As filed with the Securities and Exchange Commission on March __, 1998
============================================================================
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
ML ASSET BACKED CORPORATION
(Sponsor of the Trusts described herein)
(Exact name of Registrant as specified in its charter)
Delaware 13-3891329
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
ML Asset Backed Corporation
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281-1310
(212) 449-0336
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Michael M. McGovern
ML Asset Backed Corporation
250 Vesey Street
World Financial Center
North Tower - 10th Floor
New York, New York 10281-1310
(212) 449-0336
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent For Service)
Copies to:
Renwick D. Martin, Esq.
Brown & Wood LLP
One World Trade Center
New York, New York 10048
(212) 839-5319
-------------------------------------
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /x/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
----------------
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Securities Amount to Be Proposed Maximum Proposed Maximum Amount of
Registered(1) Offering Price Per Aggregate Offering Registration Fee
to Be Registered Unit (2) Price(2)
<S> <C> <C> <C> <C>
Asset Backed $1,000,000 100% $1,000,000 $295
Securities
</TABLE>
(1) The Registration Statement relates to the initial offering from time to
time of the Asset Backed Notes and Asset Backed Certificates and to any
resales thereof in market making transactions by an underwriter to the
extent required.
(2) Estimated pursuant to Rule 457 solely for the purpose of
calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
INTRODUCTORY NOTE
This Registration Statement contains three forms of Prospectus relating
to the offering by various Trusts of series of Asset Backed Notes and/or
Asset Backed Certificates backed by (i) recreational vehicle and/or motor
vehicle (including medium- and heavy-duty trucks) receivables ("Prospectus
Version #1") or (ii) marine receivables ("Prospectus Version #2"), created
from time to time by ML Asset Backed Corporation and two forms of Prospectus
Supplement relating to the offering by a Trust of the particular series of
Asset Backed Notes and Asset Backed Certificates or of Asset Backed
Certificates, as applicable, described therein. Prospectus Supplement
Version A is a form of Prospectus Supplement for an owner trust and
Prospectus Supplement Version B is a form of Prospectus for a grantor trust.
Each form of Prospectus Supplement relates only to the securities described
therein and is a form that may be used, among others, by the registrant to
offer Asset Backed Notes and/or Asset Backed Certificates under this
Registration Statement. A Prospectus Supplement may contain any of the
features referred to in a Prospectus.
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 prospectus to which it relates 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.
Version A
Subject to completion, dated March 16, 1998
PROSPECTUS SUPPLEMENT
- ---------------------
(To Prospectus dated , 199__)
$( )
(________________________) TRUST 199 -( )
(Floating Rate) ASSET BACKED NOTES, CLASS ( )
(Floating Rate) ASSET BACKED NOTES, CLASS ( )
( %) ASSET BACKED CERTIFICATES
ML Asset Backed Corporation, DEPOSITOR
(________________________________) , SERVICER
____________________
(________________) Trust 199 ( ) (the "Trust") will be governed
pursuant to a Trust Agreement to be dated as of , 199 ,
between ML Asset Backed Corporation (the "Depositor") and (
), as (Owner) Trustee. The Trust will issue $
aggregate principal amount of (Floating Rate) Asset Backed Notes, Class
( ) (the "Class ( ) Notes") and $ aggregate principal
amount of (Floating Rate) Asset Backed Notes, Class ( ) (the "Class ( )
Notes" and, together with the Class ( ) Notes, the "Notes") pursuant to an
Indenture to be dated as of , 199 , between the Trust and
, as Indenture Trustee. (No principal payments will be
made in the Class ( ) Notes until the Class ( ) Notes have been paid in
full, and to that extent, the rights of the holders of the Class ( ) Notes
to receive distributions with respect to the Receivables are subordinated to
the rights of the holders of the Class ( ) Notes, as more fully described
herein.)
(Cover 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 ML ASSET BACKED CORPORATION, THE SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY 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.
ORIGINAL PROCEEDS TO
PRINCIPAL PRICE TO UNDERWRITING THE DEPOSITOR
AMOUNT PUBLIC(1) DISCOUNT (1)(2)
Class [ ] Note . . $ % % %
Class [ ] Note . . % % %
Certificate . . . % % %
Total $ $ $ $
- ------------------
(1) Plus accrued interest, if any, from , 199 . (2) Before
deducting expenses, estimated to be $ .
The Notes and the Certificates are offered by Merrill Lynch,
Pierce, Fenner & Smith Incorporated (the "Underwriter") subject to prior
sale, when, as and if issued and accepted by the Underwriter and subject to
approval of certain legal matters by its counsel and certain other
conditions. It is expected that the Notes and the Certificates will be
delivered in book-entry form only through the facilities of The Depository
Trust Company (and, in the case of the Notes, Cedel Bank, societe anonyme,
and the Euroclear System) against payment therefor, in immediately available
funds on or about , 199 .
____________________
Merrill Lynch & Co.
____________________
The date of this Prospectus Supplement is ___________, 199_.
(Continued from previous page)
The Trust will also issue $ aggregate principal amount of
( %) Asset Backed Certificates (the "Certificates" and, together with the
Notes, the "Securities"). The assets of the Trust will include a pool of
retail installment sale contracts or retail installment loans (the
"Receivables"), secured by security interests in new or used automobiles,
light duty trucks, recreational vehicles and recreational sport and power
boats (including any boat motors and accompanying trailers) and yachts (both
power and sail) (the "Financed Assets") and certain monies due or received
thereunder on or after , 199 , transferred to the Trust by
the Seller on the Closing Date. The Notes will be secured by the assets of
the Trust pursuant to the Indenture.
Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the
Notes. See "Risk Factors -- Subordination of the Certificates for the
Notes" herein.
Interest on the Class ( ) and Class ( ) Notes will accrue at the
respective (floating) interest rates specified above. Interest on the Notes
will generally be payable 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 . Principal of the Notes
will be payable on each Distribution Date to the extent described herein;
however, no principal payments will be made on the Class ( ) Notes until
the Class ( ) Notes have been paid in full.
The Certificates will represent fractional undivided interests in the
Trust. Interest, to the extent of the Pass Through Rate specified above,
will be distributed to the Certificateholders on each Distribution Date. No
distributions of principal on the Certificates will be made until all the
Notes have been paid in full.
Each class of the Notes and the Certificates will be payable in full on
the applicable final scheduled Distribution Date as set forth herein.
However, payment in full of a class of Notes or of the Certificates could
occur earlier than such dates as described herein. In addition, the Class (
) Notes will be subject to redemption in whole, but not in part, and the
Certificates will be subject to prepayment in whole, but not in part, on any
Distribution Date on which the Servicer exercises its option to purchase the
Receivables. The Servicer may purchase the Receivables when the aggregate
principal balance of the Receivables shall have declined to % or less of
the initial aggregate principal balance of the Receivables purchased by the
Trust.
(This Prospectus Supplement may be used by the Underwriter, an
affiliate of the Seller and the Servicer, in connection with offers and
sales related to market making transactions in the Securities.)
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-10 HEREIN AND ON PAGE (12) IN THE ACCOMPANYING
PROSPECTUS.
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.
Certain persons participating in this offering may engage in
transactions that stabilize, maintain, or otherwise affect the price of the
Securities. Such transactions may include stabilizing and the purchase of
Securities. Such transactions may include stabilizing and the
purchase of Securities to cover syndicate short positions. For a
description of these activities, see "Underwriting" herein.
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. ("Cede"), as nominee of The
Depository Trust Company ("DTC") and registered holder of the Notes and the
Certificates. See "Certain Information Regarding the Securities --
Book-Entry Registration" and "-- Reports to Securityholders" in the
accompanying Prospectus (the "Prospectus"). Such reports will not
constitute financial statements prepared in accordance with generally
accepted accounting principles. 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.
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 . . . . . . . . . . . . . (_____________________) Trust 199
-( ) (the "Trust" or the
"Issuer"), a (___________) a
business trust to be governed
pursuant to a Trust Agreement
dated as of ,
199 (as amended and supplemented
from time to time, the "Trust
Agreement"), between the Depositor
and the Owner Trustee.
Depositor . . . . . . . . . . . . ML Asset Backed Corporation (the
"Depositor").
Servicer . . . . . . . . . . . . (_______________________________)
(in such capacity, the
"Servicer").
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 Asset Backed
Notes pursuant to an Indenture to
be dated as of , 199
(as amended and supplemented from
time to time, the "Indenture"),
between the Trust and the
Indenture Trustee, as follows:
(i) (Floating Rate) Asset Backed
Notes, Class ( ) (the "Class ( )
Notes") in the aggregate initial
principal amount of $
; and (ii) (Floating Rate) Asset
Backed Notes, Class ( ) (the
"Class ( ) Notes") in the
aggregate initial principal amount
of $ . The Class
( ) Notes and the Class ( )
Notes are collectively referred to
herein as the "Notes".
The Notes will be secured by the
assets of the Trust pursuant to
the Indenture.
The Certificates . . . . . . . . The Trust will issue ( %) Asset
Backed Certificates (the
"Certificates" and, together with
the Notes, the "Securities") with
an aggregate initial Certificate
Balance of $ .
The Certificates will represent
fractional undivided interests in
the Trust and will be issued
pursuant to the Trust Agreement.
The Receivables . . . . . . . . . On the Closing Date, the Trust
will purchase Receivables having
an aggregate principal balance of
approximately
$ (the
"Initial Pool Balance") as of
, 199 (the
"Cutoff Date") from the Depositor
pursuant to a Sale and Servicing
Agreement to be dated as of
, 199 (as amended and
supplemented from time to time,
the "Sale and Servicing
Agreement"), among the Trust, the
Depositor and the Servicer. See
"Description of the Transfer and
Servicing Agreements -- Sale and
Assignment of Receivables" herein
and in the Prospectus. The
Receivables will consist of retail
installment sale contracts or
retail installment loans between
Obligors and Dealers secured by
new or used automobiles, light-
duty trucks, recreational vehicles
and recreational sport and power
boats (including any boat motors
and accompanying trailers) and
yachts (both power and sail) (the
"Financed Assets"). The retail
installment sale contracts were
purchased by __________,
__________ and __________ (the
"Seller"). The Receivables will
be transferred by the Depositor to
the Trust, based on the criteria
specified in the Sale and
Servicing Agreement and described
herein and in the Prospectus. As
of the Cutoff Date, the weighted
average annual percentage rate of
the Receivables was approximately
%, the weighted average
remaining maturity of the
Receivables was approximately
months, and the weighted average
original maturity of the
Receivables was approximately
months. No Receivable has a
scheduled maturity later than
, 20__ (the "Final
Scheduled Maturity Date"). See
"The Receivables Pool" herein.
The "Pool Balance" at any time
will represent the aggregate
principal balance of the
Receivables at the end of the
preceding Collection Period, after
giving effect to all payments
(other than Payaheads) received
from Obligors, Advances and
Purchase Amounts to be remitted by
the Servicer or the Depositor, as
the case may be, all for such
Collection Period, and all losses
realized on Receivables liquidated
during such Collection Period.
Terms of the Notes . . . . . . . The principal terms of the Notes
will be as described below:
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 . Each
reference to a "Payment Date" in
the Prospectus shall refer to a
Distribution Date herein.
Payments will be made to holders
of record of the Notes (the
"Noteholders") as of the day
immediately preceding such
Distribution Date or, if
Definitive Notes are issued, as of
the day of the preceding
month (a "Record Date"). A
"Business Day" is a day other than
a Saturday, a Sunday or a day on
which banking institutions or
trust companies in the States of
(_________) are authorized by law,
regulation or executive order to
be closed.
B. Interest Rates . . . . . The Class ( ) Notes will bear
interest at a per annum rate of
(Floating Rate) (the "Class ( )
Rate") and the Class ( ) Notes
will bear interest at a per annum
rate of Floating Rate (the "Class
( ) Rate"). (The per annum rate
of interest with respect to the
Class ( ) Notes for each
Interest Reset Period (the "Class
( ) Rate") will equal LIBOR for
such Interest Reset Period, plus
%; provided that the Class ( )
Rate shall not exceed % per
annum.)
The interest rates for the various
classes of Notes are referred to
herein collectively as "Interest
Rates".
C. Interest . . . . . . . . Interest on the outstanding
principal amount of the Notes
(other than the Class ( ) Notes)
will accrue at the applicable
Interest Rate from the Closing
Date (in the case of the first
Distribution Date) or from the
day of the month preceding the
month of a Distribution Date to
and including the day of
the month of such Distribution
Date (each an "Interest Accrual
Period"). (Interest on the
outstanding principal amount of
the Class ( ) Notes will accrue
at the Class ( ) Rate from the
Closing Date (in the case of the
first Distribution Date) or from
the most recent Distribution Date
on which interest has been paid to
but excluding the following
Distribution Date (each, a
"Floating Rate Interest Accrual
Period").) Interest on the Class
( ) Notes will be calculated on
the basis of a 360-day year
consisting of twelve 30-day
months. Interest on the Class
() Notes will be calculated on the
basis of the actual number of days
in each Floating Rate Interest
Accrual Period divided by 360.
See "Description of the Notes --
Payments of Interest".
D. Principal . . . . . . . Principal of the Notes will be
payable on each Distribution Date
in an amount equal to the
Noteholders' Principal
Distributable Amount for the
calendar month (the "Collection
Period") preceding such
Distribution Date (in the case of
the first Distribution Date, the
period from and including
, 199 to and including ,
199 (exclusive of the scheduled
payments of principal due on the
Precomputed Receivables during
that period)) to the extent of
funds available therefor. The
"Noteholders' Principal
Distributable Amount" will equal
the sum of (i) the Regular
Principal Distribution Amount plus
(ii) the Accelerated Principal
Distribution Amount. The "Regular
Principal Distribution Amount"
with respect to any Distribution
Date will equal the amount of
principal paid or, in certain
circumstances, scheduled to be
paid with respect to the
Receivables (exclusive of
Payaheads allocable to principal
that have not been applied as
payments under the related
Receivables in the related
Collection Period and inclusive of
Payaheads allocable to principal
that have been applied as payments
under the related Receivables in
such Collection Period) plus, in
certain circumstances, the
principal balance of defaulted
Receivables, as calculated by the
Servicer as described under
"Description of the Transfer and
Servicing Agreements --
Distributions". The "Accelerated
Principal Distribution Amount"
with respect to a Distribution
Date will equal the portion, if
any, of the Total Distribution
Amount for the related Collection
Period that remains after payment
of (a) the Servicing Fee (together
with any portion of the Servicing
Fee that remains unpaid from prior
Distribution Dates), (b) the
interest due on the Notes, (c) the
Regular Principal Distribution
Amount, (d) the interest due on
the Certificates, and (e) the
amount, if any, required to be
deposited in the Reserve Account
on such Distribution Date.
On the Business Day immediately
preceding each Distribution Date
(a "Determination Date"), the
Indenture Trustee shall determine
the amount in the Collection
Account available for distribution
on the related Distribution Date.
Payments to Securityholders will
be made on each Distribution Date
in accordance with such
determination. The Servicing Fee
in respect of a Collection Period
(together with any portion of the
Servicing Fee that remains unpaid
from prior Distribution Dates)
will be paid at the beginning of
such Collection Period out of
collections for such Collection
Period.
No principal payments will be made
on the Class ( ) Notes until the
Class ( ) Notes have been paid in
full.
The outstanding principal amount
of the Class ( ) Notes, to the
extent not previously paid, will
be payable on the
(199 )(20 ) Distribution Date
(the "Class ( ) Final Scheduled
Distribution Date"); and the
outstanding principal amount of
the Class ( ) Notes, to the
extent not previously paid, will
be payable on the (199 )
(20 ) Distribution Date (the
"Class ( ) Final Scheduled
Distribution Date").
E. Optional Redemption . . The Notes will be redeemed in
whole, but not in part, on any
Distribution Date on which the
Servicer exercises its option to
purchase the Receivables. The
Servicer will have the option to
purchase all of the Receivables on
any Distribution Date on or after
the Distribution Date on which the
Pool Balance has declined to ( )%
pump or less of the Initial Pool
Balance. The price at which the
Servicer will be required to
purchase the Receivables in order
to exercise such option will be
equal to the aggregate of the
Purchase Amounts of the
Receivables as of the end of the
related Collection Period. The
Servicer will be required to give
not less than ( ) days notice to
the Trustee of its intention to
exercise such option. In
addition, the Servicer will not be
permitted to exercise such option
unless the resulting distribution
would be sufficient to retire the
Notes at a redemption price equal
to the unpaid principal amount of
the Class ( ) Notes plus accrued
and unpaid interest thereon. See
"Description of the Notes --
Optional Redemption" herein.
Terms of the Certificates . . . . The principal terms of the
Certificates will be as described
below:
A. Distribution Dates . . . Distributions with respect to the
Certificates will be made on each
Distribution Date, commencing
, 199 . Distributions will
be made to holders of record of
the Certificates (the
"Certificateholders" and, together
with the Noteholders, the
"Securityholders") as of the
related Record Date (which will be
the day of the preceding
month if Definitive Certificates
are issued).
B. Pass Through Rate ( )% per annum (the "Pass
Through Rate").
C. Interest . . . . . . . . On each Distribution Date, the
Owner Trustee will distribute pro
rata to Certificateholders 30 days
of accrued interest at the Pass
Through Rate on the outstanding
Certificate Balance generally to
the extent of funds available
following payment of the Servicing
Fee and distributions in respect
of the Notes from the Total
Distribution Amount and the
Reserve Account. Interest will be
calculated on the basis of a
360-day year consisting of twelve
30-day months. Interest in
respect of a Distribution Date
will accrue from the Closing Date
(in the case of the first
Distribution Date) or from the
day of the month preceding the
month of the Distribution Date to
and including the day of the
month of such Distribution Date.
D. Principal . . . . . . . No distributions of principal on
the Certificates will be made
until all of the Notes have been
paid in full. On each
Distribution Date commencing on
the Distribution Date on which the
Class ( ) Notes are paid in
full, principal of the
Certificates will be payable in an
amount generally equal to the
Certificateholders' Principal
Distributable Amount for the
Collection Period preceding such
Distribution Date, to the extent
of funds available therefor
following payment of the Servicing
Fee, payments of interest and
principal, if any, due in respect
of the Notes and the distribution
of interest in respect of the
Certificates. The
Certificateholders' Principal
Distributable Amount will be the
Regular Principal Distribution
Amount (less, on the Distribution
Date on which the Notes are paid
in full, the portion thereof
payable on the Notes), and will be
calculated by the Servicer in the
manner described under
"Description of the Transfer and
Servicing Agreements --
Distributions".
E. Optional Prepayment . . If the Servicer exercises its
option to purchase the
Receivables, the terms of which
option are summarized under "Terms
of the Notes -- E. Optional
Redemption" above, the
Certificates will be retired. The
Servicer will not be permitted to
exercise such option unless the
resulting distribution to
Certificateholders would be equal
to the outstanding Certificate
Balance together with accrued
interest at the Pass Through Rate.
See "Description of the
Certificates -- Optional
Prepayment" herein.
Reserve Account . . . . . . . . . (DESCRIBE RESERVE ACCOUNT FORMULA)
Collection Account; Priority of
Payments . . . . . . . . . . . . Except under certain conditions
described herein or as otherwise
acceptable to each Rating Agency,
the Servicer will be required to
remit collections received with
respect to the Receivables within
Business Days of receipt
thereof to one or more accounts in
the name of the Indenture Trustee
(the "Collection Account"). At
the beginning of each Collection
Period the Indenture Trustee will
apply collections in the
Collection Account to pay to the
Servicer the Servicing Fee for
such Collection Period and any
overdue Servicing Fees. Pursuant
to the Sale and Servicing
Agreement, the Servicer will have
the revocable power to instruct
the Indenture Trustee to withdraw
funds on deposit in the Collection
Account and to apply such funds on
each Distribution Date to the
following (in the priority
indicated): (i) the Servicing
Fee, together with any unpaid
Servicing Fees from prior
Distribution Dates (if for any
reason such amount was not paid at
the beginning of the Collection
Period as described above), to the
Servicer, (ii) the Noteholders'
Interest Distributable Amount and
the Noteholders' Principal
Distributable Amount into the Note
Distribution Account, (iii) the
Certificateholders' Interest
Distributable Amount and, after
the Notes have been paid in full,
the Certificateholders' Principal
Distributable Amount into the
Certificate Distribution Account
and (iv) the remaining balance, if
any, to the Reserve Account.
Tax Status . . . . . . . . . . . In the opinion of Brown & Wood
LLP, federal income tax counsel to
the Trust ("Federal Income Tax
Counsel"), for federal income tax
purposes, the Notes will be
characterized as debt, and the
Trust will not be characterized as
an association (or a publicly
traded partnership) taxable as a
corporation. Each Noteholder, by
the acceptance of a Note, will
agree to treat the Notes as
indebtedness, and each
Certificateholder, by the
acceptance of a Certificate, will
agree to treat the Trust as a
partnership in which the
Certificateholders are partners
for federal income and state
income tax purposes. In the event
there is a single
certificateholder, the Trust will
be disregarded for federal income
tax purposes and the
certificateholder will be treated
as owning the Trust's assets
directly. Alternative federal
income tax characterizations of
the Trust and the Certificates are
possible, but would not result in
materially adverse tax
consequences to
Certificateholders. See "Federal
Income Tax Consequences" herein
and "Federal Income Tax
Consequences" in the Prospectus
for additional information
concerning the application of
federal income and state 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 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 by an
individual retirement account.
See "ERISA Considerations" herein
and in the Prospectus.
Rating of the Notes . . . . . . . It is a condition to the issuance
of the Notes that they be rated "
" by at least one Rating Agency.
The rating of the Notes by a
Rating Agency reflects such Rating
Agency's assessment of the
likelihood that the Noteholders
will receive payments and
interest, however, the rating on
the Notes does not address the
timing of distributions of
principal of the Notes prior to
the Final Scheduled Distribution
Date. A 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
Agency. Each rating should be
evaluated independently of any
other rating. See "Risk Factors -
- Ratings of the Securities"
herein.
Rating of the Certificates . . . It is a condition to the issuance
of the Certificates that they be
rated at least in the " "
category or its equivalent by at
least one Rating Agency. The
rating of the Certificates by a
Rating Agency reflects such Rating
Agency's assessment of the
likelihood that the
Certificateholders will receive
payments of principal and
interest, however, the rating on
the Certificates does not address
the timing of the distributions of
principal in respect of the
Certificates prior to the Final
Scheduled Distribution Date. A
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 Agency. Each
rating should be evaluated
independently of any other rating.
See "Risk Factors -- Ratings of
the Securities" herein.
RISK FACTORS
Investors should consider, among other things, the matters discussed
under "Risk Factors" in the Prospectus and the following risk factors in
connection with purchases of the Notes and/or Certificates.
LIMITED LIQUIDITY; ABSENCE OF A SECONDARY MARKET. There is currently
no secondary market for the Securities. The Underwriter currently intends
to make a market in the Securities, but it 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 Securityholders with
liquidity of investment or that it will continue for the life of the
Securities offered hereby.
(GEOGRAPHIC CONCENTRATION. Economic conditions in states where
Obligors reside may affect the delinquency, loan loss and repossession
experience of the Trust with respect to the Receivables. Obligors on
Receivables representing approximately _____% by principal balance of the
Receivables were located in (__________________) at the Cut off Date. As a
result, economic conditions in such states may have a disproportionate
affect on prepayments and/or defaults in respect of the Receivables and thus
potentially adversely affect the amount available for distribution to the
Securityholders. In particular, an economic downturn in one or more of such
states could adversely affect the performance of the Trust as a whole (even
if national economic conditions remain unchanged or improve) as Obligors in
such state or states experience the effects of such a downturn and face
greater difficulty in making payments on their Financed Assets. See "The
Receivables Pool.")
SUBORDINATION OF THE CERTIFICATES TO THE NOTES. Distributions of
interest and principal on the Certificates will be subordinated in priority
of payment to interest and principal due on the Notes. Consequently, the
Certificateholders will not receive any distributions with respect to a
Collection Period until the full amount of interest on and principal of the
Notes due on such Distribution Date has been deposited in the Note
Distribution Account. The Certificateholders will not receive any
distributions of principal until the Distribution Date on which all of the
Notes have been paid in full.
LIMITED ASSETS OF THE 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 the Reserve Account. Holders of the Notes
and the Certificates must rely for repayment upon payments on the
Receivables and, if and to the extent available, amounts on deposit in the
Reserve Account. Although funds in the Reserve Account will be available on
each Distribution Date to cover shortfalls in distributions of interest and
principal on the Notes and 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 payments on the Notes and the Certificates.
RATINGS OF THE SECURITIES. It is a condition to the issuance of the
Securities that each class of the Notes be rated in the highest investment
rating category, and that the Certificates be rated at least in the " "
category or its equivalent, by at least one nationally recognized rating
agency (the "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 of the
Securities address the likelihood of the payment of principal and interest
on the Securities pursuant to their terms. 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.
THE TRUST
GENERAL
The Issuer, (____________________________________) Trust 199 -( ), is a
business trust formed under the laws of the State of (________) 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 than (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 equity of the Trust, together with the net proceeds from the sale
of the Notes, will be used by the Trust to purchase the Receivables from the
Depositor pursuant to the Sale and Servicing Agreement.
If the protection provided to the investment of 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 Assets which secure defaulted Receivables.
In such event, certain factors, such as the Trust's not having first
priority perfected security interests in some of the Financed Assets, 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 "Description of 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 in , ,
in care of ( ), as Owner Trustee, at the address
listed below under "-- The Owner Trustee".
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of
the Closing Date, as if the issuance and sale of the Notes and the
Certificates had taken place on such date:
Class ( ) Notes . . . . . . . . . . . . . . . . . . . . . . . .
Class ( ) Notes . . . . . . . . . . . . . . . . . . . . . . . .
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
===========
THE OWNER TRUSTEE
is the Owner Trustee under the Trust
Agreement. is a (state) banking
corporation and its principal offices are located at ,
, . The Depositor and its affiliates may
maintain normal commercial banking relations with the Owner Trustee and its
affiliates.
THE RECEIVABLES POOL
The pool of Receivables (the "Receivables Pool") will include only the
Receivables purchased on the Closing Date. The Receivables (will be)(have
been) purchased by the Depositor from the Seller which purchased the
Receivables, directly or indirectly, from Dealers in the ordinary course of
business and were selected from the Depositor's portfolio for inclusion in
the Receivables Pool by several criteria, some of which are set forth in the
Prospectus under "The Receivables Pools", as well as the requirement that,
as of the Cutoff Date, each Receivable (i) had an outstanding gross balance
of at least $ and (ii) was not more than 60 days past due (an account
is not considered past due if the amount past due is less than % of the
scheduled monthly payment). As of the Cutoff Date, no Obligor on any
Receivable was noted in the related records of the Seller as being the
subject of a bankruptcy proceeding. No selection procedures believed by the
Depositor to be adverse to Securityholders were used in selecting the
Receivables.
Set forth in the following tables is information concerning the
composition, distribution by annual percentage rate ("APR") and the
geographic distribution of the Receivables Pool as of the Cutoff Date.
( ) TRUST 199 -( )
COMPOSITION OF THE RECEIVABLES POOL
Weighted Weighted Weighted
Average Aggregate Average Average Average
APR or Principal Number of Remaining Original Principal
Receivables Balance Receivables Term Term Balance
- ----------- -------- ------------ --------- --------- ------------
- ------% $________ ________ ___months __months $_______
(______________________) TRUST 199 - ( )
DISTRIBUTION BY APR OF THE RECEIVABLES POOL
Percent of
Aggregate
Number of Aggregate Principal
APR Range Receivables Principal Balance Balance(1)
- ------------ ------------- ----------------- ---------------
0.00% - 5.00% . . . . $ %
5.01% - 6.00% . . . .
6.01% - 7.00% . . . .
7.01% - 8.00% . . . .
8.01% - 9.00%. . . .
9.01% - 10.00% . . . .
10.01% - 11.00%. . . .
11.01% - 12.00% . . .
12.01% - 13.00%. . . .
13.01% - 14.00% . . .
14.01% - 15.00%. . . .
15.01% - 16.00% . . .
16.01% - 17.00%. . . . .
17.01% - 18.00% . . .
Greater than 18.00% . . .
_______________
(1) Percentages may not add to 100.0% because of rounding.
(______________________) TRUST 199 -( )
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES POOL
PERCENTAGE
AGGREGATE
STATE(2) PRINCIPAL BALANCE(1)
- ---------- ------------------
_________
%
_______________
(1) Percentages may not add to 100.0% because of rounding.
(2) Based on physical addresses of the Obligors at the Cutoff Date.
Approximately % of the aggregate principal balance of the
Receivables, constituting % of the number of the Receivables, represent
previously titled vehicles.
By aggregate principal balance, approximately % of the receivables
are Precomputed Receivables and % of the Receivables are Simple Interest
Receivables. See "The Receivables Pools" in the Prospectus for a further
description of the characteristics of Precomputed Receivables and Simple
Interest Receivables.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning the experience of the
Seller pertaining to retail new and used automobile and light-duty truck
receivables, including those previously sold which the Servicer continues to
service. There can be no assurance that the delinquency, repossession and
net loss experience on the Receivables will be comparable to that set forth
below.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION> AT DECEMBER 31, AT ____________________,
199 199 199 199
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio . . . . $ $ $ $
Period of
Delinquency
31-60 Days . .
61 Days or More
Total $ $ $ $
Delinquencies . .
Total
Delinquencies
as a Percent of % % % % % % % %
the
Portfolio . . .
</TABLE>
<TABLE>
<CAPTION> AT DECEMBER 31,
199 199 199
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Portfolio . . . . . . . $ $ $
Period of Delinquency
31-60 Days . . . . .
61 Days or More . . .
Total Delinquencies . .
Total Delinquencies
as a Percent of the
Portfolio . . . . . . % % % % % %
</TABLE>
_______________
(1) All amounts and percentages are based on the gross amount scheduled
to be paid on each contract, including unearned finance and other
charges. The information in the table includes an immaterial
amount of retail installment sale contracts on vehicles other than
automobiles and light duty trucks and includes previously sold
contracts which the Servicer continues to service.
CREDIT LOSS/REPOSSESSION EXPERIENCE(1)
<TABLE>
<CAPTION> _____________ ENDED
March , YEAR ENDED DECEMBER
31,
199 199 199 199 199 199 199
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Average Amount Outstanding
During the Period . . . . . . . $ $ $ $ $ $ $
Average Number of Contracts
Outstanding During the Period .
Percent of Contracts Acquired
During the % % % % % % %
Period with Recourse to the
Dealer . . . . . . . . . . . . .
Repossessions as a Percent of
Average % % % % % % %
Number of Contracts Outstanding
Net Losses as a Percent of
Liquidations(3)(4) . . . . . . % % % % % % %
Net Losses as a Percent of
Average % % % % % % %
Amount Outstanding(2)(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. The information in the table
includes previously sold contracts that the Servicer continues to
service.)
(2) Percentages have been annualized for the _____ months ended
____________, 199 and 199 and are not necessarily indicative of
the experience for the year.
(3) (Net losses are equal to the aggregate of the balances of all
contracts which are determined to be uncollectible in the period,
less any recoveries on contracts charged off in the period or any
prior periods, including any losses resulting from disposition
expenses and any losses resulting from the failure to recover
commissions to dealers with respect to contracts that are prepaid
or charged off.)
(4) Liquidations represent a reduction in the outstanding balances of
the contracts as a result of monthly cash payments and charge-offs.
(The net loss figures above reflect the fact that Seller had recourse to
Dealers on a portion of its retail installment sale contracts. By aggregate
principal balance, approximately % of the Receivables represent
contracts with recourse to Dealers. The Seller applies underwriting
standards to the purchase of contracts without regard to whether recourse to
Dealers is provided. However, the net loss experience of contracts without
recourse against Dealers is higher than that of contracts with recourse
against Dealers because, under its recourse obligation, the Dealer is
responsible to the Seller for payment of the unpaid balance of the contract,
provided that the Seller repossesses the vehicle or boat from the retail
buyer and returns it to the Dealer within a specified time. In the event of
a Dealer's bankruptcy, a bankruptcy trustee might attempt to characterize
recourse sales of contracts as loans to the Dealer secured by the contracts.
Such an attempt, if successful, could result in payment delays or losses on
the affected Receivables.)
THE SELLER
(DESCRIPTION OF SELLER AND ITS UNDERWRITING AND SERVICING STANDARDS)
THE SERVICER
(DESCRIPTION OF SERVICER AND ITS SERVICING STANDARDS)
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. No principal payments will be made on the
Class ( ) Notes until all Class ( ) Notes have been paid in full. In
addition, no principal payments on the Certificates will be made until all of
the Notes have been paid in full. See "Description of the Notes -- Payments
of Principal" and "Description of the Certificates -- Distributions of
Principal Payments" herein. As the rate of payment of principal of each class
of Notes and the Certificates depends primarily on the rate of payment
(including prepayments) of the principal balance of the Receivables, final
payment of any class of the Notes and the final distribution in respect of
the Certificates could occur significantly earlier than their respective
final scheduled Distribution Dates. In addition, the rate of payment of
principal of each class of Notes will be affected by the Accelerated
Principal Distribution Amounts applied to the payment of the principal of the
Notes. Securityholders will bear the risk of being able to reinvest
principal payments on the Securities at yields at least equal to the yields
on their respective Securities.
DESCRIPTION OF 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 certain terms of the Notes
and the Indenture. The summary does not purport to be complete and 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, and to the extent inconsistent therewith, replaces the
description of the general terms and provisions of the Notes of any given
series and the related Indenture set forth in the Prospectus, to which
description reference is hereby made. , a
, will be the Indenture Trustee under the Indenture.
PAYMENTS OF INTEREST
The Notes will constitute Floating Rate Securities, as such term is
defined under "Certain Information Regarding the Securities -- Floating Rate
Securities" in the Prospectus. The Base Rate with respect to the Notes will
be ( ). Interest on the principal balances of the classes of the Notes
will accrue at their respective per annum Interest Rates and will be payable
to the Noteholders monthly on each Distribution Date, commencing
, 199 . Interest on the outstanding principal amount of the Notes (other than
the Class ( ) Notes) will accrue at the applicable Interest Rate from the
Closing Date (in the case of the first Distribution Date) or from the
day of the month preceding the month of a Distribution Date to and
including the day of the month of the Distribution Date (each an
"Interest Accrual Period"). Interest on the outstanding principal amount of
the Class ( ) Notes will accrue at the Class ( ) Rate from the Closing Date
(in the case of the first Distribution Date) or from the most recent
Distribution Date on which interest has been paid to but excluding the
following Distribution Date (each, a "Floating Rate Interest Accrual
Period"). Interest on the Notes (other than the Class ( ) Notes) will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Interest on the Class ( ) Notes will be calculated on the basis of the
actual number of days in each applicable Floating Rate Interest Accrual
Period divided by 360. 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 "Description of the Transfer
and Servicing Agreements -- Distributions" and "-- Reserve Account" herein.
Interest payments to all classes of Noteholders will have the same
priority. Under certain circumstances, the amount available for interest
payments could be less than the amount of interest payable on the Notes on
any Distribution Date, in which case each class of Noteholders will receive
their ratable share (based upon the aggregate amount of interest due to such
class of Noteholders) of the aggregate amount available to be distributed in
respect of interest on the Notes.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each Distribution
Date in an amount generally equal to the sum of (i) the Regular Principal
Distribution Amount plus (ii) the Accelerated Principal Distribution Amount.
The "Regular Principal Distribution Amount" with respect to any Distribution
Date will equal the sum of principal payments received with respect to the
Receivables during the preceding Collection Period or, in certain cases,
scheduled to be paid during such Collection Period (exclusive of Payaheads
allocable to principal that have not been applied as payments under the
related Receivables in such Collection Period and inclusive of Payaheads
allocable to principal that have been applied as payments under the related
Receivables in such Collection Period) plus the principal balances of
defaulted Receivables written off in respect of such Collection Period,
subject to certain limitations. The "Accelerated Principal Distribution
Amount" with respect to any Distribution Date will equal the portion, if any,
of the Total Distribution Amount for the related Collection Period that
remains after payment of (a) the Servicing Fee, (b) the Noteholders' Interest
Distributable Amount, (c) the Regular Principal Distribution Amount, (d) the
Certificateholders' Interest Distributable Amount, and (e) the amount, if
any, required to be deposited in the Reserve Account on such Distribution
Date. Principal payments on the Notes will generally be derived from the
Total Distribution Amount and the amount, if any, in the Reserve Account up
to the Available Amount remaining after the payment of the Servicing Fee and
the Noteholders' Interest Distributable Amount and, in the case of any
Accelerated Principal Distribution Amount, the Certificateholders' Interest
Distributable Amount and the amount, if any, required to be deposited into
the Reserve Account. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Reserve Account" herein.
On the Business Day immediately preceding each Distribution Date (a
"Determination Date"), the Indenture Trustee shall determine the amount in
the Collection Account for the related Collection Period allocable to
interest and the amount allocable to principal on an actual basis, and
payments to Securityholders on the following Distribution Date will be based
on such allocation.
On each Distribution Date, principal payments on the Notes will be
applied in the following order of priority: (i) to the principal balance of
the Class ( ) Notes until the principal balance of the Class ( ) Notes is
reduced to zero; and (ii) to the principal balance of the Class ( ) Notes
until the principal balance of the Class ( ) Notes is reduced to zero. The
principal balance of the Class ( ) Notes, to the extent not previously paid,
will be due on the Class ( ) Final Scheduled Distribution Date; and the
principal balance of the Class ( ) Notes, to the extent not previously paid,
will be due on the Class ( ) Final Scheduled Distribution Date. The actual
date on which the aggregate outstanding principal amount of any class of
Notes is paid may be earlier than the respective Final Scheduled Distribution
Dates set forth above based on a variety of factors, including those
described under "Weighted Average Life of the Securities" herein and in the
Prospectus.
OPTIONAL REDEMPTION
The Class ( ) Notes will be redeemed in whole, but not in part, on any
Distribution Date after all the other classes of Notes have been paid in full
on which the Servicer exercises its option to purchase the Receivables. The
Servicer will have the option to purchase all, but not less than all, of the
Receivables on any Distribution Date on or after the Distribution Date on
which the Pool Balance has declined to ( )% or less of the Initial Pool
Balance. The price at which the Servicer will be required to purchase the
Receivables in order to exercise such option will be equal to the aggregate
of the Purchase Amounts of the Receivables as of the end of the related
Collection Period. The Servicer will be required to give not less than ( )
days notice to the Trustee of its intention to exercise such option. In
addition, the Servicer will not be permitted to exercise such option unless
the resulting distribution would be sufficient to retire the Notes at a
redemption price equal to the unpaid principal amount of such Notes plus
accrued and unpaid interest thereon (the "Redemption Price"). See
"Description of the Transfer and Servicing Agreements -- Termination" in the
Prospectus.
DESCRIPTION OF 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
certain terms of the Certificates and the Trust Agreement. The summary does
not purport to be complete and 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, and to the extent inconsistent
therewith replaces, 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.
DISTRIBUTIONS OF INTEREST INCOME
On each Distribution Date, commencing , (199 )(20 ) , the
Certificateholders will be entitled to distributions in an amount equal to
the amount of interest that would accrue on the Certificate Balance at the
Pass Through Rate. The Certificates will constitute Fixed Rate Securities,
as such term is defined under "Certain Information Regarding the
Securities -- Fixed Rate Securities" in the Prospectus. Interest in respect
of a Distribution Date will accrue from the Closing Date (in the case of the
first Distribution Date) or from the day of the month preceding
the month of the Distribution Date to and including the day of the
month of such Distribution Date. Interest in respect of the Certificates
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months. Interest distributions due for any Distribution Date but not
distributed on such Distribution Date will be due on the next Distribution
Date increased by an amount equal to interest on such amount at the Pass
Through Rate (to the extent lawful). Interest distributions with respect to
the Certificates will generally be funded from the portion of the Total
Distribution Amount and the funds in the Reserve Account remaining after the
distribution of the Servicing Fee and the Noteholders' Distributable Amount.
See "Description of the Transfer and Servicing Agreements -- Distributions"
and "-- Reserve Account" herein.
DISTRIBUTIONS OF PRINCIPAL PAYMENTS
Certificateholders will be entitled to distributions of principal on
each Distribution Date, commencing with the Distribution Date on which the
Notes are paid in full, in an amount generally equal to the Regular Principal
Distribution Amount (less, on the Distribution Date on which the Notes are
paid in full, the portion thereof payable on the Notes). Distributions with
respect to principal payments will generally be funded from the portion of
the Total Distribution Amount and funds in the Reserve Account remaining
after the distribution of the Servicing Fee, the Noteholders' Distributable
Amount (on the Distribution Date on which the Notes are paid in full) and the
Certificateholders' Interest Distributable Amount. See "Description of the
Transfer and Servicing Agreements -- Distributions" and "-- Reserve Account".
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables, the
terms of which option are described under "Description of the Notes --
Optional Redemption" herein, the Certificates will be retired. The Servicer
will not be permitted to exercise such option unless the resulting
distribution to the Certificateholders would be equal to the outstanding
Certificate Balance together with accrued interest at the Pass Through Rate.
See "Description of the Transfer and Servicing Agreements -- Termination" in
the Prospectus.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and Servicing
Agreement, the Administration 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 Sale and Servicing Agreement will be filed with the Commission
following the issuance of the Securities. The summary does not purport to be
complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Transfer and Servicing Agreements. The following
summary supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Transfer and Servicing
Agreements set forth in the Prospectus, to which description reference is
hereby made.
SALE AND ASSIGNMENT OF RECEIVABLES
Certain information regarding the conveyance of the Receivables by the
Depositor to the Trust on the Closing Date pursuant to the Sale and Servicing
Agreement is set forth in the Prospectus under "Description of the Transfer
and Servicing Agreements -- Sale and Assignment of Receivables".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee Rate with respect to the Servicing Fee for the
Servicer will be % per annum of the Pool Balance as of the first day of
---
the related Collection Period. The Servicing Fee in respect of a Collection
Period (together with any portion of the Servicing Fee that remains unpaid
from prior Distribution Dates) will be paid at the beginning of such
Collection Period out of collections for such Collection Period. See
"Description of the Transfer and Servicing Agreements -- Servicing
Compensation and Payment of Expenses" in the Prospectus.
DISTRIBUTIONS
DEPOSITS TO COLLECTION ACCOUNT. On or before each Distribution Date,
the Servicer will cause all collections and other amounts constituting the
Total Distribution Amount to be deposited into the Collection Account. The
"Total Distribution Amount" for a Distribution Date shall be the sum of the
Interest Distribution Amount and the Regular Principal Distribution Amount
(other than 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" on any Distribution Date will
generally be the sum of the following amounts with respect to the preceding
Collection Period: (i) that portion of all collections on the Receivables
(including Payaheads) allocable to interest plus that portion of Payaheads
allocable to principal (less an amount equal to Payaheads, if any, that have
been returned to the related Obligors during such Collection Period);
(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 ("Liquidation Proceeds"), to the
extent attributable to interest due thereon in accordance with the Servicer's
customary servicing procedures, and all recoveries in respect of Liquidated
Receivables which were written off in prior Collection Periods; (iii) all
Advances made by the Servicer of interest due on the Receivables; (iv) the
Purchase Amount of each Receivable that was repurchased by the Depositor and
simultaneously, repurchased by the Seller or purchased by the Servicer under
an obligation which arose during the related Collection Period, to the extent
attributable to accrued interest thereon; and (v) Investment Earnings for
such Distribution Date. The Interest Distribution Amount shall be determined
on the related Determination Date on an actual basis.
The "Regular Principal Distribution Amount" on any Distribution Date
will generally be the sum of the following amounts with respect to the
preceding Collection Period: (i) that portion of all collections on the
Receivables (exclusive of Payaheads allocable to principal that have not been
applied as payments under the related Receivables in such Collection Period
and inclusive of Payaheads allocable to principal that have been applied as
payments under the related Receivables in such Collection Period) allocable
to principal; (ii) all Liquidation Proceeds attributable to the principal
amount of Receivables which became Liquidated Receivables during such
Collection Period in accordance with the Servicer's customary servicing
procedures, plus the amount of Realized Losses with respect to such
Liquidated Receivables; (iii) all Precomputed Advances made by the Servicer
of principal due on the Precomputed Receivables; (iv) to the extent
attributable to principal, the Purchase Amount received with respect to each
Receivable repurchased by the Seller or purchased by the
Servicer under an obligation which arose during the related Collection
Period; (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 Distribution Date immediately following the Final Scheduled
Maturity Date (the "Final Scheduled Distribution Date"), any amounts advanced
by the Servicer with respect to principal on the Receivables. The Regular
Principal Distribution Amount shall be determined on the related
Determination Date on an actual basis.
The Interest Distribution Amount and the Regular Principal Distribution
Amount on any Distribution Date shall exclude the following:
(i) amounts received 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 Purchase 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 preceding 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) but only to
the extent of any unreimbursed Simple Interest Advances.
DEPOSITS TO THE DISTRIBUTION ACCOUNTS. At the beginning of each
Collection Period, the Indenture Trustee will apply funds available in the
Collection Account to pay to the Servicer the Servicing Fee for such
Collection Period and any overdue Servicing Fees. On each Distribution Date,
the Servicer will instruct the Indenture Trustee to make the following
deposits and distributions, to the extent of the amount then on deposit in
the Collection Account, in the following order of priority:
(i) to the Servicer, from the Interest Distribution Amount (as so
allocated) the Servicing Fee and all unpaid Servicing Fees from prior
Collection Periods, to the extent, if any, such amounts are not paid at
the beginning of the related Collection Period;
(ii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the payment of the Servicing Fee for such
Collection Period and all unpaid Servicing Fees from prior Collection
Periods, 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) after all of the Notes have been paid in full, to the
Certificate Distribution Account, from the Total Distribution Amount
remaining after the application of clauses (i) through (iv), the
Certificateholders' Principal Distributable Amount; and
(vi) the remaining balance, if any, to the Reserve Account.
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, interest accrued for the related
Interest Accrual Period or Floating Rate Interest Accrual Period, as
applicable, on each class of Notes at the respective Interest Rate for
such class 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, the excess of the Noteholders' Monthly Interest
Distributable Amount for the preceding Distribution Date and any
outstanding Noteholders' Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that is
actually deposited in the Note Distribution Account on such preceding
Distribution Date, plus interest on the amount of interest due but not
paid to Noteholders on the preceding Distribution Date, to the extent
permitted by law, at the respective Interest Rates borne by each class
of the Notes for the related Interest Accrual Period or Floating Rate
Interest Accrual Period, as applicable.
"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; and provided, further, that (i) the Noteholders' Principal
Distributable Amount on the Class ( ) Final Scheduled Distribution Date
shall not be less than the amount that is necessary (after giving effect
to 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 ( ) Notes to zero; and
(ii) the Noteholders' Principal Distributable Amount on the Class ( )
Final Scheduled Distribution Date shall not be less than the amount that
is necessary (after giving effect to 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 ( )
Notes to zero.
"Noteholders' Monthly Principal Distributable Amount" means, with
respect to each Distribution Date, the sum of (i) the Regular Principal
Distribution Amount and (ii) the Accelerated Principal Distribution
Amount.
"Noteholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Noteholders' Monthly
Principal Distributable Amount and any outstanding Noteholders'
Principal Carryover Shortfall from the preceding Distribution Date over
the amount in respect of principal that is actually deposited in the
Note Distribution Account.
"Certificateholders' Distributable Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Principal
Distributable Amount and the Certificateholders' Interest Distributable
Amount.
"Certificateholders' Interest Distributable Amount" means, with
respect to any Distribution Date, the sum of the Certificateholders'
Monthly Interest Distributable Amount for such Distribution Date and the
Certificateholders' Interest Carryover Shortfall for such Distribution
Date.
"Certificateholders' Monthly Interest Distributable Amount" means,
with respect to any Distribution Date, 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, calculated on
the basis of a 360-day year consisting of twelve 30-day months) at the
Pass Through Rate on the Certificate Balance on the immediately
preceding Distribution Date, after giving effect to all payments
allocable to the reduction of the Certificate Balance made on or prior
to such Distribution Date (or, in the case of the first Distribution
Date, on the Closing Date).
"Certificateholders' Interest Carryover Shortfall" means, with
respect to any Distribution Date, the excess of the Certificateholders'
Monthly Interest Distributable Amount for the preceding Distribution
Date and any outstanding Certificateholders' Interest Carryover
Shortfall on such preceding Distribution Date, over the amount in
respect of interest that is actually deposited in the Certificate
Distribution Account on such preceding Distribution Date, plus interest
on such excess, to the extent permitted by law, at the Pass Through Rate
for the related Interest Accrual Period.
"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 deposited into the Certificate
Distribution Account 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 Distribution 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, the Regular Principal Distribution Amount (less, on
the Distribution Date on which the Notes are paid in full, the portion
thereof payable on 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.
"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 (other than Investment Earnings) will be generally 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) the Noteholders' Principal Distributable Amount in the
following order of priority:
(a) to the Class ( ) Noteholders in reduction of principal
until the principal balance of the Class ( ) Notes has been
reduced to zero; and
(b) to the Class ( ) Noteholders in reduction of principal
until the principal balance of the Class ( ) 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 rights of the Certificateholders to receive distributions with
respect to the Receivables generally will be subordinated to the rights of
the Noteholders in the event of defaults and delinquencies on the Receivables
as provided in the Sale and Servicing Agreement. The protection afforded to
the Noteholders through subordination will be effected both by the
preferential right of the Noteholders to receive current distributions with
respect to the Receivables and by the establishment of the Reserve Account.
The Reserve Account will be created with an initial deposit by the (________)
on the Closing Date of cash or Eligible Investments in the amount of $
.
(DESCRIBE RESERVE ACCOUNT FORMULA)
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits therein or other withdrawals therefrom
on such Distribution Date) is greater than the Specified Reserve Account
Balance for such Distribution Date, except as described below and subject to
certain limitations, the Servicer shall instruct the Indenture Trustee to
distribute such excess to the Depositor. Upon any distribution to the
Depositor of amounts from the Reserve Account, neither the Noteholders nor
the Certificateholders will have any rights in, or claims to, such amounts.
Subsequent to any reduction or withdrawal by any Rating Agency of its rating
of any class of Notes, unless such rating has been restored, any such excess
released from the Reserve Account on a Distribution Date will be deposited in
the Note Distribution Account for payment to Noteholders as an accelerated
payment of principal on such Distribution Date.
Amounts held from time to time in the Reserve Account will continue to
be held for the benefit of Noteholders and Certificateholders. On each
Distribution Date, funds will be withdrawn from the Reserve Account up to the
Available Amount 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 in the Note
Distribution Account. In addition, after giving effect to such withdrawal,
funds will be withdrawn from the Reserve Account up to the Available Amount
(as reduced by any withdrawal pursuant to the preceding sentence) 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 in the Note Distribution Account is less than the
Certificateholders' Distributable Amount and will be deposited in the
Certificate Distribution Account. If funds applied in accordance with the
preceding sentence are insufficient to distribute interest due on the
Certificates, subject to certain limitations, funds will be withdrawn from
the Reserve Account and applied to distribute interest due on the
Certificates to the extent of the Certificate Interest Reserve Amount. On
each Distribution Date, the Reserve Account will be reinstated up to the
Specified Reserve Account Balance to the extent of the portion, if any, of
the Total Distribution Amount remaining after payment of the Servicing Fee,
the deposit of the Noteholders' Distributable Amount into the Note
Distribution Account and the deposit of the Certificateholders' Distributable
Amount into the Certificate Distribution Account.
"Available Amount" means, with respect to any Distribution Date, the
amount of funds on deposit in the Reserve Account on such Distribution Date
(other than Investment Earnings) less the Certificate Interest Reserve Amount
with respect to such Distribution Date, in each case, before giving effect to
any reduction thereto on such Distribution Date.
"Certificate Interest Reserve Amount" means the lesser of (i) $
less the amount of any application of the Certificate Interest Reserve
Amount to pay interest on the Certificates on any prior Distribution Date and
(ii) % of the Certificate Balance on such Distribution Date (before
giving effect to any reduction thereof on such Distribution Date); provided,
however, that the Certificate Interest Reserve Amount shall be zero
subsequent to any reduction by any Rating Agency to less than " " or its
equivalent, or withdrawal by any Rating Agency, of its rating of any class of
Notes, unless such rating has been restored.
If on any Distribution Date the entire Noteholders' Distributable Amount
for such Distribution Date (after giving effect to any amounts withdrawn from
the Reserve Account) is not deposited in the Note
Distribution Account, the Certificateholders generally will not receive any
distributions other than those, if any, in respect of interest made from the
Certificate Interest Reserve Amount.
After the payment in full, or the provision for such payment, of (i) all
accrued and unpaid interest on the Securities and (ii) the outstanding
principal balance of the Securities, any funds remaining on deposit in the
Reserve Account, subject to certain limitations, will be paid to the
Depositor.
The subordination of the Certificates and the Reserve Account are
intended to enhance the likelihood of receipt by Noteholders of the full
amount of principal and interest due them and to decrease the likelihood that
the Noteholders will experience losses. In addition, the Reserve Account is
intended to enhance the likelihood of receipt by Certificateholders of the
full amount of principal and interest due them and to decrease the likelihood
that the Certificateholders will experience losses. However, in certain
circumstances, the Reserve Account could be depleted. If the amount required
to be withdrawn from the Reserve Account to cover shortfalls in collections
on the Receivables exceeds the amount of available cash in the Reserve
Account, Noteholders or Certificateholders could incur losses or 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.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP federal income tax counsel for the
Trust, for federal income tax purposes, the Notes will be characterized as
debt, and the Trust will not be characterized as an association (or a
publicly traded partnership) taxable as a corporation. The Notes, including
the Class ( ) Notes, will not be issued with original issue discount
("OID"). (The Class ( ) Notes provide for stated interest at a floating
rate based on __________, subject to a cap of % per year.) Under Treasury
regulations, stated interest payable at a variable rate is not treated as OID
or contingent interest if the variable rate is a qualified floating rate or a
qualifying objective rate. The stated interest on the Class ( ) Notes
represents interest payable at a qualified floating rate and thus will be
taxable to holders of Class ( ) Notes as interest and not as OID or
contingent interest. For additional information regarding federal income tax
consequences in respect of the Securities, see "Federal Income Tax
Consequences" in the Prospectus.
ERISA CONSIDERATIONS
THE NOTES
The Notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to ERISA or Section 4975 of the Code.
A fiduciary of a Plan must determine that the purchase of an 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 Notes may not be purchased with the assets of a Plan if the Seller,
the Indenture Trustee, the Owner Trustee or any of their affiliates (a) has
investment or administrative discretion with respect to such Plan assets;
(b) has authority or responsibility to give, or regularly gives, investment
advice with respect to such Plan assets for a fee and pursuant to an
agreement or understanding that such advice (i) will serve as a primary basis
for investment decisions with respect to such Plan assets and (ii) will be
based on the particular investment needs for such Plan; or (c) is an employer
maintaining or contributing to such Plan.
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)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity or which uses plan assets to acquire Certificates.
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. In this regard, purchasers that are insurance
companies should consult with their counsel with respect to the United States
Supreme Court case interpreting the fiduciary responsibility rules of ERISA,
John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114 S.
- --------------------------------------------------------
Ct. 517 (1993). In John Hancock, the Supreme Court ruled that assets held
------------
in an insurance company's general account may be deemed to be "plan assets"
for ERISA purposes under certain circumstances. Prospective purchasers
should determine whether the decision affects their ability to make purchases
of the Certificates. In particular, such an insurance company should
consider the exemptive relief granted by the Department of Labor for
transactions involving insurance company general accounts in Prohibited
Transactions Exemption 95-60, 60 Fed. Reg. 35925 (July 12, 1995). 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 Underwriting
Agreement (the "Underwriting Agreement"), the Depositor has agreed to cause
the Trust to sell to the Underwriter, and the Underwriter has agreed to
purchase, the entire principal amount of the Notes and the Certificates.
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Notes to the public at the prices set forth herein,
and to certain dealers at such prices less the initial concession not in
excess of % per Class ( ) Note and % per Class ( ) Note. The
Underwriter may allow and such dealers may reallow a concession not in excess
of % per Class ( ) Note and % per Class ( ) Note to certain other
dealers. After the initial public offering of the Notes, the public offering
price and such concessions may be changed.
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Certificates to the public at the price set forth
herein and to certain dealers at such price less the initial concession not
in excess of % per Certificate. The Underwriter may allow and such
dealers may reallow a concession not in excess of % per Certificate to
certain other dealers. After the initial public offering of the
Certificates, the public offering price and such concessions may be changed.
Until the distribution of the Notes and Certificates is completed, rules
of the Commission may limit the ability of the Underwriter and certain
selling group members to bid for and purchase the Notes and Certificates. As
an exception to these rules, the Underwriter is permitted to engage in
certain transactions that stabilize the price of the Notes and Certificates.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Certificates.
If the Underwriter creates a short position in the Notes and
Certificates in connection with the offering, i.e., if it sells more Notes
and Certificates than are set forth on the cover page of this Prospectus
Supplement, the Underwriter may reduce that short position by purchasing
Notes and Certificates in the open market.
In general, the purchase of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases.
Neither the Depositor nor any Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Notes and
Certificates. In addition, Neither the Depositor nor any Underwriter makes
any representation that the Underwriter will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Underwriter has represented and agreed that (a) it has not offered
or sold, and will not offer or sell, any Notes to persons in the United
Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
that do not constitute an offer to the public in the United Kingdom for the
purposes of the Public Offers of Securities Regulations 1995, (b) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 of Great Britain with respect to anything done by it in
relation to the Notes in, from or otherwise involving the United Kingdom and
(c) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document in connection with the issue of the Notes to a
person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person
to whom the document may otherwise lawfully be issued or passed on.
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 Seller or
the Underwriter will promptly deliver, or cause to be delivered, without
charge, a paper copy of the Prospectus Supplement and Prospectus.
LEGAL OPINIONS
Certain legal matters relating to the Notes and the Certificates and
certain federal income tax matters will be passed upon for the Depositor by
Brown & Wood LLP, New York, New York. (Certain legal matters relating to the
Notes and the Certificates will be passed upon for the Underwriter by Brown &
Wood LLP.)
INDEX OF TERMS
Accelerated Principal Distribution Amount . . . . . . . . . . . . S-3,S-14
APR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Available Amount . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Certificate Interest Reserve Amount . . . . . . . . . . . . . . . . . S-20
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Certificateholders' Distributable Amount . . . . . . . . . . . . . . S-18
Certificateholders' Interest Carryover Shortfall . . . . . . . . . . S-19
Certificateholders' Interest Distributable Amount . . . . . . . . . . S-18
Certificateholders' Monthly Interest Distributable Amount . . . . . . S-19
Certificateholders' Monthly Principal Distributable Amount . . . . . S-19
Certificateholders' Principal Carryover Shortfall . . . . . . . . . . S-19
Certificateholders' Principal Distributable Amount . . . . . . . . . S-19
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-1
Class ( ) Final Scheduled Distribution Date . . . . . . . . . . . . . S-4
Class ( ) Notes . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-1
Class ( ) Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Class ( ) Final Scheduled Distribution Date . . . . . . . . . . . . . S-4
Class ( ) Notes . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-1
Class ( ) Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-1
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-2
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Final Scheduled Distribution Date . . . . . . . . . . . . . . . . . . S-17
Final Scheduled Maturity Date . . . . . . . . . . . . . . . . . . . . . S-2
Floating Rate Interest Accrual Period . . . . . . . . . . . . . S-3,S-13
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Initial Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Interest Accrual Period . . . . . . . . . . . . . . . . . . . . . S-3,S-13
Interest Distribution Amount . . . . . . . . . . . . . . . . . . . . S-16
Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Liquidated Receivables . . . . . . . . . . . . . . . . . . . . . . . S-16
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . S-16
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Noteholders' Distributable Amount . . . . . . . . . . . . . . . . . . S-18
Noteholders' Interest Carryover Shortfall . . . . . . . . . . . . . . S-18
Noteholders' Interest Distributable Amount . . . . . . . . . . . . . S-18
Noteholders' Monthly Interest Distributable Amount . . . . . . . . . S-18
Noteholders' Monthly Principal Distributable Amount . . . . . . . . . S-18
Noteholders' Principal Carryover Shortfall . . . . . . . . . . . . . S-18
Noteholders' Principal Distributable Amount . . . . . . . . . . . S-3,S-18
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-1
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Realized Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Receivables Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Regular Principal Distribution Amount . . . . . . . . . . . . S-3,S-14,S-16
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . S-2
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-1
Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Transfer and Servicing Agreements . . . . . . . . . . . . . . . . . . S-15
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-1
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Underwriter(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . S-22
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE DEPOSITOR OR BY THE UNDERWRITER(S). THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN
ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS.
___________________
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Reports to Securityholders . . . . . . . . . . . . . . . . . . . . . . Cover
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Capitalization of the Trust . . . . . . . . . . . . . . . . . . . . . . . S-9
The Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
The Receivables Pool . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Delinquencies, Repossessions and Net Losses . . . . . . . . . . . . . . S-11
The Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
The Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Weighted Average Life of the Securities . . . . . . . . . . . . . . . . S-13
Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . S-13
Description of the Certificates . . . . . . . . . . . . . . . . . . . . S-15
Description of the Transfer and Servicing Agreements . . . . . . . . . S-15
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . S-21
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-22
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Index of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
PROSPECTUS
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Receivables Pools . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Weighted Average Life of the Securities . . . . . . . . . . . . . . . . . 19
Pool Factors and Trading Information . . . . . . . . . . . . . . . . . . 20
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
The Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . . 21
Description of the Certificates . . . . . . . . . . . . . . . . . . . . . 25
Certain Information Regarding the Securities . . . . . . . . . . . . . . 26
Description of the Transfer and Servicing Agreements . . . . . . . . . . 35
Certain Legal Aspects of the Receivables . . . . . . . . . . . . . . . . 43
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 47
State Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . 61
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Index of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES OFFERED BY THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS UNDERWRITER(S) AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
____________________
____________________
____________________
____________________
$( )
(___________________________) TRUST
199 -( )
$
(FLOATING RATE)( %)
ASSET BACKED NOTES, CLASS ( )
$
(FLOATING RATE)( %)
ASSET BACKED NOTES, CLASS ( )
$
(FLOATING RATE)( %)
ASSET BACKED CERTIFICATES
ML ASSET BACKED CORPORATION
DEPOSITOR
____________________
PROSPECTUS SUPPLEMENT
____________________
Merrill Lynch & Co.
____________________
, 199
____________________
____________________
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 prospectus to which it
relates 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.
Version B
Subject to completion, dated March 16, 1998
PROSPECTUS SUPPLEMENT
---------------------
(To Prospectus dated , 199__)
$( )
__________________ TRUST 199 -( )
( %) ASSET BACKED CERTIFICATES, CLASS A
( %) ASSET BACKED CERTIFICATES, CLASS B
ML Asset Backed Corporation, DEPOSITOR
__________________________________, SERVICER
____________________
The Asset Backed Certificates, Series 199_-_ (the "Certificates") will
consist of two Classes of Certificates, the Class A Certificates and the
Class B Certificates. The Class A Certificates will evidence in the
aggregate an undivided ownership interest of approximately ___% in a trust
(the "Trust") to be formed pursuant to a Pooling and Servicing Agreement to
be entered into among ML Asset Backed Corporation, as Depositor (the
"Depositor"), _______________________, as Servicer (the "Servicer"), and
_____________________, as Trustee (the "Trustee"). The Class B Certificates
will evidence in the aggregate an undivided ownership interest of
approximately ___% in the Trust. The rights of the Class B
Certificateholders to receive distributions with respect to the Receivables
are subordinated to the rights of the Class A Certificateholders, to the
extent described herein. The Trust property will include a pool of retail
installment sale contracts or retail installment loans (the "Receivables")
secured by new or used automobiles, light-duty trucks, recreational vehicles
and recreational sport and power boats (including any boat motors and
accompanying trailers) and yachts (both power and sail) (the "Financed
Assets"), all monies due thereunder on or after __________, security
interests in the Financed Assets and certain other property.
Principal, and interest to the extent of the Pass-Through Rate of ___%
per annum, will be distributed on the __th day of each month (or the next
following business day) beginning ________, 199_ (the "Distribution Date").
The Final Scheduled Distribution Date on the Certificates will be __________.
(Cover continued on following page)
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN ML ASSET BACKED CORPORATION, THE
SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NONE OF THE CERTIFICATES OR
THE RECEIVABLES ARE INSURED OR GUARANTEED BY 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.
<TABLE>
<CAPTION> ORIGINAL
PRINCIPAL PRICE TO UNDERWRITING PROCEEDS TO THE
AMOUNT PUBLIC(1) DISCOUNT DEPOSITOR(1)(2)
<S> <C> <C> <C> <C>
Class A Certificate . $ % % %
Class B Certificate . % % %
Total $ $ $ $
</TABLE>
- --------------
(1) Plus accrued interest, if any, from , 199 .
(2) Before deducting expenses, estimated to be $ .
The Certificates are offered by Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Underwriter") subject to prior sale and subject to
approval of certain legal matters by its counsel and certain other
conditions. It is expected that when, as and if issued and accepted by the
Underwriter the Certificates will be delivered in book-entry form only
through the facilities of The Depository Trust Company(, Cedel Bank, soci t
anonyme, and the Euroclear System) against payment therefor in immediately
available funds on or about , 199 .
____________________
Merrill Lynch & Co.
____________________
The date of this Prospectus Supplement is ____________, 199_.
(Continued from previous page)
The Servicer may purchase the Receivables when the aggregate principal
balance of the Receivables shall have declined to (__%) or less of the
initial aggregate principal balance of the Receivables purchased by the
Trust.
(This Prospectus Supplement may be used by the Underwriter, an affiliate
of the Seller and the Servicer, in connection with offers and sales related
to market making transactions in the Securities.)
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE S-6 HEREIN AND ON PAGE 12 IN THE ACCOMPANYING
PROSPECTUS.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF 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 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.
Certain persons participating in this offering may engage in
transactions that stabilize, maintain, or otherwise affect the price of the
Certificates. Such transactions may include stabilizing and the purchase of
Certificates to cover syndicate short positions. For a description of these
activities, see "Underwriting" herein.
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.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holder of the Certificates. See "Description of the Certificates --
Book-Entry Registration" and "-- Reports to Certificateholders" in the
accompanying Prospectus (the "Prospectus"). Such reports will not constitute
financial statements prepared in accordance with generally accepted
accounting principles. 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.
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 . . . . . . . . . . . . . _______________ Trust 199 -( )
(the "Trust" or the "Issuer"), to
be formed pursuant to a Pooling
and Servicing Agreement to be
dated as of __________, 199_ among
the Depositor, the Servicer and
the Trustee (the "Pooling and
Servicing Agreement")
Depositor . . . . . . . . . . . . ML Asset Backed Corporation (the
"Depositor").
Servicer . . . . . . . . . . . . ______________________ (in such
capacity, the "Servicer").
Trustee . . . . . . . . . . . . . , as
trustee under the Pooling and
Servicing Agreement (the
"Trustee").
The Certificates . . . . . . . . The Certificates will consist of
two classes, entitled ___% Asset
Backed Certificates, Class A (the
"Class A Certificates") and ___%
Asset Backed Certificates, Class B
(the "Class B Certificates").
Each Certificate will represent a
fractional undivided ownership
interest in the Trust.
The Class A Certificates will
evidence in the aggregate an
undivided ownership interest (the
"Class A Percentage") of
approximately ___% of the Trust
(initially representing
$__________) and the Class B
Certificates will evidence in the
aggregate an undivided ownership
interest (the "Class B
Percentage") of approximately ___%
of the Trust (initially
representing $__________). The
Class B Certificates are
subordinated to the Class A
Certificates, to the extent
described herein.
The Receivables . . . . . . . . . The Receivables will have an
aggregate principal balance of
approximately $ (the
"Initial Pool Balance") as of
, 199 (the "Cutoff
Date"). The Receivables will
consist of retail installment sale
contracts or installment loans
between Obligors and Dealers
secured by new or used
automobiles, light duty trucks,
recreational vehicles and
recreational sport and power boats
(including any boat motors and
accompanying trailers) and yachts
(both power and sail) (the
"Financed Assets"). The retail
installment sale contracts were
purchased by __________ (the
"Seller"). The Receivables will
be transferred by the Depositor to
the Trust, based on the criteria
specified in the Pooling and
Servicing Agreement and described
herein and in the Prospectus. As
of the Cutoff Date, the weighted
average annual percentage rate of
the Receivables was approximately
%, the weighted average
remaining maturity of the
Receivables was approximately
months, and the weighted average
original maturity of the
Receivables was approximately
months. No Receivable has a
scheduled maturity later than
, 20__ (the "Final
Scheduled Maturity Date"). See
"The Receivables Pool" herein.
The "Pool Balance" at any time
will represent the aggregate
principal balance of the
Receivables at the end of the
preceding Collection Period, after
giving effect to all payments
(other than Payaheads) received
from Obligors, Advances and
Purchase Amounts to be remitted by
the Servicer or the Depositor, as
the case may be, all for such
Collection Period, and all losses
realized on Receivables liquidated
during such Collection Period.
Distribution Dates . . . . . . . Distributions with respect to the
Certificates 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 . The
Servicer shall determine the
amount to be distributed on the
Distribution Date on or before the
Business Day preceding such
Distribution Date (the
"Determination Date").
Distributions will be made to
holders of the Certificates (the
"Certificateholders") of record as
of the day immediately preceding
such Distribution Date or, if
Definitive Certificates are
issued, as of the day of the
preceding month (a "Record Date").
Class A Pass Through Rate . . . . ___% per annum.
Class B Pass Through Rate . . . . ___% per annum.
Interest . . . . . . . . . . . . On each Distribution Date, the
Trustee will distribute to the
Class A Certificateholders 30 days
of interest at the Class A Pass-
Through Rate on the Class A
Certificate Balance as of the last
day of the preceding calendar
month (before giving effect to
distributions of principal on the
related Distribution Date)
generally to the extent of funds
available 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. The "Class A
Certificate Balance" shall equal,
initially, the Class A Percentage
of the Pool Balance as of the
Cutoff Date and thereafter shall
equal the initial Class A
Certificate Balance, reduced by
all principal distributions on the
Class A Certificates. Interest on
the Certificates will be
calculated on the basis of a 360-
day year consisting of twelve 30-
day months.
Class A Principal . . . . . . . . On each Distribution Date, the
Trustee will distribute to Class A
Certificateholders an amount equal
to the Class A Percentage of the
Principal Distribution Amount for
the Collection Period preceding
such Distribution Date to the
extent of funds available
therefor. The "Principal
Distribution Amount" is the amount
of principal paid or, in certain
circumstances, the principal
balance of defaulted Receivables,
as calculated by the Servicer as
described under "Description of
the Certificates --
Distributions." The Class A
Percentage of the Principal
Distribution Amount will be passed
through on each Distribution Date
to the Class A Certificateholders
to the extent of funds available
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.
"Realized Losses" means the excess
of the principal balance of any
Liquidated Receivable over
Liquidation Proceeds to the extent
allocable to principal received in
the Collection Period in which the
Receivable became a Liquidated
Receivable. A "Collection Period"
with respect to a Distribution
Date will be the calendar month
preceding the month in which such
Distribution Date occurs.
Class B Interest . . . . . . . . On each Distribution Date, the
Trustee will distribute to the
Class B Certificateholders 30 days
of interest at the Class B Pass
Through Rate on the Class B
Certificate Balance as of the last
day of the preceding calendar
month (before giving effect to
distributions of principal on such
Distribution Date) generally to
the extent of funds available,
after giving effect to the prior
rights of the Class A
Certificateholders to receive the
distribution of principal and
interest due them as described
above, from (i) the Class B
Percentage of the Interest
Distribution Amount and (ii) the
Reserve Account. The "Class B
Certificate Balance" will equal,
initially, $ and,
thereafter, will equal the initial
Class B Certificate Balance
reduced by all amounts previously
distributed to Class B
Certificateholders (or deposited
in the Reserve Account, exclusive
of the Reserve Account Initial
Deposit) and allocable to
principal and by Realized Losses.
Class B Principal . . . . . . . . On each Distribution Date, the
Trustee will distribute the Class
B Percentage of the Principal
Distribution Amount to the Class B
Certificateholders to the extent
of funds available (after giving
effect to the distribution of the
interest and principal due to the
Class A Certificateholders and the
interest due to the Class B
Certificateholders) from (i) the
Class B Percentage of the
Principal Distribution Amount
(exclusive of the portion thereof
attributable to Realized Losses)
and (ii) the Reserve Account.
Optional Prepayment . . . . . . . The Servicer will have the option
to purchase all, but not less than
all, of the Receivables on any
Distribution Date on or after the
Distribution Date on which the
Pool Balance has declined the (
)% or less of the Initial Pool
Balance. The price at which the
Servicer will be required to
purchase the Receivables in order
to exercise such option will be
equal to the aggregate of the
Purchase Amounts of the
Receivables as of the end of the
related Collection Period. The
Servicer will be required to give
not less than ( ) days notice to
the Trustee of its intention to
exercise such option. In
addition, the Servicer will not be
permitted to exercise such option
unless the resulting distribution
would be sufficient to distribute
to 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, and
to the Class B Certificateholders
an amount equal to the Class B
Certificate Balance together with
accrued interest at the Class B
Pass Through Rate. Upon such a
distribution the Certificates will
be retired.
Reserve Account . . . . . . . . . The Reserve Account will be
created with an initial deposit by
( ) on the Closing Date of cash
or Eligible Investments having a
value of at least $ .
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 ______.
The "Specified Reserve Account
Balance" with respect to any
Distribution Date generally will
be equal to (state formula). The
amount in the Reserve Account will
be increased by the deposit
thereto on each Distribution Date
of the amount, if any, of the
Total Distribution Amount
remaining after the payment of the
Servicing Fee and any prior unpaid
Servicing Fee, the Class A
Distributable Amount and the Class
B Distributable Amount until the
amount in the Reserve Account
equals the Specified Reserve
Account Balance. Amounts in the
Reserve Account on any
Distribution Date (after giving
effect to all distributions made
on such Distribution Date) in
excess of the Specified Reserve
Account Balance for such
Distribution Date generally will
be released to the ______ 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.
Collection Account . . . . . . . Except under certain conditions
described herein, 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 Servicer will have
the revocable power to instruct
the Trustee to withdraw funds on
deposit in the Collection Account
and to apply such funds on each
Distribution Date to the following
(in the priority indicated):
(i) the Servicing Fee for the
prior Collection Period and any
overdue Servicing Fees to the
Servicer, (ii) the Class A
Distributable Amount to the Class
A Certificateholders, (iii) the
Class B Distributable Amount to
the Class B Certificateholders,
and (iv) the remaining balance, if
any, to the Reserve Account.
Tax Status . . . . . . . . . . . In the opinion of Brown & Wood
LLP, federal income tax counsel to
the Trust ("Federal Income Tax
Counsel") the Trust will be
treated as a grantor trust for
federal income tax purposes and
will not be subject to federal
income tax. Certificate Owners
will report their pro rata share
of all income earned on the
Receivables (other than amounts,
if any, treated as "stripped
coupons") and, subject to certain
limitations in the case of
Certificate Owners who are
individuals, trusts, or estates,
may deduct their pro rata share of
reasonable servicing and other
fees. See "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 are eligible for
purchase by employee benefit
plans.
The Class B Certificates may not
be acquired by 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 by an
individual retirement account.
See "ERISA Considerations" herein
and 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 " " by at least
one Rating Agency. The rating of
the Class A Certificates by a
Rating Agency reflects such Rating
Agency's assessment of the
likelihood that the holders of the
Class A Certificates will receive
payments principal and interest,
however, the rating on the Class A
Certificates does not address the
timing of distributions of
principal in respect of the Class
A Certificates prior to the Final
Scheduled Distribution Date. A
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 Agency. Each
rating should be evaluated
independently of any other rating.
See "Risk Factors -- Ratings of
the Certificates" herein.
Ratings of the Class B
Certificates . . . . . . . . . . It is a condition to the issuance
of the Class B Certificates that
they be rated at least in the "
" category or its equivalent by at
least one Rating Agency. The
rating of the Class B Certificates
by a Rating Agency reflects such
Rating Agency's assessment of the
likelihood that the holders of the
Class B Certificates will receive
payments of principal and
interests, however, the rating on
the Class B Certificates does not
address the timing of
distributions of principal in
respect of the Certificates prior
to the Final Scheduled
Distribution Date. A 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 Agency. Such rating should
be evaluated independently of any
other rating. See "Risk Factors -
- Ratings of the Certificates"
herein.
RISK FACTORS
Investors should consider, among other things, the matters discussed
under "Risk Factors" in the Prospectus and the following risk factors in
connection with purchases of the Certificates.
LIMITED LIQUIDITY; ABSENCE OF A SECONDARY MARKET. There is currently no
secondary market for the Certificates. Each Underwriter currently intends to
make a market in the Certificates, but it 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 Certificateholders
with liquidity of investment or that it will continue for the life of the
Certificates offered hereby.
(GEOGRAPHIC CONCENTRATION. Economic conditions in states where Obligors
reside may affect the delinquency, loan loss and repossession experience of
the Trust with respect to the Receivables. Obligors on Receivables
representing approximately _____% by principal balance of the Receivables
were located in ( ) as of the Cutoff Date. As a result, economic
conditions in such states may have a disproportionate affect on prepayments
and/or defaults in respect of the Receivables and thus potentially adversely
affect the amount available for distribution to Certificateholders. In
particular, an economic downturn in one or more of such states could
adversely affect the performance of the Trust as a whole (even if national
economic conditions remain unchanged or improve) as Obligors in such state or
states experience the effects of such a downturn and face greater difficulty
in making payments on their Financed Assets. See "The Receivables Pool.")
SUBORDINATION. Distributions of interest and principal on the Class B
Certificates will be subordinated in priority of payment to interest and
principal due on the Class A Certificates. Consequently, the Class B
Certificateholders will not receive any distributions with respect to a
Collection Period until the full amount of interest on and principal of the
Class A Certificates due on such Distribution Date has been deposited in the
Certificate Distribution Account.
LIMITED ASSETS OF THE 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 the Reserve Account. Holders of the
Certificates must rely for repayment upon payments on the Receivables and, if
and to the extent available, amounts on deposit in the Reserve Account.
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
current distributions on the Receivables to make payments on the Certificates.
PAYMENT DELAY. The effective yield on the Certificates will be reduced
below the yield otherwise produced because interest accrued through the end
of each calendar month will not be distributed until the Distribution Date in
the following month, and the amount distributable on such Distribution Date
will not bear interest during such delay. As a result, the market value of
the Certificates will be lower than would be the case if there was no such
delay.
RATINGS OF THE CERTIFICATES. It is a condition to the issuance of the
Certificates that the Class A Certificates be rated in the highest investment
rating category, and that the Class B Certificates be rated at least in the "
" category or its equivalent, by at least one nationally recognized rating
agency (the "Rating Agency"). A rating is not a recommendation to purchase,
hold or sell Certificates, inasmuch as such rating does not comment as to
market price or suitability for a particular investor. The ratings of the
Certificates address the likelihood of the payment of principal and interest
on the Certificates pursuant to their terms. 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.
THE TRUST
GENERAL
The Depositor will establish the Trust by selling and assigning the
Trust property, as described below, to the Trustee in exchange for the
Certificates. The Servicer will service the Receivables pursuant to the
Pooling and Servicing Agreement and will be compensated for acting as the
Servicer. See "Description of the Certificates -- Servicing Compensation and
Payment of Expenses". To facilitate servicing and to minimize administrative
burden and expense, the Servicer will be appointed custodian for the
Receivables by the Trustee, but will not stamp the Receivables to reflect the
sale and assignment of the Receivables to the Trust. In addition, due to
administrative burden and expense, (i) the certificates of title to the
Financed Motor Vehicles and those Financed Recreational Vehicles and Financed
Boats financed in states where security interests in recreational vehicles or
boats, as applicable, are subject to certificate of title statutes will not
be amended to reflect such assignments, (ii) UCC financing statements in
respect of those Financed Recreational Vehicles and Financed Boats financed
in states where security interests in recreational vehicles or boats, as
applicable, are perfected by filing a UCC-1 financing statement will not be
amended to reflect such assignments and (iii) and the assignment of liens
created pursuant to Preferred Mortgages in respect of Financed Boats
documented under federal law will not be filed as required by federal law to
reflect such assignments. In the absence of such procedures, such Trust may
not have a perfected in the Financed Assets in some states and will not have
a perfected security interest in the Financed Boats documented under Federal
law. See "Certain Legal Aspects of the Receivables" in the Prospectus.
If the protection provided to the 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 Assets which secure defaulted Receivables. In such event,
certain factors, such as the Trust's not having first priority perfected
security interests in some of the Financed Assets, may affect the Trust's
ability to realize on the Financed Assets securing the Receivables, and thus
may reduce the proceeds to be distributed to Certificateholders with respect
to the Certificates. See "Description of the Certificates -- Distributions"
and "-- 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 Trust property includes retail installment sale contracts
between Dealers and Obligors, and all payments due thereunder on or after the
related Cutoff Date with respect to the Precomputed Receivables and all
payments received thereunder on or after the related Cutoff Date with respect
to the Simple Interest Receivables. The Trust property also includes (i)
such amounts as from time to time may be held in one or more trust accounts
established and maintained by the Servicer pursuant to the Pooling and
Servicing Agreement, as described below; (ii) security interests in the
Financed Assets and any accessions thereto; (iii) the rights to proceeds with
respect to the Receivables from claims on physical damage, credit life and
disability insurance policies covering the Financed Assets or the Obligors,
as the case may be; (iv) the interest of the Seller in any proceeds with
respect to the Receivables from recourse, if any, to Dealers on Receivables
or Financed Assets with respect to which the Servicer has determined that
eventual repayment in full is unlikely; (v) any property that shall have
secured a Receivable and that shall have been acquired by the Trustee; and
(vi) 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 RECEIVABLES POOL
The pool of Receivables (the "Receivables Pool") will include only the
Receivables purchased on the Closing Date. The Receivables (will be) (have
been) purchased by the Depositor from the Seller, which purchased the
Receivables, directly or indirectly, from Dealers in the ordinary course of
business or in acquisitions. The Receivables were selected from the
Depositor's portfolio for inclusion in the Receivables Pool by several
criteria, some of which are set forth in the Prospectus under "The
Receivables Pools", as well as the requirement that, as of the Cutoff Date,
each Receivable (i) had an outstanding gross balance of at least $ and
(ii) was not more than 60 days past due (an account is not considered past
due if the amount past due is less than % of the scheduled monthly
payment). As of the Cutoff Date, no Obligor on any Receivable was noted in
the related records of the Seller as being the subject of a bankruptcy
proceeding. No selection procedures believed by the Depositor to be adverse
to Certificateholders were used in selecting the Receivables.
Set forth in the following tables is information concerning the
composition, distribution by annual percentage rate ("APR") and the
geographic distribution of the Receivables Pool as of the Cutoff Date.
_____________ TRUST 199 -( )
COMPOSITION OF THE RECEIVABLES POOL
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Aggregate Average Average Average
APR of Principal Number of Remaining Original Principal
Receivables Balance Receivables Term Term Balance
<S> <C> <C> <C> <C> <C>
_____% $________________ __________ _____ months _____ months $__________
</TABLE>
_______________ TRUST 199 - ( )
DISTRIBUTION BY APR OF THE RECEIVABLES POOL
<TABLE>
<CAPTION> Percent of
Aggregate
Number of Aggregate Principal
APR Range Receivables Principal Balance Balance(1)
<S> <C> <C> <C>
0.00% - 5.00% . . . . . . . . . . . $ %
5.01% - 6.00% . . . . . . . . . . .
6.01% - 7.00% . . . . . . . . . . .
7.01% - 8.00% . . . . . . . . . . .
8.01% - 9.00% . . . . . . . . . . .
9.01% - 10.00% . . . . . . . . . . .
10.01% - 11.00% . . . . . . . . . . .
11.01% - 12.00% . . . . . . . . . . .
12.01% - 13.00% . . . . . . . . . . .
13.01% - 14.00% . . . . . . . . . . .
14.01% - 15.00% . . . . . . . . . . .
15.01% - 16.00% . . . . . . . . . . .
16.01% - 17.00% . . . . . . . . . . .
17.01% - 18.00% . . . . . . . . . . .
Greater than 18.00% . . . . . . . . .
</TABLE>
_______________
(1) Percentages may not add to 100.0% because of rounding.
_______________ TRUST 199 -( )
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES POOL
<TABLE>
<CAPTION> PERCENTAGE AGGREGATE
STATE(2) PRINCIPAL BALANCE(1)
<S> <C>
. . . . . . . . . . . . . . . . . . . . . . . . %
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
_______________
(1) Percentages may not add to 100.0% because of rounding.
(2) Based on physical addresses of the Obligors as of the Cutoff Date.
Approximately % of the aggregate principal balance of the
Receivables, constituting % of the number of the Receivables, represent
previously titled vehicles.
By aggregate principal balance, approximately % of the receivables
are Precomputed Receivables and % of the Receivables are Simple Interest
Receivables. See "The Receivables Pools" in the Prospectus for a further
description of the characteristics of Precomputed Receivables and Simple
Interest Receivables.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning the experience of the
Seller pertaining to retail new and used automobile and light duty truck
receivables, recreational vehicle receivables and boat receivables, including
those previously sold which the Servicer continues to service. There can be
no assurance that the delinquency, repossession and net loss experience on
the Receivables will be comparable to that set forth below.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION> AT , AT DECEMBER 31,
199 199 199 199
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio . . . . $ $ $ $
Period of
Delinquency
31-60 Days . .
61 Days or More
Total $ $ $ $
Delinquencies . .
Total
Delinquencies
as a Percent of % % % % % % % %
the
Portfolio . . .
</TABLE>
<TABLE>
<CAPTION> AT DECEMBER 31,
199 199 199
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Portfolio . . . . . . . $ $ $
Period of Delinquency
31-60 Days . . . . .
61 Days or More . . .
Total Delinquencies . .
Total Delinquencies
as a Percent of the
Portfolio . . . . . . % % % % % %
</TABLE>
_______________
(1) All amounts and percentages are based on the gross amount scheduled
to be paid on each contract, including unearned finance and other
charges.
CREDIT LOSS/REPOSSESSION EXPERIENCE(1)
<TABLE>
<CAPTION> _____________ ENDED
, YEAR ENDED DECEMBER
31,
199 199 199 199 199 199 199
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Average Amount Outstanding
During the Period . . . . . . . $ $ $ $ $ $ $
Average Number of Contracts
Outstanding During the Period .
Percent of Contracts Acquired
During the % % % % % % %
Period with Recourse to the
Dealer . . . . . . . . . . . . .
Repossessions as a Percent of
Average % % % % % % %
Number of Contracts Outstanding
Net Losses as a Percent of
Liquidations(3)(4) . . . . . . % % % % % % %
Net Losses as a Percent of
Average % % % % % % %
Amount Outstanding(2)(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. The information in the table
includes previously sold contracts that the Servicer continues to
service.)
(2) Percentages have been annualized for the _____ months ended
____________, 199 and 199 and are not necessarily indicative of
the experience for the year.
(3) (Net losses are equal to the aggregate of the balances of all
contracts which are determined to be uncollectible in the period,
less any recoveries on contracts charged off in the period or any
prior periods, including any losses resulting from disposition
expenses and any losses resulting from the failure to recover
commissions to dealers with respect to contracts that are prepaid
or charged off.)
(4) Liquidations represent a reduction in the outstanding balances of
the contracts as a result of monthly cash payments and charge-offs.
(The net loss figures above reflect the fact that Seller had recourse to
Dealers on a portion of its retail installment sale contracts. By aggregate
principal balance, approximately % of the Receivables represent
contracts with recourse to Dealers. The Seller applies underwriting
standards to the purchase of contracts without regard to whether recourse to
Dealers is provided. However, the net loss experience of contracts without
recourse against Dealers is higher than that of contracts with recourse
against Dealers because, under its recourse obligation, the Dealer is
responsible to the Seller for payment of the unpaid balance of the contract,
provided that the Originator repossesses the vehicle or boat from the retail
buyer and returns it to the Dealer within a specified time. In the event of
a Dealer's bankruptcy, a bankruptcy trustee might attempt to characterize
recourse sales of contracts as loans to the Dealer secured by the contracts.
Such an attempt, if successful, could result in payment delays or losses on
the affected Receivables.)
THE SELLER
(Description of Seller and its underwriting and servicing standards.)
THE SERVICER
(Description of Servicer and its servicing standards.)
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 Certificates" in the Prospectus. As the rate of payment of principal of
the Certificates depends primarily on the rate of payment (including
prepayments on liquidations due to default) of the principal balance of the
Receivables, the final distribution in respect of the Certificates could
occur significantly earlier than their 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 yields on their
respective Certificates.
DESCRIPTION OF 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 describes certain terms of the Certificates and the Pooling
and Servicing Agreement. The summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all the provisions
of the Certificates and the Pooling and Servicing Agreement. The following
summary supplements, and to the extent inconsistent therewith replaces, 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.
In general, it is intended that Class A Certificateholders receive, on
each Distribution Date, the Class A Percentage of the Principal Distribution
Amount plus interest at the Class A Pass Through Rate on the Class A
Certificate Balance. Subject to the prior rights of the Class A
Certificateholders, it is intended that the Class B Certificateholders
receive, on each Distribution Date, the Class B Percentage of the Principal
Distribution Amount plus interest at the Class B Pass Through Rate on the
Class B Certificate Balance.
The Certificates will evidence interests in the Trust created pursuant
to the Pooling and Servicing Agreement. The Class A Certificates will
evidence in the aggregate an undivided ownership interest (the "Class A
Percentage") of approximately % of the Trust and the Class B Certificates
will evidence in the aggregate an undivided ownership interest (the "Class B
Percentage") of approximately % of the Trust.
OPTIONAL PREPAYMENT
The Servicer will have the option to purchase all, but not less than
all, of the Receivables on any Distribution Date on or after the Distribution
Date on which the Pool Balance has declined to ( )% or less of the Initial
Pool Balance. The price at which the Servicer will be required to purchase
the Receivables in order to exercise such option will be equal to the
aggregate of the Purchase Amounts of the Receivables as of the end of the
related Collection Period. The Servicer will be required to give not less
than ( ) days notice to the Trustee of its intention to exercise such
option. In addition, the Servicer will not be permitted to exercise such
option unless the resulting distribution would be sufficient to distribute to
the Class A Certificateholders an amount equal to the Class A Certificate
Balance together with accrued interest at the Class A Pass Through Rate, and
to the Class B Certificateholders an amount equal to the Class B Certificate
Balance together with accrued interest at the Class B Pass Through Rate.
Upon such a distribution, the Certificates will be retired.
SALE AND ASSIGNMENT OF RECEIVABLES
Certain information regarding the conveyance of the Receivables by the
Depositor to the Trust on the Closing Date pursuant to the Pooling and
Servicing Agreement is set forth in the Prospectus under "Description of the
Pooling and Servicing Agreement -- Sale and Assignment of Receivables".
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee Rate with respect to the Servicing Fee for the
Servicer will be ____% per annum of the Pool Balance as of the first day of
the related Collection Period. The Servicing Fee in respect of a Collection
Period (together with any portion of the Servicing Fee that remains unpaid
from prior Distribution Dates) will be paid at the beginning of such
Collection Period out of collections for such Collection Period. See
"Description of the Pooling and Servicing Agreement -- Servicing Compensation
and Payment of Expenses" in the Prospectus.
DISTRIBUTIONS
DEPOSITS TO COLLECTION ACCOUNT. On or before each Distribution Date,
the Servicer will cause all collections and other amounts constituting the
Total Distribution Amount to be deposited into the Collection Account. The
"Total Distribution Amount" for a Distribution Date shall be the sum of the
Interest Distribution Amount and the Principal Distribution Amount (other
than 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 received in the
Collection Period in which the Receivable became a Liquidated Receivable.
The "Interest Distribution Amount" on any Distribution Date will
generally be the sum of the following amounts with respect to the preceding
Collection Period: (i) that portion of all collections on the Receivables
(including Payaheads that have been applied as payments on the related
Receivables in that Collection Period) 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 ("Liquidation Proceeds"), to the
extent attributable to interest due thereon in accordance with the Servicer's
customary servicing procedures, and all recoveries in respect of Liquidated
Receivables which were written off in prior Collection Periods; (iii) all
Advances made by the Servicer of interest due on the Receivables; (iv) the
Purchase Amount of each Receivable that was repurchased by the Seller or
purchased by the Servicer under an obligation which arose during the related
Collection Period, to the extent attributable to accrued interest thereon;
and (v) Investment Earnings for such Distribution Date. The Interest
Distribution Amount shall be determined on the related Determination Date.
The "Principal Distribution Amount" on any Distribution Date will
generally be the sum of the following amounts with respect to the preceding
Collection Period: (i) that portion of all collections on the Receivables
(exclusive of Payaheads allocable to principal that have not been applied as
payments under the related Receivables in such Collection Period and
inclusive of Payaheads allocable to principal that have been applied as
payments under the related Receivables in such Collection Period) allocable
to principal; (ii) all Liquidation Proceeds attributable to the principal
amount of Receivables which became Liquidated Receivables during such
Collection Period in accordance with the Servicer's customary servicing
procedures, plus the amount of Realized Losses with respect to such
Liquidated Receivables; (iii) all Precomputed Advances made by the Servicer
of principal due on the Precomputed Receivables; (iv) to the extent
attributable to principal, the Purchase Amount received with respect to each
Receivable repurchased by the Seller or purchased by the Servicer under an
obligation which arose during the related Collection Period; (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 Distribution Date immediately
following the Final Scheduled Maturity Date (the "Final Scheduled
Distribution Date"), any amounts advanced by the Servicer with respect to
principal on the Receivables. The Regular Principal Distribution Amount
shall be determined on the related Determination Date.
The Interest Distribution Amount and the Regular Principal Distribution
Amount on any Distribution Date shall exclude the following:
(i) amounts received 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 Purchase 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 preceding 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) but only to
the extent of any unreimbursed Simple Interest Advances.
CALCULATION OF DISTRIBUTABLE AMOUNTS. The "Class A Distributable
Amount" with respect to a Distribution Date will be an amount equal to 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 (30) days' interest at
the Class A Pass Through Rate on the Class A Certificate Balance as of the
close of business on the last day of the preceding Collection Period. 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 due and remaining unpaid on each Receivable in the
Trust as of the last day of the preceding Collection Period and (B) the
portion of such amount necessary (after giving effect to the other amounts
described above to be distributed to the Class A Certificateholders on such
Distribution Date and allocable to principal) to reduce the Class A
Certificate Balance to zero.
The "Class A Certificate Balance" will equal, initially, $ and,
thereafter, shall equal the initial Class A Certificate Balance reduced by
all amounts previously distributed to Class A Certificateholders and
allocable to principal.
The "Class B Distributable Amount" with respect to a Distribution Date
shall be an amount equal to 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 (30) days' interest at the Class B Pass Through Rate to
the Class B Certificate Balance as of the close of business on the last day
of the preceding Collection Period. In addition, on the Final Scheduled
Distribution Date, the principal required to be distributed on the Class B
Certificateholders will include the lesser of (i) the Class B Percentage of
any payments of principal due and remaining unpaid with respect to the
Receivables in the Trust as of the last day of the preceding Collection
Period and (ii) the portion of the amount in clause (i) above that is
necessary
(after giving effect to all other amounts distributed to Class A and Class B
Certificateholders on such Distribution Date and allocable to principal) to
reduce the Class B Certificate Balance to zero.
The "Class B Certificate Balance" shall equal, initially, $__________
and, thereafter, shall equal the initial Class B Certificate Balance, reduced
by all amounts previously distributed to Class B Certificateholders (or
deposited in the Reserve Account, but not including the Reserve Account
Initial Deposit) and allocable to principal and by Realized Losses.
CALCULATION OF AMOUNTS TO BE DISTRIBUTED. Prior to each Distribution
Date, the Servicer will calculate the Total Distribution Amount, the Class A
Distributable Amount and the Class B Distributable Amount.
The holders of the Class A Certificates 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 shall be entitled generally to receive such amounts,
first, from the Class B Percentage of the Interest Distribution Amount;
second, if such amounts are insufficient, from the amounts available in the
Reserve Account; and third, if such amounts are insufficient, from the Class
B Percentage of the Principal Distribution Amount (other than the portion
thereof attributable to Realized Losses). The "Class A Interest Carryover
Shortfall" as of the close of any Distribution Date means the excess of the
Class A Interest Distributable Amount for such Distribution Date, plus any
outstanding Class A Interest Carryover Shortfall from the preceding
Distribution Date, plus interest on such outstanding Class A Interest
Carryover Shortfall, to the extent permitted by law, at the Class A Pass
Through Rate from such preceding Distribution Date through the current
Distribution Date, over the amount of interest that the holders of the Class
A Certificates actually received on such current Distribution Date.
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 (exclusive of the portion thereof
attributable to Realized Losses) on such Distribution Date, the Class A
Certificateholders shall be entitled to receive such amounts, first, from the
Class B Percentage of the Principal Distribution Amount (other than the
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. The "Class A Principal Carryover Shortfall" as of the
close of any Distribution Date means the excess of the Class A Principal
Distributable Amount plus any outstanding Class A Principal Carryover
Shortfall from the preceding Distribution Date over the amount of principal
that the holders of the Class A Certificates actually received on such
current Distribution Date.
The holders of the Class B Certificates will receive on any Distribution
Date, to the extent of available funds, the Class B Distributable Amount and
any outstanding Class B Interest Carryover Shortfall and Class B Principal
Carryover Shortfall as of the close of the preceding Distribution Date. On
each Distribution Date on which the sum of the Class B Interest Distributable
Amount and any outstanding Class B Interest Carryover Shortfall from the
preceding Distribution Date (plus interest on such Class B Interest Carryover
Shortfall at the Class B Pass Through Rate from such preceding Distribution
Date to the current Distribution Date, to the extent permitted by law)
exceeds the Class B Percentage of the Interest Distribution Amount (after
payment of the Servicing Fee) on such Distribution Date less any portion
thereof required to be distributed to the Class A Certificateholders pursuant
to their prior rights as described above, the Class B Certificateholders
shall be entitled generally to receive such amounts, first, from the Class A
Percentage of the Interest Distribution Amount that is not otherwise required
to be distributed to the Class A Certificateholders as described above and,
second, from the amount, if any, available in the Reserve Account (after
giving effect to any withdrawals therefrom for distribution to the Class A
Certificateholders on such Distribution Date). The "Class B Interest
Carryover Shortfall" as of the close of any Distribution Date means the
excess of the Class B Interest Distributable Amount for such Distribution
Date, plus any outstanding Class B Interest Carryover Shortfall from the
preceding Distribution Date, plus interest on such outstanding Class B
Interest Carryover Shortfall, to the extent permitted by law, at the Class B
Pass Through Rate from such preceding Distribution Date through the current
Distribution Date, over the amount of interest that the holders of the Class
B Certificates actually received on such current Distribution Date.
On each Distribution Date on which the sum of the Class B Principal
Distributable Amount and any outstanding Class B Principal Carryover
Shortfall from the preceding Distribution Date exceeds the Class B Percentage
of the Principal Distribution Amount (exclusive of the portion thereof
attributable to Realized Losses) on such Distribution Date less any portion
thereof required to be distributed to the Class A Certificateholders pursuant
to their prior rights as described above, the Class B Certificateholders
shall be entitled to receive such amounts, first, from the Interest
Distribution Amount that is not otherwise required to be distributed to the
Class A or Class B Certificateholders as described above and, second, from
amounts available in the Reserve Account (after giving effect to any
withdrawals therefrom on such Distribution Date for distribution to the Class
A Certificateholders and for distribution of interest to the Class B
Certificateholders). The "Class B Principal Carryover Shortfall" as of the
close of any Distribution Date means the excess of the Class B Principal
Distributable Amount plus any outstanding Class B Principal Carryover
Shortfall from the preceding Distribution Date over the amount of principal
that the holders of Class B Certificates actually received on such current
Distribution Date.
SUBORDINATION OF THE CLASS B CERTIFICATES; RESERVE ACCOUNT
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 and delinquencies
on the Receivables as described herein and provided in the Pooling and
Servicing Agreement. The protection afforded to the Class A
Certificateholders through subordination will be effected both by the
preferential right of the Class A Certificateholders to receive current
distributions with respect to the Receivables and by the establishment of the
Reserve Account. The Reserve Account will be created with an initial deposit
by the Seller of the Reserve Account Initial Deposit and will be augmented by
deposit therein on each Distribution Date of the amount, if any, remaining
from the Total Distribution Amount after the distributions due to the
Certificateholders have been made until the amount in the Reserve Account
reaches the Specified Reserve Account Balance for such Distribution Date.
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. On each
Distribution Date, (i) if the amounts on deposit in the Reserve Account are
less than the Specified Reserve Account Balance for such Distribution Date,
the Trustee will, after payment of any amounts required to be distributed to
Certificateholders and the payment of the Servicing Fee due with respect to
the related Collection Period (including any unpaid Servicing Fees with
respect to prior Collection Periods), withdraw from the Collection Account
and deposit in the Reserve Account the amount, if any, remaining in the
Collection Account that would otherwise be distributed to the Seller, or such
lesser portion thereof as is sufficient to restore the amount in the Reserve
Account to such Specified Reserve Account Balance for such Distribution Date,
and (ii) if the amount on deposit in the Reserve Account on such Distribution
Date (after giving effect to all deposits or withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Account Balance for
such Distribution Date, the Trustee will release and distribute any such
excess to the Seller. Upon any such distribution to the Seller, 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 holders of the Class A Certificates and holders of
the Class B Certificates. Funds in the Reserve Account shall be invested as
provided in the Pooling and Servicing Agreement in Eligible Investments. The
Seller will be entitled to receive all investment earnings on amounts in the
Reserve Account. Investment income on amounts in the Reserve Account will
not be available for distribution to the Certificateholders or otherwise
subject to any claims or rights of the Certificateholders.
The time necessary for the Reserve Account to reach and maintain the
Specified Reserve Account Balance at any time after the Closing Date will be
affected by the delinquency, credit loss, repossession and prepayment
experience of the Receivables and, therefore, cannot be accurately predicted.
The subordination of the Class B Certificates and the Reserve Account
described above are intended to enhance the likelihood of receipt by Class A
Certificateholders of the full amount of principal and interest on the Class
A Certificates due them and to decrease the likelihood that the Class A
Certificateholders will experience losses. However, in certain
circumstances, the Reserve Account could be depleted and shortfalls could
result.
If on any Distribution Date the holders of the Class A Certificates do
not receive the sum of the Class A Distributable Amount, the Class A Interest
Carryover Shortfall and the Class A Principal Carryover Shortfall for such
Distribution Date (after giving effect to any amounts withdrawn from the
Reserve Account and the Class B Percentage of the Total Distribution Amount
and applied to such deficiency, as described above), the holders of the Class
B Certificates generally will not receive any portion of the Total
Distribution Amount. While the Class B Certificateholders are entitled to
receive amounts from the Reserve Account as described above, such entitlement
is subordinated to the rights of the Class A Certificateholders to receive
amounts from the Reserve Account as described above. If the Reserve Account
becomes depleted, the Class B Certificateholders may experience shortfalls in
the distributions due them and incur a loss on their investment.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, federal income tax counsel to the
Trust, the Trust will be treated as a grantor trust for federal income tax
purposes and will not be subject to federal income tax. For additional
information regarding federal income tax consequences in respect of the
Securities, see "Federal Income Tax Consequences" in the Prospectus.
ERISA CONSIDERATIONS
THE CLASS A CERTIFICATES
Subject to the considerations set forth under "ERISA Considerations --
Senior Certificates" in the Prospectus, the Class A Certificates may be
purchased by an employee benefit plan or an individual retirement account (a
"Plan") subject to ERISA or Section 4975 of the Code. 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.
The Class A Certificates may not be purchased with the assets of a Plan
if the Seller, the Trustee or any of their affiliates (a) has investment or
administrative discretion with respect to such Plan assets; (b) has authority
or responsibility to give, or regularly gives, investment advice with respect
to such Plan assets for a fee and pursuant to an agreement or understanding
that such advice (i) will serve as a primary basis for
investment decisions with respect to such Plan assets and (ii) will be based
on the particular investment needs for such Plan; or (c) is an employer
maintaining or contributing to such Plan.
THE CLASS B CERTIFICATES
The Class B Certificates may not be acquired by (a) an employee benefit
plan (as defined in Section 3(3) of ERISA) that is subject to the provisions
of Title I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code
or (c) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity or which uses plan assets to acquire Class B
Certificates. By its acceptance of a Class B Certificate, each Class B
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. In this regard, purchasers that are
insurance companies should consult with their counsel with respect to the
United States Supreme Court case interpreting the fiduciary responsibility
rules of ERISA, John Hancock Life Ins. Co. v. Harris Trust and Sav. Bank, 114
S. --------------------------------------------------------
Ct. 517 (1993). In John Hancock, the Supreme Court ruled that assets held
------------
in an insurance company's general account may be deemed to be "plan assets"
for ERISA purposes under certain circumstances. Prospective purchasers
should determine whether the decision affects their ability to make purchases
of the Class B Certificates. In particular, such an insurance company should
consider the exemptive relief granted by the Department of Labor for
transactions involving insurance company general accounts in Prohibited
Transactions Exemption 95-60, 60 Fed. Reg. 35925 (July 12, 1995). For
additional information regarding treatment of the Class B Certificates under
ERISA, see "ERISA Considerations" in the Prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement"), the Depositor has agreed to cause
the Trust to sell to the Underwriter, and the Underwriter has agreed to
purchase, the entire principal amount of the Certificates.
The Depositor has been advised by the Underwriter that it proposes
initially to offer the Certificates to the public at the prices set forth
herein, and to certain dealers at such prices less the initial concession not
in excess of % per Class A Certificate and % per Class B Certificate.
The Underwriter may allow and such dealers may reallow a concession not in
excess of % per Class A Certificate and % per Class B Certificate
to certain other dealers. After the initial public offering of the
Certificates, the public offering prices and such concessions may be changed.
Until the distribution of the Certificates is completed, rules of the
Commission may limit the ability of the Underwriter and certain selling group
members to bid for and purchase the Certificates. As an exception to these
rules, the Underwriter is permitted to engage in certain transactions that
stabilize the price of the Certificates. Such transactions consist of bids
or purchases for the purpose of pegging, fixing or maintaining the price of
the Certificates.
If the Underwriter creates a short position in the Certificates in
connection with the offering, i.e., if it sells more Certificates than are
set forth on the cover page of this Prospectus Supplement, the Underwriter
may reduce that short position by purchasing Certificates in the open market.
In general, the purchase of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases.
Neither the Depositor nor any Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Certificates. In
addition, neither the Depositor nor any Underwriter makes any representation
that the Underwriter will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The Underwriter has represented and agreed that (a) it has not offered
or sold, and will not offer or sell, any Certificates to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
that do not constitute an offer to the public in the United Kingdom for the
purposes of the Public Offers of Securities Regulations 1995, (b) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 of Great Britain with respect to anything done by it in
relation to the Certificates in, from or otherwise involving the United
Kingdom and (c) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document in connection with the issue of the
Certificates to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1995 or is a person to whom the document may otherwise lawfully be issued or
passed on.
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 Seller or
the Underwriter will promptly deliver, or cause to be delivered, without
charge, a paper copy of the Prospectus Supplement and Prospectus.
LEGAL OPINIONS
Certain legal matters relating to the Certificates and certain federal
income tax matters will be passed upon for the Depositor by Brown & Wood LLP,
New York, New York. (Certain legal matters relating to the Certificates will
be passed upon for the Underwriter by Brown & Wood LLP.)
INDEX OF TERMS
APR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Class A Certificate Balance . . . . . . . . . . . . . . . . . . . . S-2,S-15
Class A Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Class A Distributable Amount . . . . . . . . . . . . . . . . . . . . . S-15
Class A Interest Carryover Shortfall . . . . . . . . . . . . . . . . . S-16
Class A Interest Distributable Amount . . . . . . . . . . . . . . . . . S-15
Class A Percentage . . . . . . . . . . . . . . . . . . . . . . . . S-1,S-13
Class A Principal Carryover Shortfall . . . . . . . . . . . . . . . . . S-16
Class A Principal Distributable Amount . . . . . . . . . . . . . . . . S-15
Class B Certificate Balance . . . . . . . . . . . . . . . . . . . . S-3,S-16
Class B Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Class B Distributable Amount . . . . . . . . . . . . . . . . . . . . . S-15
Class B Interest Carryover Shortfall . . . . . . . . . . . . . . . . . S-17
Class B Interest Distributable Amount . . . . . . . . . . . . . . . . . S-15
Class B Percentage . . . . . . . . . . . . . . . . . . . . . . . . S-1,S-13
Class B Principal Carryover Shortfall . . . . . . . . . . . . . . . . . S-17
Class B Principal Distributable Amount . . . . . . . . . . . . . . . . S-15
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-1
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-2
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Final Scheduled Distribution Date . . . . . . . . . . . . . . . . . . S-15
Final Scheduled Maturity Date . . . . . . . . . . . . . . . . . . . . . S-2
Financed Assets . . . . . . . . . . . . . . . . . . . . . . . . . Cover, S-1
Initial Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Interest Distribution Amount . . . . . . . . . . . . . . . . . . . . S-14
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Liquidated Receivables . . . . . . . . . . . . . . . . . . . . . . . S-14
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . S-14
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . S-1
Principal Distribution Amount . . . . . . . . . . . . . . . . . . . S-3,S-14
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Realized Losses . . . . . . . . . . . . . . . . . . . . . . . . . S-3,S-14
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Receivables Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
Specified Reserve Account Balance . . . . . . . . . . . . . . . . . . . S-4
stripped coupons . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Total Distribution Amount . . . . . . . . . . . . . . . . . . . . . . S-14
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-1
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover,S-1
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . S-19
Underwriter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cover
(BACK COVER OF PROSPECTUS SUPPLEMENT)
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE DEPOSITOR OR BY THE UNDERWRITER. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE CERTIFICATES OFFERED HEREBY TO ANYONE IN
ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS.
___________________
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Reports to Certificateholders . . . . . . . . . . . . . . . . . . . . . Cover
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
The Receivables Pool . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Delinquencies, Repossessions and Net Losses . . . . . . . . . . . . . . S-11
The Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
The Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Weighted Average Life of the Certificates . . . . . . . . . . . . . . . S-13
Description of the Certificates . . . . . . . . . . . . . . . . . . . . S-13
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . S-18
State Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . .
ERISA Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-20
Index of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
PROSPECTUS
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Incorporation of Certain Documents by Reference . . . . . . . . . . . . . 3
Summary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Receivables Pools . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Weighted Average Life of the Certificates . . . . . . . . . . . . . . . . 19
Pool Factors and Trading Information . . . . . . . . . . . . . . . . . . 20
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . . 21
Description of the Certificates . . . . . . . . . . . . . . . . . . . . . 25
Certain Information Regarding the Securities . . . . . . . . . . . . . . 26
Description of the Transfer and Servicing Agreements . . . . . . . . . . 34
Certain Legal Aspects of the Receivables . . . . . . . . . . . . . . . . 43
Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 47
State Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . 60
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Index of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
(BACK COVER OF PROSPECTUS SUPPLEMENT, CONT.)
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES OFFERED BY THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS UNDERWRITER(S) AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$( )
______________ TRUST 199_ -( )
$
____% ASSET BACKED CERTIFICATES, CLASS A
$
____% ASSET BACKED CERTIFICATES, CLASS B
ML Asset Backed Corporation
DEPOSITOR
____________________
PROSPECTUS SUPPLEMENT
____________________
Merrill Lynch & Co.
____________________
, 199
____________________
____________________
Version #1
Subject to completion, dated March 16, 1998
PROSPECTUS
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ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
(EACH ISSUABLE IN SERIES)
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ML ASSET BACKED CORPORATION
Depositor
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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, 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, which may include one or more classes of Notes and/or one or
more classes of Certificates, will be issued by a trust to be formed with
respect to such series (each, a "Trust"). Each Trust will be formed pursuant
to either (i) a Trust Agreement to be entered into between ML Asset Backed
Corporation (the "Depositor") and the trustee specified in the related
Prospectus Supplement (the "Trustee"), or (ii) a Pooling and Servicing
Agreement to be entered into among the Trustee, the Depositor and the
servicer specified in the related Prospectus Supplement (the "Servicer"). If
a series of Securities includes Notes, such Notes will be issued and secured
pursuant to an Indenture between the Trust and the Indenture Trustee
specified in the related Prospectus Supplement (the "Indenture Trustee") and
will represent indebtedness of the related Trust. The Certificates of a
series will represent fractional undivided interests in the related Trust.
The related Prospectus Supplement will specify which class or classes of
Notes, if any, and which class or classes of Certificates, if any, of the
related series are being offered thereby. The property of each Trust will
include a pool of retail installment sale contracts, installment loans,
purchase money notes or other notes (the "Receivables") secured by new or
used (i) automobiles, light-duty trucks and/or medium- and heavy-duty trucks
and tractors and/or (ii) recreational vehicles and certain monies due or
received thereunder on and after the applicable Cutoff Date set forth in the
related Prospectus Supplement, security interests in the items financed
thereby and certain other property, all as described herein and in the
related Prospectus Supplement. In addition, if so specified in the related
Prospectus Supplement, the property of the Trust will include monies on
deposit in a trust account (the "Pre-Funding Account") to be established with
the Indenture Trustee, which will be used to purchase additional Receivables
(the "Subsequent Receivables") from the Depositor from time to time during
the Funding Period specified in the related Prospectus Supplement.
Each class of Securities of any series will represent the right to
receive a specified amount of payments on the related Receivables, at the
rates, on the dates and in the manner described herein and in the related
Prospectus Supplement. If a series includes multiple classes of Securities,
the rights of one or more classes of Securities to receive payments may be
senior or subordinate to the rights of one or more of the other classes of
such series. Distributions on Certificates of a series may be subordinated
in priority to payments due on any related Notes to the extent described
herein and in the related Prospectus Supplement. A series may include one or
more classes of Notes and/or Certificates which differ as to the timing and
priority of payment, interest rate or amount of distributions in respect of
principal or interest or both. A series may include one or more classes of
Notes or Certificates entitled to distributions in respect of principal with
disproportionate, nominal or no interest distributions, or to interest
distributions with disproportionate, nominal or no distributions in respect
of principal. The rate of payment in respect of principal of any class of
Notes and distributions in respect of the Certificate Balance of the
Certificates of any class will depend on the priority of payment of such
class and the rate and timing of payments (including prepayments, defaults,
liquidations and repurchases of Receivables) on the related Receivables. A
rate of payment lower or higher than that anticipated may affect the weighted
average life of each class of Securities in the manner described herein and
in the related Prospectus Supplement.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE 12 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF
A SERIES REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED
BY, ML ASSET BACKED CORPORATION, THE SERVICER, THE SELLER(S) OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR THE
RECEIVABLES ARE GUARANTEED OR INSURED BY ANY GOVERNMENT AGENCY OR
INSTRUMENTALITY.
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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 offered hereby unless accompanied
by a Prospectus Supplement.
____________________
MERRILL LYNCH & CO.
____________________
The date of this Prospectus is __________ 199__.
AVAILABLE INFORMATION
ML Asset Backed Corporation (the "Depositor") has filed with the
Securities and Exchange Commission (the "Commission") a Registration
Statement (together with all amendments and exhibits thereto, referred to
herein as the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Notes and the
Certificates offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may 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 Commission's regional
offices 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 the Registration Statement may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including ML Asset
Backed Corporation, that file electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor as originator of the Trust referred
to in the accompanying Prospectus Supplement, pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), subsequent to 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. 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 any
subsequently filed document which 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 will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is
delivered, on the written or oral request of any such person, a copy of any
or all of the documents incorporated herein or in any related Prospectus
Supplement by reference, except the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to ML Asset Backed Corporation,
250 Vesey Street, World Financial Center, New York, New York 10281-1310
Attention: Michael G. McGovern, Secretary (212) 449-0336.
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 the Securities of any series contained in
the related Prospectus Supplement to be prepared and delivered in connection
with the offering of such Securities. Certain capitalized terms used in this
summary are defined elsewhere in this Prospectus on the pages indicated in
the "Index of Terms".
Issuer . . . . . . . . . . . . . With respect to each series of
Securities, the trust (referred to
herein as the "Trust" or the
"Issuer") to be formed pursuant to
either a Trust Agreement (as
amended and supplemented from time
to time, a "Trust Agreement")
among the Depositor, the trustee
specified in the related
Prospectus Supplement (the
"Trustee") and, if so specified in
the related prospectus supplement,
a limited purpose affiliate of the
Seller (the "Company") or a
Pooling and Servicing Agreement
(as amended and supplemented from
time to time, the "Pooling and
Servicing Agreement") among the
Trustee, the Depositor and the
servicer specified in the related
Prospectus Supplement (the
"Servicer").
Depositor . . . . . . . . . . . . ML Asset Backed Corporation
Seller(s) . . . . . . . . . . . . With respect to each series of
Securities, the Seller(s) will be
specified in the related
Prospectus Supplement.
Servicer . . . . . . . . . . . . With respect to each series of
Securities, the Servicer will be
specified in the related
Prospectus Supplement.
Trustee . . . . . . . . . . . . . With respect to each series of
Securities, the Trustee will be
specified in the related
Prospectus Supplement.
Indenture Trustee . . . . . . . . With respect to any applicable
series of Securities, the
Indenture Trustee will be
specified in the related
Prospectus Supplement.
The Notes . . . . . . . . . . . . A series of Securities may include
one or more classes of Notes,
which will be issued pursuant to
an Indenture between the Trust and
the Indenture Trustee (as amended
and supplemented from time to
time, an "Indenture"). The
related Prospectus Supplement will
specify which class or classes, if
any, of Notes of the related
series are being offered thereby.
Unless otherwise specified in the
related Prospectus Supplement,
Notes will be available for
purchase in minimum denominations
of $1,000 and will be available in
book-entry form only. Unless
otherwise specified in the related
Prospectus Supplement, 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".
Except in the case of any Strip
Notes, as described below, each
class of Notes will have a stated
principal amount and will bear
interest at a specified rate or
rates (with respect to each class
of Notes, the "Interest Rate").
Each class of Notes may have a
different Interest Rate, which may
be a fixed, variable or adjustable
Interest Rate, or any combination
of the foregoing. The related
Prospectus Supplement will specify
the Interest Rate for each class
of Notes, or the method for
determining the Interest Rate.
With respect to a series that
includes two or more classes of
Notes, each class may differ as to
the timing and priority of
payments, seniority, allocations
of losses, Interest Rate or amount
of payments of principal or
interest, or payments of principal
or interest in respect of any such
class or classes may or may not be
made upon the occurrence of
specified events or on the basis
of collections from designated
portions of the Receivables Pool.
In addition, a series may include
one or more classes of Notes
("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.
If the Servicer exercises its
option to purchase the Receivables
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 Receivables are received),
in the manner and on the
respective terms and conditions
described under "Description of
the Transfer and Servicing
Agreements -- Termination", the
outstanding Notes will be redeemed
as set forth in the related
Prospectus Supplement. In
addition, if the related
Prospectus Supplement provides
that the property of a Trust will
include a Pre-Funding Account (as
such term is defined in the
related Prospectus Supplement, the
"Pre-Funding Account"), one or
more classes of the outstanding
Notes will be subject to partial
redemption on or immediately
following the end of the Funding
Period (as such term is defined in
the related Prospectus Supplement,
the "Funding Period") in an amount
and manner specified in the
related Prospectus Supplement. In
the event of such partial
redemption, the Noteholders may be
entitled to receive a prepayment
premium from the Trust, in the
amount and to the extent provided
in the related Prospectus
Supplement.
The Certificates . . . . . . . . A series may include one or more
classes of Certificates and may
not include any Notes. The
related Prospectus Supplement will
specify which class or classes, if
any, of the Certificates are being
offered thereby.
Unless otherwise specified in the
related Prospectus Supplement,
Certificates will be available for
purchase in a minimum denomination
of $1,000 and will be available in
book-entry form only. Unless
otherwise specified in the related
Prospectus Supplement,
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".
Except in the case of any Strip
Certificates, as described below,
each class of Certificates will
have a stated Certificate Balance
specified in the related
Prospectus Supplement (the
"Certificate Balance") and will
accrue interest on such
Certificate Balance at a specified
rate (with respect to each class
of Certificates, the "Pass Through
Rate"). Each class of
Certificates may have a different
Pass Through Rate, which may be a
fixed, variable or adjustable Pass
Through Rate, or any combination
of the foregoing. The related
Prospectus Supplement will specify
the Pass Through Rate for each
class of Certificates or the
method for determining the Pass
Through Rate.
With respect to a series that
includes two or more classes of
Certificates, each class may
differ as to timing and priority
of distributions, seniority,
allocations of losses, Pass
Through Rate or amount of
distributions in respect of
principal or interest, or
distributions in respect of
principal or interest in respect
of any such class or classes may
or may not be made upon the
occurrence of specified events or
on the basis of collections from
designated portions of the
Receivables Pool. In addition, a
series may include one or more
classes of Certificates ("Strip
Certificates") entitled to
(i) distributions in respect of
principal with disproportionate,
nominal or no interest
distributions or (ii) interest
distributions with
disproportionate, nominal or no
distributions in respect of
principal.
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.
If the Servicer exercises its
option to purchase the Receivables
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 Receivables are received),
in the manner and on the
respective terms and conditions
described under "Description of
the Transfer and Servicing
Agreements -- Termination",
Certificateholders will receive as
a prepayment an amount in respect
of the Certificates as specified
in the related Prospectus
Supplement. In addition, if the
related Prospectus Supplement
provides that the property of a
Trust will include a Pre-Funding
Account, Certificateholders may
receive a partial prepayment of
principal on or immediately
following the end of the Funding
Period in an amount and manner
specified in the related
Prospectus Supplement. In the
event of such partial prepayment,
the Certificateholders may be
entitled to receive a prepayment
premium from the Trust, in the
amount and to the extent provided
in the related Prospectus
Supplement.
The Trust Property . . . . . . . The property of each Trust will
include a pool of retail
installment sale contracts,
installment loans, purchase money
notes, or other notes (the
"Receivables") secured by new or
used (i) automobiles, light-duty
trucks and/or medium-and heavy-
duty trucks and tractors (the
"Financed Motor Vehicles") and/or
(ii) recreational vehicles (the
"Financed Recreational Vehicles"),
including rights to receive
certain payments made with respect
to such Receivables, security
interests in the Financed Motor
Vehicles and Financed Recreational
Vehicles (collectively, the
"Financed Vehicles") financed
thereby, certain accounts and the
proceeds thereof and any proceeds
from claims on certain related
insurance policies. On or prior
to the Closing Date specified in
the related Prospectus Supplement
with respect to a Trust, the
Seller(s) will sell or transfer
Receivables (the "Initial
Receivables") having an aggregate
principal balance specified in the
related Prospectus Supplement as
of the dates specified therein
(the "Initial Cutoff Date") to the
Depositor, which will transfer the
Initial Receivables to such Trust
on the Closing Date pursuant to
either a Sale and Servicing
Agreement among the Depositor, the
Servicer and the Trustee (as
amended and supplemented from time
to time, a "Sale and Servicing
Agreement") or, if the Trust is to
be treated as a grantor trust for
federal income tax purposes, the
related Pooling and Servicing
Agreement among the Depositor, the
Servicer and the Trustee. The
property of each Trust will also
include amounts on deposit in
certain trust accounts, including
the related Collection Account,
any Pre-Funding Account, any
Reserve Account and any other
account identified in the
applicable Prospectus Supplement.
To the extent provided in the
related Prospectus Supplement, the
Seller(s) will be obligated
(subject only to the availability
thereof) to sell to the Depositor
which will be obligated to
purchase and sell to the related
Trust, and such Trust will then be
obligated to purchase (subject to
the satisfaction of certain
conditions described in the
applicable Sale and Servicing
Agreement or Pooling and Servicing
Agreement), additional Receivables
(the "Subsequent Receivables")
from time to time (as frequently
as daily) 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 such Closing Date. With
respect to any Trust that is to be
treated as a grantor trust for
federal income tax purposes, the
Funding Period, if any, will not
exceed 90 days in length from the
Closing Date, and with respect to
any other Trust will not exceed
one year in length from the
Closing Date. With respect to
each Trust, the Pre-Funded Amount
on the Closing Date will not
exceed 25% of the aggregate
initial principal balance of the
Securities.
If so provided in the related
Prospectus Supplement, principal
collections on the Receivables may
be applied to the purchase by the
Trust of Subsequent Receivables
for the period of time specified
in the Prospectus Supplement.
The Receivables arise or will
arise from loans originated by
motor vehicle and recreational
vehicle dealers (the "Dealers")
and purchased, directly or
indirectly, by a Seller(s) and
sold to the Depositor. The
Receivables will be selected from
the contracts and loans owned by a
Seller(s) or the Depositor based
on the criteria specified in the
Sale and Servicing Agreement or
Pooling and Servicing Agreement,
as applicable, and described
herein and in the related
Prospectus Supplement.
Credit and Cash Flow Enhancement If and to the extent specified in
the related Prospectus Supplement,
credit and cash flow 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, a Reserve Account,
overcollateralization, letters of
credit, credit or liquidity
facilities, surety bonds,
guaranteed investment contracts,
swaps (including without
limitation currency swaps, other
interest rate protection
agreements, other derivatives and
financial instruments, repurchase
obligations, yield supplement
agreements or accounts, other
agreements with respect to third
party payments or other support,
cash deposits or other
arrangements consistent with the
foregoing. Unless otherwise
specified in the related
Prospectus Supplement, any form of
credit or cash flow enhancement
will have certain limitations and
exclusions from coverage
thereunder, which will be
described in the related
Prospectus Supplement.
Transfer and Servicing Agreements With respect to each Trust, the
Seller will sell the related
Receivables to the Depositor,
which, in turn, will sell the
related Receivables to such Trust
pursuant to a Sale and Servicing
Agreement or a Pooling and
Servicing Agreement. The rights
and benefits of any Trust under a
Sale and Servicing Agreement will
be assigned to the Indenture
Trustee as collateral for the
Notes of the related series. The
Servicer will agree with such
Trust to be responsible for
servicing, managing, maintaining
custody of and making collections
on the Receivables. If so
specified in the related
Prospectus Supplement, the person
specified therein as Administrator
will undertake certain
administrative duties under an
Administration Agreement with
respect to any Trust that has
issued Notes, which duties would
in the absence of an Administrator
be performed for the related Trust
primarily by the related Indenture
Trustee or by the Depositor.
Unless otherwise specified in the
related Prospectus Supplement,
with respect to each Precomputed
Receivable, the Servicer will
advance scheduled payments under
each Precomputed Receivable which
shall not have been 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.
With respect to Simple Interest
Receivables, the Servicer shall
advance any interest shortfall (a
"Simple Interest Advance" and,
together with a Precomputed
Advance, an "Advance"). The
Servicer shall be entitled to
reimbursement of Advances from
subsequent payments on or with
respect to the Receivables to the
extent described herein and in the
related Prospectus Supplement.
Unless otherwise provided in the
related Prospectus Supplement, the
Depositor will be obligated to
repurchase any Receivable from the
Trust, and the related Seller will
be obligated to simultaneously
repurchase such Receivable from
the Depositor, if the interest of
the applicable Trust in such
Receivable is materially adversely
affected by a breach of any
representation or warranty made by
such Seller with respect to the
Receivable, if the breach has not
been cured following the discovery
by or notice to such Seller and
the Depositor of the breach. If
so specified in the related
Prospectus Supplement, the related
Seller or the Depositor will be
permitted, in a circumstance where
it would otherwise be required to
repurchase a Receivable as
described in the preceding
sentence, to instead substitute a
comparable Receivable for the
Receivable otherwise requiring
repurchase, subject to certain
conditions and eligibility
criteria for the substitute to be
summarized in the related
Prospectus Supplement.
Unless otherwise provided in the
related Prospectus Supplement, the
Servicer will be obligated to
purchase or make Advances with
respect to any Receivable if,
among other things, it extends the
date for final payment by the
Obligor of such Receivable beyond
the applicable Final Scheduled
Maturity Date (as defined in the
related Prospectus Supplement, the
"Final Scheduled Maturity Date"),
changes the annual percentage rate
("APR") or amount of a scheduled
payment of such Receivable or
fails to maintain a perfected
security interest in the related
Financed Vehicle.
Unless otherwise specified in the
related Prospectus Supplement, the
Servicer will be entitled to
receive a fee for servicing the
Receivables of each Trust equal to
a specified percentage of the
aggregate principal balance of the
related Receivables Pool, as set
forth in the related Prospectus
Supplement, 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 and in
the related Prospectus Supplement.
Certain Legal Aspects of the
Receivables; In connection with the sale of
Repurchase Obligations . . . . Receivables to a Trust, security
interests in the Financed Vehicles
securing such Receivables will be
assigned, directly or indirectly,
by the related Dealer to the
Seller(s) and by the Seller(s) to
the Depositor and by the Depositor
to such Trust. Due to
administrative burden and expense,
the certificates of title to the
Financed Motor Vehicles and those
Financed Recreational Vehicles
financed in states where security
interests in recreational vehicles
are subject to certificate of
title statutes will not be amended
to reflect any such assignments
and the Uniform Commercial Code
("UCC") financing statements in
respect of those Financed
Recreational Vehicles financed in
states where security interests in
recreational vehicles are
perfected by filing a UCC-1
financing statement will not be
amended to reflect such
assignments. In the absence of
such procedures, such Trust may
not have a perfected security
interest in the Financed Vehicles
in some states. If such 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 a Financed
Vehicles or for taxes unpaid by an
Obligor under a Receivable, or
because of fraud or negligence,
such Trust could lose the priority
of its security interest or its
security interest in Financed
Vehicles.
Federal and state consumer
protection laws impose
requirements upon 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. Unless otherwise
specified in the related
Prospectus Supplement, the
Depositor will be obligated to
repurchase from the Trust and the
related Seller will be obligated
to simultaneously repurchase from
the Depositor any Receivable which
fails to comply with such
requirements. The Depositor's
obligation to make such repurchase
is contingent upon the related
Seller performing its obligation
to repurchase such Receivable from
the Depositor on account of such
failure.
Tax Status . . . . . . . . . . . Unless the Prospectus Supplement
specifies that the related Trust
will be treated as a grantor trust
upon the issuance of the related
series of Securities, Tax Counsel
to such Trust will deliver an
opinion to the effect that, for
federal income tax purposes:
(i) all or certain specified
classes of Notes of such series
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
Noteholder, by the acceptance of a
Note of such series, will agree to
treat such Note as indebtedness,
and each 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 and
state income tax purposes.
Alternative characterizations of
such Trust and such Certificates
are possible, but would not result
in materially adverse tax
consequences to
Certificateholders.
If the Prospectus Supplement
specifies that the related Trust
will be treated as a grantor
trust, upon the issuance of the
related series of Certificates,
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 "Federal Income Tax
Consequences" for additional
information concerning the
application of federal tax laws.
ERISA Considerations . . . . . . Subject to the considerations
discussed under "ERISA
Considerations" herein and in the
related Prospectus Supplement, and
unless otherwise specified
therein, any Notes of a series and
any Certificates that are issued
by a Trust that is a grantor trust
and are not subordinated to any
other class of Certificates are
eligible for purchase by employee
benefit plans.
Unless otherwise 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 subject to the Employee
Retirement Income Security Act of
1974, as amended ("ERISA"), or by
any individual retirement account.
See "ERISA Considerations" herein
and in the related Prospectus
Supplement.
RISK FACTORS
CERTAIN LEGAL ASPECTS -- SECURITY INTERESTS IN FINANCED VEHICLES.
Trusts May Not Have A Perfected Security Interest in Certain Financed
Vehicles. In connection with the sale of Receivables to a Trust, security
interests in the Financed Vehicles securing such Receivables will be, or will
have been, assigned by the Seller(s) to the Depositor and by the Depositor to
such Trust simultaneously with the sale of such Receivables to such Trust.
Due to administrative burden and expense, (i) the certificates of title to
the Financed Motor Vehicles and those Financed Recreational Vehicles financed
in states where security interests in recreational vehicles are subject to
certificate of title statutes will not be amended to reflect such
assignments, and (ii) UCC financing statements in respect of those Financed
Recreational Vehicles financed in states where security interests in
recreational vehicles, are perfected by filing a UCC-1 financing statement
will not be amended to reflect such assignments. In the absence of such
procedures, such Trust may not have a perfected security interest in the
Financed Vehicles in some states.
Unless otherwise provided in the related Prospectus Supplement, the
Depositor will be obligated to repurchase from the related Trust and the
related Seller will be obligated to simultaneously repurchase from the
Depositor any Receivable sold to such Trust as to which a perfected security
interest in the name of the related Seller in the Financed Vehicle securing
such Receivable shall not exist as of the date such Receivable is transferred
to such Trust, if such failure shall materially adversely affect the interest
of such Trust in such Receivable and if such failure shall not have been
cured by the last day of the second month following the discovery by or
OWnotice to the Seller(s) of such breach. The Depositor's obligation to make
such repurchase is contingent upon the related Seller performing its
obligation to repurchase such Receivable from the Depositor on account of
such failure. Moreover, such repurchase obligations will not address or
remedy the circumstance where a perfected security interest in the name of
the related Seller in the Financed Vehicle securing a Receivable has not been
perfected in the related Trust as a result of the absence of the procedures
described in the preceding paragraph or for any other reason. If such 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. This could adversely affect the amount available for
distribution to the Securityholders.
Certain Liens Will Have Priority Over a Perfected Security Interest. 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 a Financed Vehicle or for taxes unpaid by an Obligor under a
Receivable, or through fraud or negligence, such Trust could lose the
priority of its security interest or its security interest in a Financed
Vehicle. None of the Seller(s), the Servicer or the Depositor will have any
obligation to repurchase a Receivable as to which any of the aforementioned
occurrences result in such Trust's losing the priority of its security
interest or its security interest in such Financed Vehicle after the date
such security interest was conveyed to such Trust. See "Certain Legal
Aspects of the Receivables -- Security Interest in Vehicles" herein.
CERTAIN LEGAL ASPECTS -- SECURITY INTEREST IN THE RECEIVABLES. The
Receivables will be treated by each Trust as "chattel paper" as defined in
the UCC. Pursuant to the UCC, the sale of chattel paper is treated in a
manner similar to a security interest in chattel paper. Perfection of a
security interest in chattel paper may generally be made by filing UCC-1
financing statements in respect thereof or by possession of the chattel
paper. In order to protect each Trust's ownership or security interest in its
Receivables, the Depositor will file UCC-1 financing statements with the
appropriate authorities in the States of New York, Delaware and any other
states deemed advisable by the Depositor to give notice of such Trust's
ownership interest (and any related Indenture Trustee's security interest) in
the Receivables and proceeds thereof. Under each Sale and Servicing
Agreement and Pooling and Servicing Agreement, the Servicer will be appointed
custodian of the Receivables by the Trustee and the Servicer will otherwise
be obligated to maintain the perfection of each Trust's and any related
Indenture Trustee's interest in the Receivables. The filing of UCC-1
financing statements as described above and possession of the chattel paper
by the Servicer will reduce but not eliminate the risks involved in
perfection. A Trust could lose priority of its security interest in the
Receivables to certain liens arising by operation of law or in certain cases
by fraud or negligence. Moreover, if the Servicer should lose or
inadvertently give up possession of the chattel paper, a good faith purchaser
of the chattel paper without knowledge who gives new value and takes
possession of it in the ordinary course of such purchaser's business has
priority over a security interest (including an ownership interest) in the
chattel paper that is perfected by filing UCC-1 financing statements. In
addition, the Receivables will not be stamped to reflect the sale and
assignment of the Receivables to the Trust. Therefore, any good faith
purchaser of the chattel paper described above would not be deemed to have
knowledge of the a security interest (including an ownership interest)
therein because such purchaser would not learn of the sale of or security
interest in the Receivables from a review of the chattel paper.
CERTAIN LEGAL ASPECTS -- CONSUMER PROTECTION LAWS. Federal and state
consumer protection laws impose requirements upon 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 (such as such Trust)
liable to the obligor thereon for any violation by the lender. The
application of such laws could render a Receivable unenforceable or otherwise
uncollectible. The inability of Trust to realize amounts owed in respect of
such Receivable could adversely affect the amount available for distribution
to the Securityholders. Unless otherwise specified in the related Prospectus
Supplement, the Depositor will be obligated to repurchase from the Trust and
the related Seller will be obligated to simultaneously repurchase from the
Depositor any Receivable which fails to comply with such requirements. The
Depositor's obligation to make such repurchase is contingent upon the related
Seller performing its obligation to repurchase such Receivable from the
Depositor on account of such failure. See "Certain Legal Aspects of the
Receivables -- Consumer Protection Laws" herein.
CERTAIN LEGAL ASPECTS -- INSOLVENCY CONSIDERATIONS. Each Seller will
represent and warrant that the transfer of the Receivables by it to the
Depositor will constitute a sale. In addition, the Depositor intends that
the Transfer of Receivables by it to a Trust will constitute a sale.
Considerations Relating to the Insolvency of a Bank Seller. In the case
of a seller (a "Bank Seller") that is a depository institution whose deposits
are insured by the Federal Deposit Insurance Corporation (the "FDIC"), if
such Bank Seller were to become insolvent, the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") sets forth certain powers
that the FDIC could exercise if it were appointed as receiver of such Bank
Seller. Subject to clarification by FDIC regulations or interpretations, it
would appear from the positions taken by the FDIC before and after the
passage of FIRREA that the FDIC, in its capacity as receiver for a Bank
Seller, would not interfere with the timely transfer to the Depositor of
payments collected on the Receivables. If the transfer to the Depositor were
to be characterized as a secured loan, to the extent that the Seller would be
deemed to have granted a security interest in the Receivables to the
Depositor, and that interest had been validly perfected before the Bank
Seller's insolvency and had not been taken in contemplation of insolvency,
that security interest should not be subject to avoidance, and payments to
the Trust with respect to the Receivables should not be subject to recovery
by the FDIC as receiver of the Bank Seller. If however, the FDIC were to
assert a contrary position, such as by requiring the Indenture Trustee or the
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 related Securities and possible reductions in the
amount of those payments could occur. See "Certain Legal Aspects of the
Receivables -- Other Limitations".
Considerations Relating to the Insolvency of a Nonbank Seller or the
Depositor. If either a Seller other than a Bank Seller (a "Nonbank Seller")
or the Depositor were to become a debtor in a bankruptcy case (or if the
parent of either were to become a debtor in a bankruptcy case and the assets
of the Nonbank Seller or Depositor, as applicable, were consolidated with
those of its parent) and a creditor or trustee-in-bankruptcy of such debtor
or such debtor itself were to take the position that the transfer of
Receivables to the Depositor or such Trust, as the case may be, should,
notwithstanding the intent of the parties that it be treated as a sale,
instead be treated as a pledge of such Receivables to secure a borrowing of
such debtor, delays in payments of collections of Receivables to the related
Securityholders could occur or (should the court rule in favor of any such
trustee, debtor or creditor) reductions in the amounts of such payments could
result. If the transfer of Receivables by a Nonbank Seller to the Depositor
or by the Depositor to a Trust is treated as a pledge instead of a sale, a
tax or government lien on the property of the Nonbank Seller or the
Depositor, as applicable, arising before such Receivables transfer may have
priority over such Trust's interest in such Receivables. If the transactions
contemplated herein are treated as a sale, the Receivables would not be part
of the Nonbank Seller's or Depositor's bankruptcy estate and would not be
available to their respective creditors.
Considerations Relating to an Insolvency Event of the Depositor or
Company Related to Certain Trusts. With respect to each Trust that is not a
grantor trust, if the related Prospectus Supplement so provides, upon the
occurrence of an Insolvency Event of either the Depositor or Company
identified therein, the Indenture Trustee or Trustee for such Trust will
promptly sell, dispose of or otherwise liquidate the related Receivables in a
commercially reasonable manner on commercially reasonable terms, except under
certain limited circumstances. The proceeds from any such sale, disposition
or liquidation of Receivables will be treated as collections on the
Receivables and deposited in the Collection Account of such Trust. If the
proceeds from the liquidation of the Receivables and any amounts on deposit
in the Reserve Account, if any, the Note Distribution Account, if any, and
the Certificate Distribution Account with respect to any such Trust and any
amounts available from any credit enhancement are not sufficient to pay any
Notes and the Certificates of the related series in full, the amount of
principal
returned to any Noteholders or the Certificateholders will be reduced and
such Noteholders and Certificateholders will incur a loss.
Octagon Gas Case. In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d
------------------------- ------
948 (10th Cir. 1993), the U.S. Court of Appeals for the 10th Circuit
determined that "accounts," a defined term under the Uniform Commercial Code,
would be included in the bankruptcy estate of a transferor regardless of
whether the transfer is treated as a sale or a secured loan. Although the
Receivables are likely to be viewed as "chattel paper," as defined under the
Uniform Commercial Code, rather than as accounts, the Octagon holding is
equally applicable to chattel paper. The circumstances under which the
Octagon ruling would apply are not fully known and the extent to which the
Octagon decision will be followed in other courts or outside of the Tenth
Circuit is not certain. If the holding in the Octagon case were applied in a
bankruptcy of the Depositor or a Seller, however, even if the transfer of
Receivables to the Depositor and the transfer of the Receivables to the Trust
were treated as a sale, the Receivables would be part of the Depositor's or
Seller's bankruptcy estate (as applicable) and would be subject to claims of
certain creditors, and delays and reductions in payments to the
Securityholders could result.
RELIANCE ON REPRESENTATIONS AND WARRANTIES BY THE DEPOSITOR, THE
SELLER(S) AND THE SERVICER. None of the Seller(s), the Servicer, the
Depositor or any of their respective affiliates will generally be obligated
to make any payments in respect of any Notes, the Certificates or the
Receivables of a Trust. However, in connection with the sale of Receivables
by the Seller(s) to the Depositor and the Depositor to a Trust, the Seller(s)
will make representations and warranties with respect to the characteristics
of such Receivables and, in certain circumstances, the Depositor may be
required to repurchase from the Trust and the related Seller would be
required to simultaneously repurchase from the Depositor Receivables with
respect to which such representations and warranties have been breached.
Alternatively, if so specified in the related Prospectus Supplement, the
related Seller or the Depositor will be permitted, in a circumstance where it
would otherwise be required to repurchase a Receivable as described in the
preceding sentence, to instead substitute a comparable Receivable for the
Receivable otherwise requiring repurchase, subject to certain conditions and
eligibility criteria for the substitute Receivable to be summarized in the
related Prospectus Supplement. The Depositor's obligation to make such
repurchase or substitution is contingent upon the related Seller performing
its obligation to repurchase or substitute for such Receivable from the
Depositor. See "Description of the Transfer and Servicing Agreements -- Sale
and Assignment of Receivables". In addition, under certain circumstances,
the Servicer may be required to purchase Receivables. See "Description of
the Transfer and Servicing Agreements -- Servicing Procedures". If
collections on any Receivable were reduced as a result of any matter giving
rise to a repurchase or purchase obligation on the part of the Depositor, the
Seller and/or the Servicer, as the case may be, and the Depositor, the Seller
and/or the Servicer failed for any reason to perform in accordance with that
obligation, then delays in payments on the Securities and possible reductions
in the amount of those payments could occur. Moreover, if the Servicer 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
payments to the Securityholders.
SUBORDINATION. 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 other classes of Certificates of such series.
LIMITED ASSETS. Moreover, each Trust will not have, nor is it permitted
or expected to have, any significant assets or sources of funds other than
the Receivables and, to the extent provided in the related Prospectus
Supplement, a Pre-Funding Account, a Reserve Account and any other credit
enhancement. The Notes of any series will represent obligations solely of,
and the Certificates of any series will represent interests solely in, the
related Trust and neither the Notes nor the Certificates of any series will
be insured or guaranteed by any of the Seller(s), the Depositor, the
applicable Trustee, any Indenture Trustee or any other person or entity.
Consequently, holders of the Securities of any series must rely for repayment
upon payments on the related Receivables and, if and to the extent available,
amounts on deposit in the Pre-Funding Account (if any), the Reserve Account
(if any) and any other credit enhancement, all as specified in the related
Prospectus Supplement. If such amounts and credit enhancement are exhausted
(and not replenished), the related Trust will depend solely on payments on
the Receivables to make distributions on the Securities, and the Securities
will bear the risk of delinquency, loan loss and repossessions with respect
to the Receivables.
MATURITY AND PREPAYMENT CONSIDERATIONS. All the Receivables are
prepayable at any time. (For this purpose the term "prepayments" includes
prepayments in full, partial prepayments (including those related to rebates
of extended warranty contract costs and insurance premiums) and liquidations
due to default, as well as receipts of proceeds from physical damage,
credit life and disability insurance policies and 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 causing the
related loan to become due and payable. The rate of prepayment on the
Receivables may also be influenced by the structure of the loan evidencing
the Receivable. In addition, under certain circumstances, the Depositor will
be obligated to repurchase from the Trust, and the related Seller will be
obligated to simultaneously repurchase from the Depositor (or in either case,
if so specified in the related Prospectus Supplement and subject to the
conditions summarized therein, substitute for) Receivables pursuant to a Sale
and Servicing Agreement or Pooling and Servicing Agreement as a result of
certain breaches of representations and warranties and, under certain
circumstances, the Servicer will be obligated to purchase Receivables
pursuant to such Sale and Servicing Agreement or Pooling and Servicing
Agreement as a result of breaches of certain covenants. See "Description of
the Transfer and Servicing Agreements -- Sale and Assignment of Receivables".
Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables held by a given Trust will be borne entirely by the
Securityholders of the related series of Securities. See also "Description
of the Transfer and Servicing Agreements -- Termination" regarding the
Servicer's option to purchase the Receivables of a given Receivables Pool.
In addition, as described above under "Considerations Relating to an
Insolvency Event of the Depositor or Company Related to Certain Trusts", in
the case of a Trust that is not a grantor trust, if so specified in the
related Prospectus Supplement, as described in such supplement, the sale of
the Receivables owned by such Trust will be required if an Insolvency Event
with respect to the Depositor or any Company occurs.
RISK OF COMMINGLING. With respect to each Trust, the Servicer will
deposit all payments on the related Receivables (from whatever source) and
all proceeds of such Receivables collected during each Collection Period into
the Collection Account of such Trust within two business days of receipt
thereof. However, in the event that the Servicer satisfies certain
requirements for monthly or less frequent remittances and the Rating Agencies
(as such term is defined in the related Prospectus Supplement, the "Rating
Agencies") affirm their ratings of the related Securities at the initial
level, then for so long as the servicer specified in the related Prospectus
Supplement is the Servicer and provided that (i) there exists no Servicer
Default and (ii) each other condition to making such 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 on or
before the business day preceding each Distribution Date or Payment Date.
The Servicer will deposit the aggregate Purchase Amount of Receivables
purchased by the Servicer into the applicable Collection Account on or before
the business day preceding each Distribution Date or Payment 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,
such funds will not be available for distribution to the applicable
Securityholders and such 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 Receivables and payment of the aggregate Purchase
Amount with respect to Receivables purchased by the Servicer.
RISK ASSOCIATED WITH SUBSEQUENT RECEIVABLES AND THE PRE-FUNDING ACCOUNT.
If so specified in the related Prospectus Supplement, the Seller(s) will be
obligated to sell, and the Depositor will be obligated to purchase and then
transfer to the related Trust which Trust will then be obligated to purchase,
Subsequent Receivables from time to time during the Funding Period specified
in the related Prospectus Supplement. With respect to any Trust that is to
be treated as a grantor trust for federal income tax purposes, the Funding
Period, if any, will not exceed 90 days in length from the Closing Date, and
with respect to any other Trust will not exceed one-year in length from the
Closing. With respect to each Trust, the Pre-Funded Amount on the Closing
Date will not exceed 25% of the aggregate initial principal balance of the
Securities.
Changes in Characteristics of Receivables Pool Due to Subsequent
Receivables. Amounts on deposit in any Pre-Funding Account may be invested
only in Eligible Investments. Subsequent Receivables may be originated by
the Dealers at a later date using credit criteria different from those which
were applied to any Initial Receivables and may be of a different credit
quality and seasoning. In addition, following the transfer of Subsequent
Receivables to the applicable Trust, the characteristics of the entire pool
of Receivables included in such Trust may vary from those of the Initial
Receivables transferred to such Trust. As a result, it is possible that the
credit quality of the Receivables in a Trust, as a whole, may decline as a
result of the inclusion of Subsequent Receivables and may result in a higher
rate of payment to the applicable Securityholders as a result of an increased
level of defaults on such Receivables.
Use of Balance in Pre-Funding Account to Prepay Securities. To the
extent that amounts on deposit in the Pre-Funding Account have not been fully
applied to the conveyance of Subsequent Receivables to a Trust by the end of
the Funding Period and such amount exceeds the applicable amount described in
the related Prospectus Supplement, the holders of Securities issued by the
related trust will receive, on the Distribution Date or Payment Date on or
immediately following the last day of the applicable Funding Period, a
prepayment of principal in an amount equal to the amount remaining in the
Pre-Funding Account following the purchase of any Subsequent Receivables on
or immediately preceding such Distribution Date or Payment Date. It is
anticipated that the principal balance of Subsequent Receivables sold to a
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 holders of the Securities issued by such Trust.
Securityholders will bear all reinvestment risk associated with distribution
of amounts on deposit in the Prefunding Account after termination of the
applicable Funding Period. Any such distribution will have the effect of a
prepayment on the related Receivables and may result in a reduction in the
yield to maturity of any class of Securities to which such amounts are
distributed.
RIGHTS OF THE NOTEHOLDERS TO DIRECT CERTAIN MATTERS AFFECTING THE
CERTIFICATEHOLDERS. In general, with respect to any Trust issuing Notes,
until the Notes have been paid in full, the ability to direct the related
Trust with respect to certain actions permitted to be taken under the related
Transfer and Servicing Agreements rests with the related Indenture Trustee
and the Noteholders instead of the Certificateholders.
For example, unless otherwise provided in the related Prospectus
Supplement with respect to a Trust issuing Notes, in the event a Servicer
Default occurs, the Indenture Trustee or the Noteholders with respect to such
series, as described under "Description of the Transfer and Servicing
Agreements -- Rights upon Servicer Default", may remove the Servicer without
the consent of the Trustee or any of the Certificateholders with respect to
such series. The Trustee or the Certificateholders with respect to such
series will not have the ability to remove the Servicer if a Servicer Default
occurs. In addition, the Noteholders of such series have the ability, with
certain specified exceptions, to waive defaults by the Servicer, including
defaults that could materially adversely affect the Certificateholders of
such series. See "Description of the Transfer and Servicing Agreements --
Waiver of Past Defaults".
BOOK-ENTRY REGISTRATION. Unless otherwise specified in the related
Prospectus Supplement, each class of Securities of a given series will be
initially represented by one or more certificates registered in the name of
Cede & Co. ("Cede"), or any other nominee for the Depository Trust Company
("DTC") set forth in the related Prospectus Supplement (Cede, or such other
nominee, "DTC's Nominee"), and will not be registered in the names of the
holders of 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 Trustee or any applicable
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 related Indenture and Trust
Agreement, as applicable). Hence, until Definitive Securities are issued,
holders of such Securities will only be able to exercise the rights of
Securityholders 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 Depositor will establish
a separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and
in the related Prospectus Supplement. The property of each Trust will
include a pool (a "Receivables Pool") of retail installment sales contracts,
purchase money notes or other notes between dealers or lenders (the
"Dealers") and purchasers (the "Obligors") of new and used (i) automobiles,
light-duty trucks and/or medium- and heavy-duty trucks and tractors
("Financed Motor Vehicles," and the Receivables with respect thereto, "Motor
Vehicle Receivables"), and/or (ii) recreational vehicles ("Financed
Recreational Vehicles," and the Receivables with respect thereto,
"Recreational Vehicle Receivables") or installment loans made to Obligors for
such purchases and all payments due thereunder on and after the applicable
cutoff date (as such term is defined in the related Prospectus Supplement, a
"Cutoff Date") in the case of Precomputed Receivables and all payments
received thereunder on and after the applicable Cutoff Date in the case of
Simple Interest Receivables. A Receivables Pool may consist solely of Motor
Vehicle Receivables, or Recreational Vehicle Receivables, or a combination of
such Receivables (together with marine receivables, if so specified), all as
specified in the related Prospectus Supplement. The Receivables of each
Receivables Pool were or will be originated by the Dealers or lenders,
purchased by the Seller(s), directly or indirectly, pursuant to
agreements with Dealers ("Dealer Agreements") or such lenders and sold to the
Depositor. Receivables may also be originated directly by a Seller. Such
Receivables will be serviced by the Servicer. On or prior to the applicable
Closing Date, the Seller(s) will sell the Receivables to the Depositor. On
the applicable Closing Date, the Depositor will sell the Initial Receivables
of the applicable Receivables Pool to the Trust to the extent, if any,
specified in the related Prospectus Supplement. To the extent so provided in
the related Prospectus Supplement, Subsequent Receivables will be conveyed to
the Trust as frequently as daily during the Funding Period. Any Subsequent
Receivables so conveyed will also be assets of the applicable Trust, subject
to the prior rights of the related Indenture Trustee and the Noteholders, if
any, therein. The property of each Trust will also include (i) such amounts
as from time to time may be held in separate trust accounts established and
maintained pursuant to the related Sale and Servicing Agreement or Pooling
and Servicing Agreement and the proceeds of such accounts, as described
herein and in the related Prospectus Supplement; (ii) security interests in
the Financed Vehicles and any other interest of the Depositor in such
Financed Vehicles; (iii) the rights to proceeds from claims on certain
physical damage, credit life and disability insurance policies covering the
Financed Vehicles or the Obligors, as the case may be; (iv) the interest of
the Depositor in any proceeds from recourse to Dealers on Receivables or
Financed Vehicles with respect to which the Servicer has determined that
eventual repayment in full is unlikely; (v) any property that shall have
secured a Receivable and that shall have been acquired by the applicable
Trust; and (vi) any and all proceeds of the foregoing. To the extent
specified in the related Prospectus Supplement, a Pre-Funding Account, a
Reserve Account or other form of credit enhancement may be a part of the
property of any given Trust or may be held by the Trustee or an Indenture
Trustee for the benefit of holders of the related Securities. Additionally,
pursuant to the Dealer Agreements, the Dealers have an obligation after
origination to repurchase Receivables as to which Dealers have made certain
misrepresentations.
With respect to each series of Securities, if so specified in the
related prospectus supplement, prior to its sale of Receivables to the Trust,
the Depositor may hold such assets in the form of one or more participation
certificates, issued by the related Seller, evidencing the entire undivided
ownership interest in each related Receivable (each, a "Participation"). In
such event, immediately upon the sale of the Receivables to the related
Trust, the Participation will be terminated and dissolved by mutual agreement
of the Seller, the Trust and the Depositor and the Trust will then own the
Receivables directly.
The Servicer will continue to 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 in the related Prospectus Supplement. To facilitate the servicing
of the Receivables, each Trustee will authorize the Servicer to retain
physical possession of the Receivables held by each Trust and other documents
relating thereto as custodian for each such Trust. Due to the administrative
burden and expense, the certificates of title or UCC financing statements, as
applicable, to the Financed Vehicles will not be amended to reflect the sale
and assignment of the security interest in the Financed Vehicles to each
Trust. See "Risk Factors -- Certain Legal Aspects -- Security Interest in
Financed Vehicles," "Certain Legal Aspects of the Receivables" and
"Description of the Transfer and Servicing Agreements -- Sale and Assignment
of Receivables".
If the protection provided to any Noteholders of a series by the
subordination of the related Certificates and by the Reserve Account, if any,
or other credit enhancement for such series or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be,
would have to look principally to the Obligors on the related Receivables,
the proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables and the proceeds from any recourse against Dealers with
respect to such Receivables. In such event, certain factors, such as the
applicable Trust's not having perfected security interests in the Financed
Vehicles in all states may affect the Servicer's ability to repossess and
sell the collateral securing the Receivables, and thus may reduce the
proceeds to be distributed to the holders of the Securities of such series.
See "Description of the Transfer and Servicing Agreements -- Distributions",
"-- Credit and Cash Flow Enhancement" and "Certain Legal Aspects of the
Receivables".
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
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 the 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,
or its successor, will be obligated to appoint a successor trustee. The
Administrator, if any, of a Trust that is not a grantor trust and the
Servicer in respect of a Trust that is a grantor trust may
also remove the Trustee if the Trustee ceases to be eligible to continue as
Trustee under the related Trust Agreement or Pooling and Servicing Agreement,
as applicable, or if the Trustee becomes insolvent. In such circumstances,
the Administrator or Servicer, as applicable, will be obligated to appoint a
successor trustee. Any resignation or removal of a Trustee and appointment
of a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
THE RECEIVABLES POOLS
GENERAL
The Receivables in each Receivables Pool are and will be retail
installment sales contracts, installment loans, purchase money orders or
other notes that have been or will be originated by a Dealer and purchased by
a Seller pursuant to a Dealer Agreement between the related seller (the
"Seller") and the Dealer (or originated directly by the Seller). Receivables
held by any Seller may have been acquired from other Sellers. The Sellers of
each of the Motor Vehicle Receivables and Recreational Vehicle Receivables
may include banks, finance companies or other financial institutions and will
be entities involved in the financing of each of the particular types of
assets (i.e., recreational vehicles and motor vehicles) securing the
Receivables being sold by such Seller, and in the origination, secondary
market purchasing and/or servicing of retail installment sales contracts,
installment loans, loans and other receivables secured by each of such asset
types. Each Seller with respect to a Series will be identified in the
related Prospectus Supplement. A Receivables Pool may consist solely of
Motor Vehicle Receivables, or Recreational Vehicle Receivables or a
combination of such Receivables, all as specified in the related Prospectus
Supplement. (If so specified in a Prospectus Supplement, a Receivables Pool
may include marine receivables). In addition, to the extent described in any
Prospectus Supplement, the related Receivables Pool may include Receivables
acquired by an Affiliate through acquisitions. Receivables of a Seller will
be transferred to the Depositor pursuant to a Receivables Purchase Agreement
for sale by the Depositor to the applicable Trust.
The Receivables to be held by each Trust will be purchased by the
Depositor from the portfolio of the Seller(s) for inclusion in a Receivables
Pool in accordance with several criteria, including that each Receivable
(i) is secured by a new or used motor vehicle or recreational vehicle,
(ii) was originated in the United States, (iii) is a Simple Interest
Receivable or a Precomputed Receivable and (iv) as of the Cut-off Date
(a) had an outstanding principal balance of at least the amount set forth in
the related Prospectus Supplement, (b) was not more than 30 days (or such
other number of days specified in the related Prospectus Supplement) past due
as of the specified Cut-off Date, (c) had a remaining number of scheduled
payments not more than the number set forth in the related Prospectus
Supplement, (d) had an original number of scheduled payments not more than
the number set forth in the related Prospectus Supplement and (e) had an APR
of not less than the rate per annum set forth in the related Prospectus
Supplement. Terms of the loans constituting such Receivables which are
material to investors are described herein or in the related Prospectus
Supplement.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under each receivable over a series of
fixed level payment monthly installments. However, unlike the monthly
installment under an Actuarial Receivable, each monthly installment consists
of an amount of interest which is calculated on the basis of the outstanding
principal balance of the receivable multiplied by the stated APR Rate and
further multiplied by the period elapsed (as a fraction of a calendar year)
since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied, first, to
interest accrued to the date of payment, second, to reduce the unpaid
principal balance, and third, to late fees and other fees and charges, if
any. Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly
greater. Conversely, if an Obligor pays a fixed monthly installment after
its scheduled due date, the portion of the payment allocable to interest for
the period since the preceding payment was made will be greater than it would
have been had the payment been made as scheduled, and the portion of the
payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount
of the final installment is increased or decreased as necessary to repay the
then outstanding principal balance and unpaid accrued interest. If a Simple
Interest Receivable is prepaid, the Obligor is required to pay interest only
to the date of prepayment.
"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 78's" ("Rule of 78's
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed level payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment
on the Receivable, consists of an amount of interest equal to 1/12 of the APR
of the loan multiplied by the unpaid principal balance of the loan, and an
amount of principal equal to the remainder of the monthly payment. A Rule of
78's 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 and add-on interest in
an amount calculated on the stated APR 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 are calculated in accordance with the "Rule of 78's".
Information with respect to each Receivables Pool will be set forth in
the related Prospectus Supplement, including, to the extent appropriate, the
composition, the geographic distribution and distribution by APR Rate and the
portion of such Receivables Pool consisting of Precomputed Receivables and of
Simple Interest Receivables and the portion of such Receivables Pool made up
by Motor Vehicle Receivables and/or Recreational Vehicle Receivables and the
portion of each category secured by new Financed Vehicles and by used
Financed Vehicles.
SUBSEQUENT RECEIVABLES
Subsequent Receivables may be originated by the Dealers at a later date
using credit criteria different from those which were applied to any Initial
Receivables and may be of a different credit quality and seasoning. In
addition, following the transfer of Subsequent Receivables to the applicable
Trust, the characteristics of the entire pool of Receivables included in such
Trust may vary significantly from those of the Initial Receivables
transferred to such Trust. Each Prospectus Supplement will describe the
effects that including such Subsequent Receivables may have on the
Receivables Pool included in the Trust Property of each Trust issuing
Securities.
UNDERWRITING
The related Prospectus Supplement will describe the Seller(s)'
underwriting procedures and guidelines, including the type of information
reviewed in respect of an applicant.
SERVICING AND COLLECTIONS
The related Prospectus Supplement will describe the Servicer's servicing
procedures, including the steps customarily taken in respect of delinquent
Receivables and the maintenance of physical damage insurance.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Certain information concerning the Seller(s)' loss and delinquency
experience with respect to its portfolio of motor vehicle loans and/or
recreational vehicle loans (including previously sold contracts which a
Seller continues to service), 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.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates, if
any, of any series will generally be influenced by the rate at which the
principal balances of the related Receivables are paid, which payment may be
in the form of scheduled amortization or prepayments. (For this purpose, 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 default, as well as receipts of
proceeds from physical damage, credit life and disability insurance policies
and certain other Receivables repurchased by the Depositor or the Servicer
for administrative reasons.) All of the Receivables are prepayable at any
time without penalty to the Obligor. The rate of prepayment of automotive
and recreational vehicle 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 Servicer. The rate of prepayment on
the Receivables may also be influenced by the structure of the loan. In
addition, under certain circumstances, the Depositor will be obligated to
repurchase from a Trust and the related Seller will be obligated to
simultaneously repurchase from the Depositor (or in either case, if so
specified in the related Prospectus Supplement and subject to the conditions
summarized therein, substitute for) Receivables pursuant to the related Sale
and Servicing Agreement or Pooling and Servicing Agreement as a result of
breaches of representations and warranties and the Servicer will be obligated
to purchase Receivables from such Trust pursuant to such Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of
certain covenants. In the case of any Security purchased at a discount to
its principal amount, a slower than anticipated rate of principal payments is
likely to result in a lower than anticipated yield. In the case of a
Security purchased at a premium to its principal amount, a faster than
anticipated rate of principal payments is likely to result in a lower than
anticipated yield. See "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" and "-- Servicing
Procedures". See also "Description of the Transfer and Servicing
Agreements -- Termination" regarding the Servicer's option to purchase the
Receivables from a given Trust. No prediction can be made as to the rate of
prepayment that the Receivables will experience.
In light of the above considerations, there can be no assurance as to
the amount of principal payments to be made on the Notes, if any, or the
Certificates, if any, of a given series on each Payment Date or Distribution
Date, as applicable, since such amount will depend, in part, on the amount of
principal collected on the related Receivables Pool during the applicable
Collection Period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables will be borne entirely by the
Noteholders, if any, and the Certificateholders of a given series. The
related Prospectus Supplement may set forth certain additional information
with respect to the maturity and prepayment considerations applicable to the
particular Receivables Pool and the related series of Securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with
respect to such class of Notes indicating the remaining outstanding principal
balance of such class of Notes, as of the applicable Payment Date (after
giving effect to payments to be made on such Payment Date), as a fraction of
the initial outstanding principal balance of such class of Notes. The
"Certificate Pool Factor" for each class of Certificates will be a
seven-digit decimal which the Servicer will compute prior to each
distribution with respect to such class of Certificates indicating the
remaining Certificate Balance of such class of Certificates, as of the
applicable Distribution Date (after giving effect to distributions to be made
on such Distribution Date), as a fraction of the initial Certificate Balance
of such class of Certificates. Each Note Pool Factor and each Certificate
Pool Factor will initially be 1.0000000 and thereafter will decline to
reflect reductions in the outstanding principal balance of the applicable
class of Notes, or the reduction of the Certificate Balance of the applicable
class of Certificates, as the case may be. A Noteholder's portion of the
aggregate outstanding principal balance of the related class of Notes is the
product of (i) the original denomination of such Noteholder's Note and
(ii) the applicable Note Pool Factor. A Certificateholder's portion of the
aggregate outstanding Certificate Balance for the related class of
Certificates is the product of (a) the original denomination of such
Certificateholder's Certificate and (b) the applicable Certificate Pool
Factor.
Unless otherwise provided in the related Prospectus Supplement with
respect to a Trust, the Noteholders and the Certificateholders, as
applicable, will receive reports on or about each Payment Date concerning
(i) with respect to the Collection Period immediately preceding such Payment
Date, payments received on the Receivables, the Pool Balance (as such term is
defined in the related Prospectus Supplement, the "Pool Balance"), each
Certificate Pool Factor or Note Pool Factor, as applicable, and various other
items of information, and (ii) with respect to the Collection Period second
preceding such Payment Date, as applicable, amounts allocated or distributed
on the preceding Payment Date and any reconciliation of such amounts with
information provided by the Servicer prior to such current Payment Date. In
addition, Securityholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest
date permitted by law. See "Certain Information Regarding the Securities --
Reports to Securityholders".
USE OF PROCEEDS
Unless the related Prospectus Supplement provides for other
applications, the net proceeds from the sale of the Securities of a given
series will be applied by the applicable Trust (i) to the purchase of the
Receivables from the Depositor, (ii) to make the initial deposit into the
Reserve Account, if any, and (iii) to make the deposit of the Pre-Funded
Amount into the Pre-Funding Account, if any. Unless otherwise specified in
the related Prospectus Supplement, the Depositor will use that portion of
such net proceeds paid to it with respect to any such Trust to purchase
Receivables from the Seller(s) and for general corporate purposes.
THE DEPOSITOR
ML Asset Backed Corporation (the "Depositor") was incorporated in the
State of Delaware on September 22, 1987 and is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. and an affiliate of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. The Depositor maintains its principal office at 250
Vesey Street, World Financial Center, New York, New York 10281. Its
telephone number is (212) 449-0336.
The only obligations, if any, of the Depositor with respect to a Series
of Certificates and/or Notes may be pursuant to certain limited
representations and warranties and limited undertakings to repurchase (or, if
so specified in related Prospectus Supplement, substitute for) Receivables
under certain circumstances, but only to the extent the related Seller
simultaneously performs its obligation to repurchase such Receivables. The
Depositor will have no ongoing servicing obligations or responsibilities with
respect to any Financed Vehicle. The Depositor does not have, nor is
required to have, nor is expected in the future to have, any significant
assets.
As specified in the related Prospectus Supplement, the Servicer with
respect to any Series of Certificates and/or Notes may be an affiliate of the
Depositor. The Depositor anticipates that it will acquire Receivables in the
open market or in privately negotiated transactions, which may be through or
from a Seller or through or from an affiliate of the Depositor.
Neither the Depositor, the Seller(s) nor any of their respective
affiliates will insure or guarantee the Receivables or the Certificates
and/or Notes of any series.
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more classes of
Notes of the related series will be issued pursuant to the terms of an
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary does
not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Notes and the Indenture.
Unless otherwise specified in the related Prospectus Supplement, each
class of Notes will initially be represented by one or more Notes, in each
case registered in the name of the nominee of DTC (together with any
successor depository selected by the Trust, the "Depository") except as set
forth below. Unless otherwise specified in the related Prospectus Supplement,
the Notes will be available for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form only. The Depositor has been
informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Notes of each class. Unless and
until Definitive Notes are issued under the limited circumstances described
herein or in the related Prospectus Supplement, no Noteholder will be
entitled to receive a physical certificate representing a Note. All
references herein and in the related Prospectus Supplement to actions by
Noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "Participants") and all references herein
and in the related Prospectus Supplement to distributions, notices, reports
and statements to Noteholders refer to distributions, notices, reports and
statements to DTC or its nominee, as the registered holder of the Notes, for
distribution to Noteholders in accordance with DTC's procedures with respect
thereto. See "Certain Information Regarding the Securities -- Book-Entry
Registration" and "-- Definitive Securities".
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal
and interest on each class of Notes of a given series will be described in
the related Prospectus Supplement. The right of holders of any class of
Notes to receive payments of principal and interest may be senior or
subordinate to the rights of holders of any other class or classes of Notes
of such series, as described in the related Prospectus Supplement. Unless
otherwise provided in the related Prospectus Supplement, payments of interest
on the Notes of such series will be made prior to payments of principal
thereon. To the extent provided in the related Prospectus Supplement, a
series may include one or more classes of Strip Notes entitled to
(i) principal payments with disproportionate, nominal or no interest payments
or (ii) interest payments with disproportionate, nominal or no principal
payments. Each class of Notes may have a different Interest Rate, which may
be a fixed, variable or adjustable Interest Rate (and which may be zero for
certain classes of Strip Notes), or any combination of the foregoing. The
related Prospectus Supplement will specify the Interest Rate for each class
of Notes of a given series or the method for determining such Interest Rate.
See also "Certain Information Regarding the Securities -- Fixed Rate
Securities" and "-- Floating Rate Securities". One or more classes of Notes
of a series may be redeemable in whole or in part under the circumstances
specified in the related Prospectus Supplement, including at the end of the
Funding Period (if any) or as a result of the Servicer's exercising its
option to purchase the related Receivables Pool.
To the extent specified in any Prospectus Supplement, one or more
classes of Notes of a series may have fixed principal payment schedules, as
set forth in such Prospectus Supplement; Noteholders of such Notes would be
entitled to receive as payments of principal on any Payment Date the
applicable amounts set forth on such schedule with respect to such Notes, in
the manner and to the extent set forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
payments to Noteholders of all classes within a series in respect of interest
will have the same priority. Under certain circumstances, the amount
available for such payments could be less than the amount of interest payable
on the Notes on any of the dates specified for payments in the related
Prospectus Supplement (each, a "Payment Date"), in which case each class of
Noteholders will receive its ratable share (based upon the aggregate amount
of interest due to such class of Noteholders) of the aggregate amount
available to be distributed in respect of interest on the Notes of such
series. See "Description of the Transfer and Servicing Agreements --
Distributions" and "-- Credit and Cash Flow Enhancement".
In the case of a series of Notes which 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 and interest
of any class of Notes will be made on a pro rata basis among all the
Noteholders of such class.
THE INDENTURE
Modification of Indenture. With respect to each Trust that has issued
Notes pursuant to an Indenture, the Trust and the Indenture Trustee may, with
the consent of the holders of a majority of the outstanding Notes of the
related series, execute a supplemental indenture to add provisions to, change
in any manner or eliminate any provisions of, the related Indenture, or
modify (except as provided below) in any manner the rights of the related
Noteholders.
Unless otherwise specified in the related Prospectus Supplement with
respect to a series of Notes, in the absence of the consent of the holder of
each such 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 the consent of the holders of which is required for
any waiver of compliance with certain provisions of the related Indenture or
of certain defaults thereunder and their consequences as provided for in such
Indenture; (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the applicable Trust, any other obligor
on such Notes, the Depositor, the Seller(s) 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 Receivables if the proceeds
of such sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding Notes of such series;
(vi) decrease the percentage of the aggregate principal amount
of such Notes required to amend the sections of the related Indenture which
specify the applicable percentage of aggregate principal amount of the Notes
of such series necessary to amend such Indenture or certain other related
agreements; 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.
Unless otherwise provided in the applicable Prospectus Supplement, the
Trust and the applicable Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders of the related
series, for the purpose of, among other things, adding any provisions to or
changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders;
provided that such action will not materially and adversely affect the
interest of any such Noteholder.
Events of Default; Rights upon Event of Default. With respect to the
Notes of a given series, unless otherwise specified in the related Prospectus
Supplement, "Events of Default" under the related Indenture will consist of:
(i) a default for five days (or such longer period specified in the related
Prospectus Supplement) 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 covenant or agreement of the
applicable Trust made in the related Indenture and the continuation of any
such default for a period of 30 days after notice thereof is given to such
Trust by the applicable Indenture Trustee or to such Trust and such Indenture
Trustee by the holders of at least 25% in principal amount of such Notes then
outstanding; (iv) any representation or warranty made by such Trust in the
related Indenture or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect in a material respect as of the
time made, and such breach not having been cured within 30 days after notice
thereof is given to such Trust by the applicable Indenture Trustee or to such
Trust and such Indenture Trustee by the holders of at least 25% in principal
amount of such Notes then outstanding; or (v) certain events of bankruptcy,
insolvency, receivership or liquidation of the applicable Trust. However,
the amount of principal required to be paid to Noteholders of such series
under the related Indenture will generally be limited to amounts available to
be deposited in the applicable Note Distribution Account. Therefore, unless
otherwise specified in the related Prospectus Supplement, the failure to pay
principal on a class of Notes generally will not result in the occurrence of
an Event of Default until the final scheduled Payment Date for such class of
Notes.
If an Event of Default should occur and be continuing with respect to
the Notes of any series, the related Indenture Trustee or holders of a
majority in principal amount of such Notes then outstanding may declare the
principal of such Notes to be immediately due and payable. Unless otherwise
specified in the related Prospectus Supplement, such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of such Notes then outstanding.
If the Notes of any series are due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust property, exercise
remedies as a secured party, sell the related Receivables or elect to have
the applicable Trust maintain possession of such Receivables and continue to
apply collections on such Receivables as if there had been no declaration of
acceleration. Unless otherwise specified in the related Prospectus
Supplement, however, such Indenture Trustee is prohibited from selling the
related Receivables 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 Receivables would not be sufficient
on an ongoing basis to make all payments on such Notes as such payments would
have become due if such obligations had not been declared due and payable,
and such Indenture Trustee obtains the consent of the holders of 66 2/3% of
the aggregate outstanding 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 such
Indenture at the request or direction of any of the holders of such Notes, if
such Indenture Trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which
might be incurred by it in complying with such request. Subject to the
provisions for indemnification and certain limitations contained in the
related Indenture, the holders of a majority in principal amount of the
outstanding Notes of a given series will have the right to direct the time,
method and place of conducting any proceeding or any remedy available to the
applicable Indenture Trustee, and the holders of a majority in principal
amount of such Notes then outstanding may, in certain cases, waive any
default with respect thereto, except a default in the payment of principal or
interest or a default in respect of a covenant or provision of such Indenture
that cannot be modified without the waiver or consent of all the holders of
such outstanding Notes.
Unless otherwise specified in the related Prospectus Supplement, no
holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written notice of a
continuing Event of Default, (ii) the holders of not less than 25% in
principal amount of the outstanding Notes of such series 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 in principal amount of such
outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or
other proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or
interest on the related Notes or for the agreements of such Trust contained
in the applicable Indenture.
Certain Covenants. Each Indenture will provide that the related Trust
may not consolidate 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 the performance or
observance of 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 that the
rating of the Notes or the Certificates of such series then in effect would
not be reduced or withdrawn by the Rating Agencies as a result of such merger
or consolidation 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.
Each Trust will not, among other things, (i) except as expressly
permitted by the applicable Indenture, the applicable Transfer and Servicing
Agreements or certain related documents with respect to such Trust
(collectively, the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of such Trust, (ii) claim any credit
on or make any deduction from the principal and interest payable in respect
of the Notes of the related series (other than amounts withheld under the
Code or applicable state law) or assert any claim against any present or
former holder of such Notes because of the payment of taxes levied or
assessed upon 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 such Notes under such 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 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.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust". No Trust
will incur, assume or guarantee any indebtedness other than indebtedness
incurred pursuant to the related Notes and the related Indenture, pursuant to
any Advances made to it by the Servicer or otherwise in accordance with the
Related Documents.
Annual Compliance Statement. Each Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture
Trustee under the related Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by such Trust to the applicable Indenture Trustee in its
individual capacity, the property and funds physically held by such Indenture
Trustee as such and any action taken by it that materially affects the
related Notes and that has not been previously reported.
Satisfaction and Discharge of Indenture. An Indenture will be
discharged with respect to the collateral securing the related Notes upon the
delivery to the related Indenture Trustee for cancellation of all such Notes
or, with certain limitations, upon deposit with such Indenture Trustee of
funds sufficient for the payment in full of all such Notes.
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 Issuer will be obligated to appoint a
successor trustee for such series. The Issuer may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue
as such under the related Indenture or if such Indenture Trustee becomes
insolvent. In such circumstances, the Issuer will be obligated to appoint a
successor trustee for the applicable series of Notes. Any resignation or
removal of the Indenture Trustee and appointment of a successor trustee for
any series of Notes does not become effective until acceptance of the
appointment by the successor trustee for such series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of the
related series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The following summary does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement or Pooling and Servicing Agreement, as
applicable.
Unless otherwise specified in the related Prospectus Supplement and
except for the Certificates, if any, of a given series purchased by the
Depositor, each class of Certificates will initially be represented by one or
more Certificates registered in the name of the Depository, except as set
forth below. Unless otherwise specified in the related Prospectus Supplement
and except for the Certificates, if any, of a given series purchased by the
Depositor, the Certificates will be available for purchase in minimum
denominations of $1,000 in book-entry form only. The Depositor has been
informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Certificates of any series that
are not purchased by the Depositor. Unless and until Definitive Certificates
are issued under the limited circumstances described herein or in the related
Prospectus Supplement, no Certificateholder (other than the Depositor) will
be entitled to receive a physical certificate representing a Certificate.
All references herein and in the related Prospectus Supplement to actions by
Certificateholders refer to actions taken by DTC upon instructions from the
Participants and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and "-- Definitive Securities". Any
Certificates of a given series owned by the Depositor will be entitled to
equal and proportionate benefits under the applicable Trust Agreement or
Pooling and Servicing Agreement, except that such Certificates will be deemed
not to be outstanding for the purpose of determining whether the requisite
percentage of Certificateholders have given any request, demand,
authorization, direction, notice, consent or other action under the Related
Documents.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of
losses, Pass Through Rate and amount of or method of determining
distributions with respect to principal and interest of each class of
Certificates will be described in the related Prospectus Supplement.
Distributions of interest on such Certificates will be made on the dates
specified in the related Prospectus Supplement (each, a "Distribution Date")
and will be made prior to distributions with respect to principal of such
Certificates. With respect to any Trust that issues both Notes and
Certificates, the Distribution Date for the Certificates may coincide with
the Payment Date for the Notes, in which case such date will be referred to
in the related Prospectus Supplement as a Payment Date with respect to both
the Notes and Certificates. To the extent provided in the related Prospectus
Supplement, a series may include one or more classes of Strip Certificates
entitled to (i) distributions in respect of principal with disproportionate,
nominal or no interest distributions or (ii) interest distributions with
disproportionate, nominal or no distributions in respect of principal. Each
class of Certificates may have a different Pass Through Rate, which may be a
fixed, variable or adjustable Pass Through Rate (and which may be zero for
certain classes of Strip Certificates) or any combination of the foregoing.
The related Prospectus Supplement will specify the Pass Through Rate for each
class of Certificates of a given series or the method for determining such
Pass Through Rate. See also "Certain Information Regarding the Securities --
Fixed Rate Securities" and "-- Floating Rate Securities". Unless otherwise
provided in the related Prospectus Supplement, distributions in respect of
the Certificates of a given series that includes Notes may be subordinate to
payments in respect of the Notes of such series as more fully described in
the related Prospectus Supplement. Distributions in respect of interest on
and principal of any class of Certificates will be made on a pro rata basis
among all the Certificateholders of such class.
In the case of a series of Certificates which 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 shall be as set forth in the related Prospectus
Supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or
Strip Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass Through Rate, as the case may be,
specified in the applicable Prospectus Supplement. Unless otherwise set
forth in the applicable Prospectus Supplement, interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year of
twelve 30-day months. See "Description of the Notes -- Principal and
Interest on the Notes" and "Description of the Certificates -- Distributions
of Principal and Interest".
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities,
the "Interest Reset Period") at a rate per annum determined by reference to
an interest rate basis (the "Base Rate"), plus or minus the Spread, if any,
or multiplied by the Spread Multiplier, if any, in each case as specified in
the related Prospectus Supplement. The "Spread" is the number of basis
points (one basis point equals one-hundredth of a percentage point) that may
be specified in the applicable Prospectus Supplement as being applicable to
such class, and the "Spread Multiplier" is the percentage that may be
specified in the applicable Prospectus Supplement as being applicable to such
class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Security: (i) LIBOR (a
"LIBOR Security"), (ii) the Commercial Paper Rate (a "Commercial Paper Rate
Security"), (iii) the Treasury Rate (a "Treasury Rate Security"), (iv) the
Federal Funds Rate (a "Federal Funds Rate Security"), (v) the CD Rate (a "CD
Rate Security") or (vi) such other Base Rate as is set forth in such
Prospectus Supplement. The "Index Maturity" for any class of Floating Rate
Securities is the period of maturity of the instrument or obligation from
which the Base Rate is calculated.
"H.15(519)" means the publication entitled "Statistical Release
H.15(519), Selected Interest Rates", or any successor publication, published
by the Board of Governors of the Federal Reserve System. "Composite
Quotations" means the daily statistical release entitled "Composite 3:30 p.m.
Quotations for U.S. Government Securities" published by the Federal Reserve
Bank of New York. "Interest Reset Date" will be the first day of the
applicable Interest Reset Period, or such other day as may be specified in
the related Prospectus Supplement with respect to a class of Floating Rate
Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or
ceiling, on the rate at which interest may accrue during any interest period
and (ii) a minimum limitation, or floor, on the rate at which interest may
accrue during any interest period. In addition to any maximum interest rate
that may be applicable to any class of Floating Rate Securities, the interest
rate applicable to any class of Floating Rate Securities will in no event be
higher than the maximum rate permitted by applicable law, as the same may be
modified by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities
will be issued will appoint, and enter into agreements with, a calculation
agent (each, a "Calculation Agent") to calculate interest rates on each such
class of Floating Rate Securities issued with respect thereto. The
applicable Prospectus Supplement will set forth the identity of the
Calculation Agent for each such class of Floating Rate Securities of a given
series, which may be either the related Trustee or Indenture Trustee with
respect to such series. All determinations of interest by the Calculation
Agent shall, in the absence of manifest error, be conclusive for all purposes
and binding on the holders of Floating Rate Securities of a given class.
Unless otherwise specified in the applicable Prospectus Supplement, all
percentages resulting from any calculation of the rate of interest on a
Floating Rate Security will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward.
CD Rate Securities. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the
CD Rate and the Spread or Spread Multiplier, if any, specified in such
Security and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"CD Rate" for each Interest Reset Period shall be the rate as of the second
business day prior to the Interest Reset Date for such Interest Reset Period
(a "CD Rate Determination Date") for negotiable certificates of deposit
having the Index Maturity designated in the applicable Prospectus Supplement
as published in H.15(519) under the heading "CDs (Secondary Market)". In the
event that such rate is not published prior to 3:00 p.m., New York City time,
on the Calculation Date pertaining to such CD Rate Determination Date, then
the "CD Rate" for such Interest Reset Period will be the rate on such CD Rate
Determination Date for negotiable certificates of deposit of the Index
Maturity designated in the applicable Prospectus Supplement as published in
Composite Quotations under the heading "Certificates of Deposit". If by 3:00
p.m., New York City time, on such Calculation Date such rate is not yet
published in either H.15(519) or Composite Quotations, then the "CD Rate" for
such Interest Reset Period will be calculated by the Calculation Agent for
such CD Rate Security and will be the arithmetic mean of the secondary market
offered rates as of 10:00 a.m., New York City time, on such CD Rate
Determination Date, of three leading nonbank dealers in negotiable U.S.
dollar certificates of deposit in The City of New York selected by the
Calculation Agent for such CD Rate Security for negotiable certificates of
deposit of major United States money center banks of the highest credit
standing (in the market for negotiable certificates of deposit) with a
remaining maturity closest to the Index Maturity designated in the related
Prospectus Supplement in a denomination of $5,000,000; provided, however,
that if the dealers selected as aforesaid by such Calculation Agent are not
quoting offered rates as mentioned in this sentence, the "CD Rate" for such
Interest Reset Period will be the same as the CD Rate for the immediately
preceding Interest Reset Period.
The "Calculation Date" pertaining to any CD Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset
Date.
Commercial Paper Rate Securities. Each Commercial Paper Rate Security
will bear interest for each Interest Reset Period at the interest rate
calculated with reference to the Commercial Paper Rate and the Spread or
Spread Multiplier, if any, specified in such Security and in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Commercial Paper Rate" for each Interest Reset Period will be determined by
the Calculation Agent for such Commercial Paper Rate Security as of the
second business day prior to the Interest Reset Date for such Interest Reset
Period (a "Commercial Paper Rate Determination Date") and shall be the Money
Market Yield on such Commercial Paper Rate Determination Date of the rate for
commercial paper having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under the
heading "Commercial Paper". In the event that such rate is not published
prior to 3:00 p.m., New York City time, on the Calculation Date pertaining to
such Commercial Paper Rate Determination Date, then the "Commercial Paper
Rate" for such Interest Reset Period shall be the Money Market Yield on such
Commercial Paper Rate Determination Date of the rate for commercial paper of
the specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper". If by 3:00 p.m., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the "Commercial Paper Rate" for such Interest
Reset Period shall be the Money Market Yield of the arithmetic mean of the
offered rates, as of 11:00 a.m., New York City time, on such Commercial Paper
Rate Determination Date of three leading dealers of commercial paper in The
City of New York selected by the Calculation Agent for such Commercial Paper
Rate Security for commercial paper of the specified Index Maturity placed for
an industrial issuer whose bonds are rated "AA" or the equivalent by a
nationally recognized rating agency; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting offered rates
as mentioned in this sentence, the "Commercial Paper Rate" for such Interest
Reset Period will be the same as the Commercial Paper Rate for the
immediately preceding Interest Reset Period.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
D X 360
Money Market Yield = ------------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
business day, the next succeeding business day or (b) the second business day
preceding the date any payment is required to be made for any period
following the applicable Interest Reset Date.
Federal Funds Rate Securities. Each Federal Funds Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Federal Funds Rate and the Spread or Spread Multiplier,
if any, specified in such Security and in the applicable Prospectus
Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Federal Funds Rate" for each Interest Reset Period shall be the effective
rate on the Interest Reset Date for such Interest Reset Period (a "Federal
Funds Rate Determination Date") for Federal Funds as published in H.15(519)
under the heading "Federal Funds (Effective)". In the event that such rate
is not published prior to 3:00 p.m., New York City time, on the Calculation
Date pertaining to such Federal Funds Rate Determination Date, the "Federal
Funds Rate" for such Interest Reset Period shall be the rate on such Federal
Funds Rate Determination Date as published in Composite Quotations under the
heading "Federal Funds/Effective Rate". If by 3:00 p.m., New York City time,
on such Calculation Date such rate is not yet published in either H.15(519)
or Composite Quotations, then the "Federal Funds Rate" for such Interest
Reset Period shall be the rate on such Federal Funds Rate Determination Date
made publicly available by the Federal Reserve Bank of New York which is
equivalent to the rate which appears in H.15(519) under the heading "Federal
Funds (Effective)"; provided, however, that if such rate is not made publicly
available by the Federal Reserve Bank of New York by 3:00 p.m., New York City
time, on such Calculation Date, the "Federal Funds Rate" for such Interest
Reset Period will be the same as the Federal Funds Rate in effect for the
immediately preceding Interest Reset Period. In the case of a Federal Funds
Rate Security that resets daily, the interest rate on such Security for the
period from and including a Monday to but excluding the succeeding Monday
will be reset by the Calculation Agent for such Security on such second
Monday (or, if not a business day, on the next succeeding business day) to a
rate equal to the average of the Federal Funds Rates in effect with respect
to each such day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate
Determination Date shall be the next succeeding business day.
LIBOR Securities. Each LIBOR Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to LIBOR
and the Spread or Spread Multiplier, if any, specified in such Security and
in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, with
respect to LIBOR indexed to the offered rates for U.S. dollar deposits,
"LIBOR" for each Interest Reset Period will be determined by the Calculation
Agent for any LIBOR Security as follows:
(i) On the second London Banking Day prior to the Interest Reset
Date for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Security will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on either, as
specified in the related Prospectus Supplement, (a) the Reuters Screen
LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date, if at least two such offered rates appear on the
Reuters Screen LIBO Page ("LIBOR Reuters") or (b) the Telerate Page 3750
("LIBOR Telerate"). For purposes of calculating LIBOR, "London Banking
Day" means any business day on which dealings in deposits in United
States dollars are transacted in the London interbank market; "Reuters
Screen LIBO Page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace
the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks); and "Telerate Page 3750" means
the display designated as page "3750" on the Telerate Service (or such
other page as may replace the 3750 page on that service or services as
may be nominated by the British Bankers' Association for the purpose of
displaying London interbank offered rates for U.S. dollar deposits). If
LIBOR is LIBOR Reuters and at least two such offered rates appear on the
Reuters Screen LIBO Page, "LIBOR" for such Interest Reset Period will be
the arithmetic mean of such offered rates as determined by the
Calculation Agent for such LIBOR Security. If neither LIBOR Reuters or
LIBOR Telerate is specified in the related Prospectus Supplement, LIBOR
will be determined as if LIBOR Telerate had been specified.
(ii) If fewer than two offered rates appear on the Reuters Screen
LIBO Page, or if no rate appears on the Telerate Page 3750, as
applicable, on such LIBOR Determination Date, the Calculation Agent for
such LIBOR Security will request the principal London offices of each of
four major banks in the London interbank market selected by such
Calculation Agent to provide such Calculation Agent with its offered
quotations for deposits in U.S. dollars for the period of the specified
Index Maturity, commencing on such Interest Reset Date, to prime banks
in the London interbank market at approximately 11:00 a.m., London time,
on such LIBOR Determination Date and in a principal amount equal to an
amount of not less than $1,000,000 that, in the Calculation Agent's
judgment, is representative of a single transaction in such market at
such time. If at least two such quotations are provided, "LIBOR" for
such Interest Reset Period will be the arithmetic mean of such
quotations. If fewer than two such quotations are provided, "LIBOR" for
such Interest Reset Period will be the arithmetic mean of rates quoted
by three major banks in The City of New York selected by the Calculation
Agent for such LIBOR Security at approximately 11:00 a.m., New York City
time, on such LIBOR Determination Date for loans in U.S. dollars to
leading European banks, for the period of the specified Index Maturity,
commencing on such Interest Reset Date, and in a principal amount equal
to an amount of not less than $1,000,000 that, in the Calculation
Agent's judgment, is representative of a single transaction in such
market at such time; provided, however, that if the banks selected as
aforesaid by such Calculation Agent are not quoting rates as mentioned
in this sentence, "LIBOR" for such Interest Reset Period will be the
same as LIBOR for the immediately preceding Interest Reset Period.
Treasury Rate Securities. Each Treasury Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Treasury Rate and the Spread or Spread Multiplier, if any,
specified in such Security and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Treasury Rate" for each Interest Reset Period will be the rate for the
auction held on the Treasury Rate Determination Date for such Interest Reset
Period of direct obligations of the United States ("Treasury bills") having
the Index Maturity specified in the applicable Prospectus Supplement, as such
rate shall be published in H.15(519) under the heading "U.S. Government
Securities -- Treasury bills -- auction average (investment)" or, in
the event that such rate is not published prior to 3:00 p.m.,
New York City time, on the Calculation Date pertaining to such Treasury
Rate Determination Date, the auction average rate (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) on such Treasury Rate Determination Date as
otherwise announced by the United States Department of the Treasury.
In the event that the results of the auction of Treasury bills having
the specified Index Maturity are not published or reported as provided
above by 3:00 p.m., New York City time, on such Calculation Date,
or if no such auction is held on such Treasury Rate Determination Date,
then the "Treasury Rate" for such Interest Reset Period
shall be calculated by the Calculation Agent for such Treasury Rate Security
and shall be the yield to maturity (expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) of the arithmetic mean of the secondary market bid rates, as of
approximately 3:30 p.m., New York City time, on such Treasury Rate
Determination Date, of three leading primary United States government
securities dealers selected by such Calculation Agent for the issue of
Treasury bills with a remaining maturity closest to the specified Index
Maturity; provided, however, that if the dealers selected as aforesaid by
such Calculation Agent are not quoting bid rates as mentioned in this
sentence, then the "Treasury Rate" for such Interest Reset Period will be the
same as the Treasury Rate for the immediately preceding Interest Reset
Period.
The "Treasury Rate Determination Date" for each Interest Reset Period
will be the day of the week in which the Interest Reset Date for such
Interest Reset Period falls on which Treasury bills would normally be
auctioned. Treasury bills are normally sold at auction on Monday of each
week, unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, except that such auction may be held
on the preceding Friday. If, as the result of a legal holiday, an auction is
so held on the preceding Friday, such Friday will be the Treasury Rate
Determination Date pertaining to the Interest Reset Period commencing in the
next succeeding week. If an auction date shall fall on any day that would
otherwise be an Interest Reset Date for a Treasury Rate Security, then such
Interest Reset Date shall instead be the business day immediately following
such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination
Date shall be the first to occur of (a) the tenth calendar day after such
Treasury Rate Determination Date or, if such a day is not a business day, the
next succeeding business day or (b) the second business day preceding the
date any payment is required to be made for any period following the
applicable Interest Reset Date.
BOOK-ENTRY REGISTRATION
Holders of the Certificates or the Notes may hold through DTC (in the
United States) or, solely in the case of the Notes, Cedel or Euroclear (in
Europe) if they are participants of such systems, or indirectly through
organizations that are participants in such systems. The Certificates may
not be held, directly or indirectly, through Cedel or Euroclear. Cede, as
nominee for DTC, will hold the Securities. Cedel and Euroclear will hold
omnibus positions in the Notes on behalf of the Cedel Participants and the
Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective
depositaries (collectively, the "Depositaries"), which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to
hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Transfers between DTC's participating organizations (the "Participants")
will occur in accordance with DTC rules. Transfers between Cedel
Participants and Euroclear Participants will occur in the ordinary way in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European
international clearing system by its 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 in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Cedel Participant or Euroclear 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 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.
Unless otherwise specified in the related Prospectus Supplement,
Securityholders 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, Securityholders will receive all distributions of principal and
interest from the related Indenture Trustee or the related Trustee, as
applicable (the "Applicable Trustee"), through Participants. Under a
book-entry format, Securityholders may experience some delay in their receipt
of payments, since such payments will be forwarded by the Applicable Trustee
to DTC's nominee. DTC will forward such payments to its Participants, which
thereafter will forward them to Indirect Participants or Securityholders.
Except to the extent the Depositor holds Certificates with respect to any
series of Securities, it is anticipated that the only "Securityholder",
"Noteholder" and "Certificateholder" will be DTC's nominee. Noteholders will
not be recognized by each Indenture Trustee as Noteholders, as such term is
used in each Indenture, and Noteholders will be permitted to exercise the
rights of Noteholders only indirectly through DTC and its Participants.
Similarly, Certificateholders will not be recognized by each Trustee as
Certificateholders as such term is used in each Trust Agreement or Pooling
and Servicing Agreement, and Certificateholders will be permitted to exercise
the rights of Certificateholders only indirectly through DTC and its
Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry
transfers of Securities 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 Securityholders 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 Securityholders.
Accordingly, although Securityholders will not possess Securities, the Rules
provide a mechanism by which Participants will receive payments and will be
able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Noteholder under the related Indenture or a Certificateholder
under the related Trust Agreement or Pooling and Servicing Agreement only at
the direction of one or more Participants to whose accounts with DTC the
applicable Notes or Certificates 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.
Cedel Bank, societe anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel
Participants through electronic book-entry changes in accounts of Cedel
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 28 currencies,
including United States dollars. Cedel provides to its Cedel Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedel interfaces with domestic markets in several countries. As
a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriter(s) for the related Notes.
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 was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need
for physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in
Euroclear in any of 32 currencies, including United States dollars. The
Euroclear System includes various other services, including securities
lending and borrowing, and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers
with DTC. The Euroclear System is operated by Morgan Guaranty Trust Company
of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the Underwriter(s).
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear
System, withdrawal of securities and cash from the Euroclear System, and
receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
Distributions with respect to Notes 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" in the Prospectus
and "Global Clearance, Settlement and Tax Documentation Procedures" in Annex
I to this Prospectus Supplement. Cedel or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a Noteholder
under the 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 Notes 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.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Administrator, if any, or the Applicable Trustee would seek an
alternative depository (if available) or cause the issuance of Definitive
Securities to the owners thereof or their nominees in the manner described in
the Prospectus under "Certain Information Regarding the Securities --
Definitive Securities".
Except as required by law, neither the Administrator, if any, nor the
Applicable Trustee will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of
the 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 specified in the related Prospectus Supplement, the Notes, if any,
and the Certificates of a series will be issued in fully registered,
certificated form ("Definitive Notes" and "Definitive Certificates",
respectively, and collectively referred to herein as "Definitive Securities")
to Noteholders or Certificateholders or their respective nominees, rather
than to DTC or its nominee, only if (i) the related Applicable Trustee
determines that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and such
Applicable Trustee is unable to locate a qualified successor, (ii) the
Applicable Trustee at its option, elects to terminate the book-entry system
through DTC or (iii) after the occurrence of an Event of Default or a
Servicer Default with respect to such Securities, holders representing at
least a majority of the outstanding principal amount of the Notes or the
Certificates, as the case may be, of such series advise the Applicable
Trustee through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) with respect to such Notes or
Certificates is no longer in the best interest of the holders of such
Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive certificates
representing the corresponding Securities and receipt of instructions for
re-registration, the Applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive
Securities will thereafter be made by the Applicable Trustee in accordance
with the procedures set forth in the related Indenture or the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, directly to
holders of Definitive Securities in whose names the Definitive Securities
were registered at the close of business on the applicable Record Date
specified for such Securities in the related Prospectus Supplement. Such
distributions will be made by check mailed to the address of such holder as
it appears on the register maintained by the Applicable Trustee. The final
payment on any such Definitive Security, however, will be made only upon
presentation and surrender of such Definitive Security at the office or
agency specified in the notice of final distribution to the applicable
Securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the Applicable Trustee or of a registrar named in a notice
delivered to holders of Definitive Securities. No service charge will be
imposed for any registration of transfer or exchange, but the Applicable
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
LIST OF SECURITYHOLDERS
Unless otherwise specified in the related Prospectus Supplement with
respect to the Notes of any series, three or more holders of the Notes of
such series or one or more holders of such Notes evidencing not less than 25%
of the aggregate outstanding principal balance of such Notes may, by written
request to the related Indenture Trustee, obtain access to the list of all
Noteholders maintained by such Indenture Trustee for the purpose of
communicating with other Noteholders with respect to their rights under the
related Indenture or under such Notes. 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.
Unless otherwise specified in the related Prospectus Supplement with
respect to the Certificates of any series, three or more holders of the
Certificates of such series or one or more holders of such Certificates
evidencing not less than 25% of the Certificate Balance of such Certificates
may, by written request to the related Trustee, obtain access to the list of
all Certificateholders maintained by such Trustee for the purpose of
communicating with other Certificateholders with respect to their rights
under the related Trust Agreement or Pooling and Servicing Agreement or under
such Certificates.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities that includes Notes, on or
prior to each Payment Date, the Servicer will prepare and provide to the
related Indenture Trustee a statement to be delivered to the related
Noteholders on such Payment Date. With respect to each series of Securities,
on or prior to each Distribution Date, the Servicer will prepare and provide
to the related Trustee a statement to be delivered to the related
Certificateholders. With respect to each series of Securities, each
such statement to be delivered to Noteholders will include (to the extent
applicable) the following information (and any other information so specified
in the related Prospectus Supplement) as to the Notes of such series with
respect to such Payment Date or the period since the previous Payment Date,
as applicable, and each such statement to be delivered to Certificateholders
will include (to the extent applicable) the following information (and any
other information so specified in the related Prospectus Supplement) as to
the Certificates of such series with respect to such Distribution Date or the
period since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to principal of each
class of such Notes and to the Certificate Balance of each class of such
Certificates;
(ii) the amount of the distribution allocable to interest on or
with respect to each class of Securities of such series;
(iii) the Pool Balance as of the close of business on the last day
of the preceding Collection Period;
(iv) the aggregate outstanding principal balance and the Note Pool
Factor for each class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of such Certificates, each after
giving effect to all payments reported under clause (i) above on such
date;
(v) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period or Collection Periods, as the
case may be;
(vi) the Interest Rate or Pass Through Rate for the next period for
any class of Notes or Certificates of such series with variable or
adjustable rates;
(vii) the amount of the aggregate realized losses, if any, for the
related Collection Period;
(viii) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall (each as defined in the related Prospectus
Supplement), if any, in each case as applicable to each class of
Securities, and the change in such amounts from the preceding statement;
(ix) the aggregate Purchase Amounts for Receivables, if any, that
were repurchased or substituted for in such Collection Period;
(x) the balance of the Reserve Account (if any) on such date,
after giving effect to changes therein on such date;
(xi) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount; and
(xii) for the first such date that is on or immediately following
the end of the Funding Period (if any), the amount of any remaining
Pre-Funded Amount that has not been used to fund the purchase of
Subsequent Receivables and is being passed through as payments of
principal on the Securities of such series.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (viii)
with respect to the Notes or the Certificates of any series will be expressed
as a dollar amount per $1,000 of the initial principal balance of such Notes
or the initial Certificate Balance of such Certificates, as applicable.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of each Trust, the Applicable
Trustee will mail to each person who at any time during such calendar year
has been a Securityholder with respect to such Trust and received any payment
thereon a statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Certain
Federal Income Tax Consequences".
In addition, the filing with the Commission of periodic reports with
respect to each Trust will cease following completion of the reporting period
required by Rule 15d-1 of Regulation 15D under the Exchange Act.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Sale and Servicing
Agreement or Pooling and Servicing Agreement pursuant to which a Trust will
purchase Receivables from the Depositor and the Servicer will agree to
service such Receivables, each Trust Agreement (in the case of a grantor
trust, the Pooling and Servicing Agreement) pursuant to which a Trust will be
created and Certificates will be issued and each Administration Agreement
pursuant to which the Servicer (or such other person named in the related
Prospectus Supplement) will undertake certain administrative duties with
respect to a Trust that issues Notes (collectively, the "Transfer and
Servicing Agreements"). Forms of the Transfer and Servicing Agreements have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. This summary does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all the provisions of the
Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the closing date (the "Closing Date") specified in the
Prospectus Supplement for a Trust, the Seller(s) specified in such Prospectus
Supplement will transfer and assign, without recourse, to the Depositor their
respective entire interests in the related Initial Receivables and their
security interests in the related Financed Vehicles pursuant to a receivables
purchase agreement (a "Receivables Purchase Agreement"). On or prior to such
Closing Date, the Depositor will transfer and assign to the applicable
Trustee, without recourse, pursuant to a Sale and Servicing Agreement or a
Pooling and Servicing Agreement, as applicable, its entire interest in such
Initial Receivables, including its security interests in the related Financed
Vehicles. Each such Receivable will be identified in a schedule appearing as
an exhibit to such Pooling and Servicing Agreement or Sale and Servicing
Agreement (a "Schedule of Receivables"). The Applicable Trustee will,
concurrently with such transfer and assignment, execute and deliver the
related Notes and/or Certificates. The Applicable Trustee will not verify
the existence of the Receivables or review the Receivables files. Unless
otherwise provided in the related Prospectus Supplement, the net proceeds
received from the sale of the Certificates and the Notes of a given series
will be applied to the purchase of the related Receivables from the Seller(s)
and, to the extent specified in the related Prospectus Supplement, to the
deposit of the Pre-Funded Amount into the Pre-Funding Account. The related
Prospectus Supplement for a given Trust will specify whether, and the terms,
conditions and manner under which, Subsequent Receivables will be sold by the
Seller(s) to the Depositor and by the Depositor to the applicable Trust from
time to time during any Funding Period on each date specified as a transfer
date in the related Prospectus Supplement (each, a "Subsequent Transfer
Date").
If so provided in the related Prospectus Supplement, principal
collections on the Receivables may be applied to the purchase by the Trust of
Subsequent Receivables for the period of time specified in the Prospectus
Supplement.
In each Receivables Purchase Agreement the related Seller will represent
and warrant to the Depositor and, in each Sale and Servicing Agreement or
Pooling and Servicing Agreement, the Depositor will represent and warrant to
the applicable Trust, among other things, that: (i) the information provided
in the related Schedule of Receivables is correct in all material respects;
(ii) the Obligor on each related Receivable is required to maintain physical
damage insurance covering the Financed Vehicle in accordance with the
Seller(s)' normal requirements; (iii) as of the applicable Closing Date or
the applicable Subsequent Transfer Date, if any, to the best of its
knowledge, the related 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) as of the Closing Date
or the applicable Subsequent Transfer Date, if any, each of such Receivables
is or will be secured by a first perfected security interest in favor of the
Seller in the Financed Vehicle; (v) each related Receivable, at the time it
was originated, complied and, as of the Closing Date or the applicable
Subsequent Transfer Date, if any, complies in all material respects with
applicable federal and state laws, including, without limitation, consumer
credit, truth in lending, equal credit opportunity and disclosure laws; and
(vi) any other representations and warranties that may be set forth in the
related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, as of
the last day of the second (or, if the Seller(s) elects, the first) month
following the discovery by or notice to the Seller(s) of a breach of any
representation or warranty of the Seller(s) that materially and
adversely affects the interests of the related Trust in any Receivable,
the Depositor, unless the breach is cured, will repurchase such Receivable
from such Trust and the related Seller will be obligated to simultaneously
repurchase such Receivable from the Depositor at a price equal to the
unpaid principal balance owed by the Obligor thereon plus interest
thereon at the respective APR to the last day of the month of
repurchase (the "Purchase Amount"). Alternatively, if so specified in the
related Prospectus Supplement, the related Seller or the Depositor will be
permitted, in a circumstance where it would otherwise be required to
repurchase a Receivable as described in the preceding sentence, to instead
substitute a comparable Receivable for the Receivable otherwise requiring
repurchase, subject to certain conditions and eligibility criteria for the
substitute Receivable to be summarized in the related Prospectus Supplement.
The repurchase obligation (or, if applicable, the substitution alternative
with respect thereto) constitutes the sole remedy available to the
Certificateholders or the Trustee and any Noteholders or Indenture Trustee in
respect of such Trust for any such uncured breach. The Depositor's
obligation to make such purchase or substitution is contingent upon the
related Seller performing its corresponding obligation to purchase (or, if
applicable, substitute for) such Receivable from the Depositor.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, to assure uniform quality in servicing the Receivables and to
reduce administrative costs, each Trust will designate the Servicer as
custodian to maintain possession, as such Trust's agent, of the related
recreational vehicle or motor vehicle retail installment sale contracts or
installment loans and any other documents relating to the Receivables. The
Depositor and the Seller(s)' accounting records and computer systems will
reflect the sale and assignment of the related Receivables to the applicable
Trust, and Uniform Commercial Code ("UCC") financing statements reflecting
such sales and assignments will be filed. The Receivables will not be
segregated, stamped or otherwise marked to indicate that they have been sold
to the related Trust. If through inadvertence or otherwise, another party
purchases (or takes a security interest in) the Receivables for new value in
the ordinary course of business and takes possession of the Receivables
without actual knowledge of the related Trust's interest, the purchaser (or
secured party) will acquire an interest in the Receivables superior to the
interest of the related Trust.
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will
establish and maintain with the related Indenture Trustee one or more
accounts, in the name of the Indenture Trustee on behalf of the related
Noteholders and Certificateholders, into which all payments made on or with
respect to the related Receivables will be deposited (the "Collection
Account"). The Servicer will establish and maintain with such Indenture
Trustee an account, in the name of such Indenture Trustee on behalf of such
Noteholders, into which amounts released from the Collection Account and any
Pre-Funding Account, Reserve Account or other credit enhancement for payment
to such Noteholders will be deposited and from which all distributions to
such Noteholders will be made (the "Note Distribution Account"). The
Servicer will establish and maintain with the related Trustee an account, in
the name of such Trustee on behalf of such Certificateholders, into which
amounts released from the Collection Account and any Pre-Funding Account,
Reserve Account or other credit or cash flow enhancement for distribution to
such Certificateholders will be deposited and from which all distributions to
such Certificateholders will be made (the "Certificate Distribution
Account"). With respect to each Trust that does not issue Notes, the
Servicer will also establish and maintain the Collection Account and any
other Trust Account in the name of the related Trustee on behalf of the
related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer will
establish for each series an additional account (the "Payahead Account"), in
the name of the related Indenture Trustee, into which, to the extent required
by the Sale and Servicing Agreement, early payments by or on behalf of
Obligors on Precomputed Receivables will be deposited until such time as the
payment becomes due. Until such time as payments are transferred from the
Payahead Account to the Collection Account, they will not constitute
collected interest or collected principal and will not be available for
distribution to the applicable Noteholders or Certificateholders. The
Payahead Account will initially be maintained with the applicable Indenture
Trustee or, in the case of each Trust that does not issue Notes, the
applicable Trustee.
Any other accounts to be established with respect to a Trust, including
any Pre-Funding Account or any Reserve Account, will be described in the
related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the Note
Distribution Account and any Pre-Funding Account, Reserve Account and other
accounts identified as such in the related Prospectus Supplement
(collectively, the "Trust Accounts") will be invested as provided in the
related Sale and Servicing Agreement or Pooling and Servicing Agreement in
Eligible Investments. "Eligible Investments" are generally limited to
investments acceptable to the Rating Agencies rating such Securities as being
consistent with the rating of such Securities and may include motor vehicle
and/or recreational vehicle retail sale contracts or installment loans.
Except as described below or in the related Prospectus Supplement,
Eligible Investments are limited to obligations or securities that
mature on or before the date of the next distribution for 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 the next distribution with respect to
such Certificates or Notes and will not be sold to meet any shortfalls.
Thus, the amount of cash in any Reserve Account at any time may be less than
the balance of the Reserve Account. If the amount required to be withdrawn
from any Reserve Account to cover shortfalls in collections on the related
Receivables (as provided in the related Prospectus Supplement) exceeds the
amount of cash in the Reserve Account, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result,
which could, in turn, increase the average life of the Notes or the
Certificates of such series. Investment earnings on funds deposited in the
Trust Accounts, net of losses and investment expenses (collectively,
"Investment Earnings"), shall be allocated in the manner described in the
related Prospectus Supplement.
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 which
signifies investment grade. "Eligible Institution" means, with respect to a
Trust, (a) the corporate trust department of the related Indenture Trustee or
the related Trustee, as applicable, or (b) a depository institution organized
under the laws of the United States of America or any one of the states
thereof or the District of Columbia (or any domestic branch of a foreign
bank), (i) which has either (A) a long-term unsecured debt rating acceptable
to the Rating Agencies or (B) a short-term unsecured debt rating or
certificate of deposit rating acceptable to the Rating Agencies and (ii)
whose deposits are insured by the FDIC.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due
with respect to the Receivables held by any Trust and will, consistent with
the related Sale and Servicing Agreement or Pooling and Servicing Agreement,
follow such collection procedures as it follows with respect to motor vehicle
or recreational vehicle retail installment sale contracts, installment loans,
purchase money notes or other notes that it services for itself or others and
that are comparable to such Receivables. 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, modify the original due dates or the amount of the
scheduled payments or extend the final payment date of any Receivable beyond
the Final Scheduled Maturity Date (as such term is defined with respect to
any Receivables Pool in the related Prospectus Supplement). Some of such
arrangements may result in the Servicer purchasing the Receivable for the
Purchase Amount, while others may result in the Servicer making Advances. The
Servicer may sell the Financed Vehicle securing the respective Receivable at
public or private sale, or take any other action permitted by applicable law.
See "Certain Legal Aspects of the Receivables".
The Servicer may from time to time perform any portion of its servicing
obligations under the applicable Sale and Servicing Agreement or Pooling and
Servicing Agreement through subservicing agreements with third-party
servicers approved by the Rating Agencies. Each applicable Sale and
Servicing Agreement and Pooling and Servicing Agreement will provide that,
notwithstanding the use of such subservicers, the Servicer will remain liable
for its servicing duties and obligations as if the Servicer were servicing
the Receivables directly.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on
the related Receivables (from whatever source) and all proceeds of such
Receivables collected during each collection period specified in the related
Prospectus Supplement (each, a "Collection Period") into the related
Collection Account within two business days after receipt thereof. However,
at any time that and for so long as (i) the Servicer (or its successor) is
the Servicer, (ii) there exists no Servicer Default and (iii) 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, the Servicer will not be required to deposit such amounts into the
Collection Account until on or before the applicable Distribution Date or
Payment Date. Pending deposit into the Collection Account, collections may
be invested by the Servicer at its own risk and for its own benefit and will
not be segregated from its own funds. If the
Servicer were unable to remit such funds, Securityholders might incur a loss.
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 Receivables and payment of
the aggregate Purchase Amount with respect to Receivables purchased by the
Servicer.
Collections on a Precomputed Receivable made during a Collection Period
shall be applied first to repay any outstanding Precomputed Advances made by
the Servicer with respect to such Receivable (as described below), and to the
extent that collections on a Precomputed Receivable during a Collection
Period exceed the outstanding Precomputed Advances, the collections shall
then be applied to the scheduled payment on such Receivable. If any
collections remaining after the scheduled payment is made are insufficient to
prepay the Precomputed Receivable in full, then, unless otherwise provided in
the related Prospectus Supplement, generally such remaining collections (the
"Payaheads") shall be transferred to and kept in the Payahead Account, until
such later Collection Period as the collections may be transferred to the
Collection Account and applied either to the scheduled payment or to prepay
such Receivable in full.
ADVANCES
Precomputed Receivables. Unless otherwise provided in the related
Prospectus Supplement, to the extent the collections of interest and
principal on a Precomputed Receivable with respect to a Collection Period
fall short of the respective scheduled payment, the Servicer 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 or Payment Date. The
Servicer will recoup its Precomputed Advance from subsequent payments by or
on behalf of the respective Obligor or from insurance or liquidation proceeds
with respect to the Receivable and will release its right to reimbursement in
conjunction with its purchase of the Receivable as Servicer, or, upon the
determination that reimbursement from the preceding sources is unlikely, will
recoup its Precomputed Advance from any collections made on other Precomputed
Receivables in the related Receivables Pool.
Simple Interest Receivables. Unless otherwise provided in the related
Prospectus Supplement, on or before the business day prior to each applicable
Distribution Date or Payment Date, the Servicer shall 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 related Collection Period. If such
calculation results in a negative number, an amount equal to such amount
shall be paid to the Servicer in reimbursement of outstanding Simple Interest
Advances. In addition, in the event that a Simple Interest Receivable
becomes a Defaulted 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) shall 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. As used
herein, "Advances" means both Precomputed Advances and Simple Interest
Advances.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the Prospectus Supplement with respect to
any Trust, the Servicer will be entitled to receive the Servicing Fee for
each Collection Period in an amount equal to a specified percentage per annum
(as set forth in the related Prospectus Supplement, the "Servicing Fee Rate")
of the Pool Balance as of the first day of the related Collection Period (the
"Servicing Fee"). The Servicing Fee (together with any portion of the
Servicing Fee that remains unpaid from prior Distribution Dates or Payment
Dates) will be paid out of available funds for the related Collection Period
prior to any distributions on the related Distribution Date or Payment Date
to the Noteholders or the Certificateholders of the given series.
Unless otherwise provided in the related Prospectus Supplement with
respect to a given Trust, 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 the related Receivables and will be
entitled to reimbursement from such Trust for certain liabilities. Payments
by or on behalf of Obligors will be allocated to scheduled payments and late
fees and other charges in accordance with the Servicer's normal practices and
procedures.
The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of motor vehicle and/or recreational
vehicle receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on
the Receivables, investigating delinquencies, sending payment coupons to
Obligors, reporting tax information to Obligors, paying costs of collections
and disposition of defaults and policing the collateral. The Servicing Fee
also will compensate the Servicer for administering the particular
Receivables Pool, including making Advances, accounting for collections and
furnishing monthly and annual statements to the related Trustee and Indenture
Trustee with respect to distributions and generating federal income tax
information for such Trust and for the related Noteholders and
Certificateholders. The Servicing Fee also will reimburse the Servicer for
certain taxes, the fees of the related Trustee and Indenture Trustee, if any,
accounting fees, outside auditor fees, data processing costs and other costs
incurred in connection with administering the applicable Receivables Pool.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Payment Date
or Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal and interest (or, where applicable, of
principal or interest only) on each class of such Securities entitled thereto
will be made by the Applicable Trustee to the Noteholders and the
Certificateholders of such series. The timing, calculation, allocation,
order, source, priorities of and requirements for all payments to each class
of Noteholders and all distributions to each class of Certificateholders of
such series will be set forth in the related Prospectus Supplement.
With respect to each Trust, on each Payment Date and Distribution Date,
as applicable, collections on the related Receivables will be transferred
from the Collection Account to the Note Distribution Account, if any, and the
Certificate Distribution Account for distribution to Noteholders, if any, and
Certificateholders to the extent provided in the related Prospectus
Supplement. Credit enhancement, such as a Reserve Account, will be available
to cover any shortfalls in the amount available for distribution on such date
to the extent specified in the related Prospectus Supplement. As more fully
described in the related Prospectus Supplement, and unless otherwise
specified therein, distributions in respect of principal of a class of
Securities of a given series will be subordinate to distributions in respect
of interest on such class, and distributions in respect of one or more
classes of Certificates of such series may be subordinate to payments in
respect of Notes, if any, of such series or other classes of Certificates of
such series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements
and the provider thereof, if applicable, with respect to each class of
Securities of a given series, if any, will be set forth in the related
Prospectus Supplement. If and to the extent provided in the related
Prospectus Supplement, credit and cash flow enhancement may be in the form of
subordination of one or more classes of Securities, Reserve Accounts,
overcollateralization, letters of credit, credit or liquidity facilities,
surety bonds, guaranteed investment contracts, swaps (including without
limitation currency swaps), other interest rate protection agreements, other
derivatives and financial instruments, repurchase obligations, yield
supplement agreements, other agreements with respect to third party payments
or other support, cash deposits or such other arrangements consistent with
the foregoing as may be described in the related Prospectus Supplement or any
combination of two or more of the foregoing. If specified in the applicable
Prospectus Supplement, credit or cash flow enhancement for a class of
Securities may cover one or more other classes of Securities of the same
series, and credit or cash flow enhancement for a series of Securities may
cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit enhancement
for the benefit of any class or series of Securities is intended to enhance
the likelihood of receipt by the Securityholders of such class or series of
the full amount of principal and interest due thereon and to decrease the
likelihood that such Securityholders will experience losses. The credit
enhancement for a class or series of Securities may not provide protection
against all risks of loss and may not guarantee repayment of the entire
principal balance and interest thereon; any such limitations will be
described in the related Prospectus Supplement. If losses occur which exceed
the amount covered by any credit enhancement or which are not covered by any
credit enhancement, Securityholders of any class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of credit enhancement covers more than
one series of Securities, Securityholders of any such series will be subject
to the risk that such credit enhancement will be exhausted by the claims
of Securityholders of other series.
Reserve Account. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Depositor will establish for a series or class of Securities
an account, as specified in the related Prospectus Supplement (the "Reserve
Account"), which will be maintained with the related Trustee or Indenture
Trustee, as applicable. Unless otherwise provided in the related Prospectus
Supplement, the Reserve Account will be funded by an initial deposit by the
Depositor or such other person specified in the related Prospectus Supplement
on the Closing Date in the amount set forth in the related Prospectus
Supplement and, if the related series has a Funding Period, will also be
funded on each Subsequent Transfer Date to the extent described in the
related Prospectus Supplement. As further described in the related
Prospectus Supplement, the amount on deposit in the Reserve Account will be
increased on each Distribution Date or Payment Date thereafter up to the
Specified Reserve Account Balance (as defined in the related Prospectus
Supplement) by the deposit therein of the amount of collections on the
related Receivables remaining on each such Distribution Date or Payment Date
after the payment of all other required payments and distributions on such
date. The related Prospectus Supplement will describe the circumstances and
manner under which distributions may be made out of the Reserve Account,
either to holders of the Securities covered thereby, to the Depositor or such
other person specified in the related Prospectus Supplement.
NET DEPOSITS
As an administrative convenience, unless the Servicer is required to
remit collections daily (see "-- Collections" above), the Servicer will be
permitted to make the deposit of collections, aggregate Advances and Purchase
Amounts for any Trust for or with respect to the related Collection Period
net of distributions to be made to the Servicer for such Trust with respect
to such Collection Period. The Servicer may cause to be made a single, net
transfer from the Collection Account to the related Payahead Account, if any,
or vice versa. The Servicer, however, will account to the Trustee, any
Indenture Trustee, the Noteholders, if any, and the Certificateholders with
respect to each Trust as if all deposits, distributions and transfers were
made individually. With respect to any Trust that issues both Certificates
and Notes, if the related Payment Dates do not coincide with Distribution
Dates, all distributions, deposits or other remittances made on a Payment
Date will be treated as having been distributed, deposited or remitted on the
Distribution Date for the applicable Collection Period for purposes of
determining other amounts required to be distributed, deposited or otherwise
remitted on such Distribution Date.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date or Payment Date with respect to each
series of Securities, the Servicer will provide to the applicable Indenture
Trustee, if any, and the applicable Trustee as of the close of business on
the last day of the preceding Collection Period a statement setting forth
substantially the same information as is required to be provided in the
periodic reports provided to Securityholders of such series described under
"Certain Information Regarding the Securities -- Reports to Securityholders".
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that a firm of independent public accountants will furnish to
the related Trust and Indenture Trustee or Trustee, as applicable, annually a
statement as to compliance by the Servicer during the preceding twelve months
(or, in the case of the first such certificate, from the applicable Closing
Date) with certain standards relating to the servicing of the applicable
Receivables, the Servicer's accounting records and computer files with
respect thereto and certain other matters.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will also provide for delivery to the related Trust and Indenture Trustee or
Trustee, as applicable, substantially simultaneously with the delivery of
such accountants' statement referred to above, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its
obligations under the Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, throughout the preceding twelve months (or, in the
case of the first such certificate, from the Closing Date) or, if there has
been a default in the fulfillment of any such obligation, describing each
such default. The Servicer has agreed to give each Indenture Trustee and
each Trustee notice of certain Servicer Defaults under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that the Servicer may not resign from its obligations and duties
as Servicer thereunder, except upon determination that the Servicer's
performance of such duties is no longer permissible under applicable law. No
such resignation will become effective until the related Indenture Trustee or
Trustee, as applicable, or a successor servicer has assumed the Servicer's
servicing obligations and duties under such Sale and Servicing Agreement or
Pooling and Servicing Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will further provide that neither the Servicer nor any of its directors,
officers, employees and agents will be under any liability to the related
Trust or the related Noteholders or Certificateholders for taking any action
or for refraining from taking any action pursuant to such Sale and Servicing
Agreement or Pooling and Servicing Agreement or for errors in judgment;
except that neither the Servicer nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of the Servicer's
duties thereunder or by reason of reckless disregard of its obligations and
duties thereunder. In addition, each Sale and Servicing Agreement and
Pooling and Servicing Agreement will provide that the Servicer is under no
obligation to appear in, prosecute or defend any legal action that is not
incidental to the Servicer's servicing responsibilities under such Sale and
Servicing Agreement or Pooling and Servicing Agreement and that, in its
opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement
and Pooling and Servicing Agreement, any entity into which the Servicer may
be merged or consolidated, or any entity resulting from any merger or
consolidation to which the Servicer is a party, or any entity succeeding to
the business of the Servicer, which corporation or other entity in each of
the foregoing cases assumes the obligations of the Servicer, will be the
successor of the Servicer under such Sale and Servicing Agreement or Pooling
and Servicing Agreement.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Default" under each Sale and Servicing Agreement and Pooling and
Servicing Agreement will consist of (i) any failure by the Servicer to
deliver to the Applicable Trustee for deposit in any of the Trust Accounts or
the Certificate Distribution Account any required payment or to direct the
Applicable Trustee to make any required distributions therefrom, which
failure continues unremedied for three business days after written notice
from the Applicable Trustee is received by the Servicer or after discovery of
such failure by the Servicer; (ii) any failure by the Servicer duly to
observe or perform in any material respect any other covenant or agreement in
such Sale and Servicing Agreement or Pooling and Servicing Agreement, which
failure materially and adversely affects the rights of the Noteholders or the
Certificateholders of the related series and which continues unremedied for
60 days after the giving of written notice of such failure (A) to the
Servicer or the Depositor, as the case may be, by the Applicable Trustee or
(B) to the Servicer and to the Applicable Trustee by holders of Notes or
Certificates of such series, as applicable, evidencing not less than 25% in
principal amount of such outstanding Notes or of such Certificate Balance;
and (iii) the occurrence of an Insolvency Event with respect to the Servicer.
"Insolvency Event" means, with respect to any Person, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, unless otherwise
provided in the related Prospectus Supplement, as long as a Servicer Default
under a Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing not
less than 25% of the 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. In the
case of any Trust that has not issued Notes, unless otherwise provided
in the related Prospectus Supplement, as long as a Servicer Default
under the related Pooling and Servicing Agreement remains unremedied,
the related Trustee or holders of Certificates of the related series
evidencing not less than 25% of the principal amount of such Certificates
then outstanding 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 such Indenture Trustee, such Noteholders, such Trustee
or such Certificateholders from effecting a transfer of servicing. In the
event that such Indenture Trustee or Trustee is unwilling or unable to so
act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $100,000,000 and
whose regular business includes the servicing of recreational vehicle and/or
motor vehicle receivables. Such Indenture Trustee or Trustee may make such
arrangements for compensation to be paid, which in no event may be greater
than the servicing compensation to the Servicer under such Sale and Servicing
Agreement or Pooling and Servicing Agreement.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued Notes, unless otherwise
provided in the related Prospectus Supplement, the holders of Notes
evidencing at least a majority in principal amount of the then outstanding
Notes of the related series (or the holders of the Certificates of such
series evidencing not less than a majority of the outstanding Certificate
Balance, in the case of any Servicer Default which does not adversely affect
the related Indenture Trustee or such Noteholders) may, on behalf of all such
Noteholders and Certificateholders, waive any default by the Servicer in the
performance of its obligations under the related Sale and Servicing Agreement
and its consequences, except a Servicer Default in making any required
deposits to or payments from any of the Trust Accounts or to the Certificate
Distribution Account in accordance with such Sale and Servicing Agreement.
With respect to each Trust that has not issued Notes, holders of Certificates
of such series evidencing not less than a majority of the principal amount of
such Certificates then outstanding may, on behalf of all such
Certificateholders, waive any default by the Servicer in the performance of
its obligations under the related Pooling and Servicing Agreement, except a
Servicer Default in making any required deposits to or payments from the
Certificate Distribution Account or the related Trust Accounts in accordance
with such Pooling and Servicing Agreement. No such waiver will impair such
Noteholders' or Certificateholders' rights with respect to subsequent
defaults.
AMENDMENT
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, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Transfer and Servicing Agreements or of
modifying in any manner the rights of such Noteholders or Certificateholders;
provided that such action will not, in the opinion of counsel satisfactory to
the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder.
Unless otherwise specified in the related Prospectus Supplement, the Transfer
and Servicing Agreements may also be amended by the Depositor, the Servicer,
the related Trustee and any related Indenture Trustee with the consent of the
holders of Notes evidencing at least a majority in principal amount of then
outstanding Notes, if any, of the related series and the holders of the
Certificates of such series evidencing at least a majority of the principal
amount of such Certificates then outstanding, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of such Transfer and Servicing Agreements or of modifying in any manner the
rights of such Noteholders or Certificateholders; provided, however, that no
such amendment may (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on the related
Receivables or distributions that are required to be made for the benefit of
such Noteholders or Certificateholders or (ii) reduce the aforesaid
percentage of the Notes or Certificates of such series which are required to
consent to any such amendment, without the consent of the holders of all the
outstanding Notes or Certificates, as the case may be, of such series.
Each Trust Agreement will provide that the applicable Trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect
to the related Trust without the unanimous prior approval of all
Certificateholders (including the Depositor) of such Trust and the delivery
to such Trustee by each such Certificateholder (including the Depositor) of a
certificate certifying that such Certificateholder reasonably believes that
such Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and
the satisfaction and discharge of the related Indenture, the related Trustee
will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement,
except as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the
Depositor, the related Trustee and the related Indenture Trustee, if any,
pursuant to the Transfer and Servicing Agreements will terminate upon the
earlier of (i) the maturity or other liquidation of the last related
Receivable and the disposition of any amounts received upon liquidation of
any such remaining Receivables, (ii) the payment to Noteholders, if any, and
Certificateholders of the related series of all amounts required to be paid
to them pursuant to the Transfer and Servicing Agreements and (iii) the
occurrence of either event described below.
Unless otherwise provided in the related Prospectus Supplement, in order
to avoid excessive administrative expense, the Servicer will be permitted at
its option to purchase from each Trust, as of the end of any applicable
Collection Period, if the then outstanding Pool Balance with respect to the
Receivables held by such Trust is 10% (or such other percentage which will
not be lower than 5% as is specified in the related Prospectus Supplement) or
less of the Initial Pool Balance (as defined in the related Prospectus
Supplement, the "Initial Pool Balance"), all remaining related Receivables at
a price equal to the aggregate of the Purchase Amounts thereof as of the end
of such Collection Period.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Applicable Trustee will, within ten days following a
Distribution Date or Payment Date as of which the Pool Balance is equal to or
less than the percentage of the Initial Pool Balance specified in the related
Prospectus Supplement, solicit bids for the purchase of the Receivables
remaining in such Trust, in the manner and subject to the terms and
conditions set forth in such Prospectus Supplement. If the Applicable
Trustee receives satisfactory bids as described in such Prospectus
Supplement, then the Receivables remaining in such Trust will be sold to the
highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above, and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
ADMINISTRATION AGREEMENT
If so specified in the related Prospectus Supplement, the person named
as such in the related Prospectus Supplement (the "Administrator"), will
enter into an agreement (as amended and supplemented from time to time, an
"Administration Agreement") with each Trust that issues Notes and the related
Indenture Trustee pursuant to which the Administrator will agree, to the
extent provided in such Administration Agreement, to provide the notices and
to perform other administrative obligations required by the related
Indenture. Unless otherwise specified in the related Prospectus Supplement
with respect to any such Trust, as compensation for the performance of the
Administrator's obligations under the applicable Administration Agreement and
as reimbursement for its expenses related thereto, the Administrator will be
entitled to a monthly administration fee in such amount as may be set forth
in the related Prospectus Supplement (the "Administration Fee").
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Receivables will be treated by each Trust as "chattel paper" as
defined in the UCC. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to a security interest in chattel paper. In
order to protect each Trust's ownership or security interest in its
Receivables, the Depositor will file UCC-1 financing statements with the
appropriate authorities in the States of New York, Delaware and any other
states deemed advisable by the Depositor to give notice of such Trust's and
any related Indenture Trustee's ownership of and security interest in the
Receivables and their proceeds. Under each Sale and Servicing Agreement and
Pooling and Servicing Agreement, the Servicer will be obligated to maintain
the perfection of each Trust's and any related Indenture Trustee's interest
in the Receivables. It should be noted, however, that a purchaser of chattel
paper who gives new value and takes possession of it in the ordinary course
of such purchaser's business has priority over a security interest, including
an ownership interest, in the chattel paper that is perfected by filing UCC-1
financing statements, and not by possession of such chattel paper by the
original secured party, if such purchaser acts in good faith without
knowledge that the related chattel paper is subject to a security interest,
including an ownership interest. Any such purchaser would not be deemed to
have such knowledge because there are UCC filings and would not learn of the
sale of or security interest in the Receivables from a review of the
Receivables since they would not be marked to show such sale.
SECURITY INTEREST IN VEHICLES
In states in which retail installment sale contracts and installment
loans such as the Motor Vehicle and Recreational Vehicle Receivables evidence
the credit sale of automobiles, light-duty trucks, medium - and heavy-duty
trucks and tractors or recreational vehicles by dealers to obligors, the
contracts or loans also constitute personal property security agreements and
include grants of security interests in the vehicles under the applicable
UCC. Perfection of security interests in the automobiles (including trucks
and tractors) and recreational vehicles is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In
all states in which the Receivables have been originated, except as noted
below, a security interest in Financed Vehicles is perfected by obtaining the
certificate of title to the Financed Vehicle or notation of the secured
party's lien on the Financed Vehicle's certificate of title. Notwithstanding
the foregoing, in certain states, folding camping trailers and/or slide-in
campers, which may constitute the Financed Vehicle with respect to certain
Recreational Vehicle Receivables, are not subject to state titling and
vehicle registration laws and a security interest in such recreation vehicles
is perfected by filing pursuant to the provisions of the UCC.
Unless otherwise specified in the related Prospectus Supplement, each
Seller will be obligated to have taken all actions necessary under the laws
of the state in which the Financed Vehicle is located to perfect its security
interest in the Financed Vehicle securing the related Receivable purchased by
it from a Dealer, including, where applicable, by having a notation of its
lien recorded on such vehicle's certificate of title or, if appropriate, by
perfecting its security interest in the related recreational vehicles under
the UCC. Because the Servicer will continue to service the contracts and
loans, the Obligors on the contracts and loans will not be notified of the
sales from a Seller to the Depositor or from the Depositor to the Trust, and
no action will be taken to record the transfer of the security interest from
a Seller to the Depositor or from the Depositor to the Trust by amendment of
the certificates of title for the Financed Vehicles or otherwise.
Pursuant to each Receivables Purchase Agreement, each Seller will assign
to the Depositor its interests in the Financed Vehicles securing the Motor
Vehicle and Recreational Vehicle Receivables assigned by that Seller to the
Depositor and, with respect to each Trust, pursuant to the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, the Depositor will
assign its interests in the Financed Vehicles securing the related
Receivables to such Trust. However, because of the administrative burden and
expense, none of the Seller, the Depositor, the Servicer or the related
Trustee will amend any certificate of title to identify either the Depositor
or such Trust as the new secured party on such certificate of title relating
to a Financed Vehicle nor will any such entity execute and file any transfer
instrument (including, among other instruments, UCC-3 assignments for those
Financed Recreational Vehicles for which perfection is governed by the UCC).
In most states, an assignment such as that under each Receivables
Purchase Agreement, Sale and Servicing Agreement or Pooling and Servicing
Agreement is an effective conveyance of a security interest without amendment
of any lien noted on a vehicle's certificate of title or the execution or
filing of any transfer instrument, and the assignee succeeds thereby to the
assignor's rights as secured party. In some states, however, in the absence
of such an amendment, execution or filing, the assignment to the Applicable
Trustee of a security interest in Financed Vehicles registered therein may
not be effective or such security interest may not be perfected. If any
otherwise effectively assigned security interest in favor of the Applicable
Trustee is not perfected, such assignment of the security interest to such
Trustee may not be effective against creditors or a trustee in bankruptcy of
the applicable Seller, which continues to be specified as lienholder on any
certificates of title or as secured party on any UCC filing. However, UCC
financing statements with respect to the transfer of each Seller's security
interest in related Financed Vehicles to the Depositor and the transfer to
the applicable Trust of the Seller's security interest in such Financed
Vehicles will be filed. In addition, the Servicer will continue to hold any
certificates of title relating to the Financed Vehicles in its possession as
custodian for such Trust pursuant to the related Sale and Servicing Agreement
or Pooling and Servicing Agreement. See "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables".
In addition, even in those states where an assignment such as that under
each Receivables Purchase Agreement, Sale and Servicing Agreement or Pooling
and Servicing Agreement is an effective conveyance of a security interest
without amendment of any lien noted on a vehicle's certificate of title, by
not identifying a Trust as the secured party on the certificate of title, the
security interest of such Trust in the vehicle could be defeated through
fraud or negligence. In such states, in the absence of fraud or forgery by
the vehicle owner or the Seller or administrative error by state or local
agencies, the notation of the Seller's lien on the certificates of title will
be sufficient to protect a Trust against the rights of subsequent purchasers
of a Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. If there are any Financed Vehicles as to which the Seller
failed to obtain a perfected security interest, the security interest of the
related Trust would be subordinate to, among others, the interests of
subsequent purchasers of the Financed Vehicles and holders of perfected
security interests therein. Such a failure, however, would constitute a
breach of the warranties of the Depositor under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement and of the related
Seller under the Receivables Purchase Agreement and would create an
obligation of the Depositor to repurchase the related Receivable from the
Trust and of the related Seller to simultaneously repurchase the related
Receivable from the Depositor unless the breach were cured. See "Description
of the Transfer and Servicing Agreements -- Sale and Assignment of
Receivables" and "Risk Factors -- Certain Legal Aspects -- Security Interests
in Financed Vehicles".
Under the laws of most states, the perfected security interest in a
vehicle would continue for four months after the vehicle is moved to a state
other than the state in which it is initially registered and thereafter until
the owner thereof re-registers the vehicle in the new state. A majority of
states generally 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 to the vehicle or, in the case of a vehicle
registered in a state 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 if the security interest is noted on the
certificate of title. Thus, the secured party would have the opportunity to
re-perfect its security interest in the vehicle in the state of relocation.
However, these procedural safeguards will not protect the secured party if
through fraud, forgery or administrative error, the debtor somehow procures a
new certificate of title that does not list the secured party's lien.
Additionally, in states that do not require a certificate of title for
registration of a motor vehicle or recreational vehicle, re-registration
could defeat perfection. In the ordinary course of servicing motor vehicle
or recreational vehicle receivables, the Servicer takes steps to effect
re-perfection upon receipt of notice of re-registration or information from
the obligor as to relocation. Similarly, when an obligor sells a vehicle, the
Servicer 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 loan before
release of the lien. Under each Sale and Servicing Agreement and Pooling and
Servicing Agreement, the Servicer will be obligated to take appropriate
steps, at the Servicer's expense, to maintain perfection of security
interests in the Financed Vehicles and is obligated to purchase the related
Receivable if it fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle or recreational vehicle and liens for unpaid taxes take priority over
even a perfected security interest in a financed 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
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 the confiscated vehicle. Under each
Receivables Purchase Agreement, the Seller will represent to the related
Trust that, as of the date the related Receivable is sold to such Trust, each
security interest in a Financed Vehicle is or will be prior to all other
present liens (other than tax liens and other liens that arise by operation
of law) upon and security interests in such Financed Vehicle. However, liens
for repairs or taxes could arise, or the confiscation of a Financed Vehicle
could occur, at any time during the term of a Receivable. No notice will be
given to the Trustee, any Indenture Trustee, any Noteholders or the
Certificateholders in respect of a given Trust if such a lien arises or
confiscation occurs and any such lien or confiscation arising after the
applicable Closing Date would not give rise to the related Seller's
repurchase obligation under the applicable Receivables Purchase Agreement.
REPOSSESSION
In the event of default by vehicle purchasers, the holder of the motor
vehicle or recreational vehicle installment sale contract or installment loan
has all the remedies of a secured party under the UCC, except where
specifically limited by other state laws. Among the UCC remedies, the
secured party has the right to perform self-help repossession unless such act
would constitute a breach of the peace. Self-help is the method employed by
the Servicer in most cases and is accomplished simply by retaking possession
of the financed vehicle. In the event of default by the obligor, some
jurisdictions require that the obligor be
notified of the default and be given a time period within which he may cure
the default prior to repossession. Generally, the right of reinstatement may
be exercised on a limited number of occasions in any one-year period. 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 repossessed
in accordance with that order.
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 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 balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the vehicles generally will be applied first
to the expenses of resale and repossession and then to the satisfaction of
the indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in those
states that do not prohibit or limit such judgments. 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. Therefore, in many
cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and
all indebtedness, there is a surplus of funds. In that case, the UCC
requires the creditor to remit the surplus to any holder of a lien with
respect to the vehicle or if no such lienholder exists or there are remaining
funds, the UCC requires the creditor to remit the surplus to the former owner
of the vehicle.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers
involved in consumer finance. These laws include the Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Procedures Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, the
Texas Consumer Credit Code, state adoptions 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, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the 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
which 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 purchaser of the applicable
Financed Vehicle may assert against the seller of the Financed Vehicle.
Such claims are limited to a maximum liability equal to the amounts paid by
the Obligor on the Receivable. If an Obligor were successful in asserting
any such claim or defense, such claim or defense would constitute a breach of
the Seller's warranties under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement and would create an obligation of the Seller
to repurchase the Receivable unless the breach is cured. See "Description of
the Transfer and Servicing Agreements -- Sale and Assignment of Receivables".
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the
United States. Courts have generally upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale
by the creditor do not involve sufficient state action to afford
constitutional protection to borrowers.
Under each Receivables Purchase Agreement, the related Seller will
warrant to the related Depositor (who will in turn assign its rights under
such warranty to the applicable Trust under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement) that each Receivable complies
with all requirements of law in all material respects. Accordingly, if an
Obligor has a claim against such Trust for violation of any law and such
claim materially and adversely affects such Trust's interest in a Receivable,
such violation would constitute a breach of the warranties of the Seller
under such Receivables Purchase Agreement and would create an obligation of
the Seller to repurchase the Receivable unless the breach is cured. See
"Description of the Transfer and Servicing Agreements -- Sale and Assignment
of Receivables".
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured
party to realize upon collateral or to 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 vehicle, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the vehicle at the time of bankruptcy (as determined by the
court), leaving the creditor as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract or change the rate of interest and time
of repayment of the indebtedness.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. 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 Noteholders or Certificateholders 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 may disagree with
all or a part of the discussion below. Prospective investors are urged to
consult their own tax advisors in determining the federal, state, local,
foreign and any other tax consequences to them of the purchase, ownership and
disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be
provided with an opinion of special Federal tax counsel to each Trust
specified in the related Prospectus Supplement ("Tax Counsel"), regarding
certain federal income tax matters discussed below. An opinion of Tax
Counsel, however, is not binding on the IRS or the courts. No ruling on any
of the issues discussed below will be sought from the IRS. For purposes of
the following summary, references to the Trust, the Notes, the Certificates
and related terms, parties and documents shall be deemed to refer, unless
otherwise specified herein, to each Trust and the Notes, Certificates and
related terms, parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust as a partnership
or a FASIT under the Code or whether the Trust will be treated as a grantor
trust. The Prospectus Supplement for each series of Certificates will
specify whether a partnership or a FASIT election will be made or whether the
Trust will be treated as a grantor trust.
Prior to issuance of each series of Notes and Certificates, the
Depositor shall file with the Commission a Form 8-K on behalf of the related
Trust containing an opinion of Tax Counsel with respect to the validity of
the information set forth under "Federal Income Tax Considerations" herein
and in the related Prospectus Supplement.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Tax Counsel will deliver its opinion that a Trust for which a
partnership election is made 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 conclusions
that the nature of the income of the Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations.
If the 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 its income on the
Receivables, 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 Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Depositor will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Trust that the
Notes will be classified as debt for federal income tax purposes. The
discussion below assumes this characterization of the Notes is correct.
OID, etc. The discussion below assumes that all payments on the Notes
are denominated in U.S. dollars, and that the Notes are not Indexed
Securities or Strip Notes. Moreover, the discussion assumes that the
interest formula for the Notes meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID regulations") relating to
original issue discount ("OID"), and that any OID on the Notes (i.e., any
excess of the principal amount of the Notes over their issue price) does not
exceed a de minimis amount (i.e., 1/4% of their principal amount multiplied
by the number of full years to maturity), all within the meaning of the OID
regulations. If these conditions are not satisfied with respect to any given
series of Notes, additional tax considerations with respect to such Notes
will be disclosed in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered to be
issued with OID. The stated interest thereon will be taxable to a Noteholder
as ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder
of a Note issued with a de minimis amount of OID must include such OID in
income, on a pro rata basis, as principal payments are made on the Note. It
is believed that any prepayment premium paid as a result of a mandatory
redemption will be taxable as contingent interest when it becomes fixed and
unconditionally payable. A purchaser who buys a Note for more or less than
its principal amount will generally be subject, respectively, to the premium
amortization or market discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain
cash method holders, including regulated investment companies, as set forth
in Section 1281 of the Code) generally would be required to report interest
income as interest accrues on a straight-line basis over the term of each
interest period. Other cash basis holders of a Short-Term Note would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the Short-Term Note). However, a
cash basis holder of a Short-Term Note reporting interest income as it is
paid may be required to defer a portion of any interest expense otherwise
deductible on indebtedness incurred to purchase or carry the Short-Term Note
until the taxable disposition of the Short-Term Note. A cash basis taxpayer
may elect under Section 1281 of the Code to accrue interest income on all
nongovernment debt obligations with a term of one year or less, in which case
the taxpayer would include interest on the Short-Term Note in income as it
accrues, but would not be subject to the interest expense deferral rule
referred to in the preceding sentence. Certain special rules apply if a
Short-Term Note is purchased for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note.
The adjusted tax basis of a Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously
received by such Noteholder with respect to such Note. Any such gain or loss
will be capital gain or loss if the Note was held as a capital asset, except
for gain representing accrued interest and accrued market discount not
previously included in income. Capital losses generally may be used only to
offset capital gains.
New Capital Gains Provisions. The Taxpayer Relief Act of 1997 reduces
the maximum rates on long-term capital gains recognized on capital assets
held by individual taxpayers for more than eighteen months as of the date of
disposition to 20% (and would further reduce the maximum rates on such gains
in the year 2001 and thereafter for certain individual taxpayers who meet
specified conditions). Gain recognized by individual taxpayers on assets
held more than twelve but not more than eighteen months continue to be taxed
at a 28% rate. Prospective investors should consult their own tax advisors
concerning these tax law changes.
Foreign Holders. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio
interest", and generally will not be subject to United States federal income
tax and withholding tax, if the interest is not effectively connected with
the conduct of a trade or business within the United States by the foreign
person and the foreign person (i) is not actually or constructively a "10
percent shareholder" of the Trust or the Depositor (including a holder of 10%
of the outstanding Certificates) or a "controlled foreign corporation" with
respect to which the Trust or the Depositor is a "related person" within the
meaning of the Code and (ii) provides the Owner Trustee or other person who
is otherwise required to withhold U.S. tax with respect to the Notes with an
appropriate statement (on Form W-8 or a similar form), signed under penalties
of perjury, certifying that the beneficial owner of the Note is a foreign
person and providing the foreign person's name and address. If a Note is
held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide the relevant signed
statement to the withholding agent; in that case, however, the signed
statement must be accompanied by a Form W-8 or substitute form provided by
the foreign person that owns the Note. If such interest is not portfolio
interest, then it will be subject to United States federal income tax at
graduated rates (if received by a non-U.S. person with effectively connected
income) and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such 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 person is not present in the United States for 183 days
or more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold 31 percent of the amount otherwise payable to the
holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
New Withholding Regulations. On October 6, 1997, the Treasury
Department issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information
reporting rules described above. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged
to consult their own tax advisors regarding the New Regulations.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of 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 would
likely 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 certain tax-exempt entities
(including pension funds) would be "unrelated business taxable income",
income to foreign holders generally would be subject to U.S. tax and would
subject to foreign holder to U.S. tax return filing and withholding
requirements, and individual holders might be subject to certain limitations
on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust as a Partnership. The Depositor and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in
part by income, with the assets of the partnership being the assets held by
the Trust, the partners of the partnership being the Certificateholders
(including the Depositor in its capacity as recipient of distributions from
the Reserve Account), and the Notes being debt of the partnership. However,
the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Depositor 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 Depositor or the Trust. 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.
Partnership Taxation. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Receivables
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of Receivables. The Trust's
deductions will consist primarily of interest accruing with respect to the
Notes, servicing and other fees, and losses or deductions upon collection or
disposition of Receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass Through Rate for such month and
interest on amounts previously due on the Certificates but not yet
distributed; (ii) any Trust income attributable to discount on the
Receivables that corresponds to any excess of the principal amount of the
Certificates over their initial issue price; (iii) prepayment premium payable
to the Certificateholders for such month; and (iv) any other amounts of
income payable to the Certificateholders for such month. Such allocation
will be reduced by any amortization by the Trust of premium on Receivables
that corresponds to any excess of the issue price of Certificates over their
principal amount. All remaining taxable income of the Trust will be
allocated to the Depositor. Based on the economic arrangement of the
parties, this 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
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass Through
Rate plus the other items described above even though the Trust might not
have sufficient cash to make current cash distributions of such amount.
Thus, cash basis holders will in effect be required to report income from the
Certificates on the accrual basis and Certificateholders may become liable
for taxes on Trust income even if they have not received cash from the Trust
to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to
them by the Trust.
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 holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions. 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 Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the
Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables were not
issued with OID, and, therefore, the Trust should not have OID income.
However, the purchase price paid by the Trust for the Receivables may be
greater or less than the remaining principal balance of the Receivables at
the time of purchase. If so, the Receivables will have been acquired at a
premium or discount, as the case may be. As indicated above, the Trust will
make this calculation on an aggregate basis, but might be required to
recompute it on a Receivable-by-Receivable basis.
If the Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Receivables or to offset any such premium
against interest income on the Receivables. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
Section 708 Termination. Pursuant to final Treasury regulations issued
May 9, 1997 under section 708 of the Code, a sale or exchange of 50 percent
or more of the capital and profits in the Trust would cause a deemed
contribution of assets of the Trust (the "old partnership") to a new
partnership (the "new partnership") in exchange for interest in new
partnership. Such interests would be deemed distributed to the partners of
the old partnership in liquidation thereof, which would not constitute a sale
or exchange.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of a Certificate in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificate
sold. A Certificateholder's tax basis in a Certificate will generally equal
the holder's cost increased by the holder's share of Trust income (includible
in income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificate and the
amount realized on a sale of a Certificate would include the holder's share
of the Notes and other liabilities of the Trust. A holder acquiring
Certificates at different prices may be required to maintain a single
aggregate adjusted tax basis in such Certificates, and, upon sale or other
disposition of some of the Certificates, allocate a portion of such aggregate
tax basis to the Certificates sold (rather than maintaining a separate tax
basis in each Certificate for purposes of computing gain or loss on a sale of
that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets
that would give rise to such special reporting requirements. Thus, to avoid
those special reporting requirements, the Trust will elect to include market
discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (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
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
purchase of the certificates.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust might be reallocated among the Certificateholders. The
Depositor is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect
that higher (or lower) basis unless the Trust were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the Trust will not
make such election. As a result, Certificateholders might be allocated a
greater or lesser amount of Trust income than would be appropriate based on
their own purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained
for financial reporting and tax purposes on an accrual basis and the fiscal
year of the Trust will be the calendar year (if permitted, based on
certificate ownership). The Trustee will file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Trust and
will report each Certificateholder's allocable share of items of Trust income
and expense to holders and the IRS on Schedule K-1. The Trust will provide
the Schedule K-1 information to nominees that fail to provide the Trust with
the information statement described below and such nominees will be required
to forward such information to the beneficial owners of the Certificates.
Generally, holders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes
(i) the name, address and taxpayer identification number of the nominee and
(ii) as to each beneficial owner (x) the name, address and identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization, or
any wholly owned agency or instrumentality of either of the foregoing, and
(z) certain information on Certificates that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and
financial institutions that hold Certificates through a nominee are required
to furnish directly to the Trust information as to themselves and their
ownership of Certificates. A clearing agency registered under Section 17A of
the Exchange Act is not required to furnish any such information statement to
the Trust. The information referred to above for any calendar year must be
furnished to the Trust on or before the following January 31. Nominees,
brokers and financial institutions that fail to provide the Trust with the
information described above may be subject to penalties.
The 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 any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the
income and losses of the Trust.
Treatment of Trust as a Disregarded Entity. If specified in the related
Prospectus Supplement, to the extent there is only one Certificateholder, the
Trust will be disregarded as an entity separate from the Certificateholder
for U.S. federal income tax purposes. The Certificateholder will be treated
as owning the assets of the Trust directly and all income, losses, deductions
and credits of the Trust will be treated as those of the Certificateholder.
A cash basis Certificateholder may in effect be required to report income
from the Certificates on an accrual basis and may become liable for taxes on
Trust income even if it has not received cash from the Trust to pay such
taxes. In addition, to the extent the Certificateholder is an individual,
expenses (not including interest expenses) are miscellaneous itemized
deductions which are generally deductible to the extent they exceed two
percent of the individual's adjusted gross income (depending on the adjusted
gross income of the taxpayer). Accordingly, 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 Trust. See
"Partnership Taxation" and "Discount and Premium" herein for a description of
other U.S. federal income tax consequences of owning the assets of Trust.
Tax Consequences to Foreign Certificateholders. 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-U.S. 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 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 foreign Certificateholders 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 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 Trust to change its withholding procedures.
In determining a holder's withholding status, the Trust may rely on IRS Form
W-8, IRS Form W-9 or the holder's certification of nonforeign status signed
under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return and pay tax (including, in the case of a
corporation, the branch profits tax) on its share of the Trust's income.
Each foreign holder must obtain a taxpayer identification number from the IRS
and submit that number to the Trust on Form W-8 in order to assure
appropriate crediting of the taxes withheld. A foreign holder generally
would be entitled to file with the IRS a claim for refund with respect to
taxes withheld by the Trust, taking the position that no taxes were due
because the Trust was not engaged in a U.S. trade or business. However,
interest payments made (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 Trust. If these
interest payments are properly characterized as guaranteed payments, then the
interest will not be considered "portfolio interest." As a result,
Certificateholders will be subject to United States federal income tax and
withholding tax at a rate of 30 percent, unless reduced or eliminated
pursuant to an applicable treaty. In such case, a foreign holder would only
be entitled to claim a refund for that portion of the taxes in excess of the
taxes that should be withheld with respect to the guaranteed payments.
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. See Federal Income Tax Consequences -
Trusts for which a Partnership Election is Made - Tax Consequences to Holders
of the Notes - New Withholding Regulations.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
If a partnership election is not made, 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, 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".
Characterization. Each Grantor Trust Certificateholder will be treated
as the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will
be considered the equitable owner of a pro rata undivided interest in each of
the Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable
because of a default or delinquency in payment will be treated for federal
income tax purposes as having the same character as the payments they
replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Receivables in the Trust represented by Grantor Trust
Certificates, including interest, OID, if any, prepayment fees, assumption
fees, any gain recognized upon an assumption and late payment charges
received by the Servicer. Under Sections 162 or 212 of the Code, 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 generally be entitled to deduct their share of expenses only to
the extent such expenses plus all other Section 212 expenses exceed two
percent of its adjusted gross income (depending on the adjusted gross income
of the certificateholder). A Grantor Trust Certificateholder using the cash
method of accounting must take into account its pro rata share of income and
deductions as and when collected by or paid to the Servicer. A Grantor Trust
Certificateholder using an accrual method of accounting must take into
account its pro rata share of income and deductions as they become due or are
paid to the Servicer, whichever is earlier. If the servicing fees paid to
the Servicer are deemed to exceed reasonable servicing compensation, the
amount of such excess could be considered as an ownership interest retained
by the Servicer (or any person to whom the Servicer assigned for value all or
a portion of the servicing fees) in a portion of the interest payments on the
Receivables. The Receivables would then be subject to the "coupon stripping"
rules of the Code discussed below.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Receivable
based on each Receivable's relative fair market value, so that such holder's
undivided interest in each Receivable will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in Receivables at a premium
may elect to amortize such premium under a constant interest method.
Amortizable bond premium will be treated as an offset to interest income on
such Grantor Trust Certificate. The basis for such Grantor Trust Certificate
will be reduced to the extent that amortizable premium is applied to offset
interest payments. It is not clear whether a reasonable prepayment assumption
should be used in computing amortization of premium allowable under Section
171. A Grantor Trust Certificateholder that makes this election for a
Grantor Trust Certificate that is acquired at a premium will be deemed to
have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such Grantor Trust
Certificateholder acquires during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at
a premium should recognize a loss if a Receivable prepays in full, equal to
the difference between the portion of the prepaid principal amount of such
Receivable that is allocable to the Grantor Trust Certificate and the portion
of the adjusted basis of the Grantor Trust Certificate that is allocable to
such Receivable. If a reasonable prepayment assumption is used to amortize
such premium, it appears that such a loss would be available, if at all, only
if prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
STRIPPED BONDS AND STRIPPED COUPONS
Although the tax treatment of stripped bonds is not entirely clear,
based on guidance by the IRS, each purchaser of a Grantor Trust Certificate
will be treated as the purchaser of a stripped bond which generally should be
treated as a single debt instrument issued on the day it is purchased for
purposes of calculating any OID. Generally, under Treasury regulations
discussing the treatment of stripped bonds and stripped coupons (the "Section
1286 Treasury Regulations"), if the discount on a stripped bond is larger
than a de minimis amount (as calculated for purposes of the OID rules of the
Code) such stripped bond will be considered to have been issued with OID.
See "Original Issue Discount." Based on the preamble to the Section 1286
Treasury Regulations, Tax Counsel is of the opinion that, although the matter
is not entirely clear, the interest income on the Certificates at the sum of
the Pass Through Rate and the portion of the Servicing Fee Rate that does not
constitute excess servicing will be treated as "qualified stated interest"
within the meaning of the Section 1286 Treasury Regulations, and such income
will be so treated in the Trustee's tax information reporting.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to OID (currently Sections 1271 through 1273 and 1275) will be
applicable to a Grantor Trust Certificateholder's interest in those
Receivables meeting the conditions necessary for these sections to apply.
Generally, a Grantor Trust Certificateholder that acquires an undivided
interest in a Receivable issued or acquired with OID must include in gross
income the sum of the "daily portions" of the OID on such Receivable for
each day on which it owns a Certificate, including the date of purchase but
excluding the date of disposition. In the case of an original Grantor Trust
Certificateholder, the daily portion of OID with respect to a Receivable
generally would be determined as follows. A calculation will be made of the
portion of OID that accrues on the Receivable during each successive monthly
accrual period (or shorter period in respect of the date of original issue or
the final Distribution Date). This will be done, in the case of each full
monthly accrual period, by adding (i) the present value of all remaining
payments to be received on the Receivable under the prepayment assumption
used in respect of the Receivables and (ii) any payments received during such
accrual period, and subtracting from that total the "adjusted issue price" of
the Receivable at the beginning of such accrual period. No
representation is made that the Receivables will prepay at any prepayment
assumption. The "adjusted issue price" of a Receivable at the beginning of
the first accrual period is its issue price (as determined for purposes of
the OID rules of the Code) and the "adjusted issue price" of a Receivable at
the beginning of a subsequent accrual period is the "adjusted issue price" at
the beginning of the immediately preceding accrual period plus the amount of
OID allocable to that accrual period and reduced by the amount of any payment
(other than "qualified stated interest") made at the end of or during that
accrual period. The OID accruing during such accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. With respect to an initial accrual period
shorter than a full monthly accrual period, the daily portions of OID must be
determined according to an appropriate allocation under either an exact or
approximate method set forth in the OID Regulations, or some other reasonable
method, provided that such method is consistent with the method used to
determine the yield to maturity of the Receivables.
With respect to the Receivables, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Receivables. Subsequent purchasers that
purchase Receivables at more than a de minimis discount should consult their
tax advisors with respect to the proper method to accrue such OID.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules
of Sections 1276 through 1278 to the extent an undivided interest in a
Receivable is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the
portion of the principal amount of such Receivable allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have
not yet been issued and, therefore, investors should consult their own tax
advisors regarding the application of these rules and the advisability of
making any of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. The amount of accrued
market discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be
reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the
holder of a market discount bond may elect to accrue market discount either
on the basis of a constant interest rate or according to one of the following
methods. If a Grantor Trust Certificate is issued with OID, the amount of
market discount that accrues during any accrual period would be equal to the
product of (i) the total remaining market discount and (ii) a fraction, the
numerator of which is the OID accruing during the period and the denominator
of which is the total remaining OID at the beginning of the accrual period.
For Grantor Trust Certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of (i) the
total remaining market discount and (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 accrual period. For purposes of calculating
market discount under any of the above methods in the case of instruments
(such as the Grantor Trust Certificates) that provide for payments that may
be accelerated by reason of prepayments of other obligations securing such
instruments, the same prepayment assumption applicable to calculating the
accrual of OID will apply. Because the regulations described above have not
been issued, it is impossible to predict what effect those regulations might
have on the tax treatment of a Grantor Trust Certificate purchased at a
discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to
purchase or carry such Grantor Trust Certificate purchased with market
discount. For these purposes, the de minimis rule referred to above applies.
Any such deferred interest expense would not exceed the market discount that
accrues during such taxable year and is, in general, allowed
as a deduction not later than the year in which such market discount is
includible in income. If such holder elects to include market discount in
income currently as it accrues on all market discount instruments acquired by
such holder in that taxable year or thereafter, the interest deferral rule
described above will not apply.
Premium. To the extent a Grantor Trust Certificateholder is considered
to have purchased an undivided interest in a Receivable for an amount that is
greater than its stated redemption price at maturity of such Receivable, such
Grantor Trust Certificateholder will be considered to have purchased the
Receivable with "amortizable bond premium" equal in amount to such excess. A
Grantor Trust Certificateholder (who does not hold the Certificate for sale
to customers or in inventory) may elect under Section 171 of the Code to
amortize such premium. Under the Code, premium is deducted as an offset to
the interest payments on the Receivables to which it relates and reduces the
amount included in the certificateholders income upon such interest payments.
With certain exceptions, such an election would apply to all debt instruments
held or subsequently acquired by the electing holder. Absent such an
election, the premium will be deductible as an ordinary loss only upon
disposition of the Certificate or pro rata as principal is paid on the
Receivables.
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election
were to be made with respect to a Grantor Trust Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include in income currently market discount with respect to all other debt
instruments having market discount that such Grantor Trust Certificateholder
acquires during the year of the election or thereafter. Similarly, a Grantor
Trust Certificateholder that makes this election for a Grantor Trust
Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Grantor Trust Certificateholder owns or
acquires. See "-- Premium" herein. The election to accrue interest,
discount and premium on a constant yield method with respect to a Grantor
Trust Certificate is irrevocable.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis
generally will equal the seller's purchase price for the Grantor Trust
Certificate, increased by the OID included in the seller's gross income with
respect to the Grantor Trust Certificate, and reduced by principal payments
on the Grantor Trust Certificate previously received by the seller. Such
gain or loss will be capital gain or loss to an owner for which a Grantor
Trust Certificate is a capital asset. See Federal Income Tax Consequences -
Trusts for which a Partnership Election is made - Tax Consequences to Holders
of the Notes - New Capital Gains Provisions.
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to
which such section applies will be treated as ordinary income or loss.
Non-U.S. Persons. Generally, to the extent that a Grantor Trust
Certificate evidences ownership in underlying Receivables that were issued on
or before July 18, 1984, interest or OID paid by the person required to
withhold tax under Section 1441 or 1442 to (i) an owner that is not a U.S.
Person or (ii) a Grantor Trust Certificateholder holding on behalf of an
owner that is not a U.S. Person will be subject to federal income tax,
collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such
payments would not be subject to withholding to the extent that a Grantor
Trust Certificate evidences ownership in Receivables issued after July 18,
1984, by natural persons if such Grantor Trust Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the Grantor Trust Certificateholder under penalties of perjury,
certifying that such Grantor Trust Certificateholder is not a U.S. Person and
providing the name and address of such Grantor Trust Certificateholder).
Additional restrictions apply to Receivables where the obligor is not a
natural person in order to qualify for the exemption from withholding.
As used herein, the term "U.S. Person" means a beneficial owner of a
Note that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States any
state thereof or the District of Columbia (other than a partnership that is
not treated as a United States person under any applicable Treasury
regulations), (iii) an estate whose income is subject to United States
federal
income tax regardless of its source, (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States persons have the authority to
control all substantial decisions of the trust. Notwithstanding the
preceding sentence, to the extent provided in Treasury regulations, certain
trusts in existence on August 20, 1996, and treated as United States persons
prior to such date, that elect to continue to be treated as United States
persons will also be a U.S. Person.
Information Reporting and Backup Withholding. The Servicer will furnish
or make available, within a reasonable time after the end of each calendar
year, to each person who was a Grantor Trust Certificateholder at any time
during such year, such information as may be deemed necessary or desirable to
assist Grantor Trust Certificateholders in preparing their United States
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold Grantor
Trust Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that
such person has not reported all interest and dividend income required to be
shown on its federal income tax return, a 31% backup withholding may be
required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
FASIT SECURITIES
General. The FASIT provisions of the Code were enacted by the Small
Business Job Protection Act of 1996 and create a new elective statutory
vehicle for the issuance of mortgage-backed and asset-backed securities.
Although the FASIT provisions of the Code became effective on September 1,
1997, no Treasury regulations or other administrative guidance has been
issued with respect to those provisions. Accordingly, definitive guidance
cannot be provided with respect to many aspects of the tax treatment of FASIT
Securityholders. Investors also should note that the FASIT discussions
contained herein constitutes only a summary of the federal income tax
consequences to holders of FASIT Securities. With respect to each series of
FASIT Securities, the related Prospectus Supplement will provide a detailed
discussion regarding the federal income tax consequences associated with the
particular transaction.
FASIT Securities will be classified as either FASIT Regular Securities,
which generally will be treated as debt for federal income tax purposes, or
FASIT Ownership Securities, which generally are not treated as debt for such
purposes, but rather are treated as representing rights and responsibilities
with respect to the taxable income or loss of the related series. The
Prospectus Supplement for each series of Securities will indicate whether one
or more FASIT elections will be made for that series and which Securities of
such series will be designated as Regular Securities, and which, will be
designated as Ownership Securities.
Qualification as a FASIT. The Trust Fund underlying a series (or one or
more designated pools of assets held in the Trust Fund) will qualify under
the Code as a FASIT in which the FASIT Regular Securities and the FASIT
Ownership Securities will constitute the "regular interests" and the
"ownership interests," respectively, if (i) a FASIT election is in effect,
(ii) certain tests concerning (A) the composition of the FASIT's assets and
(B) the nature of the Securityholders' interest in the FASIT are met on a
continuing basis, and (iii) the Trust Fund is not a regulated investment
company as defined in Section 851(a) of the Code.
Asset Composition. In order for a Trust (or one or more designated
pools of assets held by a Trust) to be eligible for FASIT status,
substantially all of the assets of the Trust (or the designated pool) must
consist of "permitted assets" as of the close of the third month beginning
after the closing date and at all times thereafter (the "FASIT Qualification
Test"). Permitted assets include (i) cash or cash equivalents, (ii) debt
instruments with fixed terms that would qualify as REMIC regular interests
(as defined in the Code) if issued by a REMIC (generally, instruments that
provide for interest at a fixed rate, a qualifying variable rate, or a
qualifying interest-only ("IO") type rate, (iii) foreclosure property, (iv)
certain hedging instruments (generally, interest and currency rate swaps and
credit enhancement contracts) that are reasonably required to guarantee or
hedge against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interests, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments
issued by the holder of the FASIT's ownership interest or by any person
related to such holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements.
All of the interests in a FASIT must belong to either of the following: (i)
one or more classes of regular interests or (ii) a single class of ownership
interest that is held by a fully taxable domestic corporation. In the case
of series that include FASIT Ownership Securities, the ownership interest
will be represented by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its
stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the IRS plus 5%, and (vi) if
it pays interest, such interest is payable at either (a) a fixed rate with
respect to the principal amount of the regular interest or (b) a permissible
variable rate with respect to such principal amount. Permissible variable
rates for FASIT regular interests are the same as those for REMIC regular
interest (i.e., certain qualified floating rates and weighted average rates).
If a FASIT Security fails to meet one or more of the requirements set
out in clauses (iii), (iv) or (v) above, but otherwise meets the above
requirements, it may still qualify as a type of regular interest known as a
"High-Yield Interest." In addition, if a FASIT Security fails to meet the
requirements of clause (vi), but the interest payable on the Security
consists of a specified portion of the interest payments on permitted assets
and that portion does not vary over the life of the Security, the Security
also will qualify as a High-Yield Interest. A High-Yield Interest may be
held only by domestic corporations that are fully subject to corporate income
tax ("Eligible Corporations"), other FASITs and dealers in securities who
acquire such interests as inventory for sale to customers, rather than for
investment. In addition, holders of High-Yield Interests are subject to
limitations on offset of income derived from such interest. See "Federal
Income Tax Consequences--FASIT Securities--Tax Treatment of FASIT Regular
Securities--Treatment of High-Yield Interests."
Consequences of Disqualification. If a series of FASIT Securities fails
to comply with one or more of the Code's ongoing requirements for FASIT
status during any taxable year, the Code provides that its FASIT status may
be lost for that year and thereafter. If FASIT status is lost, the treatment
of the former FASIT and the interests therein for federal income tax purposes
is uncertain. The former FASIT might be treated as a grantor trust, as a
separate association taxed as a corporation, or as a partnership. The FASIT
Regular Securities could be treated as debt instruments for federal income
tax purposes or as equity interests. Although the Code authorizes the
Treasury to issue regulations that address situations where a failure to meet
the requirements for FASIT status occurs inadvertently and in good faith,
such regulations have not yet been issued. It is possible that
disqualification relief might be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the FASIT's income for a
period of time in which the requirements for FASIT status are not satisfied.
Tax Treatment of FASIT Regular Securities. Payments received by holders
of FASIT Regular Securities generally should be accorded the same tax
treatment under the Code as payments received on other taxable corporate debt
instruments and on REMIC regular securities. Holders of FASIT Regular
Securities must report income from such Securities under an accrual method of
accounting, even if they otherwise would have used the cash receipts and
disbursements method. Except in the case of FASIT Regular Securities issued
with original issue discount or acquired with market discount or premium,
interest paid or accrued on a FASIT Regular Security generally will be
treated as ordinary income to the Securityholder and a principal payment on
such Security will be treated as a return of capital to the extent that the
Securityholder's basis is allocable to that payment. High-Yield Securities
may be held only by fully taxable domestic corporations, other FASITs, and
certain securities dealers. Holders of High-Yield Securities are subject to
limitations on their ability to use current losses or net operating loss
carryforwards or carrybacks to offset any income derived from those
Securities.
Sale, Exchange or Redemption. If a FASIT Regular Security is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale, exchange
redemption, or retirement and the seller's adjusted basis in the FASIT
Regular Security. Such adjusted basis generally will equal the cost of the
FASIT Regular Security to the seller, increased by any OID and market
discount included in the Seller's gross income with respect to the FASIT
Regular Security, and reduced (but not below zero) by payments included in
the stated redemption price at maturity previously received by the seller and
by any amortized premium. Similarly, a holder who receives a payment that is
part of the stated redemption price at maturity of a FASIT Regular Security
will recognize gain equal to the excess, if any, of the amount of the payment
over the holder's adjusted basis in the FASIT Regular Security. A FASIT
Regular Securityholder who receives a final payment that is less than the
holder's adjusted basis in the FASIT Regular Security will generally
recognize a loss.
Generally, any such gain or loss will constitute capital gain or loss,
provided that the FASIT Regular Security is held as a "capital asset".
Treatment of High-Yield Interests. High-Yield Interests are subject to
special rules regarding the eligibility of holders of such interests, and the
ability of such holders to offset income derived from their FASIT Security
with losses. High-Yield Interests may be held only by Eligible Corporations,
other FASITs, and dealers in securities who acquire such interests as
inventory. If a securities dealer (other than an Eligible Corporation)
initially acquires a High-Yield Interest as inventory, but later begins to
hold it for investment, the dealer will be subject to an excise tax equal to
the income from the High-Yield Interest multiplied by the highest corporate
income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor still will be treated as the holder of the High-Yield
Interest.
The holder of a High-Yield Interest may not use non-FASIT current losses
or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity (other than another FASIT) that issues debt or equity securities
backed by the FASIT Regular Security and that have the same features as High-
Yield Interests.
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership Security
represents the residual equity interest in a FASIT. As such, the holder of a
FASIT Ownership Security determines its taxable income by taking into account
all assets, liabilities and items of income, gain, deduction, loss and credit
of a FASIT. In general, the character of the income to the holder of a FASIT
Ownership Interest will be the same as the character of such income of the
FASIT, except that any tax-exempt interest income taken into account by the
holder of a FASIT Ownership Interest is treated as ordinary income. In
determining that taxable income, the holder of a FASIT Ownership Security
must determine the amount of interest, original issue discount, market
discount and premium recognized with respect to the FASIT's assets and the
FASIT Regular Securities issued by the FASIT according to a constant yield
methodology and under an accrual method of accounting. In addition, holders
of FASIT Ownership Securities are subject to the same limitations on their
ability to use losses to offset income from their FASIT Security as are the
holders of High-Yield Interests. See "Federal Income Tax Consequences--
Treatment of High-Yield Interests."
Certain wash sale rules will apply to FASIT Ownership Securities.
Accordingly, losses on dispositions of a FASIT Ownership Security generally
will be disallowed where, within six months before or after the disposition,
the seller of such Security acquires any other FASIT Ownership Security or,
in the case of a FASIT holding mortgage assets, any interest in a Taxable
Mortgage Pool that is economically comparable to a FASIT Ownership Security.
In addition, if any security that is sold or contributed to a FASIT by the
holder of the related FASIT Ownership Security was required to be marked-to-
market under Code section 475 by such holder, then section 475 will continue
to apply to such securities, except that the amount realized under the mark-
to-market rules will be the greater of the securities' value under present
law or the securities' value after applying special valuation rules contained
in the FASIT provisions. Those special valuation rules generally require
that the value of debt instruments that are not traded on an established
securities market be determined by calculating the present value of the
reasonably expected payments under the instrument using a discount rate of
120% of the applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax equal
to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any series for which a
FASIT election is made generally will be structured in order to avoid
application of the prohibited transaction tax.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE SECURITIES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Material Federal Income Tax Considerations," potential investors should
consider the state and local income tax consequences of the acquisition,
ownership, and disposition of the Offered Securities. State and local 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 or locality. Therefore, potential investors should consult their
own tax advisors with respect to the various state and local tax consequences
of an investment in the Offered 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 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, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual
retirement accounts and certain types of Keogh Plans (each a "Benefit Plan"),
from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect
to such Benefit Plan. A violation of these "prohibited transaction" rules
may result in an excise tax or other penalties and liabilities under ERISA
and the Code for such persons.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit
Plan that purchased Notes or Certificates if assets of the Trust were deemed
to be assets of the Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of a
Trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation
was applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. The likely treatment in this context of Notes and Certificates of
a given series will be discussed in the related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities of a given
series should consult its tax and/or legal advisors regarding whether the
assets of the related Trust would be considered plan assets, the possibility
of exemptive relief from the prohibited transaction rules and other issues
and their potential consequences.
SENIOR CERTIFICATES ISSUED BY TRUSTS THAT DO NOT ISSUE NOTES
Unless otherwise specified in the related Prospectus Supplement, the
following discussion applies only to nonsubordinated Certificates (referred
to herein as "Senior Certificates") issued by a Trust that does not issue
Notes.
The U.S. Department of Labor has granted to the lead Underwriter named
in the Prospectus Supplement an exemption (the "Exemption") from certain of
the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Benefit Plans of
certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables
covered by the Exemption include motor vehicle installment sales contracts
such as the Receivables. The Exemption will apply to the acquisition,
holding and resale of the Senior Certificates by a Benefit Plan, provided
that certain conditions (certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
to the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Benefit Plan
is on terms (including the price for the Senior Certificates) that are
at least as favorable to the Benefit Plan as they would be in an arm's
length transaction with an unrelated party;
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust;
(3) The Senior Certificates acquired by the Benefit Plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from either Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Service, Inc.;
(4) The Trustee is not an affiliate of any other member of the
Restricted Group;
(5) The sum of all payments made to the Underwriters in connection
with the distribution of the Senior Certificates represents not more
than reasonable compensation for underwriting the Senior Certificates;
the sum of all payments made to and retained by the Seller pursuant to
the sale of the Contracts to the Trust represents not more than the fair
market value of such Contracts; and the sum of all payments made to and
retained by the Servicer represents not more than reasonable
compensation for the Servicer's services under the Agreement and
reimbursement of the Servicer's reasonable expenses in connection
therewith; and
(6) The Benefit Plan investing in the Senior Certificates is an
"accredited investor" as defined in Rule 501 (a)(1) of Regulation D of
the Securities and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest or prohibited transactions only if, among
other requirements, (i) in the case of the acquisition of Senior Certificates
in connection with the initial issuance, at least fifty (50) percent of the
Senior Certificates are acquired by persons independent of the Restricted
Group, (ii) the Benefit Plan's investment in Senior Certificates does not
exceed twenty-five (25) percent of all of the Senior Certificates outstanding
at the time of the acquisition, and (iii) immediately after the acquisition,
no more than twenty-five (25) percent of the assets of the Benefit Plan are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does
not apply to Plans sponsored by the Depositor, the related Seller, any
Underwriter, the Trustee, the Servicer, any obligor with respect to Contracts
included in the Trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust, or any affiliate of
such parties (the "Restricted Group").
The Seller believes that the Exemption will apply to the acquisition and
holding by Benefit Plans of Senior Certificates sold by the Underwriter or
Underwriters named in the Prospectus Supplement and that all conditions of
the Exemption other than those within the control of the investors have been
met. In addition, as of the date hereof, no obligor with respect to
Contracts included in the Trust constitutes more than five percent of the
aggregate unamortized principal balance of the assets of the Trust.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Securities of a given series the ("Underwriting Agreement"),
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 Agreement 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 the Notes and Certificates, as
the case may be, described therein which 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 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, such public
offering prices and such concessions may be changed.
Each Underwriting Agreement will provide that the Depositor will
indemnify the 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 or from the
Depositor.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
This Prospectus, together with the related Prospectus Supplement, may,
to the extent required, be used by an Underwriter in connection with offers
and sales related to market making transactions in Securities.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust and the Depositor by Brown & Wood LLP, New
York, New York, and for the Underwriter for such series by Brown & Wood LLP.
Certain federal income tax will be passed upon for each Trust by Brown & Wood
LLP.
INDEX OF TERMS
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Actuarial Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Adjusted issue price . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . . 43
Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,38
amortizable bond premium . . . . . . . . . . . . . . . . . . . . . . . . 55
Applicable Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
APR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Backup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Bank Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Base Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Calculation Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . 27,28,30
Capital Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
CD Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CD Rate Determination Date . . . . . . . . . . . . . . . . . . . . . . . 27
CD Rate Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Cedel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Cedel Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Certificate Distribution Account . . . . . . . . . . . . . . . . . . . . 36
Certificate Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . 20
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . 16,31
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
chattel paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,43
Clearing Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
clearing corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Commercial Paper Rate . . . . . . . . . . . . . . . . . . . . . . . . . 27,28
Commercial Paper Rate Determination Date . . . . . . . . . . . . . . . . 27
Commercial Paper Rate Security . . . . . . . . . . . . . . . . . . . . . 26
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Composite Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
daily portions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Dealer Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,16
Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 32
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,2,21
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DTC's Nominee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Eligible Deposit Account . . . . . . . . . . . . . . . . . . . . . . . . 36
Eligible Institution . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . 36
Equity Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . 31
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
evidences of indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 56
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
FASIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Federal Funds Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Federal Funds Rate Determination Date . . . . . . . . . . . . . . . . . . 28
Federal Funds Rate Security . . . . . . . . . . . . . . . . . . . . . . . 26
Final Scheduled Maturity Date . . . . . . . . . . . . . . . . . . . . . 9
Financed Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Financed Motor Vehicles . . . . . . . . . . . . . . . . . . . . . . . . 7,16
Financed Recreational Vehicles . . . . . . . . . . . . . . . . . . . . 7,16
FIRREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Fixed Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Floating Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . 26
foreign person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
FTC Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Grantor Trust Certificateholders . . . . . . . . . . . . . . . . . . . . 53
Grantor Trust Certificates . . . . . . . . . . . . . . . . . . . . . . . 53
H.15(519) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Holder-in-Due-Course . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Index Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Initial Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Initial Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Initial Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interest Reset Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Interest Reset Period . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Investment Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
LIBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
LIBOR Determination Date . . . . . . . . . . . . . . . . . . . . . . . . 29
LIBOR Reuters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
LIBOR Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
LIBOR Telerate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
London Banking Day . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Market Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Money Market Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Motor Vehicle Receivables . . . . . . . . . . . . . . . . . . . . . . . . 16
New Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Nonbank Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Note Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . 36
Note Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,31
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Obligors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Old Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,30
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Parties in interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Payahead Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Payaheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Plan Assets Regulation . . . . . . . . . . . . . . . . . . . . . . . . . 57
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . 4
Portfolio Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 49,52
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,5
Precomputed Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Precomputed Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 18
prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,19
Prohibited Transaction . . . . . . . . . . . . . . . . . . . . . . . . . 57
Prospectus Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purchase Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,7
Receivables Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Receivables Purchase Agreement . . . . . . . . . . . . . . . . . . . . . 35
Recreational Vehicle Receivables . . . . . . . . . . . . . . . . . . . . 16
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . 2
Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Reuters Screen LIBO Page . . . . . . . . . . . . . . . . . . . . . . . . 29
Rule of 78's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Rules of 78's Receivables . . . . . . . . . . . . . . . . . . . . . . . . 18
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 1286 Treasury Regulations . . . . . . . . . . . . . . . . . . . . 53
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,31
Seller(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Short-Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Simple Interest Advance . . . . . . . . . . . . . . . . . . . . . . . . . 9
Simple Interest Receivables . . . . . . . . . . . . . . . . . . . . . . . 18
Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Spread Multiplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Strip Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Strip Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Subsequent Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 1,7
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . 35
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Telerate Page 3750 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Transfer and Servicing Agreement . . . . . . . . . . . . . . . . . . . . 35
Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Treasury Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Treasury Rate Determination Date . . . . . . . . . . . . . . . . . . . . 30
Treasury Rate Security . . . . . . . . . . . . . . . . . . . . . . . . . 26
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,36
Underwriting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 58
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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.
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 Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, 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.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior debt issues. Investors'
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
payments 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 book-entry
securities 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, as applicable, will instruct its Depositary
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 such 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 applicable 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 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 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
Global Securities are to be transferred by the respective clearing systems,
through their respective Depositaries, 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 their respective Depositaries,
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 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 OF NON-U.S. PERSONS (FORM W-8). Beneficial owners of
Notes that are non-U.S. Persons generally can obtain a complete
exemption from the withholding tax by filing a signed Form W-8
(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. PERSON 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
Notes residing in a country that has a tax treaty with the United States
can obtain an exemption or reduced tax rate (depending on the treaty
terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides 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 of Notes or such owner's agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The beneficial owner
of a Global Security or, in the case of a Form 1001 or a Form 4224
filer, such owner's agent, files by submitting the appropriate form to
the person through whom it holds the security (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 a citizen or resident of the
United States, a corporation or a partnership organized in or under
the laws of the United States or any political subdivision thereof
or an estate, the income of which from sources outside the United
States is includible in gross income for federal income tax
purposes regardless of its connection with the conduct of a trade
or business within the United States or a trust if a court within
the United States is able to exercise primary supervision of the
administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions
of the trust.
This summary does not deal with all aspects of U.S. federal
income tax withholding that may be relevant to foreign holders of
the Global Securities. Investors are advised to consult their own
tax advisors for specific tax advice concerning their holding and
disposing of the Global Securities.
Version #2
Subject to completion, dated March 16, 1998
PROSPECTUS
- ----------
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
(EACH ISSUABLE IN SERIES)
---------------------
ML Asset Backed 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, 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, which may include one or more classes of Notes and/or one or
more classes of Certificates, will be issued by a trust to be formed with
respect to such series (each, a "Trust"). Each Trust will be formed pursuant
to either (i) a Trust Agreement to be entered into between ML Asset Backed
Corporation (the "Depositor") and the Trustee specified in the related
Prospectus Supplement (the "Trustee"), or (ii) a Pooling and Servicing
Agreement to be entered into among the Trustee, the Depositor and the
servicer specified in the related Prospectus Supplement (the "Servicer"). If
a series of Securities includes Notes, such Notes will be issued and secured
pursuant to an Indenture between the Trust and the Indenture Trustee
specified in the related Prospectus Supplement (the "Indenture Trustee") and
will represent indebtedness of the related Trust. The Certificates of a
series will represent fractional undivided interests in the related Trust.
The related Prospectus Supplement will specify which class or classes of
Notes, if any, and which class or classes of Certificates, if any, of the
related series are being offered thereby. The property of each Trust will
include a pool of retail installment sale contracts, installment loans,
purchase money notes or other notes (the "Receivables") secured by new or
used recreational sport and power boats (including any boat motors and
accompanying trailers) and yachts (both power and sail), certain monies due
or received thereunder on and after the applicable Cutoff Date set forth in
the related Prospectus Supplement, security interests in the items financed
thereby and certain other property, all as described herein and in the
related Prospectus Supplement. In addition, if so specified in the related
Prospectus Supplement, the property of the Trust will include monies on
deposit in a trust account (the "Pre-Funding Account") to be established with
the Indenture Trustee, which will be used to purchase additional Receivables
(the "Subsequent Receivables") from the Depositor from time to time during
the Funding Period specified in the related Prospectus Supplement.
Each class of Securities of any series will represent the right to
receive a specified amount of payments on the related Receivables, at the
rates, on the dates and in the manner described herein and in the related
Prospectus Supplement. If a series includes multiple classes of Securities,
the rights of one or more classes of Securities to receive payments may be
senior or subordinate to the rights of one or more of the other classes of
such series. Distributions on Certificates of a series may be subordinated
in priority to payments due on any related Notes to the extent described
herein and in the related Prospectus Supplement. A series may include one or
more classes of Notes and/or Certificates which differ as to the timing and
priority of payment, interest rate or amount of distributions in respect of
principal or interest or both. A series may include one or more classes of
Notes or Certificates entitled to distributions in respect of principal with
disproportionate, nominal or no interest distributions, or to interest
distributions with disproportionate, nominal or no distributions in respect
of principal. The rate of payment in respect of principal of any class of
Notes and distributions in respect of the Certificate Balance of the
Certificates of any class will depend on the priority of payment of such
class and the rate and timing of payments (including prepayments, defaults,
liquidations and repurchases of Receivables) on the related Receivables. A
rate of payment lower or higher than that anticipated may affect the weighted
average life of each class of Securities in the manner described herein and
in the related Prospectus Supplement.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION SET FORTH UNDER
"RISK FACTORS" ON PAGE 12 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
ANY NOTES OF A SERIES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES OF
A SERIES REPRESENT BENEFICIAL INTERESTS IN, THE RELATED TRUST ONLY AND DO NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED
BY, ML ASSET BACKED CORPORATION, THE SERVICER, THE SELLER(S) OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THE NOTES, THE CERTIFICATES OR THE
RECEIVABLES ARE GUARANTEED OR INSURED BY ANY GOVERNMENT AGENCY OR
INSTRUMENTALITY.
------------------------
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 offered hereby unless accompanied by a Prospectus
Supplement.
______________________
MERRILL LYNCH & CO.
_______________________
The date of this Prospectus is ____________, 199__.
AVAILABLE INFORMATION
ML Asset Backed Corporation (the "Depositor") has filed with the
Securities and Exchange Commission (the "Commission") a Registration
Statement (together with all amendments and exhibits thereto, referred to
herein as the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Notes and the
Certificates offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may 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 Commission's regional
offices 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 the Registration Statement may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including ML Asset
Backed Corporation, that file electronically with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Depositor as originator of the Trust referred
to in the accompanying Prospectus Supplement, pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), subsequent to 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. 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 any
subsequently filed document which 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 will provide without charge to each person, including any
beneficial owner of Securities, to whom a copy of this Prospectus is
delivered, on the written or oral request of any such person, a copy of any
or all of the documents incorporated herein or in any related Prospectus
Supplement by reference, except the exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to ML Asset Backed Corporation,
250 Vesey Street, World Financial Center, New York, New York 10281-1310
Attention: Michael G. McGovern, Secretary (212) 449-0336.
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 the Securities of any series contained in
the related Prospectus Supplement to be prepared and delivered in connection
with the offering of such Securities. Certain capitalized terms used in this
summary are defined elsewhere in this Prospectus on the pages indicated in
the "Index of Terms".
Issuer . . . . . . . . . . . . . With respect to each series of
Securities, the trust (referred to
herein as the "Trust" or the
"Issuer") to be formed pursuant to
either a Trust Agreement (as
amended and supplemented from time
to time, a "Trust Agreement")
among the Depositor, the trustee
specified in the related
Prospectus Supplement (the
"Trustee") and, if so specified in
the related prospectus supplement,
a limited purpose affiliate of the
Seller (the "Company") or a
Pooling and Servicing Agreement
(as amended and supplemented from
time to time, the "Pooling and
Servicing Agreement") among the
Trustee, the Depositor and the
servicer specified in the related
Prospectus Supplement (the
"Servicer").
Depositor . . . . . . . . . . . . ML Asset Backed Corporation
Seller(s) . . . . . . . . . . . . With respect to each series of
Securities, the Seller(s) will be
specified in the related
Prospectus Supplement.
Servicer . . . . . . . . . . . . With respect to each series of
Securities, the Servicer will be
specified in the related
Prospectus Supplement.
Trustee . . . . . . . . . . . . . With respect to each series of
Securities, the Trustee will be
specified in the related
Prospectus Supplement.
Indenture Trustee . . . . . . . . With respect to any applicable
series of Securities, the
Indenture Trustee will be
specified in the related
Prospectus Supplement.
The Notes . . . . . . . . . . . . A series of Securities may include
one or more classes of Notes,
which will be issued pursuant to
an Indenture between the Trust and
the Indenture Trustee (as amended
and supplemented from time to
time, an "Indenture"). The
related Prospectus Supplement will
specify which class or classes, if
any, of Notes of the related
series are being offered thereby.
Unless otherwise specified in the
related Prospectus Supplement,
Notes will be available for
purchase in minimum denominations
of $1,000 and will be available in
book-entry form only. Unless
otherwise specified in the related
Prospectus Supplement, 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".
Except in the case of any Strip
Notes, as described below, each
class of Notes will have a stated
principal amount and will bear
interest at a specified rate or
rates (with respect to each class
of Notes, the "Interest Rate").
Each class of Notes may have a
different Interest Rate, which may
be a fixed, variable or adjustable
Interest Rate, or any combination
of the foregoing. The related
Prospectus Supplement will specify
the Interest Rate for each class
of Notes, or the method for
determining the Interest Rate.
With respect to a series that
includes two or more classes of
Notes, each class may differ as to
the timing and priority of
payments, seniority, allocations
of losses, Interest Rate or amount
of payments of principal or
interest, or payments of principal
or interest in respect of any such
class or classes may or may not be
made upon the occurrence of
specified events or on the basis
of collections from designated
portions of the Receivables Pool.
In addition, a series may include
one or more classes of Notes
("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.
If the Servicer exercises its
option to purchase the Receivables
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 Receivables are received),
in the manner and on the
respective terms and conditions
described under "Description of
the Transfer and Servicing
Agreements -- Termination", the
outstanding Notes will be redeemed
as set forth in the related
Prospectus Supplement. In
addition, if the related
Prospectus Supplement provides
that the property of a Trust will
include a Pre-Funding Account (as
such term is defined in the
related Prospectus Supplement, the
"Pre-Funding Account"), one or
more classes of the outstanding
Notes will be subject to partial
redemption on or immediately
following the end of the Funding
Period (as such term is defined in
the related Prospectus Supplement,
the "Funding Period") in an amount
and manner specified in the
related Prospectus Supplement. In
the event of such partial
redemption, the Noteholders may be
entitled to receive a prepayment
premium from the Trust, in the
amount and to the extent provided
in the related Prospectus
Supplement.
The Certificates . . . . . . . . A series may include one or more
classes of Certificates and may
not include any Notes. The
related Prospectus Supplement will
specify which class or classes, if
any, of the Certificates are being
offered thereby.
Unless otherwise specified in the
related Prospectus Supplement,
Certificates will be available for
purchase in a minimum denomination
of $1,000 and will be available in
book-entry form only. Unless
otherwise specified in the related
Prospectus Supplement,
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".
Except in the case of any Strip
Certificates, as described below,
each class of Certificates will
have a stated Certificate Balance
specified in the related
Prospectus Supplement (the
"Certificate Balance") and will
accrue interest on such
Certificate Balance at a specified
rate (with respect to each class
of Certificates, the "Pass Through
Rate"). Each class of
Certificates may have a different
Pass Through Rate, which may be a
fixed, variable or adjustable Pass
Through Rate, or any combination
of the foregoing. The related
Prospectus Supplement will specify
the Pass Through Rate for each
class of Certificates or the
method for determining the Pass
Through Rate.
With respect to a series that
includes two or more classes of
Certificates, each class may
differ as to timing and priority
of distributions, seniority,
allocations of losses, Pass
Through Rate or amount of
distributions in respect of
principal or interest, or
distributions in respect of
principal or interest in respect
of any such class or classes may
or may not be made upon the
occurrence of specified events or
on the basis of collections from
designated portions of the
Receivables Pool. In addition, a
series may include one or more
classes of Certificates ("Strip
Certificates") entitled to
(i) distributions in respect of
principal with disproportionate,
nominal or no interest
distributions or (ii) interest
distributions with
disproportionate, nominal or no
distributions in respect of
principal.
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.
If the Servicer exercises its
option to purchase the Receivables
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 Receivables are received),
in the manner and on the
respective terms and conditions
described under "Description of
the Transfer and Servicing
Agreements -- Termination",
Certificateholders will receive as
a prepayment an amount in respect
of the Certificates as specified
in the related Prospectus
Supplement. In addition, if the
related Prospectus Supplement
provides that the property of a
Trust will include a Pre-Funding
Account, Certificateholders may
receive a partial prepayment of
principal on or immediately
following the end of the Funding
Period in an amount and manner
specified in the related
Prospectus Supplement. In the
event of such partial prepayment,
the Certificateholders may be
entitled to receive a prepayment
premium from the Trust, in the
amount and to the extent provided
in the related Prospectus
Supplement.
The Trust Property . . . . . . . The property of each Trust will
include a pool of retail
installment sale contracts,
installment loans, purchase money
notes, or other notes (the
"Receivables") secured by new or
used recreational sport and power
boats (including any boat motors
and accompanying trailers) and
yachts (both power and sail) (the
"Financed Boats"), including
rights to receive certain payments
made with respect to such
Receivables, security interests in
the Financed Boats financed
thereby, certain accounts and the
proceeds thereof and any proceeds
from claims on certain related
insurance policies. On or prior
to the Closing Date specified in
the related Prospectus Supplement
with respect to a Trust, the
Seller(s) will sell or transfer
Receivables (the "Initial
Receivables") having an aggregate
principal balance specified in the
related Prospectus Supplement as
of the dates specified therein
(the "Initial Cutoff Date") to the
Depositor, which will transfer the
Initial Receivables to such Trust
on the Closing Date pursuant to
either a Sale and Servicing
Agreement among the Depositor, the
Servicer and the Trustee (as
amended and supplemented from time
to time, a "Sale and Servicing
Agreement") or, if the Trust is to
be treated as a grantor trust for
federal income tax purposes, the
related Pooling and Servicing
Agreement among the Depositor, the
Servicer and the Trustee. The
property of each Trust will also
include amounts on deposit in
certain trust accounts, including
the related Collection Account,
any Pre-Funding Account, any
Reserve Account and any other
account identified in the
applicable Prospectus Supplement.
To the extent provided in the
related Prospectus Supplement, the
Seller(s) will be obligated
(subject only to the availability
thereof) to sell to the Depositor
which will be obligated to
purchase and sell to the related
Trust, and such Trust will then be
obligated to purchase (subject to
the satisfaction of certain
conditions described in the
applicable Sale and Servicing
Agreement or Pooling and Servicing
Agreement), additional Receivables
(the "Subsequent Receivables")
from time to time (as frequently
as daily) 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 such Closing Date. With
respect to any Trust that is to be
treated as a grantor trust for
federal income tax purposes, the
Funding Period, if any, will not
exceed 90 days in length from the
Closing Date, and with respect to
any other Trust will not exceed
one year in length from the
Closing Date. With respect to
each Trust, the Pre-Funded Amount
on the Closing Date will not
exceed 25% of the aggregate
initial principal balance of the
Securities.
If so provided in the related
Prospectus Supplement, principal
collections on the Receivables may
be applied to the purchase by the
Trust of Subsequent Receivables
for the period of time specified
in the Prospectus Supplement.
The Receivables arise or will
arise from loans originated by
boat dealers (the "Dealers") and
purchased, directly or indirectly,
by a Seller(s) and sold to the
Depositor. The Receivables will
be selected from the contracts and
loans owned by a Seller(s) or the
Depositor based on the criteria
specified in the Sale and
Servicing Agreement or Pooling and
Servicing Agreement, as
applicable, and described herein
and in the related Prospectus
Supplement.
Credit and Cash Flow Enhancement If and to the extent specified in
the related Prospectus Supplement,
credit and cash flow 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, a Reserve Account,
overcollateralization, letters of
credit, credit or liquidity
facilities, surety bonds,
guaranteed investment contracts,
swaps (including without
limitation currency swaps), other
interest rate protection
agreements, other derivatives and
financial instruments, repurchase
obligations, yield supplement
agreements or accounts, other
agreements with respect to third
party payments or other support,
cash deposits or other
arrangements consistent with the
foregoing. Unless otherwise
specified in the related
Prospectus Supplement, any form of
credit or cash flow enhancement
will have certain limitations and
exclusions from coverage
thereunder, which will be
described in the related
Prospectus Supplement.
Transfer and Servicing Agreements With respect to each Trust, the
Seller will sell the related
Receivables to the Depositor,
which, in turn, will sell the
related Receivables to such Trust
pursuant to a Sale and Servicing
Agreement or a Pooling and
Servicing Agreement. The rights
and benefits of any Trust under a
Sale and Servicing Agreement will
be assigned to the Indenture
Trustee as collateral for the
Notes of the related series. The
Servicer will agree with such
Trust to be responsible for
servicing, managing, maintaining
custody of and making collections
on the Receivables. If so
specified in the related
Prospectus Supplement, the person
specified therein as Administrator
will undertake certain
administrative duties under an
Administration Agreement with
respect to any Trust that has
issued Notes, which duties would
in the absence of an Administrator
be performed for the related Trust
primarily by the related Indenture
Trustee or by the Depositor.
Unless otherwise specified in the
related Prospectus Supplement,
with respect to each Precomputed
Receivable, the Servicer will
advance scheduled payments under
each Precomputed Receivable which
shall not have been 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.
With respect to Simple Interest
Receivables, the Servicer shall
advance any interest shortfall (a
"Simple Interest Advance" and,
together with a Precomputed
Advance, an "Advance"). The
Servicer shall be entitled to
reimbursement of Advances from
subsequent payments on or with
respect to the Receivables to the
extent described herein and in the
related Prospectus Supplement.
Unless otherwise provided in the
related Prospectus Supplement, the
Depositor will be obligated to
repurchase any Receivable from the
Trust, and the related Seller will
be obligated to simultaneously
repurchase such Receivable from
the Depositor, if the interest of
the applicable Trust in such
Receivable is materially adversely
affected by a breach of any
representation or warranty made by
such Seller with respect to the
Receivable, if the breach has not
been cured following the discovery
by or notice to such Seller and
the Depositor of the breach. If
so specified in the related
Prospectus Supplement, the related
Seller or the Depositor will be
permitted, in a circumstance where
it would otherwise be required to
repurchase a Receivable as
described in the preceding
sentence, to instead substitute a
comparable Receivable for the
Receivable otherwise requiring
repurchase, subject to certain
conditions and eligibility
criteria for the substitute to be
summarized in the related
Prospectus Supplement.
Unless otherwise provided in the
related Prospectus Supplement, the
Servicer will be obligated to
purchase or make Advances with
respect to any Receivable if,
among other things, it extends the
date for final payment by the
Obligor of such Receivable beyond
the applicable Final Scheduled
Maturity Date (as defined in the
related Prospectus Supplement, the
"Final Scheduled Maturity Date"),
changes the annual percentage rate
("APR") or amount of a scheduled
payment of such Receivable or
fails to maintain a perfected
security interest in the related
Financed Boat.
Unless otherwise specified in the
related Prospectus Supplement, the
Servicer will be entitled to
receive a fee for servicing the
Receivables of each Trust equal to
a specified percentage of the
aggregate principal balance of the
related Receivables Pool, as set
forth in the related Prospectus
Supplement, 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 and in
the related Prospectus Supplement.
Certain Legal Aspects of the
Receivables; In connection with the sale of
Repurchase Obligations . . . . Receivables to a Trust, security
interests in the Financed Boats
securing such Receivables will be
assigned, directly or indirectly,
by the related Dealer to the
Seller(s) and by the Seller(s) to
the Depositor and by the Depositor
to such Trust. Due to
administrative burden and expense,
the certificates of title to the
Financed Boats financed in states
where security interests in boats,
are subject to certificate of
title statutes will not be amended
to reflect any such assignments,
the Uniform Commercial Code
("UCC") financing statements in
respect of those Financed Boats
financed in states where security
interests in boats are perfected
by filing a UCC-1 financing
statement will not be amended to
reflect such assignments, and the
assignment of liens perfected
pursuant to federal law
("Preferred Mortgages") in respect
of Financed Boats documented under
federal law will not be filed as
required under federal law to
reflect such assignments. In the
absence of such procedures, such
Trust may not have a perfected
security interest in the Financed
Boats in some states and will not
have a perfected security interest
in Financed Boats documented under
federal law. If such Trust does
not have a perfected security
interest in a Financed Boat, its
ability to realize on such
Financed Boat 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 Boat and holders of
subsequently perfected security
interests. However, as against
liens for repairs of a Financed
Boats or for taxes unpaid by an
Obligor under a Receivable, or
because of fraud or negligence,
such Trust could lose the priority
of its security interest or its
security interest in Financed
Boats.
Federal and state consumer
protection laws impose
requirements upon 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. Unless otherwise
specified in the related
Prospectus Supplement, the
Depositor will be obligated to
repurchase from the Trust and the
related Seller will be obligated
to simultaneously repurchase from
the Depositor any Receivable which
fails to comply with such
requirements. The Depositor's
obligation to make such repurchase
is contingent upon the related
Seller performing its obligation
to repurchase such Receivable from
the Depositor on account of such
failure.
Tax Status . . . . . . . . . . . Unless the Prospectus Supplement
specifies that the related Trust
will be treated as a grantor
trust, upon the issuance of the
related series of Securities, Tax
Counsel to such Trust will deliver
an opinion to the effect that, for
federal income tax purposes:
(i) all or certain specified
classes of Notes of such series
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
Noteholder, by the acceptance of a
Note of such series, will agree to
treat such Note as indebtedness,
and each 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 and
state income tax purposes.
Alternative characterizations of
such Trust and such Certificates
are possible, but would not result
in materially adverse tax
consequences to
Certificateholders.
If the Prospectus Supplement
specifies that the related Trust
will be treated as a grantor
trust, upon the issuance of the
related series of Certificates,
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 "Federal Income Tax
Consequences" for additional
information concerning the
application of federal tax laws.
ERISA Considerations . . . . . . Subject to the considerations
discussed under "ERISA
Considerations" herein and in the
related Prospectus Supplement, and
unless otherwise specified
therein, any Notes of a series and
any Certificates that are issued
by a Trust that is a grantor trust
and are not subordinated to any
other class of Certificates are
eligible for purchase by employee
benefit plans.
Unless otherwise 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 subject to the Employee
Retirement Income Security Act of
1974, as amended ("ERISA"), or by
any individual retirement account.
See "ERISA Considerations" herein
and in the related Prospectus
Supplement.
RISK FACTORS
CERTAIN LEGAL ASPECTS -- SECURITY INTERESTS IN FINANCED BOATS. Trusts
May Not Have A Perfected Security Interest in Certain Financed Boats. In
connection with the sale of Receivables to a Trust, security interests in the
Financed Boats securing such Receivables will be, or will have been, assigned
by the Seller(s) to the Depositor and by the Depositor to such Trust
simultaneously with the sale of such Receivables to such Trust. Due to
administrative burden and expense, (i) the certificates of title to the
Financed Boats financed in states where security interests in recreational
boats are subject to certificate of title statutes will not be amended to
reflect such assignments, (ii) UCC financing statements in respect of those
Financed Boats financed in states where security interests in boats are
perfected by filing a UCC-1 financing statement will not be amended to
reflect such assignments and (iii) and the assignment of liens created
pursuant to Preferred Mortgages in respect of Financed Boats documented under
federal law will not be filed as required by federal law to reflect such
assignments. In the absence of such procedures, such Trust may not have a
perfected security interest in the Financed Boats in some states and will not
have a perfected security interest in the Financed Boats documented under
Federal Law.
Unless otherwise provided in the related Prospectus Supplement, the
Depositor will be obligated to repurchase from the related Trust and the
related Seller will be obligated to simultaneously repurchase from the
Depositor any Receivable sold to such Trust as to which a perfected security
interest in the name of the related Seller in the Financed Boat securing such
Receivable shall not exist as of the date such Receivable is transferred to
such Trust, if such failure shall materially adversely affect the interest of
such Trust in such Receivable and if such failure shall not have been cured
by the last day of the second month following the discovery by or notice to
the Seller(s) of such breach. The Depositor's obligation to make such
repurchase is contingent upon the related Seller performing its obligation to
repurchase such Receivable from the Depositor on account of such failure.
Moreover, such repurchase obligations will not address or remedy the
circumstance where a perfected security interest in the name of the related
Seller in the Financed Boat securing a Receivable has not been perfected in
the related Trust as a result of the absence of the procedures described in
the preceding paragraph or for any other reason. If such Trust does not have
a perfected security interest in a Financed Boat, its ability to realize on
such Financed Boat in the event of a default may be adversely affected. This
could adversely affect the amount available for distribution to the
Securityholders.
Certain Liens Will Have Priority Over a Perfected Security Interest. To
the extent the security interest is perfected, such Trust will have a prior
claim over subsequent purchasers of such Financed Boat and holders of
subsequently perfected security interests. However, as against liens for
repairs of a Financed Boat or for taxes unpaid by an Obligor under a
Receivable, or through fraud or negligence, such Trust could lose the
priority of its security interest or its security interest in a Financed
Boat. In addition, certain additional liens, including a lien for damages
arising out of a maritime tort, for wages of a stevedore when employed
directly by the owner, operator, master, ship's husband, or agent of the
vessel, for wages of the crew of a vessel, for general average, or a lien for
salvage may, as a matter of law, have priority over perfected first priority
liens. The above described risk for crew wages exists because, although not
typical, there exists the possibility that recreational boat owners will
utilize crew members and because liens for wages owed to such crew members
could, as described above, have priority over the Trust's lien in a Financed
Boat. None of the Seller(s), the Servicer or the Depositor will have any
obligation to repurchase a Receivable as to which any of the aforementioned
occurrences result in such Trust's losing the priority of its security
interest or its security interest in such Financed Boat after the date such
security interest was conveyed to such Trust. See "Certain Legal Aspects of
the Receivables -- Security Interest in Boats" herein.
CERTAIN LEGAL ASPECTS -- SECURITY INTEREST IN THE RECEIVABLES. The
Receivables will be treated by each Trust as "chattel paper" as defined in
the UCC. Pursuant to the UCC, the sale of chattel paper is treated in a
manner similar to a security interest in chattel paper. Perfection of a
security interest in chattel paper may generally be made by filing UCC-1
financing statements in respect thereof or by possession of the chattel
paper. In order to protect each Trust's ownership or security interest in its
Receivables, the Depositor will file UCC-1 financing statements with the
appropriate authorities in the States of New York, Delaware and any other
states deemed advisable by the Depositor to give notice of such Trust's
ownership interest (and any related Indenture Trustee's security interest) in
the Receivables and proceeds thereof. Under each Sale and Servicing
Agreement and Pooling and Servicing Agreement, the Servicer will be appointed
custodian of the Receivables by the Trustee and the Servicer will otherwise
be obligated to maintain the perfection of each Trust's and any related
Indenture Trustee's interest in the Receivables. The filing of UCC-1
financing statements as described above and possession of the chattel paper
by the Servicer will reduce but not eliminate the risks involved in
perfection. A Trust could lose priority of its security interest in the
Receivables to certain liens arising by operation of law or in certain cases
by fraud or negligence. Moreover, if the Servicer should lose or
inadvertently give up possession of the chattel paper, a good faith purchaser
of the chattel paper without knowledge who gives new value and takes
possession of it in the ordinary course of such purchaser's business
has priority over a security interest (including an ownership interest)
in the chattel paper that is perfected by filing UCC-1 financing statements.
In addition, the Receivables will not be stamped to reflect the sale
and assignment of the Receivables to the Trust. Therefore, any good faith
purchaser of the chattel paper described above would not be deemed to
have knowledge of the a security interest (including an ownership interest)
therein because such purchaser would not learn of the sale of or security
interest in the Receivables from a review of the chattel paper.
CERTAIN LEGAL ASPECTS -- CONSUMER PROTECTION LAWS. Federal and state
consumer protection laws impose requirements upon 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 (such as such Trust)
liable to the obligor thereon for any violation by the lender. The
application of such laws could render a Receivable unenforceable or otherwise
uncollectible. The inability of Trust to realize amounts owed in respect of
such Receivable could adversely affect the amount available for distribution
to the Securityholders. Unless otherwise specified in the related Prospectus
Supplement, the Depositor will be obligated to repurchase from the Trust and
the related Seller will be obligated to simultaneously repurchase from the
Depositor any Receivable which fails to comply with such requirements. The
Depositor's obligation to make such repurchase is contingent upon the related
Seller performing its obligation to repurchase such Receivable from the
Depositor on account of such failure. See "Certain Legal Aspects of the
Receivables -- Consumer Protection Laws" herein.
CERTAIN LEGAL ASPECTS -- INSOLVENCY CONSIDERATIONS. Each Seller will
represent and warrant that the transfer of the Receivables by it to the
Depositor will constitute a sale. In addition, the Depositor intends that
the Transfer of Receivables by it to a Trust will constitute a sale.
Considerations Relating to the Insolvency of a Bank Seller. In the case
of a seller (a "Bank Seller") that is a depository institution whose deposits
are insured by the Federal Deposit Insurance Corporation (the "FDIC"), if
such Bank Seller were to become insolvent, the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") sets forth certain powers
that the FDIC could exercise if it were appointed as receiver of such Bank
Seller. Subject to clarification by FDIC regulations or interpretations, it
would appear from the positions taken by the FDIC before and after the
passage of FIRREA that the FDIC, in its capacity as receiver for a Bank
Seller, would not interfere with the timely transfer to the Depositor of
payments collected on the Receivables. If the transfer to the Depositor were
to be characterized as a secured loan, to the extent that the Seller would be
deemed to have granted a security interest in the Receivables to the
Depositor, and that interest had been validly perfected before the Bank
Seller's insolvency and had not been taken in contemplation of insolvency,
that security interest should not be subject to avoidance, and payments to
the Trust with respect to the Receivables should not be subject to recovery
by the FDIC as receiver of the Bank Seller. If however, the FDIC were to
assert a contrary position, such as by requiring the Indenture Trustee or the
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 related Securities and possible reductions in the
amount of those payments could occur. See "Certain Legal Aspects of the
Receivables -- Other Limitations".
Considerations Relating to the Insolvency of a Nonbank Seller or the
Depositor. If either a Seller other than a Bank Seller (a "Nonbank Seller")
or the Depositor were to become a debtor in a bankruptcy case (or if the
parent of either were to become a debtor in a bankruptcy case and the assets
of the Nonbank Seller or Depositor, as applicable, were consolidated with
those of its parent) and a creditor or trustee-in-bankruptcy of such debtor
or such debtor itself were to take the position that the transfer of
Receivables to the Depositor or such Trust, as the case may be, should,
notwithstanding the intent of the parties that it be treated as a sale,
instead be treated as a pledge of such Receivables to secure a borrowing of
such debtor, delays in payments of collections of Receivables to the related
Securityholders could occur or (should the court rule in favor of any such
trustee, debtor or creditor) reductions in the amounts of such payments could
result. If the transfer of Receivables by a Nonbank Seller to the Depositor
or by the Depositor to a Trust is treated as a pledge instead of a sale, a
tax or government lien on the property of the Nonbank Seller or the
Depositor, as applicable, arising before such Receivables transfer may have
priority over such Trust's interest in such Receivables. If the transactions
contemplated herein are treated as a sale, the Receivables would not be part
of the Nonbank Seller's or Depositor's bankruptcy estate and would not be
available to their respective creditors.
Considerations Relating to an Insolvency Event of the Depositor or
Company Related to Certain Trusts. With respect to each Trust that is not a
grantor trust, if the related Prospectus Supplement so provides, upon the
occurrence of an Insolvency Event of either the Depositor or the Company
identified therein, the Indenture Trustee or Trustee for such Trust will
promptly sell, dispose of or otherwise liquidate the related Receivables in a
commercially reasonable manner on commercially reasonable
terms, except under certain limited circumstances. The proceeds from any
such sale, disposition or liquidation of Receivables will be treated as
collections on the Receivables and deposited in the Collection Account of
such Trust. If the proceeds from the liquidation of the Receivables and any
amounts on deposit in the Reserve Account, if any, the Note Distribution
Account, if any, and the Certificate Distribution Account with respect to any
such Trust and any amounts available from any credit enhancement are not
sufficient to pay any Notes and the Certificates of the related series in
full, the amount of principal returned to any Noteholders or the
Certificateholders will be reduced and such Noteholders and
Certificateholders will incur a loss.
Octagon Gas Case. In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d
------------------------- ------
948 (10th Cir. 1993), the U.S. Court of Appeals for the 10th Circuit
determined that "accounts," a defined term under the Uniform Commercial Code,
would be included in the bankruptcy estate of a transferor regardless of
whether the transfer is treated as a sale or a secured loan. Although the
Receivables are likely to be viewed as "chattel paper," as defined under the
Uniform Commercial Code, rather than as accounts, the Octagon holding is
equally applicable to chattel paper. The circumstances under which the
Octagon ruling would apply are not fully known and the extent to which the
Octagon decision will be followed in other courts or outside of the Tenth
Circuit is not certain. If the holding in the Octagon case were applied in a
bankruptcy of the Depositor or a Seller, however, even if the transfer of
Receivables to the Depositor and the transfer of the Receivables to the Trust
were treated as a sale, the Receivables would be part of the Depositor's or
Seller's bankruptcy estate (as applicable) and would be subject to claims of
certain creditors, and delays and reductions in payments to the
Securityholders could result.
RELIANCE ON REPRESENTATIONS AND WARRANTIES BY THE DEPOSITOR, THE
SELLER(S) AND THE SERVICER. None of the Seller(s), the Servicer, the
Depositor or any of their respective affiliates will generally be obligated
to make any payments in respect of any Notes, the Certificates or the
Receivables of a Trust. However, in connection with the sale of Receivables
by the Seller(s) to the Depositor and the Depositor to a Trust, the Seller(s)
will make representations and warranties with respect to the characteristics
of such Receivables and, in certain circumstances, the Depositor may be
required to repurchase from the Trust and the related Seller would be
required to simultaneously repurchase from the Depositor Receivables with
respect to which such representations and warranties have been breached.
Alternatively, if so specified in the related Prospectus Supplement, the
related Seller or the Depositor will be permitted, in a circumstance where it
would otherwise be required to repurchase a Receivable as described in the
preceding sentence, to instead substitute a comparable Receivable for the
Receivable otherwise requiring repurchase, subject to certain conditions and
eligibility criteria for the substitute Receivable to be summarized in the
related Prospectus Supplement. The Depositor's obligation to make such
repurchase or substitution is contingent upon the related Seller performing
its obligation to repurchase or substitute for such Receivable from the
Depositor. See "Description of the Transfer and Servicing Agreements -- Sale
and Assignment of Receivables". In addition, under certain circumstances,
the Servicer may be required to purchase Receivables. See "Description of
the Transfer and Servicing Agreements -- Servicing Procedures". If
collections on any Receivable were reduced as a result of any matter giving
rise to a repurchase or purchase obligation on the part of the Depositor, the
Seller and/or the Servicer, as the case may be, and the Depositor, the Seller
and/or the Servicer failed for any reason to perform in accordance with that
obligation, then delays in payments on the Securities and possible reductions
in the amount of those payments could occur. Moreover, if the Servicer 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
payments to the Securityholders.
SUBORDINATION. 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 other classes of Certificates of such series.
LIMITED ASSETS. Moreover, each Trust will not have, nor is it permitted
or expected to have, any significant assets or sources of funds other than
the Receivables and, to the extent provided in the related Prospectus
Supplement, a Pre-Funding Account, a Reserve Account and any other credit
enhancement. The Notes of any series will represent obligations solely of,
and the Certificates of any series will represent interests solely in, the
related Trust and neither the Notes nor the Certificates of any series will
be insured or guaranteed by any of the Seller(s), the Depositor, the
applicable Trustee, any Indenture Trustee or any other person or entity.
Consequently, holders of the Securities of any series must rely for repayment
upon payments on the related Receivables and, if and to the extent available,
amounts on deposit in the Pre-Funding Account (if any), the Reserve Account
(if any) and any other credit enhancement, all as specified in the related
Prospectus Supplement. If such amounts and credit enhancement are exhausted
(and not replenished), the related Trust will depend solely on payments on
the Receivables to make distributions on the Securities, and the Securities
will bear the risk of delinquency, loan loss and repossessions with respect
to the Receivables.
MATURITY AND PREPAYMENT CONSIDERATIONS. All the Receivables are
prepayable at any time. (For this purpose the term "prepayments" includes
prepayments in full, partial prepayments (including those related to rebates
of extended warranty contract costs and insurance premiums) and liquidations
due to default, as well as receipts of proceeds from physical damage, credit
life and disability insurance policies and 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 Boat securing a Receivable without causing the related
loan to become due and payable. The rate of prepayment on the Receivables
may also be influenced by the structure of the loan evidencing the
Receivable. In addition, under certain circumstances, the Depositor will be
obligated to repurchase from the Trust, and the related Seller will be
obligated to simultaneously repurchase from the Depositor (or in either case,
if so specified in the related Prospectus Supplement and subject to the
conditions summarized therein, substitute for) Receivables pursuant to a Sale
and Servicing Agreement or Pooling and Servicing Agreement as a result of
certain breaches of representations and warranties and, under certain
circumstances, the Servicer will be obligated to purchase Receivables
pursuant to such Sale and Servicing Agreement or Pooling and Servicing
Agreement as a result of breaches of certain covenants. See "Description of
the Transfer and Servicing Agreements -- Sale and Assignment of Receivables".
Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables held by a given Trust will be borne entirely by the
Securityholders of the related series of Securities. See also "Description
of the Transfer and Servicing Agreements -- Termination" regarding the
Servicer's option to purchase the Receivables of a given Receivables Pool.
In addition, as described above under "Considerations Relating to an
Insolvency Event of the Depositor or Company Related to Certain Trusts," in
the case of a Trust that is not a grantor trust if so specified in the
related Prospectus Supplement, as described in such supplement, the sale of
the Receivables owned by such Trust will be required if an Insolvency Event
with respect to the Depositor or any Company occurs.
RISK OF COMMINGLING. With respect to each Trust, the Servicer will
deposit all payments on the related Receivables (from whatever source) and
all proceeds of such Receivables collected during each Collection Period into
the Collection Account of such Trust within two business days of receipt
thereof. However, in the event that the Servicer satisfies certain
requirements for monthly or less frequent remittances and the Rating Agencies
(as such term is defined in the related Prospectus Supplement, the "Rating
Agencies") affirm their ratings of the related Securities at the initial
level, then for so long as the servicer specified in the related Prospectus
Supplement is the Servicer and provided that (i) there exists no Servicer
Default and (ii) each other condition to making such 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 on or
before the business day preceding each Distribution Date or Payment Date.
The Servicer will deposit the aggregate Purchase Amount of Receivables
purchased by the Servicer into the applicable Collection Account on or before
the business day preceding each Distribution Date or Payment 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,
such funds will not be available for distribution to the applicable
Securityholders and such 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 Receivables and payment of the aggregate Purchase
Amount with respect to Receivables purchased by the Servicer.
RISK ASSOCIATED WITH SUBSEQUENT RECEIVABLES AND THE PRE-FUNDING ACCOUNT.
If so specified in the related Prospectus Supplement, the Seller(s) will be
obligated to sell, and the Depositor will be obligated to purchase and then
transfer to the related Trust which Trust will then be obligated to purchase,
Subsequent Receivables from time to time during the Funding Period specified
in the related Prospectus Supplement. With respect to any Trust that is to
be treated as a grantor trust for federal income tax purposes, the Funding
Period, if any, will not exceed 90 days in length from the Closing Date, and
with respect to any other Trust will not exceed one-year in length from the
Closing. With respect to each Trust, the Pre-Funded Amount on the Closing
Date will not exceed 25% of the aggregate initial principal balance of the
Securities.
Changes in Characteristics of Receivables Pool Due to Subsequent
Receivables. Amounts on deposit in any Pre-Funding Account may be invested
only in Eligible Investments. Subsequent Receivables may be originated by
the Dealers at a later date using credit criteria different from those which
were applied to any Initial Receivables and may be of a different credit
quality and seasoning. In addition, following the transfer of Subsequent
Receivables to the applicable Trust, the characteristics of the entire pool
of Receivables included in such Trust may vary from those of the Initial
Receivables transferred to such Trust. As a result, it is possible that the
credit quality of the Receivables in a Trust, as a whole, may decline as a
result of the inclusion of Subsequent Receivables and may result in a
higher rate of payment to the applicable Securityholders as a result
of an increased level of defaults on such Receivables.
Use of Balance in Pre-Funding Account to Prepay Securities. To the
extent that amounts on deposit in the Pre-Funding Account have not been fully
applied to the conveyance of Subsequent Receivables to a Trust by the end of
the Funding Period and such amount exceeds the applicable amount described in
the related Prospectus Supplement, the holders of Securities issued by the
related trust will receive, on the Distribution Date or Payment Date on or
immediately following the last day of the applicable Funding Period, a
prepayment of principal in an amount equal to the amount remaining in the
Pre-Funding Account following the purchase of any Subsequent Receivables on
or immediately preceding such Distribution Date or Payment Date. It is
anticipated that the principal balance of Subsequent Receivables sold to a
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 holders of the Securities issued by such Trust.
Securityholders will bear all reinvestment risk associated with distribution
of amounts on deposit in the Prefunding Account after termination of the
applicable Funding Period. Any such distribution will have the effect of a
prepayment on the related Receivables and may result in a reduction in the
yield to maturity of any class of Securities to which such amounts are
distributed.
RIGHTS OF THE NOTEHOLDERS TO DIRECT CERTAIN MATTERS AFFECTING THE
CERTIFICATEHOLDERS. In general, with respect to any Trust issuing Notes,
until the Notes have been paid in full, the ability to direct the related
Trust with respect to certain actions permitted to be taken under the related
Transfer and Servicing Agreements rests with the related Indenture Trustee
and the Noteholders instead of the Certificateholders.
For example, unless otherwise provided in the related Prospectus
Supplement with respect to a Trust issuing Notes, in the event a Servicer
Default occurs, the Indenture Trustee or the Noteholders with respect to such
series, as described under "Description of the Transfer and Servicing
Agreements -- Rights upon Servicer Default", may remove the Servicer without
the consent of the Trustee or any of the Certificateholders with respect to
such series. The Trustee or the Certificateholders with respect to such
series will not have the ability to remove the Servicer if a Servicer Default
occurs. In addition, the Noteholders of such series have the ability, with
certain specified exceptions, to waive defaults by the Servicer, including
defaults that could materially adversely affect the Certificateholders of
such series. See "Description of the Transfer and Servicing Agreements --
Waiver of Past Defaults".
BOOK-ENTRY REGISTRATION. Unless otherwise specified in the related
Prospectus Supplement, each class of Securities of a given series will be
initially represented by one or more certificates registered in the name of
Cede & Co. ("Cede"), or any other nominee for the Depository Trust Company
("DTC") set forth in the related Prospectus Supplement (Cede, or such other
nominee, "DTC's Nominee"), and will not be registered in the names of the
holders of 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 Trustee or any applicable
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 related Indenture and Trust
Agreement, as applicable). Hence, until Definitive Securities are issued,
holders of such Securities will only be able to exercise the rights of
Securityholders 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 Depositor will establish
a separate Trust pursuant to the respective Trust Agreement or Pooling and
Servicing Agreement, as applicable, for the transactions described herein and
in the related Prospectus Supplement. The property of each Trust will
include a pool (a "Receivables Pool") of retail installment sales contracts,
purchase money notes or other notes between dealers or lenders (the "Dealers")
and purchasers (the "Obligors") of new and used recreational sport
and power boats (including any boat motors and accompanying trailers) and
yachts (both power and sail) (the "Financed Boats") or installment loans made
to Obligors for such purchases and all payments due thereunder on and after
the applicable cutoff date (as such term is defined in the related Prospectus
Supplement, a "Cutoff Date") in the case of Precomputed Receivables and all
payments received thereunder on and after the applicable Cutoff Date in the
case of Simple Interest Receivables. If specified in the related Prospectus
Supplement, a Receivables Pool may include motor vehicle and/or recreational
vehicle receivables. The Receivables of each Receivables Pool were or will
be originated by the Dealers or lenders, purchased by the Seller(s), directly
or indirectly, pursuant to agreements with Dealers ("Dealer Agreements")
or such lenders and sold to the Depositor. Receivables may also be
originated directly by a Seller. Such Receivables will be serviced by
the Servicer. On or prior to the applicable Closing Date, the
Seller(s) will sell the Receivables to the Depositor. On the applicable
Closing Date, the Depositor will sell the Initial Receivables of the
applicable Receivables Pool to the Trust to the extent, if any, specified in
the related Prospectus Supplement. To the extent so provided in the related
Prospectus Supplement, Subsequent Receivables will be conveyed to the Trust
as frequently as daily during the Funding Period. Any Subsequent Receivables
so conveyed will also be assets of the applicable Trust, subject to the prior
rights of the related Indenture Trustee and the Noteholders, if any, therein.
The property of each Trust will also include (i) such amounts as from time to
time may be held in separate trust accounts established and maintained
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement and the proceeds of such accounts, as described herein and in the
related Prospectus Supplement; (ii) security interests in the Financed Boats
and any other interest of the Depositor in such Financed Boats; (iii) the
rights to proceeds from claims on certain physical damage, credit life and
disability insurance policies covering the Financed Boats or the Obligors, as
the case may be; (iv) the interest of the Depositor in any proceeds from
recourse to Dealers on Receivables or Financed Boats with respect to which
the Servicer has determined that eventual repayment in full is unlikely;
(v) any property that shall have secured a Receivable and that shall have
been acquired by the applicable Trust; and (vi) any and all proceeds of the
foregoing. To the extent specified in the related Prospectus Supplement, a
Pre-Funding Account, a Reserve Account or other form of credit enhancement
may be a part of the property of any given Trust or may be held by the
Trustee or an Indenture Trustee for the benefit of holders of the related
Securities. Additionally, pursuant to the Dealer Agreements, the Dealers
have an obligation after origination to repurchase Receivables as to which
Dealers have made certain misrepresentations.
With respect to each series of Securities, if so specified in the
related prospectus supplement, prior to its sale of Receivables to the Trust,
the Depositor may hold such assets in the form of one or more participation
certificates, issued by the related Seller, evidencing the entire undivided
ownership interest in each related Receivable (each, a "Participation"). In
such event, immediately upon the sale of the Receivables to the related
Trust, the Participation will be terminated and dissolved by mutual agreement
of the Seller, the Trust and the Depositor and the Trust will then own the
Receivables directly.
The Servicer will continue to 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 in the related Prospectus Supplement. To facilitate the servicing
of the Receivables, each Trustee will authorize the Servicer to retain
physical possession of the Receivables held by each Trust and other documents
relating thereto as custodian for each such Trust. Due to the administrative
burden and expense, the certificates of title and UCC financing statements,
as applicable, to the Financed Boats will not be amended to reflect the sale
and assignment of the security interest in the Financed Boats to each Trust,
and assignments to the Trust of the Preferred Mortgages in respect of
federally documented Financed Boats will not be filed. In the absence of
such an amendment or filing, a Trust may not have a perfected security
interest in the Financed Boats in all states and will not have a perfected
security interest in federally documented Financed Boats. See "Risk Factors
- -- Certain Legal Aspects -- Security Interest in Financed Boats," "Certain
Legal Aspects of the Receivables" and "Description of the Transfer and
Servicing Agreements -- Sale and Assignment of Receivables".
If the protection provided to any Noteholders of a series by the
subordination of the related Certificates and by the Reserve Account, if any,
or other credit enhancement for such series or the protection provided to
Certificateholders by any such Reserve Account or other credit enhancement is
insufficient, such Noteholders or Certificateholders, as the case may be,
would have to look principally to the Obligors on the related Receivables,
the proceeds from the repossession and sale of Financed Boats which secure
defaulted Receivables and the proceeds from any recourse against Dealers with
respect to such Receivables. In such event, certain factors, such as the
applicable Trust's not having perfected security interests in the Financed
Boats in all states or under federal law may affect the Servicer's ability to
repossess and sell the collateral securing the Receivables, and thus may
reduce the proceeds to be distributed to the holders of the Securities of
such series. See "Description of the Transfer and Servicing Agreements --
Distributions", "-- Credit and Cash Flow Enhancement" and "Certain Legal
Aspects of the Receivables".
The principal offices of each Trust and the related Trustee will be
specified in the applicable Prospectus Supplement.
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 the 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, or its successor, will be obligated to appoint a successor trustee.
The Administrator, if any, of a Trust that is not a grantor trust and the
Servicer in respect of a Trust that is a grantor trust may also remove the
Trustee if the Trustee ceases to be eligible to continue as Trustee under the
related Trust Agreement or Pooling and Servicing Agreement, as applicable, or
if the Trustee becomes insolvent. In such circumstances, the Administrator
or Servicer, as applicable, will be obligated to appoint a successor trustee.
Any resignation or removal of a Trustee and appointment of a successor
trustee will not become effective until acceptance of the appointment by the
successor trustee.
THE RECEIVABLES POOLS
GENERAL
The Receivables in each Receivables Pool are and will be retail
installment sales contracts, installment loans, purchase money orders or
other notes that have been or will be originated by a Dealer and purchased by
a Seller pursuant to a Dealer Agreement between the related seller (the
"Seller"), and the Dealer (or originated directly by a Seller). Receivables
held by any Seller may have been acquired from other Sellers. The Sellers of
Marine Receivables may include banks, finance companies or other financial
institutions and will be entities involved in the financing of such type of
asset (i.e., boats) securing the Receivables being sold by such Seller, and
in the origination, secondary market purchasing and/or servicing of retail
installment sales contracts, installment loans, loans and other receivables
secured by such asset type. Each Seller with respect to a Series will be
identified in the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, a Receivables Pool may include motor vehicle
and/or recreational vehicle receivables. In addition, to the extent
described in any Prospectus Supplement, the related Receivables Pool may
include Receivables acquired by an Affiliate through acquisitions.
Receivables of a Seller will be transferred to the Depositor pursuant to a
Receivables Purchase Agreement for sale by the Depositor to the applicable
Trust.
The Receivables to be held by each Trust will be purchased by the
Depositor from the portfolio of the Seller(s) for inclusion in a Receivables
Pool in accordance with several criteria, including that each Receivable
(i) is secured by a new or used boat, (ii) was originated in the United
States, (iii) is a Simple Interest Receivable or a Precomputed Receivable and
(iv) as of the Cutoff Date (a) had an outstanding principal balance of at
least the amount set forth in the related Prospectus Supplement, (b) was not
more than 30 days (or such other number of days specified in the related
Prospectus Supplement) past due as of the specified Cut-off Date, (c) had a
remaining number of scheduled payments not more than the number set forth in
the related Prospectus Supplement, (d) had an original number of scheduled
payments not more than the number set forth in the related Prospectus
Supplement and (e) had an APR of not less than the rate per annum set forth
in the related Prospectus Supplement. Terms of the loans constituting such
Receivables which are material to investors are described herein or in the
related Prospectus Supplement.
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under each receivable over a series of
fixed level payment monthly installments. However, unlike the monthly
installment under an Actuarial Receivable, each monthly installment consists
of an amount of interest which is calculated on the basis of the outstanding
principal balance of the receivable multiplied by the stated APR and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received under a
Simple Interest Receivable, the amount received is applied, first, to
interest accrued to the date of payment, second, to reduce the unpaid
principal balance, and third, to late fees and other fees and charges, if
any. Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have
been had the payment been made as scheduled, and the portion of the payment
applied to reduce the unpaid principal balance will be correspondingly
greater. Conversely, if an Obligor pays a fixed monthly installment after
its scheduled due date, the portion of the payment allocable to interest for
the period since the preceding payment was made will be greater than it would
have been had the payment been made as scheduled, and the portion of the
payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount
of the final installment is increased or decreased as necessary to repay the
then outstanding principal balance and unpaid accrued interest. If a Simple
Interest Receivable is prepaid, the Obligor is required to pay interest only
to the date of prepayment.
"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 78's" ("Rule of 78's
Receivables"). An Actuarial Receivable provides for
amortization of the loan over a series of fixed level payment monthly
installments. Each monthly installment, including the monthly installment
representing the final payment on the Receivable, consists of an amount of
interest equal to 1/12 of the APR of the loan multiplied by the unpaid
principal balance of the loan, and an amount of principal equal to the
remainder of the monthly payment. A Rule of 78's 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 and add-on interest in an amount calculated on the
stated APR 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 are
calculated in accordance with the "Rule of 78's".
Information with respect to each Receivables Pool will be set forth in
the related Prospectus Supplement, including, to the extent appropriate, the
composition, the geographic distribution and distribution by APR and 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 Financed Boats and by used Financed Boats.
SUBSEQUENT RECEIVABLES
Subsequent Receivables may be originated by the Dealers at a later date
using credit criteria different from those which were applied to any Initial
Receivables and may be of a different credit quality and seasoning. In
addition, following the transfer of Subsequent Receivables to the applicable
Trust, the characteristics of the entire pool of Receivables included in such
Trust may vary significantly from those of the Initial Receivables
transferred to such Trust. Each Prospectus Supplement will describe the
effects that including such Subsequent Receivables may have on the
Receivables Pool included in the Trust Property of each Trust issuing
Securities.
UNDERWRITING
The related Prospectus Supplement will describe the Seller(s)'
underwriting procedures and guidelines, including the type of information
reviewed in respect of an applicant.
SERVICING AND COLLECTIONS
The related Prospectus Supplement will describe the Servicer's servicing
procedures, including the steps customarily taken in respect of delinquent
Receivables and the maintenance of physical damage insurance.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Certain information concerning the Seller(s)' loss and delinquency
experience with respect to its portfolio of marine loans (including
previously sold contracts which a Seller continues to service), 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.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Notes, if any, and the Certificates, if
any, of any series will generally be influenced by the rate at which the
principal balances of the related Receivables are paid, which payment may be
in the form of scheduled amortization or prepayments. (For this purpose, 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 default, as well as receipts of
proceeds from physical damage, credit life and disability insurance policies
and certain other Receivables repurchased by the Depositor or the Servicer
for administrative reasons.) All of the Receivables are prepayable at any
time without penalty to the Obligor. The rate of prepayment of marine
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 Boat securing a Receivable without the consent of the Servicer. The
rate of prepayment on the Receivables may also be influenced by the structure
of the loan. In addition, under certain circumstances, the Depositor will be
obligated to repurchase from a Trust and the related Seller will be obligated
to simultaneously repurchase from the Depositor (or in either case, if so
specified in the related Prospectus Supplement and subject to the conditions
summarized therein, substitute for) Receivables pursuant to the related
Sale and Servicing Agreement or Pooling and Servicing Agreement as a
result of breaches of representations and warranties and the Servicer
will be obligated to purchase Receivables from such Trust pursuant to such
Sale and Servicing Agreement or Pooling and Servicing Agreement as a
result of breaches of certain covenants. In the case of any Security
purchased at a discount to its principal amount, a slower than anticipated
rate of principal payments is likely to result in a lower than anticipated
yield. In the case of a Security purchased at a premium to its principal
amount, a faster than anticipated rate of principal payments is likely
to result in a lower than anticipated yield. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of Receivables"
and "-- Servicing Procedures". See also "Description of the Transfer and
Servicing Agreements -- Termination" regarding the Servicer's option to
purchase the Receivables from a given Trust. No prediction can be
made as to the rate of prepayment that the Receivables will experience.
In light of the above considerations, there can be no assurance as to
the amount of principal payments to be made on the Notes, if any, or the
Certificates, if any, of a given series on each Payment Date or Distribution
Date, as applicable, since such amount will depend, in part, on the amount of
principal collected on the related Receivables Pool during the applicable
Collection Period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables will be borne entirely by the
Noteholders, if any, and the Certificateholders of a given series. The
related Prospectus Supplement may set forth certain additional information
with respect to the maturity and prepayment considerations applicable to the
particular Receivables Pool and the related series of Securities.
POOL FACTORS AND TRADING INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with
respect to such class of Notes indicating the remaining outstanding principal
balance of such class of Notes, as of the applicable Payment Date (after
giving effect to payments to be made on such Payment Date), as a fraction of
the initial outstanding principal balance of such class of Notes. The
"Certificate Pool Factor" for each class of Certificates will be a
seven-digit decimal which the Servicer will compute prior to each
distribution with respect to such class of Certificates indicating the
remaining Certificate Balance of such class of Certificates, as of the
applicable Distribution Date (after giving effect to distributions to be made
on such Distribution Date), as a fraction of the initial Certificate Balance
of such class of Certificates. Each Note Pool Factor and each Certificate
Pool Factor will initially be 1.0000000 and thereafter will decline to
reflect reductions in the outstanding principal balance of the applicable
class of Notes, or the reduction of the Certificate Balance of the applicable
class of Certificates, as the case may be. A Noteholder's portion of the
aggregate outstanding principal balance of the related class of Notes is the
product of (i) the original denomination of such Noteholder's Note and
(ii) the applicable Note Pool Factor. A Certificateholder's portion of the
aggregate outstanding Certificate Balance for the related class of
Certificates is the product of (a) the original denomination of such
Certificateholder's Certificate and (b) the applicable Certificate Pool Factor.
Unless otherwise provided in the related Prospectus Supplement with
respect to a Trust, the Noteholders and the Certificateholders, as
applicable, will receive reports on or about each Payment Date concerning
(i) with respect to the Collection Period immediately preceding such Payment
Date, payments received on the Receivables, the Pool Balance (as such term is
defined in the related Prospectus Supplement, the "Pool Balance"), each
Certificate Pool Factor or Note Pool Factor, as applicable, and various other
items of information, and (ii) with respect to the Collection Period second
preceding such Payment Date, as applicable, amounts allocated or distributed
on the preceding Payment Date and any reconciliation of such amounts with
information provided by the Servicer prior to such current Payment Date. In
addition, Securityholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest
date permitted by law. See "Certain Information Regarding the Securities --
Reports to Securityholders".
USE OF PROCEEDS
Unless the related Prospectus Supplement provides for other
applications, the net proceeds from the sale of the Securities of a given
series will be applied by the applicable Trust (i) to the purchase of the
Receivables from the Depositor, (ii) to make the initial deposit into the
Reserve Account, if any, and (iii) to make the deposit of the Pre-Funded
Amount into the Pre-Funding Account, if any. Unless otherwise specified in
the related Prospectus Supplement, the Depositor will use that portion of
such net proceeds paid to it with respect to any such Trust to purchase
Receivables from the Seller(s) and for general corporate purposes.
THE DEPOSITOR
ML Asset Backed Corporation (the "Depositor") was incorporated in the
State of Delaware on September 22, 1987 and is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc. and an affiliate of Merrill Lynch, Pierce, Fenner &
Smith Incorporated. The Depositor maintains its principal office at 250
Vesey Street, World Financial Center, New York, New York 10281. Its
telephone number is (212) 449-0336.
The only obligations, if any, of the Depositor with respect to a Series
of Certificates and/or Notes may be pursuant to certain limited
representations and warranties and limited undertakings to repurchase (or, if
so specified in related Prospectus Supplement, substitute for) Receivables
under certain circumstances, but only to the extent the related Seller
simultaneously performs its obligation to repurchase such Receivables. The
Depositor will have no ongoing servicing obligations or responsibilities with
respect to any Financed Boat. The Depositor does not have, nor is required
to have, nor is expected in the future to have, any significant assets.
As specified in the related Prospectus Supplement, the Servicer with
respect to any Series of Certificates and/or Notes may be an affiliate of the
Depositor. The Depositor anticipates that it will acquire Receivables in the
open market or in privately negotiated transactions, which may be through or
from a Seller or through or from an affiliate of the Depositor.
Neither the Depositor, the Seller(s) nor any of their respective
affiliates will insure or guarantee the Receivables or the Certificates
and/or Notes of any series.
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust that issues Notes, one or more classes of
Notes of the related series will be issued pursuant to the terms of an
Indenture, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary does
not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Notes and the Indenture.
Unless otherwise specified in the related Prospectus Supplement, each
class of Notes will initially be represented by one or more Notes, in each
case registered in the name of the nominee of DTC (together with any
successor depository selected by the Trust, the "Depository") except as set
forth below. Unless otherwise specified in the related Prospectus Supplement,
the Notes will be available for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form only. The Depositor has been
informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Notes of each class. Unless and
until Definitive Notes are issued under the limited circumstances described
herein or in the related Prospectus Supplement, no Noteholder will be
entitled to receive a physical certificate representing a Note. All
references herein and in the related Prospectus Supplement to actions by
Noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "Participants") and all references herein
and in the related Prospectus Supplement to distributions, notices, reports
and statements to Noteholders refer to distributions, notices, reports and
statements to DTC or its nominee, as the registered holder of the Notes, for
distribution to Noteholders in accordance with DTC's procedures with respect
thereto. See "Certain Information Regarding the Securities -- Book-Entry
Registration" and "-- Definitive Securities".
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payment, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal
and interest on each class of Notes of a given series will be described in
the related Prospectus Supplement. The right of holders of any class of
Notes to receive payments of principal and interest may be senior or
subordinate to the rights of holders of any other class or classes of Notes
of such series, as described in the related Prospectus Supplement. Unless
otherwise provided in the related Prospectus Supplement, payments of interest
on the Notes of such series will be made prior to payments of principal
thereon. To the extent provided in the related Prospectus Supplement, a
series may include one or more classes of Strip Notes entitled to
(i) principal payments with disproportionate, nominal or no interest
payments or (ii) interest payments with disproportionate, nominal or
no principal payments. Each class of Notes may have a different
Interest Rate, which may be a fixed, variable or adjustable Interest Rate
(and which may be zero for certain classes of Strip Notes), or any
combination of the foregoing. The related Prospectus Supplement will specify
the Interest Rate for each class of Notes of a given series or the method for
determining such Interest Rate. See also "Certain Information Regarding the
Securities -- Fixed Rate Securities" and "-- Floating Rate Securities".
One or more classes of Notes of a series may be redeemable in whole or
in part under the circumstances specified in the related Prospectus
Supplement, including at the end of the Funding Period (if any) or
as a result of the Servicer's exercising its option to purchase the
related Receivables Pool.
To the extent specified in any Prospectus Supplement, one or more
classes of Notes of a series may have fixed principal payment schedules, as
set forth in such Prospectus Supplement; Noteholders of such Notes would be
entitled to receive as payments of principal on any Payment Date the
applicable amounts set forth on such schedule with respect to such Notes, in
the manner and to the extent set forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
payments to Noteholders of all classes within a series in respect of interest
will have the same priority. Under certain circumstances, the amount
available for such payments could be less than the amount of interest payable
on the Notes on any of the dates specified for payments in the related
Prospectus Supplement (each, a "Payment Date"), in which case each class of
Noteholders will receive its ratable share (based upon the aggregate amount
of interest due to such class of Noteholders) of the aggregate amount
available to be distributed in respect of interest on the Notes of such
series. See "Description of the Transfer and Servicing Agreements --
Distributions" and "-- Credit and Cash Flow Enhancement".
In the case of a series of Notes which 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 and interest
of any class of Notes will be made on a pro rata basis among all the
Noteholders of such class.
THE INDENTURE
MODIFICATION OF INDENTURE. With respect to each Trust that has issued
Notes pursuant to an Indenture, the Trust and the Indenture Trustee may, with
the consent of the holders of a majority of the outstanding Notes of the
related series, execute a supplemental indenture to add provisions to, change
in any manner or eliminate any provisions of, the related Indenture, or
modify (except as provided below) in any manner the rights of the related
Noteholders.
Unless otherwise specified in the related Prospectus Supplement with
respect to a series of Notes, in the absence of the consent of the holder of
each such 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 the consent of the holders of which is required for
any waiver of compliance with certain provisions of the related Indenture or
of certain defaults thereunder and their consequences as provided for in such
Indenture; (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the applicable Trust, any other obligor
on such Notes, the Depositor, the Seller(s) 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 Receivables if the proceeds of
such sale would be insufficient to pay the principal amount and accrued but
unpaid interest on the outstanding Notes of such series; (vi) decrease the
percentage of the aggregate principal amount of such Notes required to amend
the sections of the related Indenture which specify the applicable percentage
of aggregate principal amount of the Notes of such series necessary to amend
such Indenture or certain other related agreements; 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.
Unless otherwise provided in the applicable Prospectus Supplement, the
Trust and the applicable Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of the Noteholders of the related
series, for the purpose of, among other things, adding any provisions to or
changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of such Noteholders;
provided that such action will not materially and adversely affect the
interest of any such Noteholder.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to the
Notes of a given series, unless otherwise specified in the related Prospectus
Supplement, "Events of Default" under the related Indenture will consist of:
(i) a default for five days (or such longer period specified in the related
Prospectus Supplement) 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 covenant or agreement of the
applicable Trust made in the related Indenture and the continuation of any
such default for a period of 30 days after notice thereof is given to such
Trust by the applicable Indenture Trustee or to such Trust and such Indenture
Trustee by the holders of at least 25% in principal amount of such Notes then
outstanding; (iv) any representation or warranty made by such Trust in the
related Indenture or in any certificate delivered pursuant thereto or in
connection therewith having been incorrect in a material respect as of the
time made, and such breach not having been cured within 30 days after notice
thereof is given to such Trust by the applicable Indenture Trustee or to such
Trust and such Indenture Trustee by the holders of at least 25% in principal
amount of such Notes then outstanding; or (v) certain events of bankruptcy,
insolvency, receivership or liquidation of the applicable Trust. However,
the amount of principal required to be paid to Noteholders of such series
under the related Indenture will generally be limited to amounts available to
be deposited in the applicable Note Distribution Account. Therefore, unless
otherwise specified in the related Prospectus Supplement, the failure to pay
principal on a class of Notes generally will not result in the occurrence of
an Event of Default until the final scheduled Payment Date for such class of
Notes.
If an Event of Default should occur and be continuing with respect to
the Notes of any series, the related Indenture Trustee or holders of a
majority in principal amount of such Notes then outstanding may declare the
principal of such Notes to be immediately due and payable. Unless otherwise
specified in the related Prospectus Supplement, such declaration may, under
certain circumstances, be rescinded by the holders of a majority in principal
amount of such Notes then outstanding.
If the Notes of any series are due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust property, exercise
remedies as a secured party, sell the related Receivables or elect to have
the applicable Trust maintain possession of such Receivables and continue to
apply collections on such Receivables as if there had been no declaration of
acceleration. Unless otherwise specified in the related Prospectus
Supplement, however, such Indenture Trustee is prohibited from selling the
related Receivables 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 Receivables would not be sufficient
on an ongoing basis to make all payments on such Notes as such payments would
have become due if such obligations had not been declared due and payable,
and such Indenture Trustee obtains the consent of the holders of 66 2/3% of
the aggregate outstanding 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 such
Indenture at the request or direction of any of the holders of such Notes, if
such Indenture Trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities which might be
incurred by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the related Indenture,
the holders of a majority in principal amount of the outstanding Notes of a
given series will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the applicable Indenture
Trustee, and the holders of a majority in principal amount of such Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in
respect of a covenant or provision of such Indenture that cannot be modified
without the waiver or consent of all the holders of such outstanding Notes.
Unless otherwise specified in the related Prospectus Supplement, no
holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture, unless (i) such holder
previously has given to the applicable Indenture Trustee written
notice of a continuing Event of Default, (ii) the holders of not less
than 25% in principal amount of the outstanding Notes of such series
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
in principal amount of such outstanding Notes.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or
other proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a Certificate
representing an ownership interest in such Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, affiliates,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or
interest on the related Notes or for the agreements of such Trust contained
in the applicable Indenture.
CERTAIN COVENANTS. Each Indenture will provide that the related Trust
may not consolidate 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 the performance or
observance of 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 that the
rating of the Notes or the Certificates of such series then in effect would
not be reduced or withdrawn by the Rating Agencies as a result of such merger
or consolidation 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.
Each Trust will not, among other things, (i) except as expressly
permitted by the applicable Indenture, the applicable Transfer and Servicing
Agreements or certain related documents with respect to such Trust
(collectively, the "Related Documents"), sell, transfer, exchange or
otherwise dispose of any of the assets of such Trust, (ii) claim any credit
on or make any deduction from the principal and interest payable in respect
of the Notes of the related series (other than amounts withheld under the
Code or applicable state law) or assert any claim against any present or
former holder of such Notes because of the payment of taxes levied or
assessed upon 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 such Notes under such 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 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.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust". No Trust
will incur, assume or guarantee any indebtedness other than indebtedness
incurred pursuant to the related Notes and the related Indenture, pursuant to
any Advances made to it by the Servicer or otherwise in accordance with the
Related Documents.
ANNUAL COMPLIANCE STATEMENT. Each Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture
Trustee under the related Indenture, any amounts advanced by it under the
Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by such Trust to the applicable Indenture Trustee in its
individual capacity, the property and funds physically held by such Indenture
Trustee as such and any action taken by it that materially affects the
related Notes and that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. An Indenture will be
discharged with respect to the collateral securing the related Notes upon the
delivery to the related Indenture Trustee for cancellation of all such Notes
or, with certain limitations, upon deposit with such Indenture Trustee of
funds sufficient for the payment in full of all such Notes.
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 Issuer will be obligated to appoint a
successor trustee for such series. The Issuer may also remove any such
Indenture Trustee if such Indenture Trustee ceases to be eligible to continue
as such under the related Indenture or if such Indenture Trustee becomes
insolvent. In such circumstances, the Issuer will be obligated to appoint a
successor trustee for the applicable series of Notes. Any resignation or
removal of the Indenture Trustee and appointment of a successor trustee for
any series of Notes does not become effective until acceptance of the
appointment by the successor trustee for such series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more classes of Certificates of the
related series will be issued pursuant to the terms of a Trust Agreement or a
Pooling and Servicing Agreement, a form of each of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
The following summary does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Certificates and the Trust Agreement or Pooling and Servicing Agreement, as
applicable.
Unless otherwise specified in the related Prospectus Supplement and
except for the Certificates, if any, of a given series purchased by the
Depositor, each class of Certificates will initially be represented by one or
more Certificates registered in the name of the Depository, except as set
forth below. Unless otherwise specified in the related Prospectus Supplement
and except for the Certificates, if any, of a given series purchased by the
Depositor, the Certificates will be available for purchase in minimum
denominations of $1,000 in book-entry form only. The Depositor has been
informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the related Prospectus Supplement. Accordingly, such nominee is
expected to be the holder of record of the Certificates of any series that
are not purchased by the Depositor. Unless and until Definitive Certificates
are issued under the limited circumstances described herein or in the related
Prospectus Supplement, no Certificateholder (other than the Depositor) will
be entitled to receive a physical certificate representing a Certificate.
All references herein and in the related Prospectus Supplement to actions by
Certificateholders refer to actions taken by DTC upon instructions from the
Participants and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Securities -- Book-Entry Registration" and "-- Definitive Securities". Any
Certificates of a given series owned by the Depositor will be entitled to
equal and proportionate benefits under the applicable Trust Agreement or
Pooling and Servicing Agreement, except that such Certificates will be deemed
not to be outstanding for the purpose of determining whether the requisite
percentage of Certificateholders have given any request, demand,
authorization, direction, notice, consent or other action under the Related
Documents.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of
losses, Pass Through Rate and amount of or method of determining
distributions with respect to principal and interest of each class of
Certificates will be described in the related Prospectus Supplement.
Distributions of interest on such Certificates will be made on the dates
specified in the related Prospectus Supplement (each, a "Distribution Date")
and will be made prior to distributions with respect to principal of such
Certificates. With respect to any Trust that issues both Notes and
Certificates, the Distribution Date for the Certificates may coincide with
the Payment Date for the Notes, in which case such date will be referred to
in the related Prospectus Supplement as a Payment Date with respect to both
the Notes and Certificates. To the extent provided in the related Prospectus
Supplement, a series may include one or more classes of Strip Certificates
entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distributions or (ii) interest
distributions with disproportionate, nominal or no distributions in respect
of principal. Each class of Certificates may have a different Pass Through
Rate, which may be a fixed, variable or adjustable Pass Through Rate (and
which may be zero for certain classes of Strip Certificates) or any
combination of the foregoing. The related Prospectus Supplement will specify
the Pass Through Rate for each class of Certificates of a given series or the
method for determining such Pass Through Rate. See also "Certain Information
Regarding the Securities -- Fixed Rate Securities" and "-- Floating Rate
Securities". Unless otherwise provided in the related Prospectus Supplement,
distributions in respect of the Certificates of a given series that includes
Notes may be subordinate to payments in respect of the Notes of such series
as more fully described in the related Prospectus Supplement. Distributions
in respect of interest on and principal of any class of Certificates will be
made on a pro rata basis among all the Certificateholders of such class.
In the case of a series of Certificates which 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 shall be as set forth in the related Prospectus
Supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each class of Securities (other than certain classes of Strip Notes or
Strip Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass Through Rate, as the case may be,
specified in the applicable Prospectus Supplement. Unless otherwise set
forth in the applicable Prospectus Supplement, interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year of
twelve 30-day months. See "Description of the Notes -- Principal and
Interest on the Notes" and "Description of the Certificates -- Distributions
of Principal and Interest".
FLOATING RATE SECURITIES
Each class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Securities,
the "Interest Reset Period") at a rate per annum determined by reference to
an interest rate basis (the "Base Rate"), plus or minus the Spread, if any,
or multiplied by the Spread Multiplier, if any, in each case as specified in
the related Prospectus Supplement. The "Spread" is the number of basis
points (one basis point equals one-hundredth of a percentage point) that may
be specified in the applicable Prospectus Supplement as being applicable to
such class, and the "Spread Multiplier" is the percentage that may be
specified in the applicable Prospectus Supplement as being applicable to such
class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Security: (i) LIBOR (a
"LIBOR Security"), (ii) the Commercial Paper Rate (a "Commercial Paper Rate
Security"), (iii) the Treasury Rate (a "Treasury Rate Security"), (iv) the
Federal Funds Rate (a "Federal Funds Rate Security"), (v) the CD Rate (a "CD
Rate Security") or (vi) such other Base Rate as is set forth in such
Prospectus Supplement. The "Index Maturity" for any class of Floating Rate
Securities is the period of maturity of the instrument or obligation from
which the Base Rate is calculated.
"H.15(519)" means the publication entitled "Statistical Release
H.15(519), Selected Interest Rates", or any successor publication, published
by the Board of Governors of the Federal Reserve System. "Composite
Quotations" means the daily statistical release entitled "Composite 3:30 p.m.
Quotations for U.S. Government Securities" published by the Federal Reserve
Bank of New York. "Interest Reset Date" will be the first day of the
applicable Interest Reset Period, or such other day as may be specified in
the related Prospectus Supplement with respect to a class of Floating Rate
Securities.
As specified in the applicable Prospectus Supplement, Floating Rate
Securities of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or
ceiling, on the rate at which interest may accrue during any interest period
and (ii) a minimum limitation, or floor, on the rate at which interest may
accrue during any interest period. In addition to any maximum interest rate
that may be applicable to any class of Floating Rate Securities, the interest
rate applicable to any class of Floating Rate Securities will in no
event be higher than the maximum rate permitted by applicable law,
as the same may be modified by United States law of general application.
Each Trust with respect to which a class of Floating Rate Securities
will be issued will appoint, and enter into agreements with, a calculation
agent (each, a "Calculation Agent") to calculate interest rates on each such
class of Floating Rate Securities issued with respect thereto. The
applicable Prospectus Supplement will set forth the identity of the
Calculation Agent for each such class of Floating Rate Securities of a given
series, which may be either the related Trustee or Indenture Trustee with
respect to such series. All determinations of interest by the Calculation
Agent shall, in the absence of manifest error, be conclusive for all purposes
and binding on the holders of Floating Rate Securities of a given class.
Unless otherwise specified in the applicable Prospectus Supplement, all
percentages resulting from any calculation of the rate of interest on a
Floating Rate Security will be rounded, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward.
CD RATE SECURITIES. Each CD Rate Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the
CD Rate and the Spread or Spread Multiplier, if any, specified in such
Security and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"CD Rate" for each Interest Reset Period shall be the rate as of the second
business day prior to the Interest Reset Date for such Interest Reset Period
(a "CD Rate Determination Date") for negotiable certificates of deposit
having the Index Maturity designated in the applicable Prospectus Supplement
as published in H.15(519) under the heading "Cds (Secondary Market)". In the
event that such rate is not published prior to 3:00 p.m., New York City time,
on the Calculation Date pertaining to such CD Rate Determination Date, then
the "CD Rate" for such Interest Reset Period will be the rate on such CD Rate
Determination Date for negotiable certificates of deposit of the Index
Maturity designated in the applicable Prospectus Supplement as published in
Composite Quotations under the heading "Certificates of Deposit". If by 3:00
p.m., New York City time, on such Calculation Date such rate is not yet
published in either H.15(519) or Composite Quotations, then the "CD Rate" for
such Interest Reset Period will be calculated by the Calculation Agent for
such CD Rate Security and will be the arithmetic mean of the secondary market
offered rates as of 10:00 a.m., New York City time, on such CD Rate
Determination Date, of three leading nonbank dealers in negotiable U.S.
dollar certificates of deposit in The City of New York selected by the
Calculation Agent for such CD Rate Security for negotiable certificates of
deposit of major United States money center banks of the highest credit
standing (in the market for negotiable certificates of deposit) with a
remaining maturity closest to the Index Maturity designated in the related
Prospectus Supplement in a denomination of $5,000,000; provided, however,
that if the dealers selected as aforesaid by such Calculation Agent are not
quoting offered rates as mentioned in this sentence, the "CD Rate" for such
Interest Reset Period will be the same as the CD Rate for the immediately
preceding Interest Reset Period.
The "Calculation Date" pertaining to any CD Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset
Date.
COMMERCIAL PAPER RATE SECURITIES. Each Commercial Paper Rate Security
will bear interest for each Interest Reset Period at the interest rate
calculated with reference to the Commercial Paper Rate and the Spread or
Spread Multiplier, if any, specified in such Security and in the applicable
Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Commercial Paper Rate" for each Interest Reset Period will be determined by
the Calculation Agent for such Commercial Paper Rate Security as of the
second business day prior to the Interest Reset Date for such Interest Reset
Period (a "Commercial Paper Rate Determination Date") and shall be the Money
Market Yield on such Commercial Paper Rate Determination Date of the rate for
commercial paper having the Index Maturity specified in the applicable
Prospectus Supplement, as such rate shall be published in H.15(519) under the
heading "Commercial Paper". In the event that such rate is not published
prior to 3:00 p.m., New York City time, on the Calculation Date pertaining to
such Commercial Paper Rate Determination Date, then the "Commercial Paper
Rate" for such Interest Reset Period shall be the Money Market Yield on such
Commercial Paper Rate Determination Date of the rate for commercial paper of
the specified Index Maturity as published in Composite Quotations under the
heading "Commercial Paper". If by 3:00 p.m., New York City time, on such
Calculation Date such rate is not yet published in either H.15(519) or
Composite Quotations, then the "Commercial Paper Rate" for such Interest
Reset Period shall be the Money Market Yield of the arithmetic mean of the
offered rates, as of 11:00 a.m., New York City time, on such Commercial
Paper Rate Determination Date of three leading dealers of commercial paper
in The City of New York selected by the Calculation Agent for such
Commercial Paper Rate Security for commercial paper of the specified
Index Maturity placed for an industrial issuer whose bonds are rated "AA"
or the equivalent by a nationally recognized rating agency; provided,
however, that if the dealers selected as aforesaid by such Calculation Agent
are not quoting offered rates as mentioned in this sentence, the
"Commercial Paper Rate" for such Interest Reset Period will be the same as
the Commercial Paper Rate for the immediately preceding Interest Reset Period.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
D X 360
Money Market Yield = ------------------- X 100
360 - (D X M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
business day, the next succeeding business day or (b) the second business day
preceding the date any payment is required to be made for any period
following the applicable Interest Reset Date.
FEDERAL FUNDS RATE SECURITIES. Each Federal Funds Rate Security will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Federal Funds Rate and the Spread or Spread Multiplier,
if any, specified in such Security and in the applicable Prospectus
Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Federal Funds Rate" for each Interest Reset Period shall be the effective
rate on the Interest Reset Date for such Interest Reset Period (a "Federal
Funds Rate Determination Date") for Federal Funds as published in H.15(519)
under the heading "Federal Funds (Effective)". In the event that such rate
is not published prior to 3:00 p.m., New York City time, on the Calculation
Date pertaining to such Federal Funds Rate Determination Date, the "Federal
Funds Rate" for such Interest Reset Period shall be the rate on such Federal
Funds Rate Determination Date as published in Composite Quotations under the
heading "Federal Funds/Effective Rate". If by 3:00 p.m., New York City time,
on such Calculation Date such rate is not yet published in either H.15(519)
or Composite Quotations, then the "Federal Funds Rate" for such Interest
Reset Period shall be the rate on such Federal Funds Rate Determination Date
made publicly available by the Federal Reserve Bank of New York which is
equivalent to the rate which appears in H.15(519) under the heading "Federal
Funds (Effective)"; provided, however, that if such rate is not made publicly
available by the Federal Reserve Bank of New York by 3:00 p.m., New York City
time, on such Calculation Date, the "Federal Funds Rate" for such Interest
Reset Period will be the same as the Federal Funds Rate in effect for the
immediately preceding Interest Reset Period. In the case of a Federal Funds
Rate Security that resets daily, the interest rate on such Security for the
period from and including a Monday to but excluding the succeeding Monday
will be reset by the Calculation Agent for such Security on such second
Monday (or, if not a business day, on the next succeeding business day) to a
rate equal to the average of the Federal Funds Rates in effect with respect
to each such day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate
Determination Date shall be the next succeeding business day.
LIBOR SECURITIES. Each LIBOR Security will bear interest for each
Interest Reset Period at the interest rate calculated with reference to LIBOR
and the Spread or Spread Multiplier, if any, specified in such Security and
in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, with
respect to LIBOR indexed to the offered rates for U.S. dollar deposits,
"LIBOR" for each Interest Reset Period will be determined by the Calculation
Agent for any LIBOR Security as follows:
(i) On the second London Banking Day prior to the Interest Reset
Date for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Security will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on either, as
specified in the related Prospectus Supplement, (a) the Reuters Screen
LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date, if at least two such offered rates appear on the
Reuters Screen LIBO Page ("LIBOR Reuters") or (b) the Telerate Page 3750
("LIBOR Telerate"). For purposes of calculating LIBOR, "London Banking
Day" means any business day on which dealings in deposits in United
States dollars are transacted in the London interbank market; "Reuters
Screen LIBO Page" means the display designated as page "LIBO" on the
Reuters Monitor Money Rates Service (or such other page as may replace
the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks); and "Telerate Page 3750" means
the display designated as page "3750" on the Telerate Service (or such
other page as may replace the 3750 page on that service or services as
may be nominated by the British Bankers' Association for the purpose of
displaying London interbank offered rates for U.S. dollar deposits). If
LIBOR is LIBOR Reuters and at least two such offered rates appear on the
Reuters Screen LIBO Page, "LIBOR" for such Interest Reset Period will be
the arithmetic mean of such offered rates as determined by the
Calculation Agent for such LIBOR Security. If neither LIBOR Reuters or
LIBOR Telerate is specified in the related Prospectus Supplement, LIBOR
will be determined as if LIBOR Telerate had been specified.
(ii) If fewer than two offered rates appear on the Reuters Screen
LIBO Page, or if no rate appears on the Telerate Page 3750, as
applicable, on such LIBOR Determination Date, the Calculation Agent for
such LIBOR Security will request the principal London offices of each of
four major banks in the London interbank market selected by such
Calculation Agent to provide such Calculation Agent with its offered
quotations for deposits in U.S. dollars for the period of the specified
Index Maturity, commencing on such Interest Reset Date, to prime banks
in the London interbank market at approximately 11:00 a.m., London time,
on such LIBOR Determination Date and in a principal amount equal to an
amount of not less than $1,000,000 that, in the Calculation Agent's
judgment, is representative of a single transaction in such market at
such time. If at least two such quotations are provided, "LIBOR" for
such Interest Reset Period will be the arithmetic mean of such
quotations. If fewer than two such quotations are provided, "LIBOR" for
such Interest Reset Period will be the arithmetic mean of rates quoted
by three major banks in The City of New York selected by the Calculation
Agent for such LIBOR Security at approximately 11:00 a.m., New York City
time, on such LIBOR Determination Date for loans in U.S. dollars to
leading European banks, for the period of the specified Index Maturity,
commencing on such Interest Reset Date, and in a principal amount equal
to an amount of not less than $1,000,000 that, in the Calculation
Agent's judgment, is representative of a single transaction in such
market at such time; provided, however, that if the banks selected as
aforesaid by such Calculation Agent are not quoting rates as mentioned
in this sentence, "LIBOR" for such Interest Reset Period will be the
same as LIBOR for the immediately preceding Interest Reset Period.
TREASURY RATE SECURITIES. Each Treasury Rate Security will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Treasury Rate and the Spread or Spread Multiplier, if any,
specified in such Security and in the applicable Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
"Treasury Rate" for each Interest Reset Period will be the rate for the
auction held on the Treasury Rate Determination Date for such Interest Reset
Period of direct obligations of the United States ("Treasury bills") having
the Index Maturity specified in the applicable Prospectus Supplement, as such
rate shall be published in H.15(519) under the heading "U.S. Government
Securities -- Treasury bills -- auction average (investment)" or, in the
event that such rate is not published prior to 3:00 p.m., New York City time,
on the Calculation Date pertaining to such Treasury Rate Determination Date,
the auction average rate (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) on such
Treasury Rate Determination Date as otherwise announced by the United States
Department of the Treasury. In the event that the results of the auction of
Treasury bills having the specified Index Maturity are not published or
reported as provided above by 3:00 p.m., New York City time, on such
Calculation Date, or if no such auction is held on such Treasury Rate
Determination Date, then the "Treasury Rate" for such Interest Reset Period
shall be calculated by the Calculation Agent for such Treasury Rate Security
and shall be the yield to maturity (expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily
basis) of the arithmetic mean of the secondary market bid rates, as of
approximately 3:30 p.m., New York City time, on such Treasury Rate
Determination Date, of three leading primary United States government
securities dealers selected by such Calculation Agent for the issue of
Treasury bills with a remaining maturity closest to the specified
Index Maturity; provided, however, that if the dealers selected as
aforesaid by such Calculation Agent are not quoting bid rates as mentioned
in this sentence, then the "Treasury Rate" for such Interest Reset Period
will be the same as the Treasury Rate for the immediately preceding
Interest Reset Period.
The "Treasury Rate Determination Date" for each Interest Reset Period
will be the day of the week in which the Interest Reset Date for such
Interest Reset Period falls on which Treasury bills would normally be
auctioned. Treasury bills are normally sold at auction on Monday of each
week, unless that day is a legal holiday, in which case the auction is
normally held on the following Tuesday, except that such auction may be held
on the preceding Friday. If, as the result of a legal holiday, an auction is
so held on the preceding Friday, such Friday will be the Treasury Rate
Determination Date pertaining to the Interest Reset Period commencing in the
next succeeding week. If an auction date shall fall on any day that would
otherwise be an Interest Reset Date for a Treasury Rate Security, then such
Interest Reset Date shall instead be the business day immediately following
such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination
Date shall be the first to occur of (a) the tenth calendar day after such
Treasury Rate Determination Date or, if such a day is not a business day, the
next succeeding business day or (b) the second business day preceding the
date any payment is required to be made for any period following the
applicable Interest Reset Date.
BOOK-ENTRY REGISTRATION
Holders of the Certificates or the Notes may hold through DTC (in the
United States) or, solely in the case of the Notes, Cedel or Euroclear (in
Europe) if they are participants of such systems, or indirectly through
organizations that are participants in such systems. The Certificates may
not be held, directly or indirectly, through Cedel or Euroclear. Cede, as
nominee for DTC, will hold the Securities. Cedel and Euroclear will hold
omnibus positions in the Notes on behalf of the Cedel Participants and the
Euroclear Participants, respectively, through customers' securities accounts
in Cedel's and Euroclear's names on the books of their respective
depositaries (collectively, the "Depositaries"), which in turn will hold such
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to
hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the DTC system
also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Transfers between DTC's participating organizations (the "Participants")
will occur in accordance with DTC rules. Transfers between Cedel
Participants and Euroclear Participants will occur in the ordinary way in
accordance with their applicable rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its 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 in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Cedel Participant or Euroclear 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 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.
Unless otherwise specified in the related Prospectus Supplement,
Securityholders 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, Securityholders will receive all distributions of principal and
interest from the related Indenture Trustee or the related Trustee, as
applicable (the "Applicable Trustee"), through Participants. Under a
book-entry format, Securityholders may experience some delay in their receipt
of payments, since such payments will be forwarded by the Applicable Trustee
to DTC's nominee. DTC will forward such payments to its Participants, which
thereafter will forward them to Indirect Participants or Securityholders.
Except to the extent the Depositor holds Certificates with respect to any
series of Securities, it is anticipated that the only "Securityholder",
"Noteholder" and "Certificateholder" will be DTC's nominee. Noteholders will
not be recognized by each Indenture Trustee as Noteholders, as such term is
used in each Indenture, and Noteholders will be permitted to exercise the
rights of Noteholders only indirectly through DTC and its Participants.
Similarly, Certificateholders will not be recognized by each Trustee as
Certificateholders as such term is used in each Trust Agreement or Pooling
and Servicing Agreement, and Certificateholders will be permitted to exercise
the rights of Certificateholders only indirectly through DTC and its
Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry
transfers of Securities 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 Securityholders 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 Securityholders.
Accordingly, although Securityholders will not possess Securities, the Rules
provide a mechanism by which Participants will receive payments and will be
able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder to pledge Securities to persons or entities that do not
participate in the DTC system, or to otherwise act with respect to such
Securities, may be limited due to the lack of a physical certificate for such
Securities.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Noteholder under the related Indenture or a Certificateholder
under the related Trust Agreement or Pooling and Servicing Agreement only at
the direction of one or more Participants to whose accounts with DTC the
applicable Notes or Certificates 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.
Cedel Bank, soci t anonyme ("Cedel") is incorporated under the laws of
Luxembourg as a professional depository. Cedel holds securities for its
participating organizations ("Cedel Participants") and facilitates the
clearance and settlement of securities transactions between Cedel
Participants through electronic book-entry changes in accounts of Cedel
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 28 currencies,
including United States dollars. Cedel provides to its Cedel Participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Cedel interfaces with domestic markets in several countries. As
a professional depository, Cedel is subject to regulation by the Luxembourg
Monetary Institute. Cedel Participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the Underwriter(s) for the related Notes. 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 was created in 1968 to hold securities for
participants of the Euroclear System ("Euroclear Participants") and to clear
and settle transactions between Euroclear Participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need
for physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. Transactions may now be settled in
Euroclear in any of 32 currencies, including United States dollars. The
Euroclear System includes various other services, including securities
lending and borrowing, and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers
with DTC. The Euroclear System is operated by Morgan Guaranty Trust Company
of New York, Brussels, Belgium office (the "Euroclear Operator" or
"Euroclear"), under contract with Euroclear Clearance System,
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations
are conducted by the Euroclear Operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy
for the Euroclear System on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriter(s). Indirect access to the Euroclear System is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such,
it is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within the Euroclear
System, withdrawal of securities and cash from the Euroclear System, and
receipts of payments with respect to securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
Distributions with respect to Notes 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" in the Prospectus
and "Global Clearance, Settlement and Tax Documentation Procedures" in Annex
I to this Prospectus Supplement. Cedel or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a Noteholder
under the 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 Notes 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.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Administrator, if any, or the Applicable Trustee would seek an
alternative depository (if available) or cause the issuance of Definitive
Securities to the owners thereof or their nominees in the manner described in
the Prospectus under "Certain Information Regarding the Securities --
Definitive Securities".
Except as required by law, neither the Administrator, if any, the
applicable Trustee nor the applicable Indenture Trustee, if any, will have
any liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the 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 specified in the related Prospectus Supplement, the Notes, if any,
and the Certificates of a series will be issued in fully registered,
certificated form ("Definitive Notes" and "Definitive Certificates",
respectively, and collectively referred to herein as "Definitive Securities")
to Noteholders or Certificateholders or their respective nominees, rather
than to DTC or its nominee, only if (i) the related Applicable Trustee
determines that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such Securities and such
Applicable Trustee is unable to locate a qualified successor, (ii) the
Applicable Trustee, at its option, elects to terminate the book-entry system
through DTC or (iii) after the occurrence of an Event of Default or a
Servicer Default with respect to such Securities, holders representing at
least a majority of the outstanding principal amount of the Notes or the
Certificates, as the case may be, of such series advise the Applicable
Trustee through DTC in writing that the continuation of a book-entry system
through DTC (or a successor thereto) with respect to such Notes or
Certificates is no longer in the best interest of the holders of such
Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Applicable Trustee will be required to notify all applicable
Securityholders of a given series through Participants of the availability of
Definitive Securities. Upon surrender by DTC of the definitive certificates
representing the corresponding Securities and receipt of instructions for
re-registration, the Applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Definitive
Securities will thereafter be made by the Applicable Trustee in accordance
with the procedures set forth in the related Indenture or the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, directly to
holders of Definitive Securities in whose names the Definitive Securities
were registered at the close of business on the applicable Record Date
specified for such Securities in the related Prospectus Supplement. Such
distributions will be made by check mailed to the address of such holder as
it appears on the register maintained by the Applicable Trustee. The final
payment on any such Definitive Security, however, will be made only upon
presentation and surrender of such Definitive Security at the office or
agency specified in the notice of final distribution to the applicable
Securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the Applicable Trustee or of a registrar named in a notice
delivered to holders of Definitive Securities. No service charge will be
imposed for any registration of transfer or exchange, but the Applicable
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
LIST OF SECURITYHOLDERS
Unless otherwise specified in the related Prospectus Supplement with
respect to the Notes of any series, three or more holders of the Notes of
such series or one or more holders of such Notes evidencing not less than 25%
of the aggregate outstanding principal balance of such Notes may, by written
request to the related Indenture Trustee, obtain access to the list of all
Noteholders maintained by such Indenture Trustee for the purpose of
communicating with other Noteholders with respect to their rights under the
related Indenture or under such Notes. 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.
Unless otherwise specified in the related Prospectus Supplement with
respect to the Certificates of any series, three or more holders of the
Certificates of such series or one or more holders of such Certificates
evidencing not less than 25% of the Certificate Balance of such Certificates
may, by written request to the related Trustee, obtain access to the list of
all Certificateholders maintained by such Trustee for the purpose of
communicating with other Certificateholders with respect to their rights
under the related Trust Agreement or Pooling and Servicing Agreement or under
such Certificates.
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities that includes Notes, on or
prior to each Payment Date, the Servicer will prepare and provide to the
related Indenture Trustee a statement to be delivered to the related
Noteholders on such Payment Date. With respect to each series of Securities,
on or prior to each Distribution Date, the Servicer will prepare and provide
to the related Trustee a statement to be delivered to the related
Certificateholders. With respect to each series of Securities, each such
statement to be delivered to Noteholders will include (to the extent
applicable) the following information (and any other information so specified
in the related Prospectus Supplement) as to the Notes of such series with
respect to such Payment Date or the period since the previous Payment Date,
as applicable, and each such statement to be delivered to Certificateholders
will include (to the extent applicable) the following information (and any
other information so specified in the related Prospectus Supplement) as to
the Certificates of such series with respect to such Distribution Date or the
period since the previous Distribution Date, as applicable:
(i) the amount of the distribution allocable to principal of each
class of such Notes and to the Certificate Balance of each class of such
Certificates;
(ii) the amount of the distribution allocable to interest on or
with respect to each class of Securities of such series;
(iii) the Pool Balance as of the close of business on the last day
of the preceding Collection Period;
(iv) the aggregate outstanding principal balance and the Note Pool
Factor for each class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each class of such Certificates, each after
giving effect to all payments reported under clause (i) above on such
date;
(v) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period or Collection Periods, as the
case may be;
(vi) the Interest Rate or Pass Through Rate for the next period for
any class of Notes or Certificates of such series with variable or
adjustable rates;
(vii) the amount of the aggregate realized losses, if any, for the
related Collection Period;
(viii) the Noteholders' Interest Carryover Shortfall, the
Noteholders' Principal Carryover Shortfall, the Certificateholders'
Interest Carryover Shortfall and the Certificateholders' Principal
Carryover Shortfall (each as defined in the related Prospectus
Supplement), if any, in each case as applicable to each class of
Securities, and the change in such amounts from the preceding statement;
(ix) the aggregate Purchase Amounts for Receivables, if any, that
were repurchased or substituted for in such Collection Period;
(x) the balance of the Reserve Account (if any) on such date,
after giving effect to changes therein on such date;
(xi) for each such date during the Funding Period (if any), the
remaining Pre-Funded Amount; and
(xii) for the first such date that is on or immediately following
the end of the Funding Period (if any), the amount of any remaining
Pre-Funded Amount that has not been used to fund the purchase of
Subsequent Receivables and is being passed through as payments of
principal on the Securities of such series.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (viii)
with respect to the Notes or the Certificates of any series will be expressed
as a dollar amount per $1,000 of the initial principal balance of such Notes
or the initial Certificate Balance of such Certificates, as applicable.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of each Trust, the Applicable
Trustee will mail to each person who at any time during such calendar year
has been a Securityholder with respect to such Trust and received any payment
thereon a statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Certain
Federal Income Tax Consequences".
In addition, the filing with the Commission of periodic reports with
respect to each Trust will cease following completion of the reporting period
required by Rule 15d-1 of Regulation 15D under the Exchange Act.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of each Sale and Servicing
Agreement or Pooling and Servicing Agreement pursuant to which a Trust will
purchase Receivables from the Depositor and the Servicer will agree to
service such Receivables, each Trust Agreement (in the case of a grantor
trust, the Pooling and Servicing Agreement) pursuant to which a Trust will be
created and Certificates will be issued and each Administration Agreement
pursuant to which the Servicer (or such other person named in the related
Prospectus Supplement) will undertake certain administrative duties with
respect to a Trust that issues Notes (collectively, the "Transfer and
Servicing Agreements"). Forms of the Transfer and Servicing Agreements have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. This summary does not purport to be
complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
On or prior to the closing date (the "Closing Date") specified in the
Prospectus Supplement for a Trust, the Seller(s) specified in such Prospectus
Supplement will transfer and assign, without recourse, to the Depositor their
respective entire interests in the related Initial Receivables and their
security interests in the related Financed Boats pursuant to a receivables
purchase agreement (a "Receivables Purchase Agreement"). On or prior to such
Closing Date, the Depositor will transfer and assign to the applicable
Trustee, without recourse, pursuant to a Sale and Servicing Agreement or a
Pooling and Servicing Agreement, as applicable, its entire interest in such
Initial Receivables, including its security interests in the related Financed
Boats. Each such Receivable will be identified in a schedule appearing as an
exhibit to such Pooling and Servicing Agreement or Sale and Servicing
Agreement (a "Schedule of Receivables"). The Applicable Trustee will,
concurrently with such transfer and assignment, execute and deliver the
related Notes and/or Certificates. The Applicable Trustee will not verify
the existence of the Receivables or review the Receivables files. Unless
otherwise provided in the related Prospectus Supplement, the net proceeds
received from the sale of the Certificates and the Notes of a given series
will be applied to the purchase of the related Receivables from the Seller(s)
and, to the extent specified in the related Prospectus Supplement, to the
deposit of the Pre-Funded Amount into the Pre-Funding Account. The related
Prospectus Supplement for a given Trust will specify whether, and the terms,
conditions and manner under which, Subsequent Receivables will be sold by the
Seller(s) to the Depositor and by the Depositor to the applicable Trust from
time to time during any Funding Period on each date specified as a transfer
date in the related Prospectus Supplement (each, a "Subsequent Transfer
Date").
If so provided in the related Prospectus Supplement, principal
collections on the Receivables may be applied to the purchase by the Trust of
Subsequent Receivables for the period of time specified in the Prospectus
Supplement.
In each Receivables Purchase Agreement the related Seller will represent
and warrant to the Depositor and, in each Sale and Servicing Agreement or
Pooling and Servicing Agreement, the Depositor will represent and warrant to
the applicable Trust, among other things, that: (i) the information provided
in the related Schedule of Receivables is correct in all material respects;
(ii) the Obligor on each related Receivable is required to maintain physical
damage insurance covering the Financed Boat in accordance with the Seller(s)'
normal requirements; (iii) as of the applicable Closing Date or the
applicable Subsequent Transfer Date, if any, to the best of its knowledge,
the related 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) as of the Closing Date or the applicable
Subsequent Transfer Date, if any, each of such Receivables is or will be
secured by a first perfected security interest in favor of the Seller in the
Financed Boat; (v) each related Receivable, at the time it was originated,
complied and, as of the Closing Date or the applicable Subsequent Transfer
Date, if any, complies in all material respects with applicable federal and
state laws, including, without limitation, consumer credit, truth in lending,
equal credit opportunity and disclosure laws; and (vi) any other
representations and warranties that may be set forth in the related
Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, as of
the last day of the second (or, if the Seller(s) elects, the first) month
following the discovery by or notice to the Seller(s) of a breach of any
representation or warranty of the Seller(s) that materially and adversely
affects the interests of the related Trust in any Receivable, the Depositor,
unless the breach is cured, will repurchase such Receivable from such Trust
and the related Seller will be obligated to simultaneously repurchase such
Receivable from the Depositor at a price equal to the unpaid principal
balance owed by the Obligor thereon plus interest thereon at the respective
APR to the last day of the month of repurchase (the "Purchase Amount").
Alternatively, if so specified in the related Prospectus Supplement, the
related Seller or the Depositor will be permitted, in a circumstance where it
would otherwise be required to repurchase a Receivable as described in the
preceding sentence, to instead substitute a comparable Receivable for the
Receivable otherwise requiring repurchase, subject to certain conditions and
eligibility criteria for the substitute Receivable to be summarized in the
related Prospectus Supplement. The repurchase obligation (or, if applicable,
the substitution alternative with respect thereto) constitutes the sole
remedy available to the Certificateholders or the Trustee and any Noteholders
or Indenture Trustee in respect of such Trust for any such uncured breach.
The Depositor's obligation to make such purchase or substitution is
contingent upon the related Seller performing its corresponding obligation to
purchase (or, if applicable, substitute for) such Receivable from the
Depositor.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, to assure uniform quality in servicing the Receivables and to
reduce administrative costs, each Trust will designate the Servicer as
custodian to maintain possession, as such Trust's agent, of the related
marine loans and any other documents relating to the Receivables.
The Depositor and the Seller(s)' accounting records and computer
systems will reflect the sale and assignment of the related Receivables
to the applicable Trust, and Uniform Commercial Code ("UCC") financing
statements reflecting such sales and assignments will be filed.
The Receivables will not be segregated, stamped or otherwise marked to
indicate that they have been sold to the related Trust. If through
inadvertence or otherwise, another party purchases (or takes a security
interest in) the Receivables for new value in the ordinary course of business
and takes possession of the Receivables without actual knowledge of the
related Trust's interest, the purchaser (or secured party) will acquire an
interest in the Receivables superior to the interest of the related Trust.
ACCOUNTS
With respect to each Trust that issues Notes, the Servicer will
establish and maintain with the related Indenture Trustee one or more
accounts, in the name of the Indenture Trustee on behalf of the related
Noteholders and Certificateholders, into which all payments made on or with
respect to the related Receivables will be deposited (the "Collection
Account"). The Servicer will establish and maintain with such Indenture
Trustee an account, in the name of such Indenture Trustee on behalf of such
Noteholders, into which amounts released from the Collection Account and any
Pre-Funding Account, Reserve Account or other credit enhancement for payment
to such Noteholders will be deposited and from which all distributions to
such Noteholders will be made (the "Note Distribution Account"). The
Servicer will establish and maintain with the related Trustee an account, in
the name of such Trustee on behalf of such Certificateholders, into which
amounts released from the Collection Account and any Pre-Funding Account,
Reserve Account or other credit or cash flow enhancement for distribution to
such Certificateholders will be deposited and from which all distributions to
such Certificateholders will be made (the "Certificate Distribution
Account"). With respect to each Trust that does not issue Notes, the
Servicer will also establish and maintain the Collection Account and any
other Trust Account in the name of the related Trustee on behalf of the
related Certificateholders.
If so provided in the related Prospectus Supplement, the Servicer will
establish for each series an additional account (the "Payahead Account"), in
the name of the related Indenture Trustee, into which, to the extent required
by the Sale and Servicing Agreement, early payments by or on behalf of
Obligors on Precomputed Receivables will be deposited until such time as the
payment becomes due. Until such time as payments are transferred from the
Payahead Account to the Collection Account, they will not constitute
collected interest or collected principal and will not be available for
distribution to the applicable Noteholders or Certificateholders. The
Payahead Account will initially be maintained with the applicable Indenture
Trustee or, in the case of each Trust that does not issue Notes, the
applicable Trustee.
Any other accounts to be established with respect to a Trust, including
any Pre-Funding Account or any Reserve Account, will be described in the
related Prospectus Supplement.
For any series of Securities, funds in the Collection Account, the Note
Distribution Account and any Pre-Funding Account, Reserve Account and other
accounts identified as such in the related Prospectus Supplement
(collectively, the "Trust Accounts") will be invested as provided in the
related Sale and Servicing Agreement or Pooling and Servicing Agreement in
Eligible Investments. "Eligible Investments" are generally limited to
investments acceptable to the Rating Agencies rating such Securities as being
consistent with the rating of such Securities and may include marine retail
sale contracts or installment loans. Except as described below or in the
related Prospectus Supplement, Eligible Investments are limited to
obligations or securities that mature on or before the date of the next
distribution for 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 the next distribution with respect to
such Certificates or Notes and will not be sold to meet any shortfalls.
Thus, the amount of cash in any Reserve Account at any time may be less than
the balance of the Reserve Account. If the amount required to be withdrawn
from any Reserve Account to cover shortfalls in collections on the related
Receivables (as provided in the related Prospectus Supplement) exceeds the
amount of cash in the Reserve Account, a temporary shortfall in the amounts
distributed to the related Noteholders or Certificateholders could result,
which could, in turn, increase the average life of the Notes or the
Certificates of such series. Investment earnings on funds deposited in the
Trust Accounts, net of losses and investment expenses (collectively,
"Investment Earnings"), shall be allocated in the manner described in the
related Prospectus Supplement.
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 which
signifies investment grade. "Eligible Institution" means, with respect
to a Trust, (a) the corporate trust department of the related
Indenture Trustee or the related Trustee, as applicable, or (b)
a depository institution organized under the laws of the United States
of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), (i) which has either (A)
a long-term unsecured debt rating acceptable to the Rating Agencies or (B) a
short-term unsecured debt rating or certificate of deposit rating acceptable
to the Rating Agencies and (ii) whose deposits are insured by the FDIC.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due
with respect to the Receivables held by any Trust and will, consistent with
the related Sale and Servicing Agreement or Pooling and Servicing Agreement,
follow such collection procedures as it follows with respect to marine retail
installment sale contracts, installment loans, purchase money notes or other
notes that it services for itself or others and that are comparable to such
Receivables. 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, modify the original
due dates or the amount of the scheduled payments or extend the final payment
date of any Receivable beyond the Final Scheduled Maturity Date (as such term
is defined with respect to any Receivables Pool in the related Prospectus
Supplement). Some of such arrangements may result in the Servicer purchasing
the Receivable for the Purchase Amount, while others may result in the
Servicer making Advances. The Servicer may sell the Financed Boat securing
the respective Receivable at public or private sale, or take any other action
permitted by applicable law. See "Certain Legal Aspects of the Receivables".
The Servicer may from time to time perform any portion of its servicing
obligations under the applicable Sale and Servicing Agreement or Pooling and
Servicing Agreement through subservicing agreements with third-party
servicers approved by the Rating Agencies. Each applicable Sale and
Servicing Agreement and Pooling and Servicing Agreement will provide that,
notwithstanding the use of such subservicers, the Servicer will remain liable
for its servicing duties and obligations as if the Servicer were servicing
the Receivables directly.
COLLECTIONS
With respect to each Trust, the Servicer will deposit all payments on
the related Receivables (from whatever source) and all proceeds of such
Receivables collected during each collection period specified in the related
Prospectus Supplement (each, a "Collection Period") into the related
Collection Account within two business days after receipt thereof. However,
at any time that and for so long as (i) the Servicer (or its successor) is
the Servicer, (ii) there exists no Servicer Default and (iii) 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, the Servicer will not be required to deposit such amounts into the
Collection Account until on or before the applicable Distribution Date or
Payment Date. Pending deposit into the Collection Account, collections may
be invested by the Servicer at its own risk and for its own benefit and will
not be segregated from its own funds. If the Servicer were unable to remit
such funds, Securityholders might incur a loss. 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 Receivables and payment of the aggregate Purchase Amount with
respect to Receivables purchased by the Servicer.
Collections on a Precomputed Receivable made during a Collection Period
shall be applied first to repay any outstanding Precomputed Advances made by
the Servicer with respect to such Receivable (as described below), and to the
extent that collections on a Precomputed Receivable during a Collection
Period exceed the outstanding Precomputed Advances, the collections shall
then be applied to the scheduled payment on such Receivable. If any
collections remaining after the scheduled payment is made are insufficient to
prepay the Precomputed Receivable in full, then, unless otherwise provided in
the related Prospectus Supplement, generally such remaining collections (the
"Payaheads") shall be transferred to and kept in the Payahead Account, until
such later Collection Period as the collections may be transferred to the
Collection Account and applied either to the scheduled payment or to prepay
such Receivable in full.
ADVANCES
Precomputed Receivables. Unless otherwise provided in the related
Prospectus Supplement, to the extent the collections of interest and
principal on a Precomputed Receivable with respect to a Collection Period
fall short of the respective scheduled payment, the Servicer 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 or Payment Date. The
Servicer will recoup its Precomputed Advance from subsequent payments by or
on behalf of the respective Obligor or from insurance or liquidation proceeds
with respect to the Receivable and will release its right to reimbursement in
conjunction with its purchase of the Receivable as Servicer, or, upon the
determination that reimbursement from the preceding sources is unlikely, will
recoup its Precomputed Advance from any collections made on other Precomputed
Receivables in the related Receivables Pool.
Simple Interest Receivables. Unless otherwise provided in the related
Prospectus Supplement, on or before the business day prior to each applicable
Distribution Date or Payment Date, the Servicer shall 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 related Collection Period. If such
calculation results in a negative number, an amount equal to such amount
shall be paid to the Servicer in reimbursement of outstanding Simple Interest
Advances. In addition, in the event that a Simple Interest Receivable
becomes a Defaulted 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) shall 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. As used
herein, "Advances" means both Precomputed Advances and Simple Interest
Advances.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the Prospectus Supplement with respect to
any Trust, the Servicer will be entitled to receive the Servicing Fee for
each Collection Period in an amount equal to a specified percentage per annum
(as set forth in the related Prospectus Supplement, the "Servicing Fee Rate")
of the Pool Balance as of the first day of the related Collection Period (the
"Servicing Fee"). The Servicing Fee (together with any portion of the
Servicing Fee that remains unpaid from prior Distribution Dates or Payment
Dates) will be paid out of available funds for the related Collection Period
prior to any distributions on the related Distribution Date or Payment Date
to the Noteholders or the Certificateholders of the given series.
Unless otherwise provided in the related Prospectus Supplement with
respect to a given Trust, 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 the related Receivables and will be
entitled to reimbursement from such Trust for certain liabilities. Payments
by or on behalf of Obligors will be allocated to scheduled payments and late
fees and other charges in accordance with the Servicer's normal practices and
procedures.
The Servicing Fee will compensate the Servicer for performing the
functions of a third party servicer of boat receivables as an agent for their
beneficial owner, including collecting and posting all payments, responding
to inquiries of Obligors on the Receivables, investigating delinquencies,
sending payment coupons to Obligors, reporting tax information to Obligors,
paying costs of collections and disposition of defaults and policing the
collateral. The Servicing Fee also will compensate the Servicer for
administering the particular Receivables Pool, including making Advances,
accounting for collections and furnishing monthly and annual statements to
the related Trustee and Indenture Trustee with respect to distributions and
generating federal income tax information for such Trust and for the related
Noteholders and Certificateholders. The Servicing Fee also will reimburse
the Servicer for certain taxes, the fees of the related Trustee and Indenture
Trustee, if any, accounting fees, outside auditor fees, data processing costs
and other costs incurred in connection with administering the applicable
Receivables Pool.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Payment Date
or Distribution Date, as applicable, specified in the related Prospectus
Supplement, distributions of principal and interest (or, where applicable, of
principal or interest only) on each class of such Securities entitled
thereto will be made by the Applicable Trustee to the Noteholders and
the Certificateholders of such series. The timing, calculation, allocation,
order, source, priorities of and requirements for all payments to each
class of Noteholders and all distributions to each class of
Certificateholders of such series will be set forth in the related
Prospectus Supplement.
With respect to each Trust, on each Payment Date and Distribution Date,
as applicable, collections on the related Receivables will be transferred
from the Collection Account to the Note Distribution Account, if any, and the
Certificate Distribution Account for distribution to Noteholders, if any, and
Certificateholders to the extent provided in the related Prospectus
Supplement. Credit enhancement, such as a Reserve Account, will be available
to cover any shortfalls in the amount available for distribution on such date
to the extent specified in the related Prospectus Supplement. As more fully
described in the related Prospectus Supplement, and unless otherwise
specified therein, distributions in respect of principal of a class of
Securities of a given series will be subordinate to distributions in respect
of interest on such class, and distributions in respect of one or more
classes of Certificates of such series may be subordinate to payments in
respect of Notes, if any, of such series or other classes of Certificates of
such series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit and cash flow enhancement arrangements
and the provider thereof, if applicable, with respect to each class of
Securities of a given series, if any, will be set forth in the related
Prospectus Supplement. If and to the extent provided in the related
Prospectus Supplement, credit and cash flow enhancement may be in the form of
subordination of one or more classes of Securities, Reserve Accounts,
overcollateralization, letters of credit, credit or liquidity facilities,
surety bonds, guaranteed investment contracts, swaps (including without
limitation currency swaps) other interest rate protection agreements, other
derivations and financial instruments, repurchase obligations, yield
supplement agreements, other agreements with respect to third party payments
or other support, cash deposits or such other arrangements consistent with
the foregoing as may be described in the related Prospectus Supplement or any
combination of two or more of the foregoing. If specified in the applicable
Prospectus Supplement, credit or cash flow enhancement for a class of
Securities may cover one or more other classes of Securities of the same
series, and credit or cash flow enhancement for a series of Securities may
cover one or more other series of Securities.
The presence of a Reserve Account and other forms of credit enhancement
for the benefit of any class or series of Securities is intended to enhance
the likelihood of receipt by the Securityholders of such class or series of
the full amount of principal and interest due thereon and to decrease the
likelihood that such Securityholders will experience losses. The credit
enhancement for a class or series of Securities may not provide protection
against all risks of loss and may not guarantee repayment of the entire
principal balance and interest thereon; any such limitations will be
described in the related Prospectus Supplement. If losses occur which exceed
the amount covered by any credit enhancement or which are not covered by any
credit enhancement, Securityholders of any class or series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of credit enhancement covers more than
one series of Securities, Securityholders of any such series will be subject
to the risk that such credit enhancement will be exhausted by the claims of
Securityholders of other series.
RESERVE ACCOUNT. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Depositor will establish for a series or class of Securities
an account, as specified in the related Prospectus Supplement (the "Reserve
Account"), which will be maintained with the related Trustee or Indenture
Trustee, as applicable. Unless otherwise provided in the related Prospectus
Supplement, the Reserve Account will be funded by an initial deposit by the
Depositor or such other person specified in the related Prospectus Supplement
on the Closing Date in the amount set forth in the related Prospectus
Supplement and, if the related series has a Funding Period, will also be
funded on each Subsequent Transfer Date to the extent described in the
related Prospectus Supplement. As further described in the related
Prospectus Supplement, the amount on deposit in the Reserve Account will be
increased on each Distribution Date or Payment Date thereafter up to the
Specified Reserve Account Balance (as defined in the related Prospectus
Supplement) by the deposit therein of the amount of collections on the
related Receivables remaining on each such Distribution Date or Payment Date
after the payment of all other required payments and distributions on such
date. The related Prospectus Supplement will describe the circumstances and
manner under which distributions may be made out of the Reserve Account,
either to holders of the Securities covered thereby, to the Depositor or such
other person specified in the related Prospectus Supplement.
NET DEPOSITS
As an administrative convenience, unless the Servicer is required to
remit collections daily (see "-- Collections" above), the Servicer will be
permitted to make the deposit of collections, aggregate Advances and Purchase
Amounts for any Trust for or with respect to the related Collection Period
net of distributions to be made to the Servicer for such Trust with respect
to such Collection Period. The Servicer may cause to be made a single, net
transfer from the Collection Account to the related Payahead Account, if any,
or vice versa. The Servicer, however, will account to the Trustee, any
Indenture Trustee, the Noteholders, if any, and the Certificateholders with
respect to each Trust as if all deposits, distributions and transfers were
made individually. With respect to any Trust that issues both Certificates
and Notes, if the related Payment Dates do not coincide with Distribution
Dates, all distributions, deposits or other remittances made on a Payment
Date will be treated as having been distributed, deposited or remitted on the
Distribution Date for the applicable Collection Period for purposes of
determining other amounts required to be distributed, deposited or otherwise
remitted on such Distribution Date.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date or Payment Date with respect to each
series of Securities, the Servicer will provide to the applicable Indenture
Trustee, if any, and the applicable Trustee as of the close of business on
the last day of the preceding Collection Period a statement setting forth
substantially the same information as is required to be provided in the
periodic reports provided to Securityholders of such series described under
"Certain Information Regarding the Securities -- Reports to Securityholders".
EVIDENCE AS TO COMPLIANCE
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that a firm of independent public accountants will furnish to
the related Trust and Indenture Trustee or Trustee, as applicable, annually a
statement as to compliance by the Servicer during the preceding twelve months
(or, in the case of the first such certificate, from the applicable Closing
Date) with certain standards relating to the servicing of the applicable
Receivables, the Servicer's accounting records and computer files with
respect thereto and certain other matters.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will also provide for delivery to the related Trust and Indenture Trustee or
Trustee, as applicable, substantially simultaneously with the delivery of
such accountants' statement referred to above, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its
obligations under the Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, throughout the preceding twelve months (or, in the
case of the first such certificate, from the Closing Date) or, if there has
been a default in the fulfillment of any such obligation, describing each
such default. The Servicer has agreed to give each Indenture Trustee and
each Trustee notice of certain Servicer Defaults under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement, as applicable.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Applicable Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will provide that the Servicer may not resign from its obligations and duties
as Servicer thereunder, except upon determination that the Servicer's
performance of such duties is no longer permissible under applicable law. No
such resignation will become effective until the related Indenture Trustee or
Trustee, as applicable, or a successor servicer has assumed the Servicer's
servicing obligations and duties under such Sale and Servicing Agreement or
Pooling and Servicing Agreement.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement
will further provide that neither the Servicer nor any of its directors,
officers, employees and agents will be under any liability to the related
Trust or the related Noteholders or Certificateholders for taking any action
or for refraining from taking any action pursuant to such Sale and Servicing
Agreement or Pooling and Servicing Agreement or for errors in judgment;
except that neither the Servicer nor any such person will be protected
against any liability that would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of the Servicer's
duties thereunder or by reason of reckless disregard of its obligations and
duties thereunder. In addition, each Sale and Servicing Agreement and
Pooling and Servicing Agreement will provide that the Servicer is under
no obligation to appear in, prosecute or defend any legal action that
is not incidental to the Servicer's servicing responsibilities under
such Sale and Servicing Agreement or Pooling and Servicing Agreement and
that, in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement
and Pooling and Servicing Agreement, any entity into which the Servicer may
be merged or consolidated, or any entity resulting from any merger or
consolidation to which the Servicer is a party, or any entity succeeding to
the business of the Servicer, which corporation or other entity in each of
the foregoing cases assumes the obligations of the Servicer, will be the
successor of the Servicer under such Sale and Servicing Agreement or Pooling
and Servicing Agreement.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Default" under each Sale and Servicing Agreement and Pooling and
Servicing Agreement will consist of (i) any failure by the Servicer to
deliver to the Applicable Trustee for deposit in any of the Trust Accounts or
the Certificate Distribution Account any required payment or to direct the
Applicable Trustee to make any required distributions therefrom, which
failure continues unremedied for three business days after written notice
from the Applicable Trustee is received by the Servicer or after discovery of
such failure by the Servicer; (ii) any failure by the Servicer duly to
observe or perform in any material respect any other covenant or agreement in
such Sale and Servicing Agreement or Pooling and Servicing Agreement, which
failure materially and adversely affects the rights of the Noteholders or the
Certificateholders of the related series and which continues unremedied for
60 days after the giving of written notice of such failure (A) to the
Servicer or the Depositor, as the case may be, by the Applicable Trustee or
(B) to the Servicer and to the Applicable Trustee by holders of Notes or
Certificates of such series, as applicable, evidencing not less than 25% in
principal amount of such outstanding Notes or of such Certificate Balance;
and (iii) the occurrence of an Insolvency Event with respect to the Servicer.
"Insolvency Event" means, with respect to any Person, any of the following
events or actions: certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect to
such Person and certain actions by such Person indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations.
RIGHTS UPON SERVICER DEFAULT
In the case of any Trust that has issued Notes, unless otherwise
provided in the related Prospectus Supplement, as long as a Servicer Default
under a Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing not
less than 25% of the 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. In the
case of any Trust that has not issued Notes, unless otherwise provided in the
related Prospectus Supplement, as long as a Servicer Default under the
related Pooling and Servicing Agreement remains unremedied, the related
Trustee or holders of Certificates of the related series evidencing not less
than 25% of the principal amount of such Certificates then outstanding 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 such Indenture Trustee,
such Noteholders, such Trustee or such Certificateholders from effecting a
transfer of servicing. In the event that such Indenture Trustee or Trustee
is unwilling or unable to so act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor with a net worth
of at least $100,000,000 and whose regular business includes the servicing of
marine receivables. Such Indenture Trustee or Trustee may make such
arrangements for compensation to be paid, which in no event may be greater
than the servicing compensation to the Servicer under such Sale and Servicing
Agreement or Pooling and Servicing Agreement.
WAIVER OF PAST DEFAULTS
With respect to each Trust that has issued Notes, unless otherwise
provided in the related Prospectus Supplement, the holders of Notes
evidencing at least a majority in principal amount of the then outstanding
Notes of the related series (or the
holders of the Certificates of such series evidencing not less than a
majority of the outstanding Certificate Balance, in the case of any Servicer
Default which does not adversely affect the related Indenture Trustee or such
Noteholders) may, on behalf of all such Noteholders and Certificateholders,
waive any default by the Servicer in the performance of its obligations under
the related Sale and Servicing Agreement and its consequences, except a
Servicer Default in making any required deposits to or payments from any of
the Trust Accounts or to the Certificate Distribution Account in accordance
with such Sale and Servicing Agreement. With respect to each Trust that has
not issued Notes, holders of Certificates of such series evidencing not less
than a majority of the principal amount of such Certificates then outstanding
may, on behalf of all such Certificateholders, waive any default by the
Servicer in the performance of its obligations under the related Pooling and
Servicing Agreement, except a Servicer Default in making any required
deposits to or payments from the Certificate Distribution Account or the
related Trust Accounts in accordance with such Pooling and Servicing
Agreement. No such waiver will impair such Noteholders' or
Certificateholders' rights with respect to subsequent defaults.
AMENDMENT
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, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Transfer and Servicing Agreements or of
modifying in any manner the rights of such Noteholders or Certificateholders;
provided that such action will not, in the opinion of counsel satisfactory to
the related Trustee or Indenture Trustee, as applicable, materially and
adversely affect the interest of any such Noteholder or Certificateholder.
Unless otherwise specified in the related Prospectus Supplement, the Transfer
and Servicing Agreements may also be amended by the Depositor, the Servicer,
the related Trustee and any related Indenture Trustee with the consent of the
holders of Notes evidencing at least a majority in principal amount of then
outstanding Notes, if any, of the related series and the holders of the
Certificates of such series evidencing at least a majority of the principal
amount of such Certificates then outstanding, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of such Transfer and Servicing Agreements or of modifying in any manner the
rights of such Noteholders or Certificateholders; provided, however, that no
such amendment may (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on the related
Receivables or distributions that are required to be made for the benefit of
such Noteholders or Certificateholders or (ii) reduce the aforesaid
percentage of the Notes or Certificates of such series which are required to
consent to any such amendment, without the consent of the holders of all the
outstanding Notes or Certificates, as the case may be, of such series.
Each Trust Agreement will provide that the applicable Trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect
to the related Trust without the unanimous prior approval of all
Certificateholders (including the Depositor) of such Trust and the delivery
to such Trustee by each such Certificateholder (including the Depositor) of a
certificate certifying that such Certificateholder reasonably believes that
such Trust is insolvent.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given series and
the satisfaction and discharge of the related Indenture, the related Trustee
will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement,
except as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the
Depositor, the related Trustee and the related Indenture Trustee, if any,
pursuant to the Transfer and Servicing Agreements will terminate upon the
earlier of (i) the maturity or other liquidation of the last related
Receivable and the disposition of any amounts received upon liquidation of
any such remaining Receivables, (ii) the payment to Noteholders, if any, and
Certificateholders of the related series of all amounts required to be paid
to them pursuant to the Transfer and Servicing Agreements and (iii) the
occurrence of either event described below.
Unless otherwise provided in the related Prospectus Supplement, in order
to avoid excessive administrative expense, the Servicer will be permitted at
its option to purchase from each Trust, as of the end of any applicable
Collection Period, if the then outstanding Pool Balance with respect to the
Receivables held by such Trust is 10% (or such other percentage which will
not be lower than 5% as is specified in the related Prospectus Supplement) or
less of the Initial Pool Balance (as defined in the related
Prospectus Supplement, the "Initial Pool Balance"), all remaining related
Receivables at a price equal to the aggregate of the Purchase Amounts thereof
as of the end of such Collection Period.
If and to the extent provided in the related Prospectus Supplement with
respect to a Trust, the Applicable Trustee will, within ten days following a
Distribution Date or Payment Date as of which the Pool Balance is equal to or
less than the percentage of the Initial Pool Balance specified in the related
Prospectus Supplement, solicit bids for the purchase of the Receivables
remaining in such Trust, in the manner and subject to the terms and
conditions set forth in such Prospectus Supplement. If the Applicable
Trustee receives satisfactory bids as described in such Prospectus
Supplement, then the Receivables remaining in such Trust will be sold to the
highest bidder.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above, and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
ADMINISTRATION AGREEMENT
If so specified in the Related Prospectus Supplement, the person named
as such in the related Prospectus Supplement (the "Administrator"), will
enter into an agreement (as amended and supplemented from time to time, an
"Administration Agreement") with each Trust that issues Notes and the related
Indenture Trustee pursuant to which the Administrator will agree, to the
extent provided in such Administration Agreement, to provide the notices and
to perform other administrative obligations required by the related
Indenture. Unless otherwise specified in the related Prospectus Supplement
with respect to any such Trust, as compensation for the performance of the
Administrator's obligations under the applicable Administration Agreement and
as reimbursement for its expenses related thereto, the Administrator will be
entitled to a monthly administration fee in such amount as may be set forth
in the related Prospectus Supplement (the "Administration Fee").
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Receivables will be treated by each Trust as "chattel paper" as
defined in the UCC. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to a security interest in chattel paper. In
order to protect each Trust's ownership or security interest in its
Receivables, the Depositor will file UCC-1 financing statements with the
appropriate authorities in the States of New York, Delaware and any other
states deemed advisable by the Depositor to give notice of such Trust's and
any related Indenture Trustee's ownership of and security interest in the
Receivables and their proceeds. Under each Sale and Servicing Agreement and
Pooling and Servicing Agreement, the Servicer will be obligated to maintain
the perfection of each Trust's and any related Indenture Trustee's interest
in the Receivables. It should be noted, however, that a purchaser of chattel
paper who gives new value and takes possession of it in the ordinary course
of such purchaser's business has priority over a security interest, including
an ownership interest, in the chattel paper that is perfected by filing UCC-1
financing statements, and not by possession of such chattel paper by the
original secured party, if such purchaser acts in good faith without
knowledge that the related chattel paper is subject to a security interest,
including an ownership interest. Any such purchaser would not be deemed to
have such knowledge because there are UCC filings and would not learn of the
sale of or security interest in the Receivables from a review of the
Receivables since they would not be marked to show such sale.
SECURITY INTERESTS IN BOATS
Generally, security interests in boats may be perfected in one of three
ways: in "title" states, a security interest is perfected by notation of the
secured party's lien on the certificate of title issued by an applicable
state motor vehicle department or other appropriate state agency; 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 qualifies for documentation
under Federal law, a Preferred Mortgage may be obtained under the Ship
Mortgage Act by filing the mortgage with the Secretary of Transportation and
endorsing the secured party's lien on the certificate of documentation.
Vessels of at least five net tons qualify for documentation under Federal
law, but such documentation is discretionary if the Vessel is being
used solely for recreational purposes. If documented, the boat becomes a
"vessel of the United States" and the exclusive method for perfecting a
security interest in a "vessel of the United States" is to comply with
Federal law. Accordingly, a Preferred Mortgage under the Ship Mortgage Act
supersedes a security interest perfected under state law.
The related Seller will represent that it has taken such measures
necessary to perfect its security interest in each related Financed Boat
under the laws of the state in which the Financed Boat is registered or the
Ship Mortgage Act, as applicable. Typically, a Dealer will make proper and
prompt application to any applicable state motor vehicle department or other
appropriate state agency to have a notation of the lien made on the
certificate of title of each Financed Boat at the time of sale if the
Financed Boat is subject to a title statute. When a UCC-1 financing
statement is filed, the Dealer is required to obtain the necessary signature
on the UCC-1 financing statement to allow filing by the related Seller. If
under Federal or state law a filing or other action is required to perfect a
security interest and if the related Seller, because of clerical error or
otherwise, has failed to take such action with respect to a Financed Boat,
the related Seller will not have a perfected security interest in the
Financed Boat under such law and its security interest may be subordinate to
the interest of, among others, subsequent purchasers of the Financed Boat,
holders of perfected security interests and the bankruptcy trustee of the
Obligor. The related Seller's state law 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 if the
Financed Boat is documented under Federal law. In addition, under certain
certificate of title statutes the related Seller must perfect is security
interest in boat motors otherwise subject to certificate of title statutes
under the UCC.
Federal law requires documentation under the Ship Mortgage Act of all
boats over five net tons in weight and 30 feet in length. Once documented, a
Preferred Mortgage under the Ship Mortgage Act is obtained. If a qualifying
Financed Boat is not documented or if the documentation, because of clerical
error or otherwise, fails to comply with applicable procedures under Federal
regulations, the related Seller will not have a Preferred Mortgage on the
Financed Boat. In such case, the related Seller's security interest under
state law will still be effective. However, if the Financed Boat is later
documented by a third party, the related Seller's state law security interest
will cease to be perfected, and the related Seller will be subordinated to
the interests of, among others, subsequent purchasers of the Financed Boat,
holders of security interests perfected under Federal law and the trustee-in-
bankruptcy of the Obligor.
A security interest perfected by a Preferred Mortgage has a nationwide
scope and no further action is necessary when an Obligor moves or relocates
the collateral. Security interests perfected under state law may have to be
refiled if the Obligor moves to a state other than the state in which a
security interest is originally perfected and in addition if the security
interest is perfected under the UCC, a new filing must be made under the UCC
in order to continue the perfected security interest.
If the security interest in the boat is perfected under a title statute
and the related Obligor moves to a state other than the state in which the
boat is registered, under the laws of most title states the perfection of the
security interest in the boat would continue for a brief period of time after
such relocation. A majority of states issuing certificates of title on boats
require surrender of a certificate of title to reregister a boat. In those
states that also provide for possession of the certificate of title by the
secured party, the related Seller must surrender possession of the
certificate of title in such circumstance for any related Financed Boat to be
reregistered. Some states do not give the secured party possession of the
certificate of title, but indicate the secured party on the certificate of
title and provide notice to such secured party of surrender of the
certificate of title by another person. If either the Servicer is in
possession of a certificate of title that must be surrendered to reregister
the Financed Boat or the Servicer receives notice of any surrender of the
certificate of title by another person, the Servicer would then have the
opportunity to continue the perfection of the security interest in the
Financed Boat in the state of registration. If the Obligor moves to a state
which does not require surrender of a certificate of title for reregistration
of a boat, re-registration could defeat perfection. In the ordinary course
of servicing its portfolio of marine contracts, the Servicer generally takes
steps to effect such perfection upon receipt of notice of surrender or
information from the Obligor as to relocation in those states that require
any action to be taken. Similarly, when an Obligor sells a boat, under the
laws of many states, the purchaser cannot reregister the boat unless the
related lienholder of record (which in the case of the Financed Boats covered
by such laws would be the related Seller) surrenders possession of the
certificate of title and accordingly the Servicer, in such circumstance,
would have an opportunity to require satisfaction of the related Receivable
before release of the lien.
If the related Seller has perfected the related Seller's security
interest 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 be required to
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 related Seller's perfected security interest. The Servicer will be
required to take 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
Financed 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 related Seller's security interest.
Under the laws of many states, liens for storage and repairs performed
on a boat and certain tax liens take priority even over a perfected state law
security interest. As noted above, a Preferred Mortgage supersedes a
perfected state law security interest. However, under the Ship Mortgage Act,
a Preferred Mortgage is subordinate to preferred maritime liens.
Unless otherwise specified in the related Prospectus Supplement, due to
the administrative burden and expense of (i) endorsing the certificate of
title of each Financed Boat to reflect a Trust's interest therein and
delivering each such certificate of title to the Trustee for filing (and the
payment of related filing fees), in the case of Financed Boats licensed in
states where security interests in boats are subject to certificate of title
statutes; (ii) filing amendments to UCC-1 financing statement relating to
each Financed Boat (and the payment of related filing fees) to reflect the
Trust's interest therein, in the case of Financed Boats licensed in states
where security interests in boats are perfected by filing a UCC-1 financing
statement; and (iii) filing each assignment of the Preferred Mortgages (and
the payment of related filing fees) as required under Federal law to perfect
the Trust's interest therein, in the case of Financed Boats which are
documented under Federal law, none of such certificates of title will be
endorsed, delivered and filed, UCC-1 financing statements amended, or
assignments of Preferred Mortgages filed. In the absence of such procedures,
neither the Depositor nor the Trust may have a perfected security interest in
the Financed Boats licensed in certificate of title or UCC states, and will
not have a perfected security interest in Financed Boats documented under
Federal law, but the failure to make such endorsements, filings or
recordations will not affect the validity of the original security interest
as against the Obligor under a Receivable in UCC states.
In the case of "title" states, in the absence of the step described in
clause (i) above, the related Seller will continue to be named as the secured
party on the certificates of title relating to the Financed Boats registered
in such states. In most such states, such an assignment would be an
effective conveyance of such a security interest and the new secured party
would succeed to the related Seller's rights as the secured party. In the
absence of fraud or forgery by the Obligor or administrative error by
Federal, state or local recording officials, the notation of the lien of the
related Seller's on the certificate of title will be sufficient to protect
the Trust against the rights of subsequent purchasers of a Financed Boat
covered by the laws of such state or subsequent lenders who take a security
interest in the Financed Boat. There exists a risk, however, in not
identifying the Trust as the new secured party on the certificate of title,
that the Trust may in some states by subordinate to claims of creditors or
the receiver of the related Seller in the event of the insolvency of the
related Seller and that, through fraud or negligence, the security interest
of such Trust could be released by the related Seller as security holder of
record.
Similarly, the related Seller will not cause the documentation for
Financed Boats which are subject to a Preferred Mortgage to be endorsed to
reflect the Trust's interest therein nor will the assignment be filed with
the Secretary of Transportation, and under Federal law no assignment of a
Preferred Mortgage is valid against a third party without notice until the
assignment is recorded. While the interpretation of this provision by a
court might depend upon the factual circumstances, under the terms of the
Federal statute, a Trust's security interest in federally documented Financed
Boats is subordinate to creditors and the receiver of the related Seller in
the event of the related Seller's insolvency and to the rights of subsequent
purchasers of such a Financed Boat, subsequent lenders who take a security
interest in the Financed Boat and the bankruptcy trustee of the Obligor.
This provision does not affect the validity of the original security interest
as against the Obligor. Moreover, under Federal law, a Preferred Mortgage or
state law security interest can be subordinate to certain preferred maritime
liens, including maritime liens arising prior to the recording of the
Preferred Mortgage, liens for necessaries (e.g., stevedoring charges)
incurred prior to the recording of the Preferred Mortgage, liens for crew
wages, salvage and general damages arising out of tort claims. The holder of
a preferred maritime lien who arrests a boat under Federal law to enforce
that lien is required to give notice of the suit to all lienholders of
record. However, if the holder of a Preferred Mortgage does not receive
notice of the suit (e.g., because an assignment of the Preferred Mortgage was
not recorded and the current holder did not receive notice of the arrest) and
consequently does not intervene in the arrest action, or otherwise fails to
so intervene, the boat can be sold free and clear of the Preferred Mortgage.
If the holder of the Preferred Mortgage does not arrest the boat and
foreclose the mortgage under Federal law in Federal court, but rather
repossesses and resells the boat under state law, any preferred maritime
liens on the boat are not terminated by such sale and may impair the
Preferred Mortgage holder's ability to transfer clear title to the Boat.
The Trustee will be qualified as and approved trustee under the Shipping
Act and the Ship Mortgage Act. If the Trustee becomes disqualified at
any time, an appropriate successor trustee must be appointed.
Each Seller will warrant in the related Receivables Purchase Agreement
that there shall exist a valid, subsisting and enforceable first priority
security interest in each Financed Boat in favor of such Seller as of the
Closing Date, and that such security interest will be assigned to the related
Trust albeit unaccompanied by any of the procedures described in clauses (i),
(ii) and (iii) of the third preceding paragraph above. In the event of a
material adverse breach of such warranty, the only recourse of the Trust
would be to require the Seller to repurchase the related Receivables. See
"Risk Factors - Certain Legal Aspects - Security Interests in Financed
Boats".
REPOSSESSION
In the event of default by boat purchasers, the holder of the boat
retail installment sale contract or installment loan has all the remedies of
a secured party under the UCC, except where specifically limited by other
state laws. Among the UCC remedies, the secured party has the right to
perform self-help repossession unless such act would constitute a breach of
the peace. Self-help is the method employed by the Servicer in most cases
and is accomplished simply by retaking possession of the financed boat. In
the event of default by the obligor, some jurisdictions require that the
obligor be notified of the default and be given a time period within which he
may cure the default prior to repossession. Generally, the right of
reinstatement may be exercised on a limited number of occasions in any
one-year period. 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 boat must then be
repossessed in accordance with that order.
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 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 balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of the boats generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. While some states impose prohibitions or limitations on
deficiency judgments if the net proceeds from resale do not cover the full
amount of the indebtedness, a deficiency judgment can be sought in those
states that do not prohibit or limit such judgments. 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. Therefore, in many
cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount.
Occasionally, after resale of a boat and payment of all expenses and all
indebtedness, there is a surplus of funds. In that case, the UCC requires
the creditor to remit the surplus to any holder of a lien with respect to the
boat or if no such lienholder exists or there are remaining funds, the UCC
requires the creditor to remit the surplus to the former owner of the boat.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers
involved in consumer finance. These laws include the Truth-in-Lending Act,
the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection
Procedures Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's
Regulations B and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, the
Texas Consumer Credit Code, state adoptions 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, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to
comply with their provisions. In some cases, this liability could affect an
assignee's ability to enforce consumer finance contracts such as the
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
which 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 purchaser of the applicable
Financed Boat may assert against the seller of the Financed or Boat. Such
claims are limited to a maximum liability equal to the amounts paid by the
Obligor on the Receivable. If an Obligor were successful in asserting any
such claim or defense, such claim or defense would constitute a breach of the
Seller's warranties under the related Sale and Servicing Agreement or Pooling
and Servicing Agreement and would create an obligation of the Seller to
repurchase the Receivable unless the breach is cured. See "Description of
the Transfer and Servicing Agreements -- Sale and Assignment of Receivables".
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the
United States. Courts have generally upheld the notice provisions of the UCC
and related laws as reasonable or have found that the repossession and resale
by the creditor do not involve sufficient state action to afford
constitutional protection to borrowers.
Under each Receivables Purchase Agreement, the related Seller will
warrant to the related Depositor (who will in turn assign its rights under
such warranty to the applicable Trust under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement) that each Receivable complies
with all requirements of law in all material respects. Accordingly, if an
Obligor has a claim against such Trust for violation of any law and such
claim materially and adversely affects such Trust's interest in a Receivable,
such violation would constitute a breach of the warranties of the Seller
under such Receivables Purchase Agreement and would create an obligation of
the Seller to repurchase the Receivable unless the breach is cured. See
"Description of the Transfer and Servicing Agreements -- Sale and Assignment
of Receivables".
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured
party to realize upon collateral or to 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 boat, and, as part of the
rehabilitation plan, reduce the amount of the secured indebtedness to the
market value of the boat at the time of bankruptcy (as determined by the
court), leaving the creditor as a general unsecured creditor for the
remainder of the indebtedness. A bankruptcy court may also reduce the
monthly payments due under a contract or change the rate of interest and time
of repayment of the indebtedness.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. 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 Noteholders or Certificateholders 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 may
disagree with all or a part of the discussion below. Prospective investors
are urged to consult their own tax advisors in determining the federal,
state, local, foreign and any other tax consequences to them of the purchase,
ownership and disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. Each Trust will be
provided with an opinion of special Federal tax counsel to each Trust
specified in the related Prospectus Supplement ("Tax Counsel"), regarding
certain federal income tax matters discussed below. An opinion of Tax
Counsel, however, is not binding on the IRS or the courts. No ruling on any
of the issues discussed below will be sought from the IRS. For purposes of
the following summary, references to the Trust, the Notes, the Certificates
and related terms, parties and documents shall be deemed to refer, unless
otherwise specified herein, to each Trust and the Notes, Certificates and
related terms, parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust as a partnership
or a FASIT under the Code or whether the Trust will be treated as a grantor
trust. The Prospectus Supplement for each series of Certificates will
specify whether a partnership or a FASIT election will be made or whether the
Trust will be treated as a grantor trust.
Prior to issuance of each series of Notes and Certificates, the
Depositor shall file with the Commission a Form 8-K on behalf of the related
Trust containing an opinion of Tax Counsel with respect to the validity of
the information set forth under "Federal Income Tax Considerations" herein
and in the related Prospectus Supplement.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Tax Counsel will deliver its opinion that a Trust for which a
partnership election is made 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 Tax Counsel's conclusions
that the nature of the income of the Trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations.
If the 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 its income on the
Receivables, 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 Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Depositor will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Trust that the
Notes will be classified as debt for federal income tax purposes. The
discussion below assumes this characterization of the Notes is correct.
OID, ETC. The discussion below assumes that all payments on the Notes
are denominated in U.S. dollars, and that the Notes are not Indexed
Securities or Strip Notes. Moreover, the discussion assumes that the
interest formula for the Notes meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID regulations") relating to
original issue discount ("OID"), and that any OID on the Notes (i.e., any
excess of the principal amount of the Notes over their issue price) does not
exceed a de minimis amount (i.e., 1/4% of their principal amount multiplied
by the number of full years to maturity, all within the meaning of the OID
regulations. If these conditions are not satisfied with respect to any given
series of Notes, additional tax considerations with respect to such Notes
will be disclosed in the applicable Prospectus Supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed in the following paragraph, the Notes will not be considered to be
issued with OID. The stated interest thereon will be taxable to a Noteholder
as ordinary interest income when received or accrued in accordance with
such Noteholder's method of tax accounting. Under the OID regulations,
a holder of a Note issued with a de minimis amount of OID must include
such OID in income, on a pro rata basis, as principal payments are made
on the Note. It is believed that any prepayment premium paid as a
result of a mandatory redemption will be taxable as contingent interest
when it becomes fixed and unconditionally payable. A purchaser who buys
a Note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount
rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain
cash method holders, including regulated investment companies, as set forth
in Section 1281 of the Code) generally would be required to report interest
income as interest accrues on a straight-line basis over the term of each
interest period. Other cash basis holders of a Short-Term Note would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the Short-Term Note). However, a
cash basis holder of a Short-Term Note reporting interest income as it is
paid may be required to defer a portion of any interest expense otherwise
deductible on indebtedness incurred to purchase or carry the Short-Term Note
until the taxable disposition of the Short-Term Note. A cash basis taxpayer
may elect under Section 1281 of the Code to accrue interest income on all
nongovernment debt obligations with a term of one year or less, in which case
the taxpayer would include interest on the Short-Term Note in income as it
accrues, but would not be subject to the interest expense deferral rule
referred to in the preceding sentence. Certain special rules apply if a
Short-Term Note is purchased for more or less than its principal amount.
SALE OR OTHER DISPOSITION. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note.
The adjusted tax basis of a Note to a particular Noteholder will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by the amount of bond premium (if any)
previously amortized and by the amount of principal payments previously
received by such Noteholder with respect to such Note. Any such gain or loss
will be capital gain or loss if the Note was held as a capital asset, except
for gain representing accrued interest and accrued market discount not
previously included in income. Capital losses generally may be used only to
offset capital gains.
NEW CAPITAL GAINS PROVISIONS. The Taxpayer Relief Act of 1997 reduces
the maximum rates on long-term capital gains recognized on capital assets
held by individual taxpayers for more than eighteen months as of the date of
disposition on 20% (and would further reduce the maximum rates on such gains
in the year 2001 and thereafter for certain individual taxpayers who meet
specified conditions). Gain recognized by individual taxpayers on assets
held more than twelve but not more than eighteen months continue to be taxed
at a 28% rate. Prospective investors should consult their own tax advisors
concerning these tax law changes.
FOREIGN HOLDERS. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio
interest", and generally will not be subject to United States federal income
tax and withholding tax, if the interest is not effectively connected with
the conduct of a trade or business within the United States by the foreign
person and the foreign person (i) is not actually or constructively a "10
percent shareholder" of the Trust or the Depositor (including a holder of 10%
of the outstanding Certificates) or a "controlled foreign corporation" with
respect to which the Trust or the Depositor is a "related person" within the
meaning of the Code and (ii) provides the Owner Trustee or other person who
is otherwise required to withhold U.S. tax with respect to the Notes with an
appropriate statement (on Form W-8 or a similar form), signed under penalties
of perjury, certifying that the beneficial owner of the Note is a foreign
person and providing the foreign person's name and address. If a Note is
held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide the relevant signed
statement to the withholding agent; in that case, however, the signed
statement must be accompanied by a Form W-8 or substitute form provided by
the foreign person that owns the Note. If such interest is not portfolio
interest, then it will be subject to United States federal income tax at
graduated rates (if received by a non-U.S. person with effectively connected
income) and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such 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 person is not present in the United States for 183
days or more in the taxable year.
BACKUP WITHHOLDING. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust will be
required to withhold 31 percent of the amount otherwise payable to the
holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
NEW WITHHOLDING REGULATIONS. On October 6, 1997, the Treasury
Department issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information
reporting rules described above. The New Regulations attempt to unify
certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged
to consult their own tax advisors regarding the New Regulations.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the
opinion of 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 would
likely 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 certain tax-exempt entities (including pension funds)
would be "unrelated business taxable income", income to foreign holders
generally would be subject to U.S. tax and would subject foreign holder to
U.S. tax return filing and withholding requirements, and individual holders
might be subject to certain limitations on their ability to deduct their
share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
TREATMENT OF THE TRUST AS A PARTNERSHIP. The Depositor and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in
part by income, with the assets of the partnership being the assets held by
the Trust, the partners of the partnership being the Certificateholders
(including the Depositor in its capacity as recipient of distributions from
the Reserve Account), and the Notes being debt of the partnership. However,
the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Depositor 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 Depositor or the Trust. 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.
PARTNERSHIP TAXATION. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Receivables
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of Receivables. The Trust's
deductions will consist primarily of interest accruing with respect to the
Notes, servicing and other fees, and losses or deductions upon collection or
disposition of Receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass Through Rate for such month and
interest on amounts previously due on the Certificates but not yet
distributed; (ii) any Trust income attributable to
discount on the Receivables that corresponds to any excess of the principal
amount of the Certificates over their initial issue price; (iii) prepayment
premium payable to the Certificateholders for such month; and (iv) any other
amounts of income payable to the Certificateholders for such month. Such
allocation will be reduced by any amortization by the Trust of premium on
Receivables that corresponds to any excess of the issue price of Certificates
over their principal amount. All remaining taxable income of the Trust will
be allocated to the Depositor. Based on the economic arrangement of the
parties, this 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
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass Through
Rate plus the other items described above even though the Trust might not
have sufficient cash to make current cash distributions of such amount.
Thus, cash basis holders will in effect be required to report income from the
Certificates on the accrual basis and Certificateholders may become liable
for taxes on Trust income even if they have not received cash from the Trust
to pay such taxes. In addition, because tax allocations and tax reporting
will be done on a uniform basis for all Certificateholders but
Certificateholders may be purchasing Certificates at different times and at
different prices, Certificateholders may be required to report on their tax
returns taxable income that is greater or less than the amount reported to
them by the Trust.
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 holder under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions. 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 Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the
Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
DISCOUNT AND PREMIUM. It is believed that the Receivables were not
issued with OID, and, therefore, the Trust should not have OID income.
However, the purchase price paid by the Trust for the Receivables may be
greater or less than the remaining principal balance of the Receivables at
the time of purchase. If so, the Receivables will have been acquired at a
premium or discount, as the case may be. As indicated above, the Trust will
make this calculation on an aggregate basis, but might be required to
recompute it on a Receivable-by-Receivable basis.
If the Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Receivables or to offset any such premium
against interest income on the Receivables. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
Certificateholders.
SECTION 708 TERMINATION. Pursuant to final Treasury regulations issued
May 9, 1997 under section 708 of the Code, a sale or exchange of 50 percent
or more of the capital and profits in the Trust would cause a deemed
contribution of assets of the Trust (the "old partnership") to a new
partnership (the "new partnership") in exchange for interest in new
partnership. Such interests would be deemed distributed to the partners of
the old partnership in liquidation thereof, which would not constitute a sale
or exchange.
DISPOSITION OF CERTIFICATES. Generally, capital gain or loss will be
recognized on a sale of a Certificate in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificate
sold. A Certificateholder's tax basis in a Certificate will generally equal
the holder's cost increased by the holder's share of Trust income (includible
in income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificate and the
amount realized on a sale of a Certificate would include the holder's share
of the Notes and other liabilities of the Trust. A holder acquiring
Certificates at different prices may be required to maintain a single
aggregate adjusted tax basis in such Certificates, and, upon sale or other
disposition of some of the Certificates, allocate a portion of such aggregate
tax basis to the Certificates sold (rather than maintaining a separate tax
basis in each Certificate for purposes of computing gain or loss on a sale of
that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets
that would give rise to such special reporting requirements. Thus, to avoid
those special reporting requirements, the Trust will elect to include market
discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (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
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
purchase of the certificates.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust might be reallocated among the Certificateholders. The
Depositor is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
SECTION 754 ELECTION. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect
that higher (or lower) basis unless the Trust were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the Trust will not
make such election. As a result, Certificateholders might be allocated a
greater or lesser amount of Trust income than would be appropriate based on
their own purchase price for Certificates.
ADMINISTRATIVE MATTERS. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained
for financial reporting and tax purposes on an accrual basis and the fiscal
year of the Trust will be the calendar year (if permitted, based on
certificate ownership). The Trustee will file a partnership information
return (IRS Form 1065) with the IRS for each taxable year of the Trust and
will report each Certificateholder's allocable share of items of Trust income
and expense to holders and the IRS on Schedule K-1. The Trust will provide
the Schedule K-1 information to nominees that fail to provide the Trust with
the information statement described below and such nominees will be required
to forward such information to the beneficial owners of the Certificates.
Generally, holders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes
(i) the name, address and taxpayer identification number of the nominee and
(ii) as to each beneficial owner (x) the name, address and identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization, or
any wholly owned agency or instrumentality of either of the foregoing, and
(z) certain information on Certificates that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and
financial institutions that hold Certificates through a nominee are required
to furnish directly to the Trust information as to themselves and their
ownership of Certificates. A clearing agency registered under Section 17A of
the Exchange Act is not required to furnish any such information statement to
the Trust. The information referred to above for any calendar year must be
furnished to the Trust on or before the following January 31. Nominees,
brokers and financial institutions that fail to provide the Trust with the
information described above may be subject to penalties.
The 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 any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder
may be precluded from separately litigating a proposed adjustment to the
items of the Trust. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the
income and losses of the Trust.
TREATMENT OF TRUST AS A DISREGARDED ENTITY. If specified in the related
Prospectus Supplement, to the extent there is only one Certificateholder, the
Trust will be disregarded as an entity separate from the Certificateholder
for U.S. federal income tax purposes. The Certificateholder will be treated
as owning the assets of the Trust directly and all income, losses, deductions
and credits of the Trust will be treated as those of the Certificateholder.
As cash basis Certificateholder may in effect be required to report income
from the Certificates on an accrual basis and may become liable for taxes on
Trust income even if it has not received cash from the Trust to pay such
taxes. In addition, to the extent the Certificateholder is an individual,
expenses (not including interest expenses) are miscellaneous itemized
deductions which are generally deductible to the extent they exceed two
percent of the individual's adjusted gross income (depending on the adjusted
gross income of the taxpayer). Accordingly, 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 Trust. See
"Partnership Taxation" and "Discount and Premium."
TAX CONSEQUENCES TO FOREIGN CERTIFICATEHOLDERS. 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-U.S. 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 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 foreign Certificateholders 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 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 Trust to change its withholding procedures.
In determining a holder's withholding status, the Trust may rely on IRS Form
W-8, IRS Form W-9 or the holder's certification of nonforeign status signed
under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return and pay tax (including, in the case of a
corporation, the branch profits tax) on its share of the Trust's income.
Each foreign holder must obtain a taxpayer identification number from the IRS
and submit that number to the Trust on Form W-8 in order to assure
appropriate crediting of the taxes withheld. A foreign holder generally
would be entitled to file with the IRS a claim for refund with respect to
taxes withheld by the Trust, taking the position that no taxes were due
because the Trust was not engaged in a U.S. trade or business. However,
interest payments made (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 Trust. If these
interest payments are properly characterized as guaranteed payments, then the
interest will not be considered "portfolio interest." As a result,
Certificateholders will be subject to United States federal income tax and
withholding tax at a rate of 30 percent, unless reduced or eliminated
pursuant to an applicable treaty. In such case, a foreign holder would only
be entitled to claim a refund for that portion of the taxes in excess of the
taxes that should be withheld with respect to the guaranteed payments.
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. See Federal Income Tax Consequences -
Trusts for which a Partnership Election is Made - Tax Consequences to Holders
of the Notes - New Withholding Regulations.
TRUSTS TREATED AS GRANTOR TRUSTS
TAX CHARACTERIZATION OF THE TRUST AS A GRANTOR TRUST
If a partnership election is not made, 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, 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".
CHARACTERIZATION. Each Grantor Trust Certificateholder will be treated
as the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will
be considered the equitable owner of a pro rata undivided interest in each of
the Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable
because of a default or delinquency in payment will be treated for federal
income tax purposes as having the same character as the payments they
replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Receivables in the Trust represented by Grantor Trust
Certificates, including interest, OID, if any, prepayment fees, assumption
fees, any gain recognized upon an assumption and late payment charges
received by the Servicer. Under Sections 162 or 212 of the Code, 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
generally be entitled to deduct their share of expenses only to the extent
such expenses plus all other Section 212 expenses exceed two percent of its
adjusted gross income (depending on the adjusted gross income of the
Certificateholder). A Grantor Trust Certificateholder using the cash method
of accounting must take into account its pro rata share of income and
deductions as and when collected by or paid to the Servicer. A Grantor Trust
Certificateholder using an accrual method of accounting must take into
account its pro rata share of income and deductions as they become due or are
paid to the Servicer, whichever is earlier. If the servicing fees paid to
the Servicer are deemed to exceed reasonable servicing compensation, the
amount of such excess could be considered as an ownership interest retained
by the Servicer (or any person to whom the Servicer assigned for value all or
a portion of the servicing fees) in a portion of the interest payments on the
Receivables. The Receivables would then be subject to the "coupon stripping"
rules of the Code discussed below.
PREMIUM. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Receivable
based on each Receivable's relative fair market value, so that such holder's
undivided interest in each Receivable will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in Receivables at a premium
may elect to amortize such premium under a constant interest method.
Amortizable bond premium will be treated as an offset to interest income on
such Grantor Trust Certificate. The basis for such Grantor Trust Certificate
will be reduced to the extent that amortizable premium is applied to offset
interest payments. It is not clear whether a reasonable prepayment assumption
should be used in computing amortization of premium allowable under Section
171. A Grantor Trust Certificateholder that makes this election for a
Grantor Trust Certificate that is acquired at a premium will be deemed to
have made an election to amortize bond premium with respect to all debt
instruments having amortizable bond premium that such Grantor Trust
Certificateholder acquires during the year of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at
a premium should recognize a loss if a Receivable prepays in full, equal to
the difference between the portion of the prepaid principal amount of such
Receivable that is allocable to the Grantor Trust Certificate and the portion
of the adjusted basis of the Grantor Trust Certificate that is allocable to
such Receivable. If a reasonable prepayment assumption is used to amortize
such premium, it appears that such a loss would be available, if at all, only
if prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
STRIPPED BONDS AND STRIPPED COUPONS
Although the tax treatment of stripped bonds is not entirely clear,
based on guidance by the IRS, each purchaser of a Grantor Trust Certificate
will be treated as the purchaser of a stripped bond which generally should be
treated as a single debt instrument issued on the day it is purchased for
purposes of calculating any OID. Generally, under Treasury regulations
discussing the treatment of stripped bonds and stripped coupons (the "Section
1286 Treasury Regulations"), if the discount on a
stripped bond is larger than a de minimis amount (as calculated for purposes
of the OID rules of the Code) such stripped bond will be considered to have
been issued with OID. See "Original Issue Discount." Based on the preamble
to the Section 1286 Treasury Regulations, Tax Counsel is of the opinion that,
although the matter is not entirely clear, the interest income on the
Certificates at the sum of the Pass Through Rate and the portion of the
Servicing Fee Rate that does not constitute excess servicing will be treated
as "qualified stated interest" within the meaning of the Section 1286
Treasury Regulations, and such income will be so treated in the Trustee's tax
information reporting.
ORIGINAL ISSUE DISCOUNT. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code relating to OID (currently Sections 1271 through 1273 and 1275) will be
applicable to a Grantor Trust Certificateholder's interest in those
Receivables meeting the conditions necessary for these sections to apply.
Generally, a Grantor Trust Certificateholder that acquires an undivided
interest in a Receivable issued or acquired with OID must include in gross
income the sum of the "daily portions" of the OID on such Receivable for
each day on which it owns a Certificate, including the date of purchase but
excluding the date of disposition. In the case of an original Grantor Trust
Certificateholder, the daily portion of OID with respect to a Receivable
generally would be determined as follows. A calculation will be made of the
portion of OID that accrues on the Receivable during each successive monthly
accrual period (or shorter period in respect of the date of original issue or
the final Distribution Date). This will be done, in the case of each full
monthly accrual period, by adding (i) the present value of all remaining
payments to be received on the Receivable under the prepayment assumption
used in respect of the Receivables and (ii) any payments received during such
accrual period, and subtracting from that total the "adjusted issue price" of
the Receivable at the beginning of such accrual period. No representation is
made that the Receivables will prepay at any prepayment assumption. The
"adjusted issue price" of a Receivable at the beginning of the first accrual
period is its issue price (as determined for purposes of the OID rules of the
Code) and the "adjusted issue price" of a Receivable at the beginning of a
subsequent accrual period is the "adjusted issue price" at the beginning of
the immediately preceding accrual period plus the amount of OID allocable to
that accrual period and reduced by the amount of any payment (other than
"qualified stated interest") made at the end of or during that accrual
period. The OID accruing during such accrual period will then be divided by
the number of days in the period to determine the daily portion of OID for
each day in the period. With respect to an initial accrual period shorter
than a full monthly accrual period, the daily portions of OID must be
determined according to an appropriate allocation under either an exact or
approximate method set forth in the OID Regulations, or some other reasonable
method, provided that such method is consistent with the method used to
determine the yield to maturity of the Receivables.
With respect to the Receivables, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Receivables. Subsequent purchasers that
purchase Receivables at more than a de minimis discount should consult their
tax advisors with respect to the proper method to accrue such OID.
MARKET DISCOUNT. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules
of Sections 1276 through 1278 to the extent an undivided interest in a
Receivable is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the
portion of the principal amount of such Receivable allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have
not yet been issued and, therefore, investors should consult their own tax
advisors regarding the application of these rules and the advisability of
making any of the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. The amount of accrued
market discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be
reduced by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules
described in the relevant legislative history will apply. Under those rules,
the holder of a market discount bond may elect to accrue market discount
either on the basis of a constant interest rate or according to one
of the following methods. If a Grantor Trust Certificate is issued with
OID, the amount of market discount that accrues during any accrual period
would be equal to the product of (i) the total remaining market discount
and (ii) a fraction, the numerator of which is the OID accruing during
the period and the denominator of which is the total remaining OID at
the beginning of the accrual period. For Grantor Trust Certificates
issued without OID, the amount of market discount that accrues during
a period is equal to the product of (i) the total remaining market discount
and (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
accrual period. For purposes of calculating market discount under any
of the above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same
prepayment assumption applicable to calculating the accrual of OID will
apply. Because the regulations described above have not been issued, it is
impossible to predict what effect those regulations might have on the tax
treatment of a Grantor Trust Certificate purchased at a discount or premium
in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to
purchase or carry such Grantor Trust Certificate purchased with market
discount. For these purposes, the de minimis rule referred to above applies.
Any such deferred interest expense would not exceed the market discount that
accrues during such taxable year and is, in general, allowed as a deduction
not later than the year in which such market discount is includible in
income. If such holder elects to include market discount in income currently
as it accrues on all market discount instruments acquired by such holder in
that taxable year or thereafter, the interest deferral rule described above
will not apply.
PREMIUM. To the extent a Grantor Trust Certificateholder is considered
to have purchased an undivided interest in a Receivable for an amount that is
greater than its stated redemption price at maturity of such Receivable, such
Grantor Trust Certificateholder will be considered to have purchased the
Receivable with "amortizable bond premium" equal in amount to such excess. A
Grantor Trust Certificateholder (who does not hold the Certificate for sale
to customers or in inventory) may elect under Section 171 of the Code to
amortize such premium. Under the Code, premium is deducted as an offset to
the interest payments on the Receivables to which it relates and reduces the
amount included in the Certificateholders income upon such interest payments.
With certain exceptions, such an election would apply to all debt instruments
held or subsequently acquired by the electing holder. Absent such an
election, the premium will be deductible as an ordinary loss only upon
disposition of the Certificate or pro rata as principal is paid on the
Receivables.
ELECTION TO TREAT ALL INTEREST AS OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in
income as interest, based on a constant yield method. If such an election
were to be made with respect to a Grantor Trust Certificate with market
discount, the Certificateholder would be deemed to have made an election to
include in income currently market discount with respect to all other debt
instruments having market discount that such Grantor Trust Certificateholder
acquires during the year of the election or thereafter. Similarly, a Grantor
Trust Certificateholder that makes this election for a Grantor Trust
Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Grantor Trust Certificateholder owns or
acquires. See "-- Premium" herein. The election to accrue interest,
discount and premium on a constant yield method with respect to a Grantor
Trust Certificate is irrevocable.
SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis
generally will equal the seller's purchase price for the Grantor Trust
Certificate, increased by the OID included in the seller's gross income with
respect to the Grantor Trust Certificate, and reduced by principal payments
on the Grantor Trust Certificate previously received by the seller. Such
gain or loss will be capital gain or loss to an owner for which a Grantor
Trust Certificate is a capital asset, See Federal Income Tax Consequences -
Trusts for which a Partnership Election is Made - Tax Consequences to Holders
of the Notes - New Capital Gains Provisions.
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to
which such section applies will be treated as ordinary income or loss.
NON-U.S. PERSONS. Generally, to the extent that a Grantor Trust
Certificate evidences ownership in underlying Receivables that were issued on
or before July 18, 1984, interest or OID paid by the person required to
withhold tax under Section 1441 or 1442 to (i) an owner that is not a U.S.
Person or (ii) a Grantor Trust Certificateholder holding on behalf of an
owner that is not a U.S. Person will be subject to federal income tax,
collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such
payments would not be subject to withholding to the extent that a Grantor
Trust Certificate evidences ownership in Receivables issued after July 18,
1984, by natural persons if such Grantor Trust Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the Grantor Trust Certificateholder under penalties of perjury,
certifying that such Grantor Trust Certificateholder is not a U.S. Person and
providing the name and address of such Grantor Trust Certificateholder).
Additional restrictions apply to Receivables where the obligor is not a
natural person in order to qualify for the exemption from withholding.
As used herein, the term "U.S. Person" means a beneficial owner of a
Note that is for United States federal income tax purposes (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States any
state thereof or the District of Columbia (other than a partnership that is
not treated as a United States person under any applicable Treasury
regulations), (iii) an estate whose income is subject to United States
federal income tax regardless of its source, (iv) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust. Notwithstanding
the preceding sentence, to the extent provided in Treasury regulations,
certain trusts in existence on August 20, 1006, and treated as United States
persons prior to such date, that elect to continue to be treated as United
States persons will also be a U.S. Person.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Servicer will furnish
or make available, within a reasonable time after the end of each calendar
year, to each person who was a Grantor Trust Certificateholder at any time
during such year, such information as may be deemed necessary or desirable to
assist Grantor Trust Certificateholders in preparing their United States
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold Grantor
Trust Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that
such person has not reported all interest and dividend income required to be
shown on its federal income tax return, a 31% backup withholding may be
required with respect to any payments. Any amounts deducted and withheld
from a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
FASIT SECURITIES
General. The FASIT provisions of the Code were enacted by the Small
Business Job Protection Act of 1996 and create a new elective statutory
vehicle for the issuance of mortgage-backed and asset-backed securities.
Although the FASIT provisions of the Code became effective on September 1,
1997, no Treasury regulations or other administrative guidance has been
issued with respect to those provisions. Accordingly, definitive guidance
cannot be provided with respect to many aspects of the tax treatment of FASIT
Securityholders. Investors also should note that the FASIT discussions
contained herein constitutes only a summary of the federal income tax
consequences to holders of FASIT Securities. With respect to each series of
FASIT Securities, the related Prospectus Supplement will provide a detailed
discussion regarding the federal income tax consequences associated with the
particular transaction.
FASIT Securities will be classified as either FASIT Regular Securities,
which generally will be treated as debt for federal income tax purposes, or
FASIT Ownership Securities, which generally are not treated as debt for such
purposes, but rather are treated as representing rights and responsibilities
with respect to the taxable income or loss of the related series. The
Prospectus Supplement for each series of Securities will indicate whether one
or more FASIT elections will be made for that series and which Securities of
such series will be designated as Regular Securities, and which will be
designated as Ownership Securities.
Qualification as a FASIT. The Trust Fund underlying a series (or one or
more designated pools of assets held in the Trust Fund) will qualify under
the Code as a FASIT in which the FASIT Regular Securities and the FASIT
Ownership Securities will constitute the "regular interests" and the
"ownership interests," respectively, if (i) a FASIT election is in effect,
(ii) certain tests concerning (A) the composition of the FASIT's assets and
(B) the nature of the Securityholders' interest in the FASIT are met on a
continuing basis, and (iii) the Trust Fund is not a regulated investment
company as defined in Section 851(a) of the Code.
Asset Composition. In order for a Trust (or one or more designated
pools of assets held by a Trust) to be eligible for FASIT status,
substantially all of the assets of the Trust (or the designated pool) must
consist of "permitted assets" as of the close of the third month beginning
after the closing date and at all times thereafter (the "FASIT Qualification
Test"). Permitted assets include (i) cash or cash equivalents, (ii) debt
instruments with fixed terms that would qualify as REMIC regular interests
(as defined in the Code) if issued by a REMIC (generally, instruments that
provide for interest at a fixed rate, a qualifying variable rate, or a
qualifying interest-only ("IO") type rate, (iii) foreclosure property, (iv)
certain hedging instruments (generally, interest and currency rate swaps and
credit enhancement contracts) that are reasonably required to guarantee or
hedge against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interests, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments
issued by the holder of the FASIT's ownership interest or by any person
related to such holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements.
All of the interests in a FASIT must belong to either of the following: (i)
one or more classes of regular interests or (ii) a single class of ownership
interest that is held by a fully taxable domestic corporation. In the case
of series that include FASIT Ownership Securities, the ownership interest
will be represented by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity no greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its
stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the IRS plus 5%, and (vi) if
it pays interest, such interest is payable at either (a) a fixed rate with
respect to the principal amount of the regular interest or (b) a permissible
variable rate with respect to such principal amount. Permissible variable
rates for FASIT regular interests are the same as those for REMIC regular
interest (i.e., certain qualified floating rates and weighted average rates).
If a FASIT Security fails to meet one or more of the requirements set
out in clauses (iii), (iv) or (v) above, but otherwise meets the above
requirements, it may still qualify as a type of regular interest known as a
"High-Yield Interest." In addition, if a FASIT Security fails to meet the
requirements of clause (vi), but the interest payable on the Security
consists of a specified portion of the interest payments on permitted assets
and that portion does not vary over the life of the Security, the Security
also will qualify as a High-Yield Interest. A High-Yield Interest may be
held only by domestic corporations that are fully subject to corporate income
tax ("Eligible Corporations"), other FASITs and dealers in securities who
acquire such interests as inventory for sale to customers, rather than for
investment. In addition, holders of High-Yield Interests are subject to
limitations on offset of income derived from such interest. See "Federal
Income Tax Consequences--FASIT Securities--Tax Treatment of FASIT Regular
Securities--Treatment of High-Yield Interests."
Consequences of Disqualification. If a series of FASIT Securities fails
to comply with one or more of the Code's ongoing requirements for FASIT
status during any taxable year, the Code provides that its FASIT status may
be lost for that year and thereafter. If FASIT status is lost, the treatment
of the former FASIT and the interests therein for federal income tax purposes
is uncertain. The former FASIT might be treated as a grantor trust, as a
separate association taxed as a corporation, or as a partnership. The FASIT
Regular Securities could be treated as debt instruments for federal income
tax purposes or as equity interests. Although the Code authorizes the
Treasury to issue regulations that address situations where a failure to meet
the requirements for FASIT status occurs inadvertently and in good faith,
such regulations have not yet been issued. It is possible that
disqualification relief might be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the FASIT's income for a
period of time in which the requirements for FASIT status are not satisfied.
Tax Treatment of FASIT Regular Securities. Payments received by
holders of FASIT Regular Securities generally should be accorded the same tax
treatment under the Code as payments received on other taxable corporate debt
instruments and on REMIC regular securities. Holders of FASIT Regular
Securities must report income from such Securities under an accrual
method of accounting, even if they otherwise would have used the cash
receipts and disbursements method. Except in the case of FASIT Regular
Securities issued with original issue discount or acquired with market
discount or premium, interest paid or accrued on a FASIT Regular Security
generally will be treated as ordinary income to the Securityholder and a
principal payment on such Security will be treated as a return of capital to
the extent that the Securityholder's basis is allocable to that payment.
High-Yield Securities may be held only by fully taxable domestic
corporations, other FASITs, and certain securities dealers. Holders of High-
Yield Securities are subject to limitations on their ability to use current
losses or net operating loss carryforwards or carrybacks to offset any income
derived from those Securities.
Sale, Exchange or Redemption. If a FASIT Regular Security is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal
to the difference between the amount realized on the sale, exchange,
redemption, or retirement and the seller's adjusted basis in the FASIT
Regular Security. Such adjusted basis generally will equal the cost of the
FASIT Regular Security to the seller, increased by any OID and market
discount included in the seller's gross income with respect to the FASIT
Regular Security, and reduced (but not below zero) by payments included in
the stated redemption price at maturity previously received by the seller and
by any amortized premium. Similarly, a holder who receives a payment that is
part of the stated redemption price at maturity of a FASIT Regular Security
will recognized gain equal to the excess, if any, of the amount of the
payment over the holder's adjusted basis in the FASIT Regular Security. A
FASIT Regular Securityholder who receives a final payment that is less than
the holder's adjusted basis int he FASIT Regular Security will generally
recognize a loss. Generally, any such gain or loss will constitute capital
gain or loss, provided that the FASIT Regular Security is held as a "capital
asset".
Treatment of High-Yield Interests. High-Yield Interests are subject to
special rules regarding the eligibility of holders of such interests, and the
ability of such holders to offset income derived from their FASIT Security
with losses. High-Yield Interests may be held only by Eligible Corporations,
other FASITs, and dealers in securities who acquire such interests as
inventory. If a securities dealer (other than an Eligible Corporation)
initially acquires a High-Yield Interest as inventory, but later begins to
hold it for investment, the dealer will be subject to an excise tax equal to
the income from the High-Yield Interest multiplied by the highest corporate
income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor still will be treated as the holder of the High-Yield
Interest.
The holder of a High-Yield Interest may not use non-FASIT current losses
or net operating loss carryforwards or carrybacks to offset any income
derived from the High-Yield Interest, for either regular federal income tax
purposes or for alternative minimum tax purposes. In addition, the FASIT
provisions contain an anti-abuse rule that imposes corporate income tax on
income derived from a FASIT Regular Security that is held by a pass-through
entity (other than another FASIT) that issues debt or equity securities
backed by the FASIT Regular Security and that have the same features as High-
Yield Interests.
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership Security
represents the residual equity interest in a FASIT. As such, the holder of a
FASIT Ownership Security determines its taxable income by taking into account
all assets, liabilities and items of income, gain, deduction, loss and credit
of a FASIT. In general, the character of the income to the holder of a FASIT
Ownership Interest will be the same as the character of such income of the
FASIT, except that any tax-exempt interest income taken into account by the
holder of a FASIT Ownership Interest is treated as ordinary income. In
determining that taxable income, the holder of a FASIT Ownership Security
must determine the amount of interest, original issue discount, market
discount and premium recognized with respect to the FASIT's assets and the
FASIT Regular Securities issued by the FASIT according to a constant yield
methodology and under an accrual method of accounting. In addition, holders
of FASIT Ownership Securities are subject to the same limitations on their
ability to use losses to offset income from their FASIT Security as are the
holders of High-Yield Interests. See "Federal Income Tax Consequences--
Treatment of High-Yield Interests."
Certain wash sale rules will apply to FASIT Ownership Securities.
Accordingly, losses on dispositions of a FASIT Ownership Security generally
will be disallowed where, within six months before or after the disposition,
the seller of such Security acquires any other FASIT Ownership Security or,
in the case of a FASIT holding mortgage assets, any interest in a Taxable
Mortgage Pool that is economically comparable to a FASIT Ownership Security.
In addition, if any security that is sold or contributed to a FASIT by the
holder of the related FASIT Ownership Security was required to be marked-to-
market under Code section 475 by such holder, then section 475 will continue
to apply to such securities, except that the amount realized under the mark-
to-market rules will be a greater of the securities' value under present law
or the securities' value after applying special valuation rules contained in
the FASIT provisions. Those special valuation rules generally require that
the value of debt instruments that are not traded on an established
securities market be determined by calculating the present value of the
reasonably expected payments under the instrument using a discount rate of
120% of the applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax equal
to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any series for which a
FASIT election is made generally will be structured in order to avoid
application of the prohibited transaction tax.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
SECURITYHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE SECURITIES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Material Federal Income Tax Considerations," potential investors should
consider the state and local income tax consequences of the acquisition,
ownership, and disposition of the Offered Securities. State and local 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 or locality. Therefore, potential investors should consult their
own tax advisors with respect to the various state and local tax consequences
of an investment in the Offered 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 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, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual
retirement accounts and certain types of Keogh Plans (each a "Benefit Plan"),
from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect
to such Benefit Plan. A violation of these "prohibited transaction" rules
may result in an excise tax or other penalties and liabilities under ERISA
and the Code for such persons.
Certain transactions involving a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit
Plan that purchased Notes or Certificates if assets of the Trust were deemed
to be assets of the Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of a
Trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in
the Trust and none of the exceptions contained in the Plan Assets Regulation
was applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicalbe local law and which has no substantial equity
features. The likely treatment in this context of Notes and Certificates
of a given series will be discussed in the related Prospectus Supplement.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Securities of a given
series should consult its tax and/or legal advisors regarding whether the
assets of the related Trust would be considered plan assets, the possibility
of exemptive relief from the prohibited transaction rules and other issues
and their potential consequences.
SENIOR CERTIFICATES ISSUED BY TRUSTS THAT DO NOT ISSUE NOTES
Unless otherwise specified in the related Prospectus Supplement, the
following discussion applies only to nonsubordinated Certificates (referred
to herein as "Senior Certificates") issued by a Trust that does not issue
Notes.
The U.S. Department of Labor has granted to the lead Underwriter named
in the Prospectus Supplement an exemption (the "Exemption") from certain of
the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Benefit Plans of
certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include fixed rate simple interest marine retail installment sales
contracts and retail marine installment loans such as the Receivables. The
Exemption will apply to the acquisition, holding and resale of the Senior
Certificates by a Benefit Plan, provided that certain conditions (certain of
which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
to the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Benefit Plan
is on terms (including the price for the Senior Certificates) that are
at least as favorable to the Benefit Plan as they would be in an arm's
length transaction with an unrelated party;
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust;
(3) The Senior Certificates acquired by the Benefit Plan have
received a rating at the time of such acquisition that is in one of the
three highest generic rating categories from either Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Service, Inc.;
(4) The Trustee is not an affiliate of any other member of the
Restricted Group;
(5) The sum of all payments made to the Underwriters in connection
with the distribution of the Senior Certificates represents not more
than reasonable compensation for underwriting the Senior Certificates;
the sum of all payments made to and retained by the Seller pursuant to
the sale of the Contracts to the Trust represents not more than the fair
market value of such Contracts; and the sum of all payments made to and
retained by the Servicer represents not more than reasonable
compensation for the Servicer's services under the Agreement and
reimbursement of the Servicer's reasonable expenses in connection
therewith; and
(6) The Benefit Plan investing in the Senior Certificates is an
"accredited investor" as defined in Rule 501 (a)(1) of Regulation D of
the Securities and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest or prohibited transactions only if, among
other requirements, (i) in the case of the acquisition of Senior Certificates
in connection with the initial issuance, at least fifty (50) percent of the
Senior Certificates are acquired by persons independent of the Restricted
Group, (ii) the Benefit Plan's investment in Senior Certificates does not
exceed twenty-five (25) percent of all of the Senior Certificates outstanding
at the time of the acquisition, and (iii) immediately after the acquisition,
no more than twenty-five (25) percent of the assets of the Benefit Plan are
invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The Exemption does
not apply to Plans sponsored by the Depositor, the related Seller, any
Underwriter, the Trustee, the Servicer, any obligor with respect
to Contracts included in the Trust constituting more than five percent
of the aggregate unamortized principal balance of the assets in the
Trust, or any affiliate of such parties (the "Restricted Group").
The Seller believes that the Exemption will apply to the acquisition and
holding by Benefit Plans of Senior Certificates sold by the Underwriter or
Underwriters named in the Prospectus Supplement and that all conditions of
the Exemption other than those within the control of the investors have been
met. In addition, as of the date hereof, no obligor with respect to
Contracts included in the Trust constitutes more than five percent of the
aggregate unamortized principal balance of the assets of the Trust.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to the Securities of a given series (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 Agreement 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 the Notes and Certificates, as
the case may be, described therein which 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 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, such public
offering prices and such concessions may be changed.
Each Underwriting Agreement will provide that the Depositor will
indemnify the 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 or from the
Depositor.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
This Prospectus, together with the related Prospectus Supplement, may,
to the extent required, be used by an Underwriter in connection with offers
and sales related to market making transactions in Securities.
LEGAL OPINIONS
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust and the Depositor by Brown & Wood LLP, New
York, New York, and for the Underwriter for such series by Brown & Wood LLP.
Certain federal income tax will be passed upon for each Trust by Brown & Wood
LLP.
INDEX OF TERMS
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Actuarial Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 18
adjusted Issue Price . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Administration Agreement . . . . . . . . . . . . . . . . . . . . . . . . 43
Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,38
Amortizable bond Premium . . . . . . . . . . . . . . . . . . . . . . . . 56
Applicable Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
APR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Backup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Bank Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Base Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Benefit Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Calculation Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . 27,28,30
CD Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CD Rate Determination Date . . . . . . . . . . . . . . . . . . . . . . . 27
CD Rate Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Cedel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Cedel Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Certificate Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Certificate Distribution Account . . . . . . . . . . . . . . . . . . . . 36
Certificate Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . 20
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . 16,31
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
chattel paper . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,14,43
Clearing Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Collection Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Commercial Paper Rate . . . . . . . . . . . . . . . . . . . . . . . . . 27,28
Commercial Paper Rate Determination Date . . . . . . . . . . . . . . . . 27
Commercial Paper Rate Security . . . . . . . . . . . . . . . . . . . . . 26
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Composite Quotations . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Daily Portions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Dealer Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,18
Dealers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,16
Definitive Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 32
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Definitive Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,3,21
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DTC's Nominee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Eligible Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Eligible Deposit Account . . . . . . . . . . . . . . . . . . . . . . . . 36
Eligible Institution . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . 36
equity interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . 31
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
evidence of indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 56
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
FASIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
FASIT Qualification Test . . . . . . . . . . . . . . . . . . . . . . . . 58
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Federal Funds Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Federal Funds Rate Determination Date . . . . . . . . . . . . . . . . . . 28
Federal Funds Rate Security . . . . . . . . . . . . . . . . . . . . . . . 26
Final Scheduled Maturity Date . . . . . . . . . . . . . . . . . . . . . 9
Financed Boats . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,16
FIRREA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Fixed Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Floating Rate Securities . . . . . . . . . . . . . . . . . . . . . . . . 26
foreign person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
FTC Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Grantor Trust Certificateholders . . . . . . . . . . . . . . . . . . . . 53
Grantor Trust Certificates . . . . . . . . . . . . . . . . . . . . . . . 53
H.15(519) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Holder-in-Due-Course . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Index Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Indirect Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Initial Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Initial Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Initial Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Interest Reset Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Interest Reset Period . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Investment Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
LIBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,29
LIBOR Determination Date . . . . . . . . . . . . . . . . . . . . . . . . 28
LIBOR Reuters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
LIBOR Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
LIBOR Telerate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
London Banking Day . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
market discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Money Market Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
new partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
New Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Nonbank Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Note Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . 36
Note Pool Factor . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,31
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Obligors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
OID Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
old partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,30
Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
parties in interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Pass Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Payahead Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Payaheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Plan Assets Regulation . . . . . . . . . . . . . . . . . . . . . . . . . 60
Pool Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . 4
portfolio interest . . . . . . . . . . . . . . . . . . . . . . . . . . 49,53
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,5
Preferred Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Precomputed Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Precomputed Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 18
prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,19
prohibited transaction . . . . . . . . . . . . . . . . . . . . . . . . 59,60
Prospectus Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purchase Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
qualified stated interest . . . . . . . . . . . . . . . . . . . . . . . . 54
Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,7
Receivables Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Receivables Purchase Agreement . . . . . . . . . . . . . . . . . . . . . 35
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . 3
Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Reuters Screen LIBO Page . . . . . . . . . . . . . . . . . . . . . . . . 29
Rule of 78's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Rules of 78's Receivables . . . . . . . . . . . . . . . . . . . . . . . . 18
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . 7
Schedule of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 1286 Treasury Regulations . . . . . . . . . . . . . . . . . . . . 54
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,31
Seller(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Short-Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Simple Interest Advance . . . . . . . . . . . . . . . . . . . . . . . . . 9
Simple Interest Receivables . . . . . . . . . . . . . . . . . . . . . . . 18
Spread . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Spread Multiplier . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Strip Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Strip Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Subsequent Receivables . . . . . . . . . . . . . . . . . . . . . . . . . 1,7
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . . . . . . 35
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Telerate Page 3750 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Transfer and Servicing Agreement . . . . . . . . . . . . . . . . . . . . 34
Treasury bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Treasury Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,30
Treasury Rate Determination Date . . . . . . . . . . . . . . . . . . . . 30
Treasury Rate Security . . . . . . . . . . . . . . . . . . . . . . . . . 26
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,4
Trust Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,35
Underwriting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 62
U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE SELLER OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
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.
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 Notes will be effected on a delivery-against-payment
basis through the respective Depositaries of CEDEL and Euroclear (in such
capacity) and DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, 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.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior debt issues. Investors'
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
payments 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 book-entry
securities 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, as applicable, will instruct
its Depositary 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 such 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 applicable 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 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 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
Global Securities are to be transferred by the respective clearing systems,
through their respective Depositaries, 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 their respective Depositaries,
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 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 OF NON-U.S. PERSONS (FORM W-8). Beneficial owners of
Notes that are non-U.S. Persons generally can obtain a complete
exemption from the withholding tax by filing a signed Form W-8
(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. PERSON 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
Notes residing in a country that has a tax treaty with the United States
can obtain an exemption or reduced tax rate (depending on the treaty
terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides 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 of Notes or such owner's agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The beneficial owner
of a Global Security or, in the case of a Form 1001 or a Form 4224
filer, such owner's agent, files by submitting the appropriate form to
the person through whom it holds the security (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 a citizen or resident of the
United States, a corporation or a partnership organized in or under
the laws of the United States or any political subdivision thereof
or an estate, the income of which from sources outside the United
States is includible in gross income for federal income tax
purposes regardless of its connection with the conduct of a trade
or business within the United States or a trust if a court within
the United States is able to exercise primary supervision of the
administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions
of the trust.
This summary does not deal with all aspects of U.S. federal
income tax withholding that may be relevant to foreign holders of
the Global Securities. Investors are advised to consult their own
tax advisors for specific tax advice concerning their holding and
disposing of the Global Securities.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
Expenses in connection with the offering of the Securities being
registered herein are estimated as follows:
SEC registration fee $304
Legal fees and expenses
Accounting fees and expenses
Blue sky fees and expenses
Rating agency fees
Trustee's fees and expenses
Printing
Miscellaneous
----------
Total $
___________________
* All amounts except the SEC Registration Fee are estimates of
expenses incurred or to be incurred.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ML Asset Backed Corporation (the "Registrant") has undertaken in its
articles of incorporation and bylaws to indemnify, to the maximum extent
permitted by the Delaware General Corporation Law as from time to time
amended, any currently acting or former director, officer, employee and agent
of the Registrant against any and all liabilities incurred in connection with
their services in such capacities.
ITEM 16. EXHIBITS.
* 1.1 Form of Underwriting Agreement
* 3.1 Articles of Incorporation of the Registrant
* 3.2 Bylaws of the Registrant
* 4.1 Form of Trust Agreement (including form of Certificates)
* 4.2 Form of Indenture (including form of Notes)
* 4.3 Form of Pooling and Servicing Agreement (including form of
Certificates)
* 5.1 Opinion of Brown & Wood LLP with respect to legality
* 8.1 Opinion of Brown & Wood LLP with respect to certain federal income
tax matters
*10.1 Form of Administration Agreement
*10.2 Form of Sale and Servicing Agreement
*10.3 Form of Receivables Purchase Agreement
*23.1 Consent of Brown & Wood LLP (included in Exhibit 5.1)
*23.2 Consent of Brown & Wood LLP (included in Exhibit 8.1)
24.1 Power of Attorney (included on page II-3)
*25.1 Statement of Eligibility and Qualification of Indenture Trustee on
Form T-1
___________________
* To be filed by Amendment.
ITEM 17. UNDERTAKINGS.
(a) As to Rule 415:
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) As to documents subsequently filed that are incorporated by
reference:
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) As to indemnification:
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(e) As to qualification of trust indentures:
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.
(f) The undersigned Registrant hereby undertakes to file in a current
report a Form 8-K or in a post-effective amendment an opinion with respect to
any Federal tax consequences material to an investor with regard to a
specific Series to be issued pursuant to this Registration Statement where
such tax consequences have not been addressed in the prospectus or the
prospectus supplement related to such Series.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, the State of New York, on
March 16, 1998.
ML ASSET BACKED CORPORATION
By: /s/ Michael M. McGovern
----------------------------------------
Name: Michael M. McGovern
Title: Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Michael J. Normile, Thomas Layton, Jack
Ross, onald J. Puglisi and Michael M. McGovern or any of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title
/s/ Michael J. Normile President, Chairman of the Board of Directors
(Michael J. Normile) (Chief Executive Officer)
/s/ Thomas Layton Chief Financial Officer (Principal Financial
(Thomas Layton) Officer and Principal Accounting Officer) and
Director
/s/ Jack Ross Vice President and Director
(Jack Ross)
/s/ Donald J. Puglisi Vice President and Director
(Donald J. Puglisi)
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of the Registrant*
3.2 Bylaws of the Registrant*
4.1 Form of Trust Agreement (including form of Certificates)*
4.2 Form of Indenture (including form of Notes)*
4.3 Form of Pooling and Servicing Agreement (including form of Certificates)
5.1 Opinion of Brown & Wood LLP with respect to legality*
8.1 Opinion of Brown & Wood LLP with respect to certain federal income tax
matters*
10.1 Form of Administration Agreement*
10.2 Form of Sale and Servicing Agreement
10.3 Form of Receivables Purchase Agreement
23.1 Consent of Brown & Wood LLP (included in Exhibit 5.1)*
23.2 Consent of Brown & Wood LLP (included in Exhibit 8.1)*
24.1 Power of Attorney (included on Page II-3)
25.1 Statement of Eligibility and Qualification of Indenture Trustee on Form
T-1*
*To be filed by Amendment.
(FOR AMENDMENT NO. 1) Registration No. ( )
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------------
_____________TRUSTS
(Issuer with respect to the Securities)
ML ASSET BACKED CORPORATION
(Sponsor of the Trusts described herein)
(Exact name of Registrant as specified in its charter)
----------------------------------
EXHIBIT VOLUME
