the "Available Shared Collateral Amount"
shall equal the lesser of (a) the Required Shared Collateral Amount and (b) the
excess, if any, of the amount on deposit in the Cash Collateral Account for such
Distribution Date over the Initial [Class B] Collateral Amount.
On the first Special Payment Date following a Pay Out Event
described in clause (e) under "--Pay Out Events" after giving effect to any
payment of principal on such date described under "--Application of Collections
- -- Payments of Principal", the Available Shared Collateral Amount (after giving
effect to any withdrawal from the Cash Collateral Account on such date to fund
the Required Amount) will be applied to pay principal of the [Class A]
Certificates [and the remainder of the Available Cash Collateral Amount will be
applied to pay principal of the [Class B] Certificates].
[On each Distribution Date commencing with the [Class B] Principal
Commencement Date, unless a Pay Out Event has occurred, a withdrawal will be
made from the Cash Collateral Account, to the extent of the Available Cash
Collateral Amount, in an amount equal to the excess, if any, of the [Class B]
Initial Invested Amount (minus the sum of the aggregate amount of principal
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payments previously deposited to the Principal Funding Account or distributed in
respect of the [Class B] Certificates) over the [Class B] Invested Amount on the
last day of the related Monthly Period (determined after giving effect to any
changes to be made in the [Class B] Invested Amount pursuant to clauses (iii),
(iv), (v) or (vi) of the definition of "[Class B] Invested Amount" under
"--Allocation Percentages" on the following Distribution Date).]
[In the event of a sale of the Receivables and an early termination
of the Trust due to an Insolvency Event, an optional repurchase of the
Certificateholders' Interest by the [Depositor] [Seller] Servicer], a sale of a
portion of the Receivables in connection with the Termination Date, a repurchase
or sale of the Certificateholders' Interest and the certificateholders' interest
of all other Series in connection with a Servicer Default or a reassignment of
the Certificateholders' Interest and the certificateholders' interest of all
other Series in connection with a breach by the [Seller] [Depositor] [Servicer]
of certain representations and warranties, any Available Cash Collateral Amount
on the related Distribution Date (after giving effect to all other withdrawals
from the Cash Collateral Account on such Distribution Date as described above)
will be withdrawn from the Cash Collateral Account and the proceeds thereof will
be distributed to [Class B] Certificateholders to the extent of all previous
reductions of the [Class B] Invested Amount [pursuant to clauses (iii), (iv) or
(v) of the definition of "[Class B] Invested Amount" under "--Allocation
Percentages" above.]
On each Distribution Date, the [Seller] [Servicer] or the Trustee,
acting pursuant to the [Seller's] [Servicer's] instructions, will apply Excess
Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] (to the extent
described above under "--Application of Collections -- Excess Spread; Excess
Finance Charges") to increase the amount on deposit in the Cash Collateral
Account to the extent such amount is less than the Required Cash Collateral
Amount. In addition, if on any Distribution Date the amount on deposit in the
Cash Collateral Account exceeds the Required Cash Collateral Amount, such excess
will be withdrawn and paid to the Collateral Interest Holder for application in
accordance with the [Loan] Agreement.
Defaulted Receivables Charge-Offs
On each Determination Date, the Servicer will calculate the Investor
Default Amount for the preceding Monthly Period. The term "Investor Default
Amount" means, for any Monthly Period, the product of (i) the Floating
Allocation Percentage with respect to such Monthly Period and (ii) the Defaulted
Amount for such Monthly Period. [A portion of the Investor Default Amount will
be allocated to the [Class A] Certificateholders (the "[Class A] Default
Amount") on each Distribution Date in an amount equal to the product of the
[Class A] Floating Percentage applicable during the related Monthly Period and
the Investor Default Amount for such Monthly
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Period. A portion of the Investor Default Amount will be allocated to the [Class
B] Certificateholders (the "[Class B] Default Amount") in an amount equal to the
product of the [Class B] Floating Percentage applicable during the related
Monthly Period and the Investor Default Amount for such Monthly Period. An
amount equal to the [Class A] Default Amount for each Monthly Period will be
paid from [Class A] Available Funds, Excess Spread and Excess Finance Charges
allocated to Series 199[ ]-[ ] or from amounts available under the Cash
Collateral Account and Reallocated Principal Receivables and applied as
described above in "--Application of Collections -- Payment of Interest, Fees
and Other Items" and "--Reallocation of Cash Flows; [Class B] Invested Amount".
An amount equal to the [Class B] Default Amount for each Monthly Period will be
paid from Excess Spread and Excess Finance Charges allocated to Series
199[_]-[_] or from amounts, if any, available under the Cash Collateral Account
and applied as described above in "--Application of Collections -- Payment of
Interest, Fees and Other Items".]
On each Distribution Date, if the [Class A] Required Amount for such
Distribution Date exceeds the sum of Excess Spread and Excess Finance Charges
allocable to Series 199[ ]-[ ], then amounts, if any, on deposit in the Cash
Collateral Account up to the Available Shared Collateral Amount and Reallocated
Principal Receivables, the Collateral Invested Amount, if any, will be reduced
by the amount of such excess, but not by more than the [Class A] Default Amount
for such Distribution Date. [In the event that such reduction would cause the
Collateral Invested Amount to be a negative number, the Collateral Invested
Amount will be reduced to zero, and the [Class B] Invested Amount will be
reduced by the amount by which the Collateral Invested Amount would have been
reduced below zero, but not by more than the excess, if any, of the [Class A]
Default Amount for such Distribution Date over the amount of such reduction, if
any, of the Collateral Invested Amount with respect to such Distribution Date.
In the event that such reduction would cause the [Class B] Invested Amount to be
a negative number, the [Class B] Invested Amount will be reduced to zero, and
the [Class A] Invested Amount will be reduced by the amount by which the [Class
B] Invested Amount would have been reduced below zero, but not by more than the
excess, if any, of the [Class A] Default Amount for such Distribution Date over
the amount of the reductions, if any, of the Collateral Invested Amount and the
[Class B] Invested Amount with respect to such Distribution Date as described
above (a "[Class A] Charge-Off"), which will have the effect of slowing or
reducing the return of principal to the [Class A] Certificateholders.] If the
[Class A] Invested Amount has been reduced by the amount of any [Class A]
Charge-Offs, it will thereafter be increased on any Distribution Date (but not
by an amount in excess of the aggregate [Class A] Charge-Offs) by the amount of
Excess Spread and Excess Finance Charges allocated to Series 199[ ]-[ ] and
available for such purpose.
[On each Distribution Date, if the [Class B] Required Amount for
such Distribution Date exceeds the sum of Excess Spread and Excess Finance
Charges allocable to Series 199[ ]-[ ] and not required to pay the [Class A]
Required Amount and amounts, if any, on deposit in the Cash Collateral Account
which are allocated and available to fund such amount, then the Collateral
Invested Amount, if any, will be reduced by the amount of such excess. In the
event that such reduction would cause the Collateral Invested Amount to be a
negative number, the Collateral Invested Amount will be reduced to zero, and the
[Class B] Invested Amount will be reduced by the amount by which the Collateral
Invested Amount would have been reduced below zero, but not by
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more than the excess, if any, of the [Class B] Default Amount for such
Distribution Date over the amount of such reduction, if any, of the Collateral
Invested Amount with respect to such Distribution Date (a "[Class B]
Charge-Off").]
[If on any Distribution Date Reallocated Principal Receivables for
such Distribution Date are applied to fund the Required Amount, the Collateral
Invested Amount, if any, will be reduced by the amount of such Reallocated
Principal Receivables. In the event such reductions would cause the Collateral
Investment Amount to be a negative number, the Collateral Invested Amount shall
be reduced to zero, and the [Class B] Invested Amount will be reduced by the
amount by which the Collateral Invested Amount would have been reduced below
zero.]
[The [Class B] Invested Amount will thereafter be reimbursed (but
not in excess of the aggregate unreimbursed [Class B] Charge-Offs) on any
Distribution Date by the amount of Excess Spread and Excess Finance Charges
allocated to Series 199[ ]-[ ] and available for such purpose.]
[Any such reductions of the Collateral Invested Amount shall
thereafter be reimbursed and the Collateral Invested Amount increased (but not
by any amount in excess of the aggregate reductions of the Collateral Invested
Amount) on any Distribution Date by the amount of Excess Spread and Excess
Finance Charges allocated to Series 199[ ]-[ ] and available for such purpose as
described under "--Application of Collections -- Payment of Interest, Fees and
Other Items".]
Issuance of Additional Certificates
The Series Supplement provides that from time to time during the
Revolving Period, the [Depositor] [Seller] may, subject to certain conditions
described below, cause the Trustee to issue Additional Certificates (each such
issuance, an "Additional Issuance"). When issued, the Additional Certificates
[of each class] will be identical in all respects to the other outstanding
Certificates [of that class] and will be equally and ratably entitled to the
benefits of the Agreement and the Series Supplement without preference, priority
or distinction.
In connection with each Additional Issuance, the outstanding
principal amounts of the [Class A] Certificates [and the [Class B] Certificates]
and the aggregate amount of Credit Enhancement will all be increased pro rata.
The additional Credit Enhancement provided in connection with an Additional
Issuance may take the form of an increase in the Required Cash Collateral Amount
or another form of Credit Enhancement, provided that the form and amount of
additional Credit Enhancement will not cause a Ratings Effect.
Following an Additional Issuance, the [Controlled Amortization
Amount] [Controlled Accumulation Amounts] of each Class will be increased
proportionately to reflect the principal amount of Additional Certificates.
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Additional Certificates may be issued only upon the satisfaction of
certain conditions provided in the Series Supplement, including the following:
(a) on or before the fifth business day immediately preceding the date on which
the Additional Certificates are to be issued, the [Depositor] [Seller] shall
have given the Trustee, [the Seller,] [the Servicer,] each Rating Agency and any
provider of Credit Enhancement written notice of such issuance and the date upon
which it is to occur, (b) after giving effect to the Additional Issuance, the
total amount of Principal Receivables shall be at least equal to the Required
Principal Balance, (c) the [Depositor] [Seller] shall have delivered to the
Trustee an amended Series Supplement, executed by each of the parties to such
agreement; (d) the [Depositor] [Seller] shall have received written notice from
each Rating Agency that such Additional Issuance will not have a Ratings Effect;
(e) the [Depositor] [Seller] shall have delivered to the Trustee a certificate
of an authorized officer to the effect that, based on the facts known to such
officer at the time, in the reasonable belief of the [Depositor] [Seller], such
Additional Issuance will not cause a Pay Out Event or an event that, after the
giving of notice or the lapse of time, would constitute a Pay Out Event, to
occur with respect to Series 199[ ]-[ ]; (f) as of the date of the Additional
Issuance and taking the Additional Issuance into account, the amount of Credit
Enhancement with respect to Series 199[ ]-[ ], together with any additional
Credit Enhancement, shall not be less than the amount required so that the
additional issuance will not result in a Ratings Effect; (g) as of the date of
the Additional Issuance, all amounts due and owing to the holders of
Certificates shall have been paid, and there shall not be any unreimbursed
[Class A] Charge-Offs [or [Class B] Charge-Offs]; (h) the excess of the
principal amount of the Additional Certificates over their issue price shall not
exceed the maximum amount permitted under the Code without the creation of
original issue discount; (i) the [Seller's] remaining interest in Principal
Receivables shall not be less than [ %] of the total amount of Principal
Receivables, in each case as of the date upon which the Additional Issuance is
to occur after giving effect to such issuance; (j) the [Depositor] [Seller]
shall have delivered to the Trustee, each Rating Agency and any provider of
Credit Enhancement, a Tax Opinion with respect to the Additional Issuance; (k)
the [Depositor] [Seller] shall have obtained additional Credit Enhancement for
the benefit of the holders of Certificates, provided that the ratio of the sum
of the Required Cash Collateral Amount and the amount of such Credit Enhancement
to the Invested Amount (after giving effect to such Additional Issuance) shall
be greater than or equal to the ratio of the Required Cash Collateral Amount to
the Invested Amount (before giving effect to such Additional Issuance); (l) the
[Depositor] [Seller] shall have delivered to each Rating Agency (i) an opinion
of counsel to the effect that such Additional Issuance will not violate
applicable Federal Securities laws and (ii) such other documents as the Rating
Agencies may request; and (m) the ratio of the [Controlled Amortization Amount]
[Controlled Accumulation Amount] (after giving effect to such Additional
Issuance) to the Invested Amount (after giving effect to such Additional
Issuance) shall be equal to the ratio of the [Controlled Amortization Amount]
[Controlled Accumulated Amount] (before giving effect to such Additional
Issuance) to the Invested Amount (before giving effect to such Additional
Issuance).
There are no restrictions on the time or amount of any Additional
Issuance, provided that the conditions described above are met. As of the date
of any Additional Issuance, the [Class
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A] Invested Amount [and the [Class B] Invested Amount] will be increased to
reflect the initial principal balance of the Additional Certificates of the
respective classes.
[Paired Series]
[The Series 199[ ]-[ ] Certificates may be paired with one or more
other Series (each a "Paired Series"). Each Paired Series either will be
prefunded with an initial deposit to a prefunding account in an amount up to the
initial principal balance of such Paired Series and primarily from the proceeds
of the sale of such Paired Series or will have a variable principal amount. Any
such prefunding account will be held for the benefit of such Paired Series and
not for the benefit of Certificateholders. As funds are accumulated in the
Principal Funding Account, either (i) in the case of a prefunded Paired Series,
an equal amount of funds on deposit in any prefunding account for such prefunded
Paired Series will be released (which funds will be distributed to the Seller)
or (ii) in the case of a Paired Series having a variable principal amount, an
interest in such variable Paired Series, in an equal or lesser amount may be
sold by the Trust (and the proceeds thereof will be distributed to the Seller)
and, in either case, the invested amount in the Trust of such Paired Series will
increase by up to a corresponding amount. Upon payment in full of Series 199[
]-[ ], assuming that there have been no unreimbursed charge-offs with respect to
any related Paired Series, the aggregate invested amount of such related Paired
Series will have been increased by an amount up to an aggregate amount equal to
the Series 199[ ]-[ ] Invested Amount paid to the Certificateholders. There can
be no assurance, however, that the terms of any Paired Series might not have an
impact on the timing or amount of payments received by Certificateholders. See
"Maturity Considerations" herein.
Required Principal Balance; Addition to Accounts
The obligation of the Trustee to authenticate certificates of a new
Series and to execute and deliver the related Series Supplement shall be subject
to the conditions described in the Prospectus and to the additional condition
that, as of the Series Issuance Date and after giving effect to such issuance,
the aggregate amount of Principal Receivables in the Trust equals or exceeds the
Required Principal Balance. The "Required Principal Balance" means, as of any
date of determination, the sum of the initial invested amount (as defined in the
relevant Supplement) of each Series outstanding on such date (other than any
Series or portion thereof (an "Excluded Series") which is designated in the
relevant Supplement as then being an Excluded Series) minus the principal amount
on deposit in the Excess Funding Account on such date; provided, however, that
if at any time the only Series outstanding are Excluded Series and a Pay Out
Event has occurred with respect to one or more such Series, the Required
Principal Balance shall mean the sum of the "Invested Amount" (as defined in the
relevant Supplement) of each such Excluded Series as of the earliest date on
which any such pay Out Event is deemed to have occurred minus the principal
amount on deposit in the Excess Funding Account; and provided further that the
Required Principal Balance may be reduced to a lesser amount without the consent
of the Certificateholders, if the [Depositor] [Seller]
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shall have received written notice from each Rating Agency that such reduction
will not have a Ratings Effect.
If, as of the close of business on the last business day of any
Monthly Period, the aggregate amount of Principal Receivables in the Trust is
less than the Required Principal Balance on such date, the [Depositor] [Seller]
shall on or before the [ _____ ] [tenth] business day following such day, unless
the amount of Principal Receivables in the Trust equals or exceeds the Required
Principal Balance as of the close of business on any day after the last business
day of such Monthly Period and prior to such tenth business day, make an
Addition to the Trust such that, after giving effect to such Addition, the
amount of Principal Receivables in the Trust is at least equal to the Required
Principal Balance.
Pay Out Events
The "Pay Out Events" with respect to the Certificates will include
each of the events specified in the Prospectus and the following:
(a) failure on the part of the [Depositor] [Seller] [Servicer] (i)
to make any payment or deposit required by it under the Agreement or the
Series Supplement within [five] [ ____ ] business days after the day such
payment or deposit is required to be made; or (ii) to observe or perform
any of its other covenants or agreements set forth in the Agreement the
Series Supplement, which failure has a material adverse effect on the
Series 199[ ]-[ ] Certificateholders and which continues unremedied for a
period of [60] [ ____ ] days (or for such longer period, not in excess of
[150] [ ____ ] days, as may be reasonably necessary to remedy such
failure; provided that such failure is capable of remedy within [150] [
____ ] days or less and the [Seller] [Servicer] [Depositor] delivers an
officer's certificate to the effect that the [Seller] [Servicer]
[Depositor] has commenced, or will promptly commence and diligently
pursue, all reasonable efforts to remedy such failure) after the earlier
to occur of the discovery thereof by the [Seller] [Servicer] [Depositor]
or written notice;
(b) any representation or warranty made by [Seller] [Servicer]
[Depositor] in the Agreement or the Series Supplement or any information
required to be given by the [Depositor] [Seller] [Servicer] to the Trustee
to identify the Accounts proves to have been incorrect in any material
respect when made and continues to be incorrect in any material respect
for a period of [60] [ ____ ] days (or for such longer period, not in
excess of [150] [ ____ ] days, as may be reasonably necessary to remedy
such breach; provided that such misrepresentation is capable of remedy
within [150] [ ____ ] days or less and the [Seller] [Servicer] [Depositor]
delivers an officer's certificate to the effect that the [Seller]
[Servicer] [Depositor] has commenced or will promptly commence and
diligently pursue, all reasonable efforts to remedy such
misrepresentation) after the earlier to occur of discovery thereof by the
[Seller] [Servicer] [Depositor] or written notice and as a result of which
the interests of
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the Certificateholders are materially and adversely affected; provided, however,
that a Pay Out Event shall not be deemed to occur thereunder if the [Seller]
[Servicer] [Depositor] has repurchased the related Receivables or all such
Receivables, if applicable, during such period in accordance with the provisions
of the Agreement;
(c) a failure by the [Depositor] [Seller] to make an Addition to the
Trust within five business days after the day on which it is required to
make such Addition pursuant to the Agreement or the Series Supplement;
(d) the occurrence of any Servicer Default with respect to the
Certificates;
(e) the average Portfolio Yield for any three consecutive Monthly
Periods is less than the average of the Base Rates with respect to Series
199[ ]-[ ] for such Monthly Periods;
(f) the failure to pay in full the [Class A] Invested Amount on the
[Class A] Expected Final Payment Date[, or the [Class B] Invested Amount
on the [Class B] Expected Final Payment Date]; and
(g) the [Depositor] [Seller] is unable for any reason to transfer
Receivables to the Trust in accordance with the Agreement or the Series
Supplement.
Then, in the case of any event described in subparagraph (a), (b) or
(d), after the applicable grace period, if any, set forth in such subparagraphs,
either the Trustee or the holders of Certificates evidencing more than 50% of
the aggregate unpaid principal amount of Series 199[ ]-[ ] by notice then given
in writing to the [Seller] [Servicer] [Depositor] (and to the Trustee if given
by the Certificateholders) may declare that a Pay Out Event has occurred with
respect to Series 199[ ]- [ ] as of the date of such notice, and, in the case of
any event described in subparagraph (c), (e), (f) or (g), a Pay Out Event shall
occur with respect to Series 199[ ]-[ ], without any notice or other action on
the part of the Trustee immediately upon the occurrence of such event.
For purposes of the Pay Out Event described in clause (e) above, the
terms "Base Rate" and "Portfolio Yield" will be defined as follows with respect
to the Certificates:
"Base Rate" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is equal
to the sum of [Class A] Monthly Interest, [[Class B] Monthly Interest] and the
Monthly Servicing Fee with respect to Series 199[ ]-[ ] for the related
Distribution Date and the denominator of which is the Invested Amount as of the
last day of the preceding Monthly Period.
"Portfolio Yield" means, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is equal
to (a) the Floating Allocation
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Percentage of collections of Finance Charge Receivables (including any
investment earnings and certain other amounts that are to be treated as Finance
Charge Receivables in accordance with the Agreement) for such Monthly Period
calculated on a billed basis, plus (b) the amount of Principal Funding
Investment Proceeds for the related Distribution Date, plus (c) the amount of
funds withdrawn from the Reserve Account and which are required to be included
as [Class A] Available Funds [or [Class B] Available Funds], in each case for
the Distribution Date with respect to such Monthly Period minus (d) the Investor
Default Amount for the Distribution Date with respect to such Monthly Period,
and the denominator of which is the Invested Amount as of the last day of the
preceding Monthly Period.
If the proceeds of any sale of the Receivables following the
occurrence of an Insolvency Event with respect to the [Depositor] [Seller]
[Servicer] allocated to the [Class A] Invested Amount and the proceeds of any
collections on the Receivables in the Collection Account are not sufficient to
pay in full the remaining amount due on the [Class A] Certificates, then the
[Class A] Certificateholders will suffer a corresponding loss [and no such
proceeds will be available to the [Class B] Certificateholders].
Servicing Compensation and Payment of Expenses
The share of the Servicing Fee allocable to Series 199[ ]-[ ] with
respect to any Distribution Date (the "Monthly Servicing Fee") shall be equal to
one twelfth of the product of (a) [ %] (the "Servicing Fee Rate") and (b) the
sum of the Adjusted Invested Amount and the Collateral Invested Amount, if any,
as of the last day of the Monthly Period preceding such Distribution Date (the
amount calculated pursuant to this clause (b) is referred to as the "Servicing
Base Amount"); provided, however, that the Monthly Servicing Fee with respect to
the first Distribution Date will be [$ ] [equal to the Servicing Fee accrued on
the Initial Invested Amount at the Servicing Fee Rate for the period from the
Issuance Date to but excluding the first Distribution Date calculated on the
basis of the actual number of days in the period from the Issuance Date to such
first Distribution Date and a 360-day year]. On each Distribution Date, but only
if [Servicer Name] or the Trustee is the Servicer, Interchange with respect to
the related Monthly Period that is on deposit in the Collection Account shall be
withdrawn from the Collection Account and paid to the Servicer as payment of a
portion of the Monthly Servicing Fee with respect to such Monthly Period. The
"Servicer Interchange" for any Monthly Period for which [Servicer Name] or the
Trustee is the Servicer will be equal to the product of (a) the Floating
Allocation Percentage for such Monthly Period and (b) the portion of Finance
Charge Receivables allocated to the Trust with respect to such Monthly Period
that is attributed to Interchange; provided, however, that Servicer Interchange
for a Monthly Period shall not exceed one twelfth of the product of (i) the sum
of the Invested Amount and the Collateral Investment Amount, if any, as of the
last day of such Monthly Period and (ii) [ %]. In the case of any insufficiency
of Servicer Interchange on deposit in the Collection Account, a portion of the
Monthly Servicing Fee with respect to such Monthly Period will not be paid to
the extent of such
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insufficiency and in no event shall the Trust, the Trustee or the
Certificateholders be liable for the share of the Servicing Fee to be paid out
of Servicer Interchange.
[The share of the Monthly Servicing Fee allocable to the [Class A]
Certificateholders (after giving effect to the distribution of any Servicer
Interchange to the Servicer) with respect to any Distribution Date (the "[Class
A] Servicing Fee") shall be equal to one twelfth of the product of (a) the
[Class A] Floating Percentage, (b) [ ____ %], or if [Servicer Name] or the
Trustee is not the Servicer, [ %] (the "Net Servicing Fee Rate") and (c) the
Servicing Base Amount; provided, however, with respect to the first Distribution
Date, the [Class A] Servicing Fee shall be equal to the [Class A]
Certificateholders' share of the Monthly Servicing Fee for the period from the
Issuance Date to but excluding the first Distribution Date. [The share of the
Monthly Servicing Fee allocable to the [Class B] Certificateholders (after
giving effect to any distribution of Servicer Interchange to the Servicer) with
respect to any Distribution Date (the "[Class B] Servicing Fee") shall be equal
to one twelfth of the product of (a) the [Class B] Floating Percentage, (b) the
Net Servicing Fee Rate and (c) the Servicing Base Amount; provided, however,
with respect to the first Distribution Date, the [Class B] Servicing Fee shall
be equal to the [Class B] Certificateholders' share of the Monthly Servicing Fee
for the period from the Series Issuance Date to but excluding the first
Distribution Date. The remainder of the Servicing Fee shall be paid by the
[Depositor] [Seller] or the certificateholders of other Series (as provided in
the related Supplements) or, to the extent of any insufficiency of Servicer
Interchange as described above, not be paid and in no event shall the Trust, the
Trustee or the Certificateholders be liable for the share of the Servicing Fee
to be paid by the [Depositor] [Seller] or the Certificateholders of any other
Series or to be paid out of Servicer Interchange. The [Class A] Servicing Fee
[and the [Class B] Servicing Fee] shall be payable to the Servicer solely to the
extent amounts are available for distribution in respect thereof.]
Series Termination
If on the Distribution Date which is two months prior to the
Termination Date, the Invested Amount or the Collateral Invested Amount, if any
(in each case after giving effect to all changes therein on such date) exceeds
zero, the Servicer will, within the 40-day period beginning on such date,
solicit bids for the sale of interests in the Principal Receivables or certain
Principal Receivables, together in each case with the related Finance Charge
Receivables, in an amount equal to the sum of the Invested Amount and the
Collateral Invested Amount, if any, at the close of business on the last day of
the Monthly Period preceding the Termination Date (after giving effect to all
distributions required to be made on the Termination Date). The [Depositor]
[Seller] (provided that the sum of the Invested Amount and the Collateral
Invested Amount, if any, is less than or equal to [ ____ %] of the Initial
Invested Amount), and the Collateral Interest Holder will be entitled to
participate in, and to receive notice of each bid submitted in connection with,
such bidding. Upon the expiration of 40-day period, the Trustee will determine
(a) which bid is the highest cash purchase offer (the "Highest Bid") and (b) the
amount (the "Available Final Distribution Amount") which otherwise would be
available in the Collection Account on the Termination Date for distribution to
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the Certificateholders and the Collateral Interest Holder. The Servicer will
sell such Receivables on the Termination Date to the bidder who provided the
Highest Bid and will deposit the proceeds of such sale in the Collection Account
for allocation (together with the Available Final Distribution Amount) to the
Certificateholders' Interest.
Reports
No later than the third business day prior to each Distribution
Date, the Servicer will forward to the Trustee, [the Collateral Interest Holder]
[the Cash Collateral Depositor] [the Depositor] the Paying Agent and each Rating
Agency a statement (the "Monthly Report") prepared by the Servicer setting forth
certain information with respect to the Trust and the Certificates, including:
(a) the aggregate amount of Principal Receivables and Finance Charge Receivables
in the Trust as of the end of such Monthly Period; (b) the [Class A] Invested
Amount [and] [the [Class B] Invested Amount] [and] [the Collateral Invested
Amount] at the close of business on the last day of the preceding Monthly
Period; (c) the Floating Allocation Percentage and, during the [Controlled
Amortization Period] [Accumulation Period] or Rapid Amortization Period with
respect to such Series, the Principal Allocation Percentage with respect to the
Certificates; (d) the amount of collections of Principal Receivables and Finance
Charge Receivables processed during the related Monthly Period and the portion
thereof allocated to the Certificateholders' Interest; (e) the aggregate
outstanding balance of Accounts which were 30, 60, and 90 days or more
delinquent as of the end of such Monthly Period; (f) the Defaulted Amount with
respect to such Monthly Period and the portion thereof allocated to the
Certificateholders' Interest [and the Collateral Interest Holder]; (g) the
amount, if any, of [Class A] Charge-Offs [and [Class B] Charge-Offs]; (h) the
Monthly Servicing Fees; (i) the Portfolio Yield for such Monthly Period; (j) the
amount to be withdrawn from the Cash Collateral Account, if any, to fund the
[Class A] Required Amount [or the [Class B] Required Amount] for such
Distribution Date; (k) the Available Cash Collateral Amount, the Available
Shared Collateral Amount and the Required Cash Collateral with respect to Series
199[ ]-[ ] and (l) Reallocated Principal Receivables.
ERISA CONSIDERATIONS
[State whether the Notes may be classified as indebtedness without
substantial equity features for ERISA purposes.]
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Securities under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Securities, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Securities will constitute legal investments for them.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement") between the Depositor and the
underwriters named below (the "Underwriters"), the Depositor has agreed to sell
to the Underwriters, and each of the Underwriters has severally agreed to
purchase, the principal amount of the [Class A] Certificates [and [Class B]
Certificates] set forth opposite its name (the "Underwritten Certificates"):
<TABLE>
<CAPTION>
Principal Amount Principal Amount
of [Class A] of [Class B]
Underwriter Certificates Certificates
----------- ------------ ------------
<S> <C> <C>
CS First Boston....................
[Other underwriter]................
Total..............................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Underwritten Certificates are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. All of the Certificates offered hereby will be issued if any
are issued. Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Underwritten Certificates
offered hereby, if any are taken.
The Underwriters propose initially to offer the [Class A]
Certificates to the public at the price set forth on the cover page hereof and
to certain dealers at such price less concessions not in excess of [ ____ ]% of
the principal amount of the [Class A] Certificates. The Underwriters may allow,
and such dealers may reallow, concessions not in excess of [ ____ ]% of the
principal amount of the [Class A] Certificates to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Underwriters.
[The Underwriters propose initially to offer the [Class B]
Certificates to the public at the price set forth on the cover page hereof and
to certain dealers at such price less concessions not in excess of [ ]% of
the principal amount of the [Class B] Certificates. The Underwriters may allow,
and such dealers may reallow, concessions not in excess of [ ]% of the
principal amount of the [Class B] Certificates to certain brokers and dealers.
After the initial public offering, the public offering price and other selling
terms may be changed by the Underwriters.]
The Depositor will indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.
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In the ordinary course of their respective businesses, the
Underwriters and their respective affiliates have engaged and may engage in
investment banking and/or commercial banking transactions with the Depositor and
its affiliates.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the offered Certificates in which the
Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
by Sidley & Austin, New York, New York.
RATING
It is a condition to issuance that the [Class A] Certificates be rated [in
the highest rating category] by a Rating Agency. [It is a condition to issuance
that the Class B Certificates be rated [in one of the three highest rating
categories by a Rating Agency.]
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the CRB Securities. The rating takes into
consideration the characteristics of the CRB Securities and the structural,
legal and tax aspects associated with the Certificates. The ratings on the
Certificates do not, however constitute statements regarding the possibility
that Certificateholders might realize a lower than anticipated yield.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
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<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
<S> <C>
Accounts ...............................................................S-2
Accumulation Period.......................................................S-13
Additional Certificates....................................................S-9
Adjusted Invested Amount...................................................S-8
Agreement..................................................................S-1
Available Final Distribution Amount.......................................S-70
Available Principal Collections...........................................S-44
Available Reserve Account Amount..........................................S-52
Available Shared Collateral Amount........................................S-61
Base Rate ..............................................................S-68
Cash Collateral Account...................................................S-19
Cash Collateral Depositor.................................................S-56
Certificate Owners........................................................S-12
Certificateholders.........................................................S-7
Certificates...............................................................S-1
[Class A] Accumulation Period.............................................S-43
[Class A] Additional Interest.............................................S-54
[Class A] Adjusted Invested Amount.........................................S-8
[Class A] Available Funds.................................................S-41
[Class A] Certificate Rate.................................................S-2
[Class A] Certificateholders' Interest.....................................S-7
[Class A] Certificates.....................................................S-1
[Class A] Default Amount..................................................S-62
[Class A] Floating Percentage.............................................S-46
[Class A] Initial Invested Amount..........................................S-4
[Class A] Invested Amount.................................................S-48
[Class A] Monthly Interest................................................S-55
[Class A] Principal Percentage............................................S-47
[Class A] Required Amount.................................................S-52
[Class A] Servicing Fee...................................................S-69
[Class B] Accumulation Period.............................................S-43
[Class B] Additional Interest.............................................S-54
[Class B] Adjusted Invested Amount.........................................S-8
[Class B] Available Funds.................................................S-42
[Class B] Certificate Rate.................................................S-2
[Class B] Certificateholders' Interest.....................................S-7
[Class B] Certificates.....................................................S-1
[Class B] Default Amount..................................................S-62
[Class B] Floating Percentage.............................................S-46
</TABLE>
S-74
<PAGE>
<TABLE>
<S> <C>
[Class B] Initial Invested Amount..........................................S-4
[Class B] Invested Amount.................................................S-48
[Class B] Monthly Interest................................................S-55
[Class B] Principal Commencement Date.....................................S-45
[Class B] Principal Percentage............................................S-48
[Class B] Required Amount.................................................S-17
[Class B] Servicing Fee...................................................S-70
Closing Date..............................................................S-10
Code ..............................................................S-25
Collateral Floating Percentage............................................S-49
Collateral Initial Invested Amount.........................................S-4
Collateral Interest........................................................S-7
Collateral Interest Holder.................................................S-7
Collateral Invested Amount................................................S-49
Controlled Accumulation Amount............................................S-58
Controlled Amortization Amount............................................S-14
Controlled Amortization Period............................................S-14
Controlled Deposit Amount.................................................S-29
Covered Amount............................................................S-50
Credit Enhancement.........................................................S-7
Defaulted Amount..........................................................S-62
Deficit Controlled Accumulation Amount....................................S-59
Depositor..................................................................S-1
Distribution Date..........................................................S-2
Excess Spread.............................................................S-55
Expected Final Payment Date...............................................S-15
Finance Charge Receivables................................................S-10
Floating Allocation Percentage............................................S-46
Funding Period............................................................S-22
Group [ ] ............................................................S-21
Initial Cash Collateral Amount............................................S-19
Initial Cut-Off Date......................................................S-10
Initial Invested Amount....................................................S-4
Initial Shared Collateral Amount..........................................S-19
Initial [Class B] Collateral Amount.......................................S-19
Interest Funding Account..................................................S-41
Interest Period............................................................S-2
Invested Amount...........................................................S-49
Investor Default Amount...................................................S-62
Loan Agreement............................................................S-56
Mandatory Prepayment......................................................S-22
</TABLE>
S-75
<PAGE>
<TABLE>
<S> <C>
Monthly Report............................................................S-70
Monthly Servicing Fee.....................................................S-69
Paired Series ............................................................S-65
Pay Out Event ............................................................S-67
Portfolio Yield...........................................................S-68
Pre-Funding Account.......................................................S-23
Principal Allocation Percentage...........................................S-47
Principal Funding Account.................................................S-14
Principal Funding Investment Proceeds.....................................S-50
Principal Receivables.....................................................S-10
Rapid Amortization Period.................................................S-21
Rating Agency ............................................................S-27
Ratings Effect............................................................S-32
Reallocated Principal Collections.........................................S-42
Reallocated Principal Receivables.........................................S-52
Receivables .............................................................S-1
Required Amount...........................................................S-17
Required Cash Collateral Amount...........................................S-60
Required Reserve Account Amount...........................................S-51
Reserve Account...........................................................S-50
Reserve Account Funding Date..............................................S-51
Revolving Period..........................................................S-13
Series Supplement.........................................................S-29
Servicer .............................................................S-1
Servicing Fee Rate........................................................S-69
Shared Principal Collections..............................................S-14
Special Payment Date......................................................S-29
Subsequent Cut-Off Date...................................................S-11
Subsequent Receivables....................................................S-10
Subsequent Transfer Date..................................................S-11
Termination Date...........................................................S-2
Trust......................................................................S-1
Trust Portfolio...........................................................S-33
Trustee....................................................................S-1
Underwriters...............................................................S-1
Underwriting Agreement....................................................S-71
</TABLE>
S-76
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or CS First Boston. This Prospectus Supplement and the Prospectus do
not constitute an offer of any securities other than those to which they relate
or an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
-----------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
Prospectus Supplement
<S> <C>
Summary.....................................................................S-4
Risk Factors ..............................................................S-26
Maturity Considerations ...................................................S-29
The Identified Pool........................................................S-33
The Receivables ...........................................................S-36
Use of Proceeds............................................................S-40
The Seller.................................................................S-40
[The Servicer].............................................................S-40
The Depositor..............................................................S-40
Description of the Certificates............................................S-40
ERISA Considerations.......................................................S-71
Legal Investment Considerations............................................S-71
Underwriting...............................................................S-72
Legal Matters..............................................................S-73
Rating.....................................................................S-73
Index of Defined Terms.....................................................S-74
Prospectus
Prospectus Supplement.........................................................3
Reports to Securityholders....................................................3
Available Information.........................................................3
Incorporation of Certain Documents by Reference...............................3
Summary of Terms..............................................................5
Rick Factors.................................................................33
The Trusts...................................................................41
Trust Assets.................................................................41
Series Enhancement...........................................................46
Servicing of Receivables.....................................................50
Description of the Notes.....................................................54
Description of the Certificates..............................................60
Certain Information Regarding the Securities.................................70
Description of the Trust Agreements or Pooling and Servicing Agreements......75
Certain Legal Aspects of the Receivables.....................................83
The Depositor................................................................87
Use of Proceeds..............................................................88
Certain Federal Income Tax Consequences......................................88
Certain State and Local Tax Considerations..................................119
ERISA Considerations........................................................121
Plan of Distribution........................................................125
Legal Matters...............................................................126
Index of Defined Terms......................................................127
Annex I....................................................................AI-1
</TABLE>
Until [_] days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates described in this Prospectus
Supplement, whether or not participating in this distribution, may be required
to deliver this Prospectus Supplement and the Prospectus. This is in addition to
the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
$[_________]
CSFB CARD
RECEIVABLES TRUSTS
$[_______] [__%] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Certificates, [Class A]
$[_______] [__%] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Certificates, [Class B]
ASSET BACKED SECURITIES CORPORATION
(DEPOSITOR)
-----------------
PROSPECTUS SUPPLEMENT
[_______], 199[_]
-------------------
CS FIRST BOSTON
================================================================================
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- --------------------------------------------------------------------------------
Subject to Completion, Dated [ ], 199[ ]
Prospectus Supplement to Prospectus dated [ ], 199[ ]
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ]
$[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate]
Asset Backed Notes, [Class A]
$[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate]
Asset Backed Notes, [Class B]
$[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate]
Asset Backed Certificates, [Class C]
Asset Backed Securities Corporation, Depositor
The Card Account Trust 199[ ]-[ ] (the "Trust") will be formed pursuant to
a trust agreement to be dated as of [ ], 199[ ] (the "Trust Agreement") and
entered into by Asset Backed Securities Corporation (the "Depositor"), and
[Owner Trustee name], as owner trustee (the "Owner Trustee"). The Trust will
issue $[ ] aggregate principal amount of [Class A] [ %] [Floating Rate]
[Adjustable Rate] [Variable Rate] Asset Backed Notes (the "[Class A] Notes")
[and $[ ] aggregate principal amount of [Class B] [% ] [Floating Rate ]
[Adjustable Rate] [Variable Rate] Asset Back Notes (the "[Class B] Notes" and,
together with the Class [A] Notes, the "Notes")]. The Notes will be issued
pursuant to an indenture to be dated as of [ ], 199[ ] (the "Indenture"),
between the Trust and [Indenture Trustee name] as indenture trustee (the
"Indenture
(Continued on the following page)
----------
THE SECURITIES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY AND
DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, OWNER TRUSTEE,
INDENTURE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT PROVIDED
HEREIN. NEITHER THE SECURITIES NOR THE UNDERLYING ASSETS ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER UNDER
"RISK FACTORS" BEGINNING ON PAGE S-15 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 33
OF THE PROSPECTUS.
PROSPECTIVE INVESTORS SHOULD CONSIDER LIMITATIONS DISCUSSED UNDER "ERISA
CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================================
Price to Public Underwriting Discount Proceeds to the Depositor (1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per [Class A] Note
- ------------------------------------------------------------------------------------------------------------------------------------
[Per Class B Note]
- ------------------------------------------------------------------------------------------------------------------------------------
[Per Class C Certificate]
- ------------------------------------------------------------------------------------------------------------------------------------
Total
====================================================================================================================================
</TABLE>
(1) Before deduction of expenses payable by the Depositor, estimated to be $[ ].
The Securities offered hereby will be purchased by CS First Boston
Corporation (the "Underwriter") from the Depositor and will, in each case, be
offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. [The aggregate proceeds to the Depositor from the sale of the Notes are
expected to be $[ ] and from the sale of the Certificates are expected to be $[
] before deducting expenses payable by the Depositor of $[ ].
The Securities are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
the Notes will be [available for delivery] [delivered in book-entry form] [at
the offices of the Underwriter] [through the facilities of The Depository Trust
Company] [(in the United States)] [and] [Cedel S.A. and the Euroclear System (in
Europe)] on or about [ ], 199[ ] [at the offices of the Underwriter]. [The
Securities will be offered in the United States of America and in Europe.]
----------
Underwriters of the Securities
[LOGO] FIRST BOSTON
The date of this Prospectus Supplement is [ ], 199[ ].
<PAGE>
(Continued from the previous page)
Trustee"). [The Trust will also issue $[ ] aggregate principal amount of Class
[C] [% ] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed
Certificates (the "[Class C] Certificates" or the "Certificates" and, together
with the Notes, the "Securities").] Terms used and not otherwise defined herein
shall have the respective meanings ascribed to such terms in the Prospectus
dated [ ], 199[ ] attached hereto (the "Prospectus").
The assets of the Trust will consist primarily of certain asset backed
securities (collectively, the "CRB Securities") each issued pursuant to a
pooling and servicing agreement, master pooling and servicing agreement or
similar agreement (collectively, the "Agreements"). Each of the CRB Securities
evidences an interest in a trust fund created by one of the Agreements, the
property of which includes a portfolio of [charge card] [credit card] [consumer]
[corporate] [debit card] [revolving] receivables (collectively, the
"Receivables") generated or to be generated from time to time in the ordinary
course of business in a portfolio of [charge card] [credit card] [consumer]
[debit card] [revolving] accounts (collectively, the "Accounts"), all monies due
in payment of the Receivables and certain other related properties, as more
fully described herein. [In addition, the Trust will enter into the Ancillary
Arrangement (as defined herein).]
The per annum rate of interest on the [Class A] Notes for each [monthly]
[quarterly] [semi-annually] Interest Accrual Period (as defined herein) will
equal [ %] [insert interest formula]. [The per annum rate of interest on the
[Class B] Notes for each [monthly] [quarterly] [semi-annually] Interest Accrual
Period will equal [ %] [insert interest formula].] Interest on the Notes will be
payable on the [ ] day of each [month] [quarter] [semi-annual period] or, if any
such day is not a Business Day, on the next succeeding Business Day (the
"Payment Date") commencing [ ], 199[ ]. Principal of the [Class A] Notes will be
payable on each Payment Date, commencing with the [ ], 199[ ] Payment Date (or
earlier under certain circumstances) to the extent described herein pro rata to
the holders of the [Class A] Notes. [Principal of the [Class B] Notes will be
payable on each Payment Date, commencing with the [ ], 199[ ] Payment Date (or
earlier under certain circumstances) to the extent described herein pro rata to
the holders of the [Class B] Notes.
[The Certificates will represent fractional undivided interests in the
Trust. Interest at a rate equal to [ %] [insert interest formula] will be
distributed to the Certificateholders on each Payment Date. Principal, to the
extent described herein, will be distributed to the Certificateholders on each
Payment Date, commencing with the [ ], 199[ ] Payment Date. Distributions of
principal and interest on the Certificates will be subordinated in priority to
payments due on the Notes as described herein.]
----------
THE SECURITIES OFFERED HEREBY CONSTITUTE PART OF A SEPARATE SERIES OF ASSET
BACKED SECURITIES BEING OFFERED BY THE DEPOSITOR FROM TIME TO TIME PURSUANT TO
ITS PROSPECTUS DATED [ ], 199[ ]. THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN
COMPLETE INFORMATION ABOUT THE OFFERING OF THE SECURITIES. ADDITIONAL
INFORMATION IS CONTAINED IN THE PROSPECTUS AND INVESTORS ARE URGED TO READ BOTH
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL AS WELL AS ANY PROSPECTUS
RELATING TO THE CRB SECURITIES. [NON-U.S. INVESTORS ARE ALSO URGED TO READ THE
GLOBAL PROSPECTUS SUPPLEMENT.] SALES OF THE SECURITIES MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS [AND, IF A NON-U.S. PURCHASER, THE GLOBAL PROSPECTUS SUPPLEMENT].
THERE IS CURRENTLY NO SECONDARY MARKET FOR THE SECURITIES AND THERE CAN BE
NO ASSURANCE THAT SUCH A MARKET WILL DEVELOP. THE UNDERWRITERS EXPECT, BUT ARE
NOT OBLIGATED, TO MAKE A MARKET IN THE SECURITIES. THERE CAN BE NO ASSURANCE
THAT ANY SUCH MARKET WILL DEVELOP OR IF IT DOES DEVELOP THAT IT WILL CONTINUE.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" HEREIN AND IN THE PROSPECTUS.
UNTIL _____, _____, ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS TO INVESTORS [AND MAY BE REQUIRED TO
DELIVER A GLOBAL PROSPECTUS SUPPLEMENT TO NON-U.S. INVESTORS]. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS ACTING AS UNDERWRITERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE OFFERED SECURITIES IN WHICH THE UNDERWRITER
ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE
TIME OF SALE.
S-2
<PAGE>
AVAILABLE INFORMATION
The Depositor, as originator of the Trusts, has filed with the Commission a
Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Securities being offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement, which is available for
inspection without charge at the public reference facilities of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
regional offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus and in the prospectus
and prospectus supplement for each of the CRB Securities. Certain capitalized
terms used herein are defined elsewhere in this Prospectus Supplement or in the
Prospectus.
Securities Offered................. (i) [ %] [Floating Rate] [Adjustable
Rate] [Variable Rate] Asset Backed Notes,
[Class A] (the "[Class A] Notes");
[(ii) [ %] [Floating Rate] [Adjustable
Rate] Variable Rate] Asset Backed Notes,
[Class B] (the "[Class B] Notes" and,
together with the [Class A] Notes, the
"Notes"); and]
[(iii) [ %] [Floating Rate] [Adjustable
Rate] [Variable Rate] Asset Backed
Certificates, [Class C] (the "[Class C]
Certificates" or the "Certificates" and,
together with the Notes, the
"Securities").]
Trust............................. Card Account Trust, Series 199[ ]-[ ]
(the "Trust" or the "Issuer").
Depositor......................... Asset Backed Securities Corporation.
Indenture......................... The Notes will be issued pursuant to an
indenture dated as of [ ], 199[ ] (the
"Indenture") between the Trust and
[Indenture Trustee name], in its capacity
as indenture trustee (the "Indenture
Trustee"). The [Indenture] [Owner]
Trustee will allocate distributions of
principal and interest received in
respect of the CRB Securities to holders
of the Notes (the "Noteholders") in
accordance with the terms of the
Indenture.
- --------------------------------------------------------------------------------
S-4
<PAGE>
- --------------------------------------------------------------------------------
Trust Agreement................... Pursuant to a trust agreement dated as of
[ ], 199[ ] (the "Trust Agreement"),
among the Depositor and [ Owner Trustee
name] in its capacity as owner trustee
(the "Owner Trustee"), the Trust will
issue the [Class C] Certificates in an
initial aggregate amount of $[ ]. The
[Class C] Certificates will represent
fractional undivided interests in the
Trust.
CRB Securities.................... The CRB Securities are described herein
and in Appendix A attached to this
Prospectus Supplement. The CRB Securities
will consist of certain eligible asset
backed securities, as more fully
described herein, each issued pursuant to
a pooling and servicing agreement, master
pooling and servicing agreement or
similar agreement (collectively, the
"Agreements").
Risk Factors...................... For a discussion of risk factors that
should be considered in respect of an
investment in the Securities, see "Risk
Factors" herein and in the Prospectus.
Description of Notes............... [Each Class of] [The] Notes will be
secured by a specified group of] the
assets of the Trust pursuant to the
Indenture.
A. Interest Rates
Payable on Notes.... [Class A] [ %] [insert interest rate
index, margin above index and cap, if
any] (the "[Class A] Note Interest
Rate").
[[Class B] [ %] [insert interest rate
index, margin above index and cap, if
any] (the "[Class B] Note Interest
Rate").]
B. Interest Payments... Interest will accrue on the unpaid
principal amount of the Notes at the
[respective] per annum interest rate[s]
specified herein.
- --------------------------------------------------------------------------------
S-5
<PAGE>
- --------------------------------------------------------------------------------
Interest will be payable to Noteholders
on each Payment Date. Interest in respect
of a Payment Date will accrue on the
Notes from and including the preceding
Payment Date (in the case of the first
Payment Date, from and including [ ],
199[ ] (the "Closing Date")) to but
excluding such current Payment Date
(each, an "Interest Accrual Period").
Interest will be calculated on the basis
of the [actual number of days in each
Interest Accrual Period divided by 360]
[a 360 day year of twelve 30 day months].
A failure to pay interest on [any Class
of] the Notes on any Payment Date that
continues for five days constitutes an
Event of Default under the Indenture.
[Except for payments made pursuant to the
Ancillary Arrangements described below,]
[interest on the [Class A] Notes will be
payable only from interest received on
the [Group A] CRB Securities and interest
on the [Class B] Notes will be payable
only from interest received on the [Group
B] CRB Securities.]
C. Principal Payments.. No principal will be payable to the
Noteholders until the [ ], 199[ ] Payment
Date with respect to the [Class A] Notes
[and the [ ], 199[ ] Payment Date with
respect to the [Class B] Notes,] or, upon
the occurrence of a CRB Securities
Amortization Event, the first Payment
Date thereafter, as described herein.
Principal payable on the [Class A] Notes
on a Payment Date will generally be equal
to [ ] [[%] (the "[Class A] Note
Percentage") of the principal received on
the [Group A] CRB Securities only on such
Payment Date, as calculated by the
Indenture Trustee, and will be paid pro
rata to the holders of the [Class B]
Notes. ] [Principal payable on the
[ClassB] Notes on a Payment Date will
generally be equal to
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
[ ] [[%] (the "[Class B] Note
Percentage") of the principal received on
the [Group B] CRB Securities only on such
Payment Date, as calculated by the
Indenture Trustee, and will be paid pro
rata to the holders of the [Class B]
Notes.]
D. Payment Date........ The [ ] day of each [month] [quarter]
[semi- annual period] or, if such day is
not a Business Day, the next succeeding
Business Day, commencing with [ ], 199[
]. A "Business Day" is any day other than
a Saturday or Sunday or another day on
which banking institutions in New York,
New York [or London, England] are
authorized or obligated by law,
regulations or executive order to be
closed.
E. Record Date......... Payments on the Notes will be made to the
Noteholders in whose name the Notes were
registered at the close of business on
the last day of the month prior to the
[month] [quarter] [semi-annual period] in
which such payment occurs.
F. Final Scheduled
Payment Date........ To the extent not previously paid, the
principal balance of the [Class A] Notes
will be due on the [ ], 199[ ] Payment
Date [and the principal balance of the
[Class B] Notes will be due on the [ ],
199[ ] Payment Date.] Failure to pay the
full principal balance of [each Class of]
the Notes on or before the applicable
final scheduled payment dates constitutes
an Event of Default under the Indenture.
G. Final Legal
Maturity............ [ ], [ ].
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
H. Form and
Registration........ [The Notes will initially be delivered in
book-entry form ("Book-Entry Notes").
Noteholders may elect to hold their
interests through The Depository Trust
Company ("DTC"), in the United States, or
Centrale de Livraison de Valeurs
Mobilieres S.A. ("CEDEL") or the
Euroclear System ("Euroclear"), in
Europe. Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be in
accordance with the usual rules and
operating procedures of the relevant
system. So long as the Notes are Book-
Entry Notes, such Notes will be evidenced
by one or more securities registered in
the name of Cede & Co. ("Cede"), as the
nominee of DTC or one of the relevant
depositaries (collectively, the "European
Depositaries"). Cross-market transfers
between persons holding directly or
indirectly through DTC, on the one hand,
and counterparties holding directly or
indirectly through CEDEL or Euroclear, on
the other, will be effected in DTC
through Citibank N.A. ("Citibank") or
Morgan Guaranty Trust Company of New York
("Morgan"), the relevant depositaries of
CEDEL and Euroclear, respectively, and
each a participating member of DTC. The
Notes will initially be registered in the
name of Cede. The interests of such
Noteholders will be represented by book
entries on the records of DTC and
participating members thereof. No
Noteholder will be entitled to receive a
definitive note representing such
person's interest, except in the event
that Notes in fully registered,
certificated form ("Definitive Notes")
are issued under the limited
circumstances described in "CERTAIN
INFORMATION REGARDING THE
SECURITIES--Definitive Securities" in the
Prospectus. All references in this
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
Prospectus Supplement to Notes reflect
the rights of Noteholders only as such
rights may be exercised through DTC and
its participating organizations for so
long as such Notes are held by DTC. See
"RISK FACTORS--Book Entry Registration"
and "CERTAIN INFORMATION REGARDING THE
SECURITIES--Book Entry Registration" in
the Prospectus and "Annex 1" thereto.]
[The Notes will be Definitive Notes. See
"CERTAIN INFORMATION REGARDING THE
SECURITIES--Definitive Securities" in the
Prospectus.]
I. Denominations....... The Notes will be issued in minimum
denominations of $[ ] and integral
multiples of $1,000 in excess thereof.
J. Title............... DTC, Cedel and/or Euroclear, or their
respective nominees, will be deemed the
registered holders of Book-Entry Notes.
Title to each Definitive Note will be
held by the Noteholder (or its nominee)
in whose same such Note has been
registered.
Description of Certificates........ Each certificate will represent an
undivided interest in the Trust as herein
described.
A. [Class C]
Certificates........ The [Class C] Certificates represent $[ ]
aggregate principal amount. Interest
thereon will accrue at a rate per annum
equal to [ %] [insert [Class C] interest
formula] [the product of [insert [Group
A] interest formula] and the ratio that
the principal amount of the [Group A] CRB
Securities bears to the aggregate
principal amount of the CRB Securities,
[such amount being subject to a maximum
rate of [insert [Group
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
A] interest cap, if any]]; plus the
product of [insert [Group B] interest
formula] and the ratio that the principal
amount of the [Group B] CRB Securities
bears to the aggregate principal amount
of the CRB Securities, [such amount being
subject to a maximum rate of [insert
[Group B] interest cap, if any]], payable
[monthly] [quarterly] [semi-annually] on
each Payment Date[, provided that the
rate of interest on the [Class C]
Certificates shall not exceed [insert
[Class C] Certificate interest cap, if
any] per annum] (the "[Class C]
Certificate Interest Rate").
B. Interest Distributions
on the [Class C]
Certificates........ Interest will accrue on the unpaid
principal amount of the [Class C]
Certificates at the per annum rate
specified herein. Except as otherwise
provided herein, interest will be
distributed to [Class C]
Certificateholders on each Payment Date.
Interest in respect of a Payment Date
will accrue on the [Class C] Certificates
during the preceding Interest Accrual
Period and will be calculated [on the
basis of the actual number of days in
such Interest Accrual Period divided by
360] [on the basis of a 360 day year of
twelve 30 day months].
C. Principal Distributions
on the [Class C]
Certificates........ No principal will be distributable to
[Class C] Certificateholders until the [
], 199[ ] Payment Date or, upon the
occurrence of a CRB Securities
Amortization Event, the first Payment
Date thereafter, as described herein.
Principal distributable on the [Class C]
Certificates will generally equal [the
sum of] [insert [Group A] Certificate
Percentage]%
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<PAGE>
- --------------------------------------------------------------------------------
(the "[Group A] Certificate Percentage")
of the principal received on the [Group
A] CRB Securities and [insert [Group B]
Certificate Percentage]% (the "[Group B]
Certificate Percentage") of the principal
received on the [Group B] CRB Securities.
D. Record Date......... Distribution on the Certificates will be
made to Certificateholders in whose name
the Certificates were registered at the
close of business on the last day of the
month prior to the [month] [quarter]
[semi-annual period] in which such
payment occurs (a "Record Date").
E. Subordination....... Distributions of interest on the
Certificates with respect to the [Group
A] CRB Securities and the [Group B] CRB
Securities will be subordinated in
priority of payment to the payment of
interest due on the [Class A] Notes [and
[Class B] Notes, respectively].
Distributions of principal on the
Certificates with respect to the [Group
A] CRB Securities and the [Group B] CRB
Securities will be subordinated in
priority of payment to the payment of
principal due on the [Class A] Notes [and
[Class B] Notes, respectively].
Consequently, Certificateholders will not
receive distributions of interest with
respect to the [Group A] CRB Securities
or the [Group B] CRB Securities until the
full amount of interest due on the
[respective Class of] Notes on such
Payment Date is paid in full and will not
receive any distributions of principal
with respect to the [Group A] CRB
Securities or the [Group B] CRB
Securities until the full amount of
principal due on the [respective Class
of] Notes on such Payment Date is paid in
full.
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F. Form................ [The Certificates will initially be
delivered in book-entry form ("Book-Entry
Certificates"). Certificateholders may
elect to hold their interests through The
Depository Trust Company ("DTC"), in the
United States, or Centrale de Livraison
de Valeurs Mobilieres S.A. ("CEDEL") or
the Euroclear System ("Euroclear"), in
Europe. Transfers within DTC, CEDEL or
Euroclear, as the case may be, will be in
accordance with the usual rules and
operating procedures of the relevant
system. So long as the Certificates are
Book-Entry Certificates, such
Certificates will be evidenced by one or
more securities registered in the name of
Cede & Co. ("Cede"), as the nominee of
DTC or one of the relevant depositaries
(collectively, the "European
Depositaries"). Cross-market transfers
between persons holding directly or
indirectly through DTC, on the one hand,
and counterparties holding directly or
indirectly through CEDEL or Euroclear, on
the other, will be effected in DTC
through Citibank or Morgan, the relevant
depositaries of CEDEL and Euroclear,
respectively, and each a participating
member of DTC. The Certificates will
initially be registered in the name of
Cede. The interests of such
Certificateholders will be represented by
book entries on the records of DTC and
participating members thereof. No
Certificateholder will be entitled to
receive a definitive certificate
representing such person's interest,
except in the event that Certificates in
fully registered, certificated form
("Definitive Certificates") are issued
under the limited circumstances described
in "CERTAIN INFORMATION REGARDING THE
SECURITIES -- Definitive Securities" in
the Prospectus. All references in this
Prospectus Supplement to Certificates
reflect
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S-12
<PAGE>
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the rights of Certificateholders only as
such rights may be exercised through DTC
and its participating organizations for
so long as such Certificates are held by
DTC. See "RISK FACTORS -- Book-Entry
Registration" and "CERTAIN INFORMATION
REGARDING THE SECURITIES -- Book-Entry
Registration" in the Prospectus and
"Annex 1" thereto.]
[The Certificates will be Definitive
Certificates. See "CERTAIN INFORMATION
REGARDING THE SECURITIES--Definitive
Securities" in the Prospectus.]
G. Denominations ...... The Certificates will be issued in
minimum denominations of $[ ] and
integral multiples of $1,000 in excess
thereof and will not be eligible to be
resold or subdivided into units smaller
than the minimum denomination for
issuance, except that one Certificate
will be issued in a denomination of $[ ]
and will be held by the Depositor. [In
addition, nonUnited States persons will
not be permitted to purchase
Certificates. Such restrictions will be
set forth in a legend contained in the
registered form of Certificate. By
accepting delivery of a Certificate, the
holder will be deemed to have agreed to
comply with such restrictions. Any
attempt to transfer [Class C]
Certificates in violation of the
foregoing restrictions will be null and
void and such transfer will not be
recorded by the registrar.]
H. Title............... Title to each Definitive Certificate will
be held by the Certificateholder (or its
nominee) in whose name such Certificate
has been registered.
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<PAGE>
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[Ancillary Arrangements....... On the Closing Date the Trust will enter
into [the following][certain] ancillary
arrangements (such agreements, the
"Ancillary Arrangements"). [Insert
description of Ancillary Arrangements.]
[Calculation of LIBOR......... LIBOR applicable to the calculation of
the [Class A] Note Interest Rate in
respect of a Payment Date shall be equal
to the weighted average of the LIBOR
interest rates (weighted on the basis of
the outstanding principal balances of the
[Group A] CRB Securities immediately
prior to such date) applicable to the
distributions of interest on the [Group
A] CRB Securities distributable on such
date.]
[LIBOR applicable to the calculation of
the [Class B] Note Interest Rate in
respect of a Payment Date shall be equal
to the weighted average of the LIBOR
interest rates (weighted on the basis of
the outstanding principal balances of the
[Group B] CRB Securities immediately
prior to such date) applicable to the
distributions of interest on the [Group
B] CRB Securities distributable on such
date.]
[LIBOR applicable to the calculation of
the interest rate on the [Class C]
Certificates in respect of a Payment Date
shall be equal to the weighted average of
the LIBOR interest rates (weighted on the
basis of the outstanding principal
balances of the CRB Securities
immediately prior to such date)
applicable to the distributions of
interest on the CRB Securities
distributable on such date.]
[The LIBOR applicable to the CRB
Securities is described under
"Description of
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S-14
<PAGE>
- --------------------------------------------------------------------------------
the CRB Securities--Interest
Distributions" herein.]
Tax Considerations ........... In the opinion of Sidley & Austin
("Federal Tax Counsel"), the Trust will
not be an association (or publicly traded
partnership) taxable as a corporation for
federal income tax purposes. The Trust
will agree, and the Note Owners will
agree by their purchase of Notes, to
treat the Notes as debt for federal tax
purposes. Federal Tax Counsel has advised
the Trust that the Notes will be
classified as debt for federal income tax
purposes. The Trust will also agree, and
the related Certificate Owners will agree
by their purchase of Certificates, to
treat the Trust as a partnership for
purposes of federal and state income tax,
franchise tax and any other tax measured
in whole or in part by income, with the
assets of the partnership being the
assets held by the Trust, the partners of
the partnership being the Certificate
Owners (including, to the extent
relevant, the Depositor in its capacity
as recipient of distributions from any
Reserve Fund) and the Notes being debt of
the partnership. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES" in the
Prospectus for additional information
concerning the application of federal
income tax laws to the Trust.
Legal Investment.............. Institutions whose investment activities
are subject to legal investment laws and
regulations or to review by certain
regulatory authorities may be subject to
restrictions on investment in the
Securities. See "LEGAL INVESTMENT
CONSIDERATIONS" herein.
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<PAGE>
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ERISA......................... [State whether the Notes may be
classified as indebtedness without
substantial equity features for ERISA
purposes.]
Rating........................ It is a condition to the issuance of each
Class of Notes that they be rated [in the
highest rating category] by a Rating
Agency, as defined herein. It is a
condition to the issuance of the [Class
C] Certificates that they be rated [in
one of the [three] highest rating
categories] by a Rating Agency. There is
no assurance that such rating will
continue for any period of time or that
it will not be revised or withdrawn
entirely by such rating agency, if, in
its judgment, circumstances so warrant. A
revision or withdrawal of such rating may
have an adverse effect on the market
price of the Securities. A security
rating is not a recommendation to buy,
sell or hold securities.
- --------------------------------------------------------------------------------
S-16
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and in the Prospectus, prospective investors should carefull consider
the following risk factors before investing in any Class or Classes of
Securities of any such Series.
Limited Liquidity. There is currently no secondary market for the
Securities. CS First Boston currently intends to make a market in the Securities
but is under no obligation to do so. There can be no assurance that a secondary
market will develop in the Securities or, if a secondary market does develop,
that it will provide holders of the Securities with liquidity of investment or
will continue for the life of the Securities.
No Obligation of Depositor to Make Payments in respect of Securities. The
Depositor is not obligated to make any payments in respect of the Securities or
the CRB Securities.
Maturity Assumptions and Risk of Prepayment or Early Amortization. The rate
of payment of principal of [each Class of] the Securities, the aggregate amount
of each distribution on, and the yield to maturity of, [each Class of] the
Securities will depend on the rate of payment of principal of the CRB
Securities. Each Series of CRB Securities is subject to early amortization upon
the occurrence of any of the amortization events applicable to such CRB
Securities as described herein and in the prospectus used in connection with the
offering of such CRB Securities.
The rate of payment of principal of the Securities may also be affected by
the repurchase by any CRB Securities Issuer of the CRB Securities issued by it,
pursuant to a repurchase option which is exercisable after the aggregate
principal balance of the CRB Securities is less than [ %] of their original
principal balance at the purchase price equal to a percentage of the principal
balance of such CRB Securities, plus accrued and unpaid interest. In such event,
the repurchase price paid by the CRB Securities Issuer would be passed through
to the Certificateholders and Noteholders as a payment of principal.
Limited Rating of the Certificates and Notes. It is a condition to the
issuance and sale of [each Class of] the Notes that they each be rated [in the
highest rating category] by Moody's Investors Service, Inc. ("Moody's") and by
Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. ("S&P") (each
of S&P and Moody's being hereinafter referred to as a "Rating Agency"). A rating
is not a recommendation to purchase, hold or sell securities, inasmuch as such
rating does not comment as to market price or suitability for a particular
investor. The ratings address the likelihood of the receipt of distributions due
on the Securities pursuant to their terms; however, a Rating Agency does not
evaluate, and the ratings of the Securities do not address, the possibility that
investors may receive a lower yield than anticipated. There can be no assurance
that a rating will remain for any given period of time or that a rating will not
be lowered or withdrawn entirely by a Rating Agency if in its judgment
circumstances in the future so warrant.
Risks Attendant to Investments in the Certificates. Distributions of
interest on the Certificates [with respect to the [Group A] CRB Securities [and
the [Group B] CRB Securities]] will be
S-17
<PAGE>
subordinated in priority of payment to the interest due on the [Class A] Notes
[and [Class B] Notes, respectively]. Distributions of principal on the
Certificates [with respect to the [Group A] CRB Securities [and the [Group B]
CRB Securities]] will be subordinated in priority of payment to the payment of
principal due on the [Class A] Notes and [Class B] Notes, respectively].
Consequently, the Certificateholders will not receive any distributions of
Interest with respect an Interest Accrual Period until the full amount of
interest on the [respective Class of] Notes on such Payment Date has been paid
in full and will not receive any distributions of principal with respect to the
[Group A] CRB Securities [or the [Group B] CRB Securities] until the full amount
of principal due on the [respective Class of] Notes on such Payment Date is paid
in full.
Risks Attendant to Investments in Interest-only or Principal-only
Securities. [If the Securities are interest-only or principal-only securities,
discuss risks attendant thereto.]
THE TRUST
General
The Issuer, Card Account Trust, Series 199[ ]-[ ], is [insert description
of Trust]. After its formation, the Issuer will not engage in any activity other
than [(i)] [acquiring, holding and managing the CRB Securities and the other
assets of the Trust and proceeds therefrom,] [(ii)] [issuing the Notes [and the
Certificates],] [(iii)] [making payments on the Notes [and the Certificates]]
[and] [(iv)] [engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto or connected
therewith].
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the Indenture dated as of [ ], 199[],
between the Trust and [Indenture Trustee name], as Indenture Trustee. The
Depositor will provide a copy of the Indenture to prospective investors without
charge upon request.
The following summaries describe the material terms of the Notes and the
Indenture. The summaries do not purport to be complete descriptions of all of
the terms of the Notes and the Indenture and therefore are subject to, and
qualified in their entirety by reference to, all the provisions of the Notes and
the Indenture. Wherever particular defined terms of the Indenture are referred
to, such defined terms are thereby incorporated herein by reference. See "THE
INDENTURE" herein for a summary of additional terms of the Indenture.
The Notes will be issued [in fully registered form only] and each class of
Notes will be secured by a specified group of assets of the Trust. The Notes
will be freely transferable and exchangeable at the corporate trust office of
the Indenture Trustee. [The Depositor will retain at least [ ]% of the
outstanding principal interest of [each Class of] the Notes at all times prior
to the payment in full of the Notes.]
S-18
<PAGE>
Payments on Notes
Payments on the Notes, as described below, will be made by the Indenture
Trustee on the Payment Date to persons in whose names the Notes are registered
on the last day of the month preceding the [month] [quarter] [semi-annual
period] in which such Payment Date occurs (the "Record Date"). Payments to each
Noteholder will be made through the facilities of The Depository Trust Company
("DTC") (in the United States) or CEDEL or Euroclear (in Europe) to an account
specified in writing by such holder as of the preceding Record Date or in such
other manner as may be agreed to by the Indenture Trustee and such holder. The
final payment in retirement of a Note will be made only upon surrender of the
Note to the Indenture Trustee at the office thereof specified in the notice to
Noteholders of such final payment. Notice will be mailed prior to the Payment
Date on which the final payment of principal and interest on a Note is expected
to be made to the holder thereof.
Payments of Interest
Interest on the principal balances of [each Class of] the Notes will accrue
at the respective per annum interest rates specified below and will be payable
monthly on each Payment Date.
Interest in respect of a Payment Date will accrue on the outstanding
principal of the Notes from and including the preceding Payment Date (in the
case of the first Payment Date, from and including [ ], 199[ ] (the "Closing
Date") to but including such current Payment Date (each, an "Interest Accrual
Period"). Interest will be calculated on the basis of [the actual number of days
in each Interest Accrual Period divided by 360] [a 360 day year of twelve 30 day
months].
[Except for payments made pursuant to the Ancillary Arrangements described
below, interest payments on the [Class A] Notes will be funded from the
collections of interest on the [Group A] CRB Securities on such date, and
interest payments on the [Class B] Notes will be funded from the collections of
interest on the [Group B] CRB Securities on such date.] Interest on all of the
CRB Securities is payable on the [ ] day of each [month] [quarter] [semi-annual
period] or, if such day is not a Business Day, the next succeeding Business Day
(each a "CRB Securities Distribution Date"). [If interest collections on the
[Group A] CRB Securities [or the [Group B] CRB Securities] [plus amounts
received with respect to the respective Ancillary Arrangements] are not
sufficient to pay the interest due on the [respective Class of] the Notes for
any Payment Date and such default continues for five days, an Event of Default
will occur in respect of all of the Notes.
[Calculation of LIBOR. LIBOR applicable to the calculation of the interest
rates on the [Class A] Notes in respect of a Payment Date shall be calculated by
the Indenture Trustee and shall be equal to the weighted average of the LIBOR
interest rates (weighted on the basis of the outstanding principal balances of
the [Group A] CRB Securities immediately prior to such CRB Securities
Distribution Date) applicable to the distributions of interest on the [Group A]
CRB Securities distributable on such CRB Securities Distribution Date. [LIBOR
applicable to the calculation of the interest rates on the [Class B] Notes in
respect of a Payment Date shall be calculated by the Indenture Trustee and shall
be equal to the weighted average of the LIBOR interest rates (weighted on the
basis of the outstanding principal balances of the [Group B] CRB Securities
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<PAGE>
immediately prior to such CRB Securities Distribution Date) applicable to the
distributions of interest on the [Group B] CRB Securities distributable on such
CRB Securities Distribution Date. The LIBOR applicable to the CRB Securities is
described under "DESCRIPTION OF THE CRB SECURITIES--Interest Distributions"
herein. The Indenture Trustee shall transmit the results of its calculations of
LIBOR to any securities exchange to which application to list the Notes has been
made prior to the Closing Date.]
[Class A]. The [Class A] Notes will bear interest at an annual rate equal
to [insert [Class A] interest rate formula, interest rate index and margin above
index, if any] on the aggregate principal amount of the [Class A] Notes [,
subject to a maximum rate of [insert interest rate cap, if any] [until the [ ],
199[ ] Payment Date, and, subsequently, subject to no maximum rate]] (the
"[Class A] Note Interest Rate").
[[Class B]. The [Class B] Notes will bear interest at an annual rate equal
to [insert [Class A] interest rate formula, interest rate index and margin above
index, if any] on the aggregate principal amount of the [Class B] Notes [,
subject to a maximum rate of [insert interest rate cap, if any] [until the [ ],
199[ ] Payment Date, and, subsequently, subject to no maximum rate]] (the
"[Class B] Note Interest Rate").]
Payments of Principal
Principal payments to the Noteholders are expected to commence on the [ ],
199[ ] Payment Date with respect to the [Class A] Notes [and the [ ], 199[ ]
Payment Date with respect to the [Class B] Notes]. If, however, a CRB Securities
Amortization Event (as defined herein) shall occur, principal payments on the
Notes will commence on the first Payment Date after such CRB Securities
Amortization Event.
[On each Payment Date in respect of which principal is distributed on the
[Group A] CRB Securities, principal payments will be made on the [Class A] Notes
in an amount generally equal to [insert [Class A] Note Percentage] (the "[Class
A] Note Percentage") of the principal distributed on the [Group A] CRB
Securities only.] Such principal will be applied pro rata in accordance with the
outstanding principal balances of the [Class A] Notes. The principal balance of
the [Class A] Notes, to the extent not previously paid, will be due on the [ ],
199[ ] Payment Date (the "[Class A] Final Schedule Payment Date").
[On each Payment Date in respect of which principal is distributed on the
[Group B] CRB Securities, principal payments will be made on the [Class B] Notes
in an amount generally equal to [insert [Class B] Note Percentage] (the "[Class
B] Note Percentage") of such principal distributed on the [Group B] CRB
Securities only. Such principal will be applied pro rata in accordance with the
outstanding principal balances of the [Class B] Notes. The principal balance on
the [Class B] Notes, to the extent not previously paid, will be due on the [ ],
199[ ] Payment Date (the "[Class B] Final Schedule Payment Date").]
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<PAGE>
Principal on the [Class A] Notes will be payable solely from principal on
the [Group A] CRB Securities [and principal on the [Class B] Notes will be
payable solely from principal on the [Group B] CRB Securities].
[Ancillary Arrangements]
[On the Closing Date the Trust will enter into ancillary arrangements (such
arrangements, the "Ancillary Arrangements").] [Insert description of the
Ancillary Arrangements.]
Distributions on the CRB Securities; Collection Account
All distributions on the CRB Securities will be remitted directly to an
account (the "Collection Account") to be established with the Indenture Trustee
under the Indenture on the Closing Date. The Indenture Trustee will hold such
moneys uninvested and without liability for interest thereon for the benefit of
holders of the Securities. The CRB Securities Distribution Date in each month is
the Payment Date for such month.
[Assignment of CRB Securities]
[The Depositor will acquire the CRB Securities for deposit into the Trust
from [insert Seller name]. At the time of issuance of the Securities, the
Depositor will cause the beneficial interest in such CRB Securities, which will
be held in book-entry form through the facilities of DTC, to be delivered to the
[Indenture] [Owner] Trustee's participant account at DTC.]
Termination
All obligations of the Depositor and the Indenture Trustee created by the
Indenture will terminate upon the payment to Noteholders of all amounts required
to be paid to them pursuant to the Indenture. In addition, the occurrence of
certain CRB Securities Amortization Events (as defined herein) may lead to an
early termination of the obligations of the Depositor and the Indenture Trustee
created by the Indenture.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Trust Agreement dated as of
[ ], 199[ ], between the Depositor and [insert Owner Trustee name] as Owner
Trustee. The Depositor will provide a copy of the Trust Agreement to prospective
investors without charge upon request.
The following summaries describe the material terms of the Certificates and
the Trust Agreement. The summaries do not purport to be complete descriptions of
all of the terms of the Certificates and the Trust Agreement and therefore are
subject to, and qualified in their entirety by reference to, all the provisions
of the Certificates and the Trust Agreement. Wherever particular defined terms
of the Certificates and the Trust Agreement are referred to, such defined
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<PAGE>
terms are thereby incorporated herein by reference. See "THE TRUST AGREEMENT"
herein for a summary of additional terms of the Trust Agreement.
The Certificates will be issued [in fully registered, certificated form
only] and will represent undivided interests in the Trust. Subject to the
limitations described in this paragraph, the Certificates will be freely
transferable and exchangeable at the corporate trust office of the Owner
Trustee. The Certificates will be issued in minimum denominations of $[ ] and
will not be eligible to be resold or subdivided in units smaller than the
minimum denomination for issuance [, except for one Certificate issued in a
denomination of $[ ] which will be held by the Depositor]. In addition,
non-United States persons will not be permitted to purchase Certificates. Such
restrictions will be set forth in a legend contained in the registered form of
Certificate. By accepting delivery of a Certificate the holder will be deemed to
have agreed to comply with such restrictions. Any attempt to transfer
Certificates in violation of the foregoing restrictions will be null and void
and such transfer will not be recorded by the registrar. The Depositor will
retain at least [ ]% of the outstanding principal amount of the Certificates at
all times prior to the termination of the Trust Agreement.
[Distributions on Certificates]
[Pursuant to an administration agreement entered into between the Trust,
Indenture Trustee, [insert Administrator name], as administrator (the
"Administrator") and the Owner Trustee (the "Administration Agreement"),
distributions on the Certificates, as described below, will be made on behalf of
the Owner Trustee by the Administrator on the Payment Date to persons in whose
names the Certificates are registered on the Record Date. Distributions to each
Certificateholder will be made by the Administrator to an account specified in
writing by such holder as of the preceding Record Date or in such other manner
as may be agreed to by the Owner Trustee and such holder. The final distribution
in retirement of a Certificate will be made only upon surrender of the
Certificate to the Owner Trustee at the office thereof specified in the notice
to Certificateholders of such final distribution. Notice will be mailed prior to
the Payment Date on which the final distribution of principal and interest on a
Certificate is expected to be made to the holder thereof.]
Distributions of Interest
Interest on the principal balance of the [Class C] Certificates will accrue
at the per annum interest rate specified below and will be distributable
[monthly] [quarterly] [semi-annually] on each Payment Date. Interest in respect
of a Payment Date will accrue on the outstanding principal of the Certificates
from and including the preceding Payment Date (in the case of the first Payment
Date, from and including the Closing Date) to but excluding such current Payment
Date (each, an "Interest Accrual Period"). Interest will be calculated on the
basis of [the actual number of days in each Interest Accrual Period divided by
360] [a 360 day year of twelve 30 day months].
[Calculation of LIBOR: LIBOR applicable to the calculation of the interest
rates on the [Class C] Certificates in respect of a Payment Date shall be
calculated by the Indenture Trustee and shall be equal to the weighted average
of the LIBOR interest rates (weighted on the basis of the outstanding principal
balances of the CRB Securities immediately prior to such CRB Securities
Distribution Date) applicable to distributions of interest on the CRB Securities
distributable on such
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<PAGE>
CRB Securities Distribution Date. The LIBOR applicable to the CRB Securities is
described under "DESCRIPTION OF THE CRB SECURITIES--Interest Distributions"
herein. The Indenture Trustee shall transmit the results of its calculations of
LIBOR to any securities exchange to which application to list the Certificates
has been made prior to the Closing Date.]
[Class C]. The [Class C] Certificates will bear interest on the aggregate
principal amount of such Certificates at an annual rate equal to [insert [Class
C] interest rate] [(x) [insert [Class C] index] [plus (i) [insert [Group A]
interest rate formula] multiplied by the ratio that the principal amount of the
[Group A] CRB Securities bears to the aggregate principal amount of the CRB
Securities [,such amount being subject to a maximum rate of [insert interest
rate cap, if any]]; [plus (ii) [insert [Group B] interest rate formula]
multiplied by the ratio that the principal amount of the [Group B] CRB
Securities bears to the aggregate principal amount of the CRB Securities [, such
amount being subject to a maximum rate of [insert interest rate cap, if any]]].
Distributions of Principal
Principal distributions to Certificateholders are expected to commence on
the [ ], 199[ ] Payment Date. If, however, a CRB Securities Amortization Event
(as defined herein) shall occur, principal distributions on the Certificates
will commence on the first Payment Date after such CRB Securities Amortization
Event.
On each Payment Date in respect of which principal is distributed on the
CRB Securities, principal distributions will, subject to the prior rights of the
holders of the Notes described under "Subordination" below, be made on the
[Class C] Certificates in an amount generally equal to, [insert amount] [[insert
[Group A] Certificate percentage]% (the "[Group A] Certificate Percentage) of
the principal amount on the [Group A] CRB Securities and [insert [Group B]
Certificate Percentage]% (the "[Group B] Certificate Percentage") of the
principal distributed on the [Group B] CRB Securities.] Such principal will be
applied pro rata in accordance with the outstanding principal balances of the
[Class C] Certificates. [The principal balance of the [Class C] Certificates at
any time will be equal to the outstanding principal balance of the CRB
Securities at such time multiplied by the [Class C] Certificate Percentage at
such time.] As more fully described herein, the outstanding principal balances
of the CRB Securities will be reduced as a result of principal payments on the
Receivables that are distributed in respect of the CRB Securities.
Subordination
Distributions of interest on the [Class C] Certificates with respect to the
[Group A] CRB Securities [and the [Group B] CRB Securities] will be subordinated
in priority of payment to the payment of interest due on the [Class A] Notes
[and [Class B] Notes, respectively]]. Distributions of principal on the
Certificates with respect to the] [Group A] CRB Securities [and the [Group B]
CRB Securities] will be subordinated in priority of payment of principal due on
the [Class A] Notes [and [Class B] Notes, respectively]. Consequently, the
Certificateholders will not receive any distributions of interest with respect
to the [Group A] CRB Securities or the [Group B] CRB Securities with respect to
a Payment Date until the full amount of interest due on the respective Class of
Notes on such Payment Date is paid in full and will not receive any
distributions of principal with
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respect to the [Group A] CRB Securities [or the [Group B] CRB Securities] until
the full amount of principal due on the [respective Class of] Notes on such
Payment Date is paid in full.
Termination
All obligations of the Depositor and the Owner Trustee created by the Trust
Agreement will terminate upon the distribution to Certificateholders of all
amounts required to be distributed to them pursuant to the Trust Agreement. In
addition, the occurrence of certain CRB Securities Amortization Events (as
defined herein) will lead to an early termination of the obligations of the
Depositor and the Owner Trustee created by the Trust Agreement.
DESCRIPTION OF THE CRB SECURITIES
The table below sets forth certain of the characteristics of the CRB
Securities. The table does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the prospectuses and prospectus
supplements pursuant to which the CRB Securities were offered and sold. The CRB
Securities are not listed on any securities exchange.
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DESCRIPTION OF THE CRB SECURITIES
Issuer.......................................................................
Servicer.....................................................................
Trustee......................................................................
Designation..................................................................
Principal Amount to be Sold to Trust.........................................
Approximate Percentage of total CRB Securities to be Sold to Trust...........
Initial Certificate Amount...................................................
Series Termination Date......................................................
Certificate Rate.............................................................
CRB Security Distribution Date...............................................
Commencement of Controlled Amortization Period...............................
Minimum [Seller's] [Transferor's] [Depositor's] Percentage...................
Cash Collateral Guaranty Amount..............................................
Percentage of Subordinated Class B Certificates..............................
Optional Repurchase Percentage...............................................
Ratings (Moody's/S&P)........................................................
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General
This Prospectus Supplement sets forth certain relevant terms with respect
to the CRB Securities, but does not provide detailed information with respect to
the CRB Securities. Appendix A to this Prospectus Supplement contains excerpts
from each prospectus pursuant to which the CRB Securities were offered and sold.
This Prospectus Supplement relates only to the Securities offered hereby and
does not relate directly to the CRB Securities.
Although neither the Depositor nor the Underwriter has any reason to
believe the information provided by the originator of a CRB Securities Issuer or
the prospectus relating to the CRB Securities is not reliable, neither the
Depositor nor the Underwriter has verified either its accuracy or its
completeness. Neither the Depositor nor the Underwriter warrants that events
have not occurred which would affect either the accuracy or completeness of the
information contained therein.
CRB Securities Considerations; Recent Developments
Each of the CRB Securities represents an obligation of the related CRB
Issuer only. Prospective investors in the Securities should consider carefully
the risk factors [insert applicable references] in each CRB Securities Offering
Document and should avail themselves of the same information concerning each CRB
Seller, CRB Servicer and CRB Issuer as they would if they were purchasing the
CRB Securities or similar investments backed by Receivables. Each CRB Issuer [or
[ ], as originator of a CRB Issuer,] is subject to the informational
requirements of the Exchange Act. Accordingly, each CRB Issuer or [ ] files
annual and periodic reports and other information, including monthly Servicer
Reports (collectively, "CRB Issuer Exchange Act Reports") with the Commission.
Copies of such CRB Issuer Exchange Act Reports, each CRB Securities Offering
Document, Servicer Reports and other information (collectively, the "CRB
Securities Disclosure") may be inspected and copied at certain offices of the
Commission at the addresses listed under "Available Information" in the
Prospectus. If any CRB Issuer or [ ] ceases to be subject to the informational
requirements of the Exchange Act, the Depositor will not be relieved from the
informational requirements of the Exchange Act.
Neither the Depositor nor the Underwriter participated in the [offering of
the CRB Securities or in the] preparation of the publicly available information
referred to above or of any CRB Securities Offering Document, nor has the
Depositor or the Underwriter made any due diligence inquiry with respect to the
information provided therein. Although neither the Depositor nor the Underwriter
is aware of any material misstatements or omissions in any CRB Securities
Offering Document speaking as of its date, the information provided therein or
in the other publicly available documents referred to above cannot be verified
by the Depositor or the Underwriter as to accuracy or completeness. Information
set forth in each CRB Securities Offering Document speaks only as of the date of
such CRB Securities Offering Document; there can be no assurance that all events
occurring prior to the date thereof that would affect the accuracy or
completeness of any statements included in such CRB Securities Offering Document
or in the other publicly available documents filed by or on behalf of the CRB
Issuer have been publicly disclosed.
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[Describe any other recent material developments that may exist based on
publicly available information.]
An investment in the Securities is different from, and should not be
considered a substitute for, an investment in the CRB Securities.
Set forth below is certain information excerpted and summarized from each
prospectus relating to the CRB Securities.
The CRB Securities have been issued pursuant to Agreements entered into
between various sellers and various trustees. See "Appendix A" for further
description of the various CRB Securities Issuers. The following summary
describes certain general terms of such Agreements, but investors should refer
to the Agreements themselves for all the terms governing the CRB Securities.
Each of the CRB Securities represents an undivided interest in one of the
CRB Securities Issuers, including the right to a percentage of cardholder
payments on the Receivables underlying such issue of CRB Securities. The assets
of each CRB Securities Issuer include a pool of Receivables arising under
Accounts, funds collected or to be collected from cardholders in respect of the
Receivables and services in the Accounts, monies on deposit in certain accounts
of the CRB Securities Issuers, the right to draw upon various enhancements and
may also include the right to receive certain interchange fees attributed to
cardholder charges for merchandise. Each of the CRB Securities represents the
right to receive payments of interest for the related interest period at the
applicable CRB Securities Certificate Rate (as defined herein) for such interest
period from collections of Receivables and, in certain circumstances, from draws
on applicable enhancement, and payments of principal during the CRB Securities
Amortization Period (as defined herein) funded from collections of Receivables.
Each original seller, transferor or depositor of CRB Securities (each, a
"Seller") holds the interest in the Receivables of an CRB Securities Issuer not
represented by the CRB Securities and any other series of securities issued by
the CRB Securities Issuer [or a transferee of such Seller holds such interest].
Such Seller [or transferee of such Seller] holds an undivided interest in the
CRB Securities Issuer (the "Seller's Interest"), including the right to a
percentage (the "Seller's Percentage") of all cardholder payments on the
Receivables.
The [Group A] CRB Securities
The [Group A] CRB Securities [the "[Group A] CRB Securities") will consist
of the CRB Securities issued by the following CRB Securities Issuers: [insert
description of [Group A] card issuers].
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The [Group B] CRB Securities
The [Group B] CRB Securities (the "[Group B] CRB Securities") will consist
of the CRB Securities issued by the following CRB Securities Issuers: [insert
description of [Group B] card issuers].
Interest Distributions
Interest accrues on the CRB Securities at the certificate rate for each
class and series of CRB Securities (a "CRB Securities Certificate Rate"), from
the date of the initial issuance of the CRB Securities. Interest at the
applicable rate will be distributed to the holders of the CRB Securities
[monthly] [quarterly] [semi-annually] on each CRB Securities Distribution Date.
Interest on the CRB Securities is calculated [on the basis of the actual
number of days in the related interest period and a 360-day year] [on the basis
of a 360 day year of twelve 30 day months].
[The CRB Securities bear interest at a rate per annum of [insert
descriptions of CRB Securities interest rates]. [LIBOR is determined according
to [the Reuters Screen LIBO Page (as defined in the International Swap Dealers
Association, Inc. Code of Standard Wording, Assumption and Provisions for SWAPS,
1986 edition) ("Reuters LIBOR")] [the Telerate Page 3750 of the Dow Jones
Telerate Service (or such other page as may replace Telerate Page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks) ("Telerate LIBOR")].
Principal Distribution
Generally, principal distributions due to the holders of the CRB Securities
are scheduled [to commence] [to occur] on the [first CRB Securities Distribution
Date with respect to a controlled amortization period for a series of CRB
Securities (a "CRB Securities Controlled Amortization Period")] [[ ] CRB
Securities Distribution Date (the "CRB Securities Expected Final Payment
Date"),], but may be distributed earlier or later than such date. However, if a
Rapid Amortization Event, Early Amortization Event, Pay Out Event, Liquidation
Event, Economic Pay Out Event or similar event (as such terms are defined in the
Agreements) (each such event, a "CRB Securities Amortization Event") occurs,
[monthly] [quarterly] [semi-annual] distributions of principal to the holders of
the CRB Securities will begin on the first CRB Securities Distribution Date
following the occurrence of such CRB Securities Amortization Event. See "CRB
Securities Amortization Events" below.
If an CRB Securities Amortization Event does not occur, principal will be
distributed to the holders of the CRB Securities on [the first CRB Securities
Distribution Date during the applicable CRB Securities Controlled Amortization
Period [CRB Securities Expected Final Payment Date]. If, however, the amount of
principal distributed on the [scheduled final CRB Securities Distribution Date]
[CRB Securities Expected Final Payment Date] is not sufficient to pay the
holders of the CRB Securities in full, then monthly distributions of principal
to the holders of CRB Securities will occur on each CRB Securities Distribution
Date after the [scheduled final CRB Securities Distribution Date] [CRB
Securities Expected Final Payment Date].
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Investor Percentage and Seller's Percentage
Pursuant to the Agreements, all amounts collected on Receivables will be
allocated between the investor interest of the holders of the CRB Securities,
the investor interest of any other Series, and the Seller's Interest by
reference to the investor percentage of the holders of the CRB Securities, the
investor percentage of any other Series, and the Seller's Percentage.
The Seller's Percentage in all cases means the excess of 100% over the
aggregate investor percentages of all Series then outstanding.
Allocation of Collections
The CRB Securities Servicer will deposit any payments collected by the CRB
Securities Servicer with respect to the Receivables and will generally allocate
such amounts as follows:
(a) an amount equal to the applicable Seller's Percentage of the aggregate
amount of deposits in respect of Principal Receivables and Finance
Charge Receivables, respectively, will be paid to the holder of the
Seller's Interest,
(b) an amount equal to the applicable investor percentage of the aggregate
amount of such deposits in respect of Finance Charge Receivables will
be deposited into an account for the benefit of the holders of the CRB
Securities,
(c) during the revolving period, an amount generally equal to the
applicable investor percentage of the aggregate amount of such
collections in respect of Principal Receivables will be paid to the
holder of the Seller's Certificate; provided, however, that such
amount may not exceed the amount equal to the Seller's Interest,
[(d) during the CRB Securities Controlled Amortization Period or after the
occurrence of an CRB Securities Amortization Event, collections of
Principal Receivables will be allocated to the holders of CRB
Securities based on the investor percentage,
[(e) during the CRB Securities Accumulation Period, collections of
Principal Receivables will be deposited for the benefit of the holders
of CRB Securities based on the investor percentage in a principal
Funding Account].
The term "Seller's Interest" also encompasses the terms Seller's Certificate,
Transferor's Certificate, Exchangeable Seller's Certificate and Exchangeable
Transferor's Certificate. "Principal Receivables" generally consist of amounts
charged by cardholders for merchandise and services, amounts advanced as cash
advances and the interest portion of any participation interests. "Finance
Charge Receivables" generally consist of monthly periodic charges, annual fees,
cash advance fees, late charges, over-limit fees and all other fees billed to
cardholders, including administrative fees.
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CRB Securities Amortization Events
The following is a summary of the typical CRB Securities Amortization
Events for each series of CRB Securities. Certain additional CRB Securities
Amortization Events unique to particular series of CRB Securities are described
following this summary:
(a) failure to make payments to holders of CRB Securities within the time
periods given in the Agreements,
(b) material breaches of certain representations, warranties or covenants
or failure to observe or perform in a material respect any covenant or
agreement under an Agreement,
(c) occurrence of a material default by a servicer of the Receivables
underlying a series of CRB Securities (a "CRB Securities Servicer"),
(d) failure to maintain the Seller's Interest in an amount at least equal
to minimum Seller's Percentage of Principal Receivables in the CRB
Securities Issuer as of such date,
(e) failure to maintain a certain minimum level of Receivables or
Accounts, or if the Seller is unable to transfer Receivables or
Accounts to a CRB Securities Issuer,
(f) certain events of bankruptcy or insolvency relating to the Seller,
(g) a CRB Securities Issuer becomes an "investment company" within the
meaning of the Investment Company Act of 1940, as amended,
(h) any reduction of the portfolio yield or excess spread (averaged out
over any three consecutive months) to a rate below a certain rate
provided in the Agreement for such period,
(i) [the available amount of the Cash Collateral Guaranty is less than [
%] of the amount of the investor interest for the underlying series of
CRB Securities].
[Insert additional Amortization Events for particular CRB Securities.]
Servicing Compensation and Payment of Expenses
Generally, the CRB Securities Servicer's compensation for its servicing
activities and reimbursement for its expenses for any monthly period will be a
servicing fee (a "CRB Securities Servicing Fee") payable monthly. The CRB
Securities Servicing Fee will be allocated among the Seller's Interest and the
investor interests of all Series issued by the CRB Securities Issuer.
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Generally, the CRB Securities Servicer will pay from its servicing
compensation certain expenses incurred in connection with servicing the
Receivables including, without limitation, payment of the fees and disbursements
of the CRB Securities Trustee and independent accountants and other fees which
are not expressly stated in the related Agreement to be payable by the CRB
Securities Issuer or the holders of CRB Securities.
THE DEPOSITOR
The Depositor is a special-purpose Delaware corporation organized for the
purpose of issuing the Securities and other securities issued under the
Registration Statement backed by receivables or underlying securities of various
types and acting as settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not expected that the Depositor
will have any significant assets. The Depositor is an indirect, wholly owned
finance subsidiary of Collateralized Mortgage Securities Corporation which is a
wholly owned subsidiary of CS First Boston Securities Corporation, which is a
wholly owned subsidiary of CS First Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First Boston, Inc. nor any of their affiliates has
guaranteed, will guarantee or is or will be otherwise obligated with respect to
any Series of Securities.
The Depositor's principal executive office is located at Park Avenue Plaza,
55 East 52nd Street, New York, New York 10055, and its telephone number is (212)
909-2000.
THE INDENTURE
The following summary describes the material terms of the Indenture. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Indenture. Whenever particular
sections or defined terms of the Indenture are referred to, such sections or
defined terms are thereby incorporated herein by reference. See "DESCRIPTION OF
THE NOTES" herein for a summary of certain additional terms of the Indenture.
Collection of Distributions on CRB Securities
The CRB Securities will be assets of the Trust. All distributions on the
CRB Securities will be made directly to the Indenture Trustee. The obligation of
the Indenture Trustee in making payments on the Notes is limited to
distributions on the CRB Securities [and payments in respect of the Ancillary
Arrangements] which were actually received by it. However, if the Indenture
Trustee has not received a distribution with respect to the CRB Securities by
the [ ] Business Day after the date on which such distribution was due and
payable pursuant to the terms of such CRB Securities, the Indenture will require
it to take such actions as are permissible pursuant to the related CRB
Securities Agreement to ensure that the distribution will be made as promptly as
possible and legally permitted, and to take such legal action as the Indenture
Trustee deems appropriate under the circumstances, including the prosecution of
any claims in connection therewith. The reasonable legal fees and expenses
incurred by the Indenture Trustee in connection with the prosecution of any
legal action will be reimbursable to the Indenture Trustee out of the proceeds
of any such action and will
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be retained by the Indenture Trustee prior to the deposit of any remaining
proceeds in the Collection Account pending distribution thereof to Noteholders.
Payments on the Notes will be reduced by an aggregate amount equal to such fees
and expenses in proportion to the payments of principal and interest that would
have been otherwise made on the Notes on the Payment Date following the recovery
of any such proceeds. In the event that the Indenture Trustee has reason to
believe that the proceeds of any such legal action may not be sufficient to
reimburse it for its projected legal fees and expenses, the Indenture Trustee
will notify the Noteholders that it is not obligated to pursue any such
available remedies unless adequate indemnity for its legal fees and expenses is
provided by the Noteholders.
Reports to Noteholders
The Indenture Trustee will mail to each Noteholder, at such Noteholder's
request, at its address listed on the Note Register maintained with the
Indenture Trustee, a report stating (i) the amounts of principal and interest[,
respectively, paid on each $1,000 in face amount of [each Class of] the Notes,
(ii) the outstanding principal balance of [each Class of] the Notes and (iii)
the outstanding balances of the [Group A] CRB Securities [or the [Group B] CRB
Securities].
The Indenture Trustee shall forward by mail to each Noteholder the most
current CRB Securities Distribution Date Statement (as defined in the Indenture)
received by the Indenture Trustee as of the date of such request.
Events of Default; Rights upon Event of Default
With respect to the Notes, an "Event of Default" under the Indenture will
consist of: (i) a default for [ ] days or more in the payment of any interest on
any Note; (ii) a default in the payment of the principal of, or any installment
of the principal of, any Note when the same becomes due and payable; (iii) a
default in the observance or performance of any covenant or agreement of the
Trust made in the Indenture and the continuation of any such default for a
period of [ ] days after notice thereof is given to the Trust by the Indenture
Trustee, or to the Trust and the Indenture Trustee, by the holders of at least [
%] in principal amount of the Notes then outstanding; (iv) any representation or
warranty made by the Trust in the Indenture or in any certificate delivered
pursuant thereto or in connection therewith having been incorrect in a material
respect as of the time made, and such breach not having been cured within 30
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least [ %] in principal
amount of Notes then outstanding; or (v) certain events of bankruptcy,
insolvency, receivership or liquidation of the Trust. The amount of principal
required to be paid to Noteholders under the Indenture will generally be limited
to amounts available to be deposited in the Collection Account. Therefore, the
failure to pay principal on [a Class of] the Notes generally will not result in
the occurrence of an Event of Default until the final scheduled Payment Date for
such Class of Notes.
If there is an Event of Default with respect to a Note due to late payment
or nonpayment of interest due on a Note, additional interest will accrue on such
unpaid interest at the interest rate on the Note (to the extent lawful) until
such interest is paid. Such additional interest on unpaid interest shall be due
at the time such interest is paid. If there is an Event of Default due to late
payment or
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nonpayment of principal on a Note, interest will continue to accrue on such
principal at the interest rate on the Note until such principal is paid.
If an Event of Default should occur and be continuing with respect to the
Notes, the Indenture Trustee or holders of [ %] in principal amount of each
Class of Notes then outstanding may declare the principal of such Class of Notes
to be immediately due and payable. Such declaration may, under certain
circumstances, be rescinded by the holders of [ %] in principal amount of the
[applicable Class of ] Notes then outstanding.
If the Notes are due and payable following an Event of Default with respect
thereto, the Indenture Trustee may institute proceedings to collect amounts due
or to foreclose on Trust property, exercise remedies as a secured party, sell
the CRB Securities or elect to have the Trust maintain possession of the CRB
Securities and continue to apply collections on the CRB Securities as if there
had been no declaration or acceleration. The Indenture Trustee is prohibited
from selling the CRB Securities following an Event of Default, other than a
default in the payment of any principal of, or a default for five days or more
in the payment of any interest on, any Note, unless (i) the holders of all
outstanding Notes consent to such sale, (ii) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on the
outstanding Notes at the date of such sale or (iii) the Indenture Trustee
determines that the proceeds of CRB Securities would not be sufficient on an
ongoing basis to make all payments on the Notes as such payments would have
become due if such obligations had not been declared due and payable, and the
Indenture Trustee obtains the consent of the holders of at least [ %] of the
aggregate outstanding amount of the Notes.
If an Event of Default occurs and is continuing with respect to the Notes,
the Indenture Trustee will be under no obligation to exercise any of the rights
or powers under the Indenture at the request or direction of any of the holders
of the Notes if the Indenture Trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the Indenture, the holders
of [ %] in principal amount of the Notes then outstanding may, in certain cases,
waive any default in respect thereto, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all the
holders of the outstanding Notes.
No holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given the
Indenture Trustee written notice of a continuing Event of Default, (ii) the
holders of not less than [ %] in principal amount of the outstanding Notes have
made written request to the Indenture Trustee to institute such proceeding in
its own name as Indenture Trustee, (iii) such holder or holders have offered the
Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee has for [ ]
days failed to institute such proceeding and (v) no direction inconsistent with
such written request has been given to the Indenture Trustee during the [ ]-day
period by the holders of [ %] in principal amount of the Notes.
In addition, the Indenture Trustee and the Noteholders, by accepting the
Notes, will covenant that they will not at any time institute against the Trust
any bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
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With respect to the Trust, neither the Indenture Trustee nor the Owner
Trustee in its individual capacity, nor any holder of a Certificate representing
an ownership interest in the Trust nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors or
assigns will, in the absence of an express agreement to the contrary, be
personally liable for the payment of the principal of or interest on the Notes
or for the agreements of the Trust contained in the Indenture.
Certain Covenants
The Indenture will provide that the Trust may not consolidate with or merge
into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States, any
state or the District of Columbia, (ii) such entity expressly assumes the
Trust's obligation to make due and punctual payments upon the Notes and the
performance or observance of any agreement and covenant of the Trust under the
Indenture, (iii) no Event of Default shall have occurred and be continuing
immediately after such merger or consolidation, (iv) the Trust has been advised
that the ratings of the Securities then in effect would not be reduced or
withdrawn by any Rating Agency as a result of such merger or consolidation and
(v) the Trust has received an opinion of counsel to the effect that such
consolidation or merger would have no material adverse tax consequence to the
Trust or to any Noteholder or Certificateholder.
The Trust will not, among other things, (i) except as expressly permitted
by the Indenture, sell, transfer, exchange or otherwise dispose of any of the
assets of the Trust, (ii) 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 as amended (the "Code") or
applicable state law) or assert any claim against any present or former holder
of Notes because of the payment of taxes levied or assessed upon the Trust,
(iii) dissolve or liquidate in whole or in part, (iv) permit the validity or
effectiveness of the Indenture to be impaired or permit any person to be
released from any covenants or obligations with respect to the Notes under the
Indenture except as may be expressly permitted thereby or (v) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance to be
created on or extent to or otherwise arise upon or burden the assets of the
Trust or any part thereof, or any interest therein or the proceeds thereof.
The Trust may not engage in any activity other than as specified under "The
Trust" herein. The Trust will not incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the Notes and the Indenture.
Annual Compliance Statement
The Trust will be required to file annually with the Indenture Trustee a
written statement as to the fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report
The Indenture Trustee will be required to mail each year to all Noteholders
a report relating to any change in its eligibility and qualification to continue
as Indenture Trustee under the Indenture,
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any amounts advanced by it under the Indenture, the amount, interest rate and
maturity date of any indebtedness owing by the Trust to the Indenture Trustee in
its individual capacity, any change in the property and funds physically held by
the Indenture Trustee in its individual capacity, any change in the property and
funds physically held by the Indenture Trustee as such and any action taken by
it that materially affects the Notes and that has not been previously reported,
but if no such changes have occurred then no report shall be required.
Satisfaction and Discharge of Indenture
The Indenture will be discharged with respect to the collateral securing
the Notes upon the delivery to the Indenture Trustee for cancellation of all
Notes, or with certain limitations, upon deposit with the Indenture Trust of
funds sufficient for the payment in full of all the Notes.
Modification of Indenture
With the consent of the holders of [ %] in principal amount of the Notes,
the Trust and the Indenture Trustee may execute a supplemental indenture to add
provisions to, change in any manner or eliminate any provisions of, the
Indenture, or modify (except as provided below) in any manner rights of the
Noteholders.
Without the consent of the holder of each outstanding Note affected
thereby, however, no supplemental indenture will: (i) change the due date of any
installment of principal of or interest on any Note or reduce the principal
amount thereof, the interest rate specified thereon, or the redemption price
with respect thereto, or change any place of payment where or the coin or
currency in which any Note or interest thereon is payable; (ii) impair the right
to institute suit for the enforcement of certain provisions of the Indenture
regarding payment; (iii) reduce the percentage of the aggregate amount of the
outstanding Notes, the consent of the holders of which is required for any
waiver of compliance with certain provisions of the Indenture or of certain
defaults thereunder and their consequences as provided for in the Indenture;
(iv) modify or alter the provisions of the Indenture regarding the voting of
Notes held by the Trust, the Depositor or an affiliate of any of them; (v)
reduce the percentage of the aggregate outstanding amount of Notes, the consent
of the holders of which is required to direct the Indenture Trustee to sell or
liquidate the CRB Securities if the proceeds of such sale would be insufficient
to pay the principal amount and accrued but unpaid interest on the outstanding
Notes; (vi) decrease the percentage of the aggregate principal amount of Notes
required to amend the sections of the Indenture which specify the applicable
percentage of aggregate principal amount of the Notes necessary to amend the
Indenture or certain other related agreements; or (vii) permit the creation of
any lien ranking prior to or on a parity with the lien of the Indenture with
respect to any of the collateral for the Notes or, except as otherwise permitted
or contemplated in the Indenture, terminate the lien of the Indenture on any
such collateral or deprive the holder of any Note of the security afforded by
the lien of the Indenture.
The Trust and the Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders, for the purpose
of, among other things, adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of
S-36
<PAGE>
modifying in any manner the rights of the Noteholders; provided that such action
will not materially and adversely affect the interest of any Noteholder.
Voting Rights
At all times, the voting rights of Noteholders under the Indenture will be
allocated among the Notes pro rata in accordance with their outstanding
principal balances.
Certain Matters Regarding the Indenture Trustee and the Depositor
Neither the Depositor, the Indenture Trustee nor any director, officer or
employee of the Depositor or the Indenture Trustee will be under any liability
to the Trust or the related Noteholders for any action taken or for refraining
from the taking of any action in good faith pursuant to the Indenture or for
errors in judgment; provided, however, that none of the Indenture Trustee, the
Depositor and any director, officer or employee thereof will be protected
against any liability which would otherwise be imposed by reason of willful
malfeasance, bad faith or negligence in the performance of duties or by reason
of reckless disregard of obligations and duties under the Indenture.
Subject to certain limitations set forth in the Indenture, the Indenture
Trustee and any director, officer, employee or agent of the Indenture Trustee
shall be indemnified by the Trust and held harmless against any loss, liability
or expense incurred in connection with investigating, preparing to defend or
defending any legal action, commenced or threatened, relating to the Indenture
or the CRB Securities other than any loss, liability or expense incurred by
reason of willful malfeasance, bad faith or gross negligence in the performance
of its duties under such Indenture or by reason of reckless disregard of its
obligations and duties under the Indenture. Any such indemnification by the
Trust will reduce the amount distributable to the Noteholders.
All persons into which the Indenture Trustee may be merged or with which it
may be consolidated or any person resulting from such merger or consolidation
shall be the successor of the Indenture Trustee under each Indenture.
THE TRUST AGREEMENT
The following summary describes the material terms of the Trust Agreement.
The summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the provisions of the Trust Agreement. Whenever
particular sections or defined terms of the Trust Agreement are referred to,
such sections or defined terms are thereby incorporated herein by reference. See
"DESCRIPTION OF THE CERTIFICATES" herein for a summary of certain additional
terms of the Trust Agreement.
Collection of Distributions on CRB Securities
S-37
<PAGE>
The CRB Securities will be assets of the Trust. All distributions thereon
will be made directly to the Owner Trustee. Pursuant to the Administration
Agreement, distributions on the Certificates will be made to Certificateholders
by the Administrator acting on behalf of the Owner Trustee.
Exercise of Remedies
The Trust Agreement provides that until all the Notes have been paid in
full, the Owner Trustee will take all actions to collect any distributions due
on the CRB Securities or to exercise remedies pursuant to the Indenture.
Reports to Certificateholders
The Owner Trustee will mail to each Certificateholder, at such
Certificateholder's request, at its address listed on the Certificate Register
maintained with the Owner Trustee, a report stating (i) the amounts of principal
and interest, respectively, distributed on each $1,000 in face amount of
Certificates and (ii) the outstanding balances of the CRB Securities.
The Owner Trustee shall forward by mail to each Certificateholder the most
current CRB Securities Distribution Date Statement (as defined in the Trust
Agreement) received by the Owner Trustee as of the date of such request.
Amendment
The Trust Agreement may be amended by the Depositor and the Owner Trustee,
without consent of the Noteholders or Certificateholders, to cure any ambiguity,
to correct or supplement any provision or for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
thereof or of modifying in any manner the rights of such Noteholders or
Certificateholders; provided, however, that such action will not, as evidenced
by an opinion of counsel satisfactory to the Owner Trustee, adversely affect in
any material respect the interests of any Noteholders or Certificateholders. The
Trust Agreement may also be amended by the Depositor and the Owner Trustee with
the consent of the holders of Notes evidencing at least [ %] in principal amount
of then outstanding Notes and Certificateholders owning Voting Interests (as
herein defined) aggregating not less than [ %] of the aggregate Voting Interests
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the Trust Agreement or modifying in any
manner the rights of the Noteholders or Certificateholders; provided, however,
that no such amendment may (i) increase or reduce in any manner the amount of,
or delay the timing of, collections of payments on the CRB Securities or
distributions that are required to be made for the benefit of such Noteholders
or Certificateholders or (ii) reduce the aforesaid percentage of the Notes or
the Voting Interests of Certificates which are required to consent to any such
amendment, without the consent of all the outstanding Notes or Certificates, as
the case may be.
Insolvency Event
"Insolvency Event" means, with respect to any Person, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or similar
S-38
<PAGE>
proceedings with respect to such Person and certain actions by such Person
indicating its insolvency, reorganization pursuant to bankruptcy proceedings or
inability to pay its obligations.
If an Insolvency Event occurs with respect to the Depositor, the CRB
Securities will be liquidated and the Trust will be terminated. Upon termination
of the Trust, the Owner Trustee shall direct the Indenture Trustee promptly to
sell the assets of the Trust (other than the Collection Account) in a
commercially reasonable manner and on commercially reasonable terms. The
proceeds from any such sale, disposition or liquidation of the CRB Securities
will be treated as collections on the CRB Securities and deposited in the
Collection Account. If the proceeds from the liquidation of the [Group A] CRB
Securities [or the [Group B] CRB Securities] and any respective amounts on
deposit in the Collection Account are not sufficient to pay the [Class A] Notes
[or [Class B] Notes, respectively,] and the Certificates in full, the amount of
principal returned to the respective Noteholders and Certificateholders will be
reduced and some or all of the Noteholders and Certificateholders will incur a
loss.
The Trust Agreement will provide that the Owner Trustee does not have the
power to commence a voluntary proceeding in bankruptcy with respect to the Trust
without the unanimous prior approval of all Certificateholders (including the
Depositor) of the Trust and the delivery to the Owner Trustee by each
Certificateholder (including the Depositor) of a certificate certifying that the
Certificateholder reasonably believes that the Trust is insolvent.
Liability of the Depositor
Under the Trust Agreement, the Depositor will agree to be liable directly
to an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Certificateholder in
the capacity of an investor with respect to the Trust) arising out of or based
on the arrangement created by the Trust Agreement.
Voting Interests
As of any date, the aggregate principal balance of all Certificates
outstanding will constitute the voting interest of the Issuer (the "Voting
Interests"), except that, for purposes of determining Voting Interests,
Certificates owned by the Issuer or its affiliates (other than the Depositor)
will be disregarded and deemed not to be outstanding; and except that, in
determining whether the Owner Trustee is protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Certificates that the Owner Trustee knows to be so owned will be so disregarded.
Certificates so owned that have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Owner Trustee
the pledgor's right so to act with respect to such Certificates and that the
pledgee is not the Issuer or its affiliates.
Certain Matters Regarding the Owner Trustee and the Depositor
Neither the Depositor, the Owner Trustee, nor any director, officer or
employee of the Depositor or the Owner Trustee will be under any liability to
the Trust or the related Certificateholders for any action taken or for
refraining from the taking of any action in good faith
S-39
<PAGE>
pursuant to the Trust Agreement or for errors in judgment; provided, however,
that none of the Owner Trustee, the Depositor and any director, officer or
employee thereof will be protected against any liability which would otherwise
be imposed by reason of willful malfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties under the Trust Agreement.
Subject to certain limitations set forth in the Trust Agreement, the Owner
Trustee and any director, officer, employee or agent of the Owner Trustee shall
be indemnified by the Trust and held harmless against any loss, liability or
expense incurred in connection with investigating, preparing to defend or
defending any legal action, commenced or threatened, relating to the Trust
Agreement or the CRB Securities other than any loss, liability or expense
incurred by reason of willful malfeasance, bad faith or gross negligence in the
performance of its duties under such Trust Agreement or by reason of reckless
disregard of its obligations and duties under the Trust Agreement. Any such
indemnification by the Trust will reduce the amount distributable to the
Certificateholders.
All persons into which the Owner Trustee may be merged or with which it may
be consolidated or any person resulting from such merger or consolidation shall
be the successor of the Owner Trustee under each Trust Agreement.
[ADMINISTRATION AGREEMENT]
[The [Indenture Trustee], in its capacity as Administrator, will enter into
the Administration Agreement with the Trust and the Owner Trustee pursuant to
which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide notices and perform other administrative
obligations required by the Indenture and the Trust Agreement.]
THE INDENTURE TRUSTEE
[Insert Indenture Trustee name] is the Indenture Trustee under the
Indenture. The mailing address of the Indenture Trustee is [insert Indenture
Trustee address].
THE OWNER TRUSTEE
[Insert Owner Trustee name] is the Owner Trustee under the Trust Agreement.
The mailing address of the Owner Trustee is [insert Owner Trustee address].
USE OF PROCEEDS
[The net proceeds from the sale of the Certificates and the Notes will be
applied by the Depositor on the Closing Date towards the purchase price of the
CRB Securities, the payment of expenses related to such purchase and other
corporate purposes.] [The Depositor will transfer approximately [ %] of the net
proceeds from the sale of the Securities to the Trust to fund the purchase price
to the Trust of the CRB Securities and the payment of expenses related to such
purchase.]
S-40
<PAGE>
ERISA CONSIDERATIONS
[State whether the Notes may be classified as indebtedness without
substantial equity features for ERISA purposes.]
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Securities under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase Securities, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Securities will constitute legal investments for them.
The Depositor makes no representation as to the proper characterization of
the Securities for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase Securities
under applicable legal investment restrictions. The uncertainties described
above (and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Securities) may
adversely affect the liquidity of the Securities.
UNDERWRITING
Subject to the terms and conditions set forth in the respective
underwriting agreements, relating to the Notes and the Certificates (the
"Underwriting Agreements"), the Depositor has agreed to cause the Trust to sell
to CS First Boston Corporation (the "Underwriter"), and the Underwriter has
agreed to purchase, all of the Securities.
The underwriter proposes to offer the Securities to the public initially at
the public offering prices set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such prices less a concession of [ %] per
[Class A] Note, [[ %] per [Class B] Note] [and [ %] per Certificate]; and, the
Underwriter and such dealers may allow a discount of [ %] per [Class A] Note,] [
%] per [Class B] Note] [and [ %] per Certificate on sales to certain other
dealers; and after the initial public offering of the Securities, such public
offering prices and the concessions and discounts to dealers may be changed by
the Underwriter.
The Underwriting Agreements provide that the Depositor will indemnify the
Underwriter against certain liabilities, including liabilities under applicable
securities laws, or contribute to payments the Underwriter may be required to
make in respect thereof.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriter.
The closing of the sale of the Certificates is conditioned on the closing
of the sale of the Notes, and the closing of the sale of the Notes is
conditioned on the closing of the sale of the Certificates.
S-41
<PAGE>
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter within the period
during which there is an obligation to deliver a Prospectus Supplement and
Prospectus, the Depositor or the Underwriter will promptly deliver, or cause to
be delivered, without charge, a paper copy of the Prospectus Supplement and the
Prospectus.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the offered Securities in which the Underwriter
acts as principal. Sales will be made at negotiated prices determined at the
time of sale.
LEGAL MATTERS
Certain legal matters will be passed upon by Sidley & Austin, New York, New
York.
RATING
It is a condition to issuance that each Class of the Notes be rated [in the
highest rating category by a Rating Agency]. It is a condition to issuance that
the Certificates be rated [in one of the [three] highest rating categories by a
Rating Agency].
A securities rating addresses the likelihood of the receipt by
Certificateholders and Noteholders of distributions on the CRB Securities. The
rating takes into consideration the characteristics of the CRB Securities and
the structural, legal and tax aspects associated with the Certificates and
Notes. The ratings on the Securities do not, however, constitute statements
regarding the possibility that Certificateholders or Noteholders might realize a
lower than anticipated yield.
A securities rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each securities rating should be evaluated independently of
similar ratings on different securities.
S-42
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
<S> <C>
Accounts.....................................................................S-2
Administration Agreement....................................................S-22
Administrator...............................................................S-22
Agreements...................................................................S-2
Ancillary Arrangements......................................................S-13
Book-Entry Certificates.....................................................S-11
Book-Entry Notes.............................................................S-8
Business Day.................................................................S-7
Cede.........................................................................S-8
CEDEL........................................................................S-8
Certificates.................................................................S-1
Citibank.....................................................................S-8
[Class A] Note Interest Rate.................................................S-5
[Class A] Note Percentage....................................................S-6
[Class A] Notes..............................................................S-1
[Class B] Note Interest Rate.................................................S-5
[Class B] Note Percentage....................................................S-7
[Class B] Notes..............................................................S-1
[Class C] Certificate Interest Rate.........................................S-10
[Class C] Certificates.......................................................S-2
Closing Date.................................................................S-6
Code........................................................................S-34
Collection Account..........................................................S-21
CRB Securities...............................................................S-2
CRB Securities Amortization Event...........................................S-28
CRB Securities Certificate Rate.............................................S-28
CRB Securities Controlled Amortization Period...............................S-28
CRB Securities Distribution Date............................................S-19
CRB Securities Expected Final Payment Date..................................S-28
CRB Securities Servicer.....................................................S-30
CRB Securities Servicing Fee................................................S-30
Definitive Certificates.....................................................S-12
Definitive Notes.............................................................S-8
Depositor....................................................................S-1
DTC .........................................................................S-8
Euroclear....................................................................S-8
European Depositaries........................................................S-8
Event of Default............................................................S-32
Federal Tax Counsel.........................................................S-15
Finance Charge Receivables..................................................S-29
[Group A] Certificate Percentage............................................S-10
</TABLE>
S-43
<PAGE>
<TABLE>
<S> <C>
[Group A] CRB Securities....................................................S-27
[Group B] Certificate Percentage............................................S-10
[Group B] CRB Securities....................................................S-27
Indenture....................................................................S-1
Indenture Trustee ...........................................................S-1
Insolvency Event ..........................................................S-37
Interest Accrual Period......................................................S-6
Issuer ......................................................................S-4
Moody's.....................................................................S-17
Morgan ......................................................................S-8
Noteholders .................................................................S-4
Notes .......................................................................S-1
Owner Trustee................................................................S-1
Payment Date ................................................................S-2
Principal Receivables.......................................................S-29
Prospectus ..................................................................S-1
Rating Agency ..............................................................S-17
Receivables .................................................................S-2
Record Date ................................................................S-11
Reuters LIBOR ..............................................................S-28
S&P ........................................................................S-17
Securities ..................................................................S-1
Seller .....................................................................S-27
Seller's Interest ..........................................................S-27
Seller's Percentage.........................................................S-27
Telerate LIBOR .............................................................S-28
Trust .......................................................................S-1
Trust Agreement .............................................................S-1
Underwriter .................................................................S-1
Voting Interests ...........................................................S-38
</TABLE>
S-44
<PAGE>
APPENDIX A
TABLE OF CONTENTS
This Appendix A contains excepts from each prospectus pursuant to which the
CRB Securities were offered and sold.
Capitalized terms used in the excerpts included in this Appendix A have the
meanings defined either within the text of such excerpt or within the related
prospectus. Such terms are not applicable to any other section of this
Prospectus Supplement or Prospectus unless such terms are defined as such in the
Prospectus Supplement or the Prospectus. Complete copies of the prospectus
relating to a particular series of CRB Securities may be obtained upon request
from the Depositor.
S-45
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or CS First Boston. This Prospectus Supplement and the Prospectus do
not constitute an offer of any securities other than those to which they relate
or an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
Prospectus Supplement
<S> <C>
Summary......................................................................S-4
Risk Factors ...............................................................S-17
The Trust...................................................................S-18
Description of the Notes....................................................S-18
Description of the Certificates.............................................S-21
Description of the CRB Securities...........................................S-24
The Depositor...............................................................S-31
The Indenture...............................................................S-31
The Trust Agreement.........................................................S-36
[Administration Agreement]..................................................S-39
The Indenture Trustee.......................................................S-39
The Owner Trustee...........................................................S-39
Use of Proceeds.............................................................S-39
ERISA Considerations........................................................S-40
Legal Investment Considerations.............................................S-40
Underwriting................................................................S-40
Legal Matters...............................................................S-41
Rating......................................................................S-41
Index of Defined Terms......................................................S-42
<CAPTION>
Prospectus
<S> <C>
Prospectus Supplement..........................................................3
Reports to Securityholders.....................................................3
Available Information..........................................................3
Incorporation of Certain Documents by Reference................................3
Summary of Terms...............................................................5
Rick Factors..................................................................33
The Trusts....................................................................41
Trust Assets..................................................................41
Series Enhancement............................................................46
Servicing of Receivables......................................................50
Description of the Notes......................................................54
Description of the Certificates...............................................60
Certain Information Regarding the Securities..................................70
Description of the Trust Agreements or Pooling and Servicing Agreements.......75
Certain Legal Aspects of the Receivables......................................83
The Depositor.................................................................87
Use of Proceeds...............................................................88
Certain Federal Income Tax Consequences.......................................88
Certain State and Local Tax Considerations...................................119
ERISA Considerations.........................................................121
Plan of Distribution.........................................................125
Legal Matters................................................................126
Index of Defined Terms.......................................................127
Annex I.....................................................................AI-1
</TABLE>
Until [ ] days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Securities described in this Prospectus
Supplement, whether or not participating in this distribution, may be required
to deliver this Prospectus Supplement and the Prospectus. This is in addition to
the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
$[__________]
CSFB CARD
RECEIVABLES TRUSTS
$[____] [__%] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Notes, [Class A]
$[____] [__%] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Notes, [Class B]
$[____] [__%] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Certificates, [Class C]
ASSET BACKED SECURITIES CORPORATION
(DEPOSITOR)
----------
PROSPECTUS SUPPLEMENT
[_____], 199[_]
----------
CS FIRST BOSTON
================================================================================
- --------------------------------------------------------------------------------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
- --------------------------------------------------------------------------------
Subject to Completion dated [ ], 199[ ]
Prospectus Supplement to Prospectus dated [ ], 199[ ]
CARD ACCOUNT TRUST, SERIES 199[ ]-[ ]
$[ ] [Class A] [ %] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset
Backed Certificates [$[ ] [Class B] [ %] [Floating Rate] [Adjustable Rate]
[Variable Rate] Asset Backed Certificates]
Asset Backed Securities Corporation, Depositor
The Card Account Trust 199[ ]-[ ] (the "Trust") will be formed pursuant to
a trust agreement dated as of [ ____ ], 199[ ] (the "Trust Agreement") [between]
[among] Asset Backed Securities Corporation (the "Depositor"), [and] [Trustee
name], as trustee (the "Trustee") [and [Seller name], as Seller]. The Trust will
issue $ [ ] aggregate principal amount of [Class A] [ %] [Floating Rate]
[Adjustable Rate] [Variable Rate] Asset Backed Certificates (the "[Class A]
Certificates") [and $ [ ] aggregate principal amount of [Class B] [ %]
[Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed Certificates (the
"[Class B] Certificates," and together with the [Class A] Certificates, the
"Certificates")]. Terms used and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Prospectus dated [ ],
199[ ] attached hereto (the "Prospectus").
(Continued on the following page)
---------------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN THE DEPOSITOR, TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE
EXTENT PROVIDED HEREIN. NEITHER THE CERTIFICATES NOR THE UNDERLYING
ASSETS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER UNDER
"RISK FACTORS" BEGINNING ON PAGE S-11 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 33
OF THE PROSPECTUS.
PROSPECTIVE INVESTORS SHOULD CONSIDER LIMITATIONS DISCUSSED UNDER "ERISA
CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS
THESE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
====================================================================================================================================
Price to Public Underwriting Discount Proceeds to the Depositor (1)
<S> <C> <C> <C>
Per [Class A] Certificate
- ------------------------------------------------------------------------------------------------------------------------------------
[Per [Class B] Certificate]
- ------------------------------------------------------------------------------------------------------------------------------------
Total
====================================================================================================================================
(1) Before deduction of expenses payable by the Depositor, estimated to be $[ ].
</TABLE>
The Certificates offered hereby will be purchased by CS First Boston
Corporation (the "Underwriter") from the Depositor and will, in each case, be
offered by the Underwriter from time to time to the public in negotiated
transactions or otherwise at varying prices to be determined at the time of
sale. The aggregate proceeds to the Depositor from the sale of the Certificates
are expected to be $[ ____ ] before deducting expenses payable by the Depositor
of $[ ____ ].
The Certificates are offered subject to prior sale and subject to the
Underwriter's right to reject orders in whole or in part. It is expected that
the Certificates will be [available for delivery] [delivered in book-entry form]
[at the offices of the Underwriter] [through the facilities of The Depository
Trust Company] on or about [ ____ ], 199[ ]. [The Certificates will be offered
in the United States of America and in Europe].
Underwriters of the Securities
[LOGO] CS FIRST BOSTON
<PAGE>
The date of this Prospectus Supplement is [ ], 199[ ].
S-2
<PAGE>
(Continued from the previous page)
The assets of the Trust will consist primarily of certain asset backed
certificates (collectively, the "Card Receivables Backed Securities," or "CRB
Securities") each issued pursuant to a pooling and servicing agreement or master
pooling and servicing agreement (collectively, the "Agreements"). Each of the
CRB Securities evidences an interest in a trust created by one of the
Agreements, the property of which includes a portfolio of [charge card] [credit
card] [consumer] [corporate] [debit card] [revolving] receivables (collectively,
the "Receivables") generated or to be generated from time to time in the
ordinary course of business in a portfolio of [charge card] [credit card]
[consumer] [corporate] [debit card] [revolving] accounts (collectively, the
"Accounts"), all monies due in payment of the Receivables and certain related
properties, as more fully described herein. The CRB Securities [will be
transferred to the Trust by the Depositor] [will be purchased by the Trust with
funds received from the Depositor in exchange for the Certificates] pursuant to
the Trust Agreement. [In addition, the Trust will enter into the Ancillary
Arrangements (as defined herein).] [The trust may also draw on funds on deposit
in a Reserve Account, to the extent described herein, to meet shortfalls in
amounts due to Certificateholders on any Distribution Date.]
The [Class A] Certificates will represent in the aggregate fractional
undivided interests in [approximately [ %] of] the Trust. [The Class B
Certificates[, which are not being offered hereby,] will represent in the
aggregate fractional undivided interests in [approximately [ %] of] the Trust.]
Distributions on the Certificates will be made on the [ ] day of each
[month] [quarter] [semi-annual period] or, if any such day is not a Business
Day, on the next succeeding Business Day (the "Distribution Date") commencing
[ ], 199[ ].
Interest at a rate equal to [ %] [insert Class A Certificate Rate formula]
will be distributed to the [Class A] Certificateholders on each Distribution
Date. [Interest at a rate equal to [ %] [insert Class B Certificate Rate
formula] will be distributed to the Class B Certificateholders on each
Distribution Date.]
Principal, to the extent described herein, will be distributed to the
[Class A] Certificateholders on each Distribution Date, commencing with the
[__________], 199[ ] Distribution Date (or earlier under certain circumstances).
[Principal, to the extent described herein, will be distributed to the [Class B]
Certificateholders on each Distribution Date, commencing with the [ ], 199 [ ]
Distribution Date (or earlier under certain circumstances).]
-------------------
THE CERTIFICATES OFFERED HEREBY CONSTITUTE PART OF A SEPARATE SERIES OF
ASSET BACKED CERTIFICATES BEING OFFERED BY THE DEPOSITOR FROM TIME TO TIME
PURSUANT TO ITS PROSPECTUS DATED [ ____ ], 199[ ]. THIS PROSPECTUS SUPPLEMENT
DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE OFFERING OF THE CERTIFICATES.
ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS AND INVESTORS ARE URGED TO
READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL AS WELL AS ANY
PROSPECTUS RELATING TO THE CRB SECURITIES. [NON-U.S. INVESTORS ARE ALSO URGED TO
READ THE GLOBAL PROSPECTUS SUPPLEMENT.] SALES OF THE CERTIFICATES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS [AND, IF A NON-U.S. PURCHASER, THE GLOBAL PROSPECTUS
SUPPLEMENT].
THERE IS CURRENTLY NO MARKET FOR THE CERTIFICATES AND THERE CAN BE NO
ASSURANCE THAT SUCH A MARKET WILL DEVELOP. THE UNDERWRITERS EXPECT, BUT ARE NOT
OBLIGATED, TO MAKE A MARKET IN THE CERTIFICATES. THERE CAN BE NO ASSURANCE THAT
ANY SUCH MARKET WILL DEVELOP OR IF IT DOES DEVELOP THAT IT WILL CONTINUE.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" HEREIN AND IN THE PROSPECTUS.
UNTIL _____, _____ ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS TO INVESTORS [AND MAY BE REQUIRED TO
DELIVER A GLOBAL PROSPECTUS SUPPLEMENT TO NON-U.S. INVESTORS]. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS ACTING AS UNDERWRITERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY THE UNDERWRITER
AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH OFFERS AND SALES RELATED
TO MARKET-MAKING TRANSACTIONS IN THE OFFERED CERTIFICATES IN WHICH THE
UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.
S-3
<PAGE>
AVAILABLE INFORMATION
The Depositor, as originator of the Trusts, has filed with the Commission
a Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Securities being offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. For further information,
reference is made to the Registration Statement, which is available for
inspection without charge at the public reference facilities of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and the
regional offices of the Commission at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can be obtained from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
S-4
<PAGE>
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SUMMARY OF TERMS
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus and in the prospectus
supplement for each of the CRB Securities. Certain capitalized terms used herein
are defined elsewhere in this Prospectus Supplement or in the Prospectus.
Securities Offered .......... [Class A] [ %] [Floating Rate] [Adjustable
Rate] Asset Backed Certificates (the "[Class
A] Certificates"); and
[[Class B] [ %] [Floating Rate] [Adjustable
Rate] Asset Backed Certificates (the "[Class
B] Certificates" and, together with the
[Class A] Certificates, the "Certificates").]
Trust ....................... Card Account Trust, Series 199[ ]-[ ] (the
"Trust" or the "Issuer"), a trust established
pursuant to the Trust Agreement (as defined
herein).
Depositor ................... Asset Backed Securities Corporation is a
special-purpose Delaware corporation
organized for the purpose of issuing the
Certificates and other securities issued
under the Registration Statement backed by
receivables or underlying securities of
various types and acting as settlor or
depositor with respect to trusts, custody
accounts or similar arrangements or as
general or limited partner in partnerships
formed to issue securities. It is not
expected that the Depositor will have any
significant assets. The Depositor is an
indirect, wholly owned finance subsidiary of
Collateralized Mortgage Securities
Corporation, which is a wholly owned
subsidiary of CS First Boston Securities
Corporation, which is a wholly owned
subsidiary of CS First Boston, Inc. Neither
CS First Boston Securities Corporation nor CS
First Boston, Inc., nor any of their
affiliates, has guaranteed, will guarantee or
is or will be otherwise obligated with
respect to any Series of Securities.
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S-5
<PAGE>
- --------------------------------------------------------------------------------
The Depositor's principal executive office is
located at Park Avenue Plaza, 55 East 52nd
Street, New York, New York 10055, and its
telephone number is (212) 909-2000.
Trust Agreement ............. Pursuant to a trust agreement dated as of
[ ], 199[ ] (the "Trust Agreement"),
[between] [among] the Depositor and [insert
Trustee name] in its capacity as trustee (the
"Trustee") [and the Seller], the Trust will
issue the [Class A] Certificates in an
initial aggregate amount of $[ ] [and the
Class B Certificate in an initial aggregate
amount of $[ ]].
CRB Securities ......... The CRB Securities are described herein and
in Appendix A attached to this Prospectus
Supplement. The CRB Securities will consist
of certain asset backed certificates, as more
fully described herein, each issued pursuant
to a pooling and servicing agreement or
master pooling and servicing agreement
(collectively, the "Agreements").
Risk Factors ................ For a discussion of risk factors that should
be considered in respect of an investment in
the Certificates, see "Risk Factors" herein
and in the Prospectus.
Description of
Certificates ................ Each of the Certificates will represent a
fractional undivided interest in the Trust as
described herein.
The [Class A] Certificates will evidence in
the aggregate an undivided ownership interest
in approximately [ %] of the Trust (the
"[Class A] Percentage") [and the [Class B]
Certificates will evidence in the aggregate
an undivided ownership interest in
approximately [ %] of the Trust (the "[Class
B] Percentage")]. [Only the Class A
Certificates are being offered hereby.] [The
Class B Certificates will be subordinated to
the Class A Certificates to the extent
described herein.] See "THE CERTIFICATES"
herein.
Interest Distributions on the
Certificates ................ Interest will accrue on the unpaid principal
amount of the [Class A] Certificates at a
rate per annum equal to [insert
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
[Class A] Certificate Rate formula] payable
[monthly] [quarterly] [semi-annually] on each
Distribution Date [subject to a maximum rate
of [ ]% until the [ ], 199[ ]
Distribution Date] [, and subsequently
subject to no maximum rate] (the "[Class A]
Certificate Interest Rate"). Interest will
accrue on the unpaid principal amount of the
[Class B] Certificates at a rate per annum
equal to [insert Class B Certificate Rate
formula] payable [monthly] [quarterly]
[semi-annually] on each Distribution Date
[subject to a maximum rate of [ ]% until the
[ ____ ], 199[ ] Distribution Date] [, and
subsequently subject to no maximum rate (the
"[Class B] Certificate Interest Rate").]
Interest will be distributed to
Certificateholders on each Distribution Date
[to the extent that funds are available
therefor, from] [(i)] the Interest
Distribution Amount , [(ii)] [the Reserve
Account,] [and] [(iii)] [amounts payable to
the Trust pursuant to the Ancillary
Arrangements]. Interest in respect of a
Distribution Date will accrue on the
Certificates from and including the preceding
Distribution Date (in the case of the first
Distribution Date, from and including
[ ], 199[ ] (the "Closing Date")) to but
excluding such Distribution Date (each, a
"Collection Period") [and will be calculated
on the basis of the actual number of days in
such Collection Period divided by 360] [and
will be calculated on the basis of a 360 day
year of twelve 30 day months].
Principal Distributions
on the Certificates ......... No principal will be distributable to
Certificateholders until the [ ____ ], 199[ ]
Distribution Date or, upon the occurrence of
a CRB Securities Amortization Event, the
first Distribution Date thereafter, as
described herein.
Principal distributable on the Certificates
will equal the principal received on the CRB
Securities.
Principal of the [Class A] Certificates will
be payable on each Distribution Date, pro
rata to the [Class A] Certificateholders, in
a maximum amount equal to the [Class A]
Principal Distributable Amount for the
related
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
Collection Period. The [Class A] Principal
Distributable Amount with respect to any
Distribution Date will equal the [Class A]
Percentage of the Principal Distribution
Amount for the related Collection Period.
[On each Distribution Date, [subject to the
prior distribution on such date of the [Class
A] Interest Distributable Amount and the
[Class A] Principal Distributable Amount,]
the Trustee will distribute to holders of the
[Class B] Certificateholders (i) the [Class
B] Interest Distributable Amount to the
extent of funds available therefor from the
[Class B] Percentage of the Interest
Distribution Amount and the Reserve Account
and (ii) the [Class B] Principal
Distributable Amount. The [Class B] Principal
Distributable Amount with respect to any
Distribution Date will equal the [Class B]
Percentage of the Principal Distribution
Amount for the related Collection Period.]
The outstanding principal amount, if any, of
the [Class A] Certificates [and the [Class B]
Certificates] will be payable in full on
[ ], 199[ ] (the "Final Scheduled
Distribution Date").
[Optional Prepayment ....... If the Depositor exercises its option to
purchase the CRB Securities, which it may do
after the aggregate principal balance of the
CRB Securities (the "Pool Balance") declines
to [ %] or less of the initial Pool Balance,
the [Class A] Certificateholders will receive
an amount equal to the [Class A] Certificate
Balance together with accrued interest at the
[Class A] Certificate Rate, [and the [Class
B] Certificateholders will receive an amount
equal to the Class B Certificate Balance
together with accrued interest at the Class B
Certificate Rate], and the Certificates will
be retired.]
[Credit Enhancement....... Subordination. The rights of the [Class B]
Certificateholders to receive distributions
to which they would otherwise be entitled
with respect to the CRB Securities are
subordinated to the rights of the [Class A]
Certificateholders, as described more fully
herein.]
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
[Reserve Account. The Reserve Account will be
created with an initial deposit by the
Depositor on the Closing Date of cash or
eligible investments having a value of at
least $[ ] (the "Reserve Account Initial
Deposit"). Funds will be withdrawn from the
Reserve Account on any Distribution Date if,
and to the extent that, the Total
Distribution Amount for the related
Collection Period is less than the [Class A]
Distributable Amount. Such funds will be
distributed to the [Class A]
Certificateholders. In addition, after giving
effect to any such withdrawal and
distribution to the [Class A]
Certificateholders, funds will be withdrawn
from the Reserve Account if, and to the
extent that, the portion of the Total
Distribution Amount remaining after payment
of the [Class A] Distributable Amount is less
than the [Class B] Distributable Amount. Such
funds will be distributed to the [Class B]
Certificateholders.]
[On each Distribution Date, the Reserve
Account will be reinstated up to the Required
Reserve Account Balance by the deposit
thereto of the portion, if any, of the Total
Distribution Amount remaining after payment
of the [Class A] Distributable Amount [and
the [Class B] Distributable Amount]. The
"Required Reserve Account Balance" with
respect to any Distribution Date generally
will be equal to [insert Required Reserve
Account Balance formula]. Certain amounts in
the Reserve Account on any Distribution Date
(after giving effect to all distributions to
be made on such Distribution Date) in excess
of the Specified Reserve Account Balance for
such Distribution Date will be released to
the Depositor and will no longer be available
to the Certificateholders.]
[The Reserve Account will be maintained with
the Trustee as a segregated trust account,
but will not be part of the Trust.]
Distribution Date ........... The [ ] day of each [month] [quarter]
[semi-annual period] or, if such day is not a
Business Day, the next succeeding Business
Day, commencing on [ ____ ], 199[ ]. A
"Business Day" is any day other than a
Saturday or Sunday or
- --------------------------------------------------------------------------------
S-9
<PAGE>
- --------------------------------------------------------------------------------
another day on which banking institutions in
New York, New York are authorized or
obligated by law, regulations or executive
order to be closed.
Record Date ................. Distributions on the Certificates will be
made to holders of Certificates (each a
"Certificateholder") in whose name the
Certificates were registered at the close of
business on the last day of the month prior
to the [month] [quarter] [semi- annual
period] in which such distribution occurs.
Form and Registration ...... [The Certificates will initially be delivered
in book-entry form ("Book-Entry
Certificates"). Certificateholders will
initially hold their interests through the
Depository Trust Company ("DTC"). Transfers
within DTC will be in accordance with the
usual rules and operating procedures of DTC.
So long as the Certificates are Book-Entry
Certificates, such Certificates will be
evidenced by one or more securities
registered in the name of Cede & Co.
("Cede"), as the nominee of DTC. No
Certificateholder will be entitled to receive
a definitive certificate representing such
person's interest (a "Definitive
Certificate"), except in the event that
Definitive Certificates are issued under the
limited circumstances described in "CERTAIN
INFORMATION REGARDING THE
SECURITIES--Definitive Securities" in the
Prospectus. All references in this Prospectus
Supplement to Certificates reflect the rights
of Certificateholders only as such rights may
be exercised through DTC and its
participating organizations for so long as
such Certificates are held by DTC. See "RISK
FACTORS--Book-Entry Registration" and
"CERTAIN INFORMATION REGARDING THE
SECURITIES--Book-Entry Registration" in the
Prospectus and Annex I thereto.]
Denominations ............... The Certificates will be issued in minimum
denominations of $[ ] and integral multiples
of $1,000 in excess thereof.
[Ancillary Arrangements ..... On the Closing Date the Trust will enter into
ancillary arrangements (such arrangements,
the "Ancillary Arrangements").]
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S-10
<PAGE>
- --------------------------------------------------------------------------------
[Calculation of LIBOR ....... LIBOR applicable to the calculation of the
interest rate on the Certificates in respect
of a Distribution Date shall be equal to the
weighted average of the LIBOR Interest rates
(weighted on the basis of the outstanding
principal balances of the CRB Securities
immediately prior to such date) applicable to
the distribution of interest on the CRB
Securities distributable on such date.]
Tax Considerations .......... In the opinion of Sidley & Austin ("Federal
Tax Counsel"), the Trust will be classified
as a grantor trust for federal income tax
purposes and will not be classified as an
association taxable as a corporation. Subject
to the discussion under "Certain Federal
Income Tax Consequences" in the Prospectus,
each Owner of a beneficial interest in the
Certificates must include in income its pro
rata share of interest and other income from
the CRB Securities and, subject to certain
limitations, may deduct its pro rata share of
fees and other deductible expenses paid by
the Trust. See "Certain Federal Income Tax
Consequences" in the Prospectus for
additional information concerning the
application of federal income tax laws to the
Trust and the Certificates.
Legal Investment ............ Institutions whose investment activities are
subject to legal investment laws and
regulations or to review by certain
regulatory authorities may be subject to
restrictions on investment in the
Certificates. See "LEGAL INVESTMENT
CONSIDERATIONS" herein.
ERISA ....................... Except as otherwise described herein, the
Certificates may not be acquired by an
employee benefit plan subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), by any individual
retirement account or by any other "plan" as
defined in Section 4975 of the Internal
Revenue Code of 1986 as amended (the "Code").
See "ERISA CONSIDERATIONS" herein and in the
Prospectus.
Rating ...................... It is a condition to the issuance of the
[Class A] Certificates that they be rated [in
the highest rating category] by at least one
Rating Agency, as defined herein. [It is a
- --------------------------------------------------------------------------------
S-11
<PAGE>
- --------------------------------------------------------------------------------
condition to the issuance of the [Class B]
Certificates that they be rated [in one of
the three highest rating categories] by at
least one Rating Agency.] There is no
assurance that such rating will continue for
any period of time or that it will not be
revised or withdrawn entirely by such rating
agency if, in its judgement, circumstances so
warrant. A revision or withdrawal of such
rating may have an adverse effect on the
market price of the Certificates. A security
rating is not a recommendation to buy, sell
or hold securities.
- --------------------------------------------------------------------------------
S-12
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and in the Prospectus, prospective investors should carefully
consider the following risk factors before investing in any Class or Classes of
Securities of any such Series.
Limited Liquidity. There is currently no secondary market for the
Certificates. CS First Boston currently intends to make a market in the
Certificates but is under no obligation to do so. There can be no assurance that
a secondary market will develop in the Certificates or, if a secondary market
does develop, that it will provide holders of the Certificates with liquidity of
investment or will continue for the life of the Certificates.
No Obligation of Depositor to Make Payments in Respect of Securities. The
Depositor is not obligated to make any payments in respect of the Certificates
or the CRB Securities.
Maturity Assumptions and Risk of Prepayment or Early Amortization. The
rate of payment of principal of the Certificates, the aggregate amount of each
distribution on, and the yield to maturity of, the Certificates will depend on
the rate of payment of principal of the CRB Securities. Each series of the CRB
Securities is subject to early amortization upon the occurrence of any of the
amortization events applicable to such CRB Securities as described herein and in
the prospectus used in connection with the offering of such CRB Securities.
The rate of payment of principal of the Certificates may also be affected
by the repurchase by an issuer of CRB Securities (a "CRB Issuer") of the CRB
Securities it has issued pursuant to a purchase option, which may be exercised
after the aggregate principal balance of such CRB Securities is less than [ %]
of their original principal balance at a purchase price equal to a percentage of
the principal balance of such CRB Securities plus accrued and unpaid interest.
In such event, the repurchase price paid by the Issuer would be passed through
to the Certificateholders as a payment of principal.
Limited Rating of the Certificates. It is a condition to the issuance and
sale of the [Class A] Certificates that they be rated [in the highest rating
category] by [at least one of] [Moody's Investors Service, Inc. ("Moody's")]
[and] [Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. ("S&P")]
([each of] [Moody's] [and] [S&P] [being hereinafter referred to as] a "Rating
Agency"). [It is a condition to the issuance and sale of the Class B
Certificates that they be rated [in one of the three highest] rating categories
by [at least one Rating Agency.] A rating is not a recommendation to purchase,
hold or sell securities, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. The ratings address the
likelihood of the receipt of distributions due on the Certificates pursuant to
their terms. However, a Rating Agency does not evaluate, and the ratings of the
Certificates do not address, the possibility that investors may receive a lower
yield than anticipated. There can be no assurance that a rating will remain for
any given period of time or
S-13
<PAGE>
that a rating will not be lowered or withdrawn entirely by a Rating Agency if in
its judgment circumstances in the future so warrant.
[Risks Attendant to Investments in Interest-only or Principal-only
Certificates. [If Certificates are Interest-only or Principal-only certificates,
discuss risks attendant thereto.]]
THE TRUST
General
The Issuer, Card Account Trust, Series 199[ ]-[ ], is a trust formed
pursuant to the Trust Agreement for the transactions described in this
Prospectus Supplement. After its formation, the Issuer will not engage in any
activity other than (i) acquiring, holding and managing the CRB Securities and
the other assets of the Trust and proceeds therefrom, (ii) issuing the
Certificates, (iii) making distributions on the Certificates and (iv) engaging
in other activities that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Trust Agreement dated as
of [ ____ ], 199[ ] [between] [among] the Depositor [and] [insert Trustee name],
as Trustee [and [Seller name], as Seller.] The Depositor will provide a copy of
the Trust Agreement to prospective investors without charge upon request.
The following summaries describe the material terms of the Certificates
and the Trust Agreement. The summaries do not purport to be complete
descriptions of all of the terms of the Certificates and the Trust Agreement and
therefore are subject to, and qualified in their entirety by reference to, all
the provisions of the Certificates and the Trust Agreement. Wherever particular
defined terms of the Trust Agreement are referred to, such defined terms are
thereby incorporated herein by reference. See "THE TRUST AGREEMENT" herein for a
summary of additional terms of the Trust Agreement.
The Certificates will be issued in book-entry form only ("Book-Entry
Certificates") and will represent undivided interests in the Trust. The
Certificates will be issued in minimum denominations of $[ ____ ] and integral
multiples of $1,000 in excess thereof.
S-14
<PAGE>
[Book-Entry Certificates]
[The Book-Entry Certificates will be issued in one or more certificates
which equal the aggregate initial principal balance of the Certificates and
which will be held by a nominee of The Depository Trust Company (together with
any successor depository selected by the Depositor, the "Depository").
Beneficial interests in the Book-Entry Certificates will be held indirectly by
investors through the book-entry facilities of the Depository, as described
herein. Investors may hold such beneficial interests in the Book-Entry
Certificates in minimum denominations representing an original principal amount
of $[ ] and integral multiples of $1,000 in excess thereof. The Depositor
has been informed by the Depository that its nominee will be Cede & Co.
("Cede"). Accordingly, Cede is expected to be the holder of record of the
Book-Entry Certificates. Except as described in the Prospectus under "CERTAIN
INFORMATION REGARDING THE SECURITIES--Definitive Securities," no person
acquiring a Book-Entry Certificate (each, a "Beneficial Owner") will be entitled
to receive a Definitive Certificate.]
[Unless and until Definitive Certificates are issued, it is anticipated
that the only "Certificateholder" of the Book-Entry Certificates will be Cede,
as nominee of the Depository. Beneficial owners of the Book-Entry Certificates
will not be Certificateholders as that term is used in the Trust Agreement.
Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through the Depository and its participating
organizations. Any reports on the Trust provided to Cede, as nominee of the
Depository, may be made available to beneficial owners upon request, in
accordance with the rules, regulations and procedures creating and affecting the
Depository, and to the Depository's participating organizations to whose
Depository accounts the Book-Entry Certificates of such beneficial owners are
credited.]
[For a description of the procedures generally applicable to the
Book-Entry Certificates, see "CERTAIN INFORMATION REGARDING THE
SECURITIES--Book-Entry Registration" in the Prospectus.]
Distributions on Certificates
Distributions on the Certificates, as described below, will be made by the
Trustee on the Distribution Date to persons in whose names the Certificates are
registered on the last day of the month preceding the [month] [quarter]
[semi-annual period] in which such Distribution Date occurs (the "Record Date").
Distributions to each Certificateholder will be made by the Trustee to an
account specified in writing by such holder as of the preceding Record Date or
in such other manner as may be agreed to by the Trustee and such holder. The
final distribution in retirement of a Certificate will be made only upon
surrender of the Certificate to the Trustee at the office thereof specified in
the notice to Certificateholders of such final distribution. Notice will be
mailed prior to the Distribution Date on which the final distribution of
principal and interest on a Certificate is expected to be made to the holder
thereof.
S-15
<PAGE>
Distributions of Interest
The [Class A] Certificates will bear interest on the aggregate principal
amount of the [Class A] Certificates of an annual rate equal to [insert Class A
Certificate Rate formula], [subject to a maximum rate of [insert cap if any]
until the [ ], 199[ ] Distribution Date] [,and subsequently subject to no
maximum rate] (the "[Class A] Certificate Interest Rate").
[The [Class B] Certificates will bear interest on the aggregate principal
amount of the [Class B] Certificates of an annual rate equal to [insert Class B
Certificate Rate formula], [subject to a maximum rate of [insert cap if any]
until the [ ], 199[ ] Distribution Date][, and subsequently subject to no
maximum rate] (the "Class B Certificate Interest Rate").]
Interest accrued on the Certificates will be distributable [monthly]
[quarterly] [semi-annually] [on each Distribution [and] Date] [to the extent of
funds available therefor from] [(i)] [the Interest Distribution Amount] [and]
[(ii)] [amounts, if any, on deposit in the Reserve Account] [and] [(iii)]
[amounts payable to the Trust pursuant to the Ancillary Arrangements]. Interest
in respect of a Distribution Date will accrue on the outstanding principal
amount of the Certificates from and including the preceding Distribution Date
(in the case of the first Distribution Date, from and including the Closing
Date) to but excluding such current Distribution Date (each, a "Collection
Period"). Interest will be calculated [on the basis of the actual number of days
in each Collection Period divided by 360] [on the basis of a 360 day year of
twelve 30 day months].
[Calculation of LIBOR: LIBOR applicable to the calculation of the interest
rates on the Certificates in respect of a Distribution Date shall be calculated
by the Trustee and shall be equal to the weighted average of the LIBOR interest
rates (weighted on the basis of the outstanding principal balances of the CRB
Securities immediately prior to such Distribution Date) applicable to the
distribution of interest on the CRB Securities distributable on the CRB
Securities Distribution Date (as defined herein) occurring on such Distribution
Date. The LIBOR applicable to the CRB Securities is described under "DESCRIPTION
OF THE CRB SECURITIES--Interest Distributions" herein.]
On each Distribution Date, interest distributions on the CRB Securities in
excess of the amount required to be distributed as interest to
Certificateholders on any Distribution Date shall be available to pay the
expenses of the Trust (including the fees and expenses of the Trustee), and any
remaining amounts shall be distributed to the Depositor.
Distributions of Principal
No principal will be distributable to [Class A] Certificateholders until
the [ ] Distribution Date, or upon the occurrence of a CRB Securities
Amortization Event, the First Distribution Date thereafter, as described herein.
[No principal will be distributable to the [Class B] Certificateholders until
the principal amount of the [Class A] Certificates has been paid in full.]
Principal distributions to [Class A] Certificateholders are expected to commence
on the [ ] Distribution Date. [Principal
S-16
<PAGE>
distributions to the [Class B] Certificateholders are expected to commence on
the [ ] Distribution Date.] If, however, a CRB Securities Amortization Event (as
defined herein) shall occur, principal distributions on the Certificates will
commence on the first Distribution Date after such CRB Securities Amortization
Event.
On each CRB Securities Distribution Date in respect of which principal is
distributed on the CRB Securities, principal distributions will be made on the
Certificates on the Distribution Date occurring on such date in an amount equal
to the principal distributed on the CRB Securities. Such principal will be
distributed on a pro rata basis in accordance with the outstanding principal
balances of the Certificates. Principal of the [Class A] Certificates will be
payable on each Distribution Date, pro rata to the [Class A] Certificateholders,
in a maximum amount equal to the [Class A] Principal Distributable Amount for
the related Collection Period. The [Class A] Principal Distributable Amount with
respect to any Distribution Date will equal the [Class A] Percentage of the
Principal Distribution Amount for the related Collection Period.
[On each Distribution Date, subject to the prior distribution on such date
of the [Class A] Interest Distributable Amount and the [Class A] Principal
Distributable Amount, the Trustee will distribute to holders of the [Class B]
Certificates (i) the [Class B] Interest Distributable Amount to the extent of
funds available therefor from the [Class B] Percentage of the Interest
Distribution Amount and the Reserve Account and (ii) the [Class B] Principal
Distributable Amount. The [Class B] Principal Distributable Amount with respect
to any Distribution Date will equal the [Class B] Percentage of the Principal
Distribution Amount for the related Collection Period. The outstanding principal
amount of the [Class A] Certificates [and the [Class B] Certificates], if any,
will be payable in full on [ ] (the "Final Scheduled Distribution Date").]
The aggregate principal balance of the Certificates at any time will be
equal to the outstanding principal balance of the CRB Securities at such time.
As more fully described herein, the outstanding principal balance of the CRB
Securities will be reduced as a result of principal payments on the Receivables
that are distributed in respect of the CRB Securities.
[Ancillary Arrangements]
[On the Closing Date the Trust will enter into ancillary arrangements
(such arrangements, the "Ancillary Arrangements")].
[Insert description of Ancillary Arrangements.]
[Reserve Account]
[A reserve account (the "Reserve Account") will be created with an initial
deposit by the Depositor on the Closing Date of cash or eligible investments
having a value of at least $[ ] (the "Reserve Account Initial Deposit").
Funds will be withdrawn from the Reserve Account on any Distribution Date if,
and to the extent that, the Total Distribution Amount for the related Collection
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Period is less than the [Class A] Distributable Amount. Such funds will be
distributed to the [Class A] Certificateholders. In addition, after giving
effect to any such withdrawal and distribution to the [Class A]
Certificateholders, funds will be withdrawn from the Reserve Account if, and to
the extent that, the portion of the Total Distribution Amount remaining after
payment of the [Class A] Distributable Amount is less than the [Class B]
Distributable Amount. Such funds will be distributed to the [Class B]
Certificateholders.]
[On each Distribution Date, the Reserve Account will be reinstated up to
the Required Reserve Account Balance by the deposit thereto of the portion, if
any, of the Total Distribution Amount remaining after payment of the [Class A]
Distributable Amount and the [Class B] Distributable Amount. The "Required
Reserve Account Balance" with respect to any Distribution Date generally will be
equal to [insert Required Reserve Account Balance formula]. Certain amounts in
the Reserve Account on any Distribution Date (after giving effect to all
distributions to be made on such Distribution Date) in excess of the Required
Reserve Account Balance for such Distribution Date will be released to the
Depositor and will no longer be available to the Certificateholders.]
[The Reserve Account will be maintained with the Trustee as a segregated
trust account, but will not be part of the Trust.]
Distributions on the CRB Securities; Collection Account
All distributions on the CRB Securities will be remitted directly to an
account (the "Collection Account") to be established with the Trustee under the
Trust Agreement on the Closing Date. The Trustee will hold such moneys
uninvested and without liability for interest thereon for the benefit of holders
of the Certificates. [The "CRB Securities Distribution Date" in each [month]
[quarter] [semi-annual period] is the Distribution Date for such [month]
[quarter] [semi-annual period.]
[[Assignment] [Purchase] of CRB Securities]
[The Depositor will acquire the CRB Securities for deposit into the Trust
from [insert Seller name, if any]. At the time of issuance of the Certificates,
the Depositor will cause the beneficial interest in such CRB Securities, which
will be held in book-entry form through the facilities of The Depository Trust
Company, to be delivered to the Trustee's participant account at The Depository
Trust Company.] [The CRB Securities will be purchased by the Trust with funds
received from the Depositor in exchange for the Certificates.]
DESCRIPTION OF THE CRB SECURITIES
The table below sets forth certain of the characteristics of the CRB
Securities. The table does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the prospectuses pursuant to which
the CRB Securities were offered and sold. The CRB Securities are not listed on
any securities exchange.
S-18
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<TABLE>
<CAPTION>
DESCRIPTION OF THE CRB SECURITIES
<S> <C>
Issuer........................................................
Servicer......................................................
Trustee.......................................................
Designation...................................................
Principal Amount to be Sold to Trust..........................
Approximate percentage of total CRB Securities to be
Sold to Trust............................................
Initial Certificate Amount....................................
Series Termination Date.......................................
Certificate Rate..............................................
CRB Securities Distribution Date..............................
Commencement of Controlled Amortization Period................
Minimum Seller's Percentage...................................
Cash Collateral Guaranty Amount...............................
Percentage of Subordinated Class B Certificates...............
Optional Repurchase Percentage................................
Ratings (Moody's/S&P).........................................
</TABLE>
S-19
<PAGE>
General
This Prospectus Supplement sets forth certain relevant terms with respect
to the CRB Securities, but does not provide detailed information with respect to
the CRB Securities. Appendix A to this Prospectus Supplement contains excerpts
from each prospectus pursuant to which the CRB Securities were offered and sold.
This Prospectus Supplement relates only to the Certificates offered hereby and
does not relate to the CRB Securities.
Although neither the Depositor nor the Underwriter has any reason to
believe the information provided by the originator of a CRB Securities Issuer or
the prospectus relating to the CRB Securities is not reliable, neither the
Depositor nor the Underwriter has verified either its accuracy or its
completeness. Neither the Depositor nor the Underwriter warrants that events
have not occurred which would affect either the accuracy or completeness of the
information contained therein.
CRB Securities Considerations; Recent Developments
Each of the CRB Securities represents an obligation of the related CRB
Issuer only. Prospective investors in the Securities should consider carefully
the risk factors [insert applicable references] in each CRB Securities Offering
Document and should avail themselves of the same information concerning each CRB
Seller, CRB Servicer and CRB Issuer as they would if they were purchasing the
CRB Securities or similar investments backed by Receivables. Each CRB Issuer [or
[ ], as originator of a CRB Issuer,] is subject to the informational
requirements of the Exchange Act. Accordingly, each CRB Issuer or [ _____ ]
files annual and periodic reports and other information, including Monthly
Servicer Reports (collectively, "CRB Issuer Exchange Act Reports") with the
Commission. Copies of such CRB Issuer Exchange Act Reports, each CRB Securities
Offering Document, Servicer Reports and other information, including Monthly
Servicer Reports (collectively, the "CRB Securities Disclosure") may be
inspected and copied at certain offices of the Commission at the addresses
listed under "Available Information" in the Prospectus. If any CRB Issuer or
[ ] ceases to be subject to the informational requirements of the Exchange
Act, the Depositor will not be relieved from the informational requirements of
the Exchange Act.
Neither the Depositor nor the Underwriter participated in the [offering of
the CRB Securities or in the] preparation of the publicly available information
referred to above or of any CRB Securities Offering Document, nor has the
Depositor or the Underwriter made any due diligence inquiry with respect to the
information provided therein. Although neither the Depositor nor the Underwriter
is aware of any material misstatements or omissions in any CRB Securities
Offering Document speaking as of its date, the information provided therein or
in the other publicly available documents referred to above cannot be verified
by the Depositor or the Underwriter as to accuracy or completeness. Information
set forth in each CRB Securities Offering Document speaks only as of the date of
such CRB Securities Offering Document; there can be no assurance that all events
occurring prior to the
S-20
<PAGE>
date hereof that would affect the accuracy or completeness of any statements
included in such CRB Securities Offering Document or in the other publicly
available documents filed by or on behalf of the CRB Issuer have been publicly
disclosed.
[Describe any other recent material developments that may exist based on
publicly available information.]
AN INVESTMENT IN THE CERTIFICATES IS DIFFERENT FROM, AND SHOULD NOT BE
CONSIDERED A SUBSTITUTE FOR, AN INVESTMENT IN THE CRB SECURITIES.
Set forth below is certain information excerpted and summarized from each
prospectus relating to the CRB Securities.
The CRB Securities have been issued pursuant to Agreements entered into
between various [sellers] [depositors] [or] [transferors] and various trustees.
See "Appendix A" for a further description of the various CRB Issuers. The
following summary describes certain general terms of such Agreements, but
investors should refer to the Agreements themselves for all the terms governing
the CRB Securities.
Each of the CRB Securities represents an undivided interest in one of the
CRB Issuers, including the right to a percentage of cardholder payments on the
Receivables underlying such CRB Securities. The assets of each CRB Issuer
include a pool of Receivables arising under Accounts, funds collected or to be
collected from cardholders in respect of the Receivables in the Accounts, monies
on deposit in certain accounts of the CRB Issuers, and the right to draw upon
various enhancements. The assets of each CRB Issuer may also include the right
to receive certain interchange fees attributed to cardholder charges for
merchandise. Each of the CRB Securities represents the right to receive payments
of interest for the related interest period at the applicable CRB Securities
Certificate Interest Rate (as defined herein) for such interest period from
collections of Receivables and, in certain circumstances, from draws on
applicable enhancement, and payments of principal during the CRB Securities
Amortization Period (as defined herein) [or payments of principal on the
Expected Final Payment Date] funded from collections of Receivables.
[Each seller, transferor or depositor of CRB Securities (each, a "Seller")
holds the interest in the Receivables of a CRB Issuer not represented by the CRB
Securities and any other series of securities issued by the CRB Issuer. Such
Seller or a transferee of such Seller holds an undivided interest in the CRB
Issuer (the "Seller's Interest"), including the right to a percentage (the
"Seller's Percentage") of all cardholder payments on the Receivables.]
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<PAGE>
Interest Distributions
Interest accrues on the CRB Securities at the certificate rate for each
class and series of CRB Securities (a "CRB Securities Certificate Interest
Rate"), from the date of the initial issuance of the CRB Securities. Interest at
the applicable rate will be distributed to the holders of the CRB Securities
monthly on each CRB Securities Distribution Date.
Interest on the CRB Securities is calculated [on the basis of a 360 day
year of twelve 30 day months].
The CRB Securities [all] bear interest at [ %] [describe CRB Securities
Certificate Interest Rates] [a rate [ ] per annum above the arithmetic mean of
London interbank offered quotations for one-month Eurodollar deposits ("LIBOR")]
[; provided, however, that the rate at which interest will accrue on the CRB
Securities will in no event exceed [insert interest rate cap] per annum]. [LIBOR
is determined according to [the Reuters Screen LIBO Page (as defined in the
International Swap Dealers Association, Inc. Code of Standard Wording,
Assumption and Provisions for SWAPS, 1986 edition) ("Reuters LIBOR")] [Telerate
Page 3750 of the Dow Jones Telerate Service (or such other page as may replace
Telerate Page 3750 on that service for the purpose of displaying London
interbank offered rates of major banks) ("Telerate LIBOR")].]
Principal Distributions
Generally, principal distributions due to the holders of the CRB
Securities are scheduled to commence on [the first CRB Securities Distribution
Date with respect to a controlled amortization period for a series of CRB
Securities (a "CRB Securities Controlled Amortization Period"),] [the CRB
Securities Expected Final Payment Date] but may be distributed earlier or later
than such date. However, if a Rapid Amortization Event, Early Amortization
Event, Payout Event, Liquidation Event, Economic Pay Out Event or other similar
event (as such terms are defined in the Agreements) (each such event, a "CRB
Securities Amortization Event") occurs, monthly distributions of principal to
the holders of the CRB Securities will begin on the first CRB Securities
Distribution Date following the occurrence of such CRB Securities Amortization
Event. See "CRB Securities Amortization Events" below.
If a CRB Securities Amortization Event does not occur, principal will be
distributed to the holders of the CRB Securities on the [earlier of the] first
CRB Securities Distribution Date during the applicable CRB Securities Controlled
Amortization Period] [and the first CRB Securities Expected Final Payment Date].
If, however, the amount of principal distributed on the scheduled final CRB
Securities Distribution Date is not sufficient to pay the holders of the CRB
Securities in full, then monthly distributions of principal to the holders of
CRB Securities will occur on each CRB Securities Distribution Date after the
scheduled final CRB Securities Distribution Date until such holders of the CRB
Securities are paid in full.
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<PAGE>
Investor Percentage and Seller's Percentage
Pursuant to the Agreements, all amounts collected on Receivables will be
allocated between the investor interest of the holders of the CRB Securities,
the investor interest of any other series, and the Seller's Interest by
reference to the investor percentage of the holders of the CRB Securities, the
investor percentage of any other series, and the Seller's Percentage.
The Seller's Percentage in all cases means the excess of 100% over the
aggregate investor percentages of all series then outstanding.
Allocation of Collections
The CRB Servicer will deposit any payments collected by the CRB Servicer
with respect to the Receivables and will generally allocate such amounts as
follows:
(a) an amount equal to the applicable Seller's Percentage of the
aggregate amount of deposits in respect of Principal
Receivables and Finance Charge Receivables, respectively, will
be paid to the holder of the Seller's Interest,
(b) an amount equal to the applicable investor percentage of the
aggregate amount of such deposits in respect of Finance Charge
Receivables will be deposited into an account for the benefit
of the holders of the CRB Securities,
(c) during the revolving period, an amount generally equal to the
applicable investor percentage of the aggregate amount of such
collections in respect of Principal Receivables will be paid
to the holder of the Seller's Certificate; provided, however,
that such amount may not exceed the amount equal to the
Seller's Interests,
(d) during the CRB Securities Controlled Amortization Period or
after the occurrence of a CRB Securities Amortization Event,
collections of Principal Receivables will be allocated to the
holders of CRB Securities based on the applicable investor
percentage,
[(e) on the Expected Final Payment Date, collections of Principal
Receivables that have been deposited into a Principal Funding
Account during the Controlled Accumulation Period will be
allocated to the holders of CRB Securities.]
The term "Seller's Interest" also encompasses the terms Seller's Certificate,
Exchangeable Seller's Certificate, Transferor's Certificate and Exchangeable
Transferor's Certificate. "Principal Receivables" generally consist of amounts
charged by cardholders for merchandise and services, amounts advanced as cash
advances and the interest portion of any participation interests. "Finance
S-23
<PAGE>
Charge Receivables" generally consist of monthly periodic charges, annual fees,
cash advance fees, late charges, over-limit fees and all other fees billed to
cardholders, including administrative fees.
CRB Securities Amortization Events
The following is a summary of the typical CRB Securities Amortization
Events for each series of CRB Securities. Certain additional CRB Securities
Amortization Events unique to particular series of CRB Securities are described
following this summary:
(a) failure to make payments to holders of CRB Securities within
the time periods given in the Agreements,
(b) material breaches of certain representations, warranties or
covenants or failure to observe or perform in a material
respect any covenant or agreement under an Agreement,
(c) occurrence of a material default by a servicer of the
Receivables underlying a series of CRB Securities (a "CRB
Servicer"),
(d) failure to maintain the Seller's Interest in an amount at
least equal to the minimum Seller's Percentage of Principal
Receivables in the CRB Issuer as of such date,
(e) failure to maintain a certain minimum level of Receivables or
Accounts, or inability of the Seller to transfer Receivables
or Accounts to a CRB Issuer,
(f) certain events of bankruptcy or insolvency relating to the
Seller,
(g) Issuer becomes an "investment company" within the meaning of
the Investment Company Act of 1940, as amended,
(h) any reduction of the portfolio yield or excess spread
(averaged over any three consecutive months) to a rate below a
certain rate provided in the Agreement for such period,
(i) the available amount of the Cash Collateral Guaranty is less
than 3% of the amount of the investor interest for the
underlying series of CRB Securities.
[Insert additional Amortization Events for particular CRB Securities.]
S-24
<PAGE>
Servicing Compensation and Payment of Expenses
Generally, the CRB Servicer's compensation for its servicing activities
and reimbursement for its expenses for any monthly period will be a servicing
fee (a "CRB Securities Servicing Fee") payable monthly. The CRB Securities
Servicing Fee will be allocated among the Seller's Interest and the investor
interests of all series issued by the CRB Issuer.
Generally, the CRB Servicer will pay from its servicing compensation,
certain expenses incurred in connection with servicing the Receivables
including, without limitation, payment of the fees and disbursements of the CRB
Trustee and independent accountants and other fees which are not expressly
stated in the related Agreement to be payable by the CRB Issuer or the holders
of CRB Securities.
THE DEPOSITOR
The Depositor is a special-purpose Delaware corporation organized for the
purpose of issuing the Certificates and other securities issued under the
Registration Statement backed by receivables or underlying securities of various
types and acting as settlor or depositor with respect to trusts, custody
accounts or similar arrangements or as general or limited partner in
partnerships formed to issue securities. It is not expected that the Depositor
will have any significant assets. The Depositor is an indirect, wholly owned
finance subsidiary of Collateralized Mortgage Securities Corporation, which is a
wholly owned subsidiary of CS First Boston Securities Corporation, which is a
wholly owned subsidiary of CS First Boston, Inc. Neither CS First Boston
Securities Corporation nor CS First Boston, Inc. nor any of their affiliates has
guaranteed, will guarantee or is or will be otherwise obligated with respect to
any Series of Certificates.
The Depositor's principal executive office is located at Park Avenue
Plaza, 55 East 52nd Street, New York, New York 10055, and its telephone number
is (212) 909-2000.
THE TRUST AGREEMENT
The following summary describes the material terms of the Trust Agreement.
The summary does not purport to be a complete description of all of the terms of
the Trust Agreement and therefore is subject to, and qualified in its entirety
by reference to, all the provisions of the Trust Agreement. Whenever particular
sections or defined terms of the Trust Agreement are referred to, such section
or defined terms are thereby incorporated herein by reference. See "DESCRIPTION
OF THE CERTIFICATES" herein for a summary of certain additional terms of the
Trust Agreement.
S-25
<PAGE>
Collection of Distributions on CRB Securities
The CRB Securities will be assets of the Trust. All distributions on the
CRB Securities will be made directly to the Trustee. The obligation of the
Trustee in making distributions on the Certificates is limited to distributions
on the CRB Securities [and] [payments actually received by the Trust pursuant to
the Ancillary Arrangements] [and] [amounts available in the Reserve Account].
Reports to Certificateholders
The Trustee will mail to each Certificateholder, at such
Certificateholder's request, at its address listed on the Certificate Register
maintained with the Trustee a report stating (i) the amounts of principal and
interest, respectively, distributed on each $1,000 in face amount of
Certificates and (ii) the outstanding balances of the CRB Securities.
The Trustee shall forward by mail to each Certificateholder the most
current CRB Securities Distribution Date Statement (as defined in the Trust
Agreement) received by the Trustee as the date of such request.
Amendment
The Trust Agreement may be amended by the Depositor and the Trustee,
without the consent of the Certificateholders, to cure any ambiguity, to correct
or supplement any provisions therein which may be inconsistent with any other
provisions of the Trust Agreement, to add to the duties of the Depositor, or to
add or amend any provisions of the Trust Agreement as required by a Rating
Agency in order to maintain or improve any rating of the Certificates (it being
understood that, after obtaining the ratings in effect on the Closing Date,
neither the Depositor nor the Trustee is obligated to obtain, maintain, or
improve any such rating) or to add any other provisions with respect to matters
or questions arising under the Trust Agreement which shall not be inconsistent
with the provisions of the Trust Agreement; provided, however, that such action
will not, as evidenced by an opinion of counsel satisfactory to the Trustee,
adversely affect in any material respect the interests of any
Certificateholders. The Trust Agreement may also be amended by the Depositor and
the Trustee with the consent of Certificateholders owning Voting Rights (as
herein defined) aggregating not less than [ ]% of the aggregate Voting Rights
for the purpose of the Trust Agreement or modifying in any manner the rights of
the Certificateholders; provided, however, that no such amendment may (i)
increase or reduce in any manner the amount of, or delay the timing of,
collections of distributions on the CRB Securities or distributions that are
required to be made for the benefit of such Certificateholders or (ii) reduce
the aforesaid percentage of the Voting Rights of Certificates which are required
to consent to any such amendment.
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<PAGE>
Termination; Retirement of the Certificates
The Trust will terminate on the Distribution Date following the earliest
of (i) the Distribution Date on which the aggregate principal balance of the
Certificates has been reduced to zero, (ii) the final payment or other
liquidation of the last CRB Securities in the Trust and (iii) the Distribution
Date in [ ____ ]. In no event, however, will the Trust created by the Trust
Agreement continue after the death of certain individuals named in the Trust
Agreement. Written notice of termination of the Trust Agreement will be given to
each Certificateholder, and the final distribution will be made only upon
surrender and cancellation of the Certificates at an officer or agency appointed
by the Trustee which will be specified in the notice of termination.
Action in Respect of the CRB Securities
If at any time the Trustee, as the holder of the CRB Securities, is
requested in such capacity to take any action or to give any consent, approval
or waiver, including without limitation in connection with an amendment of an
Agreement, or if any Event of Default (as defined in the Agreements) occurs
under the Agreements, the Trust Agreement provides that the Trustee, in its
capacity as certificateholder of the CRB Securities, may take action in
connection with the enforcement of any rights and remedies available to it in
such capacity with respect thereto, will promptly notify all of the holders of
the Certificates and will act only in accordance with the written directions of
holders of the Certificate evidencing at least [ ]% of the Voting Rights.
Voting Rights
At all times, the "Voting Rights" of Certificateholders under the Trust
Agreement will be allocated among the Certificates [in proportion to their
respective Percentage Interests.] [The "Percentage Interest" represented by a
Certificate will be equal to the percentage derived by dividing the denomination
of such Certificate by the original aggregate principal balance of the
Certificates as of the Closing Date.]
Certain Matters Regarding the Trustee and the Depositor
Neither the Depositor, the Trustee nor any director, officer or employee
of the Depositor or the Trustee will be under any liability to the Trust or the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to the Trust Agreement or for errors in judgment;
provided, however, that none of the Trustee, the Depositor and any director,
officer or employee thereof will be protected against any liability which would
otherwise be imposed by reason of willful malfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
and duties under the Trust Agreement.
The Trustee may have normal banking relationships with the Depositor
and/or its affiliates.
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The Trustee may resign at any time, in which event the Depositor will be
obligated to appoint a successor Trustee. The Depositor may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the Trust
Agreement or if the Trustee becomes insolvent. Upon becoming aware of such
circumstances, the Depositor will 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.
No holder of a Certificate will have any right under the Trust Agreement to
institute any proceeding with respect to the Trust Agreement unless such holder
previously has given to the Trustee written notice of default and unless
Certificateholders holding at least [ %] of the Voting Rights have made written
requests upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity and the
Trustee for [ ] days has neglected or refused to institute any such proceeding.
The Trustee will be under no obligation to exercise any of the trusts or powers
vested in it by the Trust Agreement or to make any litigation thereunder or in
relation thereto at the request, order or direction of any of the
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the cost, expenses and liabilities
which may be incurred therein or thereby.
The Trustee and the Certificateholders, by accepting the Certificates,
will covenant that they will not at any time institute against the Depositor or
the Trust any bankruptcy, reorganization or other proceeding under any federal
or state bankruptcy or similar law.
THE TRUSTEE
[Trustee Name] is Trustee under the Trust Agreement. [Trustee Name] is a [
] banking corporation, and its principal offices are located at [ ]. The
Depositor or any of its affiliates may maintain normal commercial banking
relations with the Trustee and its affiliates.
USE OF PROCEEDS
[The net proceeds from the sale of the Certificates will be applied by the
Depositor on the Closing Date towards the purchase price of the CRB Securities,
the payment of expenses related to such purchase and other corporate purposes.]
[The Depositor will transfer approximately [ %] of the net proceeds from
the sale of the Certificates to the Trust to fund the purchase price to the
Trust of the CRB Securities and the payment of expenses related to such
purchase.]
ERISA CONSIDERATIONS
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Under current law the purchase and holding of the Certificates by or on
behalf of any Plan may result in a "prohibited transaction" within the meaning
of ERISA and the Code. Consequently, Certificates may not be transferred to a
proposed transferee that is a Plan subject to ERISA or that is described in
Section 4975(e)(1) of the Code, or a person acting on behalf of any such Plan or
using the assets of such plan unless the Trustee and the Depositor receive an
opinion of counsel reasonably satisfactory to the Trustee and the Depositor to
the effect that the purchase and holding of such Certificate will not result in
the assets of the Trust being deemed to be "plan assets" for ERISA purposes and
will not result in any non-exempt prohibited transaction under ERISA or Section
4975 of the Code and will not subject the Trustee or the Depositor to any
obligation in addition to those undertaken in the Trust Agreement. See "ERISA
CONSIDERATIONS" in the Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
The appropriate characterization of the Certificates under various legal
investments restrictions, and thus the ability of investors subject to these
restrictions to purchase Certificates, may be subject to significant
interpretive uncertainties. All investors whose investment authority is subject
to legal restrictions should consult their own legal advisors to determine
whether, and to what extent, the Certificates will constitute legal investments
for them.
The Depositor makes no representation as to the proper characterization of
the Certificates for legal investments or financial institution regulatory
purposes, or as to the ability of particular investors to purchase Certificates
under applicable legal investment restrictions. The uncertainties described
above (and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Certificates) may
adversely affect the liquidity of the Certificates.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Depositor has agreed to cause the Trust to sell to CS First
Boston Corporation (the "Underwriter"), and the Underwriter has agreed to
purchase, the entire principal amount of the Certificates.
The Underwriter proposes to offer the Certificates to the public initially
at the public offering price set forth on the cover page of this Prospectus
Supplement, and to certain dealers at such price less a concession of [ %] per
Certificates; the Underwriter and such dealers may allow a discount of [ %] per
Certificates on sales to certain other dealers; and after the initial public
offering of the Certificates, the public offering price and the concessions and
discounts to dealers may be changed by the Underwriter.
The Underwriting Agreement provides that the Seller will indemnify the
Underwriter against certain liabilities under applicable securities laws, or
contribute to payments the Underwriter may be required to make in respect
thereof.
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<PAGE>
The Trust may, from time to time, invest the funds in the Trust Accounts
in Eligible Investments acquired from the Underwriter.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from the Underwriter within the period
during which there is an obligation to deliver a Prospectus Supplement and
Prospectus, the Company or the Underwriter will promptly deliver, or cause to be
delivered, without charge, a paper copy of the Prospectus Supplement and
Prospectus.
If and to the extent required by applicable law or regulation, this
Prospectus Supplement and the Prospectus will also be used by the Underwriter
after the completion of the offering in connection with offers and sales related
to market-making transactions in the offered Certificates in which the
Underwriter acts as principal. Sales will be made at negotiated prices
determined at the time of sale.
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
by Sidley & Austin, New York, New York.
RATING
It is a condition to issuance that the [Class A] Certificates be rated [in
the highest rating category] by a Rating Agency. [It is a condition to issuance
that the Class B Certificates be rated [in one of the three highest rating
categories by a Rating Agency.]
A securities rating addresses the likelihood of the receipt by
Certificateholders of distributions on the CRB Securities. The rating takes into
consideration the characteristics of the CRB Securities and the structural,
legal and tax aspects associated with the Certificates. The ratings on the
Certificates do not, however constitute statements regarding the possibility
that Certificateholders might realize a lower than anticipated yield.
A securities rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each securities rating should be evaluated
independently of similar ratings on different securities.
S-30
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
<S> <C>
Accounts ...................................................S-2
Agreements ...................................................S-2
Ancillary Arrangements.........................................S-9
Beneficial Owner..............................................S-14
Book-Entry Certificates........................................S-9
Business Day...................................................S-8
Card Receivables Backed Securities.............................S-2
Cede...........................................................S-9
Certificateholder..............................................S-9
Certificates...................................................S-1
[Class A] Certificate..........................................S-1
[Class A] Certificate Interest Rate............................S-6
[Class A] Percentage...........................................S-5
[Class B] Certificate..........................................S-1
[Class B] Certificate Interest Rate............................S-6
[Class B] Percentage...........................................S-5
Closing Date...................................................S-6
Code ..................................................S-10
Collection Account............................................S-17
Collection Period..............................................S-6
CRB Issuer ..................................................S-12
CRB Securities.................................................S-2
CRB Securities Amortization Event.............................S-21
CRB Securities Certificate Interest Rate......................S-20
CRB Securities Controlled Amortization Period.................S-21
CRB Securities Disclosure.....................................S-19
CRB Securities Distribution Date..............................S-17
CRB Securities Servicing Fee..................................S-23
CRB Servicer..................................................S-23
Definitive Certificate.........................................S-9
Depositor ...................................................S-1
Depository ..................................................S-13
Distribution Date..............................................S-2
DTC............................................................S-9
ERISA.........................................................S-10
Federal Tax Counsel...........................................S-10
Final Scheduled Distribution Date..............................S-7
Finance Charge Receivables....................................S-22
Issuer.........................................................S-4
LIBOR.........................................................S-21
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Moody's.......................................................S-12
Percentage Interest...........................................S-26
Pool Balance...................................................S-7
Principal Receivables.........................................S-22
Prospectus ....................................................S-1
Rating Agency.................................................S-12
Receivables ...................................................S-2
Record Date ..................................................S-14
Required Reserve Account Balance...............................S-8
Reserve Account...............................................S-16
Reserve Account Initial Deposit...............................S-16
Reuters LIBOR.................................................S-21
S&P...........................................................S-12
Seller .......................................................S-20
Seller's Interest.............................................S-20
Seller's Percentage...........................................S-20
Telerate LIBOR................................................S-21
Trust .........................................................S-1
Trustee .......................................................S-1
Underwriter ...................................................S-1
Voting Rights.................................................S-26
</TABLE>
S-32
<PAGE>
APPENDIX A
TABLE OF CONTENTS
This Appendix A contains excerpts from each prospectus pursuant to which
the CRB Securities were offered and sold.
Capitalized terms used in the excerpts included in this Appendix A have
the meanings defined either within the text of such excerpt or within the
related prospectus. Such terms are not applicable to any other section of this
Prospectus Supplement or Prospectus unless such terms are defined as such in the
Prospectus Supplement or the Prospectus. Complete copies of the prospectus
relating to a particular series of CRB Securities may be obtained upon request
from the Depositor.
S-33
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Depositor or CS First Boston. This Prospectus Supplement and the Prospectus do
not constitute an offer of any securities other than those to which they relate
or an offer to sell, or a solicitation of an offer to buy, to any person in any
jurisdiction where such an offer or solicitation would be unlawful. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any time subsequent to their
respective dates.
------------------------
<TABLE>
TABLE OF CONTENTS
Page
----
<CAPTION>
Prospectus Supplement
<S> <C>
Summary of Terms...............................................S-4
Risk Factors .................................................S-12
The Trust.....................................................S-13
Description of the Certificates...............................S-13
Description of the CRB Securities.............................S-17
The Depositor.................................................S-24
The Trust Agreement...........................................S-24
The Trustee...................................................S-27
Use of Proceeds...............................................S-27
ERISA Considerations..........................................S-27
Legal Investment Considerations...............................S-27
Underwriting..................................................S-28
Legal Matters.................................................S-29
Rating........................................................S-29
Index of Defined Terms........................................S-30
Prospectus
Prospectus Supplement............................................3
Reports to Securityholders.......................................3
Available Information............................................3
Incorporation of Certain Documents by Reference..................3
Summary of Terms.................................................5
Rick Factors....................................................33
The Trusts......................................................41
Trust Assets....................................................41
Series Enhancement..............................................46
Servicing of Receivables........................................50
Description of the Notes........................................54
Description of the Certificates.................................60
Certain Information Regarding the Securities....................70
Description of the Trust Agreements or Pooling
and Servicing Agreements ..................................75
Certain Legal Aspects of the Receivables........................83
The Depositor...................................................87
Use of Proceeds.................................................88
Certain Federal Income Tax Consequences.........................88
Certain State and Local Tax Considerations.....................119
ERISA Considerations...........................................121
Plan of Distribution...........................................125
Legal Matters..................................................126
Index of Defined Terms.........................................127
Annex I.......................................................AI-1
</TABLE>
Until [ ] days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates described in this Prospectus
Supplement, whether or not participating in this distribution, may be required
to deliver this Prospectus Supplement and the Prospectus. This is in addition to
the obligation of dealers to deliver this Prospectus Supplement and the
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
<PAGE>
================================================================================
$[ ]
CSFB CARD
RECEIVABLES TRUSTS
$[ ] [ %] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Certificates, [Class A]
$[ ] [ %] [Floating Rate]
[Adjustable Rate] [Variable Rate]
Asset Backed Certificates, [Class B]
ASSET BACKED SECURITIES CORPORATION
(DEPOSITOR)
=================
PROSPECTUS SUPPLEMENT
[ ], 199[ ]
=================
CS FIRST BOSTON
================================================================================
