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As filed with the Securities and Exchange Commission on September 25, 1998
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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 13-3354848
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11 Madison Avenue
New York, New York 10010
(212) 325-2000
(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
11 Madison Avenue
New York, New York 10010
(212) 325-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
Reed D. Auerbach
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, 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. |_|
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If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE(1)
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum
Title of Securities to Amount to be Aggregate Aggregate Amount of
be Registered(2) Registered(3) Price Per Unit (3) Offering Price (3) Registration Fee(4)
<S> <C> <C> <C> <C>
Notes and Certificates $1,000,000 100% $1,000,000 $295
</TABLE>
(1) Pursuant to Rule 429 under the Securities Act of 1933, the Prospectuses
included in this Amendment are combined prospectuses and relate to registration
statement Nos. 33-10125, 33-17232 and 33-365 as previously filed by the
Registrant on Form S-3. Such registration statements were declared effective on
November 20, 1986, October 6, 1987 and February 27, 1998, respectively. The
Registration Statement to which this Form S-3 relates, which is a new
registration statement, also constitutes Post-Effective Amendment No. 6 to
registration statement No. 33- 10125 and Post-Effective Amendment No. 5 to
registration statement No. 33-17232 and such Post-Effective Amendments shall
hereafter become effective concurrently with the effectiveness of this
Registration Statement. Securities in the amount of $1,081,510,000 that were
previously registered by registration statement Nos. 33-10125, 33-17232 and
333-365, are being carried forward in connection with this Registration
Statement.
(2) THE SECURITIES ARE ALSO BEING REGISTERED FOR THE PURPOSE OF MARKET MAKING.
(3) Estimated solely for the purpose of calculating the registration fee.
(4) Previously paid.
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EXPLANATORY NOTE
This Registration Statement contains four 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 fourth Prospectus (the
"Floorplan 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 dealer floorplan automobile
receivables and asset-backed securities consisting of certificates representing
undivided interests in, or notes or loans secured by, receivables arising in
certain designated portfolios of dealer floorplan automobile receivables.
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, (3) three forms of
Prospectus Supplement (Exhibits 99.12 through 99.14) which relate to the Credit
Card Prospectus and (1) 1 form of Prospectus Supplement (Exhibit 99.15) which
relates to the Floorplan 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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PROSPECTUS
Credit Suisse 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 (A) (i) one or
more pools of motor vehicle installment loan agreements or motor vehicle retail
installment sale contracts secured by new and used automobiles, recreational
vehicles (including motor homes, van campers, boats, boat motors, motorcycles,
jet skis, waverunners, all-terrain-vehicles, snowmobiles, and trailers), vans
and light duty trucks (the "Receivables"), and security interests in the
vehicles financed thereby or (ii) Collateral Certificates (as defined herein),
(B) Government Securities (as defined herein), and (C) Private Label Custody
Receipt Securities (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.
Prospective Investors should consider the factors set forth under "Risk Factors"
on page __ of this Prospectus and in the related Prospectus Supplement.
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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, CREDIT SUISSE FIRST BOSTON CORPORATION, THE COMPANY, ANY OF THEIR RESPECTIVE
AFFILIATES, OR ANY GOVERNMENTAL AGENCY.
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.
Credit Suisse First Boston
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 each Class of such
Securities: (i) the 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. 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.
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 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 subsequently filed document that
also is or is
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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 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, 11
Madison Avenue, New York, New York 10010, telephone, (212) 325-2000.
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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. 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/or the
Seller or one of its affiliates 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, if
specified in the related Prospectus
Supplement, 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 subsidiary of Credit Suisse First
Boston, Inc. Neither Credit Suisse First
Boston, Inc. nor any of its 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 11 Madison Avenue, New York, New
York 10010, and its telephone number is
(212) 325-2000.
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
indenture trustee specified in the related
Prospectus Supplement (the "Indenture
Trustee").
Securities Offered
Each Series of Securities issued by an Owner
Trust will include one or more classes of
Certificates and may also include one or
more classes of
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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.
The 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 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 "Certain Matters Regarding
the Servicer -- Termination", the
outstanding Notes will be redeemed as set
forth in the related Prospectus Supplement.
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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 Pass-Through
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.
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 "Certain Matters Regarding the
Servicer -- Termination", the Certificates
will be prepaid as set forth in the related
Prospectus Supplement.
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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
either directly, or indirectly through a
special purpose entity, 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
Sale and Servicing 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".
Receivables
Receivables consist of Motor Vehicle
Installment Contracts secured by new or used
automobiles, recreational vehicles
(including motor homes, van campers, boats,
boat motors, motorcycles, jet skis,
waverunners, all-terrain-vehicles,
snowmobiles, and trailers), 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, in each case as described in the
related Prospectus Supplement.
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,
recreational vehicles (including motor
homes, van campers, boats, boat motors,
motorcycles, jet skis, waverunners,
all-terrain-vehicles, snowmobiles, and
trailers), 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 Primary
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Assets" 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, recreational vehicles
(including motor homes, van campers, boats,
boat motors, motorcycles, jet skis,
waverunners, all-terrain-vehicles,
snowmobiles, and trailers), 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.
Government Securities
The Government Securities, if any, consist
of any combination of (i) receipts or other
instruments created under the Department of
the Treasury's Separate Trading of
Registered Interest and Principal of
Securities, or STRIPS, program ("Treasury
Strips"), which interest and/or principal
strips evidence ownership of specific
interest and/or principal payments to be
made on certain United States Treasury Bonds
("Treasury Bonds"), (ii) Treasury Bonds and
(iii) certain other debt securities ("GSE
Bonds") of United States government
sponsored enterprises ("GSEs") ("GSE Bonds";
and together with Treasury Strips and
Treasury Bonds, collectively, "Government
Securities"). The specific terms of the
Government Securities, if any, included in a
Trust will be more particularly described in
the related Prospectus Supplement.
Private Label Custody Receipt Securities
The Private Label Custody Receipt
Securities, if any, consist of any
combination of (i) receipts or other
instruments (other than Treasury Strips)
evidencing ownership of specific interest
and/or principal payments to be made on
certain Treasury Bonds held by a custodian
("Private Label Custody Strips") and (ii)
receipts or other instruments evidencing
ownership of specific interest and/or
principal payments to be made on certain
Resolution Funding Corporation ("REFCO")
bonds ("REFCO Strips"; and, together with
Private Label Custody Strips, "Private Label
Custody Receipt Securities"). The specific
terms of the Private Label Custody Receipt
Securities, if any, included in a Trust will
be set forth in the applicable Prospectus
Supplement.
Pre-Funding
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If so specified in the related Prospectus
Supplement, a portion of the issuance
proceeds of the Securities of a particular
Series (such amount, the "Pre-Funded
Amount") will be deposited in an account
(the "Pre-Funding Account") to be
established with the Trustee, which will be
used to acquire additional Receivables from
time to time during the period specified in
the related Prospectus Supplement (the
"Pre-Funding Period"). Prior to the
investment of the Pre Funded Amount in
additional Receivables, such Pre-Funded
Amount may be invested in one or more
Eligible Investments. Any Eligible
Investment must mature no later than the
Business Day prior to the next Distribution
Date. See "Description of the Transfer and
Servicing Agreements -- Pre-Funding".
During any Pre-Funding Period, the Seller or
such other party specified in the related
Prospectus Supplement will be obligated
(subject only to the availability thereof)
to transfer to the related Trust Fund
additional Receivables from time to time
during such Pre-Funding Period. Such
additional Receivables will be required to
satisfy certain eligibility criteria more
fully set forth in the related Prospectus
Supplement, which eligibility criteria will
be consistent with the eligibility criteria
of the Receivables included in the Trust
Fund as of the Closing Date, subject to such
exceptions as are expressly stated in such
Prospectus Supplement.
Although the specific parameters of the
Pre-Funding Account with respect to any
issuance of Securities will be specified in
the related Prospectus Supplement, it is
anticipated that: (a) the Pre-Funding Period
will not exceed 90 days from the related
Closing Date; (b) the additional Receivables
to be acquired during the Pre-Funding Period
will be subject to the same representations
and warranties as the Receivables included
in the related Trust Fund on the Closing
Date (although additional criteria may also
be required to be satisfied, as described in
the related Prospectus Supplement); and (c)
that the Pre-Funded Amount will not exceed
25% of the principal amount of the
Securities issued pursuant to a particular
offering.
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 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
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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,
Collateral Certificates, if any, Government
Securities, if any, and Private Label
Custody Receipt Securities, 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,
(ii) sell or transfer the related Collateral
Certificates, if any, (iii) sell or transfer
the related Government Securities, if any,
and (iv) sell or transfer the related
Private Label Custody Receipt Securities, if
any, in any case to a Trust pursuant to a
Sale and Servicing Agreement or a Pooling
and Servicing Agreement, as applicable. 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 related 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 may
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
may advance any interest shortfall (a
"Simple Interest Advance"). As used herein,
"Advance" means any 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
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<PAGE> 15
"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 does not exist as of the date
such Receivable is purchased by such Trust,
if such breach materially adversely affects
the interest of such Trust in such
Receivable and if such failure or breach is
not cured by the Seller by the grace period
specified in the related Prospectus
Supplement.
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".
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<PAGE> 16
Tax Consequences
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
or, if there is only one Certificateholder,
to treat itself as the owner of the assets
of the Trust and to treat such Trust as a
disregarded entity for federal income tax
purposes.
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 "Material Federal Income Tax
Consequences" and "State and Local Tax
Considerations" 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 and if so
specified in the related Prospectus
Supplement (i) the Notes of any Series and
(ii) the Certificates of any Series 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 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
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<PAGE> 17
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 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 -- Ratings of the Notes"
and "Risk Factors -- Ratings of the Notes"
in the related Prospectus Supplement.
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<PAGE> 18
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 unless otherwise specified in the
Prospectus Supplement. In the absence of such amendments, a 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 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 does not exist as of the date such Receivable is
transferred to such Trust, if such breach materially adversely affects 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 and the Company intend that the
transfer of the Receivables by it under the applicable Transfer and Servicing
Agreement constitute a sale. Notwithstanding the foregoing, if such Seller is
not a bank and 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 or the
Trust, as applicable, should be treated as a pledge of such Receivables to
secure a borrowing by such Seller or the Company, as applicable. If the transfer
to the Company or the Trust were to be characterized as a secured loan, to the
extent that the Seller or the Company, as applicable, 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 or Company's insolvency, as
applicable, 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 or
the Company, as applicable. 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. The risks related to a Seller that is a bank will be
discussed in the related Prospectus Supplement.
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
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<PAGE> 19
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 and the Characterization of the Transfer of
Receivables" 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 the 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
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 Primary Assets".
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 "Certain Matters Regarding the Servicer
- -- Termination" regarding the Servicer's option to purchase the Receivables of a
given Receivables Pool.
Maturity and Prepayment Considerations -- Collateral Certificates,
Government Securities and Private Label Custody Receipt Securities. 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 (i) the Collateral Certificates,
if any, and the rate of payment of principal (including prepayments) thereof,
(ii) the Government Securities, if any, and the rate of payment of principal
thereof and (iii) the Private Label Custody Receipt Securities, if any, and the
rate of payment of principal 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, if a Servicer satisfies certain requirements
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<PAGE> 20
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 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 Certificateholders
with respect to such Series may 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 "Certain Matters Regarding the Servicer
- -- 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 Sale and Servicing Agreement, 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 and/or the Seller or
one of its affiliates 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 or Closing Date, as specified in the related Prospectus Supplement,
in the case of Simple Interest Receivables, Collateral Certificates, Government
Securities and Private Label Custody Receipt Securities. 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, Sale and Servicing 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
damage, credit life and disability insurance policies covering Financed Vehicles
or the Obligors,
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<PAGE> 21
as the case may be; (iv) any property that has secured a Receivable and that has
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 Vehicles in some states. See "Certain Legal Aspects of the Receivables"
and "Description of the Transfer and Servicing Agreements -- Sale and Assignment
of Primary Assets". In the case of Primary Assets consisting of Collateral
Certificates, Government Securities and/or Private Label Custody Receipt
Securities, the Trustee specified in the related Prospectus Supplement will
manage such Collateral Certificates, Government Securities and/or Private Label
Custody Receipt Securities.
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 by or on behalf of Obligors on Receivables
or on the Collateral Certificates, the Government Securities, and the Private
Label Custody Receipt Securities, 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.
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
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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 different
from the level payments) that, unless otherwise provided in the related
Prospectus Supplement, 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 of 78s
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 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
generally is applied first to interest accrued to the date of payment and the
balance is applied to reduce the unpaid principal balance. Accordingly, if an
obligor pays a fixed monthly installment before its scheduled due date, the
portion of the payment allocable to interest for the period since the preceding
payment was made will be less than it would have been had the payment been made
as scheduled, and the portion of the payment applied to reduce the unpaid
principal balance will be correspondingly greater. Conversely, if an obligor
pays a fixed monthly installment after its scheduled due date, the portion of
the payment allocable to interest for the period since the preceding payment was
made will be greater than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly less. In either case, the obligor 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
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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.
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 generally does
not distinguish between new or used vehicles. Rather, the amount advanced under
a motor vehicle loan generally will not exceed 100% of the value of the
collateral unless otherwise specified in the related Prospectus Supplement. 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, the National Auto
Research Division Black Book or such other industry guide as specified in the
related Prospectus Supplement, 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 ten 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 (which offering,
distribution and registration may have been undertaken, or may be undertaken, by
the Company and/or one or more affiliates of the Company), 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
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agreement, 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
(i) 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 (ii) a
limited purpose corporation organized for the purpose of, among other things,
establishing trusts, acquiring and selling receivables to such trusts and
selling beneficial interests in such trusts, or (iii) one of such trusts. If so
specified in the related Prospectus Supplement, the Underlying Issuer may be the
Company and/or one or more affiliates 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 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.
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THE GOVERNMENT SECURITIES
GENERAL
Primary Assets for a Series may include any combination of (i) receipts or
other instruments created under the Department of the Treasury's Separate
Trading of Registered Interest and Principal of Securities, or STRIPS, program
("Treasury Strips"), which interest and/or principal strips evidence ownership
of specific interest and/or principal payments to be made on certain United
States Treasury Bonds ("Treasury Bonds"), (ii) Treasury Bonds and (iii) certain
other debt securities ("GSEs Bonds") of United States government sponsored
enterprises ("GSEs"; and together with Treasury Strips and Treasury Bonds,
collectively, "Government Securities"). The Government Securities, if any,
included in a Trust are intended to assure investors that funds are available to
make certain specified payments of principal and/or interest due on the related
Securities. As such, the Government Securities, if any, included in a Trust are
intended both to (i) support the ratings assigned to such Securities, and (ii)
perform a function similar to that described herein under "Description of the
Transfer and Servicing Agreements -- Credit and Cash Flow Enhancement". A
description of the respective general features of Treasury Bonds, Treasury
Strips and GSE Bonds is set forth below.
The Prospectus Supplement for each Series of Securities the Trust with
respect to which contains Government Securities will contain information as to:
(i) the title and series of each such Government Security, the aggregate
principal amount, denomination and form thereof; (ii) the limit, if any, upon
the aggregate principal amount of such Government Security; (iii) the dates on
which, or the range of dates within which, the principal of (and premium, if
any, on) such Government Security will be payable; (iv) the rate or rates, or
the method of determination thereof, at which such Government Security will bear
interest, if any, the date or dates from which such interest will accrue, and
the dates on which such interest will be payable; (v) whether such Government
Security was issued at a price lower than the principal amount thereof; (vi)
material events of default or restrictive covenants provided for with respect to
such Government Security; (vii) the rating thereof, if any; (viii) the issuer of
each Government Security; (ix) the material risks, if any, posed by any such
Government Securities and issuers thereof (which risks, if appropriate, will be
described in the "Risk Factors" section of the related Prospectus Supplement);
and (x) any other material terms of such Government Security. With respect to a
Trust which includes a pool of Government Securities, the related Prospectus
Supplement will, to the extent applicable, describe the composition of the
Government Securities' pool, certain material events of default or restrictive
covenants common to the Government Securities, and, on an aggregate, percentage
or weighted average basis, as applicable, the characteristics of the pool with
respect to the terms set forth in (iii), (iv) and (v) of the preceding sentence
and any other material terms regarding such pool. The Government Securities
included in a Trust will be senior, unsecured, nonredeemable obligations of the
issuer thereof, will be denominated in United States dollars and, if rated, will
be rated at least investment grade by at least one nationally recognized rating
agency. In addition, the inclusion of Government Securities in a Trust with
respect to a Series of Securities is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the related
Series of Securities.
TREASURY BONDS
Treasury Bonds are issued by and are the obligations of the United States
of America. As such, the payment of principal and interest on each Treasury Bond
will be guaranteed by the full faith and credit of the United States of America.
Interest is typically payable on the Bonds semiannually. Treasury Bonds are
issued in registered form in denominations of $1,000, $5,000, $10,000, $100,000
and $1,000,000 and in book-entry form in integral multiples thereof.
TREASURY STRIPS
In general, Treasury Strips are created by separating, or stripping, the
principal and interest components of Treasury Bonds that have an original
maturity of 10 or more years from the date of issue. A particular Treasury Strip
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evidences ownership of the principal payment or one of the periodic interest
payments (generally semiannual) due on the Treasury Bond to which such Treasury
Strip relates.
In 1985 the Department of the Treasury announced that all new issues of
Treasury Bonds with maturities of 10 years or more would be transferable in
their component pieces on the Federal Reserve wire system. In so doing, the
Treasury created a generic, book-entry Treasury Strip named STRIPS (Separate
Trading of Registered Interest and Principal of Securities) which, unlike
private label Treasury Strips, can be issued without the need for a custodial
arrangement. The STRIPS program has eclipsed the private sector programs (which
are described below under " -- Private Label Custody Receipt Securities"), and
investment banks no longer sponsor new issues of custodial receipts.
Treasury Strips may be either "serial" or "callable". A serial Treasury
Strip evidences ownership of one of the periodic interest payments to be made on
a Treasury Bond. No payments are made on such Treasury Strip, nor is it
redeemable, prior to its maturity, at which time the holder becomes entitled to
receive a single payment of the face amount thereof. Callable Treasury Strips
relate to payments scheduled to be made after the related Treasury Bonds have
become subject to redemption. Such Treasury Strips evidence ownership of both
principal of the related Treasury Bonds and each of the related interest
payments commencing, typically, on the first interest payment date following the
first optional redemption date. If the underlying Treasury Bonds are actually
redeemed, holders of callable Treasury Strips generally receive a payment equal
to the principal portion of the total face amount of such Treasury Strips plus
the interest payment represented by the Treasury Strips maturing on the
redemption date. No callable Treasury Strips will be included in a Trust. The
face amount of any Treasury Strip is the aggregate of all payments scheduled to
be received thereon. Treasury Strips are available in registered form and
generally may be transferred and exchanged by the holders thereof in accordance
with procedures applicable to the particular issue of such Treasury Strips.
A holder of a private label Treasury Strip (as opposed to a STRIP) cannot
enforce payment on such Treasury Strip against the Treasury. Instead, such
holder must look to the custodian for payment. Such custodian (and such holder
of a Treasury Strip that obtains ownership of the underlying Treasury Bond) can
enforce payment of the underlying Treasury Bond against the Treasury. If any
private label Treasury Strips are included in a Trust with respect to any Series
of Securities, the Prospectus Supplement for such Series will include the
identity and a brief description of each custodian that issued such Treasury
Strips. If the Company knows that the depositor of the Treasury Bonds underlying
such Treasury Strips is the Company or any of its affiliates, the Company will
disclose such fact in such Prospectus Supplement.
GSE BONDS
As specified in the applicable Prospectus Supplement, the obligations of
one or more of the following GSEs may be included in a Trust: Federal National
Mortgage Association ("Fannie Mae"), Federal Home Loan Mortgage Association
("Freddie Mac"), Student Loan Marketing Association ("Sallie Mae"), REFCO,
Tennessee Valley Authority ("TVA"), Federal Home Loan Banks ("FHLB") (to the
extent such obligations represent the joint and several obligations of the
twelve Federal Home Loan Banks) and Federal Farm Credit Banks ("FFCB"). GSE debt
securities are exempt from registration under the Securities Act pursuant to
Section 3(a)(2) of the Securities Act (or are deemed by statute to be so exempt)
and are not required to be registered under the Exchange Act. The securities of
any GSE (including a GSE Guaranteed Bond) will be included in a Trust only to
the extent that (i) its obligations are supported by the full faith and credit
of the United States government or (ii) such organization makes publicly
available its annual report which shall include financial statements or similar
financial information with respect to such organization (a "GSE Issuer"). Unless
otherwise specified in the related Prospectus Supplement, the GSE Bonds will not
be guaranteed by the United States and do not constitute a debt or obligation of
the United States or of any agency or instrumentality thereof other than the
related GSE.
Unless otherwise specified in the related Prospectus Supplement, none of
the GSE Bonds will have been issued pursuant to an indenture, and no trustee is
provided for with respect to any GSE Bonds. There will generally be a fiscal
agent ("Fiscal Agent") for an issuer of GSE Bonds whose actions will be governed
by a fiscal agency
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agreement. A Fiscal Agent is not a trustee for the holders of the GSE Bonds and
does not have the same responsibilities or duties to act for the holders as
would a trustee.
GSE Bonds may be subject to certain contractual and statutory restrictions
which may provide some protection to securityholders against the occurrence or
effects of certain specified events. Unless otherwise specified in the related
Prospectus Supplement, each GSE is limited to such activities as will promote
its statutory purposes as set forth in the publicly available information with
respect to such issuer. A GSE's promotion of its statutory purposes, as well as
its statutory, structural and regulatory relationships with the federal
government, may cause or require such GSE to conduct its business in a manner
that differs from what an enterprise which is not a GSE might employ.
The Federal National Mortgage Association
Fannie Mae is a federally chartered and stockholder owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act. It is the largest investor in home mortgage loans in the United States.
Fannie Mae originally was established in 1938 as a corporation wholly owned by
the United States government to provide supplemental liquidity to the mortgage
market and was transformed into a stockholder owned and privately managed
corporation by legislation enacted in 1968 and 1970. Fannie Mae provides funds
to the mortgage market by purchasing mortgage loans from lenders, thereby
replenishing their funds for additional lending. Fannie Mae acquires funds to
purchase loans from many capital market investors that ordinarily may not invest
in mortgage loans, thereby expanding the total amount of funds available for
housing. Operating nationwide, Fannie Mae helps to redistribute mortgage funds
from capital-surplus to capital-short areas. Fannie Mae also issues
mortgage-backed securities ("MBS"). Fannie Mae receives guaranty fees for its
guaranty of timely payment of principal of and interest on MBS. Fannie Mae
issues MBS primarily in exchange for pools of mortgage loans from lenders. The
issuance of MBS enables Fannie Mae to further its statutory purpose of
increasing the liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes
Fannie Mae, its business and operations and contains Fannie Mae's audited
financial statements. From time to time Fannie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Fannie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge from the Office of Investor Relations, Fannie Mae,
3900 Wisconsin Avenue, N.W., Washington, D.C. 20016, telephone (202) 752-7115.
Fannie Mae is not subject to the periodic reporting requirements of the Exchange
Act.
The Federal Home Loan Mortgage Corporation
Freddie Mac is a publicly held government-sponsored enterprise created on
July 24, 1970 pursuant to the Federal Home Loan Mortgage Corporation Act, Title
III of the Emergency Home Finance Act of 1970, as amended (the "FHLMC Act").
Freddie Mac's statutory mission is to provide stability in the secondary market
for home mortgages, to respond appropriately to the private capital market and
to provide ongoing assistance to the secondary market for home mortgages
(including mortgages secured by housing for low- and moderate-income families
involving a reasonable economic return to Freddie Mac) by increasing the
liquidity of mortgage investments and improving the distribution of investment
capital available for home mortgage financing. The principal activity of Freddie
Mac consists of the purchase of conventional residential mortgages and
participation interests in such mortgages from mortgage lending institutions and
the sale of guaranteed mortgage securities backed by the mortgages so purchased.
Freddie Mac generally matches and finances its purchases of mortgages with sales
of guaranteed securities. Mortgages retained by Freddie Mac are financed with
short- and long-term debt, cash temporarily held pending disbursement to
security holders, and equity capital.
Freddie Mac prepares an Information Statement annually which describes
Freddie Mac, its business and operations and contains Freddie Mac's audited
financial statements. From time to time Freddie Mac prepares
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supplements to its Information Statement which include certain unaudited
financial data and other information concerning the business and operations of
Freddie Mac. Unless otherwise specified in the applicable Prospectus Supplement,
these documents can be obtained from Freddie Mac by writing or calling Freddie
Mac's Investor Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia,
22102; outside Washington, D.C. metropolitan area, telephone (800) 336-3672;
within Washington, D.C. metropolitan area, telephone (703) 759-8160. Freddie Mac
is not subject to the periodic reporting requirements of the Exchange Act.
The Student Loan Marketing Association
Sallie Mae is a stockholder-owned corporation established by the 1972
amendments to the Higher Education Act of 1965, as amended, to provide
liquidity, primarily through secondary market and warehousing activities, for
lenders participating in federally sponsored student loan programs, primarily
the Federal Family Education Loan ("FFEL") program and the Health Education
Assistance Loan Program. Under the Higher Education Act, Sallie Mae is
authorized to purchase, warehouse, sell and offer participations or pooled
interests in, or otherwise deal in, student loans, including, but not limited
to, loans insured under the FFEL program, and to make commitments for any of the
foregoing. Sallie Mae is also authorized to buy, sell, hold, underwrite and
otherwise deal in obligations of eligible lenders, if such obligations are
issued by such eligible lenders for the purpose of making or purchasing
federally guaranteed student loans under the Higher Education Act. As a
federally chartered corporation, Sallie Mae's structure and operational
authorities are subject to revision by amendments to the Higher Education Act or
other federal enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge upon written request to the Corporate and Investor
Relations Division of Sallie Mae at 1050 Thomas Jefferson Street, N.W.,
Washington, D.C. 20007, telephone (202) 298-3010. Sallie Mae is not subject to
the periodic reporting requirements of the Exchange Act.
The Resolution Funding Corporation
REFCO is a mixed-ownership government corporation established by Title V of
the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA"). The sole purpose of REFCO is to provide financing for the Resolution
Trust Corporation (the "RTC"). REFCO is to be dissolved, as soon as practicable,
after the maturity and full payment of all obligations issued by it. REFCO is
subject to the general oversight and direction of the Oversight Board, which is
comprised of the Secretary of the Treasury, the Chairman of the Board of
Governors of the Federal Reserve System, the Secretary of Housing and Urban
Development and two independent members to be appointed by the President with
the advice and consent of the Senate. The day-to-day operations of REFCO are
under the management of a three-member Directorate comprised of the Director of
the Office of Finance of the FHLB and two members selected by the Oversight
Board from among the presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases involving
failed savings and loan institutions pursuant to policies established by the
Oversight Board. The RTC was granted authority to issue nonvoting capital
certificates to REFCO in exchange for the funds transferred from REFCO to the
RTC. Pursuant to FIRREA, the net proceeds of these obligations are used to
purchase nonvoting capital certificates issued by the RTC or to retire
previously issued REFCO obligations.
Information concerning REFCO may be obtained from the Secretary/Treasurer,
Resolution Funding Corporation, Suite 1000, 11921 Freedom Drive, Reston,
Virginia 22090; telephone (703) 487-9517. REFCO is not subject to the periodic
reporting requirements of the Exchange Act.
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The Federal Home Loan Banks
The Federal Home Loan Banks constitute a system of twelve federally
chartered corporations (collectively, the "FHLB"), each wholly owned by its
member institutions. The mission of the FHLB is to enhance the availability of
residential mortgage credit by providing a readily available, low-cost source of
funds to their member institutions. A primary source of funds for the FHLB is
the proceeds from the sale to the public of debt instruments issued as
consolidated obligations, which are the joint and several obligations of all the
FHLB. The FHLB are supervised and regulated by the Federal Housing Finance
Board, which is an independent federal agency in the executive branch of the
United States government, but obligations of the FHLB are not obligations of the
United States government.
The Federal Home Loan Bank System produces annual and quarterly financial
reports in connection with the original offering and issuance by the Federal
Housing Finance Board of consolidated bonds and consolidated notes of the FHLB.
Unless otherwise specified in the applicable Prospectus Supplement, questions
regarding such financial reports should be directed to the Deputy Director,
Financial Reporting and Operations Division, Federal Housing Finance Board, 1777
F Street, N.W., Washington, D.C. 20006; telephone (202) 408-2901. Unless
otherwise specified in the applicable Prospectus Supplement, copies of such
reports may be obtained by written request to Capital Markets Division, Office
of Finance, Federal Home Loan Banks, Suite 1000, 11921 Freedom Drive, Reston,
Virginia 22090, telephone (703) 487-9500. The FHLB are not subject to the
periodic reporting requirements of the Exchange Act.
Tennessee Valley Authority
TVA is a wholly owned corporate agency and instrumentality of the United
States of America established pursuant to the Tennessee Valley Authority Act of
1933, as amended (the "TVA Act"). TVA's objective is to develop the resources of
the Tennessee Valley region in order to strengthen the regional and national
economy and the national defense. The programs of TVA consist of power and
nonpower programs. For the fiscal year ending September 30, 1995, TVA received
$139 million in congressional appropriations from the federal government for the
nonpower programs. The power program is required to be self-supporting from
revenues it produces. The TVA Act authorizes TVA to issue evidences of
indebtedness that may be serviced only from proceeds of its power program. TVA
bonds are not obligations of or guaranteed by the United States government.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which include
certain unaudited financial data and other information concerning the business
and operations of TVA. Unless otherwise specified in the applicable Prospectus
Supplement, these documents can be obtained by writing or calling Tennessee
Valley Authority, 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1499,
Attention: Vice President and Treasurer, telephone (423) 632-3366. TVA is not
subject to the periodic reporting requirements of the Exchange Act.
Federal Farm Credit Banks
The Farm Credit System is a nationwide system of lending institutions and
affiliated service and other entities (the "System"). Through its Banks ("FCBs")
and related associations, the System provides credit and related services to
farmers, ranchers, producers and harvesters of aquatic products, rural
homeowners, certain farm-related businesses, agricultural and aquatic
cooperatives and rural utilities. System institutions are federally chartered
under the Farm Credit Act of 1971, as amended (the "Farm Credit Act"), and are
subject to regulation by a Federal agency, the Farm Credit Administration (the
"FCA"). The FCBs and associations are not commonly owned or controlled. They are
cooperatively owned, directly or indirectly, by their respective borrowers.
Unlike commercial banks and other financial institutions that lend to the
agricultural sector in addition to other sectors of the economy, under the Farm
Credit Act the System institutions are restricted solely to making loans to
qualified borrowers in the
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agricultural sector, to certain related businesses and to rural homeowners.
Moreover, the System is required to make credit and other services available in
all areas of the nation. In order to fulfill its broad statutory mandate, the
System maintains lending units in all 50 states and the Commonwealth of Puerto
Rico.
The System obtains funds for its lending operations primarily from the sale
of debt securities issued under Section 4.2(d) of the Farm Credit Act
("Systemwide Debt Securities"). The FCBs are jointly and severally liable on all
Systemwide Debt Securities. Systemwide Debt Securities are issued by the FCBs
through the Federal Farm Credit Banks Funding Corporation, as agent for the FCBs
(the "Funding Corporation").
Information regarding the FCBs and the Farm Credit System, including
combined financial information, is contained in disclosure information made
available by the Funding Corporation. This information consists of the most
recent Farm Credit System Annual Information Statement and any Quarterly
Information Statements issued subsequent thereto and certain press releases
issued from time to time by the Funding Corporation. Unless otherwise specified
in the applicable Prospectus Supplement, such information and the Farm Credit
System Annual Report to Investors for the current and two preceding fiscal years
are available for inspection at the Federal Farm Credit Banks Funding
Corporation, Investment Banking Services Department, 10 Exchange Place, Suite
1401, Jersey City, New Jersey 07302, telephone (201) 200-8000. Upon request, the
Funding Corporation will furnish, without charge, copies of the above
information. The FCBs are not subject to the periodic reporting requirements of
the Exchange Act.
PRIVATE LABEL CUSTODY RECEIPT SECURITIES
General
If so specified in the applicable Prospectus Supplement, the Trust for a
Series may include any combination of (i) receipts or other instruments (other
than Treasury Strips) evidencing ownership of specific interest and/or principal
payments to be made on certain Treasury Bonds held by a custodian ("Private
Label Custody Strips") and (ii) receipts or other instruments evidencing
ownership of specific interest and/or principal payments to be made on certain
Resolution Funding Corporation ("REFCO") bonds ("REFCO Strips"; and together
with Private Label Custody Strips, "Private Label Custody Receipt Securities").
The Private Label Custody Receipt Securities, if any, included in a Trust are
intended to assure investors that funds are available to make certain specified
payments of principal and/or interest due on the related Securities. As such,
the Private Label Custody Receipt Securities, if any, included in a Trust are
intended both to (i) support the ratings assigned to such Securities, and (ii)
perform a function similar to that described herein under "Description of the
Transfer and Servicing Agreements -- Credit and Cash Flow Enhancement". A
description of the respective general features of Private Label Custody Strips
and REFCO Strips is set forth below.
The Prospectus Supplement for each Series of Securities the Trust with
respect to which contains Private Label Custody Receipt Securities will contain
information as to: (i) the title and series of each such Private Label Custody
Receipt Security, the aggregate principal amount, denomination and form thereof;
(ii) the limit, if any, upon the aggregate principal amount of such Private
Label Custody Receipt Security; (iii) the dates on which, or the range of dates
within which, the principal of (and premium, if any, on) such Private Label
Custody Receipt Security will be payable; (iv) the rate or rates, or the method
of determination thereof, at which such Private Label Custody Receipt Security
will bear interest, if any, the date or dates from which such interest will
accrue, and the dates on which such interest will be payable; (v) whether such
Private Label Custody Receipt Security was issued at a price lower than the
principal amount thereof; (vi) material events of default or restrictive
covenants provided for with respect to such Private Label Custody Receipt
Security; (vii) the rating thereof, if any: (viii) the issuer of such Private
Label Custody Receipt Security; (ix) the material risks, if any, posed by such
Private Label Custody Receipt Security and the issuer thereof (which risks, if
appropriate, will be described in the "Risk Factors" section of the related
Prospectus Supplement); and (x) any other material terms of such Private Label
Custody Receipt Security. With respect to a Trust which includes a pool of
Private Label Custody Receipt Securities, the related Prospectus Supplement
will, to the extent applicable, describe the composition of the Private Label
Custody Receipt Securities' pool, certain material events of default or
restrictive covenants common to the Private Label Custody Receipt Securities,
and, on
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an aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to the terms set forth in (iii), (iv)
and (v) of the preceding sentence and any other material terms regarding such
pool.
The Private Label Custody Receipt Securities included in a Trust will be
senior, unsecured, nonredeemable obligations of the issuers thereof, will be
denominated in United States dollars and, if rated, will be rated at least
investment grade by at least one nationally recognized rating agency. In
addition, the inclusion of Private Label Custody Receipt Securities in a Trust
with respect to a Series of Securities is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the related
Series of Securities. Each Trust will be provided with an opinion of Federal Tax
Counsel to the effect that the Private Label Custody Receipt Securities included
in such Trust are exempt from the registration requirements of the Securities
Act. A copy of such opinion will be filed with the SEC in a Current Report on
Form 8-K or in a post-effective amendment to the Registration Statement.
Private Label Custody Strips
The first "stripping" of Treasury Bonds occurred in the 1970s when
government securities dealers physically separated coupons from definitive
certificates and offered them to investors as tax-deferred investments.
Investors were able to purchase the "strip" at a deep discount and pay no
federal income tax until resale or maturity. This tax treatment was limited in
1982 by the Tax Equity and Fiscal Responsibility Act ("TEFRA") which required
holders of such strips to accrue a portion of the discount toward par annually
and report such accrual, even though unrealized, as taxable income. TEFRA also
required that all new Treasury issues be made available only in book-entry form.
The shift to "book-entry only" Treasury Bonds created a shortage of the
physical certificates needed for stripping. In response, various dealers created
custodial receipt programs in which Treasury Bonds in book-entry form were
deposited with custodians who would thereupon issue certificates evidencing
rights in principal and interest payments. Some of the better known programs
first came to market in 1982 and 1983. Although available eventually in
denominations as small as $1,000, these custodial receipts lacked the liquidity
of the physical strips. While physical strips had multiple market-makers,
custodial receipts were proprietary and, as such, the sole market-maker would
usually be an affiliate of the program's sponsor. As a result, the market that
developed for such receipts was segmented.
In early 1984, a group of dealers sought to enhance the liquidity of
custodial receipts by developing a generic, multiple market-maker security known
as a TR (Treasury Receipt). A large secondary market quickly developed in these
generic Treasury Strips.
Treasury Receipts, physical strips and the proprietary receipts trade at
varying discounts from STRIPS which reflect, among other things, lower levels of
liquidity and the structuring difference discussed above.
A holder of a Private Label Custody Strip (as opposed to a STRIP) cannot
enforce payment on such Treasury Strip against the Treasury, instead, such
holder must look to the custodian for payment. Such custodian (and such holder
of a Private Label Custody Strip that obtains ownership of the underlying
Treasury Bond) can enforce payment of the underlying Treasury Bond against the
Treasury. If any Private Label Custody Strips are included in a Trust with
respect to any Series of Securities, the Prospectus Supplement for such Series
will include the identity and a brief description of each custodian that issued
such Private Label Custody Strips. If the Company knows that the depositor of
the Treasury Bonds underlying such Private Label Custody Strips is the Company
or any of its affiliates, the Company will disclose such fact in such Prospectus
Supplement.
REFCO Strips
A REFCO Bond may be divided into its separate components, consisting of:
(i) each future semiannual interest distribution (an "Interest Component"); and
(ii) the principal payment (the "Principal Component") (each component
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individually hereinafter referred to as a "REFCO Strip"). REFCO Strips are not
created by REFCO. Instead, third parties such as investment banking firms create
them. Each REFCO Strip has an identifying designation and CUSIP number. REFCO
Strips generally trade in the market for Treasury Strips at yields of a few
basis points over Treasury Strips of similar maturities. REFCO Strips are viewed
generally by the market as liquid investments.
For a REFCO Bond to be separated into its components, the par amount of the
REFCO Bond must be in an amount which, based on the stated interest rate of the
REFCO Bond, will produce a semiannual interest payment of $1,000 or an integral
multiple thereof. REFCO Bonds may be separated into their components at any time
from the issue date until maturity. Once created, REFCO Strips are maintained
and transferred in integral multiples of $1,000.
A holder of a REFCO Strip cannot enforce payment on such REFCO Strip
against REFCO. Instead, such holder must look to the custodian for payment.
Such custodian (and such holder of a REFCO Strip that obtains ownership of the
underlying REFCO Bond) can enforce payment of the underlying REFCO Bond against
REFCO. The identity and a brief description of each custodian that has issued
any REFCO Strip included in a Trust will be set forth in the related Prospectus
Supplement. If the Company knows that the depositor of the REFCO Bonds
underlying the REFCO Strips included in the Trust is the Company or any of its
affiliates, the Company will disclose such fact in such Prospectus Supplement.
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. With respect to
Securities backed by Government Securities and/or Private Label Custody Receipt
Securities, as applicable, the term "prepayments" means the Repurchase Amount of
such Government Securities and/or Private Label Custody Receipt Securities
repurchased by the Company 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
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 Primary Assets" and "Servicing Procedures".
See also "Certain Matters Regarding the Servicer -- 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 information with respect to the maturity and prepayment
considerations applicable to particular Primary Assets and the related Series of
Securities.
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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.
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 be 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
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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 are
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 are 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 are 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".
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 "Certain Matters Regarding the Servicer -- 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 --
Distributions" 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 a 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 Series of 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 or performance of any material covenant or agreement
of the related Trust made in such Indenture and the continuation of any such
default for a period of 30 days (or for such longer period, not in excess of 90
days, as may be reasonably necessary to remedy such default; provided that such
default is capable of remedy within 90 days or less and Servicer on behalf of
the related Trustee delivers an Officer's Certificate to the related Indenture
Trustee to the effect that such Trustee has commenced, or will promptly commence
and diligently pursue, all reasonable efforts to remedy such default) 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
(or for such longer period, not in excess of 90 days, as may be reasonably
necessary to remedy such default; provided that such default is capable of
remedy within 90 days or less and Servicer on behalf of the related Trustee
delivers an Officer's Certificate to the related Indenture Trustee to the effect
that such Trustee has commenced, or will promptly commence and diligently
pursue, all reasonable efforts to remedy such default) 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 or a substantial part of
the property of such Trust and (vi) such other events as may be 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 that, if applicable, will be
specified in the related Prospectus Supplement, the Indenture Trustee will be
prohibited from selling the Primary 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 (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 obtains the consent of the holders of 662/3%
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
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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.
Except to the extent provided in the related Prospectus Supplement, 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 to 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; (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; (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 as
is necessary to maintain the lien and security interest created by the Indenture
has been taken; and (vii) such Trust has delivered to the related Indenture
Trustee an Officer's Certificate and an opinion of counsel that the merger
complies with the requirements and conditions precedent of the Indenture.
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.
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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 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. Except as otherwise provided in the
related Indenture, 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, change the provisions of the related Indenture relating to the
application of collections on, or the proceeds of the sale of, the property of
the related Trust to payment of principal or interest on the Notes of such
Series, or change any place of payment where or the coin or currency in which
any such Note or any interest thereon is payable; (ii) impair the right to
institute suit for the enforcement of certain provisions of the related
Indenture; (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 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, (i) to cure any ambiguity; (ii) to correct or supplement any
provisions in the Indenture; or (iii) 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; provided that such action referred to in
clause (iii) above 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. If required by the Trust Indenture Act,
the Indenture Trustee for each Owner Trust will 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.
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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 Owner Trust will be obligated to appoint
a successor indenture trustee for such Series. Additionally, the Holders of a
majority of the outstanding amount of the Notes of a Series may remove the
related Indenture Trustee and appoint a successor Indenture Trustee. An Owner
Trust may also remove the related Indenture Trustee if such Indenture Trustee
ceases to be eligible to continue as such under the related Indenture, if
certain insolvency events occur with respect to such Indenture Trustee or if
such Indenture Trustee otherwise becomes incapable of acting as Indenture
Trustee. 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 and payment of
all fees and expenses owed to the outgoing Indenture Trustee.
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 the Company, a Seller or any of
their respective affiliates, 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). If the Certificates are
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. If the Certificates are
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 the Company, a Seller or
any of their respective affiliates) will be entitled to receive a physical
certificate representing a Certificate. If the Certificates are 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 the Company, a Seller or any of their
respective affiliates will be entitled to equal and proportionate benefits under
the applicable Trust Agreement or Pooling and Servicing Agreement, as
applicable, except that, unless otherwise provided in the related Trust
Agreement, 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.
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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 and to the extent 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 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
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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, 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 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 Credit Suisse 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
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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 as
specified in the notice of final distribution to Securityholders.
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 and any other loss, delinquency or other ratios
set forth in the related Prospectus Supplement 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 "Material
Federal Income Tax Consequences".
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
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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 Series of Securities) of: (i) each
Receivables Purchase Agreement pursuant to which the Seller will transfer
Receivables to the Company, (ii) each Trust Agreement or Pooling and Servicing
Agreement pursuant to which a Trust will be created, Collateral Certificates,
Government Securities and/or Private Label Custody Receipt Securities, as
applicable, may be sold or transferred to such Trust, Certificates will be
issued, and the Servicer will service Receivables and the Trustee will manage
Government Securities, if any and Private Label Custody Receipt Securities, if
any (in the case of a Grantor Trust), (iii) each Sale and Servicing Agreement
pursuant to which the Company will transfer Receivables to a Trust and the
Servicer will service Receivables (in the case of an Owner Trust) or (iv) 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, Government Securities and Private Label Custody
Receipt Securities may be sold or transferred to such Trust and a Trustee will
manage Collateral Certificates, Government Securities, if any, and Private Label
Custody Receipt Securities, if any (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 PRIMARY ASSETS
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
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, 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.
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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 accrued and unpaid 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 Sale and Servicing 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.
Pursuant to the terms of the Sale and Servicing 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 other Primary Assets included in the Trust. To the extent
that the related Seller does not repurchase a Primary Asset in the event of a
breach of its representations and warranties 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 Sale and Servicing Agreement or Pooling and
Servicing Agreement, as applicable, with respect to such Primary Asset, if any,
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.
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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
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.
Unless otherwise and 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.
PRE-FUNDING
If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Securities of a particular Series (such amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding Account")
to be established with the Trustee, which will be used to acquire additional
Receivables from time to time during the time period specified in the related
Prospectus Supplement (the "Pre-Funding Period"). Prior to the investment of the
Pre-Funded Amount in additional Receivables, such Pre-Funded Amount may be
invested in one or more Eligible Investments. Except as otherwise provided in
the applicable Agreement, an "Eligible Investment" is any of the following, in
each case as determined at the time of the investment or contractual commitment
to invest therein (to the extent such investments would not require registration
of the Trust Fund as an investment company pursuant to the Investment Company
Act of 1940): (a) negotiable instruments or securities represented by
instruments in bearer or registered or book-entry form which evidence (i)
obligations which have the benefit of the full faith and credit of the United
States of America, including depository receipts issued by a bank as custodian
with respect to any such instrument or security held by the custodian for the
benefit of the holder of such depository receipt, (ii) demand deposits or time
deposits in, or bankers' acceptances issued by, any depositary institution or
trust company incorporated under the laws of the United States of America or any
state thereof and subject to supervision and examination by Federal or state
banking or depositary institution authorities; provided that at the time of the
Trustee's investment or contractual commitment to invest therein, the
certificates of deposit or short-term deposits (if any) or long-term unsecured
debt obligations (other than such obligations whose rating is based on
collateral or on
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the credit of a Person other than such institution or trust company) of such
depositary institution or trust company has a credit rating in the highest
rating category from each Rating Agency, (iii) certificates of deposit having a
rating in the highest rating category from each Rating Agency or (iv)
investments in money market funds which are (or which are composed of
instruments or other investments which are) rated in the highest rating category
from each Rating Agency; (b) demand deposits in the name of the Trustee in any
depositary institution or trust company referred to in clause (a)(ii) above; (c)
commercial paper (having original or remaining maturities of no more than 270
days) having a credit rating in the highest rating category from each Rating
Agency; (d) Eurodollar time deposits that are obligations of institutions whose
time deposits carry a credit rating in the highest rating category from each
Rating Agency; (e) repurchase agreements involving any Eligible Investment
described in any of clauses (a)(i), (a)(iii) or (d) above, so long as the other
party to the repurchase agreement has its long-term unsecured debt obligations
rated in the highest rating category from each Rating Agency; and (f) any other
investment with respect to which each Rating Agency rating such Securities
indicates will not result in the reduction or withdrawal of its then existing
rating of the Securities. Except as otherwise provided in the applicable
Agreement, any Eligible Investment must mature no later than the Business Day
prior to the next Distribution Date.
During any Pre-Funding Period, the Seller or such other party specified in
the related Prospectus Supplement will be obligated (subject only to the
availability thereof) to transfer to the related Trust Fund additional
Receivables from time to time during such Pre-Funding Period. Such additional
Receivables will be required to satisfy certain eligibility criteria more fully
set forth in the related Prospectus Supplement, which eligibility criteria will
be consistent with the eligibility criteria of the Receivables included in the
Trust Fund as of the Closing Date subject to such exceptions as are expressly
stated in such Prospectus Supplement.
Although the specific parameters of the Pre-Funding Account with respect to
any issuance of Securities will be specified in the related Prospectus
Supplement, it is anticipated that: (a) the Pre-Funding Period will not exceed
90 days from the related Closing Date; (b) that the additional loans to be
acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Receivables included in the related Trust
Fund on the Closing Date (although additional criteria may also be required to
be satisfied, as described in the related Prospectus Supplement); and (c) the
Pre-Funded Amount will not exceed 25% of the principal amount of the Securities
issued pursuant to a particular offering.
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 of any Sale and Servicing Agreement or Pooling
and Servicing Agreement, reduce the contract rate of, the amount of the
scheduled payments under, 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".
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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
If specified in the related Prospectus Supplement, 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, 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 preceding 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.
If specified in the related Prospectus Supplement, 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,
if specified in the related Prospectus Supplement, if 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.
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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 serviced by the
Servicer, 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 related to such Primary Assets as
of the first day of such Collection Period. Unless otherwise provided in the
related Prospectus Supplement, 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 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
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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 and to the
extent 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 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
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 Transfer and Servicing Agreement, the Company or the
Seller 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 or the Seller, as applicable, 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, the Seller or to any other
entity.
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.
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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 (or, 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 Office 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 -- Statements 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 or if such
resignation is required by regulatory authorities. 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.
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 judgment; provided, 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 gross
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.
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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, marshaling 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
may be set forth in the related Prospectus Supplement.
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. If 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 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
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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.
AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, each of the
Transfer and Servicing Agreements may be amended by the parties thereto without
the consent of the related Noteholders or Certificateholders: (i) to cure any
ambiguity, (ii) to correct or supplement any provisions in such Transfer and
Servicing Agreement, or (iii) 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; provided, that any such action in this clause (iii)
will not, in the opinion of counsel satisfactory to the related Trustee or
Indenture Trustee, as applicable, adversely affect in any material respect the
interests of the Company or any such Noteholder.
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, (ii) 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 (iii) 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, if any Seller is a bank, 5%) or less of the Pool Balance as
of the related Cutoff Date, at a purchase price equal to the price specified in
the related Prospectus Supplement.
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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, recreational vehicles, 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, recreational vehicles, 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, recreational vehicles, 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. However, security interests in boats may be perfected in
one of three ways: in certificate of title states, a security interest is
perfected as described above; in other states, a security interest may be
perfected by filing a UCC-1 financing statement, however, a purchase money lien
in consumer goods is perfected without any filing requirement and if a boat is
required to be documented under Federal law, a preferred mortgage may be
obtained under the Ship Mortgage Act by filing the mortgage with the Coast
Guard, which is the exclusive method for perfecting security interests in
documented boats. The applicable Seller will represent and warrant in the
Agreement that none of the Receivables are required to be documented under the
Ship Mortgage Act.
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 or file a UCC-1 Financing Statement. 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. The
Servicer will hold 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
Primary Assets".
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
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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 Primary Assets" and "Risk Factors -- Certain Legal Aspects -- Lack
of Security Interests in Financed Vehicles".
Under the laws of most states in which a perfected security interest is
governed by a certificate of title statute, 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 these
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 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.
In states which the perfection of a security interest is governed by the
filing of a UCC-1 financing statement, or the Obligor moves from a title state
to a non-title state, the Servicer will file a UCC-1 financing statement in the
new state of the Obligor as soon as possible after receiving notice of the
Obligor's change of residence. UCC-1 financing statements expire after five
years. When the term of a loan exceeds five years, the filing must be continued
in order to maintain the Servicer's perfected security interest. The Servicer
takes steps to effect such continuation. In the event that an Obligor moves to a
state other than the state in which the UCC-1 financing statement is filed or in
certain states to a different county in such state, under the laws of most
states the perfection of the security interest in the boat would continue for
four months after such relocation, unless the perfection in the original
jurisdiction would have expired earlier. A new financing statement must be filed
in the state of relocation or, if such state is a title state, a notation on the
certificate of title must be made in order to continue the security interest.
The Servicer generally takes steps to effect such re-perfection upon
notification of an address change. Generally, in both title states and in
non-title states, the Servicer will not re-perfect a state law security interest
which has expired or where the Obligor has moved if the Receivable has a small
balance, a short remaining term and the Obligor has a good payment record.
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
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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 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.
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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.
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 Primary Assets".
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 Primary Assets".
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
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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 the monthly
payments due under the related contract or change the rate of interest and time
of repayment of the indebtedness.
MATERIAL 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 tax counsel specified in the related Prospectus Supplement
("Federal Tax Counsel") regarding certain federal income tax matters discussed
below, a copy of which will be filed with the SEC in a Current Report on Form
8-K or in a post-effective amendment to the Registration Statement. 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. The
opinion of Federal Tax Counsel specifically addresses only those issues
specifically identified below as being covered by such opinion; however, such
opinion also states that the additional discussion set forth below accurately
sets forth the advice of Federal Tax Counsel with respect to material federal
income tax issues. 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.
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.
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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 treated as a
publicly traded partnership that would be taxable as a corporation unless it met
certain qualifying income tests (and the resulting taxable corporation would not
be able to reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). 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 foreign holders might 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."
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 Treasury Regulations issued under Sections 1271-1275 of
the Code (the "OID Regulations") 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 (or under rules
similar to) the 1996 Contingent Debt Regulations, or in some other manner.
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 0.65, 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 less than or equal to 0.65, however, such
rate will generally constitute an objective rate, described more fully below.
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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 a
related party 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 inversely reflect 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 (or under rules similar to) the 1996 Contingent Debt Regulations, or in
some other manner.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1275 of the Code and the OID Regulations. The discussion herein is based in
part on the OID Regulations. 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 (as specially defined for tax purposes). Because of the possibility of
prepayments, it is not clear how the de minimis rules will apply to the Notes.
It is likely 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 Company presently expects to apply the de minimis
rule by using the Prepayment Assumption. Generally, a 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."
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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 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 or qualified
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inverse floating rate, equals the value of such qualified floating rate or
qualified inverse floating rate as of the issue date of the Note, or, in the
case of an objective rate other than a qualified floating 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.
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 its weighted average remaining life as computed for tax
purposes. 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 is made.
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments
such as 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 under Code Section 171 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. Although there are Treasury
regulations dealing
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with amortizable bond premiums, they specifically do not apply to prepayable
debt instruments subject to Section 1272(a)(6), such as the Notes. However, by
analogy to such regulations, any premium in excess of interest income may be
deductible to the extent of prior accruals of interest. 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 Issue Discount. The OID
Regulations permit an election to accrue all interest, discount (including de
minimus 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. See "-Market Discount" above. Similarly, a Note
Owner that makes this election for a Note that is acquired as 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 at
the beginning of the first taxable year to which the election applies or
acquires thereafter. 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 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 or loss if the Note is held as a capital asset and as long-term
capital gain or loss if the Note Owner's holding period exceeded one year.
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 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.
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Taxation of Certain Foreign Note Owners. As used herein, the term
"Non-United States Person" means any person other than a "United States Person."
A "United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
trust. A "Non-United States Holder" means a Non-United States Person who is a
Note Owner.
On October 6, 1997, Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Holders. The 1997 Withholding Regulations are generally effective for
payments after December 31, 1999, regardless of the issue date of the Note with
respect to which such payments are made, subject to certain transition rules.
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 1997 Withholding Regulations, and prospective investors
are urged to consult their tax advisors with respect to the effect of the 1997
Withholding Regulation.
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 by 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. The foregoing certification may be provided by the
beneficial owner of a Note on IRS Form W-8.
The 1997 Withholding Regulations provide optional documentation procedures
designed to simplify compliance by withholding agents. The 1997 Withholding
Regulations add "intermediary certification" options for certain qualifying
withholding agents. Under one such option, a withholding agent will be allowed
to rely on an 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 will be permitted to act on behalf of the United
States withholding agent, provided certain conditions are met.
The 1997 Withholding Regulations 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 1997
Withholding Regulations replace a number of current tax certification forms
(including IRS Form W-8, IRS Form 1001 and IRS Form 4224, discussed below) with
restated forms and standardize the period of time for which withholding agents
can rely on such certifications.
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,
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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) 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 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 such individual has a "tax home"
(as defined in Section 911(d)(3) of the Code) 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.
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.
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
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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 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.
The 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding 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.
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, if
there is more than one Certificate Owner, 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, and if there is one Certificate Owner, to treat
the Certificate Owner as the owner of the assets of the Trust and to treat the
Trust as a disregarded entity. 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. On
December 17, 1996, final Treasury Regulations (the "Check-the-Box Regulations")
were issued which generally permit non-corporate entities, such as the Trust, to
elect whether to be taxed as corporations or partnerships. Under the
Check-the-Box
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Regulations, the Trust will be classified as a partnership unless it elects to
be classified as an association taxable as a corporation. Except as expressly
provided in the applicable Prospectus Supplement, the Trust will not elect to be
classified as an association taxable as a corporation. However, the
Check-the-Box Regulations would have no effect on whether a partnership should
be classified as a publicly traded partnership taxable as a corporation.
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.
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. Losses will generally be allocated in the manner in
which they are borne.
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.
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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 (other than interest) 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 ($100,000
(or $50,000 in the case of a separate return by a married individual), adjusted
for changes in the cost of living subsequent to 1990) 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. For taxable
years beginning after December 31, 1997 in the case of a partnership that has
100 or more partners and elects to be treated as an "electing large
partnership;" 70% of such partnership's miscellaneous itemized deductions will
be disallowed, although the remaining deductions will generally be allowed at
the partnership level and will not be subject to the 2% floor that would
otherwise be applicable to individual partners.
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
contribute its assets to a new Trust, which would be treated as a new
partnership, in exchange for Certificates in the new Trust. The original Trust
will then be deemed to distribute the Certificates in the new Trust to each of
the Owners of Certificates in the original Trust in liquidation of the original
Trust. 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.
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.
Any such gain or loss would be long-term capital gain or loss if the Certificate
Owner's holding period exceeded one year. 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 or losses allocated 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
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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 laws, regulations or
other IRS guidance.
Section 754 Election. In the event that a Certificate Owner sells its
Certificates at a profit (or loss), the purchasing Certificate Owner will have a
higher (or 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. 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.
Generally, holders must timely 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 certain disputes with the IRS. The Code provides
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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 the later of three years after the date
on which the partnership information return is filed or the last day for filing
such return for such year (determined without regard to extensions). 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.
The Taxpayer Relief Act of 1997 created a special audit system for
qualifying large partnerships that have elected to apply a simplified
flow-through reporting system under new sections 771 through 777. unless
otherwise specified in the applicable Prospectus Supplement, a Trust will not
elect to apply the simplified flow-through reporting system.
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 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 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 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 on the Trust's gross income (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, if any, 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.
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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 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 ($100,000 (or $50,000 in the case of a separate return by a married
individual), adjusted for changes in the cost of living subsequent to 1990) 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. For taxable years beginning after
December 31, 1997, in the case of a partnership that has 100 or more partners
and elects to be treated as an "electing large partnership," 70% of such
partnership's miscellaneous itemized deductions will be disallowed, although the
remaining deductions will generally be allowed at the partnership level and will
not be subject to the 2% floor that would otherwise be applicable to individual
partners.
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.
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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 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"). For the
rules governing original issue discount, see "Owner Trusts -- Tax Consequences
to Note Owners -- Original Issue Discount" above. However, in the case of
Primary Assets that constitute short-term Government Securities the rules set
out above dealing with short-term obligations (see "Owner Trusts -- Tax
Consequences to Note Owners -- Short-Term Notes" above) are applied with
reference to acquisition discount rather than original issue discount, if such
obligations constitute "short-term Government obligations" within the meaning of
Section 1271(a)(3)(B) of the Code.
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.
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.
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 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
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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. 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.
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 Grantor Trust Certificateholders 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 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.
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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)
(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
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.
See " -- Market Discount" above. 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 at the beginning of the first taxable year
to which the election applies or acquires thereafter. 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 Taxpayer Relief Act of 1997 (the "1997 Act") contains a
provision requiring original issue discount on any pool of debt instruments the
yield on which may be affected by reason of prepayments 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 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 debt instruments.
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.
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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 any of the
issuers of the Primary Assets and (ii) such Certificate Owner fulfills certain
certification requirements. Under these requirements, the Certificate Owner must
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. 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 October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Owners of Grantor Trust Certificates. The 1997 Withholding Regulations
are generally effective for payments after December 31, 1999, 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 Securities. However, except as described in
the following paragraph, 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.
Interest income (including original issue discount) earned on obligations
of the United States Treasury Department and of certain government sponsored
enterprises generally is exempt from state and local income taxation. Therefore,
where a Grantor Trust holds Government Securities as part of the Trust Property,
interest income attributable to Government Securities earned on the Certificates
may be exempt from state and local taxation, depending on the form of the
Government Security. However, certain states or localities may take a contrary
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position. Investors should consult with their own tax advisors concerning the
exemptions from state and local income taxes.
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 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 specific 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 the tax consequences to Note Owners and
Certificate Owners in 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.
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.
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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
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).
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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 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" 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.
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PROHIBITED TRANSACTION EXEMPTIONS FOR CERTIFICATES
Credit Suisse 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 "Credit Suisse 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 include (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; (ii) "guaranteed governmental mortgage
pool certificates" (as defined in the Final Regulation) and (iii) undivided
fractional interests in the above.
Plans acquiring Certificates may be eligible for protection under the
Underwriter's PTE if:
(a) assets of the type included as Primary 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, a division of The McGraw-Hill Companies, Inc.,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch IBCA, 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 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 Primary Assets;
(f) the Plan is an "accredited investor" (as defined in Rule
501(a)(1) of Regulation D under the Securities Act);
(g) 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
(h) 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 Primary Assets to the Trust represents not more than the fair
market value of such Primary Assets; and the sum of all payments made
to and retained by the Servicer and all subervicers represents not
more than reasonable compensation for the Servicer's services under
the Pooling and Servicing Agreement or Sale and Servicing Agreement
and reimbursement of the Servicer's reasonable expenses in connection
therewith.
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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 an Obligor with respect to more than 5% of
the fair market value of the obligations constituting the Primary Assets or an
affiliate of such person and will not apply, 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 Company, any Underwriter,
the Trustee, the Servicer, any subservicer, any credit enhancer or the
obligor under any other credit support mechanism, an Obligor with
respect to obligations constituting more than 5% of the aggregate
unamortized principal balance of the Primary Assets on the date of the
initial issuance of Certificates, or any of their affiliates (the
"Restricted Group").
On July 21, 1997, the DOL published in the Federal Register a final
amendment to the Underwriter's PTE which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment generally allows a portion of the receivables
("Loans") supporting payments to Certificateholders and having a principal
amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("Pre-Funding Period"), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief, is effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) the ratio of the amount allocated to the Pre-Funding Account
to the total principal amount of the Certificates being offered
("Pre-Funding Limit") must not exceed 25%;
(2) all Loans transferred after the Closing Date ("Additional
Loans") must meet the same terms and conditions for eligibility as the
original Loans used to create the Trust, which terms and conditions
have been approved by the Rating Agency;
(3) the transfer of such Additional Loans to the Trust during the
Pre-Funding Period must not result in the Certificates receiving a
lower credit rating from the Rating Agency upon termination of the
Pre-Funding Period than the rating that was obtained at the time of
the initial issuance of the Certificates by the Trust;
(4) solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "average interest rate")
for all of the Loans in the Trust at the end of the Pre-Funding Period
must not be more than 100 basis points lower than the average interest
rate for the Loans which were transferred to the Trust on the Closing
Date;
(5) in order to ensure that the characteristics of the Additional
Loans are substantially similar to the original obligations which were
transferred to the Trust, either: (i) the characteristics of the
Additional Loans must be monitored by an insurer or other credit
support provider which is independent of
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the Company or (ii) an independent accountant retained by the Company
must provide the Company with a letter (with copies provided to the
Rating Agency, the Underwriter and the Trustee) stating whether or not
the characteristics of the Additional Loans conform to the
characteristics described in the Prospectus, Prospectus Supplement,
Private Placement Memorandum ("Offering Documents") and/or Pooling and
Servicing Agreement or Sale and Servicing Agreement ("Pooling
Agreement"); in preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the Loans which
were transferred as of the Closing Date;
(6) the Pre-Funding Period must end no later than three months or
90 days after the Closing Date or earlier, in certain circumstances,
if the amount on deposit in the Pre-Funding Account is reduced below
the minimum level specified in the Pooling Agreement or an event of
default occurs under the Pooling Agreement;
(7) amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the pre-funding
may be invested only in certain permitted investments;
(8) the Offering Documents must describe: (i) any Pre-Funding
Account and/or Capitalized Interest Account used in connection with a
Pre-Funding Account; (ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the Pre-Funding Limit for
the Trust; and (iv) that the amounts remaining in the Pre-Funding
Account at the end of the Pre-Funding Period will be remitted to
Certificateholders as repayments of principal; and
(9) the Pooling and Servicing Agreement or Sale and Servicing
Agreement must describe the permitted investments for the Pre-Funding
Account and Capitalized Interest Account and, if not disclosed in the
Offering Documents, the terms and conditions for eligibility of the
Additional Loans.
Whether the conditions in the Underwriter's PTE (in addition to, and
including those, relating to pre-funding) 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.
If for any reason the Underwriter's PTE does not provide an exemption
for a particular Plan's purchase of Certificates, some other individual or class
exemption may be applicable, including but not limited to: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38 regarding investments by bank
collective investment funds; PTCE 95-60, regarding investments by insurance
company general accounts; PTCE 96-23, regarding transactions affected by
in-house asset managers; and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers" ("Investor Based Exemptions"). There can
be no assurance that any of these exemptions will apply with respect to any
Plan, or even if it were to apply, that the exemption would cover all
transactions involving the applicable Trust.
PURCHASE OF NOTES
Certain transactions involving the purchase of Securities which are
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if the Primary Assets were deemed to be assets of a Plan. Under the DOL
Regulation, the Trust treated as plan assets of a Plan for the purposes of ERISA
and the Code only if the Plan acquires an equity interest in the Trust fund and
none of the exceptions contained in the DOL Regulation is applicable. The
Prospectus Supplement will indicate whether the Notes will be treated as
indebtedness without substantial equity features for purposes of the DOL
Regulation.
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Without regard to whether the Notes are characterized as equity
interests, the acquisition, transfer or holding of Notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if the Trust
Fund, the Trustee, the Indenture Trustee or any of their respective affiliates
is or becomes a party in interest or a disqualified person with respect to such
Plan or in the event that a Note is purchased in the secondary market and such
purchase constitutes a sale or exchange between a Plan and a party in interest
or disqualified person with respect to such Plan. However, one or more of the
Investor Based Exemptions may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
GENERAL CONSIDERATIONS
Before a Plan Fiduciary decides to purchase Securities 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.
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.
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.
Pursuant to the Receivables Purchase Agreement between the Seller (or its
affiliate) and the Company, the Seller will indemnify the Company and the
related underwriters against certain civil liabilities, including liabilities
under the Securities Act, or contribute to payments the Company and the several
underwriters may be required to make in respect thereof.
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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 the law firms specified in the related Prospectus Supplement.
Certain federal income tax and other matters will be passed upon for the Trust
and the Seller, by the law firms specified in the related Prospectus Supplement.
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INDEX OF TERMS
Page
1996 Contingent Debt Regulations 52
1997 Act.............................. 68
1997 Withholding Regulations.......... 57, 69
Actuarial Receivables................. 18
adjusted issue price.................. 55
Advance............................... 10
APR................................... 10
Cede.................................. 16
Certificate Balance................... 6
Certificate Distribution Account...... 39
Certificate Owners.................... 51
Certificate Pass-Through Rate......... 6
Certificate Pool Factor............... 29
Certificateholder..................... 12
Certificates.......................... 1
Check-the-Box Regulations............. 60
Closing Date.......................... 7
Code.................................. 51
Collection Account.................... 39
Collection Period..................... 16
Commission............................ 2
Company............................... 1
Cutoff Date........................... 7
Dealers............................... 7
Definitive Certificates............... 36
Definitive Notes...................... 36
Definitive Securities................. 36
Depository............................ 29
Distribution Date..................... 35
DOL................................... 71
DOL Regulation........................ 71
DTC................................... 16
Eligible Deposit Account.............. 40
Eligible Institution.................. 40
Eligible Investment................... 40
Eligible Investments.................. 40
ERISA................................. 70
Events of Default..................... 31
Exchange Act.......................... 2
Exemption............................. 73
Fannie Mae............................ 22
Farm Credit Act....................... 25
FCA................................... 25
FCBs.................................. 25
Federal Tax Counsel................... 51
FFCB.................................. 22
FFEL.................................. 24
FHLB.................................. 22, 24
FHLMC Act............................. 23
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Page
Final Scheduled Maturity Date........... 10
Financed Vehicles....................... 7
financial institution................... 58
FIRREA.................................. 24
Fiscal Agent............................ 22
Freddie Mac............................. 22
FTC Rule................................ 50
Funding Corporation..................... 26
Government Securities................... 8, 21
Grantor Trust........................... 4
Grantor Trust Certificateholders........ 64
Grantor Trust Certificates.............. 65
GSE Bonds............................... 8
GSE Issuer.............................. 22
GSEs.................................... 8, 21
GSEs Bonds.............................. 21
Indenture............................... 5
Indenture Trustee....................... 4
Indirect Participants................... 35
Interest Component...................... 27
Interest Rate........................... 5
Investment Earnings..................... 40
IRS..................................... 51
issue price............................. 54
MBS..................................... 23
Motor Vehicle Installment Contracts..... 7
Non-United States Holder................ 57
Non-United States Owner................. 64
Non-United States Person................ 57
Note Distribution Account............... 39
Note Owners............................. 51
Note Pool Factor........................ 29
Noteholder.............................. 12
Notes................................... 1
Obligor................................. 7
OID Regulations......................... 53
Owner Trust............................. 4
Participants............................ 35
Payahead Account........................ 39
Payaheads............................... 42
Plan.................................... 70
Plan Fiduciary.......................... 70
Pooling and Servicing Agreement......... 4
Pre-Funded Amount....................... 8, 40
Pre-Funding Account..................... 8, 40
Pre-Funding Period...................... 8, 40
Precomputed Advance..................... 10
Precomputed Receivables................. 18
prepayment.............................. 15
Prepayment Assumption................... 54
Principal Component..................... 27
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Page
Private Label Custody Receipt Securities.... 8, 26
Private Label Custody Strips................ 8, 26
Prospectus Supplement....................... 1
PTCE........................................ 74
Receivables................................. 1
REFCO....................................... 8, 26
REFCO Strip................................. 27
REFCO Strips................................ 8, 26
Registration Statement...................... 2
Related Documents........................... 32
Repurchase Amount........................... 39
Reserve Account............................. 44
Restricted Group............................ 73
RTC......................................... 24
Rule of 78s Receivables..................... 18
Rules....................................... 36
Sale and Servicing Agreement................ 10
Sallie Mae.................................. 22
Schedule of Receivables..................... 38
Securities.................................. 1
Securities Act.............................. 2
Security Owners............................. 35
Seller...................................... 7
Senior Certificates......................... 67, 72
Senior Class Percentage..................... 67
Series...................................... 1
Servicer.................................... 4
Servicer Default............................ 45
Servicing Fee............................... 43
Servicing Fee Rate.......................... 43
Short-Term Note............................. 57
Shortfall Amount............................ 67
Simple Interest Advance..................... 10
Simple Interest Receivables................. 18
stated redemption price at maturity......... 54
Strip Certificates.......................... 6
Strip Notes................................. 5
Stripped Certificates....................... 65
Subordinate Certificates.................... 65
Subordinate Class Percentage................ 67
System...................................... 25
Systemwide Debt Securities.................. 25
TEFRA....................................... 27
TIN......................................... 59
Transfer and Servicing Agreements........... 38
Treasury Bonds.............................. 8, 21
Treasury Strips............................. 8, 21
Trust....................................... 1, 4
Trust Accounts.............................. 40
Trust Agreement............................. 4
Trust Stripped Bond......................... 67
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Page
Trust Stripped Coupon........... 67
Trustee......................... 4
TVA............................. 22
TVA Act......................... 25
UCC............................. 35
Underlying Agreement............ 8
Underlying Issuer............... 20
Underlying Servicer............. 20
Underlying Trust Agreement...... 20
Underlying Trust Fund........... 8
Underlying Trustee.............. 20
Underwriting Agreements......... 75
United States person............ 59
United States Trust............. 57
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Securities
(the "Global Securities") will be available only in book-entry form. Unless
otherwise specified in the related Prospectus Supplement, investors in the
Global Securities may hold such Global Securities through any of The Depository
Trust Company ("DTC"), Cedel or Euroclear. Unless otherwise specified in the
related Prospectus Supplement, Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Unless
otherwise specified in the related Prospectus Supplement, 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 Securities will be effected on a delivery-against-payment
basis through the respective Depositaries of Cedel and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Securityholders' 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, which in turn will hold such positions in accounts as
DTC Participants.
Securityholders electing to hold their Global Securities through DTC will
follow the settlement practices applicable to U.S. corporate debt obligations.
Securityholder securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
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Securityholders 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 desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC 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 Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, 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 the respective
Depositary 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 pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary 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 Participants and Euroclear Participants
may employ their customary procedures for transactions in which
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Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases, Cedel
or Euroclear will instruct the respective Depositary, as appropriate, to deliver
the bonds 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 Participant's or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Cedel Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in 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 Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date. Finally, day traders
that use Cedel or Euroclear and that purchase Global Securities from DTC
Participants for delivery to Cedel Participants or Euroclear Participants should
note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL 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 (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Securities
that are non-U.S. Persons can obtain a complete exemption from the withholding
tax by filing a signed Form W-8 (Certificate of Foreign Status). If the
information shown on Form W-8 changes, a new Form W-8 must be filed within 30
days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are beneficial owners of Securities residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or
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Reduced Rate Certificate). 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 Securityholder or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security or in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person through whom it holds
(the clearing agency, in the case of persons holding directly on the books of
the clearing agency). Form W-8 and Form 1001 are effective for three calendar
years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary does not deal with all aspects
of U.S. Federal income tax withholding that may be relevant to foreign holders
of the Global Securities. Securityholders are advised to consult their own tax
advisers for specific tax advice concerning their holding and disposing of the
Global Securities.
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No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement or the Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by Compass Bank or the Underwriters. Neither the delivery
of this Prospectus Supplement or the Prospectus nor any sale made hereunder
shall under any circumstance create an implication that there has been no change
in the affairs of Compass Bank or the Receivables since the date thereof. This
Prospectus Supplement and the Prospectus does not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT
Reports to Noteholders.....................................
Summary of Terms...........................................
Risk Factors...............................................
The Trust..................................................
The Receivables Pool.......................................
Weighted Average Life of the Notes ........................
The Sellers and the Servicer ..............................
Use of Proceeds............................................
Description of the Notes...................................
Description of the Certificates ...........................
Description of the Transfer and Servicing Agreements.......
Certain Legal Aspects of the Receivables ..................
Material Federal Income Tax Consequences ..................
Certain State Tax Consequences ............................
ERISA Considerations.......................................
Underwriting...............................................
Legal Opinions.............................................
Glossary of Terms..........................................
PROSPECTUS
Reports to Securityholders ................................
Available Information......................................
Incorporation of Certain Documents by Reference............
Summary of Terms...........................................
Risk Factors...............................................
The Trusts.................................................
The Trustee................................................
The Receivables Pools......................................
The Collateral Certificates ...............................
The Government Securities..................................
Weighted Average Life of the Securities ...................
Pool Factors and Trading Information ......................
The Seller and the Servicer ...............................
Use of Proceeds............................................
Description of the Notes...................................
Description of the Certificates ...........................
Certain Information Regarding the Securities ..............
Description of the Transfer and Servicing Agreements.......
Certain Matters Regarding the Servicer ....................
Certain Legal Aspects of the Receivables ..................
Material Federal Income Tax Consequences ..................
State and Local Tax Considerations ........................
ERISA Considerations.......................................
Plan of Distribution.......................................
Legal Matters..............................................
Index of Terms.............................................
Global Clearance, Settlement and Documentation.............
Procedures.................................. ............ A-1
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Until _____, __ (90 days after the date of this Prospectus Supplement) all
dealers effecting transactions in the Notes, whether or not participating in
this distribution, may be required to deliver a Prospectus Supplement and a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus Supplement and a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
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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 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.
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PROSPECTUS
ASSET BACKED SECURITIES CORPORATION
DEPOSITOR
ABS MORTGAGE AND MANUFACTURED HOUSING CONTRACT
ASSET-BACKED CERTIFICATES AND ASSET-BACKED NOTES (ISSUABLE IN SERIES)
------------------------------
Asset Backed Securities Corporation (the "Depositor") may offer from
time to time the ABS Mortgage and Manufactured Housing Contract Asset-Backed
Certificates (the "Certificates") and the ABS Mortgage and Manufactured Housing
Contract Asset-Backed Notes (the "Notes" and, together with the Certificates,
the "Securities") offered hereby and by the related Prospectus Supplements which
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 the related Prospectus Supplement. Each Series of Securities may
include one or more separate classes (each, a "Class") of Notes and/or
Certificates, which may be divided into one or more subclasses (each, a
"Subclass"). The Certificates will be issued by a trust (the "Trust") to be
formed by the Depositor with respect to such Series pursuant to either a Trust
Agreement (each, a "Trust Agreement") to be entered into between the Depositor
and the trustee specified in the related Prospectus Supplement (the "Trustee")
or a Pooling and Servicing Agreement (each, a "Pooling and Servicing Agreement")
among the Depositor, the Master Servicer and the Trustee. If a Series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture (each, an "Indenture") to be entered into between any of (i) the Trust
or (ii) a partnership, corporation, limited liability company or other entity
formed by the Depositor solely for purpose of issuing Notes of a related Series
and matters incidental thereto, as issuer (the "Issuer"), and the indenture
trustee specified in the related Prospectus Supplement (the "Indenture
Trustee"). The related Trust Fund will be serviced by the Master Servicer
pursuant to a Sale and Servicing Agreement (the "Sale and Servicing Agreement")
among the Depositor, the Master Servicer and the Indenture Trustee. The
Certificates represent interests in specified percentages of principal and
interest (a "Percentage Interest") with respect to the related Mortgage Pool or
Contract Pool (each, as defined below), or 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, beneficial interest
or notional amount specified in the related Prospectus Supplement in one of a
number of Trusts, each to be created by the Depositor from time to time. If a
Series of Securities includes Notes, the Notes will represent indebtedness of
the related Trust Fund. The trust property of each Trust (the "Trust Fund") will
consist of a pool containing one- to four-family residential mortgage loans
(including revolving lines of credit), mortgage loans secured by multifamily
residential rental properties consisting of five or more dwelling units or
apartment buildings owned by cooperative housing corporations, 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, 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 Securities (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 certain conventional
mortgage pass-through certificates, collateralized mortgage bonds or other
indebtedness secured by mortgage loans or manufactured housing contracts (the
"Mortgage Certificates"), in each case together with certain and related
property (the "Mortgage Pool") or a pool of manufactured housing installment or
conditional sales contracts and installment loan agreements (the "Contracts") or
participation certificates representing participation interests in such
Contracts and related property (the "Contract Pool") 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"), 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 Securities of one or
more Classes or Subclasses of Notes and/or Certificates 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 Securities of one or more
Classes or Subclasses of Notes and/or Certificates 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. 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 this Prospectus is being delivered,
together with specific information regarding the Securities of such Series.
The Securities do not represent an obligation of or interest in the
Depositor or any affiliate thereof. Neither the Securities, 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.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE LIMITATIONS DISCUSSED UNDER
"ERISA CONSIDERATIONS" HEREIN AND IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN FOR A DISCUSSION OF
CERTAIN FACTORS THAT POTENTIAL INVESTORS SHOULD CONSIDER IN DETERMINING WHETHER
TO INVEST IN THE SECURITIES OF A SERIES IN RESPECT OF WHICH THIS PROSPECTUS IS
BEING DELIVERED.
There will have been no public market for the Securities 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 or certain assets of the Trust Fund with
respect to certain Series of Securities as one or more Real Estate Mortgage
Investment Conduits (each, a "REMIC"). See "Federal Income Tax Consequences."
If so specified in the Prospectus Supplement, one or more Classes of
Notes of a Series may be subject to optional redemption by the Issuer under the
circumstances described in the Prospectus Supplement. If so specified in the
Prospectus Supplement relating to a Series of Securities, the Certificates of
such Series may be subject to early termination and may receive Special
Distributions (as defined herein) in reduction of 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 Securities
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.
------------------------------
CREDIT SUISSE FIRST BOSTON The date
of this Prospectus is , 1998.
<PAGE> 93
PROSPECTUS SUPPLEMENT
The Prospectus Supplement with respect to each Series of Securities
will, among other things, set forth with respect to such Series of Securities:
(i) the identity of each Class or Subclass of Securities within such Series;
(ii) the undivided interest, Percentage Interest, Stated Principal Balance,
principal balance or notional amount of each Class or Subclass of Securities;
(iii) the Interest Rate borne (or manner in which interest is paid, if any) by
each Class or Subclass of Securities 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 Securities
within such Series; (vi) the identity of each Class or Subclass of Compound
Interest Securities, if any, within such Series; (vii) the method used to
calculate the amount to be distributed with respect to each Class or Subclass of
Securities within such Series; (viii) the order of application of distributions
to each of the Classes or Subclasses of Securities 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 Securities 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 Securities 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. Statements contained
in this Prospectus and any Prospectus Supplement as to the contents of any
contract or other document referred to are summaries 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 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 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at 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 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 or of the Trust
Agreement, Indenture and Sale and Servicing Agreement pursuant to which a Series
of Securities is issued, as applicable, will be provided to each person to whom
a Prospectus and the related Prospectus Supplement are delivered, upon written
or oral request directed to: Treasurer, Asset Backed Securities Corporation,
Eleven Madison Avenue, New York, New York 10010, (212) 325-2000.
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 Exchange Act prior to the
termination of the offering of Securities 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
or Subclasses of Securities, 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 Securities,
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: Asset Backed Securities Corporation, Eleven Madison Avenue, New
York, New York 10010, (212) 325-2000.
IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATIONS, THIS
PROSPECTUS AND THE ATTACHED 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
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WHICH THE UNDERWRITER ACTS AS PRINCIPAL. SALES WILL BE MADE AT NEGOTIATED PRICES
DETERMINED AT THE TIME OF SALE.
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SUMMARY
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 of Securities 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.................. ABS Mortgage and Manufactured Housing
Contract Asset-Backed Certificates (the
"Certificates") and ABS Mortgage and
Manufactured Housing Contract Asset-Backed
Notes (the "Notes" and, together with the
Certificates, the "Securities") issuable
in series (each, a "Series"). The
Securities 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 one or
more other Classes or Subclasses 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 of such Classes or Subclasses of
Certificates of a Series (the "Residual
Certificates") may evidence a residual
interest in the related Trust Fund (as
defined below). If so specified in the
related Prospectus Supplement, one or more
Classes or Subclasses of Certificates
within a Series (the "Multi-Class
Securities") 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 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
Classes or Subclasses of Notes and/or
Certificates may receive unequal amounts
of the distributions of principal of 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
Classes or Subclasses on a
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sequential or pro rata basis, or
otherwise, 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
(each, a "Trust"), each to be created by
the Depositor from time to time pursuant
to either a Trust Agreement (each, a
"Trust Agreement") to be entered into
between the Depositor and the trustee
specified in the related Prospectus
Supplement (the "Trustee") or a Pooling
and Servicing Agreement (each, a "Pooling
and Servicing Agreement") among the
Depositor, the Master Servicer and the
Trustee. If a Series of Securities
includes Notes, such Notes will be issued
and secured pursuant to an Indenture
(each, an "Indenture") to be entered into
between any of (i) the Trust or (ii) a
partnership, corporation, limited
liability company or other entity formed
by the Depositor solely for purpose of
issuing Notes of a related Series and
matters incidental thereto, as issuer (the
"Issuer"), and the indenture trustee
specified in the related Prospectus
Supplement (the "Indenture Trustee"), and
such Notes will represent indebtedness of
the related Trust. 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, mortgage loans, (ii)
closed-end loans (the "Closed-End Loans")
and/or revolving home equity loans or
certain balances thereof (the "Revolving
Credit Line Loans" and, together with the
Closed-End Loans, the "Home Equity Loans")
secured by mortgages or deeds of trust on
residential one- to four-family
properties, including townhouses and
individual units in condominiums and
planned unit developments, (iii) 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,
"Single Family Property"), (iv) 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, (v) 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 Securities of such
Series for a rating in one of the four
highest rating categories of such Rating
Agency (such loans and mortgage
participation certificates being referred
to collectively hereinafter as the
"Mortgage Loans"), or (vi) 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
installment or 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
or Unaffiliated Sellers, and related
property conveyed to such trust by the
Depositor. Unless otherwise
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<PAGE> 97
specified in the related Prospectus
Supplement, each Series of Securities will
be offered in fully registered form only,
in one or more Classes of Notes and/or
Certificates, which may be divided into
one or more Subclasses. If so specified in
the related Prospectus Supplement,
Multi-Class Securities of a Series may be
issued with the Stated Principal Balances
and the Interest Rates therein specified.
At the time of issuance, each Security
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
Securities."
Interest............................ Interest will be distributed on the days
specified in the Prospectus Supplement
with respect to each Class or Subclass of
Securities of a Series, or if any such day
is not a business day, the next succeeding
business day (the "Distribution Date"), at
the rate, or pursuant to the method of
determining such rate, specified in the
related Prospectus Supplement for each
Class or Subclass of Securities within
such Series, commencing on the day
specified in such Prospectus Supplement,
in the manner specified in such Prospectus
Supplement. See "Maturity, Prepayment and
Yield Considerations" and "Description of
the Securities -- Payments on Mortgage
Loans" and " -- Payments on Contracts."
Principal (Including
Prepayments)...................... Unless otherwise specified in the related
Prospectus Supplement, principal on each
Trust Asset underlying a Series of
Securities will be distributed on each
Distribution Date, commencing on the date
and in the priority and manner specified
in the related Prospectus Supplement. If
so specified in the Prospectus Supplement
with respect to a Series that includes
Multi-Class Securities, distributions on
such Multi-Class Securities may be made in
reduction of the Stated Principal Balance,
in an amount equal to the Stated Principal
Distribution Amount. Unless otherwise
specified in the related Prospectus
Supplement, the Stated Principal
Distribution Amount will equal the amount
by which the Stated Principal Balance of
such Class of Multi-Class Securities
(before taking into account the amount of
interest accrued and added to the Stated
Principal Balance of any Class or of
Compound Interest Securities) 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.
See "Maturity, Prepayment and Yield
Considerations" and "Description of the
Securities -- Payments on Mortgage Loans"
and " -- Payments on Contracts." If so
specified in the Prospectus Supplement
relating to a Series, the Multi-Class
Securities of such Series which have other
than monthly Distribution Dates may
receive special distributions in reduction
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<PAGE> 98
of 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
Agreement (as defined herein), 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. Unless otherwise
specified in the related Prospectus
Supplement, Special Distributions will be
made on such Certificates in the same
priority and manner as distributions in
reduction of Stated Principal Balance
would be made on the next Distribution
Date for such Certificates. See
"Description of the Securities -- Special
Distributions." In addition, if so
specified in the related Prospectus
Supplement, one or more Classes of Notes
may be subject to optional redemption on
the terms and conditions specified in the
related Prospectus supplement.
The Mortgage Pools.................. If so specified in the related Prospectus
Supplement, the Securities of a Series
will represent the interest specified in
such Prospectus Supplement in, or be
secured by, the Mortgage Pool or Pools
included in the Trust Fund for such
Series. Unless otherwise specified in the
applicable Prospectus Supplement, 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
securing such Mortgage Loan (the
"Mortgaged Property"), based upon an
appraisal of the Mortgaged Property
considered acceptable to the originator of
such Mortgage Loan or the sales price,
whichever is less (the "Original Value").
Unless otherwise specified in the
applicable Prospectus Supplement, Mortgage
Loans secured by Single Family Property
having an original principal amount
exceeding 80% of the Original Value 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 related
Prospectus Supplement as a result of
principal payments by the borrower (the
"Mortgagor"). Unless otherwise specified
in the applicable Prospectus Supplement,
the principal balance at origination of
each Mortgage Loan that is secured by
Single Family Property will not exceed
$500,000. Mortgage Loans in a Mortgage
Pool will all have original maturities of
10 to 40 years, unless otherwise specified
in the applicable Prospectus Supplement.
Mortgage Loans in a Mortgage Pool may have
interest rates (the "Mortgage Rates") that
are either fixed or variable. Mortgage
Pools may be formed from time to time in
varying sizes.
Mortgage Certificates............... If so specified in the related Prospectus
Supplement, the Trust Fund for a Series of
Securities 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 related
Prospectus Supplement in a pool of
mortgage loans of the type described in
such Prospectus Supplement, secured
principally by mortgages on one-to
four-family residences, mortgages on
multi-family residential rental properties
or apartment buildings owned by
cooperative housing
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<PAGE> 99
corporations or by pledges of shares of
cooperative corporations and assignments
of proprietary leases or occupancy
agreements on cooperative dwellings,
unless otherwise specified in such
Prospectus Supplement.
The Contract Pools................. If so specified in the related Prospectus
Supplement, the Securities of a Series
will represent the interest specified in
such Prospectus Supplement in, or be
secured by, the Contract Pool or Pools
included in the Trust Fund for such
Series. Unless otherwise specified in the
applicable Prospectus Supplement, the
Contracts will be fixed rate Contracts.
Such Contracts, as specified in the
related Prospectus Supplement, will
consist of manufactured housing
installment or 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 related
Prospectus Supplement will specify the
range of terms to maturity of the
Contracts at origination and, to the
extent specified in such Prospectus
Supplement, 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. Unless otherwise specified in
the related Prospectus Supplement,
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 related
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.
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 Securities of a Series. The yield
on any Class of Securities, the purchase
price of which is greater than the
aggregate amount of the Principal
Distributions to be made to such Class (a
"Premium Security"), is likely to be
adversely affected by a higher than
anticipated level of principal prepayments
on the Trust Assets included in the
related Trust Fund. This effect on yield
will intensify with any increase in the
amount by which the purchase price of such
Security 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 Securities
not only to have 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 Securities that are Premium
Securities) will likely result in a lower
than anticipated yield to Holders of
Securities of a Class the purchase price
of which is less
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<PAGE> 100
than the aggregate amount of the Principal
Distributions to be made to such Class (a
"Discount Security"). The Prospectus
Supplement for each Series of Securities
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 Securityholders 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 unless otherwise provided
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
"Maturity, Prepayment and Yield
Considerations."
Pre-Funding......................... If so specified in the related Prospectus
Supplement, a portion of the issuance
proceeds of the Securities of a particular
Series (such amount, the "Pre-Funded
Amount") will be deposited in an account
(the "Pre-Funding Account") to be
established with the Trustee, which will
be used to acquire additional Mortgage
Loans, Contracts or Mortgage Certificates
from time to time during the period
specified in the related Prospectus
Supplement (the "Pre-Funding Period").
Prior to the investment of the Pre-Funded
Amount in additional Mortgage Loans,
Contracts or Mortgage Certificates, such
Pre-Funded Amount may be invested in one
or more Eligible Investments. Any Eligible
Investment must mature no later than the
Business Day prior to the next
Distribution Date. See "Description of the
Securities -- Pre-Funding." During any
Pre-Funding Period, the Depositor will be
obligated (subject only to the
availability thereof) to transfer to the
related Trust Fund additional Mortgage
Loans, Contracts or Mortgage Certificates
from time to time during such Pre-Funding
Period. Such additional Mortgage Loans,
Contracts or Mortgage Certificates will be
required to satisfy certain eligibility
criteria more fully set forth in the
related Prospectus Supplement, which
eligibility criteria will be consistent
with the eligibility criteria of the
Mortgage Loans, Contracts or Mortgage
Certificates included in the Trust Fund as
of the Closing Date, subject to such
exceptions as are expressly stated in such
Prospectus Supplement. Although the
specific parameters of the Pre-Funding
Account with respect to any issuance of
Securities will be specified in the
related Prospectus Supplement, it is
anticipated that: (a) the Pre-Funding
Period will not exceed 120 days from the
related Closing Date, (b) that the
additional Mortgage Loans, Contracts or
Mortgage Certificates to be acquired
during the Pre-Funding Period will be
subject to the same representations and
warranties as the Mortgage Loans,
Contracts or Mortgage Certificates
included in the related Trust Fund on the
Closing Date (although additional criteria
may also be required to be satisfied, as
described in the related Prospectus
Supplement) and (c) that the Pre-Funded
Amount will not exceed 25% of the
principal amount of the Securities issued
pursuant to a particular offering.
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<PAGE> 101
Credit Support...................... Neither the Securities nor the Trust
Assets will be insured or guaranteed by
any governmental agency, except to the
extent of any FHA insurance or VA
guarantee. 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
as specified in the applicable Prospectus
Supplement. In lieu of or in addition to
the foregoing credit support arrangements
if so specified in the related Prospectus
Supplement, the Securities of a Series may
be issued in one or more Classes or
Subclasses. Payments on the Securities of
one or more Classes or Subclasses (the
"Senior Securities") may be supported by a
prior right to receive distributions
attributable or otherwise payable to one
or more other Classes or Subclasses (the
"Subordinated Securities") to the extent
specified in the related Prospectus
Supplement (the "Subordinated Amount"). In
addition, if so specified in the related
Prospectus Supplement, one or more Classes
or Subclasses of Subordinated Securities
may be subordinated to another Class or
Subclass of Subordinated Securities and
may be entitled to receive
disproportionate amounts of distributions
of principal. If so specified in the
related Prospectus Supplement, if a Series
of Securities includes Notes, all Classes
of Certificates will be subordinated to
the Classes of Notes and one more Classes
or Subclasses of Notes may be subordinated
to one or more other Classes or Subclasses
of Notes and may be entitled to receive
disproportionate amounts of distributions
of principal. If so specified in the
related Prospectus Supplement, a reserve
(the "Reserve Fund") and certain other
accounts or funds may be established to
support payments on one or more Classes of
Securities. 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 for the Mortgage Pool or Contract
Pool. Unless otherwise specified in the
related Prospectus Supplement, to the
extent described herein, 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,
Pooling and Servicing Agreement or Sale
and Servicing Agreement referred to
herein. Unless otherwise provided in the
related Prospectus Supplement, 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 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
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<PAGE> 102
have been commenced. 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 holder of Securities
of the Series, as specified in the related
Prospectus Supplement. Unless otherwise
specified in the related 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% 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 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 Securities will be in compliance with
requirements established by the Rating
Agency rating such Series and will be set
forth in the related Prospectus
Supplement. If so specified in the related
Prospectus Supplement, the Letter of
Credit with respect to a Series of
Securities or one or more Classes of
Series of Securities may, in addition to
or in lieu of the foregoing, provide
coverage with respect to the unpaid
principal or notional amount of the
Securities 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 related 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
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 related 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
Securityholders. See "Description of the
Securities -- Presentation of Claims."
C. Mortgagor Bankruptcy
Bond....................... If so specified in the related Prospectus
Supplement, the Master Servicer, if any,
the Depositor or the applicable Servicer
will obtain and use its best reasonable
efforts to maintain a Mortgagor Bankruptcy
Bond for one or more Classes of Securities
of 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
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<PAGE> 103
Supplement. See "Description of Insurance
-- Mortgagor Bankruptcy Bond."
D. Subordinated Securities........ If so specified in the related Prospectus
Supplement, the rights of holders of the
Securities 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 Securities of one or more Classes
or Subclasses of such Series to receive
such distributions to the extent described
in the related Prospectus Supplement, and
may be limited to the Subordinated Amount
set forth in the related Prospectus
Supplement. This subordination will be
intended to enhance the likelihood of
regular receipt by holders of the Senior
Securities of the full amount of scheduled
payments of principal and interest due
them and to reduce the likelihood that the
holders of such Senior Securities will
experience losses. See "Credit Support --
Subordinated Securities."
E. Shifting Interest.............. If so specified in the applicable
Prospectus Supplement, the protection
afforded to holders of Senior Securities
of a Series by the subordination of
certain rights of holders of Subordinated
Securities 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 Securities to
receive, prior to any distribution being
made in respect of the holders of the
related Subordinated Securities, 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
Securities on each Distribution Date of a
greater than pro rata percentage of
certain principal prepayments or other
recoveries of principal specified in the
related 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
Securities will have the effect of
accelerating the amortization of the
Senior Securities while increasing the
respective interest in the Trust Fund
evidenced by the Subordinated Securities.
Increasing the respective interest of the
Subordinated Securities relative to that
of the Senior Securities is intended to
preserve the availability of the benefits
of the subordination provided by the
Subordinated Securities. See "Description
of the Securities -- Distributions of
Principal and Interest" and " --
Distributions on Securities" and "Credit
Support -- Shifting Interest."
F. Reserve Fund................... If so specified in the related Prospectus
Supplement, a Reserve Fund may be
established for a Series. Unless otherwise
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 related
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
Contracts (the "Subordinated Pool"), with
the aggregate principal balance specified
in such Prospectus Supplement, or by the
deposit of cash
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<PAGE> 104
in the amount specified in such 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
Contracts in the Subordinated Pool, until
the Reserve Fund (without taking into
account the amount of any Initial Deposit,
except as otherwise provided in the
related Prospectus Supplement), reaches an
amount (the "Required Reserve") set forth
in the related 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 Contracts in
the Subordinated Pool, will be retained to
the extent necessary to maintain such
Reserve Fund (without, except as otherwise
provided in the related Prospectus
Supplement, taking into account the amount
of any Initial Deposit) at the related
Required Reserve. Except as otherwise
provided in the related Prospectus
Supplement, 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 Securities
of the Subordinated Classes or Subclasses
of such Series specified in the related
Prospectus Supplement. If so specified in
the related Prospectus Supplement, the
Reserve Fund with respect to a Series may
be funded at a lesser amount or in another
manner acceptable to the Rating Agency
rating such Series. See "Credit Support --
Subordinated Securities" 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 related Prospectus
Supplement, will be deposited by the
Depositor in one or more accounts to be
established with respect to a Series of
Securities 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 Securities of such
Series, are otherwise required as a
condition to the rating of such Securities
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 Securities 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 Agreement under the conditions and to
the extent specified in the related
Prospectus Supplement.
H. Swap Agreement................. If so specified in the Prospectus
Supplement relating to a Series of
Securities, the related Issuer will enter
into or obtain an assignment of a swap
agreement or similar agreement pursuant to
which such Issuer 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."
I. Security Guarantee
Insurance................... If so specified in the related Prospectus
Supplement, credit enhancement for a
Series may be provided by an insurance
policy (the "Security Guarantee
Insurance") issued by one or more
insurance companies. Such Security
Guarantee Insurance may guarantee timely
distributions of interest and full
distributions of principal on the basis of
a schedule of
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principal distributions set forth in or
determined in the manner specified in the
related Prospectus Supplement.
Hazard Issuance and Special Hazard
Insurance Policies................ Unless otherwise 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 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
Securityholders 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
Securities, within the period following
the date of issuance of such Securities
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 Agreement. See "Description of
the Securities -- Assignment of Mortgage
Loans," "-- Assignment of Contracts" and "
-- Assignment of Mortgage Certificates."
Advances............................ Except as otherwise provided in the
Prospectus Supplement with respect to a
Series, 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 of
and interest on the Mortgage Loans and
Contracts (the "Advances") under certain
circumstances. See "Description of the
Securities -- 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 such 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 a Real Estate
Mortgage Investment Conduit (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 the Code, so
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as to constitute a "qualified liquidation"
thereunder. The exercise of the right of
repurchase will effect early retirement of
the Certificates of the related Series.
See "Maturity, Prepayment and Yield
Considerations" and "Description of the
Securities -- Termination."
ERISA Considerations................ A fiduciary of any employee benefit plan
or retirement arrangement 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 Securities could
give rise to a prohibited transaction
under ERISA or Section 4975 of the Code.
See "ERISA Considerations."
Tax Status.......................... See "Federal Income Tax Consequences."
Legal Investment.................... If so specified in the related Prospectus
Supplement relating to a Series of
Securities, a Class or Subclass of such
Securities 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 related Prospectus
Supplement and (iv) to pay costs of
structuring, guaranteeing and issuing such
Securities. If so specified in the related
Prospectus Supplement, the purchase of the
Trust Assets for a Series may be effected
by an exchange of Securities by the
Depositor with the seller of such Trust
Assets. See "Use of Proceeds."
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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 Securities, prospective investors
should carefully consider the following risk factors before investing in any
Class or Subclass of Securities of any such Series.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Securities of
any Series will develop or, if it does develop, that it will provide
Securityholders with liquidity of investment or that it will continue for the
life of the related Securities. The Prospectus Supplement for a Series of
Securities may indicate that an underwriter specified therein intends to
establish a secondary market in such Securities; however, no underwriter will be
obligated to do so. The Securities will not be listed on any securities
exchange.
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 Securities of a
Series. The Securities 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 respective 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 Securities 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
respective 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 Securities, 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 Securities, 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 one or more
Classes or Subclasses of Securities of the same Series; a Reserve Fund; and any
combination thereof. See "Credit Support." 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 Securities 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."
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RISKS OF THE TRUST ASSETS
An investment in securities such as the Securities of any Series which
generally represent interests in, or are secured by, mortgage loans or
manufactured housing installment or conditional sales contracts and installment
loan agreements, as the case may be, may be affected by, among other things, a
decline in real estate values and changes in the mortgagors' or obligors'
financial condition. No assurance can be given that the values of the Mortgaged
Properties securing the Mortgage Loans, the values of the mortgaged properties
securing the mortgage loans underlying the Mortgage Certificates or the values
of the Manufactured Homes securing the Contracts, as the case may be, underlying
any Series of Securities have remained or will remain at their levels on the
dates of origination of the related Mortgage Loans, mortgage loans, Mortgage
Certificates 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 and the mortgage loans underlying the Mortgage
Certificates comprising a particular Trust Fund, and any secondary financing on
the related Mortgaged Properties and mortgaged properties, become equal to or
greater than the value of the related Mortgaged Properties or mortgaged
properties, as applicable, the actual rates of delinquencies, foreclosures and
losses could 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, Obligors or mortgagors of scheduled payments of principal of and
interest on the Mortgage Loans, Contracts or Mortgage Certificates, as the case
may be, and, accordingly, the actual rates of delinquencies, foreclosures and
losses with respect to any Trust Fund. See "Maturity, Prepayment and Yield
Considerations." To the extent that such losses are not covered by the
applicable credit support, holders of Securities of the Series evidencing
interests in, or secured by, the related Trust Fund will bear all risk of loss
resulting from default by Mortgagors, Obligors or mortgagors and will have to
look primarily to the value of the Mortgaged Properties, mortgaged properties or
Manufactured Homes for recovery of the outstanding principal of and unpaid
interest on the defaulted Mortgage Loans or Contracts. In addition to the
foregoing, certain geographic regions in 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, Contracts or mortgage loans
underlying the Mortgage Certificates underlying certain Series of Securities 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," "-- Mortgage Loan Program," "--
Underwriting Standards," "-- The Contract Pools" and " -- Underwriting
Policies."
PREPAYMENT AND YIELD CONSIDERATIONS
The rate and timing of principal payments on the Securities 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, Mortgage Certificates or Contracts. As is the case with
mortgage-backed securities generally, each Series of Securities is 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.
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The yield to maturity on each Class of Securities 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,
Mortgage Certificates 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 Securities will also depend on the Mortgage Rates and the purchase
price for such Securities. The yield to investors on any Class of Securities
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 Securities 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 Securities 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 on and principal of one or more Classes or Subclasses
of Securities of a Series may be subordinated in priority of payment to interest
and principal due on one or more other Classes or Subclasses of Securities of
such Series.
LIMITATION ON EXERCISE OF RIGHTS DUE TO BOOK-ENTRY REGISTRATION
If so specified in the applicable Prospectus Supplement, one or more
Classes of Securities 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 such 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 Securities in fully
registered, certificated form ("Definitive Securities") for such Series are
issued, holders of such Securities will not be recognized by the applicable
Trustee as "Securityholders" (as such terms are used herein or in the related
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.
THE TRUST FUND
Ownership of the Mortgage or Contract Pool or Pools included in the
Trust Fund for a Series of Securities 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
related Prospectus Supplement in one or more Mortgage Pools containing one or
more Mortgage Loans or Mortgage Certificates or Contract Pools containing
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"), unless otherwise specified in the applicable Prospectus Supplement. If
so specified in the related 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 of and interest on the
Mortgage Loans or Mortgage Certificates 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 related Prospectus Supplement, each
Mortgage Pool or Contract
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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
Securities of a Series to the rights of the holders of the Senior Securities,
which, if so specified in the related Prospectus Supplement, may include
Securities of a Subordinated Class or Subclass and the establishment of a
Reserve Fund, by the right of one or more Classes or Subclasses of Securities to
receive a disproportionate amount of certain distributions of principal, by
Security Guarantee Insurance or another form or forms of Alternative Credit
Support acceptable to the Rating Agency rating the Securities 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 second
mortgage loans, (ii) closed-end loans (the "Closed-End Loans") and/or revolving
home equity loans or certain balances thereof (the "Revolving Credit Line Loans"
and, together with the Closed-End Loans, the "Home Equity Loans") secured by
mortgages or deeds of trust on residential one-to-four family properties,
including townhouses and individual units in condominiums and planned unit
developments, (iii) 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, (iv) mortgage loans secured by Multifamily Property, (v)
mortgage participation securities evidencing participation interests in such
loans that are acceptable to the nationally recognized Rating Agency rating the
Securities of such Series for a rating in one of the four highest rating
categories of such Rating Agency or (vi) 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 Contracts or participation
Securities representing participation interests in such Contracts purchased by
the Depositor either directly or through one or more affiliates or 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 herein as "VA
Loans"). All Mortgage Loans will be evidenced by promissory notes or other
evidence of indebtedness (the "Mortgage Notes") secured by first mortgages or
first or second deeds of trust or other similar security instruments creating a
first lien or second lien, as applicable, on the Mortgaged Properties (as
defined below). Single Family Property and Multifamily Property will consist of
single family detached homes, attached homes (single family units having a
common wall), individual units located in condominiums, townhouses, planned unit
developments, multifamily residential rental properties, apartment buildings
owned by cooperative housing corporations and such other types of homes or units
as are set forth in the related Prospectus Supplement. Unless otherwise
specified in the applicable Prospectus Supplement, 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 related Prospectus Supplement.
Unless otherwise specified below or 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
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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. Unless otherwise specified
in the related Prospectus Supplement, the Loan-to-Value Ratio 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 of $150,001 through $200,000, 85% on any Mortgage Loan with an
original principal balance of $200,001 through $300,000 and 80% on any Mortgage
Loan with an original principal balance exceeding $300,000. If so specified in
the related Prospectus Supplement, a Mortgage Pool may also include fully
amortizing, adjustable rate Mortgage Loans ("ARM Loans") with (unless otherwise
specified in such Prospectus Supplement) 30-year terms at origination and
mortgage interest rates 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.
Unless otherwise 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. Except as otherwise provided in
the related Prospectus Supplement, the Loan-to-Value Ratio will be 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"). Unless otherwise specified in the related 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) may not
exceed 80% and the original principal balance may not exceed $250,000.
If so specified in the related 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 of the Mortgage Loan, thus increasing or decreasing the
rate at which the Mortgage Loan is repaid. See "Maturity, Prepayment and 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 related Prospectus
Supplement.
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.
Unless otherwise specified in the related Prospectus Supplement, the 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 related Prospectus
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Supplement. The amount of such purchase price will be required to be deposited
in the Certificate Account and will be distributed to the Securityholders 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 such Prospectus Supplement, with
the Trustee. In lieu of a cash deposit, if so specified in the related
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
Securities -- 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 Note 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 related 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 a 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.
If provided for in the applicable Prospectus Supplement, a Mortgage
Pool may contain Mortgage Loans which are Home Equity Loans pursuant to which
the full principal amount of such Mortgage Loan is advanced at origination of
the loan and generally is repayable in equal (or substantially equal)
installments of an amount sufficient to fully amortize such loan at its stated
maturity. Interest on each Home Equity Loan may be calculated on the basis of
the outstanding principal balance of such loan multiplied by the Mortgage Rate
thereon and further multiplied by a fraction, the numerator of which is the
number of days in the period elapsed since the preceding payment of interest was
made and the denominator is the number of days in the annual period for which
interest accrues on such loan. Under certain circumstances, under a Home Equity
Loan, a borrower may choose an interest only payment option and is obligated to
pay only the amount of interest which accrues on the loan during the billing
cycle. Generally, an interest only payment option may be available for a
specified period before the borrower must begin paying at least the minimum
monthly payment of a specified percentage of the average outstanding balance of
the loan.
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.
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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 VA under this program
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.
Unless otherwise specified in the related Prospectus Supplement,
interest on each Revolving Credit Line Loan, excluding introduction rates
offered from time to time during promotional periods, is computed and payable
monthly on the average daily outstanding principal balance of such Loan.
Principal amounts on a Revolving Credit Line Loan may be drawn down (up to a
maximum amount as set forth in the related Prospectus Supplement) or repaid
under each Revolving Credit Line Loan from time to time, but may be subject to a
minimum periodic payment. To the extent and accordingly under the terms provided
in the related Prospectus Supplement, the Trust Fund may include amounts
borrowed under a Revolving Credit Line Loan after the Cut-off Date. The full
amount of a Closed-End Loan is advanced at the inception of the Loan and
generally is repayable in equal (or substantially equal) installments of an
amount to fully amortize such Loan at its stated maturity. Except to the extent
provided in the related Prospectus Supplement, the original terms to stated
maturity of Closed-End Loans will not exceed 360 months. Under certain
circumstances, under either a Revolving Credit Line Loan or a Closed-End Loan, a
borrower may choose an interest only payment option and is obligated to pay only
the amount of interest which accrues on the Loan during the billing cycle. An
interest only payment option may be available for a specified period before the
borrower must begin paying at least the minimum monthly payment of a specified
percentage of the average outstanding balance of the Loan.
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 Securities the Trust Fund
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 number and 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.
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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 Securities of the Series evidencing interests in, or
secured by, 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 involves 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 loans.
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") and, if a Series of Securities includes Notes, the
Depositor will cause the Mortgage Loans constituting the Mortgage Pool to be
pledged to the Indenture Trustee, for the benefit of the holders of the Notes of
such Series (the "Noteholders" and, together with the Certificateholders, the
"Securityholders"). The Master Servicer, if any, named in the related 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 or a Sale and Servicing Agreement, as described
herein, and will receive a fee for such services. See " -- Mortgage Loan
Program" and "Description of the Securities." As used herein, "Agreement" means,
with respect to a Series that only includes Certificates, the Pooling and
Servicing Agreement, and with respect to a Series that includes Notes, the
Indenture, the Trust Agreement and the Sale and Servicing Agreement, as the
context requires. Unless otherwise specified in the applicable Prospectus
Supplement, 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 Pooling and Servicing Agreement, Sale and Servicing Agreement or
Seller's Warranty and Servicing Agreement between the Servicer and the Depositor
(each, a "Servicing Agreement"), as applicable, 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 applicable
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 Securities
- --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 Servicing Agreement (including its obligation to enforce
certain purchase and other obligations of Servicers and/or Unaffiliated Sellers,
as more fully described herein under " -- Mortgage Loan Program" and " --
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Representations by Unaffiliated Sellers; Repurchases" and "Description of the
Securities -- 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 Securities -- Advances." Unless otherwise specified in
the related Prospectus Supplement, 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 Securities --
Advances," "Credit Support" and "Description of Insurance."
MORTGAGE LOAN PROGRAM
The Mortgage Loans will have been purchased by the Depositor either
directly or through affiliates or by the Trust formed by the Depositor, 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 a related 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 amount 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
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.
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Unless otherwise specified in the applicable Prospectus Supplement, 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 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 related Prospectus Supplement, the
Depositor may purchase or cause the Trust to 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 related 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 related
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 related Prospectus Supplement.
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QUALIFICATIONS OF UNAFFILIATED SELLERS
Unless otherwise specified in the applicable Prospectus Supplement with
respect to an Unaffiliated Seller of Closed Loans secured by residential
properties, each Unaffiliated Seller must be an institution experienced in
originating conventional mortgage loans and/or FHA Loans or VA Loans in
accordance with accepted practices and prudent guidelines, and must maintain
satisfactory facilities to originate those loans. 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
Unless otherwise specified in the related Prospectus Supplement, each
Unaffiliated Seller (or the Master Servicer, if the Unaffiliated Seller is also
the Master Servicer under the 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 (unless otherwise specified in the
related 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 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 Securities evidencing an interest in, or
secured by, 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
Securities 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 Securities 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 Securities --
Assignment of Mortgage
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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 Securityholders 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 Securities as to which the Depositor has elected to treat the related Trust
Fund as a REMIC, 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 Mortgage Rate for the related
Mortgage Loan 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 of the Trustee and the
Securityholders, following the practices it would employ in its good faith
business judgment were it the owner of such Mortgage Loan. Unless otherwise
specified in the applicable Prospectus Supplement, and 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 constitutes the
sole remedy available to the Securityholders 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 Securities
- -- 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. Unless otherwise specified in the applicable Prospectus
Supplement, Closed Loans for which 11 or fewer monthly payments have been
received will be further subject to the Depositor's customary underwriting
standards. Unless otherwise specified in the applicable Prospectus Supplement,
Closed Loans for which 12 to 60 monthly payments have been received 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. Unless otherwise specified in the applicable
Prospectus Supplement, 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.
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, collateralized mortgage bonds or other indebtedness
secured by mortgage loans or manufactured housing contracts (the "Mortgage
Certificates") issued by one or more trusts established by one or more private
entities and evidencing, unless otherwise
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specified in such Prospectus Supplement, the entire interest in a pool of
mortgage loans. A description of the mortgage loans and/or manufactured housing
contracts 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 Securities 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 and 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 Securities is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the related
Series of Securities. 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 installment or conditional sales contracts and
installment loan agreements 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. Unless otherwise specified in the related Prospectus
Supplement, the Contracts will be fully amortizing and will bear interest at the
fixed annual percentage rates ("APRs") specified in such Prospectus Supplement.
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 and/or pledged to the related Trustee named in the related
Prospectus Supplement for the benefit of the related Securityholders. The Master
Servicer specified in the related Prospectus Supplement will service the
Contracts, either by itself or through other Servicers, pursuant to the
Agreement. See "Description of the Securities -- 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 related
Prospectus Supplement, may be held for the benefit of the Trustee by a Custodian
(the "Custodian") appointed pursuant to the related Pooling and Servicing
Agreement or a Custodial Agreement (the "Custodial Agreement") among the
Depositor, the Trustee and the Custodian.
Unless otherwise specified in the related Prospectus Supplement, each
registered holder of a Security will be entitled to receive periodic
distributions, which will be monthly unless otherwise specified
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in the related Prospectus Supplement, of all or a portion of principal of the
underlying Contracts or interest on the principal balance of the Security at the
Interest Rate, or both. See "Description of the Securities -- Payments on
Contracts."
Except as otherwise specified in the related Prospectus Supplement, the
related 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 related
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, unless otherwise specified in the related Prospectus
Supplement, no Contract was more than 30 days delinquent as to payment of
principal and interest. Upon a breach of any representation that materially and
adversely affects the interest of the related Securityholders 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
purchase the Contract or, if so specified in the related Prospectus Supplement,
to substitute another Contract as described below. This repurchase or
substitution obligation constitutes the sole remedy available to the
Securityholders or the Trustee for a breach of a representation by the Master
Servicer, the Unaffiliated Seller or such other party.
If so specified in the related 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 other representations and warranties, except
to the extent that another party specified in the Prospectus 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
Securityholders in a Contract, the Master Servicer, the Unaffiliated Seller or
such other party, as appropriate, will be obligated either to cure such breach
in all material respects or, unless otherwise specified in the related
Prospectus Supplement, to purchase such Contract at a price equal to the
principal balance thereof as of the date of purchase plus accrued interest at
the related Pass-Through Rate to the first day of the month following the month
of purchase. The Master Servicer, if required by the Rating Agency rating the
Securities, will procure a surety bond, guaranty, letter of credit or other
instrument (the "Performance Bond") acceptable to such Rating Agency to support
this purchase obligation. See "Credit Support -- Performance Bond." The purchase
obligation will constitute the sole remedy available to the Securityholders or
the Trustee for a breach of the Master Servicer's or seller's insurability
representation.
If provided in the related Prospectus Supplement, 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 the related Prospectus Supplement of the date of the initial issuance of the
Securities, the Depositor may remove such Contract from the Trust Fund (each, a
"Deleted Contract"), rather than repurchase the Contract as provided above, and
substitute in its place another Contract (each, a "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
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outstanding principal balance of the Deleted Contract (the amount of any
shortfall to be distributed to Securityholders 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 remaining term to maturity not greater than
(and not more than one year less than) that of the Deleted Contract and (iv)
comply with all the representations and warranties set forth in the Agreement as
of the date of substitution. This repurchase or substitution obligation
constitutes the sole remedy available to the Securityholders 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 related
Prospectus Supplement. Except as described below or in the related 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. Unless otherwise specified in the related Prospectus
Supplement, the Contract Loan-to-Value Ratio will be 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.
THE DEPOSITOR
The Depositor was incorporated in the State of Delaware on December 31,
1985, and is a wholly owned subsidiary of Credit Suisse First Boston, Inc..
Credit Suisse First Boston Corporation, which may act as an underwriter in
offerings made hereby, as described in "Plan of Distribution" below, is also a
wholly owned subsidiary of Credit Suisse First Boston, Inc. The principal
executive offices of the Depositor are located at Eleven Madison Avenue, New
York, NY 10010. Its telephone number is (212) 325-2000.
The Depositor was organized, among other things, for the purposes of
establishing trusts, selling beneficial interests therein and acquiring and
selling mortgage assets to such trusts. Neither the Depositor, its parent nor
any of the Depositor's affiliates will ensure or guarantee distributions on the
Securities of any Series.
Trust Assets will be acquired by the Depositor directly or through one
or more affiliates.
USE OF PROCEEDS
Except as otherwise provided in the related Prospectus Supplement, the
Depositor will apply all or substantially all of the net proceeds from the sale
of each Series offered hereby and by the related 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 or
Pre-Funding Accounts, if any, for the Series and to pay costs of structuring and
issuing the Securities. If so specified in the related Prospectus Supplement,
Securities may be exchanged by the Depositor for Trust Assets. Unless otherwise
specified in the related Prospectus Supplement, the Trust Assets for each Series
of Securities 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.
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MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
Unless otherwise specified in the related Prospectus Supplement, 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, but such Mortgage Loans (or
such underlying mortgage loans) or Contracts may be prepaid in full or in part
at any time. Unless otherwise specified in the applicable Prospectus Supplement,
no 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 related 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
on a pool of (a) 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)
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 Securities, 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.
Information regarding FHA Experience, other published information, SPA
or any other rate of assumed prepayments, as applicable, will be set forth in
the Prospectus Supplement with respect to a Series of Securities. There is,
however, no assurance that prepayment of the Mortgage Loans underlying a Series
of Securities will conform to FHA Experience, mortgage industry custom, any
level of SPA, or any other rate specified in the related Prospectus Supplement.
A number of factors, including homeowner mobility, economic conditions,
enforceability of due-on-sale clauses, mortgage market interest rates, mortgage
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recording taxes and the availability of mortgage funds, may affect prepayment
experience on residential mortgage loans.
The terms of the 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 Securities --
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
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 factors, 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
Securities evidencing interests in, or secured by, 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 Securities of a
Series evidencing interests in, or secured by, 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 of and unpaid interest on 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, to the extent provided in the related Prospectus
Supplement, 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 Contracts.
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 Property 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 Loans. 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
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in such Prospectus Supplement. For any Series of Securities for which the
Depositor has elected to treat the Trust Fund or certain assets of the Trust
Fund as a REMIC 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 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 and in the
related Prospectus Supplement. 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" and " --
Representations by Unaffiliated Sellers; Repurchases," "Description of the
Securities -- Assignment of Mortgage Loans," "-- Assignment of Mortgage
Certificates," "-- Assignment of Contracts" and " -- Termination."
If so specified in the related 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 Securities 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, unless otherwise provided in the applicable Prospectus
Supplement, the Master Servicer with respect to a Series will be required to
advance from its own funds the portion of any interest at the related Mortgage
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. Unless
otherwise specified in the related Prospectus Supplement, full and partial
prepayments, together with interest on such full and partial prepayments at the
Mortgage Rate or APR for the related Mortgage Loan or Contract to the last day
of the month in which such prepayments occur, will be deposited in the
Certificate Account and will be available for distribution to Securityholders on
the next succeeding Distribution Date in the manner specified in the related
Prospectus Supplement.
Generally, the effective yield to holders of Securities having a
monthly Distribution Date will be lower than the yield otherwise produced
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 Securities will be made no
earlier than the 25th day of the month following the month of the accrual
(unless otherwise provided 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 Securities succeeds such 25th
day. With respect to the Multi-Class Securities of a Series having other than
monthly Distribution Dates, the yield to holders of such Certificates
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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 Securities 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 Securityholders 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 Securities that are offered at a premium to their principal or notional
amount ("Premium Securities") 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 Securityholders of Premium
Securities 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 prepayments (which can be anticipated to
increase the expected yield to holders of Securities that are Premium
Securities) will likely result in a lower than anticipated yield to holders of
Securities that are offered at a discount to their principal amount ("Discount
Securities"). If so specified in the applicable Prospectus Supplement, a
disproportionately large amount of Principal Prepayments may be distributed to
the holders of the Senior Securities at the times and under the circumstances
described therein.
In the event that the Securities of a Series include one or more
Classes or Subclasses of Multi-Class Securities, 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.
DESCRIPTION OF THE SECURITIES
Each Series of Securities will be issued pursuant to either (a) an
agreement consisting of either (i) a Pooling and Servicing Agreement or (ii) 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 herein as the
"Pooling and Servicing Agreement") among the Depositor, the Master Servicer, if
any, and the Trustee named in the applicable Prospectus Supplement or (b) if a
Series of Securities includes Notes, a deposit trust agreement or trust
agreement between the Depositor and the Trustee. Forms of the Pooling and
Servicing Agreement and the Trust Agreement have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. If a Series of
Securities includes Notes, such Notes will be issued and secured pursuant to an
Indenture (each, an "Indenture") to be entered into between the related Issuer
and the indenture trustee specified in the related Prospectus Supplement (the
"Indenture Trustee"), and the related Trust Fund will be serviced by the Master
Servicer pursuant to a Sale and Servicing Agreement (the "Sale and Servicing
Agreement") among the Depositor, the Master Servicer or Servicer and the
Indenture Trustee. Forms of the Indenture and the Sale and Servicing Agreement
have
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been filed as exhibits to the Registration Statement of which this Prospectus is
a part. In addition, a Series of Securities may include a Warranty and Servicing
Agreement between the Master Servicer and the Servicer (the "Warranty and
Servicing Agreement"). As used herein, "Agreement" means, with respect to a
Series that only includes Certificates, the Pooling and Servicing Agreement and,
if applicable, the Warranty and Servicing Agreement, and with respect to a
Series that includes Notes, the Indenture, the Trust Agreement and the Sale and
Servicing Agreement and, if applicable, the Warranty and Servicing Agreement, as
the context requires.
The following summaries describe certain provisions common to each
Agreement. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Agreement for the applicable Series and the related Prospectus Supplement.
Wherever defined terms of the Agreement are referred to, such defined terms are
thereby incorporated herein by reference.
GENERAL
Unless otherwise specified in the Prospectus Supplement with respect to
a Series, each Security offered hereby and by means of the related Prospectus
Supplement will be issued in fully registered form. Securities will represent
the undivided interest or beneficial interest attributable to such Class or
Subclass in, and Notes will be secured by, 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 Security Guarantee
Insurance, if any, with respect to such Series; (xi) the Depositor's rights
under the Servicing Agreement with respect to the Mortgage Loans or Contracts,
if any, with respect to such Series; and (xii) 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 Securities,
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 related Prospectus Supplement.
If so specified in the related 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 a REMIC under the
Code, ownership of the Trust Fund for such Series may be evidenced by
Multi-Class Certificates and/or Notes and Residual Certificates. Distributions
of principal and interest with respect to Multi-Class Securities may be made on
a sequential or concurrent basis, as specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, one or more of
such Classes or Subclasses may be Compound Interest Securities.
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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 Securities of such Series will constitute "regular
interests" in the related REMIC. If so specified in the related Prospectus
Supplement, such Residual Certificates may be offered hereby and by means of
such Prospectus Supplement. See "Federal Income Tax Consequences."
If so specified in the Prospectus Supplement for a Series which
includes Multi-Class Securities, each Trust Asset in the related Trust Fund will
be assigned an initial "Asset Value." Unless otherwise specified in the related
Prospectus Supplement, the Asset Value of each Trust Asset in the related Trust
Fund will be the Stated Principal Balance of each Class or Classes of Securities
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 related
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 Securities will be specified in the related 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 one or
more Classes or Subclasses of Certificates that are Subordinated Certificates,
each representing the undivided interests in the Trust Fund specified in such
Prospectus Supplement. If so specified in the related Prospectus Supplement, one
or more Classes or Subclasses or Subordinated Securities of a Series may be
subordinated to the right of the holders of Securities of one or more Classes or
Subclasses within such Series to receive distributions with respect to the
Mortgage Loans, Mortgage Certificates or Contracts in the related Trust Fund, in
the manner and to the extent specified in such Prospectus Supplement. If so
specified in the related Prospectus Supplement, the holders of each Subclass of
Senior Securities 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 related Prospectus
Supplement, the Subordinated Securities of a Series will evidence the right to
receive distributions with respect to a specific pool of Mortgage Loans,
Mortgage Certificates or Contracts, which right will be subordinated to the
right of the holders of the Senior Securities of such Series to receive
distributions with respect to such specific pool of Mortgage Loans, Mortgage
Certificates or Contracts, as more fully set forth in such Prospectus
Supplement. If so specified in the related Prospectus Supplement, the holders of
the Senior Securities 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 related
Prospectus Supplement, if a Series of Securities includes Notes, one more
Classes or Subclasses of Notes may be subordinated to another Class or
Subclasses of Notes in the manner and under the circumstances described in the
Prospectus Supplement.
If so specified in the related Prospectus Supplement, the Depositor may
sell certain Classes or Subclasses of the Securities 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 of 1933, as amended (the "Securities Act"). Such Securities 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 related 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 Securities of a Series offered hereby and by means of the related
Prospectus Supplements will be transferable and exchangeable at the office or
agency maintained by the Trustee for such purpose set
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forth in the related Prospectus Supplement, unless such Prospectus Supplement
provides otherwise. No service charge will be made for any transfer or exchange
of Securities, 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
Beginning on the date specified in the related Prospectus Supplement,
distributions of principal of and interest on the Securities 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 Securities
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 related Prospectus Supplement, which rate may be fixed or variable.
Interest on the Securities will be calculated on the basis of a 360-day year
consisting of twelve 30-day months, unless otherwise specified in the related
Prospectus Supplement. Distributions of principal of the Securities will be made
in the priority and manner and in the amounts specified in the related
Prospectus Supplement.
If so specified in the Prospectus Supplement with respect to a Series
of Securities, 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 as set forth in
the Prospectus Supplement) 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 related Prospectus Supplement, distributions on
a Class or Subclass of Securities of a Series may be based on the Percentage
Interest evidenced by a Security of such Class or Subclass in the distributions
(including any Advances thereof) of principal (the "Principal Distribution") and
interest (adjusted as set forth in the Prospectus Supplement) (the "Interest
Distribution") on or with respect to the Mortgage Loans, the Contracts or the
Mortgage Certificates in the related Trust Fund. Unless otherwise specified in
the related Prospectus Supplement, on each Distribution Date, the Trustee will
distribute to each holder of a Security of such Class or Subclass an amount
equal to the product of the Percentage Interest evidenced by such Security and
the interest of such Class or Subclass in the Principal Distribution and the
Interest Distribution. A Security 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 related Prospectus Supplement.
If so specified in the related Prospectus Supplement, the holders of
the Senior Securities 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.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, 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. Unless
otherwise specified in the Prospectus Supplement relating to such a Series of
Securities, distributions of interest on each Class or Subclass of Compound
Interest Securities of such Series will be made on each Distribution Date after
the Stated Principal Balance of all Certificates and/or Notes of such Series
having a Final Scheduled Distribution Date prior to that of such Class or
Subclass of Compound Interest Securities has been reduced to zero. Prior to such
time, interest on such Class or Subclass of Compound Interest Securities will be
added to the Stated Principal Balance thereof on each Distribution Date for such
Series.
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Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, distributions in
reduction of the Stated Principal Balance of such Securities will be made as
described herein. Distributions in reduction of the Stated Principal Balance of
such Securities will be made on each Distribution Date for such Series to the
holders of the Securities 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 Securities to zero. Allocation of distributions
in reduction of Stated Principal Balance will be made to each Class or Subclass
of such Securities in the order specified in the related Prospectus Supplement,
which, if so specified in such Prospectus Supplement, may be concurrently.
Unless otherwise specified in the related Prospectus Supplement, distributions
in reduction of the Stated Principal Balance of each Security of a Class or
Subclass then entitled to receive such distributions will be made pro rata among
the Securities of such Class or Subclass.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, the maximum amount
which will be distributed in reduction of Stated Principal Balance to holders of
Securities of a Class or Subclass then entitled thereto on any Distribution Date
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 Securities of such Series since the prior
Distribution Date (or since the date specified in the related 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 related Prospectus Supplement, the applicable
percentage of the Excess Cash Flow specified in such Prospectus Supplement.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, 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 Securities of such
Series (before taking into account the amount of interest accrued on any Class
of Compound Interest Securities 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 related Prospectus Supplement. 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 Securities
in the principal distributions on or with respect of such Trust Assets received
by the Trustee during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Securities that includes Multi-Class Securities, Excess Cash Flow
represents the excess of (i) the interest evidenced by such Multi-Class
Securities 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 Securities),
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 Securities since the preceding
Distribution Date (or since the date specified in the related 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 Securities of such Class or Subclass pursuant to any
special distributions in reduction of Stated Principal Balance during such Due
Period.
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
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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 related Prospectus Supplement.
Distributions (other than the final distribution in retirement of the
Securities) will be made by check mailed to the address of the person entitled
thereto as it appears on the registers maintained for holders of Notes (the
"Note Register") or holders of Certificates (the "Certificate Register"), as
applicable, except that, with respect to any holder of a Security meeting the
requirements specified in the applicable Prospectus Supplement, except as
otherwise provided in the related 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 Securities will be made only upon presentation and surrender of
the Securities at the office or agency designated by the Master Servicer for
such purpose, as specified in the final distribution notice to Securityholders.
ASSIGNMENT OF MORTGAGE CERTIFICATES
Pursuant to the applicable Agreement for a Series of Securities that
includes Mortgage Certificates in the related Trust Fund, the Depositor will
cause such Mortgage Certificates to be transferred to the Trustee together with
all principal and interest distributed on such Mortgage Certificates after the
Cut-off Date. Each Mortgage Certificate included in a Trust Fund will be
identified in a schedule appearing as an exhibit to the applicable Agreement.
Such schedule will include information as to the principal balance of each
Mortgage Certificate as of the date of issuance of the Securities 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 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 Securityholders 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 a REMIC, 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 related Prospectus
Supplement. Any amounts received in respect of such repurchases will be
distributed to Securityholders on the immediately succeeding Distribution Date.
If so specified in the related Prospectus Supplement, within the
specified period following the date of issuance of a Series of Securities, 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 related Prospectus Supplement.
ASSIGNMENT OF MORTGAGE LOANS
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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, either deliver the Securities
to the Depositor in exchange for the Mortgage Loans or apply the proceeds from
the sale of such Securities to the purchase price for the Mortgage Loans. If a
Series of Securities includes Notes, the Trust Fund will be pledged by the
Issuer to the Indenture Trustee as security for the Notes. Each Mortgage Loan
will be identified in a schedule appearing as an exhibit to the related
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
respecting 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,
unless otherwise specified in the related Prospectus Supplement, 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.
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 Securityholders. Unless otherwise specified in the
applicable Prospectus Supplement, 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 a REMIC, 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 Mortgage 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" and " -- Representations by Unaffiliated
Sellers; Repurchases." Unless otherwise specified in the applicable Prospectus
Supplement, this purchase obligation constitutes the sole remedy available to
the Securityholders or the Trustee for a material defect in a constituent
document.
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Unless otherwise specified in the applicable Prospectus Supplement,
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, unless otherwise specified in the related Prospectus Supplement, the
Depositor will represent and warrant that, as of the Cut-off Date for the
related Series of Securities, 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 Securityholders, the Depositor will be obligated either to cure the breach
in all material respects or to purchase the Mortgage Loan at the purchase price
set forth above. Unless otherwise specified in the applicable Prospectus
Supplement and 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 constitutes the sole remedy
available to the Securityholders or the Trustee for a breach of a representation
or warranty by the Depositor.
Within the period specified in the related Prospectus Supplement,
following the date of issuance of a Series of Securities, 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 related 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 Securityholders. 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 Contract Pools" with respect to the
substitution of Contracts.
In addition to making certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under
the Agreement relating to a Series of Securities, the Master Servicer may make
certain representations and warranties to the Trustee in such 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.
Unless otherwise specified in the applicable Prospectus Supplement, upon a
breach of any such representation or warranty that materially and adversely
affects the interests of the Securityholders 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 related 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 Securities to support, among other things, this purchase
obligation. Unless otherwise stated in the applicable Prospectus Supplement, the
aforementioned purchase obligation constitutes the sole remedy available to the
Securityholders 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.
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 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.
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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 Securities. If a Series of Securities includes
Notes, the Trust fund will be pledged by the Issuer to the Indenture Trustee as
security for the Notes. Each Contract will be identified in a schedule appearing
as an exhibit to the Agreement (the "Contract Schedule"). The Contract Schedule
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, as specified in the related 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. Unless otherwise specified in the related Prospectus Supplement, the
Contracts 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 Securityholders. Unless otherwise provided in the
related Prospectus Supplement, 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 related Prospectus
Supplement, the Unaffiliated Seller, not later than 90 days or within such other
period specified in the related 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 a REMIC, 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 APR,
plus any unreimbursed Advances respecting such Contract. Unless otherwise
specified in the related Prospectus Supplement, the repurchase obligation will
constitute the sole remedy available to the Securityholders or the Trustee for a
material defect in a Contract document.
Unless otherwise specified in the related Prospectus Supplement, 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,
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(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 the Agreement and that all premiums
now due on such insurance have been paid in full.
All of the representations and warranties of an Unaffiliated Seller in
respect of a Contract will have been made as of the date on which such
Unaffiliated 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 Securities. A substantial
period of time may have elapsed between the date as of which the representations
and warranties were made and the date of initial issuance of the related Series
of Securities. Since the representations and warranties referred to in the
preceding paragraph are the only representations and warranties that will be
made by an Unaffiliated Seller, the Unaffiliated Seller's repurchase obligation
described below will not arise if, during the period commencing on the date of
sale of a Contract by the Unaffiliated 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 Securities.
The only representations and warranties to be made for the benefit of
Securityholders 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 Securityholders in such Contract within 90 days (or
such other period specified in the related Prospectus Supplement) after notice
from the Master Servicer, such Unaffiliated Seller will be obligated to
repurchase such Contract at a price equal to, unless otherwise specified in the
related Prospectus Supplement, the principal balance thereof 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 a REMIC, 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 APR, plus the
amount of any unreimbursed Advances in respect of such Contract (the "Purchase
Price"). The Master Servicer will be required under the applicable Agreement to
enforce this obligation for the benefit of the Trustee and the Securityholders,
following the practices it would employ in its good faith business judgment were
it the owner of such Contract. Except as otherwise set forth in the related
Prospectus Supplement, this repurchase obligation will constitute the sole
remedy available to Securityholders 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."
PRE-FUNDING
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If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Securities of a particular Series (such amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding Account")
to be established with the Trustee, which will be used to acquire additional
Mortgage Loans, Contracts or Mortgage Certificates from time to time during the
time period specified in the related Prospectus Supplement (the "Pre-Funding
Period"). Prior to the investment of the Pre-Funded Amount in additional
Mortgage Loans, Contracts or Mortgage Certificates, such Pre-Funded Amount may
be invested in one or more Eligible Investments. Except as otherwise provided in
the applicable Agreement, an "Eligible Investment" will be any of the following,
in each case as determined at the time of the investment or contractual
commitment to invest therein (to the extent such investments would not require
registration of the Trust Fund as an investment company pursuant to the
Investment Company Act of 1940): (a) negotiable instruments or securities
represented by instruments in bearer or registered or book-entry form which
evidence: (i) obligations which have the benefit of the full faith and credit of
the United States of America, including depository receipts issued by a bank as
custodian with respect to any such instrument or security held by the custodian
for the benefit of the holder of such depository receipt, (ii) demand deposits
or time deposits in, or bankers' acceptances issued by, any depositary
institution or trust company incorporated under the laws of the United States of
America or any state thereof and subject to supervision and examination by
Federal or state banking or depositary institution authorities; provided that at
the time of the Trustee's investment or contractual commitment to invest
therein, the certificates of deposit or short-term deposits (if any) or
long-term unsecured debt obligations (other than such obligations the rating of
which is based on collateral or on the credit of a Person other than such
institution or trust company) of such depositary institution or trust company
has a credit rating in the highest rating category from the Rating Agency rating
the Securities, (iii) certificates of deposit having a rating in the highest
rating category from the Rating Agency, or (iv) investments in money market
funds which are (or which are composed of instruments or other investments which
are) rated in the highest category from the Rating Agency; (b) demand deposits
in the name of the Trustee in any depositary institution or trust company
referred to in clause (a)(ii) above; (c) commercial paper (having original or
remaining maturities of no more than 270 days) having a credit rating in the
highest rating category from the Rating Agency; (d) Eurodollar time deposits
that are obligations of institutions the time deposits of which carry a credit
rating in the highest rating category from the Rating Agency; (e) repurchase
agreements involving any Eligible Investment described in any of clauses (a)(i),
(a)(iii) or (d) above, so long as the other party to the repurchase agreement
has its long-term unsecured debt obligations rated in the highest rating
category from the Rating Agency; and (f) any other investment with respect to
which the Rating Agency indicates will not result in the reduction or withdrawal
of its then existing rating of the Securities. Except as otherwise provided in
the applicable Agreement, any Eligible Investment must mature no later than the
Business Day prior to the next Distribution Date.
During any Pre-Funding Period, the Depositor will be obligated (subject
only to the availability thereof) to transfer to the related Trust Fund
additional Mortgage Loans, Contracts and/or Mortgage Certificates from time to
time during such Pre-Funding Period. Such additional Mortgage Loans or Contracts
will be required to satisfy certain eligibility criteria more fully set forth in
the related Prospectus Supplement which eligibility criteria will be consistent
with the eligibility criteria of the Mortgage Loans or Contracts included in the
Trust Fund as of the Closing Date subject to such exceptions as are expressly
stated in such Prospectus Supplement.
Although the specific parameters of the Pre-Funding Account with
respect to any issuance of Securities will be specified in the related
Prospectus Supplement, it is anticipated that: (a) the Pre-Funding Period will
not exceed 120 days from the related Closing Date, (b) that the additional loans
to be acquired during the Pre-Funding Period will be subject to the same
representations and warranties as the Mortgage Loans, Contracts and/or Mortgage
Certificates included in the related Trust Fund on the Closing Date (although
additional criteria may also be required to be satisfied, as described in the
related Prospectus
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Supplement) and (c) that the Pre-Funded Amount will not exceed 25% of the
principal amount of Securities issued pursuant to a particular offering.
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 description does not purport to be
complete and 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
Agreement provides that, if for any reason the Master Servicer for such Series
of Securities 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.
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, 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 the 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. Except as otherwise provided in the related
Prospectus Supplement, the 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 Notes 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
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. Unless otherwise set forth in the Prospectus Supplement, the Master
Servicer may 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
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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 Agreement. Upon termination of a Servicing Agreement,
the Master Servicer or Trustee may act as servicer of the related Mortgage Loans
or Contracts or the Master Servicer may 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 related Agreement will provide that
any such amendment or new agreement may not be inconsistent with or violate such
Agreement.
PAYMENTS ON MORTGAGE LOANS
The Master Servicer will, unless otherwise specified in the Prospectus
Supplement with respect to a Series of Securities, establish and maintain a
separate account or accounts in the name of the applicable Trustee (the
"Certificate Account"), which must be maintained with a depository institution
and in a manner acceptable to the Rating Agency rating the Securities of a
Series. If a Series of Securities includes Notes, the Master Servicer may
establish and maintain a separate account or accounts in the name of the
applicable Trustee (the "Collection Account") into which amounts received in
respect of the Trust Assets are required to be deposited and a separate account
or accounts in the name of the applicable Trustee from which distributions in
respect of the Notes (the "Note Distribution Account") and/or the Certificates
(the "Certificate Distribution Account") may be made. The Collection Account,
Note Distribution Account and Certificate Distribution Account must be
established with a depositary institution and in a manner acceptable to the
Rating Agencies rating the Securities of such Series. For ease of reference,
references in this Prospectus to the Certificate Account shall be deemed to
refer to the Collection Account, Note Distribution Account and Certificate
Distribution Account, as applicable.
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 Securityholders 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 Securities of the related Series, and that is otherwise acceptable to
the Master Servicer. Unless otherwise specified in the related Prospectus
Supplement, the Servicer will be required to deposit into the Servicing Account
on a
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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. Except as otherwise provided in the related Prospectus
Supplement, 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, unless otherwise specified in the related
Prospectus Supplement, 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. Unless otherwise specified in the
related Prospectus Supplement, the Master Servicer will deposit in the
Certificate Account for each Series of Securities 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 related Prospectus Supplement:
(i) all payments on account of principal, including
principal prepayments, of 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 Securities 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 (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).
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With respect to each Buy-Down Loan, if so specified in the related
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, unless
otherwise specified in the related Prospectus Supplement, 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 Securityholders 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 Securities --Payments on Mortgage Loans" will be established
in the name of the Trustee.
Except as otherwise provided in the related Prospectus Supplement,
there will be deposited in the Certificate Account on a daily basis the
following payments and collections received or made by it on or after the
Cut-off Date:
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(i) all Obligor payments on account of principal,
including principal prepayments, of the Contracts;
(ii) all Obligor payments on account of interest on the
Contracts;
(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 related Agreement to be
deposited in the Certificate Account;
(vi) all amounts received from Credit Support provided
with respect to a Series of Securities;
(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.
COLLECTION OF PAYMENTS ON MORTGAGE CERTIFICATES
The Mortgage Certificates included in the Trust Fund with respect to a
Series of Securities will be registered in the name of the Trustee so that all
distributions thereon will be made directly to the Trustee. The related
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
Securityholders 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 Securityholders that it is not obligated to pursue any such available
remedies unless adequate indemnity for its legal fees and expenses is provided
by such Securityholders.
DISTRIBUTIONS ON SECURITIES
On each Distribution Date with respect to a Series of Securities 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 Securityholders of
record on the applicable Record Date. Such distributions shall occur in the
manner described herein under " --Description of the Securities -- Distributions
of Principal and Interest" and in the
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related 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 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 related Prospectus
Supplement (in either case, the "Determination Date"), except:
(i) all payments that were due on or before the Cut-off
Date;
(ii) all principal prepayments 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 respecting
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, (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 Securities --
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.
Except as otherwise specified in the related Prospectus Supplement, no
later than the Business Day immediately preceding the Distribution Date for a
Series of Securities, 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 of 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 Securities 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 Securities 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 Securityholders, 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. Unless otherwise provided in the Prospectus Supplement,
all income and gain realized from any such investment will be for the benefit of
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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. Unless otherwise provided in the Prospectus Supplement, the
Certificate Account established pursuant to the 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 Securities having differing terms, whether
subordinated or not, to the extent not described herein, shall be set forth in
the related Prospectus Supplement.
SPECIAL DISTRIBUTIONS
To the extent specified in the Prospectus Supplement relating to a
Series of Securities, one or more Classes of Multi-Class Securities that do not
provide for monthly Distribution Dates may receive Special Distributions in
reduction of 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 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 Securities of such Classes or
Subclasses may be less than the sum of (i) the interest scheduled to be
distributed to holders of the Securities of such Classes or Subclasses and (ii)
the amount to be distributed in reduction of Stated Principal Balance or such
Securities on such Distribution Date. Any such Special Distributions will be
made in the same priority and manner as distributions in reduction of Stated
Principal Balance would be made on the next Distribution Date.
REPORTS TO SECURITYHOLDERS
Unless otherwise specified or modified in the related Prospectus
Supplement for each Series, the Master Servicer or the Trustee will include with
each distribution to Securityholders 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 Security, as to (i)
through (iii) or (iv) through (vi) below, as applicable):
(i) to each holder of a Security, 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;
(ii) to each holder of a Security, 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;
(iii) to each holder of a Security, 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 Securityholders 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 Stated
Principal Balance are then being made, the amount of such interest
distribution and distribution in reduction of Stated Principal Balance,
and the Stated Principal Balance of each Class after giving effect to
the distribution in reduction of 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 Securities outstanding of each Class or
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Subclass after giving effect to the distribution in reduction of 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 Securities, if any,
outstanding and the amount of any accrued interest added to the
Compound Value of such Compound Interest Securities on such
Distribution Date;
(vi) to each holder of a Compound Interest Security (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):
(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 Securities with respect to such
Distribution Date and added to the Compound Value of such
Compound Interest Security; and
(c) the Stated Principal Balance of such Class
or Subclass of Compound Interest Securities after giving
effect to the addition thereto of all interest accrued
thereon;
(vii) in the case of a series of Securities with a variable
Interest Rate, the Interest 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 to be distributed to
Securityholders on the Distribution Date;
(ix) in the case of a Series of Securities benefiting from
the Alternative Credit Support described in the related 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 Securityholders 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 Securityholders
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 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
Securityholder 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 Securityholder to prepare
its tax return, as applicable, for such calendar year or, in the event such
person was a Securityholder of record during a portion of such calendar year,
for the applicable portion of such year.
ADVANCES
Unless otherwise stated in the related Prospectus Supplement, 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 to advance funds in an amount equal to
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the aggregate scheduled installments of payments of principal and interest 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
related Servicing Agreement, to be remitted no later than the close of business
on the business day immediately preceding the Distribution Date, subject to
(unless otherwise provided in the applicable Prospectus Supplement) 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
such Advances, the Servicers and Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to the
Securityholders, 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 respecting 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 Securityholders to receive any amounts recovered with
respect to such Mortgage Loans or Contracts. Unless otherwise provided in the
applicable Prospectus Supplement, the Servicers and the Master Servicer will
also be required to advance an amount necessary to provide a full month's
interest 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 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, if so provided in the related Prospectus Supplement, 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.
If specified in the related Prospectus Supplement, under the applicable
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 Mortgages 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
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Account and will be obliged 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
Securities, 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 a related 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
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 equal to the lesser of
the maximum insurable value of the improvements securing such Mortgage Loan or
Contract or the principal balance of such Mortgage Loan or Contract. 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 Securityholders, 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 applicable
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
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.
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The applicable 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 related 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
Securities in full force 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 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 a related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Pool Insurance
Policy with respect to a Series of Securities in effect throughout the term of
the applicable 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
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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 related 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 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
Securities that is required to be kept in force under the applicable Agreement
or 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 Securities.
See "Description of Insurance -- Primary Mortgage Insurance Policies."
MORTGAGOR BANKRUPTCY BOND
If so specified in the related Prospectus Supplement, the Master
Servicer will exercise its best reasonable efforts to maintain a Mortgagor
Bankruptcy Bond for a Series of Securities in full force and effect throughout
the term of the applicable Agreement, unless coverage thereunder has been
exhausted through payment of claims, and will pay 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 Securities, 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
Securityholders, 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
Securityholders, will present claims to the applicable Primary Mortgage Insurer
and to the FHA and the VA,
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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 Securityholders 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 Mortgage 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
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
Mortgage Rate or APR, as the case may be, 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 applicable Agreement with respect to
Securities representing interests in or secured by a Mortgage Pool will provide
that, when any Mortgaged Property has been conveyed by the borrower, 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 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
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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 applicable 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
Securityholders 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 applicable Agreement and Servicing Agreement with respect to
Securities representing interests in or secured by 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
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rights to accelerate the maturity of such Contract under the applicable
"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 Securityholders, 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 applicable 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 applicable Agreement for a Series of Securities, the
Depositor or the person or entity specified in the related Prospectus Supplement
and any Master Servicer will be entitled to receive an amount described in such
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, unless otherwise specified in
the related 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 Note Register, 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 applicable 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
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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 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
Securityholders 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 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 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 applicable Agreement or 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 such Agreement or 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 such Agreement or 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 Contract, conducted in accordance
with generally accepted accounting principles in the mortgage banking industry,
the servicing of the Mortgage Loans or Contract was conducted in compliance with
the provisions of the Agreement and/or 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 AND
THE INDENTURE TRUSTEE
The Master Servicer under each 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 an 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 applicable 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 such Agreement.
The Trustee under each Pooling and Servicing Agreement or Trust
Agreement will be named in the applicable Prospectus Supplement. The commercial
bank or trust company serving as Trustee may have
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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 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 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 Trust
Agreement.
The Indenture Trustee under the Indenture will be named in the
applicable Prospectus Supplement. The commercial bank or trust company serving
as Indenture Trustee may have normal banking relationships with the Depositor
and/or its affiliates and with the Master Servicer and/or its affiliates.
The Indenture Trustee may resign from its obligations under the
Indenture at any time, in which event a successor trustee will be appointed. In
addition, the Depositor may remove the Indenture Trustee if the Indenture
Trustee ceases to be eligible to act as Indenture Trustee under the Indenture or
if the Indenture Trustee becomes insolvent, at which time the Depositor will
become obligated to appoint a successor Indenture Trustee. Unless otherwise
specified in the related Prospectus Supplement, the Indenture Trustee may also
be removed at any time by the holders of Notes evidencing voting rights
aggregating not less than 50% of the voting rights evidenced by the Notes of
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.
Each Pooling and Servicing Agreement and Trust Agreement will also
provide that neither the Depositor nor any director, officer, employee or agent
of the Depositor 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 or the Trustee nor any such person will be protected
against, in the case of the Depositor, any breach of representations or
warranties made by them, and in the case of 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 Trust Agreement will further provide that
the Depositor and the Trustee and any director, officer and employee or agent of
the Depositor or the Trustee shall be entitled to indemnification, by the Trust
Fund in the case of the Depositor 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
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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 Securityholders 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 Prospectus
Supplement, a deficiency event (a "Deficiency Event") with respect to the
Securities of each Series may be defined in the applicable Agreement as being
the inability of the Trustee to distribute to holders of one or more Classes of
Securities of such Series, in accordance with the terms thereof and the
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.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such 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 Securities in accordance with the priorities as to distributions of
principal and interest set forth in such Securities will be sufficient to make
distributions of interest at the applicable Interest Rates and to distribute in
full the principal balance of each such Security on or before the latest Final
Distribution Date of any outstanding Securities of such Series.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such 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 Securities, which opinion or report will be conclusive evidence as to such
sufficiency. Pending the making of any such determination, distributions on the
Securities shall continue to be made in accordance with their terms.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such 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 Securities of such Series in accordance with their terms, except that
such distributions shall be made on each Distribution Date or such other more
frequent dates specified in the related Prospectus Supplement and without regard
to the amount of principal that would otherwise be distributable on the related
Distribution Date. Under certain circumstances following such positive
determination, the Trustee may resume making distributions on such Securities
expressly in accordance with their terms.
Except as otherwise provided in the related Prospectus Supplement, to
the extent a deficiency event is specified in such Prospectus Supplement, if the
Trustee is unable to make the positive determination described above, the
applicable Trustee will apply all amounts received in respect of the related
Trust Fund
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(after payment of Trustee and accountants' fees and expenses) to monthly
distributions on Securities of such Series or on all Senior Securities of such
Series pro rata, without regard to the priorities as to distribution of
principal set forth in such Securities, and such Securities will, to the extent
permitted by applicable law and specified in the related Prospectus Statement,
accrue interest at the highest Interest Rate borne by any Security or Securities
with the same credit rating by the Rating Agencies 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 Securities of that Class. In such event, the
holders of a majority in outstanding principal balance of such Securities may
direct the Trustee to sell the related Trust Fund, any such direction being
irrevocable and binding upon the holders of all Securities 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
Except as otherwise provided in the related Prospectus Supplement,
Events of Default under the related Pooling and Servicing Agreement or Sale and
Servicing 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 applicable Agreement which failure
shall continue for the number of days specified in the related Prospectus
Supplement or any breach of any representation and warranty made by the Master
Servicer or the Servicer, if applicable, which continues unremedied for the
number of days specified in the related Prospectus Supplement after the giving
of written notice of such failure or breach; (iii) certain events of insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings regarding the Master Servicer or a Servicer, as applicable; and (iv)
any lowering, withdrawal or notice of an intended or potential lowering, of the
outstanding rating of the Securities by the Rating Agency rating such Securities
because the existing or prospective financial condition or mortgage loan
servicing capability of the Master Servicer is insufficient to maintain such
rating.
Unless otherwise specified in the related Prospectus Supplement, Events
of Default under the Indenture for each Series of Notes include: (i) a default
of five days or more in the payment of any principal of or interest on any Note
of such Series; (ii) failure to perform any other covenant of the Depositor or
the Trust Fund in the Indenture which continues for a period of thirty days
after notice thereof is given in accordance with the procedures described in the
related Prospectus Supplement; (iii) any representation or warranty made by the
Depositor or the Trust Fund in the Indenture or in any certificate or other
writing delivered pursuant thereto or in connection therewith with respect to or
affecting such Series having been incorrect in a material respect as of the time
made, and such breach is not cured within thirty days after notice thereof is
given in accordance with the procedures described in the related Prospectus
Supplement; (iv) certain events of bankruptcy, insolvency, receivership or
liquidation of the Depositor or the Trust Fund; or (v) any other Event of
Default provided with respect to Notes of that Series.
RIGHTS UPON EVENT OF DEFAULT
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Indenture Trustee or the
Noteholders of a majority of the then aggregate outstanding amount of the Notes
of such Series may declare the principal amount of all the Notes of such Series
to be due and payable immediately. Such declaration may, under certain
circumstances, be rescinded and annulled by the Noteholders of a majority in
aggregate outstanding amount of the Notes of such Series.
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If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the Indenture
Trustee may, in its discretion, notwithstanding such acceleration, elect to
maintain possession of the collateral securing the Notes of such Series and to
continue to apply distributions on such collateral as if there had been no
declaration of acceleration if such collateral continues to provide sufficient
funds for the payment of principal of and interest on the Notes of such Series
as they would have become due if there had not been such a declaration. In
addition, the Indenture Trustee may not sell or otherwise liquidate the
collateral securing the Notes of a Series following an Event of Default other
than a default in the payment of any principal of or interest on any Note of
such Series for thirty days or more, unless (a) the Noteholders of 100% of the
then aggregate outstanding amount of the Notes of such Series consent to such
sale, (b) the proceeds of such sale or liquidation are sufficient to pay in full
the principal of and accrued interest due and unpaid on the outstanding Notes of
such Series at the date of such sale or (c) the Indenture Trustee determines
that such collateral would not be sufficient on an ongoing basis to make all
payments on such Notes as such payments would have become due if such Notes had
not been declared due and payable, and the Indenture Trustee obtains the consent
of the Holders of 66 2/3% of the then aggregate outstanding amount of the Notes
of such Series.
In the event that the Indenture Trustee liquidates the collateral in
connection with an Event of Default involving a default for thirty days or more
in the payment of principal of or interest on the Notes of a Series, the
Indenture provides that the Indenture Trustee will have a prior lien on the
proceeds of any such liquidation for unpaid fees and expenses. As a result, upon
the occurrence of such an Event of Default, the amount available for
distribution to the Noteholders may be less than would otherwise be the case.
However, the Indenture Trustee may not institute a proceeding for the
enforcement of its lien except in connection with a proceeding for the
enforcement of the lien of the Indenture for the benefit of the Noteholders
after the occurrence of such an Event of Default.
Unless otherwise specified in the related Prospectus Supplement, in the
event the principal of the Notes of a Series is declared due and payable, as
described above, the Noteholders of any such Notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid principal
amount thereof less the amount of such discount which is unamortized.
Except as otherwise provided in the related Prospectus Supplement, so
long as an Event of Default with respect to a Series of Securities remains
unremedied, the Depositor, the Trustee or the holders of Notes of such Series
(or, if no Notes are issued as part of such Series, Certificate) evidencing not
less than 25% of the principal amount of such Securities of such Series may
terminate all of the rights and obligations of the Master Servicer under the
applicable Agreement and/or 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 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 applicable Agreement.
AMENDMENT
Except as otherwise provided in the related Prospectus Supplement, the
Pooling and Servicing Agreement or Sale and Servicing Agreement, as applicable,
for each Series of Securities may be amended
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by the Depositor, the Master Servicer and the Trustee, without the consent of
the Securityholders, (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 under such 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 Securityholder of the related Series. Except as
otherwise provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement or Sale and Servicing Agreement, as applicable, for each
Series of Securities may also be amended by the Depositor, the Master Servicer
and the Trustee with the consent of holders of Securities evidencing not less
than 66 2/3% of the aggregate outstanding principal amount of the Securities of
such Series, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of such Agreement or of modifying in
any manner the rights of the Securityholders; 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 Security
without the consent of the holder of such Security, (ii) adversely affect in any
material respect the interests of the holders of a Class or Subclass of the
Senior Securities, if any, of a Series in a manner other than that set forth in
(i) above without the consent of the holders of the Senior Securities of such
Subclass evidencing not less than 66 2/3% of such Class or Subclass, (iii)
adversely affect in any material respect the interests of the holders of the
Subordinated Securities of a Series in a manner other than that set forth in (i)
above without the consent of the holders of Subordinated Securities evidencing
not less than 66 2/3% of such Class or Subclass or (iv) reduce the aforesaid
percentage of the Securities, the holders of which are required to consent to
such amendment, without the consent of the holders of the Class affected
thereby.
The Trust Agreement for a Series may be amended by the Trustee and the
Depositor without Certificateholder consent, to cure any ambiguity, to correct
or supplement any provision therein that may be inconsistent with any other
provision therein, or 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 Trust Agreement for each Series may also be amended
by the Trustee and the Depositor with the consent of the Holders of Securities
evidencing Percentage Interests aggregating not less than 66 2/3% of each Class
of the Securities 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 Securities the Holders of
which are required to consent to any such amendment, without the consent of the
Holders of all Securities of such Series then outstanding.
TERMINATION
Except as otherwise provided in the related Prospectus Supplement, the
obligations created by the Pooling and Servicing Agreement or Sale and Servicing
Agreement, as applicable, for a Series of Securities 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
Securityholders of all amounts held by the Master Servicer and required to be
paid to them pursuant to the applicable Agreement. The obligations created by
the 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 Trust
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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 Securities, the Master
Servicer will give written notice of termination of the applicable Agreement of
each Securityholder, and the final distribution will be made only upon surrender
and cancellation of the Securities at an office or agency specified in the
notice of termination.
If so provided in the related Prospectus Supplement, the Pooling and
Servicing Agreement or Sale and Servicing Agreement for each Series of
Securities 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
applicable Agreement at a price specified in such Prospectus Supplement. In the
event that the Depositor elects to treat the related Trust Fund as a REMIC 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 Securities 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 related
Prospectus Supplement.
The Indenture will be discharged with respect to a Series of Notes
(except with respect to certain continuing rights specified in the Indenture)
upon the delivery to the Indenture Trustee for cancellation of all the Notes of
such Series or, with certain limitations, upon deposit with the Indenture
Trustee of funds sufficient for the payment in full of all the Notes of such
Series.
CREDIT SUPPORT
Credit support for a Series of Securities may be provided by one or
more Letters of Credit, the issuance of Subordinated Classes or Subclasses of
Securities (which may, if so specified in the related Prospectus Supplement, be
issued in notional amounts), the issuance of subordinated Classes or Subclasses
of Notes, 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
Securities.
LETTERS OF CREDIT
The Letters of Credit, if any, with respect to a Series of Securities
will be issued by the bank or financial institution specified in the related
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 Securities 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 Securities. 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
Securities will expire a specified number of days after the latest of the
scheduled final maturity dates of the Mortgage Loans or Contracts in the related
Mortgage Pool or Contract Pool or the repurchase of
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all Mortgage Loans or Contracts in the Mortgage Pool or Contract Pool in the
circumstances specified above. See "Description of the Securities --
Termination."
Unless otherwise specified in the applicable Prospectus Supplement,
under the applicable Agreement and/or Servicing Agreement, the Master Servicer
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 Securityholders, in the manner specified in the related 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 Securityholders 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 Securities 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 related Prospectus Supplement (the "Required Reserve"), the Securityholders
(in the priority specified in the related 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
Securities 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 related Prospectus Supplement.
SUBORDINATED SECURITIES
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To the extent specified in the Prospectus Supplement with respect to a
Series of Securities, credit support may be provided by the subordination of the
rights of the holders of one or more Classes or Subclasses of Securities to
receive distributions with respect to the Mortgage Loans or Mortgage
Certificates in the Mortgage Pool or Contracts in the Contract Pool underlying
such Series, or with respect to a Subordinated Pool of mortgage loans or
contracts, to the rights of the Senior Securityholders or holders of one or more
Classes or Subclasses of Subordinated Securities of such Series to receive such
distributions, to the extent of the applicable Subordinated Amount or as
otherwise specified in the related Prospectus Supplement. In such a case, credit
support may also be provided by the establishment of a Reserve Fund, as
described below. Except as otherwise provided in the related Prospectus
Supplement, the Subordinated Amount, as described below, will be reduced by an
amount equal to Aggregate Losses. Aggregate Losses will be defined in the
related Agreement for any given period as the aggregate amount of delinquencies,
losses and other deficiencies in the amounts due to the holders of the
Securities 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 Securities of
such Series ("payment deficiencies"), but excluding any payments of interest on
any amounts originally due to the holders of the Securities of a Class or
Subclass to which the applicable Class or Subclass of Subordinated Securities
are subordinated on a previous Distribution Date, but not paid as due, whether
by way of withdrawal from the Reserve Fund (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 Securityholders 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 Securities with respect
to which credit support will be provided by one or more Classes or Subclasses of
Subordinated Securities will set forth the Subordinated Amount for such Series
and/or the manner by which one or more Classes or Subclasses of Securities may
be subordinated to other Classes or Subclasses or Securities. If specified in
the related Prospectus Supplement, the Subordinated Amount will decline over
time in accordance with a schedule which will also be set forth in the related
Prospectus Supplement.
In addition, if so specified in the related Prospectus Supplement, if a
Series of Securities includes Notes, one more Classes or Subclasses of Notes may
be subordinated to another Class or Subclasses of Notes and may be entitled to
receive disproportionate amounts of distributions in respect of principal and
all the Certificates of such Series will be subordinated to all the Notes.
SHIFTING INTEREST
If specified in the Prospectus Supplement for a Series of Securities
for which credit enhancement is provided by shifting interest as described
herein, the rights of the holders of the Subordinated Securities of a Series to
receive distributions with respect to the Mortgage Loans, Mortgage Certificates
or Contracts in the related Trust Fund or Subsidiary Trust will be subordinated
to such right of the holders of the Senior Securities 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
Securities 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
Securities against losses due to mortgagor defaults.
The protection afforded to the holders of Senior Securities of a Series
by the shifting interest subordination feature will be effected by distributing
to the holders of the Senior Securities a disproportionately greater percentage
(the "Senior Prepayment Percentage") of Principal Prepayments. The
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initial Senior Prepayment Percentage will be the percentage specified in the
related Prospectus Supplement and will decrease in accordance with the schedule
and subject to the conditions set forth in the Prospectus Supplement. This
disproportionate distribution of Principal Prepayments will have the effect of
accelerating the amortization of the Senior Securities while increasing the
respective interest of the Subordinated Securities in the Mortgage Pool or
Contract Pool. Increasing the respective interest of the Subordinated Securities
relative to that of the Senior Securities is intended to preserve the
availability of the benefits of the subordination provided by the Subordinated
Securities.
SWAP AGREEMENT
If so specified in the Prospectus Supplement relating to a Series of
Securities, the related 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 Securities having the benefit of an interest rate or currency rate
swap, cap or floor 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 Securities also will set forth certain information relating to
the corporate status, ownership and credit quality of the counterparty or
counterparties to such swap agreement in accordance with applicable rules and
regulations of the Commission.
RESERVE FUND
If so specified in the related Prospectus Supplement, credit support
with respect to one or more Classes or Subclasses of Securities of a Series may
be provided by the establishment and maintenance with the Trustee for such
Series of Securities, in trust, of a Reserve Fund for such Series. Unless
otherwise 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 Contracts with the aggregate principal
balance, as of the related Cut-off Date, set forth in the related Prospectus
Supplement, by any combination of the foregoing, or in another manner specified
in the related Prospectus Supplement. Except as otherwise provided in the
related Prospectus Supplement, following the initial issuance of the Securities
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 related Mortgage Loans or Contracts and/or on the Contracts in the
Subordinated Pool otherwise distributable to the holders of the applicable Class
or Subclasses of Subordinated Securities 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 Securities or on the Securities of such Series to which the applicable
Class or Subclass of Subordinated Securities are subordinated and the
reimbursement of unreimbursed Advances and liquidation expenses, to maintain the
Reserve Fund at the Required Reserve. Except as otherwise provided in the
related Prospectus Supplement, the balance in the Reserve Fund in excess of the
Required Reserve shall be paid to the applicable Class or Subclass of
Subordinated Securities, or to another specified person or entity, as set forth
in the related Prospectus Supplement, and shall be unavailable thereafter for
future distribution to Certificateholders of either 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 related
Prospectus Supplement.
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Except as otherwise provided in the related Prospectus Supplement,
amounts held in the Reserve Fund for a Series from time to time will continue to
be the property of the Subordinated Securityholders of the Classes or Subclasses
specified in the related Prospectus Supplement until withdrawn from the Reserve
Fund and transferred to the Certificate Account as described below. Except as
otherwise provided in the related Prospectus Supplement, if on any Distribution
Date the amount in the Certificate Account available to be applied to
distributions on the applicable Senior Securities 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 Securityholders (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 such Senior Securityholders (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 Securityholders on such Distribution Date to the
Required Distribution; provided, however, that unless specified in the related
Prospectus Supplement no 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 Securityholders. 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
applicable Subordinated Securityholders. Unless otherwise specified in the
related Prospectus Supplement, whenever the Reserve Fund is less than the
Required Reserve, holders of the Subordinated Securities of the applicable Class
or Subclass will not receive any distributions with respect to the Mortgage
Loans, Mortgage Certificates or Contracts other than amounts attributable to
interest on the Mortgage Loans, Mortgage Certificates 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. Except
as otherwise provided in the related Prospectus Supplement, whether or not the
amount of the Reserve Fund exceeds the Required Reserve on any Distribution
Date, the holders of the Subordinated Securities of the applicable Class or
Subclass are entitled to receive from the Certificate Account their share of the
proceeds of any Mortgage Loan, Mortgage Certificates 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. Except as otherwise provided in the related
Prospectus Supplement, 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;
(ii) to the payment to the holders of the applicable
Senior Securities 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
Securities 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
Mortgage Rate or APR, as applicable, to the extent that sufficient
funds in the Certificate Account are not available therefor.
Except as otherwise provided in the related Prospectus Supplement,
amounts in the Reserve Fund in excess of the Required Reserve, including any
investment income on amounts therein, as set forth below,
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shall then be released to the holders of the Subordinated Securities, 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 Agreement and/or Indenture 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 Securities in accordance with
their respective interests in the Reserve Fund in the priority specified in the
related Prospectus Supplement. Unless otherwise specified in the related
Prospectus Supplement, investment income in the Reserve Fund is not available
for distribution to the holders of the Senior Securities of such Series or
otherwise subject to any claims or rights of the holders of the applicable Class
or Subclass of Senior Securities. Eligible investments for monies deposited in
the Reserve Fund will be specified in the applicable Agreement and/or Indenture
for a Series of Securities for which a Reserve Fund is established and in some
instances will be limited to investments acceptable to the Rating Agency rating
the Securities of such Series from time to time as being consistent with its
outstanding rating of such Securities. 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 applicable 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 Securities of such Series and the availability of amounts in the Reserve
Fund for distributions on such Securities 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.
SECURITY GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, Security
Guarantee Insurance, if any, with respect to a Series of Securities may be
provided by one or more insurance companies. Such Security Guarantee Insurance
will guarantee, with respect to one or more Classes of Securities of the related
Series, timely distributions of interest and full distributions of principal on
the basis of a schedule of principal distributions set forth in or determined in
the manner specified in the related Prospectus Supplement. If so specified, in
the related Prospectus Supplement, the Security Guarantee Insurance will also
guarantee against any payment made to a Series of Securities which is
subsequently recovered as a "voidable preference" payment under the Bankruptcy
Code. A copy of the Security Guarantee Insurance for a Series, if any, will be
filed with the Commission as an exhibit to a Current Report on Form 8-K to be
filed with the Commission within 15 days of issuance of the Securities of the
related Series.
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PERFORMANCE BOND
If so specified in the related 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 applicable Agreement and/or Servicing Agreement, including
its obligation to make Advances 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 applicable 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 any Class or
Subclass of Securities 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 such
Securities 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. To the extent specified in
the related Prospectus Supplement, 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 related Prospectus Supplement.
Any material changes in such insurance from the 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 related 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
Securities will be described in the related Prospectus Supplement.
Unless otherwise specified in the related 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") 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.
Unless otherwise specified in the related Prospectus Supplement, 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 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
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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.
Unless otherwise specified in the related Prospectus Supplement, 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 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.
Unless otherwise specified in the related Prospectus Supplement, the
Primary Mortgage Insurer 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
Securities will be described in the related Prospectus Supplement.
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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.
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.
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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
Unless otherwise specified in the related Prospectus Supplement, any
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 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 significantly reduce the value of
the collateral securing such Cooperative Loan to the extent not covered by other
credit support.
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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 related 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 applicable Pooling and Servicing Agreement or Sale and Servicing
Agreement for each Series 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 file
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 lesser of the maximum insurable value of such Manufactured Home or the
principal balance due from the Obligor on the related Contract; 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 such flood insurance to be maintained,
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 use 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.
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POOL INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master
Servicer will obtain a Pool Insurance Policy for a Mortgage Pool underlying
Securities 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 Securities will be described in the
related 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 related 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. The Prospectus Supplement will contain such financial
information regarding the Pool Insurer as may be required by the rules and
regulations of the Commission.
Unless otherwise specified in the related Prospectus Supplement, the
Pool Insurance Policy will provide that as a condition precedent to the payment
of any claim the Insured 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
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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 Securityholders 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 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 of clause (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 Securities -- Assignment of Mortgage Loans," 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
Securityholders 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
Securityholders 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" and " --
Representations by Unaffiliated Sellers; Repurchases" and "Description of the
Securities -- Assignment of Mortgage Loans."
The original amount of coverage under the Pool Insurance Policy will be
reduced over the life of the Securities 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 Securities 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 Securities --Advances."
SPECIAL HAZARD INSURANCE POLICIES
If so specified in the related Prospectus Supplement, the Master
Servicer shall obtain a Special Hazard Insurance Policy for the Mortgage Pool
underlying a Series of Securities. Any Special Hazard Insurance Policies for a
Contract Pool underlying a Series of Securities will be described in the related
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Prospectus Supplement. The Special Hazard Insurance Policy for the Mortgage Pool
underlying the Securities 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 Securities
- -- 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 related Prospectus Supplement.
Subject to the foregoing limitations, each Special Hazard Insurance
Policy 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 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 applicable Agreement and/or Servicing Agreement will
require the Master Servicer to maintain the Special Hazard Insurance Policy in
full force and effect throughout the term of the Agreement. If a Pool Insurance
Policy is required to be maintained pursuant to the 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 Agreement
and/or 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 related Prospectus Supplement, losses resulting from a bankruptcy proceeding
affecting the Mortgage Loans in a Mortgage Pool with respect to a Series of
Securities will be covered under a Mortgagor Bankruptcy Bond (or any
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other instrument that will not result in a downgrading of the rating of the
Securities 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 Securities of the related Series, which will be set
forth in the related 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 Securities may be reduced as long as
any such reduction will not result in a reduction of the outstanding rating of
the Securities 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 installment or 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 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
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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
If specified in the Prospectus Supplement relating to a Series of
Securities, 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.
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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
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Section 216(a) of the Code to the corporation under Sections 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.
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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 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
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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.
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
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loans and who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans.
Unless otherwise specified in the related Prospectus Supplement, each
Mortgage Loan secured by Multifamily Property will be a non-recourse loan to the
Mortgagor. 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.
Unless otherwise specified in the related Prospectus Supplement, the
mortgage securing each Mortgage Loan relating to Multifamily Property will
contain an assignment of rents and an assignment of leases, 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.
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
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prepaid. Under the Servicing Agreements and the applicable 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, 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 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 Securityholders 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 related Prospectus Supplement,
each Unaffiliated Seller will represent, as of the date of delivery of the
related Series of Securities, 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
may be liens prior to or on a parity with the lien of the related mortgage. The
applicable Agreement and/or Servicing 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.
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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 applicable Agreement and/or Servicing Agreement, the Master
Servicer or the Depositor, as the case may be, will transfer physical possession
of the Contracts to the Trustee or Indenture Trustee, or their respective
custodian, as the case may be. 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 or the Indenture
Trustee's security interest in the Contracts, as the case may be. Unless
otherwise specified in the related Prospectus Supplement, the Contracts will not
be stamped or marked otherwise to reflect their assignment from the Depositor to
the Trustee or their pledge to the Indenture Trustee. Therefore, if a subsequent
purchaser were able to take physical possession of the Contracts without notice
of such assignment or pledge, the respective Trustees' 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 Securityholders 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
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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 Securities and as described in the related Prospectus
Supplement, the Master Servicer may be required to perfect a security interest
in the Manufactured 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 Securityholders 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 and, if a Series of
Securities includes Notes, such security interest will be pledged to the
Indenture Trustee on behalf of the Noteholders. Unless otherwise specified in
the related Prospectus Supplement, neither the Depositor nor the Trustee or
Indenture Trustee will amend the certificates of title to identify the Trustee
or the Indenture Trustee, as applicable, 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 Securityholders 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
and pledged to the Noteholders, if any, 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 applicable Securityholders as the new
secured party on the certificate of title that, through fraud or negligence, the
security interest of the Securityholders 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 Indenture Trustee, or the
Master Servicer as custodian for the Trustee and/or Indenture 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 on the certificate of title, the applicable Trustee would
receive notice of surrender if the security interest in the Manufactured Home is
noted on the certificate of title. Accordingly, the Trustee and Indenture
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 installment or conditional sales contracts and installment loan
agreements,
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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 Contract sells a Manufactured Home, the
Trustee or the Indenture Trustee, or the Master Servicer as custodian for the
Trustee or Indenture 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
Contract before release of the lien. Under the applicable Agreement, the Master
Servicer, on behalf of the Depositor, will be 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 applicable 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, Indenture Trustee or
Securityholders 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
applicable Agreement.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES
The Master Servicer on behalf of the Trustee or the Indenture Trustee,
to the extent required by the related Agreement and/or Indenture, may take
action to enforce the applicable 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 and/or Indenture 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
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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.
Unless otherwise specified in the related Prospectus Supplement, 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.
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 Agreement will
represent that all of the Contracts comply with applicable usury laws.
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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
Securities. Where appropriate, additional consequences will be discussed in the
Prospectus Supplement relating to a particular Series. Stroock & Stroock & Lavan
LLP, New York, New York, Brown & Wood LLP, San Francisco, California, or other
counsel to the Depositor specified in the related Prospectus Supplement (each,
"Special Tax Counsel"), is delivering its opinion regarding certain federal
income tax matters discussed below. The opinion addresses only those issues
specifically identified below as being covered by such opinion; however, such
opinion also states that the additional discussion set forth below accurately
sets forth Special Tax Counsel's advice with respect to material federal income
tax issues. As used hereinafter in "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 are 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 Securities. It
is recommended that investors 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 Securities offered hereunder.
The following discussion addresses securities of two general types: (i)
certificates and/or notes ("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 and/or
notes ("Trust Certificates") representing certain interests in a Trust Fund
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 Trust
Fund, together with interest thereon at a remittance rate (which may be less
than, greater than or equal to the related pass-through interest 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 Trust Fund (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 1275
and in Treasury regulations issued under the original issue discount provisions
of the Code (the "OID Regulations"), and the Treasury regulations issued under
the provisions of the Code relating to REMICs (the "REMIC Regulations").
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II. REMIC TRUST FUNDS
A. CLASSIFICATION OF REMIC TRUST FUNDS
With respect to each Series of REMIC Certificates relating to a REMIC
Mortgage Pool, Special Tax Counsel will deliver its 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 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 " -- 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 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 of the
REMIC Mortgage Pool underlying such Certificates ("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 (ii) REMIC Certificates held by a real estate
investment trust ("REIT") will constitute "real estate assets" within the
meaning of Code Section 856(c)(4)(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, for both purposes, the
Assets 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)). See " -- Non-REMIC
Trust Funds --
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Characterization of Investments in Trust Certificates -- Buydown Mortgage
Loans." 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 Section 856(c)(4)(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 Code Section 860G(a)(3) or Section
860G(a)(4) 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 "real estate
asset" within the meaning of Code Section 856 and (ii) 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, Special Tax Counsel will deliver its 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 "real estate assets" within the meaning of Code Section 856(c)(4)(A), and
assets described in Code Section 7701(a)(19)(C), and whether the income on such
Certificates is interest described in Code Section 856(c)(3)(B), 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
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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.
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 (the "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 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 is 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 REMIC Regular 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
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Date (except to the extent of any accrued market discount 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 greater than 0.65 but
not exceeding 1.35, 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. Final regulations issued on June 11, 1996 define an "objective
rate" as a rate determined using a single fixed formula and based on objective
financial information or economic information. However, an objective rate does
not include a rate based on information that is in the control of the issuer or
that is unique to the circumstances of a related party. 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. For a REMIC Regular
Certificate with a Single Variable Rate the qualified stated interest allocable
to an accrual period is increased (or decreased) if the interest actually paid
during an accrual period exceeds (or is less than) the interest assumed to be
paid under the Single Variable Rate. 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."
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
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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 are 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 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 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 " -- Market Discount and Premium."
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 a 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
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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
qualified floating rate (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
Code Section 1272(a)(6) 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 Code Section 1272(a)(6) 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 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
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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. Since the Treasury regulations, issued in
final form on June 11, 1996, applicable to instruments having contingent
payments (the "1996 Contingent Debt Regulations") are not applicable to
instruments that are subject to Code Section 1272(a)(6), 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 issue discount, the REMIC Regular
Certificate's adjusted issue price (as defined under " -- 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), reduced by any
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 is deemed to have made an election to 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 at the
beginning of the first taxable year to which the election applies or acquires
thereafter. The election to accrue interest, discount and premium on a constant
yield method with respect to a Certificate is irrevocable, unless the IRS
consents to a revocation.
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
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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 Tax Reform Act of 1986 (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 might 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 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.
Treasury regulations under Code Section 171 were issued on December 30,
1997 ("Bond Premium Amortization Regulations") which generally provide that
amortizable bond premium is amortized over the term of a note by offsetting the
qualified stated interest allocable to an accrual period with the amortizable
bond premium allocable to such period using a specified constant yield method.
To the extent that the amortizable bond premium allocated to an accrual period
exceeds the qualified stated interest allocable to
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such period, the excess is deductible under Code Section 171 to the extent such
excess does not exceed the difference between (i) prior interest inclusions over
(ii) prior amortizable bond premium deductions on the bond ("Bond Premium
Amortization Limit"), with the excess over the Bond Premium Amortization Limit
carried forward to the next accrual period and treated as amortizable bond
premium allocable to that period. The Bond Premium Amortization Regulations are
effective for notes acquired on or after March 2, 1998. However, if a holder
makes the election to amortize bond premium for the taxable year containing
March 2, 1998, or any subsequent taxable year, the Treasury regulations would
apply to debt instruments held on or after the first day for the taxable year in
which the election is made. The Bond Premium Amortization Regulations
specifically do not apply to debt instruments described in Code Section
1272(a)(b) such as the REMIC Regular Certificates. However, it is possible that
by analogy to these Regulations, any premium on a REMIC Regular Certificate in
excess of interest income may be deductible to the extent of prior accruals of
interests.
3. Treatment of Subordinated Securities
As described above under "Credit Support -- Subordinated Certificates,"
certain Series of Securities may contain one or more Classes or Subclasses of
Subordinated Securities. Holders of Subordinated Securities will be required to
report income with respect to such Securities on the accrual method without
giving effect to delays and reductions in distributions attributable to defaults
or delinquencies on any Mortgage Loans or Contracts, 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 Securityholder of a Subordinated Security in any period
could significantly exceed the amount of cash distributed to such Securityholder
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 Security.
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 Security. Special rules are applicable to banks
and thrift institutions, including rules regarding reserves for bad debts.
Holders of Subordinated Securities should consult their own tax advisers
regarding the appropriate timing, character and amount of any loss sustained
with respect to Subordinated Securities.
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 " -- 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
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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 fixed rate 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.
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 above 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.
Sixth, net income from foreclosure property is reduced by the amount of tax on
net income from foreclosure property. 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
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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
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.
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 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% 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, an excess inclusion cannot be offset by
deductions, losses or loss carryovers from other activities. However, net
operating loss carryovers are determined without regard to excess inclusion
income. 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" below. The
Small Business Job Protection Act of 1996 ("SBJPA of 1996") has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from REMIC Residual Certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to REMIC Residual
Certificates continuously held by thrift institutions since November 1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
Residual Owner. First, alternative minimum taxable income
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for a Residual Owner is determined without regard to the special rule, discussed
above, that taxable income cannot be less than excess inclusions. Second, a
Residual Owner's alternative minimum taxable income for a taxable year cannot be
less than the excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deduction must be computed without
regard to any excess inclusions. These rules are effective for taxable years
beginning after December 31, 1986, unless a Residual Owner elects to have such
rules apply only to taxable years beginning after August 20, 1996.
In the case of any REMIC Residual Certificates held by a REIT, 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, (i) 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 (ii) 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
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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" above.
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
"Technical and Miscellaneous Revenue Act of 1988" (the "1988 Act"). Under
provisions of the applicable Agreement, such organizations generally are
prohibited from owning Residual Certificates. See " --Sales of REMIC
Certificates" below.
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 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% 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. Treasury regulations
provide that, for purposes of this mark-to-market requirement, a REMIC Residual
Certificate acquired on or after January 4, 1995 is not treated as a security
and thus may not be marked to market.
9. Partnership Holders
Special rules for electing partnerships with at least 100 members were
adopted in the Taxpayer Relief Act of 1997 (the "1997 Act"). There are special
rules relating to such electing partnerships that hold REMIC Residual
Certificates. Large partnerships which have or are considering making this
election should consult with their tax advisors concerning the consequences of
holding a REMIC Residual Certificate.
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
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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.
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 REMIC Residual Certificate 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 (i) 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, (ii) any tax-exempt entity (other than a Code Section 521
cooperative) which is not subject to the tax on unrelated business income and
(iii) 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 applicable 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.
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 with respect to any
holder, however, if the record holder of the interest in such entity furnishes
to such entity (i) such holder's social security number and a statement under
penalty of perjury that such social security number is that of the record holder
or (ii) a statement under penalty of perjury that such record holder is not a
disqualified organization. For these purposes, a "pass-through entity" means any
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regulated investment company, REIT, trust, partnership or certain other entities
described in Code Section 860E(e)(6). 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.
The 1997 Act provides that for taxable years beginning after December
31, 1997, all partners of certain electing partnerships having 100 or more
partners ("electing large partnerships") will be treated as disqualified
organizations for purposes of the tax imposed on pass-through entities if such
electing large partnerships hold residual interests in a REMIC. However, the
electing large partnership would be entitled to exclude the excess inclusion
income from gross income for purposes of determining the taxable income of the
partners. When applicable, the provisions would also disallow 70% of an electing
large partnership's miscellaneous itemized deductions, including deductions for
servicing and guaranty fees and any expenses of the REMIC, although the
remaining deductions would generally be allowed at the partnership level and
would not be subject to the 2% floor applicable to individual partners. See "G.
Pass-Through of Servicing Fees" below.
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) will
be allocated to the holders of the REMIC Residual Certificates, and therefore
will 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
Residual 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% 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
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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% tax on the value of any contribution of assets to
the REMIC after the "startup day" (generally 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
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
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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 Code Section 3406 at a rate of 31% 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 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 (i) 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, (ii) the holder of such Certificate signs a
statement under penalty of perjury that certifies that such holder is a non-U.S.
Person and the beneficial owner, and provides the name and address of such
holder and (iii) 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%, subject to reduction under an
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 (unless, in
the case of a partnership, future Treasury regulations provide otherwise), an
estate that is subject to U.S. federal income tax regardless of the source of
its income, or a trust other than a "foreign trust," as defined in Code Section
7701(a)(31).
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% or more of the REMIC
Residual Certificates.
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2. REMIC Residual Certificates
Amounts paid to a Residual Owner that is 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 will thus only
qualify for the portfolio interest exception if the underlying obligations held
by the REMIC would so qualify. Such withholding tax generally is imposed at a
rate of 30% but is 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%,
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 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 continues
to remain liable for any taxes due with respect to the income on such REMIC
Residual Certificate as if held by the U.S. Person. A transfer of a REMIC
Residual Certificate has tax avoidance potential unless, at the time of the
transfer, the transferor reasonably expects (i) that the REMIC will distribute
to the transferee Residual Certificateholder amounts that will equal at least
30% of each excess inclusion and (ii) 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% of the accrued excess inclusions is not terminated
even though the REMIC Residual Certificate is no longer held by a non-U.S.
Person.
Recently issued Treasury regulations (the "Final Withholding
Regulations"), which are generally effective with respect to payments made after
December 31, 1999, consolidate and modify the current certification requirements
and means by which a holder may claim exemption from United States federal
income tax withholding and provide certain presumptions regarding the status of
holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. All holders of REMIC Regular
Certificates and REMIC Residual Certificates should consult their tax advisers
regarding the application of the Final Withholding Regulations.
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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. NON-REMIC TRUST FUNDS
The discussion that follows relates only to Non-REMIC Trust Funds that
have not issued Trust Certificates structured as debt for federal income tax
purposes and that are not intended to be treated as partnerships for federal
income tax purposes. For a discussion of Trust Certificates in a Non-REMIC Trust
Fund which have been structured as debt for federal income tax purposes, see
"IV. Characterization of the Trust Certificates as Indebtedness." For a
discussion of Trust Certificates and Notes in a Non-REMIC Trust Fund which is
intended to be treated as a partnership for federal income tax purposes, see "V.
Tax Characterization as a Partnership."
A. CLASSIFICATION OF TRUST FUNDS
With respect to each series of Trust Certificates, Special Tax Counsel
will deliver their opinion to the effect that the arrangements pursuant to which
such Trust Fund 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 Trust Fund 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.
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 "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), (ii) Trust
Fractional Certificates held by a REIT will represent "real estate assets"
within the meaning of Code Section 856(c)(4)(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)(3)(B) and (iii) Trust Fractional Certificates acquired by a REMIC
in accordance with the requirements of Code Section 860G(a)(3)(A)(i) and (ii) or
Section 860G(a)(4)(B) 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 (iii) 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.
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2. Trust Interest Certificates
With respect to each Series of Certificates, Special Tax Counsel 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 Code Section 860G(a)(3) or Section 860G(a)(4) will be treated as
owning a "Qualified Mortgage" within the meaning of Code Section 860(G)(a)(3).
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, (i) a Trust Interest Certificate owned by a "domestic
building and loan association" within the meaning of Code Section 7701(a)(19)
would be considered to represent "loans . . . secured by an interest in real
property" within the meaning of Code Section 7701(a)(19)(C)(v) or (ii) a REIT
which owns a Trust Interest Certificate would be considered to own "real estate
assets" within the meaning of Code Section 856(c)(4)(A), and interest income
thereon would 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 Trust Funds 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 Trust Funds
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) to the
extent the outstanding principal balance of the Buydown Mortgage Loans exceeds
the amount held 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.
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)(4)(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 Trust Funds included in a
Mortgage Pool.
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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 fractional interests having differing
undivided percentage interests in principal and interest 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 Depositor 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 such holder's adjusted gross income. In addition, the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the "applicable amount" ($100,000 (or
$50,000 in the case of a separate return by a married individual) adjusted for
changes in the cost of living subsequent to 1990) will be reduced by the lesser
of (i) 3 percent of the excess of adjusted gross income over the applicable
amount, or (ii) 80 percent of the amount of itemized deductions allowable for
such taxable year. For taxable years beginning after December 31, 1997, in the
case of a partnership that has 100 or more partners and elects to be treated as
an "electing large partnership," 70 percent of such partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will
generally be allowed at the partnership level and will not be subject to the 2
percent flood that would otherwise be applicable to individual partners.
Moreover, a holder of a Trust Fractional Certificate that is not a corporation
cannot deduct such fees for purposes of the alternative minimum tax (if
applicable). 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. A
"Stripped Mortgage Loan" means a Mortgage Loan having a Retained Yield (as that
term is defined below) or a Mortgage Loan included in a Trust Fund 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.
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, ("Retained Yield"). If such a view were sustained with respect to a
particular Trust Fund, 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 compensation payable to the Master Servicer, as described under
"Description of the Securities -- Servicing Compensation and Payment of
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Expenses," 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.
1. Application of Stripped Bond Rules
Each Trust Fund 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, Special Tax Counsel 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 Trust Fund 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 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." Unless the market discount rules
apply, subsequent purchasers of the Certificates may be required to include
"original issue discount" in an amount computed using the price at which such
subsequent purchaser purchased the Certificates.
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
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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 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 basis (or on the basis of the
rights to individual payments) 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 Trust Fund for which there is neither any Class of
Trust Interest Certificates, nor more than one Class of Trust Fractional
Certificates, nor any Retained Yield and which are not otherwise identified in
the Prospectus Supplement as being stripped mortgage loans ("Unstripped Mortgage
Loans") will be treated as wholly owned by the Trust Fractional
Certificateholders of a Trust Fund. Trust Fractional Certificateholders using
the cash method of accounting must take into account their pro rata share 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
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Unstripped Mortgage Loans as it accrues or is received by the Trustee, whichever
is earlier. Under the 1997 Act, gain or loss from the termination of a newly
originated mortgage will be treated as capital gain or loss.
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 in income 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 have original issue discount if the
points charged at origination (or other loan discount) exceed the greater of
approximately one-sixth of one percent times the number of full years to final
maturity or one-fourth of one percent times weighted average maturity. 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 " -- REMIC Trust Funds -- 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
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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 among each of the Mortgage Loans (on
the basis of their relative fair market values). 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 Bond Premium Amortization Regulations generally provide that
amortizable bond premium is amortized over the term of a note by offsetting the
qualified stated interest allocable to an accrual period with the amortizable
bond premium allocable to such period using a specified constant yield method.
To the extent that the amortizable bond premium allocated to an accrual period
exceeds the qualified stated interest allocable to such period, the excess is
deductible under Code Section 171 to the extent such excess does not exceed the
difference between (i) prior interest inclusions over (ii) the Bond Premium
Amortization Limit, with the excess over the Bond Premium Amortization Limit
carried forward to the next accrual period and treated as amortizable bond
premium allocable to that period. The Bond Premium Amortization Regulations are
effective for notes acquired on or after March 2, 1998. However, if a holder
makes the election to amortize bond premium for the taxable year containing
March 2, 1998, or any subsequent taxable year, the Treasury regulations would
apply to debt instruments held on or after the first day for the taxable year in
which the election is made. The Bond Premium Amortization Regulations
specifically do not apply to a pool of prepayable debt instruments subject to
Code Section 1272(a)(6). However, by analogy to these regulations, it may be
possible to deduct any premium in excess of interest income to the extent of
prior accrual of interest.
4. Allocation of Purchase Price
As noted above, 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 Trust Fund 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, Special Tax Counsel 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," 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
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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 such holder's adjusted gross income. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the "applicable amount" ($100,000 (or $50,000 in
the case of a separate return by a married individual), adjusted for changes in
the cost of living subsequent to 1990) will be reduced by the lesser of (i) 3
percent of the excess of adjusted gross income over the applicable amount, or
(ii) 80 percent of the amount of itemized deductions allowable for such taxable
year. For taxable years beginning after December 31, 1997, in the case of a
partnership that has 100 or more partners and elects to be treated as an
"electing large partnership," 70 percent of such partnership's miscellaneous
itemized deductions will be disallowed, although the remaining deductions will
generally be allowed at the partnership level and will not be subject to the 20
percent flood that would otherwise be applicable to individual partners.
Moreover, a holder of a Trust Fractional Certificate that is not a corporation
cannot deduct such fees for purposes of the alternative minimum tax (if
applicable). 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, Special Tax Counsel 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 payment 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 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 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 payment 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 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
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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 under " -- REMIC Trust Funds -- Taxation of Owners of
REMIC Regular Certificates -- Original Issue Discount" apply. 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.
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. 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 1997 Act provides that the prepayment rules of Code
Section 1272(a)(6), discussed above, will also apply to pools of debt
instruments the yield on which may be affected by reason of prepayments. Trust
Fractional Certificateholders and Trust Interest Certificateholders should
consult their tax advisers as to the proper reporting of income from Trust
Fractional Certificates and Trust Interest Certificates, as the case may be, in
the light of the possibility of prepayment and, as to the possible application
of the 1996 Contingent Debt Regulations.
F. SALES OF TRUST CERTIFICATES
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
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Certificate was held as a capital asset except to the extent that code Section
582(c) applies to such gain or loss. Any such gain or loss would be long-term
capital gain or loss if the Certificateholder's holding period exceeded one
year.
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 Interest 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 with respect to REMIC Certificates" 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 (unless, in the case of a partnership, future Treasury
regulations provide otherwise), or a 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% or more of, and
is not a controlled foreign corporation (within the meaning of Code Section 957)
related to, an issuer of Mortgage Loan 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 Mortgage Loans were
issued after July 18, 1984. 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. This withholding tax may be reduced or
eliminated by an applicable tax treaty.
Recently issued Treasury regulations (the "Final Withholding
Regulations"), which are generally effective with respect to payments made after
December 31, 1999, consolidate and modify the current certification requirements
and means by which a holder may claim exemption from United States federal
income tax withholding and provide certain presumptions regarding the status of
holders when payments to the holders cannot be reliably associated with
appropriate documentation provided to the payor. All holders of Trust Fractional
Certificates and Trust Interest Certificates should consult their tax advisers
regarding the application of the Final Withholding Regulations.
J. STATE AND LOCAL TAXATION
In addition to the federal income tax consequences described above,
potential investors should consider the state income tax consequences of the
acquisition, ownership, and disposition of the Securities. State income tax law
may differ substantially from the corresponding federal law, and this discussion
does
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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
Securities.
IV. CHARACTERIZATION OF THE TRUST CERTIFICATES AS INDEBTEDNESS
A. CHARACTERIZATION OF INVESTMENTS IN TRUST CERTIFICATES
With respect to each Series of Trust Certificates that have been
structured as debt for federal income tax purposes, Special Tax Counsel will
deliver their opinion to the effect that the Trust Certificates will be treated
as debt instruments for federal income tax purposes as of such date rather than
as ownership interests in the Trust Fund.
The Depositor, each Unaffiliated Seller and the Certificateholders will
express in the Agreement their intent that, for applicable tax purposes, the
Trust Certificates will be indebtedness secured by the Mortgage Loans. The
Depositor, each Unaffiliated Seller and each Certificateholder, by its
acceptance and acquisition of a beneficial interest in a Trust Certificate, will
have agreed to treat the Trust Certificates as indebtedness for federal income
tax purposes. However, because different criteria are used to determine the
non-tax accounting characterization of a securitization transaction, the
transaction may be treated as a sale of an interest in the Mortgage Loans for
financial accounting purposes.
In general, whether for federal income tax purposes a transaction
constitutes a sale of property or a loan, the repayment of which is secured by
property, is a question of fact, the resolution of which is based upon the
economic substance of the transaction rather than its form or the manner in
which it is labeled. While the IRS and the courts have set forth several factors
to be taken into account in determining whether the substance of a transaction
is a sale of property or a secured loan, the primary factor in making this
determination is whether the transferee has assumed the risk of loss or other
economic burdens relating to the property and has obtained the benefits of
ownership thereof. Special Tax Counsel has analyzed and relied on several
factors in reaching its opinion that the weight of the benefits and burdens of
ownership of the Mortgage Loans has been retained by the Depositor or an
Unaffiliated Seller and has not been transferred to the Certificateholders.
In some instances, 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. Special Tax Counsel has advised that
the rationale of those cases will not apply to this transaction, because the
form of the transaction as reflected in the operative provisions of the
documents either accords with the characterization of the Trust Certificates as
debt or otherwise makes the rationale of those cases inapplicable to this
situation.
B. TAXATION OF INTEREST INCOME OF CERTIFICATEHOLDERS
Assuming that the Certificateholders are holders of debt obligations
for federal income tax purposes, the Trust Certificates generally will be
taxable as debt. The stated interest thereon will be taxable to a
Certificateholder as ordinary interest income when received or accrued in
accordance with such Certificateholder's method of tax accounting. Under the OID
Regulations, a holder of a debt instrument issued with a de minimis amount of
original issue discount must include such original issue discount in income, on
a pro rata basis, as principal payments are made on the debt instrument. A
subsequent purchaser who buys a Trust Certificate for more or less than its
principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Code.
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A holder of a Trust Certificate that has a fixed maturity date of not
more than one year from the issue date of such Trust Certificate (a "Short-Term
Certificate") may be subject to special rules. An accrual basis holder of a
Short-Term Certificate (and certain cash method holders, including regulated
investment companies, as set forth in Code Section 1281) generally would be
required to report interest income as interest accrues on a straight-line basis
over the term of each interest period, unless an election is made to accrue
interest income pursuant to a constant yield method, compared on a daily basis.
Other cash basis holders of a Short-Term Certificate would, in general, be
required to report interest income as interest is paid (or, if earlier, upon the
taxable disposition of the Short-Term Certificate). However, a cash basis holder
of a Short-Term Certificate reporting interest income as it is paid may be
required to defer a portion of any interest expense otherwise deductible on
indebtedness incurred to purchase or carry the Short-Term Certificate until the
taxable disposition of the Short-Term Certificate. A cash basis taxpayer may
elect under Code Section 1281 to accrue interest income on all nongovernment
debt obligations with a term of one year or less, in which case the taxpayer
would include interest on a Short-Term Certificate in income as it accrues, and
would not be subject to the interest expense deferral rule referred to in the
preceding sentence. Certain special rules apply if a Short-Term Certificate is
purchased for more or less than its principal amount.
While it is not anticipated that the Trust Certificates will be issued
at a greater than de minimis discount, it is possible that the Trust
Certificates could nevertheless be deemed to have been issued with original
issue discount if interest with respect to the Trust Certificates were not
treated as "unconditionally payable" under the OID Regulations. In such event,
all of the taxable income to be recognized with respect to the Trust
Certificates would be includible in income of Certificateholders as original
issue discount, but would not be includible again when the interest is actually
received.
C. POSSIBLE CLASSIFICATION AS A PARTNERSHIP OR ASSOCIATION TAXABLE AS A
CORPORATION
The opinion of Special Tax Counsel is not binding on the courts or the
IRS. It is possible that the IRS could assert that, for federal income tax
purposes, the transaction contemplated with respect to the Certificates
constitutes a sale of the Mortgage Loans (or an interest therein) to the
Certificateholders and that the proper classification of the legal relationship
between the Depositor, any Unaffiliated Seller and the Certificateholders
resulting from this transaction is that of a partnership, or a publicly traded
partnership taxable as a corporation. Since Special Tax Counsel has advised that
the Trust Certificates will be treated as indebtedness in the hands of the
Certificateholders for federal income tax purposes, neither the Depositor nor
any Unaffiliated Seller will attempt to comply with federal income tax reporting
requirements applicable to partnerships or corporations.
If it were determined that this transaction created an entity
classified as a corporation (i.e. a publicly traded partnership taxable as a
corporation), the Trust Fund would be subject to federal income tax at corporate
income tax rates on the income it derives from the Mortgage Loans, which would
reduce the amounts available for distribution to the Certificateholders. Cash
distributions to the Certificateholders generally would be treated as dividends
for federal income tax purposes to the extent of such corporation's earnings and
profits.
If the transaction were treated as creating a partnership, the
partnership itself would not be subject to federal income tax (unless it were to
be characterized as a publicly traded partnership taxable as a corporation);
rather, each partner (including each Certificateholder) would be taxed
individually on its respective distributive shares of the partnership's income,
gain, loss, deductions and credits. The amount and timing of items of income and
deductions of the Certificateholders could differ if the Certificates were held
to constitute partnership interests rather than indebtedness. Assuming that all
of the provisions of the
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Agreement, as in effect on the date of the issuance, are complied with, it is
the opinion of Special Tax Counsel that the Trust Fund will not be treated as a
corporation.
D. POSSIBLE CLASSIFICATION AS A TAXABLE MORTGAGE POOL
In relevant part, Section 7701(i) of the Code provides that any entity
(or a portion of an entity) that is a "taxable mortgage pool" will be classified
as a taxable corporation and will not be permitted to file a consolidated
federal income tax return with another corporation. Any entity (or a portion of
any entity) will be a taxable mortgage pool if (i) it is not a REMIC (or, after
September 1, 1997, a FASIT), (ii) substantially all of its assets consist of
debt instruments, more than 50% of which are real estate mortgages, (iii) the
entity is the obligor under debt obligations with two or more maturities, and
(iv) under the terms of the entity's debt obligations (or an underlying
arrangement), payments on such debt obligations bear a relationship to the debt
instruments held by the entity.
Assuming that all of the provisions of the Agreement, as in effect on
the date of issuance, are complied with, Special Tax Counsel is of the opinion
that the arrangement created by the Agreement will not be a taxable mortgage
pool under Section 7701(i) of the Code because only one class of indebtedness
secured by the Mortgage Loans is being issued.
The opinion of Special Tax Counsel is not binding on the courts or the
IRS. If the IRS were to contend successfully (or future regulations were to
provide) that the arrangement created by the Agreement is a taxable mortgage
pool, such arrangement would be subject to federal corporate income tax on its
taxable income generated by ownership of the Mortgage Loans. Such a tax might
reduce amounts available for distributions to Certificateholders. The amount of
such a tax would depend upon whether distributions to Certificateholders would
be deductible as interest expense in computing the taxable income of such an
arrangement as a taxable mortgage pool.
E. FOREIGN INVESTORS
In general, subject to certain exceptions, interest (including original
issue discount) paid on a Trust Certificate to a nonresident alien individual,
foreign corporation or other non-United States person is not subject to United
States federal income tax, provided that such interest is not effectively
connected with a trade or business of the recipient in the United States and the
Certificateholder provides the required certification of foreign status.
If the interests of the Certificateholders were deemed to be
partnership interests, the partnership would be required, on a quarterly basis,
to pay withholding tax equal to the product, for each foreign partner, of such
foreign partner's distributive share of "effectively connected" income of the
partnership multiplied by the highest United States rate of tax applicable to
that foreign partner. In addition, such foreign partner, if a corporation or
association taxable as a corporation, could be subject to branch profits tax.
Each non-foreign partner would be required to certify to the partnership that it
is not a foreign person. The tax withheld from each foreign partner would be
credited against such foreign partner's United States federal income tax
liability.
If the Trust Fund were taxable as a corporation, distributions to
foreign persons, to the extent treated as dividends, would generally be subject
to withholding at the rate of 30%, unless such rate were reduced by an
applicable tax treaty.
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F. BACKUP WITHHOLDING
Certain Certificateholders may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Trust Certificates if the
Certificateholder, upon issuance, fails to supply the Trustee or his broker with
his taxpayer identification number, furnishes an incorrect taxpayer
identification number, fails to report interest, dividends, or other "reportable
payments" (as defined in the Code) properly, or, under certain circumstances,
fails to provide the Trustee or his broker with a statement, certified under
penalties of perjury, that he is not subject to backup withholding.
The Trustee will be required to report annually to the IRS, and to each
Certificateholder of record, the amount of interest paid (and original issue
discount accrued, if any) on the Trust Certificates (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as to
exempt holders (generally, holders that are corporations, certain tax-exempt
organizations or nonresident aliens who provide certification as to their status
as nonresidents). As long as the only "Certificateholder" of record is Cede, as
nominee for DTC, Certificateholders and the IRS will receive tax and other
information including the amount of interest paid on the Trust Certificates from
other persons holding Trust Certificates directly or indirectly through DTC,
rather than from the Trustee. (The Trustee, however, will respond to requests
for necessary information to enable such other persons to complete their
reports.) Each non-exempt Certificateholder will be required to provide, under
penalties of perjury, a certificate on IRS Form W-9 containing his or her name,
address, correct federal taxpayer identification number and a statement that he
or she is not subject to backup withholding. Should a non-exempt
Certificateholder fail to provide the required certification, 31% of the
interest (and principal) otherwise payable to the Certificateholder will be
required to be withheld and remitted to the IRS as a credit against the
Certificateholder's federal income tax liability.
G. SALE OR OTHER DISPOSITION
If a Certificateholder sells a Trust Certificate, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the Certificateholder's adjusted tax basis in the Trust
Certificate. The adjusted tax basis of a Trust Certificate to a particular
Certificateholder will equal the holder's cost for the Trust Certificate,
increased by any market discount, acquisition discount, original issue discount
and gain previously included by such Certificateholder in income with respect to
the Trust Certificate and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously received
by such Certificateholder with respect to such Trust Certificate. Any such gain
or loss will generally be capital gain or loss if the Trust Certificate was held
as a capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Any such capital gain or loss
would be long-term capital gain or loss if the Certificateholder's holding
period exceeded one year. Capital losses generally may be used only to offset
capital gains.
H. STATE AND LOCAL TAXATION
In addition to the federal income tax consequences described above,
potential investors should consider the state income tax consequences of the
acquisition. ownership, and disposition of the Trust 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 Trust
Certificates.
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V. TAX CHARACTERIZATION AS A PARTNERSHIP OR DIVISION
Special Tax Counsel will deliver its opinion for an Issuer which is
intended to be a partnership for federal income tax purposes, as specified in
the related Prospectus Supplement, generally to the effect that the Issuer will
not be an association (or publicly traded partnership) taxable as a corporation
for federal income tax purposes. This opinion will be based on the assumption
that the terms of the Trust Agreement and related documents will be complied
with, and on counsel's conclusion that the nature of the income of the Issuer
will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations or such rule is otherwise inapplicable to the Issuer, so
that the Issuer will not be characterized as a publicly traded partnership
taxable as a corporation, and that no action will be taken that is inconsistent
with the treatment of the Issuer as a partnership (such as an election to treat
the Issuer as a corporation for federal income tax purposes). If, however, the
Issuer has a single owner for federal income tax purposes, it will be treated as
a division of its owner and as such will be disregarded as an entity separate
from its owner for federal income tax purposes, assuming no election will be
made to treat the Issuer as a corporation for federal income tax purposes.
Certain entities classified as "taxable mortgage pools" are subject to
corporate level tax on their net income. A "taxable mortgage pool" is generally
defined as an entity that meets the following requirements: (i) the entity is
not a REMIC (or, after September 1, 1997, a FASIT), (ii) substantially all of
the assets of the entity are debt obligations, and more than 50 percent of such
debt obligations consists of real estate mortgages (or interests therein), (iii)
the entity is the obligor under debt obligations with two or more maturities,
and (iv) payments on the debt obligations on which the entity is the obligor
bear a relationship to the payments on the debt obligations which the entity
holds as assets. With respect to requirement (iii), the Code authorizes the
Internal Revenue Service to provide by regulations that equity interests may be
treated as debt for purposes of determining whether there are two or more
maturities. If the Issuer were treated as a taxable mortgage pool, it would be
ineligible to file consolidated returns with any other corporation and could be
liable for corporate tax. Treasury regulations do not provide for the
recharacterization of equity as debt for purposes of determining whether an
entity has issued debt with two maturities, except in the case of transactions
structured to avoid the taxable mortgage pool rules. Special Tax Counsel will
deliver its opinion for an Issuer which is intended to be a partnership for
federal income tax purposes, as specified in the related Prospectus Supplement,
generally to the effect that the Issuer will not be a taxable mortgage pool.
This opinion will be based on the assumption that the terms of the Trust
Agreement and related documents will be complied with, and on counsel's
conclusion that either the number of classes of debt obligations issued by the
Issuer, or the nature of the assets held by the Issuer, will exempt the Issuer
from treatment as a taxable mortgage pool.
If the Issuer were taxable as a corporation for federal income tax
purposes, the Issuer would be subject to corporate income tax on its taxable
income. The Issuer's taxable income would include all its income, possibly
reduced by its interest expense on the Notes. Any such corporate income tax
could materially reduce cash available to make payments on the Notes and
distributions on the Certificates, and Certificateholders could be liable for
any such tax that is unpaid by the Issuer. In addition, distributions to the
Certificateholders generally would be taxable as dividends.
A. TAX CONSEQUENCES TO HOLDERS OF THE NOTES ISSUED BY A PARTNERSHIP OR DIVISION
1. Treatment of the Notes as Indebtedness
The Issuer will agree, and the Noteholders will agree by their purchase
of Notes, to treat the Notes as debt for federal income tax purposes. Except as
otherwise provided in the related Prospectus Supplement,
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Special Tax Counsel will advise the Depositor that in its opinion the Notes will
be classified as debt for federal income tax purposes.
2. Possible Alternative Treatments of the Notes
If, contrary to the opinion of 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 Issuer. If so
treated, the Issuer might be treated as a publicly traded partnership that would
not be taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to foreign holders generally would be subject to
United States federal income tax and United States federal income tax return
filing and withholding requirements, and individual holders might be subject to
certain limitations on their ability to deduct their share of the Issuer's
expenses.
3. Interest Income on the Notes
The stated interest on the Notes will be taxable to a Noteholder as
ordinary income when received or accrued in accordance with such Noteholder's
method of tax accounting. It is not anticipated that the Notes will be issued
with original issue discount within the meaning of Section 1273 of the Code. A
subsequent holder who purchases a Note at a discount that exceeds a statutorily
defined de minimis amount will be subject to the "market discount" rules of the
Code, and a holder who purchases a Note at a premium will be subject to the
premium amortization rules of the Code.
4. Sale or Other Disposition
If a Noteholder sells a Note, the holder will recognize gain or loss in
an amount equal to the difference between the amount realized on the sale and
the holder's adjusted tax basis in the Note. The adjusted tax basis of a Note to
a particular Noteholder will equal the holder's cost for the Note, increased by
original issue discount (if any), and market discount previously included by
such Noteholder in income with respect to the Note and decreased by the amount
of bond premium (if any) previously amortized and by the amount of principal
payments previously received by such Noteholder with respect to such Note.
Subject to the rules of the Code concerning market discount on the Notes, any
such gain or loss generally will be capital gain or loss if the Note was held as
a capital asset. Any such gain or loss would be long-term capital gain or loss
if the Noteholder's holding period exceeded one year. Capital losses generally
may be deducted only to the extent the Noteholder has capital gains for the
taxable year, although under certain circumstances non-corporate Noteholders can
deduct losses in excess of available capital gains.
5. Foreign Holders
If interest paid (or accrued) to a Noteholder who is a nonresident
alien, foreign corporation or other non-United States person (a "foreign
person") is not effectively connected with the conduct of a trade or business
within the United States by the foreign person, the interest generally will be
considered "portfolio interest," and generally will not be subject to United
States Federal income tax and withholding tax, if the foreign person (i) is not
actually or constructively a "10 percent shareholder" of the Trust or the
Depositor (including a holder of 10% of the outstanding Certificates) or a
"controlled foreign corporation" with respect to which the Trust or the
Depositor is a "related person" within the meaning of the Code and (ii) provides
the person otherwise required to withhold United States tax with an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing the foreign person's name
and address. If the information provided in the statement changes, the foreign
person must so inform the person otherwise required to withhold United States
tax within 30 days of such
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change. The statement generally must be provided in the year a payment occurs
(prior to such payment) or in either of the two preceding years. If a Note is
held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the withholding agent. However, in that case, the signed statement must be
accompanied by a Form W-8 or substitute form provided by the foreign person that
owns the Note. If such interest in not portfolio interest, then it will be
subject to United States federal income and withholding tax at a rate of 30%,
unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign individual is not present in the United States for 183 days
or more in the taxable year.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person (although exempt from the withholding tax
previously discussed if the holder provides an appropriate statement), the
holder generally will be subject to United States federal income tax on the
interest, gain or income at regular federal income tax rates. In addition, if
the foreign person is a corporation or association taxable as a corporation, it
may be subject to a branch profits tax equal to 30% of its "effectively
connected earnings and profits" within the meaning of the Code for the taxable
year, as adjusted for certain items, unless it qualifies for a lower rate under
an applicable tax treaty (as modified by the branch profits tax rules). The
Final Withholding Regulations, which are generally effective with respect to
payments made after December 31, 1999, consolidate and modify the current
certification requirements and means by which a holder may claim exemption from
United States federal income tax withholding and provide certain presumptions
regarding the status of holders when payments to the holders cannot be reliably
associated with appropriate documentation provided to the payor. All Noteholders
should consult their own tax advisers regarding the application of these
regulations.
6. Information Reporting and Backup Withholding
The Trust will be required to report annually to the IRS, and to each
Noteholder of record, the amount of interest paid on the Notes (and the amount
of interest withheld for federal income taxes, if any) for each calendar year,
except as to exempt holders (generally, holders that are corporations,
tax-exempt organizations, qualified pension and profit-sharing trusts,
individual retirement accounts, or nonresident aliens who provide certification
as to their status as nonresidents). Accordingly, each holder (other than exempt
holders who are not subject to the reporting requirements) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold
31% of the amount otherwise payable to the holder, and remit the withheld amount
to the IRS, as a credit against the holder's federal income tax liability.
B. TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES ISSUED BY A PARTNERSHIP OR
DIVISION
1. Treatment of the Issuer as a Partnership
In the case of an Issuer intended to qualify as a partnership for
federal income tax purposes, the Issuer and the Depositor will agree, and the
Certificateholders will agree by their purchase of Certificates, to
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treat the Issuer as a partnership for purposes of United States 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, or if there is a single
Certificateholder for federal income tax purposes, to disregard the Issuer as an
entity separate from the Certificateholder, being the assets held by the Issuer,
the partners of the partnership being the Certificateholders, and the Notes, if
any, being debt of the partnership. However, the proper characterization of the
arrangement involving the Certificates, the Notes, the Issuer and the Servicer
is not clear because there is no authority on transactions closely comparable to
that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Issuer. Generally, provided the
Certificates are issued at or close to face value, any such characterization
would not result in materially adverse tax consequences to Certificateholders as
compared to the consequences from treatment of the Certificates as equity in a
partnership, described below. The following discussion assumes that the
Certificates represent equity interests in a partnership.
2. Partnership Taxation
As a partnership, the Issuer will not be subject to federal income tax.
Rather, each Certificateholder will be required to separately take into account
such holder's allocated share of income, gains, losses, deductions and credits
of the Issuer. The Issuer's income will consist primarily of interest and
finance charges earned on the Mortgage Loans (including appropriate adjustments
for market discount, original issue discount and bond premium) and any gain upon
collection or disposition of Mortgage Loans. The Issuer's deductions will
consist primarily of interest and original issue discount accruing with respect
to the Notes, servicing and other fees, and losses or deductions upon collection
or disposition of Mortgage Loans.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Issuer for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Interest Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) any
Issuer income attributable to discount on the Mortgage Loans that corresponds to
any excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the
Issuer of premium on Mortgage Loans that corresponds to any excess of the issue
price of Certificates over their principal amount. All remaining taxable income
of the Issuer will be allocated to the Depositor. Based on the economic
arrangement of the parties, this approach for allocating Issuer 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 Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Interest Rate
plus the other items described above even though the Issuer might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on
Issuer income even if they have not received cash from the Issuer to pay such
taxes. In addition, because tax allocations and tax reporting will be done on a
uniform basis for all Certificateholders but Certificateholders may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Issuer.
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If Notes are also issued, some or all of the taxable income allocated
to a Certificateholder that is a pension, profit sharing or employee benefit
plan or other tax-exempt entity (including an individual retirement account)
will constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Issuer (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Issuer. Such deductions may also be subject to reduction under Section 68 of
the Code if the individual's adjusted gross income exceeds certain limits. See
"--Non-REMIC Trust Funds--Taxation of Owners of Trust Traction Certificates."
The Issuer intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Mortgage Loan, the
Issuer might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
3. Discount and Premium
It is believed that the Mortgage Loans were not issued with original
issue discount and, therefore, the Trust should not have original issue discount
income. However, the purchase price paid by the Issuer for the Mortgage Loans
may be greater or less than the remaining principal balance of the Mortgage
Loans at the time of purchase. If so, the Mortgage Loan will have been acquired
at a premium or discount, as the case may be. (As indicated above, the Issuer
will make this calculation on an aggregate basis, but might be required to
recompute it on a Mortgage Loan by Mortgage Loan basis.)
If the Issuer acquires the Mortgage Loans at a market discount or
premium, the Issuer will elect to include any such discount in income currently
as it accrues over the life of the Mortgage Loans or to offset any such premium
against interest income on the Mortgage Loans. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
4. Section 708 Termination
Under Section 708 of the Code, the Issuer will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Issuer are sold or exchanged within a 12-month period. If such
a termination occurs, the partnership will be considered to have transferred its
assets and liabilities to a new partnership in exchange for interests in that
new partnership, which it would then be treated as transferring to its partners.
5. 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. Any such gain or loss would
be long-term capital gain or loss if the Certificateholder's holding period
exceeded one year. A Certificateholder's tax basis in a Certificate will
generally equal the holder's cost increased by the holder's share of Issuer
income (includible in income) and decreased by any distributions received with
respect to such Certificate. In addition, both the tax basis in the Certificates
and the amount realized on a sale of a Certificate would include the holder's
share of the Notes and other liabilities of the Issuer. A holder acquiring
Certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in
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such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Mortgage Loans would
generally be treated as ordinary income to the holder and would give rise to
special tax reporting requirements. The Issuer does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Issuer will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
6. Allocations Between Depositors and Transferees
In general, the Issuer's taxable income and losses will be determined
monthly and the tax items for a particular calendar month will be apportioned
among the Certificateholders in proportion to the principal amount of
Certificates owned by them as of the close of the last day of such month. As a
result, a holder purchasing Certificates may be allocated tax items (which will
affect its tax liability and tax basis) attributable to periods before the
actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations and federal tax counsel is unable to opine on the matter. If a
monthly convention is not allowed (or only applies to transfers of less than all
of the partner's interest), taxable income or losses of the Issuer might be
reallocated among the Certificateholders. The Issuer's method of allocation
between transferors and transferees may be revised to conform to a method
permitted by future regulations.
7. Section 754 Election
In the event that a Certificateholder sells its Certificates at a
profit (or loss), the purchasing Certificateholder will have a higher (or lower)
basis in the Certificates than the selling Certificateholder had. The tax basis
of the Issuer's assets will not be adjusted to reflect that higher (or lower)
basis unless the Issuer were to file an election under Section 754 of the Code.
In order to avoid the administrative complexities that would be involved in
keeping accurate accounting records, as well as potentially onerous information
reporting requirements, the Issuer currently does not intend to make such
election. As a result, Certificateholders might be allocated a greater or lesser
amount of Issuer income than would be appropriate based on their own purchase
price for Certificates.
8. Administrative Matters
The Trustee is required to keep or have kept complete and accurate
books of the Issuer. Such books will be maintained for financial reporting and
tax purposes on an accrual basis and the fiscal year of the Issuer 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 Issuer and will report each
Certificateholder's allocable share of items of Issuer income and expense to
holders and the IRS on Schedule K-1. The Issuer will provide the Schedule K-1
information to nominees that fail to provide the Issuer 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 Issuer or be subject to penalties unless the
holder timely notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Issuer
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Issuer 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 Issuer. The information referred to above for any
calendar year must be furnished to the Issuer on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Issuer
with the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in certain disputes with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Issuer by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Issuer. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Issuer.
9. Tax Consequences to Foreign Certificateholders
It is not clear and federal tax counsel is unable to opine whether the
Issuer 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 persons 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 Issuer would be engaged in a trade or business in the United
States for such purposes, the Issuer will withhold as if it were so engaged in
order to protect the Issuer from possible adverse consequences of a failure to
withhold. The Issuer expects to withhold on the portion of its taxable income
that is allocable to foreign Certificateholders pursuant to Section 1446 of the
Code, as if such income were effectively connected to a United States trade or
business, at a rate of 35% for foreign holders that are taxable as corporations
and 39.6% for all other foreign holders. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Issuer to change its withholding procedures.
If the trust is engaged in a United States trade or business, each
foreign holder might be required to file a United States individual or corporate
income tax return (including, in the case of a corporation, the branch profits
tax) on its share of the Issuer's income. A foreign holder generally would be
entitled to file with the IRS a claim for refund with respect to taxes withheld
by the Issuer taking the position that no taxes were due because the Issuer was
not engaged in a United States trade or business. However, interest payments
made (or accrued) to a Certificateholder who is a foreign person generally will
be considered guaranteed payments to the extent such payments are determined
without regard to the income of the Issuer,
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and for that reason or because of the nature of the assets of the Issuer
probably will not be considered "portfolio interest." As a result, even if the
Issuer was not considered to be engaged in a United States trade or business,
Certificateholders will be subject to United States federal income tax which
must be withheld at a rate of 30%, unless reduced or eliminated pursuant to an
applicable treaty. A foreign holder would be entitled to claim a refund for such
withheld tax, taking the position that the interest was portfolio interest and
therefore not subject to United States tax. However, the IRS may disagree and no
assurance can be given as to the appropriate amount of tax liability. As a
result, each potential foreign Certificateholder should consult its tax advisor
as to whether an interest in a Certificate is an unsuitable investment.
10. Backup Withholding
Distributions made on the Certificates and proceeds from the sale of
the Certificates will be subject to a "backup" withholding tax of 31% if, in
general, the Certificateholder fails to comply with certain identification
procedures, unless the holder is an exempt recipient under applicable provisions
of the Code.
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 Securities 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. Fiduciaries
should also consider ERISA's prohibition on improper delegation of control over,
or responsibility for, plan assets.
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 Securities 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 or any entity
whose underlying assets include plan assets by reason of a plan or account
investing in such entity, including an insurance company general account
(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 Securities of
the applicable Series, an investment in Securities 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 regulation
(the "Plan Assets 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 Plan Assets Regulation provides an
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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 Securityholder of the applicable Series.
The Plan Assets 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 Securityholders of the applicable Series at any time, there can be no
assurance that any Series or Class of Securities will qualify for this
exemption.
PROHIBITED TRANSACTION CLASS EXEMPTION APPLICABLE TO CERTIFICATES
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 eligible for prohibited transaction relief 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, 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 a
Series qualifying for relief under PTCE 83-1 (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 (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) no sales commission is paid to the Depositor as
Mortgage Pool sponsor, (iii) the Plan does not purchase more than 25% of the
Certificates of that Series and (iv) at least 50% of the Certificates of that
Series is purchased by persons independent of the Depositor, the Trustee and the
Insurer, as applicable. PTCE 83-1 will not apply to a Series of Securities with
respect to which the Trust Assets include Nonexempt Assets.
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 Series intending to meet
the conditions of PTCE 83-1 for which such a method of Credit Support is
provided (see "Credit Support -- Subordinated Securities" and
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" -- 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 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 such 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 indemnify 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 such Series.
If a 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 a 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.
UNDERWRITER'S PROHIBITED TRANSACTION EXEMPTION APPLICABLE TO CERTIFICATES
Credit Suisse 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 "Credit Suisse 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 include (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; (ii) "guaranteed governmental mortgage
pool certificates" (as defined in the Plan Assets Regulation) and (iii)
undivided fractional interests in the above.
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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, a division of The McGraw-Hill Companies, Inc.,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. or
Fitch IBCA, 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 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;
(f) the Plan is an "accredited investor" (as defined in Rule
501(a)(1) of Regulation D under the Securities Act);
(g) the acquisition of the Certificates by a Plan is on terms
(including the price for the Securities) that are at least as favorable
to the Plan as they would be in an arm's length transaction with an
unrelated party; and
(h) 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 and will not apply, 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").
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On July 21, 1997, the DOL published in the Federal Register a final
amendment to the Underwriter's PTE which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. With respect to the
Certificates, the amendment generally allows a portion of the mortgages or
receivables ("Loans") supporting payments to Certificateholders and having a
principal amount equal to no more than 25% of the total principal amount of the
Certificates to be transferred to the Trust within a 90-day or three-month
period following the Closing Date ("Pre-Funding Period"), instead of requiring
that all such Loans be either identified or transferred on or before the Closing
Date. The relief, is effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) the ratio of the amount allocated to the Pre-Funding
Account to the total principal amount of the Certificates being offered
("Pre-Funding Limit") must not exceed 25%;
(2) all Loans transferred after the Closing Date ("Additional
Loans") must meet the same terms and conditions for eligibility as the
original Loans used to create the Trust, which terms and conditions
have been approved by the Rating Agency;
(3) the transfer of such Additional Loans to the Trust during
the Pre-Funding Period must not result in the Certificates receiving a
lower credit rating from the Rating Agency upon termination of the
Pre-Funding Period than the rating that was obtained at the time of the
initial issuance of the Certificates by the Trust;
(4) solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "average interest rate")
for all of the Loans in the Trust at the end of the Pre-Funding Period
must not be more than 100 basis points lower than the average interest
rate for the Loans which were transferred to the Trust on the Closing
Date;
(5) in order to ensure that the characteristics of the
Additional Loans are substantially similar to the original obligations
which were transferred to the Trust, either: (i) the characteristics of
the Additional Loans must be monitored by an insurer or other credit
support provider which is independent of the Depositor or (ii) an
independent accountant retained by the Depositor must provide the
Depositor with a letter (with copies provided to the Rating Agency, the
Underwriter and the Trustee) stating whether or not the characteristics
of the Additional Loans conform to the characteristics described in the
Prospectus, Prospectus Supplement, Private Placement Memorandum
("Offering Documents") and/or Pooling and Servicing Agreement ("Pooling
Agreement"); in preparing such letter, the independent accountant must
use the same type of procedures as were applicable to the Loans which
were transferred as of the Closing Date;
(6) the Pre-Funding Period must end no later than three months
or 90 days after the Closing Date or earlier, in certain circumstances,
if the amount on deposit in the Pre-Funding Account is reduced below
the minimum level specified in the Pooling Agreement or an event of
default occurs under the Pooling Agreement;
(7) amounts transferred to any Pre-Funding Account and/or
Capitalized Interest Account used in connection with the pre-funding
may be invested only in certain permitted investments;
(8) the Offering Documents must describe: (i) any Pre-Funding
Account and/or Capitalized Interest Account used in connection with a
Pre-Funding Account; (ii) the duration of the Pre-Funding Period; (iii)
the percentage and/or dollar amount of the Pre-Funding Limit for the
Trust; and (iv) that the amounts remaining in the Pre-Funding Account
at the end of the Pre-Funding Period will be remitted to
Certificateholders as repayments of principal; and
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(9) the Pooling and Servicing Agreement must describe the
permitted investments for the Pre-Funding Account and Capitalized
Interest Account and, if not disclosed in the Offering Documents, the
terms and conditions for eligibility of the Additional Loans.
Whether the conditions in the Underwriter's PTE (in addition to, and
including those, relating to pre-funding) 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 ERISA CONSIDERATIONS RELATING TO CERTIFICATES
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 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 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.
If for any reason neither PTCE 83-1 nor the Underwriter's PTE provides
an exemption for a particular Plan investor, one of five other prohibited
transaction class exemptions 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), PTCE 84-14 (Class Exemption for Plan Asset
Transactions Determined by Independent Qualified Professional Asset Managers),
PTCE 95-60 (Class Exemption for Certain Transactions Involving Insurance Company
General Accounts) or PTCE 96-23 (Class Exemption for Plan Asset Transactions
Performed by In-house Asset Managers) (collectively, the "Investor Based
Exemptions"). There can be no assurance that any of these Investor Based
Exemptions will apply with respect to any particular Plan investor or, even if
it were to apply, that such 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 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, the
Underwriter's PTE 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.
ERISA CONSIDERATIONS RELATING TO THE NOTES
Under the Plan Assets Regulation, the assets of the Trust would be
treated as plan assets of a Plan for the purposes of ERISA and the Code only if
the Plan acquires an "Equity Interest" in the Trust and none
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of the exceptions contained in the Plan Assets Regulation is applicable. An
equity interest is defined under the Plan Assets Regulation as an interest other
than an instrument which is treated as indebtedness under applicable local law
and which has no substantial equity features. Assuming that a Class of Notes is
treated as indebtedness without substantial equity features for purposes of the
Plan Assets Regulation, then such Class of Notes will be eligible for purchase
by Plans. However, without regard to whether a Class of Notes is treated as an
"equity interest" for such purposes, the acquisition or holding of Notes by or
on behalf of a Plan could be considered to give rise to a prohibited transaction
if the Trust or any of its affiliates is or becomes a party in interest or
disqualified person with respect to such Plan, or in the event that a Note is
purchased in the secondary market and such purchase constitutes a sale or
exchange between a Plan and a party in interest or disqualified person with
respect to such Plan. There can be no assurance that the Trust or any of its
affiliates will not be or become a party in interest or a disqualified person
with respect to a Plan that acquires Notes. However, one or more of the Investor
Based Exemptions described above may apply to any potential prohibited
transactions arising as a consequence of the acquisition, holding and transfer
of the Notes.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO
PURCHASE SECURITIES 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 SECURITIES.
LEGAL INVESTMENT
The applicable Prospectus Supplement for a Series of Securities will
specify whether a Class or Subclass of such Securities, 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
Securities 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
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<PAGE> 230
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 Securities), except under limited
circumstances.
All depository institutions considering an investment in the Securities
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 Certificates" (including securities such as certain Series,
Classes or Subclasses of the Securities), 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 Securities,
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 Securities 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 Securities as "mortgage
related securities," no representation is made as to the proper characterization
of the Securities for legal investment purposes, financial institution
regulatory purposes, or other 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.
Investors should consult their own legal advisers in determining
whether and to what extent such Securities constitute legal investments for such
investors.
PLAN OF DISTRIBUTION
Each Series of Securities offered hereby and by means of the related
Prospectus Supplements may be sold directly by the Depositor or may be offered
through Credit Suisse First Boston Corporation, an affiliate of the Depositor,
or underwriting syndicates represented by Credit Suisse First Boston Corporation
(the "Underwriters"). The Prospectus Supplement with respect to each such Series
of Securities will set forth the terms of the offering of such Series or Class
of Securities 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 Securities will be
determined.
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<PAGE> 231
Unless otherwise specified in the Prospectus Supplement, the
Underwriters will be obligated to purchase all of the Securities of a Series
described in the Prospectus Supplement with respect to such Series if any such
Securities are purchased. The Securities 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 the Underwriters or other persons acting as the Depositor's agents to
solicit offers by certain institutions to purchase the Securities 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 Securities 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 Securities offered hereby and by means
of the related 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 Securities to or through
dealers, and such dealers may receive compensation in the form of underwriting
discounts, concessions or commissions from the Depositor and any purchasers of
Securities for whom they may act as agents.
The place and time of delivery for each Series of Securities offered
hereby and by means of the related 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 attached Prospectus Supplement will also be used by the
Underwriters after the completion of the offering in connection with offers and
sales related to market-making transactions in the offered Securities in which
the Underwriters act as principal. Sales will be made at negotiated prices
determined at the time of sales.
LEGAL MATTERS
Certain legal matters in connection with the Securities offered hereby,
including material federal income tax consequences, will be passed upon for the
Depositor and for the Underwriters by Stroock & Stroock & Lavan LLP, New York,
New York, Brown & Wood LLP, San Francisco, California or such other counsel
specified in the related Prospectus Supplement.
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<PAGE> 232
INDEX OF TERMS
TERM PAGE
- ---- ----
Accrual Distribution Amount.................... 34
Advances....................................... 13
AFR............................................ 89
Agreement...................................... 21
Alternative Credit Support..................... 9
Approved Sale.................................. 67
APR............................................ 25
ARM Loans...................................... 18
Asset Value.................................... 32
Assets......................................... 81
Bond Premium Amortization Limit................ 87
Bond Premium Amortization Regulations.......... 87
Buy-Down Fund.................................. 12
Buy-Down Loans................................. 19
Cede........................................... 17
Certificate Account............................ 40
Certificate Principal Balance.................. 3
Certificateholders............................. 21
Class.......................................... 1
Cleanup Costs.................................. 76
Closed-End Loans............................... 4
Closed Loans................................... 22
Closing Date................................... 83
Code........................................... 14
Collection Account............................. 40
Contract Loan-to-Value Ratio................... 7
Contract Pool.................................. 1
Contract Schedule.............................. 36
Contracts...................................... 1
Converted Mortgage Loan........................ 19
Cooperative.................................... 4
Cooperative Dwelling........................... 5
Cooperative Loans.............................. 4
Credit Suisse First Boston Corporation's PTE...
Custodial Account.............................. 40
Custodial Agreement............................ 25
Custodian...................................... 25
Cut-off Date................................... 17
Deferred Interest.............................. 19
Definitive Securities.......................... 17
Deficiency Event............................... 54
Deleted Contract............................... 26
Deleted Mortgage Certificates.................. 35
Deleted Mortgage Loans......................... 36
Depositor...................................... 1
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<PAGE> 233
Determination Date............................. 43
Discount Security.............................. 8
Distribution Date.............................. 5
DOL............................................
DTC -- Depository Trust Company................ 17
Due Date....................................... 18
Due Period..................................... 34
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<PAGE> 234
TERM PAGE
- ---- ----
Escrow Account................................. 46
ERISA..........................................
ERISA Plans....................................
Exempt Series..................................
FHA............................................ 1
FHA Experience................................. 27
FHA Loans...................................... 18
First Boston...................................
Garn-St Germain Act............................ 75
GPM Fund....................................... 12
GPM Loans...................................... 19
Home Equity Loans.............................. 4
Indenture...................................... 31
Indenture Trustee.............................. 31
Initial Deposit................................ 11
Insurance Proceeds............................. 41
Insured........................................ 49
Insured Series.................................
Interest Coupon................................
Interest Distribution.......................... 33
Interest Rate.................................. 3
Interest Weighted Class........................ 3
Interest Weighted Subclass..................... 3
IRS............................................ 83
L/C Bank....................................... 9
L/C Percentage................................. 9
Letter of Credit............................... 8
Liquidating Loan............................... 9
Liquidation Proceeds........................... 41
Loan-to-Value Ratio............................ 18
Loss........................................... 63
Manufactured Home.............................. 7
Master Servicer................................ 1
Mortgage Certificates.......................... 1
Mortgage Loans................................. 5
Mortgage Notes................................. 18
Mortgage Pool.................................. 80
Mortgage Rates................................. 6
Mortgaged Property............................. 6
Mortgagor...................................... 6
Mortgagor Bankruptcy Bond...................... 8
Multi-Class Securities......................... 3
Multifamily Property........................... 5
Multiple Variable Rate......................... 85
1988 Act....................................... 91
1986 Act....................................... 87
1996 Contingent Debt Regulations............... 86
1996 Proposed Regulations...................... 97
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<PAGE> 235
Nonexempt Assets...............................
Nonexempt Series...............................
non-U.S. Person................................ 94
Notes.......................................... 1
Noteholders.................................... 21
Obligor........................................ 29
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<PAGE> 236
TERM PAGE
- ---- ----
OID Regulations................................ 80
Original Value................................. 6
Originator..................................... 22
Other Pools....................................
Parties in Interest............................
Percentage Interest............................ 1
Performance Bond............................... 26
Plan Assets Regulation.........................
Plans..........................................
Policy Statement...............................
Pool Insurance Policy.......................... 8
Pool Insurer................................... 10
Pooling and Servicing Agreement................ 30
Pre-Funded Amount.............................. 38
Pre-Funding Account............................ 38
Pre-Funding Period.............................
Premium Security............................... 7
Prepayment Assumption.......................... 83
Primary Insurer................................ 42
Primary Mortgage Insurance Policy.............. 10
Primary Mortgage Insurer....................... 49
Principal Distribution......................... 33
Principal Prepayments.......................... 11
Principal Weighted Class....................... 4
Principal Weighted Subclass.................... 4
Proposed Premium Regulations................... 88
PTCE 83-1......................................
Purchase Price................................. 38
Rating Agency.................................. 1
Record Date.................................... 33
Reference Agreement............................ 31
REIT........................................... 81
REMIC.......................................... 1
REMIC Certificateholders....................... 81
REMIC Certificates............................. 80
REMIC Mortgage Pool............................ 80
REMIC Provisions............................... 80
REMIC Regulations.............................. 80
REMIC Regular Certificate...................... 80
REMIC Residual Certificate..................... 80
Required Reserve............................... 12
Reserve Fund................................... 8
Residual Certificates.......................... 3
Residual Owner................................. 87
Restricted Group...............................
Retained Yield................................. 98
Revolving Credit Line Loans.................... 4
Sale and Servicing Agreement................... 1
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<PAGE> 237
Securities..................................... 3
Securities Act................................. 32
Security Guarantee Insurance................... 13
Securityholder................................. 17
Senior Securities..............................
TERM PAGE
- ---- ----
Senior Class................................... 3
Senior Prepayment Percentage................... 80
Senior Subclass................................ 3
Series......................................... 1
Servicemen's Readjustment Act.................. 20
Servicer....................................... 21
Servicing Account.............................. 40
Servicing Agreement............................ 21
Single-Class REMIC............................. 94
Single Family Property......................... 5
Single Variable Rate........................... 83
SMMEA..........................................
SBJPA -- of 1996............................... 89
SPA............................................ 28
Special Distributions.......................... 5
Special Hazard Insurance Policy................ 13
Special Tax Counsel............................ 79
Standard Hazard Insurance Policy............... 46
Standard Terms................................. 30
Stated Principal Balance....................... 3
Stated Principal Distribution Amount........... 34
Stripped Bond Rules............................
Stripped Interest..............................
Stripped Mortgage Loan......................... 99
Subclass....................................... 1
Subordinated Amount............................ 8
Subordinated Securities........................ 8
Subordinated Class............................. 3
Subordinated Pool.............................. 11
Subordinated Subclass.......................... 3
Substitute Contract............................ 26
Substitute Mortgage Certificates............... 35
Substitute Mortgage Loans...................... 36
Thrift Institutions............................ 89
Tiered REMICS.................................. 82
Title V........................................ 79
Trust.......................................... 1
Trust Assets................................... 5
Trust Agreement................................ 1
Trust Certificates............................. 80
Trustee........................................ 1
Trust Fractional Certificateholder............. 99
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<PAGE> 238
Trust Fractional Certificate................... 80
Trust Fund..................................... 4
Trust Interest Certificate..................... 80
Trust Interest Certificateholder...............
Unaffiliated Sellers........................... 22
Underwriters...................................
UCC............................................ 73
Unstripped Mortgage Loans......................
U. S. Person................................... 96
VA............................................. 1
VA Loans....................................... 18
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<PAGE> 239
PROSPECTUS
CREDIT SUISSE 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 one or more Trust Agreements or one
Master Trust Agreement (as supplemented from time to time from time to time by
one or more Trust Supplements) (a "Trust Agreement") or one or more Pooling and
Servicing Agreements, one Master Pooling and Servicing Agreement (as
supplemented from time to time by one or more Pooling and Servicing Supplements)
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 (a) certain Base Assets (as
defined herein), which may consist of (i) credit card, charge card or certain
other types of Receivables or Participations (each as defined herein), (ii)
certain "card receivables backed securities" ("CRB Securities", as defined
herein), (iii) Government Securities (as defined herein) (iv) and/or Private
Label Custody Receipt Securities (as defined herein) and (b) may also include
certain Series Enhancements (as defined herein) or other assets as described
herein or in the related Prospectus Supplement. Any Receivables included in the
Base Assets for a Series 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.
Any CRB Securities included in the Base Assets for a Series 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 include Receivables
or Participations, will include the right to receive all monies due in respect
of such Receivables and/or Participations, net (to the extent provided in the
related Prospectus Supplement) of certain amounts payable to the servicer of
such Receivables specified in such Prospectus
(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, CREDIT SUISSE FIRST BOSTON CORPORATION, THE DEPOSITOR, ANY OF THEIR
RESPECTIVE AFFILIATES, OR ANY UNITED STATES GOVERNMENTAL AGENCY.
<PAGE> 240
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE
INFORMATION 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
CREDIT SUISSE FIRST BOSTON
This date of this Prospectus is _________, 199_
<PAGE> 241
(Continued from the previous page)
Supplement (the "Servicer"), 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.
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 Distribution Date for each Class of such Securities; (vii) the extent to
which any Class within such Series is subordinated to any other Class of such
Series; (viii) the identity of each Class of such Securities; and (ix)
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.
<PAGE> 242
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 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, 11 Madison Avenue, New York, New York 10010. Telephone requests may
be directed to the Secretary of Asset Backed Securities Corporation at (212)
325-2000.
<PAGE> 243
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) one or
more trust agreements or one master trust
agreement (as supplemented from time to time
by one or more trust supplements) (each, a
"Trust Agreement") between the Depositor and
the Trustee of such Trust or (ii) one or
more a pooling and servicing agreements, or
one master pooling and servicing agreement
(as supplemented from time to time by one or
more pooling and servicing supplements) 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 an owner trust (an "Owner Trust"), a
master trust (a "Master 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 Credit Suisse
First Boston, Inc. Neither Credit Suisse
First Boston, Inc. nor any of its 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 11
Madison Avenue, New York, New York 10010,
and its telephone number is (212) 325- 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").
8
<PAGE> 244
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
may 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 (i)
Receivables or Participations and (ii) to
the extent set forth in the related
Prospectus Supplement, Government Securities
(as defined herein) and/or Private Label
Custody Receipt Securities (as defined
herein) (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 Notes
will consist primarily of (i) CRB Securities
and (ii) to the extent set forth in the
related Prospectus Supplement, Government
Securities and/or Private Label Custody
Receipt Securities (as defined herein) (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.
The 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.
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<PAGE> 245
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, 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 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
10
<PAGE> 246
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 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.
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<PAGE> 247
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 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 and
the principal balance of the Government
Securities, if any, and the Private Label
Custody Receipt Securities (as defined
herein), if any, 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 or as
amounts collected 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 (i) Finance Charge
Receivables and Principal Receivables and
the Defaulted Amount (as defined under
"DESCRIPTION OF THE CERTIFICATES --
Receivables Pooling Certificates
--Collections") and (ii) the Government
Securities and/or Private Label Custody
Receipt Securities. Collections of (i)
Finance Charge Receivables and the Defaulted
Amount and (ii) interest on the Government
Securities, if any, and the Private Label
Custody Receipt Securities, if any, will be
allocated to each such Series at all times
based upon its Floating Allocation
Percentage.
Collections of Principal Receivables and
collections of principal of the Government
Securities, if any, and the Private Label
Custody Receipt Securities, if any, 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
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<PAGE> 248
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, collections
of interest on the Government Securities, if
any, collections of interest on the Private
Label Custody Receipt Securities, if any,
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
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, collections of interest on the
Government Securities, if any, collections
of interest on the Private Label Custody
Receipt Securities, if any, 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 a Controlled
Accumulation Period as described below under
"Controlled Accumulation Period", or under
certain limited circumstances, a Rapid
Accumulation Period as described below under
"Rapid Accumulation Period" (each an
"Accumulation Period") or in installments
commencing on a date specified in the
related
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<PAGE> 249
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 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
Closing 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, collections of
principal of the Government Securities, if
any, collections of principal of the Private
Label Custody Receipt Securities, if any,
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, additional Government
Securities and additional Private Label
Custody Receipt Securities.
G. Controlled Accumulation
Period..... If so specified by the related Prospectus
Supplement, unless a Rapid Amortization
Period commences or, it so specified in the
related Prospectus Supplement, a Rapid
Accumulation Period commences, a Series of
Receivables Pooling Certificates will have a
controlled accumulation period (the
"Controlled Accumulation Period"). The
Controlled 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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<PAGE> 250
During the Controlled Accumulation Period of
a Series of Receivables Pooling
Certificates, collections of Principal
Receivables, collections of principal of the
Government Securities, if any, collections
of principal of the Private Label Custody
Receipt Securities, if any, 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, Controlled Accumulation Amount and
Deficit 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 Controlled
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. Rapid Accumulation
Period................... If so specified and under the conditions set
forth in the Prospectus Supplement relating
to a Series having a Controlled Accumulation
Period, during the period from the day on
which a Pay Out Event has occurred until the
earliest of (a) the commencement of the
Rapid Amortization Period, (b) payment in
full of the Investor Interest of the
Certificates of such Series and, if so
specified in the related Prospectus
Supplement, of the Collateral Interest, if
any, with respect to such Series and (c) the
related Series Termination Date (the "Rapid
Accumulation Period"), collections of
Principal Receivables allocable to the
Investor Interest of such Series (and
certain other amounts if so specified in the
related Prospectus Supplement) will be
deposited on each Transfer Date in the
Principal Funding Account and used to make
distributions of principal to the
Certificateholders of such Series or Class
on the Scheduled Payment Date. The amount to
be deposited in the Principal Funding
Account during the Rapid Accumulation Period
will not be limited to the Controlled
Deposit Amount. The term "Pay Out Event"
with respect to a Series of Certificates
means any of the events identified
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<PAGE> 251
as such in the related Prospectus Supplement
and any of the following: (a) certain events
of insolvency or receivership relating to
the Seller, (b) the Seller is unable for any
reason to transfer Receivables to the Trust
in accordance with the provisions of the
Agreement or (c) the Trust becomes an
"investment company" within the meaning of
the Investment Company Act of 1940, as
amended. See "Description of the
Certificates -- Accumulation Period" and
"--Pay Out Events" for a discussion of the
events which might lead to the commencement
of a Rapid Accumulation Period.
During the Rapid Accumulation Period, 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
related Series of Certificates or make other
payments as specified in the related
Prospectus Supplement. In order to enhance
the likelihood of payment in full of
principal at the end of the Rapid
Accumulation Period with respect to a Series
of Certificate, such Series may be subject
to a principal guaranty or other similar
agreement.
I. 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 amortization
period during which collections of Principal
Receivables, collections of principal of the
Government Securities, if any, and
collections of principal of the Private
Label Custody Receipt Securities, if any,
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, collections of
principal of the Government Securities, if
any, collections of principal of the Private
Label Custody Receipt Securities, if any,
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
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<PAGE> 252
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.
J. 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 deemed to have occurred with respect to a
Series of Receivables Pooling Certificates
or, it so specified in the Prospectus
Supplement relating to a Series with a
Controlled Accumulation Period, from such
time specified in the related Prospectus
Supplement after a Pay Out Event has
occurred and the Rapid Accumulation Period
has commenced, 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, collections of principal of the
Government Securities, if any, collections
of principal of the Private Label Custody
Receipt Securities, if any, 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.
K. 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
(b) the Trust becoming an investment
company within the meaning of the Investment
Company Act of 1940, as amended (the
"Investment Company Act").
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<PAGE> 253
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
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, Government Securities, if any,
and Private Label Custody Receipt
Securities, if any, 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, the Government
Securities, if any, or the Private Label
Custody Receipt Securities, if any, and to
continue transferring Principal Receivables,
Government Securities, if any, and Private
Label Custody Receipt Securities, if any, as
before such Insolvency Event.
The proceeds from any such sale, disposition
or liquidation of the Receivables, the
Government Securities, if any, and the
Private Label Custody Receipt Securities, if
any, 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
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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
is not sufficient to pay the Invested Amount
of the Certificates of such Series in full,
such Certificateholders will incur a loss.
L. 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 equal amount. 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. It shall be a condition to the
issuance of a Paired Series that such
issuance shall not result in the reduction
by any Rating Agency of the rating of the
Prior Series.
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 (i) in the case of
Receivables Pooling Certificates, the rate
of payment (including early amortization,
prepayments and repurchases) of the
Receivables and the terms and rate of
payment of the Government Securities and/or
Private Label Custody Receipt Securities
comprising the Base Assets in the related
Trust and (ii) in the case of CRB Backed
Certificates, the rate of payment (including
early amortization, prepayments and
repurchases) of the Receivables underlying
the CRB Securities, the terms of such CRB
Securities and the rate of payment and terms
of the Government
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Securities, if any, and the Private Label
Custody Receipt Securities, if any,
comprising the Base Assets in the related
Trust. The actual final Payment Date of
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 of Receivables,
Government Securities, if any, and Private
Label Custody Receipt Securities, if any, to
the reduction of the principal balance of
such Certificates, or if any early
amortization period occurs with respect to
the Receivables comprising or underlying the
Base Assets (comprised of Receivables or CRB
Securities) 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".
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, (2) CRB
Securities, (3) Government Securities and
(4) Private Label Custody Receipt
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
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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 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
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<PAGE> 257
merchandise and services, amounts advanced
to cardholders as cash advances and certain
other fees billed to cardholders on the
Accounts (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.
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. VISA and
MasterCard are registered trademarks of VISA
USA, Inc. and MasterCard International
Incorporated, respectively.
(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 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
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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".
(3) Government Securities. Base Assets for a Series may include
Government Securities which will consist of
any combination of (i) receipts or other
instruments created under the Department of
the Treasury's Separate Trading of
Registered Interest and Principal of
Securities, or STRIPS, program ("Treasury
Strips"), which interest and/or principal
Strips evidence ownership of specific
interest and/or principal payments to be
made on certain United States Treasury Bonds
("Treasury Bonds"), (ii) Treasury Bonds and
(iii) certain other debt securities ("GSE
Bonds") of United States government
sponsored enterprises ("GSEs") ("GSE Bonds";
and, together with Treasury Strips, and
Treasury Bonds, collectively, "Government
Securities"). The specific terms of the
Government Securities, if any, included in a
Trust Fund will be set forth in the
applicable Prospectus Supplement. See "TRUST
ASSETS -- Government Securities".
Private Label Custody
Receipt Securities. . . . Base Assets for a Series may include Private
Label Custody Receipt Securities which will
consist of any combination of (i) receipts
or other instruments (other than Treasury
Strips) evidencing ownership of specific
interest and/or principal payments to be
made on certain Treasury Bonds held by a
custodian ("Private Label Custody Strips")
and (ii) receipts or other instruments
evidencing ownership of specific interest
and/or principal payments to be made on
certain Resolution Funding Corporation
("REFCO") bonds ("REFCO Strips"; and,
together with Private Label Custody Strips,
"Private Label Custody Receipt Securities").
The specific terms of the Private Label
Custody Receipt Securities, if any, included
in a Trust will be set forth in the
applicable Prospectus Supplement.
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
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<PAGE> 259
Indenture Trustee), or with the related
Servicer in the name of such Trustee (or
Indenture Trustee) 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
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".
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<PAGE> 260
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 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 Consequences.......... In the case of an Owner Trust, Stroock &
Stroock & Lavan LLP or such other counsel
specified in the related Prospectus
Supplement ("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 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
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<PAGE> 261
distributions from any reserve fund), and
the Notes being debt of the partnership. See
"MATERIAL 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,
CRB Securities, Government Securities,
Private Label Custody Receipt 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 "MATERIAL
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 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 "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES -- Master Trust"
herein for additional information concerning
the application of federal income tax laws
to a Master Trust and the related
Certificates.
Certain ERISA
Considerations............ Subject to the considerations and
qualifications 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
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<PAGE> 262
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.
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> 263
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. In the case of any Series of
Securities offered hereunder, the Base Assets of which consist wholly or partly
of Receivables or CRB Securities, the Receivables comprising or underlying such
Base Assets 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 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.
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<PAGE> 264
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 to
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 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
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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 Holders of Securities, the Base Assets of which
consist wholly or partly of Receivables or CRB Securities, if such laws result
in any Receivables being charged off as uncollectible when there are no funds
available from Series Enhancement or other sources.
Risk of Subordination of Trust's Interest in the Receivables due to
Certain Legal Aspects -- Transfers of Receivables. For Series of Receivables
Pooling Certificates which involve 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. With respect to Receivables
Pooling Certificates and CRB Backed Securities, if any Seller is a regulated
financial institution, to the extent that such Seller grants a security interest
in the
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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, Government
Securities, if any, and Private Label Custody Receipt Securities, if any,
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, the Government Securities,
if any, and the Private Label Custody Receipt Securities, if any, and the
commencement of the Rapid Amortization Period. In addition, a conservator or
receiver for 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 of Receivables Pooling
Certificates, 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
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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 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
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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, a Pay Out Event and Commencement of
Rapid Amortization Period due to Seller's Ability to Change Terms of the
Receivables. With respect to any Series, the Base Assets of which consist of
Receivables or CRB Securities, the Seller or other originator of any Receivables
comprising or underlying such Base Assets 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 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 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
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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. 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.
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.
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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 and/or Participations in Receivables,
(b) CRB Securities, (c) Government Securities and (d) Private Label Custody
Receipt 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 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 or government securities on deposit in a
Pre-Funding Account established with the Trustee (or the Indenture Trustee),
which monies or government securities 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.
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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 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
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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 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.
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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 CRB 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 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
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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, 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.
As a general rule, each CRB Issuer will be subject to the information
requirements of the Exchange Act and in accordance therewith, will file reports
and other information with the Commission. Such 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 Commission's regional offices at
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 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). In the event that any CRB Issuer is not subject to the
information requirements of the Exchange Act on the date of issuance of the
Certificates of the related Series or ceases to be subject to such requirements
after such date, the Depositor or the Trustee will provide, or cause to be
provided (or make available, or cause to be made available) to holders of the
Securities upon request, the information contained in all periodic trustee
reports (or similar reports) that are received by the Trustee with respect to
the related CRB Securities where such CRB Securities represent 20% or more of
the aggregate principal balance of the related Base Assets.
Government Securities
General. If so specified in the applicable Prospectus Supplement, the
Base Assets for a Series may include any combination of (i) receipts or other
instruments created under the Department of the Treasury's Separate Trading of
Registered Interest and Principal of Securities, or STRIPS, program ("Treasury
Strips"), which interest and/or principal strips evidence ownership of specific
interest and/or principal payments to be made on certain United States Treasury
Bonds ("Treasury Bonds"), (ii) Treasury Bonds and (iii) certain other debt
securities ("GSE Bonds") of United States government sponsored enterprises
("GSEs"; together with Treasury Strips and Treasury Bonds, collectively,
"Government Securities"). The Government Securities, if any, included in a Trust
Fund are intended to assure investors that funds will be available to make
certain suggested payments of principal and/or interest due on the related
Securities. As such, the Government Securities, if any, included in a Trust are
intended both to (i) support the ratings assigned to the related Securities and
(ii) perform a function
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similar to that described herein under "Series Enhancement". A description of
the respective general features of Treasury Bonds, Treasury Strips and GSE Bonds
is set forth below. The specific terms of the Government Securities, if any, and
the Private Label Custody Receipt Securities, if any, included in a Base Assets
will be set forth in the applicable Prospectus Supplement.
The Prospectus Supplement for each Series of Securities, the Base
Assets of which include Government Securities will contain information as to:
(i) the title and series of each such Government Security, the aggregate
principal amount, denomination and form thereof; (ii) the limit, if any, upon
the aggregate principal amount of such Government Security; (iii) the dates on
which, or the range of dates within which, the principal of (and premium, if
any, on) such Government Security will be payable; (iv) the rate or rates, or
the method of determination thereof, at which such Government Security will be
payable; the date or dates from which such interest will accrue, and the dates
on which such interest will be payable; (v) whether such Government Security was
issued at a price lower than the principal amount thereof; (vi) material events
of default or restrictive covenants provided for with respect to such Government
Security; (vii) the rating thereof, if any; and (viii) the issuer of each
Government Security; (ix) the material risks, if any, posed by any such
Government Securities and the issuers thereof (which risks, if appropriate, will
be described in the "Risk Factors" section of the related Prospectus
Supplements; and (x) any other material terms of such Government Security. With
respect to Base Assets which include a pool of Government Securities, the
related Prospectus Supplement will, to the extent applicable, describe the
composition of the Government Securities' pool, certain material events of
default or restrictive covenants common to the Government Securities, and, on an
aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to the terms set forth in (iii), (iv),
and (v) of the preceding sentence and any other material terms regarding such
pool.
The Government Securities included in a Trust will be senior unsecured,
nonredeemable obligations of the issuer thereof, will be denominated in United
States dollars and, if rated, will be rated at least investment grade by at
least one nationally recognized rating agency. In addition, the inclusion of
Government Securities in the Base Assets of a Series of Securities is
conditioned upon their characteristics being in form and substance satisfactory
to the Rating Agency rating the related series of Securities.
Treasury Bonds. Treasury Bonds are issued by and are the obligations of
The United States of America. As such, the payment of principal and interest on
each Treasury Bond will be guaranteed by the full faith and credit of the United
States of America. Interest is typically payable on the Bonds semiannually.
Treasury Bonds are issued in registered form in denominations of $1,000, $5,000,
$10,000, $100,000 and $1,000,000 and in book-entry form in integral multiples
thereof.
Treasury Strips. In general, Treasury Strips are created by separating,
or "stripping", the principal and interest components of Treasury Bonds that
have an original maturity of 10 or more years from the date of issue. A
particular Treasury Strip evidences ownership of the principal payment or one of
the periodic interest payments (generally semiannual) due on the Treasury Bond
to which such Treasury Strip relates.
In 1985 the Department of the Treasury, announced that all new issues
of Treasury Bonds with maturities of 10 years or more would be transferable in
their component pieces on the Federal Reserve wire system. In so doing, the
Treasury created a generic, book-entry Treasury Strip named STRIPS (Separate
Trading of Registered Interest and Principal of Securities) which, unlike
private label Treasury Strips, can be issued without the need for a custodial
arrangement. The STRIPS program has eclipsed the
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private sector programs (which are described below under - "Private Label
Custody Receipt Securities"), and investment banks no longer sponsor new issues
of custodial receipts.
Treasury Strips may be either "serial" or "callable". A serial Treasury
Strip evidences ownership of one of the periodic interest payments to be made on
a Treasury Bond. No payments are made on such Treasury Strip, nor is it
redeemable, prior to its maturity, at which time the holder becomes entitled to
receive a single payment of the face amount thereof. Callable Treasury Strips
relate to payments scheduled to be made after the related Treasury Bonds have
become subject to redemption. Such Treasury Strips evidence ownership of both
principal of the related Treasury Bonds and each of the related interest
payments commencing, typically, on the first interest payment date following the
first optional redemption date. If the underlying Treasury Bonds are actually
redeemed, holders of callable Treasury Strips generally receive a payment equal
to the principal portion of the total face amount of such Treasury Strips plus
the interest payment represented by the Treasury Strips maturing on the
redemption date. No callable Treasury Strips will be included in a Trust. The
face amount of any Treasury Strip is the aggregate of all payments scheduled to
be received thereon. Treasury Strips are available in registered form and
generally may be transferred and exchanged by the holders thereof in accordance
with procedures applicable to the particular issue of such Treasury Strips.
GSE Bonds. As specified in the applicable Prospectus Supplement, the
obligations of one or more of the following GSEs may be included in a Base
Assets: The Federal National Mortgage Association ("Fannie Mae"), The Federal
Home Loan Mortgage Association ("Freddie Mac"), The Student Loan Marketing
Association ("Sallie Mae"), REFCO, Tennessee Valley Authority ("TVA"), The
Federal Home Loan Banks ("FHLB") (to the extent such obligations represent the
joint and several obligations of the twelve Federal Home Loan Banks), and The
Federal Farm Credit Banks ("FFCB"). GSE debt securities are exempt from
registration under the Securities Act pursuant to Section 3(a)(2) of the
Securities Act (or are deemed by statute to be so exempt) and are not required
to be registered under the Exchange Act. The securities of any GSE will be
included in a Base Assets only to the extent that (i) its obligations are
supported by the full faith and credit of the United States government or (ii)
such organization makes publicly available its annual report which shall include
financial statements or similar financial information with respect to such
organization (a "GSE Issuer"). Unless otherwise specified in the related
Prospectus Supplement, the GSE Bonds will not be guaranteed by the United States
and do not constitute a debt or obligation of the United States or of any agency
or instrumentality thereof other than the related GSE.
Unless otherwise specified in the related Prospectus Supplement, none
of the GSE Bonds will have been issued pursuant to an indenture, and no trustee
is provided for with respect to any GSE Bonds. There will generally be a fiscal
agent ("Fiscal Agent") for an issuer of GSE Bonds whose actions will be governed
by a fiscal agency agreement. A Fiscal Agent is not a trustee for the holders of
the GSE Bonds and does not have the same responsibilities or duties to act for
the holders as would a trustee.
GSE Bonds may be subject to certain contractual and statutory
restrictions which may provide some protection to securityholders against the
occurrence or effects of certain specified events. Unless otherwise specified in
the related Prospectus Supplement, each GSE is limited to such activities as
will promote its statutory purposes as set forth in the publicly available
information with respect to such issuer. A GSE's promotion of its statutory
purposes, as well as its statutory, structural and regulatory relationships with
the federal government, may cause or require such GSE to conduct its business in
a manner that differs from what an enterprise which is not a GSE might employ.
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The Federal National Mortgage Association. Fannie Mae is a federally
chartered and stockholder owned corporation organized and existing under the
Federal National Mortgage Association Charter Act. It is the largest investor in
home mortgage loans in the United States. Fannie Mae originally was established
in 1938 as a corporation wholly owned by the United States government to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder owned and privately managed corporation by legislation enacted in
1968 and 1970. Fannie Mae provides funds to the mortgage market by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending.
Fannie Mae acquires funds to purchase loans from many capital market
investors that ordinarily may not invest in mortgage loans, thereby expanding
the total amount of funds available for housing. Operating nationwide, Fannie
Mae helps to redistribute mortgage funds from capital-surplus to capital-short
areas. Fannie Mae also issues mortgage-backed securities ("MBS"). Fannie Mae
receives guaranty fees for its guaranty of timely payment of principal of and
interest on MBS. Fannie Mae issues MBS primarily in exchange for pools of
mortgage loans from lenders. The issuance of MBS enables Fannie Mae to further
its statutory purpose of increasing the liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes
Fannie Mae, its business and operations and contains Fannie Mae's audited
financial statements. From time to time Fannie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Fannie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge from the Office of Investor Relations, Fannie Mae,
3900 Wisconsin Avenue, N.W., Washington, D.C. 20016; telephone (202)752-7115.
Fannie Mae is not subject to the periodic reporting requirements of the Exchange
Act.
The Federal Home Loan Mortgage Corporation. Freddie Mac is a publicly
held government-sponsored enterprise created on July 24, 1970 pursuant to the
Federal Home Loan Mortgage Corporation Act, Title III of the Emergency Home
Finance Act of 1970, as amended (the "FHLMC Act"). Freddie Mac's statutory
mission is to provide stability in the secondary market for home mortgages, to
respond appropriately to the private capital market and to provide ongoing
assistance to the secondary market for home mortgages (including mortgages
secured by housing for low- and moderate-income families involving a reasonable
economic return to Freddie Mac) by increasing the liquidity of mortgage
investments and improving the distribution of investment capital available for
home mortgage financing. The principal activity of Freddie Mac consists of the
purchase of conventional residential mortgages and participation interests in
such mortgages from mortgage lending institutions and the sale of guaranteed
mortgage securities backed by the mortgages so purchased. Freddie Mac generally
matches and finances its purchases of mortgages with sales of guaranteed
securities. Mortgages retained by Freddie Mac are financed with short- and
long-term debt, cash temporarily held pending disbursement to security holders,
and equity capital.
Freddie Mac prepares an Information Statement annually which describes
Freddie Mac, its business and operations and contains Freddie Mac's audited
financial statements. From time to time Freddie Mac prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Freddie Mac. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained from Freddie Mac by writing or calling Freddie Mac's Investor
Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia, 22102; outside
Washington, D.C. metropolitan area, telephone (800) 336-3672; within
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Washington, D.C. metropolitan area, telephone (703)759-8160. Freddie Mac is not
subject to the periodic reporting requirements of the Exchange Act.
The Student Loan Marketing Association. Sallie Mae is a
stockholder-owned corporation established by the 1972 amendments to the Higher
Education Act of 1965, as amended, to provide liquidity, primarily through
secondary market and warehousing activities, for lenders participating in
federally sponsored student loan programs, primarily the Federal Family
Education Loan ("FFEL") program and the Health Education Assistance Loan
Program. Under the Higher Education Act, Sallie Mae is authorized to purchase,
warehouse, sell and offer participations or pooled interests in, or otherwise
deal in, student loans, including, but not limited to, loans insured under the
FFEL program, and to make commitments for any of the foregoing. Sallie Mae is
also authorized to buy, sell, hold, underwrite and otherwise deal in obligations
of eligible lenders, if such obligations are issued by such eligible lenders for
the purpose of making or purchasing federally guaranteed student loans under the
Higher Education Act. As a federally chartered corporation, Sallie Mae's
structure and operational authorities are subject to revision by amendments to
the Higher Education Act or other federal enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge upon written request to the Corporate and Investor
Relations Division of Sallie Mae at 1050 Thomas Jefferson Street, N.W.,
Washington, D.C. 20007; telephone (202) 298-3010. Sallie Mae is not subject to
the periodic reporting requirements of the Exchange Act.
The Resolution Funding Corporation. REFCO is a mixed-ownership
government corporation established by Title V of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). The sole purpose of
REFCO is to provide financing for the Resolution Trust Corporation (the "RTC").
REFCO is to be dissolved, as soon as practicable, after the maturity and full
payment of all obligations issued by it. REFCO is subject to the general
oversight and direction of the Oversight Board, which is comprised of the
Secretary of the Treasury, the Chairman of the Board of Governors of the Federal
Reserve System, the Secretary of Housing and Urban Development and two
independent members to be appointed by the President with the advice and consent
of the Senate. The day-to-day operations of REFCO are under the management of a
three-member Directorate comprised of the Director of the Office of Finance of
the FHLB and two members selected by the Oversight Board from among the
presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases involving
failed savings and loan institutions pursuant to policies established by the
Oversight Board. The RTC was granted authority to issue nonvoting capital
certificates to REFCO in exchange for the funds transferred from REFCO to the
RTC. Pursuant to FIRREA, the net proceeds of these obligations are used to
purchase nonvoting capital certificates issued by the RTC or to retire
previously issued REFCO obligations.
Information concerning REFCO may be obtained from the
Secretary/Treasurer, Resolution Funding Corporation, Suite 1000, 11921 Freedom
Drive, Reston, Virginia 22090; telephone (703) 487-9517. REFCO is not subject to
the periodic reporting requirements of the Exchange Act.
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The Federal Home Loan Banks. The Federal Home Loan Banks constitute a
system of twelve federally chartered corporations (collectively, the "FHLB"),
each wholly owned by its member institutions. The mission of the FHLB is to
enhance the availability of residential mortgage credit by providing a readily
available, low-cost source of funds to their member institutions. A primary
source of funds for the FHLB is the proceeds from the sale to the public of debt
instruments issued as consolidated obligations, which are the joint and several
obligations of all the FHLB. The FHLB are supervised and regulated by the
Federal Housing Finance Board, which is an independent federal agency in the
executive branch of the United States government, but obligations of the FHLB
are not obligations of the United States government.
The Federal Home Loan Bank System produces annual and quarterly
financial reports in connection with the original offering and issuance by the
Federal Housing Finance Board of consolidated bonds and consolidated notes of
the FHLB. Unless otherwise specified in the applicable Prospectus Supplement,
questions regarding such financial reports should be directed to the Deputy
Director, Financial Reporting and Operations Division, Federal Housing Finance
Board, 1777 F Street, N.W., Washington, D.C. 20006; telephone (202) 408-2901.
Unless otherwise specified in the applicable Prospectus Supplement, copies of
such reports may be obtained by written request to Capital Markets Division,
Office of Finance, Federal Home Loan Banks, Suite 1000, 11921 Freedom Drive,
Reston, Virginia 22090, telephone (703) 487-9500. The FHLB are not subject to
the periodic reporting requirements of the Exchange Act.
Tennessee Valley Authority. TVA is a wholly owned corporate agency and
instrumentality of the United States of America established pursuant to the
Tennessee Valley Authority Act of 1933, as amended (the "TVA Act"). TVA's
objective is to develop the resources of the Tennessee Valley region in order to
strengthen the regional and national economy and the national defense. The
programs of TVA consist of power and nonpower programs. For the fiscal year
ending September 30, 1995, TVA received $139 million in congressional
appropriations from the federal government for the nonpower programs. The power
program is required to be self-supporting from revenues it produces. The TVA Act
authorizes TVA to issue evidences of indebtedness that may be serviced only from
proceeds of its power program. TVA bonds are not obligations of or guaranteed by
the United States government.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which include
certain unaudited financial data and other information concerning the business
and operations of TVA. Unless otherwise specified in the applicable Prospectus
Supplement, these documents can be obtained by writing or calling Tennessee
Valley Authority, 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1499,
Attention: Vice President and Treasurer; telephone (423) 632-3366. TVA is not
subject to the periodic reporting requirements of the Exchange Act.
Federal Farm Credit Banks. The Farm Credit System is a nationwide
system of lending institutions and affiliated service and other entities (the
"System"). Through its Banks ("FCBs") and related associations, the System
provides credit and related services to farmers, ranchers, producers and
harvesters of aquatic products, rural homeowners, certain farm-related
businesses, agricultural and aquatic cooperatives and rural utilities. System
institutions are federally chartered under the Farm Credit Act of 1971, as
amended (the "Farm Credit Act"), and are subject to regulation by a Federal
agency, the Farm Credit Administration (the "FCA"). The FCBs and associations
are not commonly owned or controlled. They are cooperatively owned, directly or
indirectly, by their respective borrowers. Unlike commercial banks and other
financial institutions that lend to the agricultural sector in addition to other
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sectors of the economy, under the Farm Credit Act the System institutions are
restricted solely to making loans to qualified borrowers in the agricultural
sector, to certain related businesses and to rural homeowners. Moreover, the
System is required to make credit and other services available in all areas of
the nation. In order to fulfill its broad statutory mandate, the System
maintains lending units in all 50 states and the Commonwealth of Puerto Rico.
The System obtains funds for its lending operations primarily from the
sale of debt securities issued under Section 4.2(d) of the Farm Credit Act
("Systemwide Debt Securities"). The FCBs are jointly and severally liable on all
Systemwide Debt Securities. Systemwide Debt Securities are issued by the FCBs
through the Federal Farm Credit Banks Funding Corporation, as agent for the FCBs
(the "Funding Corporation").
Information regarding the FCBs and the Farm Credit System, including
combined financial information, is contained in disclosure information made
available by the Funding Corporation. This information consists of the most
recent Farm Credit System Annual Information Statement and any Quarterly
Information Statements issued subsequent thereto and certain press releases
issued from time to time by the Funding Corporation. Unless otherwise specified
in the applicable Prospectus Supplement, such information and the Farm Credit
System Annual Report to Investors for the current and two preceding fiscal years
are available for inspection at the Federal Farm Credit Banks Funding
Corporation, Investment Banking Services Department, 10 Exchange Place, Suite
1401, Jersey City, New Jersey 07302; telephone (201) 200-8000. Upon request, the
Funding Corporation will furnish, without charge, copies of the above
information. The FCBs are not subject to the periodic reporting requirements of
the Exchange Act.
Private Label Custody Receipt Securities
General. If so specified in the applicable Prospectus Supplement, the
Trust for a Series may include any combination of (i) receipts or other
instruments (other than Treasury Strips) evidencing ownership of specific
interest and/or principal payments to be made on certain Treasury Bonds held by
a custodian ("Private Label Custody Strips") and (ii) receipts or other
instruments evidencing ownership of specific interest and/or principal payments
to be made on certain Resolution Funding Corporation ("REFCO") bonds ("REFCO
Strips"; and, together with Private Label Custody Strips, "Private Label Custody
Receipt Securities"). The Private Label Custody Receipt Securities, if any,
included in a Trust Fund are intended to assure investors that funds are
available to make certain specified payments of principal and/or interest due on
the related Securities. As such, the Private Label Custody Receipt Securities,
if any, included in a Trust are intended both to (i) support the ratings
assigned to such Securities, and (ii) perform a function similar to that
described herein under "Series Enhancement". A description of the respective
general features of Private Label Custody Strips and REFCO Strips is set forth
below.
The Prospectus Supplement for each Series of Securities the Trust Fund
with respect to which contains Private Label Custody Receipt Securities will
contain information as to: (i) the title and series of each such Private Label
Custody Receipt Security, the aggregate principal amount, denomination and form
thereof; (ii) the limit, if any, upon the aggregate principal amount of such
Private Label Custody Receipt Security; (iii) the dates on which, or the range
of dates within which, the principal of (and premium, if any, on) such Private
Label Custody Receipt Security will be payable; (iv) the rate or rates, or the
method of determination thereof, at which such Private Label Custody Receipt
Security will bear interest, if any, the date or dates from which such interest
will accrue; and the dates on which such interest will be payable; (v) whether
such Private Label Custody Receipt Security was issued at a price
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lower than the principal amount thereof, (vi) material events of default or
restrictive covenants provided for with respect to such Private Label Custody
Receipt Security; (vii) the rating thereof, if any: (viii) the issuer of such
Private Label Custody Receipt Security; (ix) the material risks, if any, posed
by such Private Label Custody Receipt Security and the issuer thereof (which
risks, if appropriate, will be described in the "Risk Factors" section of the
related Prospectus Supplement); and (x) any other material terms of such Private
Label Custody Receipt Security. With respect to a Trust which includes a pool of
Private Label Custody Receipt Securities, the related Prospectus Supplement
will, to the extent applicable, describe the composition of the Private Label
Custody Receipt Securities' pool, certain material events of default or
restrictive covenants common to the Private Label Custody Receipt Securities,
and, on an aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to the terms set forth in (iii), (iv)
and (v) of the preceding sentence and any other material terms regarding such
pool.
The Private Label Custody Receipt Securities included in a Trust will
be senior, unsecured, nonredeemable obligations of the issuers thereof, will be
denominated in United States dollars and, if rated, will be rated at least
investment grade by at least one nationally recognized rating agency. In
addition, the inclusion of Private Label Custody Receipt Securities in a Trust
with respect to a Series of Securities is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the related
Series of Securities. Each Trust will be provided with an opinion of Stroock &
Stroock & Lavan LLP or such other counsel specified in the related Prospectus
Supplement to the effect that the Private Label Custody Receipt Securities
included in such Trust are exempt from the registration requirements of the
Securities Act. A copy of such opinion will be filed with the SEC in a Current
Report on Form 8-K or in a post-effective amendment to the Registration
Statement.
Private Label Custody Strips. The first "stripping" of Treasury Bonds
occurred in the 1970s when government securities dealers physically separated
coupons from definitive certificates and offered them to investors as
tax-deferred investments. Investors were able to purchase the "strip" at a deep
discount and pay no federal income tax until resale or maturity. This tax
treatment was limited in 1982 by the Tax Equity and Fiscal Responsibility Act
("TEFRA") which required holders of such strips to accrue a portion of the
discount toward par annually and report such accrual, even though unrealized, as
taxable income. TEFRA also required that all new Treasury issues be made
available only in book-entry form.
The shift to "book-entry only" Treasury Bonds created a shortage of the
physical certificates needed for stripping. In response, various dealers created
custodial receipt programs in which Treasury Bonds in book-entry form were
deposited with custodians who would thereupon issue certificates evidencing
rights in principal and interest payments. Some of the better known programs
first came to market in 1982 and 1983. Although available eventually in
denominations as small as $1,000, these custodial receipts lacked the liquidity
of the physical strips. While physical strips had multiple market-makers,
custodial receipts were proprietary and, as such, the sole market-maker would
usually be an affiliate of the program's sponsor. As a result, the market that
developed for such receipts was segmented.
In early 1984, a group of dealers sought to enhance the liquidity of
custodial receipts by developing a generic, multiple market-maker security known
as a TR (Treasury Receipt). A large secondary market quickly developed in these
generic Treasury Strips.
Treasury Receipts, physical strips and the proprietary receipts trade
at varying discounts from STRIPS which reflect, among other things, lower levels
of liquidity and the structuring difference discussed above.
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A holder of a Private Label Custody Strip (as opposed to a STRIP)
cannot enforce payment on such Treasury Strip against the Treasury; instead,
such holder must look to the custodian for payment. Such custodian (and such
holder of a Private Label Custody Strip that obtains ownership of the underlying
Treasury Bond) can enforce payment of the underlying Treasury Bond against the
Treasury. In the event any Private Label Custody Strips are included in a Trust
with respect to any Series of Securities, the Prospectus Supplement for such
Series will include the identity and a brief description of each custodian that
issued such Private Label Custody Strips. In the event the Company knows that
the depositor of the Treasury Bonds underlying such Private Label Custody Strips
is the Company or any of its affiliates, the Company will disclose such fact in
such Prospectus Supplement.
REFCO Strips. A REFCO Bond may be divided into its separate components,
consisting of: (i) each future semi-annual interest distribution (an "Interest
Component"); and (ii) the principal payment (the "Principal Component") (each
component individually hereinafter referred to as a "REFCO Strip"). REFCO Strips
are not created by REFCO; instead, third parties such as investment banking
firms create them. Each REFCO Strip has an identifying designation and CUSIP
number. REFCO Strips generally trade in the market for Treasury Strips at yields
of a few basis points over Treasury Strips of similar maturities. REFCO Strips
are viewed generally by the market as liquid investments.
For a REFCO Bond to be separated into its components, the par amount of
the REFCO Bond must be in an amount which, based on the stated interest rate of
the REFCO Bond, will produce a semi-annual interest payment of $1,000 or an
integral multiple thereof. REFCO Bonds may be separated into their components at
any time from the issue date until maturity. Once created, REFCO Strips are
maintained and transferred in integral multiples of $1,000.
A holder of a REFCO Strip cannot enforce payment on such REFCO Strip
against REFCO; instead, such holder must look to the custodian for payment .
Such custodian (and such holder of a REFCO Strip that obtains ownership of the
underlying REFCO Bond) can enforce payment of the underlying REFCO Bond against
REFCO. The identity and a brief description of each custodian that has issued
any REFCO Strip included in a Trust will be set forth in the related Prospectus
Supplement. In the event the Company knows that the depositor of the REFCO Bonds
underlying the REFCO Strips included in the Trust is the Company or any of its
affiliates, the Company will disclose such fact in such Prospectus Supplement.
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
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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
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
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 or Collateral Indebtedness Interests 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 by the deposit of cash,
government securities or certain other 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
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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, government
securities 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.
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
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("Ancillary Arrangements"). Such 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 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
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 Investor 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
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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 "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.
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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 or of each Class 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 AGREEMENTS 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 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
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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 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
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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.
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 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
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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 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
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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
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
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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 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
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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.
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
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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 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, 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 fixed, floating, variable or
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adjustable. 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 Investor 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 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,
Government Securities, if any, and Private Label Custody Receipt Securities, if
any, 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.
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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, Government Securities, if any, and Private Label Custody Receipt
Securities, if any, 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 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
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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
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; and (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.
Allocation Percentage. Pursuant to the Pooling and Servicing Agreement,
all amounts collected with respect to (i) Finance Charge Receivables and
Principal Receivables and the Defaulted Amount, (ii) the Government Securities,
if any, and (iii) the Private label Custody Receipt Securities, if any, 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 Investor Certificateholders' Interest of each Series, as follows:
(a) collections of
(i) Finance Charge Receivables and the Defaulted Amount,
(ii) interest on the Government Securities, if any, and
(iii) interest on the Private Label Custody Receipt
Securities, if any, 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
(i) Principal Receivables;
(ii) principal of the Government Securities, if any, and
(iii) principal of the Private Label Custody Receipt
Securities, if any, will at all times be allocated to
the
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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 Receivables and
Participations 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 (i) Finance
Charge Receivables and Principal Receivables and the Defaulted Amount, (ii) the
Government Securities, if any and (iii) Private Label Custody Receipt
Securities, if any. 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 (i) Finance
Charge Receivables and the Defaulted Amount, (ii) interest on the Government
Securities, if any, and (iii) interest on the Private Label Custody Receipt
Securities, if any, will be allocated to each such Series at all times based
upon its Floating Allocation Percentage. Collections of (i) Principal
Receivables, (ii) principal of the Government Securities, if any, and (iii)
principal of the Private Label Custody Receipt Securities, if any, 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 Investor
Certificateholders' Interest of a Series offered hereby will be used to make
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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 continue until the earliest
to occur 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, collections of principal of the Government Securities, if any,
collections of principal of the Private Label Custody Receipt Securities, if
any, and certain other amounts otherwise allocable to the Investor
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.
Controlled 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 a
Controlled Accumulation Period. The Controlled 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 Controlled Accumulation Period with respect to a Series of
Receivables Pooling Certificates, collections of Principal Receivables,
principal of the Government Securities, if any, principal of the Private Label
Custody Receipt Securities, if any, 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
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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.
Rapid Accumulation Period. If so specified and under the conditions set
forth in the Prospectus Supplement relating to a Series having a Controlled
Accumulation Period, during the period from the day on which a Pay Out Event has
occurred until the earliest of (a) the commencement of the Rapid Amortization
Period, (b) payment in full of the Investor Interest of the Certificates of such
Series and, if so specified in the related Prospectus Supplement, of the
Collateral Interest, if any, with respect to such Series and (c) the related
Series Termination Date, the Rapid Accumulation Period, collections of Principal
Receivables allocable to the Investor Interest of such Series (and certain other
amounts if so specified in the related Prospectus Supplement) will be deposited
on each Transfer Date in the Principal Funding Account and used to make
distributions of principal to the Certificateholders of such Series or Class on
the Scheduled Payment Date. The amount to be deposited in the Principal Funding
Account during the Rapid Accumulation Period will not be limited to the
Controlled Deposit Amount.
During the Rapid Accumulation Period, 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 related Series of Certificates or
make other payments as specified in the related Prospectus Supplement. In order
to enhance the likelihood of payment in full of principal at the end of the
Rapid Accumulation Period with respect to a Series of Certificate, such Series
may be subject to a principal guaranty or other similar agreement.
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, principal of the Government Securities, if any, principal
of the Private Label Custody Receipt Securities, if any, and certain other
amounts allocable to the Investor Certificateholders' Interest of such Series
will be used on each 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
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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); or
(b) the Trust becoming 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 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
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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, Government Securities, if any, and Private
Label Custody Receipt Securities, if any, 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, Government
Securities, if any, and Private Label Custody Receipt Securities, if any, and to
continue transferring Principal Receivables as before such Insolvency Event. The
proceeds from any such sale, disposition or liquidation of the Receivables,
Government Securities, if any, and Private Label Custody Receipt Securities, if
any, 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, Government Securities, if any, and Private Label
Custody Receipt Securities, if any, 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.
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. It shall be a condition to the issuance of a Paired Series that such
issuance shall not result in the reduction by any Rating Agency of the rating of
the Prior Series.
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 of 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 Interests, 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
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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,
Government Securities, if any, and Private Label Custody Receipt Securities, if
any, 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 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, Government Securities, if any, and Private
Label Custody Receipt Securities, if any, 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,
Government Securities, if any, and Private Label Custody Receipt Securities, if
any, 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,
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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 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 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
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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 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
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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 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
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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.
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".
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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.
Assignment of Government Securities; Pre-Funding Account. A portion of
the net proceeds received from the sale of the Securities of a Series, the Base
Assets of which consist in part of Government Securities, will be applied to the
purchase of the related Government 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
Government Securities will be purchased by the Trust from time to time during
the Funding Period provided for therein. The Trustee will cause any Government
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 Government Securities. The Trustee will not
be in possession of or be assignee of record of any underlying assets for a
Government Security. See "THE TRUST ASSETS -- Government Securities".
Each Government Security to be transferred to the Trust will be
identified in a schedule appearing as an exhibit to the related Trust Agreement
(the "Government Security Schedule"), which will specify the original principal
amount, outstanding principal balance as of the Cut-off Date (or subsequent
cut-off date), annual interest rate and maturity date for each such Government
Security. In the Trust Agreement, to the extent that any Government Securities
are purchased from the Depositor, the Depositor will represent and warrant to
the Trustee regarding the Government Securities: (i) that the information
contained in the Government Schedule is true and correct in all material
respects; (ii) that, immediately prior to the conveyance of the Government
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 Government
Securities; and (iv) that there is no existing lien, charge, security interest
or other encumbrance on such Government Securities.
Assignment of Private Label Custody Receipt Securities; Pre-Funding
Account. A portion of the net proceeds received from the sale of the Securities
of a Series, the Base Assets of which consist in part of Private Label Custody
Receipt Securities, will be applied to the purchase of the related Private Label
Custody Receipt 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 Private Label
Custody Receipt Securities will be purchased by the Trust from time to time
during the Funding Period provided for therein. The Trustee will cause any
Private Label Custody Receipt 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 Private Label Custody Receipt Securities. The Trustee will not be
in possession of or be
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assignee of record of any underlying assets for a Private Label Custody Receipt
Security. See "THE TRUST ASSETS -- Government Securities".
Each Private Label Custody Receipt Security to be transferred to the
Trust will be identified in a schedule appearing as an exhibit to the related
Trust Agreement (the "Private Label Custody Receipt Security Schedule"), which
will specify the original principal amount, outstanding principal balance as of
the Cut-off Date (or subsequent cut-off date), annual interest rate and maturity
date for each such Private Label Custody Receipt Security. In the Trust
Agreement, to the extent that any Private Label Custody Receipt Securities are
purchased from the Depositor, the Depositor will represent and warrant to the
Trustee regarding the Private Label Custody Receipt Securities: (i) that the
information contained in the Private Label Custody Receipt Schedule is true and
correct in all material respects; (ii) that, immediately prior to the conveyance
of the Private Label Custody Receipt 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 Private Label Custody Receipt Securities; and (iv) that there is
no existing lien, charge, security interest or other encumbrance on such Private
Label Custody Receipt Securities.
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
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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 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
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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".
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, 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
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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 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
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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 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
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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 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
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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 that 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.
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.
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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 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
relating to such Seller (or delays in payments on CRB Securities relating to a
similarly insolvent 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,
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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, 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
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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 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 Credit Suisse First Boston, Inc. Neither Credit
Suisse First Boston, Inc., nor any of its 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 11 Madison
Avenue, New York, New York 10010, and its telephone number is (212) 325-2000.
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.
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MATERIAL 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. Stroock & Stroock & Lavan LLP, New York, New York or
such other counsel specified in the related Prospectus Supplement ("Federal Tax
Counsel"), will deliver its opinion regarding certain federal income tax matters
discussed below, a copy of which will be filed with the SEC in a Current Report
on Form 8-K or in a post-effective amendment to the Registration Statement. The
opinion of Federal Tax Counsel specifically addresses only those issues
specifically identified below as being covered by such opinion; however, such
opinion also states that the additional discussion set forth below accurately
sets forth Federal Tax Counsel's advice with respect to material federal income
tax issues. 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 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 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.
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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 with 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 treated as a
publicly traded partnership that would be taxable as a corporation unless it met
certain qualifying income tests (and the resulting taxable corporation would not
be able to reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). 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 foreign holders might 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 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 under Sections 1271-1275 of the Code (the "OID Regulations"),
interest is considered unconditionally payable only if late payment or
nonpayment is remote or reasonable remedies exist to compel payment. 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
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taxed as contingent interest under (or under rules similar to) the 1996
Contingent Debt Regulations, or in some other manner.
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 0.65 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 less than or equal to 0.65, however, such
rate will generally constitute an objective rate, described more fully below.
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 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 inversely reflect 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 (or under rules similar
to) the 1996 Contingent Debt Regulations, or some other manner.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1275 of the Code and the OID Regulations. The discussion herein is based in
part on the OID Regulations. Note Owners also should be aware that the OID
Regulations do not address certain issues relevant to prepayable securities such
as the Notes.
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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 (as specially defined for tax purposes). Because of the possibility
of prepayments, it is not clear how the de minimis rules will apply to the
Notes. It is likely 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, a 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
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
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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 or qualified
inverse floating rate, equals the value of such qualified floating rate as or
qualified inverse floating rate as of the issue date of the Note, or, in the
case of an objective rate other than a qualified floating 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 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
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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
its weighted average remaining life as computed for tax purposes. 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 is
made.
The Code grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, such as 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 under Code Section 171 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. Although there are Treasury
regulations dealing with amortizable bond premiums, they specifically do not
apply to prepayable debt instruments subject to Section 1272(a)(6), such as the
Notes. However, by analogy to such regulations, any premium in excess of
interest income may be deductible to the extent of prior accruals of interest.
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 Issue 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. See "--Market Discount" above. 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 at
the beginning of the first taxable year to which the election applies or
acquires thereafter. See "-- Amortizable Premium", above. The election to accrue
interest, discount and premium on a constant yield method with respect to a Note
is irrevocable.
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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 or loss if the Note is held as
a capital asset and as long-term capital gain or loss if the Note Owner's
holding period exceeded one year. 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, 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 any Person other than a "United States Person" A
"United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within of the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all
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substantial decisions of the trust. A "Non-United States Holder" means a
Non-United States Person that is a Note Owner.
On October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Holders. The 1997 Withholding Regulations are generally effective for
payments after December 31, 1999, regardless of the issue date of the Note with
respect to which such payments are made, subject to certain transition rules.
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 1997 Withholding Regulations, and prospective investors
are urged to consult their tax advisors with respect to the effect of the 1997
Withholding Regulations.
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 (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 by 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. The
forgoing certification may be provided by the beneficial owner of a Note on IRS
Form W-8.
The 1997 Withholding Regulations provide optional documentation
procedures designed to simplify compliance by withholding agents. The 1997
Withholding Regulations will add "intermediary certification" options for
certain qualifying withholding agents. Under one such option, a withholding
agent will be allowed to rely on an 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 will be permitted to act on behalf of the United
States withholding agent, provided certain conditions are met.
The 1997 Withholding Regulations will 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 1997 Withholding Regulations will replace a number of current tax
certification forms (including IRS Form W-8 IRS, Form 1001, and IRS Form 4224,
discussed below)
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with restated forms and standardize the period of time for which withholding
agents can rely on such certifications.
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) 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 such
individual has a "tax home" (as defined in Section 911(d)(3) of the Code) 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.
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 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
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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 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.
The 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations will 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.
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.
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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.
On December 17, 1996, final Treasury Regulations (the "Check-the-Box
Regulations") were issued which generally permit non-corporate entities, such as
the Trust, to elect whether to be taxed as corporations or partnerships. Under
the Check- the-Box Regulations, the Trust will be classified as a partnership
unless it elects to be classified as an association taxable as a corporation.
Except as expressly provided in the applicable Prospectus Supplement, the Trust
will not elect to be classified as an association taxable as a corporation.
However, the Check-the-Box-Regulations would have no effect on whether a
partnership should be classified as a publicly traded partnership taxable as a
corporation.
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 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.
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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. Losses will generally be allocated in the manner in
which they are borne.
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.
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 ($100,000 (or $50,000 in the
case of a separate return by a married individual), adjusted for changes in the
cost of living subsequent to 1990) 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. For taxable years beginning after December
31, 1997 in the case of a partnership that has 100 or more partners and elects
to be treated as an "electing large partnership," 70% of such partnership
miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2% floor that would otherwise be applicable to individual
partners.
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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
contribute its assets to a new Trust, which will be treated as a new partnership
for tax purposes, in exchange for Certificates in the new Trust. The original
Trust will then be deemed to distribute the Certificates in the new Trust to
each of the Owners of Certificates in the original Trust in liquidation of the
original Trust. 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.
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.
Any such gain or loss would be long-term capital gain or loss if the Certificate
Owner's holding period exceeded one year. 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 or losses allocated
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
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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 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 timely file tax returns that
are consistent with the information return filed by the Trust or be subject to
penalties unless the holder timely notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (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.
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 certain disputes with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct
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taxpayer. Generally, the statute of limitations for partnership items does not
expire before the later of three years after the date on which the partnership
information return is filed or the last day for filing such return for such year
(determined without regard to extension). 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.
The Taxpayer Relief Act of 1997 created a special audit system for
qualifying large partnerships that have elected to apply a simplified flow-
through reporting system under new sections 771 through 777. Unless otherwise
specified in the applicable Prospectus Supplement, a Trust will not elect to
apply the simplified flow-through reporting system.
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 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 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 on the Trust's gross income (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
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would only be entitled to a refund for that portion of the taxes, if any, 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.
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 (other than interest) 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 ($100,000 (or $50,000 in the case of a separate return by a married
individual), adjusted for changes in the cost of living subsequent to 1990 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. For taxable years beginning after
December 31, 1997, in the case of a
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partnership that has 100 or more partners and elects to be treated as an
"electing large partnership," 70% of such partnership miscellaneous itemized
deductions will be disallowed, although the remaining deductions will generally
be allowed at the partnership level and will not be subject to the 2% floor that
would otherwise be applicable to individual partners.
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 Asset 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"). For the rules governing original issue discount, see "Owner
Trusts -- Tax Consequences to Note Owners -- Short-Term Notes" above. However,
in the case of Base Assets that constitute short-term Government Securities or
short-term Private Label Custody Receipt Securities the rules set out above
dealing with short-term obligations (see "Owner Trusts -- Tax Consequences to
Note Owners -- Short-Term Notes" above) are applied with reference to
acquisition discount rather than original issue discount, if such obligations
constitute "short-term Government obligations" within the meaning of Section
1271(a)(3)(B) of the Code.
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.
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
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applicable to premium, see "Owner Trusts -- Tax Consequences to Note Owners --
Amortizable Premium" above.
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.
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.
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 Grantor Trust Certificateholders 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
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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 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
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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)
(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. See
"--Market Discount" above. 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 at the beginning of
the first taxable year to which the election applies or acquires thereafter. 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 Taxpayer Relief Act of 1997 (the "1997 Act") contains
a provision requiring original issue discount on any pool of debt instruments,
the yield on which may be affected by reason of prepayments 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 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
debt instruments.
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).
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
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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, any 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.
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 October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Owners of Grantor Trust Certificates. The 1997 Withholding Regulations
are generally effective for payments after December 31, 1999, 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 TRUST
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 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
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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.
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". 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
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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--
Amortizable 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 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 or as a
publicly traded partnership taxable as a corporation.
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
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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.
If, alternatively, the arrangement created by the Agreement were
treated as a "publicly traded partnership" taxable as a corporation, the
resulting entity would 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.
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
Taxation of Certain Foreign Note Owners. As used herein, the term "Non-
United States Person" means any Person other than a "United States Person." A
"United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate of income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within of de United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
trust. A "Non-United States Holder" means a Non-United States Person that is a
Note Owner.
On October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Holders. The 1997 Withholding Regulations are generally proposed to be
effective for payments after December 31, 1999, regardless of the issue date of
the Note with respect to which such payments are made, subject to certain
transition rules. 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 1997 Withholding Regulations, and
prospective investors are urged to consult their tax advisors with respect to
the effect of the 1997 Withholding Regulations.
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
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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 1997 Withholding Regulations provide optional documentation
procedures designed to simplify compliance by withholding agents. The 1997
Withholding Regulations add "intermediary certification" options for certain
qualifying withholding agents. Under one such option, a withholding agent will
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 will be permitted to act on behalf of the United
States withholding agent, provided certain conditions are met.
The 1997 Withholding Regulations 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 1997
Withholding Regulations will replace a number of current tax certification forms
(including IRS Form W-8, IRS Form 1001 and IRS Form 4224, discussed below) with
restated forms and standardize the period of time for which withholding agents
can rely on such certifications.
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
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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 such
individual has a "tax home" (as defined in Section 911(d)(3) of the Code) 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 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 "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, 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 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations provide certain
presumptions under which Non-United 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
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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, except as described in
the following paragraph, 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.
Interest income (including original issue discount) earned on
obligations of the United States Treasury Department and of certain government
sponsored enterprises is generally exempt from state and local income taxation.
Therefore, where a Grantor Trust holds Government Securities or Private Label
Custody Receipt Securities as part of the Trust Property, interest income
attributable to Government Security or Private Label Custody Receipt Security
earned on Certificates may be exempt from state and local taxation, depending on
the form of the Government Security. However, certain states or localities may
take a contrary position. Investors should consult their own tax advisors
concerning exemptions from state and local income taxes.
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 the tax consequences to Note Owners and
Certificate Owners in 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
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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 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
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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 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.
The Prospectus Supplement will indicate if either of the exceptions set
forth in the DOL Regulation (discussed above) apply. If neither exception is
applicable, Securities which are Certificates will not be eligible to be
purchased directly or indirectly for, or on behalf of, or with the assets of a
Plan.
Certain transactions involving the purchase of Securities which are
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if the Base Assets were deemed to be assets of a Plan. Under the DOL
Regulation, the Base Assets would be treated as plan assets of a Plan for the
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purposes of ERISA and the Code only if the Plan acquires an equity interest in
the Trust fund and none of the exceptions contained in the DOL Regulation is
applicable. The Prospectus Supplement will indicate whether the Notes will be
treated as indebtedness without substantial equity features for purposes of the
DOL Regulation.
Without regard to whether the Notes are characterized as equity
interests, the acquisition, transfer or holding of Notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if the Trust
Fund, the Trustee, the Indentive Trustee or any of their respective affiliates
is or becomes a party in interest or a disqualified person with respect to such
Plan or in the event that a Note is purchased in the secondary market and such
purchase constitutes a sale or exchange between a Plan and a party in interest
or disqualified person with respect to such Plan. Certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 91-38 regarding investments by bank collective investment funds;
PTCE 95-60, regarding investments by insurance company general accounts; PTCE
96-23, regarding transactions affected by in-house asset managers; and PTCE
84-14, regarding transactions effected by "qualified professional asset
managers."
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 a plan asset exception or prohibited transaction class
exemption is applicable in the Plan's particular circumstances and whether the
exception or exemption covers all potential prohibited transactions.
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.
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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 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 Stroock & Stroock & Lavan LLP, New York, New York or such other
counsel set forth in the Prospectus Supplement. Certain federal income tax and
other matters will be passed upon for each Trust by Stroock & Stroock & Lavan
LLP, New York, New York or such other counsel set forth in the Prospectus
Supplement.
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---- INDEX OF DEFINED TERMS
Accounts.......................................................................
Accumulation Period............................................................
Additional Accounts............................................................
Additional Base Assets.........................................................
Agreement......................................................................
Ancillary Arrangements.........................................................
Base Assets....................................................................
Cash Collateral Account........................................................
Cash Collateral Guaranty.......................................................
Cede .......................................................................
CEDEL .......................................................................
CEDEL Participants.............................................................
Certificates...................................................................
Certificate Interest Rate......................................................
Certificateholders.............................................................
Certificates...................................................................
Class .......................................................................
Closing Date...................................................................
CODE .......................................................................
Collateral Indebtedness Interests..............................................
Collection Account.............................................................
Collection Period..............................................................
Commission.....................................................................
Controlled Accumulation Amount.................................................
Controlled Amortization Amount.................................................
Controlled Amortization Period.................................................
Controlled Deposit Amount......................................................
Controlled Distribution Amount.................................................
CRB Backed Certificate.........................................................
CRB Backed Notes...............................................................
CRB Backed Securities..........................................................
CRB Issuer.....................................................................
CRB Servicer...................................................................
CRB Trust......................................................................
CRB Trustee....................................................................
Credit Card Accounts...........................................................
Credit Card Receivables........................................................
Credit Enhancement.............................................................
Credit Enhancer................................................................
Date of Processing.............................................................
Defaulted Amount...............................................................
Deficit Controlled Accumulation Amount.........................................
Deficit Controlled Amortization Amount.........................................
Definitive Certificates........................................................
Definitive Notes...............................................................
Definitive Securities..........................................................
Depositaries...................................................................
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Depositor......................................................................
Depositor's Certificate........................................................
Depositor's Interest...........................................................
Distribution Date..............................................................
DTC ...........................................................................
Eligible Institution...........................................................
Eligible Investments...........................................................
Eligible Servicer..............................................................
Enhancement Invested Amount....................................................
ERISA .........................................................................
Euroclear......................................................................
Euroclear Operator.............................................................
Euroclear Participants.........................................................
Exchange Act...................................................................
Expected Final Payment Date....................................................
FDIC ..........................................................................
Federal Tax Counsel............................................................
Final Scheduled Payment Date...................................................
Finance Charge Receivables.....................................................
FIRREA ........................................................................
Floating Allocation Percentage.................................................
Foreign Investor...............................................................
Funding Account................................................................
GAO ...........................................................................
Government Securities..........................................................
Grantor Trust..................................................................
Holders .......................................................................
Indenture......................................................................
Indenture Trustee..............................................................
Indirect Participants..........................................................
Initial Accounts...............................................................
Insolvency Event...............................................................
Interchange....................................................................
Interest Funding Account.......................................................
Invested Amount................................................................
Investment Earnings............................................................
IRS ...........................................................................
Moody's .......................................................................
Net Portfolio Yield............................................................
Non-United States Holder.......................................................
Non-United States Owner........................................................
Note Interest Rate.............................................................
Noteholders....................................................................
Notes .........................................................................
OID Regulations................................................................
Owner Trust....................................................................
Paired Series..................................................................
Participations.................................................................
Pay Out Events.................................................................
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Paying Agent...................................................................
Payment Account................................................................
Payment Date...................................................................
Plan ..........................................................................
Pooling and Servicing Agreement................................................
Portfolio Yield................................................................
Prepayment Assumption..........................................................
Pre-Funded Amount..............................................................
Pre-Funding Account............................................................
Principal Allocation Percentage................................................
Principal Commencement Date....................................................
Principal Funding Account......................................................
Principal Receivables..........................................................
Prior Series...................................................................
Private Label Custody Receipt Security ........................................
Prospectus.....................................................................
Prospectus Supplement..........................................................
Rapid Amortization Period......................................................
Rating Agency..................................................................
Receivables....................................................................
Receivables Pooling Certificates...............................................
Registrar......................................................................
Related Documents..............................................................
Removed Accounts...............................................................
Repurchase Amount..............................................................
Reserve Account................................................................
Revolving Period...............................................................
S&P ...........................................................................
Securities.....................................................................
Securityholders................................................................
Seller.........................................................................
Series.........................................................................
Series Cut-Off Date............................................................
Series Enhancement.............................................................
Series Termination Date........................................................
Servicer.......................................................................
Servicer Default...............................................................
Servicing Fee..................................................................
Shortfall Amount...............................................................
Special Payment Date...........................................................
Spread Account.................................................................
Strip Certificates.............................................................
Subordinate Certificates.......................................................
Subordinate Class Percentage...................................................
Supplement.....................................................................
TIN ...........................................................................
Transfer Agent.................................................................
Trust Accounts.................................................................
Trust Agreement................................................................
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Trust Stripped Bond............................................................
Trust Stripped Coupon..........................................................
Trustee .......................................................................
UCC ...........................................................................
Underwriting Agreements........................................................
Yield Calculation..............................................................
Yield Factor...................................................................
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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.
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
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<PAGE> 357
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. 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.
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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
(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.
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Exemption for non-U.S. persons with effectively connected income
(Form4224). 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
FormW-9 (Request for Taxpayer Identification Number and Certification) in order
to avoid backup withholding (see "Material 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.
On October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the documentation required from non-U.S.
persons holding Global Securities. The 1997 Withholding Regulations are
generally proposed to be effective for payments after December 31, 1998,
regardless of the issue date of the Global Security with respect to which such
payments are made, subject to certain transition rules. The 1997 Withholding
Regulations will 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. Prospective investors are urged to consult
their tax advisors with respect to the effect of the 1997 Withholding
Regulations.
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.
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 CREDIT SUISSE 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
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THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
Table of Contents
Prospectus Supplement
PROSPECTUS
PAGE
Prospectus Supplement..........................................................
Reports to Securityholders.....................................................
Available Information..........................................................
Incorporation of Certain Documents by Reference................................
Summary of Terms...............................................................
Rick Factors...................................................................
The Trusts.....................................................................
The Receivables Pools..........................................................
The Collateral Certificates....................................................
The Government Securities......................................................
Private Table Custody Receipt Securities
Weighted Average Life of the Securities........................................
Pool Factors and Trading Information...........................................
The Seller and the Servicer....................................................
Use of Proceeds................................................................
Description of the Notes.......................................................
Description of the Certificates................................................
Certain Information Regarding the Securities...................................
Description of the Transfer and Servicing Agreements...........................
Certain Legal Aspects of the Receivables.......................................
Certain Federal Income Tax Consequences........................................
State and Local Tax Considerations.............................................
ERISA Considerations...........................................................
Plan of Distribution...........................................................
Legal Matters..................................................................
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 to their unsold
allotments of subscriptions.
$
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PROSPECTUS
CREDIT SUISSE FIRST BOSTON FLOORPLAN 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 one or more Trust Agreements or one
Master Trust Agreement (as supplemented from time to time from time to time by
one or more Trust Supplements) (a "Trust Agreement") or one or more Pooling and
Servicing Agreements, one Master Pooling and Servicing Agreement (as
supplemented from time to time by one or more Pooling and Servicing Supplements)
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 (a) certain Base Assets (as
defined herein), which may consist of (i) wholesale automobile and light truck
receivables or Participations (each as defined herein), (ii) certain "wholesale
automobile and light truck receivables backed securities" ("WALTR Securities",
as defined herein), (iii) Government Securities (as defined herein) (iv) and/or
Private Label Custody Receipt Securities (as defined herein) and (b) may also
include certain Series Enhancements (as defined herein) or other assets as
described herein or in the related Prospectus Supplement. Any Receivables
included in the Base Assets for a Series will consist of one or more pools of
receivables arising from time to time in the ordinary course of business in
wholesale receivables generated from time to time in a portfolio of revolving
financing arrangements (collectively, "Accounts") with automobile dealers. Any
Participations included in the Base Assets for a Series will consist of
undivided interests in one or more pools of Receivables. Any WALTR Securities
included in the Base Assets for a Series 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 include Receivables
or Participations, will include the right to receive all monies due in respect
of such Receivables and/or Participations, net (to the extent provided in the
related Prospectus Supplement) of certain amounts payable to the servicer of
such Receivables specified in such Prospectus
(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
<PAGE> 362
OR INSURED BY, CREDIT SUISSE FIRST BOSTON CORPORATION, THE DEPOSITOR, ANY OF
THEIR RESPECTIVE AFFILIATES, OR ANY UNITED STATES GOVERNMENTAL AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE
INFORMATION 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
CREDIT SUISSE FIRST BOSTON
This date of this Prospectus is _________, 199_
<PAGE> 363
(Continued from the previous page)
Supplement (the "Servicer"), 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.
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 Distribution Date for each Class of such Securities; (vii) the extent to
which any Class within such Series is subordinated to any other Class of such
Series; (viii) the identity of each Class of such Securities; and (ix)
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
<PAGE> 364
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 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, 11 Madison Avenue, New York, New York 10010. Telephone requests may
be directed to the Secretary of Asset Backed Securities Corporation at (212)
325-2000.
<PAGE> 365
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) one or
more trust agreements or one master trust
agreement (as supplemented from time to
time by one or more trust supplements)
(each, a "Trust Agreement") between the
Depositor and the Trustee of such Trust or
(ii) one or more a pooling and servicing
agreements, or one master pooling and
servicing agreement (as supplemented from
time to time by one or more pooling and
servicing supplements) 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 an
owner trust (an "Owner Trust"), a master
trust (a "Master 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 Credit Suisse First Boston, Inc. Neither
Credit Suisse First Boston, Inc. nor any of
its 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 11 Madison
Avenue, New York, New York 10010, and its
telephone number is (212) 325- 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").
5
<PAGE> 366
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
may 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 (i)
Receivables or Participations and (ii) to
the extent set forth in the related
Prospectus Supplement, Government
Securities (as defined herein) and/or
Private Label Custody Receipt Securities
(as defined herein) (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 Notes will consist
primarily of (i) WALTR Securities and (ii)
to the extent set forth in the related
Prospectus Supplement, Government
Securities and/or Private Label Custody
Receipt Securities (as defined herein)
(such Certificates being sometimes referred
to herein as "WALTR Backed Certificates",
such Notes being sometimes referred to
herein as "WALTR Backed Notes" and such
WALTR Backed Certificates and WALTR Backed
Notes being referred to collectively as
"WALTR 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.
The 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.
6
<PAGE> 367
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, 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 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
7
<PAGE> 368
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 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.
8
<PAGE> 369
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 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 and
the principal balance of the Government
Securities, if any, and the Private Label
Custody Receipt Securities (as defined
herein), if any, 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 or as
amounts collected 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 (i) Finance Charge
Receivables and Principal Receivables and
the Defaulted Amount (as defined under
"DESCRIPTION OF THE CERTIFICATES --
Receivables Pooling Certificates
--Collections") and (ii) the Government
Securities and/or Private Label Custody
Receipt Securities. Collections of (i)
Finance Charge Receivables and the
Defaulted Amount and (ii) interest on the
Government Securities, if any, and the
Private Label Custody Receipt Securities,
if any, will be allocated to each such
Series at all times based upon its Floating
Allocation Percentage.
Collections of Principal Receivables and
collections of principal of the Government
Securities, if any, and the Private Label
Custody Receipt Securities, if any, will be
allocated to each such Series at all times
based upon its Principal Allocation
Percentage. The Floating Allocation
9
<PAGE> 370
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, collections
of interest on the Government Securities,
if any, collections of interest on the
Private Label Custody Receipt Securities,
if any, 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 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,
collections of interest on the Government
Securities, if any, collections of interest
on the Private Label Custody Receipt
Securities, if any, 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
a Controlled Accumulation Period as
described below under "Controlled
Accumulation Period", or under certain
limited circumstances, a Rapid Accumulation
Period as described below under "Rapid
Accumulation Period" (each an "Accumulation
10
<PAGE> 371
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
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
Closing 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, collections of
principal of the Government Securities, if
any, collections of principal of the
Private Label Custody Receipt Securities,
if any, 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, additional Government
Securities and additional Private Label
Custody Receipt Securities.
G. Controlled Accumulation
Period..... If so specified by the related Prospectus
Supplement, unless a Rapid Amortization
Period commences or, it so specified in the
related Prospectus Supplement, a Rapid
Accumulation Period commences, a Series of
Receivables Pooling Certificates will have
a controlled accumulation period (the
"Controlled Accumulation Period"). The
Controlled 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.
11
<PAGE> 372
During the Controlled Accumulation Period of
a Series of Receivables Pooling
Certificates, collections of Principal
Receivables, collections of principal of the
Government Securities, if any, collections
of principal of the Private Label Custody
Receipt Securities, if any, 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, Controlled Accumulation Amount and
Deficit 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 Controlled
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. Rapid Accumulation
Period................... If so specified and under the conditions
set forth in the Prospectus Supplement
relating to a Series having a Controlled
Accumulation Period, during the period from
the day on which a Pay Out Event has
occurred until the earliest of (a) the
commencement of the Rapid Amortization
Period, (b) payment in full of the Investor
Interest of the Certificates of such Series
and, if so specified in the related
Prospectus Supplement, of the Collateral
Interest, if any, with respect to such
Series and (c) the related Series
Termination Date (the "Rapid Accumulation
Period"), collections of Principal
Receivables allocable to the Investor
Interest of such Series (and certain other
amounts if so specified in the related
Prospectus Supplement) will be deposited on
each Transfer Date in the Principal Funding
Account and used to make distributions of
principal to the Certificateholders of such
Series or Class on the Scheduled Payment
Date. The amount to be deposited in the
Principal Funding Account during the Rapid
Accumulation Period will not be limited to
the Controlled Deposit Amount. The term
"Pay Out Event" with respect to a Series of
Certificates means any of the events
identified
12
<PAGE> 373
as such in the related Prospectus
Supplement and any of the following: (a)
certain events of insolvency or
receivership relating to the Seller, (b)
the Seller is unable for any reason to
transfer Receivables to the Trust in
accordance with the provisions of the
Agreement or (c) the Trust becomes an
"investment company" within the meaning of
the Investment Company Act of 1940, as
amended. See "Description of the
Certificates -- Accumulation Period" and
"--Pay Out Events" for a discussion of the
events which might lead to the commencement
of a Rapid Accumulation Period.
During the Rapid Accumulation Period, 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
related Series of Certificates or make other
payments as specified in the related
Prospectus Supplement. In order to enhance
the likelihood of payment in full of
principal at the end of the Rapid
Accumulation Period with respect to a Series
of Certificate, such Series may be subject
to a principal guaranty or other similar
agreement.
I. 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 amortization
period during which collections of
Principal Receivables, collections of
principal of the Government Securities, if
any, and collections of principal of the
Private Label Custody Receipt Securities,
if any, 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, collections of
principal of the Government Securities, if
any, collections of principal of the Private
Label Custody Receipt Securities, if any,
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
13
<PAGE> 374
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.
J. 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 deemed to have occurred with respect to
a Series of Receivables Pooling
Certificates or, it so specified in the
Prospectus Supplement relating to a Series
with a Controlled Accumulation Period, from
such time specified in the related
Prospectus Supplement after a Pay Out Event
has occurred and the Rapid Accumulation
Period has commenced, 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, collections of
principal of the Government Securities, if
any, collections of principal of the
Private Label Custody Receipt Securities,
if any, 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.
K. 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
(b) the Trust becoming an investment
company within the meaning of the Investment
Company Act of 1940, as amended (the
"Investment Company Act").
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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
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, Government Securities, if any,
and Private Label Custody Receipt
Securities, if any, 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, the Government
Securities, if any, or the Private Label
Custody Receipt Securities, if any, and to
continue transferring Principal Receivables,
Government Securities, if any, and Private
Label Custody Receipt Securities, if any, as
before such Insolvency Event.
The proceeds from any such sale, disposition
or liquidation of the Receivables, the
Government Securities, if any, and the
Private Label Custody Receipt Securities, if
any, 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
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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
is not sufficient to pay the Invested Amount
of the Certificates of such Series in full,
such Certificateholders will incur a loss.
L. 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 equal
amount. 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. It shall be a
condition to the issuance of a Paired
Series that such issuance shall not result
in the reduction by any Rating Agency of
the rating of the Prior Series.
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 (i) in the case of
Receivables Pooling Certificates, the rate
of payment (including early amortization,
prepayments and repurchases) of the
Receivables and the terms and rate of
payment of the Government Securities and/or
Private Label Custody Receipt Securities
comprising the Base Assets in the related
Trust and (ii) in the case of WALTR Backed
Certificates, the rate of payment (including
early amortization, prepayments and
repurchases) of the Receivables underlying
the WALTR Securities, the terms of such
WALTR Securities and the rate of payment and
terms of the
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Government Securities, if any, and the
Private Label Custody Receipt Securities,
if any, comprising the Base Assets in the
related Trust. The actual final Payment
Date of 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 of Receivables,
Government Securities, if any, and Private
Label Custody Receipt Securities, if any,
to the reduction of the principal balance
of such Certificates, or if any early
amortization period occurs with respect to
the Receivables comprising or underlying
the Base Assets (comprised of Receivables
or WALTR Securities) 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".
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, (2) WALTR
Securities, (3) Government Securities and
(4) Private Label Custody Receipt
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
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Participations
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 wholesale receivables generated
from time to time in a portfolio of
revolving financing arrangements
("Accounts") with automobile dealers (the
"Dealers"), 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. The Dealers use the
related advances to purchase new or used
automobiles, light duty trucks and certain
other vehicles (the "Vehicles).
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 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.
(2) WALTR Securities........ Base Assets for a Series may consist, in
whole or in part, of asset backed
securities ("WALTR 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 - WALTR
Securities".
Payments on the WALTR Securities will be
distributed directly to the Trustee as
registered owner of such WALTR Securities
or, if applicable,
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<PAGE> 379
to the Indenture Trustee as pledgee
thereof, or in such other manner as shall
be specified in the related Prospectus
Supplement. The related Prospectus
Supplement for a Series which includes
WALTR 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 WALTR Securities; (ii) certain
characteristics of the Receivables which
comprise the underlying assets for the
WALTR Securities; (iii) the expected
maturity and the final maturity of the
WALTR Securities; (iv) the certificate rate
for the WALTR Securities; (v) the issuer or
issuers of the WALTR Securities
(collectively, the "WALTR Issuer"), the
servicer or servicers of the WALTR
Securities (collectively, the "WALTR
Servicer") and the trustee or trustees of
the Securities (collectively, the "WALTR
Trustee"); (vi) certain characteristics of
enhancement, if any, relating to the WALTR
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 WALTR Securities; (viii)
the terms on which the WALTR Securities or
the underlying Receivables may, or are
required to, be repurchased prior to the
stated maturity of such WALTR Securities;
and (ix) the terms on which substitute
Receivables may be delivered to replace
those initially deposited with the WALTR
Trustee. See "TRUST ASSETS - WALTR
Securities".
(3) Government Securities. Base Assets for a Series may include
Government Securities which will consist of
any combination of (i) receipts or other
instruments created under the Department of
the Treasury's Separate Trading of
Registered Interest and Principal of
Securities, or STRIPS, program ("Treasury
Strips"), which interest and/or principal
Strips evidence ownership of specific
interest and/or principal payments to be
made on certain United States Treasury
Bonds ("Treasury Bonds"), (ii) Treasury
Bonds and (iii) certain other debt
securities ("GSE Bonds") of United States
government sponsored enterprises ("GSEs")
("GSE Bonds"; and, together with Treasury
Strips, and Treasury Bonds, collectively,
"Government Securities"). The specific
terms of the Government Securities, if any,
included in a Trust Fund will be set forth
in the applicable Prospectus Supplement.
See "TRUST ASSETS -- Government
Securities".
Private Label Custody
Receipt Securities. . . . Base Assets for a Series may include
Private Label Custody Receipt Securities
which will consist of any combination of
(i) receipts or other instruments (other
than Treasury Strips) evidencing ownership
of specific interest and/or principal
payments to be made on certain Treasury
Bonds held by a custodian ("Private Label
Custody Strips") and (ii) receipts or other
instruments evidencing ownership of
specific interest and/or principal payments
to be made on certain Resolution Funding
Corporation ("REFCO") bonds ("REFCO
Strips"; and, together with Private Label
Custody Strips, "Private Label Custody
Receipt Securities"). The specific terms of
the Private Label Custody Receipt
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<PAGE> 380
Securities, if any, included in a Trust
will be set forth in the applicable
Prospectus Supplement.
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) 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
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.
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<PAGE> 381
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 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 Consequences.......... In the case of an Owner Trust, Stroock &
Stroock & Lavan LLP or such other counsel
specified in the related Prospectus
Supplement ("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
related
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<PAGE> 382
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 "MATERIAL 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,
WALTR Securities, Government Securities,
Private Label Custody Receipt 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 "MATERIAL
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 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 "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES -- Master Trust"
herein for additional information concerning
the application of federal income tax laws
to a Master Trust and the related
Certificates.
Certain ERISA
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Considerations............ Subject to the considerations and
qualifications 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.
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> 384
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.
Risk of Delayed Principal Payments due to Dependence on Dealer
Repayments; Maturity and Repayment Considerations. In the case of any Series of
Securities offered hereunder, the Base Assets of which consist wholly or partly
of Receivables or WALTR Securities, the Receivables comprising or underlying
such Base Assets may be paid at any time, and there is no assurance that there
will be new Receivables created in the related Accounts, or that Receivables
will be added to the related Trust or any underlying WALTR Trust (as defined
herein, under "TRUST ASSETS -- WALTR Securities"). 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 repayments, the timing of the receipt of repayments and the
rate of default. 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.
The rate of payment of principal of Securities of a Series for which
the Base Assets consist of WALTR 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 WALTR Securities and the
rate of payment of principal (including prepayments) thereof, which will in turn
depend in large 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 WALTR Securities, and the corresponding retirement of
such WALTR Securities. See "RISK FACTORS -- Maturity Assumptions" in the related
Prospectus Supplement.
Certain Legal Aspects--Lack of Security Interests in Vehicles. Security
interests in the Vehicles securing Receivables will be assigned to the related
Trust. The applicable Seller will represent and warrant that the Receivables are
at the time of creation secured by a first priority perfected security interest
in the related Vehicles. Generally, under applicable state laws, a security
interest in an automobile or light duty truck which secures wholesale financing
obligations may be perfected by the filing of UCC financing statements. The
Seller will take all actions necessary under applicable state laws to perfect
the Seller's security interest in the Vehicles. However, at the time a Vehicle
is sold, the Seller's security interest in the Vehicle will terminate.
Therefore, if a Dealer fails to remit to the Seller amounts owed with respect to
Vehicles that have been sold, the related Receivables will no longer be secured
by Vehicles.
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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 Vehicle securing
such Receivable does not exist as of the date such Receivable is transferred to
such Trust, if such breach materially adversely affects 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--Insolvency Considerations and the Characterization
of the Transfer of Receivables. Each Seller and the Depositor intend that the
transfer of the Receivables by it constitute a sale. Notwithstanding the
foregoing, if such Seller were to become a debtor in a bankruptcy case, a court
could take the position that the sale of Receivables to the Depositor or the
Trust, as applicable, should be treated as a pledge of such Receivables to
secure a borrowing by such Seller or the Depositor, as applicable. If the
transfer to the Depositor or the Trust were to be characterized as a secured
loan, to the extent that the Seller or the Depositor, as applicable, 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 or Depositor's
insolvency, as applicable, 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 or the Depositor, as applicable. 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.
If certain events relating to the bankruptcy of the Seller or the Depositor
were to occur, then a Pay Out Event or Rapid Amortization Event would occur with
respect to each Series and, pursuant to the terms of the Pooling and Servicing
Agreement, additional Receivables would not be transferred to the Trust.
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 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 and the Characterization of the Transfer of Receivables" above.
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 could result in the occurrence of a Pay Out Event with
respect to a Series and commencement of a Rapid Amortization Period with respect
to such Series. Receivables are generally prepaid upon the retail sale of the
underlying Vehicle. In such events, 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.
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Risk of Economic Factors. Payment of the Receivables is largely
dependent upon the retail sale of the related Vehicles. The level of retail
sales of cars and light duty trucks may change as the result of a variety of
social and economic factors. Economic factors include interest rates,
unemployment levels, the rate of inflation and consumer perception of economic
conditions generally. The use of incentive programs (e.g., manufacturers' rebate
programs) may affect retail sales. However, the Depositor is unable to determine
and has no basis to predict whether or to what extent economic or social factors
will affect the level of Vehicle sales.
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 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 Subordination of Trust's Interest in the Receivables due to
Certain Legal Aspects -- Transfers of Receivables. For Series of Receivables
Pooling Certificates which involve 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
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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 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 of Receivables Pooling
Certificates, 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 Delayed Payment of Principal 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. 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
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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.
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 Pooling and Servicing Agreement and a form of Series
Supplement to the Pooling and Servicing Agreement 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
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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 and/or Participations in Receivables,
(b) WALTR Securities, (c) Government Securities and (d) Private Label Custody
Receipt 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 WALTR 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 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 or government securities on deposit in a
Pre-Funding Account established with the Trustee (or the Indenture Trustee),
which monies or government securities 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
wholesale receivables, generated from time to time in a portfolio of revolving
financing arrangements (collectively, the "Accounts") with automobile Dealers.
The Dealers use the related advances to purchase new or used automobiles, light
duty trucks and other vehicles (the "Vehicles). 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
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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 Supplement, a Seller will be able to include
Participations in the related Trust in lieu of or in addition to Receivables.
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.
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.
WALTR Securities
General. Base Assets for a Series may consist, in whole or in part, of
receivables backed securities ("WALTR 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. WALTR 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 "WALTR
Agreement"). The WALTR Securities represent an undivided interest in or
obligation of a trust formed pursuant to a WALTR Agreement (a "WALTR Trust").
The seller/servicer of the underlying Receivables will have entered into the
WALTR Agreement with the trustee under such WALTR Agreement (the "WALTR
Trustee"). Receivables underlying a WALTR Security will be serviced by a
servicer (the "WALTR Servicer") directly or by one or more sub-servicers who may
be subject to the supervision of the WALTR Servicer.
The issuer of the WALTR Securities (the "WALTR Issuer") will be a
financial institution, corporation or other entity engaged generally in the
business of the financing of wholesale automobile receivables, 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
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such trusts; or one of such trusts. If so specified in the related Prospectus
Supplement, the WALTR Issuer may be an affiliate of the Depositor. The
obligations of the WALTR Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to the
related trust. The WALTR Issuer will not have guaranteed any of the assets
conveyed to the related trust or any of the WALTR Securities issued under the
WALTR Agreement.
Distributions of principal and interest will be made on the WALTR
Securities on the dates specified in the related Prospectus Supplement. The
WALTR 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 WALTR Securities by the WALTR Trustee or the
WALTR Servicer. The WALTR Issuer or the WALTR Servicer may have the right to
repurchase assets underlying the WALTR Securities after a certain date or under
other circumstances specified in the related Prospectus Supplement.
Underlying Receivables. The receivables underlying the WALTR Securities
will consist of Receivables.
Credit Enhancement Relating to WALTR Securities. Credit Enhancement in
the form of reserve funds, subordination of other WALTR 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 WALTR Securities or with respect to the WALTR 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 WALTR 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 WALTR 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 WALTR Securities
to be included in the Base Assets; (ii) certain characteristics of the
Receivables which comprise the underlying assets for the WALTR Securities,
including the servicing fee or range of servicing fees with respect to such
Receivables; (iii) the expected and final maturity of the WALTR Securities; (iv)
the interest rate of the WALTR Securities; (v) the WALTR Issuer, the WALTR
Servicer (if other than the WALTR Issuer) and the WALTR Trustee for such WALTR
Securities; (vi) certain characteristics of the credit enhancement, if any,
relating to the Receivables underlying the WALTR Securities or to such WALTR
Securities themselves; (vii) the terms on which the underlying Receivables for
such WALTR Securities may be, or are required to be, purchased prior to their
stated maturity or the stated maturity of the WALTR Securities; and (viii) the
terms on which Receivables may be substituted for those originally underlying
the WALTR Securities.
If information of the nature described above representing the WALTR
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.
As a general rule, each WALTR Issuer will be subject to the information
requirements of the Exchange Act and in accordance therewith, will file reports
and other information with the Commission.
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Such 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
Commission's regional offices at Citicorp Center, 500 West Madison Street, 14th
Floor, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 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). In the event that any WALTR Issuer is not
subject to the information requirements of the Exchange Act on the date of
issuance of the Certificates of the related Series or ceases to be subject to
such requirements after such date, the Depositor or the Trustee will provide, or
cause to be provided (or make available, or cause to be made available) to
holders of the Securities upon request, the information contained in all
periodic trustee reports (or similar reports) that are received by the Trustee
with respect to the related WALTR Securities where such WALTR Securities
represent 20% or more of the aggregate principal balance of the related Base
Assets.
Government Securities
General. If so specified in the applicable Prospectus Supplement, the
Base Assets for a Series may include any combination of (i) receipts or other
instruments created under the Department of the Treasury's Separate Trading of
Registered Interest and Principal of Securities, or STRIPS, program ("Treasury
Strips"), which interest and/or principal strips evidence ownership of specific
interest and/or principal payments to be made on certain United States Treasury
Bonds ("Treasury Bonds"), (ii) Treasury Bonds and (iii) certain other debt
securities ("GSE Bonds") of United States government sponsored enterprises
("GSEs"; together with Treasury Strips and Treasury Bonds, collectively,
"Government Securities"). The Government Securities, if any, included in a Trust
Fund are intended to assure investors that funds will be available to make
certain suggested payments of principal and/or interest due on the related
Securities. As such, the Government Securities, if any, included in a Trust are
intended both to (i) support the ratings assigned to the related Securities and
(ii) perform a function similar to that described herein under "Series
Enhancement". A description of the respective general features of Treasury
Bonds, Treasury Strips and GSE Bonds is set forth below. The specific terms of
the Government Securities, if any, and the Private Label Custody Receipt
Securities, if any, included in a Base Assets will be set forth in the
applicable Prospectus Supplement.
The Prospectus Supplement for each Series of Securities, the Base
Assets of which include Government Securities will contain information as to:
(i) the title and series of each such Government Security, the aggregate
principal amount, denomination and form thereof; (ii) the limit, if any, upon
the aggregate principal amount of such Government Security; (iii) the dates on
which, or the range of dates within which, the principal of (and premium, if
any, on) such Government Security will be payable; (iv) the rate or rates, or
the method of determination thereof, at which such Government Security will be
payable; the date or dates from which such interest will accrue, and the dates
on which such interest will be payable; (v) whether such Government Security was
issued at a price lower than the principal amount thereof; (vi) material events
of default or restrictive covenants provided for with respect to such Government
Security; (vii) the rating thereof, if any; and (viii) the issuer of each
Government Security; (ix) the material risks, if any, posed by any such
Government Securities and the issuers thereof (which risks, if appropriate, will
be described in the "Risk Factors" section of the related Prospectus
Supplements; and (x) any other material terms of such Government Security. With
respect to Base Assets which include a pool of Government Securities, the
related Prospectus Supplement will, to the extent applicable, describe the
composition of the Government Securities' pool, certain material events of
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default or restrictive covenants common to the Government Securities, and, on an
aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to the terms set forth in (iii), (iv),
and (v) of the preceding sentence and any other material terms regarding such
pool.
The Government Securities included in a Trust will be senior unsecured,
nonredeemable obligations of the issuer thereof, will be denominated in United
States dollars and, if rated, will be rated at least investment grade by at
least one nationally recognized rating agency. In addition, the inclusion of
Government Securities in the Base Assets of a Series of Securities is
conditioned upon their characteristics being in form and substance satisfactory
to the Rating Agency rating the related series of Securities.
Treasury Bonds. Treasury Bonds are issued by and are the obligations of
The United States of America. As such, the payment of principal and interest on
each Treasury Bond will be guaranteed by the full faith and credit of the United
States of America. Interest is typically payable on the Bonds semiannually.
Treasury Bonds are issued in registered form in denominations of $1,000, $5,000,
$10,000, $100,000 and $1,000,000 and in book-entry form in integral multiples
thereof.
Treasury Strips. In general, Treasury Strips are created by separating,
or "stripping", the principal and interest components of Treasury Bonds that
have an original maturity of 10 or more years from the date of issue. A
particular Treasury Strip evidences ownership of the principal payment or one of
the periodic interest payments (generally semiannual) due on the Treasury Bond
to which such Treasury Strip relates.
In 1985 the Department of the Treasury, announced that all new issues
of Treasury Bonds with maturities of 10 years or more would be transferable in
their component pieces on the Federal Reserve wire system. In so doing, the
Treasury created a generic, book-entry Treasury Strip named STRIPS (Separate
Trading of Registered Interest and Principal of Securities) which, unlike
private label Treasury Strips, can be issued without the need for a custodial
arrangement. The STRIPS program has eclipsed the private sector programs (which
are described below under - "Private Label Custody Receipt Securities"), and
investment banks no longer sponsor new issues of custodial receipts.
Treasury Strips may be either "serial" or "callable". A serial Treasury
Strip evidences ownership of one of the periodic interest payments to be made on
a Treasury Bond. No payments are made on such Treasury Strip, nor is it
redeemable, prior to its maturity, at which time the holder becomes entitled to
receive a single payment of the face amount thereof. Callable Treasury Strips
relate to payments scheduled to be made after the related Treasury Bonds have
become subject to redemption. Such Treasury Strips evidence ownership of both
principal of the related Treasury Bonds and each of the related interest
payments commencing, typically, on the first interest payment date following the
first optional redemption date. If the underlying Treasury Bonds are actually
redeemed, holders of callable Treasury Strips generally receive a payment equal
to the principal portion of the total face amount of such Treasury Strips plus
the interest payment represented by the Treasury Strips maturing on the
redemption date. No callable Treasury Strips will be included in a Trust. The
face amount of any Treasury Strip is the aggregate of all payments scheduled to
be received thereon. Treasury Strips are available in registered form and
generally may be transferred and exchanged by the holders thereof in accordance
with procedures applicable to the particular issue of such Treasury Strips.
GSE Bonds. As specified in the applicable Prospectus Supplement, the
obligations of one or more of the following GSEs may be included in a Base
Assets: The Federal National Mortgage Association ("Fannie Mae"), The Federal
Home Loan Mortgage Association ("Freddie Mac"), The
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Student Loan Marketing Association ("Sallie Mae"), REFCO, Tennessee Valley
Authority ("TVA"), The Federal Home Loan Banks ("FHLB") (to the extent such
obligations represent the joint and several obligations of the twelve Federal
Home Loan Banks), and The Federal Farm Credit Banks ("FFCB"). GSE debt
securities are exempt from registration under the Securities Act pursuant to
Section 3(a)(2) of the Securities Act (or are deemed by statute to be so exempt)
and are not required to be registered under the Exchange Act. The securities of
any GSE will be included in a Base Assets only to the extent that (i) its
obligations are supported by the full faith and credit of the United States
government or (ii) such organization makes publicly available its annual report
which shall include financial statements or similar financial information with
respect to such organization (a "GSE Issuer"). Unless otherwise specified in the
related Prospectus Supplement, the GSE Bonds will not be guaranteed by the
United States and do not constitute a debt or obligation of the United States or
of any agency or instrumentality thereof other than the related GSE.
Unless otherwise specified in the related Prospectus Supplement, none
of the GSE Bonds will have been issued pursuant to an indenture, and no trustee
is provided for with respect to any GSE Bonds. There will generally be a fiscal
agent ("Fiscal Agent") for an issuer of GSE Bonds whose actions will be governed
by a fiscal agency agreement. A Fiscal Agent is not a trustee for the holders of
the GSE Bonds and does not have the same responsibilities or duties to act for
the holders as would a trustee.
GSE Bonds may be subject to certain contractual and statutory
restrictions which may provide some protection to securityholders against the
occurrence or effects of certain specified events. Unless otherwise specified in
the related Prospectus Supplement, each GSE is limited to such activities as
will promote its statutory purposes as set forth in the publicly available
information with respect to such issuer. A GSE's promotion of its statutory
purposes, as well as its statutory, structural and regulatory relationships with
the federal government, may cause or require such GSE to conduct its business in
a manner that differs from what an enterprise which is not a GSE might employ.
The Federal National Mortgage Association. Fannie Mae is a federally
chartered and stockholder owned corporation organized and existing under the
Federal National Mortgage Association Charter Act. It is the largest investor in
home mortgage loans in the United States. Fannie Mae originally was established
in 1938 as a corporation wholly owned by the United States government to provide
supplemental liquidity to the mortgage market and was transformed into a
stockholder owned and privately managed corporation by legislation enacted in
1968 and 1970. Fannie Mae provides funds to the mortgage market by purchasing
mortgage loans from lenders, thereby replenishing their funds for additional
lending.
Fannie Mae acquires funds to purchase loans from many capital market
investors that ordinarily may not invest in mortgage loans, thereby expanding
the total amount of funds available for housing. Operating nationwide, Fannie
Mae helps to redistribute mortgage funds from capital-surplus to capital-short
areas. Fannie Mae also issues mortgage-backed securities ("MBS"). Fannie Mae
receives guaranty fees for its guaranty of timely payment of principal of and
interest on MBS. Fannie Mae issues MBS primarily in exchange for pools of
mortgage loans from lenders. The issuance of MBS enables Fannie Mae to further
its statutory purpose of increasing the liquidity of residential mortgage loans.
Fannie Mae prepares an Information Statement annually which describes
Fannie Mae, its business and operations and contains Fannie Mae's audited
financial statements. From time to time Fannie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Fannie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge from
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the Office of Investor Relations, Fannie Mae, 3900 Wisconsin Avenue, N.W.,
Washington, D.C. 20016; telephone (202)752-7115. Fannie Mae is not subject to
the periodic reporting requirements of the Exchange Act.
The Federal Home Loan Mortgage Corporation. Freddie Mac is a publicly
held government-sponsored enterprise created on July 24, 1970 pursuant to the
Federal Home Loan Mortgage Corporation Act, Title III of the Emergency Home
Finance Act of 1970, as amended (the "FHLMC Act"). Freddie Mac's statutory
mission is to provide stability in the secondary market for home mortgages, to
respond appropriately to the private capital market and to provide ongoing
assistance to the secondary market for home mortgages (including mortgages
secured by housing for low- and moderate-income families involving a reasonable
economic return to Freddie Mac) by increasing the liquidity of mortgage
investments and improving the distribution of investment capital available for
home mortgage financing. The principal activity of Freddie Mac consists of the
purchase of conventional residential mortgages and participation interests in
such mortgages from mortgage lending institutions and the sale of guaranteed
mortgage securities backed by the mortgages so purchased. Freddie Mac generally
matches and finances its purchases of mortgages with sales of guaranteed
securities. Mortgages retained by Freddie Mac are financed with short- and
long-term debt, cash temporarily held pending disbursement to security holders,
and equity capital.
Freddie Mac prepares an Information Statement annually which describes
Freddie Mac, its business and operations and contains Freddie Mac's audited
financial statements. From time to time Freddie Mac prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Freddie Mac. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained from Freddie Mac by writing or calling Freddie Mac's Investor
Inquiry Department at 8200 Jones Branch Drive, McLean, Virginia, 22102; outside
Washington, D.C. metropolitan area, telephone (800) 336-3672; within Washington,
D.C. metropolitan area, telephone (703)759-8160. Freddie Mac is not subject to
the periodic reporting requirements of the Exchange Act.
The Student Loan Marketing Association. Sallie Mae is a
stockholder-owned corporation established by the 1972 amendments to the Higher
Education Act of 1965, as amended, to provide liquidity, primarily through
secondary market and warehousing activities, for lenders participating in
federally sponsored student loan programs, primarily the Federal Family
Education Loan ("FFEL") program and the Health Education Assistance Loan
Program. Under the Higher Education Act, Sallie Mae is authorized to purchase,
warehouse, sell and offer participations or pooled interests in, or otherwise
deal in, student loans, including, but not limited to, loans insured under the
FFEL program, and to make commitments for any of the foregoing. Sallie Mae is
also authorized to buy, sell, hold, underwrite and otherwise deal in obligations
of eligible lenders, if such obligations are issued by such eligible lenders for
the purpose of making or purchasing federally guaranteed student loans under the
Higher Education Act. As a federally chartered corporation, Sallie Mae's
structure and operational authorities are subject to revision by amendments to
the Higher Education Act or other federal enactments.
Sallie Mae prepares an Information Statement annually which describes
Sallie Mae, its business and operations and contains Sallie Mae's audited
financial statements. From time to time Sallie Mae prepares supplements to its
Information Statement which include certain unaudited financial data and other
information concerning the business and operations of Sallie Mae. Unless
otherwise specified in the applicable Prospectus Supplement, these documents can
be obtained without charge upon written request to the Corporate and Investor
Relations Division of Sallie Mae at 1050 Thomas Jefferson Street,
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N.W., Washington, D.C. 20007; telephone (202) 298-3010. Sallie Mae is not
subject to the periodic reporting requirements of the Exchange Act.
The Resolution Funding Corporation. REFCO is a mixed-ownership
government corporation established by Title V of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"). The sole purpose of
REFCO is to provide financing for the Resolution Trust Corporation (the "RTC").
REFCO is to be dissolved, as soon as practicable, after the maturity and full
payment of all obligations issued by it. REFCO is subject to the general
oversight and direction of the Oversight Board, which is comprised of the
Secretary of the Treasury, the Chairman of the Board of Governors of the Federal
Reserve System, the Secretary of Housing and Urban Development and two
independent members to be appointed by the President with the advice and consent
of the Senate. The day-to-day operations of REFCO are under the management of a
three-member Directorate comprised of the Director of the Office of Finance of
the FHLB and two members selected by the Oversight Board from among the
presidents of the twelve FHLB.
The RTC was established by FIRREA to manage and resolve cases involving
failed savings and loan institutions pursuant to policies established by the
Oversight Board. The RTC was granted authority to issue nonvoting capital
certificates to REFCO in exchange for the funds transferred from REFCO to the
RTC. Pursuant to FIRREA, the net proceeds of these obligations are used to
purchase nonvoting capital certificates issued by the RTC or to retire
previously issued REFCO obligations.
Information concerning REFCO may be obtained from the
Secretary/Treasurer, Resolution Funding Corporation, Suite 1000, 11921 Freedom
Drive, Reston, Virginia 22090; telephone (703) 487-9517. REFCO is not subject to
the periodic reporting requirements of the Exchange Act.
The Federal Home Loan Banks. The Federal Home Loan Banks constitute a
system of twelve federally chartered corporations (collectively, the "FHLB"),
each wholly owned by its member institutions. The mission of the FHLB is to
enhance the availability of residential mortgage credit by providing a readily
available, low-cost source of funds to their member institutions. A primary
source of funds for the FHLB is the proceeds from the sale to the public of debt
instruments issued as consolidated obligations, which are the joint and several
obligations of all the FHLB. The FHLB are supervised and regulated by the
Federal Housing Finance Board, which is an independent federal agency in the
executive branch of the United States government, but obligations of the FHLB
are not obligations of the United States government.
The Federal Home Loan Bank System produces annual and quarterly
financial reports in connection with the original offering and issuance by the
Federal Housing Finance Board of consolidated bonds and consolidated notes of
the FHLB. Unless otherwise specified in the applicable Prospectus Supplement,
questions regarding such financial reports should be directed to the Deputy
Director, Financial Reporting and Operations Division, Federal Housing Finance
Board, 1777 F Street, N.W., Washington, D.C. 20006; telephone (202) 408-2901.
Unless otherwise specified in the applicable Prospectus Supplement, copies of
such reports may be obtained by written request to Capital Markets Division,
Office of Finance, Federal Home Loan Banks, Suite 1000, 11921 Freedom Drive,
Reston, Virginia 22090, telephone (703) 487-9500. The FHLB are not subject to
the periodic reporting requirements of the Exchange Act.
Tennessee Valley Authority. TVA is a wholly owned corporate agency and
instrumentality of the United States of America established pursuant to the
Tennessee Valley Authority Act of 1933, as amended (the "TVA Act"). TVA's
objective is to develop the resources of the Tennessee Valley region in
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order to strengthen the regional and national economy and the national defense.
The programs of TVA consist of power and nonpower programs. For the fiscal year
ending September 30, 1995, TVA received $139 million in congressional
appropriations from the federal government for the nonpower programs. The power
program is required to be self-supporting from revenues it produces. The TVA Act
authorizes TVA to issue evidences of indebtedness that may be serviced only from
proceeds of its power program. TVA bonds are not obligations of or guaranteed by
the United States government.
TVA prepares an Information Statement annually which describes TVA, its
business and operations and contains TVA's audited financial statements. From
time to time TVA prepares supplements to its Information Statement which include
certain unaudited financial data and other information concerning the business
and operations of TVA. Unless otherwise specified in the applicable Prospectus
Supplement, these documents can be obtained by writing or calling Tennessee
Valley Authority, 400 West Summit Hill Drive, Knoxville, Tennessee 37902-1499,
Attention: Vice President and Treasurer; telephone (423) 632-3366. TVA is not
subject to the periodic reporting requirements of the Exchange Act.
Federal Farm Credit Banks. The Farm Credit System is a nationwide
system of lending institutions and affiliated service and other entities (the
"System"). Through its Banks ("FCBs") and related associations, the System
provides credit and related services to farmers, ranchers, producers and
harvesters of aquatic products, rural homeowners, certain farm-related
businesses, agricultural and aquatic cooperatives and rural utilities. System
institutions are federally chartered under the Farm Credit Act of 1971, as
amended (the "Farm Credit Act"), and are subject to regulation by a Federal
agency, the Farm Credit Administration (the "FCA"). The FCBs and associations
are not commonly owned or controlled. They are cooperatively owned, directly or
indirectly, by their respective borrowers. Unlike commercial banks and other
financial institutions that lend to the agricultural sector in addition to other
sectors of the economy, under the Farm Credit Act the System institutions are
restricted solely to making loans to qualified borrowers in the agricultural
sector, to certain related businesses and to rural homeowners. Moreover, the
System is required to make credit and other services available in all areas of
the nation. In order to fulfill its broad statutory mandate, the System
maintains lending units in all 50 states and the Commonwealth of Puerto Rico.
The System obtains funds for its lending operations primarily from the
sale of debt securities issued under Section 4.2(d) of the Farm Credit Act
("Systemwide Debt Securities"). The FCBs are jointly and severally liable on all
Systemwide Debt Securities. Systemwide Debt Securities are issued by the FCBs
through the Federal Farm Credit Banks Funding Corporation, as agent for the FCBs
(the "Funding Corporation").
Information regarding the FCBs and the Farm Credit System, including
combined financial information, is contained in disclosure information made
available by the Funding Corporation. This information consists of the most
recent Farm Credit System Annual Information Statement and any Quarterly
Information Statements issued subsequent thereto and certain press releases
issued from time to time by the Funding Corporation. Unless otherwise specified
in the applicable Prospectus Supplement, such information and the Farm Credit
System Annual Report to Investors for the current and two preceding fiscal years
are available for inspection at the Federal Farm Credit Banks Funding
Corporation, Investment Banking Services Department, 10 Exchange Place, Suite
1401, Jersey City, New Jersey 07302; telephone (201) 200-8000. Upon request, the
Funding Corporation will furnish, without charge, copies of the above
information. The FCBs are not subject to the periodic reporting requirements of
the Exchange Act.
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Private Label Custody Receipt Securities
General. If so specified in the applicable Prospectus Supplement, the
Trust for a Series may include any combination of (i) receipts or other
instruments (other than Treasury Strips) evidencing ownership of specific
interest and/or principal payments to be made on certain Treasury Bonds held by
a custodian ("Private Label Custody Strips") and (ii) receipts or other
instruments evidencing ownership of specific interest and/or principal payments
to be made on certain Resolution Funding Corporation ("REFCO") bonds ("REFCO
Strips"; and, together with Private Label Custody Strips, "Private Label Custody
Receipt Securities"). The Private Label Custody Receipt Securities, if any,
included in a Trust Fund are intended to assure investors that funds are
available to make certain specified payments of principal and/or interest due on
the related Securities. As such, the Private Label Custody Receipt Securities,
if any, included in a Trust are intended both to (i) support the ratings
assigned to such Securities, and (ii) perform a function similar to that
described herein under "Series Enhancement". A description of the respective
general features of Private Label Custody Strips and REFCO Strips is set forth
below.
The Prospectus Supplement for each Series of Securities the Trust Fund
with respect to which contains Private Label Custody Receipt Securities will
contain information as to: (i) the title and series of each such Private Label
Custody Receipt Security, the aggregate principal amount, denomination and form
thereof; (ii) the limit, if any, upon the aggregate principal amount of such
Private Label Custody Receipt Security; (iii) the dates on which, or the range
of dates within which, the principal of (and premium, if any, on) such Private
Label Custody Receipt Security will be payable; (iv) the rate or rates, or the
method of determination thereof, at which such Private Label Custody Receipt
Security will bear interest, if any, the date or dates from which such interest
will accrue; and the dates on which such interest will be payable; (v) whether
such Private Label Custody Receipt Security was issued at a price lower than the
principal amount thereof, (vi) material events of default or restrictive
covenants provided for with respect to such Private Label Custody Receipt
Security; (vii) the rating thereof, if any: (viii) the issuer of such Private
Label Custody Receipt Security; (ix) the material risks, if any, posed by such
Private Label Custody Receipt Security and the issuer thereof (which risks, if
appropriate, will be described in the "Risk Factors" section of the related
Prospectus Supplement); and (x) any other material terms of such Private Label
Custody Receipt Security. With respect to a Trust which includes a pool of
Private Label Custody Receipt Securities, the related Prospectus Supplement
will, to the extent applicable, describe the composition of the Private Label
Custody Receipt Securities' pool, certain material events of default or
restrictive covenants common to the Private Label Custody Receipt Securities,
and, on an aggregate, percentage or weighted average basis, as applicable, the
characteristics of the pool with respect to the terms set forth in (iii), (iv)
and (v) of the preceding sentence and any other material terms regarding such
pool.
The Private Label Custody Receipt Securities included in a Trust will
be senior, unsecured, nonredeemable obligations of the issuers thereof, will be
denominated in United States dollars and, if rated, will be rated at least
investment grade by at least one nationally recognized rating agency. In
addition, the inclusion of Private Label Custody Receipt Securities in a Trust
with respect to a Series of Securities is conditioned upon their characteristics
being in form and substance satisfactory to the Rating Agency rating the related
Series of Securities. Each Trust which includes Private Label Custody Securities
will be provided with an opinion of Stroock & Stroock & Lavan LLP or such other
counsel specified in the related Prospectus Supplement to the effect that the
Private Label Custody Receipt Securities included in such Trust are exempt from
the registration requirements of the Securities Act. A copy of such opinion will
be filed with the SEC in a Current Report on Form 8-K or in a post-effective
amendment to the Registration Statement.
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Private Label Custody Strips. The first "stripping" of Treasury Bonds
occurred in the 1970s when government securities dealers physically separated
coupons from definitive certificates and offered them to investors as
tax-deferred investments. Investors were able to purchase the "strip" at a deep
discount and pay no federal income tax until resale or maturity. This tax
treatment was limited in 1982 by the Tax Equity and Fiscal Responsibility Act
("TEFRA") which required holders of such strips to accrue a portion of the
discount toward par annually and report such accrual, even though unrealized, as
taxable income. TEFRA also required that all new Treasury issues be made
available only in book-entry form.
The shift to "book-entry only" Treasury Bonds created a shortage of the
physical certificates needed for stripping. In response, various dealers created
custodial receipt programs in which Treasury Bonds in book-entry form were
deposited with custodians who would thereupon issue certificates evidencing
rights in principal and interest payments. Some of the better known programs
first came to market in 1982 and 1983. Although available eventually in
denominations as small as $1,000, these custodial receipts lacked the liquidity
of the physical strips. While physical strips had multiple market-makers,
custodial receipts were proprietary and, as such, the sole market-maker would
usually be an affiliate of the program's sponsor. As a result, the market that
developed for such receipts was segmented.
In early 1984, a group of dealers sought to enhance the liquidity of
custodial receipts by developing a generic, multiple market-maker security known
as a TR (Treasury Receipt). A large secondary market quickly developed in these
generic Treasury Strips.
Treasury Receipts, physical strips and the proprietary receipts trade
at varying discounts from STRIPS which reflect, among other things, lower levels
of liquidity and the structuring difference discussed above.
A holder of a Private Label Custody Strip (as opposed to a STRIP)
cannot enforce payment on such Treasury Strip against the Treasury; instead,
such holder must look to the custodian for payment. Such custodian (and such
holder of a Private Label Custody Strip that obtains ownership of the underlying
Treasury Bond) can enforce payment of the underlying Treasury Bond against the
Treasury. In the event any Private Label Custody Strips are included in a Trust
with respect to any Series of Securities, the Prospectus Supplement for such
Series will include the identity and a brief description of each custodian that
issued such Private Label Custody Strips. In the event the Company knows that
the depositor of the Treasury Bonds underlying such Private Label Custody Strips
is the Company or any of its affiliates, the Company will disclose such fact in
such Prospectus Supplement.
REFCO Strips. A REFCO Bond may be divided into its separate components,
consisting of: (i) each future semi-annual interest distribution (an "Interest
Component"); and (ii) the principal payment (the "Principal Component") (each
component individually hereinafter referred to as a "REFCO Strip"). REFCO Strips
are not created by REFCO; instead, third parties such as investment banking
firms create them. Each REFCO Strip has an identifying designation and CUSIP
number. REFCO Strips generally trade in the market for Treasury Strips at yields
of a few basis points over Treasury Strips of similar maturities. REFCO Strips
are viewed generally by the market as liquid investments.
For a REFCO Bond to be separated into its components, the par amount of
the REFCO Bond must be in an amount which, based on the stated interest rate of
the REFCO Bond, will produce a semi-annual interest payment of $1,000 or an
integral multiple thereof. REFCO Bonds may be separated into their components at
any time from the issue date until maturity. Once created, REFCO Strips are
maintained and transferred in integral multiples of $1,000.
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A holder of a REFCO Strip cannot enforce payment on such REFCO Strip
against REFCO; instead, such holder must look to the custodian for payment .
Such custodian (and such holder of a REFCO Strip that obtains ownership of the
underlying REFCO Bond) can enforce payment of the underlying REFCO Bond against
REFCO. The identity and a brief description of each custodian that has issued
any REFCO Strip included in a Trust will be set forth in the related Prospectus
Supplement. In the event the Company knows that the depositor of the REFCO Bonds
underlying the REFCO Strips included in the Trust is the Company or any of its
affiliates, the Company will disclose such fact in such Prospectus Supplement.
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
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
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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").
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
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 or Collateral Indebtedness Interests 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
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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 by the deposit of cash,
government securities or certain other 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, government
securities 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.
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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.
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 caps, 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 WALTR Servicer with
respect to the Receivables underlying any WALTR 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.
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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
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 Investor 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 "Servicing Fee"). The Servicing Fee
may be fixed or variable, as specified in the related Prospectus Supplement.
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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 or of each Class 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 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
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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, unless otherwise specified in
the related Prospectus Supplement, wholesale automobile receivables, (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 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
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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.
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
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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 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
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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 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
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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 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 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)
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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.
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
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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.
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
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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, 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 fixed, floating, variable or
adjustable. 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
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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 Investor 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 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,
Government Securities, if any, and Private Label Custody Receipt Securities, if
any, 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, Government Securities, if any, and Private Label Custody Receipt
Securities, if any, 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
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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 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 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;
and (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.
Allocation Percentage. Pursuant to the Pooling and Servicing Agreement,
all amounts collected with respect to (i) Finance Charge Receivables and
Principal Receivables and the Defaulted Amount, (ii)
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the Government Securities, if any, and (iii) the Private Label Custody Receipt
Securities, if any, 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 Investor Certificateholders' Interest of each Series, as
follows:
(a) collections of
(i) Finance Charge Receivables and the Defaulted Amount,
(ii) interest on the Government Securities, if any, and
(iii) interest on the Private Label Custody Receipt
Securities, if any, 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
(i) Principal Receivables;
(ii) principal of the Government Securities, if any, and
(iii) principal of the Private Label Custody Receipt
Securities, if any, 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 Receivables and
Participations 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 (i) Finance
Charge Receivables and Principal Receivables and the Defaulted Amount, (ii) the
Government Securities, if any and (iii) Private Label Custody Receipt
Securities, if any. 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
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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 (i) Finance Charge
Receivables and the Defaulted Amount, (ii) interest on the Government
Securities, if any, and (iii) interest on the Private Label Custody Receipt
Securities, if any, will be allocated to each such Series at all times based
upon its Floating Allocation Percentage. Collections of (i) Principal
Receivables, (ii) principal of the Government Securities, if any, and (iii)
principal of the Private Label Custody Receipt Securities, if any, 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 Investor
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 continue until the earliest
to occur of (a) the commencement of the Rapid Amortization Period with
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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, collections of principal of the Government Securities, if
any, collections of principal of the Private Label Custody Receipt Securities,
if any, and certain other amounts otherwise allocable to the Investor
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.
Controlled 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 a
Controlled Accumulation Period. The Controlled 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 Controlled Accumulation Period with respect to a Series of
Receivables Pooling Certificates, collections of Principal Receivables,
principal of the Government Securities, if any, principal of the Private Label
Custody Receipt Securities, if any, 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.
Rapid Accumulation Period. If so specified and under the conditions set
forth in the Prospectus Supplement relating to a Series having a Controlled
Accumulation Period, during the period from the day on which a Pay Out Event has
occurred until the earliest of (a) the commencement of the Rapid Amortization
Period, (b) payment in full of the Investor Interest of the Certificates of such
Series and, if so specified in the related Prospectus Supplement, of the
Collateral Interest, if any, with respect to such Series and (c) the related
Series Termination Date, the Rapid Accumulation Period, collections of Principal
Receivables allocable to the Investor Interest of such Series (and certain other
amounts if so specified in the related Prospectus Supplement) will be deposited
on each Transfer Date in the Principal Funding Account and used to make
distributions of principal to the Certificateholders of such Series or Class on
the Scheduled Payment Date. The amount to be deposited in the Principal Funding
Account during the Rapid Accumulation Period will not be limited to the
Controlled Deposit Amount.
During the Rapid Accumulation Period, 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
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on such funds may be applied to pay interest on the related Series of
Certificates or make other payments as specified in the related Prospectus
Supplement. In order to enhance the likelihood of payment in full of principal
at the end of the Rapid Accumulation Period with respect to a Series of
Certificate, such Series may be subject to a principal guaranty or other similar
agreement.
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, principal of the Government Securities, if any, principal
of the Private Label Custody Receipt Securities, if any, and certain other
amounts allocable to the Investor Certificateholders' Interest of such Series
will be used on each 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); or
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(b) the Trust becoming 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 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,
Government Securities, if any, and Private Label Custody Receipt Securities, if
any, 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, Government Securities, if any, and
Private Label Custody Receipt Securities, if any, and to continue transferring
Principal Receivables as before such Insolvency Event. The proceeds from any
such sale, disposition or liquidation of the Receivables, Government Securities,
if any, and Private Label Custody Receipt Securities, if any, 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, Government Securities, if any, and Private Label Custody Receipt
Securities, if any, 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.
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
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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. It shall be a condition
to the issuance of a Paired Series that such issuance shall not result in the
reduction by any Rating Agency of the rating of the Prior Series.
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 of 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 Interests, 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,
Government Securities, if any, and Private Label Custody Receipt Securities, if
any, 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 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, Government Securities, if any, and Private
Label Custody Receipt Securities, if any, 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,
Government Securities, if any, and Private Label Custody Receipt Securities, if
any, as specified in the related Prospectus Supplement, is less than the amount
or percentage specified in the related Prospectus Supplement. Notice of such
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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 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
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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").
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.
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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 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.
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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 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 accordance
with the procedures set forth herein and in the related Agreement, Indenture and
Prospectus
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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.
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
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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 WALTR 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 WALTR Securities, will be
applied to the purchase of the related WALTR 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
WALTR Securities will be purchased by the Trust from time to time during the
Funding Period provided for therein. The Trustee will cause any WALTR 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 WALTR Securities. The Trustee will not be in
possession of or be assignee of record of any underlying assets for a WALTR
Security. See "THE TRUST ASSETS -- WALTR Securities".
Each WALTR Security to be transferred to the Trust will be identified
in a schedule appearing as an exhibit to the related Trust Agreement (the "WALTR
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 WALTR
Security. In the Trust Agreement, to the extent that any WALTR Securities are
purchased from the Depositor, the Depositor will represent and warrant to the
Trustee regarding the WALTR Securities: (i) that the information contained in
the WALTR Schedule is true and correct in all material respects; (ii) that,
immediately prior to the conveyance of the WALTR 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 WALTR Securities; and (iv) that there is no existing
lien, charge, security interest or other encumbrance on such WALTR Securities.
Assignment of Government Securities; Pre-Funding Account. A portion of
the net proceeds received from the sale of the Securities of a Series, the Base
Assets of which consist in part of Government Securities, will be applied to the
purchase of the related Government 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
Government Securities will be purchased by the Trust from time to time during
the Funding Period provided for therein. The Trustee will cause any Government
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 Government Securities. The Trustee will not
be in possession of or be assignee of record of any underlying assets for a
Government Security. See "THE TRUST ASSETS -- Government Securities".
Each Government Security to be transferred to the Trust will be
identified in a schedule appearing as an exhibit to the related Trust Agreement
(the "Government Security Schedule"), which will specify the original principal
amount, outstanding principal balance as of the Cut-off Date (or subsequent
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cut-off date), annual interest rate and maturity date for each such Government
Security. In the Trust Agreement, to the extent that any Government Securities
are purchased from the Depositor, the Depositor will represent and warrant to
the Trustee regarding the Government Securities: (i) that the information
contained in the Government Schedule is true and correct in all material
respects; (ii) that, immediately prior to the conveyance of the Government
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 Government
Securities; and (iv) that there is no existing lien, charge, security interest
or other encumbrance on such Government Securities.
Assignment of Private Label Custody Receipt Securities; Pre-Funding
Account. A portion of the net proceeds received from the sale of the Securities
of a Series, the Base Assets of which consist in part of Private Label Custody
Receipt Securities, will be applied to the purchase of the related Private Label
Custody Receipt 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 Private Label
Custody Receipt Securities will be purchased by the Trust from time to time
during the Funding Period provided for therein. The Trustee will cause any
Private Label Custody Receipt 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 Private Label Custody Receipt Securities. The Trustee will not be
in possession of or be assignee of record of any underlying assets for a Private
Label Custody Receipt Security. See "THE TRUST ASSETS -- Government Securities".
Each Private Label Custody Receipt Security to be transferred to the
Trust will be identified in a schedule appearing as an exhibit to the related
Trust Agreement (the "Private Label Custody Receipt Security Schedule"), which
will specify the original principal amount, outstanding principal balance as of
the Cut-off Date (or subsequent cut-off date), annual interest rate and maturity
date for each such Private Label Custody Receipt Security. In the Trust
Agreement, to the extent that any Private Label Custody Receipt Securities are
purchased from the Depositor, the Depositor will represent and warrant to the
Trustee regarding the Private Label Custody Receipt Securities: (i) that the
information contained in the Private Label Custody Receipt Schedule is true and
correct in all material respects; (ii) that, immediately prior to the conveyance
of the Private Label Custody Receipt 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 Private Label Custody Receipt Securities; and (iv) that there is
no existing lien, charge, security interest or other encumbrance on such Private
Label Custody Receipt Securities.
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
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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 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.
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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".
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
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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, 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-
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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 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
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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 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 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
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"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
wholesale automobile 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 WALTR 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 WALTR 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 WALTR
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 that 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.
The Receivables are generally considered to be "chattel paper" 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 and
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
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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.
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 Credit Suisse First Boston, Inc. Neither Credit
Suisse First Boston, Inc., nor any of its 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 11 Madison
Avenue, New York, New York 10010, and its telephone number is (212) 325-2000.
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.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
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The following is a general discussion of the anticipated material
United States federal income tax consequences of the purchase, ownership and
disposition of Securities. Stroock & Stroock & Lavan LLP, New York, New York or
such other counsel specified in the related Prospectus Supplement ("Federal Tax
Counsel"), will deliver its opinion regarding certain federal income tax matters
discussed below, a copy of which will be filed with the SEC in a Current Report
on Form 8-K or in a post-effective amendment to the Registration Statement. The
opinion of Federal Tax Counsel specifically addresses only those issues
specifically identified below as being covered by such opinion; however, such
opinion also states that the additional discussion set forth below accurately
sets forth Federal Tax Counsel's advice with respect to material federal income
tax issues. 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 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 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
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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 with 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 treated as a
publicly traded partnership that would be taxable as a corporation unless it met
certain qualifying income tests (and the resulting taxable corporation would not
be able to reduce its taxable income by deductions for interest expense on Notes
recharacterized as equity). 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 foreign holders might 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 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 under Sections 1271-1275 of the Code (the "OID Regulations"),
interest is considered unconditionally payable only if late payment or
nonpayment is remote or reasonable remedies exist to compel payment. 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 (or under rules similar to) the 1996
Contingent Debt Regulations, or in some other manner.
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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 0.65 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 less than or equal to 0.65, however, such
rate will generally constitute an objective rate, described more fully below.
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 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 inversely reflect 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 (or under rules similar
to) the 1996 Contingent Debt Regulations, or some other manner.
Original Issue Discount. Notes may be issued with "original issue
discount". Rules governing original issue discount are set forth in Sections
1271-1275 of the Code and the OID Regulations. The discussion herein is based in
part on the OID Regulations. 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 (as specially defined for tax purposes). Because of the possibility
of prepayments, it is not clear how the de minimis rules will apply to the
Notes. It is likely 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, a 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
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
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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 or qualified
inverse floating rate, equals the value of such qualified floating rate as or
qualified inverse floating rate as of the issue date of the Note, or, in the
case of an objective rate other than a qualified floating 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 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.
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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
its weighted average remaining life as computed for tax purposes. 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 is
made.
The Code grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, such as 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 under Code Section 171 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. Although there are Treasury
regulations dealing with amortizable bond premiums, they specifically do not
apply to prepayable debt instruments subject to Section 1272(a)(6), such as the
Notes. However, by analogy to such regulations, any premium in excess of
interest income may be deductible to the extent of prior accruals of interest.
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 Issue 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. See "--Market Discount" above. 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 at
the beginning of the first taxable year to which the election applies or
acquires thereafter. 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
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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 or loss if the Note is held
as a capital asset and as long-term capital gain or loss if the Note Owner's
holding period exceeded one year. 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, 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 any Person other than a "United States Person" A
"United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within of the United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
trust. A "Non-United States Holder" means a Non-United States Person that is a
Note Owner.
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On October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Holders. The 1997 Withholding Regulations are generally effective for
payments after December 31, 1999, regardless of the issue date of the Note with
respect to which such payments are made, subject to certain transition rules.
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 1997 Withholding Regulations, and prospective investors
are urged to consult their tax advisors with respect to the effect of the 1997
Withholding Regulations.
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 (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 by 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. The
forgoing certification may be provided by the beneficial owner of a Note on IRS
Form W-8.
The 1997 Withholding Regulations provide optional documentation
procedures designed to simplify compliance by withholding agents. The 1997
Withholding Regulations will add "intermediary certification" options for
certain qualifying withholding agents. Under one such option, a withholding
agent will be allowed to rely on an 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 will be permitted to act on behalf of the United
States withholding agent, provided certain conditions are met.
The 1997 Withholding Regulations will 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 1997 Withholding Regulations will replace a number of current tax
certification forms (including IRS Form W-8 IRS, Form 1001, and IRS Form 4224,
discussed below) with restated forms and standardize the period of time for
which withholding agents can rely on such certifications.
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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) 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 such
individual has a "tax home" (as defined in Section 911(d)(3) of the Code) 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.
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 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.
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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 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.
The 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations will 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.
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
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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.
On December 17, 1996, final Treasury Regulations (the "Check-the-Box
Regulations") were issued which generally permit non-corporate entities, such as
the Trust, to elect whether to be taxed as corporations or partnerships. Under
the Check- the-Box Regulations, the Trust will be classified as a partnership
unless it elects to be classified as an association taxable as a corporation.
Except as expressly provided in the applicable Prospectus Supplement, the Trust
will not elect to be classified as an association taxable as a corporation.
However, the Check-the-Box-Regulations would have no effect on whether a
partnership should be classified as a publicly traded partnership taxable as a
corporation.
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 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
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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. Losses will generally be allocated in the manner in
which they are borne.
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.
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 ($100,000 (or $50,000 in the
case of a separate return by a married individual), adjusted for changes in the
cost of living subsequent to 1990) 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. For taxable years beginning after December
31, 1997 in the case of a partnership that has 100 or more partners and elects
to be treated as an "electing large partnership," 70% of such partnership
miscellaneous itemized deductions will be disallowed, although the remaining
deductions will generally be allowed at the partnership level and will not be
subject to the 2% floor that would otherwise be applicable to individual
partners.
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.
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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
contribute its assets to a new Trust, which will be treated as a new partnership
for tax purposes, in exchange for Certificates in the new Trust. The original
Trust will then be deemed to distribute the Certificates in the new Trust to
each of the Owners of Certificates in the original Trust in liquidation of the
original Trust. 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.
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.
Any such gain or loss would be long-term capital gain or loss if the Certificate
Owner's holding period exceeded one year. 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 or losses allocated
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.
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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 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 timely file tax returns that
are consistent with the information return filed by the Trust or be subject to
penalties unless the holder timely notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (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.
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 certain disputes 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 the later of three years after the date
on which the partnership information return is filed or the last day for filing
such return for such year (determined without regard to extension). Any adverse
determination following an audit of the return of the Trust by the appropriate
taxing authorities could result in an adjustment of
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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.
The Taxpayer Relief Act of 1997 created a special audit system for
qualifying large partnerships that have elected to apply a simplified flow-
through reporting system under new sections 771 through 777. Unless otherwise
specified in the applicable Prospectus Supplement, a Trust will not elect to
apply the simplified flow-through reporting system.
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 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 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 on the Trust's gross income (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, if any, 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
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fails to comply with certain identification procedures, unless the certificate
owner 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".
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 (other than interest) 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 ($100,000 (or $50,000 in the case of a separate return by a married
individual), adjusted for changes in the cost of living subsequent to 1990 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. For taxable years beginning after
December 31, 1997, in the case of a partnership that has 100 or more partners
and elects to be treated as an "electing large partnership," 70% of such
partnership miscellaneous itemized deductions will be disallowed, although the
remaining deductions will generally be allowed at the partnership level and will
not be subject to the 2% floor that would otherwise be applicable to individual
partners.
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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 Asset 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"). For the rules governing original issue discount, see "Owner
Trusts -- Tax Consequences to Note Owners -- Short-Term Notes" above. However,
in the case of Base Assets that constitute short-term Government Securities or
short-term Private Label Custody Receipt Securities the rules set out above
dealing with short-term obligations (see "Owner Trusts -- Tax Consequences to
Note Owners -- Short-Term Notes" above) are applied with reference to
acquisition discount rather than original issue discount, if such obligations
constitute "short-term Government obligations" within the meaning of Section
1271(a)(3)(B) of the Code.
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.
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.
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
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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.
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.
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 Grantor Trust Certificateholders 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
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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 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
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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)
(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. See
"--Market Discount" above. 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 at the beginning of
the first taxable year to which the election applies or acquires thereafter. 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 Taxpayer Relief Act of 1997 (the "1997 Act") contains
a provision requiring original issue discount on any pool of debt instruments,
the yield on which may be affected by reason of prepayments 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 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
debt instruments.
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).
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,
any of the issuers of the Base
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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. 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 October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Owners of Grantor Trust Certificates. The 1997 Withholding Regulations
are generally effective for payments after December 31, 1999, 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 TRUST
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 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
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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.
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". 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
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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-- Amortizable 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 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 or as a
publicly traded partnership taxable as a corporation.
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 a "publicly traded partnership" taxable as a corporation, the
resulting entity would 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.
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
Taxation of Certain Foreign Note Owners. As used herein, the term "Non-
United States Person" means any Person other than a "United States Person." A
"United States Person" is an individual who is a citizen or resident of the
United States, a corporation, partnership or other entity treated as such
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate of income of which is subject to United States
federal income taxation regardless of its source and any trust with respect to
which (i) a court within of de United States is able to exercise primary
supervision over the administration of the trust and (ii) one or more United
States persons have the authority to control all substantial decisions of the
trust. A "Non-United States Holder" means a Non-United States Person that is a
Note Owner.
On October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the United States taxation of Non-United
States Holders. The 1997 Withholding Regulations are generally proposed to be
effective for payments after December 31, 1999, regardless of the issue date of
the Note with respect to which such payments are made, subject to certain
transition rules. 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 1997 Withholding Regulations, and
prospective investors are urged to consult their tax advisors with respect to
the effect of the 1997 Withholding Regulations.
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")
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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 1997 Withholding Regulations provide optional documentation
procedures designed to simplify compliance by withholding agents. The 1997
Withholding Regulations add "intermediary certification" options for certain
qualifying withholding agents. Under one such option, a withholding agent will
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 will be permitted to act on behalf of the United
States withholding agent, provided certain conditions are met.
The 1997 Withholding Regulations 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 1997
Withholding Regulations will replace a number of current tax certification forms
(including IRS Form W-8, IRS Form 1001 and IRS Form 4224, discussed below) with
restated forms and standardize the period of time for which withholding agents
can rely on such certifications.
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
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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 such
individual has a "tax home" (as defined in Section 911(d)(3) of the Code) 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 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 "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, 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 1997 Withholding Regulations alter the forgoing rules in certain
respects. In particular, the 1997 Withholding Regulations provide certain
presumptions under which Non-United 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
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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, except as described in the following paragraph, 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.
Interest income (including original issue discount) earned on
obligations of the United States Treasury Department and of certain government
sponsored enterprises is generally exempt from state and local income taxation.
Therefore, where a Grantor Trust holds Government Securities or Private Label
Custody Receipt Securities as part of the Trust Property, interest income
attributable to Government Security or Private Label Custody Receipt Security
earned on Certificates may be exempt from state and local taxation, depending on
the form of the Government Security. However, certain states or localities may
take a contrary position. Investors should consult their own tax advisors
concerning exemptions from state and local income taxes.
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 the tax consequences to Note Owners and
Certificate Owners in 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
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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 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.
Plan Assets
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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.
The Prospectus Supplement will indicate if either of the exceptions set
forth in the DOL Regulation (discussed above) apply. If neither exception is
applicable, Securities which are Certificates will not be eligible to be
purchased directly or indirectly for, or on behalf of, or with the assets of a
Plan.
Certain transactions involving the purchase of Securities which are
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if the Base Assets were deemed to be assets of a Plan. Under the DOL
Regulation, the Base Assets would be treated as plan assets of a Plan for the
purposes of ERISA and the Code only if the Plan acquires an equity interest in
the Trust fund and none of the exceptions contained in the DOL Regulation is
applicable. The Prospectus Supplement will indicate whether the Notes will be
treated as indebtedness without substantial equity features for purposes of the
DOL Regulation.
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Without regard to whether the Notes are characterized as equity
interests, the acquisition, transfer or holding of Notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if the Trust
Fund, the Trustee, the Indentive Trustee or any of their respective affiliates
is or becomes a party in interest or a disqualified person with respect to such
Plan or in the event that a Note is purchased in the secondary market and such
purchase constitutes a sale or exchange between a Plan and a party in interest
or disqualified person with respect to such Plan. Certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 91-38 regarding investments by bank collective investment funds;
PTCE 95-60, regarding investments by insurance company general accounts; PTCE
96-23, regarding transactions affected by in-house asset managers; and PTCE
84-14, regarding transactions effected by "qualified professional asset
managers."
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 a plan asset exception or prohibited transaction class
exemption is applicable in the Plan's particular circumstances and whether the
exception or exemption covers all potential prohibited transactions.
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
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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 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 Stroock & Stroock & Lavan LLP, New York, New York or such other
counsel set forth in the Prospectus Supplement. Certain federal income tax and
other matters will be passed upon for each Trust by Stroock & Stroock & Lavan
LLP, New York, New York or such other counsel set forth in the Prospectus
Supplement.
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INDEX OF DEFINED TERMS
Accounts..................................................................
Accumulation Period.......................................................
Additional Accounts.......................................................
Additional Base Assets....................................................
Agreement.................................................................
Ancillary Arrangements....................................................
Base Assets...............................................................
Cash Collateral Account...................................................
Cash Collateral Guaranty..................................................
Cede ..................................................................
CEDEL ..................................................................
CEDEL Participants........................................................
Certificates..............................................................
Certificate Interest Rate.................................................
Certificateholders........................................................
Certificates..............................................................
Class ..................................................................
Closing Date..............................................................
CODE ..................................................................
Collateral Indebtedness Interests.........................................
Collection Account........................................................
Collection Period.........................................................
Commission................................................................
Controlled Accumulation Amount............................................
Controlled Amortization Amount............................................
Controlled Amortization Period............................................
Controlled Deposit Amount.................................................
Controlled Distribution Amount............................................
Credit Enhancement........................................................
Credit Enhancer...........................................................
Date of Processing........................................................
Defaulted Amount..........................................................
Deficit Controlled Accumulation Amount....................................
Deficit Controlled Amortization Amount....................................
Definitive Certificates...................................................
Definitive Notes..........................................................
Definitive Securities.....................................................
Depositaries..............................................................
Depositor.................................................................
Depositor's Certificate...................................................
Depositor's Interest......................................................
Distribution Date.........................................................
DTC .................................................................
Eligible Institution......................................................
Eligible Investments......................................................
Eligible Servicer.........................................................
Enhancement Invested Amount...............................................
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ERISA ..................................................................
Euroclear.................................................................
Euroclear Operator........................................................
Euroclear Participants....................................................
Exchange Act..............................................................
Expected Final Payment Date...............................................
FDIC ..................................................................
Federal Tax Counsel.......................................................
Final Scheduled Payment Date..............................................
Finance Charge Receivables................................................
FIRREA ..................................................................
Floating Allocation Percentage............................................
Foreign Investor..........................................................
Funding Account...........................................................
GAO .................................................................
Government Securities.....................................................
Grantor Trust.............................................................
Holders ..................................................................
Indenture.................................................................
Indenture Trustee.........................................................
Indirect Participants.....................................................
Initial Accounts..........................................................
Insolvency Event..........................................................
Interchange...............................................................
Interest Funding Account..................................................
Invested Amount...........................................................
Investment Earnings.......................................................
IRS .................................................................
Moody's ..................................................................
Net Portfolio Yield.......................................................
Non-United States Holder..................................................
Non-United States Owner...................................................
Note Interest Rate........................................................
Noteholders...............................................................
Notes ..................................................................
OID Regulations...........................................................
Owner Trust...............................................................
Paired Series.............................................................
Participations............................................................
Pay Out Events............................................................
Paying Agent..............................................................
Payment Account...........................................................
Payment Date..............................................................
Plan ..................................................................
Pooling and Servicing Agreement...........................................
Portfolio Yield...........................................................
Prepayment Assumption.....................................................
Pre-Funded Amount.........................................................
Pre-Funding Account.......................................................
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Principal Allocation Percentage...........................................
Principal Commencement Date...............................................
Principal Funding Account.................................................
Principal Receivables.....................................................
Prior Series..............................................................
Private Label Custody Receipt Security ...................................
Prospectus................................................................
Prospectus Supplement.....................................................
Rapid Amortization Period.................................................
Rating Agency.............................................................
Receivables...............................................................
Receivables Pooling Certificates..........................................
Registrar.................................................................
Related Documents.........................................................
Removed Accounts..........................................................
Repurchase Amount.........................................................
Reserve Account...........................................................
Revolving Period..........................................................
S&P .................................................................
Securities................................................................
Securityholders...........................................................
Seller....................................................................
Series....................................................................
Series Cut-Off Date.......................................................
Series Enhancement........................................................
Series Termination Date...................................................
Servicer..................................................................
Servicer Default..........................................................
Servicing Fee.............................................................
Shortfall Amount..........................................................
Special Payment Date......................................................
Spread Account............................................................
Strip Certificates........................................................
Subordinate Certificates..................................................
Subordinate Class Percentage..............................................
Supplement................................................................
TIN .................................................................
Transfer Agent............................................................
Trust Accounts............................................................
Trust Agreement...........................................................
Trust Stripped Bond.......................................................
Trust Stripped Coupon.....................................................
Trustee ..................................................................
UCC .................................................................
Underwriting Agreements...................................................
WALTR Backed Certificate..................................................
WALTR Backed Notes........................................................
WALTR Backed Securities...................................................
WALTR Issuer..............................................................
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WALTR Servicer............................................................
WALTR Trust...............................................................
WALTR Trustee.............................................................
Yield Calculation.........................................................
Yield Factor..............................................................
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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.
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
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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. 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.
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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
(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.
113
<PAGE> 474
Exemption for non-U.S. persons with effectively connected income
(Form4224). 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
FormW-9 (Request for Taxpayer Identification Number and Certification) in order
to avoid backup withholding (see "Material 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.
On October 6, 1997, final Treasury Regulations (the "1997 Withholding
Regulations") were issued which affect the documentation required from non-U.S.
persons holding Global Securities. The 1997 Withholding Regulations are
generally proposed to be effective for payments after December 31, 1998,
regardless of the issue date of the Global Security with respect to which such
payments are made, subject to certain transition rules. The 1997 Withholding
Regulations will 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. Prospective investors are urged to consult
their tax advisors with respect to the effect of the 1997 Withholding
Regulations.
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.
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 CREDIT SUISSE 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
114
<PAGE> 475
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THEIR
RESPECTIVE DATES.
Table of Contents
Prospectus Supplement
PROSPECTUS
PAGE
Prospectus Supplement....................................................
Reports to Securityholders...............................................
Available Information....................................................
Incorporation of Certain Documents by Reference..........................
Summary of Terms.........................................................
Risk Factors.............................................................
The Trusts...............................................................
The Receivables Pools....................................................
The Collateral Certificates..............................................
The Government Securities................................................
Private Table Custody Receipt Securities
Weighted Average Life of the Securities..................................
Pool Factors and Trading Information.....................................
The Seller and the Servicer..............................................
Use of Proceeds..........................................................
Description of the Notes.................................................
Description of the Certificates..........................................
Certain Information Regarding the Securities.............................
Description of the Transfer and Servicing Agreements.....................
Certain Legal Aspects of the Receivables.................................
Certain Federal Income Tax Consequences..................................
State and Local Tax Considerations.......................................
ERISA Considerations.....................................................
Plan of Distribution.....................................................
Legal Matters............................................................
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 to their unsold
allotments of subscriptions.
115
<PAGE> 476
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 $ 295*
Printing and Engraving Expenses **
Trustee's Fees and Expenses **
Legal Fees and Expenses **
Accountant's Fees and Expenses **
Rating Agency Fees **
Miscellaneous
Total **
</TABLE>
* A registration fee previously was paid in connection with the registration of
securities in the amount of $1,081,510,000 that were previously registered by
registration statement Nos. 33-10125, 33-17232 and 333-365. Such Securities are
being carried forward in connection with this Registration Statement.
** To be filed by amendment
Item 16. Exhibits
--------
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of Asset Backed Securities
Corporation*
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.
<PAGE> 477
(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)*
4.2.7 Form of Master Pooling and Servicing Agreement (Dealer Floorplan)
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)*
4.3.7 Form of Series Supplement to Pooling and Servicing Agreement
(Dealer Floorplan)
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 Opinion of Stroock & Stroock & Lavan LLP as to securities offered
<PAGE> 478
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to tax matters.
(included in Exhibit 5.1)
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 Stroock & Stroock & Lavan LLP. (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)
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)
99.10 Form of Prospectus Supplement. (REMIC, Variable Rate Certificates,
Adjustable Rate Mortgage Loans)
<PAGE> 479
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)
99.15 Form of Prospectus Supplement. (Dealer
Floorplan)
* Incorporated by reference to Registration Statement No. 333-365.
** To be filed following the effectiveness of the Registration Statement.
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.
<PAGE> 480
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
25th day of September 1998.
Asset Backed Securities Corporation
By: /s/ Erik A. Falk
____________________________
Name: Erik A. Falk
Title: Vice President
<PAGE> 481
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned does
hereby constitute and appoint Gina Hubbell, Lee Olesky, Scott Ulm, Philip
Weingord, Nita Cherry or Erik Falk, or any of them (with full power to each of
them to act alone), his or her true and lawful attorney-in-fact and agent with
full power of substitution, for him or her and on his or her behalf to sign,
execute and file this Registration Statement and any and all amendments
(including, without limitation, post-effective amendments and any amendments
increasing the amount of securities for which registration is being sought) to
this Registration Statement, with all exhibits and any and all documents to be
filed with respect thereto, with the Securities and Exchange Commission or any
regulatory authority, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he or she might or
could do if personally present, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done.
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
/s/ Gina Hubbell Director September 25, 1998
- ----------------
Gina Hubbell
/s/ Lee Olesky Director September 25, 1998
- ----------------
Lee Olesky
/s/ Scott Ulm President, Chief Executive September 25, 1998
- ---------------- Officer and Director
Scott Ulm (Principal Executive Officer)
/s/ Thomas Zingalli Vice President and Controller September 25, 1998
- ------------------- (Principal Accounting Officer)
Thomas Zingalli
<PAGE> 482
EXHIBIT INDEX
Page Number
Item 16. Exhibits
1.1 Form of Underwriting Agreement.*
3.1 Restated Certificate of Incorporation of Asset Backed Securities
Corporation*
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)*
4.2.7 Form of Master Pooling and Servicing Agreement. (Dealer Floorplan)
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)*
<PAGE> 483
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)*
4.3.7 Form of Series Supplement to Pooling and Servicing Agreement. (Dealer
Floorplan)
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 Opinion of Stroock & Stroock & Lavan LLP as to securities offered
8.1 Opinion of Stroock & Stroock & Lavan LLP with respect to tax matters.
(included in Exhibit 5.1)
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 Stroock & Stroock & Lavan LLP. (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)
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)
<PAGE> 484
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)
99.15 Form of Prospectus Supplement. (Dealer Floorplan)
* Incorporated by reference to Registration Statement No. 333-365.
** To be filed following the effectiveness of the Registration Statement.
<PAGE> 1
EXHIBIT 4.2.7
================================================================================
ASSET BACKED SECURITIES CORPORATION,
Depositor,
[SERVICER NAME],
Servicer
and
[TRUSTEE NAME],
Trustee
CSFB DEALER FLOORPLAN MASTER TRUST
FORM OF POOLING AND SERVICING AGREEMENT
dated as of [ ]
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I
Definition
Section 1.01. Definitions................................................1
Section 1.02. Other Definitional Provisions and Rules of Construction...20
ARTICLE II
Transfer of Receivables
Section 2.01. Transfer of Receivables...................................21
Section 2.02. Acceptance by Trustee.....................................22
Section 2.03. Representations and Warranties of the Depositor Relating
to the Depositor..........................................23
Section 2.04. Representations and Warranties of the Depositor Relating
to the Agreement and Any Supplement and the Receivables...24
Section 2.05. Reassignment of Ineligible Receivables....................26
Section 2.06. Reassignment of Certificateholders' Interest in Trust
Portfolio.................................................27
Section 2.07. Covenants of the Depositor................................28
Section 2.08. Covenants of Depositor with Respect to Receivables
Purchase Agreement........................................29
Section 2.09. Addition of Accounts......................................30
Section 2.10. Removal of Accounts.......................................35
Section 2.11. Account Allocations.......................................36
Section 2.12. Discount Option...........................................37
ARTICLE III
Administration and Servicing of Receivables
Section 3.01. Acceptance of Appointment and Other Matters Relating to
the Servicer..............................................38
Section 3.02. Servicing Compensation....................................39
Section 3.03. Representations, Warranties and Covenants of the Servicer.40
Section 3.04. Reports and Records for the Trustee.......................43
Section 3.05. Annual Certificate of Servicer............................43
Section 3.07. Tax Treatment.............................................44
Section 3.08. Notices to the [Servicer Name]............................45
Section 3.09. Adjustments...............................................45
Section 3.10. Reports to the Commission.................................45
-i-
<PAGE> 3
ARTICLE IV
Rights of Certificateholders and
Allocation and Application of Collections
Section 4.01. Rights of Certificateholders..............................46
Section 4.02. Establishment of Collection Account and Excess Funding
Account...................................................46
Section 4.03. Collections and Allocations...............................48
Section 4.04. Shared Principal Collections..............................50
Section 4.05. Excess Finance Charges....................................51
ARTICLE V
Distributions and Reports to Certificateholders
ARTICLE VI
The Certificates
Section 6.01. The Certificates..........................................52
Section 6.02. Authentication of Certificates............................52
Section 6.03. New Issuances.............................................52
Section 6.04. Registration of Transfer and Exchange of Certificates.....54
Section 6.05. Mutilated, Destroyed, Lost or Stolen Certificates.........57
Section 6.06. Persons Deemed Owners.....................................57
Section 6.07. Appointment of Paying Agent...............................58
Section 6.08. Access to List of Registered Certificateholders Names
and Addresses.............................................59
Section 6.09. Authenticating Agent......................................59
Section 6.10. Book-Entry Certificates...................................60
Section 6.11. Notices to Clearing Agency................................61
Section 6.12. Definitive Certificates...................................61
Section 6.13. Global Certificate; Exchange Date.........................62
Section 6.14. Meetings of Certificateholders............................63
ARTICLE VII
Other Matters Relating to the Depositor
Section 7.01. Liability of the Depositor................................65
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Depositor.............................65
Section 7.03. Limitations on Liability of the Depositor.................66
Section 7.04. Liabilities...............................................66
-ii-
<PAGE> 4
ARTICLE VIII
Other Matters Relating to the Servicer
Section 8.01. Servicer..................................................67
Section 8.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer..............................67
Section 8.03. Limitation on Liability of the Servicer and Others........68
Section 8.04. Servicer Indemnification of the Trust and the Trustee.....68
Section 8.05. The Servicer Not To Resign................................69
Section 8.06. Access to Certain Documentation and Information
Regarding the Receivables.................................69
Section 8.07. Delegation of Duties......................................69
Section 8.08. Examination of Records....................................70
ARTICLE IX
Pay Out Events
Section 9.01. Pay Out Events............................................70
Section 9.02. Additional Rights upon the Occurrence of Certain Events...71
ARTICLE X
Servicer Defaults
Section 10.01. Servicer Defaults.........................................72
Section 10.02. Trustee To Act; Appointment of Successor..................74
Section 10.03. Notification to Certificateholders........................76
ARTICLE XI
The Trustee
Section 11.01. Duties of Trustee.........................................76
Section 11.02. Certain Matters Affecting the Trustee.....................78
Section 11.03. Trustee Not Liable for Recitals in Certificates...........79
Section 11.04. Trustee May Own Certificates..............................79
Section 11.05. The Servicer To Pay Trustee's Fees and Expenses...........79
Section 11.06. Eligibility Requirements for Trustee......................80
Section 11.07. Resignation or Removal of Trustee.........................80
Section 11.08. Successor Trustee.........................................81
Section 11.09. Merger or Consolidation of Trustee........................81
Section 11.10. Appointment of Co-Trustee or Separate Trustee.............81
Section 11.11. Tax Returns...............................................82
Section 11.12. Trustee May Enforce Claims without Possession of
Certificates..............................................83
Section 11.13. Suits for Enforcement.....................................83
Section 11.14. Rights of Certificateholders to Direct Trustee............84
Section 11.15. Representations and Warranties of Trustee.................84
Section 11.16. Maintenance of Office or Agency...........................85
-iii-
<PAGE> 5
Section 11.17. Confidentiality...........................................85
ARTICLE XII
Termination
Section 12.01. Termination of Trust......................................86
Section 12.02. Final Distribution........................................86
Section 12.03. Depositor's Termination Rights............................87
ARTICLE XIII
Miscellaneous Provisions
Section 13.01. Amendment; Waiver of Past Defaults........................87
Section 13.02. Protection of Right, Title and Interest to Trust..........89
Section 13.03. Limitation on Rights of Certificateholders................90
Section 13.04. Governing Law.............................................91
Section 13.05. Notices; Payments.........................................91
Section 13.06. Rule 144A Information.....................................92
Section 13.07. Severability of Provisions................................92
Section 13.08. Assignment................................................93
Section 13.09. Certificates Nonassessable and Fully Paid.................93
Section 13.10. Further Assurances........................................93
Section 13.11. Nonpetition Covenant......................................93
Section 13.12. No Waiver; Cumulative Remedies............................93
Section 13.13. Counterparts..............................................93
Section 13.14. Third-Party Beneficiaries.................................94
Section 13.15. Actions by Certificateholders.............................94
Section 13.16. Merger and Integration....................................94
Section 13.17. Headings..................................................94
Section 13.18. Agreement to Constitute Security Agreement................94
Exhibit A Form of Depositor's Certificate
Exhibit B Form of Assignment of Receivables in Additional Account
-iv-
<PAGE> 6
POOLING AND SERVICING AGREEMENT dated as of [ ], 199[ ] between Asset
Backed Securities Corporation, a Delaware corporation, as Depositor, [Servicer
Name], as Servicer, and [Trustee Name], a [ ] banking corporation, as Trustee.
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties, the Certificateholders
and any Series Enhancer to the extent provided herein and in any Supplement:
ARTICLE I
Definitions
Section 1.01. Definitions. Whenever used in this Agreement, the
following words and phrases shall have the following meanings.
"ABSC" shall mean Asset Backed Securities Corporation.
"Account" shall mean each Initial Account and each Additional Account,
but shall exclude any Account all the Receivables in which are either reassigned
or assigned to the Depositor or its designee or the Servicer in accordance with
the terms of this Agreement. The term "Account" shall be deemed to refer to an
Additional Account only from and after the Addition Date with respect thereto,
and the term "Account" shall be deemed to refer to any Removed Account only
prior to the Removal Date with respect thereto.
"Account Owner" shall mean [Seller Name] pursuant to a Dealer FloorPlan
Agreement.
"Accumulation Period" shall mean, with respect to any Series, the
period, if any, specified as such in the related Supplement.
"Addition Date" shall mean (a) with respect to Additional Accounts, the
date on which the Receivables in such Additional accounts are conveyed to the
Trust pursuant to Section 2.09(a), (b) or (c), and (b) with respect to
Participation Interests, the date from and after which such Participation
Interests are to be included as Trust Assets pursuant to Section 2.09(a) or (b).
"Addition Discount Receivables" shall mean, as of any applicable
Additional Cut-Off Date, the amount of Principal Receivables in Additional
Accounts designated by the Depositor to be treated as Finance Charge
Receivables; provided, however, that the Depositor may not make such designation
unless the Depositor (i) shall have received written notice from each Rating
Agency that such designation will satisfy the Rating Agency Condition and shall
have delivered copies of each such written notice to the Servicer and the
Trustee, and (ii) shall have delivered to the Trustee and any Series Enhancer
entitled thereto pursuant to the relevant Supplement an Officer's Certificate of
the Depositor, to the effect that the Depositor reasonably believes that
<PAGE> 7
such designation will not, based on the facts known to such officer at the time
of such certification, then cause a Pay-Out Event or any 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.
"Additional Account" shall mean each revolving credit Dealer FloorPlan
account established pursuant to a Dealer FloorPlan Agreement, which account is
designated pursuant to Section 2.09(a), (b) or (c) to be included as an Account
and is identified in a computer file or microfiche list delivered to the Trustee
by the Depositor pursuant to Sections 2.01 and 2.09(g).
"Additional Cut-Off Date" shall mean the date as of which any
Additional Accounts or Participation Interests are to be included in the Trust,
as specified in the related Assignment.
"Additional Depositors" shall have the meaning specified in Section
2.09(f).
"Additional Payment" shall have the meaning specified in Section
3.09(a).
"Adjustment Payment" has the meaning specified in Section 3.09.
"Affiliate" shall mean, 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 specified Person, shall mean the power to direct the management and policies
of a 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. The Trust shall not be
deemed an affiliate of the Depositor.
"Aggregate Addition Limit" shall mean the number of accounts designated
as Automatic Additional Accounts, without prior Rating Agency consent, and
designated as Additional Accounts pursuant to Section 2.09(a), without the prior
Rating Agency notice described under Section 2.09(d)(v), which would either (x)
with respect to any three consecutive Monthly Periods, equal 15% or less of the
number of Accounts at the end of the ninth Monthly Period preceding the
commencement of such three Monthly Periods (or, the Trust Cut-Off Date,
whichever is later) and (y) with respect to any twelve Monthly Periods, equal
20% or less of the number of Accounts as of the first day of such twelve Monthly
Periods (or, the Trust Cut-Off Date, whichever is later).
"Agreement" shall mean this Pooling and Servicing Agreement and all
amendments hereof and supplement hereto, including, with respect to any Series
or Class, the related Supplement.
"Annual Membership Fees" shall mean annual membership fees or any
similar term specified in the Dealer FloorPlan Agreement applicable to each
Account.
"Applicants" shall have the meaning specified in Section 6.08.
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"Appointment Date" shall have the meaning specified in Section 9.02(a).
"Assignment" shall have the meaning specified in Section 2.09(g).
"Authorized Newspaper" shall mean any newspaper or newspapers of
general circulation (including The Wall Street Journal) in the Borough of
Manhattan, The City of New York, printed in the English language (and with
respect to any Series or Class, if and so long as the Investor Certificate of
such Series or Class are listed on a European stock exchange (including the
Luxembourg Stock Exchange) and such exchange shall so require, then in the city
of such exchange, printed in any language satisfying the requirements of such
exchange) and customarily published on each business day at such place, whether
or not published on Saturday, Sundays or holidays.
"Automatic Additional Account" shall mean each revolving credit Dealer
FloorPlan account established pursuant to a Dealer FloorPlan Agreement, which
account is designated pursuant to Section 2.09(c) to be included as an Account
and is identified in a computer file or microfiche list delivered to the Trustee
by the Depositor pursuant to Sections 2.01 and 2.08(h).
"Average Rate" shall mean, as of any date of determination and with
respect to any Group, the percentage equivalent of a decimal equal to the sum of
the amounts for each outstanding Series (or each Class within any Series
consisting of more than one Class) within such Group obtained by multiplying (a)
the Certificate Rate (reduced to take into account the payments received
pursuant to any interest rate agreements net of any amounts payable under such
agreements, or, if such agreements result in a net amount payable, increased by
such net amount payable) for such Series or Class, by (b) a fraction, the
numerator of which is the aggregate unpaid principal amount of the Investor
Certificates of such Series or Class and the denominator of which is the
aggregate unpaid principal amount of all Investor Certificates within such
Group.
"Average Rate" means, with respect to any Group.
"Bearer Certificates" shall have the meaning specified in Section 6.01.
"Benefit Plan" shall have the meaning specified in Section 6.04(c).
"Book-Entry Certificates" shall mean beneficial interests in the
Investor Certificate, ownership and transfers of which shall be made through
book entries by a Clearing Agency as described in Section 6.10.
"Business Day" shall mean any day other than (a) a Saturday or Sunday
or (b) any other day on which national banking associations or state banking
institutions in New York, New York are authorized or obligated by law, executive
order or governmental decree to be closed.
"Cedel" shall mean Cedel S.A.
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"Certificate" shall mean any one of the Investor Certificates or the
Depositor's Certificate.
"Certificate Owner" shall mean, with respect to a Book-Entry
Certificate, the Person who is the 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 or as an indirect
participant, in accordance with the rules of such Clearing Agency).
"Certificate Rate" shall mean, with respect to any Series or Class, the
certificate rate specified therefor in the related Supplement.
"Certificate Register" shall mean the register maintained pursuant to
Section 6.04, providing for the registration of the Registered Certificates and
the Depositor's Certificate and transfers and exchanges thereof.
"Certificateholder" or "Holder" shall mean an Investor
Certificateholder or a Person in whose name the Depositor's Certificate is
registered in the Certificate Register.
"Certificateholders' Interest" shall have the meaning specified in
Section 4.01.
"Class" shall mean, with respect to any Series, any one of the classes
of Investor Certificates of that Series.
"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 pursuant to the rules and regulations of such Clearing Agency.
"Closing Date" shall mean, with respect to any Series, the closing date
specified in the related Supplement.
"Code" shall mean the Internal Revenue Code of 1986.
"Collection Account" shall have the meaning specified in Section 4.02.
"Collections" shall mean (a) all payments by or on behalf of Obligors
(excluding Insurance Proceeds) received in respect to the Receivables in
accordance with the related Dealer FloorPlan Agreement in effect from time to
time and (b) with respect to any Monthly Period all Recoveries received during
such Monthly Period.
"Commission" shall have the meaning specified in Section 3.01(b).
"Controlled Amortization Period" shall mean, with respect to any
Series, the period, if any, specified as such in the related Supplement.
"Corporate Trust Office" shall have the meaning specified in Section
11.16.
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"Coupons" shall have the meaning specified in Section 6.01.
"Date of Processing" shall mean, with respect to any transaction, the
date on which such transaction is first recorded under the Servicer's (or, in
the case of the Depositor, the Depositor's) computer file of consumer revolving
accounts (without regard to the effective date of such recordation).
"Dealer FloorPlan Agreement" shall mean, with respect to an Account,
the agreements between the an Account Owner and the related Obligor, governing
the terms and conditions of such Account, as such agreements may be amended,
modified or otherwise changed from time to time in accordance with Section
2.07(g), and as distributed (including any amendments and revisions thereto) to
holders of such Account.
"Defaulted Amount" shall mean, with respect to any Monthly Period, an
amount (which shall not be less than zero) equal to (a) the amount of Principal
Receivables which became Defaulted Receivables in such Monthly Period, minus (b)
the sum of (i) the amount of any Defaulted Receivables included in any Account
the Receivable in which the Depositor or the Servicer became obligated to accept
reassignment or assignment in accordance with the terms of this Agreement during
such Monthly Period, (ii) the amount of Recoveries received in such Monthly
Period with respect to 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 Receivable which became
Defaulted Receivables in such Monthly Period; provided, however, that, if an
Insolvency Event occurs with respect to the Depositor, the amount of such
Defaulted Receivables which are subject to reassignment to the Depositor in
accordance with the terms of the Agreement shall not be added to the sums so
subtracted and, if any of the events described in Section 10.01(d) occur with
respect to the Servicer, the amount of such Defaulted Receivables which are
subject to reassignment or assignment to the Servicer in accordance with the
terms of this Agreement shall not be added to the sum so subtracted.
"Defaulted Receivables" shall mean, with respect to any Monthly Period,
all Principal Receivables in any Account which are charged off as uncollectible,
other than due to any Adjustment Payment, in such Monthly Period in accordance
with the Lending Guidelines and the Servicer's customary and usual servicing
procedures for servicing consumer revolving credit card and other consumer
revolving credit account receivables comparable to the Receivables, but in any
event not later that 180 days after such Receivable became due for payment by
the Obligor. For purposes of this definition, a Principal Receivable in any
Account shall become a Defaulted Receivable on the day on which such Principal
Receivable is recorded as charged off on the Servicer's computer master file of
consumer revolving credit accounts.
"Definitive Certificates" shall have the meaning specified in Section
6.10.
"Definitive Euro-Certificates" shall have the meaning specified in
Section 6.13(a).
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"Deposit Date" shall mean each day on which the Servicer deposits
Collections in the Collection Account.
"Depositaries" shall mean the Person specified in the applicable
Supplement, in its capacity as depositary for the respective accounts of any
Clearing Agency or any Foreign Clearing Agencies.
"Depositary Agreement" shall mean, with respect to any Series or Class,
the agreement among the Depositor, the Trustee and the initial Clearing Agency
substantially in the form of Exhibit F.
"Depositor's Amount" shall mean on any date of determination an amount
equal to the difference between (I) the sum of (A) the aggregate balance of
Principal Receivables at the end of the day immediately prior to such date of
determination and (B) Special Funding Amount at the end of the day immediately
prior to such date of determination minus (II) the Aggregate Invested Amount at
the end of such day.
"Depositor's Certificate" shall mean the certificate executed by the
Depositor and authenticated by or on behalf of the Trustee, substantially in the
form of Exhibit A, as the same may be modified in accordance with Section
2.09(f).
"Depositor's Interest" shall have the meaning specified in Section
4.01.
"Determination Date" shall mean the fourth Business Day prior to each
Distribution Date.
"Discount Option Receivables" shall have the meaning specified in
Section 2.12(a).
"Discount Option Receivables Collections" shall mean on any Date of
Processing on and after the date on which the Depositor's exercise of its
discount option pursuant to Section 2.12(a) takes effect, the product of (a) a
fraction the numerator of which is the amount of the Discount Option Receivables
and the denominator of which is the sum of the Principal Receivables other than
Discount Option Receivables) and the Discount Option Receivables in each case
(for both numerator and denominator) at the end of the prior Monthly Period and
(b) collection of Principal Receivables that arise in the Accounts on such day
on or after the date such option is exercised that would otherwise be Principal
Receivables.
"Discount Percentage" shall have the meaning specified in Section
2.12(a).
"Distribution Date" shall mean the 15th day of each calendar month
during the term hereof, or, if such 15th day is not a Business Day, the next
succeeding Business Day.
"Document Delivery Date" shall mean the first Closing Date in the case
of Initial Accounts and the day that is on or prior to the tenth Business Day
after the Addition Date in the case of Additional Accounts or Participation
Interests added to the Trust.
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"Eligible Account" shall mean a Dealer FloorPlan account owned by the
Seller, the Depositor, or other Account Owner, which as of the Trust Cut-Off
Date with respect to an Initial Account or as of the Addition Date with respect
to an Additional Account (a) is in existence and maintained with the Seller or
any other Account Owner, as the case may be; (b) is payable in United States
dollars; (c) has not been identified as an account the credit cards or checks,
if any, with respect to which have been reported to the Seller or other Account
Owner as having been lost or stolen; (d) the Obligor or which has provided, as
his or her current billing address, an address located in the United States (or
its territories or possessions or a military address); (e) has not been, and
does not have any Receivables which have been, sold, pledged, assigned or
otherwise conveyed to any Person (except pursuant to this Agreement); (f) except
as provided below, does not have any Receivables which are Defaulted
Receivables; (g) does not have any Receivables which have been identified by the
Seller or other Account Owner or the relevant Obligor as having been incurred as
a result or fraudulent use of any related credit card or check; and (h) relates
to an Obligor who is not identified by the Seller or other Account Owner in its
computer files as being the subject of a voluntary or involuntary bankruptcy
proceeding. Eligible Accounts may include accounts, the Receivable of which have
been written off; provided that (a) the balance of all Receivables included in
such accounts is reflected on the books and records of the Seller or other
Account Owner (and is treated for purposes of this Agreement) as "zero", and (b)
charging privileges with respect to all such accounts have been cancelled in
accordance with the Lending Guidelines of the Seller or other Account Owner and
will not be reinstated by the Seller or other Account Owner or the Servicer.
"Eligible Deposit Account" shall mean 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 or any one of the states thereof, including the District of
Columbia (or any domestic branch of a foreign bank), or a trust company
acceptable to each Rating Agency, and acting as a trustee for funds deposited in
such account, so long as any of the securities of such depository institution or
trust company shall have a credit rating from each Rating Agency in one of its
generic credit rating categories which signifies investment grade.
"Eligible Institution" shall mean (a) a depository institution (which
may be the Trustee) organized under the laws of the United States or any one of
the states thereof which at all times (b) has either (i) a long-term unsecured
debt rating acceptable to [each] [the] Rating Agency or (ii) a certificate of
deposit rating acceptable to [each] [the] Rating Agency, and (c) is a member of
the FDIC. Notwithstanding the previous sentence, any institution the appointment
of which is acceptable to [each] [the] Rating Agency shall be considered an
Eligible Institution. If so qualified, the Servicer may be considered an
Eligible Institution for the purposes of this definition.
"Eligible Investments" shall 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 of principal and interest by, the United States of
America;
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(b) demand deposits, time deposits or certificates of deposit
(having original maturities of no more than 365 days) of depository
institutions or trust companies incorporated under the laws of the
United States of America or any state thereof, including the District
of Columbia, (or domestic branches of foreign banks) and subject to
supervision and examination by federal or state banking or depository
institution authorities; provided that at the time of the Trust's
investment or contractual commitment to invest therein, the short-term
debt rating of such depository institution or trust company shall be in
the highest investment category of each Rating Agency;
(c) commercial paper or other short-term obligations having,
at the time of the Trust's investment or contractual commitment to
invest therein, a rating from each Rating Agency in its highest
investment category;
(d) demand deposits, time deposits and certificates of deposit
which are fully insured by the FDIC, with a Person the commercial paper
of which has a credit rating from each Rating Agency in its highest
investment category;
(e) notes or bankers' acceptances (having original maturities
of no more than 365 days) issued by any depository institution or trust
company referred to in (b) above;
(f) investments in money market funds rated in the highest
investment category by each Rating Agency or otherwise approved in
writing by each Rating Agency;
(g) time deposits (having maturities of not more than 30
days), other than as referred to in clause (d) above, with a Person the
commercial paper of which has a credit rating from each Rating Agency
in its highest investment category; or
(h) any other investments that satisfy the Rating Agency
Condition.
"Eligible Receivable" shall mean each Receivable:
(a) which has arisen under an Eligible Account;
(b) which was created in compliance in all material aspects
with the Lending Guidelines and all Requirements of Law applicable to
the institution which owned such Receivable at the time of its
creation, the failure to comply with which would have a material
adverse effect on Investor Certificateholders, and pursuant to a Dealer
FloorPlan Agreement which complies with all Requirements of Law
applicable to the Seller or any Account Owner, the failure to comply
with which would have a material adverse effect on Investor
Certificateholders;
(c) with respect to which all material consents, licenses,
approvals or authorizations of, or registrations or declarations with,
any Governmental Authority
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<PAGE> 14
required to be obtained, effected or given in connection with the
creation of such Receivable or the execution, delivery and performance
by the Seller or any other Account Owner of its obligations, if any,
under the related Dealer FloorPlan Agreement have been duly obtained,
effected or given and are in full force and effect as of such date of
creation of such Receivable;
(d) as to which, at the time of its transfer to the Trust, the
Depositor or the Trust will have good and marketable title free and
clear of all Liens (other than any Lien for municipal or other local
taxes if such taxes are not then due and payable or if the Depositor is
then contesting the validity thereof in good faith by appropriate
proceedings and has set aside on its books adequate reserves with
respect thereto);
(e) which has been the subject of either a valid transfer and
assignment from the Depositor to the Trust of all the right, title and
interest therein of the Depositor (including any proceeds thereof), or
the grant of a first priority perfected security interest therein (and
in the proceeds thereof), effective until the termination of the Trust;
(f) which at and after the time of transfer to the Trust is
the legal, valid and binding payment obligation of the Obligor thereon,
legally enforceable against such Obligor in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, receivership, conservatorship
or other similar laws, now or hereafter in effect, affecting the
enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity) or matters as to which the
Servicer is required by Section 3.09 to make an adjustment;
(g) which constitutes either an "account" or a "general
intangible" under and as defined in Article 9 of the UCC;
(h) which, at the time of its transfer to the Trust, has not
been waived or modified except as permitted in accordance with Section
3.03(h) and in accordance with the Lending Guidelines and which waiver
or modification is reflected in the Servicer's file of revolving credit
Dealer FloorPlans;
(i) which, at the time of its transfer to the Trust, is not
subject to any right of rescission, setoff, counterclaim or any other
defense of the Obligor (including the defense of usury), other than
defenses arising out of applicable bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship or other
similar laws affecting the enforcement of creditors' rights in general
and except as such enforceability may be limited by general principles
of equity (whether considered in a suit at law or equity) or matters as
to which the Servicer is required by Section 3.09 to make an
adjustment;
(j) as to which, at the time of its transfer to the Trust, the
Depositor, the Seller or any Account Owner has satisfied all
obligations on its part to be fulfilled at the time it is transferred
to the Trust; and
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<PAGE> 15
(k) as to which, at the time of its transfer to the Trust,
none of the Depositor, the Seller or any Account Owner has taken any
action which, or failed to take any action, the omission of which,
would, at the time of its transfer to the Trust, impair in any
material respect the rights of the Trust or the Certificateholders
therein.
"Eligible Servicer" shall mean the Trustee, a wholly-owned subsidiary
of the Trustee, or an entity which, at the time of its appointment as Servicer,
(a) is servicing a portfolio of consumer revolving credit Dealer FloorPlans or
other consumer revolving credit accounts, (b) is legally qualified and has the
capacity to service the Accounts, (c) is qualified (or licensed) to use the
software that the Servicer is then currently using to service the Accounts or
obtains the right to use, or has its own, software which is adequate to perform
its duties under this Agreement, (d) has, in the reasonable judgment of the
Trustee, demonstrated the ability to professionally and competently service a
portfolio of similar accounts in accordance with customary standards of skill
and care and (e) has a net worth of at least $50,000,000 as of the end of its
most recent fiscal quarter.
"Enhancement Agreement" shall mean any agreement, instrument or
document governing the terms of any Series Enhancement or pursuant to which any
Series Enhancement is issued or outstanding.
"Enhancement Invested Amount", with respect to any Series, shall have
the meaning specified in the related Supplement.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974.
"Euroclear Operator" shall mean Morgan Guaranty Trust Company of New
York, Brussels office, as operator of the Euroclear System.
"Excess Finance Charges" shall have the meaning specified in Section
4.05.
"Excess Funding Account" shall have the meaning specified in Section
4.02.
"Exchange Act" shall mean the Securities Exchange Act of 1934.
"Exchange Date" shall mean, with respect to any Series, any date that
is after the related Series Issuance Date, in the case of Definitive
Euro-Certificates in registered form, or upon presentation of certification of
non-United States beneficial ownership (as described in Section 6.13), in the
case of Definitive Euro-Certificates in bearer form.
"Excluded Series" shall mean any Series designated as such in the
relevant Supplement.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
successor thereto.
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"Finance Charge Receivables" shall mean, with respect to any Monthly
Period, the sum of (a) all amounts billed to the Obligors on any Account in
respect of Periodic Rate Finance Charges and any other incidental and
miscellaneous fees and charges billed on the Accounts from time to time, and (b)
the amount of Discount Option Receivables, if any, for such Monthly Period.
Collections of Finance Charge Receivables with respect to any Monthly Period
shall include the Addition Discount Receivables to be deposited into the
Collection Account with respect to such Monthly Period.
"Finance Charge Shortfalls" shall have the meaning specified in Section
4.05.
"FIRREA" shall mean the Financial Institutions Reform, Recovery and
Enforcement Act of 1989.
"Floating Allocation Percentage" shall mean, with respect to any
Series, the floating allocation percentage specified in the related Supplement.
"Foreign Clearing Agency" shall mean Cedel and the Euroclear Operator.
"Global Certificate" shall have the meaning specified in Section
6.13(a).
"Governmental Authority" shall mean the United States of America, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and having jurisdiction over the applicable Person.
"Group" shall mean, with respect to any Series, the group of Series, if
any, in which the related Supplement specifies such Series is to be included.
"Ineligible Receivables" shall have the meaning specified in Section
2.05(a).
"Initial Account" shall mean each account, in each case established
pursuant to a Dealer FloorPlan Agreement, chosen from Eligible Accounts of the
Depositor and identified in the computer file or microfiche list delivered to
the Trustee by the Depositor on or prior to the first Closing Date pursuant to
Section 2.01.
"Initial Depositor Certificate Issuance Date" shall mean [ ], 199[ ],
the date on which the Depositor Certificate was issued by the Trust and
delivered to the Depositor.
"Insolvency Event" shall have the meaning specified in Section 9.01(a).
"Insolvency Proceeds" shall have the meaning specified in Section
9.02(b).
"Insurance Proceeds" shall mean any amounts received by the Servicer
pursuant to any credit life, credit disability or unemployment insurance
policies covering any Obligor with respect to Receivables under such Obligor's
Account.
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"Invested Amount" shall mean, with respect to any Series and for any
date, an amount equal to the invested amount specified in the related
Supplement.
"Investment Company Act" shall mean the Investment Company Act of 1940.
"Investor Certificateholder" shall mean the Person in whose name a
Registered Certificate is registered in the Certificate Register or the bearer
of any Bearer Certificate (or the Global Certificate, as the case may be) or
Coupon.
"Investor Certificates" shall mean [any certificated or uncertificated
interest in the Trust designated as, or deemed to be, an "Investor Certificate"
in the related Supplement] [any one of the certificates (including the Bearer
Certificates, the Registered Certificates or any Global Certificate) executed by
the Depositor and authenticated by or on behalf of the Trustee, substantially in
the form attached to the related Supplement, other than the Depositor's
Certificate].
"Late Charge Fees" shall have the meaning specified in the Dealer
FloorPlan Agreement applicable to each Account for late payment fees or similar
terms with respect to such Account.
"Lending Guidelines" shall mean the established policies and procedures
of the Seller or other Account Owner relating to the operation of its dealer
floorplan finance business governed by a Receivables Purchase Agreement, and are
consistent with reasonably prudent practice, as such policies and procedures may
be amended, modified, or otherwise changed from time to be in accordance with
Section 2.07(g).
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, participation or equity interest, deposit arrangement, encumbrance,
lien (statutory or other), preference, priority or other security agreement, or
preferential arrangement of any kind or nature whatsoever, including any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing and the filing of
any financing statement under the UCC (other than any such financing statement
filed for informational purposes only) or comparable law of any jurisdiction to
evidence any of the foregoing, excluding any lien or filing pursuant to this
Agreement; provided, however, that any assignment or transfer pursuant to
Section 6.03(c) or Section 7.02 shall not be deemed to constitute a Lien.
"Manager" shall mean the lead manager, manager or co-manager or person
performing a similar function with respect to an offering of Definitive
Euro-Certificates.
"Miscellaneous Payments" shall mean, with respect to any Monthly
Period, the sum of Adjustment Payments and Transfer Deposit Amounts deposited in
the Collection Account with respect to such Monthly Period.
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"Monthly Period" shall mean, with respect to each Distribution Date, a
period of approximately 30 days, that (a) contains a full set of processing
cycles with respect to the Accounts, as defined by the Servicer, (b) commences
on the day immediately succeeding the last day of the immediately preceding
Monthly Period and (c) ends prior to the Determination Date for such
Distribution Date; provided, however, that the initial Monthly Period with
respect to any Series will commence on the Cut-Off Date with respect to such
Series.
"Monthly Servicing Fee" shall have the meaning specified in Section
3.02.
"Moody's" shall mean Moody's Investors Service, Inc., or any successor
thereto.
"Non-Code Entity" shall mean a savings and loan association, a national
banking association, a bank or other entity that is not subject to Title 11 of
the United States Code.
"Notices" shall have the meaning specified in Section 13.05(a).
"Obligor" shall mean, with respect to any Account, the Person or
Persons obligated to make payments with respect to such Account, including any
guarantor thereof.
"Officer's Certificate" shall mean, unless otherwise specified in this
Agreement, a certificate delivered to the Trustee signed by any officer of the
Depositor or the Servicer, as the case may be, or, in the case of a Successor
Servicer, a certificate signed by a vice president or more senior officer or the
financial controller (or an officer holding an office with equivalent or more
senior responsibilities of such successor Servicer, and delivered to the Trustee
at its Corporate Trust office.
"Opinion of Counsel" shall mean a written opinion of counsel, in a form
reasonably acceptable to the Trustee, by counsel for, or an employee of, the
Person providing the opinion and who shall be reasonably acceptable to the
Trustee.
"Participation Interests" shall mean participation representing
undivided interests in a pool of assets primarily consisting of revolving credit
Dealer FloorPlans accounts owned by the Depositor, the Seller or any other
Account Owner and collections thereon.
"Pay Out Event" shall mean, with respect to any Series, each event
specified in Section 9.01 and each additional event, if any, specified in the
relevant Supplement as a Pay-Out Event with respect to such Series.
"Paying Agent" shall mean any paying agent and co-paying agent
appointed pursuant to Section 6.07, which initially shall be the Trustee.
"Periodic Rate" shall mean the periodic rate or rates determined in the
manner described in the Dealer FloorPlan Agreement applicable to each Account.
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"Periodic Rate Finance Charges" shall mean finance charges based on the
Periodic Rate or any similar term specified in the Dealer FloorPlan Agreement
applicable to each Account.
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, Governmental Authority or other entity of
similar nature.
"Portfolio Yield" means, with respect to a Series, the yield specified
in the related Supplement.
"Principal Allocation Percentage" shall mean, with respect to any
Series, the Principal Allocation Percentage specified in the related Supplement.
"Principal Receivables" shall mean all amounts, other than amounts
which represent Finance Charge Receivables, billed to the Obligors on any
Account. Such amounts shall exclude Defaulted Receivables [provided, that on any
date on or after the Depositor shall have designated the Discount Percentage,
the Principal Receivables shall not include Discount Option Receivables]. In
calculating the aggregate amount of Principal Receivables on any day, the amount
of Principal Receivables shall be reduced by the aggregate amount of credit
balances in the Accounts on such day. Any Principal Receivables which the
Depositor is unable to transfer as provided in Section 2.10 shall not be
included in calculating the aggregate amount of Principal Receivables, except to
the extent so provided in Section 2.10.
"Principal Sharing Series" shall mean a Series that pursuant to the
Supplement therefor, is entitled to receive Shared Principal Collections.
"Principal Shortfalls" shall have the meaning specified in Section
4.04.
"Principal Terms" shall mean, with respect to any Series, (i) the name
or designation; (ii) the initial principal amount (or method for calculating
such amount) and the Invested Amount of such Series; (iii) the Certificate Rate
(or method for the determination thereof) and the manner, if any, in which such
rate may be adjusted from time to time; (iv) the interest payment date or dates
and the manner, if any, in which the interest payment date or dates may be reset
from time to time and the date or dates from which interest shall accrue; (v)
the method for allocating collections to Certificateholders of such Series; (vi)
the designation of any Series Accounts and the terms governing the operation of
any such Series Accounts; (vii) the method of calculating the Servicing Fee with
respect thereto; (viii) the provider and the terms of any form of Series
Enhancement with respect thereto; (ix) the terms on which the Investor
Certificates of such Series may be exchanged for Investor Certificates of
another Series, repurchased by the Depositor or remarketed to other investors;
(x) the Series Termination Date; (xi) the number of Classes of Investor
Certificates of such Series and, if such Series consists of more than one Class,
the rights and priorities of each such Class; (xii) the extent to which Investor
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 may be exchanged, in whole or in part, for Definitive Certificates,
and the
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manner in which any interest payable on a temporary or Global Certificate will
be paid); (xiii) whether the Investor Certificates of such Series may be issued
as Bearer Certificates and any limitations imposed thereon; (xiv) the priority
of such Series with respect to any other Series; (xv) the Rating Agency or
Rating Agencies, if any, rating the Series; (xvi) the name of the Clearing
Agency, if any; (xvii) the base rate applicable to any Series; (xviii) the
minimum amount of Principal Receivables required to be maintained through the
designation of Additional Accounts; (xix) any deposit into any account
maintained for the benefit of Certificateholders; (xx) the rights of the holder
of the Depositor's Certificate that have been transferred to the holders of such
Series; (xxi) the Group, if any, to which such Series belongs; (xxii) whether or
not such Series is a Principal Sharing Series; and (xxiii) any other terms of
such Series.
"Rapid Amortization Period" shall mean, with respect to any Series, the
Period beginning at the close of business on the Business Day immediately
preceding the day on which a Pay-Out Event is deemed to have occurred with
respect to such Series, and ending upon the earlier to occur of (i) the payment
in full to the Investor Certificateholders of such Series of the Invested Amount
with respect to such Series and the payment in full to any applicable Series
Enhancer with respect to such Series of the Enhancement Invested Amount, if any,
with respect to such Series and (ii) the Series Termination Date with respect to
such Series.
"Rating Agency" shall mean, with respect to any outstanding Series or
Class, each statistical rating agency selected by the Depositor to rate the
Investor Certificates of such Series or Class.
"Rating Agency Condition" shall mean, with respect to any action and
any Rating Agency, that each Rating Agency shall have notified the Depositor in
writing that such action will not result in such Rating Agency's reducing or
withdrawal its rating of any outstanding Series or Class of Certificates with
respect to which it is a Rating Agency.
"Reassignment" shall have the meaning specified in Section 2.09(b).
"Receivables" shall mean all amounts shown on the Servicer's records as
Amounts payable by Obligors on any Account, from time to time, including amounts
payable for Principal Receivables and amounts payable for Finance Charge
Receivables; provided, however, that such amounts shall not be included as or
deemed Receivables on and after the day on which they become Defaulted
Receivables; provided, further, however, that for purposes of determining the
amount of Principal Receivables in the Trust and the deduction of the principal
amount of (x) Ineligible Receivables from such total amount of Principal
Receivables as required by section 2.05(b) and (y) Defaulted Receivables from
such total amount of Principal Receivables as required by subsection 3.03, the
foregoing proviso shall not apply. Any reference in this Agreement or any
Supplement to a Receivable (including any Principal Receivable, Finance Charge
Receivable or Defaulted Receivable) and any Collections thereon or other amounts
recoverable with respect thereto (including any Insurance Proceeds or Recoveries
with respect thereto) shall refer to only the fractional undivided interest in
the amounts paid or payable by Obligers on the Accounts that are transferred by
an Account Owner to the Depositor pursuant to
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a Receivables Purchase Agreement, which undivided interest may be less than a
100% undivided interest therein.
"Receivables Purchase Agreements" shall mean, as applicable, the
receivables purchase agreements between [Seller Name] and the ABSC, dated as of
[ ], 199[ ], in each case as amended from time to time, and includes any
receivables purchase agreement, substantially in the form of such agreements
dated [ ], 199[ ], entered into between ABSC and an Account Owner in the future.
"Record Date" shall mean, with respect to any Distribution Date, the
last Business Day of the preceding Monthly Period, except as otherwise provided
with respect to a Series in the related Supplement.
"Recoveries" shall mean all amounts, excluding Insurance Proceeds,
received by the Servicer with respect to Receivables which have previously
become Defaulted Receivables, net of any out-of-pocket costs and expenses of
collection (including attorneys fees and expenses) deducted therefrom.
"Registered Certificateholder" shall mean the Holder of a Registered
Certificate.
"Registered Certificates" shall have the meaning specified in Section
6.01.
"Removal Date" shall have the meaning specified in Section 2.10(a).
"Removal Notice Date" shall have the meaning specified in subsection
2.10(a).
"____________ Accounts" shall have the meaning specified in Section
2.10(a).
"Required Designation Date" shall have the meaning specified in Section
2.09(a).
"Required Depositor's Interest" shall mean, with respect to any date,
an amount equal to the product of the Required Depositor's Percentage and the
aggregate amount of Principal Receivables in the Trust.
"Required Depositor's Percentage" shall mean [ %]; provided, however,
that the Depositor may reduce the Required Depositor's Percentage upon (w) 30
days, prior notice to the Trustee, each Rating Agency and any Series Enhancer
entitled to receive such notice pursuant to the relevant Supplement, (x) receipt
of written notice by the Depositor from each Rating Agency that such reduction
will satisfy the Rating Agency Condition, (y) delivery by the Depositor of
copies of each such written notice to the Servicer and the Trustee and (z)
delivery to the Trustee and each such Series Enhancer of an Officer's
Certificate of the Depositor stating that the Depositor reasonably believes that
such reduction will not, based on the facts known to such officer at the time of
such certification, then cause a Pay-Out Event or any event that, after the
giving of notice or the lapse of time, would constitute a Pay-Out Event to occur
with respect to
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any Series; provided further, that the Required Depositor's Percentage shall not
at any time be less than the Specified Percentage.
"Required Principal Balance" shall mean, as of any date of
determination, (a) the sum of the "Initial Invested Amount" (as defined in the
relevant Supplement) of the Investor Certificates of each Series outstanding on
such date (other than any Series or portion thereof which is designated in the
relevant Supplement as then being an Excluded Series) minus (b) the principal
amount on deposit in the Excess Funding Account on such date; provided, however,
if at any time the only Series outstanding are Excluded Series and a Pay-Out
Event has occurred with respect to one or more of such Series, the Required
Principal Balance shall mean (a) 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 (b) the principal
amount on deposit in the Excess Funding Account.
"Requirements of Law" with respect to any Person shall mean the
certificate of incorporation or articles of association and by-laws or other
organizational or governing documents of such Person, and any law, treaty, rule
or regulation, determination of an arbitrator or Governmental Authority, in each
case applicable to or binding upon such Person or to which such Person is
subject, whether Federal, state or local (including usury laws, the Federal
Truth in Lending Act and Regulation Z and Regulation B of the Board of Governors
of the Federal Reserve System).
"Responsible Officer" shall mean any Vice President, any Assistant Vice
President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant
Treasurer, or any other officer of the Trustee, the Depositor, the Seller or the
Servicer 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.
"Revolving Period" shall mean, with respect to any Series, the period
specified as such in the related Supplement.
"RTC" shall mean the Resolution Trust Corporation or any successor
thereto.
"Rule 144A" shall mean Rule 144A under the Act.
"Series" shall mean any series of Investor Certificates established
pursuant to a Supplement.
"Series Account" shall mean any deposit, trust, escrow or similar
account maintained for the benefit of the Investor Certificateholders of any
Series or Class, as specified in any Supplement.
"Series Enhancement" shall mean the rights and benefits provided to the
Investor Certificateholders of any Series or Class pursuant to any letter of
credit, surety bond, cash
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collateral guaranty, cash collateral account, insurance policy, spread account,
reserve account, guaranteed rate agreement, maturity liquidity facility, tax
protection agreement, interest rate swap agreement, interest rate cap agreement,
interest rate floor agreement, currency exchange agreement, other derivative
securities agreement or other similar arrangement. The subordination of any
Class or Series to another Class or Series shall be deemed to be a Series
Enhancement for such other Class or Series.
"Series Enhancer" shall mean the Person or Persons providing any Series
Enhancement, other than the Investor Certificateholders of any Class or Series
which is subordinated to another Class or Series.
"Series Issuance Date" shall mean, with respect to any Series, the date
on which the Investor Certificates of such Series are to be originally issued in
accordance with Section 6.03 and the related Supplement.
"Series Termination Date" shall mean, with respect to any Series, the
termination date specified in the related Supplement.
"Service Transfer" shall have the meaning specified in Section 10.01.
"Servicer" shall mean the [Servicer Name], in its capacity as Servicer
pursuant to this Agreement, and, after any Service Transfer, the Successor
Servicer.
"Servicer Default" shall have the meaning specified in Section 10.01.
"Servicing Fee" shall have the meaning specified in Section 3.02.
"Servicing Fee Rate" shall mean, with respect to any series, the
servicing fee rate specified in the related Supplement.
"Servicing Officer" shall mean any officer or duly appointed
attorney-in-fact of the Servicer who in either case is involved in, or
responsible for, the administration and servicing of the Receivables and whose
name appears on a list of servicing officers furnished to the Trustee by the
Servicer, as such list may from time to time be amended.
"Specified Percentage" shall mean [ ]% provided, however, that the
Depositor may reduce the Specified Percentage upon (w) 30 days, prior notice to
the Trustee, each Rating Agency and any Series Enhancer entitled to receive such
notice pursuant to the relevant Supplement, (x) receipt of written notice by the
Depositor from each Rating Agency that such reduction will satisfy the Rating
Agency Condition, (y) delivery by the Depositor of copies of each such written
notice to the Servicer and the Trustee and (z) delivery to the Trustee and each
such Series Enhancer of an Officer's Certificate of the Depositor stating that
the Depositor reasonably believes that such reduction will not, based on the
facts known to such officer at the time of such certification, then cause a
Pay-Out Event or any 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.
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"Transfer Date" shall mean the Business Day immediately preceding each
Distribution Date.
"Transfer Deposit Amount" shall mean, with respect to any Distribution
Date, the amount, if any, deposited into the Excess Funding Account and the
Collection Account on such Distribution Date in connection with the reassignment
of an Ineligible Receivable pursuant to Section 2.05 or 2.07(a) or the
reassignment or assignment of a Receivable pursuant to Section 3.03.
"Transfer Restriction Event" shall have the meaning specified in
Section 2.10.
"Trust" shall mean the CSFB Dealer FloorPlan Master Trust created by
this Agreement.
"Trust Assets" shall have the meaning specified in section 2.01.
"Trust Cut-Off Date" shall mean [ ], 199[ ].
"Trustee" shall mean [Trustee Name], not in its Individual capacity,
but solely in its capacity as trustee on behalf of the Trust, or its successor
in interest, or any successor trustee appointed as herein provided.
"UCC" shall mean the Uniform Commercial Code, as amended from time to
time, as in effect to the State of [ ] and in any other state where the filing
of a financing statement is required to perfect the Trust's interest in the
Receivables and the proceeds thereof or in any other specified jurisdiction.
"Unallocated Principal Collections" shall have the meaning specified in
Section 4.03(c).
"United States" shall mean the United States of America (including the
States and the District of Columbia), its territories, its possessions and other
areas subject to its jurisdiction.
"U.S. Alien" or "United States Alien" shall mean any corporation,
partnership, individual or fiduciary that, as to the United States, and for
United States income tax purposes, is (i) a foreign corporation, (ii) a foreign
partnership one or more of the members of which is, as to the United States, a
foreign corporation, a nonresident alien individual or a nonresident alien
fiduciary of a foreign estate or trust, (iii) a nonresident alien individual or
(iv) a nonresident alien fiduciary of a foreign estate or trust.
"U.S. Person" or "United States Person" shall mean 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 an estate or
trust the income of which is subject to United States Federal income taxation
regardless of its source.
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Section 1.02. Other Definitional Provisions and Rules of Construction.
With respect to any Series, all terms used herein and not otherwise defined
herein shall have meanings ascribed to them in the related Supplement.
(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, shall have the respective meanings given to
them under generally accepted accounting principles or regulatory accounting
principles, as applicable, as in effect on the date of this Agreement or on the
date of any such certificate or other document. 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 or regulatory accounting principles, the
definitions contained in this Agreement or in any such certificate or other
document shall control.
(c) The agreements, representations and warranties of ABSC in this
Agreement as Depositor and [Servicer Name] as Servicer shall be deemed to be the
agreements, representations and warranties of ABSC and [Servicer Name] solely in
each such capacity for so long as ABSC and [Servicer Name] act in each such
respective capacity under this Agreement.
(d) 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; references to any Article,
Section, Schedule or Exhibit are references to Articles, Sections, Schedules and
Exhibits in or to this Agreement unless otherwise specified; and the term
"including" means "including without limitation".
(e) All references herein to laws, statutes, acts and regulations shall
mean laws, statutes, acts and regulations as amended or recodified from time to
time.
(f) All references herein (including the terms defined in Section 1.01)
to the singular shall include the plural and vice versa, unless the context
requires otherwise.
(g) All references herein to the masculine, feminine or neuter gender
shall include all other genders.
ARTICLE II
Transfer of Receivables
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Section 2.01. Transfer of Receivables. By execution of this Agreement,
the Depositor does hereby sell, transfer, assign, set over and otherwise convey
to the Trustee, on behalf of the Trust, for the benefit of the
Certificateholders, all its right, title and interest in, to and under the
Receivables existing at the opening of business on the Trust Cut-Off Date in the
case of Receivables arising in the Initial Accounts, and on each Additional
Cut-Off Date in the case of Receivables arising in the Additional Accounts, and
in each case thereafter created from time to time until the termination of the
Trust, all moneys due or to become due and all amounts received with respect
thereto and all proceeds (including "proceeds" as defined in the UCC) thereof.
Such property, together with all moneys on deposit in the Collection Account,
the Excess Funding Account, the Series Accounts, the rights of the Trustee on
behalf of the Trust under this Agreement and any Supplement, the property
conveyed to the Trustee on behalf of the Trust under any Participation Interest
Supplement, the right to receive certain Recoveries and any Series Enhancement
shall constitute the assets of the Trust (the "Trust Assets"). The foregoing
does not constitute and is not intended to result in the creation or assumption
by the Trust, the Trustee, any Investor Certificateholder or any Series Enhancer
of any obligation of the Depositor, the Servicer or any other Person in
connection with the Accounts or the Receivables or under any agreement or
instrument relating thereto.
The Depositor agrees to record and file, at its own expense, financing
statements (and continuation statements when applicable) with respect to the
Receivables now existing and hereafter created in the Accounts meeting the
requirements of applicable state law in such manner and in such jurisdictions as
are necessary to perfect, and maintain the perfection of, the sale and
assignment of such Receivables to the Trust, and to deliver a file stamped copy
of each such financing statement or other evidence of such filing (which may,
for purposes of this Section 2.01, consist of telephone confirmation of such
filing) to the Trustee on or prior to the first Closing Date, in the case of
such Receivables arising in the Initial Accounts, and (if any additional filing
is so necessary) the applicable Addition Date, in the case of such Receivables
arising in Additional Accounts. The Trustee shall be under no obligation
whatsoever to file such financing or continuation statements or to make any
other filing under the UCC in connection with such sale and assignment.
The Depositor further agrees, at its own expense, (a) on or prior to
(x) the first Closing Date, in the case of the Initial Accounts, (y) the
applicable Addition Date, in the case of Additional Accounts, and (z) the
applicable Removal Date, in the case of Removed Accounts, to indicate clearly
and unambiguously in its computer files that Receivables created in connection
with the Accounts (other than Removed Accounts) have been conveyed to the Trust
pursuant to this Agreement for the benefit of the Certificateholders and (b) on
or prior to the applicable Document Delivery Date, to deliver to the Trustee a
computer file on media and in a file format reasonably acceptable to the Trustee
or microfiche list containing a true and complete list of all such Accounts
specifying for each such Account, as of the Trust Cut-Off Date, in the case of
the Initial Accounts, the applicable Additional Cut-Off Date, in the case of
Additional Accounts, and the applicable Removal Date, in the case of the Removed
Accounts, its account number, the collection status, the aggregate amount
outstanding in such Account and the aggregate amount of Principal Receivables
outstanding in such Account. Such file or list, as supplemented from time
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to time to reflect Additional Accounts and Removed Accounts, shall be marked as
Schedule 1 to this Agreement and is hereby incorporated into and made a part of
this Agreement.
It is the intention of the parties hereto that the arrangements with
respect to the Receivables shall constitute a purchase and sale of such
Receivables and not a loan. In the event, however, that it were determined that
the transactions evidenced hereby constitute a loan and not a purchase and sale,
it is the intention of the parties hereto that this Agreement shall constitute a
security agreement under applicable law, and that the Depositor shall be deemed
to have granted to the Trust a first priority security interest in all of the
Depositor's right, title, and interest, whether now owned or hereafter acquired,
in, to and under the Receivables and the other Trust Assets conveyed by the
Depositor.
Section 2.02. Acceptance by Trustee.
(a) The Trustee hereby acknowledges its acceptance on behalf of the
Trust of all right, title and interest to the property, now existing and
hereafter created, conveyed to the Trust pursuant to Section 2.01 and declares
that it shall maintain such right, title and interest, upon the trust herein set
forth, for the benefit of all Certificateholders. The Trustee further
acknowledges that, prior to or simultaneously with the execution and delivery of
this Agreement, the Depositor delivered to the Trustee the computer file or
microfiche list relating to the Initial Accounts described in the last paragraph
of Section 2.01. The Trustee shall maintain a copy of Schedule 1, as delivered
from time to time, at the Corporate Trust Office.
(b) The Trustee hereby agrees not to disclose to any Person any of the
account numbers or other information contained in the computer files or
microfiche lists marked as Schedule 1 or otherwise delivered to the Trustee from
time to time, except (i) to a Successor Servicer or as required by a Requirement
of Law applicable to the Trustee, (ii) in connection with the performance of the
Trustee's duties hereunder or (iii) in enforcing the rights of
Certificateholders. The Trustee agrees to take such measures as shall be
reasonably requested by the Depositor to protect and maintain the security and
confidentiality of such information and, in connection therewith, will allow the
Depositor to inspect the Trustee's security and confidentiality arrangements
from time to time during normal business hours. The Trustee shall when possible
provide the Depositor with written notice [five] days prior to any disclosure
pursuant to this Section.
(c) The Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement or any Supplement.
(d) The Trustee hereby agrees not to use any information it obtains
pursuant to this Agreement, including any of the account numbers or other
information contained in the computer files or microfiche lists marked as
Schedule 1 or otherwise delivered by the Depositor to the Trustee, directly or
indirectly, to compete or assist any person in competing with the Depositor in
its business.
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Section 2.03 Representations and Warranties of the Depositor Relating
to the Depositor. The Depositor hereby represents and warrants to the Trust and
the Trustee as of each Closing Date that:
(a) ORGANIZATION AND GOOD STANDING. The Depositor is a corporation,
validly existing under the laws of the jurisdiction of its organization or
incorporation, and has, in all material respects, full power and authority to
own its properties and conduct its business as such properties are presently
owned and such business is presently conducted, and to execute, deliver and
perform its obligations under this Agreement and each Supplement and to execute
and deliver to the Trustee the Certificates.
(b) DUE QUALIFICATION. The Depositor is duly qualified to do business
and is in good standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals, in each
jurisdiction in which failure to so qualify or to obtain such licenses and
approvals would render any Dealer FloorPlan Agreement relating to an Account or
any Receivable unenforceable by the Depositor, the Servicer or the Trustee or
would have a material adverse effect on the interests of the Investor
Certificateholders.
(c) DUE AUTHORIZATION. The execution and delivery of this Agreement and
each Supplement, the execution and delivery to the Trustee of the Certificates
and the consummation of the transactions provided for in this Agreement and each
Supplement have been duly authorized by the Depositor by all necessary corporate
action on the part of the Depositor.
(d) NO CONFLICT. The execution and delivery of this Agreement, each
Supplement and the Certificates, the performance of the transactions
contemplated by this Agreement and each Supplement and the fulfillment of the
terms hereof and thereof applicable to the Depositor will not conflict with or
violate the articles of association or by-laws of the Depositor or conflict
with, result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time or both) a material default under, any
material indenture, contract, agreement, mortgage, deed of trust or other
instrument to which the Depositor is a party or by which it or any or its
properties are bound.
(e) NO VIOLATION. The execution and delivery of this Agreement, each
Supplement and the Certificates, the performance of the transactions
contemplated by this Agreement and each Supplement and the fulfillment of the
terms hereof and thereof applicable to the Depositor will not conflict with or
violate in any material respect any Requirements of Law applicable to the
Depositor.
(f) NO PROCEEDINGS. There are no proceedings or investigations pending
or, to the best knowledge of the Depositor, threatened against the Depositor,
before any Governmental Authority (i) asserting the invalidity of this
Agreement, any Supplement or the Certificates, (ii) seeking to prevent the
issuance of the Certificates or the consummation by the Depositor of any of the
transactions contemplated by this Agreement, any Supplement or the Certificates,
(iii) seeking any determination or ruling that, in the reasonable judgment of
the Depositor, would materially and adversely affect the performance of its
obligations under this Agreement or any
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Supplement, (iv) seeking any determination or ruling that would materially and
adversely effect the validity or enforceability of this Agreement, any
Supplement or the Certificates or (v) seeking to affect adversely the income tax
attributes of the Trust under the Federal income or [insert State name] income
or franchise tax systems.
(g) ALL CONSENTS REQUIRED. All authorizations, consents, orders or
other actions of any Person or of any Governmental Authority required to be
obtained by the Depositor in connection with the execution and delivery by the
Depositor of this Agreement, each Supplement and the Certificates, the
performance by the Depositor of the transactions contemplated by this Agreement
and each Supplement and the fulfillment by the Depositor of the terms hereof and
thereof, have been obtained, effected or given and are in full force and effect.
(h) INSOLVENCY. No Insolvency Event with respect to the Depositor has
occurred and the transfer of the Receivables by the Depositor to the Trust has
not been made in contemplation of the occurrence thereof.
The representations and warranties set forth in this Section 2.03 shall
survive the transfer and assignment of the Receivables to the Trust. Upon
discovery by a Responsible Officer of the Depositor, the Servicer or the Trustee
of a breach of any of the representations and warranties set forth in this
Section 2.03, the party, discovering such breach shall give prompt written
notice to the others and to each Series Enhancer entitled thereto pursuant to
the relevant Supplement within [three] Business Days following such discovery.
The Depositor agrees to cooperate with the Servicer and the Trustee in
attempting to cure any such breach. For purposes of the representations and
warranties set forth in this Section 2.03, each reference to a Supplement shall
be deemed to refer only to those Supplements in effect as of the relevant
Closing Date.
Section 2.04. Representations and Warranties of the Depositor Relating
to the Agreement and Any Supplement and the Receivables.
(a) REPRESENTATIONS AND WARRANTIES. The Depositor hereby represents and
warrants to the Trust and the Trustee as of the date of this Agreement and the
date of each Supplement, as of the Initial Depositor Certificate Issuance Date,
as of each Closing Date and, with respect to Additional Accounts, as of the
related Addition Date that:
(i) this Agreement, each Supplement and, in the case of Additional
Accounts, the related Assignment, each constitutes a legal, valid and
binding obligation of the Depositor enforceable against the Depositor
in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, receivership, conservatorship or other similar laws now or
hereafter in effect affecting the enforcement of creditors' rights in
general or by general principles of equity (whether considered in a
suit at law or in equity);
(ii) as of the first Closing Date, the Initial Depositor
Certificate Issuance Date, as of the related Addition Date with respect
to Additional Accounts, and as of the applicable Removal Date with
respect to the Removed Accounts, Schedule 1 to this
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Agreement and the related computer file or microfiche list delivered
pursuant to this Agreement, as supplemented to such date, is an
accurate and complete listing in all material respects of all the
Accounts as the Trust Cut-Off Date, such Additional Cut-Off Date or
such Removal Date, as the case may be, and the information contained
therein with respect to the identify of such Accounts and the
Receivables existing in such Accounts is true and correct in all
material respects as of the trust Cut-Off Date, such Additional Cut-Off
Date or such Removal Date, as the case may be;
(iii) each Receivable conveyed to the Trust by the Depositor has
been conveyed to the Trust free and clear of any Lien.
(iv) all authorizations, consents, licenses, orders or approvals of
or registrations or declarations with any Governmental Authority
required to be obtained, effected or given by the Depositor in
connection with the transfer by the Depositor of Receivables to the
Trust have been duly obtained, effected or given and are in full force
and effect;
(v) each of this Agreement and, in the case of Additional Accounts,
the related Assignment constitutes a valid sale, transfer and
assignment to the Trust of all right, title and interest of the
Depositor in the Receivables now existing or hereafter created and the
proceeds thereof and Recoveries identified as relating to Receivables
conveyed to the Trust by the Depositor which have become Defaulted
Receivables; or, if this Agreement does not constitute a sale of such
property, or, in the case of Additional Accounts, if the related
Assignment does not constitute a sale of such property, this Agreement
or the related Assignment, as the case may be, constitutes a grant of a
"security interest" (as defined in the UCC) in such property to the
Trust, which, in the case of existing Receivables and the proceeds
thereof, is enforceable upon execution and delivery of this Agreement,
or, with respect to then existing Receivables in Additional Accounts,
as of the applicable Addition Date, and which will be enforceable with
respect to such Receivables hereafter and thereafter created and the
proceeds thereof upon such creation. Upon the filing of the financing
statements pursuant to Section 2.01 and, in the case of Receivables
hereafter created and the proceeds thereof, upon the creation thereof,
the Trust shall have a first priority perfected security or ownership
interest in such property and proceeds.
(vi) on the Trust Cut-Off Date, each Account owned by the Depositor
or specified in a Receivables Purchase Agreement with the Depositor was
an Eligible Account and, in the case of Additional Accounts, on the
Additional Cut-Off Date with respect thereto, each such Additional
Account will be an Eligible Account;
(vii) on the Trust Cut-Off Date, each Receivable then existing and
conveyed to the Trust by the Depositor was an Eligible Receivable and,
in the case of Additional Accounts, on the Addition Date with respect
thereto, each Receivable contained therein will be an Eligible
Receivable;
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(viii) as of the date of the creation of any new Receivable in an
Account specified in a Receivables Purchase Agreement, such Receivable
is an Eligible Receivable; and
(ix) no selection procedure reasonably believed by the Depositor to
be materially adverse to the interests of the Investor
Certificateholders was used in selecting the Initial Accounts.
(b) NOTICE OF BREACH. The representations and warranties of the
Depositor set forth in Section 2.03, this Section 2.04 and Section 2.09(f) shall
survive the transfer and assignment by the Depositor of Receivables to the
Trust. Upon discovery by a Responsible Officer of the Depositor, the Servicer or
the Trustee of a breach of any of the representations and warranties by the
Depositor set forth in this in Section 2.03, this Section 2.04 and Section
2.09(f), the party discovering such breach shall give prompt written notice to
the others and to each Series Enhancer entitled thereto pursuant to the relevant
Supplement within three Business Days following such discovery; provided that
the failure to give notice within three Business Days does not preclude
subsequent notice.
Section 2.05. Reassignment of Ineligible Receivables.
(a) REASSIGNMENT OF RECEIVABLES. In the event that:
(i) any representation or warranty contained in Section
2.04(a)(ii), (iii), (iv), (vi), (vii), or (viii) is not true and
correct in any material respect as of the date specified therein
(individually or together with any other breach or breaches then
existing) and such breach has a material adverse effect on the
Certificateholders' Interest of all Series in any Receivables
transferred to the Trust (which determination shall be made without
regard to the availability of funds under any Series Enhancement) and
remains uncured for 60 days (or for such longer period, not in excess
of [120] days, as may be specified in such notice after the earlier to
occur of the discovery thereof by the Depositor or receipt by the
Depositor of written notice thereof given by the Trustee or the
Servicer, or
(ii) it is so provided in Section 2.07(a) or 2.09(d)(iii) with
respect to any Receivables conveyed to the Trust by the Depositor, then
the Depositor shall accept reassignment of all Receivables in the
related Account ("Ineligible Receivables") on the terms and conditions
set forth in paragraph (b) below[; provided, however, that such
Receivables will not be deemed to be Ineligible Receivables and will
not be reassigned to the Depositor if, on any day prior to the end of
such 60-day or longer period, (x) either (A) in the case of an event
described in clause (i) above the relevant representation and warranty
shall be true and correct in all material respects as if made on such
day or (b) in the case of an event described in clause (ii) above the
circumstances causing such Receivable to become an Ineligible
Receivable shall no longer exist and (y) the Depositor shall have
delivered to the Trustee an Officer's Certificate of the Depositor
describing the nature of such breach and the manner in which in the
relevant representation and warranty became true and correct].
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(b) PRICE OF REASSIGNMENT. The Servicer shall deduct the portion of
such Ineligible Receivables reassigned to the Depositor which are Principal
Receivables from the aggregate amount of Principal Receivables used to calculate
the Depositor's Amount, the Depositor's Interest and the Floating Allocation
Percentage and the Principal Allocation Percentage applicable to any Series. In
the event that, following the exclusion of such Principal Receivables from the
calculation of the Depositor's Amount, the Depositor's Amount would be a
negative number, not later than 12:00 noon, New York City time on the first
Distribution Date following the Monthly Period in which such reassignment
obligation arises, the Depositor shall make a deposit in immediately available
funds in an amount equal to the principal portion and the interest portion of
the amount by which the Depositor's Amount would be below zero (up to the amount
of such Principal Receivables) into the Excess Funding Account and the
Collection Account, respectively. [Any amount deposited into the Excess Funding
Account and the Collection Account, respectively, in connection with the
reassignment of an Ineligible Receivable shall be considered a Transfer Deposit
Amount and shall be applied in accordance with Article IV and the terms of each
Supplement.]
Upon the deposit, if any, required to be made to the Excess Funding
Account and the Collection Account, respectively, as provided in this Section
and the reassignment of Ineligible Receivables, the Trustee, on behalf of the
Trust, shall automatically and without further action be deemed to transfer,
assign, set-over and otherwise convey to the Depositor or its designee, without
recourse, representation or warranty, all the right, title and interest of the
Trust in and to such Ineligible Receivables, all monies due or to become due
with respect thereto and all proceeds thereof. The Trustee shall execute such
documents and instruments of transfer or assignment and take such other actions
as shall reasonably be requested by the Depositor to effect the transfer of such
Ineligible Receivables pursuant to this Section. The obligation of the Depositor
to accept reassignment of any Ineligible Receivables, and to make the deposits,
if any, required to be made to the Excess Funding Account and the Collection
Account, respectively, as provided in this Section, shall constitute the sole
remedy respecting the event giving rise to such obligation available to Investor
Certificateholders (or the Trustee on behalf of the Investor Certificateholders)
or any Series Enhancer.
Section 2.06. Reassignment of Certificateholders' Interest in Trust
Portfolio. In the event any representation or warranty of the Depositor set
forth in subsection 2.03(a) or (c) or subsection 2.04(a)(i) or (v) is not true
and correct in any material respect and such breach has a material adverse
effect on the Certificateholders' Interest of all Series in the Receivables
(which determination shall be made without regard to the availability of funds
under any Series Enhancement), then either the Trustee or the Holders of
Investor Certificates evidencing more than 50% of the aggregate unpaid principal
amount of all outstanding Investor Certificates, by written notice then given to
the Depositor and the Servicer (and to the Trustee if given by the Investor
Certificateholders), may direct the Depositor to accept a reassignment of the
Certificateholders' Interest in the Receivables and any Participation Interests
if such breach and any material adverse effect caused by such breach is not
cured within 60 days of such notice (or for such longer period, not in excess of
[120] days, as may be specified in such notice), and upon those conditions the
Depositor shall be obligated to accept such reassignment on the terms set
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forth below; provided, however, that such Receivables will not be reassigned to
the Depositor if, on any day prior to the end of such 60-day or longer period
(i) the relevant representation and warranty shall be true and correct in all
material respects as if made on such day and (ii) the Depositor shall have
delivered to the Trustee an Officer's Certificate of the Depositor describing
the nature of such breach and the manner in which the relevant representation
and warranty became true and correct and the breach of such representation and
warranty shall no longer materially adversely affect the interests of the
Investor Certificateholders.
The Depositor shall deposit in the Collection Account in immediately
available funds not later than 12:00 noon, New York City time, on the Transfer
Date immediately preceding the first Distribution Date following the Monthly
Period in which such reassignment obligation arises, in payment for such
reassignment, an amount equal to the sum of the amounts specified therefor with
respect to each outstanding Series in the related Supplement. Notwithstanding
anything to the contrary in this Agreement, such amounts shall be distributed to
the Investor Certificateholders on such Distribution Date in accordance with the
terms of each Supplement.
If the Trustee or the Investor Certificateholders give notice directing
the Depositor to accept a reassignment of the Certificateholders' Interest in
the Receivables as provided above, the obligation of the Depositor to accept
such reassignment and to make the deposits, if any, required to be made to the
Collection Account as provided in this Section shall constitute the sole remedy,
respecting an event of the type specified in the first sentence of this Section
2.06, available to the Certificateholders (or the Trustee on behalf of the
Certificateholders) or any Series Enhancer.
Section 2.07. Covenants of the Depositor. The Depositor hereby
covenants as follows:
(a) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES. The Depositor
will take no action to cause or permit any Receivable to be evidenced by any
instrument or chattel paper (as defined in the UCC) and, if any such Receivable
is so evidenced it shall be deemed to be an Ineligible Receivable in accordance
with Section 2.05(a) and shall be reassigned to the Depositor in accordance with
Section 2.05(b).
(b) SECURITY INTERESTS. Except for the conveyances hereunder, the
Depositor will not sell, pledge, assign or transfer to any other Person, or
grant, create, incur, assume or suffer to exist any Lien on any Receivable,
whether now existing or hereafter created, or any interest therein; the
Depositor will immediately notify the Trustee of the existence of any Lien on
any Receivable; and the Depositor shall defend the right, title and interest of
the Trust in, to and under the Receivables, whether now existing or hereafter
created, against all claims of third parties claiming through or under the
Depositor.
(c) DEPOSITOR'S INTEREST. Except for (i) the conveyances hereunder, in
connection with any transaction permitted by Section 7.02 and as provided in
Sections 2.09(g) and 6.03, and (ii) conveyances with respect to which the Rating
Agency Condition shall have been satisfied and a Tax Opinion shall have been
delivered, the Depositor agrees not to transfer, assign, exchange or otherwise
convey or pledge, hypothecate or otherwise grant a security interest in the
Depositor's Interest represented by the Depositor's Certificate or any
Supplemental Certificate
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and any such attempted transfer, assignment, exchange, conveyance, pledge,
hypothecation or grant shall be void.
(d) DELIVERY OF COLLECTIONS. In the event that the Depositor receives
Collections, the Depositor agrees to pay the Servicer all such Collections as
soon as practicable after receipt thereof but in no event later than two
Business Days after the Date of Processing by the Depositor.
(e) NOTICE OF LIENS. The Depositor shall notify the Trustee and each
Series Enhancer entitled to such notice pursuant to the relevant Supplement
promptly after becoming aware of any Lien on any Receivable or Participation
Interest other than the conveyances hereunder or under the Receivables Purchase
Agreement.
(f) AMENDMENT OF THE CERTIFICATE OF INCORPORATION. The Depositor will
not amend in any material respect its Certificate of Incorporation without
providing the Rating Agency with notice no later than the fifth Business Day
prior to such amendment (unless the right to such notice is waived by the Rating
Agency) and satisfying the Rating Agency Condition.
(g) OTHER INDEBTEDNESS. The Depositor shall not incur any additional
debt, unless (i) such debt is incurred pursuant to the Revolving Credit
Agreement or (ii) the Rating Agency is provided with notice no later than the
fifth Business Day prior to the incurrence of such additional debt (unless the
right to such notice is waived by the Rating Agency) and the Rating Agency
Condition is satisfied with respect to the incurrence of such debt.
(h) [other organizational assurances by Depositor]
Section 2.08. Covenants of Depositor with Respect to Receivables
Purchase Agreement. The Depositor in its capacity as purchaser of Receivables
from [Seller Name] pursuant to a Receivables Purchase Agreement, hereby
covenants that the Depositor will at all times enforce the covenants and
agreements of [Seller Name] in such Receivables Purchase Agreement, including
covenants set forth in Section 5.01(h) and (i) of such Receivables Purchase
Agreement to the effect set forth below only to the extent to which they are
enforceable against [Seller Name] pursuant to such Receivables Purchase
Agreement:
(i) PERIODIC RATE FINANCE CHARGE. (i) Except (x) as otherwise
required by any Requirements of Law or (y) as is deemed by the Seller
or any other Account Owner, as the case may be, to be necessary in
order for it to maintain its credit card business or a program operated
by such credit card business on a competitive basis based on a good
faith assessment by it of the nature of the competition with respect to
the credit card business or such program, it shall not at any time take
any action which would have the effect of reducing the Portfolio Yield
to a level that could be reasonably expected to cause any Series to
experience any Pay Out Event based on the insufficiency of the
Portfolio Yield or any similar test and (ii) except as otherwise
required by any Requirements of Law, it shall not take any action which
would have the effect of reducing the Portfolio Yield to less than the
highest Average Rate for any Group.
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(ii) DEALER FLOORPLAN AGREEMENTS AND LENDING GUIDELINES. Subject to
compliance with all Requirements of Law and subsection 2.08(a)(i) of
this Agreement, Seller or other Account Owner, as the case may be, may
change the terms and provisions of the applicable Dealer FloorPlan
Agreements or the applicable Lending Guidelines in any respect
(including the calculation of the amount or the timing of charge-offs
and the Periodic Rate Finance Charges to be assessed thereon).
Notwithstanding the above, unless required by Requirements of Law or as
permitted by subsection 2.08(a)(i) of this Agreement, the Seller or
other Account Owner, as the case may be, will take no action with
respect to the applicable Dealer FloorPlan Agreements or the applicable
Lending Guidelines, which, at the time of such action, the Seller or
other Account Owner, as the case may be, reasonably believes will have
a material adverse effect on ABSC or the Investor Certificateholders.
The Depositor further covenants that it will not enter into any
amendments to a Receivables Purchase Agreement unless the Rating Agency
Condition has been satisfied.
Section 2.09. Addition of Accounts.
(a) REQUIRED ADDITIONS.
(i) If, as of the close of business on the last Business Day of any
Monthly Period, either (i) the Depositor's Amount is less than the
Required Depositor's Interest on such date, or (ii) the aggregate
amount of Principal Receivables is less than the Required Principal
Balance on such date, the Depositor shall on or prior to the close of
business on the 10th Business Day following the last Business Day of
such Monthly Period (the "Required Designation Date") cause to be
designated additional Eligible Accounts to be included as Accounts as
of the Required Designation Date or any earlier date in a sufficient
amount such that, after giving effect to such addition, the Depositor's
Amount as of the close of business on the Addition Date is at least
equal to the Required Depositor's Interest on such date and the
aggregate amount of Principal Receivables as of the Addition Date is at
least equal to the Required Principal Balance on such date. The failure
of any condition set forth in paragraph (c) or (d) below, as the case
may be, shall not relieve the Depositor of its obligation pursuant to
this paragraph; provided, however, that the failure of the Depositor to
transfer Receivables to the Trust as provided in this paragraph solely
as a result of the unavailability of a sufficient amount of Eligible
Receivables shall not constitute a breach of this Agreement; provided
further that any such failure which has not been timely cured will
nevertheless result in the occurrence of a Pay Out Event with respect
to each Series for which, pursuant to the Supplement therefor, a
failure by the Depositor to convey Receivables in Additional Accounts
or Participation Interests to the Trust by the day on which it is
required to convey such Receivables or Participation Interests pursuant
to Section 2.08(a) constitutes a "Pay Out Event" (as defined in such
Supplement).
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(ii) In lieu of, or in addition to, designating Additional Accounts
pursuant to clause (i) above, the Depositor may, subject to the
conditions specified in paragraph (d) below, convey Participation
Interests to the Trust. The addition of Participation Interests in the
Trust pursuant to this paragraph (a) or paragraph (b) below shall be
effected by an amendment hereto, dated the applicable Addition Date,
pursuant to Section 13.01(a)
(b) PERMITTED ADDITIONS. The Depositor may from time to time, at his
sole discretion, subject to the conditions specified in paragraph (c) or (d)
below, as the case may be, cause the designation of additional Eligible Accounts
to be included as Accounts or Participation Interests to be included as Trust
Assets, in either case as of the applicable Additional Cut-Off Date.
(c) CONDITIONS TO ADDITION. On the Addition Date with respect to any
Additional Accounts or Participation Interests, the Trust shall purchase the
Receivables in such Additional Accounts (and such Additional Accounts shall be
deemed to be Accounts for purposes of this Agreement) or shall purchase such
Participation Interests, in each case as of the close of business on the
applicable Additional Cut-Off Date, subject to the satisfaction of the following
conditions:
(i) on or before the [eighth] Business Day immediately preceding
the Addition Date, 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 that the Additional
Accounts or Participation Interests will be included and specifying the
applicable Addition Date, the Additional Cut-Off Date, the approximate
number of accounts or other assets expected to be added and the
approximate aggregate balances expected to be outstanding in the
accounts or other assets to be added;
(ii) all Additional Accounts will be Eligible Accounts;
(iii) in the case of Additional Accounts, the Depositor shall have
delivered to the Trustee copies of UCC-1 financing statements covering
such Additional Accounts, if necessary to perfect the Trust's interest
in the Receivables arising therein;
(iv) in the case of Additional Accounts, to the extent required by
Section 4.03, the Depositor shall have deposited in the Collection
Account all Collections with respect to such Additional Accounts since
the Additional Cut-Off Date;
(v) as of each of the Additional Cut-Off Date and the Addition
Date, no Insolvency Event with respect to the Depositor shall have
occurred nor shall the transfer of the Receivables arising in the
Additional Accounts or of the Participation Interests to the Trust have
been made in contemplation of the occurrence thereof;
(vi) except in the case of an Addition pursuant to Section 2.09(a),
the Depositor shall have received written notice from each Rating
Agency that such Addition will satisfy the Rating Agency Condition and
shall have delivered copies of each such written notice to the Servicer
and the Trustee;
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(vii) the Depositor shall have delivered to the Trustee, each
Rating Agency and any Series Enhancer entitled thereto pursuant to the
relevant Supplement an Opinion of Counsel that for Federal income and [
] income and franchise tax purposes, such Addition will not cause a
taxable event to the holders of the Certificates;
(viii) the Depositor shall have delivered to the Trustee, each
Rating Agency and any Series Enhancer entitled thereto pursuant to the
relevant Supplement an Opinion of Counsel, dated the Addition Date, in
accordance with Section 13.02(d);
(ix) the Depositor shall have delivered to the Trustee and any
Series Enhancer entitled thereto pursuant to the relevant Supplement an
Officer's Certificate of the Depositor, dated the Addition Date, to the
effect that the Depositor reasonably believes that such Addition will
not, based on the facts known to such officer at the time of such
certification, then cause a Pay Out Event (or any 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
(x) within ten Business Days of the Addition Date, the Depositor
shall have delivered to the Trustee a written assignment and a computer
file or a microfiche list containing a true and complete list of the
related Additional Accounts or Participation Interests specifying for
each such Account its account number, the collection status, the
aggregate amount outstanding in such Account and the aggregate amount
of Principal Receivables outstanding in such Account or comparable
information in the case of Participation Interests.
(d) NEW ACCOUNTS. The Depositor may from time to time, at its sole
discretion, subject to and in compliance with the limitations specified in
clause (ii) below and the applicable conditions specified in paragraph (e)
below, voluntarily designate newly originated Eligible Accounts to be included
as New Accounts. For purposes of this paragraph, Eligible Accounts shall be
deemed to include only consumer revolving credit Dealer FloorPlan s or other
consumer revolving credit accounts which are of a type included as Initial
Accounts or which have previously been included in any Addition. If the
Assignment related to such Aggregate Addition expressly provides that such type
of revolving credit Dealer FloorPlan is permitted to be designated as a New
Account.
(i) The Depositor shall not be permitted to designate Automatic
Additional Accounts unless and until each Rating Agency shall have
consented in writing, and upon obtaining such consent, the number and
balance of New Accounts shall not exceed [the Aggregate Addition
Limited];
(ii) With respect to each semi-annual period, in which New Accounts
are added as Accounts, the Depositor shall deliver to the Trustee, each
Rating Agency and any Series Enhancer entitled thereto pursuant to the
relevant Supplement an Opinion of Counsel in accordance with Section
13.02(d), with respect to the New Accounts included
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as Accounts during the preceding six-month period confirming the
validity and perfection of each transfer of such New Accounts.
(iii) With respect to each semi-annual period in which New Accounts
are added as Accounts, the failure of such Transferor to deliver [to
the Trustee and each Rating Agency] an Opinion of Counsel substantially
in the form of Exhibit C-2 shall result in all Receivables arising in
the New Accounts to which such failure relates to be deemed to be
Ineligible Receivables in accordance with subsection 2.05(a) and all
such Receivables shall be reassigned to such Transferor in accordance
with subsection 2.05(b). The opinion delivery requirement set forth in
the immediately preceding sentence may be modified provided that the
Rating Agency Condition is satisfied.
(e) CONDITIONS TO ADDITION. On the Addition Date with respect to any
Additional Accounts or Participation Interests, the Trust shall purchase the
Receivables in such Additional Accounts (and such Additional Accounts shall be
deemed to be Accounts for purposes of this Agreement) or shall purchase such
Participation Interests, in each case as of the close of business on the
applicable Additional Cut-Off Date, subject to the satisfaction of the following
conditions.
(i) on or before the fifth Business Day immediately preceding the
Addition Date, 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 that the Additional
Accounts or Participation Interests will be included and specifying the
applicable Addition Date, the Additional Cut-Off Date, the approximate
number of accounts or other assets expected to be added and the
approximate aggregate balances expected to be outstanding in the
accounts or other assets to be added;
(ii) in the case of Additional Accounts, the Depositor shall have
delivered to the Trustee copies of UCC-1 financing statements covering
such Additional Accounts, if necessary to perfect the Trust's interest
in the Receivables arising therein;
(iii) in the case of Additional Accounts, to the extent required by
Section 4.03, the Depositor shall have deposited in the Collection
Account all Collections with respect to such Additional Accounts since
the Additional Cut-Off Date;
(iv) as of each of the Additional Cut-Off Date and the Addition
Date, no Insolvency Event with respect to the Depositor shall have
occurred nor shall the transfer of the Receivables arising in the
Additional Accounts or of the Participation Interests to the Trust have
been made in contemplation of the occurrence thereof;
(v) except in the case of a required addition pursuant to Section
2.09(a), the Depositor shall have received written notice from each
Rating Agency that such Addition will satisfy the Rating Agency
Condition and shall have delivered copies of each such written notice
to the Servicer and the Trustee and in the case of an Addition pursuant
to Section 2.09(a) which would exceed the Aggregate Addition Limit, the
Depositor shall have provided Standard & Poor's at least 15 days prior
written notice of such Addition
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and at or prior to the end of such 15-day period, the Depositor shall
not have received a notice in writing from Standard & Poor's that such
Addition will not satisfy the Rating Agency Condition;
(vi) the Depositor shall have delivered to the Trustee, each Rating
Agency and any Series Enhancer entitled thereto pursuant to the
relevant Supplement an Opinion of Counsel that for Federal income and
[ ] income and franchise tax purposes, such Addition will not cause a
taxable event to the holders of the Certificates;
(vii) the Depositor shall have delivered to the Trustee, each
Rating Agency and any Series Enhancer entitled thereto pursuant to the
relevant Supplement an Opinion of Counsel, dated the Addition Date, in
accordance with Section 13.02(d);
(viii) the Depositor shall have delivered to the Trustee and any
Series Enhancer entitled thereto pursuant to the relevant Supplement an
Officer's Certificate of the Depositor, dated the Addition Date, to the
effect that the Depositor reasonably believes that such Addition will
not, based on the facts known to such officer at the time of such
certification, then cause a Pay Out Event or any 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
(ix) within ten Business Days of the Addition Date, the Depositor
shall have delivered to the Trustee a written assignment and a computer
file or a microfiche list containing a true and complete list of the
related Additional Accounts or Participation Interests specifying for
each such Account its account number, the collection status, the
aggregate amount outstanding in such Account and the aggregate amount
of Principal Receivables outstanding in such Account or comparable
information in the case of Participation Interests.
(f) REPRESENTATIONS AND WARRANTIES. The Depositor hereby represents and
warrants to the Trust and the Trustee as of the related Addition Date as to the
matters relating to it set forth in paragraph (d)(iv) and (viii) above and that,
in the case of Additional Accounts, the file or list delivered pursuant to
paragraph (g) below is, as of the applicable Additional Cut-Off Date, true and
complete in all material respects.
[(g) ADDITIONAL DEPOSITORS. The Depositor may designate Affiliates of
the Depositor to be included as Depositors ("Additional Depositors") under this
Agreement by an amendment hereto pursuant to Section 13.01(a) and, in connection
with such designation, the Seller shall surrender the Depositor's Certificate to
the Trustee in exchange for a newly issued Depositor's Certificate modified to
reflect such Additional Depositor's interest in the Depositor's Interest;
provided, however, that prior to any such designation and exchange the
conditions set forth in Section 6.03(c) shall have been satisfied with respect
thereto.]
[(h) DELIVERY OF DOCUMENTS. In the case of the designation of
Additional Accounts, the Depositor shall deliver to the Trustee (i) the computer
file or microfiche list required to be
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delivered pursuant to Section 2.01 with respect to such Additional Accounts on
the applicable Document Delivery Date and (ii) a duly executed, written
Assignment (including an acceptance by the Trustee for the benefit of the
Certificateholders), substantially in the form of Exhibit B (the "Assignment"),
on the Document Delivery Date; and, in the case of an Addition of Participation
Interests, the Depositor shall deliver comparable information and documents with
respect to such Participation Interests, on the Document Delivery Date.]
Section 2.10. Removal of Accounts. (a) On any day of any Monthly Period
the Depositor shall have the right to require the reassignment to it or its
designee of all the Trust's right, title and interest in, to and under the
Receivables then existing and thereafter created, all moneys due or to become
due and all amounts received with respect thereto and all proceeds thereof in or
with respect to the Accounts owned and designated by the Depositor (the "Removed
Accounts"), upon satisfaction of the following conditions:
(i) on or before the fifth Business Day immediately preceding the
Removal Date (the "Removal Notice Date"), 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 removal and specifying the date for removal of the
Removed Accounts (the "Removal Date");
(ii) on or prior to the date that is 10 Business Days after the
Removal Date, the Depositor shall have amended Schedule 1 by delivering
to the Trustee a computer file or microfiche list containing a true and
complete list of the Removed Accounts specifying for each such Account,
as of the Removal Notice Date, its account number, the aggregate amount
outstanding in such Account and the aggregate amount of Principal
Receivables outstanding in such Account;
(iii) the Depositor shall have represented and warranted as of the
Removal Date that the list of Removed Accounts delivered pursuant to
paragraph (ii) above, as of the Removal Date, is true and complete in
all material respects and further, that no selection procedure was
utilized by the Depositor that would result in a selection of Removed
Accounts that would be materially adverse to the Certificate holders of
any Series as of the Removal Date;
(iv) the Depositor shall have received written notice from each
Rating Agency that such removal will satisfy the Rating Agency
Condition and shall have delivered copies of each such written notice
to the Servicer and the Trustee;
(v) the Depositor shall have delivered to the Trustee and any
Series Enhancer entitled thereto pursuant to the relevant Supplement an
Officer's Certificate of the Depositor, dated the Removal Date, to the
effect that the Depositor reasonably believes that such removal will
not, based on the facts known to such officer at the time of such
certification, then cause a Pay Out Event (or any 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
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(b) Notwithstanding Section 2.10(a) of this Agreement, on any day of
any Monthly Period the Depositor shall have the right to require the
reassignment to it or its designee of all the Trust's right, title and interest
in, to and under the Receivables then existing and thereafter created, all
moneys due or to become due and all amounts received with respect thereto and
all proceeds thereof in or with respect to the Accounts owned and designated by
the Depositor without the satisfaction of the conditions set forth in Section
2.10(a); provided, that, (i) on or before the Removal Notice Date, the Depositor
shall have given each Rating Agency written notice specifying the Removal Date,
(ii) the balance of all receivables included in such Accounts is reflected on
the books and records of the Depositor as "zero" and (iii) for the twelve
Monthly Periods preceding such designation, there have been no charges with
respect to such Accounts. For purposes of this Agreement, accounts designated by
the Depositor in accordance with this Section 2.09(b) shall constitute Removed
Accounts.
(c) Upon satisfaction of the above conditions, the Trustee shall
execute and deliver to the Depositor a written reassignment in substantially the
form of Exhibit C (the "Reassignment") and shall, without further action, be
deemed to sell, transfer, assign, set over and otherwise convey to the Depositor
or its designee, effective as of the Removal Date, without recourse,
representation or warranty, all the right, title and interest of the Trust in
and to the Receivables arising in the Removed Accounts and all proceeds thereof.
In addition, the Trustee shall execute such other documents and instruments of
transfer or assignment and take such other actions as shall reasonably be
requested by the Depositor to effect the conveyance of Receivables pursuant to
this Section.
Section 2.11. Account Allocations. In the event that the Depositor is
unable for any reason to transfer Receivables to the Trust in accordance with
the provisions of this Agreement, including by reason of the application of the
provisions of Section 9.02 or any binding order of any Governmental Authority (a
"Transfer Restriction Event"), then, in any such event, (a) the Depositor and
the Servicer agree (except as prohibited by any such order) to allocate and pay
to the Trust, after the date of such inability, all Collections, including
Collections of Receivables transferred to the Trust prior to the occurrence of
such event, and all amounts which would have constituted Collections but for the
Depositor's inability to transfer Receivables (up to an aggregate amount equal
to the amount of Receivables in the Trust on such date), (b) the Depositor and
the Servicer agree that such amounts will be applied as Collections in
accordance with Article IV and the terms of each Supplement and (c) for so long
as the allocation and application of all Collections and all amounts that would
have constituted Collections are made in accordance with clauses (a) and (b)
above, Principal Receivables and all amounts which would have constituted
Principal Receivables but for the Depositors's inability to transfer Receivables
to the Trust which are written off as uncollectible in accordance with this
Agreement shall continue to be allocated in accordance with Article IV and the
terms of each Supplement. For the purpose of the immediately preceding sentence,
the Depositor and the Servicer shall treat the first received Collections with
respect to the Accounts as allocable to the Trust until the Trust shall have
been allocated and paid Collections in an amount equal to the aggregate amount
of Principal Receivables in such Account as of the date of the occurrence of
such event. If the Depositor or the Servicer is unable pursuant to any
Requirements of Law to allocate Collections as described
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above, the Depositor and the Servicer agree that, after the occurrence of such
event, payments on each Account with respect to the principal balance of such
Account shall be allocated first to the oldest principal balance of such Account
and shall have such payments applied as Collections in accordance with Article
IV and the terms of each Supplement. The parties hereto agree that Finance
Charge Receivables, whenever created, accrued in respect of Principal
Receivables which have been conveyed to the Trust shall continue to be a part of
the Trust notwithstanding any cessation of the transfer of additional Principal
Receivables to the Trust and Collections with respect thereto shall continue to
be allocated and paid in accordance with Article IV and the terms of each
Supplement.
Section 2.12. Discount Option. (a) The Depositor shall have the option
to designate at any time a percentage, which may be a fixed percentage or a
variable percentage based on a formula (the "Discount Percentage"), of the
amount of Receivables arising in the Accounts on or after the date such
designation becomes effective that would otherwise constitute Principal
Receivables to be treated as Finance Charge Receivables ("Discount Option
Receivables"). The Depositor shall also have the option of reducing or
withdrawing the Discount Percentage, at any time and from time to time, on and
after the date such designation becomes effective. The Depositor shall provide
to the Servicer, the Trustee, any Series Enhancer and each Rating Agency 30 days
prior written notice of such designation (or reduction or withdrawal), and such
designation (or reduction or withdrawal) shall become effective on the date
designated therein only if (i) the Depositor shall have delivered to the Trustee
and each Series Enhancer entitled thereto pursuant to the relevant Supplement an
Officer's Certificate of the Depositor stating that the Depositor reasonably
believes that such designation (or reduction or withdrawal) will not, based on
the facts known to such officer at the time of such certification, then cause a
Pay Out Event (or any 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,
(ii) the Depositor shall have received written notice from each Rating Agency
that such designation (or reduction or withdrawal) will satisfy the Rating
Agency Condition and shall have delivered copies of each such written notice to
the Servicer and the Trustee and (iii) in the case of a reduction or withdrawal,
the Depositor shall have delivered to the Trustee an Officer's Certificate to
the effect that, in the reasonable belief of the Depositor, such reduction or
withdrawal shall not have adverse regulatory implications for the Depositor.
(b) On each Date of Processing after the date on which the Depositor's
exercise of its discount option takes effect, the Depositor shall, to the extent
required by Section 4.03,
(i) deposit into the Collection Account in immediately available
funds an amount equal to the product of (a) the aggregate Floating
Allocation Percentages with respect to all Series and (b) the aggregate
amount of the Discount Option Receivable Collections processed on such
day and (ii) pay to the Holder of the Depositor's Certificate the
balance of such Discount Option Receivables Collections. The deposit
made by the Depositor into the Collection Account under the preceding
sentence shall be considered a payment of such Discount Option
Receivables and shall be applied as Finance Charge Receivables in
accordance with Article IV and the terms of each Supplement.
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ARTICLE III
Administration and Servicing of Receivables
Section 3.01. Acceptance of Appointment and Other Matters Relating to
the Servicer. (a) [Servicer Name] agrees to act as the Servicer under this
Agreement and the Certificateholders by their acceptance of Certificates consent
to [Servicer Name] acting as Servicer.
(b) The Servicer shall service and administer the Receivables, shall
collect payments due under the Receivables and shall charge off as uncollectible
Receivables, all in accordance with its customary and usual servicing procedures
for servicing consumer credit card and other consumer revolving credit
receivables comparable to the Receivables and in accordance with the Lending
Guidelines. The Servicer shall have full power and authority, acting alone or
through any Person properly designated by it hereunder, to do any and all things
in connection with such servicing and administration which it may deem necessary
or desirable. Without limiting the generality of the foregoing, subject to
Section 10.01 and provided [Servicer Name] is the Servicer, the Servicer or its
designee (other than the Trustee) is hereby authorized and empowered (i) to make
withdrawals and payments or to instruct the Trustee to make withdrawals and
payments from the Collection Account and any Series Account, as set forth in
this Agreement or any Supplement, and (ii) to take any action required or
permitted under any Series Enhancement, as set forth in this Agreement or any
Supplement. Without limiting the generality of the foregoing and subject to
Section 10.01, the Servicer or its designee is hereby authorized and empowered
to make any filings, reports, notices, applications and registrations with, and
to seek any consents or authorizations from, the Securities and Exchange
Commission (the "Commission") and any state securities authority on behalf of
the Trust as may be necessary or advisable to comply with any Federal or state
securities laws or reporting requirements. The Trustee shall furnish, within a
reasonable period of time, the Servicer with any powers of attorney or other
documents requested by the Servicer and reasonably necessary or appropriate to
enable the Servicer to carry out its servicing and administrative duties
hereunder.
(c) The Servicer shall not be obligated to use servicing procedures,
offices, employees or accounts for servicing the Receivables separate from the
servicing procedures, offices, employees and accounts used by the Servicer in
connection with servicing other credit card and consumer revolving credit
receivables.
(d) The Servicer shall comply with and perform its servicing
obligations with respect to the Accounts and Receivables in accordance with the
Dealer FloorPlan Agreements, except insofar as any failure to so comply or
perform would not materially and adversely affect the Trust or the Investor
Certificateholders.
(e) The Servicer shall pay out of its own funds, without reimbursement,
all expenses incurred in connection with the Trust and the servicing activities
hereunder including expenses
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related to enforcement of the Receivables, fees and disbursements of the
Trustee, any Paying Agent and any Transfer Agent and Registrar (including the
reasonable fees and expenses of its counsel) in accordance with Section 11.05,
fees and disbursements of independent accountants and all other fees and
expenses, including the costs of filing UCC continuation statements and the
costs and expenses relating to obtaining and maintaining the listing of any
Investor Certificates on any stock exchange, that are not expressly stated in
this Agreement to be payable by the Trust or the Depositor (other than Federal,
state, local and foreign income, franchise and other taxes, if any, or any
interest or penalties with respect thereto, assessed on the Trust).
Section 3.02. Servicing Compensation. As full compensation for its
servicing activities hereunder and as reimbursement for any expense incurred by
it in connection therewith, the Servicer shall be entitled to receive a
servicing fee (the "Servicing Fee") with respect to each Monthly Period, payable
monthly on the related Distribution Date, in an amount equal to one-twelfth of
the product of (a) the weighted average of the Servicing Fee Rates with respect
to each outstanding Series (based upon the Servicing Fee Rate for each Series
and the outstanding Principal amount of each Series) and (b) the amount of
Principal Receivables on the last day of the prior Monthly Period. The share of
the Servicing Fee allocable to (i) the Certificateholders' Interest of a
particular Series with respect to any Monthly Period (the "Monthly Servicing
Fee") and (ii) the Enhancement Invested Amount, if any, of a particular Series
with respect to any Monthly Period will each be determined in accordance with
the relevant Supplement. The portion of the Servicing Fee with respect to any
Monthly Period not so allocated to the Certificateholders' Interest or the
Enhancement Invested Amount, if any, of a particular Series shall be paid by the
Depositor or the related Distribution Date and in no event shall the Trust, the
Trustee, the Investor Certificateholders of any Series or any Series Enhancer be
liable for the share of the Servicing Fee with respect to any Monthly Period to
be paid by the Depositor.
Section 3.03. Representations, Warranties and Covenants of the
Servicer. [Servicer Name], as initial Servicer, hereby makes, and any Successor
Servicer by its appointment hereunder shall make, on each Closing Date (and on
the date of any such appointment), the following representations, warranties and
covenants:
(a) ORGANIZATION AND GOOD STANDING. The Servicer is a state banking
corporation, a state banking association, a national banking association or a
corporation validly existing under the laws of its jurisdiction of incorporation
and has, in all material respects, full power and authority to execute, deliver
and perform its obligations under this Agreement and each Supplement and to own
its properties and conduct its consumer revolving lending business as such
properties are presently owned and as such business is presently conducted.
(b) DUE QUALIFICATION. The Servicer is duly qualified to do business
and is in good standing as a foreign corporation (or is exempt form such
requirements), and has obtained all necessary licenses and approvals in each
jurisdiction in which the servicing of the Receivables as required by the
Agreement requires such qualification except where failure to so qualify or to
obtain such licenses and approvals should not have a material adverse effect on
its ability to perform its obligation hereunder or under any Supplement.
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(c) DUE AUTHORIZATION. The execution, delivery, and performance of this
Agreement, each Supplement and the other agreements and instruments executed or
to be executed by the Servicer as contemplated hereby, have been duly authorized
by the Servicer by all necessary corporate action on the part of the Servicer
and this Agreement and each Supplement will remain, from the time of its
execution, an official record of the Servicer.
(d) BINDING OBLIGATION. This Agreement and each Supplement constitutes
a legal, valid and binding obligation of the Servicer, enforceable against the
Servicer in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship or other similar laws now or hereinafter in effect, affecting
the enforcement of creditors' rights in general and, if applicable, the rights
of creditors of state banking corporations, state banking associations or
national banking associations, and except as such enforceability may be limited
by general principles of equity (whether considered in a suit at law or in
equity).
(e) NO CONFLICT AND NO VIOLATION. The execution and delivery of this
Agreement and each Supplement by the Servicer, and the performance of the
transactions contemplated by this Agreement and each Supplement and the
fulfillment of the terms hereof and thereof applicable to the Servicer, will not
conflict with or violate or result in any breach of, or constitute (with or
without notice or lapse of time or both) a material default under, any material
indenture, contract, agreement, mortgage, deed of trust or other instrument to
which the Servicer is a party or by which it or any of its properties are bound.
The execution and delivery of this Agreement by the Servicer, the performance by
the Servicer of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof applicable to the Servicer will not conflict
with or violate any Requirements of Law applicable to the Servicer.
(f) NO PROCEEDINGS. There are no proceedings or investigations pending
or, to the best knowledge of the Servicer, threatened against the Servicer
before any Governmental Authority seeking to prevent the issuance of the
Certificates or the consummation of any of the transactions contemplated by this
Agreement or any Supplement, or seeking any determination or ruling that, in the
reasonable judgement of the Servicer would materially and adversely affect the
performance by the Servicer of its obligations under this Agreement or any
Supplement.
(g) COMPLIANCE WITH REQUIREMENTS OF LAW. The Servicer shall duly
satisfy all obligations on its part to be fulfilled under or in connection with
the Receivables, will maintain in effect all qualifications required under
Requirements of Law in order to properly service the Receivables and the related
Accounts and will comply in all material respects with all other Requirements of
Law in connection with servicing the Receivables and the related Accounts, the
failure to comply with which would have a material adverse effect on the
interests of the Certificateholders.
(h) NO RESCISSION OR CANCELLATION. The Servicer shall not permit any
rescission or cancellation of a Receivable except as ordered by a court of
competent jurisdiction or other Governmental Authority or in accordance with the
Lending Guidelines.
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(i) PROTECTION OF CERTIFICATEHOLDERS' RIGHTS. The Servicer shall take
no action which, nor omit to take any action the omission of which, would
substantially impair the rights of Certificateholders in any Receivable or
Account, nor shall it, except in the ordinary course of its business and in
accordance with the Lending Guidelines, reschedule, revise or defer Collections
due on the Receivables.
(j) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES. The Servicer
will take no action to cause or permit any Receivable to be evidenced by any
instrument or chattel paper (as defined in the UCC) and, if any Receivable is so
evidenced it shall be deemed to be an Ineligible Receivable and shall be
reassigned or assigned to the Servicer as provided in this Section; provided,
however, that Receivables evidenced by notes taken from Obligors in the ordinary
course of the Servicer's collection efforts shall not be deemed Ineligible
Receivables solely as a result thereof.
(k) ALL CONSENTS. All approvals, authorizations, consents, orders or
other actions of any Person or of any Governmental Authority required to be
obtained by the Servicer in connection with the execution and delivery by the
Servicer of this Agreement and each Supplement, the performance by the Servicer
of the transactions contemplated by this Agreement and each Supplement and the
fulfillment by the Servicer of the terms hereof and thereof, have been obtained.
For purposes of the representation and warranties set forth in this
Section 3.03, each reference to a Supplement shall be deemed to refer only to
those Supplements in effect as of the relevant Closing Date or the date of
appointment of a Successor Servicer, as applicable.
In the event any of the representations, warranties or covenants of the
Servicer contained in paragraph (g), (h), (i) or (j) with respect to any
Receivable or the related Account is breached, and such breach has a material
adverse effect on the Certificateholders' Interest of all Series in the
Receivables (which determination shall be made without regard to the
availability of funds under any Series Enhancement) and remains uncured for 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 breach is capable of remedy
within 150 days or less and the Servicer delivers an Officer's Certificate to
the Trustee to the effect that the Servicer has commenced, or will promptly
commence and diligently pursue, all reasonable efforts to remedy such breach)
from the earlier to occur of the discovery of such event by the Servicer, or
receipt by the Servicer of written notice of such event given by the Trustee,
all Receivables in the Account or Accounts to which such event relates shall be
reassigned or assigned to the Servicer on the terms and conditions set forth
below; provided, however, that such Receivables will not be reassigned or
assigned to the Servicer if, on any day prior to the end of such 60-day or
longer period, (i) the relevant representation and warranty shall be true and
correct, or the relevant covenant shall have been complied with, in all material
respects and (ii) the Servicer shall have delivered to the Trustee an Officer's
Certificate describing the nature of such breach and the manner in which such
breach was cured.
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If [Servicer Name] is the Servicer, such reassignment or assignment
shall be accomplished in the manner set forth in Section 2.05(b) as if the
reassigned or assigned Receivables were Ineligible Receivables (including the
requirement, if applicable, to reduce the aggregate amount of Principal
Receivables used to calculate the Depositor's Amount, the Depositor's Interest,
the Floating Allocation Percentage and the Principal Allocation Percentage
applicable to any Series and to make deposits into the Excess Funding Account
and the Collection Account) and any amounts deposited into the Excess Funding
Account and the Collection Account in connection with such reassignment or
assignment pursuant to this Section shall be considered a Transfer Deposit
Amount and shall be applied in accordance with Article IV and the terms of each
Supplement. If [Servicer Name] is not the Servicer, the Servicer shall effect
such assignment by making a deposit into the Excess Funding Account and the
Collection Account in immediately available funds on the Transfer Date following
the Monthly Period in which such assignment obligation arises in an amount equal
to the amount of such Receivables, which deposit shall be considered a Transfer
Deposit Amount and shall be applied in accordance with Article IV and the terms
of each Supplement.
Upon each such reassignment or assignment to the Servicer, the Trustee
on behalf of the Trust, shall automatically and without further action be deemed
to sell, transfer, assign, set over and otherwise convey to the Servicer,
without recourse, representation or warranty, all right, title and interest of
the Trust in and to such Receivables, all moneys due to become due and all
amounts received with respect thereto and all proceeds thereof. The Trustee
shall execute such documents and instruments of transfer or assignment and take
such other actions as shall be reasonably requested by the Servicer to effect
the transfer of any such Receivables pursuant to this Section. The obligation of
the Servicer to accept reassignment or assignment and transfer of any such
Receivables, and to make the deposits, if any, required to be made to the
Collection Account as provided in the preceding paragraph, shall constitute the
sole remedy respecting the event giving rise to such obligation available to
Investor Certificateholders (or the Trustee on behalf of Certificateholders) or
any Series Enhancer, except as provided in Section 8.04.
Section 3.04. Reports and Records for the Trustee.
(a) DAILY OR MONTHLY RECORDS. On each day on which the Servicer is
required to make deposits in the Collection Account pursuant to Section 4.03,
the Servicer shall make or cause to be made available at the office of the
Servicer during normal business hours for inspection by the Trustee upon request
a record setting forth (i) the Collections in respect of Principal Receivables
and in respect of Finance Charge Receivables processed by the Servicer on the
second preceding Business Day in respect of the Accounts and (ii) the amount of
Receivables as of the close of business on the second preceding Business Day in
each Account. The Servicer shall, at all times, maintain its computer files with
respect to the Accounts in such a manner so that the Accounts may be
specifically identified and shall make available to the Trustee at the office of
the Servicer on any Business Day during normal business hours any computer
programs necessary to make such identification.
(b) MONTHLY SERVICER'S CERTIFICATE. Not later than the third Business
Day preceding each Distribution Date, the Servicer shall, with respect to each
outstanding Series, deliver to the
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Trustee, the Paying Agent, each Rating Agency and each Series Enhancer entitled
thereto pursuant to the relevant Supplement a certificate of a Servicing Officer
in substantially the form set forth in the related Supplement.
(c) Reserved
(d) ADDITION DISCOUNT RECEIVABLES. On or prior to each Determination
Date, the Servicer shall deliver to the Trustee a certificate of a Servicing
Officer setting forth (or shall set forth in the Monthly Servicer's Certificate)
(a) the amount of Addition Discount Receivables to be included as Collection of
Finance charge Receivables with respect to the preceding Monthly Period, as
calculated in accordance with the formula set forth in the applicable Assignment
of Receivables in Additional Accounts or accretion designation letter delivered
to the Trustee and (b) the portion of such Addition Discount Receivables which
have not been treated as Collections of Finance Charge Receivables with respect
to the preceding Monthly Period.
Section 3.05. Annual Certificate of Servicer. The Servicer shall
deliver to the Trustee, each Rating Agency and each Series Enhancer entitled
thereto pursuant to the relevant Supplement, on or before May 31 of each
calendar year, commencing in 19[ ], an Officer's Certificate (with appropriate
insertions) substantially in the form of Exhibit D.
Section 3.06.Annual Servicing Report of Independent Public Accountants;
Copies of Reports Available. (a) On or before May 31 of each calendar year,
commencing in 19[ ], the Servicer shall cause a firm of nationally recognized
independent public accountants (who may also render other services to the
Servicer or the Depositor) to furnish a report (addressed to the Trustee) to the
Trustee, the Servicer and each Rating Agency to the effect that they have
examined certain documents and records relating to the servicing of Accounts
under this Agreement and each Supplement and compared the information contained
in the Servicer's certificates delivered pursuant to Section 3.04(b) during the
period covered by such report with such documents and records and that, on the
basis of such examination, nothing has come to the attention of such accountants
that caused them to believe that the servicing has not been conducted in
compliance with the terms and conditions set forth in Sections 3.02, 3.04, 3.09,
4.02, 4.03, 4.04, 4.05 and 8.08 of this Agreement and the applicable provisions
of each Supplement, except for such exceptions as they believe to be immaterial
and such other exceptions as shall be set forth in such statement. A copy of
such report shall be delivered by the Servicer to each Series Enhancer entitled
thereto pursuant to the relevant Supplement.
(b) On or before May 31 of each calendar year, commencing in 19[ ], the
Servicer shall cause a firm of nationally recognized independent public accounts
(who may also render other services to the Servicer or the Depositor) to furnish
a report to the Trustee, the Servicer and each Rating Agency to the effect that
they have applied certain procedures agreed upon with the Servicer to compare
the mathematical calculations of certain amounts set forth in the Servicer's
certificates delivered pursuant to Section 3.04(b) during the period covered by
such report with the Servicer's computer reports which were the source of such
amounts and that on the basis of such agreed upon procedures and comparison,
nothing has come to the attention of such accountants that caused them to
believe that such amounts are not in agreement, except for such
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exceptions as they believe to be immaterial and such other exceptions as shall
be set forth in such statement. A copy of such report shall be delivered by the
Servicer to each Series Enhancer entitled thereto pursuant to the relevant
Supplement.
(c) A copy of each certificate and report provided pursuant to Section
3.04(b), 3.05 or 3.06 may be obtained by any Investor Certificateholder or
Certificate Owner (at the reasonable expense of such Certificate Owner who can
establish ownership interest in the Trust) by a request to the Trustee addressed
to the Corporate Trust Office.
Section 3.07. Tax Treatment. The Depositor has entered into this
Agreement, and the Certificates will be issued, with the intention that, for
Federal, state and local income and franchise tax purposes only, the Investor
Certificates of each Series which are characterized as indebtedness at the time
of their issuance will qualify as indebtedness of the Depositor secured by the
Receivables. The Depositor, by entering into this Agreement, and each
Certificateholder, by the acceptance of any such Certificate (and each
Certificate Owner, by its acceptance of an interest in the applicable
Certificate), agree to treat such Investor Certificates for Federal, state and
local income and franchise tax purposes as indebtedness of the Depositor.
Section 3.08. Notices to the [Servicer Name]. In the event that
[Servicer Name] is no longer acting as Servicer, any Successor Servicer shall
deliver to [Servicer Name] each certificate and report required to be provided
thereafter pursuant to Section 3.04(b), 3.05 or 3.06.
Section 3.09. Adjustments. (a) If the Servicer adjusts downward the
amount of any Principal Receivable (other than any Ineligible Receivable to be
reassigned or assigned to the Depositor or the Servicer pursuant to this
Agreement) because of a rebate, refund, unauthorized charge or billing error to
an accountholder, or because such Principal Receivable was created in respect of
merchandise which was refused or returned by an accountholder, or if the
Servicer otherwise adjusts downward the amount of any Principal Receivable
without receiving Collections therefor or charging off such amount as
uncollectible, then, in any such case, the amount of Principal Receivables used
to calculate the Depositor's Amount, the Depositor's Interest and the Floating
Allocation Percentage and the Principal Allocation Percentage applicable to any
Series will be reduced by the amount of the adjustment. Similarly, the amount of
Principal Receivables used to calculate the Depositor's Amount, the Depositor's
Interest and the Floating Allocation Percentage and the Principal Allocation
Percentage applicable to any Series will be reduced by the amount of any
Principal Receivable which was discovered as having been created through a
fraudulent or counterfeit charge. Any adjustment required pursuant to either of
the two preceding sentences shall be made on or prior to the end of the Monthly
Period in which such adjustment obligation arises. In the event that, following
the exclusion of such Principal Receivables from the calculation of the
Depositor's Amount, the Depositor's Amount would be a negative number, not later
than 12:00 noon, New York City time, on the Transfer Date immediately preceding
the Distribution date following the Monthly Period in which such adjustment
obligation arises, the Depositor shall make a deposit into the Collection
Account in immediately available funds in an amount equal to the amount by which
the Depositor's Amount would be below zero (up to the amount of such Principal
Receivables). Any amount deposited into the Collection Account pursuant to the
preceding sentence shall be
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considered an "Adjustment Payment" and shall be applied in accordance with
Article IV and the terms of each Supplement.
(b) If (i) the Servicer makes a deposit into the collection Account in
respect of a Collection of a Receivable and such Collection was received by the
Servicer in the form of a check which is not honored for any reason or (ii) the
Servicer makes a mistake with respect to the amount of any Collection and
deposits an amount that is less than or more than the actual amount of such
Collection, the Servicer shall appropriately adjust the amount subsequently
deposited in to the Collection Account to reflect such dishonored check or
mistake. Any Receivable in respect of which a dishonored check is received shall
be deemed not to have been paid.
Section 3.10. Reports to the Commission. The Servicer shall, on behalf
of the Trust, cause to be prepared and filed with the Commission any periodic
reports required to be filed under the provisions of the Exchange Act and the
rules and regulations of the Commission thereunder. The Depositor, if [Servicer
Name] is not the Servicer, shall, at the expense of the Servicer, cooperate in
any reasonable request of the Servicer in connection with such filings.
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ARTICLE IV
Rights of Certificateholders and
Allocation and Application of Collections
Section 4.01. Rights of Certificateholders. The Investor Certificates
shall represent fractional undivided interests in the Trust, which, with respect
to each Series, shall consist of the right to receive, to the extent necessary
to make the required payments with respect to such Series at the times and in
the amounts specified in the related Supplement, the portion of Collections
allocable to such Series pursuant to this Agreement and such Supplement, funds
on deposit in the Collection Account or the Excess Funding Account allocable to
such Series pursuant to this Agreement and such Supplement, funds on deposit in
any related Series Account and funds available pursuant to any related Series
Enhancement (collectively, with respect to all Series, the "Certificateholders'
Interest"), it being understood that the Investor Certificates of any Series or
Class shall not represent any interest in any Series Account or Series
Enhancement for the benefit of any other Series or Class. The Depositor's
Certificate shall represent the ownership interest in the remainder of the Trust
Assets not allocated pursuant to this Agreement or any Supplement to the
Certificateholders' Interest including the right to receive Collections with
respect to the Receivables and other amounts at the times and in the amounts
specified in this Agreement or any Supplement to be paid to the Depositor on
behalf of all holders of the Depositor's Certificate (the "Depositor's
Interest"); provided, however, that the Depositor's Certificate shall not
represent any interest in the Collection Account, the Excess Funding Account,
any Series Account or any Series Enhancement, except as specifically provided in
this Agreement or any Supplement; provided further that the foregoing shall not
be construed to limit the Trustee's obligations to make payments to the
Depositor and the Servicer as and when required under this Agreement and any
Supplement.
Section 4.02. Establishment of Collection Account and Excess Funding
Account. The Servicer, for the benefit of the Certificateholders, shall
establish and maintain in the name of the Trustee, on behalf of the Trust, an
Eligible Deposit Account bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders (the
"Collection Account"). The Collection Account shall initially be established
with [Servicer Name]. The Trustee shall possess all right, title and interest in
all funds on deposit from time to time in the Collection Account and in all
proceeds thereof. The Collection Account shall be under the sole dominion and
control of the Trustee for the benefit of the Certificateholders. Except as
expressly provided in this Agreement, the Servicer agrees that it shall have no
right of setoff or banker's lien against, and no right to otherwise deduct from,
any funds held in the Collection Account for any amount owed to it by the
Trustee, the Trust, any Certificateholder or any Series Enhancer. 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, as to which each Rating Agency
may consent) establish a new Collection Account meeting the conditions specified
above, transfer any cash and/or
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investments to such new collection account and from the date such new Collection
Account is established, it shall be the "Collection Account".
Unless otherwise agreed by each Rating Agency, if at any time neither
[Servicer Name] nor any other Affiliate of [Servicer Name] is the Servicer, the
Collection Account will be moved from [Servicer Name] if then maintained there.
Funds on deposit in the Collection Account (other than amounts
deposited pursuant to Section 2.06, 9.02, 10.01 or 12.02) shall at the direction
of the Servicer be invested by the Trustee in Eligible Investments selected by
the Servicer. Notwithstanding any other provision herein to the contrary, for
purposes of the investment of funds in the Collection Account (but only in an
amount up to 20% of the outstanding principal balance of each Series outstanding
as of the dates of investment), "highest investment category" as used in the
definition of "Eligible Investments" shall mean, in the case of Standard &
Poor's, A-1, A-1+, AAA, AAAm or AAAm-G. All such Eligible Investments shall be
held by the Trustee for the benefit of the Certificateholders. The Trustee or
its custodian shall maintain for the benefit of the Certificateholders
possession of the negotiable instruments or securities, if any, evidencing such
Eligible Investments. Investments of funds representing Collections collected
during any Monthly Period shall be invested in Eligible Investments that will
mature so that all funds will be available at the close of business on the
Transfer Date following such Monthly Period. No Eligible Investment shall be
disposed of prior to its maturity; provided, however, that the Trustee may sell,
liquidate or dispose of an Eligible Investment before its maturity, if so
directed by the Servicer, the Servicer having reasonably determined that the
interests of the Investor Certificateholders may be adversely affected if such
Eligible Investment is held to its maturity. Unless directed by the Servicer,
funds deposited in the Collection Account on a Transfer Date with respect to the
next following Distribution Date are not required to be invested overnight. On
each Distribution Date, all interest and other investment earnings (net of
losses and investment expenses) on funds on deposit in the Collection Account
shall be paid to or at the direction of the Depositor, except as otherwise
specified in any Supplement. For purposes of determining the availability of
funds or the balances in the Collection Account for any reason under this
Agreement, all investment earnings' net of investment expenses and losses on
such funds shall be deemed not to be available or on deposit.
The Servicer, for the benefit of the Certificateholders, shall
establish and maintain in the name of the Trustee, on behalf of the Trust, an
Eligible Deposit Account bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Certificateholders (the
"Excess Funding Account"). The Excess Funding Account will initially be
established with [Servicer Name]. The Trustee shall possess all right, title and
interest in all funds on deposit from time to time in the Excess Funding Account
and in all proceeds thereof. The Excess Funding Account shall be under the sole
dominion and control of the Trustee for the benefit of the Certificateholders.
Except as expressly provided in this Agreement, the Servicer agrees that it
shall have no right of setoff or banker's lien against, and no right to
otherwise deduct from, any funds held in the Excess Funding Account for any
amount owed to it by the Trustee, the Trust, any Certificateholder or any Series
Enhancer. If, at any time, the Excess Funding Account ceases to be an Eligible
Deposit Account, the Trustee (or the Servicer on its behalf) shall within 10
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Business Days (or such longer period, not to exceed 30 calendar days, as to
which each Rating Agency may consent) establish a new Excess Funding Account
meeting the conditions specified above, transfer any cash and/or any investment
to such new Excess Funding Account and from the date such new Excess Funding
Account is established, it shall be the "Excess Funding Account".
Unless otherwise agreed by each Rating Agency, if at any time neither
[Servicer Name] nor any other Affiliate of [Servicer Name] is the Servicer, the
Excess Funding Account will be moved from [Servicer Name] if then maintained
there. Funds on deposit in the Excess Funding Account shall at the direction of
the Servicer be invested by the Trustee in Eligible Investments selected by the
Servicer. All such Eligible Investments shall be held by the Trustee for the
benefit of the Certificateholders. The Trustee or its custodian shall maintain
for the benefit of the Certificateholders possession of the negotiable
instruments or securities, if any, evidencing such Eligible Investments. Funds
on deposit in the Excess Funding Account on any Distribution Date will be
invested in Eligible Investments that will mature so that all funds will be
available at the close of business on the Transfer Date following such Monthly
Period. No Eligible Investment shall be disposed of prior to its maturity;
provided, however, that the Trustee may sell, liquidate or dispose of an
Eligible Investment before its maturity, if so directed by the Servicer, the
Servicer having reasonably determined that the interests of the Investor
Certificateholders may be adversely affected if such Eligible Investment is held
to its maturity. Unless directed by the Servicer, funds deposited in the Excess
Funding Account on a Transfer Date with respect to the next following
Distribution Date are not required to be invested overnight. On each
Distribution Date, all interest and other investment earnings (net of losses and
investment expenses) on funds on deposit in the Excess Funding Account shall be
treated as Collections of Finance Charge Receivables with respect to the last
day of the related Monthly Period. Funds on deposit in the Excess Funding
Account will be withdrawn and paid to the Depositor on any Distribution Date to
the extent the (i) the Depositor's Amount exceeds the Required Depositor's
Interest and (ii) the Required Principal Balance (as defined in any Series
Supplement) is less than the aggregate amount of Principal Receivables
(determined after giving effect to any Principal Receivables transferred to the
Trust on such date); provided, however, that, if an Accumulation Period,
Controlled Amortization Period or Rapid Amortization Period has commenced and is
continuing with respect to one or more outstanding Series, any funds on deposit
in the Excess Funding Account shall be treated as Shared Principal Collections
and shall be allocated and distributed in accordance with Section 4.04 and the
terms of the Supplements for the Principal Sharing Series. For purposes of
determining the availability of funds or the balances in the Excess Funding
Account for any reason under this Agreement, all investment earnings' net of
investment expenses and losses on such funds shall be deemed not to be available
or on deposit.
Section 4.03. Collections and Allocations. (a) The Servicer will apply
or will instruct the Trustee to apply all funds on deposit in the Collection
Account as described in this Article IV and in each Supplement. Except as
otherwise provided below, the Servicer shall deposit Collections into the
Collection Account no later than the second Business Day following the Date of
Processing of such Collections, on each Distribution Date. Subject to the
express terms of any Supplement, but notwithstanding anything else in this
Agreement to the contrary, for so long as [Servicer Name] remains the Servicer
and (x) maintains a certificate of deposit rating of
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A-1 or better by Standard & Poor's and P-1 by Moody's, or (y) [Servicer Name]
has provided to the Trustee a letter of credit covering collection risk of the
Servicer acceptable to each Rating Agency (as evidenced by a letter from each
Rating Agency), the Servicer need not make the daily deposits of Collections
into the Collection Account as provided in the preceding sentence, but may make
a single deposit in the Collection Account in immediately available funds not
later than 12:00 noon, New York City time, on the Transfer Date immediately
preceding each Distribution Date. Subject to the first provision Section 4.04,
but notwithstanding anything else in this Agreement to the contrary, with
respect to any Monthly Period, whether the Servicer is required to make deposits
of Collections pursuant to the first or the second preceding sentence, (i) the
Servicer will only be required to deposit Collections into the Collection
Account up to the aggregate amount of Collections required to be deposited into
any Series Account or, without duplication, distributed on or prior to the
related Distribution Date to Investor Certificateholders or to any Series
Enhancer pursuant to the terms of any Supplement or Enhancement Agreement and
(ii) if at any time prior to such Distribution, Date the amount of Collections
deposited in the Collection Account exceeds the amount required to be deposited
pursuant to clause (i) above, the Servicer will be permitted to withdraw the
excess from the Collection Account.
(b) (i) Collections of Finance Charge Receivables will be allocated to
the Certificateholders' Interest of a Series in an amount equal to the product
of the amount of such Collections and the Floating Allocation Percentage of such
Series, (ii) the Defaulted Amount will be allocated to the Certificateholders'
Interest of a Series in an amount equal to the product of such Defaulted Amount
and the Floating Allocation Percentage of such Series, (iii) Collections of
Principal Receivables will be allocated to the Certificateholders' Interest of
such Series in an amount equal to the product of the amount of such Collections
and the Principal Allocation Percentage of such Series and (iv) Miscellaneous
Payments will be allocated to the Certificateholders' Interest of such Series in
an amount equal to the product of the amount of such Miscellaneous Payments and
a fraction the numerator of which is the Invested Amount and Enhancement
Invested Amount, if any, of such Series and the denominator of which is the sum
of the Invested Amounts and the Enhancement Invested Amount, if any, for all
outstanding Series, in each case for such Monthly Period. Subject to Sections
4.03(c) and 4.04, amounts not allocated to the Certificateholders' Interest of
any Series will be allocated to the Depositor's Interest.
(c) On the earlier of (A) the second Business Day after the Date of
Processing and (b) the day on which the Servicer actually deposits any
Collections into the Collection Account, the Servicer will pay to the Depositor
(i) the Depositor's allocable portion of Collections of Finance Charge
Receivables and (ii) the Depositor's allocable portion of Collections of
Principal Receivables; provided, however, that, in the case of Collections of
Principal Receivables allocated to the Depositor's Interest and any Shared
Principal Collections that would otherwise be paid to the Depositor pursuant to
Section 4.04, such amounts shall be paid to the Depositor only if the
Depositor's Amount (determined after giving effect to any Principal Receivables
transferred to the Trust on such date) exceeds zero. The amount held in the
Collection Account as a result of the proviso in the preceding sentence
("Unallocated Principal Collections") shall be paid to the Depositor at the time
the Depositor's Amount exceeds zero; provided, however, that any Unallocated
Principal Collections on deposit in the Collection Account at any time during
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which any Principal Sharing Series is in its Accumulation Period, Amortization
Period or Rapid Amortization Period shall be deemed to be Shared Principal
Collections and shall be allocated and distributed in accordance with Section
4.04 and the terms of each Supplement.
The payments to be made to the Depositor pursuant to this Section
4.03(c) do not apply to deposits to the Collection Account or other amounts that
do not represent Collections, including Miscellaneous Payments, payment of the
purchase price for Receivables pursuant to Section 2.06 or 10.01, proceeds from
the sale, disposition or liquidation of Receivables pursuant to Section 9.02 or
12.02 or payment of the purchase price for the Certificateholders' Interest of a
specific Series pursuant to the related Supplement.
(d) If the Depositor so designates, the Principal Receivables in
Additional Accounts added during any Monthly Period having an Additional Cut-Off
Date as of any day during the preceding Monthly Period shall be treated as
Principal Receivables outstanding on and after such Additional Cut-Off Date for
purposes of calculating the Floating Allocation Percentage and Principal
Allocation Percentage for the Monthly Period in which such Additional Accounts
are added. Any such recalculation of the Floating Allocation Percentage and
Principal Allocation Percentage for a Monthly Period shall be effective only on
and after the Addition Date, but the Servicer shall determine the amounts of
Collections and the Defaulted Amounts which would have been allocated to the
Certificateholders' Interest of each Series for the portion of such Monthly
Period preceding such Addition Date as if such recalculated Floating Allocation
Percentage and Principal Allocation Percentage had been in effect and shall
adjust the amounts to be allocated for the remainder of such Monthly Period so
that the amounts allocated to the Certificateholders' Interest of each Series
and the Depositor's Interest are equal to the amounts which would have been
allocated to them if such recalculated percentages had been in effect for the
entire Monthly Period.
Section 4.04. Shared Principal Collections. On each Distribution Date,
(a) the Servicer shall allocate Shared Principal Collections to each Principal
Sharing Series, pro rata, in proportion to the Principal Shortfalls, if any,
with respect to each such Series and (b) the Servicer shall withdraw from the
Collection Account or the Excess Funding Account and pay to the Depositor an
amount equal to the excess, if any, of (x) the aggregate amount for all
outstanding Series of Collections of Principal Receivables and Miscellaneous
Payments which the related Supplements or this Agreement specify are to be
treated as "Shared Principal Collections" for such Distribution Date over (y)
the aggregate amount for all outstanding Principal Sharing Series which the
related Supplements specify are "Principal Shortfalls" for such Distribution
Date; provided, however, that, if, on any Distribution Date, either (i) the
Depositor's Amount (determined after giving effect to any Principal Receivables
transferred to the Trust on such date) is less than or equal to the Required
Depositor's Interest, or (ii) the aggregate amount of Principal Receivables in
the Trust (determined after giving effect to any Principal Receivables
transferred to the Trust on such date) is less than the Required Principal
Balance, the Servicer will not distribute to the Depositor any Shared Principal
Collections then on deposit in the Collection Account that otherwise would be
distributed to the Depositor, but shall deposit such funds in the Excess Funding
Account.
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Section 4.05. Excess Finance Charges. On each Distribution Date, (a)
the Servicer shall allocate Excess Finance Charges with respect to the Series in
a Group to each Series in such Group, pro rata, in proportion to the Finance
Charge Shortfalls, if any, with respect to each such Series and (b) the Servicer
shall withdraw (or shall instruct the Trustee to withdraw) from the Collection
Account and pay to the Depositor an amount equal to the excess, if any, of (x)
the aggregate amount for all outstanding Series in a Group of the amounts which
the related Supplements specify are to be treated as "Excess Finance Charges"
for such Distribution Date over (y) the aggregate amount for all outstanding
Series in such Group which the related Supplements specify are "Finance Charge
Shortfalls" for such Distribution Date; provided, however, that, if, on any
Distribution Date, either (i) the Depositor's Amount for such Distribution Date
(determined after giving effect to any Principal Receivables transferred to the
Trust on such date and Shared Principal Collections deposited in the Excess
Funding Account on such date) is less than or equal to the Required Depositor's
Interest, or (ii) the aggregate amount of Principal Receivables in the Trust
(determined after giving effect to any Principal Receivables transferred to the
Trust on such date and any Shared Principal Collections deposited in the Excess
Funding Account on such Date) is less than the Required Principal Balance, the
Servicer will not distribute to the Depositor any Excess Finance Charges then on
deposit in the Collection Account that otherwise would be distributed to the
Depositor, but shall deposit such funds in the Excess Funding Account; provided
further, however, that the sharing of Excess Finance Charges among Series in a
Group will continue only until such time, if any, at which the Depositor shall
deliver to the Trustee an Officer's Certificate to the effect that, in the
reasonable belief of the Depositor, the continued sharing of Excess Finance
Charges among Series in any Group would have adverse regulatory implications
with respect to the Depositor. Following the delivery by the Depositor of such
an Officer's Certificate to the Trustee there will not be any further sharing of
Excess Finance Charges among Series in any Group.
ARTICLE V
Distributions and Reports to Certificateholders
Distributions shall be made to, and reports shall be provided to,
Certificateholders as set forth in the applicable Supplement.
ARTICLE VI
The Certificates
Section 6.01. The Certificates. The Investor Certificates of any Series
or Class may be issued in bearer form ("Bearer Certificates") with attached
interest coupons and any other applicable coupon (collectively, the "Coupons")
or in fully registered form ("Registered Certificates") and shall be
substantially in the form of the exhibits with respect thereto attached
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to the applicable Supplement. The Depositor's Certificate will be issued in
registered form, substantially in the form of Exhibit A and shall upon issue, be
executed and delivered by the Depositor to the Trustee for authentication and
redelivery as provided in Section 6.02. Except as otherwise provided in Section
6.03 or in any Supplement, Bearer Certificates shall be issued in minimum
denominations of $1,000 and Registered Certificates shall be issued in minimum
denominations of $1,000 and, in each case, in integral multiples of $1,000 in
excess thereof. If specified in any Supplement, the Investor Certificates of any
Series or Class shall be issued upon initial issuance as a single certificate
evidencing the aggregate original principal amount of such Series or Class as
described in Section 6.13. The Depositor's Certificate shall be a single
certificate and shall initially represent the entire Depositor's Interest. Each
Certificate shall be executed by manual or facsimile signature of behalf of the
Depositor by its respective President or any Vice President. Certificates
bearing the manual or facsimile signature on an individual who was, at the time
when such signature was affixed, authorized to sign on behalf of the Depositor
shall not be rendered invalid, notwithstanding that such individual ceased to be
so authorized prior to the authentication and delivery of such Certificates or
does not hold such office at the date of such Certificates. 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 or on
behalf of the Trustee by the manual signature of a duly authorized signatory,
and such certificate upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly authenticated and delivered
hereunder. Bearer Certificates shall be dated the Series Issuance Date. All
Registered Certificates and the Depositor's Certificate shall be dated the date
of their authentication.
Section 6.02. Authentication of Certificates. The Trustee shall
authenticate and deliver the Investor Certificates of each Series and Class that
are issued upon original issuance to or upon the order of the Depositor against
payment to the Depositor of the purchase price therefor. The Trustee shall
authenticate and deliver the Depositor's Certificate to the Depositor
simultaneously with its delivery of the Investor Certificates of the first
Series to be issued hereunder. If specified in the related Supplement for any
Series or Class, the Trustee shall authenticate and deliver outside the United
States the Global Certificate that is issued upon original issuance thereof.
Section 6.03. New Issuances. (a) The Depositor may from time to time
direct the Trustee, on behalf of the Trust, to authenticate one or more new
Series of Investor Certificates. The Investor Certificates of all outstanding
Series shall be equally and ratably entitled as provided herein to the benefits
of this Agreement without preference, priority or distinction, all in accordance
with the terms and provisions of this Agreement and the applicable Supplement
except, with respect to any Series or Class, as provided in the related
Supplement.
(b) On or before the Series Issuance Date relating to any new Series,
the parties hereto will execute and deliver a Supplement which will specify the
Principal Terms of such new Series. The terms of such Supplement may modify or
amend the terms of this Agreement solely as applied to such new Series. The
obligation of the Trustee to authenticate the Investor
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Certificates of such new Series and to execute and deliver the related
Supplement is subject to the satisfaction of the following conditions:
(i) on or before the fifth Business Day immediately preceding the
Series Issuance Date, the Depositor shall have given the Trustee, the
Servicer, each Rating Agency and any Series Enhancer entitled thereto
pursuant to the relevant Supplement notice of such issuance and the
Series Issuance Date;
(ii) the Depositor shall have delivered to the Trustee the related
Supplement, in form and substance satisfactory to the Trustee, executed
by each party hereto other than the Trustee;
(iii) the Depositor shall have delivered to the Trustee any related
Enhancement Agreement executed by each of the parties thereto, other
than the Trustee;
(iv) the Depositor shall have received written notice from each
Rating Agency that such issuance will satisfy the Rating Agency
Condition and shall have delivered copies of each such written notice
to the Servicer and the Trustee;
(v) the Depositor shall have delivered to the Trustee and any
Series Enhancer entitled thereto pursuant to the relevant Supplement an
Officer's Certificate of the Depositor, dated the Series Issuance Date,
to the effect that the Depositor reasonably believes that such issuance
will not, based on the facts known to such officer at the time of such
certification, then cause a Pay Out Event or any 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;
(vi) the Depositor shall have delivered to the Trustee, each Rating
Agency and any Series Enhancer entitled thereto pursuant to the
relevant Supplement a Tax Opinion, dated the Series Issuance Date, with
respect to such issuance; and
(vii) the Depositor shall have delivered to the Trustee and any
Series Enhancer entitled thereto pursuant to the relevant Supplement an
Officer's Certificate of the Depositor, dated the Series Issuance Date
to the effect that the Depositor's Amount (excluding the interest
represented by any Supplemental Certificate) shall not be less than the
Specified Percentage of the total amount of Principal Receivables, in
each case as of the Series Issuance Date, and after giving effect to
such issuance.
Upon satisfaction of the above conditions, the Trustee shall execute
the Supplement and authenticate the Investor Certificates of such Series upon
execution thereof by the Depositor.
(c) The Depositor may surrender the Depositor's Certificate to the
Trustee in exchange for a newly issued Depositor's Certificate and one or more
additional certificates (each a "Supplemental Certificate"), the terms of which
shall be defined in a Supplement (which Supplement shall be subject to Section
13.01(a) to the extent that it amends any of the terms of
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this Agreement), to be delivered to or upon the order of the Depositor (or the
holder of a Supplemental Certificate, in the case of the transfer of exchange
thereof, as provided below), upon satisfaction of the following conditions:
(i) the Depositor shall have received written notice from each
Rating Agency that such exchange (or transfer or exchange as provided
below) will satisfy the Rating Agency Condition and shall have
delivered copies of each such written notice to the Servicer and the
Trustee; and
(ii) the Depositor shall have delivered to the Trustee, each Rating
Agency and any Series Enhancer entitled thereto pursuant to the
relevant Supplement a Tax Opinion, dated the date of such exchange (or
transfer or exchange as provided in the next sentence), with respect
thereto.
Any Supplemental Certificate may be transferred or exchanged only upon
satisfaction of the conditions set forth in clauses (i) and (ii) above.
Section 6.04. Registration of Transfer and Exchange of Certificates.
(a) The Trustee shall cause to be kept at the Corporate Trust Office to be
maintained in accordance with the provisions of Section 11.16 a register (the
"Certificate Register") in which, subject to such reasonable regulations as it
may prescribe, a transfer agent and registrar (which may be the Trustee) (the
"Transfer Agent and Registrar") shall provide for the registration of the
Registered Certificates and of transfers and exchanges of the Registered
Certificates as herein provided. The Transfer Agent and Registrar shall
initially be the Trustee, and any co-transfer agent and co-registrar chosen by
the Depositor and acceptable to the Trustee, including, if and so long as any
Series or Class is listed on a European stock exchange (including the Luxembourg
Stock Exchange) and such exchange shall so require, a co-transfer agent and co-
registrar in the city of such exchange. So long as any Investor Certificates are
outstanding, the Depositor shall maintain a co-transfer agent and co-registrar
in New York City. Any reference in this Agreement to the Transfer Agent and
Registrar shall include any co-transfer agent and co-registrar unless the
context requires otherwise.
The Trustee may revoke such appointment and remove any Transfer Agent
and Registrar if the Trustee determines in its sole discretion that such
Transfer Agent and Registrar failed to perform its obligations under this
Agreement in any material respect. Any Transfer Agent and Registrar shall be
permitted to resign as Transfer Agent and Registrar upon 30 days' written notice
to the Depositor, the Trustee and the Servicer; provided, however, that such
resignation shall not be effective and such Transfer Agent and Registrar shall
continue to perform its duties as Transfer Agent and Registrar until the
Depositor has appointed a successor Transfer Agent and Registrar reasonably
acceptable to the Trustee.
Subject to paragraph (c) below, upon surrender for registration of
transfer of any Registered Certificate at any office or agency of the Transfer
Agent and Registrar maintained for such purpose, one or more new Registered
Certificates (of the same Series and Class) in authorized denominations of like
aggregate fractional undivided interests in the
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Certificateholders' Interest shall be executed, authenticated and delivered, in
the name of the designated transferee or transferees.
At the option of a Registered Certificateholder, Registered
Certificates (of the same Series and Class) may be exchanged for other
Registered Certificates of authorized denominations of like aggregate fractional
undivided interests in the Certificateholders' Interest, upon surrender of the
Registered Certificates to be exchanged at any such office or agency; Registered
Certificates, including Registered Certificates received in exchange for Bearer
Certificates, may not be exchanged for Bearer Certificates. At the option of the
Holder of a Bearer Certificate, subject to applicable laws and regulations,
Bearer Certificates may be exchanged for other Bearer Certificates or Registered
Certificates (of the same Series and Class) of authorized denominations of like
aggregate fractional undivided interests in the Certificateholders' Interest
upon surrender of the Bearer Certificates to be exchanged at an office or agency
of the Transfer Agent and Registrar located outside the United States. Each
Bearer Certificate surrendered pursuant to this Section shall have attached
thereto all unmatured Coupons; provided that any Bearer Certificate, so
surrendered after the close of business on the Record Date preceding the
relevant payment date or distribution date after the expected final payment date
need not have attached the Coupon relating to such payment date or distribution
date (in each case, as specified in the applicable Supplement).
Whenever any Investor Certificates are so surrendered for exchange, the
Depositor shall execute, the Trustee shall authenticate and the Transfer Agent
and Registrar shall deliver (in the case of Bearer Certificates, outside the
United States) the Investor Certificates which the Investor Certificateholder
making the exchange is entitled to receive. Every Investor Certificate presented
or surrendered for registration of transfer or exchange shall be accompanied by
a written instrument of transfer in a form satisfactory to the Trustee or the
Transfer Agent and Registrar duly executed by the Investor Certificateholder or
the attorney-in-fact thereof duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Investor Certificates, but the Transfer Agent and Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any such transfer or exchange.
All Investor Certificates (together with any Coupons) surrendered for
registration of transfer and exchange or for payment shall be canceled and
disposed of in a manner customary and satisfactory to the Trustee. The Trustee
shall cancel and destroy any Global Certificate upon its exchange in full for
Definitive Euro-Certificates and shall deliver a certificate of destruction to
the Depositor. Such certificate shall also state that a certificate or
certificates of a Foreign Clearing Agency to the effect referred to in Section
6.13 was received with respect to each portion of the Global Certificate
exchanged for Definitive Euro-Certificates.
The Depositor shall execute and deliver to the Trustee Bearer
Certificates and Registered Certificates in such amounts and at such times as
are necessary to enable the Trustee to fulfill its responsibilities under this
Agreement, each Supplement and the Certificates.
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(b) The Transfer Agent and Registrar will maintain at the Transfer
Agent and Registrar's expense (or at the co-transfer agent and co-registrar's
expense) in each of the Borough of Manhattan, The City of New York, and if and
so long as any Series or Class is listed on a European stock exchange (including
the Luxembourg Stock Exchange), then in the city of such exchange, an office or
agency where Investor Certificates may be surrendered for registration of
transfer or exchange (except that Bearer Certificates may not be surrendered for
exchange at any such office or agency in the United States).
(c) (i) Registration of transfer of Investor Certificates containing a
legend substantially to the effect set forth on Exhibit E-1 shall be effected
only if such transfer (x) is made pursuant to an effective registration
statement under the Act, or is exempt from the registration requirements under
the Act, and (y) is made to a Person which is not an employee benefit plan,
trust or account, including an individual retirement account, that is subject to
ERISA or that is described in Section 4975(e)(1) of the Code or an entity whose
underlying assets include plan assets by reason of a plan's investment in such
entity (a "Benefit Plan"). In the event that registration of a transfer is to be
made in reliance upon an exemption from the registration requirements under the
Act, the transferor or the transferee shall deliver, at its expense, to the
Depositor, the Servicer and the Transfer Agent and Registrar an investment
letter from the transferee, substantially in the form of the investment and
ERISA representation letter attached hereto as Exhibit E-2, and no registration
of transfer shall be made until such letter is so delivered.
Investor Certificates issued upon registration or transfer of, or
Investor Certificates issued in exchange for, Investor Certificates bearing the
legend referred to above shall also bear such legend unless the Depositor, the
Servicer, the Trustee and the Transfer Agent and Registrar receive an Opinion of
Counsel, satisfactory to each of them, to the effect that such legend may be
removed.
Whenever an Investor Certificate containing the legend referred to
above is presented to the Transfer Agent and Registrar for registration of
transfer, the Transfer Agent and Registrar shall promptly seek instructions from
the Servicer regarding such transfer and shall be entitled to receive
instructions signed by a Servicing Officer prior to registering any such
transfer. The Depositor hereby agrees to indemnify the Transfer Agent and
Registrar and the Trustee and to hold each of them harmless against any loss,
liability or expense incurred without negligence or bad faith on their part
arising out of or in connection with actions taken or omitted by them in
relation to any such instructions furnished pursuant to this clause (i).
(ii) Registration of transfer of Investor Certificates containing a
legend to the effect set forth on Exhibit E-3 shall be effected only if
such transfer is made to a Person which is not a Benefit Plan. By
accepting and holding any such Investor Certificate, an Investor
Certificateholder shall be deemed to have represented and warranted
that it is not a Benefit Plan. By acquiring any interest in a
Book-Entry Certificate which contains such legend, a Certificate Owner
shall be deemed to have represented and warranted that it is not a
Benefit Plan.
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(iii) If so requested by the Depositor, the Trustee will make
available to any prospective purchaser of Investor Certificates who so
requests, a copy of a letter provided to the Trustee by or on behalf of
the Depositor relating to the transferability of any Series or Class to
a Benefit Plan.
Section 6.05. Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
any mutilated Certificate (together, in the case of Bearer Certificates, with
all unmatured Coupons (if any) appertaining thereto) is surrendered to the
Transfer Agent and Registrar, or the Transfer Agent and Registrar receives
evidence to its satisfaction of the destruction, loss or theft of any
Certificate and (b) there is delivered to the Transfer Agent and Registrar, the
Depositor, the Servicer 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 Trustee that such Certificate has been acquired by a bona fide purchaser,
the Depositor shall execute, the Trustee shall authenticate and the Transfer
Agent and Registrar shall deliver (in the case of Bearer Certificates, outside
the United States), in exchange for or in lieu of any such mutilated, destroyed,
lost or stolen Certificate, a new Certificate of like tenor and aggregate
fractional undivided interest. In connection with the issuance of any new
Certificate under this Section, the Trustee or the Transfer Agent and Registrar
may require the payment by the Certificate, older 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 Transfer
Agent and Registrar) connected therewith. Any duplicate Certificate issued
pursuant to this Section shall constitute complete and indefeasible evidence of
ownership in the Trust, as if originally issued, whether or not the lost, stolen
or destroyed Certificate shall be found at any time and any holder of the lost,
stolen, or destroyed Certificate shall no longer be entitled to any of the
rights or benefits hereunder.
Section 6.06. Persons Deemed Owners. The Trustee, the Paying Agent, the
Depositor, the Servicer, the Transfer Agent and Registrar and any agent of any
of them may (a) prior to due presentation of a Registered Certificate for
registration of transfer, treat the Person in whose name any Registered
Certificate is registered as the owner of such Registered Certificate for the
purpose of receiving distributions pursuant to the terms of the applicable
Supplement and for all other purposes whatsoever, and (b) treat the bearer of a
Bearer Certificate or Coupon as the owner of such Bearer Certificate or Coupon
for the purpose of receiving distributions pursuant to the terms of the
applicable Supplement and for all other purposes whatsoever; and, in any such
case, neither the Trustee, the Paying Agent, the Depositor, the Servicer, the
Transfer Agent and Registrar nor any agent of any of them shall be affected by
any notice to the contrary. Notwithstanding the foregoing, in determining
whether the Holders of the requisite Investor Certificates have given any
request, demand, authorization, direction, notice, consent or waiver hereunder,
Certificates owned by the Depositor, the Servicer, any other holder of the
Depositor's Certificate, the Trustee or any Affiliate thereof, shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Certificates which a
Responsible Officer of the Trustee actually knows to be so owned shall be so
disregarded. Certificates so owned which have been pledged in good faith shall
not be
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disregarded and may be regarded as outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Certificates and that the pledgee is not the Depositor, the Servicer, any other
holder of the Depositor's Certificate or any Affiliate thereof.
Section 6.07. Appointment of Paying Agent. The Paying Agent shall make
distributions to Investor Certificateholders from the Collection Account or any
applicable Series Account pursuant to the provisions of the applicable
Supplement and shall report he amounts of such distributions to the Trustee. Any
Paying Agent shall have the revocable power to withdraw funds from the
Collection Account or any applicable Series 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 or any Supplement in any material respect. The Paying Agent shall
initially be the Trustee and any co-paying agent chosen by the Depositor and
acceptable to the Trustee, including, if and so long as any Series or Class is
listed on a European stock exchange (including the Luxembourg Stock Exchange)
and such exchange so requires, a co-paying agent in the city exchange or another
western European city. Any Paying Agent shall be permitted to resign as Paying
Agent upon 30 days' written notice to the Trustee and the Depositor. In the
event that any Paying Agent shall resign, the Depositor shall appoint a
successor to act as Paying Agent, reasonably acceptable to the Trustee. The
initial and each successor or additional Paying Agent shall execute and deliver
to the Trustee an instrument in which such successor or additional Paying Agent
shall agree with the Trustee that (i) it will hold all sums, if any, held by it
for payment to the Investor Certificateholders in trust for the benefit of the
Investor: Certificateholders entitled thereto until such sums shall be paid to
such Investor Certificateholders and (ii) during the continuance of any Pay-Out
Event or Servicer Default, upon the written request of the Trustee, it will
forthwith pay to the Trustee all sums held in trust by such Paying Agent for
payment in respect of the Investor Certificates. The Paying Agent shall return
all unclaimed funds to the Trustee and upon removal shall also return all funds
in its possession to the Trustee. If and for so long as the Trustee shall act as
Paying Agent, the provisions of Sections 11.01, 11.02, 11.03 and 11.05 shall
apply to the Trustee also in its role as Paying Agent. Any reference in this
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
Section 6.08. Access to List of Registered Certificateholders Names and
Addresses. The Trustee will furnish or cause to be furnished by the Transfer
Agent and Registrar to the Servicer or the Paying Agent, within five Business
Days after receipt by the Trustee of a request therefor, a list in such form as
the Servicer or the Paying Agent may reasonably enquire, of the names and
addresses of the Registered Certificateholders. If any Holder or group of
Holders of Investor Certificates of any Series or all outstanding Series, as the
case may be, evidencing not less than 33% of the aggregate unpaid principal
amount of such Series or all outstanding Series, as applicable (the
"Applicants"), apply to the Trustee, and such application states that the
Applicants desire to communicate with other Investor Certificateholders with
respect to their rights under this Agreement or any Supplement or under the
Investor Certificates and is accompanied by a copy of the communication which
such Applicants propose to transmit, then the Trustee after having been
adequately indemnified by such Applicants for its costs and
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expenses, shall afford or shall cause the Transfer Agent and Registrar to afford
such Applicants access during normal business hours to the most recent list of
Registered Certificateholders of such Series or all outstanding Series, as
applicable, held by the Trustee, within five Business Days after the receipt of
such application. Such list shall be as of a date no more than 45 days prior to
the date of receipt of such Applicants request.
Every Registered Certificateholder, by receiving and holding a
Registered Certificate, agrees with the Trustee that neither the Trustee, the
Depositor, the Servicer, the Transfer Agent and Registrar, nor any of their
respective agents, shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Registered
Certificateholders hereunder, regardless of the sources from which such
information was derived.
Section 6.09. 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 authentication 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 certificate of
authentication executed on behalf of the Trustee by an authenticating agent.
Each authenticating agent must be reasonably acceptable to the Depositor and the
Servicer.
(b) Any institution succeeding to the corporate agency business of an
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 written 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 written 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 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. The provisions of
Sections 11.0l, 11.02 and 11.03 shall be applicable to any 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 Certificates described in the Pooling and Servicing
Agreement.
__________________________________
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__________________________________
as Authenticating Agent
for the Trustee,
by _______________________________
Authorized Officer
Section 6.10. Book-Entry Certificates. Unless otherwise specified in
the related Supplement for any Series or Class, the Investor Certificates, upon
original issuance, shall be issued in the form of one or more typewritten
Investor Certificates representing the Book-Entry Certificates, to be delivered
to the Clearing Agency, by, or on behalf of, the Depositor. The Investor
Certificates shall initially be registered on the Certificate Register in the
name of the Clearing Agency or its nominee, and no Certificate Owner will
receive a definitive certificate representing such Certificate Owner's interest
in the Investor Certificates, except as provided in Section 6.12. Unless and
until definitive, fully registered Investor Certificates ("Definitive
Certificates") have been issued to the applicable Certificate Owners pursuant to
Section 6.12 or as otherwise specified in any such Supplement:
(a) the provisions of this Section shall be in full force and
effect;
(b) the Depositor, the Servicer and the Trustee may deal with the
Clearing Agency and the Clearing Agency Participants for all purposes
(including the making of distributions) as the authorized
representatives of the respective 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; and
(d) the rights of the respective Certificate Owners 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 Certificate Owners and the Clearing Agency
and/or the Cleaning Agency Participants. Pursuant to the Depositary
Agreement, unless and until Definitive Certificates are issued pursuant
to Section 6.12, the Clearing Agency will make book-entry transfers,
the Clearing Agency Participants and receive and transmit distributions
of and interest on the related Investor Certificates to such Clearing
Agency Participants.
For purposes of any provision of this Agreement requiring or permitting
actions with the consent of, or at the direction of, Investor Certificateholders
evidencing a specified percentage of the aggregate unpaid principal amount of
Investor Certificates, such direction or consent may be given by Certificate
Owners (acting through the Clearing Agency and the Clearing Agency Participants)
owning Investor Certificates evidencing the requisite percentage of principal
amount of Investor Certificates.
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Section 6.11. Notices to Clearing Agency. Whenever any notice or other
communication is required to be given to Investor Certificateholders of any
Series or Class with respect to which Book-Entry Certificates have been issued,
unless and until Definitive Certificates shall have been issued to the related
Certificate Owners, the Trustee shall give all such notices and communications
to the applicable Clearing Agency.
Section 6.12. Definitive Certificates. If Book-Entry Certificates have
been issued with respect to any Series or Class and (a) the Depositor advises
the Trustee that the Clearing Agency is no longer willing or able to discharge
properly its responsibilities under the Depositary Agreement with respect to
such Series or 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 Series or
Class through the Clearing Agency or (c) after the occurrence of a Servicer
Default, Certificate Owners of such Series or Class evidencing more than 50% of
the aggregate unpaid principal amount of such Series or Class advise the Trustee
and the Clearing Agency through the Clearing Agency Participants that the
continuation of a book-entry system with respect to the Investor Certificates of
such Series or Class through the Clearing Agency is no longer in the best
interests of the Certificate Owners with respect to such Certificates, then the
Trustee shall notify all Certificate Owners of such Certificates, through the
Clearing Agency, of the occurrence of any such event and of the availability of
Definitive Certificates to Certificate Owners requesting the same. Upon
surrender to the Trustee of any such Certificates by the Clearing Agency,
accompanied by registration instructions from the Clearing Agency for
registration, the Depositor shall execute and the Trustee shall authenticate and
deliver such Definitive Certificates. Neither the Depositor 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 such Definitive Certificates 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 Trustee, to the extent applicable
with respect to such Definitive Certificates and the Trustee shall recognize the
Holders of such Definitive Certificates as Investor Certificateholders
hereunder.
Section 6.13. Global Certificate; Exchange Date. (a) If specified in
the related Supplement for any Series or Class, the Investor Certificates for
such Series or Class will initially be issued in the form of a single temporary
global Certificate (the "Global Certificate") in bearer form, without interest
coupons, in the denomination of the entire aggregate principal amount of such
Series or Class substantially in the form set forth in the exhibit with respect
thereto attached to the related Supplement. The Global Certificate will be
executed by the Depositor and authenticated by the Trustee upon the same
conditions, in substantially the same manner and with the same effect as the
Definitive Certificates. The Global Certificate may be exchanged as described
below for Bearer or Registered Certificates in definitive form (the "Definitive
Euro-Certificates").
(b) The Manager shall, upon its determination of the date of completion
of the distribution of the Investor Certificates of such Series or Class, so
advise the Trustee, the Depositor, the Depositaries, and each Foreign Clearing
Agency forthwith. Without unnecessary delay, but in any event not prior to the
Exchange Date, the Depositor will execute and deliver to
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the Trustee at its London office or its designated agent outside the United
States definitive Bearer Certificates in an aggregate principal amount equal to
the entire aggregate principal amount of such Series or Class. All Bearer
Certificates so issued and delivered will have Coupons attached. The Global
Certificate may be exchanged for an equal aggregate principal amount of
Definitive Euro-Certificates only on or after the Exchange Date. An
institutional investor that is a U.S. Person may exchange the portion of the
Global Certificate beneficially owned by it only for an equal aggregate
principal amount of Registered Certificates bearing the applicable legend set
forth in the form of Registered Certificate attached to the related Supplement
and having a minimum denomination of $500,000, which may be in temporary form if
the Depositor so elects. The Depositor may waive the $500,000 minimum
denomination requirement if it so elects. Upon any demand for exchange for
Definitive Euro-Certificates in accordance with this paragraph, the Depositor
shall cause the Trustee to authenticate and deliver the Definitive
Euro-Certificates to the Holder (x) outside the United States, in the case of
Bearer Certificates, and (y) according to the instructions of the Holder, in the
case of Registered Certificates, but in either case only upon presentation to
the Trustee of a written statement. Such statement shall be substantially in the
form of Exhibit G-1 with respect to the Global Certificate or portion thereof
being exchanged signed by a Foreign Clearing Agency and dated on the Exchange
Date or a subsequent date, to the effect that it has received in writing or by
tested telex a certification substantially in the form of (i) in the case of
beneficial ownership of the Global Certificate or a portion thereof being
exchanged by a United States institutional investor pursuant to the second
preceding sentence, the certificate in the form of Exhibit G-2 by the Manager
which sold the relevant Certificates or (ii) in all other cases, the certificate
in the form of Exhibit G-3, the certificate referred to in this clause (ii)
being dated on the earlier of the first actual payment of interest in respect of
such Certificates and the date of the delivery of such Certificate in definitive
form. Upon receipt of such certification, the Trustee shall cause the Global
Certificate to be endorsed in accordance with paragraph (d) below. Any exchange
as provided in this Section shall be made free of charge to the holders and the
beneficial owners of the Global Certificate and to the beneficial owners of the
Definitive Euro-Certificates issued in exchange, except that a person receiving
Definitive Euro-Certificates must bear the cost of insurance, postage,
transportation and the like in the event that such person does not receive such
Definitive Euro-Certificates in person at the offices of a Foreign Clearing
Agency.
(c) The delivery to the Trustee by a Foreign Clearing Agency of any
written statement referred to above may be relied upon by the Depositor and the
Trustee as conclusive evidence that a corresponding certification or
certifications has or have been delivered to such Foreign Clearing Agency
pursuant to the terms of this Agreement.
(d) Upon any such exchange of all or a portion of the Global
Certificate for a Definitive Euro-Certificate or Certificates, such Global
Certificate shall be endorsed by or on behalf of the Trustee to reflect the
reduction of its principal amount by an amount equal to the aggregate principal
amount of such Definitive Euro-Certificate or Certificates. Until so exchanged
in full, such Global Certificate shall in all respects be entitled to the same
benefits under this Agreement as Definitive Euro-Certificates authenticated and
delivered hereunder except that the beneficial owners of such Global Certificate
shall not be entitled to receive
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payments of interest on the Certificates until they have exchanged their
beneficial interests in such Global Certificate for Definitive
Euro-Certificates.
Section 6.14. Meetings of Certificateholders. (a) If at the time any
Bearer Certificates are issued and outstanding with respect to any Series or
Class to which any meeting described below relates, the Servicer or the Trustee
may at any time call a meeting of Investor Certificateholders of any Series or
Class or of all Series, to be held at such time and at such place as the
Servicer or the Trustee, as the case may be, shall determine, for the purpose of
approving a modification of or amendment to, or obtaining a waiver of any
covenant or condition set forth in, this Agreement, any Supplement or the
Investor Certificates or of taking any other action permitted to be taken by
Investor Certificateholders hereunder or under any Supplement. Notice of any
meeting of Investor Certificateholders, setting forth the time and place of such
meeting and in general terms the action proposed to be taken at such meeting,
shall be given in accordance with Section 13.05(b), the first mailing and
publication to be not less than 20 nor more than 180 days prior to the date
fixed for the meeting. To be entitled to vote at any meeting of Investor
Certificateholders a person shall be (i) a Holder of one or more Investor
Certificates of the applicable Series or Class or (ii) a person appointed by an
instrument in writing as proxy by the Holder of one or more such Investor
Certificates. The only persons who shall be entitled to be present or to speak
at any meeting of Investor Certificateholders shall be the persons entitled to
vote at such meeting and their counsel and any representatives of the Depositor,
the Servicer and the Trustee and their respective counsel.
(b) At a meeting of Investor Certificateholders, persons entitled to
vote Investor Certificates evidencing a majority of the aggregate unpaid
principal amount of the applicable Series or Class or all outstanding Series, as
the case may be, shall constitute a quorum. No business shall be transacted in
the absence of a quorum, unless a quorum is present when the meeting is called
to order. In the absence of a quorum at any such meeting, the meeting may be
adjourned for a period of not less than 10 days; in the absence of a quorum at
any such adjourned meeting, such adjourned meeting may be further adjourned for
a period of not less than 10 days; at the reconvening of any meeting further
adjourned for lack of a quorum, the persons entitled to vote Investor
Certificates evidencing at least 25% of the aggregate unpaid principal amount of
the applicable Series or Class or all outstanding Series, as the case may be,
shall constitute a quorum for the taking of any action set forth in the notice
of the original meeting. Notice of the reconvening of any adjourned meeting
shall be given as provided above except that such notice must be given not less
than five days prior to the date on which the meeting is scheduled to be
reconvened. Notice of the reconvening of an adjourned meeting shall state
expressly the percentage of the aggregate principal amount of the outstanding
applicable Investor Certificates which shall constitute a quorum.
(c) Any Investor Certificateholder who has executed an instrument in
writing appointing a person as proxy shall be deemed to be present for the
purposes of determining a quorum and be deemed to have voted; provided that such
Investor Certificateholder shall be considered as present or voting only with
respect to the matters covered by such instrument in writing. Subject to the
provisions of Section 13.01, any resolution passed or decision taken at any
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meeting of Investor Certificateholders duly held in accordance with this Section
shall be binding on all Investor Certificateholders whether or not present or
represented at the meeting.
(d) The holding of Bearer Certificates shall be proved by the
production of such Bearer Certificates or by a certificate, satisfactory to the
Servicer, executed by any bank, trust company or recognized securities dealer,
wherever situated, satisfactory to the Servicer. Each such certificate shall be
dated and shall state that on the date thereof a Bearer Certificate bearing a
specified serial number was deposited with or exhibited to such bank, trust
company or recognized securities dealer by the person named in such certificate.
Any such certificate may be issued in respect of one or more Bearer Certificates
specified therein. The holding by the person named in any such certificate of
any Bearer Certificate specified therein shall be presumed to continue for a
period of one year from the date of such certificate unless at the time of any
determination of such holding (i) another certificate bearing a later date
issued in respect of the same Bearer Certificate shall be produced, (ii) the
Bearer Certificate specified in such certificate shall be produced by some other
person or (iii) the Bearer Certificate specified in such certificate shall have
ceased to be outstanding. The appointment of any proxy shall be proved by having
the signature of the person executing the proxy guaranteed by any bank, trust
company or recognized securities dealer satisfactory to the Trustee.
(e) The Trustee shall appoint a temporary chairman of the meeting. A
permanent chairman and a permanent secretary of the meeting shall be elected by
vote of the holders of Investor Certificates evidencing a majority of the
aggregate unpaid principal amount of Investor Certificates of the applicable
Series or Class or all outstanding Series, as the case may be, represented at
the meeting. No vote shall be cast or counted at any meeting in respect of any
Investor Certificate challenged as not outstanding and ruled by the chairman of
the meeting to be not outstanding. The chairman of the meeting shall have no
right to vote except as an Investor Certificateholder or proxy. Any meeting of
Investor Certificateholders duly called at which a quorum is present may be
adjourned from time to time, and the meeting may be held as so adjourned without
further notice.
(f) The vote upon any resolution submitted to any meeting of Investor
Certificateholders shall be by written ballot on which shall be subscribed the
signatures of Investor Certificateholders or proxies and on which shall be
inscribed the serial number or numbers of the Investor Certificates held or
represented by them. The permanent chairman of the meeting shall appoint two
inspectors of votes who shall count all votes cast at the meeting for or against
any resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the meeting. A
record in duplicate of the proceedings of each meeting of Investor
Certificateholders shall be prepared by the secretary of the meeting and there
shall be attached to said record the original reports of the inspectors of votes
on any vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was published as provided above. The record shall be
signed and verified by the permanent chairman and secretary of the meeting and
one of the duplicates delivered to the Servicer and the other to the Trustee to
be preserved by the Trustee, the latter to have attached thereto the ballots
voted at
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the meeting. Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
ARTICLE VII
Other Matters Relating to the Depositor
Section 7.01. Liability of the Depositor. The Depositor shall be liable
in all respects for the obligations, covenants, representations and warranties
of the Depositor arising under or related to this Agreement or any Supplement.
The Depositor shall be liable only to the extent of the obligations specifically
undertaken by it in its capacity as Depositor .
Section 7.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Depositor. (a) The Depositor shall not consolidate with or
merge into any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person unless:
(i) (x) the corporation formed by such consolidation or into which
the Depositor is merged or the Person which acquires by conveyance or
transfer the properties and assets of the Depositor substantially as an
entirety shall be, if the Depositor is not the surviving entity, a
corporation, banking corporation or banking association organized and
existing under the laws of the United States and, if the Depositor is
not the surviving entity, such corporation, banking corporation or
banking association shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, the performance of every
covenant and obligation of the Depositor hereunder, including its
obligations under Section 7.04; and (y) the Depositor has delivered to
the Trustee an Officer's Certificate and an Opinion of Counsel each
stating that such consolidation, merger, conveyance or transfer and
such supplemental agreement comply with this Section, that such
supplemental agreement is a legal, valid and binding obligation of such
surviving entity enforceable against such surviving entity in
accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium,
receivership, conservatorship or other similar laws now or hereafter in
effect affecting the enforcement of creditors' rights in general, and
if applicable, the rights of creditors of state banking corporations or
associations or national banking associations, and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity), and an Officer's Certificate
stating that all conditions precedent herein provided for relating to
such transaction have been complied with;
(ii) if the surviving entity is a Non-Code Entity, the Depositor
shall have delivered written notice of such consolidation, merger
conveyance or transfer to each Rating Agency or, if the surviving
entity is not a Non-Code Entity, the Depositor shall have received
written notice from each Rating Agency that such consolidation, merger,
conveyance or transfer will satisfy the Rating Agency Condition and
shall have delivered copies of each such written notice to the Servicer
and the Trustee; and
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(iii) the Depositor shall have delivered to the Trustee, each
Rating Agency and any Series Enhancer entitled thereto pursuant to the
relevant Supplement a Tax Opinion, dated the date of such
consolidation, merger, conveyance or transfer, with respect thereto.
(b) The obligations of the Depositor hereunder shall not be assignable
nor shall any Person succeed to the obligations of the Depositor hereunder
except in each case in accordance with the provisions of the foregoing
paragraph.
Section 7.03. Limitations on Liability of the Depositor. Subject to
Sections 7.01 and 7.04, neither the Depositor nor any of the directors,
officers, employees or agents of the Depositor acting in their capacities as
Depositor shall be under any liability to the Trust, the Trustee, the
Certificateholders, any Series Enhancer or any other Person for any action taken
or for refraining from the taking of any action in good faith in their
capacities as Depositor pursuant to this Agreement; 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 gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder. The Depositor and any director,
officer, employee or agent of the Depositor may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
(other than the Depositor) respecting any matters arising hereunder.
Section 7.04. Liabilities. Notwithstanding Section 7.03 (and
notwithstanding Sections 8.03 and 8.04), by entering into this Agreement, the
Depositor agrees to be liable, directly to the injured party, for the entire
amount of any losses, claims, damages or liabilities (other than those incurred
by an Investor Certificateholder in the capacity of an investor in the Investor
Certificates or those which arise from any action by any Investor
Certificateholder) arising out of or based on the arrangement created by this
Agreement and the actions of the Servicer taken pursuant hereto as though this
Agreement created a partnership under the New York Uniform Partnership Act in
which the Depositor was a general partner. In the event of the appointment of a
Successor Servicer, the Successor Servicer will (from its own assets and not
from the assets of the Trust) indemnify and hold harmless the Depositor against
and from any losses, claims, damages and liabilities of the Depositor as
described in this Section arising from the actions or omissions of such
Successor Servicer.
ARTICLE VIII
Other Matters Relating to the Servicer
Section 8.01. Servicer. The Servicer shall be liable under this Article
only to the extent of the obligations specifically undertaken by the Servicer in
its capacity as Servicer.
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Section 8.02. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. The Servicer shall not consolidate with or merge
into any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(a) (i) the corporation formed by such consolidation or into which the
Servicer is merged or the Person which acquires by conveyance or transfer the
properties and assets of the Servicer substantially as an entirety shall be, if
the Servicer is not the surviving entity, a corporation, banking corporation or
banking association organized and existing under the laws of the United States
and, if the Servicer is not the surviving entity, such corporation, banking
corporation or banking association shall expressly assume, by an agreement
supplemental hereto, executed and delivered to the Trustee, in form reasonably
satisfactory to the Trustee, the performance of every covenant and obligation of
the Servicer hereunder;
(ii) the Servicer had delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger, conveyance or transfer and such supplemental agreement comply with this
Section, that such supplemental agreement is a legal, valid and binding
obligation of such surviving entity enforceable against such surviving entity in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship or other similar laws now or hereafter in effect affecting the
enforcement of creditors' rights in general and, if applicable, the rights of
creditors of state banking corporations or associations or national banking
associations, and except as such enforceability may be limited by general
principles of equity (whether considered in a suit at law or in equity), and an
Officer's Certificate stating that all conditions precedent herein provided for
relating to such transaction have been complied with;
(b) if the surviving entity is a Non-Code Entity, the Depositor shall
have delivered written notice of such consolidation, merger conveyance or
transfer to each Rating Agency or, if the surviving entity is not a Non-Code
Entity, the Depositor shall have received written notice from each Rating Agency
that such assignment and succession will satisfy the Rating Agency Condition and
shall have delivered copies of each such notice to the Depositor and the
Trustee; and
(c) the corporation formed by such consolidation or into which the
Servicer is merged or the Person which acquires by conveyance or transfer the
properties and assets of the Servicer substantially as an entirety shall be an
Eligible Servicer.
Section 8.03. Limitation on Liability of the Servicer and Others.
Except as provided in Section 8.04, neither the Servicer nor any of the
directors, officers, employees or agents of the Servicer in its capacity as
Servicer shall be under any liability to the Trust, the Trustee, the
Certificateholders, any Series Enhancer or any other person for any action taken
or for refraining from the taking of any action in good faith in its capacity as
Servicer pursuant to this Agreement; provided, however, that this provision
shall not protect the Servicer or any such Person against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties hereunder. The Servicer and any director, officer,
employee or agent of the Servicer
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may rely in good faith on any document of any kind prima facie properly executed
and submitted by any Person (other than the Servicer) respecting any matters
arising hereunder. The Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its duties as
Servicer in accordance with this Agreement and which in its reasonable judgment
may require it to incur any expense or liability. The Servicer may, in its sole
discretion, undertake any such legal action which it may deem necessary or
desirable for the benefit of the Certificateholders with respect to this
Agreement and the rights and duties of the parties hereto and the interests of
the Certificateholders hereunder.
Section 8.04. Servicer Indemnification of the Trust and the Trustee.
The Servicer shall indemnify and hold harmless the Trustee and its directors,
officers, employees, and agents against any loss, liability or expense incurred
by it in connection with the administration of the Trust and the performance of
its duties under this Agreement and any Supplement, including those arising from
acts of omissions of the Servicer pursuant to this Agreement, and including but
not limited to any judgement, award, settlement reasonable attorney's 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 the Trustee or its directors, officers, employees or agents
if such acts, omission or alleged acts or omissions constitute fraud, negligence
or willful misconduct by the Trustee. Indemnification pursuant to this Section
shall not be payable from the Trust Assets.
Section 8.05. The Servicer Not To Resign. The Servicer shall not resign
from the obligations and duties hereby imposed on it except (a) upon
determination that (i) the performance of its duties hereunder is no longer
permissible under Requirements of the Law (other than the charter and by-laws of
the Servicer) and (ii) there is no reasonable action which the Servicer could
take to make the performance of its duties hereunder permissible under such
Requirements of Law (other than the charter and bylaws of the Servicer)or (b)
upon the assumption, by an agreement supplemental hereto, executed and delivered
to the Trustee, in form satisfactory to the Trustee, of the obligations and
duties of the Servicer hereunder by any of its Affiliates or by any other entity
the appointment of which shall have satisfied the Rating Agency Condition and,
in either case, qualifies as an Eligible Servicer. Any determination permitting
the resignation of the Servicer shall be evidenced by an Officer's Certificate
and an Opinion of Counsel to such effect delivered to the Trustee. No
resignation shall become effective until the Trustee or a Successor Servicer
shall have assumed the responsibilities and obligations of the Servicer in
accordance with Section 10.02. If within 120 days of the date of the
determination that the Servicer may no longer act as Servicer and the Trustee is
unable to appoint a Successor Servicer, the Trustee shall serve as Successor
Servicer. Notwithstanding the foregoing, the Trustee shall, if it is legally
unable so to act, petition a court of competent jurisdiction to appoint any
established institution having a net worth of not less than $50,000,000 and
whose regular business includes the servicing of credit Dealer FloorPlan s and
who has the ability to service the Receivables as the Successor Servicer
hereunder. The Trustee shall give prompt written notice of such appointment to
each Rating Agency and each Series Enhancer entitled hereto under the terms of
the applicable supplement upon the appointment of a Successor Servicer.
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Section 8.06. Access to Certain Documentation and Information Regarding
the Receivables. The Servicer shall provide to the Trustee access to the
documentation regarding the Accounts and the Receivables in such cases where the
Trustee is required in connection with the enforcement of the rights of
Certificateholders or by Requirements of Law to review such documentation, such
access being afforded without charge but only (a) upon reasonable request, (b)
during normal business hours, (c) subject to the Servicer's normal security and
confidentiality procedures and (d) at the Servicer's principal office or at the
Servicer's office in the continental United States where the documentation
regarding the Accounts and the Receivables normally is kept. Nothing in this
Section shall derogate from the obligation of the Depositor, the Trustee and the
Servicer to observe any Requirements of Law prohibiting disclosure of
information regarding the Obligors and the failure of the Servicer to provide
access as provided in this Section as a result of such Requirements of Law shall
not constitute a breach of this Section.
Section 8.07. Delegation of Duties. In the ordinary course of business,
the Servicer may at any time delegate any duties hereunder to any Person who
agrees to conduct such duties in accordance with the Lending Guidelines;
provided, however, that in the case of significant delegation to a Person other
than any Affiliate of the Depositor, (i) at least 30 days prior written notice
shall be given to the Trustee, each Rating Agency and each Series Enhancer
entitled thereto pursuant to the relevant Supplement, of such delegation and
(ii) at or prior to the end of such 30-day period the Servicer shall not have
received a notice in writing from a Rating Agency that such delegation will have
a Ratings Effect. Any such delegation shall not relieve the Servicer of its
liability and responsibility with respect to such duties, and shall not
constitute a resignation within the meaning of Section 8.05 hereof.
Section 8.08. Examination of Records. The Depositor and the Servicer
shall clearly and unambiguously indicate in their computer files or other
records that the Receivables arising in the Accounts have been conveyed to the
Trustee, on behalf of the Trust, pursuant to this Agreement for the benefit of
the Certificateholders. The Depositor and the Servicer shall, prior to the sale
or transfer to a third party of any receivable held in its custody, examine its
computer and other records to determine that such receivable is not a
Receivable.
ARTICLE IX
Pay Out Events
Section 9.01. Pay Out Events. If any one of the following events shall
occur with respect to any Series:
(a) the Depositor 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 Depositor or of or relating to all or substantially all
of its property, or a decree order of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator or
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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 Depositor; or the Depositor shall admit in writing its
inability to pay its debts generally as they become due, file a
petition to take advantage of any applicable insolvency or
reorganization statute, make any assignment for the benefit of its
creditors or voluntarily suspend payment of its obligations (any such
event, an "Insolvency Event");
(b) the Trust shall become an "investment company" within the
meaning of the Investment Company Act; or
(c) any event specified in the relevant Supplement as a Pay Out
Event with respect to such Series;
then, in the case of any such event, a Pay Out Event shall occur with respect to
such Series without any notice or other action on the part of the Trustee or the
Investor Certificateholders, immediately upon the occurrence of such event.
Section 9.02. Additional Rights upon the Occurrence of Certain Events.
(a) If an Insolvency Event occurs with respect to the Depositor or the Depositor
violates Section 2.07(c) for any reason, the Depositor shall on the day any such
Insolvency Event or violation occurs (the "Appointment Date"), immediately cease
to transfer Principal Receivables to the Trust and shall promptly give notice to
the Trustee thereof. Notwithstanding any cessation of the transfer to the Trust
of additional Principal Receivables, Principal Receivables transferred to the
Trust prior to the occurrence of such Insolvency Event and Collection in respect
of such Principal Receivables and Finance Charge Receivables whenever created,
accrued in respect of such Principal Receivables, shall continue to be a part of
the Trust. Within 15 days after receipt of such notice by the Trustee of the
occurrence of such Insolvency Event or violation of Section 2.07(c), the Trustee
shall (i) publish a notice in an Authorized Newspaper that an Insolvency Event
or violation has occurred and that the Trustee intends to sell, dispose of or
otherwise liquidate the Receivables on commercially reasonable terms and in a
commercially reasonable manner and (ii) give notice to Investor
Certificateholders and each Series Enhancer entitled thereto pursuant to the
relevant Supplement describing the provisions of this Section and requesting
instructions from such Holders. Unless the Trustee shall have received
instructions within 90 days from the date notice pursuant to clause (i) above is
first published from (x) Holders of Investor Certificates evidencing more than
50% of the aggregate unpaid principal amount of each Series or, with respect to
any Series with two or more Classes, of each Class, to the effect that such
Investor Certificateholders disapprove of the liquidation of the Receivables and
wish to continue having Principal Receivables Transferred to the Trust as before
such Insolvency Event or violation, (y) to the extent provided in the relevant
Supplement, the Series Enhancer with respect to such Series, to such effect, and
(z) each holder (other than the Depositor with respect to which the Insolvency
Event occurred) of the Depositor's Certificate to such effect, the Trustee shall
promptly sell, dispose of or otherwise liquidate the Receivables in a
commercially reasonable manner and on commercially reasonable terms, which shall
include the solicitation of competitive bids. The Trustee may obtain and
conclusively rely upon a prior determination from
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any such conservator, receiver or liquidator that the terms and manner of any
proposed sale, disposition or liquidation are commercially reasonable. The
provisions of Section 9.01 and 9.02 shall not be deemed to be mutually
exclusive. References to the Depositor in this Section 9.02 include any
Additional Depositor.
(a) The proceeds from the sale, disposition or liquidation of the
Receivables pursuant to paragraph (a) ("Insolvency Proceeds") shall be
immediately deposited in the Collection Account. The Trustee shall determine
conclusively the amount of the Insolvency Proceeds which are deemed to be
Finance Charge Receivables and Principal Receivables. The Insolvency Proceeds
shall be allocated and distributed to Investor Certificateholders in accordance
with Article IV and the terms of each Supplement and the Trust shall terminate
immediately thereafter.
ARTICLE X
Servicer Defaults
Section 10.01. Servicer Defaults. If any one of the following events (a
"Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give instructions or notice to the Trustee pursuant to
the terms of this Agreement or any Supplement on or before the date,
occurring ten Business Days after the date such payment, transfer or
deposit or such instruction or notice is required to be made or given,
as the case may be, under the terms of this Agreement or any
Supplement;
(b) failure on the part of the Servicer duly to observe or perform
in any material respect any other covenants or agreements of the
Servicer set forth in this Agreement or any Supplement which has a
material adverse effect on the interests hereunder of the Investor
Certificateholders of any Series or Class (which determination shall be
made without regard to whether funds are then available pursuant to any
Series Enhancement) and which continues 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 to the Servicer by the
Trustee, or to the Servicer and the Trustee by Holders of Investor
Certificates evidencing not less than 33% of the aggregate unpaid
principal amount of all Investor Certificates (or, with respect to any
such failure that does not relate to all Series, 33% of the aggregate
unpaid principal amount of all Series to which such failure relates);
or the Servicer shall delegate its duties under this Agreement except
as permitted by Section 8.02 and 8.07, a Responsible officer, of the
Trustee as actual knowledge of such delegation and such delegation
continues unremedied for 15 days after the date on which written notice
thereof, requiring the same to be remedied, shall have been given to
the Servicer by the Trustee, or to the Servicer and the Trustee by
Holders of
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Investor Certificates evidencing not less than 10% of the aggregate
unpaid principal amount of all Investor Certificates;
(c) any representation, warranty or certification made by the
Servicer in this Agreement or any Supplement or in any certificate
delivered pursuant to this Agreement or any Supplement shall prove to
have been incorrect in any material respect when made, which has a
material adverse effect on the rights of the Investor
Certificateholders of any Series or Class (which determination shall be
made without regard to whether funds are then available pursuant to any
Series Enhancement) and which continues to be incorrect in any material
respect 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 to the Servicer by the Trustee, or to the Servicer and the
Trustee by the Holders of Investor Certificates, evidencing not less
than 33% of the aggregate unpaid principal amount of all Investor
Certificates (with respect to any such representation, warranty or
certification that does not relate to all Series, 33% of the aggregate
unpaid principal amount of all Series to which such representation,
warranty or certification relates); or
(d) the 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 Servicer or of or relating to all or substantially all
of its property, or 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 Servicer, and such decree
or order shall have remained in force undischarged or unstayed for a
period of 90 days; or the Servicer shall admit in writing its inability
to pay its debts generally as they become due, file a petition to take
advantage of any applicable insolvency or reorganization statute, make
any assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations;
then, in the event of any Servicer Default, so long as the Servicer Default
shall not have been remedied, either the Trustee, or the Holders of Investor
Certificates evidencing more than 50% of the aggregate unpaid principal amount
of all outstanding Series, by written notice then given to the Servicer (and to
the Trustee and any Series Enhancer entitled thereto pursuant to the relevant
Supplement if given by the Investor Certificateholders) (a "Termination
Notice"), may terminate all but not less than all the rights and obligations of
the Servicer as Servicer under this Agreement and in and to the Receivables and
the proceeds thereof; provided, however, that if within 60 days of receipt of a
Termination Notice the Trustee does not receive any bids from Eligible Servicers
in accordance with Section 10.02(c) to act as a Successor Servicer and receives
an Officer's Certificate of the Servicer or the Depositor, to the effect that
the Servicer cannot in good faith cure the Servicer Default which gave rise to
the Termination Notice, the Trustee shall grant a right of first refusal to the
Depositor which would permit the Depositor to purchase the Certificateholders
Interest on the Distribution Date in the next calendar month. The Trustee shall
first solicit bids from unaffiliated third parties and, if at least two bids are
obtained, the Trustee will offer the right of first refusal to the Depositor at
a purchase price equal to the higher of such
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bids so long as such purchase price is at least equal to the sum of the amounts
specified therefor with respect to each outstanding Series in the related
Supplement. If the Depositor does not exercise its right of first refusal, the
Trustee may sell the Certificateholders' Interest to the highest bidder, so long
as the purchase price is at least equal to the amount described in the preceding
sentence. The Depositor shall notify the Trustee prior to the Record Date for
the Distribution Date of the purchase if it is exercising such right. If it
exercises such right, the Depositor shall deposit the purchase price into the
Collection Account not later than 12:00 noon New York City time, on the Transfer
Date immediately preceding such Distribution Date in immediately available
funds. The purchase price shall be allocated and distributed to Investor
Certificateholders in accordance with Article IV and the terms of each
Supplement.
After receipt by the Servicer of such Termination Notice, and on the
date that a Successor Servicer shall have been appointed by the Trustee pursuant
to Section 10.02, all authority and power of the Servicer under this Agreement
shall pass to and be vested in a Successor Servicer (a "Service Transfer") and,
without limitation, the Trustee is hereby authorized and empowered (upon the
failure of the Servicer to cooperate) to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, all documents and other instruments
upon the failure of the Servicer to execute or deliver such documents or
instruments, and to do and accomplish all other acts or things necessary or
appropriate to effect the purposes of such transfer of servicing rights. The
Servicer agrees to cooperate with the Trustee and such Successor Servicer in
effecting the termination of the responsibilities and rights of the Servicer to
conduct servicing hereunder including the transfer to such Successor Servicer of
all authority of the Servicer to service the Receivables provided for under this
Agreement, including all authority over all Collections which shall on the date
of transfer be held by the Servicer for deposit, or which have been deposited by
the Servicer, in the Collection Account, or which shall thereafter be received
with respect to the Receivables, and in assisting the Successor Servicer and in
enforcing all rights to Insurance Proceeds. The Servicer shall promptly transfer
its electronic records relating to the Receivables to the Successor Servicer in
such electronic form as the Successor Servicer may reasonably request and shall
promptly transfer to the Successor Servicer all other records, correspondence
and documents necessary for the continued servicing of the Receivables in the
manner and as such times as the Successor Servicer shall reasonably request. To
the extent that compliance with this Section 10.01 shall require the Servicer to
disclose to the Successor Servicer Information of any kind which the Servicer
reasonably deems to be confidential, the Successor Servicer shall be required to
enter into such customary licensing and confidentiality agreements as the
Servicer shall been necessary to protect its interests. Notwithstanding the
foregoing, any delay in or failure of performance under Section 10.01(a) for a
period of five Business Days or under Section 10.01(b) or (c) or a period of 90
days (in addition to any period provided in Section 10.01(a), (b) or (c)) shall
not constitute a Servicer Default until the expiration of such additional five
Business Days or 90 days, respectively, if such delay or failure could not be
prevented by the exercise of reasonable diligence by the Servicer and such delay
or failure was caused by an act of God or the public enemy, acts of declared or
undeclared war, public disorder, rebellion or sabotage, epidemics, landslides,
lightning, fire, hurricanes, earthquakes, floods or similar causes. The
preceding sentence shall not relieve the Servicer from using its best efforts to
perform its respective obligations in a timely manner in accordance with the
terms of this Agreement and any Supplement and the Servicer shall provide the
Trustee, each
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Rating Agency, any Series Enhancer entitled thereto pursuant to the relevant
Supplement, each Holder of the Depositor's Certificate and the Investor
Certificateholders with an Officer's Certificate giving prompt notice of such
failure or delay by it, together with a description of its efforts, to so
perform its obligations.
Section 10.02. Trustee To Act; Appointment of Successor. (a) On and
after the receipt by the Servicer of a Termination Notice pursuant to Section
10.01, the Servicer shall continue to perform all servicing functions under this
Agreement until the date specified in the Termination Notice or otherwise
specified by the Trustee or until a date mutually agreed upon by the Servicer
and Trustee. The Trustee shall as promptly as possible after the giving of a
Termination Notice appoint an Eligible Servicer ad a successor service (the
"Successor Servicer"), and such Successor Servicer shall accept its appointment
by a written assumption in a form acceptable to the Trustee. In the event that a
Successor Servicer has not been appointed or has not accepted its appointment at
the time when the Servicer ceases to act as Servicer, the Trustee without
further action shall automatically be appointed the Successor Servicer. The
Trustee may delegate any of its servicing obligations to an Affiliate of the
Trustee or agent in accordance with Sections 3.01(b) and 8.07. Notwithstanding
the foregoing, the Trustee shall, if it is legally unable so to act, petition a
court of competent jurisdiction to appoint any established institution having a
net worth of not less than $50,000,000 and whose regular business includes the
servicing of credit card receivables and who has the ability to service the
Receivables as the Successor Servicer hereunder. The Trustee shall give prompt
notice of such appointment to each Rating Agency and each Series Enhancer
entitled thereto pursuant to the applicable Supplement upon the appointment of a
Successor Servicer.
(b) Upon its appointment, the Successor Servicer shall be the successor
in all respects to the Servicer with respect to servicing functions under this
Agreement and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Servicer by the terms and provisions
hereof, and all references in this Agreement to the Servicer shall be deemed to
refer to the Successor Servicer.
(c) In connection with any Termination Notice, the Trustee will solicit
bids from Eligible Servicers and shall be permitted to appoint any Eligible
Servicer submitting such a bid as a Successor Servicer for servicing
compensation not in excess of the aggregate Servicing Fees for all Series;
provided, however, that the Depositor shall be responsible for payment of that
Depositor's portion of such aggregate Servicing Fees and that no such monthly
compensation paid out of Collections shall be in excess of such aggregate
Servicing Fees. Each holder of the Depositor's Certificate agrees that, if
[Servicer Name] (or any Successor Servicer) is terminated as Servicer hereunder,
the portion of the Collections in respect of Finance Charge Receivables that the
Depositor is entitled to receive pursuant to this Agreement or any Supplement
shall be reduced by an amount sufficient to pay the Depositor's share
(determined by reference to the Supplements with respect to any outstanding
Series) of the compensation of the Successor Servicer.
(d) All authority and power granted to the Successor Servicer under
this Agreement shall automatically cease and terminate upon termination of the
Trust pursuant to Section 12.01
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and shall pass to and be vested in the Depositor and, without limitation, the
Depositor is hereby authorized and empowered to execute and deliver, on behalf
of the Successor Servicer, as attorney-in-fact or otherwise, all documents and
other instruments, and to do and accomplish all other acts or things necessary
or appropriate to effect the purposes of such transfer of servicing rights. The
Successor Servicer agrees to cooperate with the Depositor in effecting the
termination of the responsibilities and rights of the Successor Servicer to
conduct servicing on the Receivables. The Successor Servicer shall transfer its
electronic records relating to the Receivables to the Depositor in such
electronic form as the Depositor may reasonably request and shall transfer all
other records, correspondence and documents to the Depositor in the manner and
at such times as the Depositor shall reasonably request. To the extent that
compliance with this Section 10.02 shall require the Successor Servicer to
disclose to the Depositor information of any kind which the Successor Servicer
reasonably deems to be confidential, the Depositor shall be required to enter
into such customary licensing and confidentiality agreements as the Successor
Servicer shall deem reasonably necessary to protect its interests.
Section 10.03. Notification to Certificateholders. Within two Business
Days after the Servicer becomes aware of any Servicer Default, the Servicer
shall give notice thereof to the Trustee, each Rating Agency and any Series
Enhancer entitled thereto pursuant to the relevant Supplement and the Trustee
shall give notice to the Investor Certificateholders. Upon any termination or
appointment of a Successor Servicer pursuant to this Article, the Trustee shall
give prompt notice thereof to the investor Certificateholders.
ARTICLE XI
The Trustee
Section 11.01. Duties of Trustee. (a) The Trustee, prior to the
occurrence of a Servicer Default and after the curing of all Servicer Defaults
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. If a Servicer Default has
occurred (which has not been cured or waived) 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 its exercise, as a prudent man would exercise or use under the
circumstances in the conduct of such man's own affairs.
(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 pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform to the requirements of this Agreement. The Trustee shall give prompt
written notice to the Certificateholders of any material lack of conformity of
any such instrument to the applicable requirements of this Agreement discovered
by the Trustee which would entitle a specified percentage of the
Certificateholders to take any action pursuant to this Agreement.
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(c) Subject to Section 11.01(a), no provision or 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 wilful misconduct; provided,
however, that:
(i) 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;
(ii) 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 written direction of the Holders of Investor
Certificates evidencing more than 50% of the aggregate unpaid principal
amount of all Investor Certificates (or, with respect to any such
action that does not relate to all Series, more than 50% of the
aggregate unpaid principal amount of the Investor Certificates of all
Series to which such action relates) 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; and
(iii) the Trustee shall not be charged with knowledge of any
failure by the Servicer referred to in clauses (a) and (b) of Section
10.01 unless a Responsible Officer of the Trustee obtains actual
knowledge of such failure or the Trustee receives written notice of
such failure from the Servicer, any Holders of Investor Certificates
evidencing not less than 33% of the aggregate unpaid principal amount
of all Investor Certificates (or, with respect to any such failure that
does not relate to all Series, not less than 33% of the aggregate
unpaid principal amount of all Investor Certificates of all Series to
which such failure relates, or the Series Enhancers for all Series to
which such failure relates).
(d) The Trustee shall not be required 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 hereunder or
thereunder, if there is reasonable ground for believing that the repayment of
such funds or adequate indemnity against such risk or liability is not
reasonably assured to it, and none of the provisions contained in this Agreement
shall in any event require the Trustee to perform, or be responsible for the
manner of performance of, any of the obligations of the Servicer under this
Agreement except during such time, if any, as the Trustee shall be the successor
to, and be vested with the rights, duties, powers and privileges of, the
Servicer in accordance with the terms of this Agreement.
(e) Except for actions expressly authorized by this Agreement, the
Trustee shall take no action reasonably likely to (i) impair the interests of
the Trust in any Receivable now existing or hereafter created or (ii) impair the
value of any Receivable now existing or hereafter created.
(f) The Trustee shall have no power to vary the corpus of the Trust,
except as expressly provided in this Agreement.
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(g) Subject to Section 11.01(d), in the event that the Paying Agent or
the Transfer Agent and Registrar shall fail to perform any obligation, duty or
agreement in the manner or on the day required to be performed by the Paying
Agent or the Transfer Agent and Registrar, as the case may be, under this
Agreement, the Trustee shall be obligated as soon as possible upon knowledge of
a Responsible officer, thereof and receipt of appropriate records, if any, to
perform such obligation, duty or agreement in the manner so required.
(h) If the Depositor has agreed to transfer any of its receivables
(other than the Receivables) to another Person, upon the written request of the
Depositor, the Trustee will enter into such intercreditor agreement with the
transferee of such receivables as are customary and necessary to separately
identify the rights of the Trust and such other Person in the Depositor's
receivables; provided that the Trustee shall not be required to enter into any
intercreditor agreement which could adversely affect the interests of the
Certificateholders and, upon the request of the Trustee, the Depositor will
deliver an Opinion of Counsel on any matters relating to such intercreditor
agreement, reasonably requested by the Trustee.
Section 11.02. Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 11.01:
(a) the Trustee may conclusively rely on and shall be protected in
acting on, or in refraining from acting in accord with, 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 believed by it to be genuine and to
have been signed or presented to it pursuant to this Agreement by the proper
party or parties;
(b) the Trustee may consult with counsel, and any advice of such
counsel, or 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 advice or opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Agreement or any Enhancement Agreement, or
to institute, conduct or defend any litigation hereunder or thereunder or in
relation to this Agreement or any Enhancement Agreement, at the request, order
or direction of any of the Certificateholders, pursuant to the provisions of
this Agreement or any Enhancement 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 obligations,
upon the occurrence of any Servicer Default (which has not been cured) 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 its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs;
(d) 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;
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(e) the Trustee shall not be bound to make any investigation into the
facts of 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 Investor
Certificates evidencing more than 33% of the aggregate unpaid principal amount
of all Investor Certificates (or, with respect to any such matters that do not
relate to all Series, 33% of the aggregate unpaid principal amount of the
Investor Certificates of all series to which such matters relate);
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder or any Supplement either directly or by or through
agents or attorneys or a custodian, and the Trustee shall not be responsible for
the supervision of, or any misconduct or negligence on the part of any such
agent, attorney or custodian appointed with due care by it hereunder;
(g) except as may be required by subsection 11.01(a) hereof, the
Trustee shall not be required to make any initial or periodic examination of any
documents or records related to the Receivables or the Accounts for the purpose
of establishing the presence or absence of defects, the compliance by the
Depositor with its representations and warranties or for any other purpose; and
(h) in the event that the Trustee is also acting as Paying Agent or
Transfer Agent and Registrar hereunder, the rights and protections afforded to
the Trustee pursuant to this Article XI shall also be afforded to the Trustee
when acting as Paying Agent or Transfer Agent and Registrar.
Section 11.03. Trustee Not Liable for Recitals in Certificates. The
Trustee assumes no responsibility for the correctness of the recitals contained
herein and in the Certificates (other than the certificate of authentication on
the Certificates). Except as set forth in Section 11.15, the Trustee makes no
representations as to the validity or sufficiency of this Agreement or any
Supplement or of the Certificates (other than the certificate of authentication
on the Certificates) or of any Receivable or related document. The Trustee shall
not be accountable for the use or application by the Depositor of any of the
Certificates or of the proceeds of such Certificates, or for the use or
application of any funds paid to the Depositor or the holders of the Depositor's
Certificate in respect of the Receivables or deposited in or withdrawn from the
Collection Account, any Series Accounts or any other accounts hereafter
established to effectuate the transactions contemplated by this Agreement and in
accordance with the terms of this Agreement.
Section 11.04. Trustee May Own Certificates. Subject to Section 6.06,
the Trustee in its individual or any other capacity may become the owner or
pledgee of Investor Certificates with the same rights as it would have if it
were not the Trustee.
Section 11.05. The Servicer To Pay Trustee's Fees and Expenses. The
Servicer covenants and agrees to pay to the Trustee from time to time, and the
Trustee shall be entitled to receive,
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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 trust hereby created and in the exercise
and performance of any of the powers and duties hereunder of the Trustee, and
the Servicer will pay or reimburse the Trustee (without reimbursement from the
Collection Account or otherwise) 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 or any Enhancement Agreement (including
the reasonable fees and expenses of its agents, any co-trustee and counsel)
except any such expense, disbursement or advance as may arise from its own
negligence or bad faith and except as provided in the following sentence. If the
Trustee is appointed Successor Servicer pursuant to Section 10.02, the
provisions of this Section 11.05 shall not apply to expenses, disbursements and
advances made or incurred by the Trustee in its capacity as Successor Servicer.
The obligations of the Servicer under Section 8.04 and this Section
11.05 shall survive the termination of the Trust and the resignation or removal
of the Trustee.
Section 11.06. Eligibility Requirements for Trustee. The Trustee
hereunder shall at all times be a bank or a corporation organized and doing
business under the laws of the United States of America or any state thereof
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 and maintain any credit or deposit
rating required by any Rating Agency (as of the date hereof Baa3 for Moody 's).
If such bank or 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 purpose of this Section 11.06, the combined capital and
surplus of such bank or corporation shall be deemed to be its confined capital
and surplus as set forth in interest 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 11.06, the Trustee shall resign immediately in the
manner and with the effect specified in Section 11.07.
Section 11.07. Resignation or Removal of Trustee. (a) The Trustee may
at any the resign and be discharged from the trust hereby created by giving
written notice thereof to the Depositor and the Servicer. Upon receiving such
notice of resignation, the Depositor 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 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.
(b) If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 11.06 and shall fail to resign after written
request therefor by the Servicer or the Depositor, or if at any time the Trustee
shall be legally unable to act, 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, the
Servicer shall remove the Trustee and promptly appoint a successor trustee by
written instrument, in duplicate, one copy of which
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installment shall be delivered to the Trustee so removed and one copy to the
successor trustee, provided however, that the Trustee shall not be liable for
any damages solely attributable to the acts or omissions of any Successor
Trustee.
(c) Any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to any of the provisions of this Section 11.07 shall
not become effective until acceptance of appointment by the successor trustee as
provided in Section 11.08 and any liability of the Trustee arising hereunder
shall survive such appointment of a successor trustee.
Section 11.08. Successor Trustee. (a) Any successor trustee appointed
as provided in Section 11.07 shall execute, acknowledge and deliver to the
Depositor, to the Servicer 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 predecessor
Trustee shall deliver to the successor trustee all 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 fully and certainly vesting and confirming in the successor trustee all such
rights, powers, duties and obligations.
(b) No successor trustee shall accept appointment as provided in this
Section 11.08 unless at the time of such acceptance such successor trustee shall
be eligible under the provisions of Section 11.06.
(c) Upon acceptance of appointment by a successor trustee as provided
in this Section, such successor trustee shall provide notice of such succession
hereunder to all Investor Certificateholders and the Servicer shall provide such
notice each Rating Agency and any Series Enhancer entitled thereto pursuant to
the relevant Supplement.
Section 11.09. Merger or Consolidation of Trustee. Any Person into
which the Trustee may be merged or converted or with which it may be
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 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 11.06, 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.
Section 11.10. Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Agreement, at any time any legal
requirements of any jurisdiction in which any part of the Trust may at the time
be located, the Trustee shall have the power and may execute and deliver all
instruments to appoint one or more Persons to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of the
Trustee and to vest in such Person or Persons in such capacity and for the
benefit of the certificateholders, such title to the Trust, or any part the
other provisions of this thereof, and, subject to Section 11-10, such
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powers, duties, obligations, rights and trusts as the Trustee may consider
necessary or desirable; provided, however, that the Trustee shall exercise due
care in the appointment of any co-trustee. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
trustee under Section 11.06 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 11.08.
(b) 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 be 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 laws of any jurisdiction in
which any particular act or acts are to be performed (whether as
Trustee hereunder or as successor to the 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 Trustee or any portion thereof
in any such jurisdiction) shall be exercised and performed singly by
such separate trustee or co-trustee, but solely the direction of the
Trustee;
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
(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 XI. 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 and the Servicer.
(d) 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 to 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.
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Section 11.11. Tax Returns. In the event the Trust shall be required to
file tax returns, the servicer shall prepare or shall cause to be prepared any
tax returns required to be filed by the Trust and shall remit such returns to
the Trustee for signature at least five days before such returns are due to be
filed; the Trustee shall promptly sign such returns and deliver such returns
after signature to the Servicer and such returns shall be filed by the Servicer.
The Servicer in accordance with the terms of each Supplement shall also prepare
or shall cause to be prepared such tax information as is required by United
States law to be distributed to Investor Certificateholders. The Trustee, upon
request, will furnish the Servicer with all such information known to the
Trustee as may be reasonably required in connection with the preparation of all
tax returns of the Trust. In no event shall the Trustee or the Servicer (except
as provided in Section 8.04) be liable for any liabilities, costs or expenses of
the Trust or the Investor Certificateholders arising under any tax law,
including Federal, state, local or foreign income or excise taxes or any other
tax imposed on or measured by income (or any interest or penalty with respect
thereto or arising from a failure to comply therewith).
Section 11.12. Trustee May Enforce Claims without Possession of
Certificates. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by the Trustee without the
possession of any of the Certificates or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee. Any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Certificateholders in respect of which such judgment has
been obtained.
Section 11.13. Suits for Enforcement. (a) If a Servicer Default shall
occur and be continuing, the Trustee, in its discretion may, subject to the
provisions of Sections 10.01 and 11.14, proceed to protect and enforce its
rights and.the rights of the Certificateholders under this Agreement by a suit,
action or proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant agreement contained in this Agreement or in aid of
the execution of any power granted in this Agreement or for the enforcement of
any other legal, equitable or other remedy as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce any of the rights of
the Trustee or the Certificateholders.
(b) If the FDIC, the RTC or any equivalent government agency or
instrumentality or any designee of any of them shall have been appointed as
receiver, conservator, assignee, trustee in bankruptcy or reorganization,
liquidator, sequestrator or custodian with respect to the Depositor (the
"receiver"), the Trustee shall, irrespective of whether the principal of any
Series or Class of Investor Certificates shall then be due and payable:
(i) unless prohibited by applicable law or regulation or unless
under FIRREA the receiver is required to participate in the process as
a defendant or otherwise, promptly take or cause to be taken any and
all necessary or advisable commercially reasonable action as a secured
creditor on behalf of the Certificateholders to recover, repossess,
collect or liquidate the Receivables or any other Trust Assets on a
"self-help" basis or otherwise and exercise any rights or remedies of a
secured party under the applicable
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UCC and take any other appropriate action to protect and enforce the
rights and remedies of the Trustee and the Certificateholders;
(ii) promptly, and in any case within any applicable claims bar
period specified under FIRREA or otherwise, file and prove a claim or
claims under FIRRFA or otherwise, by filing proofs of claim, protective
proofs of claim or otherwise, for the whole amount of unpaid principal
and interest in respect of the Investor Certificates and to file such
other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee and the Certificateholders allowed in
any judicial, administrative, corporate or other proceedings relating
to the Depositor, its creditors or its property, including any actions
relating to the preservation of deficiency claims or for the protection
against loss of any claim in the event the Trustee's or the
Certificateholders status as secured creditors are successfully
challenged; and
(iii) collect and receive any moneys or other property payable or
deliverable on any such claims and distribute all amounts with respect
to the claims of the Certificateholders to the Certificateholders as
their interests may appear.
(c) Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Certificateholder
any plan of reorganization, arrangement, adjustment or composition affecting the
Investor Certificates or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Certificateholder in any such
proceeding; provided, however, that the Trustee may, on behalf of the Investor
Certificateholders, vote for the election of a trustee in bankruptcy or similar
official and be a member of a creditor's or other similar committee.
Section 11.14. Rights of Certificateholders to Direct Trustee. Holders
of Investor Certificates evidencing more than 50% of the aggregate unpaid
principal amount of all investor Certificates (or, with respect to any remedy,
trust or power that does not relate to all Series, 50% of the aggregate unpaid
principal amount of the Investor Certificates of all Series to which such
remedy, trust or power relates) shall have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee relating to such
proceeding; provided, however, that, subject to Section 11.01, the Trustee shall
have the right to decline to follow any such direction if the Trustee being
advised by counsel determines that the action so directed may not lawfully be
taken, or if the Trustee in good faith shall, by a Responsible Officer or
Responsible Officers of the Trustee, determine that the proceedings so directed
would be illegal or involve it in personal liability or be unduly prejudicial to
the rights of Certificateholders not parties to such direction; and provided,
further, that nothing in this Agreement shall impair the right of the Trustee to
take any action deemed proper by the Trustee and which is not inconsistent with
such direction.
Section 11.15. Representations and Warranties of Trustee. The Trustee
represents and warrants as of each Closing Date that:
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(a) the Trustee is a banking corporation organized, existing and in
good standing under the laws of the State of New York;
(b) the Trustee has full power, authority and right to execute, deliver
and perform this Agreement and such Supplement, and has taken all necessary
action to authorize the execution, delivery and performance by it of this
Agreement and each Supplement; and
(c) this Agreement and each Supplement has been duly executed and
delivered by the Trustee.
Section 11.16. Maintenance of Office or Agency. The Trustee will
maintain at its expense an office or agency (the "Corporate Trust Office") where
notices and demands to or upon the Trustee in respect of the Certificates and
this Agreement may be served (a) in the Borough of Manhattan, The City of New
York, in the case of Registered Certificates and Holders thereof, and (b) in
London or Luxembourg, in the case of Bearer Certificates and Holders thereof, if
and for so long as any Bearer Certificates are outstanding. The Corporate Trust
Office shall initially be located at [ ]. The Trustee will give prompt notice to
the Depositor, the Servicer and to Investor certificateholders of any change in
the location of the Certificate Register or any such office or agency.
Section 11.17. Confidentiality. Information provided by the Depositor
to the Trustee related to the transaction effected hereunder, including all
information related to the Obligors with respect to the Receivables and any
computer software provided to the Trustee in connection with the transaction
effected hereunder or under any Supplement, in each case whether in the form of
documents, reports, lists, tapes, discs or any other form, shall be
"Confidential Information." The Trustee and its agents, representatives or
employees shall at all times maintain the confidentiality of all Confidential
Information and shall not, without the prior written consent of the Depositor,
disclose to third parties (including Certificateholders) or use such
information, in any manner whatsoever, in whole or in part, except as expressly
permitted under this Agreement or under any Supplement or as required to fulfill
an obligation of the Trustee under this Agreement or under any Supplement, in
which case such Confidential Information shall be revealed only to the extent
expressly permitted or only to the Trustee's agents, representatives and
employees who need to know such Confidential Information to the extent required
for the purpose of fulfilling an obligation of the Trustee under this Agreement
or under any Supplement. Notwithstanding the above, Confidential Information may
be disclosed to the extent required by law, legal process or as provided under
this Agreement, provided that the Trustee when possible gives prior written
notice to the Depositor of the nature and scope of such disclosure and affords
the Depositor an opportunity to contest such disclosure through any legal means
available.
ARTICLE XII
Termination
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Section 12.01. Termination of Trust. The Trust and the respective
obligations and responsibilities of the Depositor, the Servicer and the Trustee
created hereby (other than the obligation of the Trustee to make payments to
Investor Certificateholders as hereinafter set forth) shall terminate, except
with respect to the duties described in Sections 7.04, 8.04 and 12.02(b), upon
the earlier of (i) [ ], (ii) the day following the Distribution Date on which
the Invested Amount and Enhancement Invested Amount for each Series is zero and
(iii) the time provided in Section 9.02(b).
Section 12.02. Final Distribution. (a) The Servicer shall give the
Trustee at least 30 days prior notice of the Distribution Date on which the
Investor Certificateholders of any Series or Class may surrender their Investor
Certificates for payment of the final distribution on and cancellation of such
Investor Certificates (or, in the event of a final distribution resulting from
the application of Section 2.06, 9.02 or 10.01, notice of such Distribution Date
promptly after the Servicer has determined that a final distribution will occur,
if such determination is made less than 30 days prior to such Distribution
Date). Such notice shall be Accompanied by an Officer's Certificate setting
forth the information specified in Section 3.05 covering the period during the
then current calendar year through the date of such notice. Not later than the
fifth day of the month in which the final distribution in respect of such Series
or Class is payable to Investor Certificateholders the Trustee shall provide
notice to Investor Certificateholders of such Series or class specifying (i) the
date upon which final payment of such series or Class will be made upon
presentation and surrender of Investor Certificates of such Series or Class at
the office or offices therein designated, (ii) the amount of any such final
payment and (iii) that the Record Date otherwise applicable to such payment date
is not applicable, payments being made upon presentation and surrender of such
Investor certificates at the office or offices therein specified (which, in the
case of Bearer Certificate, shall be outside the United States). The Trustee
shall give such notice to the Transfer Agent and Registrar and the Paying Agent
at the time such notice is given to Investor Certificateholders.
(b) Notwithstanding a final distribution to the Investor
Certificateholders of any Series or Class (or the termination of the Trust),
except as otherwise provided in this paragraph, all funds then on deposit in the
Collection Account and any Series Account allocated to such Investor
Certificateholders shall continue to be held in trust for the benefit of such
Investor Certificateholders and the Payment or the Trustee shall pay such funds
to such Investor Certificateholders upon surrender of their Investor
Certificates (and any excess shall be paid in accordance with the terms of any
relevant Enhancement Agreement). In the event that all such Investor
Certificateholders shall not surrender their Investor Certificates for
cancellation within six months after the date specified in the notice from the
Trustee described in paragraph (a), the Trustee shall give a second notice to
the remaining such Investor Certificateholders to surrender their Investor
Certificates for cancellation and receive the final distribution with respect
thereto (which surrender and payment, in the case of Bearer Certificates, shall
be outside the United States). If within one year after the second notice all
such Investor 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 such investor Certificateholders concerning
surrender of their Investor Certificates and the cost thereof shall be paid out
of the funds in the Collection Account or any Series Account held for the
benefit of such Investor
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Certificateholders. The Trustee and the Paying Agent shall pay to the Depositor
any moneys held by them for the payment of principal or interest that remains
unclaimed for two years. After such payment to the Depositor, Investor
Certificateholders entitled to the money must look to the Depositor for payment
as general creditors unless an applicable abandoned property law designates
another Person.
(c) In the event that the Invested Amount (or Enhancement Invested
Amount) with respect to any Series is greater than zero on the related Series
Termination Date or such earlier date as is specified in the related Supplement
(after giving effect to deposits and distributions otherwise to be made on such
date), the Trustee will sell or cause to be sold on such Series Termination
Date, in accordance with the procedures and subject to the conditions described
in such Supplement, Principal Receivables and the related Finance Charge
Receivables (or interests therein) in an amount equal to the Invested Amount and
the Enhancement Invested Amount, if any, with respect to such Series on such
date (after giving effect to such deposits and distributions; provided, however,
that in no event shall such amount exceed such Series' allocable share of
Receivables on such Series Termination Date). The proceeds from any such sale
shall be allocated and distributed in accordance with the terms of the
applicable Supplement.
Section 12.03. Depositor's Termination Rights. Upon the termination of
the Trust pursuant to Section 12.01 and the surrender of the Depositor's
Certificate, the Trustee shall sell, assign and convey to the Depositor or its
designee, without recourse, representation or warranty, all right, title and
interest of the Trust in the Receivables, whether then existing or thereafter
created, all moneys due or to become due and all amounts received with respect
thereto and all proceeds thereof, except for amounts held by the Trustee
pursuant to Section 12.02(b). The Trustee shall execute and deliver such
instruments of transfer and assignment, in each case without recourse, as shall
be reasonably requested by the Depositor to vest in the Depositor or its
designee all right, title and interest which the Trust had in the Receivables
and such other related assets.
ARTICLE XIII
Miscellaneous Provisions
Section 13.01. Amendment; Waiver of Past Defaults. (a) This Agreement
or any Supplement may be amended from time to time (including in connection with
(w) the issuance of a Supplemental Certificate (x) the addition of Participation
Interests to the Trust, (y) the designation of an Additional Depositor, or (z)
the provision of additional Series Enhancement for the benefit of
Certificateholders of any Series) by the Servicer, the Depositor and the Trustee
without the consent of any of the Certificateholders, provided that (i) the
Depositor shall have received written notice from each Rating Agency that such
amendment will satisfy the Rating Agency Condition and shall have delivered
copies of each such written notice to the Servicer and the Trustee and (ii) if
such amendment realities to the provision of additional Series Enhancement or
any Series, the Depositor shall have delivered to the Trustee and each provider
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of Series Enhancement an Officer's Certificate of the Depositor stating that the
Depositor reasonably believes that such amendment will not, based on the facts
known to such officer at the time of such certification, have a material adverse
effect on the interests of the Certificateholders. Notwithstanding the
foregoing, this Agreement may be amended without the consent of
Certificateholders, any Series Enhancer and without the approval of any Rating
Agency, for the purpose of correcting typographical errors, clarifying
ambiguities and other similar modifications.
(b) This Agreement or any Supplement may also be amended from time to
time by the Servicer, the Depositor and the Trustee, with the consent of the
Holders of Investor Certificates evidencing more than 50% of the aggregate
unpaid principal amount of the Investor Certificates of all adversely affected
Series, for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement or any Supplement 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 any distributions to be made to Investor Certificateholders or
deposits of amounts to be so distributed or the amount available under any
Series Enhancement without the consent of each affected Certificateholder, (ii)
change the definition of or the manner of calculating the interest of any
Investor Certificateholder without the consent of each affected Investor
Certificateholder, (iii) reduce the aforesaid percentage required to consent to
any such amendment without the consent of each Investor Certificateholder or
(iv) adversely affect the rating of any Series or Class by any Rating Agency
without the consent of the Holders of Investor Certificates of such Series or
Class evidencing more than 50% of the aggregate unpaid principal amount of the
Investor Certificates of such Series or Class. Any amendment to be effected
pursuant to this paragraph shall be deemed to adversely affect all outstanding
Series, other than any Series with respect to which such action shall not, as
evidenced by an Opinion of Counsel for the Depositor, addressed and delivered to
the Trustee, adversely affect in any material respect the interests of any
Investor Certificateholder of such Series. The Trustee may, but shall not be
obligated to, enter into any such amendment which affects the Trustee's rights,
duties or immunities under this Agreement or otherwise.
(c) Promptly after the execution of any such amendment or consent
(other than an amendment pursuant to paragraph (a)), the Trustee shall furnish
notification of the substance of such amendment to each Investor
Certificateholder, and the Servicer shall furnish notification of the substance
of such amendment to each Rating Agency and each Series Enhancer entitled
thereto pursuant to the relevant Supplement.
(d) It shall be necessary for the consent of Investor
Certificateholders under this Section to approve the particular form of any
propose, 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 Investor Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
(e) Any Supplement executed in accordance with the provisions of
Section 6.03 shall not be considered an amendment to this Agreement for the
purposes of this Section.
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(f) The Holders of Investor Certificates evidencing more than 50% of
the aggregate unpaid principal amount of the Investor Certificates of each
Series or, with respect to any Series with two or more Classes, of each Class
(or, with respect to any default that does not relate to all Series, 50% of the
aggregate unpaid principal amount of the Investor Certificates of each Series to
which such default relates or, with respect to any such Series with two or more
classes, of each Class) may, on behalf of all Certificateholders, waive any
default by the Depositor or the Servicer in the performance of their obligations
hereunder and its consequences, except the failure to make any distributions
required to be made to Investor Certificateholders or to make any required
deposits of any amounts to be so distributed. Upon any such waiver of a past
default, such default shall cease to exist, and any 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 except to the extent expressly so waived.
Section 13.02. Protection of Right, Title and Interest to Trust. (a)
The Servicer shall cause this Agreement, all amendments and supplements hereto
and/or all financing statements and continuation statements and any other
necessary documents covering the Certificateholders, and the Trustee's right,
title and interest in the Trust to be promptly recorded, registered and filed,
and at all times to be kept recorded, registered and filed, all in such manner
and in such places as may be required by law fully to preserve and protect the
right, title and interest of the Certificateholders and the Trustee hereunder to
all property compromising the Trust. The Servicer shall deliver to the Trustee
file-stamped copies of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as available following such
recording, registration or filing. The Depositor shall cooperate fully with the
Servicer in connection with the obligations set forth above and will execute any
and all documents reasonably required to fulfill the intent of this paragraph.
(b) Within 30 days after the Depositor makes any change in its name,
identity, or corporate structure which would make any financing statement or
continuation statement filed in accordance with paragraph (a) seriously
misleading within the meaning of Section 9-402(7) (or any comparable provision)
of the UCC, the Depositor shall give the Trustee notice of any such change and
shall file such financing statements or amendments as may be necessary to
continue the perfection of the Trust's security interest in the Receivables and
the proceeds thereof.
(c) The Depositor and the Servicer will give the Trustee prompt notice
of any relocation of any office from which it services Receivables or keeps
records concerning the Receivables or of its principal executive office and
whether, as a result of such relocation, the applicable provisions of the UCC
would require the filing of any amendment of any previously file financing or
continuation statement or of any new financing statement and shall file such
financing statements or amendments as may be necessary to perfector to continue
the perfection of the Trust's security interest in the Receivables and the
proceeds thereof. The Depositor and the Servicer will at all times maintain each
office from which it services Receivables and its principal executive offices
within the United States.
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(d) The Servicer will deliver to the Trustee and any Series Enhancer
entitled thereto pursuant to the relevant Supplement: (i) upon the execution had
delivery of each amendment of this Agreement or any Supplement, an Opinion of
Counsel to the effect specified in Exhibit H-1; (ii) on each Addition Date on
which any Additional Accounts (other than Automatic Additional Accounts) are to
be designated as Accounts pursuant to Section 2.08(a) or (b) and on each date
specified in Section 2.08(c)(iii) with respect to the inclusion of Automatic
Additional Accounts as Accounts, an Opinion of Counsel substantially in the form
of Exhibit H-2, and on each Addition Date on which any Participation Interests
are to be included in the Trust pursuant to Section 2.08(a) or (b), an Opinion
of Counsel covering the same substantive legal issues addressed by Exhibit H-2
but conformed to the extent appropriate to relate to Participation Interests;
and (iii) on or before April 30 of each year, an Opinion of Counsel
substantially in the form of Exhibit H-2.
Section 13.03. Limitation on Rights of Certificateholders. (a) The
death or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust, nor shall such death or incapacity entitle such
Certificateholders' 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 hereto or any of them.
(b) No Investor Certificateholder shall have any right to vote (except
as expressly provided in this Agreement; or in any manner otherwise control the
operation and management of the Trust, 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 Investor Certificateholders
from time to time as partners or members of an association, nor shall any
Investor 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.
(c) No Investor Certificateholder shall have any right by virtue 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
Investor Certificateholder previously shall have made, and unless the Holders of
Investor Certificates evidencing more than 50% of the aggregate unpaid principal
amount of all Investor Certificates (or, with respect to any such action, suit
or proceeding that does not relate to all Series, 50% of the aggregate unpaid
principal amount of the Investor Certificates of all Series to which such
action, suit or proceeding relates) shall have made, a request to 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 such 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
Investor Certificateholder with every other Investor Certificateholder and the
Trustee, that no one or more Investor Certificateholders 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 the Investor Certificates, or to obtain or seek to
obtain priority over or preference to any other such Investor
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Certificateholder, or to enforce any right under this Agreement, except in the
manner herein provided and for the equal, ratable and common benefit of all
Investor Certificateholders except as otherwise expressly provided in this
Agreement. For the protection and enforcement of the provisions of this Section,
each and every Investor Certificateholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.
Section 13.04. 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 HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 13.05. Notices; Payments. (a) All demands, notices,
instructions, directions and communications (collectively, "Notices") under this
Agreement shall be in writing and shall be deemed to have been duly given if
personally delivered at, mailed by registered mail, return receipt requested, or
sent by facsimile transmission:
(i) in the case of the Depositor, to:
Asset Backed Securities Corporation
11 Madison Avenue,
New York, New York 10010
(212) 325-2000
Attention: [Department]
(ii) in the case of the Servicer, to:
________________________
________________________
________________________
________________________
(iii) in the case of the Trustee, to:
________________________
________________________
________________________
________________________
(iv) in the case of Moody's, to:
99 Church Street,
New York, New York 10007,
Attention: ABS Monitoring Department 4th Floor
(facsimile no. 212-553-4600);
(v) in the case of Standard & Poor's, to:
26 Broadway,
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New York, New York 10004,
Attention: Asset Backed Group, 15th Floor
(facsimile no. (212-412-0323); and
(vi) to any other Person as specified in any Supplement; or,
as to each party, at such other address or facsimile number 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 Holder of
Registered Certificates shall be given by first-class mail, postage prepaid, at
the address of such Holder as shown in the Certificate Register. No Notice shall
be required to be mailed to a Holder of Bearer Certificates or Coupons but shall
be given as provided below. Any Notice so mailed within the time prescribed in
this Agreement shall be conclusively presumed to have been duly given, whether
or not the Investor Certificateholder receives such Notice. In addition, (a) if
and so long as any Series or Class is listed on a European stock exchange
(including the Luxembourg Stock Exchange), and such exchange shall so require,
any Notice to Investor Certificateholders shall be published in an Authorized
Newspaper in the city of such exchange, within the time period prescribed in
this Agreement and (b) in the case of any Series or Class with respect to which
any Bearer Certificates are outstanding, any Notice required or permitted to be
given to Investor Certificateholders of such Series or Class shall be published
in an Authorized Newspaper within the time period prescribed in this Agreement.
Section 13.06. Rule 144A Information. For so long as any of the
Investor Certificates of any Series or Class are "restricted securities" within
the meaning of Rule 144(a)(3) under the Act, the Depositor, the Trustee, the
Servicer and any Series Enhancer agree to cooperate with each other to provide
to any Investor Certificateholders of such Series or Class and to any
prospective purchaser of Certificates designated by such an Investor
Certificateholder, upon the request of such Investor Certificateholder or
prospective purchaser, any information required to be provided to such holder or
prospective purchaser to satisfy the condition set forth in Rule 144A(d)(4)
under the Act.
Section 13.07. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such provisions shall be deemed
severable from the remaining provisions of this Agreement and shall in no way
affect the validity or enforceability of the remaining provisions of this
Agreement or of the Certificates or the rights of the Certificateholders.
Section 13.08. Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Section 8.02, this Agreement may not be
assigned by the Servicer without the prior consent of Holders of Investor
Certificates evidencing more than 50% of the aggregate unpaid principal amount
of all outstanding Investor Certificates.
Section 13.09. Certificates Nonassessable and Fully Paid. It is the
intention of the parties to this Agreement that the Certificateholders shall not
be personally liable for obligations of the Trust, that the interests in the
Trust represented by the Certificates shall be nonassessable for any
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losses or expenses of the Trust or for any reason whatsoever and that
Certificates upon authentication thereof by the Trustee pursuant to Section 6.02
are and shall be deemed fully paid.
Section 13.10. Further Assurances. The Depositor and the Servicer 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 Trustee more
fully to effect the purposes of this Agreement, including the execution of any
financing statements or continuation statements relating to the Receivables for
filing under the provisions of the UCC of any applicable jurisdiction.
Section 13.11. Nonpetition Covenant. Notwithstanding any prior
termination of this Agreement, the Servicer, the Trustee, the Depositor, each
Series Enhancer and each holder of a Supplemental Certificate shall not, prior
to the date which is one year and one day after the termination of this
Agreement with respect to the Trust, acquiesce, petition or otherwise invoke or
cause the Trust to invoke the process of any Governmental Authority for the
purpose of commencing or sustaining a case against the Trust under any Federal
or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignment, trustee, custodian, sequestrator or other similar
official of the Trust or any substantial part of its property or ordering the
winding-up or liquidation of the affairs of the Trust.
Section 13.12. No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Trustee or the
Certificateholders, any right, remedy, power or privilege under this Agreement
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege under this Agreement preclude any other or
further exercise thereof or the exercise of any other right remedy, power or
privilege. The rights, remedies, powers and Privileges provided under this
Agreement are cumulative and not exhaustive of any rights, remedies, powers and
privileges provided by law.
Section 13.13. Counterparts. This Agreement may be executed in two or
more counterparts (and by different parties on separate counterparts), each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
Section 13.14. Third-Party Beneficiaries. This Agreement will inure to
the benefit of and be binding upon the parties hereto, the Certificateholders,
any Series Enhancer (to the extent provided in this Agreement and the related
Supplement) and their respective successors and permitted assigns. Except as
otherwise expressly provided in this Agreement, no other Person will have any
right or obligation hereunder.
Section 13.15. Actions by Certificateholders. (a) Wherever in this
Agreement a provision is made that an action may be taken or a Notice given by
Certificateholders, such action or Notice may be taken or given by any
Certificateholder, unless such provision requires a specific percentage of
Certificateholders.
(b) Any Notice, request, authorization, direction, consent, waiver or
other act by the Holder of a Certificate shall bind such Holder and every
subsequent Holder of such Certificate
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and of any Certificate issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof in respect of anything done or omitted to
be done by the Trustee or the Servicer in reliance thereon, whether or not
notation of such action is made upon such Certificate.
Section 13.16. Merger and Integration. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived or supplemented except as provided herein.
Section 13.17. Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation of
any provision hereof.
Section 13.18. Agreement to Constitute Security Agreement. The
Depositor hereby grants to the Trustee a security interest for the benefit of
(i) the Certificateholders and (ii) any Series Enhancer to the extent of the
Enhancement Invested Amount, if any, provided for in the relevant Supplement
(which interest, in the case of any Series Enhancer, will be subordinated to the
interest of the Certificateholders of such Series in accordance with the
relevant Supplement), in all of the Depositor's right, title and interest in, to
and under the Receivables now existing and hereafter created, all moneys due or
to become due and all amounts received with respect thereto and all "proceeds"
thereof and any other Trust Assets, to secure all the Depositor's and Servicer's
obligations hereunder, including the Depositor's obligation to sell or transfer
Receivables hereafter created to the Trust. This Agreement shall constitute a
security agreement under applicable law.
IN WITNESS WHEREOF, the Depositor, the Servicer and the Trustee have
caused this Agreement to be duly executed by their respective officers as of the
day and year first above written.
ASSET BACKED SECURITIES CORPORATION
Depositor
by: _____________________________________
Name:
Title:
[SERVICER NAME]
Servicer
by: _____________________________________
Name:
Title:
[TRUSTEE NAME]
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Trustee,
by: ______________________________________
Name:
Title:
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EXHIBIT A
FORM OF BANK CERTIFICATE
THIS BANK CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. NEITHER THIS BANK CERTIFICATE NOR ANY PORTION HEREOF MAY BE OFFERED OR
SOLD EXCEPT IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF SUCH ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS.
THIS BANK CERTIFICATE IS NOT PERMITTED TO BE TRANSFERRED, ASSIGNED,
EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE WITH THE TERMS
OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
No. R- One Unit
CSFB DEALER FLOORPLAN MASTER TRUST
BANK CERTIFICATE
THIS CERTIFICATE REPRESENTS AN INTEREST
IN CERTAIN ASSETS OF THE
CSFB DEALER FLOORPLAN MASTER TRUST
Evidencing an interest in a trust, the corpus of which consists primarily of
receivables generated from time to time in the ordinary course of business in a
portfolio of revolving credit Dealer FloorPlans and other revolving credit
accounts transferred by Asset Backed Securities Corporation (the "Depositor").
(Not an interest in or obligation of the Depositor
or any affiliate thereof)
This certifies that Asset Backed Securities Corporation is the
registered owner of a fractional interest in the assets of a trust (the "Trust")
not allocated to the Certificateholders' Interest or the interest of any holder
of a Supplemental Certificate pursuant to the Pooling and Servicing Agreement
dated as of [ ], 199[ ] (as amended and supplemented, the "Agreement"), between
Asset Backed Securities Corporation, a Delaware corporation, as Depositor, and
[Trustee Name], a [ ] corporation, as trustee (the "Trustee"). The corpus of the
Trust consists of (i) a portfolio of all receivables (the "Receivables")
existing in the consumer revolving credit Dealer FloorPlans and other consumer
revolving credit accounts identified under the Agreement from time to time (the
"Accounts"), (ii) all Receivables generated under the Accounts from time to time
thereafter, (iii) funds collected or to be collected from accountholders in
respect of the Receivables, (iv) all funds which are from time to time on
deposit in the Collection Account and in the Series Accounts, (v) the benefits
of any Series
A-1
<PAGE> 101
Enhancements issued and to be issued by Series Enhancers with respect to one or
more Series of Investor Certificates and (vi) all other assets and interests
constituting the Trust. Although a summary of certain provisions of the
Agreement is set forth below, this Certificate does not purport to summarize the
Agreement and reference is made to the 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. A copy of the
Agreement may be requested from the Trustee by writing to the Trustee at the
Corporate Trust Office. To the extent not defined herein, the capitalized terms
used herein have the meanings ascribed 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, as amended and
supplemented from time to time, the Depositor by virtue of the acceptance hereof
assents and is bound.
The Receivables consist of Principal Receivables which arise generally
from the purchase of goods and services and amounts advanced to cardholders as
cash advances and Finance Charge Receivables which arise generally from Periodic
Finance Charges.
This Certificate is the Depositor's Certificate, which represents the
Depositor's Interest in certain assets of the Trust, including the right to
receive a portion of the Collections and other amounts at the times and in the
amounts specified in the Agreement. The aggregate interest represented in the
Depositor's Certificate at any time in the Receivables in the Trust shall not
exceed the Depositor's Interest at such time. In addition to the Depositor's
Certificate, (i) Investor Certificates will be issued to investors pursuant to
the Agreement, which will represent the Certificateholders' Interest, and (ii)
Supplemental Certificates may be issued pursuant to the Agreement, which will
represent that portion of the Depositor's Interest not allocated to the
Depositor. This Depositor's Certificate shall not represent any interest in the
Collection Account or the Series Accounts, except as expressly provided in the
Agreement, or any Series Enhancements.
The Depositor has entered into the Agreement, and this Certificate is
issued, with the intention that, for Federal, state and local income and
franchise tax purposes only, the Investor Certificates will qualify as
indebtedness of the Depositor secured by the Receivables. The Depositor, by
entering into the Agreement and by the acceptance of this Certificate, agrees to
treat the Investor Certificates for Federal, state and local income and
franchise tax purposes as indebtedness of the Depositor.
Subject to certain conditions and exceptions specified in the
Agreement, the obligations created by the Agreement and the Trust created
thereby shall terminate upon the earlier of (i) [ ], (ii) the day following the
Distribution Date on which the Invested Amount and Enhancement Invested Amount,
if any, for each Series is zero and (iii) the time provided in Section 9.02(b)
of the Agreement.
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<PAGE> 102
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 for any purpose.
IN WITNESS WHEREOF, the Depositor has caused Certificate to be duly
executed.
ASSET BACKED SECURITIES
CORPORATION
by __________________________
Name:
Title:
Dated: [ ], 199[ ]
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the Depositor's Certificate described in the within-mentioned Agreement
and Series Supplement.
as Trustee,
By:_________________________
Authorized Officer
or
By:__________________________
as Authenticating Agent
for the Trustee,
By:_________________________
Authorized Officer
A-3
<PAGE> 103
EXHIBIT B
FORM OF ASSIGNMENT OF RECEIVABLES IN ADDITIONAL ACCOUNTS
(As required by Section 2.08 of the Pooling and Servicing Agreement)
ASSIGNMENT No. OF RECEIVABLES IN ADDITIONAL ACCOUNTS dated as of ,** by
and between ASSET BACKED SECURITIES CORPORATION, as Depositor (the "Depositor"),
and [Trustee Name], a [ ] corporation, as trustee (the "Trustee"), pursuant to
the Pooling and Servicing Agreement referred to below.
WITNESSETH
WHEREAS the Depositor and the Trustee are parties to the Pooling and
Servicing Agreement dated as of [ ], 199[ ] (as amended and supplemented, the
"Agreement");
WHEREAS, pursuant to the Agreement, the Depositor wishes to designate
Additional Accounts owned by the Depositor to be included as Accounts and to
convey the Receivables of such Additional Accounts, whether now existing or
hereafter created, to the Trust as part of the corpus of the Trust (as each such
term is defined in the Agreement); and
WHEREAS the Trustee is willing to accept such designation and
conveyance subject to the terms and conditions hereof;
NOW, THEREFORE, the Depositor and the Trustee hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used herein shall have the
meanings ascribed to them in the Agreement unless otherwise defined herein.
"Addition Date" shall mean, with respect to the Additional Accounts
designated hereby, [ ], 19[ ].
"Additional Cut-Off Date" shall mean, with respect to the Additional
Accounts designated hereby, [ ], 199[ ].
2. DESIGNATION OF ADDITIONAL ACCOUNTS. On or before the Document Delivery
Date, the Depositor will deliver to the Trustee a computer file or a microfiche
list containing a true and complete list of the related Additional Accounts or
Participation Interests specifying (i) for each Additional Account, as of the
Additional Cut-Off Date, its account number, the collection status, the
aggregate amount outstanding in such Account and the aggregate amount of
Principal Receivables outstanding in such Account, which computer file or
microfiche list shall supplement Schedule I to the Agreement (in the case of
Additional Accounts) and (ii) for each
___________
** To be dated as of the applicable Document Delivery Date.
B-1
<PAGE> 104
Participation Interest, as of the Additional Cut-Off Date, information
comparable to the information referred to in clause (i) above.
3. CONVEYANCE OF RECEIVABLES. The Depositor does hereby sell, transfer,
assign, set over and otherwise convey to the Trustee, on behalf of the Trust,
for the benefit of the Certificateholders, all its right, title and interest in,
to and business on the Additional Cut-Off Date and thereafter created from time
to time until the termination of the Trust, all moneys due or to become due and
all amounts received with respect thereto and all proceeds (including "proceeds"
as defined in the UCC, and Recoveries but excluding Insurance Proceeds) thereof.
The foregoing does not constitute and is not intended to result in the creation
or assumption by the Trust, the Trustee, any Investor Certificateholder or any
Series Enhancer of any obligation of the Servicer, the Depositor or any other
Person in connection with the Accounts or the Receivables or under any agreement
or instrument relating thereto, including any obligation to Obligors, merchant
banks, merchants clearance systems or insurers.
a. The Depositor agrees to record and file, at its own expense, financing
statements (and continuation statements when applicable) with respect
to the Receivables now existing thereafter created in such Additional
Accounts, meeting the requirements of applicable state law in such
manner and in such jurisdictions as are necessary to perfect, and
maintain the perfection of, the sale and assignment of such Receivables
to the Trust, and to deliver a file stamped copy of each such financing
statement or other evidence of such filing (which, for purposes of this
Section 3(b), consists of telephone confirmation of such filing) to the
Trustee on or prior to the Addition Date. The Trustee shall be under no
obligation whatsoever to file such financing or continuation statements
or to make any other filing under the UCC in connection with such sale
and assignment.
b. In connection with such sale, the Depositor further agrees, at its own
expense, on or prior to the date of this Assignment, to indicate
clearly and unambiguously in the appropriate computer files that
Receivables created in connection with the Additional Accounts
designated hereby (other than Removed Accounts) have been conveyed to
the Trust pursuant to the Agreement and this Assignment for the benefit
of the Certificateholders.
c. The Depositor does hereby grant to the Trustee a security interest in
all of its right, title and interest in, to and under the Receivables
now existing and hereafter created in the Additional Accounts
designated, all moneys due or to become due and all amounts received
with respect thereto and all "proceeds" (including "proceeds" as
defined in the UCC and Recoveries, but excluding Insurance Proceeds)
thereof. This Assignment constitutes a security agreement under the
UCC.
4. ACCEPTANCE BY TRUSTEE. The Trustee hereby acknowledges its acceptance
on behalf of the Trust of all right, title and interest to the property, now
existing and hereafter created, conveyed to the Trust pursuant to Section 3(a)
of this Assignment, and declares that it shall maintain such right, title and
interest, upon the trust set forth in the Agreement for the benefit of all
Certificateholders. The Trustee further acknowledges that, prior to or
simultaneously with the
B-2
<PAGE> 105
execution and delivery of this Assignment, the Depositor delivered to the
Trustee the computer file or microfiche list described in Section 2 of this
Assignment.
5. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR. The Depositor hereby
represents and warrants to the Trustee, on behalf of the Trust, as of the date
of this Assignment and as of the Addition Date that:
a. LEGAL VALID AND BINDING OBLIGATION. This Assignment constitutes a
legal, valid and binding obligation of the Depositor enforceable
against the Depositor in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship or other
similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general and, if applicable, the rights of
creditors of a state banking corporation, state balking association or
national banking association, and except as such enforceability may be
limited by general principles of equity (whether considered in a suit
at law or in equity);
b. ELIGIBILITY OF ACCOUNTS. Each Additional Account designated hereby is
an Eligible Account;
c. INSOLVENCY. As of each of the Additional Cut-Off Date and the Addition
Date, no Insolvency Event with respect to [any Account Owner, as
applicable or the] Depositor has occurred and the transfer by the
Depositor of Receivables arising in the Additional Accounts to the
Trust has not been made in contemplation of the occurrence thereof;
d. PAY OUT EVENT. The Depositor reasonably believes that the addition of
the Receivables arising in the Additional Accounts will not, based on
the facts known to the Depositor, then cause a Pay Out Event or any
event that, after giving of notice or the lapse of time, would
constitute a Pay Out Event to occur with respect to any Series;
e. SECURITY INTEREST. Subject, in each case pertaining to proceeds, to
Section 9-306 of the UCC, and further subject to any Liens permitted
under Section 2.07(b) of the Agreement, this Assignment constitutes a
valid sale, transfer and assignment to the Trust of all right, title
and interest of the Depositor in the Receivables now existing or
hereafter created in the Additional Accounts designated by the
Depositor, all moneys due or to become due and all amounts received
with respect thereto and the "proceeds" (including "proceeds" as
defined in the UCC, and Recoveries but excluding Insurance Proceeds)
thereof, relating thereto or, if this Assignment does not constitute a
sale of such property, it constitutes a grant of a "security interest"
(as defined in the UCC), in such property to the Trust, which, in the
case of existing Receivables and the proceeds thereof, is enforceable
upon execution and delivery of this Assignment, and which will be
enforceable with respect to such Receivables hereafter created and the
proceeds thereof upon such creation. Upon the filing of the financing
statements described in Section 3 of this Assignment and, in the case
of the Receivables hereafter created and the proceeds thereof, upon the
creation thereof, the Trust shall have a first priority perfected
security or ownership interest in such property and proceeds.
B-3
<PAGE> 106
f. NO CONFLICT. The execution and delivery by the Depositor of this
Assignment, the performance of the transactions contemplated by this
Assignment and the fulfillment of the terms hereof applicable to the
Depositor, will not conflict with or violate the articles of
association or by-laws of the Depositor or result in any breach of any
of the terms and provisions of, or constitute (with or without notice
or lapse of time or both) a material default under, any material
indenture, contract, agreement, mortgage, deed of trust or other
instrument to which the Depositor is a party or by which it or any of
its properties are bound;
g. NO PROCEEDINGS. There are no proceedings or investigations, pending or,
to the best knowledge of the Depositor, threatened against the
Depositor, before any Governmental Authority (i) asserting the
invalidity of this Assignment, (ii) seeking to prevent the consummation
of any of the transactions contemplated by this Assignment, (iii)
seeking any determination or ruling that, in the reasonable judgment of
the Depositor, would materially and adversely affect the performance by
the Depositor of its obligations under this Assignment or (iv) seeking
any determination or ruling that would materially and adversely affect
the validity or enforceability of this Assignment; and
h. ALL CONSENTS. All authorizations, consents, orders or other actions of
any Person or of any Governmental Authority required to be obtained by
the Depositor in connection with the execution and delivery of this
Assignment by the Depositor and the performance of the transactions
contemplated by this Assignment by the Depositor have been obtained.
6. RATIFICATION OF AGREEMENT. As supplemented by this Assignment, the
Agreement is in all respects ratified and confirmed and the Agreement as so
supplemented by this Assignment shall be read, taken and construed as one and
the same instrument.
7. COUNTERPARTS. This Assignment may be executed in two or more
counterparts (and by different parties on separate counterparts), each of which
shall be an original, but all of which shall constitute one and the same
instrument.
8. GOVERNING LAW. THIS ASSIGNMENT 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.
IN WITNESS WHEREOF, the Depositor and the Trustee have caused this
Assignment to be duly executed by their respective officers as of the day and
year first above written.
ASSET BACKED SECURITIES CORP.,
Depositor,
by __________________________
B-4
<PAGE> 107
Name:
Title:
[TRUSTEE NAME]
Trustee,
by __________________________
Name:
Title:
___________
** To be dated as of the applicable Document Delivery Date.
B-5
<PAGE> 1
Exhibit 4.3.7
================================================================================
FORM OF SERIES 199[ ]-[ ] SUPPLEMENT,
Dated as of [ ], 199[ ]
to
POOLING AND SERVICING AGREEMENT
Dated as of [ ], 199[ ]
$[ ]
-------------------------------
CSFB DEALER FLOORPLAN MASTER TRUST
SERIES 199[ ]-[ ]
-------------------------------
among
ASSET BACKED SECURITIES CORPORATION,
Depositor
[SERVICER NAME],
Servicer
and
[TRUSTEE NAME],
Trustee
on behalf of the Series 199[ ]-[ ] Certificateholders
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
<S> <C>
CREATION OF THE SERIES 199[ ] - [ ] CERTIFICATES..................................................................1
Section 1.01. Designation.....................................................................................1
ARTICLE II
DEFINITIONS.......................................................................................................2
Section 2.01. Definitions.....................................................................................2
ARTICLE III
SERVICER AND TRUSTEE.............................................................................................21
Section 3.01. Servicing Compensation.........................................................................21
ARTICLE IV
RIGHTS OF SERIES 199[ ]-[ ] CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS..................22
Section 4.01. Collections and Allocations....................................................................22
Section 4.02. Determination of Monthly Interest [; Interest Funding Account].................................23
Section 4.03. Determination of Monthly Principal [; Principal Funding Account; Class A
Accumulation Period.] ........................................................................................26
Section 4.04. Required Amount................................................................................29
Section 4.05. Application of Class A Available Funds, Class B Available Funds and Available
Principal Collections ........................................................................................30
Section 4.06. Defaulted Amounts; Investor Charge-Offs........................................................32
Section 4.07. Excess Spread; Excess Finance Charge Collections...............................................34
Section 4.08. Reallocated Principal Collections..............................................................36
Section 4.09. Excess Finance Charge Collections..............................................................36
Section 4.09A. Reallocated Investor Finance Charge Collections...............................................37
[Section 4.10. Shared Principal Collections. Subject to Section 4.04 of the Agreement,
Shared Principal Collections for any Distribution] ...........................................................38
Section 4.11. Reserve Account................................................................................39
Section 4.12. Establishment of Credit Enhancement............................................................40
Section 4.13. Cash Collateral Account........................................................................43
Section 4.14. [Determination of Index.]......................................................................47
Section 4.15. Pre-Funding Account............................................................................47
Section 4.16. Changes in Invested Amount.....................................................................49
ARTICLE V
DISTRIBUTIONS AND REPORTS TO SERIES 199[ ]-[ ] CERTIFICATEHOLDERS................................................49
Section 5.01. Distributions..................................................................................49
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 5.02. Reports and Statements to Series 199[ ]-[ ] Certificateholders.................................50
ARTICLE VI
Section 6.01. [Reinvestment] [Pay Out] Events................................................................51
ARTICLE VII
OPTIONAL PURCHASE; SERIES TERMINATION............................................................................52
Section 7.01. Optional Repurchase.............................................................................52
Section 7.02. Series Termination.............................................................................53
ARTICLE VIII
FINAL DISTRIBUTIONS..............................................................................................53
Section 8.01. Sale of Receivables or Certificateholders' Interest pursuant to Section 2.06 or
10.01 of the Agreement and Section 7.01 or 7.02 of this Supplement ...........................................53
Section 8.02. Distribution of Proceeds of Sale, Distribution or Liquidation of the Receivables
pursuant to Section 9.02 of the Agreement ....................................................................55
ARTICLE IX
MISCELLANEOUS PROVISIONS.........................................................................................56
Section 9.01. Ratification of Agreement......................................................................56
Section 9.02. Counterparts...................................................................................56
Section 9.03. Governing Law..................................................................................57
ARTICLE X
INTERCHANGE......................................................................................................57
Section 10.01. Interchange...................................................................................57
</TABLE>
<PAGE> 4
SERIES 199[ ]-[ ] SUPPLEMENT, dated as of [ ], 199[ ] (the
"Supplement"), between ASSET BACKED SECURITIES CORPORATION, a Delaware
corporation, as Depositor, [SERVICER NAME], as Servicer, and [TRUSTEE NAME], a
[jurisdiction] [form of organization], as Trustee.
Pursuant to the Pooling and Servicing Agreement dated as of [ ], 199[ ]
(as amended and supplemented, the "Agreement"), among the Depositor, the
Servicer and the Trustee, the Depositor has created the CSFB Dealer FloorPlan
Master Trust (the "Trust"). Section 6.03 of the Agreement provides that the
Depositor may from time to time direct the Trustee to authenticate one or more
new Series of Investor Certificates representing fractional undivided interests
in the Trust. The Principal Terms of any new Series are to be set forth in a
Supplement to the Agreement.
Pursuant to this Supplement, the Depositor and the Trustee shall create
a new Series of Investor Certificates and specify the Principal Terms thereof.
ARTICLE I
CREATION OF THE SERIES 199[ ] - [ ] CERTIFICATES
Section 1.01. Designation.
(a) There is hereby created a Series of Investor Certificates to be
issued pursuant to the Agreement and this Supplement to be known as "CSFB Dealer
FloorPlan Master Trust, Series 199[ ]- [ ]". The Series 199[ ]-[ ] Certificates
shall be issued in [one] [two] Class[es], [the first of] which shall be known as
the "Class A Series 199[ ]-[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable
Rate] Asset Backed Certificates" [and the second of which shall be known as the
"Class B Series 199[ ]-[ ] [ %] [Floating Rate] [Adjustable Rate] [Variable
Rate] Asset Backed Certificates"]. [In addition, there is hereby created a third
Class of uncertificated interests in the Trust which, except as expressly
provided herein, shall be deemed to be "Investor Certificates" for all purposes
under the Agreement and this Supplement and which shall be known as the
"Collateral Interest, Series 199[ ]- [ ]". The Collateral Interest Holder shall
deemed to be the Series Enhancer for all purposes under the Agreement and this
Supplement.]
(b) Series 199[ ]-[ ] shall [be included in Group [ ] and shall] [not]
be a Principal Sharing Series. [Group [ ] [shall] [shall not] be a Reallocation
Group.] Series 199[ ]-[ ] shall [not] be subordinated to [Series 199[ ]-[ ]]
[any other Series]. [Describe terms of subordination, if applicable.]
Notwithstanding any provision in the Agreement or in this Supplement to the
contrary, the first Distribution Date with respect to Series 199[ ]-[ ] shall be
the [ ] 199[ ] Distribution Date [and the first Monthly Period shall be the
period from the Closing Date until [ ], 199[ ]].
<PAGE> 5
[(c) Except as expressly provided herein, the provisions of Article VI
and Article XII of the Agreement relating to the registration, authentication,
delivery, presentation, cancellation and surrender of Registered Certificates
shall not be applicable to the Collateral Interest.]
ARTICLE II
DEFINITIONS
Section 2.01. Definitions.
(a) Whenever used in this Supplement, the following words and phrases
shall have the following meanings, and the definitions of such terms are
applicable to the singular as well as the plural forms of such terms and the
masculine as well as the feminine and neuter genders of such terms.
["Accumulation Period" shall mean the Class A Accumulation Period and
the Class B Accumulation Period.]
"Additional Interest" means, with respect to any Distribution Date, the
Class A Additional Interest and the Class B Additional Interest for such
Distribution Date.
["Adjusted Invested Amount" shall mean, with respect to any date of
determination, an amount equal to the Invested Amount less the Principal Funding
Account Balance on such date of determination.]
["Available Cash Collateral Amount" shall mean, with respect to any
Distribution Date, the lesser of (a) the amount on deposit in the Cash
Collateral Account on such date (before giving effect to any deposit to, or
withdrawal from, the Cash Collateral Account to be made with respect to such
date) and (b) the [Initial] [Required] Cash Collateral Amount.]
["Available Collateral Amount" shall mean, with respect to any date of
determination, the lesser of (a) the sum of the amount on deposit in the Cash
Collateral Account and the Collateral Invested Amount and (b) the Required
Collateral Amount.]
["Available Credit Enhancement Amount" shall mean, with respect to any
date of determination, [___________].]
"Available Principal Collections" shall mean, 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 in respect of Principal
Receivables received during such Monthly Period minus (ii) the amount of
Reallocated Principal Collections with respect to such Monthly Period which
pursuant to Section 4.08(a) or (b) are required to fund any deficiency in the
amount to be distributed pursuant to Sections 4.05(a)(i), (ii) and (iii) or
(b)(i), (ii) or (iii) for the related Distribution Date, (b) [Shared Principal
Collections with respect to other Series that are allocated
<PAGE> 6
to Series 199[ ]-[ ] in accordance with Section 4.04 of the Agreement and
Section 4.10 hereof (c)] any other amounts which pursuant to Section 4.07 hereof
are to be treated as Available Principal Collections with respect to the related
Distribution Date [and (d) describe other amounts, if applicable].
["Available Reserve Account Amount" shall mean, with respect to any
Distribution Date, the lesser of (a) the amount on deposit in the Reserve
Account on such date (before giving effect to any deposit to be made to the
Reserve Account on such date) and (b) the Required Reserve Account Amount.]
["Available Shared Collateral Amount" shall mean, with respect to any
date of determination, the lesser of (a) the [Initial] [Required] Shared
Collateral Amount and (b) the excess, if any, of the Available Cash Collateral
Amount on such date over the Initial Class B Collateral Amount.]
"Base Rate" shall mean, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is equal
to the sum of the Class A Monthly Interest, the Class B Monthly Interest
[Collateral Monthly Interest] and the Monthly Servicing Fee with respect to the
related Distribution Date and the denominator of which is the Invested Amount as
of the last day of the preceding Monthly Period.
["Cash Collateral Account" shall have the meaning specified in Section
4.12(a).]
["Cash Collateral Account Investments" shall mean Eligible
investments.]
["Cash Collateral Account Surplus" shall mean, as of any date of
determination, the amount, if any, by which the amount on deposit in the Cash
Collateral Account exceeds the [[lesser of the] Initial Cash Collateral Amount
[and the Adjusted Investor Interest]] [the Required Cash Collateral Amount].]
["Cash Collateral Depositor" shall mean the financial institution or
institutions that are party to the Loan Agreement, such financial institution or
institutions to be selected by the Depositor on or prior to the Closing Date to
make a deposit in the Cash Collateral Account on the Closing Date, or any
successors thereto appointed as provided in the Loan Agreement.]
["Class A Accumulation Period" shall mean, unless a Pay Out Event shall
have occurred prior thereto, the period commencing at the close of business on
[_____________], 199__ [or such later date as is determined in accordance with
Section 4.03(e)] and ending on the first to occur of (a) the commencement of the
Rapid Amortization Period or (b) the payment in full to Class A
Certificateholders of the Class A Invested Amount.]
["Class A Accumulation Period Length" shall have the meaning specified
in Section 4.03(e).
["Class A Additional Interest" shall have the meaning specified in
Section 4.02(e).
<PAGE> 7
["Class A Adjusted Invested Amount" shall mean, with respect to any
date of determination, an amount equal to the Class A Invested Amount less the
Principal Funding Account Balance on such date.]
"Class A Available Funds" shall mean, with respect to any Monthly
Period, an amount equal to the sum of [(a) if such Monthly Period Relates to a
Distribution Date with respect to the Class A Accumulation Period [or an Early
Accumulation Period], the amount of Principal Funding Investment Proceeds, if
any, with respect to such Distribution Date, (b) the Class A Floating Percentage
of the [Investor Finance Charge Collections] [Reallocated Investor Finance
Charge Collections] [, (c) the amount of funds, if any, to be withdrawn from the
Reserve Account which, pursuant to Section 4.11(d), are required to be included
in Class A Available Funds with respect to such Distribution Date] [, (d) [the
Class A Floating Percentage of] any investment earnings (net of investment
losses and expenses) transferred from the Pre-Funding Account to the Collection
Account on the related Distribution Date] [, (e) the amount of Interest Funding
Investment Proceeds, if any, with respect to the related Distribution Date] [and
(f) describe other amounts, if applicable].
"Class A Certificate Rate" shall mean, with respect to the Class A
Certificates, [___% per annum, calculated on the basis of a 360-day year
consisting of twelve 30-day months] [[___]% with respect to the initial Interest
Period, and for each Interest Period thereafter, a per annum rate of [_____]%
[above] [below] [times] [Index] determined on the related Rate Determination
Date, [but in no event in excess of [_______]% per annum], each calculated on
the basis of actual days elapsed and a 360-day year].
"Class A Certificateholder" shall mean the Person in whose name a Class
A Certificate in registered in the Certificate Register.
"Class A Certificates" shall mean any one of the Certificates executed
by the Depositor and authenticated by or on behalf of the Trustee, substantially
in the form of Exhibit A-1.
"Class A Controlled Amortization Period" shall mean, unless a Pay-Out
Event shall have occurred prior thereto, the period commencing on the close of
business [____________], 199_, and ending on the first to occur of (a) the
commencement of the Rapid Amortization Period, (b) the payment in full to Class
A Certificateholders of the Class A Invested Amount or (c) the Termination
Date.]
["Class A Expected Final Payment Date" shall mean the [_____________]
199_ Distribution Date.]
"Class A Floating Percentage" shall mean, 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] Invested
Amount as of the close of business on the last day of the preceding Monthly
Period and the denominator of which is equal to the [Adjusted] Invested Amount
as of such day; provided, however, that with respect to the first Monthly
<PAGE> 8
Period, the Class A Floating Percentage shall mean the percentage equivalent of
a fraction, the numerator of which is the Class A Initial Invested Amount of the
denominator of which is the Initial Invested Amount.
"Class A Initial Invested Amount" shall mean [the portion of the
initial principal amount of the Class A Certificates that is invested in
Principal Receivables on the Closing Date, which is] $______________.
"Class A Interest Shortfall" shall have the meaning specified in
Section 4.02(a).
"Class A Invested Amount" shall mean, on the date of determination, an
amount equal to (a) the Class A Initial Invested Amount, [plus (b) the [amount]
[Class A Floating Percentage] of any withdrawals from the Pre-Funding Account in
connection with the purchase of an additional interest in Principal Receivables
pursuant to Section 4.15,] minus (c) the aggregate amount of principal payment
made to the Class A Certificateholders on or prior to such date [other than any
payments of principal to the Class A Certificateholders from the Pre-Funding
Account], minus (d) the excess, if any, of the aggregate amount of Class A
Investor Charge-Offs for all prior Distribution Dates over Class A Investor
Charge-Offs reimbursed pursuant to Section 4.06(a) prior to such date.
"Class A Investor Charge-Offs" shall have the meaning specified in
Section 4.06(a).
"Class A Investor Default Amount" shall mean, with respect to each
Distribution Date, an amount equal to the product of (i) the Investor Default
Amount for the related Monthly Period and (ii) the Class A Floating Percentage
for such Monthly Period.
"Class A Monthly Interest" shall have the meaning specified in Section
4.02(a).
"Class A Monthly Principal" shall have the meaning specified in Section
4.03(a).
["Class A Principal Draw Amount" shall have the meaning specified in
Section 4.12(i).]
"Class A Principal Percentage" shall mean, 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 A Invested Amount as of the last day of the immediately preceding Monthly
Period and the denominator of which is the Invested Amount as of such day and
(ii) during the [Accumulation Period] [Controlled Amortization 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 A Invested
Amount as of the end of the Revolving Period, and the denominator of which is
the Invested Amount as of the end of the Revolving Period; provided, however,
that with respect to the first Monthly Period, the Class A Principal Percentage
shall mean the percentage equivalent of a fraction, the numerator of which is
the Class A Initial Invested Amount and denominator of which is the Initial
Invested Amount.
["Class A Required Amount" shall have the meaning specified in Section
4.04.]
<PAGE> 9
"Class A Servicing Fee" shall have the meaning specified in Section
3.01.
["Class B Accumulation Period" shall mean the period commencing on the
Class B Principal Commencement Date and ending on the first to occur thereafter
of (a) the commencement of the Rapid Amortization Period, (b) the payment in
full to the Class B Certificateholders of the Class B Invested Amount or (c) the
Termination Date.]
"Class B Additional Interest" shall have the meaning specified in
Section 4.02(b).
["Class B Adjusted Invested Amount" shall mean, with respect to any
date of determination, an amount equal to the Class B Invested Amount less the
Principal Funding Account Balance on such date.]
"Class B Available Funds" shall mean, with respect to any Monthly
Period, an amount equal to the sum of (a) if such Monthly Period relates to a
Distribution Date that occurs on or after the Class B Principal Commencement
Date, the amount of Principal Funding Investment Proceeds [and Interest Funding
Investment Proceeds], if any, with respect to such Distribution Date, (b)] the
Class B Floating Percentage of the [Investor Finance Charge Collections]
[Reallocated Investor Finance Charge Collections] [, (c) the amount of funds, if
any, to be withdrawn from the Reserve Account which pursuant to Section 4.11(d)
are required to be included in Class B Available Funds with respect to such
Distribution Date] [, (d) [the Class B Floating Percentage of] any investment
earnings (net of investment losses and expenses) transferred from the
Pre-Funding Account to the Collection Account on the related Distribution Date]
[and (e) describe other amounts, if applicable].
"Class B Certificate Rate" shall mean, with respect to the Class B
Certificate, [[____]% per annum, calculated on the basis of a 360-day year
consisting of twelve 30-day months] [[____]% with respect to the initial
Interest Period, and for each Interest Period thereafter, a per annum rate of
[____]% [above] [below] [times] [Index] determined on the related Rate
Determination Date, [but in no event in excess of [ ]% per annum,] each
calculated on the basis of actual days elapsed and a 360-day year].
"Class B Certificateholder" shall mean the Person in whose name a Class
B Certificate is registered in the Certificate Register.
"Class B Certificates" shall mean any one of the Certificates executed
by the Depositor and authenticated by or on behalf of the Trustee, substantially
in the form of Exhibit A-2.
["Class B Controlled Amortization Period" shall mean the period
commencing on the Class B Principal Commencement Date and ending on the first to
occur thereafter of (a) the commencement of the Rapid Amortization Period, (b)
the payment in full to the Class B Certificateholders of the Class B Invested
Amount or (c) the Termination Date.]
["Class B Expected Final Payment Date" shall mean the [ ], 199[ ]
Distribution Date.]
<PAGE> 10
"Class B Floating Percentage" shall mean, 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 the last day of the preceding Monthly
Period and the denominator of which is equal to the [Adjusted] Invested Amount
as of the close of business on such day; provided, however, that with respect to
the first Monthly Period, the Class B Floating Percentage shall mean the
percentage equivalent of a fraction, the numerator of which is the Class B
Initial Invested Amount and the denominator of which is the Initial Invested
Amount.
"Class B Initial Invested Amount" shall mean [the portion of the
initial principal amount of the Class B Certificates that is invested in
Principal Receivables on the Closing Date, which is] $___________.
"Class B Interest Shortfall" shall have the meaning specified in
Section 4.02(b).
"Class B Invested Amount" shall mean, on any date of determination, an
amount equal to (a) [the sum of] the Class B Initial Invested Amount [and the
[amount] [Class B Floating Percentage] of any withdrawals from the Pre-Funding
Account in connection with the purchase of an additional interest in Principal
Receivables pursuant to Section 4.15], minus (b) the aggregate amount of
principal payments made to the Class B Certificateholders prior to such date
[(other than (any principal payments made to Class B Certificateholders from the
proceeds of a Reimbursement Draw Amount pursuant to Section 4.12 [(c)] [(g)]
(and) [any payments of principal to the Class B Certificateholders from the
Pre-Funding Account])], minus (c) the aggregate amount of Class B Investor
Charge-Offs for all prior Distribution Dates, minus (d) the amount of
Reallocated Principal Collections allocated on all prior Distribution Dates
pursuant to Section 4.06(a) [(excluding any Reallocated Principal Collections
that have resulted in a reduction in [the Enhancement Invested Amount pursuant
to Section 4-06(c))] (the Collateral Invested Amount pursuant to Section 4.08]],
minus (e) an amount equal to the amount by which the Class B Invented Amount has
been reduced on all prior Distribution Dates pursuant to Section 4.06(a) and
plus (f) the amount of Excess Spread and Excess Finance Charge Collections]
allocated and available on all prior Distribution Dates pursuant to Section
4.07(f) for the purpose of reimbursing amounts deducted pursuant to the
foregoing clauses (c), (d) and (e).
"Class B Investor Charge-Offs" shall have the meaning specified in
Section 4.06(b).
"Class B Investor Default Amount" shall mean, with respect to each
Distribution Date, an amount equal to the product of (i) the Investor Default
Amount for the related Monthly Period and (ii) the Class B Floating Percentage
for such Monthly Period.
"Class B Monthly Interest" shall have the meaning specified in Section
4.02(b).
"Class B Monthly Principal" shall have the meaning specified in Section
4.03(b).
<PAGE> 11
"Class B Principal Commencement Date" shall mean the Distribution Date
on which the Class A Invested Amount is paid in full or, if the Class A Invested
Amount is paid in full [on the Class A Expected Final Payment Date] [during the
Class A Controlled Amortization Period] and the Rapid Amortization Period has
not commenced, the Distribution Date following the Class A Expected Final
Payment Date.
["Class B Principal Draw Amount" shall have the meaning specified in
Section 4.12 (i).]
"Class B Principal Percentage" shall mean, 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 and the denominator of which is the Invested Amount as of such day and
(ii) during the [Class B Accumulation Period] [Class B Amortization 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 end of the Revolving Period, and the denominator of which is
the Class B Invested Amount as of the end of the Revolving Period; provided,
however, that with respect to the first Monthly Period the Class B Principal
Percentage shall mean the percentage equivalent of a fraction, the numerator of
which is the Class B Initial Invested Amount and the denominator of which is the
Initial Invested Amount.
["Class B Required Amount" shall have the meaning set forth in Section
4.04.]
"Class B Servicing Fee" shall have the meaning specified in Section
3.01.
"Closing Date" shall mean [ ], 199[ ].
["Collateral Additional Interest" shall have the meaning specified in
subsection 4.02(e).]
["Collateral Amount" shall mean, for any date of determination, the sum
of (a) the Collateral Invested Amount and (b) the aggregate amount of funds on
deposit in the Cash Collateral Account, in each case on such date.]
["Collateral Available Funds" shall mean with respect to any
Distribution Date, the Collateral Invested Percentage of [Reallocated] Investor
Finance Charge Collections with respect to the preceding Monthly Period.]
["Collateral Cash Surplus" shall mean, as of any date of determination,
the lesser of (a) the Collateral Surplus and (b) the amount on deposit in the
Cash Collateral Account.]
["Collateral Charge-Offs" shall have the meaning specified in Section
4.06(c).]
["Collateral Default Amount" shall mean, with respect to any
Distribution Date, the product of the Investor Default Amount for the related
Monthly Period and the Collateral Invested Percentage.]
<PAGE> 12
["Collateral Initial Invested Amount shall mean $[_______________].]
["Collateral Interest" shall mean a fractional undivided interest in
the Trust which shall consist of the right to receive, to the extent necessary
to make the required payments to the Collateral Interest Holder under this
Supplement, the portion of Collections allocable thereto under the Agreement and
this Supplement, funds on deposit in the Collection Account allocable thereto
pursuant to the Agreement and this Supplement and, subject to the rights of the
Investor Certificateholders with respect thereto, funds on deposit in the Cash
Collateral Account.]
["Collateral Interest Holder" shall mean the entity so designated in
the Loan Agreement.]
["Collateral Interest Shortfall" shall have the meaning specified in
Section 4.02(e).]
["Collateral Invested Amount" shall mean, when used with respect to any
date, an amount equal to (a) the Collateral Initial Invested Amount, minus (b)
the aggregate amount of payments made to the Cash Collateral Depositor pursuant
to Section 4.11 (d) (iii) prior to such date, minus (c) the aggregate amount of
Collateral Charge-Offs for all prior Distribution Dates pursuant to Section
4.06(c), minus (d) the aggregate amount of Reallocated Principal Collections
allocated on all prior Distribution Dates pursuant to Section 4.08 allocable to
the Collateral Invested Amount, minus (e) an amount equal to the amount by which
the Collateral Invested Amount has been reduced on all prior Distribution Dates
pursuant to Sections 4.06 (a) and (b), and plus the amount allocated and
available on all prior Distribution Dates pursuant to Section 4.07(h-5), for the
purpose of reimbursing amounts deducted pursuant to the foregoing clauses (c),
(d) and (e); provided, however, that the Collateral Invested Amount may not be
reduced below zero.]
["Collateral Invested Percentage" shall mean, with respect to any
Distribution Date, the percentage equivalent of a fraction, the numerator of
which is the Collateral Invested Amount as of the last day of the second
preceding Monthly Period and the denominator of which is the Invested Amount as
of such last day.]
["Collateral Monthly Interest" shall mean the monthly interest
distributable in respect of the Collateral Invested Amount as calculated in
accordance with subsection 4.02(e).]
["Collateral Monthly Principal" shall mean the monthly principal
distributable in respect of the Collateral Invested amount as calculated in
accordance with subsection 4.03(b-1).]
["Collateral Rate" shall mean, for any Interest Period, a per annum
rate equal to LIBOR for such Interest Period plus [ ]%.]
["Collateral Servicing Fee" shall have the meaning set forth in Section
3.01.]
["Collateral Surplus" shall mean, with respect to any Distribution
Date, the excess, if any, of (a) the amount on deposit in the Cash Collateral
Account plus the Collateral Invested Amount over (b) the greater of (x) the
Required Collateral Amount or (y) at any time the Class B Invested
<PAGE> 13
Amount is greater than zero and as long As a Rapid Amortization (or Early
Accumulation) Period is not in effect, at the option of the Seller (as evidenced
by written instructions to the Servicer and the Trustee), such higher amount as
the Seller shall specify, from time to time, in such instructions.]
["Controlled Accumulation Amount" shall mean (a) for any Distribution
Date with respect to the Class A Accumulation Period, $[______________][;
provided, however, that, if the Class Accumulation Period Length is determined
to be less than [____] months, the Controlled Accumulation Amount for each
Distribution Date with respect to the Class A Accumulation Period will be equal
to (x) the Class A [Initial] [Series] Invested Amount divided by (y) the number
of Distribution Dates from, and including, the first Distribution Date with
respect to the Class A Accumulation Period to, and including, the Class A
Expected Final Payment Date]; and (b) for any Distribution Date with respect to
the Class B Accumulation Period, $[_________].]
["Controlled Amortization Amount" shall mean (a) for any Distribution
Date with respect to the Class A Controlled Amortization Period, $[______]; and
(b) for any Distribution Date with respect to the Class B Controlled
Amortization Period $[_________].]
["Controlled Amortization Period" shall mean the Class A Controlled
Amortization Period and the Class B Controlled Amortization Period.]
["Controlled Deposit Amount" shall mean, 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.]
["Controlled Distribution Amount" shall mean, for any Distribution Date
with respect to the Controlled Amortization Period, an amount equal to the sum
of the Controlled Amortization Amount for such Distribution Date and any Deficit
Controlled Amortization for the immediately preceding Distribution Date.]
["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 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] [the product of (i) (A) a fraction, the numerator of which is
the actual number of days in the related Interest Period and the denominator of
which is 360, times (B) the Class A Certificate Rate in effect during such
Interest Period, 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 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] [the product of (i) (A) a fraction, the numerator of which is
the actual number of days in the related
<PAGE> 14
Interest Period and the denominator of which is 360, times (B) the Class B
Certificate Rate in effect during such Interest Period, and (ii) the Principal
Funding Account Balance, if any, as of the preceding Distribution Date].]
["Credit Enhancement" shall mean [___________], up to the Available
Credit Enhancement Amount.]
["Credit Enhancement Agreement" shall mean the [_____________________]
agreement among the Depositor, the Servicer and the Credit Enhancement Provider,
dated as of ______________, 199_, as amended or modified from time to time.]
["Credit Enhancement Provider" shall mean [_____________________].]
["Default Draw Amount" shall have the meaning specified in Section
4.12(f).]
["Deficit Controlled Accumulation Amount" shall mean (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 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 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.]
["Early Accumulation Period" shall mean [, unless a Pay Out Event shall
have occurred prior thereto,] the period commencing at the closing of business
on the Business Day" immediately preceding the day on which a Reinvestment Event
with respect to Series 199[ ]-[ ] is deemed to have occurred and ending on [the
first to occur of (a) the commencement of the Rapid Amortization Period or (b)
the payment in full to the Class A Certificateholders and the Class B
Certificateholders of the Class A Invested Amount and the Class B Invested
Amount, respectively.]
["Economic Pay-Out Event" shall mean a Pay Out Event set forth in
Section 6.011(f)] or [ ].]
["Economic Special Payment Date" shall mean the special Payment Date
falling in the Monthly following the Monthly Period in which an Economic Pay-Out
Event is deemed to have occurred.)
["Enhancement Initial Investment Amount" shall mean the aggregate
amount withdrawn from the Cash Collateral Account and applied to the payment of
principal of the Series 199[ ]-[ ] Certificates with respect to the Economic
Special Payment Date, if any, pursuant to Section 4.12 (j) (E) and (F).]
<PAGE> 15
["Enhancement Invested Amount" shall mean, when used with respect to
any date, an amount equal to (a) the Enhancement Initial Invented Amount, minus
(b) the aggregate amount of principal payments made to the Cash Collateral
Depositor pursuant to Section 4.05(d) (iii) prior to such date, minus (c) an
amount equal to the amount by which the Enhancement Invested Amount has been
reduced on all prior Distribution Dates pursuant to Section 4.06, and plus (d)
the aggregate amount of [Excess Finance Charge Collections and] Excess Spread
allocated and available on all prior Distribution Dates pursuant to Section
4.07(h) for the purpose of reimbursing amounts deducted pursuant to the
foregoing clause (c); provided, however, that (i) unless and until a withdrawal
is made from the Cash Collateral Account and applied to the payment of principal
of the Series 199 Certificates with respect to the Economic Special Payment
Date, if any, pursuant to Section 4.12(j)(E) and (F), the Enhancement Invested
Amount shall be zero, and (ii) the Enhancement Invested Amount may not be
reduced below zero.]
"Excess Finance Charge Collections" shall have the meaning specified in
Section 4.07(l).
"Excess Spread" shall mean, with respect to any Distribution Date, the
sum of the amounts, if any specified pursuant to Sections 4.05(a)(iv) and
4.05(b)(iv) with respect to such Distribution Date [plus Collateral Available
Funds as of such Distribution Date].
["Finance Charge Shortfall" shall have the meaning specified in Section
4.09.]
"Floating Allocation Percentage" shall mean, 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 Enhancement 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) and the denominator of which is the product
of (x) the Series 199 [_-_] Allocation Percentage with respect to such Monthly
Period and (y) [the sum of (i)] the total amount of 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 Closing Date) [and (ii) the
principal amount on deposit in the Special Funding Account as of such last day];
provided, however, that with respect to any Monthly Period in which an Addition
Date or a Removal Date occurs the denominator in (x) (i) above shall be the
Series 1991 Allocation Percentage of (1) the aggregate amount of Principal
Receivables in the Trust at the end of the day on the last day of the prior
Monthly Period for the period from and including the first day of such Monthly
Period to but excluding the related Addition Date or Removal Date and (2) the
aggregate amount of Principal Receivables in the Trust at the end of the day on
the related Addition Date or Removal Date for the period from and including the
related Addition Date or Removal Date to and including the last day of such
Monthly Period [; provided further, however, that with respect to any Monthly
Period in which the Invested Amount is increased pursuant to Section 4.15, the
numerator above will be (1) the Invested Amount as of the last day of the prior
Monthly Period for the period from and including the first day of such Monthly
Period to but excluding the day the Invested Amount is increased and (2) the
Invested Amount as of the end of the day on which the Invested Amount is
increased for the period from and including such day to and including the last
day of such Monthly Period.
<PAGE> 16
["Full Invested Amount" shall mean $[__________].]
["Funding Period" shall mean the period beginning on and including the
Closing Date to but excluding the earliest to occur of (x) the day on which the
Invested Amount equals the Full Invested Amount, (y) the commencement of the
Rapid Amortization Period and (z) the ___________, 199_ Distribution Date.]
["Group [ ]" shall mean Series 199[ ]-[ ] and each other Series
specified in the related Supplement to be included in Group [______].]
"Group [__] Investor Additional Amounts" shall mean, with respect to
any Distribution Date, the sum of (a) Series 199_ -_ Additional Amounts for such
Distribution Date and (b) for all other Series included in Group [_], the sum of
(i) the aggregate net amount by which the Invested Amounts of such Series have
been reduced as a result of investor charge-offs, subordination of principal
collections and funding the investor default amounts in respect of any Class or
Series Enhancement interests of such Series as of such Distribution Date and
(ii) if the applicable Supplements so provide, the aggregate unpaid amount of
interest at the applicable certificate rates that has accrued on the amounts
described in the preceding clause (i) for such Distribution Date.
"Group [__] Investor Default Amount" shall mean, with respect to any
Distribution Date, the sum of (a) the Investor Default Amount for such
Distribution Date and (b) the aggregate amount of the investor default amounts
for all other Series included in Group [_] for such Distribution Date.
"Group [ ] Investor Finance Charge and Administrative Collections"
shall mean, with respect to any Distribution Date, the sum of (a) Investor
Finance Charge Collections for such Distribution Date and (b) the aggregate
amount of the investor finance charge collections for all other Series included
in Group [ ] for such Distribution Date.
"Group [ ] Investor Monthly Fees" shall mean with respect to any
Distribution Date, the sum of (a) Series 199[ ]-[ ] Monthly Fees for such
Distribution Date and (b) the aggregate amount of the servicing fees, investor
fees, fees payable to any Series Enhancer and any other similar fees, which are
payable out of reallocated investor finance charge collections pursuant to the
related Supplements, for all other Series included in Group [__] for such
Distribution Date.
"Group [ ] Investor Monthly Interest" shall mean, with respect to any
Distribution Date, the sum of (a) series 1995_-_ Monthly Interest for such
Distribution Date and (b) the aggregate amount of monthly interest, including
overdue monthly interest and interest on such overdue monthly interest, if
applicable, for all other Series included in Group [ ] for such Distribution
Date.
["Index" shall mean [__________].]
<PAGE> 17
["Initial Cash Collateral Amount" shall mean $[________].]
["Initial Class B Collateral Amount" shall mean $[___________].]
["Initial Shared Collateral Amount" shall mean $1[__________].]
"Initial Invested Amount" shall mean [the portion of the initial
principal amount of the Series 199[ ]-[ ] Certificates that is invested in
Principal Receivables on the Closing Date, which is] [the sum of the Class A
Initial Invested amount, the Class B Initial Invested Amount and the Collateral
Initial Invested Amount] $____________.
["Initial Pre-Funding Amount" shall mean $_____.]
["Interest Draw Amount" shall have the meaning specified in Section
4.12 [(b)][(d)].
[ "Interest Funding Account" shall have the meaning set forth in
Section 4.02(c)(i).]
[ "Interest Funding Investment Proceeds" shall have the meaning
specified in Section 4.02(c)(ii).]
"Interest Payment Date" shall mean [the [____]th day of each month]
[each [___________], [___________], [___________] and [___________]] [each
[___________] and [___________] [other] (or, if any such day is not a Business
Day, the next succeeding Business Day), [and the Class A Expected Final Payment
Date and the Class B Expected Final Payment Date] commencing [ ], 199[ ].
["Interest Period" shall mean, with respect to any Interest Payment
Date, the period from and including the Interest Payment Date immediately
preceding such Interest Payment Date (or, in the case of the first Interest
Payment Date, from and including the Closing Date) to but excluding such
interest Payment Date.]
"Invested Amount" shall mean, as of any date of determination, an
amount equal to the sum of (a) the Class A Invested Amount as of such date and
(b) the Class B Invested Amount as of such date [and (c) the Collateral Invested
Amount as of such date].
"Investor Charge-Offs" shall mean Class A Investor Charge-offs and
Class B Investor Charge-Offs [and Collateral Charge-Offs].
"Investor Default Amounts" shall mean, with respect to any Distribution
Date, an amount equal to the product of (a) the Defaulted Amount for the related
Monthly Period and (b) the Floating Allocation Percentage for such Monthly
Period.
"Investor Finance Charge Collections" shall mean with respect to any
Distribution Date, an amount equal to the product of (a) the Floating Allocation
Percentage for the related Monthly
<PAGE> 18
Period and (b) Series 199[ ]-[ ] Allocable Finance Charge Collections deposited
in the Collection Account for the related Monthly Period.
["Loan Agreement" shall mean the agreement among the Depositor, the
Trustee and the [Cash Collateral Depositor] [Collateral Interest Holder], dated
as of the date hereof.]
["Monthly Cash Collateral Fee" shall have the meaning specified in
Section 4.07(g).)
"Monthly Credit Enhancement Fee" shall have the meaning specified in
Section 4.07(g)]
"Monthly Interest" means, with respect to any Distribution Date, the
Class A Monthly Interest and the Class B Monthly Interest and the Collateral
Monthly Interest) for such Distribution Date.
"Monthly Servicing Fee" shall have the meaning specified in Section
3.01.
["Net Servicing Fee Rate" shall mean [_____]%.]
"Payment Date" shall mean any Interest Payment Date and any Special
Payment Date.
["Pay Out Event" shall mean any Pay Out Event specified in Section
6.01.]
["Portfolio Adjusted Yield" shall mean, with respect to any
Distribution Date, the average of the percentages obtained for each of the three
preceding Monthly Periods by subtracting the Bass Rate from the Portfolio Yield
for such Monthly Period and deducting [__]% from the result for each monthly
Period.]
"Portfolio Yield" shall mean, with respect to any Monthly Period, the
annualized percentage equivalent of a fraction, the numerator of which is equal
to (a) the Floating Allocation Percentage with respect to such Monthly Period of
[Investor] [Reallocated Investor] Finance Charge Collections with respect to
such Monthly Period [plus (b) the amount of any Principal Funding Investment
Proceeds for the related Distribution Date] [plus (c) the amount of any interest
Funding investment Proceeds for the related Distribution Date,] (plus (d) any
Excess Finance Charge Collections that are allocated to Series 199 _-_ with
respect to such Monthly Period) (plus (e) the amount of funds, if any, withdrawn
from the Reserve Account which pursuant to Section 4.11(d) are required to be
included as Class A Available Funds or Class B Available Funds for the
Distribution Date with respect to such Monthly Period) minus (f) 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.
["Pre-Funding Account" shall have the meaning specified in Section
4.14(a).)
["Pre-Funding Amount" shall mean the amount on deposit in the
Pre-Funding Account.]
<PAGE> 19
"Principal Allocation Percentage" shall mean, with respect to any day
during a Monthly Period, the percentage equivalent (which percentage shall never
exceed 100) of a fraction, the numerator of which is [the sum, of] (a) during
the Revolving Period, the Series Adjusted Invested Amount as of the last day of
the immediately preceding Monthly Period (or, in the case of the first Monthly
Period, the Initial Invested Amount) and (b) during the [Accumulation Period]
[Early Accumulation Period] [Controlled Amortization Period] or the Rapid
Amortization Period, the Series Adjusted Invested Amount as of the last day of
the Revolving Period [and the Enhancement Investment Amount, if any,] and the
denominator of which is the product of (x) (i) the total amount of Principal
Receivables in the Trust as of the last day of the immediately preceding Monthly
Period (or with respect to the first Monthly Period, the total amount of
Principal Receivables in the Trust as of the Closing Date) [and the principal
amount on deposit in the Special Funding Account as of such last day] and (y)
the Series 199[ ]-[ ] Allocation Percentage with respect to the Monthly Period
in respect of which the Principal Allocation Percentage is being determined;
provided, however, that with respect to any Monthly Period in which an Addition
Date or a Removal Date occurs, the denominator in (x)(i) above shall be the
Series 199[ ]-[ ] Allocation Percentage of (1) the aggregate amount of principal
Receivables in the Trust at the end of the day on the last day of the prior
Monthly Period for the period from and including the first day of such Monthly
Period to but excluding the related Addition Date or Removal Date and (2) the
aggregate amount of Principal Receivables in the Trust at the end of the day on
the related Addition Date or Removal Date for the period from and including the
related Addition Date or Removal Date to and including the last day of such
Monthly Period [; provided, further, however, that with respect to any Monthly
Period in which the Invested Amount is increased pursuant to Section 4.15, the
numerator in (a) above will be (1) the Invested Amount as of the last day of the
prior Monthly Period for the period from and including the first day of such
Monthly Period to but excluding the day the Invested Amount is increased and (2)
the Invested Amount as of the end of the day on which the Invested Amount is
increased for the period from and including such day to and including the last
day of such Monthly Period] [; provided further, however, that if after the
commencement of the [Accumulation Period] [Early Accumulation Period [Controlled
Amortization Period] or the Rapid Amortization Period, a Pay Out Event occurs
with respect to another Series that was designated in the Supplement therefor as
a Series that is a "Paired Series" with respect to Series 199[ ]-[ ], the
Depositor may, by written notice delivered to the Trustee and the Servicer,
designate a different numerator for the foregoing fraction, provided that (x)
such numerator is not less than the [Adjusted] Invested Amount for such Paired
Series as of the last day of the Monthly Period preceding such Pay-Out Event and
(y) the Depositor shall have received written notice from each Rating Agency
that such designation will not have a Ratings Effect and shall have delivered
copies of each such written notice to the Servicer and the Trustee.]
["Principal Funding Account" shall have the meaning specified in
Section 4.03(c)(i).]
["Principal Funding Account Balance" shall mean, with respect to any
date of determination during the Accumulation Period, the principal amount, if
any, on deposit in the Principal Funding Account on such date of determination.]
<PAGE> 20
["Principal Binding Investment Proceeds" shall have the meaning
specified in Section 4.03(c)(ii).]
["Principal Funding Investment Shortfall" shall mean, with respect to
each [Interest] [Monthly] Period during the Accumulation Period, the amount, if
any, by which the Principal Funding Investment Proceeds are less than the
Covered Amount.]
["Principal Shortfall" shall have the meaning specified in Section
4.10.]
"Rapid Amortization Period" shall mean the period commencing at the
close of business on the Business Day immediately preceding the day on which a
Pay-Out Event with respect to Series 199[ ]-[ ] is deemed to have occurred, and
ending on the first to occur of (i) the payment in full to the Class A
Certificateholders and the Class B Certificateholders of the Class A Invested
Amount and the Class B Invested Amount, respectively [, and the payment in full
to the Cash Collateral Depositor of the Enhancement Invested Amount, if any,] or
(ii) the Termination Date.
["Rate Determination Date" shall mean [__________, 199__] for the
period from [__________, 199__] through [__________, 199__], and thereafter,
[__________].]
"Reallocated Investor Finance Charge Collections" shall mean that
portion of Group [__] Investor Finance charge Collections allocated to Series
199[ ]-[ ] [pursuant to Section 4.09A plus any Collections of Finance Charge
Receivables allocated to any Series expressly subordinated to Series 199[ ]-[ ]
which are available for application pursuant to Sections 4.05 and 4.07.]
["Reallocated Principal Collections" shall mean, with respect to any
Monthly Period, the product of (a) the Principal Allocation Percentage of the
aggregate amount of Collections in respect of Principal Receivables deposited in
the Collection Account for such Monthly Period and (b) the [sum of the] Class B
Principal Percentage [and the Collateral Principal Percentage], with respect to
the [Accumulation Period] [Controlled Amortization Period] [early Accumulation
Period] or the Rapid Amortization Period.
"Reassignment Amount" shall mean, with respect to any Distribution
Date, after giving effect to any deposits and distributions otherwise to be made
on such Distribution Date, the sum of (i) the [Adjusted] Invested Amount on such
Distribution Date, [plus (ii) the Enhancement Invested Amount, if any, on such
Distribution Date,] plus (iii) monthly Interest for such Distribution Date and
any Monthly Interest previously due but not distributed to the Series 199[ ]-[ ]
Certificateholders (or deposited to the Interest Funding Account on a prior
Distribution Date, plus (iv) the amount of Additional Interest, if any, or such
Distribution Date and any Additional Interest previously due but not distributed
to the Series 199[ ]-[ ] Certificateholders [or deposited to the Interest
Funding Account] on a prior Distribution Date.
"Reimbursement Draw Amount" shall have the meaning specified in Section
4.12[(c)] [(g)].)
["Reinvestment Event" shall mean any Reinvestment Event specified in
Section 6.01.]
<PAGE> 21
"Required Amount" shall have the meaning specified in Section 4.04.
["Required Cash Collateral Amount" shall mean (i) and (ii) on any
Distribution Date thereafter, ___% the Invested Amount as of the last day of the
Monthly Period preceding such Distribution Date, but not less than $_________;
provided, however, that if either (a) there is a withdrawal from the Cash
Collateral Account pursuant to Section 4.12(c), (d), (e), (f) or (g) [or any
reduction in the Collateral Invested Amount pursuant to clauses (c), (d) or (e)
of the definition thereof] during the Controlled [Amortization] [Accumulation]
Period or (b) a Pay-Out Event [or a Reinvestment Event] with respect to the
Series Certificates 199[ ]-[ ] Certificates has occurred, the Required [Cash]
Collateral Amount for any Distribution Date thereafter shall equal the Required
[Cash] Collateral Amount for the Distribution Date immediately preceding such
withdrawal or Pay-Out Event [or Reinvestment Event].]
"Required Draw Amount" shall have the meaning specified in Section
4.12(c)-l
["Required Reserve Account Amount" shall mean, with respect to any
Distribution Date on or after the Reserve Account Funding Date, an amount equal
to (1) [______]% of the Invested Amount as of the preceding Distribution Date
(after giving effect to all changes therein on such date) or (2) any other
amount designated by the Depositor, provided that the Depositor shall have
received written notice from each Rating Agency that such designation will not
have a Ratings Effect and shall have delivered copies of each such written
notice to the Servicer and the Trustee.]
["Reserve Account" shall have the meaning specified in Section
4.11(a).]
["Reserve Account Funding Date" shall mean (1) the Distribution Date
with respect to the Monthly Period which commences [ ] months prior to the
commencement of the Class A Accumulation Period; provided, that the Depositor
may delay the Reserve Account Funding Date to the Distribution Date which occurs
not later than the earliest of (a) the Distribution Date with respect to the
Monthly Period which commences [__] months prior to the commencement of the
Class A Accumulation Period, (b) the first Distribution Date for which the
Portfolio Adjusted Yield is less than [ ] but in such event the Reserve Account
Funding Date shall not be required to occur earlier than the Distribution Date
with respect to the Monthly Period which commences [ ] months prior to the
commencement of the Class A Accumulation Period, (c) the first Distribution Date
for which the Portfolio Adjusted Yield is less than [__]%, but in such event the
Reserve Account Funding Date shall not be required to occur earlier than the
Distribution Date which commences [ ] months prior to the commencement of the
Class A Accumulation Period, or (d) the first Distribution Date for which the
Portfolio Adjusted Yield is less than [ ]%, but in such event the Reserve
Account Funding Date shall not be required to occur earlier than the
Distribution Date which commences [ ] months prior to the commencement of the
Class A Accumulation Period or (2) any other date designated by the Depositor;
provided, that the Depositor shall have received written notice from each Rating
Agency that such designation will not have a Ratings Effect and shall have
delivered copies of each such written notice to the Servicer and the Trustee.]
<PAGE> 22
["Reserve Account Surplus" shall mean, as of any date of determination,
the amount, if any, by which the amount on deposit in the Reserve Account
exceeds the Required Reserve Account Amount.]
["Reserve Draw Amount" shall have the meaning specified in Section
4.11(c).]
"Revolving Period" shall mean the period beginning at the close of
business on the Series Cut-Off Date and ending on the earlier of (a) the close
of business on the day immediately preceding the day the [Class A Accumulation
Period] [Class A Controlled Amortization Period] commences and (b) the close of
business on the day immediately preceding the day the Early Amortization
[Accumulation] Period commences.
"Series Cut-Off Date" shall mean the close of business on
[__________________ __], 199[_].
"Series 199[ ]-[ ]" shall mean the Series of Certificates the terms of
which are specified in this Supplement.
"Series 199[ ]-[ ] Additional Amounts" shall mean, with respect to any
Distribution Date, the sum of the amounts determined pursuant to Sections
4.07(b), (f) and (h-5) for such Distribution Date.
"Series 199[ ]-[ ] Allocable Finance Charge Collections" shall mean the
Series Allocable Finance Charge Collections with respect to Series 199[ ]-[ ].
"Series 199[ ]-[ ] Allocation Percentage" shall mean the Series
Allocation Percentage with respect to Series 199[ ]-[ ].
"Series 199[ ]-[ ] Certificate" shall mean a Class A Certificate or a
Class B Certificate [or the Collateral Interest].
"Series 199[ ]-[ ] Certificateholder" shall mean a Class A
Certificateholder or a Class B Certificateholder [or the Collateral Interest
Holder].
"Series 199[ ]-[ ] Certificateholders' Interest" shall mean the Class
Certificateholders' Interest and the Class B Certificateholders' Interest [and
the Collateral Interest].
"Series 199[ ]-[ ] Monthly Fees" shall mean, with respect to any
Distribution Date, the amount determined pursuant to Section 4.05(a)(ii) and
(b)(ii) and Section 4.07(h-2)].
"Series 199[ ]-[ ] Monthly Interest" shall mean the amounts determined
pursuant to Sections 4.02(a), (b) and (e); provided, however, that for purposes
of Section 4.09A the amount Determined pursuant to subsection 4.02(e) shall be
determined based on the lesser of the Collateral Rate and [____]% per annum.
<PAGE> 23
"Series 199[ ]-[ ] Principal Shortfall" shall have the meaning
specified in Section 4.10.
"Series Invested Amount" shall mean [the Initial Invested Amount] [the
Initial Invested Amount plus the amount of any withdrawals from the Pre-Funding
Account in connection with the purchase of an additional interest in Principal
Receivables pursuant to Section 4.15] [other formula].
"Series Required Seller Amount" shall mean an amount equal to [__]% of
the Initial Invested Amount.
["Series Interchange" shall mean, for any Monthly Period, the product
of (a) the Floating Allocation Percentage for such Monthly Period and (b) the
portion of Series 199[ ] Allocable Finance Charge Collections with respect to
such Monthly Period that is attributable 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 Enhancement Invested
Amount, if any,] as of the last day of such Monthly Period and (ii) [___]%.]
["Servicing Base Amount" shall have the meaning specified in Section
3.01.]
["Servicing Draw Amount" shall have the meaning specified in Section
4.12(e).]
"Servicing Fee Rate" shall mean [____]%.
["Servicing Draw Amount" shall have the meaning specified in Section
4.12[(d)][(h)].]
"Special Payment Date" shall mean each Distribution Date with respect
to the Rapid Amortization Period.
"Subordinated Series" shall mean any Series which, pursuant to the
terms of the related Supplement, is subordinated in any manner to the Series
199[ ]-[ ] Certificates.
"Subordinated Series Reallocated Principal Collections" shall mean,
with respect to any Distribution Date, that portion of Collections of Principal
Receivables allocable to a Subordinated Series which, pursuant to the terms of
the related Supplement, are to be reallocated to Series 199[ ] - [ ] and treated
as a portion of Available Principal Collections for such Distribution Date.
["Total Draw Amount" shall have the meaning specified in Section
4.12[(e)] [(j)].]
"Termination Date" shall mean the [_________] Distribution Date.
"Depositor Percentage" shall mean 100% minus (a) the Floating
Allocation Percentage, when used at any time with respect to Finance Charge
Receivables and Defaulted Receivables, (b) the Floating Allocation Percentage,
when used with respect to Principal Receivables during
<PAGE> 24
the Revolving Period and (c) the Principal Allocation Percentage, when used with
respect to Principal Receivables during the Controlled [Amortization]
[Accumulation] Period and the Rapid Amortization Period [and any Early
Accumulation Period].
(b) Notwithstanding anything to the contrary in this Supplement or the
Agreement, the term "Rating Agency" shall mean, whenever used in this Supplement
or the Agreement with respect to Series 199[ ]-[ ], [Moody's] [Standard &
Poor's] [other Rating Agency]. As used in this Supplement and in the Agreement
with respect to Series 199[ ]-[ ], "highest investment category" shall mean (i)
in the case of Standard & Poor's, [_____] or [_____], as applicable, and (ii) in
the case of Moody's, [_____] or [_____] as applicable[; provided, however, that
notwithstanding any other provision of the Agreement or this Supplement to the
contrary, for purposes of the investment of funds in the Cash Collateral Account
(but only to the extent such funds exceed the Available Shared Collateral Amount
on any date) and, on and after the Class B Principal Commencement Date, the
Principal Funding Account and the Reserve Account, "highest investment category"
as used in the definition of "Eligible Investments" shall mean (i) in the case
of Standard & Poor's, [_____] or [_____], as applicable, and (ii) in the case of
Moody's, [_____] or [_____], as applicable.]
(c) Each capitalized term defined herein shall relate to the Series
199[ ]-[ ] Certificates and no other Series of Certificates issued by the Trust.
All capitalized terms used herein and not otherwise defined herein have the
meanings ascribed to them in the Agreement. In the event that any term or
provision contained herein shall conflict with or be inconsistent with any term
or provision contained in the Agreement, the terms and provisions of this
Supplement shall govern.
(d) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Supplement shall refer to this Supplement as a whole
and not to any particular provision of this Supplement; references to any
Article, Section or Exhibit are references to Articles, Sections and Exhibits in
or to this Supplement unless otherwise specified; and the term "including" means
"including without limitation."
ARTICLE III
SERVICER AND TRUSTEE
Section 3.01. Servicing Compensation. The share of the Servicing Fee
allocable to the Series 199[ ]-[ ] Certificateholders 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)(i) the sum of the [Adjusted]
Invested Amount [and the Enhancement Invested Amount, if any,] as of the last
day of the Monthly Period preceding such Distribution Date, minus (ii) the
product of the amount, if any, on deposit in the Special Funding Account as of
the last day of the Monthly Period preceding such Distribution Date and the
Floating Allocation Percentage with respect to such Monthly Period (the amount
calculated pursuant to this clause (b) is referred to as the "Servicing Base
Amount"); provided, however, that with respect to the first Distribution Date,
the Monthly Servicing Fee shall be equal to $[__________]. [On each Distribution
Date,
<PAGE> 25
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 in payment of a portion of the Monthly Servicing Fee
with respect to such Monthly Period. 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 insufficiency of Servicer Interchange.] The share of the
Monthly Servicing Fee allocable to the Class A Certificateholders [(after giving
effect to the distribution of Servicer Interchange, if any, 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)
the [Net] Servicing Fee Rate and (c) the Servicing Base Amount; provided,
however, that with respect to the first Distribution Date, the Class A Servicing
Fee shall be equal to $[__________]. The share of the Monthly Servicing Fee
allocable to the Class B Certificateholders [(after giving effect to the
distribution of Servicer Interchange, if any, 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, that
with respect to the first Distribution Date, the Class B Servicing Fee shall be
equal to $[__________]. [The share of the Monthly Servicing Fee allocable to the
Collateral Interest [(after giving effect to the distribution of Servicer
Interchange, if any, to the Servicer)] with respect to any Distribution Date
(the "Collateral Servicing Fee") shall be equal to one-twelfth of the product of
the (a) Collateral Invested Percentage (b) the [Net] Servicing Fee Rate and (c)
the Servicing Base Amount; provided, however, that with respect to the first
Distribution Date, the Collateral Servicing Fee shall be equal to [__________].]
The remainder of the Servicing Fee shall be paid by the Holder of the Depositor
Certificate or the Certificateholders of other Series (as provided in the
related Supplements) and in no event shall the Trust, the Trustee, the Series
199[ ]-[ ] Certificateholders or the [Cash Collateral Depositor] [Credit
Enhancement Provider] be liable for the share of the Servicing Fee to be paid by
the Holder of the Depositor Certificate or the Certificateholders of any other
Series. The (i) Class A Servicing Fee shall be payable to the Servicer solely to
the extent amounts are available for distribution in respect thereof pursuant to
Section 4.05(a)(ii), 4.07(a), 4.08(a) or 4.12(c)]; and the Class B Servicing Fee
shall be payable solely to the extent amounts are available for distribution in
respect thereof pursuant to Section 4.05(b) (ii), 4.07(d) for 4.12(e) [and (iii)
the Collateral Servicing Fee shall be payable solely to the extent amounts are
available for distribution with respect thereto pursuant to Section 4.05[(
1)(i)], 4.05(b)(ii) [or 4.07(h-2)].
ARTICLE IV
RIGHTS OF SERIES 199[ ]-[ ] CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS
Section 4.01. Collections and Allocations.
(a) Allocations. Collections of Finance Charge Receivables and
Principal Receivables and Defaulted Receivables allocated to Series 199[ ]-[ ]
pursuant to Article IV of the Agreement (and, as described herein, Collections
of Finance Charge Receivables reallocates
<PAGE> 26
from other Series in Group [__]) shall be allocated and distributed or
reallocated as set forth in this Article.
(b) Payments to the Depositor. The Servicer shall on Deposit Dates
withdraw from the Collection Account and pay to the Depositor, the following
amounts:
(i) an amount equal to the Depositor's Percentage for the
related Due Period of Series 199[ ]-[ ] Allocable Finance Charge
Collections to the extent such amount is deposited in the Collection
Account; and
(ii) an amount equal to the Depositor's Percentage for the
related Due Period of Series Allocable Principal Collections deposited
in the Collection Account, if the Depositor Amount (determined after
giving effect to any Principal Receivables transferred to the Trust on
such Deposit Date) exceeds zero.
The withdrawals to be made from the Collection Account pursuant to this
Section 4.01(b) do not apply to amounts deposited into the Collection Account
that do not represent Collections, including payment of the purchase price for
the Certificateholders, Interest pursuant to Section 2.06 or 10.01 of the
Agreement, payment of the purchase price for the Series 199[ ]-[ ]
Certificateholders' Interest pursuant to Section 2.06 or 10.01 of this
Supplement and proceeds from the sale, disposition or liquidation of Receivables
pursuant to Section 9.01 or 12.02 of the Agreement.
Section 4.02. Determination of Monthly Interest [; Interest Funding
Account].
(a) The amount of monthly interest ("Class A Monthly Interest")
distributable from the Collection Account with respect to the Class A
Certificates on any Distribution Date shall be an amount equal to [one-twelfth
of] the product of (i) [(A) a fraction, the numerator of which is the actual
number of days in the related Interest Period and the denominator of which is
360, times (B)] the Class A Certificate Rate and (ii) [the sum of (A)] the Class
A Invested Amount [and (B) [the product of the Class A Floating Percentage and]
the Pre-Funding Amount, each] as of close of business on the last day of the
preceding Monthly Period; provided, however, with respect to the first
Distribution Date, Class A Monthly Interest shall be equal to $[__________].
[Class A Monthly Interest shall be calculated on the basis of a 360-day year of
twelve 30-day months.]
On the Determination Date preceding each Distribution Date, the
Servicer shall determine the excess, if any (the "Class A Interest Shortfall"),
of (x) the Class A Monthly Interest for such Distribution Date over (y) the
aggregate amount of funds allocated and available to pay such Class A Monthly
Interest on such Distribution Date (after giving effect to any withdrawal from
the [Cash Collateral Account][Credit Enhancement] with respect to such
Distribution Date). If the Class A Interest Shortfall with respect to any
Distribution Date is greater than zero, an additional amount ("Class A
Additional Interest") equal to [one-twelfth) of the product of (i) [(A) a
fraction, the numerator of which is the actual number of days in the related
Interest Period and the denominator of which is 360, times (B)] the Class A
Certificate Rate and (ii) such Class A
<PAGE> 27
Interest Shortfall (or the portion thereof which has not been paid to the Class
A Certificateholders [or deposited to the Interest Funding Account]) shall be
payable as provided herein with respect to the Class A Certificates on each
Distribution Date following such Distribution Date to and including the
Distribution Date on which a Class A Interest Shortfall is paid to the Class A
Certificateholders. Notwithstanding anything to the contrary herein, Class A
Additional Interest shall be payable or distributed to the Class A
Certificateholders only to the extent permitted by applicable law.
(b) The amount of monthly interest ("Class B Monthly Interest")
distributable from the Collection Account with respect to the Class B
Certificates on any Distribution Date shall be an amount equal to [one-twelfth
of] the product of (i) [(A) a fraction, the numerator of which is the actual
number of days in the related Interest Period and the denominator of which is
360, times (B)] the Class B Certificate Rate and (ii) [the sum of (A)] the Class
B Invested Amount [and (B) [the product of the Class B Floating Percentage and]
the Pre-Funding Amount, each] as of the close of business on the last day of the
preceding Monthly Period; provided, however, with respect to the first
Distribution Date, Class B Monthly Interest shall be equal to $[__________].
[Class B Monthly Interest shall be calculated on the basis of a 360-day year of
twelve 30-day months.]
On the Determination Date preceding each Distribution Date, the
Servicer shall determine the excess, if any (the "Class B Interest Shortfall"),
of (x) the Class B Monthly Interest for such Distribution Date over (y) the
aggregate amount of funds allocated and available to pay such Class B Monthly
Interest on such Distribution Date (after giving effect to any withdrawal from
the [Cash Collateral Account] [Credit Enhancement] with respect to such
Distribution Date). If the Class B Interest Shortfall with respect to any
Distribution Date is greater than zero, an additional amount ("Class B
Additional Interest") equal to [one-twelfth of] the product of (i) [(A) a
fraction, the numerator of which is the actual number of days in the related
Interest Period and the denominator of which is 360, times (B)] the Class B
Certificate Rate and (ii) such Class B Interest Shortfall (or the portion
thereof which has not been paid to the Class B Certificateholders [or deposited
to the Interest Funding Account]) shall be payable as provided herein with
respect to the Class B Certificates on each Distribution Date following such
Distribution Date to and including the Distribution Date on which such Class B
Interest Shortfall is paid to the Class B Certificateholders. Notwithstanding
anything to the contrary herein, Class B Additional Interest shall be payable or
distributed to the Class B Certificateholders only to the extent permitted by
applicable law.
(c) Interest Funding Account.
(i) The Servicer, for the benefit of the Series 199[ ]-[ ]
Certificateholders, shall establish and maintain in the name of the
Trustee, on behalf of the Trust, an Eligible Deposit Account (the
"Interest Funding Account"), bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the Series
199[ ]-[ ] Certificateholders. The Interest Funding Account shall
initially be established with [the Trustee].
<PAGE> 28
(ii) At the direction of the Servicer, funds on deposit in the
Interest Funding Account shall be invested by the Trustee in Eligible
Investments selected by the Servicer. All such Eligible Investments
shall be held by the Trustee for the benefit of the Series 199[ ]-[ ]
Certificateholders; provided, that on each Distribution Date any
interest and other investment income (net of losses and investment
expenses) ("Interest Funding Investment Proceeds") on funds on deposit
therein shall be applied as set forth in paragraph (iii) below. Funds
on deposit in the Interest Funding Account shall be invested in
Eligible Investments that will mature so that such funds will be
available at the close of business on the Transfer Date preceding the
following Distribution Date. Unless the Servicer directs otherwise,
funds deposited in the Interest Funding Account on a Transfer Date
(which immediately precedes a Payment Date) upon the maturity of any
Eligible Investments are not required to be invested overnight.
(iii) On each Distribution Date, the Servicer shall direct the
Trustee to withdraw from the Interest Funding Account and [deposit into
the Collection Account] [pay to the Depositor] all Interest Funding
Investment Proceeds then on deposit in the Interest Funding Account
[and such Interest Funding Investment Proceeds shall be treated as a
portion of (x) prior to the Class B Principal Commencement Date, Class
A Available Funds and (y) thereafter, Class B Available Funds, in each
case for such Distribution Date].
(iv) Reinvested interest and other investment income on funds
deposited in the Interest Funding Account shall not be considered to be
principal amounts on deposit therein for purposes of this Supplement.
(d) Control of Interest Funding Account.
(i) The Trustee shall possess all right, title and interest in
and to all funds on deposit from time to time in the Interest Funding
Account and in all proceeds thereof. The Interest Funding Account shall
be under the sole dominion and control of the Trustee for the benefit
of the Series 199_-_ Certificateholders. If, at any time, the Interest
Funding 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, as to which each Rating
Agency may consent) establish a new Interest Funding Account meeting
the conditions specified in paragraph (c)(i). above as an Eligible
Deposit Account and shall transfer any cash or any investments to such
new Interest Funding Account.
(ii) Pursuant to the authority granted to the Servicer in
Section 3.01(b) of the Agreement, the Servicer shall have the power,
revocable by the Trustee, to make withdrawals and payments or to
instruct the Trustee to make withdrawals and payments from the Interest
Funding Account for the purposes of carrying out the Servicer's or
Trustee's duties hereunder. Pursuant to the authority granted to the
Paying Agent in Section 5.01 of this Supplement and Section 6.07 of the
Agreement, the Paying Agent shall have the power, revocable by the
Trustee, to withdraw funds from the Interest
<PAGE> 29
Funding Account for the purpose of making distributions to the Series
199[ ]-[ ] Certificateholders.
(e) [The amount of monthly interest ("Collateral Monthly Interest")
distributable from the Collection Account with respect to the Collateral
Invested Amount on any Distribution Date shall be an amount equal to
[one-twelfth of] the product of (i) [(A) a fraction, the numerator of which is
the actual number of days in the related Interest Period and the denominator of
which is 360, times (B)] the Collateral Rate in effect with respect to the
applicable Interest Period, (ii) the Collateral Invested Amount as of the close
of business on the preceding Distribution Date (after giving effect to any
increase or decrease in the Collateral Invested Amount on such preceding
Distribution Date); provided that in the case of the first Distribution Date
Collateral Monthly Interest shall be equal to $[ ]. [Collateral Monthly Interest
shall be calculated on the basis of a 360-day year of twelve 30-day months.]
On the Determination Date preceding each Distribution Date, the
Servicer shall determine an amount (the "Collateral Interest Shortfall") equal
to (x) the aggregate Collateral Monthly Interest for the Interest Period
applicable to such Distribution Date minus (y) the amount which will be on
deposit in the Collection Account and allocable to the Collateral Invested
Amount on such Distribution Date. If the Collateral Interest Shortfall with
respect to any Distribution Date is greater than zero, on each subsequent
Distribution Date until such Collateral Interest Shortfall is fully paid, an
additional amount ("Collateral Additional Interest") shall be payable as
provided herein with respect to the Collateral Invested Amount on each
Distribution Date following such Distribution Date, to and including the
Distribution Date on which such Collateral Interest Shortfall is paid to the
Collateral Interest Holder, equal to [one twelfth of] the product of (i) [(A) a
fraction, the numerator of which is the actual number of days in the related
Interest Period and the denominator of which 360, times (B)] the Collateral Rate
in effect with respect to the applicable Interest Period, (ii) such Collateral
Interest Shortfall (or the portion thereof which has not been paid to the
Collateral Interest Holder). Notwithstanding anything to the contrary herein,
Collateral Additional Interest shall be payable or distributed to the Collateral
Interest Holder only to the extent permitted by applicable law.)
Section 4.03. Determination of Monthly Principal [; Principal Funding
Account; Class A Accumulation Period.]
(a) The amount of monthly principal ("Class A Monthly Principal")
distributable from the Collection Account with respect to the Class A
Certificates on each Distribution Date, beginning with the first to occur of (i)
the first Special Payment Date, if any, and (ii) the first Distribution Date
with respect to the [Class A Accumulation Period] [Class A Controlled
Amortization Period] [Early Accumulation Period], shall be equal to the least of
(x) the Available Principal Collections on deposit in the Collection Account
with respect to such Distribution Date, (y) for each Distribution Date with
respect to the [Class A Accumulation Period] [Class A Controlled Amortization
Period], the [Controlled Deposit Amount] [Controlled Distribution Amount] for
such Distribution Date and (z) the Class A [Adjusted] Invested Amount on such
Distribution Date.
<PAGE> 30
(b) The amount of monthly principal ("Class B Monthly Principal")
distributable from the Collection Account with respect to the Class B
Certificates on each Distribution Date, beginning with the Class B Principal
Commencement Date [or during an Early Accumulation Period], shall be equal to
the least of (x) 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), (y) for each Distribution Date with respect to the
[Class B Accumulation Period] [Class B Controlled Amortization Period] the
[Controlled Deposit Amount] [Controlled Distribution Amount] for such
Distribution Date and (z) the Class B [Adjusted] Invested Amount on such
Distribution Date.
[(b-1) The amount of monthly principal ("Collateral Monthly Principal")
distributable from the Collection Account to the Collateral Interest Holder with
respect to the Collateral Interest on each Distribution Date shall be an amount
equal to the lesser of (A) the excess, if any, of the Collateral Invested Amount
(after taking into account adjustments to be made on such Distribution Date
pursuant to Sections 4.06. and 4.08) over the Required Collateral Amount on such
Distribution Date or (B) the Available Principal Collections on such
Distribution Date.]
(c) Principal Funding Account.
(i) The Servicer, for the benefit of the Series 199[ ]-[ ]
Certificateholders, shall establish and maintain in the name of the
Trustee, on behalf of the Trust, an Eligible Deposit Account (the
"Principal Funding Account"), bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the Series
199[ ]-[ ] Certificateholders. The Principal Funding Account shall
initially be established with [the Trustee].
(ii) At the direction of the Servicer, funds on deposit in the
Principal Funding Account shall be invested by the Trustee in Eligible
Investments selected by the Servicer. All such Eligible Investments
shall be held by the Trustee for the benefit of the Series 199[ ]-[ ]
Certificateholders; provided, that on each Distribution Date all
interest and other investment income (net of losses and investment
expenses) ("Principal Funding Investment Proceeds") on funds on deposit
therein shall be applied as set forth in paragraph (iii) below. Funds
on deposit in the Principal Funding Account shall be invested in
Eligible Investments that will mature so that such funds will be
available at the close of business on the Transfer Date preceding the
following Distribution Date. Unless the Servicer directs otherwise,
funds deposited in the Principal Funding Account on a Transfer Date
(which immediately precedes a Payment Date) upon the maturity of any
Eligible Investments are not required to be invested overnight.
(iii) On each Distribution Date with respect to [the
Accumulation Period] [an Early Accumulation Period], the Servicer shall
direct the Trustee to withdraw from the Principal Funding Account and
deposit into the Collection Account all Principal Funding Investment
Proceeds then on deposit in the Principal Funding Account and such
Principal Funding Investment Proceeds shall be treated as a portion of
(x) prior to the Class B
<PAGE> 31
Principal Commencement Date, Class A Available Funds and (y)
thereafter, Class B Available Funds, in each case for such Distribution
Date.
(iv) Reinvested interest and other investment income on funds
deposited in the Principal Funding Account shall not be considered to
be principal amounts on deposit therein for purposes of this
Supplement.
(d) Control of Principal Funding Account.
(i) The Trustee shall possess all right, title and interest in
and to all funds on deposit from time to time in the Principal Funding
Account and in all proceeds thereof. The Principal Funding Account
shall be under the sole dominion and control of the Trustee for the
benefit of the Series 199[ ]-[ ] Certificateholders. If, at any time,
the Principal Funding 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, as to
which each Rating Agency may consent) establish a new Principal Funding
Account meeting the conditions specified in paragraph (c)(i) above as
an Eligible Deposit Account and shall transfer any cash or any
investments to such new Principal Funding Account.
(ii) Pursuant to the authority granted to the Servicer in
Section 3.01(b) of the Agreement, the Servicer shall have the power,
revocable by the Trustee, to make withdrawals and payments or to
instruct the Trustee to make withdrawals and payments from the
Principal Funding Account for the purposes of carrying out the
Servicer's or Trustee's duties hereunder. Pursuant to the authority
granted to the Paying Agent in Section 5.01 of this Supplement and
Section 6.07 of the Agreement, the Paying Agent shall have the power,
revocable by the Trustee, to withdraw funds from the Principal Funding
Account for the purpose of making distributions to the Series
199[ ]-[ ] Certificateholders.]
[(e) The Class A Accumulation Period is scheduled to commence at the
close of business on the last Business Day of [_____]; provided, however, that
if the Class A Accumulation Period Length (determined as described below) is
less than [ ] months, the date on which the Class A Accumulation Period actually
commences will be delayed to the last Business Day of the month that is the
number of months prior to [_____], equal to the Class A Accumulation Period
Length and, as a result, the number of Monthly Periods in the Class A
Accumulation Period will equal the Class A Accumulation Period Length. On the
Determination Date immediately preceding the [_____] Distribution Date, the
Servicer will determine the "Class A Accumulation Period Length" which will be
equal to the product, rounded upwards to the nearest whole number, of (a)
[_____] months and (b) a fraction, the numerator of which is equal to the sum of
(i) the Series Invested Amount, (ii) the series invested amounts of all then
outstanding Series which are not scheduled to be in their revolving periods for
the entire period from [_____] to the last Business Day of [_____], (iii) the
series invested amounts of any other Series which are not Principal Sharing
Series and (iv) the series invested amounts of any other Series designated by
the Depositor in a written notice delivered to the Servicer on or prior to such
<PAGE> 32
Determination Date, and the denominator of which is equal to the series invested
amounts of all then outstanding Series (including Series 199[ ]-[ ]).
Notwithstanding the foregoing, unless a Pay Out Event occurs with respect to
Series 199[ ]-[ ], the Class A Accumulation Period will commence on the last
Business Day of [_____] if, prior to such date, a Pay out Event shall have
occurred with respect to any other Series (other than a Series designated
pursuant to clause (iii) or (iv) above). In addition, if the Class A
Accumulation Period Length shall have been determined to be less than [ ] months
and, after the date on which such determination is made, a Pay Out Event shall
occur with respect to any outstanding Series other than Series 199[ ]-[ ], the
Class A Accumulation Period will commence on the earliest to occur of (i) the
first day of the Monthly Period immediately succeeding the date that such Pay
Out Event shall have occurred with respect to such Series and (ii) the date on
which the Class A Accumulation Period is then scheduled to commence.]
Section 4.04. Required Amount. With respect to each Distribution Date,
on the related Determination Date, the Servicer shall determine the amount (the
"Class A Required Amount"), if any, by which (a) the sum of (i) Class A Monthly
Interest for such Distribution Date, (ii) any Class A Monthly Interest
previously due but not paid to the Class A Certificateholders [or deposited to
the Interest Funding Account] on a prior Distribution Date, (iii) any Class A
Additional Interest previously due but not paid to the Class A
Certificateholders [or deposited to the Interest Funding Account] on a prior
Distribution Date, (iv) the Class A Servicing Fee for such Distribution Date,
(v) any Class A Servicing Fee previously due but not paid to the Servicer, and
(vi) the Class A Investor Default Amount, if any, for such Distribution Date
exceeds (b) the Class A Available Funds. In the event that the [Class A]
Required Amount for such Distribution Date is greater than zero, the Servicer
shall give written notice to the Trustee of such positive Required Amount on the
date of computation.
[(b) With respect to each Distribution Date, on the related
Determination Date, the Servicer shall determine the amount (the "Class B
Required Amount"), if any, by which (a) the sum of (i) Class B Monthly Interest
for such Distribution Date, (ii) any Class B Monthly Interest previously due but
not paid to the Class B Certificateholders, (iii) Class B Additional Interest,
if any, for such Distribution Date and (iv) the Class B Investor Default Amount,
if any, (v) the Class B Servicing Fee for such Distribution Date and (vi) any
Class A Servicing Fee previously due but not paid to the Servicer exceeds (b)
the amounts available therefor pursuant to subsections 4.05(b)(i), (ii) and
(iii) and 4.07(c), (d) or (e) plus any other funds available to the Trust to
cover the amounts referred to in clauses (i) through (vi) above. In the event
that the Class B Required Amount for such Distribution Date is greeter than
zero, the Servicer shall give written notice to the Trustee of such positive
Class B Required Amount on the date of computation.]
Section 4.05. Application of Class A Available Funds, Class B Available
Funds and Available Principal Collections. The Servicer shall apply, or shall
cause the Trustee to apply, on each Distribution Date, Class A Available Funds,
Class B Available Funds and Available Principal Collections on deposit in the
Collection Account with respect to such Distribution Date to make the following
distributions:
<PAGE> 33
(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 Class A Certificateholders [or
deposited to the Interest Funding Account] on a prior Distribution
Date, plus the amount of any Class A Additional Interest for such
Distribution Date and any Class A Additional Interest previously due
but not distributed to Class A Certificateholders [or deposited to the
Interest Funding Account] on a prior Distribution Date, shall be
[distributed to the Paying Agent for payment to the Class A
Certificateholders] [deposited in the Interest Funding Account for
distribution to the Paying Agent for payment to Class A
Certificateholders on the applicable 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, shall be distributed to the Servicer (unless such
amount has been netted against deposits to the Collection Account in
accordance with Section 4.03 of the Agreement);
(iii) an amount equal to the Class A Investor Default Amount
for such Distribution Date shall be treated as a portion of Available
Principal Collections for such Distribution Date; and
(iv) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed as set forth in Section 4.07.
(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 Class B Certificateholders [or
deposited to the Interest Funding Account] on a prior Distribution
Date, plus the amount of any Class B Additional Interest for such
Distribution Date and any Class B Additional Interest previously due
but not distributed to Class B Certificateholders [or deposited to the
Interest Funding Account] on a prior Distribution Date, shall be
[distributed to the Paying Agent for payment to the Class B
Certificateholders] [deposited in the Interest Funding Account for
distribution to the Paying Agent for payment to Class B
Certificateholders on the applicable 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, shall be distributed to the Servicer (unless such
amount has been netted against deposits to the Collection Account in
accordance with Section 4.03 of the Agreement);
<PAGE> 34
(iii) an amount equal to the Class B Investor Default Amount
for such Distribution Date shall be treated as a portion of Available
Principal Collections for such Distribution Date; and
(iv) the balance, if any, shall constitute Excess Spread and
shall be allocated and distributed as set forth in Section 4.07.
(c) On each Distribution Date with respect to the Revolving Period, an
amount equal to the Available Principal Collections deposited in the Collection
Account for the related Monthly Period shall be [treated as Shared Principal
Collections and applied in accordance with Section 4.04 of the Agreement] [paid
to the Holder of the Depositor Certificate only if the Depositor Amount on such
date is greater than the Required Depositor Amount [after giving effect to the
inclusion in the Trust of all Principal Receivables created on such date and
thereafter shall be deposited in the Special Funding Account] [paid to the
Collateral Interest Holder for application in accordance with the Loan Agreement
to the extent of Collateral Monthly Principal for such Distribution Date].
(d) On each Distribution Date with respect to the [Accumulation Period]
[Controlled Amortization Period] [Early Accumulation Period] or the Rapid
Amortization Period, an amount equal to the Available Principal Collections
deposited in the Collection Account for the related Monthly Period will be
distributed in the following priority:
(i) an amount equal to Class A Monthly Principal for such
Distribution Date, up to the Class A [Adjusted] Invested Amount, on
such Distribution Date, shall be [distributed to the Paying Agent for
payment to the Class A Certificateholders] [deposited in the Principal
Funding Account];
(ii) for each Distribution Date [beginning on the Class B
Principal Commencement Date] [during an Early Accumulation Period], an
amount equal to Class B Monthly Principal for such Distribution Date,
up to the Class B Adjusted] Invested Amount on such Distribution Date,
shall be [distributed to the Paying Agent for payment to the Class B
Certificateholders] [deposited in the Principal Funding Account];
(iii) 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, after giving effect to the
distributions referred to above, 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 Enhancement Invested Amount,
if any, shall be distributed to the Cash Collateral Depositor for
application in accordance with the Loan Agreement;] and
(iv) for each Distribution Date, after giving effect to
paragraphs (i), (ii) [and (iii)] above, an amount equal to the balance,
if any, of such Available Principal Collections then on deposit in the
Collection Account [up to an amount equal to Collateral Monthly
Principal for such Distribution Date shall be distributed to the
Collateral Interest Holder for application in accordance with the Loan
Agreement and the
<PAGE> 35
remainder of such Collections] shall be [treated as Shared Principal
Collections and applied in accordance with Section 4.04 of the
Agreement] [paid to the Holder of the Depositor Certificate only if the
Depositor Amount on such date is greater than the Required Depositor
Amount (after giving effect to the inclusion in the Trust of all
Principal Receivables created on such date) and thereafter shall be
deposited in the Special Funding Account].
[(e) On the Distribution Date immediately following the end of the
Funding Period, an amount equal to the amount specified in Section 4.15(b) shall
be withdrawn from the Pre-Funding Account and distributed to the Paying Agent
for payment to the [Class A Certificateholders] [and] [the Class B
Certificateholders] [and the Collateral Interest Holder] [pro rata based on the
ratio of the Class A Invested Amount and the Class B Invested Amount [and the
Collateral Interest], respectively, to the Invested Amount as of the last day of
the related Monthly Period].
Section 4.06. Defaulted Amounts; Investor Charge-Offs.
(a) On each Determination Date, the Servicer shall calculate the Class
A Investor Default Amount, if any, for the related Distribution Date. If, on any
Distribution Date, the [Class A] Required Amount for the related Monthly Period
exceeds the sum of (x) the amount of Reallocated Principal Collections with
respect to such Monthly Period, (y) the amount of Excess Spread [and the Excess
Finance Charge Collections allocable to Series 199[ ]-[ ]] with respect to such
Monthly Period [and (z) the [Available Shared Collateral Amount] [Available
Credit Enhancement Amount] with respect to such Distribution Date, then [the
[Enhancement] [Collateral] Invested Amount, if any, will be reduced by the
amount of such excess, but not by more than the Class A Investor Default Amount
for such Distribution Date. In the event that such reduction would cause the
[Enhancement] [Collateral] Investment Amount to be a negative number, then the
[Enhancement] [Collateral] Invested Amount will be reduced to zero and] the
Class B Invested Amount shall be reduced by the amount [of such excess] [by
which the [Enhancement] [Collateral] Invested Amount would have been reduced
below zero,] but not by more than [the excess, if any, of] the Class A Investor
Default Amount for such Distribution Date [over the amount of such reduction, if
any, of the [Enhancement] [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 shall
be reduced to zero, and the Class A Invested Amount shall 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 Investor Default Amount
for such Distribution Date over the [aggregate] amount of the reductions, if
any, of [the [Enhancement] [Collateral] Invested Amount and] the Class B
Invested Amount for such Distribution Date (a "Class A Investor Charge-Off").
Class A Investor Charge-Offs shall thereafter be reimbursed and the Class A
Invested Amount increased (but not by an amount in excess of the aggregate
unreimbursed Class A Investor Charge-Offs) on any Distribution Date by the
amount of Excess Spread [and Excess Finance Charge Collections] allocated and
available for that purpose pursuant to Section 4.07(b).
<PAGE> 36
(b) On each Determination Date, the Servicer shall calculate the Class
B Investor Default Amount, if any, for the related Distribution Date. If, on any
Distribution Date, the Class B Required Amount for such Distribution Date
exceeds the sum of (x) the amount of Class B Available Funds, Excess Spread [and
Excess Finance Charge Collections] with respect to the related Monthly Period
which are allocated and available to pay such amount pursuant to Section 4.05(b)
(iii) or 4.07(e) and (y) the portion, if any, of the [Available Shared
Collateral Amount] [Available Credit Enhancement Amount] with respect to such
Distribution Date [(after giving effect to any withdrawal from the Cash
Collateral Account to fund the Required Draw Amount with respect to such
Distribution Date)], then [the [Enhancement) [Collateral] Invested Amount shall
be reduced by the amount of such excess. In the event that such reduction would
cause the [Enhancement] [Collateral] Invested Amount to be a negative number,
then the [Enhancement] [Collateral] Invested Amount shall reduced to zero, and]
the Class B Invested Amount shall be reduced by the amount [of such excess] [by
which the [Enhancement] [Collateral] Invested Amount would have been reduced
below zero,] but not by more than the Class B Investor Default Amount for such
Distribution Date (a "Class B Investor Charge-Off"). Class B Investor
Charge-Offs shall thereafter be reimbursed and the Class B Invested Amount
increased (but not by an amount in excess of the aggregate unreimbursed Class B
Investor Charge-Offs) on any Distribution Date by the amount of Excess Spread
[and Excess Finance Charge Collections] allocated and available for that purpose
pursuant to Section 4.07(f).
(c) If on any Distribution Date Reallocated Principal Collections for
such Distribution Date are applied pursuant to Section 4.08(a), then [the
[Enhancement] [Collateral] Invested Amount shall be reduced by the amount of
such Reallocated Principal Collections. If such reduction would cause the
[Enhancement] [Collateral] Invested Amount to be a negative number, then the
[Enhancement] [Collateral] Invested Amount shall be reduced to zero, and] the
Class B Invested Amount shall be reduced by the amount [of such Reallocated
Principal Collections] [by which the [Enhancement] [Collateral] Invested Amount
would have been reduced below zero]. [On each Determination Date, the Servicer
shall calculate the Collateral Default Amount. If on any Distribution Date the
Collateral Default Amount for the previous Monthly Period exceeds the amount of
Collateral Available Funds, Excess Spread [and Excess Finance Charge
Collections] with respect to the related Monthly Period which are allocated and
available to pay such amount pursuant to Section 4.07(h-3), then the Collateral
Interest will be reduced by the amount of such excess but not by more than the
lesser of the Collateral Default Amount and the Collateral Interest for such
Distribution Date (a "Collateral Charge-Off"). The Collateral Interest will
after any reduction pursuant to this Section 4.06 be reimbursed on any
Distribution Date by the amount of Excess Spread [and Excess Finance Charge
Collections] allocated and available on such Distribution date for that purpose
as described under Section 4.07(h-4).]
Section 4.07. Excess Spread; Excess Finance Charge Collections. The
Servicer shall apply, or shall cause the Trustee to apply, on each Distribution
Date, Excess Spread [and Excess Finance Charge Collections allocated to Series
199[ ]-[ ]] with respect to the related monthly Period, to make the following
distributions in the following order of priority:
(a) an amount equal to the [Class A] Required Amount, if any, with
respect to such Distribution Date shall be distributed by the Trustee to fund
any deficiency pursuant to Sections
<PAGE> 37
4.05(a)(i), (ii) and (iii); provided, that in the event the Required Amount for
such Distribution Date exceeds the amount of Excess Spread [and Excess Finance
Charge Collections allocated to Series 199-_-], then such Excess Spread [and
Excess Finance Charge Collections] shall be applied first to pay amounts due
with respect to such Distribution Date pursuant to Section 4.05(a)(i), second to
pay the Class A Servicing Fee pursuant to Section 4.05(a)(ii) and third to pay
the Class A Investor Default Amount for such Distribution Date pursuant to
Section 4.05(a)(iii);
(b) an amount equal to the aggregate amount of Class A Investor
Charge-Offs which have not been previously reimbursed as provided in Section
4.06(a) (after giving effect to the allocation on such Distribution Date of any
amount for that purpose pursuant to Section 4.06(a)) shall be treated as a
portion of Available Principal Collections for such Distribution Date;
(c) an amount equal to the sum of (i) any Class B Monthly Interest due
but not distributed to the Class B Certificateholders [or deposited to the
Interest Funding Account] either on such Distribution Date or a prior
Distribution Date and (ii) the amount of any Class B Additional Interest
previously due but not distributed to the Class B Certificateholders [or
deposited to the Interest Funding Account] either on such Distribution Date or a
prior Distribution Date, after giving effect to the allocation in section
4.05(b)(i), shall be [distributed to the Paying Agent for payment to the Class B
Certificateholders] [deposited in the Interest Funding Account for distribution
to the Paying Agent for payment to Class B Certificateholders on the applicable
Payment Date];
(d) an amount equal to any Class B Servicing Fees due but not paid to
the Servicer either on such Distribution Date or a prior Distribution Date,
after giving effect to the allocation in Section 4.05(b)(iii), shall be paid to
the Servicer;
(e) an amount equal to the remaining Class B Investor Default Amount
for such Distribution Date, after giving effect to the allocation in Section
4.05(b)(iii), shall be treated as a portion of Available Principal Collections
for such Distribution Date;
(f) an amount equal to the aggregate amount by which the Class B
Invested Amount has been reduced pursuant to clauses (c), (d) and (e) of the
definition of "Class B Invested Amount" in Section 2.01 of this Supplement (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 Cash Collateral Fee" (as defined
in the Loan Agreement) for such Distribution Date shall be distributed to the
Cash Collateral Depositor for application in accordance with the Loan Agreement]
[an amount equal to the "Monthly Credit Enhancement Fee" (as defined in the
Credit Enhancement Agreement) shall be distributed to the Credit Enhancement
Provider];
[(h-1) an amount equal to Collateral Monthly Interest for the related
Distribution Date, plus the amount of any Collateral Monthly Interest previously
due but not distributed to the
<PAGE> 38
Collateral Interest Holder on a prior Distribution Date, plus the amount of any
Collateral Additional Interest for such Distribution Date and any Collateral
Additional Interest previously due but not distributed to the Collateral
Interest Holder on a prior Distribution Date, shall be distributed to the
Collateral Interest Holder for application in accordance with the Loan
Agreement;]
[(h-2) an amount equal to the Collateral Servicing Fee for such
Distribution Date and any Collateral Servicing Fee due but not paid to the
Servicer on a prior Distribution Date shall be paid to the Servicer;]
[(h-3) an amount equal to the Collateral Default Amount, if any, for
the prior Monthly Period shall be treated as a portion of Available Principal
Collections for such Distribution Date;]
[(h-4) an amount equal to the aggregate amount by which the
[Enhancement] [Collateral] Invested Amount has been reduced pursuant to clause
(c) of the definition of "[Enhancement] [Collateral] Invested Amount" (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 with respect to such Distribution Date;]
(i) [prior to the occurrence of an Economic Early Amortization Event,]
an amount up to the excess, if any, of the [Initial] [Required] Cash Collateral
Amount over the Available Cash Collateral Amount shall be deposited into the
Cash Collateral Account in accordance with the Loan Agreement;]
[(j) on each Distribution Date from and after the Reserve Account
Funding Date, but prior to the date on which the Reserve Account terminates as
described in Section 4.11(f), an amount up to the excess, if any, of the
Required Reserve Account Amount over the Available Reserve Account Amount shall
he deposited into the Reserve Account;]
[(k) an amount equal to the aggregate of any other amounts then due to
the [Cash Collateral Depositor] [Credit Enhancement Provider] pursuant to the
[Loan Agreement] [Credit Enhancement Agreement] (to the extent such amounts are
payable pursuant to the [Loan Agreement] [Credit Enhancement Agreement] out of
Excess Finance Charge Collections and Excess Spread) shall be distributed to the
[Cash Collateral Depositor] [Credit Enhancement Provider] for application in
accordance with the [Loan Agreement] [Credit Enhancement Agreement];] and
[(l) the balance, if any, will constitute a portion of Excess Finance
Charge Collections for such Distribution Date and will be available for
allocation to other Series in Group [ ] or to the Depositor as described in
Section 4.05 of the Agreement.]
Section 4.08. Reallocated Principal Collections. The Servicer shall
apply, or shall cause the Trustee to apply, on each Distribution Date
Reallocated Principal Collections with respect to such Distribution Date, to
make the following distributions in the following order of priority:
<PAGE> 39
(a) an amount equal to the excess, if any, of (i) the [Class A]
Required Amount, if any, with respect to such Distribution Date over (ii) [the
sum of (x)] the amount of Excess Spread [and Excess Finance Charge Collections
allocated to Series 199[ ]-[ ]] with respect to the related Monthly Period [and
(y) the [Available Shared Collateral Amount] [Available Credit Enhancement
Amount] with respect to such Distribution Date,] shall be distributed by the
Trustee to fund any deficiency pursuant to Sections 4.05(a)(i), (ii) and (iii);
and
[(b) an amount equal to the excess, if any, of (i) the Class B Required
Amount, if any, with respect to such Distribution Date over (ii) the amount of
Excess Spread [and Excess Finance Charge Collections] allocated and available to
the Class B Certificates pursuant to subsection 4.07(c), (d) and (e) on such
Distribution Date shall be applied pursuant to subsections 4.05(b)(i), (ii) and
(iii)].
(c) the balance, if any, shall be treated as a portion of Available
Principal Collections for such Distribution Date.
On each Distribution Date, the Collateral Interest shall be reduced by
the amount of Reallocated Principal Collections for such Distribution Date. In
the event that such reduction would cause the Collateral Interest (after giving
to any Collateral Charge-Offs for such Distribution Date) to be a negative
number, then the Collateral Interest (after giving effect to any Collateral
Charge-Offs for such Distribution Date) shall be reduced to zero and the Class B
Investor Interest shall be reduced by the amount by which the Collateral
Interest would have been reduced below zero. In the event that the reallocation
of Reallocated Principal Collections would cause the Class B Investor Interest
(after giving effect to any Class B Investor Charge-Offs for such Distribution
Date) to be a negative number on any Distribution Date, then Reallocated
Principal Collections shall be reallocated on such Distribution Date in an
aggregate amount not to exceed the amount which would cause the Class B Investor
Interest (after giving to any Class B Investor Charge-Offs for such Distribution
Date) to be reduced to zero. References to "negative numbers" above shall be
determined without regard to the requirement that the Invested Amount of a Class
not be reduced below zero.)
[Section 4.09. Excess Finance Charge Collections. Series 199[ ]-[ ]
shall be included in Group [ ]. Subject to Section 4.05 of the Agreement, Excess
Finance Charge Collections with respect to the Series in Group [ ] for any
Distribution Date will be allocated to Series 199[ ]-[ ] in an amount equal to
the product of (x) the aggregate amount of Excess Finance Charge Collections
with respect to all the Series in Group [ ] for such Distribution Date and (y) a
fraction, the numerator of which is the Finance Charge Shortfall for Series
199_-_ for such Distribution Date and the denominator of which is the aggregate
amount of Finance Charge Shortfalls for all the Series in Group [ ] for such
Distribution Date. The "Finance Charge Shortfall" for Series 199[ ]-[ ] for any
Distribution Date will be equal to the excess, if any, of (a) the full amount
required to be paid, without duplication, pursuant to Sections 4.05(a), 4.05(b)
and 4.07 on such Distribution Date over (b) the sum of (i) the Floating
Allocation Percentage of Collections of Finance Charge Receivables with respect
to the related Monthly Period (including any investment earnings that are to be
treated as Collections of Finance Charge Receivables in
<PAGE> 40
accordance with the Agreement), [(ii) if such Monthly Period relates to a
Distribution Date with respect to the Accumulation Period [or an Early
Accumulation Period], the amount of Principal Funding Investment Proceeds and
Interest Funding Investment Proceeds, if any, with respect to such Distribution
Date, [(iii) the amount of funds, if any, to be withdrawn from the Reserve
Account which, pursuant to Section 4.11(d), are required to be included in Class
A Available Funds or Class B Available Funds with respect to such Distribution
Date,] [(d) any investment earnings (net of investment losses and expenses)
transferred from the Pre-Funding Account to the Collection Account on the
related Distribution Date] [and (e) describe other amounts].
Section 4.09A. Reallocated Investor Finance Charge Collections.
(a) That portion of Group [____] Investor Finance Charge Collections
for any Distribution Date equal to the amount of Reallocated Investor Finance
Charge Collections for such Distribution Date will be allocated to Series
199[ ]-[ ] and will be distributed as set forth in this Supplement.
(b) Reallocated Investor Finance Charge and Administrative Collections,
with respect to any Distribution Date shall equal the sum of (i) the aggregate
amount of Series 199[ ]-[ ] Monthly Interest, Investor Default Amount, Series
199[ ]-[ ] Monthly Fees and Series 199[ ]-[ ] Additional Amounts for such
Distribution Date and (ii) that portion of excess Group [____] Investor Finance
Charge Collections to be included in Reallocated Investor Finance Charge
Collections pursuant to subsection (c) hereof; provided, however, that if the
amount of Group [____] Investor Finance Charge Collections for such Distribution
Date is less than the sum of (w) Group [____] Investor Monthly Interest, (x)
Group [____] Investor Default Amount, (y) Group [____] Investor Monthly Fees and
(z) Group [____] Investor Additional Amounts, then Reallocated Investor Finance
Charge Collections shall equal the sum of the following amounts for such
Distribution Date:
(A) The product of (I) Group [____] Investor Finance Charge
Collections (up to the amount of Group [____] Investor Monthly
Interest) and (II) a fraction, the numerator of which is Series
199[ ]-[ ] Monthly Interest and the denominator of which is Group
[____] Investor Monthly Interest;
(B) the product of (I) Group [____] Investor Finance Charge
Collections less the amount of Group [____] Investor Monthly Interest
(up to the Group [____] Investor Default Amount) and (II) a fraction,
the numerator of which is the Investor Default Amount and the
denominator of which is the Group [____] Investor Default Amount;
(C) the product of (I) Group [____] Investor Finance Charge
Collections less the amount of Group [____] Investor Monthly Interest
and the Group [____] Investor Default Amount (up to Group [____]
Investor Monthly Fees) and (II) a fraction, the numerator of which is
Series 199[ ]-[ ] Monthly Fees and the denominator of which is Group
[____] Investor Monthly Fees; and
<PAGE> 41
(D) the product of (I) Group [____] Investor Finance Charge
Collections less the sum of (i) Group [____] Investor Monthly Interest,
(ii) the Group [____] Investor Default Amount and (iii) Group [____]
Investor Monthly Fees and (II) a fraction, the numerator of which is
Series 199[ ]-[ ] Additional Amounts and the denominator of which is
Group [____] Investor Additional Amounts.
(c) If the amount of Group [____] Investor Finance Charge Collections
for such Distribution Date exceeds the sum of (i) Group [____] Investor Monthly
Interest, (ii) Group [____] Investor Default Amount, (iii) Group [____] Investor
Monthly Fees and (iv) Group [____] Investor Additional Amounts, then Reallocated
Investor Finance Charge Collections for such Distribution Date shall include an
amount equal to the product of (x) the amount of such excess and (y) a fraction,
the numerator of which is the Invested Amount as of the last day of the second
preceding Due Period and the denominator of which is the sum of such Invested
Amount and the aggregate invested amounts for all other Series included in Group
[____] as of such last day.
[Section 4.10. Shared Principal Collections. Subject to Section 4.04 of
the Agreement, Shared Principal Collections for any Distribution] Date will be
allocated to Series 199[ ]- [ ] in an amount equal to the product of (x) the
aggregate amount of Shared Principal Collections with respect to all Principal
Sharing Series for such Distribution Date and (y) a fraction, the numerator of
which is the Principal Shortfall for Series 199[ ]-[ ] for such Distribution
Date and the denominator of which is the aggregate amount of Principal
Shortfalls for all the Series which are Principal Sharing Series for such
Distribution Date. The Principal Shortfall for Series 199[ ]-[ ] will be equal
to (a) for any Distribution Date with respect to the Revolving Period, zero, (b)
for any Distribution Date with respect to the [Accumulation Period] [Controlled
Amortization Period], the excess, if any, of the [Controlled Deposit Amount]
[Controlled Distribution Amount] with respect to such Distribution Date over the
amount of Available Principal Collections for such Distribution Date (excluding
any portion thereof attributable to Shared Principal Collections) and (c) for
any Distribution Date with respect to the [Rapid Amortization] [Early
Accumulation] Period, the excess, if any, of [the sum of] the Invested Amount
[and the Enhancement Invested Amount, if any,] over the amount of Available
Principal Collections for such Distribution Date (excluding any portion thereof
attributable to Shared Principal Collections).]
Section 4.11. Reserve Account.
(a) The Servicer shall establish and maintain, in the name of the
Trustee, on behalf of the Trust, for the benefit of the Series 199[ ]-[ ]
Certificateholders, an Eligible Deposit Account (the "Reserve Account") bearing
a designation clearly indicating that the funds deposited therein are held for
the benefit of the Series 199[ ]-[ ] Certificateholders. The Reserve Account
shall initially be established with [the Trustee]. The Trustee shall possess all
right, title and interest in and to all funds on deposit from time to time in
the Reserve Account and in all proceeds thereof. The Reserve Account shall be
under the sole dominion and control of the Trustee for the benefit of the Series
199[ ]-[ ] Certificateholders. If at any time the Reserve Account ceases to be
an Eligible Deposit Account, the Trustee (or the Servicer on its behalf) shall
within 10 Business
<PAGE> 42
Days (or such longer period, not to exceed 30 calendar days, as to which each
Rating Agency shall consent) establish a new Reserve Account meeting the
conditions specified above as an Eligible Deposit Account, and shall transfer
any cash or any investments to such new Reserve Account. The Trustee, at the
direction of the Servicer, shall (i) make withdrawals from the Reserve Account
from time to time in an amount up to the Available Reserve Account Amount at
such time, for the purposes set forth in this Supplement, and (ii) on each
Distribution Date (from and after the Reserve Account Funding Date) prior to the
termination of the Reserve Account make a deposit into the Reserve Account in
the amount specified in, and otherwise in accordance with, Section 4.07(j).
(b) Funds on deposit in the Reserve Account shall be invested at the
direction of the Servicer by the Trustee in Eligible Investments. Funds on
deposit in the Reserve Account on any Transfer Date, after giving effect to any
withdrawals from the Reserve Account on such Transfer Date, shall be invested in
such investments that will mature so that such funds will be available for
withdrawal on or prior to the following Transfer Date. The Trustee shall
maintain for the benefit of the Series 199[ ]-[ ] Certificateholders possession
of the negotiable instruments or securities, if any, evidencing such Eligible
Investments. No Eligible Investment shall be disposed of prior to its maturity;
provided, however, that the Trustee may sell, liquidate or dispose of an
Eligible Investment before its maturity, if so directed by the Servicer, the
Servicer having reasonably determined that the interests of the Series
199[ ]-[ ] Certificateholders may be adversely affected if such Eligible
Investment is held to its maturity. On each Distribution Date, all interest and
earnings (net of losses and investment expenses) accrued since the preceding
Distribution Date on funds on deposit in the Reserve Account shall be retained
in the Reserve Account (to the extent that the Available Reserve Account Amount
is less than the Required Reserve Account Amount) and the balance, if any, shall
be distributed to [the Cash Collateral Depositor for application in accordance
with the Loan Agreement] [the Depositor]. For purposes of determining the
availability of funds or the balance in the Reserve Account for any reason under
this Supplement, except as otherwise provided in the preceding sentence,
investment earnings on such funds shall be deemed not to be available or on
deposit.
(c) On the Determination Date preceding each Distribution Date with
respect to the Accumulation Period and the first Special Payment Date, the
Servicer shall calculate the "Reserve Draw Amount" which shall be equal to 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 such amount
will be reduced to the extent that funds otherwise would be available for
deposit in the Reserve Account under Section 4.07(j) with respect to such
Distribution Date or Special Payment Date.
(d) In the event that for any Distribution Date the Reserve Draw Amount
is greater than zero, the Reserve Draw Amount, up to the Available Reserve
Account Amount, shall be withdrawn from the Reserve Account on the related
Transfer Date by the Trustee (acting in accordance with the instructions of the
Servicer), deposited into the Collection Account and included in (i) prior to
the Class B Principal Commencement Date, Class A Available Funds and (ii)
thereafter, the Class B Available Funds, in each case for such Distribution
Date.
<PAGE> 43
(e) In the event that the Reserve Account Surplus on any Distribution
Date, after giving effect to all deposits to and withdrawals from the Reserve
Account with respect to such Distribution Date, is greater than zero, the
Trustee, acting in accordance with the instructions of the Servicer, shall
withdraw from the Reserve Account, and pay to [the Cash Collateral Depositor for
application in accordance with the Loan Agreement] [the Depositor], an amount
equal to such Reserve Account Surplus.
(f) Upon the earliest to occur of (i) the day on which the Invested
Amount is paid in full to the Series 199[ ]-[ ] Certificateholders, (ii) if the
Accumulation Period has not commenced, the occurrence of a Pay Out Event with
respect to Series 199[ ]-[ ] and (iii) if the Accumulation Period has commenced,
the earlier of the first Special Payment Date and the Class B Expected Final
Payment Date, the Trustee, acting in accordance with the instructions of the
Servicer, after the prior payment of all amounts owing to the Series 199[ ]-[ ]
Certificateholders which are payable from the Reserve Account as provided
herein, shall withdraw from the Reserve Account and pay to [the Depositor] [the
Cash Collateral Depositor for application in accordance with the Loan
Agreement,] all amounts, if any, on deposit in the Reserve Account and the
Reserve Account shall be deemed to have terminated for purposes of this
Supplement.]
Section 4.12. Establishment of Credit Enhancement.
(a) The Servicer shall:
(i) [obtain] [establish] the Credit Enhancement [for the
account] [in the name of] of the Trustee and solely for the benefit of
the Class B Certificateholders,
(ii) enter into the Credit Enhancement Agreement which
provides for [ ], and
(iii) ensure that the Credit Enhancement will permit the
Trustee (or the Servicer on its behalf) to make withdrawals from time
to time in an amount up to the Available Credit Enhancement Amount at
such times and for the purposes set forth in this Supplement.
Such withdrawals shall be made in the priority set forth below and the Available
Credit Enhancement Amount will be reduced by the amount of each such withdrawal
as provided in the definition thereof set forth in Section 2.01 of this
Supplement. The Credit Enhancement Provider shall not be entitled to
reimbursement for any withdrawals, interest or fees with respect to the Credit
Enhancement from the corpus of the Trust except as specifically provided herein.
(b) On each Determination Date, the Servicer shall calculate the amount
(the "Required Draw Amount") (determined after giving effect to any distribution
to be made pursuant to Section 4.05(a) on the related Distribution Date) equal
to the excess, if any, of (i) the Required Amount, if any, with respect to such
Distribution Date over (ii) the amount of Excess Spread [and Excess Finance
Charge Collections allocated to Series 199[ ]-[ ]] to be allocated and available
pursuant to Section 4.07(a) to fund such Required Amount on such Distribution
Date.
<PAGE> 44
(c) On each Determination Date, the Servicer shall calculate the amount
(the "Interest Draw Amount") (determined after giving effect to any distribution
to be made pursuant to Section 4.05(b)(i) and Section 4.07(c) on the related
Distribution Date) of (i) any Class B Monthly Interest due but not distributed
to the Class B Certificateholders [or deposited in the Interest Funding Account]
on such Distribution Date pursuant to Section 4.05(b)(i) or Section 4.07(c),
(ii) any Class B Monthly Interest previously due but not distributed to the
Class B Certificateholders [or deposited in the Interest Funding Account] on a
prior Distribution Date pursuant to Section 4.05(b)(i) or Section 4.07(c) or
this paragraph (d) and (iii) any Class B Additional Interest due but not to be
distributed to the Class B Certificateholders [or deposited in the Interest
Funding Account] on such Distribution Date and any Class B Additional Interest
previously due but not distributed to the Class B Certificateholders [or
deposited in the Interest Funding Account] on a prior Distribution Date pursuant
to Section 4.05(b)(i) or Section 4.07(c) or this paragraph (d).
(d) On each Determination Date, the Servicer shall calculate the amount
(the "Servicing Draw Amount") equal to the excess, if any, of (i) the Class B
Servicing Fee for the related Distribution Date over (ii) the amount of
Available Class B Funds, Excess Spread [and Excess Finance Charge Collections
allocated to Series 199[ ]-[ ]] to be allocated and available pursuant to
Section 4.05(b)(ii) and Section 4.07(d) to fund such Class B Servicing Fee on
such Distribution Date.
(e) On each Determination Date, the Servicer shall calculate the amount
(the "Default Draw Amount") equal to the excess, if any, of (i) the Class B
Investor Default Amount for the related Distribution Date over (ii) the amount
of Class B Available Funds, Excess Spread [and Excess Finance Charge Collections
allocated to Series 199[ ]-[ ]] to be allocated and available pursuant to
Section 4.05(b)(iii) and Section 4.07(e) to fund such Class B Investor Default
Amount on such Distribution Date.
(f) On each Determination Date (commencing with the Determination Date
preceding the Class B Principal Commencement Date), the Servicer shall calculate
the amount (the "Reimbursement Draw Amount") equal to the excess, if any, of (i)
the Class B Initial Invested Amount minus the sum of the aggregate amount of
principal payments previously distributed to Class B Certificateholders [or
deposited to the Principal Funding Account in respect to the Class B
Certificates] over (ii) the Class B Invested Amount on the last day of the
related Monthly Period (determined after giving effect to any change to be made
in the Class B Invested Amount pursuant to clause (c), (d), (e) or (f) of the
definition of "Class B Invested Amount" on the following Distribution Date).
(g) Notwithstanding Section 4.12(f), if either (i) the
Certificateholders' Interest in the Receivables is reassigned to the Depositor
pursuant to Section 2.06 of the Agreement, (ii) Receivables are sold, disposed
of or otherwise liquidated pursuant to Section 9.02 or Section 12.02(c) of the
Agreement or (iii) the Certificateholders' Interest in the Receivables is
purchased by the Depositor pursuant to Section 10.01 of the Agreement or the
Series 199[ ]-[ ] Certificateholders' Interest is purchased by the Depositor
pursuant to Section 7.01 of this
<PAGE> 45
Supplement, the Servicer shall not calculate the Reimbursement Draw Amount with
respect to the relevant Distribution Date, but shall calculate the amount (the
"Special Draw Amount") equal to the aggregate amount of all reductions of the
Class B Invested Amount occurring under clauses (c), (d) or (e) of the
definition of "Class B Invested Amount" which have not been reimbursed prior to
such Distribution Date under clause (f) thereof.
(h) In the event that for any Distribution Date the sum of any Required
Draw Amount, Interest Draw Amount, Servicing Draw Amount, Default Draw Amount,
Reimbursement Draw Amount, Special Draw Amount (such sum being referred to as
the "Total Draw Amount"), is greater than zero, the Servicer shall give written
notice to the Trustee and the Credit Enhancement Provider, in substantially the
form of Exhibit B, of such positive Total Draw Amount on the related
Determination Date. On the related Transfer Date, the Trustee (or the Servicer
on its behalf) shall make a proper demand as required under the Credit
Enhancement Agreement for the Total Draw Amount (but not in excess of the
Available Credit Enhancement Amount) and upon receipt thereof, the Trustee shall
allocate such amount as follows:
(A) the portion of the Total Draw Amount allocable to the
Required Draw Amount, if any, up to the Available Credit Enhancement
Amount, shall be demanded from the Credit Enhancement Provider on the
related Transfer Date and distributed first to fund any deficiency
pursuant to Section 4.05(a)(i), second to fund any deficiency in the
Class A Monthly Servicing Fee pursuant to Section 4.05(a)(ii) and third
to pay the Class A Investor Default Amount, if any, for such
Distribution Date pursuant to Section 4.05(a)(iii);
(B) the portion of the Total Draw Amount allocable to the
Interest Draw Amount, if any, up to the Available Credit Enhancement
Amount (determined after giving effect to any withdrawal pursuant to
clause (A)), shall be demanded from the Credit Enhancement Provider on
the related Transfer Date and distributed to fund any deficiency
pursuant to Section 4.07(c);
(C) the portion of the Total Draw Amount allocable to the
Servicing Draw Amount, if any, up to the Available Credit Enhancement
Amount (determined after giving effect to any withdrawal pursuant to
clauses (A) and (B)), shall be demanded from the Credit Enhancement
Provider and used to pay the Class B Servicing Fee for such
Distribution Date pursuant to Section 4.07(d);
(D) the portion of the Total Draw Amount allocable to the
Default Draw Amount, if any, up to the Available Credit Enhancement
Amount (determined after giving effect to any withdrawal pursuant to
clauses (A), (B) and (C)), shall be demanded from the Credit
Enhancement Provider on the related Transfer Date and used to pay the
Class B Investor Default Amount for such Distribution Date pursuant to
Section 4.07(e);
[(E) the remainder of the Total Draw Amount, if any, up to the
Available Credit Enhancement Amount (determined after giving effect to
any withdrawal pursuant to clauses (A) through (D), shall be demanded
from the Credit Enhancement Provider on
<PAGE> 46
the related Transfer Date and immediately deposited by the Trustee into
[the Collection Account for distribution to the Class B
Certificateholders on such Distribution Date] [the Principal Funding
Account in respect of the Class B Certificates].]
Section 4.13. Cash Collateral Account.
(a) The Servicer shall establish and maintain, in the name of the
Trustee, on behalf of the Trust, for the benefit of the Series 199[ ]-[ ]
Certificateholders and the Cash Collateral Depositor, as their interests appear
herein, a "Cash Collateral Account" which shall be an Eligible Deposit Account,
bearing designations clearly indicating that the funds deposited therein are
held for the benefit of the Series 199[ ]-[ ] Certificateholders and the Cash
Collateral Depositor. The Trustee shall possess all right, title and interest in
and to all funds on deposit from time to time in the Cash Collateral Account and
in all proceeds thereof. The Cash Collateral Account shall be under the sole
dominion and control of the Trustee for the benefit of the Series 199[ ]-[ ]
Certificateholders and the Cash Collateral Depositor as their interests appear
herein. The interest of the Cash Collateral Depositor in the Cash Collateral
Account shall be subordinated to the interests of the Series 199[ ]-[ ]
Certificateholders as provided herein and in the Loan Agreement. If at any time
the Cash Collateral 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, as to which each Rating Agency
shall consent) establish a new Cash Collateral Account meeting the conditions
specified above as an Eligible Deposit Account, and shall transfer any cash or
any investments to such new Cash Collateral Account. The Trustee, at the
direction of the Servicer, shall (i) on the Closing Date, deposit in the Cash
Collateral Account the proceeds of the advance to be made on such date by the
Cash Collateral Depositor under the Loan Agreement, (ii) make withdrawals from
the Cash Collateral Account from time to time in an amount up to the Available
Cash Collateral Amount at such time, for the purposes set forth in paragraphs
(c) through (i) below, and (iii) on each Distribution Date prior to the
termination of the Cash Collateral Account make a deposit into the Cash
Collateral Account in the amount specified in, and otherwise in accordance with,
Section 4.07(i). All withdrawals from the Cash Collateral Account shall be made
in the priority set forth below. The Cash Collateral Depositor shall not be
entitled to reimbursement from the Trust Assets for any withdrawals from the
Cash Collateral Account except as specifically provided in this Supplement.
(b) Funds on deposit in the Cash Collateral Account shall be invested
at the direction of the Servicer (or the Cash Collateral Depositor, as provided
in the Loan Agreement) by the Trustee in Cash Collateral Account Investments.
Funds on deposit in the Cash Collateral Account on any Transfer Date, after
giving effect to any withdrawals from the Cash Collateral Account on such
Transfer Date, shall be invested in such investments that will mature so that
such funds will be available for withdrawal on or prior to the following
Transfer Date. The proceeds of any such investments shall be invested in such
investments that will mature so that such funds will be available for withdrawal
on or prior to the Transfer Date immediately following the date of such
investment. The Trustee shall maintain for the benefit of the Series 199[ ]-[ ]
Certificateholders and the Cash Collateral Depositor possession of the
negotiable instruments or securities, if any, evidencing the Cash Collateral
Account Investments. On each Transfer Date, all interest and earnings (net of
losses and investment expenses) accrued since the
<PAGE> 47
preceding Transfer Date on funds on deposit in the Cash Collateral Account shall
be applied in accordance with the Loan Agreement. For purposes of determining
the availability of funds or the balances in the Cash Collateral Account for any
reason under this Supplement, all investment earnings on such funds shall be
deemed not to be available or on deposit.
(c) On each Determination Date, the Servicer shall calculate the amount
(the "Required Draw Amount") (determined after giving effect to any distribution
to be made pursuant to Section 4.05(a) on the related Distribution Date) equal
to the excess, if any, of (i) the Required Amount, if any, with respect to such
Distribution Date over (ii) the amount of Excess Spread [and Excess Finance
Charge Collections allocated to Series 199[ ]-[ ]] to be allocated and available
pursuant to Section 4.07(a) to fund such Required Amount on such Distribution
Date.
(d) On each Determination Date, the Servicer shall calculate the amount
(the "Interest Draw Amount") (determined after giving effect to any distribution
to be made pursuant to Section 4.05(b)(i) and Section 4.07(c) on the related
Distribution Date) of (i) any Class B Monthly Interest due but not distributed
to the Class B Certificateholders [or deposited in the Interest Funding Account]
on such Distribution Date pursuant to Section 4.05(b)(i) or Section 4.07(c),
(ii) any Class B Monthly Interest previously due but not distributed to the
Class B Certificateholders [or deposited in the Interest Funding Account] on a
prior Distribution Date pursuant to Section 4.05(b)(i) or Section 4.07(c) or
this paragraph (d) and (iii) any Class B Additional Interest due but not
distributed to the Class B Certificateholders [or deposited in the Interest
Funding Account] on such Distribution Date and any Class B Additional Interest
previously due but not distributed to the Class B Certificateholders [or
deposited in the Interest Funding Account] on a prior Distribution Date pursuant
to Section 4.05(b)(i) or Section 4.05(c) or this paragraph (d).
(e) On each Determination Date, the Servicer shall calculate the amount
(the "Servicing Date Amount") equal to the excess, if any, of (i) the Class B
Servicing Fee for the related Distribution Date over (ii) the amount of
Available Class B Funds, Excess Spread [and Excess Finance Charge Collections
allocated to Series 199[ ]-[ ]] to be allocated and available pursuant to
Section 4.05(b)(ii) and Section 4.07(d) to fund such Class B Servicing Fee on
such Distribution Date.
(f) On each Determination Date, the Servicer shall calculate the amount
(the "Default Draw Amount") equal to the excess, if any, of (i) the Class B
Investor Default Amount for the related Distribution Date over (ii) the amount
of Class B Available Funds, Excess Spread [and Excess Finance Charge Collections
allocated to Series 199[ ]-[ ]] to be allocated and available pursuant to
Section 4.05(b)(iii) and Section 4.07(e) to fund such Class B Investor Default
Amount on such Distribution Date.
(g) On each Determination Date (commencing with the Determination Date
preceding the Class B Principal Commencement Date), the Servicer shall calculate
the amount (the "Reimbursement Draw Amount") equal to the excess, if any, of (i)
the Class B Initial Invested Amount minus the sum of the aggregate amount of
principal payments previously distributed to Class B Certificateholders [or
deposited to the Principal Funding Account in respect of the Class
<PAGE> 48
B Certificates) over (ii) the Class B Invested Amount on the last day of the
related Monthly Period (determined after giving effect to any change to be made
in the Class B Invested Amount pursuant to clause (c), (d), (e) or (f) of the
definition of "Class B Invested Amount" on the following Distribution Date).
(h) Notwithstanding Section 4.12(g), if either (i) the
Certificateholders' Interest in the Receivables is reassigned to the Depositor
pursuant to Section 2.06 of the Agreement, (ii) the Receivables are sold,
disposed of or otherwise liquidated pursuant to Section 9.02 or Section 12.02(c)
of the Agreement or (iii) the Certificateholders' Interest in the Receivables is
purchased by the Depositor pursuant to Section 10.01 of the Agreement or the
Series 199[ ]-[ ] Certificateholders' Interest is purchased by the Depositor
pursuant to Section 7.01 of this Supplement, the Servicer shall not calculate
the Reimbursement Draw Amount with respect to the relevant Distribution Date,
but calculate the amount (the "Special Draw Amount") equal to the aggregate
amount of all reductions of the Class B Invested Amount occurring under clauses
(c), (d) or (e) of the definition of "Class B Invested Amount" which have not
been reimbursed prior to such Distribution Date under clause (f) thereof.
[(i) Notwithstanding Sections 4.12(g) and (h), on the Determination
Date preceding the Economic Special Payment Date, the Servicer shall not
calculate the Reimbursement Draw Amount or the Special Draw Amount with respect
to such Special Payment Date, but shall calculate (i) the amount (the "Class A
Principal Draw Amount") (determined after giving effect to any deposit or
distribution to be made pursuant to Sections 4.05(d)(i) and 5.01(b) on such
Special Payment Date) equal to the outstanding principal amount of the Class A
Certificates [(less the Principal Funding Account Balance, if any)] and (ii) the
amount (the "Class B Principal Draw Amount") (determined after giving effect to
any deposit or distribution to be made pursuant to Sections 4.05(d)(ii) and
5.01(d) on such Special Payment Date) equal to the outstanding principal amount
of the Class B Certificates [(less the Principal Funding Account Balance, if
any)];]
(j) In the event that for any Distribution Date the sum of any Required
Draw Amount, Interest Draw Amount, Servicing Draw Amount, Default Draw Amount,
Reimbursement Draw Amount, Special Draw Amount, [Class A Principal Draw Amount
and Class B Principal Draw Amount] (such sum being referred to as the "Total
Draw Amount"), is greater than zero, the Servicer shall give written notice to
the Trustee and the Cash Collateral Depositor, in substantially the form of
Exhibit B, of such positive Total Draw Amount on the related Determination Date.
On the related Transfer Date, withdrawals will be made from the Cash Collateral
Account as follows:
(A) the portion of the Total Draw Amount allocable to the
Required Draw Amount, if any, up to the Available Shared Collateral
Amount, shall be withdrawn from the Cash Collateral Account on the
related Transfer Date and distributed first to fund any deficiency
pursuant to Section 4.05(a)(i), second to fund any deficiency in the
Class A Monthly Servicing Fee pursuant to Section 4.05(a)(ii) and third
to pay the Class A Investor Default Amount, if any, for such
Distribution Date pursuant to Section 4.05(a)(iii);
<PAGE> 49
(B) the portion of the Total Draw Amount allocable to the
Interest Draw Amount, if any, up to the Available Shared Collateral
Amount (determined after giving effect to any withdrawal pursuant to
clause (A)), shall be withdrawn from the Cash Collateral Account on the
related Transfer Date and distributed to fund any deficiency pursuant
to Section 4.07(c);
(C) the portion of the Total Draw Amount allocable to the
Servicing Draw Amount, if any, up to the Available Shared Collateral
Amount (determined after giving effect to any withdrawal pursuant to
clauses (A) and (B)), shall be withdrawn from the Cash Collateral
Account and used to pay the portion of the Class B Servicing Fee for
such Distribution Date not paid pursuant to Section 4.07(d);
(D) the portion of the Total Draw Amount allocable to the
Default Draw Amount, if any, up to the Available Shared Collateral
Amount (determined after giving effect to any withdrawal pursuant to
clauses (A), (B) and (C)), shall be withdrawn from the Cash Collateral
Account on the related Transfer Date and used to pay the portion of the
Class B Investor Default Amount for such Distribution Date not paid
pursuant to Section 4.07(e);
[(E) the portion of the Total Draw Amount allocable to the
Class A Principal Draw Amount, if any, up to the Available Shared
Collateral Amount (determined after giving effect to any withdrawal
pursuant to clauses (A), (B), (C) and (D)), shall be withdrawn from the
Cash Collateral Account on the related Transfer Date and immediately
deposited by the Trustee into the Principal Funding Account; and
(F) the remainder of the Total Draw Amount, if any, up to the
Available Cash Collateral Amount (determined after giving effect to any
withdrawal pursuant to classes (A) through (E), shall be withdrawn from
the Cash Collateral Account on the related Transfer Date and
immediately deposited by the Trustee into [the Collection Account for
distribution to the Class B Certificateholders on such Distribution
Date] [the Principal Funding Account in respect of the Class B
Certificates].]
(k) In the event that the Cash Collateral Account Surplus on any
Distribution Date, after giving effect to all deposits to and withdrawals from
the Cash Collateral Account with respect to such Distribution Date, is greater
than zero, the Trustee, acting in accordance with the instructions of the
Servicer, shall withdraw from the Cash Collateral Account, and apply in
accordance with the Loan Agreement, an amount equal to such Cash Collateral
Account Surplus.
(l) Upon the earliest to occur of (i) the Termination Date, (ii) the
day on which the Class A Invested Amount and the Class B Invested Amount are
paid in full to the Class A Certificateholders and the Class B
Certificateholders [and (iii) the day on which all withdrawals from the Cash
Collateral Account pursuant to Section 4.12(j) with respect to the Economic
Special Payment Date have been made], the Trustee, acting in accordance with the
instructions of the Servicer, after the prior payment of all amounts owing to
the Class A Certificateholders and
<PAGE> 50
the Class B Certificateholders which are payable from the Cash Collateral
Account as provided herein, shall withdraw from the Cash Collateral Account for
application in accordance with the Loan Agreement all amounts, if any, on
deposit in the Cash Collateral Account and the Cash Collateral Account shall be
deemed to have terminated for purposes of this Supplement.]
Section 4.14. [Determination of Index.]
(a) On each Rate Determination Date the Trustee shall determine the
[Index] on the basis of [_________].
(b) The [Class A] [Class B] Certificate Rate applicable to the then
current and the immediately preceding Interest Period may be obtained by any
Series 199[ ]-[ ] Certificateholder by telephoning the Trustee at its Corporate
Trust Office at [_____].
(c) On each Rate Determination Date, the Trustee shall send to the
Servicer, by facsimile, notification of the [Index] for the following Interest
Period.]
Section 4.15. Pre-Funding Account.
(a) Establishment of the Pre-Funding Account. The Trustee, for the
benefit of the [Series 199[ ]-[ ]] [Class A] [Class B] Certificateholders, shall
establish and maintain in the name of the Trustee, a segregated trust account
(the "Pre-Funding Account"), bearing a designation clearly indicating that the
funds deposited therein are held for the benefit of the [Series 199[ ]-[ ]]
[Class A] [Class B] Certificateholders. The Depositor does hereby transfer,
assign, set over and otherwise convey to the Trustee for the benefit of the
[Series 199_-_] [Class A] [Class B] Certificateholders, without recourse, all of
its right, title and interest in, to and under the Pre-Funding Account, all
amounts on deposit therein, all Eligible Investments credited to the Pre-Funding
Account, and any proceeds of the foregoing.
The Pre-Funding Account shall be under the sole dominion and control of
the Trustee for the benefit of the [Series 199[ ]-[ ]] [Class A] [Class B]
Certificateholders. On the Closing Date, the Depositor shall cause to be
deposited in the Pre-Funding Account an amount equal to the Initial Pre-Funding
Amount. Pursuant to the authority granted to the Servicer in the Agreement, the
Servicer shall have the power, revocable by the Trustee, to instruct the Trustee
to make withdrawals and payments from the Pre-Funding Account for the purposes
of carrying out the Servicer's or Trustee's duties hereunder.
(b) Administration of the Pre-Funding Account. On each Determination
Date, the Servicer shall instruct the Trustee to withdraw on the related
Distribution Date from the Pre-Funding Account and deposit in the Collection
Account all interest and other investment income and earnings (net of losses and
investment expenses) on all funds in the Pre-Funding Account, for application as
Collections of Finance Charge Receivables allocable to the [Series 199[ ]-[ ]]
[Class A] [Class B] Certificates. Except as provided in the immediately
preceding sentence, interest (including reinvested interest) and other
investment income and earnings on funds on deposit in the Pre-Funding Account
shall be deemed not to be on deposit therein for purposes of
<PAGE> 51
this Supplement. Funds on deposit in the Pre-Funding Account shall be withdrawn
by the Trustee and paid to the Depositor to the extent of any increases in the
Invested Amount pursuant to Section 4.16. On the Determination Date immediately
preceding the last day of the Funding Period, the Servicer shall instruct the
Trustee to distribute to the Paying Agent the remaining Pre-Funding Amount, if
any, on deposit in the Pre-Funding Account for distribution as payment of
principal to the [Series 199[ ]-[ ]] [Class A] [Class B] Certificateholders on
the related Distribution Date pursuant to Section 4.05(e); provided, however,
that if during the period beginning on such Transfer Date and ending on or
before such Distribution Date, the Depositor increases the Invested Amount in
accordance with the provisions of Section 4.16, then that portion of the
Pre-Funding Amount equal to the amount by which the Invested Amount was
increased during such period shall not be paid to the [Series 199[ ]-[ ]] [Class
A] [Class B] Certificateholders, but rather shall be paid to the Depositor. The
Servicer shall furnish or cause to be furnished to the Trustee a monthly
statement reporting all activity with respect to the Pre-Funding Account.
(c) Investment of Funds in Pre-Funding Account. Funds on deposit in the
Pre-Funding Account shall be invested in [Eligible Investments] [a guaranteed
investment agreement] by the Servicer (or, at the direction of the Servicer, by
the Trustee on behalf of the Servicer). [Funds on deposit in the Pre-Funding
Account on any Distribution Date and any proceeds of any investments thereof,
after giving effect to any withdrawals from the Pre-Funding Account, shall be
invested in [Eligible Investments that will mature [overnight] [as specified by
the Servicer] so that such funds will be available for withdrawal on or prior to
the following Transfer Date] [a guaranteed investment agreement].
Section 4.16. Changes in Invested Amount. The Depositor may on any
Business Day during the Funding Period determine to increase the [Class A]
[Class B] Invested Amount to an amount not to exceed [, when added to the [Class
A] [Class B] Invested Amount,] the Full Invested Amount to the extent there are
sufficient Principal Receivables in the Trust (including Principal Receivables
in Additional Accounts designated pursuant to Section 2.06 of the Agreement) to
permit any such increase in the [Class A] [Class B] Invested Amount without
causing a Pay Out Event to occur with respect to any outstanding Series. Upon
determining to increase the [Class A] [Class B] Invested Amount pursuant to this
Section 4.15, the Depositor shall deliver to the Servicer, the Trustee, the
[Credit Enhancement Provider] [Cash Collateral Depositor] and each Rating Agency
an officer's Certificate specifying the amount of the increase in the [Class A]
[Class B] Invested Amount the Depositor has determined to make and certifying
that the Depositor reasonably believes that such increase in the [Class A]
[Class B] Invested Amount will not, based on the facts known to such officer at
the time of such certification, cause a Pay Out Event, or an event that, after
giving of notice or the lapse of time, would constitute a Pay Out Event, to
occur with respect to any Series. Upon receipt of such Officer's Certificate by
the Trustee, the [Class A] [Class B] Invested Amount shall be increased by the
amount specified in such Officer's Certificate, whereupon the Servicer shall
instruct the Trustee to withdraw from the Pre-Funding Account and pay to the
Depositor an amount equal to the amount of such increase in the [Class A] [Class
B] Invested Amount. [Any such increase in the Invested Amount will increase the
Class A Invested Amount and the Class B Investment Amount pro rata based on the
Class A Floating Percentage and the Class B Floating Percentage, respectively].]
<PAGE> 52
ARTICLE V
DISTRIBUTIONS AND REPORTS TO
SERIES 199[ ]-[ ] CERTIFICATEHOLDERS
Section 5.01. Distributions.
(a) On each Payment Date, the Paying Agent shall distribute to each
Class A Certificateholder of record on the related Record Date (other than as
provided in Section 12.02 of the Agreement) such Class A Certificateholder's pro
rata share of the amounts [on deposit in the Interest Funding Account or
otherwise held by the Paying Agent] that are allocated and available on such
Payment Date to pay interest on the Class A Certificates pursuant to this
Supplement.
(b) On each Special Payment Date [, each Interest Payment Date with
respect to the Class A Controlled Amortization Period] and on the Class A
Expected Final Payment Date, the Paying Agent shall distribute to each Class A
Certificateholder of record on the related Record Date (other than as provided
in Section 12.02 of the Agreement) such Class A Certificateholder's pro rata
share of the amounts [on deposit in the Principal Funding Account or otherwise
held by the Paying Agent] that are allocated and available on such date to pay
principal of the Class A Certificates pursuant to this Supplement up to a
maximum amount on any such date equal to the Class A Invested Amount on such
date (unless there has been an optional repurchase of the Series 199[ ]-[ ]
Certificateholders' Interest pursuant to Section 10.01 of the Agreement, in
which event the foregoing limitation will not apply).
(c) On each Payment Date, the Paying Agent shall distribute to each
Class B Certificateholder of record on the related Record Date (other than as
provided in Section 12.02 of the Agreement) such Class B Certificateholder's pro
rata share of the amounts [on deposit in the Interest Funding Account or
otherwise held by the Paying Agent] that are allocated and available on such
Payment Date to pay interest on the Class B Certificates pursuant to this
Supplement.
(d) On each Special Payment Date, [, each Interest Payment Date with
respect to the Class B Controlled Amortization Period] and on the Class B
Expected Final Payment Date, the Paying Agent shall distribute to each Class B
Certificateholder of record on the related Record Date (other than as provided
in Section 12.02 of the Agreement) such Class B Certificateholder's pro rata
share of the amounts [on deposit in the Principal Funding Account or otherwise
held by the Paying Agent] that are allocated and available on such date to pay
principal of the Class B Certificates pursuant to this supplement up to a
maximum amount on any such date equal to the Class B Invested Amount on such
date (unless there has been an optional repurchase of the Series 199[ ]-[ ]
Certificateholders' Interest pursuant to Section 10.01 of the Agreement, in
which event the foregoing limitation will not apply).
(e) The distributions to be made pursuant to this Section 5.01 are
subject to the provisions of Sections 2.06, 9.02, 10.01 and 12.02 of the
Agreement and Sections 8.01 and 8.02 of this Supplement.
<PAGE> 53
(f) Except as provided in Section 12.02 of the Agreement with respect
to a final distribution, distributions to Series 199[ ]-[ ] Certificateholders
hereunder shall be made by check mailed to each Series 199[ ]-[ ]
Certificateholder at such Series 199[ ]-[ ] Certificateholder's address
appearing in the Register without presentation or surrender of any Series
199[ ]-[ ] Certificate or the making of any notation thereon; provided, however,
that with respect to Series 199[ ]-[ ] Certificates registered in the name of a
Clearing Agency, such distributions shall be made to such Clearing Agency in
immediately available funds.
Section 5.02. Reports and Statements to Series 199[ ]-[ ]
Certificateholders.
(a) On each Distribution Date, the Paying Agent, on behalf of the
Trustee, shall forward to each Class A Certificateholder a statement
substantially in the form of Exhibit C-1 prepared by the Servicer.
(b) On each Distribution Date, the Paying Agent, on behalf of the
Trustee, shall forward to each Class B Certificateholder a statement
substantially in the form of Exhibit C-2 prepared by the Servicer.
(c) Not later than each Determination Date, the Servicer shall deliver
to the Trustee, the Paying Agent, each Rating Agency and the Cash Collateral
Depositor (i) statements substantially in the form of Exhibits C-1 and C-2
prepared by the Servicer and (ii) a certificate of a Servicing officer
substantially in the form of Exhibit D.
[(d) A copy of each statement or certificate provided pursuant to
paragraph (a), (b) or (c) may be obtained by any Series 199[ ]-[ ]
Certificateholder or any Certificate Owner thereof by a request in writing to
the Servicer.]
(e) On or before January 31 of each calendar year, beginning with
calendar year 199_, the Paying Agent, on behalf of the Trustee, shall furnish or
cause to be furnished to each Person who at any time during the preceding
calendar year was a Series 199_-_ Certificateholder, a statement prepared by the
Servicer containing the information which is required to be contained in the
statement to Series 199[ ]-[ ] Certificateholders, as set forth in paragraph (a)
or (b) above, as applicable, aggregated for such calendar year or the applicable
portion thereof during which such Person was a Series 199[ ]-[ ]
Certificateholder, together with other information as is required
Certificateholder, together with other information to be provided by an issuer
of indebtedness under the Internal Revenue Code. Such obligation of the Servicer
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Paying Agent pursuant to any
requirements of the Internal Revenue Code as from time to time in effect.
<PAGE> 54
ARTICLE VI
Section 6.01. [Reinvestment] [Pay Out] Events. If any one of the
following events shall occur with respect to the Series 199[ ]-[ ] Certificates:
(a) failure on the part of the Depositor (i) to make any Payment or
deposit required by the terms of the Agreement or this Supplement on or before
the date occurring [ ] Business Days after the date such payment or deposit is
required to be made therein or herein or (ii) duly to observe or perform any
other covenants or agreements of the Depositor set forth in the Agreement or
this Supplement, which failure has a material adverse effect on the Series
199[ ]-[ ] Certificateholders and which continues unremedied for a period of [ ]
days after the date on which written notice of such failure, requiring the same
to be remedied, shall have been given to the Depositor by the Trustee, or to the
Depositor and the Trustee by [any Holder of the Series 199[ ]-[ ] Certificates];
(b) any representation or warranty made by the Depositor in the
Agreement or this Supplement, or any information contained in a computer file or
microfiche list required to be delivered by the Depositor pursuant to Section
2.01 or 2.09(f) of the Agreement shall prove to have been incorrect in any
material respect when made or when delivered, which continues to be incorrect in
any material respect for a period of [ ] days after the date on which written
notice of such failure, requiring the same to be remedied, shall have been given
to the Depositor by the Trustee, or to the Depositor and the Trustee by [any
Holder of the Series 199[ ]-[ ] Certificates] and as a result of which the
interests of the Series 199[ ]-[ ] Certificateholders are materially and
adversely affected and continue to be materially and adversely affected for such
period; provided, however, that a Pay Out Event pursuant to this Section 6.01(b)
shall not be deemed to have occurred hereunder if IMSA has accepted reassignment
of the related Receivable, or all of such Receivables, if applicable, during
such period in accordance with the provisions of the Agreement;
(c) a failure by the Depositor to convey Receivables in Additional
Accounts or Participations to the Trust within [ ] Business Days after the day
on which it is required to convey such Receivables or Participations pursuant to
Section 2.09(a) of the Agreement;
(d) any Servicer Default shall occur;
(e) the Class B Invested Amount is reduced to less than $_________;]
[(f) the [average] Portfolio Yield for any [three] consecutive Monthly
Periods is reduced to a rate which is less than the [average] Base Rate (for
such period];]
[(g) the Class A Invested Amount shall not be paid in full on the Class
A Expected Final Payment Date or the Class B Invested Amount shall not be paid
in full on the Class B Expected Final Payment Date;]
<PAGE> 55
then, in the case of any event described in subparagraph [(a), (b), (c), (d),
(e), (f), or (g)], after the applicable grace period, if any, set forth in such
subparagraphs, either the Trustee or the Holders of Series 199_-_ Certificates
evidencing more than 50% of the aggregate unpaid principal amount of Series
199[ ]-[ ] Certificates by notice then given in writing to the Depositor and the
Servicer (and to the Trustee if given by the Series 199[ ]-[ ]
Certificateholders) may declare that a [Pay Out] [Reinvestment] 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] [Reinvestment] Event shall occur with respect to Series 199[ ]-[ ] without
any notice or other action on the part of the Trustee or the Series 199[ ]-[ ]
Certificateholders immediately upon the occurrence of such event.]
ARTICLE VII
OPTIONAL PURCHASE; SERIES TERMINATION
[Section 7.01. Optional Repurchase.
(a) On any day occurring on or after the date on which [the sum of] the
Invested Amount [and the Enhancement Invested Amount, if any,] is reduced to
[ ]% or less of the Series Invested Amount, the Depositor shall have the option
to purchase the Series 199_-_ Certificateholders' Interest, at a purchase price
equal to (i) if such day is a Distribution Date, the Reassignment Amount for
such Distribution Date or (ii) if such day is not a Distribution Date, the
Reassignment Amount for the Distribution Date following such day.
(b) The Depositor shall give the Servicer and the Trustee at least 30
days prior written notice of the date on which the Depositor intends to exercise
such purchase option. Not later than 12:00 noon, New York City time, on such day
the Depositor shall deposit the Reassignment Amount into the Collection Account
in immediately available funds. Such purchase option is subject to payment in
full of the Reassignment Amount. Following the deposit of the Reassignment
Amount into the Collection Amount in accordance with the foregoing, the Invested
Amount for Series 199[ ]- [ ] [and the Enhancement Invested Amount] shall [each]
be reduced to zero and the Series 199[ ]- [ ] Certificateholders [and the Cash
Collateral Depositor] shall have no further interest in the Receivables. The
Reassignment Amount shall be distributed as set forth in Section 8.01(b).]
[Section 7.02. Series Termination.
(a) If, on the [__________] Distribution Date, the Invested Amount
(after giving effect to all changes therein on such date) would be greater than
zero, the Servicer, on behalf of the Trustee, shall, within the 40-day period
which begins on such Distribution Date, solicit bids for the sale of Principal
Receivables and the related Finance Charge Receivables (or interests therein) in
an amount equal to [the sum of] the Invested Amount [and the Enhancement
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
<PAGE> 56
Date, except pursuant to this Section 7.02). Such bids shall require that such
sale shall (subject to Section 7.02(b)) occur on the Termination Date. The
Depositor and the [Cash Collateral Depositor] [Credit Enhancer] shall be
entitled to participate in, and to receive from the Trustee a copy of each other
bid submitted in connection with, such bidding process.
(b) The Servicer, on behalf of the Trustee, shall sell such Receivables
(or interests therein) on the Termination Date to the bidder who made the
highest cash purchase offer. The proceeds of any such sale shall be treated as
Collections on the Receivables allocated to the Series 199[ ]-[ ]
Certificateholders pursuant to the Agreement and this Supplement; provided,
however, that the Servicer shall determine conclusively the amount of such
proceeds which are allocable to Finance Charge Receivables and the amount of
such proceeds which are allocable to Principal Receivables. During the period
from the [ ] Distribution Date to the Termination Date, the Servicer shall
continue to collect payments on the Receivables and allocate Collections in
accordance with the provisions of the Agreement and the Supplements.]
ARTICLE VIII
FINAL DISTRIBUTIONS
Section 8.01. Sale of Receivables or Certificateholders' Interest
pursuant to Section 2.06 or 10.01 of the Agreement and Section 7.01 or 7.02 of
this Supplement.
(a) The amount to be paid by the Depositor with respect to Series
199_-_ in connection with a reassignment of Receivables to the Depositor
pursuant to Section 2.06 of the Agreement shall equal the Reassignment Amount
for the first Distribution Date following the Monthly Period in which the
reassignment obligation arises under the Agreement.
(b) With respect to the Reassignment Amount deposited into the
Collection Account pursuant to Section 7.01 or any amounts allocable to the
Series 199_-_ Certificateholders' Interest deposited into the Collection Account
pursuant to Section 7.02, the Trustee shall, not later than 12:00 noon, New York
City time, on the related Distribution Date, make deposits or distributions of
the following amounts (in the priority set forth below and, in each case effect
to any deposits and distributions otherwise be made on such date) in immediately
available funds: (i)(x) the Class A Invested Amount on such Distribution Date
will be distributed to the Paying Agent for payment to the Class A
Certificateholders and (y) an amount equal to the sum of (A) Class A Monthly
Interest for such Distribution Date, (B) any Class A Monthly Interest previously
due but not distributed to the Class A Certificateholders [or deposited in the
Interest Funding Account] on a prior Distribution Date and (C) the amount of
Class A Additional Interest, if any, for such Distribution Date and any Class A
Additional Interest previously due but not distributed to the Class A
Certificate holders [or deposited in the Interest Funding Account] on any prior
Distribution Date, will be distributed to the Paying Agent for payment to the
Class A Certificateholders, (ii) (x) the Class B Invested Amount on such
Distribution Date will be distributed to the Paying Agent for payment to the
Class B Certificateholders and (y) an amount equal to the sum of (A) Class B
Monthly Interest for such Distribution Date, (B) any Class B
<PAGE> 57
Monthly Interest previously due but not distributed to the Class B
Certificateholders [or deposited in the interest Funding Account] on a prior
Distribution Date and (C) the amount of Class B Additional Interest, if any, for
such Distribution Date and any Class B Additional Interest previously due but
not distributed to the Class B Certificateholders [or deposited in the Interest
Funding Account] on any prior Distribution Date, will be distributed to the
Paying Agent for payment to the Class B Certificateholders and (iii) the
balance, if any, will be distributed to the [[Cash Collateral Depositor]
[Collateral Interest Holder] for application in accordance with the Loan
Agreement] [Credit Enhancement Provider for application in accordance with the
Credit Enhancement Agreement]. Notwithstanding anything to the contrary
contained in this Supplement or the Agreement, the amount of any excess
determined pursuant to paragraph (a)(ii)(y) shall be distributed to the Series
199_-_ Certificateholders.
(c) Notwithstanding anything to the contrary in this Supplement or the
Agreement, all amounts distributed to the Paying Agent pursuant to Section
8.01(b) for payment to the Series 199[ ]-[ ] Certificateholders shall be deemed
distributed in full to the Series 199[ ]-[ ] Certificateholders on the date on
which such funds are distribution to the Paying Agent pursuant to this section
and shall be deemed to be a final distribution pursuant to Section 12.02 of the
Agreement.
Section 8.02. Distribution of Proceeds of Sale, Distribution or
Liquidation of the Receivables pursuant to Section 9.02 of the Agreement.
(a) Not later than 12:00 noon, New York City time, on the Distribution
Date following the date on which the Insolvency Proceeds are deposited into the
Collection Account pursuant to Section 9.02(b) of the Agreement, the Trustee
shall (in the following priority and, in each case, after giving effect to any
deposits and distributions otherwise to be made on such Distribution Date) (i)
deduct an amount equal to the Class A Invested Amount on such Distribution Date
from the portion of the Insolvency Proceeds allocated to Collections of
Principal Receivables and distribute such amount to the Paying Agent for payment
to the Class A Certificateholders, provided that the amount of such distribution
shall not exceed the product of (x) the portion of the Insolvency Proceeds
allocated to Collections of Principal Receivables and (y) the Principal
Allocation Percentage with respect to the related Monthly Period, (ii) deduct an
amount equal to the Class B Invested Amount on such Distribution Date from the
portion of the Insolvency Proceeds allocated to Collections of Principal
Receivables and distribute such amount to the Paying Agent for payment to the
Class B Certificateholders, provided that the amount of such distribution shall
not exceed (x) the product of (A) the portion of such Insolvency Proceeds
allocated to Collections of Principal Receivables and (B) the Principal
Allocation Percentage with respect to the related Monthly Period minus (y) the
amount distributed to the Paying Agent pursuant to clause (i) of this sentence
[and (iii) deduct an amount equal to the [Enhancement] [Collateral] Invested
Amount, if any, on such Distribution Date from the portion of the Insolvency
Proceeds allocated to Collections of Principal Receivables and distribute such
amount to the [Cash Collateral Depositor] [Collateral Interest Holder] for
application in accordance with the Loan Agreement, provided that the amount of
such distribution shall not exceed (x) the product of (1) the portion of the
Insolvency Proceeds allocated to Collections of Principal Receivables and (2)
the Principal Allocation Percentage with respect to such Monthly Period
<PAGE> 58
minus (y) the amounts distributed to the Paying Agent pursuant to clauses (i)
and (ii) of this sentence]. To the extent that the product of (A) the portion of
the Insolvency Proceeds allocated to Collections of Principal Receivables and
(B) the Principal Allocation Percentage with respect to the related Monthly
Period exceeds the aggregate amounts distributed to the Paying Agent [and the
Cash Collateral Depositor] pursuant to the preceding sentence, the excess shall
be allocated to the Depositor's Interest and shall be released to the Depositor
on such Distribution Date.
(b) Not later than 12:00 noon, New York City time, on such Distribution
Date, the Trustee shall (in the following priority and, in each case, after
giving effect to any deposits and distributions otherwise to be made on such
Distribution Date) (i) deduct an amount equal to the sum of (w) Class A Monthly
Interest for such Distribution Date, (x) any class A Monthly Interest previously
due but not distributed to the Class A Certificateholders [or deposited in the
Interest Funding Account] on a prior Distribution Date and (y) the amount of
Class A Additional Interest, if any, for such Distribution Date and any Class A
Additional Interest previously due but not distributed to the Class A
Certificateholders [or deposited in the interest Funding Account] on a prior
Distribution Date from the portion of the Insolvency Proceeds allocated to
Collections of Finance Charge Receivables and distribute such amount to the
Paying Agent for payment to the Class A Certificateholders, provided that the
amount of such distribution shall not exceed the product of, (x) the portion of
the Insolvency Proceeds allocated to Collections of Finance Charge Receivables,
(y) the Floating Allocation Percentage with respect to the related Monthly
Period and (z) the Class A Floating Percentage with respect to such Monthly
Period (ii) deduct an amount equal to the sum of (w) Class B Monthly Interest
for such Distribution Date, (x) Class B Monthly Interest previously due but not
distributed to the Class B Certificateholders [or deposited in the Interest
Funding Account] and (y) the amount of Class B Additional Interest, if any, for
such Distribution Date and any Class B Additional interest previously due but
not distributed to the Class B Certificateholders [or deposited in the Interest
Funding Account] on a prior Distribution Date from the portion of the Insolvency
Proceeds allocated to Collections of Finance Charge Receivables and distribute
such amount to the Paying Agent for payment to the Class B Certificateholders,
provided that the amount of such distribution shall not exceed the product of
(x) the portion of the Insolvency Proceeds allocated to Collections of Finance
Charge Receivables, (y) the Floating Allocation Percentage with respect to the
related Monthly Period and (z) the Class B Floating Percentage with respect to
such Monthly Period. To the extent that the product of (A) the portion of the
Insolvency Proceeds allocated to Collections of Finance Charge Receivables and
(B) the Floating Allocation Percentage with respect to the related Monthly
Period exceeds the aggregate amount distributed to the Paying Agent pursuant to
the preceding sentence, the excess shall be released to the [[Cash Collateral
Depositor] [Collateral Interest Holder] for application by the [Cash Collateral
Depositor] [Collateral Holder] in accordance with the Loan Agreement] [Credit
Enhancement Provider for application by the Credit Enhancement Provider in
accordance with the Credit Enhancement Agreement].
(c) Notwithstanding anything to the contrary in this Supplement or the
Agreement, all amounts Distributed to the Paying Agent pursuant to this Section
for payment to the Series 199[ ]-[ ] Certificateholders shall be distributed in
full to the Series 199_-_ Certificateholders on the
<PAGE> 59
date on which funds are distributed to the Paying Agent pursuant to this Section
and shall be deemed to be a final distribution pursuant to Section 12.02 of the
Agreement.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01. Ratification of Agreement. As supplemented by this
Supplement, the Agreement is in all respects ratified and confirmed and the
Agreement as so supplemented by this Supplement shall be read, taken and
construed as one and the same instrument.
Section 9.02. Counterparts. This Supplement may be executed in two or
more counterparts, and by different parties on separate counterparts, each of
which shall be an original, but all of which shall constitute one and the same
instrument.
Section 9.03. Governing Law. THIS SUPPLEMENT 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.
ARTICLE X
INTERCHANGE
Section 10.01. Interchange. If Interchange is to be included in Series
199_-_, provisions will be made to calculate the amount to be allocated to
Series 199[ ]-[ ] and the manner in which it will be distributed.
<PAGE> 60
IN WITNESS WHEREOF, the undersigned have caused this Supplement to be
duly executed and delivered by their respective duly authorized officers on the
day and year first above written.
ASSET BACKED SECURITIES CORPORATION.,
Depositor
By:_______________________
Name:
Title:
[SERVICER NAME],
Servicer
By:_______________________
Name:
Title:
[TRUSTEE NAME],
Trustee
By:_______________________
Name:
Title:
<PAGE> 61
EXHIBIT A-1
FORM OF CLASS A CERTIFICATE
REGISTERED $___________(1)
No. R-___________ CUSIP No. [___________]
[Unless this Class A Certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation ("DTC"),
to Asset Backed Securities Corporation 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.]
CSFB DEALER FLOORPLAN MASTER TRUST
Series 199[ ]-[ ]
CLASS A [_____%] [FLOATING RATE] [ADJUSTABLE RATE] [VARIABLE RATE]
ASSET BACKED CERTIFICATE
Class A Expected Final Payment Date:
The [_______] [________] Distribution Date
Each $1,000 minimum denomination represents a
(1)[________] undivided interest
in Class A of the
CSFB DEALER FLOORPLAN MASTER TRUST, SERIES 199[ ]-[ ]
Evidencing an undivided interest in a trust, the corpus of which consists
primarily of receivables generated from time to time in the ordinary course of
business in a portfolio of consumer revolving credit card accounts serviced by
[SERVICER NAME]
and other assets and interests constituting the Trust under the Pooling and
Servicing Agreement referred to below.
____________
(1) Denominations of $1,000 and integral multiples of $1,000 in excess
thereof.
<PAGE> 62
(Not an interest in or obligation of Asset Backed
Securities Corp.
or any affiliate thereof)
This certifies that [CEDE CO.] (the "Class A Certificateholder") is the
registered owner of a fractional undivided interest in certain assets of a trust
(the "Trust") created pursuant to the Pooling and Servicing Agreement, dated as
of [__________], 199[ ] (as amended and supplemented, the "Agreement"), as
supplemented by the Series [____] Supplement dated as of [________], [____] (as
amended and supplemented, the "Supplement"), among Asset Backed Securities
Corp., as Depositor, [Servicer Name], as Servicer, and [Trustee Name] a
[jurisdiction] banking corporation, as trustee (the "Trustee"). The corpus of
the Trust consists of (i) a portfolio of all receivables (the "Receivables")
existing in the consumer revolving credit card accounts identified under the
Agreement from time to time (the "Accounts"), (ii) all Receivables generated
under the Accounts from time to time thereafter, (iii) funds collected or to be
collected from accountholders in respect of the Receivables, (iv) all funds
which are from time to time [on deposit in the Collection Account, the
Pre-Funding Account, the Special Funding Account and any other Series Accounts]
[available pursuant to Credit Enhancement], (v) the benefits of the [Cash
Collateral Account] [Credit Enhancement] and (vi) all other assets and interests
constituting the Trust. The Holder of this Certificate is entitled to the
benefits of [funds on deposit in a Cash Collateral Account] [Credit Enhancement]
to the extent provided in the Supplement. Although a summary of certain
provisions of the Agreement and the Supplement is set forth below and in the
Summary of Terms and Conditions attached hereto, and made a part hereof, this
Class A Certificate does not purport to summarize the Agreement and the
Supplement and reference is made to the Agreement and the Supplement for
information with respect to the interests, rights, benefits, obligations,
proceeds and duties evidenced hereby and the rights, duties and obligations of
the Trustee. A copy of the Agreement and the Supplement (without schedules) may
be requested from the Trustee by writing to the Trustee at the Corporate Trust
Office. To the extent not defined herein, the capitalized terms used herein have
the meanings ascribed to them in the Agreement or the Supplement, as applicable.
This Class A Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement and the Supplement, to which
Agreement and Supplement, each as amended and supplemented from time to time,
the Class A Certificateholder by virtue of the acceptance hereof assents and is
bound.
It is the intent of the Depositor and the Class A Certificateholders
that, for federal, state and local income and franchise tax purposes only, the
Class A Certificates will qualify as indebtedness of the Holders of the
Depositor Certificate secured by the Receivables. The Class A Certificateholder,
by the acceptance of this Class A Certificate, agrees to treat this Class A
Certificate for federal, state and local income and franchise tax purposes as
debt.
[Provisions regarding payment of interest to be provided as
applicable.]
<PAGE> 63
In general, payments of principal with respect to the Class A
Certificates are limited to the Class A Invested Amount, which may be less than
the unpaid principal balance of the Class A Certificates. The Class A Expected
Final Payment Date is the [______________] Distribution Date, but principal with
respect to the Class A Certificates may be paid earlier or later under certain
circumstances described in the Agreement and the Supplement. If for one or more
months during the [Class A Accumulation Period] [Class A Controlled Amortization
Period] there are not sufficient funds to pay the [Controlled Deposit Amount]
[Controlled Distribution Amount], then to the extent that excess funds are not
available on subsequent Distribution Dates with respect to the [Class A
Accumulation Period] [Class A Controlled Amortization Period] to make up for
such shortfalls, the final payment of principal of the Class A Certificates will
occur later than the Class A Expected Final Payment Date.
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee, by manual signature, this Class A Certificate shall
not be entitled to any benefit under the Agreement or the Supplement or be valid
for any purpose.
<PAGE> 64
IN WITNESS WHEREOF, the Depositor has caused this class A Certificate
to be duly executed.
ASSET BACKED SECURITIES CORP.
By:_______________________
Name:
Title:
Dated: [__________], [____]
<PAGE> 65
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A Certificates described in the within-mentioned
Agreement and Supplement.
[TRUSTEE NAME]
as Trustee,
By:_______________________
Authorized Officer
or
By: _______________________
as Authenticating Agent
for the Trustee,
By:_______________________
Authorized Officer
<PAGE> 66
CSFB DEALER FLOORPLAN MASTER TRUST
Series 199[ ]-[ ]
CLASS A [_____%] [FLOATING RATE] [ADJUSTABLE RATE] [VARIABLE RATE]
ASSET BACKED CERTIFICATE
Summary of Terms and Conditions
The Receivables consist of Principal Receivables which arise generally
from the purchase of goods and services and amounts advanced to accountholders
as cash advances and Finance Charge Receivables. This Class A Certificate is one
of a Series of Certificates entitled CSFB Dealer FloorPlan Master Trust, Series
199[ ]-[ ] (the "Series 199[ ]-[ ] Certificates"), and one of a class thereof
entitled Class A [___%] [Floating Rate] [Adjustable Rate] [Variable Rate] Asset
Backed Certificates, Series 199[ ]-[ ] (the "Class A Certificates"), each of
which represents a fractional, undivided interest in certain assets of the
Trust. The assets of the Trust are allocated in part to the certificateholders
of all outstanding Series (the "Certificateholders' Interest") with the
remainder allocated to the Holders of the Depositor Certificate. The aggregate
interest represented by the Class A Certificates at any time in the Trust shall
not exceed an amount equal to the Invested Amount at such time. The Class A
Initial Invested Amount is $[__________]. The Class A Invested Amount on any
date will be an amount equal to (a) the Class A initial Invested Amount, minus
(b) the aggregate amount of principal payments made to the Class A
Certificateholders on or prior to such date [other than any payments of
principal to the Class A Certificateholders from the [Pre-Funding Account]
[Special Funding Account] [other Series Account] [Cash Collateral Account]
[other Credit Enhancement]], minus (c) the excess, if any, of the aggregate
amount of Class A Investor Charge-Offs for all prior Distribution Dates over
Class A Investor Charge-Offs reimbursed pursuant to Section 4.06(a) of the
Supplement prior to such date.
Subject to the terms and conditions of the Agreement, the Depositor
may, from time to time, direct the Trustee, on behalf of the Trust, to issue one
or more new Series of Investor Certificates, which will represent fractional,
undivided interests in certain of the Trust Assets.
On each Distribution Date, the Paying Agent shall distribute to each
Class A Certificateholder of record on the last day of the preceding calendar
month (each a "Record Date") such Class A Certificateholder's pro rata share of
such amounts (including amounts) on deposit in the Collection Account [the
Principal Funding Account] [the Special Funding Account] as are payable to the
Class A Certificateholders pursuant to the Agreement and the Supplement.
Distributions with respect to this Class A Certificate will be made by the
Paying Agent by check mailed to the address of the Class A Certificateholder of
record appearing in the Certificate Register without the presentation or
surrender of this Class A Certificate or the making of any notation thereon
(except for the final distribution in respect of this Class A Certificate)
except that with respect to Class A Certificates Registered in the name of Cede
& Co., the nominee for The Depository Trust Company, distributions will be made
in the form of immediately available funds. Final payment of this Class A
Certificate will be made only upon
<PAGE> 67
presentation and surrender of this Class A Certificate at the office or agency
specified in the notice of final distribution delivered by the Trustee to the
Series 199[ ]-[ ] Certificateholders in accordance with the Agreement and the
Supplement.
[On any day occurring on or after the day on which the Invested Amount
[and the Enhancement Invested Amount, if any,] is reduced to [_____]% or less of
the Series Invested Amount, the Depositor has the option to repurchase the
Series 199[ ]-[ ] Certificateholders' Interest in the Trust. The repurchase
price will be equal to (a) if such day is a Distribution Date, the Reassignment
Amount for such Distribution Date or (b) if such day it not a Distribution Date,
the Reassignment Amount for the Distribution Date following such day. Following
the deposit of the Reassignment Amount in the Collection Account, Series
199[ ]-[ ] Certificateholders [and the Cash Collateral Depositor] [and the
provider of Credit Enhancement] will not have any interest in the Receivables
and the Series 199[ ]-[ ] Certificates will represent only the right to receive
such Reassignment Amount.]
This Class A Certificate does not represent an obligation of, or an
interest in, the Depositor and Servicer or any affiliate thereof and in not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality. This Class A Certificate is limited in
right of payment to certain Collections with respect to the Receivables (and
certain other amounts), all as more specifically set forth hereinabove and in
the Agreement and the Supplement.
The Class A Certificates are issuable only in minimum denominations of
$1,000 and integral multiples of $1,000. The transfer of this Class A
Certificate shall be registered in the Certificate Register upon surrender of
this Class A Certificate for registration of transfer at any office or agency
maintained by the Transfer Agent and Registrar accompanied by a written
instrument of transfer, in a form satisfactory to the Trustee or the Transfer
Agent and Registrar, duly executed by the Class A Certificateholder or such
Class A Certificateholder's attorney, and duly authorized in writing with such
signature guaranteed, and thereupon one or more new Class A Certificates of
authorized denominations and for the same aggregate fractional undivided
interest will be issued to the designated transferee or transferees.
As provided in the Agreement and subject to certain limitations therein
set forth, Class A Certificates are exchangeable for new Class A Certificates
evidencing like aggregate fractional, undivided interests as requested by the
Class A Certificateholder surrendering such Class A Certificates. No service
charge may be imposed for any such exchange but the Servicer or Transfer Agent
and Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
The Servicer, the Trustee, the Paying Agent and the Transfer Agent and
Registrar and any agent of any of them, may treat the person in whose name this
Class A Certificate is registered as the owner hereof for all purposes, and
neither the Servicer nor the Trustee, the Paying Agent, the Transfer Agent and
Registrar, nor any agent of any of them, shall be affected by notice to the
contrary except in certain circumstances described in the Agreement.
<PAGE> 68
THIS CLASS A 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.
<PAGE> 69
ASSIGNMENT
Social Security or other identifying number of assignee ________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
________________________________________________________________________________
(name and address of assignee)
the within certificate and all rights thereunder, and hereby irrevocably
constitutes and appoints _______________, attorney, to transfer said certificate
on the books kept for registration thereof, with full power of substitution in
the premises.
Dated:__________________ _________________________(2)
Signature Guaranteed:
_______________________________________________________
____________
(2) NOTE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within
Certificate in every particular, without alteration, enlargement or any
change whatsoever.
<PAGE> 70
EXHIBIT A-2
[FORM OF CLASS B CERTIFICATE]
REGISTERED $_____________(1)
No. R-_____________ CUSIP No. [____________]
[Unless this Class B Certificate is presented by an authorized
representative of The Depository Trust Company, a New York corporation ("DTC"),
to Asset Backed Securities Corp. 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.]
CSFB DEALER FLOORPLAN MASTER TRUST
SERIES 199[ ]-[ ]
CLASS B [_____%] [FLOATING RATE] [ADJUSTABLE RATE] [VARIABLE RATE]
ASSET BACKED CERTIFICATE
Class B Expected Final Payment Date:
The [________] [________] Distribution Date
Each $1,000 minimum denomination represents a
(1)[__________] undivided interest
in Class B of the
CSFB Dealer FloorPlan Master TRUST, SERIES 199[ ]-[ ]
Evidencing an undivided interest in a trust, the corpus of which consists
primarily of receivables generated from time to time in the ordinary course of
business in a portfolio of consumer revolving credit card accounts serviced by
[SERVICER NAME]
and other assets and interests constituting the Trust under the Pooling and
Servicing Agreement referred to below.
____________
(1) Denominations of $1,000 and integral multiples of $1,000 in excess
thereof.
<PAGE> 71
(Not an interest in or obligation of
Asset Backed Securities Corp.,
or any affiliate thereof)
This certifies that [CEDE & CO.] (the "Class B Certificateholder") is the
registered owner of a fractional, undivided interest in certain assets of a
trust (the "Trust") created pursuant to the Pooling and Servicing Agreement,
dated as of [________], 199[ ] (as amended and supplemented, the "Agreement"),
as supplemented by the Series [_______] Supplement dated as of [________],
[_______] (as amended and supplemented, the "Supplement"), among Asset Backed
Securities Corporation, as Depositor, [Servicer Name], as Servicer, and [Trustee
Name], a [jurisdiction] banking corporation, as trustee (the "Trustee"). The
corpus of the Trust consists of (i) a portfolio of all receivables (the
"Receivables") existing in the consumer revolving credit card accounts
identified under the Agreement from time to time (the "Accounts"), (ii) all
Receivables generated under the Accounts from time to time thereafter, (iii)
funds collected or to be collected from accountholders in respect of the
Receivables, (iv) all funds which are from time to time [on deposit in the
Collection Account, the Pre-Funding Account, the Special Funding Account, and
the other Series Accounts] [available pursuant to Credit Enhancement], (v) the
benefits, if any, of the [Cash Collateral Account] [Credit Enhancement] and (vi)
all other assets and interests constituting the Trust. The Holder of this
Certificate is entitled to the benefits of [funds on deposit in a Cash
Collateral Account] [Credit Enhancement] to the extent provided in the
Supplement. Although a summary of certain provisions of the Agreement and the
Supplement is set forth below and in the Summary of Terms and Conditions
attached hereto and made a part hereof, this Class B Certificate does not
purport to summarize the Agreement and the Supplement and reference is made to
the Agreement and the Supplement for information with respect to the interests,
rights, benefits, obligations, proceeds and duties evidenced hereby and the
rights, duties and obligations of the Trustee. A copy of the Agreement and the
Supplement (without schedules) may be requested from the Trustee by writing to
the Trustee at the Corporate Trust Office. To the extent not defined herein, the
capitalized terms used herein have the meanings ascribed to then in the
Agreement or the Supplement, as applicable.
This Class B Certificate is issued under and is subject to the terms,
provisions and conditions of the Agreement and the Supplement, to which
Agreement and Supplement, each as amended and supplemented from time to time,
the Class B Certificateholder by virtue of the acceptance hereof assents and is
bound.
THIS CLASS B CERTIFICATE IS SUBORDINATED TO THE EXTENT NECESSARY TO
PAYMENTS ON THE CLASS A CERTIFICATES TO THE EXTENT SPECIFIED IN THE SUPPLEMENT.
It is the intent of the Depositor and the Class B Certificateholders
that, for federal, state and local income and franchise tax purposes only, the
Class B Certificates will qualify as indebtedness of the Holders of the
Depositor Certificate secured by the Receivables. The Class B Certificateholder,
by the acceptance of this Class B Certificate, agrees to treat this Class B
<PAGE> 72
Certificate for federal, state and local income and franchise tax purposes as
indebtedness of the Holders Depositor Certificate.
[Provisions regarding the payment of interest to be provided as
applicable]
In general, payments of principal with respect to the Class B
Certificates are limited to the Class B Invested Amount, which may be less then
the unpaid principal balance of the Class B Certificates. The Class B Expected
Final Payment Date is the [_____] [_____] Distribution Date, but principal with
respect to the Class B Certificates may be paid earlier or later under certain
circumstances described in the Agreement and the Supplement. If for one or more
months during the [Class B Accumulation Period] [Class B Amortization Period]
there are not sufficient funds to pay the [Controlled Deposit Amount]
[Controlled Distribution Amount], then to the extent that excess funds are not
available on subsequent Distribution Dates with respect to the [Class B
Accumulation Period] [Class B Amortization Period] to make up for such
shortfalls, the final payment of principal of the Class B Certificates will
occur later than the Class B Expected Final Payment Date.
Unless the certificate of authentication hereon has been executed by or
on behalf of the Trustee, by manual signature, this Class B Certificate shall
not be entitled to any benefit under the Agreement or the Supplement or be valid
for any purpose.
IN WITNESS WHEREOF, the Depositor has caused this Class B Certificate
to be duly executed.
ASSET BACKED SECURITIES CORP.
By:______________________________
Name:
Title:
Dated: [__________], [____]
<PAGE> 73
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class B Certificates described in the within
mentioned Agreement and Supplement.
[TRUSTEE NAME]
as Trustee
By:__________________________
Authorized Signatory
<PAGE> 74
CSFB DEALER FLOORPLAN MASTER TRUST
SERIES 199[ ]-[ ]
CLASS B [____%] [FLOATING RATE] [ADJUSTABLE RATE] [VARIABLE RATE]
ASSET BACKED CERTIFICATE
Summary of Terms and Conditions
The Receivables consist of Principal Receivables which arise generally
from the purchase of goods and services and amounts advanced to accountholders
as cash advances and Finance Charge Receivables. This Class B Certificate is one
of a Series of Certificates entitled CSFB Dealer FloorPlan Master Trust, Series
199[ ]-[ ] (the "Series 199[ ]-[ ] Certificates" and one of a class thereof
entitled Class B [Floating Rate] [Adjustable Rate] [Variable Rate] Asset Backed
Certificates, Series 199[ ]-[ ] (the "Class B Certificates"), each of which
represents a fractional, undivided interest in certain assets of the Trust. The
assets of the Trust are allocated in part to the certificateholders of all
outstanding Series (the "Certificateholders' Interest") with the remainder
allocated to the Holders of the Depositor Certificate. The aggregate interest
represented by the Class B Certificates at any time in the Principal Receivables
in the Trust shall not exceed an amount equal to the Class B Invested Amount at
such time. The Class B Invested Amount on any date will be an amount equal to
(a) the Class B initial Invested Amount, minus (b) the aggregate amount of
principal payments made to the Class B Certificateholders on or prior to such
date [other than principal payments made from amounts on deposit in the
[Pre-Funding Account] [Special Funding Account] [the Cash Collateral Account]
[Other Series Account] [other Credit Enhancement] for the purpose of reimbursing
previous reductions in the Class B Invested Amount [, minus (c) the aggregate
amount of Class B Investor Charge-offs for all prior Distribution Dates [, minus
(d) the amount of Reallocated Principal Collections for all prior Distribution
Dates which have been used to fund the Required Amount with respect to such
Distribution Dates, minus (e) an amount equal to the amount by which the Class B
Invested Amount has been reduced to cover the Class A Investor Default Amount on
all prior Distribution Dates, and plus (f) the amount of Excess Spread and
Excess Finance Charge Collections allocated to Series 199[ ]-[ ] and applied on
all prior Distribution Dates for the purpose of reimbursing amounts deducted
pursuant to the foregoing clauses (c), (d) and (e)].
Subject to the terms and conditions of the Agreement, the Depositor
may, from time to time, direct the Trustee, on behalf of the Trust, to issue one
or more new Series of Investor Certificates, which will represent fractional,
undivided interests in certain of the Trust Assets.
On each Distribution Date, the Paying Agent shall distribute to each
Class B Certificateholder of record on the last day of the preceding calendar
month (each a "Record Date") such Class B Certificateholder's pro rata share of
such amounts (including amounts on deposit in the Collection Account) as are
payable to the Class B Certificateholders pursuant to the Agreement and the
Supplement. Distributions with respect to this Class B Certificate will be made
by the Paying Agent by check mailed to the address of the Class B
Certificateholder of
<PAGE> 75
record appearing in the Certificate Register without the presentation or
surrender of this Class B Certificate or the making of any notation thereon
(except for the final distribution in respect of this Class B Certificate)
except that with respect to Class B Certificates registered in the name of Cede
& Co., the nominee for The Depository Trust Company, distributions will be made
in the form of immediately available funds. Final payment of this Class B
Certificate will be made only upon presentation and surrender of this Class B
Certificate at the office or agency specified in the notice of final
distribution delivered by the Trustee to the Series 199[ ]-[ ]
Certificateholders in accordance with the Agreement and the Supplement.
[On any day occurring on or after the day on which [the sum of] the
Invested Amount [and the Enhancement Invested Amount] is reduced to [___]% or
less of the Series Invested Amount, the Depositor has the option to repurchase
the Certificateholders' Interest in the Trust represented by the Series
199[ ]-[ ] Certificates. The repurchase price will be equal to (a) if such day
is a Distribution Date, the Reassignment Amount for such Distribution Date or
(b) if such day is not a Distribution Date, the Reassignment Amount for the
Distribution Date next following such day. Following the deposit of the
Reassignment Amount in the Collection Account, Series 199[ ]-[ ]
Certificateholders [and the Cash Collateral Depositor] [and the provider of
Credit Enhancement] will not have any interest in the Receivables and the Series
199[ ]-[ ] Certificates will represent only the right to receive such
Reassignment Amount.]
This Class B Certificate does not represent an obligation of, or an
interest in, the Depositor and Servicer or any affiliate thereof and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality. This Class B Certificate is limited in
right of payment to certain Collections with respect to the Receivables (and
certain other amounts), all as more specifically set forth herein and in the
Agreement and the Supplement.
The Class B Certificates are issuable only in minimum denominations of
$1,000 and integral multiples of $1,000. The transfer of this Class B
Certificate shall be registered in the Certificate Register upon surrender of
this Class B Certificate for registration of transfer at any office or agency
maintained by the Transfer Agent and Registrar accompanied by a written
instrument of transfer, in a form satisfactory to the Trustee or the Transfer
Agent and Registrar, duly executed by the Class B Certificateholder or such
Class B Certificateholder's attorney, and duly authorized in writing with such
signature guaranteed, and thereupon one or more new Class B Certificates of
authorized denominations and for the same aggregate fractional undivided
interest will be issued to the designated transferee or transferees.
As provided in the Agreement and subject to certain limitations therein
set forth, Class B Certificates are exchangeable for new Class B Certificates
evidencing like aggregate fractional undivided interests as requested by the
Class B Certificateholder surrendering such Class B Certificates. No service
charge may be imposed for any such exchange but the Servicer or Transfer Agent
and Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
<PAGE> 76
The Servicer, the Trustee, the Paying Agent and the Transfer Agent and
Registrar and any agent of any of them, may treat the person in whose name is
Class B Certificate is registered as the owner hereof for all purposes, and
neither the Servicer nor the Trustee, the Paying Agent, the Transfer Agent and
Registrar, nor any agent of any of them, shall be affected by notice to the
contrary except in certain circumstances described in the Agreement.
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.
ASSIGNMENT
Social Security or other identifying number of assignee _______________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________________________________________
(name and address of assignee)
the within certificate and all rights thereunder, and hereby irrevocably
constitutes and appoints _______________, attorney, to transfer said certificate
on the books kept for registration thereof, with full power of substitution in
the premises.
Dated: _________________________(2)
Signature Guaranteed:
________________________________________________________________________________
____________
(2) NOTE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within
Certificate in every particular, without alteration, enlargement or any
change whatsoever.
<PAGE> 1
Exhibit 5.1
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
September 25, 1998
Asset Backed Securities Corporation
11 Madison Avenue
New York, New York 10010
Gentlemen:
We have acted as special counsel to Asset Backed Securities Corporation (the
"Company") in connection with the preparation of a registration statement on
Form S-3 (the "Registration Statement") relating to the proposed offering from
time to time in one or more series (each, a "Series") by one or more trusts of
Asset-Backed Certificates (the "Certificates") and Asset-Backed Notes (the
"Notes" and together with the Certificates, the "Securities"). The Registration
Statement has been filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"). As set
forth in the Registration Statement, each Series of Securities is to be issued
under and pursuant to the terms of a separate pooling and servicing agreement,
or sale and servicing agreement, trust agreement and indenture (each, an
"Agreement") among the Company, as depositor, the servicer and an independent
trustee (the "Trustee") to be identified in the prospectus supplement for each
Series of Securities.
As such counsel, we have examined copies of the Certificate of Incorporation and
By-Laws of the Company, the Registration Statement, each base Prospectus and
forms of Prospectus Supplement included therein, the form of each Agreement, and
originals or copies of such other corporate minutes, records, agreements and
other instruments of the Company, certificates of public officials and other
documents and have made such examinations of law, as we have deemed necessary to
form the basis for the opinions hereinafter expressed. In our examination of
such materials, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all copies
<PAGE> 2
Asset Backed Securities Corporation
September 25, 1998
Page 2
submitted to us. As to various questions of fact material to such
opinions, we have relied, to the extent we deemed appropriate, upon
representations, statements and certificates of officers and representatives of
the Company and others.
Attorneys involved in the preparation of this opinion are admitted to practice
law in the State of New York and we do not express any opinion herein concerning
any law other than the federal laws of the United States of America, the laws of
the State of New York and the General Corporation Law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that:
1. When the issuance, execution and delivery of each Series of Notes has been
authorized by all necessary corporate action of the Company in accordance with
the provisions of the related Agreement or Agreements, and when such Notes have
been duly executed and delivered, authenticated by the Trustee and sold as
described in the Registration Statement, assuming that the terms of such Notes
are otherwise in compliance with applicable law at such time, such Notes will
constitute binding obligations of the issuer thereof in accordance with their
terms and the terms of such Agreement or Agreements. This opinion is subject to
the effect of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto and we express no opinion with respect to the
application of equitable principles or remedies in any proceeding, whether at
law or in equity.
2. When the issuance, execution and delivery of each Series of Certificates has
been authorized by all necessary corporate action of the Company in accordance
with the provisions of the related Agreement or Agreements, and when such
Certificates have been duly executed and delivered, authenticated by the Trustee
and sold as described in the Registration Statement, assuming that the terms of
such Certificates are otherwise in compliance with applicable law at such time,
such Certificates will be legally issued, fully paid and non-assessable.
3. The statements set forth in each base Prospectus under the heading "Certain
Income Tax Consequences," to the extent they constitute matters of law or legal
conclusions with respect thereto, are correct in all material respects.
<PAGE> 3
Asset Backed Securities Corporation
September 25, 1998
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the references to this firm in the Prospectus and the
related Prospectus Supplement which forms a part of the Registration Statement
and to the filing of this opinion as an exhibit to any application made by or on
behalf of the Company or any dealer in connection with the registration of the
Securities under the securities or blue sky laws of any state or jurisdiction.
In giving such consent, we do not admit hereby that we come within the category
of persons whose consent is required under Section 7 of the Act or the Rules and
Regulations of the Commission thereunder.
Very truly yours,
/s/ Stroock & Stroock & Lavan LLP
STROOCK & STROOCK & LAVAN LLP
<PAGE> 1
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 _________________, 1998
$
Credit Suisse First Boston Corporation Auto Receivables Trust 199_-___
$ % Asset Backed Notes, Class A-1
$ % Asset Backed Notes, Class A-2
$ % Asset Backed Certificates
Asset Backed Securities Corporation
Company
Credit Suisse First Boston Corporation 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, CREDIT SUISSE 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 CREDIT SUISSE 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 Credit Suisse 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_.
Credit Suisse First Boston
The date of this Prospectus Supplement is __________, 199_.
<PAGE> 2
(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> 3
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> 4
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........................... Credit Suisse First Boston Corporation 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 Credit Suisse
First Boston Inc. Neither Credit Suisse
First Boston, Inc. nor any of its 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 11 Madison Avenue, New York, New
York 10010, and its telephone number is
(212) 325-2000.
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> 5
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> 6
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> 7
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> 8
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> 9
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 ________________ ("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> 10
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. Credit Suisse 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
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<PAGE> 11
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, Credit Suisse First Boston Corporation 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> 12
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> 13
Ownership Status of the Receivables
<TABLE>
<CAPTION>
Percentage of
Number of Aggregate Principal Aggregate
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%
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> 14
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,
1997 1996 1995 1994 1993
(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,
1997 1996 1995 1994 1993
(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> 15
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
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<PAGE> 16
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
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<PAGE> 17
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
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<PAGE> 18
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
S-18
<PAGE> 19
(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.
S-19
<PAGE> 20
"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.
S-20
<PAGE> 21
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> 22
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
Credit Suisse 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> 23
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
S-23
<PAGE> 24
INDEX OF TERMS
Business Day...................................................................
Certificate Balance............................................................
Certificate Pass-Through-Rate..................................................
Certificateholders.............................................................
Certificateholders' Distributable Amount.......................................
Certificateholders' Interest Carryover Shortfall...............................
Certificateholders' Interest Distributable Amount..............................
Certificateholders' Monthly Interest Distributable Amount......................
Certificateholders' Monthly Principal Distributable Amount.....................
Certificateholders' Principal Carryover Shortfall..............................
Certificateholders' Principal Distributable Amount.............................
Certificates...................................................................
Class A-1 Final Scheduled Payment Date.........................................
Class A-1 Notes................................................................
Class A-1 Rate.................................................................
Class A-2 Final Scheduled Payment Date.........................................
Class A-2 Notes................................................................
Class A-2 Rate.................................................................
Closing Date...................................................................
Code...........................................................................
Collection Account.............................................................
Commission.....................................................................
Company........................................................................
Cutoff Date....................................................................
Distribution Date..............................................................
ERISA..........................................................................
Federal Tax Counsel............................................................
Final Scheduled Distribution Date..............................................
Final Scheduled Maturity Date..................................................
Indenture......................................................................
Indenture Trustee..............................................................
Interest Distribution Amount...................................................
Interest Rates.................................................................
Issuer.........................................................................
Liquidated Receivables.........................................................
Liquidation Proceeds...........................................................
Noteholders....................................................................
Noteholders' Distributable Amount..............................................
Noteholders' Interest Carryover Shortfall......................................
Noteholders' Interest Distributable Amount.....................................
Noteholders' Monthly Interest Distributable Amount.............................
Noteholders' Monthly Principal Distributable Amount............................
Noteholders' Principal Carryover Shortfall.....................................
Noteholders' Principal Distributable Amount....................................
Notes..........................................................................
Owner Trustee..................................................................
Plan...........................................................................
Pool Balance...................................................................
Principal Distribution Amount..................................................
Prospectus.....................................................................
Rating Agencies................................................................
Realized Losses................................................................
Receivables....................................................................
S-24
<PAGE> 25
Record Date....................................................................
Reserve Account................................................................
Securities.....................................................................
Securityholders................................................................
Seller.........................................................................
Servicer.......................................................................
Servicing Agreement............................................................
Specified Reserve Account Balance..............................................
Total Distribution Amount......................................................
Transfer and Servicing Agreements..............................................
Trust..........................................................................
Trust Agreement................................................................
Trust Property.................................................................
Underwriting...................................................................
Underwriting Agreements........................................................
S-25
<PAGE> 26
================================================================================
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 Credit Suisse First Boston Corporation. 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.....................................................................
Risk Factors ...............................................................
The Trust...................................................................
The Receivables Pool........................................................
The Seller and the Servicer.................................................
Weighted Average Life of the Securities.....................................
The Notes...................................................................
The Certificates............................................................
The Transfer and Servicing Agreements.......................................
ERISA Considerations........................................................
Underwriting................................................................
Legal Matters...............................................................
Index of Terms..............................................................
Prospectus
Prospectus Supplement.......................................................
Reports to Securityholders..................................................
Available Information.......................................................
Incorporation of Certain Documents by Reference.............................
Summary of Terms............................................................
Risk Factors................................................................
The Trusts..................................................................
The Receivables Pools.......................................................
The Collateral Certificates.................................................
Weighted Average Life of the Securities.....................................
Pool Factors and Trading Information........................................
The Seller and the Servicer.................................................
Use of Proceeds.............................................................
Description of the Notes....................................................
Description of the Certificates.............................................
Certain Information Regarding the Securities................................
Description of the Transfer and Servicing Agreements........................
Certain Legal Aspects of the Receivables....................................
Certain Federal Income Tax Consequences.....................................
State and Local Tax Considerations..........................................
ERISA Considerations........................................................
Plan of Distribution........................................................
Legal Matters...............................................................
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
<PAGE> 27
$[_________]
CREDIT SUISSE FIRST BOSTON CORPORATION
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[ ]
[GRAPHIC Credit Suisse First Boston Corporation OMITTED]
<PAGE> 1
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
Credit Suisse First Boston Corporation Auto Receivables Trust 199_-___
$ % Asset Backed Certificates, Class A
Asset Backed Securities Corporation
Company
Credit Suisse First Boston Corporation 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 CREDIT SUISSE 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 CREDIT SUISSE 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 Credit Suisse 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] Credit Suisse First Boston
The date of this Prospectus Supplement is , 199 .
<PAGE> 2
(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> 3
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> 4
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........................... Credit Suisse First Boston Corporation 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 Credit Suisse
First Boston Inc. Neither Credit
Suisse First Boston Inc. nor any of
its 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 11 Madison Avenue, New York, New
York 10010, and its telephone number is
(212) 325-2000.
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> 5
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> 6
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> 7
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> 8
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 _______________ ("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> 9
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> 10
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. Credit Suisse 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
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<PAGE> 11
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> 12
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>
Average Principal Weighted Aggregate principal Number of Weighted Average Weighted Average
Balance Average APR Balance Receivables Remaining Term Original Term
<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> 13
<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,
1997 1996 1995 1994 1993
(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.
S-13
<PAGE> 14
Credit Loss/Repossession Experience(1)
<TABLE>
<CAPTION>
At December 31,
1997 1996 1995 1994 1993
(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 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> 15
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> 16
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> 17
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> 18
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.
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<PAGE> 19
[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
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<PAGE> 20
INDEX OF TERMS
Advance .......................................................................
Business Day...................................................................
Certificates...................................................................
Certificateholders.............................................................
Class A Certificate Balance ...................................................
Class A Certificateholders ....................................................
Class A Certificates...........................................................
Class A Distributable Amount...................................................
Class A Interest Carryover Shortfall...........................................
Class A Interest Distributable Amount..........................................
Class A Pass-Through Rate......................................................
Class A Percentage.............................................................
Class A Principal Carryover Shortfall..........................................
Class A Principal Distributable Amount.........................................
Class B Certificate Balance....................................................
Class B Certificateholders.....................................................
Class B Certificates...........................................................
Class B Distributable Amount...................................................
Class B Interest Distributable Amount..........................................
Class B Pass-Through Rate......................................................
Class B Percentage.............................................................
Class B Principal Distributable Amount.........................................
Closing Date...................................................................
Code...........................................................................
Collection Account.............................................................
Collection Period..............................................................
Commission.....................................................................
Company........................................................................
Cutoff Date....................................................................
Distribution Date..............................................................
ERISA..........................................................................
Federal Tax Counsel............................................................
Final Scheduled Distribution Date..............................................
Final Scheduled Maturity Date..................................................
Interest Distribution Amount...................................................
Liquidated Receivables.........................................................
Liquidation Proceeds...........................................................
Plan...........................................................................
Pool Balance...................................................................
Pooling and Servicing Agreement................................................
Principal Distribution Amount..................................................
Prospectus.....................................................................
Rating Agencies................................................................
Realized Losses................................................................
Receivables....................................................................
Receivables Pool...............................................................
Receivables Purchase Agreement.................................................
Record Date....................................................................
Reserve Account................................................................
Reserve Account Initial Deposit................................................
Seller.........................................................................
Servicer.......................................................................
Specified Reserve Account Balance..............................................
S-20
<PAGE> 21
Total Distribution Amount......................................................
Trust..........................................................................
Trust Property.................................................................
Trustee........................................................................
Underwriter....................................................................
Underwriting Agreement.........................................................
S-21
<PAGE> 22
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 Credit Suisse First Boston Corporation. 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................................................................
Risk Factors ..........................................................
The Trust..............................................................
The Receivables Pool...................................................
The Seller and the Servicer............................................
Weighted Average Life of the Certificates..............................
The Certificates.......................................................
The Pooling and Servicing Agreements...................................
The Receivables Purchase Agreements....................................
ERISA Considerations...................................................
Underwriting...........................................................
Legal Matters..........................................................
Index of Terms.........................................................
Prospectus
Prospectus Supplement..................................................
Reports to Securityholders.............................................
Available Information..................................................
Incorporation of Certain Documents by Reference........................
Summary of Terms.......................................................
Risk Factors...........................................................
The Trusts.............................................................
The Receivables Pools..................................................
The Collateral Certificates............................................
Weighted Average Life of the Securities................................
Pool Factors and Trading Information...................................
The Seller and the Servicer............................................
Use of Proceeds........................................................
Description of the Notes...............................................
Description of the Certificates........................................
Certain Information Regarding the Securities...........................
Description of the Transfer and Servicing Agreements...................
Certain Legal Aspects of the Receivables...............................
Certain Federal Income Tax Consequences................................
State and Local Tax Considerations.....................................
ERISA Considerations...................................................
Plan of Distribution...................................................
Legal Matters..........................................................
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.
$[________________]
CREDIT SUISSE FIRST BOSTON CORPORATION
AUTO RECEIVABLES
AND RECEIVABLES
SECURITIES TRUSTS
$[_______________] [_____]% [Floating Rate]
Asset Backed Certificates, Class A
ASSET BACKED SECURITIES CORPORATION
(COMPANY)
PROSPECTUS SUPPLEMENT
[_____], 199[ ]
[LOGO] Credit Suisse First Boston Corporation
<PAGE> 1
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 __________________, 1998
1 Credit Suisse First Boston Corporation Auto Receivables Securities Trust 1998
$ ______________ % Asset Backed Certificates, Class A
ASSET BACKED SECURITIES CORPORATION
Company
Credit Suisse First Boston Corporation 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)
TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN CREDIT SUISSE
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)[, THE GOVERNMENT SECURITIES (AS DEFINED
HEREIN)] [, THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES (AS DEFINED HEREIN)] OR
THE RECEIVABLES (AS DEFINED HEREIN) ARE INSURED OR GUARANTEED BY CREDIT SUISSE
FIRST BOSTON CORPORATION, THE COMPANY, THE TRUSTEE, ANY SELLER, ANY OF THEIR
RESPECTIVE AFFILIATES OR [, OTHER THAN IN THE CASE OF THE GOVERNMENT SECURITIES]
[, OTHER THAN IN THE CASE OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES ] 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.
6_______________
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" ON PAGE S-8 OF THIS PROSPECTUS SUPPLEMENT AND ON PAGE 10 OF THE
ACCOMPANYING PROSPECTUS.
7________________
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 Credit Suisse 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_.
Credit Suisse First Boston
The date of this Prospectus Supplement is ________________, 199__.
<PAGE> 2
(Continued from preceding page)
The assets of the Trust will consist primarily of [(a)] 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") [and
(b) the Government Securities (as defined below)][and (c) the Private Label
Custody Receipt Securities (as defined below)].. 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, in each case as more fully described
herein. [Describe Government Securities (the "Government Securities").]
[Describe Private Label Custody Receipt Securities (the "Private Label Custody
Receipt Securities").] The Collateral Certificates [and the Government
Securities] [and the Private Label Custody Receipt Securities ][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 [and the Government Securities] [and the Private Label Custody
Receipt Securities] from a certain Seller or 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 [AND GOVERNMENT SECURITY] [AND PRIVATE LABEL CUSTODY
RECEIPT SECURITY] 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> 3
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> 4
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............................. Credit Suisse First Boston Corporation 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 Credit Suisse
First Boston, Inc. Neither Credit Suisse
First Boston, Inc. nor any of its 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 11 Madison Avenue, New York, New
York 10010, and its telephone number is
(212) 325- 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
S-4
<PAGE> 5
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.
[The Government Securities......... Describe Government Securities, if any (the
"Government Securities").]
[The Private Label Custody
Receipt Securities Describe Private Label Custody Receipt
Securities, if any (the "Private Label
Custody Receipt Securities").]
Trust Property..................... The assets of the Trust (the "Trust
Property") include (i) the Collateral
Certificates, [(ii) the Government
Securities,16 [(iii) the Private Label
Custody Receipt Securities,(iv)] all monies
(including accrued interest) received on or
with respect to the Collateral Certificates
[and the Government Securities] [and the
Private Label Custody Receipt Securities] on
or after the Cutoff Date, [17(v)] all
amounts and property from time to time held
in or credited to the Collection Account,
[18(vi)] 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
[19(vii)] any and all proceeds of the
foregoing. The Reserve Account will not be
property of the Trust. See "The
Certificates-- Distributions,"
"--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.
S-5
<PAGE> 6
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 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
Prepaymment................ If the Company exercises its option to
purchase the Collateral Certificates [and
the Government Securities] [and the Private
Label Custody Receipt Securities], which it
may do after the aggregate principal balance
of the Collateral Certificates [and the
Government Securities] [and the Private
Label Custody Receipt Securities](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 Credit
Enhancement 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 [and the Government
Securities] [and the Private Label Custody
Receipt Securities] 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
S-6
<PAGE> 7
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> 8
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. Credit Suisse 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 the Government Securities] [and the Private Label
Custody Receipt Securities] and access to funds in the Reserve Account.
Certificateholders must rely on payments on the Collateral Certificates [and the
Government Securities] [and the Private Label Custody Receipt Securities] 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 [and the Government Securities] [and the Private
Label Custody Receipt Securities] 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 Collateral Certificates 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 [and
the Government Securities], [and the Private Label Custody Receipt Securities],
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 [or the Government Securities][or the Private Label
Custody Receipt Securities].
Risk Factors 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.
Risk Factors Regarding Government Securities. Prospective investors
in the Certificates should consider carefully the factors set forth under the
caption "______________" in the disclosure documentation relating
S-8
<PAGE> 9
to the Government Securities attached hereto as Appendix [ ] for certain
additional considerations relating to the Government Securities.
Risk Factors Regarding Private Label Custody Receipt Securities.
Prospective investors in the Certificates should consider carefully the factors
set forth under the caption "______________" in the disclosure documentation
relating to the Private Label Custody Receipt Securities attached hereto as
Appendix [ ] for certain additional considerations relating to the Private Label
Custody Receipt Securities.
Available Information Regarding the Collateral Certificates. This
Prospectus Supplement relates only to the Certificates offered hereby and does
not relate to the Collateral Certificates [or the Government Securities][or the
Private Label Custody Receipt Securities] [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.] [[An affiliate of the Company] [The Underwriter] participated
in the preparation of the prospectuses relating to the Collateral Certificates
and the offering of the Collateral Certificates.] 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.
As a general rule, the originator of each 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 with respect to the
related Underlying Trust Fund, including monthly servicer reports ("Servicer
Reports") regarding the Collateral Certificates may be inspected and copies at
certain offices of the Commission at the addresses listed under "Available
Information" herein.
There can be no assurance that an originator of an Underlying Trust
Fund will not elect to suspend its reporting under the Exchange Act after the
date hereof if such originator of an Underlying Trust Fund no longer has a class
of security listed on a national securities exchange or held by 300 or more
holders of record. In such event, information (including financial information)
then available to the Company and the Trustee with respect to such originator
may not be as extensive, timely or readily available as that previously made
available under the Exchange Act. Accordingly, in such event, the information
with respect to any such Underlying Trust Fund that the Company and the Trustee
can include in the Exchange Act reports of the Trust Fund will be similarly
limited.
[Available Information Regarding the Government Securities. Neither
the Company nor the Underwriter participated in the preparation of the
disclosure documentation relating to the Government Securities or the offering
of the Government Securities, 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 documentation, the information provided therein 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
disclosure documentation relating to the Government Securities speaks only as of
the date of such documentation; 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.]
[Available Information Regarding the Private Label Custody Receipt
Securities. Neither the Company nor the Underwriter participated in the
preparation of the disclosure documentation relating to the Private Label
Custody Receipt Securities or the offering of the Private Label Custody Receipt
Securities, 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 documentation,
the information provided therein 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 disclosure
S-9
<PAGE> 10
documentation relating to the Private Label Custody Receipt Securities speaks
only as of the date of such documentation; 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.]
[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 [and the Government Securities] [and the
Private Label Custody Receipt Securities] 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) the Government Securities,] [(iii) the Private
Label Custody Receipt Securities,] [(iv)] all monies (including accrued
interest) received on or with respect to the Collateral Certificates on or after
the Cutoff Date,[(v)] all amounts and property from time to time held in or
credited to the Collection Account, [(vi)] 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 [(vii)] 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.
S-10
<PAGE> 11
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 [and the Government Securities][and the Private Label
Custody Receipt Securities], 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.
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 Certificates 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.
S-11
<PAGE> 12
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.
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 the material terms of the
Collateral Certificates. It does not purport to provide complete 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. Prospective investors are
urged to read such Schedule, which is expressly made a part hereof. This
Prospectus Supplement relates only to the Certificates offered hereby and does
not relate to the Collateral Certificates.
Appendix A to the Prospectus Supplement contains certain excerpts from
the prospectuses pursuant to which Collateral Certificates were offered and
sold. See "Risk Factors-- Available Information Regarding Collateral
Certificates". Although the Company has no reason to believe the information
provided by an originator of an Underlying Trust Fund or in any prospectus
relating to the Collateral Certificates is not reliable,
S-12
<PAGE> 13
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--Available Information Regarding Collateral Certificates" and "--Certain
Updated Information with Respect to the Collateral Certificates".
CERTAIN UPDATED INFORMATION WITH RESPECT TO THE COLLATERAL CERTIFICATES
As a general rule, the originator of each Underlying Trust Fund is
subject to the information requirements of the Exchange Act. Accordingly, such
originator files annual and periodic reports and other information with respect
to the related Underlying Trust Fund, including 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 such reports and other
information may be inspected and copied at certain offices of the Commission at
the address listed under "Available Information" herein.
[In the event that the originator of an Underlying Trust Fund is not
subject to the information requirements of the Exchange Act on the date of
issuance of the Certificates or ceases to be subject to such requirements after
such date, the Company or the Trustee will provide, or cause to be provided (or
make available, or cause to make available), upon request of a
Certificateholder, the Servicer Reports relating to such Underlying Trust Fund
where the related Collateral Certificates represent 20% or more of the aggregate
principal balance of the Trust Fund as of the Cutoff Date.]
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.]
[DESCRIPTION OF THE GOVERNMENT SECURITIES
This Prospectus Supplement sets forth the material terms of the
Government Securities. It does not purport to provide complete information with
respect to all terms of such securities or the issuer thereof. Certain
information relating to the issuer of the Government Securities is provided in
the Prospectus under the caption "The Government Securities." Schedule [_] to
this Prospectus Supplement contains a summary of the terms of the Government
Securities. Prospective investors are urged to read such Schedule, which is
expressly made a part hereof. This Prospectus Supplement relates only to the
Certificates offered hereby and does not relate to the Government Securities.
Appendix [_] to this Prospectus Supplement contains certain excerpts
from the disclosure documentation pursuant to which Government Securities were
offered and sold. See "Risk Factors--Available Information Regarding Government
Securities". Although the Company nor the Underwriter has any reason to believe
the information provided by an originator of a Government Securities or in any
disclosure documentation relating to the Government Securities is not reliable,
neither the Company nor the Underwriter has verified either its accuracy or its
completeness. In particular, information set forth in any disclosure
documentation relating to
S-13
<PAGE> 14
the Government Securities speaks only as of the date of such documentation;
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--Available Information Regarding Government Securities".]
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES
This Prospectus Supplement sets forth the material terms of the
Private Label Custody Receipt Securities. It does not purport to provide
complete information with respect to all terms of such securities or the issuers
thereof. Certain information relating to the issuers of the Private Label
Custody Receipt Securities is provided in the Prospectus under the caption "The
Private Label Custody Receipt Securities". Schedule [ ] to this Prospectus
Supplement contains a summary of the terms of the Private Label Custody Receipt
Securities. Prospective investors are urged to read such Schedule, which is
expressly made a part hereof. This Prospectus Supplement relates only to the
Certificates offered hereby and does not relate to the Private Label Custody
Receipt Securities.
Appendix [_] to this Prospectus Supplement contains certain excerpts
from the disclosure documentation pursuant to which Private Label Custody
Receipt Securities were offered and sold. See "Risk Factors--Available
Information Regarding Private Label Custody Receipt Securities". Although nether
the Company nor the Underwriter has any reason to believe the information
provided by any originator of the Private Label Custody Receipt Securities or in
any disclosure documentation relating to the Private Label Custody Receipt
Securities is not reliable, neither the Company nor the Underwriter has verified
either its accuracy or its completeness. In particular, information set forth in
any disclosure documentation relating to the Private Label Custody Receipt
Securities speaks only as of the date of such documentation; 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--Available Information Regarding Private Label Custody Receipt
Securities".]
THE TRUST AGREEMENT
SALE AND ASSIGNMENT OF COLLATERAL CERTIFICATES [AND GOVERNMENT SECURITIES] [AND
PRIVATE LABEL CUSTODY RECEIPT SECURITIES ]
Certain information with respect to the conveyance of the Collateral
Certificates [and the Government Securities] [and the Private Label Custody
Receipt Securities] 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 [and the Government Securities] [and the Private Label Custody
Receipt Securities], which it may do when the aggregate outstanding principal
amount of the Collateral Certificates [and the Government Securities] [and the
Private Label Custody Receipt Securities] 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
S-14
<PAGE> 15
Subordination of the Class B Certificates. The rights of the Class B
Certificateholders to receive distributions with respect to the Collateral
Certificates [and the Government Securities] [and the Private Label Custody
Receipt Securities] generally will be subordinated to the rights of the Class A
Certificateholders in the event of defaults or delinquencies on the Collateral
Certificates [and the Government Securities] [and the Private Label Custody
Receipt Securities] 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 [and
the Government Securities][and the Private Label Custody Receipt Securities].
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.
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 Collateral Certificates 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.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Discuss additional Federal income tax consequences, if any.]
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.
S-15
<PAGE> 16
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.]
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon
by _______________.
S-16
<PAGE> 17
INDEX OF TERMS
<TABLE>
<S> <C>
Business Day...........................................................
Certificates...........................................................
Certificateholders.....................................................
Class A Certificate Balance............................................
Class A Certificateholders.............................................
Class A Certificates...................................................
Class A Distributable Amount...........................................
Class A Interest Carryover Shortfall...................................
Class A Interest Distributable Amount..................................
Class A Pass-Through Rate..............................................
Class A Percentage.....................................................
Class A Principal Distributable Amount.................................
Class B Certificate Balance............................................
Class B Certificateholders.............................................
Class B Certificates...................................................
Class B Distributable Amount...........................................
Class B Interest Distributable Amount..................................
Class B Pass-Through Rate..............................................
Class B Percentage.....................................................
Class B Principal Distributable Amount.................................
Closing Date...........................................................
Code...................................................................
Collateral Certificates................................................
Collection Account.....................................................
Collection Period......................................................
Commission.............................................................
Company................................................................
Cutoff Date............................................................
Distribution Date......................................................
ERISA..................................................................
Federal Tax Counsel....................................................
Final Scheduled Distribution Date......................................
[Government Securities.................................................
Interest Distribution Amount...........................................
Issuer.................................................................
Pass Through Rate......................................................
Plan...................................................................
Pool Balance...........................................................
Principal Distribution Amount..........................................
[Private Label Custody Receipt Securities..............................
Prospectus.............................................................
Rating Agencies........................................................
Receivables............................................................
Record Date............................................................
Reserve Account........................................................
Reserve Account Initial Deposit........................................
Servicer Reports.......................................................
Seller.................................................................
Specified Reserve Account Balance......................................
</TABLE>
S-17
<PAGE> 18
<TABLE>
<S> <C>
Total Distribution Amount..............................................
Trust..................................................................
Trust Accounts.........................................................
Trust Agreement........................................................
Trust Property.........................................................
Trustee................................................................
Underlying Agreement...................................................
Underlying Trust Fund..................................................
Underwriter............................................................
Underwriting Agreement.................................................
</TABLE>
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<PAGE> 19
SCHEDULE I
Class___
CUSIP #__________ Rating:_________________
<TABLE>
<CAPTION>
[Monthly][Quarterly]
[Semi-Annual] Aggregate
Payment Dates Interest Payment Interest Payment Interest Rate
<S> <C> <C> <C>
$ $ %
Aggregate Face
Amount Minimum
of Principal Authorized
Component Denomination
<S> <C>
$ $
</TABLE>
I-1
<PAGE> 20
APPENDIX A
Prospectuses relating to Collateral Certificates
[To be Supplied]
A-1
<PAGE> 21
APPENDIX B
Servicer Reports relating to Collateral Certificates
[To be Supplied]
B-1
<PAGE> 22
[APPENDIX [_]]
[Disclosure Documentation relating to Government Securities]
[To be Supplied]
[[_]-1]
<PAGE> 23
[APPENDIX [_]]
[Disclosure Documentation relating to Private Label Custody Receipt Securities]
[To be Supplied]
[[_]-1]
<PAGE> 24
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 CREDIT SUISSE FIRST BOSTON CORPORATION. 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.......................................................
Risk Factors..................................................
The Trust.....................................................
Weighted Average Life of the Certificate ....
The Certificates..............................................
Description of the Collateral Certificates.......
[Description of the Government Securities....
[Description of the Private Label Custody Receipt Securities..
The Trust Agreement...........................................
[Certain Federal Income Tax Consequences......................
ERISA Considerations..........................................
Underwriting..................................................
Legal Matters.................................................
Index of Terms................................................
PROSPECTUS
Prospectus Supplement.........................................
Reports to Securityholders....................................
Available Information.........................................
Incorporation of Certain Documents by Reference...............
Summary of Terms..............................................
Risk Factors..................................................
The Trusts....................................................
The Receivables Pools.........................................
The Collateral Certificates...................................
Weighted Average Life of the Securities.......................
Pool Factors and Trading Information..........................
The Seller and the Servicer...................................
Use of Proceeds...............................................
Description of the Notes......................................
Description of the Certificates...............................
Certain Information Regarding the Securities..................
Description of the Transfer and Servicing Agreements..........
Certain Legal Aspects of the Receivables......................
Certain Federal Income Tax Consequences.......................
State and Local Tax Considerations............................
ERISA Considerations..........................................
Plan of Distribution..........................................
Legal Matters.................................................
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.
$[ ]
CREDIT SUISSE FIRST
BOSTON CORPORATION AUTO
RECEIVABLES AND
RECEIVABLES
SECURITIES TRUSTS
$[ ] [ ]% [FLOATING RATE]
ASSET BACKED CERTIFICATES, CLASS A
ASSEST BACKED SECURITIES CORPORATION
(COMPANY)
PROSPECTUS SUPPLEMENT
[ ],199[]
<PAGE> 1
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 _________________, 1998
$____________
Credit Suisse First Boston Corporation 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
Credit Suisse First Boston Corporation 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, CREDIT SUISSE 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, THE COLLATERAL CERTIFICATES (AS
DEFINED HEREIN), [THE GOVERNMENT SECURITIES (AS DEFINED HEREIN)] [THE PRIVATE
LABEL CUSTODY RECEIPT SECURITIES (AS DEFINED HEREIN)] OR THE RECEIVABLES (AS
DEFINED HEREIN) (AS DEFINED HEREIN) ARE INSURED OR GUARANTEED BY CREDIT SUISSE
FIRST BOSTON CORPORATION, THE COMPANY, ANY SELLER, ANY OF THEIR RESPECTIVE
AFFILIATES OR [, OTHER THAN IN THE CASE OF THE GOVERNMENT SECURITIES,] [, OTHER
THAN IN THE CASE OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES,] 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 Credit Suisse 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_.
Credit Suisse First Boston
The date of this Prospectus Supplement is __________, 199_.
<PAGE> 2
(Continued from preceding page)
The assets of the Trust will consist primarily of [(a)] 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") [and
(b) the Government Securities (as defined below)][and (c) the Private Label
Custody Receipt Securities (as defined below)]. 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, in each case as more fully described
herein. [Describe Government Securities (the "Government Securities").]
[Describe Private Label Custody Receipt Securities (the "Private Label Custody
Receipt Securities").] The Collateral Certificates [and the Government
Securities] [and the Private Label Custody Receipt Securities ][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 [and the Government Securities] [and the Private Label Custody
Receipt Securities] from a certain Seller or 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.
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 [AND GOVERNMENT SECURITY] [AND PRIVATE LABEL CUSTODY
RECEIPT SECURITY] 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> 3
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> 4
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........................... Credit Suisse First Boston Corporation 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 Credit Suisse
First Boston, Inc. Neither Credit Suisse
First Boston, Inc. nor any of its 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, 11 Madison Avenue, New York, New
York 10010, and its telephone number is
(212) 325-2000.
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> 5
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.
[The Government Securities....... Describe Government Securities, if any (the
"Government Securities").]
[The Private Label Custody
Receipt Securities.............. Describe Private Label Custody Receipt
Securities, if any (the Private Label
Custody Receipt Securities).]
Trust Property................... The assets of the Trust (the "Trust
Property") include (i) the Collateral
Certificates, [(ii) the Government
Securities, 13[(iii) the Private Label
Custody Receipt Securities, (iv)] all monies
(including accrued interest) received on or
with respect to the Collateral Certificates
[and the Government Securities][and the
Private Label Custody Receipt Securities] on
or after the Cutoff Date, [14(v)] all
amounts and property from time to time held
in or credited to the Collection Account,
[15(vi)] 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
[16(vii)] 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,
S-5
<PAGE> 6
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 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 [and the Government Securities]
[and the Private Label Custody Receipt
Securities]. Under the terms of the Trust
Agreement, the Company may purchase the
Collateral Certificates [and the Government
Securities] [and the Private Label Custody
Receipt Securities] when the aggregate
principal balance of the Collateral
Certificates [and the Government
Securities][and the Private Label Custody
Receipt Securities] (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 Distributions
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.
S-6
<PAGE> 7
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.
E. Optional Prepayment....... If the Company exercises its option to
purchase the Collateral Certificates [and
the Government Securities], [and the Private
Label Custody Receipt Securities], 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 Collateral
Certificates 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.
S-7
<PAGE> 8
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 [and the Government
Securities] [and the Private Label Custody
Receipt Securities] 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
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 _______________ ("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 Company 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
S-8
<PAGE> 9
by a rating agency if circumstances so
warrant. See "Risk Factors -- Ratings of the
Securities" herein.
S-9
<PAGE> 10
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. Credit Suisse 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 the Government Securities][and the Private Label Custody Receipt
Securities] and access to funds in the Reserve Account. Securityholders must
rely on payments on the Collateral Certificates [and the Government Securities]
[and the Private Label Custody Receipt Securities] 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 [and the Government Securities][and the Private
Label Custody Receipt Securities] 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 [and the Government
Securities], [and the Private Label Custody Receipt Securities], 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 Government Securities] [and the
Private Label Custody Receipt Securities] and the availability of funds in the
Reserve Account.
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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 [or the Government Securities][or the Private Label
Custody Receipt Securities].
Risk Factors 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.
[Risk Factors Regarding Government Securities. Prospective investors
in the Securities should consider carefully the factors set forth under the
caption "______________" in the disclosure documentation relating to the
Government Securities attached hereto as Appendix 18[_] for certain additional
considerations relating to the Government Securities.]
[Risk Factors Regarding Private Label Custody Receipt Securities.
Prospective investors in the Securities should consider carefully the factors
set forth under the caption "______________" in the disclosure documentation
relating to the Private Label Custody Receipt Securities attached hereto as
Appendix [_] for certain additional considerations relating to the Private Label
Custody Receipt Securities.]
Available Information Regarding the Collateral Certificates. This
Prospectus Supplement relates only to the Securities offered hereby and does not
relate to the Collateral Certificates [or the Government Securities][or the
Private Label Custody Receipt Securities]. [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.] [[An affiliate of the Company] [The Underwriter] participated
in the preparation of the prospectuses relating to the Collateral Certificates
and the offering of the Collateral Certificates.] 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.
As a general rule, the originator of each 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 with respect to the
related Underlying Trust Fund, including monthly servicer reports ("Servicer
Reports") regarding the Collateral Certificates may be inspected and copies at
certain offices of the Commission at the addresses listed under "Available
Information" herein.
There can be no assurance that an originator of an Underlying Trust
Fund will not elect to suspend its reporting under the Exchange Act after the
date hereof if such originator of an Underlying Trust Fund no longer has a class
of security listed on a national securities exchange or held by 300 or more
holders of record. In such event, information (including financial information)
then available to the Company and the Trustee with respect to such originator
may not be as extensive, timely or readily available as that previously made
available under the Exchange Act. Accordingly, in such event, the information
with respect to any such Underlying Trust Fund that the Company and the Trustee
can include in the Exchange Act reports of the Trust Fund will be similarly
limited.
[Available Information Regarding the Government Securities 19 Neither
the Company nor the Underwriter participated in the preparation of the
disclosure documentation relating to the Government Securities or the offering
of the Government Securities, 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 documentation, the information provided therein 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
disclosure documentation relating to the Government Securities speaks only as of
the date of such documentation; there
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<PAGE> 12
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.]
[Available Information Regarding the Private Label Custody Receipt
Securities Neither the Company nor the Underwriter participated in the
preparation of the disclosure documentation relating to the Private Label
Custody Receipt Securities or the offering of the Private Label Custody Receipt
Securities, 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 documentation,
the information provided therein 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 disclosure
documentation relating to the Private Label Custody Receipt Securities speaks
only as of the date of such documentation; 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.]
[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, Credit Suisse First Boston Corporation 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 [, the Government Securities] [, the Private Label Custody Receipt
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.
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 [and the Government Securities] [and the Private Label
Custody Receipt Securities] from the Company pursuant to the Trust Agreement.
The Trustee will manage the Collateral Certificates [and the Government
Securities] [and the Private Label Custody Receipt Securities] 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.
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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. Each 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 [and the Government Securities] [and the Private
Label Custody Receipt Securities], 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.
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<PAGE> 14
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 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 [and the Government Securities] [and the Private Label
Custody Receipt Securities], which the Company may do after the aggregate
outstanding principal amount of the Collateral Certificates [and the Government
Securities] [and the Private Label Custody Receipt Securities] 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
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<PAGE> 15
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 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 [and the Government Securities] [and the Private Label Custody
Receipt Securities], which it may do when the aggregate outstanding principal
amount of the Collateral Certificates [and the Government Securities] [and the
Private Label Custody Receipt Securities] 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 the material terms of the
Collateral Certificates. It does not purport to provide complete 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. Prospective investors are
urged to read such Schedule, which is expressly made a part hereof. This
Prospectus Supplement relates only to the Securities offered hereby and does not
relate to the Collateral Certificates.
Appendix A to this Prospectus Supplement contains certain excerpts
from the prospectuses pursuant to which Collateral Certificates were offered and
sold. See "Risk Factors -- Available Information 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 in any
prospectus relating to the Collateral Certificates is not reliable, neither
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<PAGE> 16
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
Factor--Available Information Regarding Collateral Certificates" and "--Certain
Updated Information with Respect to the Collateral Certificates".
CERTAIN UPDATED INFORMATION WITH RESPECT TO THE COLLATERAL CERTIFICATES
As a general rule, the originator of each Underlying Trust Fund is
subject to the information requirements of the Exchange Act. Accordingly, such
originator files annual and periodic reports and other information with respect
to the related Underlying Trust Fund, including monthly 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 such reports and other
information may be inspected and copied at certain offices of the Commission at
the address listed under "Available Information" herein.
[In the event that the originator of an Underlying Trust Fund is not
subject to the information requirements of the Exchange Act on the date of
issuance of the Securities or ceases to be subject to such requirements after
such date, the Company or the Trustee will provide, or cause to be provided (or
make available, or cause to make available), upon request of a Securityholder,
the Servicer Reports relating to such Underlying Trust Fund where the related
Collateral Certificates represent 20% or more of the aggregate principal balance
of the Trust Fund as of the Cutoff Date.]
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.]
[DESCRIPTION OF THE GOVERNMENT SECURITIES
This Prospectus Supplement sets forth the material terms of the
Government Securities. It does not purport to provide complete information with
respect to all terms of such securities or the issuer thereof. Certain
information relating to the issuer of the Government Securities is provided in
the Prospectus under the caption "The Government Securities." Schedule 21 [ ] to
this Prospectus Supplement contains a summary of the terms of the Government
Securities. Prospective investors are urged to read such Schedule, which is
expressly made a part hereof. This Prospectus Supplement relates only to the
Securities offered hereby and does not relate to the Government Securities.
Appendix 22 [ ] to this Prospectus Supplement contains certain
excerpts from the disclosure documentation pursuant to which Government
Securities were offered and sold. See "Risk Factors--Available Information
Regarding Government Securities". Neither the Company nor the Underwriter has
any reason to believe the information provided by any originator of the
Government Securities or in any disclosure documentation relating to the
Government Securities is not reliable, neither the Company nor the Underwriter
has verified either its accuracy or its completeness. In particular, information
set forth in any disclosure documentation relating to the Government Securities
speaks only as of the date of such documentation; 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--Available
Information Regarding Government Securities".]
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<PAGE> 17
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES
This Prospectus Supplement sets forth the material terms of the
Private Label Custody Receipt Securities. It does not purport to provide
complete information with respect to all terms of such securities or the
issuer(s) thereof. Certain information relating to the issuer(s) of the Private
Label Custody Receipt Securities is provided in the Prospectus under the caption
"The Private Label Custody Receipt Securities". Schedule [ ] to this Prospectus
Supplement contains a summary of the terms of the Private Label Custody Receipt
Securities. Prospective investors are urged to read such Schedule, which is
expressly made a part hereof. This Prospectus Supplement relates only to the
Securities offered hereby and does not relate to the Private Label Custody
Receipt Securities.
Appendix [ ] to this Prospectus Supplement contains certain excerpts
from the disclosure documentation pursuant to which the Private Label Custody
Receipt Securities were offered and sold. See "RISK Factors--Available
Information Regarding Private Label Custody Receipt Securities". Neither the
Company nor the Underwriter has any reason to believe the information provided
by any originator of the Private Label Custody Receipt Securities or in any
disclosure documentation relating to the Private Label Custody Receipt
Securities is not reliable, neither the Company nor the Underwriter has verified
either its accuracy or its completeness. In particular, information set forth in
any disclosure documentation relating to the Private Label Custody Receipt
Securities speaks only as of the date of such documentation; 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--Available Information Regarding Private Label Custody Receipt
Securities".]
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 [and the
Government Securities] [and the Private Label Custody Receipt Securities], 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 [and the
Government Securities] [and the Private Label Custody Receipt Securities].
The "Interest Distribution Amount" for a Distribution Date will equal
the sum of the portion of all collections on the Collateral Certificates [and
the Government Securities] [and the Private Label Custody Receipt
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<PAGE> 18
Securities] 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 [and the Government Securities] [and
the Private Label Custody Receipt Securities] 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;
(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
S-18
<PAGE> 19
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 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
S-19
<PAGE> 20
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.
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.
[CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Discuss additional Federal income tax consequences, if any.]
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
S-20
<PAGE> 21
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
Credit Suisse 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.
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 _______________.
S-21
<PAGE> 22
INDEX OF TERMS
Business Day.................................................
Certificate Balance..........................................
Certificate Pass-Through-Rate................................
Certificateholders...........................................
Certificateholders' Distributable Amount.....................
Certificateholders' Interest Carryover Shortfall.............
Certificateholders' Interest Distributable Amount............
Certificateholders' Monthly Interest Distributable Amount....
Certificateholders' Principal Distributable Amount...........
Certificates.................................................
Class A-1 Final Scheduled Payment Date.......................
Class A-1 Notes..............................................
Class A-1 Rate...............................................
Class A-2 Final Scheduled Payment Date.......................
Class A-2 Notes..............................................
Class A-2 Rate...............................................
Closing Date.................................................
Code.........................................................
Collateral Certificates......................................
Collection Account...........................................
Commission...................................................
Cutoff Date..................................................
Distribution Date............................................
ERISA........................................................
Federal Tax Counsel..........................................
Final Scheduled Distribution Date............................
[Government Securities.......................................
Indenture....................................................
Indenture Trustee............................................
Interest Distribution Amount.................................
Interest Rates...............................................
Noteholders..................................................
Noteholders' Distributable Amount............................
Noteholders' Interest Carryover Shortfall....................
Noteholders' Interest Distributable Amount...................
Noteholders' Monthly Interest Distributable Amount...........
Noteholders' Principal Distributable Amount..................
Note.........................................................
Owner Trustee................................................
Plan.........................................................
Pool Balance.................................................
Principal Distribution Amount................................
[Private Label Custody Receipt Securities....................
Prospectus...................................................
Rating Agencies..............................................
Receivables..................................................
Record Date..................................................
Reserve Account..............................................
Reserve Account Initial Deposit..............................
Securities...................................................
S-22
<PAGE> 23
Securityholders..............................................
Seller.......................................................
Servicer Reports.............................................
Specified Reserve Account Balance............................
Total Distribution Amount....................................
Trust........................................................
Trust Agreement..............................................
Trust Property...............................................
Underlying Agreement.........................................
Underlying Trust Fund........................................
Underwriting.................................................
Underwriting Agreements......................................
S-23
<PAGE> 24
SCHEDULE I
Class__
CUSIP #___________ Rating: __________
<TABLE>
<CAPTION>
[Monthly][Quarterly]
[Semi-Annual] Aggregate
Payment Dates Interest Payment Interest Payment
------------- -------------------- ----------------
<S> <C> <C>
$___________________ $_______________
</TABLE>
<TABLE>
<CAPTION>
Aggregate Face
Amount Minimum
of Principal Authorized
Component Denomination Interest Rate
-------------- ------------ -------------
<S> <C> <C> <C>
$_____________ $___________ ____________%
</TABLE>
I-1
<PAGE> 25
APPENDIX [A]
Prospectuses relating to Collateral Certificates
Servicer Reports relating to Collateral Certificates
Disclosure Documentation relating to Collateral Certificates
To be Supplied
A-1
<PAGE> 26
[APPENDIX [ ]]
[Prospectuses relating to Government Securities]
[Servicer Reports relating to Government Securities]
[Disclosure Documentation relating to Government Securities]
[To be Supplied]
[ -1]
<PAGE> 27
27[APPENDIX [_]]
[Prospectuses relating to Private Label Custody Receipt Securities]
[Servicer Reports relating to Collateral Certificates]
[Disclosure Documentation relating to Private Label Custody Receipt
Securities]
[To be Supplied]
[ -1]
<PAGE> 28
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 CREDIT SUISSE FIRST BOSTON CORPORATION. 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........ .................................................
Risk Factors.....................................................
The Trust........................................................
Weighted Average Life of the Securities..........................
The Notes........................................................
The Certificates.................................................
Description of the Collateral Certificates.......................
[Description of the Government Securities........................
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES.....
The Trust Agreement..............................................
[Certain Federal Income Tax Considerations.......................
ERISA Considerations.............................................
Underwriting.....................................................
Legal Matters....................................................
Index of Terms...................................................
PROSPECTUS
Prospectus Supplement............................................
Reports to Securityholders.......................................
Available Information............................................
Incorporation of Certain Documents by Reference..................
Summary of Terms.................................................
Risk Factors.....................................................
The Trusts.......................................................
The Receivables Pools............................................
The Collateral Certificates......................................
The Government Securities........................................
[THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES....................]
Weighted Average Life of the Securities..........................
Pool Factors and Trading Information.............................
The Seller and the Servicer......................................
Use of Proceeds..................................................
Description of the Notes.........................................
Description of the Certificates..................................
Certain Information Regarding the Securities.....................
Description of the Transfer and Servicing Agreements.............
Certain Legal Aspects of the Receivables.........................
Certain Federal Income Tax Consequences..........................
State and Local Tax Considerations...............................
ERISA Considerations.............................................
Plan of Distribution.............................................
Legal Matters....................................................
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.
$[ ]
CREDIT SUISSE
FIRST BOSTON CORPORATION AUTO
RECEIVABLES AND
RECEIVABLES
SECURITIES TRUSTS
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
$[ ] [ ]% [Floating Rate]
Asset Backed Notes, Class [ ]
Asset Backed Securities Corporation
(Company)
PROSPECTUS SUPPLEMENT
[ ], 199[ ]
[INSERT Credit Suisse First Boston Corporation LOGO HERE]
<PAGE> 1
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 , 1998
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 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 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 Credit
Suisse First Boston Corporation, New York, New York, on or about
, 19 .
Credit Suisse First Boston
The date of this Prospectus Supplement is ,19
<PAGE> 2
(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, 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
S-2
<PAGE> 3
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> 4
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.]
S-4
<PAGE> 5
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.]
S-5
<PAGE> 6
[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."]
S-6
<PAGE> 7
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.
S-7
<PAGE> 8
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> 9
________ 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> 10
[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> 11
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> 12
[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> 13
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> 14
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> 15
UNDERWRITING
The Depositor has entered into an Underwriting Agreement with [several
Underwriters, for whom] Credit Suisse 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>
Credit Suisse 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
__________________.
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> 16
INDEX OF TERMS
Page on which Term
is defined in the
Term Prospectus Supplement
- ----- ---------------------
[ARM Loans............................................
[Buy-Down Funds.......................................
Certificates..........................................
[Certificateholders...................................
Class.................................................
Code..................................................
[Cut-off-Date.........................................
Depositor.............................................
Distribution Date.....................................
Due Date..............................................
Enhancement Act.......................................
Interest Accrual Period...............................
Letter of Credit......................................
Letter of Credit Percentage...........................
Master Servicer.......................................
Mortgage Loans........................................
Mortgage Bankruptcy Bond..............................
[Mortgage Pool........................................
Mortgage Rate.........................................
[Mortgaged Property...................................
Mortgagors............................................
[Multi-Class Certificates.............................
[Multifamily Property.................................
[Original Value.......................................
Pass-Through Rate.....................................
Performance Bond......................................
Pool Insurance Policy.................................
Pool Insurer..........................................
Pooling and Servicing Agreement.......................
[Prepayment Assumption................................
Rating Agency.........................................
Reference Agreement...................................
Regular Certificates..................................
REMIC.................................................
Retained Yield........................................
Servicing Agreement...................................
Single Certificate....................................
SPA...................................................
Special Hazard Insurance Policy.......................
Special Hazard Insurer................................
Standard Terms........................................
Trustee...............................................
[Underwriter..........................................
S-16
<PAGE> 17
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...............................................
Reports to Certificateholders.......................................
Summary of Terms....................................................
Risk Factors........................................................
Description of the Mortgage Pool and the Underlying
Properties..........................................................
Description of the Certificates.....................................
Yield and Prepayment Considerations.................................
Certain Federal Income Tax Consequences.............................
Legal Investment Considerations.....................................
ERISA Considerations................................................
Underwriting........................................................
Legal Matters.......................................................
Use of Proceeds.....................................................
Index of Terms......................................................
PROSPECTUS
Prospectus Supplement...............................................
Additional Information..............................................
Incorporation of Certain Information by Reference...................
Summary of Terms....................................................
Risk Factors........................................................
The Trust Fund......................................................
The Depositor.......................................................
Use of Proceeds.....................................................
Yield Considerations................................................
Maturity and Prepayment Considerations..............................
Description of the Certificates.....................................
Credit Support......................................................
Description of Insurance............................................
Certain Legal Aspects of the Mortgage
Loans and Contracts..............................................
Certain Federal Income Tax Consequences.............................
ERISA Considerations................................................
Legal Investment....................................................
Plan of Distribution................................................
Legal Matters.......................................................
Index of Terms......................................................
Asset Backed
Securities Corporation
Depositor
$____________
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199__
PROSPECTUS
Credit Suisse First Boston Corporation
<PAGE> 1
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 , 1998
PROSPECTUS SUPPLEMENT
(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 Credit Suisse First Boston Corporation, New York, New York, on or
about ________ , 199.
Credit Suisse First Boston
The date of this Prospectus Supplement is ______ , 19 .
<PAGE> 2
(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> 3
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-3
<PAGE> 4
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-4
<PAGE> 5
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-5
<PAGE> 6
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-6
<PAGE> 7
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-7
<PAGE> 8
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-8
<PAGE> 9
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."
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<PAGE> 10
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.]
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<PAGE> 11
[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-11
<PAGE> 12
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-12
<PAGE> 13
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"
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<PAGE> 14
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
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<PAGE> 15
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.
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<PAGE> 16
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]
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<PAGE> 17
[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] Credit Suisse 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>
Credit Suisse 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-17
<PAGE> 18
[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
_______________.
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-18
<PAGE> 19
INDEX OF TERMS
<TABLE>
<CAPTION>
Page on which Term
is defined in the
Term Prospectus Supplement
<S> <C>
[Aggregate Losses.................................................
[ARM Loans........................................................
[Asset Value......................................................
[Buy Down Funds...................................................
[Certificate Registration.........................................
[Certificate Principal Balance....................................
Certificates......................................................
Class A Certificates..............................................
Class A-1 Certificates............................................
Class A-2 Certificates............................................
Class A-1 Distribution Amount.....................................
Class A-2 Distribution Amount.....................................
Class B Certificates..............................................
Class B-1 Certificates............................................
Class R Certificates..............................................
Commission........................................................
Contracts.........................................................
Cooperative.......................................................
Cooperative Dwelling..............................................
Cooperative Loans.................................................
[Cut-off-Date.....................................................
Depositor.........................................................
[Determination Date...............................................
[Distribution Date................................................
Due Date..........................................................
Enhancement Act...................................................
Exchange act......................................................
[Final Scheduled Distribution Date................................
[Interest Accrual Period..........................................
Interest Distribution.............................................
Master Servicer...................................................
[Mortgage Pool....................................................
Mortgage Loans....................................................
Multifamily Property..............................................
[Notional Amount..................................................
[Original Value...................................................
Pass-Through Rate.................................................
Percentage Interest...............................................
Performance Bond..................................................
Pooling and Servicing Agreement...................................
Principal Distribution............................................
[Principal Weighted Class.........................................
Rating Agency.....................................................
[Record Date......................................................
Reference Agreement...............................................
Regular Certificates..............................................
REMIC.............................................................
Required Distribution.............................................
Required Reserve..................................................
Reserve Fund......................................................
Retained Yield....................................................
</TABLE>
S-19
<PAGE> 20
<TABLE>
<S> <C>
Securities Act.....................................................
Senior Interest....................................................
Single family Property.............................................
SPA................................................................
Standard Terms.....................................................
Subclass...........................................................
Subordinated Amount................................................
Trust..............................................................
[Trust Asset.......................................................
Trust Fund.........................................................
Trustee............................................................
Underwriter........................................................
[Underwriting Agreement............................................
</TABLE>
S-20
<PAGE> 21
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..................................................
Reports to Certificateholders...........................................
Summary of Terms........................................................
Risk Factors............................................................
Description of the Mortgage Pool and
the Underlying Properties.............................................
Description of the Certificates.........................................
Yield and Prepayment Considerations.....................................
Rating..................................................................
Certain Federal Income Tax Consequences.................................
Legal Investment Considerations.........................................
ERISA Considerations....................................................
Underwriting............................................................
Legal Matters...........................................................
Use of Proceeds.........................................................
Index of Index..........................................................
PROSPECTUS
Prospectus Supplement...................................................
Additional Information..................................................
Incorporation of Certain Information by Reference.......................
Summary of Terms........................................................
Risk Factors............................................................
The Trust Fund..........................................................
The Depositor...........................................................
Use of Proceeds.........................................................
Yield Considerations....................................................
Maturity and Prepayment Considerations..................................
Description of the Certificates.........................................
Credit Support..........................................................
Description of Insurance................................................
Certain Legal Aspects of the Mortgage
Loans and Contracts..................................................
Certain Federal Income Tax Consequences.................................
ERISA Considerations....................................................
Legal Investment........................................................
Plan of Distribution....................................................
Legal Matters...........................................................
Index of Terms..........................................................
Asset Backed
Securities Corporation
Depositor
$
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199_
PROSPECTUS
Credit Suisse First Boston Corporation
<PAGE> 1
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 , 1998
PROSPECTUS SUPPLEMENT (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) Underwriting Depositor
Interest Rate Date (1) Discount (2)(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <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 Credit
Suisse First Boston Corporation, New York, New York, on or about 199 .
Credit Suisse First Boston
- -------------------------------------------------------------------------------
The date of this Prospectus Supplement is ,19
<PAGE> 2
(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> 3
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> 4
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
Stated Principal Balance...... The Stated Principal Balance of a [Class
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> 5
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 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 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
S-5
<PAGE> 6
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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[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.]
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* 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."
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<PAGE> 8
[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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<PAGE> 9
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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<PAGE> 10
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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<PAGE> 11
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."
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<PAGE> 12
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> 13
[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> 14
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> 15
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> 16
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.
<TABLE>
<CAPTION>
LIBOR Class A-1 Class A-2
<S> <C> <C>
% % %
% % %
% % %
</TABLE>
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
S-16
<PAGE> 17
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
S-17
<PAGE> 18
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> 19
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> 20
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> 21
[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] Credit Suisse 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> <C> <C> <C>
Credit Suisse 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
- ------------------.
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> 22
INDEX OF TERMS
Page on which
Term is Defined
Term in the Prospectus Supplement
Accrual Date..................................................
Accrual Distribution Amount...................................
[Aggregate Losses.............................................
ARM Loans.....................................................
Asset Value...................................................
Asset Value Cap...............................................
Assumed Reinvestment Rate.....................................
Available Interest Accrual Date...............................
Available Interest Amount.....................................
Business Day..................................................
Buy-Down Fund.................................................
Certificate...................................................
Certificate Account...........................................
Class A Certificates..........................................
Class A Certificateholder.....................................
Class B Certificate...........................................
Class B Certificateholders....................................
Code..........................................................
Commission....................................................
Contracts.....................................................
Cut-off Date..................................................
Depositor.....................................................
Determination Date............................................
Distribution Date.............................................
Due Date......................................................
Due Period....................................................
Enhancement Act...............................................
Excess Cash Flow..............................................
Exchange Act..................................................
Final Schedule Distribution Date..............................
Fixed Rate Certificates.......................................
GPM Fund......................................................
GPM Loan......................................................
Initial Stated Interest Balance...............................
Interest Accrual Period.......................................
Interest Rate.................................................
Interest Rate Determination Date..............................
Letter of Credit..............................................
Letter of Credit Percentage...................................
Master Servicer...............................................
Mortgage Loans................................................
[Mortgage Pool................................................
Mortgage Rate.................................................
Mortgagor.....................................................
Mortgagor Bankruptcy Bond.....................................
Multi-Class Certificates......................................
Original Value................................................
Performance Bond..............................................
Pool Insurer..................................................
Pool Insurance Policy.........................................
Pooling and Servicing Agreement...............................
[Prepayment Assumption........................................
Rating Agency.................................................
[Reference Banks..............................................
Reference Agreement...........................................
Regular Certificates..........................................
Reinvestment Agreement........................................
REMIC.........................................................
S-22
<PAGE> 23
Required Distribution.........................................
Required Reserve..............................................
Reserve Fund..................................................
Reserve Interest Rate.........................................
Residual Certificates.........................................
Securities Act................................................
Senior Interest...............................................
Servicer......................................................
[Servicing Account............................................
Servicing Agreement...........................................
SPA...........................................................
Special Distribution Date.....................................
Special Distributions.........................................
Special Hazard Insurance Policy...............................
Special Hazard Insurer........................................
Standard Terms................................................
[Stated Principal Balance.....................................
[Stated Principal Distribution Amount.........................
Subordinated Amount...........................................
Trust.........................................................
Trust Fund....................................................
Trustee.......................................................
[Underwriter..................................................
[Variable Rate Certificate....................................
S-23
<PAGE> 24
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...............................................
Reports to Certificateholders.......................................
Summary of Terms....................................................
Risk Factors........................................................
Description of the Trust Fund.......................................
Description of the [Class A] Certificates...........................
Yield and Prepayment Considerations.................................
Certificate Rating..................................................
Certain Federal Income Tax Consequences.............................
Legal Investment Considerations.....................................
ERISA Considerations................................................
Underwriting........................................................
Legal Matters.......................................................
Use of Proceeds.....................................................
Index of Terms......................................................
PROSPECTUS
Prospectus Supplement................................................
Additional Information...............................................
Incorporation of Certain Information by Reference....................
Summary of Terms.....................................................
Risk Factors.........................................................
The Trust Fund.......................................................
The Depositor........................................................
Use of Proceeds......................................................
Yield Considerations.................................................
Maturity and Prepayment Considerations...............................
Description of the Certificates......................................
Credit Support.......................................................
Description of Insurance.............................................
Certain Legal Aspects of the Mortgage
Loans and Contracts...............................................
Certain Federal Income Tax Consequences..............................
ERISA Considerations.................................................
Legal Investment.....................................................
Plan of Distribution.................................................
Legal Matters........................................................
Index of Terms.......................................................
Asset Backed
Securities Corporation
Depositor
$----------------
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -_
PROSPECTUS
Credit Suisse First Boston Corporation
<PAGE> 1
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 , 1998
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 Credit
Suisse First Boston Corporation, New York, New York, on or about , 199 .
Credit Suisse First Boston
The date of this Prospectus Supplement is , 19
<PAGE> 2
(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> 3
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
S-3
<PAGE> 4
-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
S-4
<PAGE> 5
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 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 (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
<PAGE> 6
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> 7
[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> 8
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
S-8
<PAGE> 9
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]
S-9
<PAGE> 10
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> 11
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] Credit Suisse 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>
Credit Suisse First Boston Corporation.... $ $ $
</TABLE>
S-11
<PAGE> 12
<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 Credit Suisse First Boston
Corporation on terms substantially similar to those that the Depositor would
obtain in an arm's length transaction. Credit Suisse 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 ____________.
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> 13
INDEX OF TERMS
Page on which
Term is Defined in the
Term Prospectus Supplement
- ---- ----------------------
Annual Rate..........................................
[Certificate Principal Balance.......................
Certificates.........................................
Certificateholders...................................
Class-1 Certificates.................................
Class-2 Certificates.................................
Commission ..........................................
Delivery Date........................................
Deposit Trust Agreement..............................
Depositor............................................
Distribution Date....................................
Enhancement Act......................................
[ERISA...............................................
Exchange Act.........................................
Interest Weighted Class of Certificates..............
Mortgage Certificate Interest Distribution...........
Mortgage Certificates Principal Distribution.........
[Mortgage Loan.......................................
[Principal Weighted Class of Certificates............
Record Date..........................................
Servicing Fee........................................
SPA..................................................
Trust................................................
Underlying Certificates..............................
[Underwriter.........................................
[Underwriting Agreement..............................
S-13
<PAGE> 14
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...........................................
Reports to Certificateholders...................................
Summary of the Terms............................................
Risk Factors....................................................
Description of the Underlying Certificates......................
Description of the Certificates.................................
Yield and Prepayment Considerations.............................
Rating..........................................................
Certain Federal Income Tax Consequences.........................
Legal Investment Considerations.................................
ERISA Considerations............................................
Underwriting....................................................
Legal Matters...................................................
Use of Proceeds.................................................
Index of Terms..................................................
PROSPECTUS
Prospectus Supplement...........................................
Additional Information..........................................
Incorporation of Certain Information by Reference...............
Summary of Terms................................................
Risk Factors....................................................
The Trust Fund..................................................
The Depositor...................................................
Use of Proceeds.................................................
Yield Considerations............................................
Maturity and Prepayment Considerations..........................
Description of the Certificates.................................
Credit Support..................................................
Description of Insurance........................................
Certain Legal Aspects of the Mortgage
Loans and Contracts...........................................
Certain Federal Income Tax Consequences.........................
ERISA Considerations............................................
Legal Investment................................................
Plan of Distribution............................................
Legal Matters...................................................
Index of Terms..................................................
Asset Backed
Securities Corporation
Depositor
$
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -_
PROSPECTUS
Credit Suisse First Boston Corporation
<PAGE> 1
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 , 1998
P R O S P E C T U S S U P P L E M E N T
(To Prospectus Dated , 199_)
$ (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 Credit
Suisse First Boston Corporation, New York, New York, on or about , 199 .
Credit Suisse First Boston
The date of this
Prospectus Supplement is , 1996.
<PAGE> 2
(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.
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S-3
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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 .
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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.
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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.
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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.
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<PAGE> 8
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.
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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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<PAGE> 11
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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<PAGE> 12
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
S-12
<PAGE> 13
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
S-13
<PAGE> 14
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.
S-14
<PAGE> 15
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.
S-15
<PAGE> 16
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
S-16
<PAGE> 17
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] Credit Suisse 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
Credit Suisse First Boston Corporation............ $
--------
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 ____________.
S-17
<PAGE> 18
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> 19
INDEX OF TERMS
Page on which
Term is defined in
Term the Prospectus Supplement
- ----- -------------------------
[Advances...............................................
APR.....................................................
[Asset Value............................................
[Business Day...........................................
[Certificateholders.....................................
Certificates............................................
Code....................................................
Commission..............................................
Contract Schedule.......................................
Contract Pool...........................................
Contracts...............................................
[Cut-off Date...........................................
[Defaulted Contracts....................................
Depositor...............................................
Direct Letter of Credit.................................
[Distribution Date......................................
DOL.....................................................
[Due Date...............................................
Enhancement Act.........................................
ERISA...................................................
Excess Interest.........................................
Exchange Act............................................
Guarantee Amount........................................
[Interest Accrual Period................................
[Interest Weighted Class of Certificates................
L/C Bank................................................
Letters of Credit.......................................
Letters of Credit Percentage............................
Limited Guarantee.......................................
Limited Guarantee Fee...................................
Limited Guarantee Fund..................................
Manufactured Homes......................................
Master Servicer.........................................
[Mortgage Loan..........................................
[Mortgage Pool..........................................
[Multi-Class Certificates...............................
Obligor.................................................
Pass-Through Rate.......................................
Performance Bond........................................
Plan....................................................
Pooling and Servicing Agreement.........................
[Prepayment Assumption..................................
[Principal Weighted Class of Certificates...............
Rating Agency...........................................
Record Date.............................................
Regular Certificates....................................
REMIC...................................................
S-19
<PAGE> 20
Residual Certificates...................................
Retained Yield..........................................
Servicing Agreement.....................................
Servicing Fee...........................................
Single Certificate......................................
SPA.....................................................
Standby Letter of Credit................................
Trust...................................................
[Trust Asset............................................
Trust Fund..............................................
Trustee.................................................
[Underwriter............................................
[Underwriting Agreement.................................
S-20
<PAGE> 21
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..................................................
Reports to Certificateholders..........................................
Summary of terms.......................................................
Risk Factors...........................................................
Description of the Certificates........................................
Yield and Prepayment Considerations....................................
Rating.................................................................
Certain Federal Income Tax Consequences................................
Legal Investment Considerations........................................
ERISA Considerations...................................................
Underwriting...........................................................
Legal matters..........................................................S-16
Use of Proceeds........................................................
Index of terms.........................................................
PROSPECTUS
Prospectus Supplement..................................................
Additional Information.................................................
Incorporation of Certain Information by Reference......................
Summary of Terms.......................................................
Risk Factors...........................................................
The Trust Fund.........................................................
The Depositor..........................................................
Use of Proceeds........................................................
Yield Considerations...................................................
Maturity and Prepayment Considerations.................................
Description of the Certificates........................................
Credit Support.........................................................
Description of Insurance...............................................
Certain Legal Aspects of the Mortgage
Loans and Contracts..................................................
Certain Federal Income Tax Consequences................................
ERISA Considerations...................................................
Legal Investment.......................................................
Plan of Distribution...................................................
Legal Matters..........................................................
Index of Terms.........................................................
Asset Backed
Securities Corporation
Depositor
$--------
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -
PROSPECTUS
Credit Suisse First Boston Corporation
<PAGE> 1
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 ____________, 1998
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 Credit Suisse First Boston Corporation, 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 .
Credit Suisse First Boston
The Date of this Prospectus Supplement is , 19 .
<PAGE> 2
(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.]
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<PAGE> 3
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.
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<PAGE> 4
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.
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<PAGE> 5
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
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<PAGE> 6
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
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<PAGE> 7
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
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<PAGE> 8
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
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<PAGE> 9
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> 10
of the Class B[-2] Certificate.] See
"Certain Federal Income Tax
Consequences" [herein and] in the
Prospectus.]
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<PAGE> 11
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.]
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<PAGE> 12
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> 13
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> 14
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> 15
LOAN-TO-VALUE RATIOS AT ORIGINATION
<TABLE>
<CAPTION>
% of
No. Mortgage
of Aggregate Pool
Loan-to-Value Ratios Loans Balances Balance
- ------------------------------------------------------------------------ --------------- ---------------- -------------
<S> <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> 16
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> 17
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> 18
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> 19
[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> 20
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> 21
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> <C> <C> <C> <C>
60-89 days............................. $ $ $ $
90 days and over.......................
In foreclosure.........................
Total............................ $ $ $ $
</TABLE>
S-21
<PAGE> 22
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> 23
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> 24
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)
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<PAGE> 25
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
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<PAGE> 26
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
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<PAGE> 27
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:
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<PAGE> 28
<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
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<PAGE> 29
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
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<PAGE> 30
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.]
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<PAGE> 31
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> 32
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> 33
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> 34
[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> 35
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] Credit Suisse 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>
Credit Suisse 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 ____________. The material federal income tax
consequences of the Class A Certificates will be passed upon for the Depositor
by ____________.
S-35
<PAGE> 36
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> 37
INDEX OF TERMS
Page on which
Term is defined in the
Term Prospectus Supplement
- ----------------------------------------------------------------------------
Adjustment Date.......................................
Advances..............................................
[Aggregate Losses.....................................
[Business Day.........................................
CEBA..................................................
Certificates..........................................
[Certificate Account..................................
[Class A Certificateholders...........................
Class A Certificates..................................
Class A Certificate Principal Balance.................
Class A Distribution Amount...........................
Class A Prepayment Percentage.........................
Class A Percentage....................................
Class B Certificates..................................
Class B Principal Balance.............................
Class B-1 Percentage..................................
Class B-2 Percentage..................................
Commission............................................
Deficient Valuation...................................
Deleted Mortgage Loan.................................
Depositor.............................................
Determination Date....................................
Distribution Date.....................................
Due Date..............................................
[Eligible Investments.................................
Enhancement Act.......................................
ERISA.................................................
Exchange Act..........................................
FHLB..................................................
Gross Margin..........................................
Index.................................................
Initial Class A Certificate Principal Balance.........
Initial Mortgage Rate.................................
Interest Shortfalls...................................
[Interest Weighted Class of Certificates..............
Liquidated Loan.......................................
Master REMIC..........................................
Master Servicer.......................................
Master Trust Fund.....................................
Master Trust Fund Aggregate Distribution..............
Maximum Mortgage Rate.................................
Maximum Subsidiary Pass-Through Rate..................
Mortgage Loans........................................
Mortgage Note.........................................
Mortgage Pool.........................................
Mortgaged Properties..................................
S-37
<PAGE> 38
Mortgage Rate.........................................
[Mortgage Rate Caps...................................
[Mortgagor............................................
Pass-Through Margin...................................
Periodic Mortgage Rate Cap............................
Pooling and Servicing Agreement.......................
Prepayment Period.....................................
Principal Prepayments.................................
Principal Shortfall...................................
[Principal Weighted Class of Certificates.............
Purchase Agreement....................................
[Rate Adjustment Date.................................
Realized Loss.........................................
Record Date...........................................
Regular Certificates..................................
REMIC.................................................
Replacement Mortgage Loan.............................
Scheduled Principal Balance...........................
Servicer..............................................
Servicing Fee.........................................
Servicing Fee Rate....................................
Single Certificate....................................
[Standard Hazard Insurance Policy.....................
[Special Hazard Realized Losses.......................
[Step-down Criteria...................................
Subordinate Percentage................................
[Subsidiary Trust Fund................................
Subsidiary Trust Fund Regular Distribution............
Subsidiary REMIC......................................
Subordinate Amount....................................
Subordinate Percentage................................
[Subsidiary Pass-Through Rate.........................
Subsidiary Regular Interests..........................
Subsidiary REMIC......................................
Subsidiary Residual Interest..........................
[Subsidiary Trust Fund................................
[Trust Asset..........................................
Trustee...............................................
[Underwriting Agreement...............................
S-38
<PAGE> 39
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...............................................
Reports to Certificateholders.......................................
Summary of Terms....................................................
Risk Factors........................................................
Description of the Mortgage Pool and
the Underlying Mortgaged Properties...............................
Types of Mortgaged Properties.......................................
Current Loan Amounts................................................
Loan-to-Value Ratios at Origination.................................
Current Mortgage Rates..............................................
Mortgage Loan Gross Margins.........................................
Month in which next Adjustment Date Falls...........................
Lifetime Mortgage Rate Caps.........................................
Years of Origination................................................
Geographical Distribution of Mortgaged Properties...................
Description of the Certificates.....................................
Yield and Prepayment Considerations.................................
Legal Investment....................................................
Rating..............................................................
ERISA Considerations................................................
Plan of Distribution................................................
Legal Matters.......................................................
Use of Proceeds.....................................................
Index of Terms......................................................
PROSPECTUS
Prospectus Supplement...............................................
Additional Information..............................................
Incorporation of Certain Information by Reference...................
Summary of Terms....................................................
Risk Factors........................................................
The Trust Fund......................................................
The Depositor.......................................................
Use of Proceeds.....................................................
Yield Considerations................................................
Maturity and Prepayment Considerations..............................
Description of the Certificates.....................................
Credit Support......................................................
Description of Insurance............................................
Certain Legal Aspects of the Mortgage
Loans and Contracts..............................................
Certain Federal Income Tax Consequences.............................
ERISA Considerations................................................
Legal Investment....................................................
Plan of Distribution................................................
Legal Matters.......................................................
Index of Terms......................................................
Asset Backed
Securities Corporation
Depositor
$___________
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -_
PROSPECTUS
Credit Suisse First Boston Corporation
<PAGE> 1
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.
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) describe Government
Securities, if any [_] (the "Government Securities")[_],] [(c) describe Private
Label Custody Receipt Securities , if any (the "Private Label Custody Receipt
Securities"),] [(d) a Reserve Fund] [and] [[_](e) 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 [_] Credit Suisse First
Boston Corporation ("Credit Suisse First Boston Corporation") 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 Credit Suisse First Boston
Corporation when, as and if delivered to and accepted by Credit Suisse First
Boston Corporation, 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 .
Credit Suisse First Boston
- --------------------------------------------------------------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS , 19
<PAGE> 2
(Continued from prior page)
Prospective investors should consider:
[. 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 Government Securities] [and the
Private Label Custody Receipt Securities] and the level of [specify
index.]]
[. 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"). [Describe disclosure documents, if any, relating to
Government Securities.] [Describe disclosure documents, if any, relating to
Private Label Custody Receipt Securities.] Copies of the Underlying Disclosure
Documents and the Underlying Pooling Agreements are available from Credit Suisse
First Boston Corporation 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. Credit Suisse First Boston Corporation 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.
-----------------------
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[IF AND TO THE EXTENT REQUIRED BY APPLICABLE LAW OR REGULATION, THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WILL ALSO BE USED BY CREDIT SUISSE
FIRST BOSTON CORPORATION AFTER THE COMPLETION OF THE OFFERING IN CONNECTION WITH
OFFERS AND SALES RELATED TO MARKET-MAKING TRANSACTIONS IN THE CERTIFICATES
OFFERED HEREBY IN WHICH CREDIT SUISSE FIRST BOSTON CORPORATION ACTS AS
PRINCIPAL. CREDIT SUISSE FIRST BOSTON CORPORATION MAY ALSO ACT AS AGENT IN SUCH
TRANSACTIONS. SALES WILL BE MADE AT NEGOTIATED PRICES DETERMINED AT THE TIME OF
SALE.]
UNTIL ____, 199__ , 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 [and the Government Securities] [and the Private Label
Custody Receipt Securities] 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.
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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].
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; [The Class A-1 Certificates will be issued as
DENOMINATIONS.............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) describe Government Securities, if any (the
"Government Securities"),] [(c) describe Private
Label Custody Receipt Securities, if any (the
"Private Label Custody Receipt Securities"),][(d) a
Reserve Fund] [and] [_](e) a Yield Support Agreement
provided by .] [See "--Government Securities ",
"--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
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"Pooling Agreement"), dated as of . See
"Description of the Class A-1 Certificates-- General"
herein.
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-1
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".
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[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 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 [and the Government
Securities] [and the Private Label Custody Receipt
Securities] 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.] [Describe
principal and interest payments on Government
Securities (including, without limitation, their
allocation to principal payments on the
Certificates).][Describe principal and interest
payments on Private Label Custody Receipt Securities
(including, without limitation, their allocation to
principal payments on the Certificates).]
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.
[Describe principal and interest payments on
Government Securities (including, without limitation,
their allocation to interest payments on the
Certificates).] [Describe principal and interest
payments on Private Label Custody Receipt Securities
(including, without limitation, their allocation to
interest payments on the Certificates).]
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 [/Government Security]
[/Private Label Custody Receipt Security]
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[/Government Security] [/Private
Label Custody Receipt Security] 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 [and
Government Securities] [and Private Label Custody
Receipt Securities] 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
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Weighted Average Mortgage Certificate [/Government
Security] [/Private Label Custody Receipt Security]
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.
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
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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
[AND GOVERNMENT
SECURITIES] [AND
PRIVATE LABEL CUSTODY
RECEIPT SECURITIES ]...... 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
[and Government Securities][and Private Label
Custody Receipt Securities]" herein. [Describe
repurchase right, if any, as it relates to
Government Securities.][Describe repurchase right,
if any, as it relates to Private Label Custody
Receipt Securities.]
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 [and
Government Securities] [and Private Label Custody
Receipt Securities] 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
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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 [;
GOVERNMENT SECURITIES]
[; PRIVATE LABEL CUSTODY
RECEIPT SECURITIES]........ [The assets of the REMIC will consist primarily of
[(i) [_] __ classes (or a portion of such classes)
of senior mortgage pass-through certificates (the
"Mortgage Certificates")] [and (ii) ___ classes
(or a portion of such classes) of [describe
Government Securities] (the "Government
Securities")] [_] [and (iii) classes (or a portion
of such classes) of [describe Private Label
Custody Receipt Securities] (the "Private Label
Custody Receipt Securities")] 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
SERIES DESIGNATION CLASS OF MORTGAGE CERTIFICATES;
------------------ -------------------------------
GOVERNMENT SECURITIES
---------------------
PRIVATE LABEL CUSTODY RECEIPT
SECURITIES
<S> <C>
-----------------------------------------------------------
</TABLE>
[_]Each of the Mortgage Certificates evidences a
senior interest in a mortgage pool (each, an
"Underlying Mortgage Pool") previously formed by.
Payments on each Class of Mortgage Certificates
[and Government Securities] [and Private Label
Custody Receipt Securities] will be made on the
25th day [and __th day, respectively,] of each
month (or if such day is not a business day, the
succeeding business day) (each, an "Underlying
Series Distribution Date") [, in the case of a
Mortgage Certificates,] 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 [and
Government Securities][and Private Label Custody
Receipt Securities] had approximately the
characteristics set forth under "The Mortgage
Certificates" [and "The Government
Securities"].][and "The Private Label Custody
Receipt Securities"].]
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
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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.]
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.
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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.]
[Describe prepayment and yield considerations
relating to Government Securities.]
[Describe prepayment and yield considerations
relating to Private Label Custody Receipt
Securities.]
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 pertaining to the Class A-1
Certificates[,] [and] the Mortgage Certificates
[and the Government Securities][and the Private
Label Custody Receipt Securities]. 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
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<PAGE> 12
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("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 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
- --------------------------------------------------------------------------------
S-12
<PAGE> 13
- --------------------------------------------------------------------------------
Certificates. See "Certain Federal Income Tax
Consequences"[ herein and] in the Prospectus.*]
________________
* Depending on the terms of the Class 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-13
<PAGE> 14
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 [AND
GOVERNMENT SECURITIES] [AND PRIVATE LABEL CUSTODY RECEIPT SECURITIES] IS LESS
THAN THE INTEREST ACCRUAL AMOUNT OF THE CLASS A-1 CERTIFICATES. [_][DESCRIBE
BASIS RISK AS IT RELATES TO GOVERNMENT SECURITIES.][_][DESCRIBE BASIS RISK AS IT
RELATES TO PRIVATE LABEL CUSTODY RECEIPT SECURITIES.]
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]. [DESCRIBE [_]YIELD CONSIDERATIONS RELATING TO
GOVERNMENT SECURITIES.][DESCRIBE YIELD CONSIDERATIONS RELATING TO PRIVATE LABEL
CUSTODY RECEIPT SECURITIES.]
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-14
<PAGE> 15
AVAILABLE INFORMATION REGARDING THE UNDERLYING ISSUERS
This Prospectus Supplement relates only to the Class A-1 Certificates
offered hereby and does not relate to the Mortgage Certificates [or the
Government Securities][or the Private Label Custody Receipt Securities]. All
disclosures contained in this Prospectus Supplement regarding the Mortgage
Certificates [and Government Securities] [and Private Label Custody Receipt
Securities] are derived from publicly available documents. Neither the
Depositor, the Trustee nor any of the underwriters of the Class A-1 Certificates
has participated in the preparation of such documents, or made any due diligence
inquiry with respect to the information provided therein. There can be no
assurance that all events occurring prior to the date hereof (including events
that would affect the accuracy or completeness of the publicly available
documents described above) that would affect the Mortgage Certificates [or
Government Securities] [or Private Label Custody Receipt Securities] or the
Underlying Issuers have been publicly disclosed.
In addition, [in the case of Underlying Issuers other than Government
Issuers] there can be no assurance that [an] [any such] Underlying Issuer will
not elect to suspend its Exchange Act reporting after the date hereof if such
Underlying Issuer no longer has a class of security listed on a national
securities exchange or held of record by 300 or more holders. In such event,
information (including financial information) then available to the Depositor
and the Trustee with respect to such Underlying Issuer will not be as extensive,
timely or readily available as that previously made available under the Exchange
Act. Accordingly, in such event, the information with respect to any such
Underlying Issuer that the Depositor or the Trustee can include in the Trust
Fund's Exchange Act reports will be similarly limited.
GEOGRAPHIC CONCENTRATION
(GREATER THAN % OF PRINCIPAL BALANCE)
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
AS OF AS OF
UNDERLYING UNDERLYING
SERIES SERIES
SERIES CUT OFF SERIES CUT-OFF
DATE DESIGNATION STATE DATE DESIGNATION STATE
- ---------------------- ----------- ---------- -------------- ------------ ------------
<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 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 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.
S-15
<PAGE> 16
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) describe Government Securities, if any
(the "Government Securities")][(c) describe Private Label Custody Receipt
Securities, if any (the "Private Label Custody Receipt Securities")] [(d) a
Reserve Fund] [and][[_](e) a Yield Support Agreement provided by .]
[See ["--Government Securities",] ["--Private Label Custody Receipt
Securities",]"-- 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-] 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
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
S-16
<PAGE> 17
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)]. [Describe allocation, if any, of
interest and principal payments on Government Securities to Interest Available
Funds.][Describe allocation, if any, of interest and principal payments on
Private Label Custody Receipt Securities to Interest Available Funds.] 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 [/Government Security][/Private Label Custody Receipt Security]
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 [/Government Security] [/Private Label Custody Receipt
Security] Pass-Through Rate") over (Y) the Class A-1 Pass-Through Rate for such
Interest Accrual Period. The "Weighted Average Mortgage Certificate [/Government
Security][/Private Label Custody Receipt Security] 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 [and Government
Securities][and Private Label Custody Receipt Securities 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 [/Government
Security][/Private Label Custody Receipt Security] 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 [and "The
Government Securities-Distributions on the Government Securities".] [and "The
Private Label Custody Receipt Securities-Distributions on the Private Label
Custody Receipt Securities".] 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
S-17
<PAGE> 18
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).
[Describe effect of Government Securities on definition of "Principal Balance".]
[Describe effect of Private Label Custody Receipt Securities on definition of
"Principal Balance".] 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.
[Describe allocation, if any, of principal and interest payments on Government
Securities to principal payments on Certificates.] [Describe allocation, if any,
of principal and interest payments on Private Label Custody Receipt Securities
to principal payments on Certificates.] 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
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.
S-18
<PAGE> 19
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
(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
S-19
<PAGE> 20
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 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 .
S-20
<PAGE> 21
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 [AND GOVERNMENT SECURITIES]
[AND PRIVATE LABEL CUSTODY RECEIPT SECURITIES ]
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 [Describe repurchase right, if any, as
it relates to Government Securities]. [Describe repurchase right, if any, as it
relates to Private Label Custody Receipt Securities].]
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 Credit Suisse
First Boston Corporation), banks, trust companies and clearing corporations.
Indirect access to the DTC system also is available to banks, brokers, dealers,
trust companies and other 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
S-21
<PAGE> 22
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 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 [and
Government Securities] [and Private Label Custody Receipt Securities] 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)
S-22
<PAGE> 23
and in a manner acceptable to each Rating Agency. See "Description of the
Certificates --Payments on the Mortgage Loans[, --Payments on the Government
Securities"][, --Payments on the Private Label Custody Receipt Securities"] and
"--Collection of Payments on Mortgage Certificates" [and "--Collection of
Payments on Government Securities"] [and "--Collection of Payments on Private
Label Custody Receipt Securities"] 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 [AND GOVERNMENT SECURITIES][AND
PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
If at any time the Trustee, as the Mortgage Certificateholder [or
Government Securityholder, as applicable], 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 [or if an
event of default occurs under a[_] Private Label Custody Receipt Security], the
Pooling Agreement provides that the Trustee, in its capacity as
certificateholder [or securityholder, as applicable], 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 A-I
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 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 Credit Suisse First Boston Corporation by calling at .
Investors are urged to obtain copies of such documents and read this
Prospectus Supplement in conjunction therewith.
S-23
<PAGE> 24
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").
MORTGAGE CERTIFICATES DATE OF ISSUANCE
--------------------- ----------------
[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-24
<PAGE> 25
SUMMARY DESCRIPTION OF THE MORTGAGE CERTIFICATES
<TABLE>
<CAPTION>
(BASED ON THE REMITTANCE REPORTS)
[NEED CLARIFICATION]
----------------- ----- -------- ------------- ------------ ------- ----------
<S> <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 Credit Suisse First Boston Corporation 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-25
<PAGE> 26
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-26
<PAGE> 27
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.
<TABLE>
<CAPTION>
DELINQUENCY STATUS
(BASED ON [_] 19[_] REMITTANCE REPORT)
DELINQUENCIES AS PERCENT OF POOL BALANCE
----------------------------------------
[_] 19[_] 30 DAYS 60 DAYS 90+ DAYS FORECLOSURE REO(2)
---------- ------- ------- -------- ----------- ------
<S> <C> <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.
S-27
<PAGE> 28
[GOVERNMENT SECURITIES]
[DESCRIBE TERMS AND CONDITIONS OF GOVERNMENT SECURITIES.]
[DESCRIBE DISTRIBUTIONS ON GOVERNMENT SECURITIES.]
[PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
[DESCRIBE TERMS AND CONDITIONS OF PRIVATE LABEL CUSTODY RECEIPT
SECURITIES.]
[DESCRIBE DISTRIBUTIONS ON PRIVATE LABEL CUSTODY RECEIPT
SECURITIES.]
[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). [Describe
[_] yield considerations relating to Government Securities.] [Describe yield
considerations relating to Private Label Custody Receipt Securities.]
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
S-28
<PAGE> 29
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 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.
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.
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.
[_]
S-29
<PAGE> 30
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.] [DESCRIBE MODELING ASSUMPTIONS FOR GOVERNMENT SECURITIES.]
[DESCRIBE MODELING ASSUMPTIONS FOR PRIVATE LABEL CUSTODY RECEIPT
SECURITIES.]
S-30
<PAGE> 31
ASSUMED MORTGAGE LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
[NEED CLARIFICATION]
- -------------- ----- -------- --------- -------- --- --------- ----------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
[[_] ASSUMED GOVERNMENT SECURITY CHARACTERISTICS]
[ASSUMED PRIVATE LABEL CUSTODY RECEIPT SECURITY CHARACTERISTICS]
S-31
<PAGE> 32
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
DISTRIBUTION DATE CPR PREPAYMENT ASSUMPTION
----------------- -------------------------
<S> <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-32
<PAGE> 33
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
.................... $ $ $
</TABLE>
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO II
<TABLE>
<CAPTION>
PERCENT OF CPR
-------------------------------------------------------------
% % %
-------------------------------------------------------------
<S> <C> <C> <C>
Yield to Maturity.................... % % %
Outstanding Principal Balance as of
.................... $ $ $
</TABLE>
PROJECTED YIELD TO MATURITY AND
OUTSTANDING PRINCIPAL BALANCE UNDER RATE SCENARIO III
<TABLE>
<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-33
<PAGE> 34
ACTUAL EXPERIENCE WILL VARY FROM ASSUMPTIONS
Discrepancies will exist between the characteristics of the actual Mortgage
Certificates and the underlying Mortgage Loans [and the Government Securities]
[and the Private Label Custody Receipt Securities] and the characteristics
assumed therefor in preparing the tables contained herein. To the extent that
the Mortgage Certificates and Mortgage Loans [or the Government Securities] [or
the Private Label Custody Receipt Securities] 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 [or the Government Securities] [or the Private Label Custody
Receipt Securities] will prepay at any constant rate or at the same rate, or
that [specify index] [or the Government Securities] [or the Private Label
Custody Receipt Securities] 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
MORTGAGE CERTIFICATES SERVICER
--------------------- --------
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.
S-34
<PAGE> 35
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 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:
. 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;
. 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
. 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.]
[ALTERNATIVE TAX DISCLOSURE TO BE INCLUDED IF THERE ARE ANY GOVERNMENT
SECURITIES]
[ALTERNATIVE TAX DISCLOSURE TO BE INCLUDED IF THERE ARE ANY PRIVATE LABEL
CUSTODY RECEIPT SECURITIES]
[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
S-35
<PAGE> 36
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.]
[ERISA CONSIDERATIONS
The Department of Labor has granted to Credit Suisse First Boston
Corporation 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 Credit Suisse
First Boston Corporation 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, Credit Suisse First Boston
Corporation, 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
Credit Suisse First Boston Corporation 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 Credit Suisse
First Boston Corporation after the completion of the offering in connection with
offers and sales related to market-making transactions in the Certificates
offered hereby in which First Boston acts as principal. Credit Suisse First
Boston Corporation may also act as agent in such transactions. Sales will be
made at negotiated prices determined at the time of sale.]
S-36
<PAGE> 37
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor and Credit
Suisse First Boston Corporation by _______________.
RATINGS
It is a condition to the issuance of the Class A-1 Certificates that such
Certificates be rated " " by and " " by .
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 [and Government Securities] [and Private Label Custody
Receipt Securities] 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-37
<PAGE> 38
[LEFT INTENTIONALLY BLANK]
S-38
<PAGE> 39
INDEX OF TERMS
<TABLE>
<CAPTION>
Page on which
Term is defined in the
Term Prospectus Supplement
- ----- ---------------------
<S> <C>
ARM's.....................................................................
Beneficial Owner..........................................................
Book-Entry Certificates...................................................
Breakage Fee..............................................................
CEDE......................................................................
Certificate Account.......................................................
Certificates..............................................................
[Class A-1 Certificates...................................................
Class A-1 Pass Through Rate...............................................
[Class IO Certificates....................................................
Class IO Pass-Through Rate................................................
[Class R Certificates.....................................................
[Closing Date.............................................................
Code......................................................................
Collection Period.........................................................
Commission................................................................
CPR.......................................................................
[Deferred Interest........................................................
Definitive Certificate....................................................
Depositor.................................................................
Distribution Date.........................................................
DTC Participants..........................................................
[Due Date.................................................................
ERISA.....................................................................
Exchange Act..............................................................
Exemption.................................................................
[Government Securities....................................................
Indices...................................................................
Indirect DTC Participants.................................................
Interest Accrual Amount...................................................
Interest Accrual Period...................................................
Interest Available Funds..................................................
Interest Shortfall Amount.................................................
[Interest Weighted Class of
Certificates.............................................................
Modeling Assumptions......................................................
Mortgage Certificates.....................................................
Mortgage Certificate Balance..............................................
Mortgage Certificate
Pass-Through Rate........................................................
[Mortgage Certificate Principal
Balance..................................................................
Mortgage Interest Rate....................................................
Mortgage Loans............................................................
Mortgage Loan Servicer....................................................
Mortgage Loan Trustee.....................................................
Percentage Interest.......................................................
Plan......................................................................
</TABLE>
S-39
<PAGE> 40
<TABLE>
<S> <C>
Pooling Agreement.........................................................
[Prepayment Interest Shortfalls...........................................
Principal Balance.........................................................
[Private Label Custody Receipt Securities.................................
Quarterly Mortgage Certificate Pass-Through Rate..........................
Record Date...............................................................
Regular Certificates......................................................
Reinvestment Rate.........................................................
Related Subordinated Certificates.........................................
REMIC.....................................................................
Reserve Fund..............................................................
Reset Date................................................................
Rules.....................................................................
Similar Law...............................................................
SMMEA.....................................................................
Special Termination.......................................................
Strike Rate...............................................................
Termination Scenarios.....................................................
Trust Fund................................................................
Trustee...................................................................
Underlying Disclosure Documents...........................................
Underlying Mortgage Pool..................................................
Underlying Pooling Agreements.............................................
Underlying Series.........................................................
Underlying Series Cut-off Date............................................
Underlying Series Distribution Date.......................................
Underlying Trust Fund.....................................................
Weighted Average Mortgage Certificate Pass-Through Rate...................
Yield Support Counterparty...............................................
Yield Support Agreement...................................................
</TABLE>
S-40
<PAGE> 41
________________________________________________________________________________
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.
_________________________________
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Available Information......................................
Reports to Certificateholders..............................
Summary of Terms...........................................
Risk Factors...............................................
Geographic Concentration...................................
Description of the Certificates............................
The Mortgage Certificates..................................
Summary Description of the Mortgage Certificates...........
Description of the Mortgage Loans..........................
Delinquency Status.........................................
Yield and Prepayment Considerations........................
The Mortgage Loan Servicers................................
[Government Securities.....................................
[Private Label Custody Receipt Securities..................
Certain Federal Income Tax Consequences....................
Legal Investment Considerations............................
ERISA Considerations.......................................
Method of Distribution.....................................
Legal Matters..............................................
Ratings....................................................
Use of Proceeds............................................
Index of Terms.............................................
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement......................................
Additional Information.....................................
Incorporation of Certain Information by Reference..........
Summary of Terms...........................................
Risk Factors...............................................
The Trust Fund.............................................
The Depositor..............................................
Use of Proceeds............................................
Yield Considerations.......................................
Maturity and Prepayment Considerations.....................
Description of the Certificates............................
Credit Support.............................................
Description of Insurance...................................
Certain Legal Aspects of the Mortgage......................
Loans and Contracts........................................
Certain Federal Income Tax Consequences....................
ERISA Considerations.......................................
Legal Investment...........................................
Plan of Distribution.......................................
Legal Matters..............................................
Index of Terms.............................................
</TABLE>
_____________________________________
ASSET BACKED
SECURITIES CORPORATION
DEPOSITOR
$
_________ Conduit Mortgage
Pass-Through Certificates,
Series 199 -__
PROSPECTUS
[_] Credit Suisse First Boston Corporation
_____________________________________
<PAGE> 1
EXHIBIT 99.12
- --------------------------------------------------------------------------------
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 [ ], 1998
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").
<PAGE> 2
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 "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>
Underwriting Proceeds to
Price to Public Discount the Depositor(1)
--------------- -------- ----------------
<S> <C> <C> <C>
Per [Class A] Certificate
[Per [Class B] Certificate]
Total
- --------------------------------------------------------------------------------
</TABLE>
(1) Before deduction of expenses payable by the Depositor, estimated to be
$[ ].
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] Credit Suisse First Boston
The date of this Prospectus Supplement is [ ], 199[ ]
(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
S-2
<PAGE> 3
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.]
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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.
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.,
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<PAGE> 5
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).
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.
<TABLE>
<S> <C>
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").]
</TABLE>
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<TABLE>
<S> <C>
[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] [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."]
</TABLE>
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<TABLE>
<S> <C>
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] 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,
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<TABLE>
<S> <C>
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.]
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
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<TABLE>
<S> <C>
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 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
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<PAGE> 10
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<S> <C>
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").]
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
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<TABLE>
<S> <C>
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 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
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<PAGE> 12
<TABLE>
<S> <C>
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 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 $[____] (such amount being equal to
an amount on deposit in the Pre- Funding Account
(the "Pre-Funding Amount") on the Closing Date).The
Depositor will designate as a cut-off date (each a
"Subsequent Cut-off Date") the date as of which
particular Subsequent Receivables are conveyed to
the Trust. It is expected that certain of the
Subsequent Receivables arising between the Initial
Cut-off Date and the Closing Date will be conveyed
to the Trust on the Closing Date and that other
Subsequent Receivables will
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<PAGE> 13
<TABLE>
<S> <C>
be conveyed to the Trust as frequently as daily
thereafter on dates specified by the [Depositor]
[Seller] (each date on which Subsequent Receivables
are conveyed to the Trust being referred to as a
"Subsequent Transfer Date") occurring during the
Funding Period.]
[The [Initial] Receivables will be selected[, and
the Subsequent Receivables will be selected,] from
the Receivables owned by the Seller based on the
criteria specified in the Agreement and described
herein.]
Subsequent Receivables may be originated at a later
date using credit criteria different from those
which were applied to the Initial Receivables and
may be of a different credit quality and seasoning.
In addition, following the transfer of Subsequent
Receivables to the Trust, the characteristics of
the entire pool of Receivables included in the
Trust may vary significantly from those of the
Initial Receivables.
Denominations............................................. The Certificates will be offered for purchase in
denominations of [$___] and integral multiples
thereof, [except that one Certificate may be
issued in a denomination that is not an integral
multiple of $____]. [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
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<PAGE> 14
<TABLE>
<S> <C>
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.]
[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
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<PAGE> 15
<TABLE>
<S> <C>
"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] Cut-Off 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
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
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<PAGE> 16
<TABLE>
<S> <C>
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
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<PAGE> 17
<TABLE>
<S> <C>
Certificates; rather, collections of Principal
Receivables and certain other 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
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<TABLE>
<S> <C>
may be applied to pay interest on the
Certificates.]
Additional Amounts Available to
Certificateholders...................................... The [Class A] Required Amount means, with respect
to any Distribution Date, the amount, if any, by
which 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
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<TABLE>
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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
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".
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[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 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
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<PAGE> 21
<TABLE>
<S> <C>
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 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
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<PAGE> 22
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<S> <C>
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 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
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<PAGE> 23
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<S> <C>
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 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
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<PAGE> 24
<TABLE>
<S> <C>
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.]
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
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<PAGE> 25
<TABLE>
<S> <C>
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 (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.]
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<PAGE> 26
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<S> <C>
[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.................................... 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
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<PAGE> 27
<TABLE>
<S> <C>
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 _____________ ("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
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<PAGE> 28
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<S> <C>
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.
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<PAGE> 29
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.]
[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,
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<PAGE> 30
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, a
division of The McGraw-Hill Companies, 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 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
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<PAGE> 31
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.]]
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
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<PAGE> 32
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 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
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<PAGE> 33
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 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
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<PAGE> 34
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 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
S-34
<PAGE> 35
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 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.
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<PAGE> 36
S-36
<PAGE> 37
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.
Delinquency as Percentage of the Identified Pool
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
Number of At Month End ---------------------------------------------------------------------------------
Delinquent Days [_____] 31, 19[ ] 199[ ] 199[ ] 199[ ]
--------------- --------------------------- -------------------------- --------------------------- --------------------------
Percentage Amount Percentage Amount Percentage Amount Percentage Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 to 59 Days.......
60 to 80 days.......
90 Days or Greater..
Totals .....
</TABLE>
Loss Experience for the Identified Pool
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
Three Months Ended Three Months Ended -----------------------------------------
[ ], 19[] [ ], 19[] 19[ ] 19[ ] 19[ ]
---------------------- ------------------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Average Receivables
Outstanding .....
Gross Losses ......
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
Year Ended
Three Months Ended Three Months Ended -----------------------------------------
[ ], 19[] [ ], 19[] 19[ ] 19[ ] 19[ ]
---------------------- ------------------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
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.
Revenue Experience for the Identified Pool
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended
Three Months Ended Three Months Ended -----------------------------------------
[ ], 19[] [ ], 19[] 19[ ] 19[ ] 19[ ]
---------------------- ------------------ ----- ----- -----
<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
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<PAGE> 39
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.
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.
Composition by Account Balance
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Receivables Account
Balance Range Outstanding
Credit Balance................
No Balance....................
More than $0 and less than or
equal to $1,500.............
$1,500.01 - $5,000............
$5,000 - $10,000..............
Over $10,000..................
Composition by Credit Limit
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Receivables Account
Balance Range Outstanding
Less than or equal to
$1,500......................
S-39
<PAGE> 40
Receivables Account
Balance Range Outstanding
$1,500.01 - $5,000............
$5,000 - $10,000..............
Over $10,000..................
Composition by Payment Status
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Receivables Account
Balance Range Outstanding
Current to 29 days............
Past due 30 - 59 days.........
Past due 60 - 89 days.........
Past due 90+ days.............
Total.........................
Composition by Account Age
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Receivables Account
Balance Range Outstanding
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.........................
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<PAGE> 41
Composition by Accountholder Billing Address
Trust Portfolio
(as of [ ], 19[ ])
(Dollars in Thousands)
Location
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...................
S-41
<PAGE> 42
Rhode Island...................
South Carolina.................
South Dakota...................
Tennessee......................
Texas..........................
Utah...........................
Vermont........................
Virginia.......................
Washington.....................
West Virginia..................
Alabama........................
Wyoming........................
Other..........................
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 Credit Suisse First Boston Corporation. Neither Credit
Suisse First Boston Corporation nor any of its 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 11 Madison
Avenue, New York, New York 10010, and its telephone number is (212) 325-2000.
DESCRIPTION OF THE CERTIFICATES
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<PAGE> 43
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 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 calendar 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.
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<PAGE> 44
"[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 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.
S-44
<PAGE> 45
[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, 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
S-45
<PAGE> 46
such Distribution Date), (b) the applicable Controlled Deposit Amount for such
Monthly Period 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. 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 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
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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 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
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<PAGE> 48
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] 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
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<PAGE> 49
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 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.]
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<PAGE> 50
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.
["[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
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<PAGE> 51
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].]
[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
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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].
[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
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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.]
[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.]
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<PAGE> 54
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 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
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<PAGE> 55
"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:
(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
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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 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;
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[(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;]
[(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;]
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[(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
[(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 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.]]
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[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 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:]
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[(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
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
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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 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
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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 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.]
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[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.
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
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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 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
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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] 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
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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 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
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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 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
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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 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
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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 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
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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.
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
Underwriter of [Class A] Certificates of [Class B] Certificates
<S> <C>
Credit Suisse First Boston
Corporation.......................
[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 allow, 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.]
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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.
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 _____________.
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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INDEX OF DEFINED TERMS
[Class A] Accumulation Period...................................................
[Class A] Additional Interest...................................................
[Class A] Adjusted Invested Amount..............................................
[Class A] Available Funds.......................................................
[Class A] Certificate Rate......................................................
[Class A] Certificates..........................................................
[Class A] Charge-Off............................................................
[Class A] Default Amount........................................................
[Class A] Floating Percentage...................................................
[Class A] Initial Invested Amount...............................................
[Class A] Invested Amount.......................................................
[Class A] Investor Charge-Offs..................................................
[Class A] Monthly Interest......................................................
[Class A] Monthly Principal.....................................................
[Class A] Principal Percentage..................................................
[Class A] Required Amount.......................................................
[Class A] Servicing Fee.........................................................
[Class B] Accumulation Period...................................................
[Class B] Additional Interest...................................................
[Class B] Adjusted Invested Amount..............................................
[Class B] Available Funds.......................................................
[Class B] Certificate Rate......................................................
[Class B] Certificates..........................................................
[Class B] Charge-Off............................................................
[Class B] Default Amount........................................................
[Class B] Floating Percentage...................................................
[Class B] Initial Invested Amount...............................................
[Class B] Invested Amount.......................................................
[Class B] Monthly Interest......................................................
[Class B] Principal Commencement Date...........................................
[Class B] Principal Percentage..................................................
[Class B] Servicing Fee.........................................................
Accounts........................................................................
Accumulation Period.............................................................
Additional Certificates.........................................................
Adjusted Invested Amount........................................................
Agreement.......................................................................
Available Final Distribution Amount.............................................
Available Principal Collections.................................................
Available Reserve Account Amount................................................
Available Shared Collateral Amount..............................................
Base Rate.......................................................................
Cash Collateral Account.........................................................
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Cash Collateral Depositor.......................................................
Certificate Owners..............................................................
Certificates....................................................................
Closing Date....................................................................
Code............................................................................
Collateral Interest.............................................................
Collateral Interest Holders.....................................................
Collateral Invested Amount......................................................
Controlled Accumulation Amount..................................................
Controlled Amortization Period..................................................
Controlled Deposit Amount.......................................................
Covered Amount..................................................................
Credit Enhancement..............................................................
Deficit Controlled Accumulation Amount..........................................
Depositor.......................................................................
Distribution Date...............................................................
Excess Spread...................................................................
Expected Final Payment Date.....................................................
Finance Charge Receivables......................................................
Floating Allocation Percentage..................................................
Funding Period..................................................................
Group [ ____ ]..................................................................
Initial [Class B] Collateral Amount.............................................
Initial Cash Collateral Amount..................................................
Initial Cut-Off Date............................................................
Initial Invested Amount.........................................................
Initial Shared Collateral Amount................................................
Interest Funding Account........................................................
Interest Period.................................................................
Invested Amount.................................................................
Investor Default Amount.........................................................
Mandatory Prepayment............................................................
Monthly Report..................................................................
Monthly Servicing Fee...........................................................
Paired Series...................................................................
Pay Out Events..................................................................
Portfolio Yield.................................................................
Pre-Funding Account.............................................................
Pre-Funding Amount..............................................................
Principal Allocation Percentage.................................................
Principal Funding Account.......................................................
Principal Funding Account Balance...............................................
Principal Funding Investment Proceeds...........................................
Principal Receivables...........................................................
Rapid Amortization Period.......................................................
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Rating Agency...................................................................
Ratings Effect..................................................................
Reallocated Principal Receivables...............................................
Receivables.....................................................................
Required Amount.................................................................
Required Cash Collateral Amount.................................................
Required Reserve Account Amount.................................................
Reserve Account.................................................................
Reserve Account Funding Date....................................................
Revolving Period................................................................
Series Supplement...............................................................
Servicer........................................................................
Servicing Fee Rate..............................................................
Special Payment Date............................................................
Subsequent Cut-off Date.........................................................
Subsequent Receivables..........................................................
Subsequent Transfer Date........................................................
Termination Date................................................................
Trust...........................................................................
Trust Portfolio.................................................................
Trustee.........................................................................
Underwriters....................................................................
Underwriting Agreement..........................................................
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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 Credit
Suisse First Boston Corporation. 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...................................................
Risk Factors..............................................
Maturity Considerations...................................
The Identified Pool.......................................
The Receivables...........................................
Use of Proceeds...........................................
The Seller................................................
[The Servicer]............................................
The Depositor.............................................
Description of the Certificates...........................
ERISA Considerations......................................
Legal Investment Considerations...........................
Underwriting..............................................
Legal Matters.............................................
Rating....................................................
Index of Defined Terms....................................
Prospectus
Prospectus Supplement.....................................
Reports to Securityholders................................
Available Information.....................................
Incorporation of Certain Documents
by Reference............................................
Summary of Terms..........................................
Rick Factors..............................................
The Trusts................................................
Trust Assets..............................................
Series Enhancement........................................
Servicing of Receivables..................................
Description of the Notes..................................
Description of the Certificates...........................
Certain Information Regarding the Securities..............
Description of the Trust Agreements or
Pooling and Servicing Agreements........................
Certain Legal Aspects of the Receivables..................
The Depositor.............................................
Use of Proceeds...........................................
Certain Federal Income Tax Consequences...................
Certain State and Local Tax Considerations................
ERISA Considerations......................................
Plan of Distribution......................................
Legal Matters.............................................
Index of Defined Terms....................................
Annex I...................................................
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[_]
---------
Credit Suisse First Boston Corporation
<PAGE> 1
EXHIBIT 99.13
<PAGE> 2
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, Series 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 [OTHER THAN
THE GOVERNMENT SECURITIES] 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 Underwriting Proceeds to
Public Discount 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 Credit Suisse 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] Credit Suisse First Boston
The date of this Prospectus Supplement is [ ], 199[ ].
<PAGE> 3
(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 [(a)] 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 "[CRB] Agreements")
[and (b) [describe Government Securities if any] (the "Government Securities")
each issued pursuant to [describe agreements] (collectively, the "Government
Agreements", and the Government Agreements, together with the CRB Agreements,
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
[and the Government 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 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 description[s] of the CRB Securities [and Government Securities]
contained in this Prospectus Supplement is [are] qualified in its [their]
entirety by reference to the actual terms and provisions of the Prospectuses and
Prospectus Supplements related to each of the CRB Securities (collectively, the
"[CRB Securities] [Underlying] Disclosure Documents") [, the terms of the
Prospectuses, Prospectus Supplements and other offering documents related to
each of the Government Securities (collectively, the "Government Securities
Disclosure Documents"' and the Government Securities Disclosure Documents,
together with the CRB Securities Disclosure Documents, the "Underlying
Disclosure Documents") and the Agreements. Copies of the Underlying Disclosure
Documents and the Agreements are available from Credit Suisse First Boston
Corporation by calling at. Investors are urged to obtain copies of such
documents and read this Prospectus Supplement in conjunction therewith.
--------------------
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.
S-2
<PAGE> 4
[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.]
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> 5
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 [and the [describe
Government Securities disclosure document, if any] for the Government
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 [and Government
Securities] to holders of the Notes
(the "Noteholders") in accordance
with the terms of the Indenture.
S-4
<PAGE> 6
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").
Government Securities................. [Describe Government Securities (the
"Government Securities")]
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").]
S-5
<PAGE> 7
B. Interest Payments............ Interest will accrue on the unpaid
principal amount of the Notes at the
[respective] per annum interest
rate[s] specified herein. 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 [Group A]
Government Securities] and interest
on the [Class B] Notes will be
payable only from interest received
on the [Group B] CRB Securities [and
[Group B] Government 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
S-6
<PAGE> 8
[and [Group A] Government 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 [Class B] Notes on a Payment Date
will generally be equal to [ ] [[%] (the
"[Class B] Note Percentage") of the
principal received on the [Group B] CRB
Securities [and [Group B] Government
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
S-7
<PAGE> 9
payment dates constitutes an Event of
Default under the Indenture.
G. Final Legal
Maturity..................... [ ], [ ].
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
S-8
<PAGE> 10
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 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 $_________ 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
S-9
<PAGE> 11
product of [insert [Group A] interest
formula] and the ratio that the [sum of
the] principal amount[s] of the [Group
A] CRB Securities [and [Group A]
Government Securities] bears to the
aggregate principal amount of the CRB
Securities [and Government Securities],
[such amount being subject to a maximum
rate of [insert [Group A] interest cap,
if any]]; plus the product of [insert
[Group B] interest formula] and the
ratio that the [sum of the] principal
amount[s] of the [Group B] CRB
Securities [and [Group B] Government
Securities] bears to the aggregate
principal amount of the CRB Securities
[and Government 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].
S-10
<PAGE> 12
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]% (the "[Group A] Certificate
Percentage") of the principal received
on the [Group A] CRB Securities [and
[Group A] Government Securities] and
[insert [Group B] Certificate
Percentage]% (the "[Group B] Certificate
Percentage") of the principal received
on the [Group B] CRB Securities [and
[Group B] Government 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 [Group A]
Government 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 [Group A]
Government Securities] and the [Group B]
CRB Securities [and [Group B] Government
Securities] will be
S-11
<PAGE> 13
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
[Group A] Government Securities] or the
[Group B] CRB Securities [or [Group B]
Government 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 [Group A] Government
Securities] or the [Group B] CRB
Securities [or [Group A] Government
Securities] until the full amount of
principal due on the [respective Class
of] Notes on such Payment Date is paid
in full.
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
S-12
<PAGE> 14
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 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 $_________ in
excess thereof and will not be eligible
to be resold or subdivided into units
smaller than the minimum denomination
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<PAGE> 15
for issuance, except that one
Certificate will be issued in a
denomination of $[ ] and 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 [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.
[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 [and the [Group A]
Government Securities] immediately
prior to such date) applicable to the
distributions of interest on the
[Group A] CRB Securities [and the
[Group A] Government Securities]
distributable on such date.]
[LIBOR applicable to the calculation of
the [Class B] Note Interest Rate in
respect of a
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<PAGE> 16
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 [and the [Group
B] Government Securities] immediately
prior to such date) applicable to the
distributions of interest on the [Group
B] CRB Securities [and the [Group B]
Government 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 [and the Government
Securities] immediately prior to such
date) applicable to the distributions of
interest on the CRB Securities [and the
Government Securities] distributable on
such date.]
[The LIBOR applicable to the (i) CRB
Securities is described under
"Description of the CRB Securities--
Interest Distributions" herein and (ii)
the Government Securities is described
under "Description of the Government
Securities--Interest Distributions",
herein.]
Tax Considerations................ In the opinion of ___________
("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
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<PAGE> 17
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.
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
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<PAGE> 18
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.
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<PAGE> 19
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
Securities. Credit Suisse First Boston Corporation 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 [or the Government 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
[and the Government 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. [Describe basis risk,
and prepayment and yield consideration relating to Government 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 ("Moody's") and by Standard and Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P") (each 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.
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<PAGE> 20
Risks Attendant to Investments in the Certificates. Distributions of
interest on the Certificates [with respect to the [Group A] CRB Securities[, the
[Group A] Government Securities,] [and] [the [Group B] CRB Securities] [and the
[Group B] Government Securities]] will be 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, [the [Group A] Government Securities] [and] [the [Group B] CRB
Securities] [and the [Group B] Government 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, [the [Group A]
Government Securities [or] [the [Group B] CRB Securities [or the [Group B]
Government 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
Government 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.
S-19
<PAGE> 21
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.]
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 and [Group A] Government
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 and
[Group B] Government 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"). [Interest on the Government
Securities is payable on [describe Government Securities interest payment
schedule].] [If interest collections on the [Group A] CRB Securities and [Group
A] Government Securities [or the [Group B] CRB Securities and [Group B]
Government 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.
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<PAGE> 22
[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 [and [Group A] Government Securities] immediately
prior to such CRB Securities Distribution Date [or Government Securities
Distribution Date, as applicable]) applicable to the distributions of interest
on the [Group A] CRB Securities [and [Group A] Government Securities]
distributable on such CRB Securities Distribution Date [or Government Securities
Distribution Date, as applicable]. [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 [and [Group B] Government Securities]
immediately prior to such CRB Securities Distribution Date [or Government
Securities Distribution Date, as applicable]) applicable to the distributions of
interest on the [Group B] CRB Securities [and [Group B] Government Securities]
distributable on such CRB Securities Distribution Date [or Government Securities
Distribution Date, as applicable]. The LIBOR applicable to the (i) CRB
Securities is described under "DESCRIPTION OF THE CRB SECURITIES--Interest
Distributions" herein and (ii) the Govern Securities is described under
"DESCRIPTION OF THE GOVERNMENT 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 and [Group A] Government 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
S-21
<PAGE> 23
Percentage") of the principal distributed on the [Group A] CRB Securities [and
[Group A] Government 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 and [Group B] Government 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 and [Group B] Government
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").]
Principal on the [Class A] Notes will be payable solely from principal on
the [Group A] CRB Securities and [Group A] Government Securities [and principal
on the [Class B] Notes will be payable solely from principal on the [Group B]
CRB Securities and [Group B] Government 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 AND GOVERNMENT SECURITIES; COLLECTION
ACCOUNT
All distributions on the CRB Securities and Government 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.
[Describe Government Securities Distribution Date.]
[ASSIGNMENT OF CRB SECURITIES and Government 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.]
[The Depositor will acquire the Government Securities for deposit into the
Trust [describe method of acquisition of Government Securities].]
TERMINATION
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<PAGE> 24
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 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
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<PAGE> 25
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 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 [and the [Group A] Government Securities] bears to the
aggregate principal amount of the CRB Securities [and the [Group A] Government
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 [and the [Group B] Government 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, [and the Government 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
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<PAGE> 26
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 the [Group A] Government Securities] and [insert [Group B]
Certificate Percentage]% (the "[Group B] Certificate Percentage") of the
principal distributed on the [Group B] CRB Securities [and the [Group B]
Government 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 [and Government 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 A] Government Securities] [and the
[Group B] CRB Securities [and the [Group B] Government 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 A]
Government Securities] [and the [Group B] CRB Securities [and the [Group B]
Government 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 [and the [Group A] Government
Securities] or the [Group B] CRB Securities [or the [Group B] Government
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 respect to the [Group A] CRB
Securities [or the [Group A] Government Securities] [or the [Group B] CRB
Securities [or the [Group B] Government 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 (Standard & Poor's, a division of
The McGraw-Hill Companies, Inc./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 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.
[DESCRIPTION OF THE GOVERNMENT SECURITIES]
[The table below set forth certain characteristics of the Government
Securities. The table does not purport to be complete and is subject to, and
qualified in its entirety by reference to [describe disclosure document, if any,
relating to the Government Securities].]
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DESCRIPTION OF THE GOVERNMENT SECURITIES
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GENERAL
[To be added.]
GOVERNMENT SECURITIES; RECENT DEVELOPMENTS
[To be added.]
INTEREST DISTRIBUTIONS
[To be added.]
PRINCIPAL DISTRIBUTIONS
[To be added.]
[SERVICING] [TRUSTEE] COMPENSATION; ALLOCATION OF EXPENSES
[To be added.]
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 Credit Suisse First Boston Corporation. Neither Credit
Suisse First Boston Corporation nor any of its 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 11 Madison Avenue,
New York, New York, 10010 and its telephone number is (212) 325-2000.
- ----------.
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.
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<PAGE> 36
COLLECTION OF DISTRIBUTIONS ON CRB SECURITIES [AND GOVERNMENT SECURITIES]
The CRB Securities [and the Government Securities] will be assets of the
Trust. All distributions on the CRB Securities [and the Government 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 the Government 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 [or the Government Securities] by the [ ] Business Day after the date
on which such distribution was due and payable pursuant to the terms of such CRB
Securities [or the Government Securities], the Indenture will require it to take
such actions as are permissible pursuant to the related CRB Securities Agreement
[or the [describe any rights under Government Securities], respectively] 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 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 $_________ 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 [[Group A]
Government Securities] [or the [Group B] CRB Securities [or [Group B] Government
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
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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 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 [and Government Securities] or elect to have the Trust
maintain possession of the CRB Securities [and Government Securities] and
continue to apply collections on the CRB Securities [and Government Securities]
as if there had been no declaration or acceleration. The Indenture Trustee is
prohibited from selling the CRB Securities [and Government 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 [and Government
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
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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.
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
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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, 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
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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
[or Government 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 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 [or the Government 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
S-39
<PAGE> 41
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 [AND THE GOVERNMENT SECURITIES]
The CRB Securities [and Government 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 [and Government 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 $_________ in face amount of
Certificates and (ii) the outstanding balances of the CRB Securities [and
Government 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) [and Government 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
S-40
<PAGE> 42
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 [and
Government 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 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 [and Government 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 [and Government Securities] will be treated as collections on
the CRB Securities [and Government 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 [or the [Group B] Government 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.
S-41
<PAGE> 43
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 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 [or the Government 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.
S-42
<PAGE> 44
[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 [and Government 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
Government Securities] and the payment of expenses related to such purchase.]
[CERTAIN FEDERAL INCOME TAX CONSIDERATIONS]
[Additional tax disclosure to be added, if necessary.]
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.
S-43
<PAGE> 45
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 Credit Suisse 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.
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.
S-44
<PAGE> 46
LEGAL MATTERS
Certain legal matters will be passed upon by __________________.
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 [and
the Government Securities]. The rating takes into consideration the
characteristics of the CRB Securities [and the Government 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-45
<PAGE> 47
INDEX OF DEFINED TERMS
Accounts
Administration Agreement.......................
Administrator..................................
Agreements.....................................
Ancillary Arrangements.........................
Book-Entry Certificates........................
Book-Entry Notes...............................
Business Day...................................
Cede...........................................
CEDEL..........................................
Certificates...................................
Citibank.......................................
[Class A] Note Interest Rate...................
[Class A] Note Percentage......................
[Class A] Notes................................
[Class B] Note Interest Rate...................
[Class B] Note Percentage......................
[Class B] Notes................................
[Class C] Certificate Interest Rate............
[Class C] Certificates.........................
Closing Date...................................
Code...........................................
Collection Account.............................
CRB Securities.................................
CRB Securities Amortization Event..............
CRB Securities Certificate Rate................
CRB Securities Controlled Amortization Period..
CRB Securities Distribution Date...............
CRB Securities Expected Final Payment Date.....
CRB Securities Servicer........................
CRB Securities Servicing Fee...................
Definitive Certificates........................
Definitive Notes...............................
Depositor......................................
DTC............................................
Euroclear......................................
European Depositaries..........................
Event of Default...............................
Federal Tax Counsel............................
Finance Charge Receivables.....................
[Group A] Certificate Percentage...............
[Group A] CRB Securities.......................
S-46
<PAGE> 48
[Group B] Certificate Percentage...............
[Group B] CRB Securities.......................
Indenture......................................
Indenture Trustee..............................
Insolvency Event...............................
Interest Accrual Period........................
Issuer.........................................
Moody's.........................................
Morgan.........................................
Noteholders....................................
Notes..........................................
Owner Trustee..................................
Payment Date...................................
Principal Receivables..........................
Prospectus.....................................
Rating Agency..................................
Receivables....................................
Record Date....................................
Reuters LIBOR..................................
S&P............................................
Securities.....................................
Seller.........................................
Seller's Interest..............................
Seller's Percentage............................
Telerate LIBOR.................................
Trust..........................................
Trust Agreement................................
Underwriter....................................
Voting Interests...............................
S-47
<PAGE> 49
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-48
<PAGE> 50
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 CREDIT SUISSE FIRST BOSTON CORPORATION. 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.....................................
Risk Factors................................
The Trust...................................
Description of the Notes....................
Description of the Certificates.............
Description of the CRB Securities...........
[Description of the Government Securities...
The Depositor...............................
The Indenture...............................
The Trust Agreement.........................
[Administration Agreement]..................
The Indenture Trustee.......................
The Owner Trustee...........................
Use of Proceeds.............................
[Certain Federal Income Tax Considerations.. ]
ERISA Considerations........................
Legal Investment Considerations.............
Underwriting................................
Legal Matters...............................
Rating......................................
Index of Defined Terms......................
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Prospectus Supplement.......................
Reports to Securityholders..................
Available Information.......................
Incorporation of Certain Documents by
Reference..................................
Summary of Terms............................
Rick Factors................................
The Trusts..................................
Trust Assets................................
Series Enhancement..........................
Servicing of Receivables....................
Description of the Notes....................
Description of the Certificates.............
Certain Information Regarding the Securities
Description of the Trust Agreements or
Pooling and Servicing Agreements...........
Certain Legal Aspects of the Receivables....
The Depositor...............................
Use of Proceeds.............................
Certain Federal Income Tax Consequences.....
Certain State and Local Tax Considerations..
ERISA Considerations........................
Plan of Distribution........................
Legal Matters...............................
Index of Defined Terms......................
Annex I.....................................
</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[ ]
-------------------
Credit Suisse First Boston Corporation
<PAGE> 1
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.
Prospectus Supplement to Prospectus dated [ ], 1998
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, Series 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").
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 [OTHER THAN THE GOVERNMENT SECURITIES] [OTHER THAN THE PRIVATE LABEL
CUSTODY RECEIPT SECURITIES] ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH 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>
Proceeds to
Price to Public Underwriting Discount the Depositor (1)
--------------- --------------------- -----------------
<S> <C> <C> <C>
Per [Class A] Certificate
[Per Class B Certificate]
Total
</TABLE>
(1) Before deduction of expenses payable by the Depositor, estimated to be
$[ ].
The Certificates offered hereby will be purchased by Credit Suisse 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
Credit Suisse First Boston
The date of this Prospectus Supplement is [ ], 199[ ].
S-1
<PAGE> 2
(Continued from the previous page)
The assets of the Trust will consist primarily of [(a)] 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 "[CRB] Agreements") [and (b)
[describe Government Securities, if any](the "Government Securities"), EACH
ISSUED PURSUANT TO [DESCRIBE AGREEMENTS] (COLLECTIVELY THE "GOVERNMENT
AGREEMENTS")] [AND (C) [DESCRIBE PRIVATE LABEL CUSTODY RECEIPT SECURITIES, IF
ANY (THE "PRIVATE LABEL CUSTODY RECEIPT SECURITIES"), each issued pursuant to
[describe agreements] (collectively, the "PRIVATE LABEL CUSTODY RECEIPT
AGREEMENTS")]. THE CRB AGREEMENTS [and the Government Agreements ] [AND THE
PRIVATE LABEL CUSTODY RECEIPT Agreements ] ARE 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 [and the
Government Securities] [AND THE PRIVATE LABEL CUSTODY RECEIPT 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 description[s] of the CRB Securities [and Government Securities] [AND
PRIVATE LABEL CUSTODY RECEIPT SECURITIES] contained in this Prospectus
Supplement is [are] qualified in its [their] entirety by reference to the actual
terms and provisions of the Prospectuses and Prospectus Supplements related to
each of the CRB Securities (collectively, the "[CRB Securities] [Underlying]
Disclosure Documents") [, the terms of the Prospectuses, Prospectus Supplements
and other offering documents related to each of the Government Securities
(collectively, the "Government Securities Disclosure Documents"] AND [THE TERMS
OF THE PROSPECTUSES, PROSPECTUS SUPPLEMENTS AND OTHER OFFERING DOCUMENTS RELATED
TO EACH OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES (COLLECTIVELY, THE
"PRIVATE LABEL CUSTODY RECEIPT SECURITIES DISCLOSURE DOCUMENTS")] ; [and the
Government Securities Disclosure Documents ] [AND THE PRIVATE LABEL CUSTODY
RECEIPT SECURITIES DISCLOSURE DOCUMENTS,] together with the CRB Securities
Disclosure Documents, the "Underlying Disclosure Documents") and the Agreements.
Copies of the Underlying Disclosure Documents and the Agreements are available
from Credit Suisse First Boston Corporation by calling _________ at _________
.Investors are urged to obtain copies of such documents and read this Prospectus
Supplement in conjunction therewith.
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.
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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.]
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> 4
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
[and prospectus supplement] for each of the CRB Securities [and the [describe
Government Securities disclosure documents, if any] for the Government
Securities] [AND THE [DESCRIBE PRIVATE LABEL CUSTODY RECEIPT SECURITIES
DISCLOSURE DOCUMENTS, IF ANY] FOR THE PRIVATE LABEL CUSTODY RECEIPT 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 Credit Suisse
First Boston, Inc. Neither Credit Suisse
First Boston, Inc. nor any of its
affiliates has guaranteed, will
guarantee or is or will be otherwise
obligated with respect to any Series of
Securities.
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<PAGE> 5
The Depositor's principal executive
office is located at 11 Madison Avenue
New York, New York
10010, and its telephone number is (212)
325-2000.
Trust Agreement........................ Pursuant to a trust agreement dated CRB
Securities 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 Securities
fully described herein, each issued
pursuant to a pooling and servicing
agreement or master pooling and
servicing agreement (collectively, the
"Agreements").
[Government Securities]................ [Describe Government Securities] (the
Risk Factors "Government Securities")].
[PRIVATE LABEL CUSTODY RECEIPT [DESCRIBE PRIVATE LABEL CUSTODY RECEIPT
SECURITIES]............................ (THE "PRIVATE LABEL CUSTODY RECEIPT
SECURITIES ")].
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
S-5
<PAGE> 6
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 [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.
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<PAGE> 7
Principal distributable on the
Certificates will equal the principal
received on the CRB Securities [and the
Government Securities] [AND THE PRIVATE
LABEL CUSTODY RECEIPT 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
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 [and the
Government Securities], [AND THE PRIVATE
LABEL CUSTODY RECEIPT SECURITIES], which
it may do after the aggregate principal
balance of the CRB Securities [and the
Government Securities] [AND THE PRIVATE
LABEL CUSTODY RECEIPT SECURITIES] (the
"Pool Balance") declines to [ %] or less
of the initial Pool Balance, the [Class
A] Certificateholders will receive an
S-7
<PAGE> 8
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 [and the Government
Securities] [AND THE PRIVATE LABEL
CUSTODY RECEIPT SECURITIES ] are
subordinated to the rights of the [Class
A] Certificateholders, as described more
fully herein.]
[Reserve Account. The Reserve Account
will be created with an initial deposit
by the Depositor on the Closing Date of
cash government securities or other
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].
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<PAGE> 9
Certain amounts in the Reserve
Distribution Date 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] Record Date
[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
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 Form
and Registration 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
S-9
<PAGE> 10
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").]
[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 _______________
("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
Government Securities] [AND PRIVATE
LABEL CUSTODY RECEIPT 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 [and the
discussion under "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS" herein] for
additional information concerning the
application of federal income tax laws
to the Trust and the Certificates.
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<PAGE> 11
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 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.
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<PAGE> 12
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. Credit Suisse First Boston Corporation 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 [or the Government Securities] [OR THE PRIVATE LABEL
CUSTODY RECEIPT 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 [and the Government
Securities] [AND THE PRIVATE LABEL CUSTODY RECEIPT 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. [Describe basis risk and yield considerations relating to the
Government Securities.] [DESCRIBE BASIS RISK AND YIELD CONSIDERATIONS RELATING
TO THE PRIVATE LABEL CUSTODY RECEIPT 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, a division of The McGraw-Hill Companies, 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
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<PAGE> 13
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 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 Government Securities] [AND THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
[and the Private Label Custody Receipt 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.
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<PAGE> 14
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.
[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
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<PAGE> 15
the Distribution 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
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 [and Government Securities][AND PRIVATE LABEL CUSTODY RECEIPT
SECURITIES] immediately prior to such Distribution Date) applicable to the
distribution of interest on the CRB Securities [and Government Securities] [AND
PRIVATE LABEL CUSTODY RECEIPT SECURITIES] distributable on the CRB Securities
Distribution Date (as defined herein) [and Government Securities Distribution
Date, as applicable] [AND PRIVATE LABEL CUSTODY RECEIPT SECURITIES DISTRIBUTION
DATE, AS APPLICABLE] occurring on such Distribution Date. The LIBOR applicable
to the CRB Securities is described under "DESCRIPTION OF THE CRB SECURITIES
- --Interest Distributions" [and "DESCRIPTION OF THE GOVERNMENT SECURITIES
- --INTEREST DISTRIBUTIONS" HEREIN.] [AND "DESCRIPTION OF THE PRIVATE LABEL
CUSTODY RECEIPT SECURITIES -- Interest Distributions" herein.]
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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 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.
With respect to each CRB Securities Distribution Date in respect of which
principal is distributed on the CRB Securities, [and each Government Securities
Distribution Date in respect of which principal is distributed on the Government
Securities,] [AND EACH PRIVATE LABEL CUSTODY RECEIPT SECURITIES DISTRIBUTION
DATE IN RESPECT OF WHICH PRINCIPAL IS DISTRIBUTED ON THE PRIVATE LABEL CUSTODY
RECEIPT SECURITIES,] principal distributions will be made on the Certificates on
the Distribution Date [occurring immediately after such dates] [occurring on
such date] in an amount equal to the principal distributed on the CRB Securities
[and the Government Securities][AND THE PRIVATE LABEL CUSTODY RECEIPT
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").]
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<PAGE> 17
The aggregate principal balance of the Certificates at any time will be
equal to the [sum of the] outstanding principal balance[s] of the CRB Securities
[and the Government Securities] [AND THE PRIVATE LABEL CUSTODY RECEIPT
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 government securities or
other 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 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.]
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DISTRIBUTIONS ON THE CRB SECURITIES [AND GOVERNMENT SECURITIES] [AND PRIVATE
LABEL CUSTODY RECEIPT SECURITIES]; COLLECTION ACCOUNT
All distributions on the CRB Securities [and Government Securities] [AND
PRIVATE LABEL CUSTODY RECEIPT 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.] [Describe "Government Securities Distribution
Date".][DESCRIBE "PRIVATE LABEL CUSTODY RECEIPT SECURITIES DISTRIBUTION DATE".]
[[ASSIGNMENT] [PURCHASE] OF CRB SECURITIES [AND GOVERNMENT SECURITIES] [AND
PRIVATE LABEL CUSTODY RECEIPT 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.]
[The Depositor will acquire the Government Securities for deposit into the
Trust [describe method of acquisition of Government Securities.]]
[THE DEPOSITOR WILL ACQUIRE THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES
FOR DEPOSIT INTO THE TRUST [DESCRIBE METHOD OF ACQUISITION OF PRIVATE LABEL
CUSTODY RECEIPT SECURITIES.]]
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.
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<PAGE> 19
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 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).......................................................
S-19
<PAGE> 20
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 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 date hereof that would affect the accuracy or
completeness of any statements included in such CRB
S-20
<PAGE> 21
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.]
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.
S-21
<PAGE> 22
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.
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.
S-22
<PAGE> 23
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
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.
S-23
<PAGE> 24
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.]
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.
S-24
<PAGE> 25
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.
[DESCRIPTION OF THE GOVERNMENT SECURITIES]
[The table below sets forth certain characteristics of the Government
Securities . The table does not purport to be complete and is subject to, and
qualified in its entirety by reference to [describe GOVERNMENT SECURITIES
DISCLOSURE DOCUMENT, IF ANY].]
S-25
<PAGE> 26
DESCRIPTION OF THE GOVERNMENT SECURITIES
S-26
<PAGE> 27
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
[THE TABLE BELOW SETS FORTH CERTAIN CHARACTERISTICS OF THE PRIVATE LABEL
CUSTODY RECEIPT SECURITY. THE TABLE DOES NOT PURPORT TO BE COMPLETE AND IS
SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO [DESCRIBE PRIVATE
LABEL CUSTODY RECEIPT SECURITIES DISCLOSURE DOCUMENT, IF ANY].]
S-27
<PAGE> 28
DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES
S-28
<PAGE> 29
GENERAL
[To be added.]
GOVERNMENT SECURITIES; RECENT DEVELOPMENTS
[TO BE ADDED.]
PRIVATE LABEL CUSTODY RECEIPT SECURITIES; RECENT DEVELOPMENTS
[To be added.]
INTEREST DISTRIBUTIONS
[To be added.]
PRINCIPAL DISTRIBUTIONS
[To be added.]
[SERVICING] [TRUSTEE] COMPENSATION; ALLOCATION OF EXPENSES
[To be added.]
S-29
<PAGE> 30
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 Credit Suisse First Boston Corporation. Neither Credit
Suisse First Boston Corporation nor any of its 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 11 Madison Avenue,
New York, New York 10010 and its telephone number is (212) 325-2000.
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.
COLLECTION OF DISTRIBUTIONS ON CRB SECURITIES [AND GOVERNMENT SECURITIES][AND
PRIVATE LABEL CUSTODY RECEIPT SECURITIES]
The CRB Securities [and Government Securities][AND PRIVATE LABEL CUSTODY
RECEIPT SECURITIES] will be assets of the Trust. All distributions on the CRB
Securities [and Government Securities] [AND PRIVATE LABEL CUSTODY RECEIPT
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 Government Securities] [AND PRIVATE LABEL CUSTODY RECEIPT
SECURITIES][and] [payments actually received by the Trust pursuant to the
Ancillary Arrangements] [and] [amounts available in the Reserve Account].
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<PAGE> 31
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 [and
Government Securities] [AND PRIVATE LABEL CUSTODY RECEIPT SECURITIES].
The Trustee shall forward by mail to each Certificateholder the most
current CRB Securities [and Government Securities][AND PRIVATE LABEL CUSTODY
RECEIPT 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 [and the Government
Securities][AND THE PRIVATE LABEL CUSTODY RECEIPT 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.
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 [and the Government Securities][AND THE
PRIVATE LABEL CUSTODY RECEIPT 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
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<PAGE> 32
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 [AND GOVERNMENT SECURITIES][AND PRIVATE
LABEL CUSTODY RECEIPT SECURITIES ]
If at any time the Trustee, as the holder of the CRB Securities [or the
Government Securities] [OR THE PRIVATE LABEL RECEIPT 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 [and Government Securities] [AND PRIVATE
LABEL CUSTODY RECEIPT 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.
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.
S-32
<PAGE> 33
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
[and the Government Securities], [AND THE PRIVATE LABEL CUSTODY RECEIPT
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 Government Securities] [AND
THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES] and the payment of expenses
related to such purchase.]
[CERTAIN FEDERAL INCOME TAX CONSIDERATIONS]
[Additional tax disclosure to be added, if necessary.]
ERISA CONSIDERATIONS
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
S-33
<PAGE> 34
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 Credit Suisse
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.
The Trust may, from time to time, invest the funds in the Trust Accounts in
Eligible Investments acquired from the Underwriter.
S-34
<PAGE> 35
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 _______________.
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 Government
SECURITIES AND THE PRIVATE LABEL CUSTODY RECEIPT Securities. The rating takes
into consideration the characteristics of the CRB Securities, the Government
SECURITIES AND THE PRIVATE LABEL CUSTODY RECEIPT 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-35
<PAGE> 36
INDEX OF DEFINED TERMS
Accounts..............................................................
Agreements............................................................
Ancillary Arrangements................................................
Beneficial Owner......................................................
Book-Entry Certificates...............................................
Business Day..........................................................
Card Receivables Backed Securities....................................
Cede..................................................................
Certificateholder.....................................................
Certificates..........................................................
[Class A] Certificate.................................................
[Class A] Certificate Interest Rate...................................
[Class A] Percentage..................................................
[Class B] Certificate.................................................
[Class B] Certificate Interest Rate...................................
[Class B] Percentage..................................................
Closing Date..........................................................
Code..................................................................
Collection Account....................................................
Collection Period.....................................................
CRB Issuer............................................................
CRB Securities........................................................
CRB Securities Amortization Event.....................................
CRB Securities Certificate Interest Rate..............................
CRB Securities Controlled Amortization Period.........................
CRB Securities Disclosure.............................................
CRB Securities Distribution Date......................................
CRB Securities Servicing Fee..........................................
CRB Servicer..........................................................
Definitive Certificate................................................
Depositor.............................................................
Depository............................................................
Distribution Date.....................................................
DTC...................................................................
ERISA.................................................................
Federal Tax Counsel...................................................
Final Scheduled Distribution Date.....................................
Finance Charge Receivables............................................
GOVERNMENT SECURITIES.................................................
Issuer................................................................
LIBOR.................................................................
S-36
<PAGE> 37
Moody's...............................................................
Percentage Interest...................................................
Pool Balance..........................................................
Principal Receivables.................................................
PRIVATE LABEL CUSTODY RECEIPT SECURITIES..............................
Prospectus............................................................
Rating Agency.........................................................
Receivables...........................................................
Record Date...........................................................
Required Reserve Account Balance......................................
Reserve Account.......................................................
Reserve Account Initial Deposit.......................................
Reuters LIBOR.........................................................
S&P...................................................................
Seller................................................................
Seller's Interest.....................................................
Seller's Percentage...................................................
Telerate LIBOR........................................................
Trust.................................................................
Trustee...............................................................
Underwriter...........................................................
Voting Rights.........................................................
S-37
<PAGE> 38
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.
[NEED APP FOR EACH OF GS AND PLCRS -- NEED CLARIFICATION]
S-38
<PAGE> 39
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 CREDIT SUISSE FIRST BOSTON CORPORATION 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 of Terms.......................................................
Risk Factors...........................................................
The Trust..............................................................
Description of the Certificates........................................
Description of the CRB Securities......................................
[Description of the Government Securities..............................
[DESCRIPTION OF THE PRIVATE LABEL CUSTODY RECEIPT SECURITIES...........]
The Depositor..........................................................
The Trust Agreement....................................................
The Trustee............................................................
Use of Proceeds........................................................
ERISA Considerations...................................................
[Certain Federal Income Tax Considerations.............................
Legal Investment Considerations........................................
Underwriting...........................................................
Legal Matters..........................................................
Rating.................................................................
Index of Defined Terms.................................................
PROSPECTUS
Prospectus Supplement..................................................
Reports to Securityholders.............................................
Available Information..................................................
Incorporation of Certain Documents by Reference........................
Summary of Terms.......................................................
Risk Factors...........................................................
The Trusts.............................................................
Trust Assets...........................................................
Series Enhancement.....................................................
Servicing of Receivables...............................................
Description of the Notes...............................................
Description of the Certificates........................................
Certain Information Regarding the Securities...........................
Description of the Trust Agreements or Pooling and Servicing
Agreements........................................................
Certain Legal Aspects of the Receivables...............................
The Depositor..........................................................
Use of Proceeds........................................................
Certain Federal Income Tax Consequences................................
Certain State and Local Tax Considerations.............................
ERISA Considerations...................................................
Plan of Distribution...................................................
Legal Matters..........................................................
Index of Defined Terms.................................................
Annex I................................................................
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[ ]
Credit Suisse First Boston Corporation
<PAGE> 1
- --------------------------------------------------------------------------------
Exhibit 99.15
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[ ]
DEALER FLOORPLAN 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
Dealer Floorplan 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,
(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 "RISK
FACTORS" BEGINNING ON PAGE S-__ OF THIS PROSPECTUS SUPPLEMENT AND PAGE __ OF THE
PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CONSIDER
<PAGE> 2
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.
Proceeds to
Price to Public Underwriting Discount the Depositor(1)
Per [Class A] Certificate
[Per [Class B] Certificate]
Total
- --------------------------------------------------------------------------------
(1) Before deduction of expenses payable by the Depositor, estimated to be
$[ ].
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
CREDIT SUISSE FIRST BOSTON
The date of this Prospectus Supplement is [ ], 199[ ]
----------------
S-2
<PAGE> 3
(Continued from previous page)
among other assets, a portfolio of wholesale receivables (the "Receivables")
generated or to be generated from time to time in a portfolio of revolving
financing arrangements (the "Accounts") with automobile dealers ("Dealers") to
finance their automobile and light truck inventory, 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
S-3
<PAGE> 4
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.
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.
S-4
<PAGE> 5
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-5
<PAGE> 6
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 Dealer Floorplan 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]
[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.
S-6
<PAGE> 7
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] 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
S-7
<PAGE> 8
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.]
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
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
S-8
<PAGE> 9
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").]
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
S-9
<PAGE> 10
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
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
S-10
<PAGE> 11
[ ], 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 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 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
S-11
<PAGE> 12
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.]
[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.]
S-12
<PAGE> 13
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]
Cut-Off 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
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
S-13
<PAGE> 14
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
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
Certificateholders The [Class A] Required Amount
means, with respect to any
Distribution Date, the
amount, if any, by which the
sum of (i) current and
overdue [Class A] Monthly
Interest,
S-14
<PAGE> 15
(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 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
S-15
<PAGE> 16
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 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
S-16
<PAGE> 17
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 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 Account will serve
as [additional] Credit
Enhancement with respect the
Series 199[ ]-[ ]
Certificates.]
S-17
<PAGE> 18
[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 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
S-18
<PAGE> 19
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.]
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
S-19
<PAGE> 20
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 (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 25% 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 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
S-20
<PAGE> 21
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
_____________ ("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
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
S-21
<PAGE> 22
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-22
<PAGE> 23
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.]
[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
S-23
<PAGE> 24
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 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
S-24
<PAGE> 25
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.]
[Risks Attendant to Investments in Interest-only or Principal-only
Certificates. [If Certificates are Interest-only or Principal-only certificates,
discuss risks attendant thereto.]]
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 terms of the
Certificates may vary from the terms of
S-25
<PAGE> 26
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 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
S-26
<PAGE> 27
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 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
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<PAGE> 28
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 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
The Receivables sold to the Trust by the Seller pursuant to the Pooling
and Servicing Agreement were or will be selected from extensions of credit and
advances made by the Seller, to approximately ____ domestic motor vehicle
dealers. As of ___________, the principal balance of the Seller's outstanding
Receivables in the was approximately $_______.
S-28
<PAGE> 29
As of _________, the average credit lines per dealer in the Seller's
portfolio for new and used vehicles were $_______ and $______, respectively, and
the average balance of principal receivables per dealer was $_______. As of
________, the aggregate total receivables balance as a percentage of the
aggregate total credit line was approximately _____%.
The following table sets forth the percentages of dealer account
balances by year of credit line origination for the Seller's portfolio as of
________.
Portfolio Percentages by Year of Credit Line Origination
1997 1996 1995 1994 1993
As of _______ __, _____, the weighted average spread over the Prime
Rate charged to dealers in the was approximately _____%.
As of _______ __, _____, approximately ____% of all dealers
participating in the installment payment plan were remitting ____% of the
Installment Balance following the sale of the related vehicle.
Used Vehicles represented approximately __% of the aggregate principal
amount of receivables in the Seller's portfolio as of _______ __, _____. As of
_______ __, _____, Used Vehicles represented approximately__% of the aggregate
principal amount of Receivables in the Trust.
The following table provides the percentage of dealers in the Seller's
portfolio that were subject to finance hold as of the dates indicated.
Finance Hold Experience
<TABLE>
<CAPTION>
As of As of
-----, December 31,
-------- ----------------------------------------
199_ 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Percentage of Dealers ....
</TABLE>
The following table provides the number and percentage of dealers in
Dealer Trouble Status in the Seller's portfolio as of the dates indicated.
S-29
<PAGE> 30
<TABLE>
<CAPTION>
Dealer Trouble Experience
As of As of
-----, December 31,
-------- ----------------------------------------
1997 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Number of Dealers ........
Percentage of Dealers ....
</TABLE>
THE ACCOUNTS
As of _______ __, _____, with respect to the Accounts in the Trust:
(a)there were ____ Accounts and the outstanding principal balance was
approximately $___billion; (b) the average credit lines per Dealer for new and
used vehicles were approximately $___million and $___ million, respectively, and
the average balance of Principal Receivables per Dealer was approximately $____
million; and (c) the aggregate total Receivables balance as a percentage of the
aggregate total credit line was approximately ____%. Unless otherwise indicated,
the statistics included in this paragraph, in the table below and under " --
Geographic Distribution" with respect to the Accounts and the Receivables in the
Trust give effect to approximately $___ million of principal receivables
balances with respect to certain Dealers (the "Excluded Receivables" and the
"Excluded Dealers", respectively) that are in voluntary or involuntary
bankruptcy proceedings or voluntary or involuntary liquidation or that, subject
to certain limitations, are being voluntarily removed by the Seller (or the
Servicer on its behalf) from the Trust. A portion of such principal receivables
was created after such Dealers entered into such status or were designated by
the Seller (or the Servicer on its behalf) for removal from the Trust and, as a
result thereof, are owned by the Seller and not the Trust. Principal balances
created prior to such Dealers entering into such status or being designated for
removal from the Trust are included in the Principal Receivables balance. See
"Description of the Certificates -- Removal of Accounts" in the Prospectus for a
description of the manner in which an Account can be removed from the Trust.
The following table sets forth the percentages of dealer account
balances by year of credit line origination for the accounts in the Trust as of
_______ __, _____.
Portfolio Percentages by Year of Credit Line Origination
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1991
- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
As of _______ __, _____, the weighted average spread over the Prime
Rate charged to Dealers was approximately ___%.
Experience
S-30
<PAGE> 31
The following tables set forth the average outstanding principal
balance and loss experience for each of the periods shown on the Seller's
portfolio. Because the Eligible Accounts will be only a portion of the entire
the Seller's portfolio, actual loss experience with respect to the Eligible
Accounts may be different. There can be no assurance that the loss experience
for the Receivables in the future will be similar to the historical experience
set forth below with respect to the Seller's portfolio.
Loss Experience for the Seller's portfolio
<TABLE>
<CAPTION>
---- Months
Ended
------, Year Ended December 31,
------------ ---------------------------------------
1997 1996 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Principal
Receivables Balance(1)
Net Losses (Recoveries)(2)
Net Losses (Recoveries)/
Liquidations
Net Losses (Recoveries)/
Average Principal
Receivables Balance(3) .
</TABLE>
(1) Average Principal Receivables Balance is the average of the month-end
principal balances for the thirteen months ending on the last day of the period.
(2) Net losses in any period are gross losses less recoveries for such period.
(3) Percentages are expressed on an annualized basis.
Aging Experience
The following table provides the age distribution of vehicle inventory
for all dealers in the Seller's portfolio, as a percentage of total
principal outstanding at the date indicated. Because the Eligible Accounts will
only be a portion of the entire the Seller's portfolio, actual age distribution
with respect to the Eligible Accounts may be different.
Age Distribution for the Seller's portfolio
S-31
<PAGE> 32
<TABLE>
<CAPTION>
As of As of
-----, December 31,
-------------- ---------------------------------------
1997 1996 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1-120 ....................
121-180 ..................
181-270 ..................
Over 270 .................
</TABLE>
Geographic Distribution
The following table provides the geographic distribution of the vehicle
inventory for all dealers in the Trust on the basis of receivables outstanding
and the number of dealers generating such portfolio.
Geographic Distribution of Accounts in the Trust
As of ---------- , ----------
<TABLE>
<CAPTION>
Receivables Percentage Number Percentage of Total
Outstanding(2) Receivables of Dealers(2)(4) of Number of
Outstanding Dealers(3)(4)
<S> <C> <C> <C> <C>
- --------- ............ $
- --------- ............
- --------- ............
Other(1) ............ ---------- ---------- ------------ -------------
Total ............ $
========== ========== ============ =============
</TABLE>
(1) No other state includes more than 5% of the outstanding Receivables.
(2) Includes Excluded Receivables.
(3) Includes Excluded Dealers.
S-32
<PAGE> 33
(4) May not add to 100.0% due to rounding.
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 Credit Suisse First Boston, Inc. Neither Credit Suisse
First Boston, Inc nor any of its 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 11 Madison
Avenue, New York, New York 10010, and its telephone number is (212) 325-2000.
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 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
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<PAGE> 34
Certificates were registered at the close of business on the last day of the
calendar 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 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.
S-34
<PAGE> 35
["[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, 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].]
S-35
<PAGE> 36
[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 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
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<PAGE> 37
Accumulation Period such that the number of months included in the 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 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
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<PAGE> 38
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] 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
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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 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
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<PAGE> 40
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.
["[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].]
[Principal Funding Account]
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[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].
[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,
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<PAGE> 42
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.]
[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
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<PAGE> 43
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 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.
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<PAGE> 44
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:
(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
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<PAGE> 45
Payment Date for 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;]
[(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].
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<PAGE> 46
[(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
[(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:
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<PAGE> 47
(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);]
[(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
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<PAGE> 48
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.]
["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].]]
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<PAGE> 49
["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 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 $[ ].]
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<PAGE> 50
[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 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
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).]
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<PAGE> 51
[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 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.
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<PAGE> 52
[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 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
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<PAGE> 53
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.
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
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<PAGE> 54
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 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] shall
have received written notice from each Rating Agency that such reduction will
not have a Ratings Effect.
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<PAGE> 55
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 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;
S-55
<PAGE> 56
(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 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
S-56
<PAGE> 57
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 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
S-57
<PAGE> 58
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 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
S-58
<PAGE> 59
legal restrictions should consult their own legal advisors to
determine whether, and to what extent, the Securities will constitute legal
investments for them.
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
Underwriter of [Class A] Certificates of [Class B] Certificates
<S> <C> <C>
Credit Suisse First Boston
Corporation........................
[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.
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
S-59
<PAGE> 60
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 _____________, 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-60
<PAGE> 61
INDEX OF DEFINED TERMS
[Class A] Accumulation Period....................................... S-44
[Class A] Additional Interest....................................... S-54
[Class A] Adjusted Invested Amount.................................. S-49
[Class A] Available Funds........................................... S-42
[Class A] Certificate Rate.......................................... S-3
[Class A] Certificates.............................................. S-1, 5
[Class A] Charge-Off................................................ S-19
[Class A] Default Amount............................................ S-62
[Class A] Floating Percentage....................................... S-47
[Class A] Initial Invested Amount................................... S-5
[Class A] Invested Amount........................................... S-48
[Class A] Investor Charge-Offs...................................... S-49
[Class A] Monthly Interest.......................................... S-55
[Class A] Monthly Principal......................................... S-58
[Class A] Principal Percentage...................................... S-48
[Class A] Required Amount........................................... S-52
[Class A] Servicing Fee............................................. S-69
[Class B] Accumulation Period....................................... S-44
[Class B] Additional Interest....................................... S-54
[Class B] Adjusted Invested Amount.................................. S-49
[Class B] Available Funds........................................... S-43
[Class B] Certificate Rate.......................................... S-3
[Class B] Certificates.............................................. S-5
[Class B] Charge-Off................................................ S-21
[Class B] Default Amount............................................ S-62
[Class B] Floating Percentage....................................... S-47
[Class B] Initial Invested Amount................................... S-5
[Class B] Invested Amount........................................... S-48
[Class B] Monthly Interest.......................................... S-55
[Class B] Principal Commencement Date............................... S-46
[Class B] Principal Percentage...................................... S-48
[Class B] Servicing Fee............................................. S-69
Accounts............................................................ S-2
Accumulation Period................................................. S-15
Additional Certificates............................................. S-11
Adjusted Invested Amount............................................ S-9
Agreement........................................................... S-1
Available Final Distribution Amount................................. S-70
Available Principal Collections..................................... S-45
Available Reserve Account Amount.................................... S-52
Available Shared Collateral Amount.................................. S-61
Base Rate........................................................... S-68
Cash Collateral Account............................................. S-22
Cash Collateral Depositor........................................... S-56
Certificate Owners.................................................. S-13
Certificates........................................................ S-1
Closing Date........................................................ S-12
S-61
<PAGE> 62
Code................................................................ S-28
Collateral Interest................................................. S-8
Collateral Interest Holders......................................... S-60
Collateral Invested Amount.......................................... S-49
Controlled Accumulation Amount...................................... S-58
Controlled Amortization Period...................................... S-16
Controlled Deposit Amount........................................... S-32
Covered Amount...................................................... S-50
Credit Enhancement.................................................. S-8
Deficit Controlled Accumulation Amount.............................. S-59
Depositor........................................................... S-1
Distribution Date................................................... S-3
Excess Spread....................................................... S-55
Expected Final Payment Date......................................... S-17
Finance Charge Receivables.......................................... S-12
Floating Allocation Percentage...................................... S-47
Funding Period...................................................... S-25
Group [ ____ ]...................................................... S-24
Initial [Class B] Collateral Amount................................. S-22
Initial Cash Collateral Amount...................................... S-22
Initial Cut-Off Date................................................ S-11
Initial Invested Amount............................................. S-5
Initial Shared Collateral Amount.................................... S-22
Interest Funding Account............................................ S-42
Interest Period..................................................... S-3
Invested Amount..................................................... S-50
Investor Default Amount............................................. S-62
Mandatory Prepayment................................................ S-25
Monthly Report...................................................... S-70
Monthly Servicing Fee............................................... S-68
Paired Series....................................................... S-65
Pay Out Events...................................................... S-66
Portfolio Yield..................................................... S-68
Pre-Funding Account................................................. S-26
Pre-Funding Amount.................................................. S-12
Principal Allocation Percentage..................................... S-47
Principal Funding Account........................................... S-16
Principal Funding Account Balance................................... S-50
Principal Funding Investment Proceeds............................... S-50
Principal Receivables............................................... S-11
Rapid Amortization Period........................................... S-24
Rating Agency....................................................... S-30
Ratings Effect...................................................... S-34
Reallocated Principal Receivables................................... S-53
Receivables......................................................... S-2
Required Amount..................................................... S-20
Required Cash Collateral Amount..................................... S-60
Required Reserve Account Amount..................................... S-51
Reserve Account..................................................... S-51
S-62
<PAGE> 63
Reserve Account Funding Date........................................ S-51
Revolving Period.................................................... S-15
Series Supplement................................................... S-31
Servicer............................................................ S-1
Servicing Fee Rate.................................................. S-68
Special Payment Date................................................ S-31
Subsequent Cut-off Date............................................. S-12
Subsequent Receivables.............................................. S-12
Subsequent Transfer Date............................................ S-13
Termination Date.................................................... S-3
Trust............................................................... S-5
Trust Portfolio..................................................... S-36
Trustee............................................................. S-1
Underwriters........................................................ S-71
Underwriting Agreement.............................................. S-71
S-63
<PAGE> 64
================================================================================
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 Credit Suisse First
Boston Corporation. 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...................................................
Risk Factors..............................................
Maturity Considerations...................................
The Identified Pool.......................................
The Receivables...........................................
Use of Proceeds...........................................
The Seller................................................
[The Servicer]............................................
The Depositor.............................................
Description of the Certificates...........................
ERISA Considerations......................................
Legal Investment Considerations...........................
Underwriting..............................................
Legal Matters.............................................
Rating....................................................
Index of Defined Terms....................................
Prospectus
Prospectus Supplement.....................................
Reports to Securityholders................................
Available Information.....................................
Incorporation of Certain Documents
by Reference............................................
Summary of Terms..........................................
Risk Factors..............................................
The Trusts................................................
Trust Assets..............................................
Series Enhancement........................................
Servicing of Receivables..................................
Description of the Notes..................................
Description of the Certificates...........................
Certain Information Regarding the Securities..............
Description of the Trust Agreements or
Pooling and Servicing Agreements........................
Certain Legal Aspects of the Receivables..................
The Depositor.............................................
Use of Proceeds...........................................
Certain Federal Income Tax Consequences...................
Certain State and Local Tax Considerations................
ERISA Considerations......................................
Plan of Distribution......................................
Legal Matters.............................................
Index of Defined Terms....................................
Annex I...................................................
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.
================================================================================
$[_________]
DEALER FLOORPLAN
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[_]
CREDIT SUISSE FIRST BOSTON
