<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1997
REGISTRATION STATEMENT NO. 333-21707
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CHEVY CHASE BANK, F.S.B.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UNITED STATES 8401 CONNECTICUT AVENUE 52-0897004
(JURISDICTION OF CHEVY CHASE, MARYLAND 20815 (I.R.S.
EMPLOYER ORGANIZATION) (301) 986-7000 IDENTIFICATION NO.)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
STEPHEN R. HALPIN, JR.
EXECUTIVE VICE PRESIDENT
CHEVY CHASE BANK, F.S.B.
8401 CONNECTICUT AVENUE
CHEVY CHASE, MARYLAND 20815
(301) 986-7000
(NAME, ADDRESS AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
COPIES TO:
M. DAVID KROHN, ESQ. CHRIS DIANGELO, ESQ. AND
SHAW, PITTMAN, POTTS & TROWBRIDGE GLENN ARDEN, ESQ.
2300 N STREET, N.W. DEWEY BALLANTINE
WASHINGTON, D.C. 20037 1301 AVENUE OF THE AMERICAS
(202) 663-8000 NEW YORK, NEW YORK 10019
(212) 259-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 number of the earlier effective
registration statement for the same offering. [_]
If this Form is filed as a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AGGREGATE AGGREGATE
TITLE OF SECURITIES AMOUNT TO BE PRICE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Auto Receivables Backed
Securities............. $1,500,000,000.00 100% $1,500,000,000.00 $454,545.45
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) $454,242.42 of the $454,545.45 registration fee is being paid with this
Pre-Effective Amendment No. 1 to the Registration Statement. The remaining
$303.03 was previously paid with the original filing of this Registration
Statement.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
TO FORM S-3
<TABLE>
<CAPTION>
CAPTION OR LOCATION
ITEM AND CAPTION IN FORM S-3 IN PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................ Forepart of Registration
Statement; Outside Front Cover
Page**
2. Inside Front and Outside Back Cover
Page of Prospectus.................... Inside Front Cover Page**;
Outside Back Cover Page**
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.... Prospectus Summary**; Risk
Factors**;*
4. Use of Proceeds........................ Use of Proceeds**
5. Determination of Offering Price........ *
6. Dilution............................... *
7. Selling Security Holders............... *
8. Plan of Distribution................... Methods of Distribution**
9. Description of Securities to be
Registered............................ Outside Front Cover Page**;
Prospectus Summary**;
Description of the Securities**;
Certain Tax Considerations**
10. Interests of Named Experts and
Counsel............................... *
11. Material Changes....................... *
12. Incorporation of Certain Information by
Reference............................. Inside Front Cover Page**;
Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... See page II-2, Item 17.A.
</TABLE>
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* Not applicable or answer is negative.
** To be completed from time to time by Prospectus Supplement.
<PAGE>
PROSPECTUS
AUTO RECEIVABLES BACKED SECURITIES ISSUABLE IN SERIES
CHEVY CHASE BANK, F.S.B.
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This Prospectus describes certain Auto Receivables Backed Notes (the "Notes")
and Auto Receivables Backed Certificates (the "Certificates" and, together
with the Notes, the "Securities") that may be issued and 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 (each, a "Prospectus Supplement"). Each series of Securities may
include one or more classes of Notes and one or more classes of Certificates,
which will be issued either by Chevy Chase Bank, F.S.B. (the "Bank") or by a
trust to be formed or managed by the Bank for the purpose of issuing one or
more series of such Securities (each, a "Trust"). The Bank together with any
Trust issuing Securities as described in this Prospectus and the related
Prospectus Supplement shall be referred to herein as the "Issuer."
Each series of Certificates will evidence beneficial interests in a segregated
pool of assets (the related "Trust Property") and each series of Notes will
represent indebtedness of the related Issuer secured by the related Trust
Property, as described herein and in the related Prospectus Supplement. The
Trust Property may consist of any combination of retail installment sale or
finance contracts between manufacturers, dealers or certain other originators
and retail consumers for the purchase of new and used automobiles, light duty
trucks and vans (the "Contracts"), or participation interests therein, along
with the related security interests in the underlying new and used
automobiles, light duty trucks and vans, and property relating thereto (the
"Vehicles"; together with the Contracts and the proceeds thereof the
"Receivables") together with all monies received relating thereto. If and to
the extent specified in the related Prospectus Supplement, credit or cash flow
enhancement with respect to the related Trust Property or any class of
Securities may include any one or more of the following: a financial guaranty
insurance policy issued by an insurer specified in the related Prospectus
Supplement, a reserve account, yield maintenance account, letters of credit,
credit or liquidity facilities, third party payments or other support, cash
deposits or other arrangements, including hedging or derivatives contracts. In
addition to or in lieu of the foregoing, such credit or cash flow enhancement
may be provided by means of subordination, cross-support among the Trust
Properties or over-collateralization. See "Description of the Securities--
Credit and Cash Flow Enhancements." The Receivables in the Trust Property for
a series have been or will be originated or acquired by the Bank or the Bank's
wholly owned subsidiary Consumer Finance Corporation ("CFC"), or another
affiliate of the Bank (each an "Affiliate"), as described herein and in the
related Prospectus Supplement. Such Receivables will be serviced by a servicer
(the "Servicer"), which will be the Bank unless otherwise described in the
related Prospectus Supplement.
Each series of Securities may include one or more classes (each, a "Class")
entitled to disproportionate, nominal or no interest or principal
distributions. The rights of one or more Classes of Securities of any series
may be senior or subordinate to the rights of one or more of the other Classes
of such series of Securities. A series may include two or more Classes of
Securities which differ as to the timing, order or priority of payment,
interest rate or amount of distributions of principal or interest or both.
Information regarding each Class of Securities of a series, together with
certain characteristics of the related Receivables, will be set forth in the
related Prospectus Supplement. The rate of payment in respect of principal of
the Securities of any Class will depend on the priority of payment of such a
Class and the rate and timing of payments (including prepayments, defaults,
liquidations or 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. See "Description of the Securities" and
"Risk Factors--Maturity and Prepayment Considerations."
(cover continued on next page)
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" AT PAGE 12 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
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THE NOTES OF A GIVEN SERIES REPRESENT NON-RECOURSE OBLIGATIONS OF THE ISSUER
ONLY AND DO NOT REPRESENT OBLIGATIONS OF CFC, ANY SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL
INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF THE BANK, CFC, ANY SERVICER, ANY TRUSTEE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING RECEIVABLES
WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR
BY THE BANK, CFC, ANY SERVICER, ANY TRUSTEE OR ANY OF THEIR RESPECTIVE
AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. NEITHER
THE SECURITIES NOR THE UNDERLYING RECEIVABLES OR ANY COLLECTIONS THEREON ARE
INSURED OR GUARANTEED BY THE SAVINGS ASSOCIATION INSURANCE FUND, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL 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.
----------
Offers of the Securities may be made through one or more different methods,
including offerings through underwriters as more fully described under "Method
of Distribution" herein and in the related Prospectus Supplement.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is March 11, 1997.
<PAGE>
(cover continued from previous page)
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a series of Securities to be offered
hereunder will set forth, among other things, with respect to such series of
Securities: (i) a description of the Class or Classes of such Securities; (ii)
the rate of interest, the "Pass-Through Rate" or "Interest Rate" or other
applicable rate (or the manner of determining such rate) and authorized
denominations of such Class of such Securities; (iii) certain information
concerning the Receivables; (iv) a description of insurance policies, cash
accounts, letters of credit, financial guaranty insurance policies, third
party guarantees, hedging agreements, derivatives contracts or other forms of
Credit Enhancement, if any, relating to one or more pools of Receivables or
all or part of the related Securities; (v) the specified interest, if any, of
each Class of Securities in, and manner and priority of, the distributions
from the Trust Property; (vi) information as to the nature and extent of
subordination with respect to such series or Class of Securities, if any;
(vii) the payment or distribution dates to Securityholders (as defined
hereinafter); (viii) if other than the Bank, information regarding the
Servicer(s) for the related Receivables; (ix) events of default or
amortization events; (x) the circumstances, if any, under which the
Certificates or the Notes may be subject to redemption, at the option of the
Securityholder or of the Issuer; (xi) the operation of any Pre-Funding Account
(as defined hereinafter); (xii) a description of the Issuer with respect to
such series of Securities; (xiii) information regarding tax and ERISA (as
defined hereinafter) considerations, including whether the Issuer will
constitute a Financial Asset Securitization Trust ("FASIT") and the tax
effects thereof; and (xiv) additional information with respect to the method
of distribution of such Securities.
AVAILABLE INFORMATION
The Bank 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 Securities 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 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, 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 that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
(http://www.sec.gov).
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Securities offered hereby and thereby, nor an offer of the Securities to any
person in any state or other jurisdiction in which such offer would be
unlawful. The delivery of this Prospectus at any time does not imply that
information herein is correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Bank with respect to the Registration Statement,
either on its own behalf or on behalf of an Issuer, relating to any series of
Securities referred to in the accompanying Prospectus Supplement, with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), after the date of this
Prospectus and prior to the termination of any offering of the Securities,
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in the accompanying Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or replaces 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.
2
<PAGE>
REPORTS TO SECURITYHOLDERS
So long as the Securities are in book-entry form, monthly and annual reports
concerning the Securities, the Issuer and the Trust Property will be furnished
to the Depositary Trust Company ("DTC") as registered holder of the
Securities. DTC will supply such reports to Securityholders in accordance with
its procedures. To the extent required by the Exchange Act, the Bank will
provide financial information to the Securityholders which has been examined
and reported upon, with an opinion expressed by, an independent public
accountant; to the extent not so required, such financial information will be
unaudited.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TITLE PAGE NO
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<S> <C>
Prospectus Supplement.............................................................. 2
Available Information.............................................................. 2
Incorporation of Certain Documents by Reference.................................... 2
Reports to Securityholders......................................................... 3
Prospectus Summary................................................................. 4
Risk Factors....................................................................... 12
The Trust Property................................................................. 16
The Issuers........................................................................ 17
The Receivables.................................................................... 17
Automobile Financing Programs...................................................... 19
Pool Factors....................................................................... 19
Use of Proceeds.................................................................... 20
The Lenders........................................................................ 20
The Trustee(s)..................................................................... 20
Description of the Securities...................................................... 21
Description of the Trust Agreements................................................ 28
Certain Legal Aspects of the Receivables........................................... 38
Certain Tax Considerations......................................................... 42
ERISA Considerations............................................................... 42
Methods of Distribution............................................................ 42
Legal Opinions..................................................................... 43
Index of Terms..................................................................... 48
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to 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 the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms."
Issuer...................... With respect to each series of Securities, either
the Bank or a Trust to be formed or managed by
the Bank. The Bank and any Trust issuing
Securities pursuant to this Prospectus and the
related Prospectus Supplement shall be referred
to herein as the "Issuer" with respect to the
related Securities. See "The Issuers."
Bank........................ Chevy Chase Bank, F.S.B., a federally chartered
stock savings bank. The Bank's principal
executive offices are located at 8401 Connecticut
Avenue, Chevy Chase, Maryland 20815, and its
telephone number is (301) 986-7000. See "The
Lenders."
Servicer.................... Unless otherwise disclosed in a Prospectus
Supplement, the Servicer for each series of
Securities will be the Bank.
Trustee..................... The Trustee for each series of Securities (the
"Trustee") will be specified in the related
Prospectus Supplement. In addition, a Trust may
separately enter into an Indenture and may issue
Notes pursuant to such Indenture; in any such
case the Trust and the Indenture will be
administered by separate, independent trustees as
required by the rules and regulations under the
Trust Indenture Act of 1939 and the Investment
Company Act of 1940, as amended (the "Investment
Company Act").
The Securities.............. Each Class of Securities of any series will
either comprise Certificates evidencing
beneficial ownership interests in the related
Trust Property, or Notes representing
indebtedness of the related Issuer secured by the
related Trust Property, as described herein and
in the related Prospectus Supplement.
With respect to Certificates issued by a Trust,
each Trust will be established, and the
Certificates issued, pursuant to an agreement
(each, a "Pooling Agreement") by and between the
Bank, as transferor, and the Trustee named
therein. Each Pooling Agreement will describe the
related Trust Property.
With respect to Notes that represent debt issued
by the related Issuer (which may be the Bank or a
Trust), the Issuer will enter into an indenture
(each, an "Indenture") by and between the Issuer
and the Trustee named in such Indenture. Each
Indenture will describe the related Trust
Property which secures the debt issued by the
related Issuer.
The Receivables comprising the Trust Property
will be serviced by the Servicer pursuant to a
servicing agreement (each, a "Servicing
Agreement") by and between the Servicer and the
related Issuer.
4
<PAGE>
In the case of the Trust Property of any class of
Securities, the contractual arrangements relating
to the establishment of the related Trust, if
any, the servicing of the related Receivables and
the issuance of the related Securities may be
contained in a single agreement, or in several
agreement which combine certain aspects of the
Pooling Agreement, the Servicing Agreement and
the Indenture described above (for example, a
pooling and servicing agreement or a servicing
and collateral management agreement). For
purposes of this Prospectus, the term "Trust
Agreement" as used with respect to Trust Property
means, collectively, and except as otherwise
described in the related Prospectus Supplement,
any and all agreements relating to the
establishment of the related Trust, if any, the
servicing of the related Receivables and the
issuance of the related Securities. The term
"Trustee" means any and all persons acting as a
trustee pursuant to a Trust Agreement.
Securities Will Be Non-Recourse.
The Notes of a given series will represent non-
recourse obligations of the related Issuer, and
the Certificates of a given series will
represent beneficial interests in the related
Issuer and Trust Property only and will not
represent interests in or recourse obligations
of the Bank. In the case of Certificates that
represent beneficial ownership interests in the
related Issuer, the sole source of payment will
be the related Trust Property. In the case of
Notes that represent debt issued by the related
Issuer, such Securities will have recourse
solely to, and will be secured by, the related
Trust Property. Notwithstanding the foregoing,
and as to be described in the related
Prospectus Supplement, certain types of Credit
Enhancement, such as a letter of credit or
financial guaranty insurance policy may
constitute a full recourse obligation of the
issuer of such Credit Enhancement.
General Nature of the Securities as Investments.
Unless otherwise disclosed in a Prospectus
Supplement, all of the Securities offered
pursuant to this Prospectus and the related
Prospectus Supplement will be rated in one of
the four highest rating categories by one or
more Rating Agencies (as defined herein).
Additionally, except to the extent provided in
the related Prospectus Supplement, all of the
Securities offered pursuant to this Prospectus
and the related Prospectus Supplement will be
of the fixed-income type ("Fixed Income
Securities"). Fixed Income Securities will
generally be styled as debt instruments, having
a principal balance and a specified Interest
Rate. Fixed Income Securities may consist of
either Certificates representing beneficial
ownership interests in the related Issuer, or
Notes evidencing debt secured by the Trust
Property held by the related Issuer.
5
<PAGE>
Each series or Class of Fixed Income Securities
offered pursuant to this Prospectus may have a
different Interest Rate, which may be a fixed
or variable Interest Rate, or determined
pursuant to an index. The related Prospectus
Supplement will specify the Interest Rate for
each series or Class of Fixed Income Securities
described therein, or the initial Interest Rate
and the method for determining subsequent
changes to the Interest Rate. The applicable
Prospectus Supplement will disclose the method
for accruing interest on Fixed Income
Securities.
A series may include one or more Classes of
Fixed Income Securities ("Strip Securities")
entitled (i) to principal distributions, with
disproportionate, nominal or no interest
distributions, or (ii) to interest
distributions, with disproportionate, nominal
or no principal distributions. In addition, a
series of Securities may include two or more
Classes of Fixed Income Securities that differ
as to timing, sequential order, priority of
payment, Interest Rate or amount of
distribution of principal or interest or both,
or as to which distributions of principal or
interest or both on any Class may be made upon
the occurrence of specified events, in
accordance with a schedule or formula, or on
the basis of collections from designated
portions of the related pool of Receivables.
Any such series may include one or more Classes
of Fixed Income Securities ("Accrual
Securities"), as to which certain accrued
interest will not be distributed but rather
will be added to the principal balance (or
nominal balance, in the case of Accrual
Securities which are also Strip Securities)
thereof on each Distribution Date, as
hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus
Supplement, a series may include one or more
other Classes of Fixed Income Securities
(collectively, the "Senior Securities") that
are senior to one or more other Classes of
Fixed Income Securities (collectively, the
"Subordinate Securities") in respect of certain
distributions of principal and interest and
allocations of losses on Receivables.
In addition, certain Classes of Senior (or
Subordinate) Securities may be senior to other
Classes of Senior (or Subordinate) Securities
in respect of such distributions or losses.
General Payment Terms of Securities.
As provided in the related Trust Agreement and
as described in the related Prospectus
Supplement, the holders of the Securities (the
related "Securityholders") will be entitled to
receive payments on their Securities on
specified dates (each, a "Distribution Date").
Distribution Dates with respect to Fixed Income
Securities will occur as described in the
related Prospectus Supplement.
The related Prospectus Supplement will describe
a date (the "Record Date") preceding such
Distribution Date, as of which the Trustee or
its paying agent will fix the identity of the
6
<PAGE>
Securityholders for the purpose of receiving
payments on the next succeeding Distribution
Date. As described in the related Prospectus
Supplement, the Distribution Date will be a
specified day occurring monthly, quarterly or
semi-annually.
Each Trust Agreement will describe a period
(each, a "Collection Period") preceding each
Distribution Date (for example, in the case of
monthly-pay Securities, the calendar month
preceding the month in which a Distribution
Date occurs). As more fully described in the
related Prospectus Supplement, collections
received on or with respect to the related
Receivables constituting the related Trust
Property during a Collection Period will be
required to be remitted by the Servicer to the
related Trustee prior to the related
Distribution Date and will be used to fund
payments to Securityholders on such
Distribution Date. As may be described in the
related Prospectus Supplement, the related
Trust Agreement may provide that all or a
portion of the payments collected on or with
respect to the related Receivables may be
applied by the related Trustee to the
acquisition of additional Receivables during a
specified period (rather than be used to fund
payments of principal to Securityholders during
such period), with the result that the related
Securities will possess an interest- only
period, also commonly referred to as a
revolving period, which will be followed by an
amortization period. Any such interest-only or
revolving period may, upon the occurrence of
certain events to be described in the related
Prospectus Supplement, terminate prior to the
end of the specified period and result in the
earlier than expected amortization of the
related Securities.
In addition, and as may be described in the
related Prospectus Supplement, the related
Trust Agreement may provide that all or a
portion of such collected payments may be
retained by the Trustee (and held in certain
temporary investments, including Receivables)
for a specified period prior to being used to
fund payments of principal to Securityholders.
Such retention and temporary investment by the
Trustee of such collected payments may be
required by the related Trust Agreement for the
purpose of (a) slowing the amortization rate of
the related Securities relative to the
installment payment schedule of the related
Receivables, or (b) attempting to match the
amortization rate of the related Securities to
a specified amortization schedule. Any such
feature applicable to any Securities may
terminate upon the occurrence of events to be
described in the related Prospectus Supplement,
resulting in distributions to the specified
Securityholders and an acceleration of the
amortization of such Securities.
As more fully specified in the related
Prospectus Supplement, neither the Securities
nor the underlying Receivables will be
guaranteed or insured by any governmental
agency or instrumentality or the Bank, the
related Servicer, any Trustee, or any of their
respective affiliates.
7
<PAGE>
Credit Enhancement.
If and to the extent specified in the related
Prospectus Supplement, credit or cash flow
enhancement with respect to any Class or series
of Securities or the related Trust Property may
include any one or more of the following: a
financial guaranty insurance policy issued by
an insurer specified in the related Prospectus
Supplement, a reserve account, letters of
credit, credit or liquidity facilities, third
party payments or other support, cash deposits
or other arrangements, including hedging and
derivatives contracts (collectively "Credit
Enhancement"). In addition to or in lieu of the
foregoing, Credit Enhancement may be provided
by means of subordination, cross-support among
the Receivables or over- collateralization. See
"Description of the Securities--Credit and Cash
Flow Enhancements."
Master Trusts; Issuance of
Additional Series.......... As may be described in the related Prospectus
Supplement, the Bank may cause one or more of the
Trusts (such a Trust, a "Master Trust") to issue
additional series of Securities from time to
time. Under each Trust Agreement relating to a
Master Trust (each, a "Master Trust Agreement"),
the Bank may determine the terms of any such new
series and may offer any such new series to the
public or other investors, in transactions either
registered under the Securities Act or exempt
from registration thereunder, directly or through
one or more underwriters or placement agents, in
fixed-price offerings or in negotiated
transactions or otherwise. See "Description of
the Trust Agreements--Master Trusts."
A new series to be issued by a Master Trust which
has a series outstanding may only be issued upon
satisfaction of the conditions described herein
under "Description of the Trust Agreements--
Master Trusts". Securities issued out of a Master
Trust generally will represent undivided
interests in the entire pool of Receivables
subject to such Master Trust.
The Residual Interest....... With respect to certain Trusts, such as Master
Trusts, the "Residual Interest" at any time
represents the rights to the related Trust
Property in excess of the Securityholders'
interest of all series then outstanding that were
issued by such Trust. The Residual Interest in
any Trust Property will fluctuate as the
aggregate principal balance of Receivables of
such Trust (the "Pool Balance") changes from time
to time. A portion of the Residual Interest in
any Trust may be sold separately in one or more
public or private transactions. See "Description
of the Trust Agreements--Master Trusts."
Cross-Collateralization..... As described in the related Trust Agreement and
the related Prospectus Supplement, the primary
source of payment for Securities of each series
will be the related Trust Property only.
However, as may be described in the related
Prospectus Supplement, a series or class of
Securities may include the right to receive
moneys from a common pool of Credit Enhancement
which may be available for more than one series
of Securities, such as a master
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reserve account, master insurance policy or a
master collateral pool consisting of similar
Receivables.
Trust Property.............. As more fully specified in the related Prospectus
Supplement, the Trust Property will consist of
certain Contracts, and generally will include a
security interest in the related Vehicles. The
Contracts are obligations for the purchase of the
Vehicles, or evidence borrowings used to purchase
the Vehicles. As specified in the related
Prospectus Supplement, the Contracts may consist
of any combination of Rule of 78s Contracts,
Actuarial Contracts, Simple Interest Contracts
(each, as defined hereinafter) or other forms of
Contracts as described therein. See "The
Receivables--The Contracts".
The related Prospectus Supplement will further
describe the type and characteristics of the
Contracts included in the Trust Property relating
to the Securities offered pursuant to this
Prospectus and the related Prospectus Supplement.
The Receivables comprising the Trust Property
will be originated by the Bank or its affiliates
or acquired by the Bank from other originators or
owners of Receivables.
The Bank will either transfer a pool of
Receivables to a Trust pursuant to a Pooling
Agreement or a sale agreement, or will pledge the
Bank's right, title and interest in and to such
Receivables to a Trustee on behalf of
Securityholders pursuant to an Indenture. The
relative rights and duties of the Bank, the
Servicer and the related Trustee, if any, under
the related Trust Agreement include those
specified below and in the related Prospectus
Supplement.
In addition, if so specified in the related
Prospectus Supplement, the Trust Property will
include monies on deposit in a Pre-Funding
Account (the "Pre-Funding Account") to be
established with the related Trustee, which will
be used to acquire Additional Receivables (as
hereinafter defined) from time to time during the
"Pre-Funding Period" specified in the related
Prospectus Supplement. The amount on deposit in
any Pre-Funding Account, if any, will be reduced
during the related Pre-Funding Period by the
amount thereof used to purchase Additional
Receivables. Any amount remaining in the Pre-
Funding Account at the end of the related Pre-
Funding Period will be distributed to the related
Securityholders on the Distribution Date
immediately following the end of the Pre-Funding
Period.
If and to the extent provided in the related
Prospectus Supplement, the Bank will be obligated
(subject only to the availability thereof either
to transfer to the related Trust or pledge to the
related Trustee on behalf of the related
Securityholders, additional Receivables
(the "Additional Receivables") from time to time
during any Pre-Funding Period specified in the
related Prospectus Supplement. See "Description
of the Trust Agreements--Pre-Funding Accounts."
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Yield Maintenance
Accounts.................... Certain of the Receivables may have annual
percentage rates of interest ("APR") which are
less than the sum of the related Interest Rate,
the Servicing Fee Rate and, if applicable, the
rates at which the premium of a Credit Enhancer
(as defined hereinafter) and the Trustee's fee
are calculated (the sum of such rates, the
"Required Rate"). In such event, a Yield
Maintenance Account may be established as a
segregated trust account into which the Issuer
may make one or more deposits in an aggregate
amount (the "Yield Maintenance Amount") necessary
to fund any shortfall on interest collections
which results from Receivables having an APR of
less than the Required Rate.
Registration of Securities;
Clearance and Settlement... Unless otherwise set forth in a Prospectus
Supplement, the Securities will initially be
represented by one or more global securities
registered in the name of Cede & Co. ("Cede") as
the nominee of DTC or another depositary.
Securityholders must elect to hold their
Securities through any of DTC (in the United
States), Cedel Bank, societe anonyme ("Cedel") or
Euroclear System ("Euroclear") (in Europe).
Transfers within DTC, Cedel or Euroclear, as the
case may be, will be in accordance with the usual
rules and operating procedures of the relevant
system. In such case, Securityholders will not be
entitled to receive definitive securities
representing such Securityholders' interests,
except in certain circumstances described in the
related Prospectus Supplement. See "Description
of the Securities--Book-Entry Registration."
Repurchase Obligations of As more fully described in the related Prospectus
the Bank.................... Supplement, the Bank will be obligated to
reacquire from the related Trust Property any
Receivable which was transferred pursuant to a
Pooling Agreement or pledged pursuant to an
Indenture if the interest of the Securityholders
therein is materially and adversely affected by a
breach of any representation or warranty made by
the Bank with respect to such Receivable, which
breach has not been cured. In addition, if so
specified in the related Prospectus Supplement,
the Bank may from time to time reacquire certain
Receivables of the Trust Property, subject to
specified conditions set forth in the related
Trust Agreement.
Servicer's Compensation..... The related Servicer shall be entitled to receive
a fee for servicing the related Trust Property
equal to a specified percentage of the value of
such Trust Property, as set forth in the related
Prospectus Supplement. See "Description of the
Trust Agreements--Servicing Compensation and
Payment of Expenses" herein and in the related
Prospectus Supplement.
Optional Termination........ The Servicer, the Bank, or, if specified in the
related Prospectus Supplement, certain other
entities may, at their respective options, effect
early retirement of a series of Securities under
the circumstances and in the manner set forth
herein under "Description of the Trust
Agreements--Termination" herein and in the
related Prospectus Supplement.
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Mandatory Termination....... The Trustee, the Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of all or any portion of a series of
Securities by soliciting competitive bids for the
purchase of the Trust Property or otherwise,
under other circumstances and in the manner
specified in "Description of the Trust
Agreements--Termination" herein and in the
related Prospectus Supplement.
Tax Considerations.......... Securities of each series offered hereby will,
for federal income tax purposes, constitute
either (i) interests in a Trust treated as a
grantor trust under applicable provisions of the
Internal Revenue Code of 1986, as amended (the
"Code"), (ii) debt issued by a Trust or by the
Bank, (iii) interests in a Trust treated as a
partnership, (iv) interests in a Trust treated as
debt of the Bank, or (v) "regular" or "high-yield
interests" issued by a FASIT.
The Prospectus Supplement for each series of
Securities will summarize, subject to the
limitations stated therein, federal income tax
considerations relevant to the purchase,
ownership and disposition of such Securities.
Investors are advised to consult their tax
advisors and to review "Certain Federal Income
Tax Consequences" in the related Prospectus
Supplement.
ERISA Considerations........ The Prospectus Supplement for each series of
Securities will summarize, subject to the
limitations discussed therein, considerations
under the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), relevant to the
purchase of such Securities by employee benefit
plans and individual retirement accounts. See
"ERISA Considerations" in the related Prospectus
Supplement.
Legal Investment............ The related Prospectus Supplement will describe
each Class of Securities, if any, that will be
eligible for purchase by money market funds under
Rule 2a-7 under the Investment Company Act.
Ratings..................... Each Class of Securities offered pursuant to this
Prospectus and the related Prospectus Supplement
will be rated in one of the four highest rating
categories by one or more "national statistical
rating organizations", as defined in the Exchange
Act, and commonly referred to as "Rating
Agencies". Such ratings will address, in the
opinion of such Rating Agencies, the likelihood
that the Issuer will be able to make timely
payment of all amounts of interest due on the
related Securities and ultimate payment of all
amounts of principal due thereon in accordance
with the terms thereof. Such ratings will neither
address any prepayment or yield considerations
applicable to any Securities nor constitute a
recommendation to buy, sell or hold any
Securities.
The ratings expected to be received with respect
to any Securities will be set forth in the
related Prospectus Supplement.
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<PAGE>
RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
Limited Liquidity. There can be no assurance that a secondary market for the
Securities of any series or Class will develop or, if it does develop, that it
will provide Securityholders with liquidity of investment or that it will
continue for the life of such Securities. The Prospectus Supplement for any
series of Securities may indicate whether or not such series will be listed on
any securities exchange or whether any underwriter specified therein intends
to establish and maintain a secondary market in such Securities.
Ownership of Contracts. In connection with the issuance of any series of
Securities, the Bank will originate or acquire Contracts or CFC will originate
or acquire Contracts and assign them to the Bank. The Bank will warrant in the
related Trust Agreement (i) if the Bank retains title to the Contracts, that
the Trustee for the benefit of Securityholders has a valid security interest
in such Contracts, or (ii) if the Bank transfers such Contracts to a Trust,
that the transfer of the Contracts to such Trust either (x) is a valid
assignment, transfer and conveyance of the Contracts to the Trust or (y)
results in the related Trustee on behalf of the Securityholders having a valid
security interest in such Contracts. As to be described in the related
Prospectus Supplement, the related Trust Agreement will provide either that
the Trustee will be required to maintain possession of the original copies of
all Contracts that constitute chattel paper or that the Bank or the Servicer
will retain possession of such Contracts; provided that in case the Bank
retains possession of the related Contracts, the Servicer may take possession
of such original copies as necessary for the enforcement of any Contract. If
any Contracts remain in the possession of the Bank, the related Prospectus
Supplement may describe specific trigger events that will require delivery of
the Contracts to the Trustee. If the Bank, the Servicer, the Trustee or other
third party, while in possession of the Contracts, sells or pledges and
delivers such Contracts to another party, in violation of the Trust Agreement,
there is a risk that such other party could acquire an interest in such
Contracts having a priority over the Issuer's interest. Furthermore, if the
Bank, the Servicer or a third party, while in possession of the Contracts, is
rendered insolvent, such event of insolvency may result in competing claims to
ownership or security interests in the Contracts. Such an attempt, even if
unsuccessful, could result in delays in payments on the Securities. If
successful, such attempt could result in losses to the Securityholders or an
acceleration of the repayment of the Securities. The Bank will be obligated to
repurchase any Contract transferred to a Trust by the Bank which remains a
part of the related Trust Property if there is a breach of the Bank's
representations and warranties that materially and adversely affects the
interests of the Trust in such Contract and such breach has not been cured.
Security Interests. The transfer of the Receivables by the Bank to a Trustee
or a Trust pursuant to the related Trust Agreement, the perfection of the
security interests in the Receivables and the enforcement of rights to realize
on the Vehicles as collateral for the Receivables are subject to a number of
federal and state laws, including the UCC as in effect in various states. As
specified in each Prospectus Supplement, the Servicer will take such action as
is required to perfect the rights of the Trustee or Trust in the Receivables.
Except as specified in each Prospectus Supplement, no action will be taken to
perfect the rights of the Trustee in proceeds of any insurance policies
covering individual Vehicles or Obligors. Therefore, the rights of a third
party with an interest in such proceeds could prevail against the rights of
the related Issuer prior to the time such proceeds are deposited by the
Servicer into a Trust Account (as hereinafter defined). See "Certain Legal
Aspects of the Receivables".
Each Contract will create a perfected security interest in the related
Vehicle in favor of CFC or the Bank or their designees (and, if perfected in
the name of CFC or the Bank, assigned pursuant to the related Trust Agreement
to the related Trustee for the benefit of the Securityholders). However, to
the extent provided in the related Prospectus Supplement, due to the
administrative burden and expense, the certificates of title of the Vehicles
securing certain Contracts which reflect the security interest of the Bank in
such Vehicles may not be endorsed to reflect the Trustee's interest therein or
delivered to the Trustee. In the absence of such endorsement and delivery, the
Trustee may not have a perfected security interest in such Vehicles. As a
result, a trustee in bankruptcy of a Lender (as defined hereinafter), or a
receiver for the Bank may be able to assert successfully
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<PAGE>
that the Trust or the Trustee did not have a security interest in the Vehicle.
In addition, statutory liens for repairs or unpaid taxes and other liens
arising by operation of law may have priority even over prior perfected
security interests in the name of the Trustee in the Vehicles.
Restrictions on Recoveries. Unless specific limitations are described in the
related Prospectus Supplement with respect to specific Contracts, all
Contracts will provide that the obligations of the Obligors thereunder are
absolute and unconditional, regardless of any defense, set-off or abatement
which the Obligor may have against the Bank or any other person or entity
whatsoever. At the time of transfer to the related Trustee, the Bank will
warrant that no claims or defenses have been asserted or threatened with
respect to the Contracts and that all requirements of applicable law with
respect to the Contracts have been satisfied.
In the event that the Bank or the Servicer must rely on repossession and
disposition of Vehicles to recover scheduled payments due on Defaulted
Receivables (as defined in the related Trust Agreement), the Issuer may not
realize the full amount due on a Contract (or may not realize the full amount
on a timely basis). Other factors that may affect the ability of the Issuer to
realize the full amount due on a Contract include whether amendments to
certificates of title relating to the Vehicles had been filed, whether
financing statements to perfect the security interest in the Vehicles had been
filed, depreciation, obsolescence, damage or loss of any Vehicle, and the
application of federal and state bankruptcy and insolvency laws. As a result,
the Securityholders may be subject to delays in receiving payments and suffer
loss of their investment in the Securities.
Financial Institution Insolvency Risks. The Bank intends that each transfer
by it to a Trustee or Trust will constitute either a valid sale and assignment
of the Receivables or a grant of a security interest in the Receivables. To
the extent the Bank grants a security interest in the Receivables transferred
by it to the related Trustee, and such security interest is validly perfected
before the occurrence of an insolvency event and is not taken or granted in
contemplation of insolvency or with the intent to hinder, delay or defraud the
Bank or its creditors, the Federal Deposit Insurance Act, as amended ("FDIA"),
including as amended by the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, as amended ("FIRREA"), provides generally that such
security interest should not be subject to avoidance by the Federal Deposit
Insurance Corporation (the "FDIC") as receiver or conservator for the Bank.
Subject to clarification by regulations or interpretations, positions taken by
the FDIC staff prior to the passage of FIRREA do not suggest that the FDIC, as
receiver or conservator for the Bank, would interfere with the timely transfer
to the related Trustee of payments collected on the related Receivables. If,
however, the FDIC were to assert a contrary position, such as requiring the
Trustee to establish its right to those payments by submitting to and
completing the administrative claims procedure under the FDIA, or the
conservator or receiver were to request a stay of proceedings with respect to
the Bank as provided under the FDIA, delays in payments on the Securities and
possible reductions in the amount of those payments could occur. In addition,
the FDIC, if appointed as conservator or receiver for the Bank, has the power
under the FDIA to repudiate contracts, including secured contracts of the
Bank. The FDIA provides that a claim for damages arising from the repudiation
of a contract is limited to "actual direct compensatory damages." In the event
the FDIC were to be appointed as conservator or receiver of the Bank and were
to repudiate a Trust Agreement, then the amount payable out of available
collections on the related Receivables to the related Securityholders could be
lower than the outstanding principal and accrued interest on the related
Securities.
Insurance on Vehicles. Each Receivable generally requires the related
Obligor to maintain insurance covering physical damage to the Vehicle in an
amount not less than the unpaid principal balance of such Receivable pursuant
to which the Bank (or CFC in the case of Receivables originated or acquired by
CFC) is named as a loss payee. Since the Obligors select their own insurers to
provide the requisite coverage, the specific terms and conditions of their
policies vary.
In addition, although each Receivable generally gives the Bank the right to
force place insurance coverage in the event the required physical damage
insurance on a Vehicle is not maintained by an Obligor, neither the Bank nor
the Servicer is obligated to place such coverage. In the event insurance
coverage is not maintained by Obligors and coverage is not force placed, then
insurance recoveries may be limited in the event of losses or casualties to
Vehicles included in the Trust Property, as a result of which Securityholders
could suffer a loss on their investment.
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<PAGE>
Delinquencies and Losses. There can be no assurance that the historical
levels of delinquencies and losses experienced by a Lender on its respective
loan and vehicle portfolio will be indicative of the performance of the
Contracts included in a Trust or that such levels will continue in the future.
Delinquencies and losses could increase significantly for various reasons,
including changes in the local, regional or national economies or other
events.
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one Class of
Securities of a series may be subordinated in priority of payment to interest
and principal due on other Classes of Securities of a related series.
Moreover, the Trust Property will not have, nor is it permitted or expected to
have, any significant assets or sources of funds other than the related
Receivables and, to the extent provided in the related Prospectus Supplement,
the related reserve account and any other Credit Enhancement. The Securities
represent obligations solely of the related Trust or debt secured by the
related Trust Property, and will not represent a recourse obligation to other
assets of the Bank. No Securities of any series will be insured or guaranteed
by the Bank, the Servicer, or the applicable Trustee. Consequently, holders of
the Securities of any series must rely for repayment primarily upon payments
on the Receivables and, if and to the extent available, the reserve account,
if any, and any other Credit Enhancement, all as specified in the related
Prospectus Supplement.
Master Trusts. As may be described in the related Prospectus Supplement, a
Master Trust may issue from time to time more than one series. While the terms
of any additional series will be specified in a supplement to the related
Master Trust Agreement, the provisions of such supplement and, therefore, the
terms of any additional series, will not be subject to prior review by, or
consent of, holders of the Securities of any series previously issued by such
Master Trust. Such terms may include methods for determining applicable
investor percentages and allocating collections, provisions creating different
or additional security or Credit Enhancements and any other provisions which
are made applicable only to such series. The obligation of the related Trustee
to issue any new series is subject to the condition, among others, that such
issuance will not result in any Rating Agency reducing or withdrawing its
rating of the Securities of any outstanding series (any such reduction or
withdrawal is referred to herein as a "Ratings Effect"). There can be no
assurance, however, that the terms of any series might not have an impact on
the timing or amount of payments received by a Securityholder of another
series issued by the same Master Trust. See "Description of the Trust
Agreements--Master Trusts."
Book-Entry Registration. Issuance of the Securities in book-entry form may
reduce the liquidity of such Securities in the secondary trading market since
investors may be unwilling to purchase Securities for which they cannot obtain
definitive physical securities representing such Securityholders' interests,
except in certain circumstances described in the related Prospectus
Supplement. In addition, beneficial owners of Securities may not be recognized
as Securityholders under the terms of a Trust Agreement and may exercise
rights only indirectly through DTC, Cedel or Euroclear.
Since transactions in Securities will, in most cases, be able to be effected
only through DTC, direct or indirect participants in DTC's book-entry system
or certain banks, the ability of a Securityholder to pledge a Security to
persons or entities that do not participate in the DTC system, or otherwise to
take actions in respect to such Securities, may be limited due to lack of a
physical security representing the Securities.
Securityholders may experience some delay in their receipt of distributions
of interest on and principal of the Securities since distributions may be
required to be forwarded by the Trustee to DTC and, in such case, DTC will be
required to credit such distributions to the accounts of its Participants (as
defined hereinafter) which thereafter will be required to credit them to the
accounts of the applicable class of Securityholders either directly or
indirectly through Indirect Participants (as defined hereinafter). See
"Description of the Securities--Book Entry Registration."
Security Rating. The rating of Securities secured by external Credit
Enhancement will depend primarily on the creditworthiness of the issuer of
such external Credit Enhancement (a "Credit Enhancer"). Any reduction in the
rating assigned to the claims-paying ability of the related Credit Enhancer to
honor its obligations
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<PAGE>
pursuant to any such Credit Enhancement below the rating initially given to the
Securities would likely result in a reduction in the rating of the related
Securities.
Maturity and Prepayment Considerations. Because the rate of payment of
principal on the Securities will depend, among other things, on the rate of
payment on the related Contracts, the rate of payment of principal on the
Securities cannot be predicted. Payments on the Contracts will include
scheduled payments as well as partial and full prepayments (to the extent not
replaced with substitute Contracts), payments upon the liquidation of Defaulted
Contracts, payments upon acquisitions by the Servicer or the Bank of Contracts
from the related Trust Property on account of a breach of certain
representations and warranties in the related Trust Agreement, and payments
upon an optional acquisition by the Servicer or the Bank of Contracts from the
related Trust Property (any such voluntary or involuntary prepayment or other
early payment of a Contract, a "Prepayment"). The rate of early terminations of
Contracts due to Prepayments and defaults may be influenced by a variety of
economic and other factors, including, among others, obsolescence, then current
economic conditions and tax considerations. The risk of reinvesting
distributions of the principal of the Securities will be borne by the
Securityholders. The yield to maturity on Strip Securities or Securities
purchased at premiums or discounts to par will be extremely sensitive to the
rate of Prepayments on the related Receivables. In addition, the yield to
maturity on certain other types of classes of Securities, including Strip
Securities, Accrual Securities or certain other Classes in a series including
more than one Class of Securities, may be relatively more sensitive to the rate
of prepayment of the related Contracts than other Classes of Securities.
The rate of Prepayments of Contracts cannot be predicted and is influenced by
a wide variety of economic, social, and other factors, including prevailing
interest rates, the availability of alternate financing and local and regional
economic conditions. Therefore, no assurance can be given as to the level of
Prepayments that a Trust will experience.
Securityholders should consider, in the case of Securities purchased at a
discount, the risk that a slower than anticipated rate of Prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that
a faster than anticipated rate of Prepayments on the Receivables could result
in an actual yield that is less than the anticipated yield.
Limitations on Interest Payments and Repossessions. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, an Obligor who enters military
service after the origination of the related Receivable (including an Obligor
who is a member of the National Guard or is in reserve status at the time of
the origination of the Receivable and is later called to active duty) may not
be charged interest (including fees and charges) above an annual rate of 6%
during the period of such Obligor's active duty status, unless a court orders
otherwise upon application of the lender. It is possible that such action could
have an effect, for an indeterminate period of time, on the ability of the
Servicer to collect full amounts of interest on certain of the Receivables. In
addition, the Relief Act imposes limitations that would impair the ability of
the Servicer to repossess a Vehicle during the Obligor's period of active duty
status. Thus, in the event that such a Receivable goes into default, there may
be delays and losses occasioned by the inability of the Servicer to realize
upon the Vehicle in a timely fashion.
Financial Condition of the Bank. The Bank is generally not obligated to make
any payments in respect of the Securities or the Receivables of a specific
Trust. If the Bank were acting as the Servicer and thereafter ceases so to act,
delays in processing payments on the Receivables and information in respect
thereof could occur and result in delays in payments to the Securityholders.
In certain circumstances, the Bank will be required to acquire Receivables
from the related Trust Property with respect to which such representations and
warranties have been breached. In the event that the Bank is incapable of
complying with its reacquire obligations and no other party is obligated to
perform or satisfy such obligations, Securityholders may be subject to delays
in receiving payments and suffer loss of their investment in the Securities.
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The related Prospectus Supplement will set forth certain information
regarding the Bank. In addition, the Bank is subject to the information
requirements of the Exchange Act and, in accordance therewith, file reports
and other information with the Commission. For further information regarding
the Bank reference is made to such reports and other information which are
available as described under "Available Information."
Consumer Protection Laws. The Receivables are subject to federal and state
consumer protection laws which impose requirements with respect to the making,
transfer, acquisition, enforcement and collection of consumer loans. Such
laws, as well as any new laws or rules which may be adopted, may adversely
affect the Servicer's ability to collect on the Receivables. In addition,
failure by the Bank to have complied, or the Servicer to comply, with such
requirements could adversely affect the enforceability of the Receivables. The
Bank will make representations and warranties relating to the validity and
enforceability of the Receivables and its compliance with applicable law in
connection with its performance of the transactions contemplated by the
related Trust Agreement. Pursuant to such Trust Agreement, if the Trust's
interest in a Receivable is materially and adversely affected by the failure
of a Receivable to comply with applicable requirements of consumer protection
law, such Receivable will be repurchased by the Bank. The sole remedy if any
such representation or warranty is not complied with and such noncompliance
continues beyond the applicable cure period is that the Receivables affected
thereby will be repurchased by the Bank.
THE TRUST PROPERTY
The Trust Property will include, as specified in the related Prospectus
Supplement, (i) a pool of Receivables, (ii) all monies (including accrued
interest) due or received thereunder on or after the date on which the
payments made with respect to the Receivables are payable to the related
Trustee (the applicable "Cut-off Date"), (iii) such amounts as from time to
time may be held in one or more accounts established and maintained by the
Servicer pursuant to the related Trust Agreement, as described below and in
the related Prospectus Supplement, (iv) the security interests, if any, in the
Vehicles relating to such pool of Receivables, (v) unless otherwise specified
in the related Prospectus Supplement, the right to proceeds from claims on
physical damage, credit life insurance and disability policies or other
policies, if any, covering such Vehicles or the related Obligors, as the case
may be, (vi) the proceeds of any repossessed Vehicles related to such pool of
Receivables, (vii) the rights of the Bank under agreements pursuant to which
the Bank may have acquired such Receivables, (viii) interest earned on certain
short-term investments held as part of such Trust Property, unless the related
Prospectus Supplement specifies that such earnings may be paid to the Servicer
or the Bank, and (ix) Additional Receivables which may be added to the Trust
Property from time to time. The Trust Property will also include, if so
specified in the related Prospectus Supplement, monies on deposit in a Pre-
Funding Account, which will be used by the Trustee to acquire or receive a
security interest in Additional Receivables from time to time during the Pre-
Funding Period specified in the related Prospectus Supplement. See
"Description of the Trust Agreement--Pre-Funding Accounts." In addition, to
the extent specified in the related Prospectus Supplement, some combination of
Credit Enhancements may be issued to or held by the Trustee on behalf of the
related Trust for the benefit of the holders of one or more classes of
Securities.
The Receivables comprising the Trust Property will, as specifically
described in the related Prospectus Supplement, be purchased or originated by
the Bank, its wholly-owned subsidiary, CFC or another originator (each, a
"Lender" and together, the "Lenders"). The underwriting criteria applicable to
the Receivables included in any Trust Property will be described in all
material respects in the related Prospectus Supplement.
The Trust Property will include Receivables with respect to which the
related Contract or the related Vehicles are subject to federal or state
registration or titling requirements applicable to motor vehicles.
The Receivables included in the Trust Property will be selected from those
Receivables held by the Bank based on the criteria specified in the applicable
Trust Agreement and described herein or in the related Prospectus Supplement.
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With respect to each series of Securities, on or prior to the date on which
the Securities are delivered to Securityholders (the "Closing Date"), the Bank
will either (i) transfer the related Receivables into a Trust pursuant to a
Pooling Agreement between the Bank and the Trustee or (ii) enter into an
Indenture with a Trustee relating to the issuance of such Securities, secured
by the related Receivables.
THE ISSUERS
With respect to each series of Securities, the Bank will either issue such
Securities or will establish a separate Trust that will issue such Securities,
in either case pursuant to the related Trust Agreement. For purposes of this
Prospectus and the related Prospectus Supplement, Bank or, in the case of
Securities issued by a Trust, such Trust shall be referred to as the Issuer
with respect to the related Securities.
Upon the issuance of the Securities of a given series, the proceeds from such
issuance will be used by the related Trustee to acquire the related
Receivables. The Servicer will service the related Receivables pursuant to the
applicable Servicing Agreement, and will be compensated for acting as the
Servicer. To facilitate servicing and to minimize administrative burden and
expense, the Servicer may be appointed custodian for the related Receivables by
each Trustee and the Bank, as may be set forth in the related Prospectus
Supplement.
If the protection provided to the Securityholders of a given Class by the
subordination of another Class of Securities of such series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such series is insufficient, the Issuer must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Vehicles which secure the Defaulted Contracts. In such event, certain
factors may affect such Issuer's ability to realize on the collateral securing
such Contracts, and thus may reduce the proceeds to be distributed to the
Securityholders of such series.
THE RECEIVABLES
RECEIVABLES POOLS
Information with respect to the Receivables in the related Trust Property
will be set forth in the related Prospectus Supplement, including, to the
extent appropriate, the composition of such Receivables and the distribution of
such Receivables by geographic concentration, payment frequency and current
principal balance as of the applicable Cut-off Date.
THE CONTRACTS
As specified in the related Prospectus Supplement, the Contracts may consist
of any combination of Rule of 78s Contracts, Actuarial Contracts or Simple
Interest Contracts. Generally, "Rule of 78s Contracts" provide for fixed level
monthly payments which will amortize the full amount of the Contract over its
term. The Rule of 78s Contracts provide for allocation of payments according to
the "sum of periodic balances" or "sum of monthly payments" method (the "Rule
of 78s"). Each Rule of 78s Contract provides for the payment by the Obligor of
a specified total amount of payments, payable in monthly installments on the
related due date, which total represents the principal amount financed and
finance charges in an amount calculated on the basis of APR for the term of
such Contract. The rate at which such amount of finance charges is earned and,
correspondingly, the amount of each fixed monthly payment allocated to
reduction of the outstanding principal balance of the related Contract are
calculated in accordance with the Rule of 78s. Under the Rule of 78s, the
portion of each payment allocable to interest is higher during the early months
of the term of a Contract and lower during later months than that under a
constant yield method for allocating payments between interest and principal.
Notwithstanding the foregoing, as specified in the related Prospectus
Supplement, all payments received by the Servicer on or in respect of the Rule
of 78s Contracts may be allocated on an actuarial or simple interest basis.
If an Obligor elects to prepay a Rule of 78s Contract in full, it is entitled
to a rebate of the portion of the outstanding balance then due and payable
attributable to unearned finance charges. If a Simple Interest Contract
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is prepaid, rather than receive a rebate, the Obligor is required to pay
interest only to the date of prepayment. The amount of a rebate under a Rule of
78s Contract calculated in accordance with the Rule of 78s will always be less
than had such rebate been calculated on an actuarial basis and generally will
be less than the remaining scheduled payments of interest that would be due
under a Simple Interest Contract for which all payments were made on schedule.
Distributions to Securityholders may not be affected by Rule of 78s rebates
under the Rule of 78s Contract because pursuant to the related Prospectus
Supplement such distributions may be determined using the actuarial or simple
interest method.
Generally, the "Actuarial Contracts" provide for amortization of the loan
over a series of fixed level payment monthly installments. A fixed, scheduled
amount is due monthly on a specified date; the application of the payment to
principal and interest is not affected by whether the payment was received on
the scheduled due date, or early or late.
"Simple Interest Contracts" provide for the amortization of the amount
financed under the receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78s Contracts, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are
received under a Simple Interest Contract, the amount received is applied first
to interest accrued to the date of payment and the balance is applied to reduce
the unpaid principal balance. 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.
DELINQUENCIES AND LOSSES
Certain information relating to a Lender's delinquency and loss experience
with respect to Contracts it has originated or acquired will be set forth in
each Prospectus Supplement. This information may include, among other things,
the experience with respect to all Contracts in such Lender's portfolio during
certain specified periods. There can be no assurance that the delinquency and
loss experience on any Trust Property will be comparable to such Lender's prior
experience.
MATURITY AND PREPAYMENT CONSIDERATIONS
As more fully described in the related Prospectus Supplement, if a Contract
permits a Prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities.
The rate of Prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain
circumstances, the Bank will be obligated to reacquire Receivables from the
related Trust Property pursuant to the applicable Trust Agreement as a result
of breaches of representations and warranties. Any reinvestment risks resulting
from a faster or slower amortization of the related Securities which results
from Prepayments will be borne entirely by the related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related series of
Securities, together with a description of any applicable prepayment penalties.
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AUTOMOBILE FINANCING PROGRAMS
UNDERWRITING PROCEDURES
Each Receivable was originated or purchased by a Lender after a review by
such Lender in accordance with its established underwriting procedures. Each
Lender has its own underwriting procedures which will be more fully described
in the related Prospectus Supplement; however, some of the current
underwriting practices of the Lenders are noted in the following paragraphs.
Generally, the underwriting procedures of the Lenders are designed to
provide a basis for assessing the Obligor's ability and willingness to repay
the loan. In conducting this assessment, the Lenders consider the Obligor's
ratio of debt to income and evaluate the Obligor's credit history through a
review of a written credit report compiled by a recognized consumer credit
reporting bureau. The Obligor's equity in the collateral and the terms of the
loan are of secondary importance in the Lender's analysis. The Lenders'
guidelines are intended only to provide a basis for lending decisions, and
exceptions to such guidelines may, within certain limits, be made based upon
the credit judgment of the lending officer. The Lenders periodically conduct
quality audits to ensure compliance with their established policies and
procedures.
CFC's underwriting guidelines relate to a category of lending in which loans
may be made to applicants who have experienced certain adverse credit events
(and therefore would not necessarily meet all of the Bank's guidelines for its
traditional loan program) but who meet certain other creditworthiness tests.
Such loans may experience higher rates of delinquencies, repossessions and
losses, especially under adverse economic conditions, as compared with loans
originated pursuant to the Bank's traditional lending program.
SELECTION CRITERIA
The Receivables with respect to each issuance of Securities will be selected
from the Lenders' portfolios on the basis of a number of criteria specified in
the related Prospectus Supplement, including the following: (i) original term
to maturity, (ii) final maturity date, (iii) except as otherwise disclosed,
Contracts which provide for level monthly payments that fully amortize the
amount financed over the original term, (iv) maximum number of days delinquent
and (v) Contracts which have an unpaid principal balance of not less than a
specified amount as of the applicable Cut-Off Date.
Contracts are generally prepayable at any time. No Lender maintains records
of the historical prepayment experience of its automobile receivables
portfolio, and the Bank can make no prediction as to the actual prepayment
experience on the Receivables.
The composition, distribution by APR and geographical distribution of the
Receivables as of the applicable Cut-Off Date will be as set forth in the
applicable Prospectus Supplement.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with
respect to such Class of Securities, indicating the remaining outstanding
principal balance of such Class of Securities as of the applicable
Distribution Date, as a fraction of the initial outstanding principal balance
of such Class of Securities. Each Pool Factor will be initially 1.0000000, and
thereafter will decline to reflect reductions in the outstanding principal
balance of the applicable Class of Securities. A Securityholder's portion of
the aggregate outstanding principal balance of the related Class of Securities
is the product of (i) the original face amount of such Securityholder's
Securities and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement with
respect to each series of Securities, the related Securityholders of record
will receive reports on or about each Distribution Date
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concerning the payments received on the Receivables, the Pool Balance, each
Pool Factor and various other items of information. 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.
USE OF PROCEEDS
Except as provided in the related Prospectus Supplement, the proceeds from
the sale of the Securities of a given series will be used by the Bank or a
Trust for the acquisition of the related Receivables, to fund reserve
accounts, for issuance expenses, and/or general corporate purposes, including,
without limitation, the acquisition of additional Receivables, the repayment
of indebtedness and general working capital purposes.
THE LENDERS
GENERAL
The Bank, which is one of the Lenders, is a federally chartered stock
savings bank. The Bank's home office is located at 7926 Jones Branch Drive,
McLean, Virginia 22102, and the Bank's principal executive offices are located
at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815. The Bank's telephone
number is (301) 986-7000. The Bank is subject to comprehensive regulation,
examination and supervision by the Office of Thrift Supervision (the "OTS")
within the Department of the Treasury and by the FDIC. Deposits at the Bank
are fully insured up to $100,000 per insured depositor by the Savings
Association Insurance Fund ("SAIF"), which is administered by the FDIC. For
further information regarding the Bank, its assets, capitalization, and
regulatory status and the effect of current legislation, see the related
Prospectus Supplement.
The other Lender, CFC, is a wholly-owned subsidiary of the Bank, formed in
December 1994 for the purpose of providing automobile financing to applicants
who may have experienced certain adverse credit events.
THE TRUSTEE(S)
The Trustee for each series of Securities will be specified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Agreement.
With respect to each series of Securities, the procedures for the
resignation or removal of the Trustee and the appointment of a successor
Trustee shall be specified in the related Prospectus Supplement to the extent
such procedures differ from those described herein under "Description of the
Trust Agreements--Duties and Immunities of the Trustee."
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DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in series. Each series of Securities (or, in
certain instances, two or more series of Securities) will be issued pursuant
to a Trust Agreement. The following summaries (together with additional
summaries under "Description of the Trust Agreements" below) describe all
material terms and provisions relating to the Securities common to each Trust
Agreement. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Trust Agreement for the related Securities and the related Prospectus
Supplement.
All of the Securities offered pursuant to this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating
categories by one or more Rating Agencies.
The Securities will generally be styled as having a principal or notional
balance and a specified Interest Rate. The Securities may either represent
beneficial ownership interests in the related Receivables held by the related
Trust or debt secured by certain assets of the related Issuer.
Each series or Class of Securities offered pursuant to this Prospectus may
have a different Interest Rate, which may be a fixed or adjustable interest
rate, or tied to an index. The related Prospectus Supplement will specify the
Interest Rate for each series or Class of Securities described therein, or the
initial interest rate and the method for determining subsequent changes to the
Interest Rate.
A series may include one or more Classes of Strip Securities entitled (i) to
principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate,
nominal or no principal distributions. In addition, a series of Securities may
include two or more Classes of Securities that differ as to timing, sequential
order, priority of payment, Interest Rate or amount of distribution of
principal or interest or both, or as to which distributions of principal or
interest or both on any Class may be made upon the occurrence of specified
events, in accordance with a schedule or formula, or on the basis of
collections from designated portions of the related pool of Receivables. Any
such series may include one or more Classes of Accrual Securities, as to which
certain accrued interest will not be distributed but rather will be added to
the principal balance (or nominal balance, in the case of Accrual Securities
which are also Strip Securities) thereof on each Distribution Date (as
hereinafter defined) or in the manner described in the related Prospectus
Supplement.
If so provided in the related Prospectus Supplement, a series may include
one or more other Classes of Senior Securities that are senior to one or more
other Classes of Subordinate Securities in respect of certain distributions of
principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or Subordinate) Securities in respect of
such distributions or losses.
GENERAL PAYMENT TERMS OF SECURITIES
As provided in the related Trust Agreement and as described in the related
Prospectus Supplement, Securityholders will be entitled to receive payments on
their Securities on the specified Distribution Dates. Distribution Dates with
respect to the Securities will occur monthly, quarterly or semi-annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date preceding
such Distribution Date, as of which the Trustee or its paying agent will fix
the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Distribution Date. Unless otherwise described in the
related Prospectus Supplement, the Distribution Date may be the fifteenth day
of each month (or, in the case of quarterly-pay Securities, the fifteenth day
of every third month; and in the case of semi-annual pay Securities, the
fifteenth day
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of every sixth month) and the Record Date will be the close of business as of
the last day of the calendar month that precedes the calendar month in which
such Distribution Date occurs.
Each Trust Agreement will describe a Collection Period preceding each
Distribution Date (for example, in the case of monthly-pay Securities, the
calendar month preceding the month in which a Distribution Date occurs). As
more fully provided in the related Prospectus Supplement, collections received
on or with respect to the related Receivables constituting the related Trust
Property during a Collection Period will be required to be remitted by the
Servicer to the related Trustee prior to the related Distribution Date and
will be used to fund payments to Securityholders on such Distribution Date. As
may be described in the related Prospectus Supplement, the related Trust
Agreement may provide that all or a portion of the payments collected on or
with respect to the related Receivables may be applied by the related Trustee
to the acquisition of additional Receivables during a specified period (rather
than be used to fund payments of principal to Securityholders during such
period) with the result that the related Securities will possess an interest-
only period, also commonly referred to as a revolving period, which will be
followed by an amortization period. Any such interest only or revolving period
may, upon the occurrence of certain events to be described in the related
Prospectus Supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Trust Agreement may provide that all or a portion of such
collected payments may be retained by the Trustee (and held in certain
temporary investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders. Such retention
and temporary investment by the Trustee of such collected payments may be
required by the related Trust Agreement for the purposes of (a) slowing the
amortization rate of the related Securities relative to the installment
payment schedule of the related Receivables, or (b) attempting to match the
amortization rate of the related Securities to an amortization schedule
established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in distributions to
the specified Securityholders and an acceleration of the amortization of such
Securities.
Neither the Securities nor the underlying Receivables will be guaranteed or
insured by any governmental agency or instrumentality or the Bank, CFC, the
Servicer, any Trustee or any of their respective affiliates unless
specifically set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of each
series covered by a particular Trust Agreement will either evidence specified
beneficial ownership interests in the Trust Property, or will represent debt
secured by the related Trust Property. To the extent that any Trust Property
includes certificates of interest or participations in Receivables, the
related Prospectus Supplement will describe the material terms and conditions
of such certificates or participations.
BOOK-ENTRY REGISTRATION
As may be described in the related Prospectus Supplement, Securityholders of
a given series may hold their Securities through DTC (in the United States) or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Securities in respect of a
given series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as
defined below) (collectively, the "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
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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 notes or
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations. Indirect access to the DTC system also is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly ("Indirect Participants").
Transfers between DTC 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 DTC 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 DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following
settlement in DTC.
The Securityholders of a given series that are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of,
or other interests in, Securities of such series may do so only through
Participants and Indirect Participants. In addition, Securityholders of a given
series will receive all distributions of principal and interest through the
Participants who in turn will receive them from DTC. Under a book-entry format,
Securityholders of a given series may experience some delay in their receipt of
payments, since such payments will be forwarded by the applicable Trustee to
Cede, as nominee for DTC. DTC will forward such payments to its Participants,
which thereafter will forward them to Indirect Participants or such
Securityholders. It is anticipated that the only "Securityholder" in respect of
any series will be Cede, as nominee of DTC. Securityholders of a given series
will not be recognized as Securityholders of such series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such series 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 of a given series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given series have accounts
with respect to such Securities similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Securityholders of such series. Accordingly, although such 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 of
a given series to pledge Securities of such series to persons or
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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 will advise the Trustee in respect of each series that it will take any
action permitted to be taken by a Securityholder of the related series only at
the direction of one or more Participants to whose accounts with DTC the
Securities of such series 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 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. 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.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 28 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. Euroclear is operated by
Morgan Guaranty Trust Bank of New York, Brussels, Belgium office, under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the "Euroclear
Operator" (as defined below), and all Euroclear securities clearance accounts
and Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other
professional financial intermediaries and may include the Underwriters.
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 relationship with persons holding through Euroclear
Participants.
Except as required by law, the Trustee in respect of a series will not have
any liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the related Securities held
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by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DEFINITIVE SECURITIES
As may be described in the related Prospectus Supplement, the Securities
will be issued in fully registered, certificated form ("Definitive
Securities") to the Securityholders of a given series or their nominees,
rather than to DTC or its nominee, only if (i) the Trustee in respect of the
related series advises the Securityholders in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to such Securities and such Trustee is unable to locate a qualified
successor, (ii) such Trustee, at its option, elects to terminate the book-
entry system through DTC or (iii) after the occurrence of a default by the
Servicer under the related Trust Agreement, Securityholders representing at
least a majority of the outstanding principal amount of such Securities advise
the Trustee through DTC in writing that the continuation of a book-entry
system through DTC (or a successor thereto) is no longer in such
Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such 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 Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for 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
Security, however, will be made only upon presentation and surrender of such
Security at the office or agency specified in the notice of final distribution
to the applicable Securityholders.
Definitive Securities in respect of a given series of Securities will be
transferable and exchangeable at the offices of the applicable Trustee or of a
certificate registrar named in a notice delivered to holders of such
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.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of
principal and interest (or, where applicable, of principal or interest only)
on each Class of such Securities entitled thereto will be made by the
applicable Indenture Trustee to the holders of Notes (the "Noteholders") and
by the applicable Trustee to the holders of Certificates (the
"Certficateholders") of such series. The timing, calculation, allocation,
order, source, priorities of and requirements for each Class of Noteholders
and all distributions to each Class of Certificateholders of such series will
be set forth in the related Prospectus Supplement.
With respect to each series of Securities, on each Distribution Date
collections on the related Receivables will be distributed to Securityholders,
to the extent provided in the related Prospectus Supplement. Credit
Enhancement, such as a reserve account, may be available to cover any
shortfalls in the amount available for distribution on 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 the Certificates, if any of such series
may be subordinate to payments in respect of the Notes of such series.
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CREDIT AND CASH FLOW ENHANCEMENTS
The amounts and types of Credit Enhancement arrangements, if any, and the
provider thereof, if applicable, with respect to each Class of Securities of a
given series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, Credit Enhancement
may be in the form of an insurance policy, subordination of one or more Classes
of Securities, reserve accounts, overcollateralization, letters of credit,
credit or liquidity facilities, third party payments or other support, surety
bonds, guaranteed cash deposits or such other arrangements 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
Enhancement for a Class of Securities may cover one or more other Classes of
Securities of the same series, and Credit Enhancement for a series of
Securities may cover one or more other series of Securities.
The presence of Credit Enhancement for the benefit of any Class or series of
Securities is intended to enhance the likelihood of receipt by the
Securityholders or 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 on their Securities. As more specifically provided in
the related Prospectus Supplement, the Credit Enhancement for a Class or series
of Securities will not provide protection against all risks of loss and will
not guarantee repayment of the entire principal balance and interest thereon
under all circumstances. 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.
WAIVER OF PAST DEFAULTS
The Securityholders of Securities evidencing more than the percentage
specified in the related Trust Agreement of the outstanding principal balance
of the related Securities (the "Security Principal Balance") may, with the
consent of the related Credit Enhancer, or a Credit Enhancer, may waive certain
defaults by the Servicer in the performance of its obligations under a Trust
Agreement. No such waiver shall impair any Credit Enhancer's or the
Securityholders' rights with respect to subsequent defaults.
OPTIONAL TERMINATION
A Trust Agreement may provide that on any Distribution Date following the
Record Date on which the Pool Balance is a specified percentage or less of the
Security Principal Balance of the related Securities at issuance (the "Original
Security Principal Balance"), the Bank will have the option to acquire all
rights, title and interest in all, but not less than all, Receivables held as
part of the related Trust Property, by paying to the related Trustee for
retirement of the Securities an amount equal to the aggregate Purchase Amounts
for the Receivables, together with any Reimbursement Amounts then owed to any
Credit Enhancer pursuant to the terms of the Credit Enhancement and the related
agreements (the "Reimbursement Amounts").
REPORTS TO SECURITYHOLDERS
With respect to each series of Securities, on or prior to each Distribution
Date for such series, the Servicer or the related Trustee will forward or cause
to be forwarded to each holder of record of such Class of Securities a
statement or statements with respect to the related Trust Property setting
forth the information specifically described in the related Trust Agreement,
which generally will include the following information:
(i) the amount of the distribution with respect to each Class of
Securities;
(ii) the amount of such distribution allocable to principal;
(iii) the amount of such distribution allocable to interest;
(iv) the Pool Balance, if applicable, as of the close of business on the
last day of the related Collection Period;
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(v) the aggregate outstanding principal balance and the Pool Factor for
each Class of Securities after giving effect to all payments reported under
(ii) above on such Distribution Date;
(vi) the amount paid to the Servicer, if any, with respect to the related
Collection Period;
(vii) the amount of the aggregate Purchase Amounts for Receivables that
have been reacquired, if any, for such Collection Period; and
(viii) the amount of coverage under any letter of credit, financial
guaranty insurance policy, reserve account, yield maintenance account or
other form of Credit Enhancement covering default risk as of the close of
business on the applicable Distribution Date.
Each amount set forth pursuant to subclauses (i), (ii), (iii) and (v) with
respect to the Securities of any series will be expressed as a dollar amount
per $1,000 of the initial principal balance of such Securities, as applicable.
The actual information to be set forth in statements to Securityholders of a
series will be described in the related Prospectus Supplement.
Within the prescribed period of time for tax reporting purposes after the end
of each calendar year, the applicable Trustee will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation of federal income
tax returns.
INDEXED SECURITIES
To the extent so specified in any Prospectus Supplement, any Class of
Securities of a given series may consist of Securities ("Indexed Securities")
in which the principal amount payable at the final scheduled Distribution Date
(the "Indexed Principal Amount") is determined by reference to a measure (the
"Index") which will be related to (i) the difference in the rate of exchange
between United States dollars and a currency or composite currency (the
"Indexed Currency") specified in the applicable Prospectus Supplement (such
Indexed Securities, "Currency Indexed Securities"); (ii) the difference in the
price of a specified commodity (the "Indexed Commodity") on specified dates
(such Indexed Securities, "Commodity Indexed Securities"); (iii) the difference
in the level of a specified stock index (the "Stock Index"), which may be based
on U.S. or foreign stocks, on specified dates (such Indexed Securities, "Stock
Indexed Securities"); or (iv) such other objective price or economic measures
as are described in the applicable Prospectus Supplement. The manner of
determining the Indexed Principal Amount of an Indexed Security and historical
and other information concerning the Indexed Currency, the Indexed Commodity,
the Stock Index or other price or economic measures used in such determination
will be set forth in the applicable Prospectus Supplement, together with
information concerning tax consequences to the holders of such Indexed
Securities.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Security was issued and
permitted changes described in the applicable Prospectus Supplement), then such
Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the applicable Prospectus Supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason such index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to
the original third party, then the Indexed Principal Amount of such Indexed
Security shall be calculated in the manner set forth in the applicable
Prospectus Supplement. Any determination of such independent calculation agent
shall in the absence of manifest error be binding on all parties.
Interest on an Indexed Security will be payable based on the amount
designated in the applicable Prospectus Supplement (the "Face Amount"). The
applicable Prospectus Supplement will describe whether the principal amount of
the related Indexed Security, if any, that would be payable upon redemption or
repayment prior to the applicable final scheduled Distribution Date will be the
Face Amount of such Indexed Security, the Indexed Principal Amount of such
Indexed Security at the time of redemption or repayment, or another amount
described in such Prospectus Supplement.
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DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms of each Trust Agreement
pursuant to which the related Trust Property will be held and the related
Securities will be issued. For purposes of this Prospectus, the term Trust
Agreement as used with respect to a series of Securities means, collectively,
and except as otherwise specified, any and all agreements relating to the
establishment of the related Trust Property, the servicing of the related
Receivables and the issuance of the related Securities, including without
limitation the Indenture, (i.e. pursuant to which any Notes shall be issued).
Forms of the Trust Agreement have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. The summary does not purport
to be complete. It is qualified in its entirety by reference to the provisions
of the Trust Agreements.
CONVEYANCE OF RECEIVABLES
Except as expressly set forth in the related Trust Agreement, on the Closing
Date, the Bank will transfer, without recourse, Receivables acquired by the
Bank and originated or acquired by the Bank, another Lender or another
originator either to a Trust pursuant to a Pooling Agreement or a Sale
Agreement, or will pledge, without recourse, the Bank's right, title and
interests in and to such Receivables to a Trustee on behalf of the related
Securityholders pursuant to an Indenture. The obligations of the Bank and the
Servicer under the related Trust Agreement include those specified below and
in the related Prospectus Supplement.
As more fully described in the related Prospectus Supplement, the Bank will
be obligated to reacquire from the related Trust Property its interest in any
Receivable transferred to a Trust or pledged to a Trustee on behalf of
Securityholders if the interest of the Securityholders therein is materially
and adversely affected by a breach of any representation or warranty made by
the Bank with respect to such Receivable, which breach has not been cured
following the discovery by or notice to the Bank of the breach. In addition,
if so specified in the related Prospectus Supplement, the Bank may from time
to time reacquire certain Receivables or substitute other Receivables for such
Receivable subject to specified conditions set forth in the related Trust
Agreement.
Possible representations and warranties may include, among other things,
that (i) the information provided with respect to the Receivables is correct
in all material respects; (ii) the Obligor on each Receivable is generally
required to obtain physical damage and theft insurance in accordance with the
related Lender's normal requirements; (iii) at the date of issuance of the
Securities, the Receivables are free and clear of all security interests,
liens, charges, and encumbrances and no setoffs, defenses, or counterclaims
against the Bank have been asserted or threatened (other than the interest of
the Trustee); (iv) on the Closing Date, each of the Receivables is or will be
secured by a first priority perfected security interest in the Vehicle in
favor of the applicable Lender; and (v) each Receivable, at the time it was
originated or purchased, complied, and on the Closing Date complies, in all
material respects, with applicable federal and state laws, including consumer
credit, truth in lending, equal credit opportunity, and disclosure laws.
ACCOUNTS
With respect to each series of Securities, the Servicer will establish and
maintain one or more accounts, in the name of such Trustee on behalf of the
related Securityholders, into which all payments made on or with respect to
the related Receivables will be deposited (the "Collection Account"). Unless
otherwise specified in the related Prospectus Supplement, the Servicer will
also establish and maintain with such Trustee separate accounts, in the name
of such Trustee on behalf of such Securityholders, in which amounts withdrawn
from the Collection Account and the reserve account or received under other
Credit Enhancement, if any, for distribution to such Securityholders will be
deposited and from which distributions to such Securityholders will be made
(the "Distribution Account").
Any other accounts to be established with respect to a Trust, including any
reserve account, will be described in the related Prospectus Supplement.
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For any series of Securities, funds in the Collection Account, the
Distribution Account, any reserve account and other accounts identified as such
in the related Prospectus Supplement (collectively, the "Trust Accounts") shall
be invested as provided in the related Trust Agreement in Eligible Investments.
"Eligible Investments" are generally limited to investments acceptable to the
Rating Agencies as being consistent with the rating of such Securities. Subject
to certain conditions, Eligible Investments may include securities issued by
the Bank, the Servicer or their respective affiliates or other trusts created
by the Bank or its affiliates. Except as described below or in the related
Prospectus Supplement, Eligible Investments are limited to obligations or
securities that mature not later than the business day immediately preceding
the related Distribution Date. However, subject to certain conditions, funds in
the reserve account may be invested in securities that will not mature prior to
the date of the next distribution and will not be sold to meet any shortfalls.
Thus, the amount of cash in any reserve account at any time may be less than
the balance of such reserve account. If the amount required to be withdrawn
from any reserve account to cover shortfalls in collections on the related
Receivables exceeds the amount of cash in such reserve account, a temporary
shortfall in the amounts distributed to the related Securityholders could
result, which could, in turn, increase the average life of the Securities of
such series. Except as otherwise specified in the related Prospectus
Supplement, investment earnings on funds deposited in the applicable Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Distribution Date and shall be treated as collections of interest on the
related Receivables.
Unless otherwise specified in the related Prospectus Supplement, the Trust
Accounts will be maintained as Eligible Deposit Accounts. Unless otherwise
specified in the related Prospectus Supplement, "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 has a credit rating from each Rating Agency in one of its generic
rating categories which signifies investment grade. Unless otherwise specified
in the related Prospectus Supplement, "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), which (i) (A) has either (w) a long-term unsecured debt rating
acceptable to the Rating Agencies or (x) a short-term unsecured debt rating or
certificate of deposit rating acceptable to the Rating Agencies or (B) the
parent corporation of which has either (y) a long-term unsecured debt rating
acceptable to the Rating Agencies or (z) 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.
MANDATORY REPURCHASE OF RECEIVABLES
Unless otherwise specified in the related Prospectus Supplement, in the event
of a breach of any representation or warranty with respect to the Receivables
described under "--Conveyance of Receivables," which breach or failure
materially and adversely affects a Receivable or the interests of the related
Trust, the Securityholders or a Credit Enhancer in such Receivable, the Bank,
unless such breach or failure has been cured will be required to reacquire such
Receivable from the Trustee for the Purchase Amount. The Purchase Amount is
payable on the date on which the amounts to be distributed on the related
Distribution Date are to be determined (the "Determination Date") in such
subsequent Collection Period. The repurchase obligation will constitute the
sole remedy available to the Securityholders or the Trustee against the Bank
for any such uncured breach or failure.
The "Purchase Amount" of any Receivable means, with respect to any
Distribution Date an amount equal to the sum of (a) the outstanding principal
balance of such Receivable as of the last day of the preceding Collection
Period and (b) the amount of accrued interest on such principal balance at the
related APR from the date a payment was last made by or on behalf of the
Obligor through the Determination Date immediately preceding such Distribution
Date, and after giving effect to the receipt of monies collected on such
Receivable in such preceding Collection Period.
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YIELD MAINTENANCE ACCOUNT AND YIELD MAINTENANCE AGREEMENT
If so provided in the related Prospectus Supplement, pursuant to the related
Trust Agreement and/or a Yield Maintenance Agreement (as such term is defined
in the related Prospectus Supplement, the "Yield Maintenance Agreement") a
Yield Maintenance Account may be established for the related series. Each
Yield Maintenance Account will be designed solely to hold funds to be applied
by the Indenture Trustee or applicable Trustee to provide payments to
Securityholders in respect of Receivables the APR of which is less than the
Required Rate.
On each Distribution Date, the obligor under the Yield Maintenance Agreement
will pay to the related Trustee an amount equal to the Yield Maintenance
Amount (as such term is defined in the related Prospectus Supplement, the
"Yield Maintenance Amount") in respect of the Receivables for such
Distribution Date. If so specified in the Prospectus Supplement, in the event
that such obligor defaults on its obligation to make payments under the Yield
Maintenance Agreement, the related Prospectus Supplement will describe the
manner and circumstances in which amounts on deposit on any Distribution Date
in the Yield Maintenance Account in excess of the Required Yield Maintenance
Amount (as such term is defined in the related Prospectus Supplement, the
"Required Yield Maintenance Amount") will be released, and to whom such
amounts will be distributed. Monies on deposit in the Yield Maintenance
Account may be invested in Eligible Investments under the circumstances and in
the manner described in the related Yield Maintenance Agreement. If so
specified in the related Prospectus Supplement, investment earnings on
investment of funds in a Yield Maintenance Account will be deposited into such
Yield Maintenance Account.
If a Yield Maintenance Account is established with respect to any Securities
as to which a Pre-Funding Account has been established, the Bank and the
related Indenture Trustee or applicable Trustee, will enter into a Yield
Maintenance Agreement pursuant to which, on each subsequent transfer date, the
Bank will deposit into the Yield Maintenance Account the Additional Yield
Maintenance Amount (as such term is defined in the related Prospectus
Supplement, the "Additional Yield Maintenance Amount") in respect of the
related Receivables. Each Yield Maintenance Agreement will affect only
Receivables having an APR less than the related Required Rate.
MASTER TRUSTS
As may be described in the related Prospectus Supplement, each Trust
Agreement may provide that, pursuant to any one or more supplements thereto,
the Bank may direct the related Trustee to issue from time to time new series
subject to the conditions described below (each such issuance a "Master Trust
New Issuance"). Each Master Trust New Issuance will have the effect of
decreasing the Residual Interest in the related Master Trust. Under each such
Master Trust Agreement, the Bank may designate, with respect to any newly
issued series: (i) its name or designation; (ii) its initial principal amount
(or method for calculating such amount); (iii) its Interest Rate (or formula
for the determination thereof); (iv) the Distribution Dates and the date or
dates from which interest shall accrue; (v) the method for allocating
collections to Securityholders of such series; (vi) any bank accounts to be
used by such series and the terms governing the operation of any such bank
accounts; (vii) the percentage used to calculate monthly servicing fees;
(viii) the provider and terms of any form of Credit Enhancement with respect
thereto; (ix) the terms on which the Securities of such series may be
repurchased or remarketed to other investors; (x) the number of Classes of
Securities of such series, and if such series consists of more than one Class,
the rights and priorities of each such Class; (xi) the extent to which the
Securities of such series will be issuable in book-entry form; (xii) the
priority of such series with respect to any other series; and (xiii) any other
relevant terms. None of the Bank, the Servicer, the related Trustee or any
Master Trust is required or intends to obtain the consent of any
Securityholder of any outstanding series to issue any additional series.
Each Master Trust Agreement provides that the Bank may designate terms such
that each Master Trust New Issuance has an amortization period which may have
a different length and begin on a different date than such periods for any
series previously issued by the related Master Trust and then outstanding.
Moreover, each Master Trust New Issuance may have the benefits of Credit
Enhancements issued by Credit Enhancers different from the providers of the
Credit Enhancement, if any, with respect to any series previously issued by
the related
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Master Trust and then outstanding. Under each Master Trust Agreement, the
related Trustee shall hold any such Credit Enhancement only on behalf of the
Securityholders to which such Credit Enhancement relates. The Bank will have
the option under each Master Trust Agreement to vary among series the terms
upon which a series may be repurchased by the Issuer or remarketed to other
investors. As more fully described in the related Prospectus Supplement, there
is no limit to the number of Master Trust New Issuances that the Bank may
cause under a Master Trust Agreement. Each Master Trust will terminate only as
provided in the related Master Trust Agreement. There can be no assurance that
the terms of any Master Trust New Issuance might not have an impact on the
timing and amount of payments received by Securityholders of another series
issued by the same Master Trust.
Under each Master Trust Agreement and pursuant to a related supplement, a
Master Trust New Issuance may only occur upon the satisfaction of certain
conditions provided in each such Master Trust Agreement. Unless otherwise
specified in the related Prospectus Supplement, the obligation of the related
Trustee to authenticate the Securities of any such Master Trust New Issuance
and to execute and deliver the supplement to the related Master Trust
Agreement is subject to the satisfaction of the following conditions: (a) on
or before the date upon which the Master Trust New Issuance is to occur, the
Bank shall have given the related Trustee, the Servicer, the Rating Agency and
certain related providers of Credit Enhancement, if any, written notice of
such Master Trust New Issuance and the date upon which the Master Trust New
Issuance is to occur; (b) the Bank shall have delivered to the related Trustee
a supplement to the related Master Trust Agreement, in form satisfactory to
such Trustee, executed by each party to the related Master Trust Agreement
other than such Trustee; (c) the Bank shall have delivered to the related
Trustee any related Credit Enhancement agreement; (d) the related Trustee
shall have received confirmation from the Rating Agency that such Master Trust
New Issuance will not result in any Rating Agency reducing or withdrawing its
rating with respect to any other series or Class of such Trust; (e) the Bank
shall have delivered to the related Trustee, the Rating Agency and certain
providers of Credit Enhancement, if any, an opinion of counsel acceptable to
the related Trustee that for federal income tax purposes (i) the Master Trust
New Issuance will not cause the related Master Trust to be deemed to be an
association (or publicly traded partnership) taxable as a corporation, (ii)
such Master Trust New Issuance will not affect the tax characterization as
debt of Securities of any outstanding series or Class issued by such Master
Trust that were characterized as debt at the time of their issuance and (iii)
such Master Trust New Issuance will not cause or constitute an event in which
gain or loss would be recognized by any Securityholders or the related Master
Trust; and (f) any other conditions specified in any supplement. Upon
satisfaction of the above conditions, the related Trustee shall execute the
supplement to the related Master Trust Agreement and issue the Securities of
such new series.
THE SERVICER
The Servicer under each Trust Agreement will be named in the related
Prospectus Supplement. The entity serving as Servicer may be the Bank or an
affiliate of the Bank and may have other business relationships with the Bank
or the Bank's affiliates. The Servicer with respect to each series will
service the Receivables constituting the related Trust Property for such
series. Any Servicer may delegate its servicing responsibilities to one or
more sub-servicers, but will not be relieved of its liabilities with respect
thereto.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trustee will appoint the Servicer as initial
custodian of the Receivables. The Servicer, in its capacity as custodian, will
hold the Receivables and all electronic entries, documents, instruments and
writings relating thereto (each, a "Receivable File"), either directly or
through sub-servicers, on behalf of the Trustee for the benefit of
Securityholders and the related Credit Enhancer, if any. The Servicer may
designate CFC to act as Custodian with respect to Receivables Files relating
to the CFC Receivables.
The Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related Trust Agreement. An uncured breach of such a representation or
warranty that in any respect materially and adversely affects the interests of
the Securityholders will constitute a Servicer Default by the Servicer under
the related Trust Agreement.
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SERVICING PROCEDURES
The Receivables will be serviced by a Servicer pursuant to a Trust
Agreement. Such Servicer may designate CFC or another entity to act as sub-
servicer with respect to the CFC Receivables, although such designation will
not relieve the Servicer from its servicing obligations with respect to such
CFC Receivables. Each Trust Agreement will require that servicing of the
Receivables by the Servicer shall generally be carried out in the same manner
in which it services receivables and vehicles held for its own account. In
performing its duties thereunder, the Servicer will act on behalf and for the
benefit of the related Trustee, subject at all times to the provisions of the
related Trust Agreement, without regard to any relationship which the Servicer
or any affiliate of the Servicer may otherwise have with an Obligor.
The Servicer, as an independent contractor on behalf of the related Trustee
and for the benefit of the Securityholders and any Credit Enhancer, will be
responsible for managing, servicing and administering the Receivables and
enforcing and making collections on the Receivables and any insurance policies
and for enforcing any security interest in any of the Vehicles, all as set
forth in the related Trust Agreement. The Servicer's responsibilities will
include collecting and posting of all payments, responding to inquiries of
Obligors, investigating delinquencies, accounting for collections, furnishing
monthly and annual statements to the Trustee and any Credit Enhancer, with
respect to distributions, providing appropriate federal income tax information
for use in providing information to Securityholders, collecting and remitting
sales and property taxes on behalf of taxing authorities and maintaining the
perfected security interest of the related Lender in the Vehicles.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will covenant in each Trust Agreement that: (A) the Vehicle securing
each Receivable will not be released from the security interest granted by the
Contract in whole or in part, except as contemplated by such Trust Agreement;
(B) the Servicer will not impair in any material respect the rights of the
Trustee or the Securityholders in the Receivables, certain rights under any
agreements pursuant to which such Lender acquired such Receivables; and (C)
the Servicer will not increase or decrease the amount of payments or the
amount financed under a Receivable, or change the APR of a Receivable;
provided, however, that the Servicer may extend any Receivable for credit-
related reasons that would be acceptable to the Servicer with respect to
retail installment sales or finance contracts and installment loans serviced
by it for its own account in accordance with its customary standards. However,
if the cumulative extensions with respect to any Receivable shall cause the
term of any such Receivable to extend beyond the last day of the Collection
Period immediately preceding the final scheduled distribution date with
respect to the related Securities, then the Servicer shall be obligated to
purchase such Receivable as of the last day of the Collection Period following
the Collection Period in which the extension was made (or, at the Servicer's
election, as of the last day of the Collection Period or earlier under certain
circumstances).
Unless otherwise specified in the related Prospectus Supplement, in the
event of a breach by the Servicer of any covenant described above that
materially and adversely affects a Receivable or the interests of the related
Issuer, the Securityholders or a Credit Enhancer in such Receivable, the
Servicer, unless such breach has been cured by the last day of the Collection
Period following the Collection Period during which the Servicer became aware
of, or received written notice of, such breach, will be required to purchase
as of such day (or, at the Servicer's election, as of the last day of the
Collection Period during which such breach was discovered) the Receivable from
the Trustee for the Purchase Amount which shall be paid on the Determination
Date in such subsequent Collection Period or earlier under certain
circumstances. The purchase obligation will constitute the sole remedy
available to the Securityholders or the Trustee against the Servicer for any
such uncured breach, except with respect to certain indemnities of the
Servicer under the Trust Agreement related thereto.
Each Trust Agreement will also require the Servicer to charge off a
Receivable as a Defaulted Receivable in accordance with its customary
standards and to follow such of its normal collection practices and procedures
as it deems necessary or advisable, and that are consistent with the standard
of care required by such Trust Agreement, to realize upon any Receivable. The
Servicer may sell the Vehicle securing such Receivable at a
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judicial sale or take any other action permitted by applicable law. See
"Certain Legal Aspects of the Receivables." The net proceeds of such
realization will be deposited into the Collection Account at the time and in
the manner described above.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For its servicing of the Receivables, the Servicer will be entitled to
retain from collections on the Receivables a Servicing Fee in an amount as
described in the related Prospectus Supplement. A portion of such Servicing
Fee may be paid over by the Servicer to CFC or any other sub-servicer with
respect to its sub-servicing of the CFC Receivables.
All costs of servicing each Receivable in the manner required by the related
Trust Agreement shall be borne by the Servicer, but the Servicer shall be
entitled to retain, out of any amounts actually recovered with respect to any
Defaulted Receivable or the Vehicles subject thereto, the Servicer's actual
out-of-pocket expenses reasonably incurred with respect to such Defaulted
Receivable or Vehicle.
INDEMNIFICATION
Each Trust Agreement will provide that the Servicer will defend, indemnify
and hold harmless the Trustee, the Trust, the Securityholders, and any Credit
Enhancer against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation, reasonably incurred, arising out of or resulting from the use,
repossession or operation by the Servicer or any affiliate thereof of any
Vehicles; provided, however, that the Servicer will have no obligation to
indemnify any person or entity against any credit loss on any Receivable
serviced by the Servicer in accordance with the requirements of the Trust
Agreement. The Servicer will also indemnify, defend and hold harmless the
related Issuer, the Trustee and its officers, directors, employees and agents,
and any Credit Enhancer from and against any loss, liability, expense, damage
or injury, including any judgement, award, settlement, reasonable attorneys'
fees and other costs or expenses incurred in connection with the defense of
any action, proceeding or claim, to the extent such loss, liability, expense,
damage or injury arises out of, or is imposed upon such persons through, the
willful misfeasance, bad faith or negligence of the Servicer in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties as Servicer under the related Trust Agreement. The
Bank's obligations, as Servicer, to indemnify the related Issuer and the
Securityholders for acts or omissions of the Bank as Servicer will survive the
removal of the Servicer but will not apply to any acts or omissions of a
successor Servicer.
EVIDENCE AS TO COMPLIANCE
Except as otherwise provided in the related Prospectus Supplement, each
Trust Agreement will require the Servicer to deliver an officers' certificate
to the Trustee stating (i) a review of the activities of the Servicer during
the period specified in the related Prospectus Supplement and of its
performance under the Trust Agreement has been made under such officers'
supervision and (ii) to the best of such officers' knowledge, based on such
review, the Servicer has fulfilled all of its obligations under the Trust
Agreement throughout such period, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof.
If so specified in the related Prospectus Supplement, the Servicer shall
cause a firm of independent certified public accountants (who may also render
other services to the Servicer) to deliver to the Trustee and each holder of
the Securities an annual written statement to the effect that such firm has
read the monthly Servicer's certificates delivered pursuant to the related
Trust Agreement with respect to such period and reviewed the servicing of the
Receivables by the Servicer and that such review (1) included evaluations of
servicing practices relating to automobile, light duty truck and van loans
serviced for others in accordance with the requirements set forth in the Trust
Agreement, and (2) except as described in the report, disclosed no exceptions
or errors in the records relating to automobile, light duty truck and van
loans serviced for others that, in the firm's opinion, industry practice
requires such firm to report.
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CERTAIN MATTERS REGARDING THE SERVICER
Each Trust Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder, except upon determination that
the performance by such Servicer of such duties is no longer permissible under
applicable law. No such resignation will become effective until the related
Trustee or a successor servicer has assumed such Servicer's servicing
obligations and duties under such Trust Agreement.
Each Trust Agreement will further provide that neither the Servicer nor any
of its respective directors, officers, employees, or agents shall be under any
liability to the Trustee or the Securityholders for taking any action or for
refraining from taking any action pursuant to the Trust Agreement, or for
errors in judgment; provided, however, 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
duties or by reason of reckless disregard of obligations and duties thereunder.
In addition, each Trust Agreement will provide that the Servicer is under no
obligation to appear in, prosecute, or defend any legal action that is not
incidental to its servicing responsibilities under such Trust Agreement and
that, in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in a Trust 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 or, with respect to its obligations
as Servicer, which corporation or other entity in each of the foregoing cases
assumes the obligations of the Servicer, will be the successor to the Servicer
under such Trust Agreement.
SERVICER DEFAULT
Unless otherwise specified in the related Prospectus Supplement, any of the
following events will constitute a "Servicer Default" under a Trust Agreement:
(i) any failure by the Servicer to deliver to the Trustee on or before the
Determination Date the Servicer's certificate or to deliver to the Trustee for
distribution to the Securityholders any required payment, which failure
continues unremedied for more than the number of days specified in the related
Prospectus Supplement after written notice from (x) the Trustee, or the Holders
of a specified percentage of the related Securities, in either case with the
consent of any Credit Enhancer, or (y) a Credit Enhancer, if any, is received
by the Servicer; (ii) any failure by the Servicer or the Bank duly to observe
or perform in any material respect any other covenant or agreement of the
Servicer or the Bank, as the case may be, in the Trust Agreement, which failure
materially and adversely affects the rights of the Securityholders and which
continues unremedied for more than the number of days specified in the related
Prospectus Supplement after the giving of written notice of such failure (x) to
the Servicer or the Bank, as the case may be, by the Trustee and by the Credit
Enhancer, (y) to the Servicer or the Bank, as the case may be, and to the
Trustee by a specified percentage of the related Securityholders and by the
Credit Enhancer or (z) to the Servicer or the Bank, as the case may be, by the
Credit Enhancer; and (iii) any Insolvency Event. An "Insolvency Event" shall
mean financial insolvency, readjustment of debt, marshalling of assets and
liabilities, or similar proceedings with respect to the Servicer and certain
actions by the Servicer indicating its insolvency or inability to pay its
obligations.
REMOVAL OF THE SERVICER
Unless otherwise specified in the related Prospectus Supplement, the Servicer
can only be removed pursuant to a Servicer Default. Unless otherwise specified
in the related Prospectus Supplement, if a Servicer Default shall have occurred
and be continuing, (x) with the consent of the Credit Enhancer, if any, either
the Trustee or the Securityholders evidencing more than 50% of the Security
Principal Balance or (y) a Credit Enhancer may give written notice to the
Servicer of the termination of all of the rights and obligations of the
Servicer under the Trust Agreement. On and after the time the Servicer receives
a notice of termination, the related Trustee shall be the successor in all
respects to the Servicer in its capacity as servicer of the Receivables under
the Trust Agreement. The Trustee may, if it shall be unwilling to so act, or
shall, if it is unable to so act, appoint, or petition
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a court of competent jurisdiction for the appointment of, a successor Servicer
to act as successor to the outgoing Servicer under the Trust Agreement.
PAYMENTS ON RECEIVABLES
With respect to each series of Securities, unless otherwise specified in the
related Prospectus Supplement, the Servicer will deposit into the Collection
Account all payments on the related Receivables (from whatever source) and all
proceeds of such Receivables collected within two (2) business days of receipt
thereof in the related collection facility, such as a lock-box account or
collection account. Moneys deposited in such collection facility for Trust
Property may be commingled with funds from other sources.
PRE-FUNDING ACCOUNTS
A series of securities may contain a feature pursuant to which the Bank will
agree to transfer Additional Receivables to the related Trust Property,
following the date on which the related Securities are issued. Such a pre-
funding feature may permit the acquisition of Additional Receivables that
could not be delivered by the Bank or have not formally completed the
origination process, in each case prior to the Closing Date. Any such
agreement will require that any Receivables so transferred to the related
Trust Property conform to the requirements specified therein.
If such feature is to be utilized or the related Trust Agreement so
specifies, and unless otherwise specified in the related Prospectus
Supplement, the related Trustee will be required to deposit in a segregated
account (each, a "Pre-Funding Account") up to 100% of the net proceeds
received by the Trustee in connection with the sale of one or more Classes of
Securities of the related series; the Additional Receivables will be
transferred to the related Trust Property in exchange for money released to
the Bank from the related Pre-Funding Account. Each such agreement or the
related Trust Agreement will specify the Pre-Funding Period during which any
such transfers must occur; for a Trust which elects federal income treatment
as a grantor trust, the related Pre-Funding Period will be limited to three
months from the date such Trust is established; for a Trust which is treated
as a mere security device for federal income tax purposes, the related Pre-
Funding Period will be limited to nine months from the date such Trust is
established. Unless otherwise specified in the related Prospectus Supplement,
each such agreement or the related Trust Agreement will require that, if all
moneys originally deposited to such Pre-Funding Account are not so used by the
end of the related Pre-Funding Period, then any remaining moneys will be
applied as a mandatory prepayment of the related Class or Classes of
Securities as specified in the related Prospectus Supplement.
During the Pre-Funding Period the moneys deposited to the Pre-Funding
Account will either (i) be held uninvested or (ii) will be invested in cash-
equivalent investments rated in one of the four highest rating categories by
at least one nationally recognized statistical rating organization and which
will either mature prior to the end of the Pre-Funding Period, or will be
drawable on demand and in any event, will not constitute the type of
investment which would require registration of the related Trust as an
"investment company" under the Investment Company Act of 1940, as amended.
STATEMENTS TO INDENTURE TRUSTEES AND TRUSTEES
Prior to each Distribution Date with respect to each series of Securities,
the Servicer will provide to the applicable Indenture Trustee and/or the
applicable Trustee and Credit Enhancer as of the close of business on the last
day of the preceding related 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
"Description of the Securities--Reports to Securityholders".
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, a Trust
Agreement may be amended by agreement of the Trustee, the Bank and the
Servicer at any time, without the consent of the Securityholders but
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with the consent of the related Credit Enhancer, if any, to cure any ambiguity
or defect, to correct or supplement any provisions therein, to correct any
typographical error or to add any other provisions with respect to matters or
questions arising thereunder, upon receipt of an opinion of counsel to the
Trustee that such amendment will not adversely affect in any material respect
the interests of any Securityholder or the Credit Enhancer.
Unless otherwise specified in the related Prospectus Supplement, a Trust
Agreement may also be amended from time to time by the Trustee, the Bank and
the Servicer with the consent of the related Credit Enhancer, if any, and
Holders of Securities evidencing more than 50% of the related Security
Principal Balance for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Trust Agreement or of
modifying in any manner the rights of the Securityholders; provided, however,
that no such amendment shall (a) increase or reduce in any manner the amount
of, or accelerate or delay the timing of, collections of payments on the
Receivables or distributions which are required to be made on any Security
without the consent of the Holder of such Security or (b) reduce the aforesaid
percentage of Securityholders required to consent to any amendment, without
unanimous consent of the Securityholders.
The Trustee will be required under a Trust Agreement to furnish
Securityholders, any Credit Enhancer and the Rating Agencies with written
notice of the substance of any such amendment to the Trust Agreement promptly
upon execution of such amendment.
DUTIES AND IMMUNITIES OF THE TRUSTEE
The Trustee may resign, subject to the conditions set forth below, at any
time upon written notice to the Servicer, in which event the Servicer, with the
consent of any Credit Enhancer, will be obligated to appoint a successor
Trustee. If no successor Trustee shall have been so appointed and have accepted
such appointment within a specified period after the giving of such notice of
resignation, the resigning Trustee may petition a court of competent
jurisdiction for the appointment of a successor Trustee. Any successor Trustee
shall meet the financial and other standards for qualifying as a successor
Trustee under the Trust Agreement. The Servicer may also remove the Trustee if
the Trustee ceases to be eligible to continue as such under the Trust
Agreement, or is legally unable to act, or if the Trustee is adjudicated to be
insolvent. In such circumstances, the Servicer will also be obligated to
appoint a successor Trustee. Any resignation or removal of the Trustee and
appointment of a successor Trustee will not become effective without the
written consent of any Credit Enhancer and until acceptance of the appointment
by the successor Trustee.
The Trust Agreement will provide that the Trustee shall prepare or shall
cause to be prepared any tax returns required to be filed by the related Trust
and shall promptly sign and file such returns. In addition, the Trust Agreement
provides that in no event shall the Trustee be liable for any liabilities,
costs or expenses of the Trust or the Securityholders under any tax law,
including without limitation federal, state or local income or excise taxes or
any other tax imposed on or measured by income (or any interest or penalty with
respect thereto or arising from a failure to comply therewith).
The Servicer will indemnify, defend and hold harmless the Trustee, its
officers, directors, employees and agents and any Credit Enhancer from and
against any loss, liability or expense incurred without negligence or bad faith
on the part of the Trustee or its officers, directors, employees or agents and
arising out of or in connection with the acceptance or administration by the
Trustee of its duties pursuant to the Trust Agreement, as applicable, including
the costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of the Trustee's powers or
duties under the Trust Agreement.
TERMINATION
With respect to each series of Securities, unless otherwise specified in the
related Prospectus Supplement, the obligations of the Servicer, the Bank and
the applicable Trustee pursuant to the related Trust Agreement will terminate
upon the earlier to occur 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 and (ii) the payment to
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Securityholders of the related series of all amounts required to be paid to
them pursuant to such Trust Agreement. As more fully described in the related
Prospectus Supplement, in order to avoid excessive administrative expense, the
Servicer will be permitted, unless otherwise specified in the related
Prospectus Supplement, at its option to purchase the related Trust Property, as
of the end of any Collection Period immediately preceding a Distribution Date,
if the Pool Balance of the related Contracts is less than a specified
percentage (set forth in the related Prospectus Supplement) of the initial Pool
Balance in respect of such Trust Property, all such remaining Receivables (at
the price specified in the related Prospectus Supplment) as of the end of such
Collection Period, together with any related Reimbursement Amounts. The related
Securities will be redeemed following such purchase.
If and to the extent provided in the related Prospectus Supplement with
respect to the Trust Property, the applicable Trustee will solicit bids for the
purchase of the Receivables remaining in such Trust Property, in the manner and
subject to the terms and conditions set forth in such Prospectus Supplement. If
such Trustee receives satisfactory bids as described in such Prospectus
Supplement, then the Receivables remaining in such Trust Property will be sold
to the highest bidder.
As more fully described in the related Prospectus Supplement, any outstanding
Securities of the related series will be redeemed concurrently with either of
the events specified above and the subsequent distribution to the related
Securityholders of all amounts required to be distributed to them pursuant to
the applicable Trust Agreement may effect the prepayment of the Securities of
such series.
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CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The transfer of Receivables by the Bank to the Trust pursuant to the related
Trust Agreement, the perfection of the security interests in the Receivables
and the enforcement of rights to realize on the Vehicles as collateral for the
Receivables are subject to a number of federal and state laws, including the
UCC as in effect in various states. As specified in each Prospectus
Supplement, the Bank will take such action as is required to perfect the
rights of the Trustee in the Receivables. If, through inadvertence or
otherwise, a third party were to purchase (including the taking of a security
interest in) a Receivable for new value in the ordinary course of its
business, without actual knowledge of the Trustee's interest, and take
possession of a Receivable, the purchaser would acquire an interest in such
Receivable superior to the interest of the Trust. As further specified in each
Prospectus Supplement, no action will be taken to perfect the rights of the
Trustee in proceeds of any insurance policies covering individual Vehicles or
Obligors. Therefore, the rights of a third party with an interest in such
proceeds could prevail against the rights of the Trustee prior to the time
such proceeds are deposited by the Servicer into a Trust Account.
SECURITY INTEREST IN VEHICLES
Retail installment sale or finance contracts and installment loans such as
the Receivables evidence the credit sale of automobiles, light duty trucks and
vans by dealers to obligors; the contracts and the installment loan and
security agreements also constitute personal property security agreements and
include grants of security interests in the vehicles under the UCC. Perfection
of security interests in the vehicles is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In the
jurisdictions in which most of the Vehicles are expected to be located, a
security interest in a vehicle is perfected by notation of the secured party's
lien on the vehicle's certificate of title and, in certain jurisdictions, by
delivery of the certificate of title to the secured party. Each Receivable
prohibits the sale or transfer of the Vehicle without the consent of the
applicable Lender.
Pursuant to each Trust Agreement, the related Lender will assign its
security interests in the Vehicles to the Trustee. However, because of the
administrative burden and expense, neither the Lender nor the Trustee will
amend any certificate of title to identify the Trustee as the new secured
party on the certificates of title relating to the Vehicles. Also, unless
otherwise specified in the related Prospectus Supplement, the Bank, as
Servicer, will continue to hold any certificates of title relating to the
Vehicles in its possession as custodian for the Trustee pursuant to the
related Trust Agreement.
Under the laws of certain states, such an assignment of security interests
may not be sufficient to convey to the Trustee perfected security interests in
the Vehicles.
Because the Trustee will not be identified as the secured party on the
certificate of title, the security interest of the Trustee in the vehicle
could be defeated in certain circumstances. In the absence of fraud or forgery
by the vehicle owner or the related Lender, or administrative error by state
or local agencies or the related Lender, the notation of the lien of the
related Lender on the certificates should be sufficient to protect the Trustee
against the right of subsequent purchasers of a Vehicle or subsequent lenders
who take a security interest in a Vehicle. If there are any Vehicles as to
which the related Lender failed to obtain a perfected security interest, its
security interest would be subordinate to, among others, subsequent purchasers
of the Vehicles and holders of perfected security interests. Such a failure,
however, would constitute a breach of the Bank's warranties under the Trust
Agreement and would create an obligation of the Bank to repurchase the related
Receivable unless the breach is cured.
Under the laws of most states, the perfected security interest in a vehicle
continues for four months after a vehicle is moved to a state other than the
state which issued the certificate of title and thereafter until the vehicle
owner re-registers the vehicle in the new state. A majority of states require
surrender of a certificate of title to
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re-register a vehicle; accordingly, a secured party must surrender possession
if it holds the certificate of title to the vehicle. Thus, the secured party
would have the opportunity to re-perfect its security interest in the vehicle
in the state of relocation. In states that do not require a certificate of
title for registration of a motor vehicle, re- registration could defeat
perfection.
In the ordinary course of servicing receivables, the Bank 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,
a majority of states require surrender of a certificate of title to issue a
certificate of title in the name of the purchaser. In such states the Bank must
surrender possession of the certificate of title, if it holds the certificate
of title, and accordingly will have an opportunity to require satisfaction of
the related Receivable before release of the lien. Under each Trust Agreement,
the Servicer will be obligated to take appropriate steps, at its own expense,
to maintain perfection of security interests in the Vehicles.
Under the laws of most states, liens for repairs performed on a motor vehicle
and liens for certain unpaid taxes take priority over even a perfected security
interest in a Vehicle. The Code also grants priority to certain federal tax
liens over the lien of a secured party. The laws of certain states and federal
law permit the confiscation of motor vehicles 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 motor vehicle.
The Bank will represent that, as of the Closing Date, each security interest
in a Vehicle is or will be prior to all other present liens (other than tax
liens and liens that arise by operation of law) upon and security interests in
such Vehicle. However, liens for repairs or taxes, or the confiscation of a
Vehicle, could arise or occur at any time during the term of a Receivable. No
notice will be given to the Trustee or Securityholders in the event such a lien
arises or confiscation occurs.
REPOSSESSION
In the event of default by an Obligor, the holder of the related retail
installment sale or finance contract has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. The UCC
remedies of a secured party include the right to repossession by self-help
means, unless such means would constitute a breach of the peace. Unless a
vehicle is voluntarily surrendered, self-help repossession is accomplished
simply by taking possession of the related financed vehicle. In cases where the
Obligor objects or raises a defense to repossession, or if otherwise required
by applicable state law, a court order is obtained from the appropriate state
court, and the vehicle must then be recovered in accordance with that order. In
some jurisdictions, the secured party is required to notify the debtor of the
default and the intent to repossess the collateral and give the debtor a time
period within which to cure the default prior to repossession. Generally, this
right of cure may only be exercised on a limited number of occasions during the
term of the related contract. Other jurisdictions permit repossession without
prior notice if it can be accomplished without a breach of the peace (although
in some states, a course of conduct in which the creditor has accepted late
payments has been held to create a right by the Obligor to receive prior
notice).
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws require a secured party to provide the Obligor
with reasonable notice of the date, time and place of any public sale and/or
the date after which any private sale of the collateral may be held. In
addition, some states also impose substantive timing requirements on the sale
of repossessed vehicles in certain circumstances and/or various substantive
timing and content requirements on such notices. In most states, under certain
circumstances after a financed vehicle has been repossessed, the Obligor may
redeem the collateral by paying the delinquent installments and other amounts
due. The Obligor has the right to redeem the collateral prior to actual sale or
entry by the secured party into a contract for sale of the collateral by paying
the secured party the unpaid principal balance of the obligation, accrued
interest thereon, reasonable expenses for repossessing, holding, and preparing
the collateral for disposition and arranging for its sale, plus, in some
jurisdictions, reasonable attorneys' fees and legal expenses or in some other
states, by payment of delinquent installments on the unpaid principal balance
of the related obligation.
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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. In many instances, the remaining principal amount of such
indebtedness will exceed such proceeds. Under the UCC and laws applicable in
some states, a creditor is entitled to bring an action to obtain a deficiency
judgment from a debtor for any deficiency on repossession and resale of a motor
vehicle securing such debtor's loan; however, in some states, a creditor may
not seek a deficiency judgment from a debtor whose financed vehicle had an
initial cash sales price below some requisite dollar amount. Some states impose
prohibitions or limitations or notice requirements on actions for deficiency
judgments. In addition to the notice requirement described above, the UCC
requires that every aspect of the sale or other disposition, including the
method, manner, time, place and terms, be "commercially reasonable." Generally,
courts have held that when a sale is not "commercially reasonable," the secured
party loses its right to a deficiency judgment. In addition, the UCC permits
the debtor or other interested party to recover for any loss caused by
noncompliance with the provisions of the UCC. Also, prior to a sale, the UCC
permits the debtor or other interested person to obtain an order mandating that
the secured party refrain from disposing of the collateral if it is established
that the secured party is not proceeding in accordance with the "default"
provisions under the UCC. 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 or be uncollectible.
Occasionally, after resale of a vehicle and payment of all expenses and
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a subordinate lien with respect
to the vehicle or if no such lienholder exists or if there are remaining funds,
the UCC requires the creditor to remit the surplus to the Obligor under the
contract.
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors and servicers involved in
consumer finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z,
state adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code, state motor vehicle retail installment sale acts, state "lemon"
laws and other similar laws. In addition, the laws of certain states impose
finance charge ceilings and other restrictions on consumer transactions and
require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who
fail to comply with their provisions. In some cases, this liability could
affect the ability of an assignee such as the Trustee to enforce consumer
finance contracts such as the Receivables.
The so-called "Holder-in-Due-Course Rule" of the Federal Trade Commission
(the "FTC Rule") has the effect of subjecting any assignee of the 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. 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. The
FTC Rule is generally duplicated by the Uniform Consumer Credit Code, other
state statutes or the common law in certain states. To the extent that the
Receivables will be subject to the requirements of the FTC Rule, the Trustee,
as holder of the Receivables, will be subject to any claims or defenses that
the purchaser of the related Vehicle may assert against the seller of such
Vehicle. Such claims will be limited to a maximum liability equal to the
amounts paid by the Obligor under the related Receivable.
Under most state vehicle dealer licensing laws, sellers of automobiles, light
duty trucks and vans are required to be licensed to sell vehicles at retail
sale. In addition, with respect to used vehicles, the Federal Trade
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Commission's Rule on Sale of Used Vehicles requires that all sellers of used
vehicles prepare, complete and display a "Buyer's Guide" which explains the
warranty coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor vehicle title laws of most states require that all sellers of used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if
either a Buyer's Guide or Odometer Disclosure Statement was not provided to the
purchaser of a Vehicle, the Obligor may be able to assert a defense against the
seller of the Vehicle. If an Obligor on a Receivable were successful in
asserting any such claim or defense, the Servicer would pursue on behalf of the
Trust any reasonable remedies against the seller or manufacturer of the
vehicle, subject to certain limitations as to the expense of any such action
specified in the related Trust Agreement.
Any loss relating to any such claim, to the extent not covered by a
withdrawal from a reserve account or from a payment under an insurance policy
or other Credit Enhancement could result in losses to the Securityholders. If
an Obligor were successful in asserting any such claim or defense as described
in this paragraph or the two immediately preceding paragraphs, such claim or
defense would constitute a breach of a representation and warranty under the
related Trust Agreement and would create an obligation of the Bank to reacquire
the related Receivable unless the breach were cured.
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an Obligor from some or all of the
legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections of the 14th Amendment to the Constitution of the United States.
Courts have generally either upheld the notice provisions of the UCC and
related laws as reasonable or have found that the creditor's repossession and
resale do not involve sufficient state action to afford constitutional
protection to consumers.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Relief Act, an Obligor who enters military service
after the origination of such Obligor's Receivable (including an Obligor who
was in reserve status and is called to active duty after origination of the
Receivable), may not be charged interest (including fees and charges) above an
annual rate of 6% during the period of such Obligor's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to Obligors who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard, and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
Obligors who enter military service (including reservists who are called to
active duty) after origination of the related Receivable, no information can be
provided as to the number of loans that may be effected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of the Servicer to collect full amounts of interest
on certain of the Receivables. Any shortfall in interest collections resulting
from the application of the Relief Act or similar legislation or regulations,
which would not be recoverable from the related Receivables, would result in a
reduction of the amounts distributable to the holders of the related
Securities, and would not be covered by any form of Credit Enhancement provided
in connection with the related series of Securities. In addition, the Relief
Act imposes limitations that would impair the ability of the Servicer to
foreclose on an affected Receivable during the Obligor's period of active duty
status, and, under certain circumstances, during an additional three month
period thereafter. Thus, in the event that the Relief Act or similar
legislation or regulations applies to any Receivable which goes into default,
there may be delays in payment and losses on the related Securities in
connection therewith. Any other interest shortfalls, deferrals or forgiveness
of payments on the Receivables resulting from similar legislation or
regulations may result in delays in payments or losses to Securityholders of
the related series.
41
<PAGE>
OTHER LIMITATIONS
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a creditor to
realize upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle, and, as part of the rehabilitation
plan, reduce the amount of the secured indebtedness to the market value of the
motor vehicle at the time of bankruptcy (as determined by the court), leaving
the party providing financing as a general unsecured creditor for the remainder
of the indebtedness. A bankruptcy court may also reduce the monthly payments
due under a contract or change the rate of interest and time of repayment of
the indebtedness. Any such shortfall, to the extent not covered by Credit
Enhancement (as specified in each Prospectus Supplement), could result in
losses to the related Securityholders.
CERTAIN TAX CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations stated therein, federal income tax considerations
relevant to the purchase, ownership and disposition of such Securities.
ERISA CONSIDERATIONS
The Prospectus Supplement for each series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
METHODS OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus Supplement will
be offered in series through one or more of the methods described below. The
Prospectus Supplement prepared for each series will describe the method of
offering being utilized for that series and will state the public offering or
purchase price of such series and the net proceeds to the Bank from such sale.
The Bank intends that Securities will be offered through the following
methods from time to time and that offerings may be made concurrently through
more than one of these methods or that an offering of a particular series of
Securities may be made through a combination of two or more of these methods.
Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters, including sales to trusts with respect to
which the underwriters may act as depositor and may from time to time
repurchase Securities for resale to the public;
2. By placements by the Bank with institutional investors through
dealers;
3. By direct placements by the Bank with institutional investors; and
4. By competitive bid.
In addition, if specified in the related Prospectus Supplement, a series of
Securities may be offered in whole or in part in exchange for the Receivables
(and other assets, if applicable) that would comprise the Trust Property in
respect of such Securities.
If underwriters are used in a sale of any Securities (other than in
connection with an underwriting on a best efforts basis), such Securities will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The managing
42
<PAGE>
underwriters will be set forth on the cover of the Prospectus Supplement
relating to such series and the members of the underwriting syndicate, if any,
will be named in such Prospectus Supplement.
In connection with the sale of the Securities, underwriters may receive
compensation from the Bank or from purchasers of the Securities in the form of
discounts, concessions or commissions. Underwriters and dealers participating
in the distribution of the Securities may be deemed to be underwriters in
connection with such Securities, and any discounts or commissions received by
them from the Bank and any profit on the resale of Securities by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Prospectus Supplement will describe any such compensation paid by the Bank.
It is anticipated that the underwriting agreement pertaining to the sale of
any series of Securities will provide that the obligations of the underwriters
will be subject to certain conditions precedent, that the underwriters will be
obligated to purchase all such Securities if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that, in limited
circumstances, the Bank will indemnify the several underwriters and the
underwriters will indemnify the Bank against certain civil liabilities,
including liabilities under the Securities Act or will contribute to payments
required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between the Bank and purchasers of
Securities of such series.
Purchasers of Securities, including dealers, may, depending on the facts and
circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
series, including certain federal and state income tax consequences with
respect thereto, will be passed upon by Dewey Ballantine, New York, New York,
or other counsel specified in the related Prospectus Supplement.
43
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein.
<TABLE>
<S> <C>
Accrual Securities.......................................................... 5
Actuarial Contracts......................................................... 17
Additional Receivables...................................................... 8
Additional Yield Maintenance Amount......................................... 29
Affiliate................................................................... 1
APR......................................................................... 16
Bank........................................................................ 1
Cede........................................................................ 9
Cedel....................................................................... 9
CEDEL Participants.......................................................... 23
Certificateholders.......................................................... 24
Certificates................................................................ 1
CFC......................................................................... 1
Class....................................................................... 1
Closing Date................................................................ 16
Code........................................................................ 9
Collection Account.......................................................... 28
Collection Period........................................................... 6
Commission.................................................................. 2
Commodity Indexed Securities................................................ 26
Contracts................................................................... 1
Cooperative................................................................. 23
Credit Enhancement.......................................................... 13
Credit Enhancer............................................................. 13
Currency Indexed Securities................................................. 26
Definitive Securities....................................................... 24
Depositaries................................................................ 21
Determination Date.......................................................... 29
Distribution Account........................................................ 28
Distribution Date........................................................... 6
DTC......................................................................... 3
Eligible Deposit Account.................................................... 28
Eligible Institution........................................................ 28
Eligible Investments........................................................ 28
ERISA....................................................................... 10
Euroclear................................................................... 9
Euroclear Operator.......................................................... 23
Euroclear Participants...................................................... 23
Exchange Act................................................................ 2
Face Amount................................................................. 27
FASIT....................................................................... 2
FDIC........................................................................ 12
Fixed Income Securities..................................................... 5
FTC......................................................................... 39
Indenture................................................................... 4
Index....................................................................... 26
Indexed Commodity........................................................... 26
</TABLE>
44
<PAGE>
<TABLE>
<S> <C>
Indexed Currency............................................................ 26
Indexed Principal Amount.................................................... 26
Indexed Securities.......................................................... 26
Indirect Participants....................................................... 22
Initial Yield Maintenance Amount............................................ 8
Insolvency Event............................................................ 34
Interest Rate............................................................... 2
Investment Company Act...................................................... 4
Investment Earnings......................................................... 28
Issuer...................................................................... 1
Lender...................................................................... 15
Master Trust................................................................ 7
Master Trust Agreement...................................................... 7
Master Trust New Issuance................................................... 30
Noteholders................................................................. 24
Notes....................................................................... 1
Original Security Principal Balance......................................... 25
OTS......................................................................... 19
Participants................................................................ 21
Pass-Through Rate........................................................... 2
Pool Balance................................................................ 19
Pool Factor................................................................. 19
Pooling Agreement........................................................... 4
Pre-Funding Account......................................................... 8
Pre-Funding Period.......................................................... 8
Prepayment.................................................................. 14
Prospectus Supplement....................................................... 1
Purchase Amount............................................................. 29
Rating Agencies............................................................. 10
Ratings Effect.............................................................. 13
Receivable File............................................................. 31
Receivables................................................................. 1
Record Date................................................................. 6
Registration Statement...................................................... 2
Reimbursement Amounts....................................................... 25
Relief Act.................................................................. 14
Required Rate............................................................... 8
Required Yield Maintenance Amount........................................... 29
Residual Interest........................................................... 7
Rule of 78s................................................................. 16
Rule of 78s Contracts....................................................... 16
Rules....................................................................... 22
SAIF........................................................................ 19
Securities.................................................................. 1
Securities Act.............................................................. 2
Security Principal Balance.................................................. 25
Securityholders............................................................. 6
Senior Securities........................................................... 6
Servicer.................................................................... 1
Servicer Default............................................................ 34
Servicing Agreement......................................................... 4
Simple Interest Contracts................................................... 17
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
Stock Index................................................................. 26
Stock Indexed Securities.................................................... 26
Strip Securities............................................................ 5
Subordinate Securities...................................................... 6
Terms and Conditions........................................................ 23
Trust....................................................................... 1
Trust Accounts.............................................................. 28
Trust Agreement............................................................. 4
Trust Property.............................................................. 1
Trustee..................................................................... 5
Vehicles.................................................................... 1
Yield Maintenance Agreement................................................. 29
Yield Maintenance Amount.................................................... 29
</TABLE>
46
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENT PROCEDURES
Except in certain limited circumstances, the globally offered Certificates
(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 through CEDEL and Euroclear will
be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted
according to DTC's rules and procedures applicable to U.S. corporate debt
obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-
payment basis through the respective Depositaries of CEDEL and Euroclear (in
such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. 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 Relevant
Depository which in turn will hold such positions in their accounts as DTC
Participants. Investors electing to hold their Global Securities through DTC
will follow DTC settlement practices. Investor securities custody accounts
will be credited with their holdings against payment in same-day funds on the
settlement date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
SECONDARY MARKET TRADING
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 prior asset-
backed certificates issues 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.
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<PAGE>
Trading between a DTC Seller and CEDEL or Euroclear Participants. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a CEDEL Participant or a Euroclear Participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the Relevant Depository, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in
such accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by
the Relevant Depository to the DTC Participant's account against delivery of
the Global Securities. After settlement has been completed, the Global
Securities will be credited to the respective clearing system and by the
clearing system, in accordance with its usual prodecures, to the CEDEL
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt 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., trade fails), the
CEDEL or Euroclear cash debt will be valued instead as of the actual settlement
date.
CEDEL Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the Global
Securities are credited to their account 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 preposition
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, CEDEL Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although the 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 crediting Global Securities
to the respective European Depository 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 Participants 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 system, through the respective
Depository, to a DTC Participant. The seller will send instructions to CEDEL or
Euroclear through a CEDEL Participant or Euroclear Participant at least one
business day prior to settlement. In these cases CEDEL or Euroclear will
instruct the respective Depository, as appropriate, to credit the Global
Securities to the DTC Participant's account against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment to and excluding the settlement date on the basis of the actual
number of days in such accrual period and a year assumed to consist of 360
days. For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. 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). In the event that the CEDEL Participant or Euroclear Participant
have a line of credit with its respective clearing system and elect
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<PAGE>
to be in debt in anticipation of receipt of the sale proceeds in its account,
the back-valuation will extinguish any overdraft 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 is 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 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 debt issued in registered
form by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Owners of Global
Securities that are Non-U.S. Persons (as defined below) can obtain a complete
exemption from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form W-8
must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with Effectively Connected Income (Form
4224). A Non-U.S. Person (as defined below), including a corporation or bank
that is a Non-U.S. Person, for which the interst 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 the Income Effectively Connected with the Conduct of
a Trade or Business in the United States). Form 4224 may also be filed by the
Certificate Owner's Agent.
Exemption or Reduced Rate for Non-U.S. Persons Resident in Treaty Countries
(Form 1001). Non-U.S. Persons 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 Certificate Owners or their agent.
Exemption for U.S. Persons (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. Owners of Global Securities or,
in the case of a Form 1001 or a Form 4224 filer, their agent, file by
submitting the appropriate form to the person through whom they
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<PAGE>
hold (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one taxable year of the Owner.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof or (iii) an estate or
trust that is subject to U.S. federal income tax regardless of the source of
its income. The term "Non-U.S. Person" means any person who is not a U.S.
Person. 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.
A-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance and distribution of the Offered Certificates.
<TABLE>
<S> <C>
SEC Filing Fee................................................... $ 454,545
Trustee's Fees and Expenses...................................... 20,000
Legal Fees and Expenses.......................................... 450,000
Accounting Fees and Expenses..................................... 240,000
Printing and Engraving Expenses.................................. 450,000
Blue Sky Qualification and Legal Investment Fees and Expenses.... 30,000
Rating Agency Fees............................................... 1,275,000
Miscellaneous.................................................... 105,455
----------
TOTAL.......................................................... $3,025,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
12 C.F.R. 545.121 of the rules and regulations of the OTS prescribe the
conditions under which indemnification may be obtained by a present or former
director, officer or employee of the Bank against whom an action has been
brought or is threatened, for any amount for which that person is liable under
a judgment and for reasonable costs and expenses, including reasonable
attorney's fees, actually paid or incurred by that person defending or
settling such action.
Subject to prior OTS review, the OTS rules and regulations require the Bank
to indemnify the director, officer or employee if (a) a final judgment on the
merits is in his favor, or (b) in the case of (i) settlement, (ii) final
judgment against him or (iii) final judgment in his favor, other than on the
merits, if a majority of the disinterested directors of the Bank determines
that he was acting in good faith within the scope of his employment or
authority as he could reasonably have perceived it under the circumstances,
and for a purpose he could reasonably have believed under the circumstances
was in the best interests of the Bank or its shareholders.
The officers and directors of the Bank are covered by directors' and
officers' insurance insuring them against any liability they may incur in
their capacities as such, subject to 12 C.F.R. 545.121 of the rules and
regulations of the OTS.
Pursuant to Section of the Form of Underwriting Agreement, which is
attached as Exhibit 1.1 hereto, the Underwriters will agree to indemnify the
Bank and its officers and directors against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, arising from
information which has been or will be furnished to the Bank by the
Underwriters that appear in the Registration Statement or the Prospectus.
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
*1.1 --Form of Underwriting Agreement.
*3.1 --Charter of Chevy Chase Bank, F.S.B.
*3.2 --Bylaws of Chevy Chase Bank, F.S.B.
*4.1 --Form of Indenture between the Trust and the Indenture Trustee.
*4.2 --Form of Indenture between the Registrant and the Indenture Trustee.
*4.3 --Form of Pooling and Servicing Agreement.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
*4.4 --Form of Trust Agreement.
*4.5 --Form of Surety Bond.
*5.1 --Opinion of Dewey Ballantine with respect to validity.
*8.1 --Opinion of Dewey Ballantine with respect to tax matters.
*23.1 --Consents of Dewey Ballantine are included in its opinions filed as
Exhibits 5.1 and 8.1 hereto.
*99.1 --Form of Prospectus Supplement--Certificates and Notes.
*99.2 --Form of Prospectus Supplement--Notes.
*99.3 --Form of Prospectus Supplement--Certificates.
*99.4 --Form of Prospectus Supplement--Master Trust.
</TABLE>
- --------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
A. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described above in Item 15, 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 their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by them is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of such issue.
B. Undertaking pursuant to Rule 415.
The 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;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change of such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in the post-effective amendment is
contained in periodic reports filed by the Issuer pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
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<PAGE>
C. Undertaking pursuant to Rule 430A.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
a registration statement in Reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities 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, 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS PRE-
EFFECTIVE AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHEVY
CHASE, STATE OF MARYLAND ON MARCH 7, 1997.
Chevy Chase Bank, F.S.B as Originator
of the Trusts and Registrant
/s/ B. Francis Saul II
By ___________________________________
B. FRANCIS SAUL II
CHAIRMAN OF THE BOARD
(PRINCIPAL EXECUTIVE OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED THIS
PRE-EFFECTIVE AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED ON
MARCH 7, 1997 BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
SIGNATURE TITLE
Vice Chairman of the Board
*/s/ Alexander R.M. Boyle
____________________________________
ALEXANDER R.M. BOYLE
Director
____________________________________
VINCENT C. BURKE, JR.
Director
____________________________________
DONALD G. CONRAD
Director
*/s/ Gavin Malloy Farr
____________________________________
GAVIN MALLOY FARR
Senior Vice President and Controller
*/s/ Joel A. Friedman (Principal Accounting Officer)
____________________________________
JOEL A. FRIEDMAN
____________________________________ Director
GILBERT M. GROSVENOR
Executive Vice President (Principal
*/s/ Stephen R. Halpin, Jr. Financial Officer)
____________________________________
STEPHEN R. HALPIN, JR.
II-4
<PAGE>
SIGNATURE TITLE
Director
*/s/ Penne Percy Korth
_____________________________________
PENNE PERCY KORTH
Director
_____________________________________
LASALLE D. LEFFALL
Director
*/s/ William F. McSweeny
_____________________________________
WILLIAM F. MCSWEENY
Director
*/s/ Garland P. Moore, Jr.
_____________________________________
GARLAND P. MOORE, JR.
_____________________________________ Director
GEORGE M. ROGERS, JR.
Chairman of the Board (Principal
*/s/ B. Francis Saul II Executive Officer)
_____________________________________
B. FRANCIS SAUL II
Director
*/s/ Leonard L. Silverstein
_____________________________________
LEONARD L. SILVERSTEIN
/s/ Stephen R. Halpin, Jr.
*By_____________________________
STEPHEN R. HALPIN, JR.
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
*1.1 --Form of Underwriting Agreement.
*3.1 --Charter of Chevy Chase Bank, F.S.B.
*3.2 --Bylaws of Chevy Chase Bank, F.S.B.
*4.1 --Form of Indenture between the Trust and the Indenture Trustee.
*4.2 --Form of Indenture between the Registrant and the Indenture Trustee.
*4.3 --Form of Pooling and Servicing Agreement.
*4.4 --Form of Trust Agreement.
*4.5 --Form of Surety Bond.
*5.1 --Opinion of Dewey Ballantine with respect to validity.
*8.1 --Opinion of Dewey Ballantine with respect to tax matters.
*23.1 --Consents of Dewey Ballantine are included in its opinions filed as Exhibits 5.1 and 8.1 hereto.
*99.1 --Form of Prospectus Supplement--Certificates and Notes.
*99.2 --Form of Prospectus Supplement--Notes.
*99.3 --Form of Prospectus Supplement--Certificates.
*99.4 --Form of Prospectus Supplement--Master Trust.
</TABLE>
- --------
* Filed herewith.
<PAGE>
CHEVY CHASE AUTO RECEIVABLES TRUST ______
_____% Auto Receivables Backed [Certificates/Notes]
UNDERWRITING AGREEMENT
[Date]
[Underwriters]
Dear Sirs:
1. INTRODUCTION. Chevy Chase Bank, F.S.B., a federally chartered stock
savings bank ("Chevy Chase"), has authorized the issuance and sale of _____%
Auto Receivables Backed [Certificates/Notes] (the "Securities"), evidencing
[interests in a trust/debt issued by a trust] (the "Trust") consisting, among
other things, of (i) a combination of simple interest retail installment sales
contracts and installment loans (the "Receivables") secured by new and used
automobiles, light duty trucks and vans (the "Vehicles") financed thereby, (ii)
amounts due or received thereunder on or after ____________ (the "Cut-Off
Date"), and (iii) security interests in the Vehicles financed thereby. The
Securities will be issued under a [Pooling and Servicing Agreement Indenture]
dated as of _____________ (the "Trust Agreement") between Chevy Chase as seller
and as servicer and ______________________, as trustee (the "Trustee").
The [Certificates will evidence fractional undivided interests in the Trust
[Notes will evidence debt issued by the Trust]. [The Trustee, on behalf of the
holders of the Securities (the "Securityholders"), will have the benefit of a
financial guaranty insurance policy (the Certificate Insurance Policy") from
_______ Insurance Corporation (the "Security Insurer"). The Trustee will also
have access to a Reserve Account to be established for the benefit of the
holders of the Securities and the Security Insurer. [Each Securityholder will
also purchase the right to receive a pro rata share of amounts payable under the
Yield Maintenance Account established pursuant to the Trust Agreement.] The
Certificates will be issued in an aggregate principal amount of $____________,
which is equal to the original pool balance of the Receivables, exclusive of
accrued interest, as of the opening of business on the Cut-Off Date. The forms
of the Trust Agreement, the Security Insurance Policy and the Indemnification
Agreement (as such term is hereinafter defined) have been timely filed as
exhibits to the Registration Statement (as such term is hereinafter defined).
Capitalized terms used but not defined herein shall have the meanings given to
them in the Pooling Agreement.
<PAGE>
Chevy Chase hereby agrees with the several Underwriters named in Schedule 1
hereto (the "Underwriters") as follows:
2. REPRESENTATIONS AND WARRANTIES OF CHEVY CHASE. Chevy Chase represents
and warrants to, and agrees with, each of the Underwriters that:
(a) A Registration Statement on Form S-3 (Nos. __________________) relating
to the Certificates, including a form of Prospectus, has been filed with the
Securities and Exchange Commission (the "Commission") and either (i) has been
declared effective under the Act of 1933 (the "Act") and is not proposed to be
amended or (ii) is proposed to be amended by amendment or post-effective
amendment. If Chevy Chase does not propose to amend such Registration Statement
or if any post effective amendment to such Registration Statement has been filed
with the Commission prior to the execution and delivery of this Agreement, such
Registration Statement or such post-effective amendment, as the case may be, has
been declared effective by the Commission. For purposes of this Agreement,
"Effective Time" means (i) if Chevy Chase has advised _________________________,
as representative of the Underwriters (the "Representative"), that it does not
propose to amend such Registration Statement, the date and time as of which such
Registration Statement, or the most recent post-effective amendment thereto (if
any) filed prior to the execution and delivery of this Agreement, was declared
effective by the Commission, or (ii) if Chevy Chase has advised the
Representative that it proposes to file an amendment or post-effective amendment
to such Registration Statement, the date and time as of which such Registration
Statement, as amended by such amendment or post-effective amendment, as the case
may be, is declared effective by the Commission. "Effective Date" means the
date of the Effective Time. Such Registration Statement, as amended at the
Effective Time, including all material incorporated by reference therein and
including all information, if any, deemed to be a part of such Registration
Statement as of the Effective Time pursuant to Rule 430A(b) under the Act, is
referred to herein as the "Registration Statement", and the form of prospectus
relating to the Securities, as first filed with the Commission pursuant to and
in accordance with Rule 424(b) under the Act or, if no such filing is required,
as included in the Registration Statement, including all material incorporated
by reference in such prospectus, is herein after referred to as the
"Prospectus."
(b) If the Effective Time is prior to the execution and delivery of this
Agreement: (i) on the Effective Date, the Registration Statement conformed, and
on the date of this Agreement the Registration Statement
2
<PAGE>
conforms, in all material respects with the requirements of the Act and the
rules and regulations of the Commission ("Rules and Regulations") and did not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) on the date of this Agreement, the Prospectus conforms,
and at the time of filing of the Prospectus pursuant to Rule 424(b) and at the
Closing Date, the Prospectus will conform, in all material respects to the
requirements of the Act and the Rules and Regulations, and the Prospectus does
not include and does not omit, and will not include, any untrue statement of a
material fact, and does not omit, to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. If the Effective Time is subsequent to the
execution and delivery of this Agreement on the Effective Date, the Registration
Statement and the Prospectus will conform in all material respects to the
requirements of the Act and the Rules and Regulations, and (i) the Registration
Statement will not include any untrue statement of a material fact or will not
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading and (ii) the Prospectus will not
include an untrue statement of a material fact or will not omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The two preceding
sentences do not apply to statements in or omissions from the Registration
Statement or Prospectus based upon written information furnished to Chevy Chase
by any Underwriters through the Representative specifically for use therein, it
being understood the only such information is that described as such in Section
8(b). The conditions to the use by Chevy Chase of a Registration Statement on
Form S-3 under the Act, as set forth in the General Instructions to Form S-3,
have been satisfied with respect to the Registration Statement and the
Prospectus. There are no contracts or documents which are required to be filed
as exhibits to the Registration Statement pursuant to the Act or the Rules and
Regulations which have not been so filed on or prior to the Effective Date.
(c) Since the respective dates as of which information is given in the
Prospectus, or the Prospectus as amended and supplemented, there has not been
any material adverse change in the general affairs, management, or results of
operations of Chevy Chase or of its subsidiaries otherwise than as set forth or
contemplated in the Prospectus or the Prospectus as amended and supplemented,
nor has there been any adverse change in the general affairs, management, or
results of operations of any other affiliate of Chevy Chase which could have a
material adverse
3
<PAGE>
effect on the general affairs, management or results of operations of Chevy
Chase or its subsidiaries, otherwise than as set forth or contemplated in the
Prospectus or the Prospectus as amended and supplemented.
(d) Chevy Chase is a federally chartered stock savings bank duly organized
and validly existing under the laws of the United States of America, and has
full corporate power, authority and legal right to own its properties and
conduct its business as such properties are presently owned and such business is
presently conducted, and to execute, deliver and perform its obligations under
this Agreement, the Trust Agreement, the Indemnification Agreement, and to cause
the Securities to be issued. Chevy Chase has conducted and is conducting its
business so as to comply in all material respects with all applicable statutes
and regulations, including, without limitation, all regulations, decisions,
directives and orders of the Office of Thrift Supervision. Chevy Chase is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the conduct of its
business requires such qualification.
(e) (i) There are no legal, governmental or regulatory proceedings pending
to which Chevy Chase is a party or to which any of its property is the subject,
which, if determined adversely to Chevy Chase, would individually or in the
aggregate have a material adverse effect on the performance by Chevy Chase of
this Agreement, the Trust Agreement, the Indemnification Agreement or the
consummation of the transactions contemplated hereunder or thereunder and (ii)
to the best of its knowledge, no such proceedings are threatened or contemplated
by governmental or regulatory authorities or threatened by others.
(f) This Agreement has been duly authorized and validly executed and
delivered by Chevy Chase and constitutes a valid and binding agreement of Chevy
Chase, enforceable against Chevy Chase in accordance with its terms, except to
the extent that (i) the enforceability hereof may be subject to insolvency,
reorganization, moratorium, receivership, conservatorship, or other similar
laws, regulations or procedures of general applicability now or hereafter in
effect relating to or affecting creditors' or other obligees' rights generally
or the rights of creditors or obligees of federally chartered stock savings
banks, the deposits of which are insured by the Federal Deposit Insurance
Corporation (the "FDIC"), (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought
and (iii) rights to indemnification and contribution under this Agreement may be
limited by
4
<PAGE>
state or federal securities laws or the policies underlying such laws.
(g) The Trust Agreement and the Indemnification Agreement have been duly
authorized by Chevy Chase and, when executed and delivered by Chevy Chase and
assuming the due authorization, execution and delivery of the Trust Agreement
and the Indemnification Agreement by the other parties thereto, will constitute
valid and binding obligations of Chevy Chase enforceable against Chevy Chase in
accordance with their respective terms, except to the extent that (i) the
enforceability thereof may be subject to insolvency, reorganization, moratorium,
receivership, conservatorship, or other similar laws, regulations or procedures
of general applicability now or hereafter in effect relating to or affecting
creditors' or obligees' rights generally or the rights of creditors or obligees
of federally chartered stock savings banks, the deposits of which are insured by
the FDIC, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(h) The issuance and delivery of the Securities, the consummation of any
other of the transactions contemplated herein in the Trust Agreement and the
Indemnification Agreement or the fulfillment of the terms of this Agreement, the
Trust Agreement or the Indemnification Agreement, do not and will not conflict
with or violate any term or provision of the Charter or By-laws of Chevy Chase,
any statute, order or regulation applicable to Chevy Chase of any court,
regulatory body, administrative agency or governmental body having jurisdiction
over Chevy Chase and do not and will not conflict with, result in a breach or
violation or the acceleration of or constitute a default under or result in the
creation or imposition of any lien, charge or encumbrance upon any of the
property or assets of Chevy Chase pursuant to the terms of, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which Chevy Chase is a party or by which Chevy Chase may be bound or to which
any of the property or assets of Chevy Chase may be subject except for
conflicts, violations, breaches, accelerations and defaults which would not,
individually or in the aggregate, be materially adverse to Chevy Chase or
materially adverse to the transactions contemplated by this Agreement.
(i) ____________________ is an independent public accountant with respect
to Chevy Chase as required by the Act and the Rules and Regulations.
(j) The direction by Chevy Chase to the Trustee to execute, countersign,
issue and deliver the Securities
5
<PAGE>
has been duly authorized by Chevy Chase, and, assuming the Trustee has been duly
authorized to do so, when executed, countersigned, issued and delivered by the
Trustee in accordance with the Trust Agreement, the Securities will be validly
issued and outstanding and will be entitled to the benefits of the Trust
Agreement.
(k) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the United
States is required for the issuance and sale of the Securities, or the
consummation by Chevy Chase of the other transactions contemplated by this
Agreement, the Trust Agreement or the Indemnification Agreement, except the
registration under the Act of the certificates and such consents, approvals,
authorizations, registrations or qualifications as may have been obtained or
effected or as may be required under securities or Blue Sky laws in connection
with the purchase and distribution of the Securities by the Underwriters.
(l) Chevy Chase possesses all material licenses, certificates,
authorizations or permits issued by the appropriate state, Federal or foreign
regulatory agencies or bodies necessary to conduct the business now conducted by
it and as described in the Prospectus and Chevy Chase has not received notice of
proceedings relating to the revocation or modification of any such license,
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the conduct of its business, operations, financial condition or
income.
(m) At the time of execution and delivery of the Trust Agreement, Chevy
Chase (i) will not have assigned to any person any of its right, title or
interest in the Receivables or in the Trust Agreement or the Securities and (ii)
will have the power and authority to sell the Receivables to the Trustee and to
sell the Securities to the Underwriters, and upon execution and delivery of the
Trust Agreement by the Trustee, the Trustee will have acquired beneficial
ownership of all of Chevy Chase's right, title and interest in and to the
Receivables, and upon delivery to the Underwriters of the Securities the
Underwriters will have good and marketable title to the Securities.
(n) As of the Cut-Off Date, the Receivables will meet the eligibility
criteria described in the Prospectus.
(o) The Trust created by the Trust Agreement is not, and immediately
following the issuance and sale of the Securities will not be, required to be
registered as an "investment company" under the Investment Company Act of
6
<PAGE>
1940, as amended (the "1940 Act"), as in effect on the date hereof.
(p) Chevy Chase has authorized the conveyance of the Receivables to the
Trust, and Chevy Chase has authorized the Trust to issue the Securities.
(q) Each of the Securities, the Trust Agreement and the Security Insurance
Policy conforms in all material respects to the descriptions thereof contained
in the Prospectus.
(r) Any taxes, fees and other governmental charges in connection with the
execution, delivery and issuance of this Agreement, the Trust Agreement, the
Indemnification Agreement, the Security Insurance Policy and the Certificates
that are required to be paid by Chevy Chase at or prior to the Closing Date have
been paid or will be paid at or prior to the Closing Date.
(s) Chevy Chase will not apply the proceeds of the sale of the Securities
pursuant to this Agreement to purchase securities (which term does not include
the Receivables) within the meaning of Regulation T promulgated by the Federal
Reserve Board.
(t) As of the Closing Date, the representations and warranties of Chevy
Chase in the Trust Agreement and the Indemnification Agreement will be true and
correct.
Any certificate signed by an officer of Chevy Chase and delivered to the
Underwriters or the Underwriters' counsel in connection with an offering of the
Certificates shall be deemed, and shall state that it is, a representation and
warranty as to the matters covered thereby to each person to whom the
representations and warranties in this Section 2 are made.
3. PURCHASE, SALE, DELIVERY AND PAYMENTS. The Underwriters commitment to
purchase the Securities pursuant to this Agreement shall be deemed to have been
made on the basis of the representations and warranties herein contained and
shall be subject to the terms and conditions herein set forth. Chevy Chase
agrees to instruct the Trustee to issue and agrees to sell to the Underwriters,
and the Underwriters, severally and not jointly, agree, to purchase from Chevy
Chase at the purchase price for the Securities set forth opposite the names of
the Underwriters on Schedule 1 hereto, the respective principal amount of
Securities set forth on Schedule 1 hereto. Payment of the purchase price for,
and delivery of, any Securities to be purchased by the Underwriters shall be
made at the office of ____________________________________________, or at such
other place as
7
<PAGE>
shall be agreed upon by the Underwriters and Chevy Chase, at 10:00 a.m. New York
City time on ___________________ (the "Closing Date"), or at such other time or
date or time as shall be agreed upon in writing by the Representative and Chevy
Chase. On the Closing Date, payment shall be made to Chevy Chase by wire
transfer of same day funds payable to the account of Chevy Chase against
delivery to the Trustee as custodian for The Depository Trust Company ("DTC") of
the Securities in the form of one or more global securities in definitive form
(the "Global Securities") and registered in the name of Cede & Co., as nominee
for DTC. The Global Securities will be made available for checking at
___________________________ at least 24 hours prior to the Closing Date.
4. OFFERING BY UNDERWRITERS. It is understood that the Underwriters
propose to offer the Securities for sale to the public (which may include
selected dealers) as set forth in the Prospectus.
5. COVENANTS OF CHEVY CHASE. Chevy Chase covenants with the Underwriters
as follows:
(a) To prepare a Prospectus setting forth any price related information
previously omitted from the effective Registration Statement pursuant to Rule
430A under the Act within the time period prescribed by Rule 430A, and to
transmit such Prospectus to the Commission for filing pursuant to Rule 424(b)
under the Act within the prescribed time period, and prior to the Closing Date
to provide evidence satisfactory to the Underwriters of such timely filing, or
to prepare and timely file a post-effective amendment to the Registration
Statement providing such information, which post-effective amendment shall have
been declared effective in accordance with the requirements of Rule 430A under
the Act and to provide evidence satisfactory to the Underwriters of the
effectiveness thereof.
(b) If at any time when the Prospectus as amended or supplemented is
required by the Act to be delivered in connection with sales of the Securities
by the Underwriters, any event shall occur or condition exist as a result of
which it is necessary, in the opinion of the Underwriters' counsel or counsel
for Chevy Chase, further to amend or supplement the Prospectus as then amended
or supplemented in order that the Prospectus as amended or supplemented will not
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of circumstances
existing at the time it is delivered to a purchaser, not misleading or if it
shall be necessary, in the opinion of any such counsel, at any such time to
amend or supplement the Registration Statement or the Prospectus as then amended
or supplemented
8
<PAGE>
in order to comply with the requirements of the Act or the Rules and
Regulations, or if required by such Rules and Regulations, including Rule 430A
thereunder, to file a post-effective amendment to such Registration Statement
(including an amended Prospectus), Chevy Chase will promptly notify the
Representative of such event and will prepare and file with the Commission
(subject to the Representative's prior review), at its own expense, such
amendment or supplement as may be necessary to correct such untrue statement or
omission or to make the Registration Statement comply with such requirements,
and within two Business Days will furnish to the Underwriters as many copies of
the Prospectus, as amended or supplemented, as the Underwriters shall reasonably
request. Neither the Representative's consent to, nor the Underwriters,
delivery of, any such amendment or supplement shall constitute a waiver of any
of the conditions set forth in Section 6 of this Agreement.
(c) Chevy Chase will give the Underwriters reasonable notice of its
intention to file any amendment to the Registration Statement, the Prospectus or
the Prospectus as amended or supplemented, pursuant to the Act, and will furnish
the Underwriters with copies of any such amendment or supplement proposed to be
filed a reasonable time in advance of filing, and will not file any such
amendment or supplement to which the Underwriters or the Underwriters, counsel
shall object.
(d) Chevy Chase will notify the Underwriters immediately, and confirm the
notice in writing, (i) of the effectiveness of any amendment to the Registration
Statement, (ii) of the mailing or the delivery to the Commission for filing of
any supplement to the Prospectus or the Prospectus as amended or supplemented,
(iii) of the receipt and contents of any comments from the Commission with
respect to the Registration Statement or the Prospectus or the Prospectus as
amended or supplemented, (iv) of any request by the Commission for any amendment
to the Registration Statement or any amendment or supplement to the Prospectus
or for additional information and (v) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose. Chevy Chase will make every
reasonable effort to prevent the issuance of any stop order and, if any stop
order is issued, to obtain the lifting thereof at the earliest possible moment.
(e) Chevy Chase will deliver to the Underwriters as many signed and as many
conformed copies of the Registration Statement (as originally filed) and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated by reference in the Prospectus),
each related preliminary
9
<PAGE>
prospectus, and so long as delivery of a Prospectus relating to the Securities
is required to be delivered under the Act in connection with sales by any
Underwriter or dealer, the Prospectus and all amendments and supplements to such
documents, in each case as soon as available and in such quantities as the
Underwriters may reasonably request. Chevy Chase will also furnish to the
Representative copies of any report on Form SR required by Rule 463 under the
Act.
(f) Chevy Chase will make generally available to holders of the Securities
as soon as practicable, but in any event not later than the Availability Date
(as defined below), earning statements of the Trust (which need not be audited)
complying with Section 11(a) of the Act and the Rules and Regulations (including
Rule 158) and covering a period of at least twelve consecutive months beginning
after the Effective Date which will satisfy the provisions of Section 11(a) of
the Act. For the purposes of the preceding sentence, the "Availability Date"
means the 45th day after the end of the Trust's fourth fiscal quarter following
the fiscal quarter that includes the Effective Date, except that, if such fourth
fiscal quarter is the last quarter of the Trust's fiscal year, "Availability
Date" means the 90th day after the end of such fourth fiscal quarter.
(g) Chevy Chase will endeavor, in cooperation with the Underwriters, to
qualify the Securities for sale and the determination of their eligibility for
investment under the applicable securities laws of such states and other
jurisdictions of the United States as the Representative may designate, and will
maintain or cause to be maintained such qualifications in effect for as long as
may be required for the distribution of the Securities. Chevy Chase will file
or cause the filing of such statements and reports as may be required by the
laws of each jurisdiction in which the Securities have been qualified as above
provided.
(h) Chevy Chase will not, directly or indirectly, without the Underwriters'
prior consent, publicly offer or sell or contract to sell or attempt to offer,
sell or dispose of any securities representing interests in or secured by the
Receivables for a period of 30 days following the commencement of the offering
of the Securities to the public.
(i) For a period from the date of this agreement until the retirement of
the Securities, Chevy Chase, as Servicer, will deliver to the Representative
and, upon request, to each of the other Underwriters, as soon as practicable,
copies of each security, report or notice and the annual statements of
compliance delivered by Chevy Chase, as Servicer, to the Trustee pursuant to
Section 4.10
10
<PAGE>
of the Trust Agreement, the annual statement of a firm of independent public
accountants furnished to the Trustee pursuant to Section 4.11 of the Trust
Agreement and such other information concerning the Receivables, Chevy Chase
(including in its capacities as the Seller and Servicer) or the Securities, as
the Representative may from time to time reasonably request.
(j) On or before the Closing Date, Chevy Chase shall furnish or make
available to the Underwriters or its counsel such additional documents and
information regarding Chevy Chase (including in its capacities as the Seller and
Servicer) and its affairs as the Underwriters may from time to time reasonably
request, including any and all documentation reasonably requested in connection
with their due diligence efforts regarding information in the Prospectus and in
order to evidence the accuracy or completeness of any of the conditions
contained in this Agreement.
(k) So long as any Security is outstanding, Chevy Chase shall furnish to
the Representative by first class mail as soon as practicable, all documents (A)
distributed, or caused to be distributed, by Chevy Chase to Securityholders, (B)
filed, or caused to be filed, by Chevy Chase with the Commission pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (C) any order
of the Commission under the Exchange Act or pursuant to a "no action" letter
from the staff of the Commission and (D) from time to time, such other
information in the possession of Chevy Chase concerning the Trust as the
Representative may reasonably request.
(l) Chevy Chase shall apply the net proceeds from the sale of the
Securities in the manner set forth in the Prospectus.
(m) If, between the date hereof or, if earlier, the dates as of which
information is given in the Prospectus and the Closing Date, to the knowledge of
Chevy Chase there shall have been any material change, or any development
involving a prospective material change in or affecting the general affairs,
management, financial position, shareholders' equity or results of operations of
Chevy Chase, Chevy Chase will give prompt written notice thereof to the
Underwriters.
(n) To the extent, if any, that any rating provided with respect to the
Securities set forth in Section 6(j) hereof is conditional upon the furnishing
of documents reasonably available to Chevy Chase or the taking of any other
reasonable actions by Chevy Chase, Chevy Chase shall furnish such documents or
take any such other actions.
11
<PAGE>
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations
of the Underwriters to purchase the Securities pursuant to this Agreement are
subject to the accuracy on and as of the Closing Date of the representations and
warranties on the part of Chevy Chase herein contained, to the accuracy of the
statements of officers of Chevy Chase made pursuant hereto, to the performance
by Chevy Chase of all of its obligations hereunder and to the following
conditions at the Closing Date:
(a) The Representative shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this Agreement
or, if the Effective Time is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the Registration Statement to be filed shortly prior to the
Effective Time), from Arthur Andersen LLP, in form and substance satisfactory to
the Underwriters and counsel for the Underwriters, confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations thereunder and stating in effect that (i) they
have performed certain specified procedures as a result of which they have
determined that certain information of an accounting, financial or statistical
nature (which is limited to accounting, financial or statistical information
derived from the general accounting records of the Trust and Chevy Chase set
forth in the Registration Statement and the Prospectus), agrees with the
accounting records of the Trust and Chevy Chase, excluding any questions of
legal interpretation, and (ii) they have performed certain specified procedures
with respect to the computer programs used to select the Receivables and to
generate information with respect to the Receivables set forth in the
Registration Statement and the Prospectus.
For purposes of this subsection (a), if the Effective Time is
subsequent to the execution and delivery of this Agreement, "Registration
Statement" shall mean the registration statement as proposed to be amended by
the amendment or post-effective amendment to be filed shortly prior to the
Effective Time, and "Prospectus" shall mean the prospectus included in such
Registration Statement. All financial statements included in material
incorporated by reference into the Prospectus shall be deemed included in the
Registration Statement for purposes of this subsection (a).
(b) If the Effective Time is not prior to the execution and delivery
of this Agreement, the Effective Time
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shall have occurred not later than 10:00 p.m., New York time, on the date of
this Agreement or such later date as shall have been consented to by the
Representative. If the Effective Time is prior to the execution and delivery of
this Agreement, the Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5 (a) of this Agreement.
(c) The Registration Statement shall have been declared effective by
the Commission and no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the Act or proceedings
therefor initiated or threatened by the Commission, any price related
information previously omitted from the effective Registration Statement
pursuant to Rule 430A under the Act shall have been included in the Prospectus
and transmitted to the Commission for filing pursuant to Rule 424 under the Act
within the prescribed time period, and Chevy Chase shall have provided evidence
satisfactory to the Underwriters of such timely filing, or a post-effective
amendment to the Registration Statement providing such information shall have
been promptly filed with the Commission and declared effective in accordance
with the requirements of Rule 430A under the Act, and prior to the Closing Date,
Chevy Chase shall have provided evidence satisfactory to the Underwriters of
such effectiveness and there shall not have come to the attention of the
Underwriters facts that would cause the Underwriters to believe that the
Prospectus, at the time it was required to be delivered to a purchaser of the
Certificates, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances existing at such time, not misleading.
(d) The Underwriters shall have received the favorable opinion, dated
the Closing Date, of __________ ______________, counsel to Chevy Chase, or other
counsel to Chevy Chase, acceptable to the Underwriters and their counsel,
addressed to the Underwriters and in form and scope satisfactory to the
Underwriters counsel, to the effect that:
i) Chevy Chase has been duly chartered and is validly existing
as a federally chartered stock savings bank under the laws of the United States
of America and has full corporate power and authority to own its properties and
conduct its business as described in the Prospectus; Chevy Chase has full
corporate power and authority to execute, deliver, and perform its obligations
under this Agreement, the Trust Agreement, the Indemnification Agreement and the
Insurance Agreement and to cause the Securities to be issued and to consummate
the transactions contemplated hereby and thereby.
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ii) Chevy Chase has duly authorized and executed this Agreement,
the Trust Agreement and the Indemnification Agreement, and each such agreement
constitutes the valid, legal and binding obligation of Chevy Chase enforceable
against Chevy Chase in accordance with its terms.
iii) The execution, delivery and performance of this Agreement,
the Trust Agreement and the Indemnification Agreement the transfer of the
Receivables to the Trust, the issuance and sale of the Securities and
consummation of any other of the transactions contemplated herein or in the
Trust Agreement do not conflict with or result in a violation of (a) any law or
regulation of the United States of America or the State of New York or Maryland
(b) the Charter or By-laws of Chevy Chase, (c) any order, writ, judgment or
decree known to such counsel to which Chevy Chase is a party or is subject or
(d) result in any lien, charge or encumbrance upon any of the properties or
assets of Chevy Chase.
iv) The Securities have been duly authorized and, when executed
and authenticated in accordance with the terms of the Trust Agreement and
delivered to and paid for by the Underwriters pursuant to this Agreement, will
be duly and validly issued and outstanding and will be entitled to the benefits
of the Trust Agreement.
v) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of the
United States of America is required for the issuance of the Securities and the
sale of the Securities to the Underwriters or the consummation of the other
transactions contemplated by this Agreement, the Trust Agreement or the
Indemnification Agreement, except for (x) the filing of a Uniform Commercial
Code financing statement in the State of Maryland with respect to the transfer
of the Receivables to the Trust, (y) such as have been obtained and made under
the Act and (z) such as may be required under state securities laws.
vi) The Registration Statement was declared effective under the
Act as of the date and time specified in such opinion, the Prospectus either was
filed with the Commission pursuant to the subparagraph of Rule 424 (b) specified
in such opinion on the date specified therein or was included in the
Registration Statement (as the case may be), and, to the best of the knowledge
of such counsel, no stop order suspending the effectiveness of the Registration
Statement or any part thereof has been instituted or is pending or contemplated
under the Act, and the Registration Statement and the Prospectus, and each
amendment or supplement thereof, as of their respective effective or
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issue dates, complies as to form in all material respects with the requirements
of the Act and the Rules and Regulations; such counsel have no reason to believe
that the Registration Statement or any amendment thereto, as of its Effective
Date, contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Registration Statement as of the Closing
Date, or the Prospectus, as of its issue date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; it being
understood that such counsel need express no opinion as to the financial
statements or other financial data contained in the Registration Statement or
the Prospectus.
vii) The conditions to the use by Chevy Chase of a registration
statement on Form S-3 under the Act, as set forth in the General Instructions to
Form S-3, have been satisfied with respect to the Registration Statement and the
Prospectus. There are no contracts or documents of Chevy Chase which are
required to be filed as exhibits to the Registration Statement pursuant to the
Act or the Rules and Regulations thereunder which have not been so filed.
viii) There are no actions, proceedings or investigations pending
or threatened before any court, administrative agency or other tribunal to which
Chevy Chase is a named party or to which its assets are subject (A) asserting
the invalidity of the Trust Agreement, the Indemnification Agreement, this
Agreement or the Securities, (B) seeking to prevent the issuance of the
Securities or the consummation by Chevy Chase of any of the transactions
contemplated by the Trust Agreement, the Indemnification Agreement, or this
Agreement, (C) that might adversely affect the validity or enforceability of the
Trust Agreement, the Indemnification Agreement, this Agreement or the
Securities, or (D) seeking to adversely affect the federal income tax attributes
of the Securities as described in the Prospectus under the heading "Certain
Federal Income Tax Consequences."
ix) The Registration Statement at the time it became effective,
and any amendment thereto at the time such amendment became effective, complied
as to form in all material respects with the applicable requirements of the Act
and the Rules and Regulations.
x) The Pooling Agreement is not required to be qualified under
the Trust Indenture Act of 1939, as amended.
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xi) The Trust is not required to be registered under the 1940
Act, and immediately following the issuance and sale of the Securities in the
manner contemplated by the Trust Agreement and this Agreement, the Trust will
not be required to be so registered.
xii) The Securities, this Agreement, the Trust Agreement and the
Security Insurance Policy conform in all material respects to the respective
descriptions thereof in the Registration Statement and the Prospectus.
xiii) The statements in the Prospectus under the heading "Certain
Legal Aspects of the Receivables," "SUMMARY OF TERMS -- Certain Legal Aspects of
the Receivables," "SUMMARY OF TERMS -- Certain Federal Tax Considerations,"
"Certain Federal Income Tax Consequences," "ERISA Considerations," and "SPECIAL
CONSIDERATIONS -- Certain Legal Aspects," to the extent that they constitute
matters of law or legal conclusions with respect thereto, have been prepared or
reviewed by such counsel and are correct in all material respects.
xiv) No filing or other action, except the filing of a Uniform
Commercial Code financing statement on Form UCC-1 with the Maryland State
Department of Assessments and Taxation naming Chevy Chase as "debtor" and the
Trustee as "secured party," is necessary to perfect the transfer of the
Receivables and proceeds (as defined in Section 9-306 of the Maryland Uniform
Commercial Code) thereof against the claims of creditors of, and transferees
from, Chevy Chase. Such security interest would be enforceable notwithstanding
the insolvency of Chevy Chase or a receivership or conservatorship of Chevy
Chase in which the Federal Deposit insurance Corporation ("FDIC") or the
Resolution Trust Corporation ("RTC") is appointed a receiver or conservator for
Chevy Chase.
xv) The Receivables constitute "chattel paper" as defined in
Section 9-105 of the Uniform Commercial Code as in effect in the State of
Maryland.
In addition, such counsel shall state that nothing has come to their
attention that would lead them to believe that the Registration Statement, at
the time it became effective, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus, as of its
date and as of the Closing Date, contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
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(e) The Underwriters shall have received the favorable opinion of
counsel to the Trustee, dated the Closing Date, addressed to the Underwriters
and in form and scope satisfactory to the Underwriters, counsel, to the effect
that:
i) The Trustee has duly authorized, executed and delivered the
Trust Agreement.
ii) The Trustee has been duly organized and is validly existing
as a national banking corporation in good standing under the laws of the United
States of America and has full power and authority to execute and deliver the
Trust Agreement and to perform its obligations thereunder and each such
Agreement constitutes the valid, legal and binding obligation of the Trustee,
enforceable against the Trustee in accordance with its terms.
iii) The Securities have been duly executed and countersigned by
the Trustee.
iv) The execution and delivery by the Trustee of the Trust
Agreement and the performance by the Trustee of its duties thereunder do not
conflict with or result in a violation of (a) any law or regulation of the
United States of America or the State of Minnesota, (b) the charter or by-laws
of the Trustee, (c) any order, writ, judgment or decree or (d) any agreement,
instrument, order, writ, judgment or decree known to such counsel to which the
Trustee is a party or is subject.
v) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of the
United States of America or any state thereof is required for the execution,
delivery or performance by the Trustee of the Trust Agreement.
(f) The Underwriters shall have received the favorable opinion or
opinions, dated the Closing Date, of the Underwriters' counsel,
_____________________________, with respect to the issuance and sale of the
Securities, the Registration Statement, this Agreement, the Prospectus and such
other related matters as the Underwriters may require.
(g) The Underwriters shall have received an opinion, dated the Closing
Date, of ___________________, counsel to Chevy Chase, addressed to, and
satisfactory to, Standard & Poor's Corporation ("S&P"), Moody's Investors
Service, Inc. ("Moody's), Fitch Investors Service, Inc. ("Fitch") and the
Underwriters' counsel, relating to the sale of the Receivables to the Trustee,
and such counsel to Chevy Chase shall have consented to reliance by the
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Underwriters on such opinion as though such opinion had been addressed to the
Underwriters.
(h) Chevy Chase shall have furnished to the Underwriters a certificate
signed on behalf of Chevy Chase by any two of the chairman of the board, the
president, any vice chairman of the board, any executive vice president, any
senior vice president, any vice president, the treasurer, or the controller of
the Seller or the Servicer, as appropriate, dated the Closing Date, as to (i)
the accuracy of the representations and warranties of Chevy Chase herein and in
the Trust Agreement at and as of the Closing Date, (ii) the performance by Chevy
Chase of all of its obligations hereunder to be performed at or prior to the
Closing Date and (iii) such other matters as the Underwriters may reasonably
request.
(i) The Trustee shall have furnished to the Underwriters a certificate
of the Trustee, signed by one or more duly authorized officers of the Trustee,
dated the Closing Date, as to the due acceptance of the Trust Agreement by the
Trustee and the due execution and delivery of the Securities by the Trustee
thereunder and such other matters as the Underwriters shall reasonably request.
(j) The Securities shall have been rated "AAA" by S&P, "Aaa" by
Moody's and "AAA" by Fitch, and such ratings shall not have been rescinded.
(k) The Underwriters shall have received from _____________________,
or other independent certified public accountants acceptable to the
Underwriters, a letter, dated as of the date of the Closing Date, delivered at
such time in form satisfactory to the Underwriters.
(l) Prior to the Closing Date the Underwriters' counsel,
____________________________, shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to pass
upon the issuance and sale of the Securities as herein contemplated and related
proceedings or in order to evidence the accuracy and completeness of any of the
representations and warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by Chevy Chase in connection with
the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Underwriters and
_______________________.
(m) Since the respective dates as of which information is given in the
Prospectus, there shall not have been any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
position, shareholders, equity or results of
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operations of Chevy Chase or the Security Insurer otherwise than as set forth in
the Prospectus, the effect of which is in the Underwriters, judgment so material
and adverse as to make it impracticable or inadvisable to proceed with the
public offering or the delivery of the Securities on the terms and in the manner
contemplated in the Prospectus or which, in the judgment of the Underwriters,
materially impairs the investment quality of the Securities or the ability of
the Servicer to service the Receivables.
(n) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, development or event involving a
prospective change, in the condition (financial or other), business, properties
or results of operations of Chevy Chase or its automobile loan business or the
Security Insurer which, in the judgment of the Underwriters, is material and
adverse and makes it impracticable or inadvisable to proceed with the completion
of the public offering or the sale of and payment for the Securities, (ii) any
banking moratorium declared by Federal, New York, Minnesota or Maryland
authorities; or (iii) any downgrading in the rating of any securities of Chevy
Chase or the Security Insurer by any nationally recognized statistical rating
organization (as defined for purposes of Rule 436(g) under the Act) or any
public announcement that any such organization has under surveillance or review
its rating of any securities of Chevy Chase or the Security Insurer (other than
an announcement with positive implications of a possible upgrading, and no
implication of a possible downgrading, of such rating); or (iv) any suspension
or limitation of trading in securities generally on the New York Stock Exchange,
or any setting of minimum prices for trading on such exchange; or (v) any
outbreak or escalation of major hostilities in which the United States is
involved, any declaration of war by Congress or any other substantial national
or international calamity, emergency or change in financial markets if, in the
Representatives' judgment, the effect of any such outbreak, escalation,
declaration, calamity, emergency or change makes it impractical or inadvisable
to proceed with completion of the sale of and payment for the Securities.
(o) The Underwriters shall have received evidence satisfactory to the
Underwriters and its counsel that (i) on or before the Closing Date, UCC-1
financing statements have been filed in the offices of the Maryland State
Department of Assessments and Taxation, reflecting the interest of the Trust in
the Receivables and the proceeds thereof and (ii) the Trust will have a first
priority perfected security interest in the amounts on deposit from time to time
in the Reserve Account and the Yield Maintenance Account.
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(p) Chevy Chase will provide or cause to be provided to the
Representative such conformed copies of such opinions, certificates, letters and
documents being provided pursuant hereto and such further information,
certificates and documents as the Representative may reasonably request.
_______________ may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder.
(q) The Security Insurance Policy shall have been duly executed and
issued at or prior to the Closing Date and shall conform in all material
respects to the description thereof in the Prospectus.
(r) The Underwriters shall have received the favorable opinion, dated
the Closing Date, of counsel for the Security Insurer, in form and scope
satisfactory to your counsel, to the effect that:
i) The Security Insurer is duly organized as a New York stock
insurance corporation and is validly existing under the laws of New York, and
has the full power and authority (corporate and other) to issue, and to take all
action required of it under, the Security Insurance Policy.
ii) The execution, delivery and performance by the Certificate
Insurer of the Security Insurance Policy and the Indemnification Agreement dated
as of December __, 1996 (the "Indemnification Agreement") among the Security
Insurer, Chevy Chase and the Underwriters have been duly authorized by all
necessary corporate action on the part of the Security Insurer.
iii) The execution, delivery and performance by the Security
Insurer of the Security Insurance Policy and the Indemnification Agreement do
not require the consent or approval of, the giving of notice to, the
registration with, or the taking of any other action in respect of any state or
other governmental agency or authority which has not previously been effected.
iv) The Security Insurance Policy and the Indemnification
Agreement have been duly authorized, executed and delivered by the Security
Insurer and constitute legal, valid and binding obligations of the Security
Insurer, enforceable against the Security Insurer in accordance with their terms
(subject, as to enforcement, to bankruptcy, reorganization, insolvency,
moratorium and other laws affecting creditors, rights generally and to general
equity principles).
v) The Security Insurance Policy is not required to be
registered under the Securities Act.
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vi) The information set forth under the captions "The Security
Insurance Policy" and "the Security Insurer" in the Prospectus, insofar as such
statements constitute a description of the Security Insurance Policy, accurately
summarizes the Security Insurance Policy.
In rendering this opinion, such counsel may rely, as to matters of
fact, on certificates of responsible officers of the Security Insurer and public
officials. Such opinion may assume the due authorization, execution and
delivery of the instruments and documents referred to therein by the parties
thereto other than the Security Insurer.
The Security Insurer shall have furnished to you and Chevy Chase a
certificate of the Security Insurer, signed by one or more duly authorized
officers of the Security Insurer, dated the Closing Date, certifying (i) the
information relating to the Security Insurer in the Prospectus is true and
correct in all material respects as of the dates specified therein, (ii) there
has been no change in the financial condition of the Security Insurer since
______________ which could have a material adverse effect on the Security
Insurer's ability to meet its obligations under the Security Insurance Policy
and (iii) such other matters as you may reasonably request.
(s) The Security Insurance Policy shall have been issued by the
Security Insurer pursuant to the Insurance Agreement.
If any condition specified in this Section 6 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Underwriters by notice to Chevy Chase at any time at or prior to the
Closing Date, and such termination shall be without liability of any party to
any other party except as provided in Section 7.
7. PAYMENT OF EXPENSES. Chevy Chase agrees to pay all expenses
incident to the performance of its obligations under this Agreement, and will
reimburse the Underwriters (if and to the extent incurred by them) for any
filing fees and other expenses (including fees and disbursements of counsel),
including, without limitation, those related to (i) the filing of the
Registration Statement and all amendments thereto, (ii) the duplication and
delivery to the Underwriters, in such quantities as the Underwriters may
reasonably request, of copies of this Agreement, (iii) the preparation, issuance
and delivery of the Securities and the determination of their eligibility for
investment under the laws of such jurisdictions as the Representative
designates, (iv) __% of the fees and
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disbursements of _________________________, and the fees and disbursements of
__________________, accountants of Chevy Chase, (v) the qualification of the
Securities under securities and Blue Sky laws and the determination of the
eligibility of the Certificates for investment in accordance with the provisions
of Section 5(g), including filing fees and disbursements and __% of the fees of
__________________, in connection therewith and in connection with the
preparation of any Blue Sky Survey, (vi) the printing and delivery to the
Underwriters, in such quantities as the Underwriters may reasonably request,
hereinabove stated, of copies of the Registration Statement and Prospectus and
all amendments and supplements thereto, and of any Blue Sky Survey, (vii) for
the filing fee of the National Association of Securities Dealers, Inc., (viii)
the duplication and delivery to the Underwriters in such quantities as the
Underwriters may reasonably request, of copies of the Trust Agreement, (ix) the
fees charged by nationally recognized statistical rating agencies for rating the
Securities, (x) the fees and expenses of the Trustee and its counsel, and (xi)
the fees and expenses of the Security Insurer and its counsel. The Underwriters
agree to pay (i) __% of the fees and disbursements of
________________________________ and (ii) other expenses of Chevy Chase relating
to the transactions contemplated hereby in an amount equal to $____________.
8. INDEMNIFICATION. Chevy Chase agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls each Underwriter
within the meaning of the Act or the Exchange Act, as follows:
(a) Chevy Chase will indemnify and hold harmless the Underwriters
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriters may become subject, under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus, or
any amendment or supplement thereto, or any related preliminary prospectus, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of the Prospectus or any
amendment or supplement thereto, in the light of the circumstances under which
they were made) and will reimburse the Underwriters for any legal or other
expenses reasonably incurred by such Underwriters in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred; provided, however, that Chevy Chase will not be
liable in any such case to the extent that any such loss,
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claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to Chevy Chase by any Underwriters through the Representative specifically for
use therein, it being understood and agreed that the only such information
furnished by any Underwriters consists of the information described as such in
subsection (b) below.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless Chevy Chase against any losses, claims, damages or liabilities to which
Chevy Chase may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, the Prospectus, or any
amendment or supplement thereto, or any related preliminary prospectus, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or mission
or alleged omission was made in reliance upon and in conformity with written
information furnished to Chevy Chase by such Underwriter through the
Representative specifically for use therein, and will reimburse any legal or
other expenses reasonably incurred by Chevy Chase in connection with
investigating or defending any such loss, claim, damage, liability or action as
such expenses are incurred, it being understood and agreed that the only such
information furnished by any Underwriters consists of the following information
in the Prospectus furnished on behalf of the Underwriters: the last paragraph
at the bottom of the cover page concerning the terms of the offering by the
Underwriters, the legend concerning overallotments and stabilizing on the inside
front cover page and the concession and reallowance figures appearing in the
third paragraph under the caption "Underwriting."
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and
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it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
9. CONTRIBUTION. (a) If the indemnification provided for in Section
8 is unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) of Section 8 above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of the losses, claims, damages or liabilities referred to in such subsection (a)
or (b) (i) in such proportion as is appropriate to reflect the relative benefits
received by Chevy Chase on the one hand and each of the Underwriters on the
other from the offering of the Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of Chevy Chase on the one hand and each of the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities as well as any other
relevant equitable considerations. The relative benefits received by Chevy
Chase on the one hand and the Underwriters on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by Chevy Chase bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by Chevy Chase or the
Underwriters and the parties, relative
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intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this Section 9 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
Section 9. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this Section 9 to contribute are several in proportion to their
respective underwriting obligations and not joint.
(b) The obligations of Chevy Chase under this Section 9 shall be in
addition to any liability which Chevy Chase may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 9 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each director of Chevy Chase, to each officer of Chevy
Chase who has signed the Registration Statement and to each person, if any, who
controls Chevy Chase within the meaning of the Act.
Each Underwriter, with respect to the Securities, agrees that it will
not prepare or distribute to any proposed purchaser of any Securities any
Derived Information (as such term is hereinafter defined), unless it shall have
provided to the Servicer a copy of such Derived Information a sufficient time
prior to its proposed distribution to permit the Servicer to review and comment
upon such Derived Information, and such Underwriters shall have obtained the
prior written consent of the Servicer thereto following its review. In
addition, such Underwriters agree to provide the Servicer, no later than the
date on which the Prospectus is required to be filed pursuant to Rule 424, with
a definitive copy of its Derived Information with respect to such Securities
provided by the Underwriters for filing with the Commission on Form 8-K.
The Underwriters agree, assuming all Companies-Provided Information
(as such term is hereinafter defined) provided by Chevy Chase is accurate and
complete in all material respects, to indemnify and hold harmless Chevy Chase,
each of Chevy Chase's officers and directors and each person who controls Chevy
Chase within the meaning of the Act against any and all losses, claims, damages
or liabilities, joint or several, to which they may become
25
<PAGE>
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement of a material fact contained in the Derived Information
provided by such Underwriters, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each such
indemnified party for any legal or other expenses reasonably incurred by him,
her or it in connection with investigating or defending or preparing to defend
any such loss, claim, damage, liability or action as such expenses are incurred.
The obligations of the Underwriters under this Section 9 shall be in addition to
any liability which the Underwriters may otherwise have.
For purposes of this Section 9, the term "Derived Information" means
such portion, if any, of the information delivered to Chevy Chase for filing
with the Commission on Form 8-K as:
i) is not contained in the Prospectus without taking into
account information incorporated therein by reference;
ii) does not constitute Companies-Provided Information; and
iii) is not information provided by the Security Insurer.
"Companies-Provided Information" means any computer tape furnished to the
Underwriters by Chevy Chase concerning the Receivables assigned to the Trust.
Notwithstanding the provisions of Sections 8 and 9, the Underwriters
shall not be required to contribute any amount in excess of the amount by which
the total price at which the Securities underwritten by the Underwriters and
distributed to the public were offered to the public exceeds the amount of any
damages which the Underwriters have otherwise been required to pay in respect of
such losses, liabilities, claims, damages and expenses. For purposes of this
Section 9, each person, if any, who controls the Underwriters within the meaning
of the Act or the Exchange Act shall have the same rights to contribution as
each of the Underwriters and each director of Chevy Chase, each officer of Chevy
Chase who signed the Registration Statement, and each person, if any, who
controls Chevy Chase within the meaning of the Act or the Exchange Act shall
have the same rights to contribution as Chevy Chase.
26
<PAGE>
10. DEFAULT OF UNDERWRITERS. If any Underwriter defaults in its
obligations to purchase Securities hereunder on the Closing Date and the
aggregate principal amount of Securities that such defaulting Underwriter or
Underwriters have agreed but failed to purchase does not exceed 10% of the total
principal amount of Securities that the Underwriters are obligated to purchase
on such Closing Date, the Representative may make arrangements satisfactory to
Chevy Chase for the purchase of such Securities by other persons, including any
of the Underwriters, but if no such arrangements are made by such Closing Date,
the nondefaulting Underwriters shall be obligated severally, in proportion to
their respective commitments hereunder, to purchase the Securities that such
defaulting Underwriters agreed but failed to purchase on such Closing Date. If
any Underwriters so default and the aggregate principal amount of Securities
with respect to which such default or defaults occur exceeds 10% of the total
principal amount of Securities that the Underwriters are obligated to purchase
on such Closing Date and arrangements satisfactory to the Representative and
Chevy Chase for the purchase of such Securities by other persons are not made
within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or Chevy Chase, except
as provided in Section 11. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 10.
Nothing herein will relieve a defaulting Underwriter from liability for its
default.
11. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS. The
respective indemnities, agreements, representations, warranties and other
statements of Chevy Chase or its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, Chevy Chase or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Securities. If this Agreement is
terminated or if for any reason the purchase of the Securities by the
Underwriters is not consummated, Chevy Chase shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 7 and the respective
obligations of Chevy Chase and the Underwriters pursuant to Section 8 and 9
shall remain in effect, and if any Securities have been purchased hereunder the
representations and warranties in Section 2 and all obligations under Section 5
and 6 shall also remain in effect). If the purchase of the Securities by the
Underwriters is not consummated for any reason other than solely because of the
termination of this Agreement pursuant to Section 10 or the occurrence of any
event specified in
27
<PAGE>
clause (ii), (iv) or (v) of Section 6(n), Chevy Chase will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements of
____________________, Underwriters' counsel) reasonably incurred by them in
connection with the offering of the Securities.
12. NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if mailed or transmitted
by any standard form of telecommunications Notices to ____________ shall be
directed to the address set forth on the first page hereof, or sent by facsimile
machine which produces an electronic confirmation of receipt to ________,
attention: ___________. Notices to Chevy Chase shall be directed to Chevy
Chase Bank, F.S.B., 8401 Connecticut Avenue, Chevy Chase, Maryland 20815, or
sent by facsimile machine which produces an electronic confirmation of receipt
to _____________, attention: ____________________.
13. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and Chevy Chase, and their respective successors.
Nothing expressed or mentioned in this Agreement is intended nor shall it be
construed to give any person, firm or corporation, other than the parties hereto
or thereto and their respective successors and the controlling persons and
officers and directors referred to in Sections 8 and 9 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the parties and their respective successors and such
controlling persons and officers and directors and their heirs and legal
representatives (to the extent of their rights as specified herein and therein)
and except as provided above for the benefit of no other person, firm or
corporation. No purchaser of Securities from the Underwriters shall be deemed
to be a successor by reason merely of such purchase.
14. REPRESENTATIONS OF UNDERWRITERS. The Representative will act for
the several Underwriters in connection with the transactions contemplated by
this Agreement, and any action under this Agreement taken by the Representative
will be binding upon all the Underwriters.
15. GOVERNING LAW AND TIME; CONSENT TO JURISDICTION. THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED IN
ACCORDANCE WITH SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
CHEVY CHASE HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND
STATE COURTS IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN ANY SUIT
28
<PAGE>
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
16. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but together they shall
constitute but one instrument.
29
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
you and Chevy Chase in accordance with its terms.
Very truly yours,
CHEVY CHASE BANK, F.S.B.
By:_____________________________
_______________
Vice President
CONFIRMED AND ACCEPTED, as of
the date first above written:
[Underwriter]
By:________________________
Name:_________________
Title:________________
30
<PAGE>
Schedule 1
Purchase Proceeds to Chevy
Price Principal Chase (includes
Underwriters Percentage Amount accrued interest)
------------ ---------- ------ ---------
31
<PAGE>
FEDERAL STOCK CHARTER
OF
CHEVY CHASE BANK, F.S.B.
Section 1. Corporate title. The full corporate title of the savings bank
---------------
is Chevy Chase Bank, F.S.B.
Section 2. Office. The home office shall be located on 7926 Jones Branch
------
Drive, Fairfax County, McLean, Virginia 22101.
Section 3. Duration. The duration of the savings bank is perpetual.
--------
Section 4. Purpose and powers. The purpose of the savings bank is to
------------------
pursue any or all of the lawful objectives of a Federal savings bank chartered
under section 5 of the Home Owners' Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Federal Home Loan Bank Board/1/ ("Board"). In addition, the savings bank may
make any investment and engage in any activity as may be specifically authorized
by action of the Board, including authorization by delegated authority, in
connection with action approving the issuance of the charter.
Section 5. Capital stock. The total number of shares of all classes of
-------------
the capital stock which the association has the authority to issue is twenty
million (20,000,000), of which ten million (10,000,000) shall be common stock of
par value of one dollar ($1.00) per share and of which ten million (10,000,000)
shall be preferred stock of par value of $0.01 per share. The shares may be
issued from time to time as authorized by the board of directors without further
approval of shareholders, except as otherwise provided in this section 5 or to
the extent that such approval is required by governing law, rule, or regulation.
The consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par value. Neither promissory
notes nor future services shall constitute payment or part payment for the
issuance of shares of the association. The consideration for the shares shall
be cash, tangible or intangible property (to the extent direct investment in
such property would be permitted), labor, or services actually performed for the
association, or any combination of the foregoing. In the absence of actual
fraud in the transaction, the value of such property, labor, or services, as
determined by the board of directors of the association, shall be conclusive.
Upon payment of such consideration, such shares shall be deemed to be fully paid
and nonassessable. In the case of a stock dividend, that part of the surplus of
the association which is transferred to stated capital upon the issuance of
shares as a share dividend shall be deemed to be the consideration for their
issuance.
_____________________________
/1/ Note: The Office of Thrift Supervision (referred to herein as the
"Office") is the successor to the Federal Home Loan Bank Board.
<PAGE>
Except for shares issuable in connection with the conversion of the
association from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the association other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
the cumulation of votes for the election of directors: PROVIDED, That this
restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in the payment
of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of the
association with another corporation or the sale, lease, or conveyance (other
than by mortgage or pledge) of properties or business in exchange for securities
of a corporation other than the association if the preferred stock is exchanged
for securities of such other corporation: PROVIDED, That no provision may
require such approval for transactions undertaken with the assistance or
pursuant to the direction of the Office, the Federal Deposit Insurance
Corporation, or the Resolution Trust Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this section 5 (or in any
supplementary sections hereto), including any amendment which would create or
enlarge any class or series ranking prior thereto in rights and preferences. An
amendment which increases the number of authorized shares of any class or series
of capital stock, or substitutes the surviving association in a merger or
consolidation for the association, shall not be considered to be such an adverse
change.
A description of the different classes and series (if any) of the
association's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. COMMON STOCK. Except as provided in this section 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by such holder, except as to
the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common
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<PAGE>
stock as to the payment of dividends, the full amount of dividends and of
sinking fund, retirement fund, or other retirement payments, if any, to which
such holders are respectively entitled in preference to the common stock, then
dividends may be paid on the common stock and on any class or series of stock
entitled to participate therewith as to dividends out of any assets legally
available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the association available for distribution remaining after: (i)
Payment or provision for payment of the association's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the association. Each share
of common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. PREFERRED STOCK. The association may provide in supplementary sections
to its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and issued in
series, with each series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. The terms of each
series shall be set forth in a supplementary section to the charter. All shares
of the same class shall be identical except as to the following relative rights
and preferences, as to which there may be variations between different series;
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which such shares may be
redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the
association;
-3-
<PAGE>
(f) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
association and, if so, the conversion price(s) or the rate(s) of exchange, and
the adjustments thereof, if any, at which such conversion or exchange may be
made, and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the association
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter established and designating the series and fixing and
determining the relative rights and preferences thereof.
Section 6. Preemptive rights. Holders of the capital stock of the savings
-----------------
bank shall not be entitled to preemptive rights with respect to any shares of
the savings bank which may be issued.
Section 7. Directors. At a meeting of stockholders called expressly for
---------
that purpose, any director may be removed (a) for cause, by a vote of the
holders of a majority of the shares then entitled to vote at an election of
directors, or (b) without cause, by a vote of the holders of two-thirds of the
shares then entitled to vote at an election of directors. If less than the
entire board is to be removed, no one of the directors may be removed if the
votes cast against the removal would be sufficient to elect a director if then
cumulatively voted at an election of the class of directors of which such
director is a part. Whenever the holders of the shares of any class are
entitled to elect one or more directors by the provisions of the charter or
supplemental sections thereto, the provisions of this section shall apply, in
respect to the removal of a director or directors so elected, to the vote of the
holders of the outstanding shares of that class and not to the vote of the
outstanding shares as a whole. Removal for
-4-
<PAGE>
cause shall include removal because of the director's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, or willful violation of
any law, rule or regulation (other than traffic violations or similar offenses)
or final cease-and-desist order.
Section 8. Amendment of charter. Except as provided in Section 5, no
--------------------
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is first proposed by the board of directors of the savings bank,
then preliminarily approved by the Board, which preliminary approval may be
granted by the Board pursuant to regulations specifying preapproved charter
amendments, and thereafter approved by the shareholders by a majority of the
total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change, or repeal so acted upon shall be effective upon filing with
the Board in accordance with regulatory procedures or on such other date as the
Board may specify in its preliminary approval.
ATTEST: CHEVY CHASE BANK, F.S.B.
/s/ /s/
- -------------------------- BY:--------------------------
Secretary President
ATTEST: FEDERAL HOME LOAN BANK BOARD
/s/ /s/
- -------------------------- By:--------------------------
Secretary to the Board
-5-
<PAGE>
CHEVY CHASE BANK, F.S.B.
BYLAWS (With Amendments)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I - HOME OFFICES...................................................... 1
ARTICLE II - SHAREHOLDERS..................................................... 1
Section 1. Place of Meetings......................................... 1
Section 2. Annual Meeting............................................ 1
Section 3. Special Meetings.......................................... 2
Section 4. Conduct of Meetings....................................... 2
Section 5. Notice of Meetings........................................ 2
Section 6. Fixing of Record Date..................................... 3
Section 7. Voting Lists.............................................. 3
Section 8. Quorum.................................................... 4
Section 9. Proxies................................................... 4
Section 10. Voting of Shares in the name of Two or More Persons....... 5
Section 11. Voting of Shares by Certain Holders....................... 5
Section 12. Cumulative Voting......................................... 6
Section 13. Inspectors of Election.................................... 6
Section 14. Nominating Committee...................................... 7
Section 15. New Business.............................................. 8
Section 16. Informal Action by Shareholders........................... 8
ARTICLE III - BOARD OF DIRECTORS.............................................. 8
Section 1. General Powers............................................ 8
Section 2. Number and Term........................................... 9
Section 3. Regular Meetings.......................................... 9
Section 4. Special Meetings.......................................... 9
Section 5. Notice.................................................... 9
Section 6. Quorum....................................................10
Section 7. Manner of Acting..........................................10
Section 8. Action Without a Meeting..................................10
Section 9. Resignation and Removal...................................10
Section 10. Vacancies.................................................11
Section 11. Compensation..............................................11
Section 12. Presumption of Assent.....................................11
Section 13. Removal of Directors......................................12
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES...................................13
Section 1. Appointment................................................13
Section 2. Authority..................................................13
Section 3. Tenure.....................................................13
Section 4. Meetings...................................................14
Section 5. Quorum.....................................................14
Section 6. Action Without a Meeting...................................14
Section 7. Vacancies..................................................14
Section 8. Resignations and Removal...................................14
Section 9. Procedure..................................................15
Section 10. Other Committees...........................................15
ARTICLE V - OFFICERS..........................................................15
Section 1. Positions..................................................15
Section 2. Election and Term of Office................................16
Section 3. Removal....................................................16
Section 4. Vacancies..................................................16
Section 5. Remuneration...............................................17
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS...........................17
Section 1. Contracts..................................................17
Section 2. Loans......................................................17
Section 3. Checks, Drafts, Etc........................................17
Section 4. Deposits...................................................17
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER......................18
Section 1. Certificates for Shares....................................18
Section 2. Transfer of Shares.........................................18
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT......................................19
ARTICLE IX - DIVIDENDS........................................................19
ARTICLE X - CORPORATE SEAL....................................................19
ARTICLE XI - AMENDMENTS.......................................................20
</TABLE>
-ii-
<PAGE>
CHEVY CHASE SAVINGS BANK, F.S.B.
(A STOCK ASSOCIATION)
BYLAWS
------
ARTICLE I
HOME OFFICES
------------
The home office of the savings Bank shall be at 7926 Jones Branch Drive,
McLean, in the County of Fairfax, in the State of Virginia.
ARTICLE II
SHAREHOLDERS
------------
Section 1. Place of Meetings. All annual and special meetings of
------------------------------
shareholders shall be held at the home office of the savings bank or at such
other place in the State in which the principal place of business of the savings
bank is located as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
--------------------------
savings bank for the election of directors and for the transaction of any other
business of the savings bank shall be held annually within 120 days after the
end of the savings bank's fiscal year on the fourth Wednesday of January if not
a legal holiday, and if a legal holiday, then on the next day following which is
not a legal holiday, at 5:00 p.m., or at such other date and time within such
120-day period as the board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for
----------------------------
any purpose or purposes, unless otherwise prescribed by the regulations of the
Federal Home Loan Bank Board
-1-
<PAGE>
("Board") (which as hereinafter used includes the Federal Savings and Loan
Insurance Corporation), may be called at any time by the chairman of the board,
the president, or a majority of the board of directors, and shall be called by
the chairman of trhe board, the president, or the secretary upon the written
request of the holders of not less than one-tenth of all of the outstanding
capital stock of the savings bank entitled to vote at the meeting. Such written
request shall state the purpose or purposes of the meeting and shall be
delivered to the home office of the savings bank addressed to the chairman of
the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
--------------------------------
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Board or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day,
-------------------------------
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the savings bank as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It
shall not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to
-2-
<PAGE>
be transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
----------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
-------------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the savings bank shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the savings bank and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to inspection by any shareholder during the entire time of the meeting.
The original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
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<PAGE>
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in (S)552.6(d) of the Board's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the
-------------------
savings bank entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder
--------------------
may vote by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Proxies solicited on behalf of the management
shall be voted as directed by the shareholder or, in the absence of such
direction, as determined by a majority of the board of directors. No proxy
shall be valid more than eleven months from the date of its execution except for
a proxy coupled with an interest.
Section 10. Voting of Shares in the name of Two or More Persons. When
-----------------------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the savings bank to the contrary, at any meeting of the
shareholders of the savings bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled.
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<PAGE>
In the event an attempt is made to cast conflicting votes, in person or by
proxy, by the several persons in whose names shares of stock stand, the vote or
votes to which those persons are entitled shall be cast as directed by a
majority of those holding such and present in person or by proxy at such
meeting, but no votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in
-------------------------------------------------
the name of another corporation may be voted by any officer, agent, or proxy as
the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine. Shares
held by an administrator, executor, guardian, or conservator may be voted by
him, either in person or by proxy, without a transfer of such shares into his
name. Shares standing in the name of a trustee may be voted by him, either in
person or by proxy, but no trustee shall be entitled to vote shares held by him
without a transfer of such shares into his name. Shares standing in the name of
a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer into
his name if authority to do so is contained in an appropriate order of the court
or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the savings bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the savings
bank, shall be voted at any meeting or counted in
-5-
<PAGE>
determining the total number of outstanding shares at any given time for
purposes of any meeting.
Section 12. Cumulative Voting. Every shareholder entitled to vote at
-------------------------------
an election for directors shall have the right to vote, in person or by proxy,
the number of shares owned by the shareholder for as many persons as there are
directors to be elected and for whose election the shareholder has a right to
vote, or to cumulate the votes by giving one candidate as many votes as the
number of such directors to be elected multiplied by the number of shares shall
equal or by distributing such votes on the same principle among any number of
candidates.
Section 13. Inspectors of Election. In advance of any meeting of
------------------------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Board, the duties of such
inspectors shall include: determining the number of shares and the voting power
of each share, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity and effect of proxies: receiving votes, ballots,
or consents; hearing and determining all challenges and
-6-
<PAGE>
questions in any way arising in connection with the rights to vote: counting and
tabulating all votes or consents; determining the result; and such acts as may
be proper to conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as
----------------------------------
a nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the savings bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the savings bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the savings bank. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the
--------------------------
annual meeting shall be stated in writing and filed with the secretary of the
savings bank at least five days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed
-7-
<PAGE>
and considered, but unless stated in writing and filed with the secretary at
least five days before the meeting, such proposal shall be laid over for action
at an adjourned, special, or annual meeting of the shareholders taking place 30
days or more thereafter. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors,
and committees; but in connection with such reports, no new business shall be
acted upon at such annual meeting unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to
---------------------------------------------
be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. General Powers. The business and affairs of the savings
---------------------------
bank shall be under the direction of its board of directors. The board of
directors shall annually elect a chairman of the board and a president from
among its members and shall designate, when present, either the chairman of the
board or the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
----------------------------
fourteen members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually.
-8-
<PAGE>
Section 3. Regular Meetings. A regular meeting of the board of
-----------------------------
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, within the savings
bank's normal lending territory for the holding of additional regular meetings
without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the board of
-----------------------------
directors may be called by or at the request of the chairman of the board, the
president, or one-third of the directors. The persons authorized to call
special meetings of the board of directors, may fix any place, within the
savings bank's normal lending territory, as the place for holding any special
meeting of the board of directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participations
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 11 of this Article.
Section 5. Notice. Written notice of any special meeting shall be
-------------------
given to each director at least two days prior thereto when delivered personally
or by telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business
-9-
<PAGE>
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any meeting of the board of directors need
be specified in the notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of directors fixed by
-------------------
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 4 of this Article III.
Section 7. Manner of Acting. The act of the majority of the directors
-----------------------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Board
or by these bylaws.
Section 8. Action Without a Meeting. Any action required or permitted
-------------------------------------
to be taken by the board of directors may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
Section 9. Resignation and Removal. Any director may resign at any
------------------------------------
time by sending a written notice of such resignation to the home office of the
savings bank addressed to the chairman of the board or the president. Unless
otherwise specified, such resignation shall take effect upon receipt by the
chairman of the board or the president. More than three consecutive absences
from regular meetings of the board of directors, unless excused by resolution of
the board of directors, shall automatically constitute a resignation, effective
when such resignation is accepted by the board of directors.
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<PAGE>
Section 10. Vacancies. Any vacancy occurring on the board of
-----------------------
directors may be filled by election by the affirmative vote of a majority of the
remaining directors, although less than a quorum of the board of directors. A
director elected to fill a vacancy shall be elected to serve until the next
election of directors by the shareholders. Any directorship to be filled by
reason of an increase in the number of directors may be filled by election by
the board of directors for a term of office continuing only until the next
election of directors by the shareholders.
Section 11. Compensation. Directors, as such, may receive a stated
--------------------------
salary for their services. By resolution of the board of directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance at each regular or special meeting of the board of
directors. Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 12. Presumption of Assent. A director of the savings bank who
-----------------------------------
is present at a meeting of the board of directors at which action on any savings
bank matter is taken shall be presumed to have assented to the action taken
unless his dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file a written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the savings bank within five
days after the date a copy of the minutes of the meeting is received. Such
right to dissent shall not apply to a director who voted in favor of such
action.
Section 13. Removal of Directors. At a meeting of stockholders called
----------------------------------
expressly for that purpose, any director may be removed (a) for cause, by a vote
of the holders of a majority of the
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<PAGE>
shares then entitled to vote at an election of directors, or (b) without cause,
by a vote of the holders of two-thirds of the shares then entitled to vote at an
election of directors. Removal for cause shall include removal because of the
director's personal dishonesty, imcompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order. If less than
the entire board is to be removed, no one of the directors may be removed if the
votes cast against the removal would be sufficient to elect a director if then
cumulatively voted at an election of the class of directors of which such
director is a part. Whenever the holders of the shares of any class are entitled
to elect one or more directors by the provisions of the charter or supplemental
sections thereto, the provisions of this section shall apply, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
------------------------------
Section 1. Appointment. The board of directors, by resolution adopted
------------------------
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
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<PAGE>
Section 2. Authority. The executive committee, when the board of
----------------------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the declaration of
dividends; the amendment of the charter or bylaws of the savings bank, or
recommending to the stockholders a plan of merger, consolidation, or conversion;
the sale, lease or other disposition of all or substantially all of the property
and assets of the savings bank otherwise than in the usual and regular course of
its business; a voluntary dissolution of the savings bank; a revocation of any
of the foregoing; or the approval of a transaction in which any member of the
executive committee, directly or indirectly, has any material beneficial
interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
-------------------
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may
---------------------
be held without notice at such times and places as the executive committee may
fix from time to time by resolution. Special meetings of the executive
committee may be called by any member thereof upon not less than one day's
notice stating the place, date and hour of the meeting, which notice may be
given written or oral. Any member of the executive committee may waive notice
of any meeting and no notice of any meeting need be given to any member thereof
who attends in person. The notice of a meeting of the executive committee need
not state the business proposed to be transacted at the meeting.
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<PAGE>
Section 5. Quorum. A majority of the members of the executive
-------------------
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted
-------------------------------------
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
----------------------
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
-------------------------------------
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the savings bank. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
----------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by
------------------------------
resolution establish an audit, loan, or other committee composed of directors as
they may determine to be necessary or
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<PAGE>
appropriate for the conduct of the business of the savings bank and may
prescribe the duties, constitution, and procedures thereof.
ARTICLE V
OFFICERS
--------
Section 1. Positions. The officers of the savings bank shall be a
----------------------
president, one or more vice presidents, a secretary, and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president shall be
the chief executive officer, unless the board of directors designates the
chairman of the board as chief executive officer. The president shall be a
director of the savings bank. The offices of the secretary and treasurer may be
held by the same person and a vice president may also be either the secretary or
the treasurer. The board of directors may designate one or more vice presidents
as executive vice president or senior vice president. The board of directors
may also elect or authorize the appointment of such other officers as the
business of the savings bank may require. The officers shall have such
authority and perform such duties as the board of directors may from time to
time authorize or determine. In the absence of action by the board of
directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
Section 2. Election and Term of Office. The officers of the savings
----------------------------------------
bank shall be elected annually at the first meeting of the board of directors
held after each annual meeting of the stockholders. If the election of officers
is not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
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<PAGE>
elected and qualified or until the officer's death, resignation or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee, or agent shall not of itself create contractual rights. The board of
directors may authorize the savings bank to enter into an employment contract
with any officer in accordance with regulations of the Board; but no such
contract shall impair the right of the board of directors to remove any officer
at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of
--------------------
directors whenever in its judgment the best interests of the savings bank will
be served thereby, but such removal, other than for cause, shall be without
prejudice to the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
----------------------
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
--------------------------
fixed from time to time by the board of directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
--------------------------------------
Section 1. Contracts. To the extent permitted by regulations of the
----------------------
Board, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the savings bank to enter into any contract or
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<PAGE>
execute and deliver any instrument in the name of and on behalf of the savings
bank. Such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
------------------
savings bank and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts, or other orders
---------------------------------
for the payment of money, notes, or other evidences of indebtedness issued in
the name of the savings bank shall be signed by one or more officers, employees
or agents of the savings bank in such manner as shall from time to time be
determined by the board of directors.
Section 4. Deposits. All funds of the savings bank not otherwise
---------------------
employed shall be deposited from time to time to the credit of the savings bank
in any duly authorized depositories as the board of directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
Section 1. Certificates for Shares. Certificates representing shares
------------------------------------
of capital stock of the savings bank shall be in such form as shall be
determined by the board of directors and approved by the Board. Such
certificates shall be signed by the chief executive officer or by any other
officer of the savings bank authorized by the board of directors, attested by
the secretary or an assistant secretary, and sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar, other than the savings bank itself or one of its employees.
Each
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certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares and the date of issue, shall be entered on the
stock transfer books of the savings bank. All certificates surrendered to the
savings bank for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares has been
surrendered and cancelled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the savings bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
--------------------------------
the savings bank shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
savings bank. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the savings bank shall be deemed by the savings bank
to be the owner for all purposes.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
-------------------------
The fiscal year of the savings bank shall end on the 30th of September of
each year. The savings bank shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the board of directors. The appointment of such accountants shall be subject
to annual ratification by the shareholders.
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ARTICLE IX
DIVIDENDS
---------
Subject to the terms of the savings bank's charter and the regulations and
orders of the Board, the board of directors may, from time to time, declare, and
the savings bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE X
CORPORATE SEAL
--------------
The board of directors shall provide a savings bank seal which shall be two
concentric circles between which shall be the name of the savings bank. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI
AMENDMENTS
----------
These bylaws may be amended in a manner consistent with regulations of the
Board at any time by a majority of the full board of directors or by a majority
of the votes cast by the stockholders of the savings bank at any legal meeting.
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- --------------------------------------------------------------------------------
[CHEVY CHASE AUTO RECEIVABLES TRUST 199_-_]
Class A-1 [Floating Rate] Auto Receivables Backed Notes
Class A-1 [Floating Rate] Auto Receivables Backed Notes
------------------------------
INDENTURE
Dated as of _____________, 199__
-------------------------------
_____________________
Indenture Trustee
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I Definitions and Incorporation by Reference ...................... 2
SECTION 1.1 (a) Definitions ........................................... 2
SECTION 1.2 Incorporation by Reference of Trust Indenture Act ....... 12
SECTION 1.3 Rules of Construction ................................... 12
SECTION 1.4 Calculations of Interest ................................ 13
ARTICLE II The Notes ..................................................... 13
SECTION 2.1 Form .................................................... 13
SECTION 2.2 Execution, Authentication and Delivery .................. 13
SECTION 2.3 Temporary Notes ......................................... 14
SECTION 2.4 Registration; Registration of Transfer Exchange ......... 15
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes .............. 16
SECTION 2.6 Persons Deemed Owner .................................... 17
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest ... 17
SECTION 2.8 Cancellation ............................................ 18
SECTION 2.9 Release of Collateral ................................... 19
SECTION 2.10 Book-Entry Notes ........................................ 19
SECTION 2.11 Notices to Clearing Agency .............................. 20
SECTION 2.12 Definitive Notes ........................................ 20
ARTICLE III Covenants ..................................................... 21
SECTION 3.1 Payment of Principal and Interest ....................... 21
SECTION 3.2 Maintenance of Office or Agency ......................... 21
SECTION 3.3 Money for Payments To Be Held in Trust .................. 21
SECTION 3.4 Existence ............................................... 23
SECTION 3.5 Protection of Trust Estate .............................. 23
SECTION 3.6 Opinions as to Trust Estate ............................. 24
SECTION 3.7 Performance of Obligations; Servicing of Receivables .... 25
SECTION 3.8 Negative Covenants ...................................... 27
SECTION 3.9 Annual Statement as to Compliance ....................... 28
SECTION 3.10 Issuer May Consolidate, etc., Only on Certain Term ...... 29
SECTION 3.11 Successor or Transferee ................................. 31
SECTION 3.12 No Other Business ....................................... 31
SECTION 3.13 No Borrowing ............................................ 31
SECTION 3.14 Servicer's Obligations .................................. 31
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities ....... 31
SECTION 3.16 Capital Expenditures .................................... 31
i
<PAGE>
SECTION 3.17 Removal of Administrator ................................ 31
SECTION 3.18 Restricted Payments ..................................... 32
SECTION 3.19 Notice of Events of Default ............................. 32
SECTION 3.20 Further Instruments and Acts ............................ 32
ARTICLE IV Satisfaction and Discharge .................................... 32
SECTION 4.1 Satisfaction and Discharge of Indenture ................. 32
SECTION 4.2 Application of Trust Money .............................. 34
SECTION 4.3 Repayment of Moneys Held by Paying Agent ................ 34
ARTICLE V Remedies ...................................................... 34
SECTION 5.1 Events of Default ....................................... 34
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment ...... 36
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement
by Indenture Trustee .................................... 36
SECTION 5.4 Remedies; Priorities .................................... 39
SECTION 5.5 Optional Preservation of the Receivables ................ 41
SECTION 5.6 Limitation of Suits ..................................... 41
SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal
and Interest ............................................ 42
SECTION 5.8 Restoration of Rights and Remedies ...................... 42
SECTION 5.9 Rights and Remedies Cumulative .......................... 42
SECTION 5.10 Delay or Omission Not a Waiver .......................... 43
SECTION 5.11 Control by Noteholders .................................. 43
SECTION 5.12 Waiver of Past Defaults ................................. 43
SECTION 5.13 Undertaking for Costs ................................... 44
SECTION 5.14 Waiver of Stay or Extension Laws ........................ 44
SECTION 5.15 Action on Notes ......................................... 45
SECTION 5.16 Performance and Enforcement of Certain Obligations....... 45
ARTICLE VI Indenture Trustee ............................................. 46
SECTION 6.1 Duties of Indenture Trustee ............................. 46
SECTION 6.2 Rights of Indenture Trustee ............................. 48
SECTION 6.3 Individual Rights of Indenture Trustee .................. 48
SECTION 6.4 Indenture Trustee's Disclaimer .......................... 49
SECTION 6.5 Notice of Defaults ...................................... 49
SECTION 6.6 Reports by Indenture Trustee to Holders ................. 49
SECTION 6.7 Compensation and Indemnity .............................. 49
SECTION 6.8 Replacement of Indenture Trustee ........................ 50
SECTION 6.9 Successor Indenture Trustee by Merger ................... 51
SECTION 6.10 Appointment of Co-Trustee or Separate Trustee............ 52
SECTION 6.11 Eligibility; Disqualification............................ 53
SECTION 6.12 Preferential Collection of Claims Against Issuer......... 53
ARTICLE VII Noteholders' Lists and Reports................................. 54
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<PAGE>
SECTION 7.1 Issuer to Furnish Indenture Trustee
Names and Addresses to Noteholders....................... 54
SECTION 7.2 Preservation of Information;
Communications to Noteholders............................ 54
SECTION 7.3 Reports by Issuer........................................ 54
SECTION 7.4 Reports by Indenture Trustee............................. 55
ARTICLE VIII Accounts, Disbursements and Releases........................... 55
SECTION 8.1 Collection of Money...................................... 55
SECTION 8.2 Trust Accounts........................................... 56
SECTION 8.3 General Provisions Regarding Accounts.................... 57
SECTION 8.4 Release of Trust Estate.................................. 58
SECTION 8.5 Opinion of Counsel....................................... 58
ARTICLE IX Supplemental Indentures........................................ 59
SECTION 9.1 Supplemental Indentures Without Consent
of Noteholders........................................... 59
SECTION 9.2 Supplemental Indentures with Consent of Noteholders...... 60
SECTION 9.3 Execution of Supplemental Indentures..................... 62
SECTION 9.4 Effect of Supplemental Indenture......................... 62
SECTION 9.5 Conformity with Trust Indenture Act...................... 62
SECTION 9.6 Reference in Notes to Supplemental Indentures............ 63
ARTICLE X Redemption of Notes............................................ 63
SECTION 10.1 Redemption............................................... 63
SECTION 10.2 Form of Redemption Notice................................ 63
SECTION 10.3 Notes Payable on Redemption Date......................... 64
ARTICLE XI Miscellaneous.................................................. 64
SECTION 11.1 Compliance Certificates and Opinions, etc................ 64
SECTION 11.2 Form of Documents Delivered to Indenture Trustee......... 66
SECTION 11.3 Acts of Noteholders...................................... 67
SECTION 11.4 Notices, etc., to Indenture Trustee,
Issuer and Rating Agencies............................... 68
SECTION 11.5 Notices to Noteholders; Waiver........................... 69
SECTION 11.6 Alternate Payment and Notice Provisions.................. 69
SECTION 11.7 Conflict with Trust Indenture Act........................ 70
SECTION 11.8 Effect of Headings and Table of Contents................. 70
SECTION 11.9 Successors and Assigns................................... 70
SECTION 11.10 Separability............................................. 70
SECTION 11.11 Benefits of Indenture.................................... 70
SECTION 11.12 Legal Holidays........................................... 70
SECTION 11.13 GOVERNING LAW............................................ 71
SECTION 11.14 Counterparts............................................. 71
SECTION 11.15 Recording of Indenture................................... 71
iii
<PAGE>
SECTION 11.16 Trust Obligation......................................... 71
SECTION 11.17 No Petition.............................................. 71
SECTION 11.18 Inspection............................................... 72
iv
<PAGE>
EXHIBITS
Testimonium, Signatures and Seals
Acknowledgments
Exhibit A Schedule of Receivables
Exhibit B Form of Pooling and Servicing Agreement
Exhibit C Form of Depository Agreement
Exhibit D Form of [Class A-1] Note
Exhibit E Form of [Class A-2] Note
v
<PAGE>
This INDENTURE dated as of _____________, 199_, between [CHEVY CHASE
AUTO RECEIVABLES TRUST 199_-_], a _______ business trust (the "Issuer"), and
_____________, a ________________ [banking corporation], solely as trustee and
not in its individual capacity (the "Indenture Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Issuer's Class A-1 [Floating
Rate] Auto Receivables Backed Notes (the "Class A-1 Notes", Class A-2 [Floating
Rate] Auto Receivables Backed Notes (the "Class A-2 Notes") and Class B Auto
Receivables Backed Notes (the "Class B Notes") (collectively, the "Notes"):
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing Date,
as trustee for the benefit of the Holders of the Notes, all of the Issuer's
right, title and interest in and to (a) the Receivables and all moneys due
thereon on or after the Cut-off Date; (b) the security interests in the Financed
Vehicles granted by Obligors pursuant to the Receivables and any other interest
of the Issuer in the Financed Vehicles; (c) any proceeds with respect to the
Receivables from claims on any physical damage, credit life or disability
insurance policies covering Financed Vehicles or Obligors; (d) the Receivables
Acquisition Agreement, including the right assigned to the Issuer to cause the
Originator to repurchase Receivables from the Depositor under certain
circumstances; (e) all funds on deposit from time to time in the Trust Accounts,
including the Reserve Account Initial Deposit, and in all investments and
proceeds thereof (including all income thereon); (f) the Pooling and Servicing
Agreement (including all rights of the Depositor under the Receivables
Acquisition Agreement assigned to the Issuer pursuant to the Pooling and
Servicing Agreement); and (g) all present and future claims, demands, causes and
chooses in action in respect of any or all of the foregoing and all payments on
or under and all proceeds of every kind and nature whatsoever in respect of any
or all of the foregoing, including all proceeds of the conversion, voluntary or
involuntary, into cash or other liquid property, all cash proceeds, accounts,
accounts receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of any and
every kind and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in the
proceeds of any of the foregoing (collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of principal
of and interest on, and any other amounts owing in respect of, the Notes,
equally and ratably without prejudice, priority or distinction, and to secure
compliance with
<PAGE>
the provisions of this Indenture, all as provided in this Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Holders of the
Notes, acknowledges such Grant, and accepts the trusts under this Indenture in
accordance with the provisions of this Indenture for the use and benefit of such
Holders.
ARTICLE I
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.1 (a) Definitions. Except as otherwise specified herein
-----------
or as the context may otherwise require, the following terms have the respective
meanings see forth below for all purposes of this Indenture.
"Act" has the meaning specified in Section 11.3(a).
---
"Affiliate" means, with respect to any specified person, any other
---------
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Authorized Officer" means, with respect to the Issuer, any officer of
------------------
the Owner Trustee who is authorized to act for the Owner Trustee in matters
relating to the Issuer and who is identified on the list of Authorized Officers,
containing the specimen signature of each such Person, delivered by the Owner
Trustee to the Indenture Trustee on the Closing Date (as such list may be
modified or supplemented from time to time thereafter).
"Basic Documents" means the Certificate of Trust, the Trust Agreement,
---------------
the Receivables Acquisition Agreement, the Pooling and Servicing Agreement, the
Depository Agreement and other documents and certificates delivered in
connection therewith.
"Book Entry Notes" means a beneficial interest in the Notes, ownership
----------------
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 2.10.
"Business Day" means any day other than a Saturday, Sunday or a day on
------------
which banking institutions or trust companies
2
<PAGE>
in the City of New York are authorized or obligated by law, regulation or
executive order to remain closed.
"Certificate of Trust" means the certificate of trust of the Issuer
--------------------
substantially in the form of Exhibit A to the Trust Agreement.
"[Class A-1] Note" means a [Class A-1] [Floating Rate] Auto Receivables
----------------
Backed Note, substantially in the form of Exhibit D.
"[Class A-1] Note Interest Rate" means, for a Payment Date, [the lesser
------------------------------
of (i) LIBO for such Payment Date minus __% and (ii)] __%; provided that if the
weighted average Net APR for the Receivables during the Collection Period
immediately preceding such Payment Date is less than the interest rate computed
without giving effect to this proviso, then the [Class A-1] Note Interest Rate
for such Payment Date shall not exceed such weighted average Net APR.
"[Class A-2] Note" means a [Class A-2] [Floating Rate] Auto Receivables
----------------
Backed Note, substantially in the form of Exhibit E.
"[Class A-2] Note Interest Rate" means, for a Payment Date, [the lesser
------------------------------
of (i) LIBO for such Payment Date plus and (ii)] __%; provided that if the
weighted average Net APR or the Receivables during the Collection Period
immediately receding such Payment Date is less than the interest rate computed
without giving effect to this proviso plus [0.25]%, then the [Class A-2] Note
Interest Rate for such Payment Date shall not exceed such weighted average Net
APR less [0.25]%.
"Clearing Agency" means an organization registered as a "clearing
---------------
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
---------------------------
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means ___________________, 199_.
------------
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, and Treasury Regulations Promulgated thereunder.
"Collateral" has the meaning specified in the granting Clause of this
----------
Indenture.
"Corporate Trust Office" means the principal office of the Indenture
----------------------
Trustee at which at any particular time its
3
<PAGE>
corporate trust business shall be administered which office to date of the
execution of this Agreement is located at ______________________________________
________________________________________________________________________________
________________________, Attention: Corporate Trustee Administration; or at
such other address as the Indenture Trustee may designate from time to time by
notice to the Noteholders and the Issuer, or the principal corporate trust
office of any successor Indenture Trustee (the addresses of which the successor
Indenture Trustee will notify the Noteholders and the Issuer).
"Default" means any occurrence that is, or with notice or the lapse of
-------
time or both would become, an Event of Default.
"Definitive Notes" has the meaning specified in Section 2.10.
----------------
"Depository Agreement" means the agreement among the Issuer, the
--------------------
Indenture Trustee, and The Depository Trust Company, as the initial Clearing
Agency, dated as of the Closing Date, substantially in the form of Exhibit C.
"Event of Default" has the meaning specified in Section 5.1.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Executive Officer" means, with respect to any corporation, and Chief
-----------------
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
-----
remise, release, convey, assign, transfer, create, and grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive hereunder or with respect thereto.
4
<PAGE>
"Holder" or "Noteholder" means the Person in whose name a [Class A-1]
------ ----------
Note or a [Class A-2] Note is registered on the Note Register.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time.
"Indenture Trustee" means _____________________, a __________________
-----------------
[banking corporation], as Indenture Trustee under this Indenture, or any
successor Indenture Trustee under this Indenture.
"Independent" means, when used with respect to any specified Person,
-----------
that the Person (a) is in fact independent of the Issuer, any other obligor upon
the Notes, the Depositor and any Affiliate of any of the foregoing Persons, (b)
does not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Depositor or any Affiliate
of any of the foregoing Persons and (c) is not connected with the Issuer, any
such other obligor, the Depositor or any Affiliate of any of the foregoing
Persons as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.
"Independent Certificate" means a certificate or opinion to be
-----------------------
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1, made by
an Independent appraiser or other expert appointed by an Issuer order and
approved by the Indenture Trustee, and such opinion or certificate shall state
that the signer has read the definition of "Independent" in this Indenture and
that the signer is Independent within the meaning thereof.
"Issuer" means [Chevy Chase Auto Receivables Trust 199_-_] until a
------
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Issuer Order" and "Issuer Request" means a written order or request
------------ --------------
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.
["LIBO" with respect to any Payment Date shall be established by the
----
Indenture Trustee and shall equal the arithmetic mean (rounded upwards, if
necessary, to the nearest one-sixteenth of a percent) of the offered rates for
United States dollar deposits for three months which appear on the Reuters
Screen LIBO Page (as defined below) as of 11:00 A.M., London time, on the second
LIBO Business Day prior to the immediately preceding Payment Date (or the
Closing Date in the case of the first Payment Date); provided that at least two
such
5
<PAGE>
offered rates appear on the Reuters Screen LIBO Page on such date. If fewer
than two offered rates appear, LIBO will be determined on such date as described
in the paragraph below. "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
inter-bank offered rates of major banks). "LIBO Business Day" is a day that is
both a Business Day and a day on which banking institutions in the City of
London, England are not required or authorized by law to be closed.
If on such date fewer than two offered rates appear on the Reuters
Screen LIBO Page, the Indenture Trustee will request of each of the Reference
Banks (which shall be major banks that are engaged in transactions in the London
inter-bank market, selected by the Indenture Trustee after consultation with the
Depositor) to provide the Indenture Trustee with its offered quotation for
United States dollar deposits for three months to prime banks in the London
inter-bank market as of 11:00 A.M., London time, on such date. If at least two
Reference Banks provide the Indenture Trustee with such offered quotations, LIBO
on such date will be the arithmetic mean (rounded upwards, if necessary, to the
nearest one-sixteenth of a percent) of all such quotations. If on such date
fewer than two of the Reference Banks provide the Indenture Trustee with such an
offered quotation, LIBO on such date will be the arithmetic mean (rounded
upwards, if necessary, to the nearest one-sixteenth of a percent) of the offered
per annum rates which one or more leading banks in the City of New York selected
by the Indenture Trustee (after consultation with the Depositor) are quoting as
of 11:00 A.M., New York City time, on such date to leading European banks for
United States dollar deposits for one month, provided, however, that if such
banks are not quoting as described above, LIBO will be the LIBO applicable to
the immediately preceding Payment Date.]
"Net APR" means, with respect to a Receivable, its APR less the
-------
Servicing Fee Rate.
"Note Interest Rate" means the per annum interest rate borne by a Note.
------------------
"Note Owner" means, with respect to a Book-Entry Note, the Person who
----------
is the owner of such Book-Entry Note, as reflected all the books of the Clearing
Agency, or on the books of a Person maintaining an account with such Clearing
Agency (directly as a Clearing Agency Participant or as an indirect participant,
in each case in accordance with the rules of such Clearing Agency).
"Note Register" and "Note Registrar" have the respective meanings
------------- --------------
specified in Section 2.4.
6
<PAGE>
"Notes" means the [Class A-1] Notes and the [Class A-2] Notes.
-----
"Officers' Certificate" means a certificate signed by any Authorized
---------------------
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, and delivered to
the Indenture Trustee. Unless otherwise specified, any reference in this
Indenture to an Officers' Certificate shall be to an Officers' Certificate of
any Authorized Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who
------------------
may, except as otherwise expressly provided in this Indenture, be employees of
or counsel to the Issuer and who shall be acceptable to the Indenture Trustee,
and which opinion or opinions shall be addressed to the Indenture Trustee as
Indenture Trustee, and shall comply with ny applicable requirements of
Section 11.1.
"Originator" means __________________, a _______________ corporation,
----------
and its successor.
"Outstanding" means, as of the date of determination, all Notes
-----------
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited wi.h the Indenture Trustee or
any Paying Agent in trust for the Holders of such Notes (provided, however, that
if such Notes are to be redeemed, notice of such redemption has been duly given
pursuant to this Indenture or provision therefor, satisfactory to the Indenture
Trustee): and
(iii) Notes in exchange for or in lieu of other Notes which have been
authenticated and delivered pursuant to this Indenture unless proof satisfactory
to the Indenture Trustee is presented that any such Notes are held by a bona
fide purchaser;
provided that in determining whether the Holders of the requisite Outstanding
- --------
Amount of the Notes have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any Basic Document, Notes owned by
the Issuer, any Depositor obligor upon the Notes, the Depositor or any Affiliate
of any of the foregoing Persons shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Indenture Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that the Indenture Trustee knows to be so
7
<PAGE>
owned shall be so disregarded. Notes so owned that have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Indenture Trustee the pledgee's right so to act with respect
to such Notes and that the pledgee is not the Issuer, any other obligor upon the
Notes, the Depositor or any Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all Notes,
------------------
or a Class of Notes, as applicable, Outstanding at the date of determination.
"Owner Trustee" means ___________________________ not in its individual
-------------
capacity but solely as Owner Trustee under the Agreement, or any successor Owner
Trustee under the Agreement.
"Paying Agent" means the [Indenture Trustee] or any Person that meets
------------
the eligibility standards for the Indenture Trustee specified in Section 6.11 as
authorized by the Issuer to make the payments to and distributions from the
Collection Account and the Note Distribution Account, including payment of
principal of or interest on the Notes on behalf of the Issuer.
"Payment Date" means the _th day of each and [___________________,
------------
______________, and ______________], or, if any such date is not a Business Day,
the next succeeding Business Day, commencing ______________, 199__.
"Person" means any individual, corporation, estate, partnership, joint
------
venture, association, joint stock company, (including any beneficiary thereof),
unincorporated organization or government or any agency or political subdivision
thereof.
"Pooling and Servicing Agreement" means the Pooling and Servicing
-------------------------------
Agreement dated as of __________, 199_ among the Issuer, the Depositor and the
Servicer, in the form of Exhibit B.
"Predecessor Note" means, with respect to any particular Note, every
----------------
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.5 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law other judicial or
----------
administrative proceeding.
"Rating Agency" means [Moody's], [Standard & Poor's] and [Duff &
-------------
Phelps]. If no such organization or successor is any longer in existence,
"Rating Agency" shall be a nationally recognized statistical rating organization
or other comparable Person designated by the Issuer, notice of which designation
8
<PAGE>
shall be given to the Indenture Trustee, Owner Trustee and the Servicer.
"Rating Agency Condition" means, with respect to any action, that each
-----------------------
Rating Agency shall have been given [10] days or notice thereof and that each of
the Rating Agencies will have notified the Depositor, the Servicer and the
Issuer in writing that such action will not result in a reduction or withdrawal
of the then current rating of the Notes.
"Record Date" means, with respect to a Payment Date Redemption Date,
-----------
the close of business on the [fourteenth] day or of the calendar month in which
such Payment Date or Redemption Date occurs.
"Redemption Date" means the Payment Date specified by the Servicer or
---------------
the Issuer pursuant to Section 10.1(a) or , as applicable.
"Redemption Price" means (a) in the case of a redemption of the Notes
----------------
pursuant to Section 10.1(a), an amount equal to the principal amount of the
Notes redeemed plus accrued and unpaid interest thereon at the related Note
Interest Rate to but excluding the Redemption Date, or (b) in the case of a
payment made to Noteholders pursuant to Section 10.1(b), the amount on deposit
in the Note Distribution Account, but not in excess of the amount specified in
clause (a) above.
"Registered Holder" means the Person in whose name a Note is registered
-----------------
on the Note Register on the applicable Record Date.
"Responsible Officer" means, with respect to the Indenture Trustee, any
-------------------
officer within the Corporate Trust Office of the Indenture Trustee, including
any Vice President, Assistant Vice President, Secretary, Assistant Secretary, or
any other officer of the Indenture Trustee customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Schedule of Receivables" means the listing of the Receivables set
-----------------------
forth in Exhibit A (which Exhibit may be in form of microfiche).
"Security" has the meaning assigned to it in the Trust Agreement.
--------
"State" means any one of the 50 states of the United States of America
-----
or the District of Columbia.
9
<PAGE>
"Successor Servicer" has the meaning specified in Section 3.7(e).
------------------
"Trust Estate" means all money, instruments, rights and other property
------------
that are subject or intended to be subject the lien and security interest of
this Indenture for the benefit of the Noteholders (including, without
limitation, all property and interests Granted to the Indenture Trustee),
including all proceeds thereof.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as
------------------- ---
in force on the date hereof, unless otherwise specifically provided.
"UCC" means, unless the context otherwise requires, the Uniform
---
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
(b) Except as otherwise specified herein or as the context may
otherwise require, the following terms have the respective meanings set forth in
the Pooling and Servicing Agreement as in effect on the Closing Date for all
purposes of this Indenture, and the definitions of such terms are equally
applicable both to the singular and plural forms of such terms:
10
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Term Section of Pooling and
---- Servicing Agreement
-------------------
================================================================================
<S> <C>
APR Section 1.1
- --------------------------------------------------------------------------------
[Class A-2] Final Section 1.1
Scheduled Payment Date
- --------------------------------------------------------------------------------
Collection Account Section 1.1
- --------------------------------------------------------------------------------
Collection Period Section 1.1
- --------------------------------------------------------------------------------
Contract Section 1.1
- --------------------------------------------------------------------------------
Cut-off Date Section 1.1
- --------------------------------------------------------------------------------
Dealers Section 1.1
- --------------------------------------------------------------------------------
Depositor Section 1.1
- --------------------------------------------------------------------------------
[Duff & Phelps Section 1.1]
- --------------------------------------------------------------------------------
Eligible Deposit Account Section 1.1
- --------------------------------------------------------------------------------
Eligible Investments Section 1.1
- --------------------------------------------------------------------------------
Financed Vehicles Section 1.1
- --------------------------------------------------------------------------------
[Fitch Section 1.1]
- --------------------------------------------------------------------------------
Originator Section 1.1
- --------------------------------------------------------------------------------
[Moody's Section 1.1]
- --------------------------------------------------------------------------------
Note Distribution Account Section 1.1
- --------------------------------------------------------------------------------
Noteholders Distributable Amount Section 1.1
- --------------------------------------------------------------------------------
Obligor Section 1.1
- --------------------------------------------------------------------------------
Pool Balance Section 1.1
- --------------------------------------------------------------------------------
Receivables Acquisition Agreement Section 1.1
- --------------------------------------------------------------------------------
Purchased Receivable Section 1.1
- --------------------------------------------------------------------------------
Receivable Section 1.1
- --------------------------------------------------------------------------------
Recoveries Section 1.1
- --------------------------------------------------------------------------------
Reserve Account Section 1.1
- --------------------------------------------------------------------------------
Reserve Account Initial Deposit Section 1.1
- --------------------------------------------------------------------------------
Security Section 1.1
- --------------------------------------------------------------------------------
Securityholders Section 1.1
- --------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Term Section of Pooling and
---- Servicing Agreement
-------------------
================================================================================
<S> <C>
Servicer Section 1.1
- --------------------------------------------------------------------------------
Servicer Default Section 1.1
- --------------------------------------------------------------------------------
Servicing Fee Rate Section 1.1
- --------------------------------------------------------------------------------
Specified Reserve Account Balance Section 1.1
- --------------------------------------------------------------------------------
[Standard & Poor's Section 1.1]
- --------------------------------------------------------------------------------
Total Distribution Amount Section 1.1
- --------------------------------------------------------------------------------
Transfer Date Section 1.1
- --------------------------------------------------------------------------------
Trust Accounts Section 1.1
- --------------------------------------------------------------------------------
Trust Agreement Section 1.1
================================================================================
</TABLE>
SECTION 1.2 Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means Indenture Trustee.
"Obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
SECTION 1.3 Rules of Construction. Unless the context otherwise
---------------------
requires:
(i) a term has the meaning assigned to it;
12
<PAGE>
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in effect
from time to time;
(iii) "or" is not exclusive;
(iv) "including" means "including without limitation"; and
(v) words in the singular include the plural and words in the plural
include the singular.
SECTION 1.4 Calculations of Interest. All calculations of interest
------------------------
made hereunder shall be made on the is of a year of 360 days, in each case for
the actual number of days in the period for which such interest is payable.
ARTICLE II
The Notes
---------
SECTION 2.1 Form. The [Class A-1] and [Class A-2] Notes, in each case
----
together with the Indenture Trustee's certificate of authentication, shall be in
substantially the forms set forth in Exhibits D and E, respectively, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may, consistently herewith, be determined by the officers executing such Notes,
as evidenced by their execution of the Notes. Any portion of the text of any
Note may be set forth on the reverse thereof, with an appropriate reference
thereto on the face of the Note.
The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of methods (with or without steel
engraved borders), all determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibits are part of the terms of this Indenture.
SECTION 2.2 Execution, Authentication and Delivery. The Notes shall
--------------------------------------
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individual's who
were at any time Authorized Officers of the
13
<PAGE>
Issuer shall bind the Issuer, notwithstanding that such individuals or any of
them have ceased to hold such offices prior to the authentication and delivery
of such Notes or did not hold such offices at the date of such Notes.
The Indenture Trustee shall upon Issuer Order authenticate and deliver
[Class A-1] Notes for original issue in an aggregate principal amount of
$ and [Class A-2] Notes for an original issue in an
--------------------
aggregate principal amount of $ . The aggregate principal amount
--------------
of [Class A-1] and [Class A-2] Notes outstanding at any time may not exceed such
amounts, respectively, except as provided Section 2.5.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered the minimum denomination of $ and in
----------
integral multiples thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate upon any Note shall be conclusive
evidence, and the only evidence, that such Note has been duly authenticated and
delivered hereunder.
SECTION 2.3 Temporary Notes. Pending the preparation of definitive
---------------
Notes, the Issuer may execute, and upon receipt of an Issuer Order the Indenture
Trustee shall authenticate and deliver, temporary Notes which are printed,
lithographed, typewritten, mimeographed or otherwise produced, of the tenor of
the definitive Notes in lieu of which they are issued and with such variations
not inconsistent with the terms of this Indenture as the officers executing such
notes may determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes
to be prepared without unreasonable delay. After preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Issuer to be
maintained as provided in Section 3.2, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer
execute and the Indenture Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall in all respects be
entitled to the same benefits under this Indenture as definitive Notes.
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SECTION 2.4 Registration; Registration of Transfer Exchange. The
-----------------------------------------------
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee shall be "Note Registrar" for the purpose of registering Notes
and transfers of Notes as herein provided. Upon any resignation of any Note
Registrar, the Issuer shall promptly appoint a successor or, if it elects not to
make such an appointment, assume the duties of Note Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer
as Note Registrar, the Issuer will give the Indenture Trustee prompt written
notice of the appointment of such Note Registrar and of the location, and any
change in the location, of the Note Register, and the Indenture Trustee shall
have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof, and the Indenture Trustee shall have the right to rely
upon a certificate executed on behalf of the Note Registrar by an Executive
Officer thereof as to the names and addresses of the Holders of the Notes and
the principal amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, if the
requirements of Section 8-401(1) of the UCC are met the Issuer shall execute,
and the Indenture Trustees shall authenticate and the Noteholders shall obtain
from the Indenture Trustee, in the name of the designated transferee or
transferees, one or more new Notes of the same Class in any authorized
denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of
the same Class in any authorized denominations, of a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, if the requirements of
Section 8-401(1) of the UCC are met the Issuer shall execute, and the Indenture
Trustee authenticate and the Noteholder shall obtain from the Indenture Trustee,
the Notes which the Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in the form of Exhibit F hereto, duly executed by, the Holder thereof
or such Holder's
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attorney duly authorized in writing, with such signature guaranteed by a
commercial bank or trust company located, or having a correspondent located, in
the City of New York or the city in which the Corporate Trust Office is located,
or by a member firm of a national securities exchange, and such other documents
as the Indenture Trustee may require.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
The preceding provisions of this Section 2.4 notwithstanding, the
Issuer shall not be required to make and the Note Registrar need not register
transfers or exchanges of Notes selected for redemption or of any Note for a
period of [15] days preceding the due date for any payment with respect to the
Note.
SECTION 2.5 Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
------------------------------------------
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by it to hold the Issuer and the Indenture Trustee
harmless, then, in the absence of notice to the Issuer, the Note Registrar or
the Indenture Trustee that such Note has been acquired by a bona fide purchaser,
and provided that the requirements of Section 8-405 of the UCC are met, the
Issuer shall execute and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note of the same Class; provided,
--------
however, that if any such destroyed, lost or stolen Note, but not a mutilated
- -------
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer and the Indenture Trustee shall be entitled to recover
such replacement Note (or such payment) from the Person to whom it was delivered
or any Person taking such replacement Note from such Person to whom such
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense
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incurred by the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6 Persons Deemed Owner. Prior to due presentment for
--------------------
registration of transfer of any Note, the Issuer, the Indenture Trustee and any
agent of the Issuer or the Indenture Trustee may treat the Person in whose name
any Note is registered (as of the day of determination) as the owner of such
Note for the purpose of receiving payments of principal of and interest, if any,
on such Note and for all other purposes whatsoever, whether or not such Note be
overdue, and neither the Issuer, the Indenture Trustee nor any agent of the
Issuer or the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.7 Payment of Principal and Interest; Defaulted Interest.
-----------------------------------------------------
(a) The Notes shall accrue interest as provided in the forms of the
[Class A-1] Note and [Class A-2] Note set forth in Exhibits D and E,
respectively, and such interest shall be payable on each Payment Date as
specified therein. Any installment of interest or principal, if any, payable on
any Note which is punctually paid or duly provided for by the Issuer on the
applicable Payment Date shall be paid to the Person in whose name such Note (or
one or more Predecessor Notes) is registered on the Record Date, by check mailed
first-class, postage prepaid to such Person's address as it appears on the Note
Register on such Record Date, except that, unless Definitive Notes have been
issued pursuant to Section 2.12, with respect to Notes registered on the Record
Date in the name of the nominee of the Clearing Agency [(initially, such nominee
to be Cede & Co.)], payment will
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be made by wire transfer in immediately available funds to the account
designated by such nominee and except for the final installment of principal
payable with respect to such Note on a Payment Date (and except for the
Redemption Price for any Note called for redemption pursuant to Section 10.1(a))
which shall be payable as provided below. The funds represented by any such
checks returned undelivered shall be held in accordance with Section 3.3.
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the forms of the [Class A-1] Note and [Class A-2]
Note set forth in Exhibits D and E, respectively. Notwithstanding the
foregoing, the entire unpaid principal amount of the Notes shall be due and
payable, if not previously paid, on the date on which an Event of Default shall
have occurred and be continuing, if the Indenture Trustee or the Holders of the
Notes representing not less than a majority of the Outstanding Amount of the
Notes have declared the Notes to be immediately due and payable in the manner
provided in Section 5.2. All principal payments on each Class of Notes shall be
made pro rata to the Noteholders of such Class entitled thereto. Upon notice to
the Indenture Trustee by the Issuer, the Indenture Trustee shall notify the
Person in whose name a Note is registered at the close of business on the Record
Date preceding the Payment Date on which the Issuer expects that the final
installment of principal of and interest on such Note will be paid. Such notice
shall be mailed no later than Business Days prior to such final Payment
----
Date and shall specify that such final installment will be payable only upon
presentation and surrender of such Note and shall specify the place where such
Note may be presented and surrendered for payment of such installment. Notices
in connection with redemptions of Notes shall be mailed to Noteholders as
provided in Section 10.2.
(c) If the Issuer defaults in a payment of interest on the Notes, the
Issuer shall pay defaulted interest (plus interest on such defaulted interest to
the extent lawful) in any lawful manner. The Issuer may pay such defaulted
interest to the persons who are Noteholders on a subsequent special record date,
which date shall be at least Business Days prior to the payment date. The
-----
Issuer shall fix or cause to be fixed any such special record date and payment
date, and, at least days before any such special record date, the Issuer
----
shall mail to each Noteholder a notice that states the special record date, the
payment date and the amount of defaulted interest to be paid.
SECTION 2.8 Cancellation. All notes surrendered for payment,
------------
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes
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previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
cancelled by the Indenture Trustee. No Notes shall be authenticated in lieu of
or in exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes may be held or
disposed of by the Indenture Trustee in accordance with its standard retention
or disposal policy as in effect at the time unless the Issuer shall direct by an
Issuer Order that they be destroyed or returned to it; provided that such Issuer
--------
Order is timely and the Notes have not been previously disposed of by the
Indenture Trustee.
SECTION 2.9 Release of Collateral. Subject to Section 11.1, the
---------------------
Indenture Trustee shall release property from the lien of this Indenture only
upon receipt of an Issuer Request accompanied by an Officers' Certificate, an
Opinion of Counsel and Independent Certificates in accordance with TIA (S)(S)
314(c) and 314(d)(1) or an Opinion of Counsel in lieu of such Independent
Certificates to the effect that the TIA does not require any such Independent
Certificates.
SECTION 2.10 Book-Entry Notes. The Notes, upon original issuance,
----------------
will be issued in the form of a typewritten Note or Notes representing the Book-
Entry Notes, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by, or on behalf of, the Issuer. Such Note shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Note Owner will receive a Definitive Note (as
hereinafter defined) representing such Note Owner's interest in such Note,
except as provided in Section 2.12. Unless and until definitive, fully
registered Notes (the "Definitive Notes") have been issued to Note Owners
pursuant to Section 2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Indenture Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Indenture (including the payment of principal of and interest on the
Notes and the giving of instructions or directions hereunder) as the
sole holder of the Notes, and shall have no obligation to the Note
Owners;
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Indenture, the provisions of this
Section shall control;
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(iv) the rights of Note Owners shall be exercised only through the
Clearing Agency and shall be limited to those established by law and
agreements between such Note Owners and the Clearing Agency and/or the
Clearing Agency Participants. Pursuant to the Depository Agreement,
unless and until Definitive Notes are issued pursuant to Section 2.12,
the initial Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit payments of
principal of and interest on the Notes to such Clearing Agency
Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Outstanding Amount of the
Notes, the Clearing Agency shall be deemed to represent such percentage
only to the extent that it has received instructions to such effect
from Note Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Indenture Trustee.
SECTION 2.11 Notices to Clearing Agency. Whenever a notice or other
--------------------------
communication to the Noteholders is required or other communication to the
Noteholders is required under this Indenture, unless and until Definitive Notes
shall have been issued to Note Owners pursuant to Section 2.12, the Indenture
Trustee shall give all such notices and communications specified herein to be
given to Holders of the Notes to the Clearing Agency, and shall have no
obligation to the Note Owners or other Holders of the Notes.
SECTION 2.12 Definitive Notes. If (i) the Indenture Trustee is
----------------
notified in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities with respect to the Notes, and the
Indenture Trustee is unable to locate a qualified successor, (ii) the Indenture
Trustee elects to terminate the book-entry system through the Clearing Agency or
(iii) after the occurrence of an Event of Default or a Servicer Default, Note
Owners representing beneficial interests aggregating at least a majority of the
Outstanding Amount of the Notes advise the Clearing Agency in writing that the
continuation of a book-entry system through the Clearing Agency is no longer in
the best interests of the Note Owners, then the Clearing Agency shall notify all
Note Owners and the Indenture Trustee of the occurrence of any such event and of
the availability of Definitive Notes to Note Owners requesting the same. Upon
surrender to the Indenture Trustee of the typewritten Note or Notes representing
the Book-Entry Notes by the Clearing Agency, accompanied by registration
instructions, the Issuer shall
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execute and the Indenture Trustee shall authenticate the Definitive Notes in
accordance with the instructions of the Clearing Agency. None of the Issuer,
the Note Registrar or the Indenture Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Notes, the Indenture Trustee shall recognize the Holders of the Definitive Notes
as Noteholders.
ARTICLE III
Covenants
---------
SECTION 3.1 Payment of Principal and Interest. The Issuer will duly
---------------------------------
and punctually pay the principal of and interest, if any, on the Notes in
accordance with the terms of the Notes and this Indenture. Without limiting the
foregoing, the Issuer will cause to be distributed all amounts on deposit in the
Note Distribution Account on a Payment Date. Amounts properly withheld under
the Code by any Person from a payment to any Noteholder of interest and/or
principal shall be considered as having been paid by the Issuer to such
Noteholder for all purposes of this Indenture.
SECTION 3.2 Maintenance of Office or Agency. The Issuer will
-------------------------------
maintain in the [County of , State of ], an office or
------------- --------------
agency where Notes may be surrendered for registration of transfer or exchange,
and where notices and demands to or upon the Issuer in respect of the Notes and
this Indenture may be served. The Issuer hereby initially appoints
to serve as its agent for the foregoing purposes. The
- ----------------------
Issuer will give prompt written notice to the Indenture Trustee of the location,
and of any change in the location, of any such office or agency. If at any time
the Issuer shall fail to maintain any such office or agency or shall fail to
furnish the Indenture Trustee with the address thereof, such surrenders, notices
and demands may be made or served at the Corporate Trust Office, and the Issuer
hereby appoints the Indenture Trustee as its agent to receive all such
surrenders, notices and demands.
SECTION 3.3 Money for Payments To Be Held in Trust. As provided in
--------------------------------------
Section 8.02(a) and (b), all payments of amounts due and payable with respect to
any Notes that are to be made from amounts withdrawn from the Collection Account
and the Note Distribution Account pursuant to Section 8.02(c) shall be made on
behalf of the Issuer by the Indenture Trustee or by another Paying Agent, and no
amounts so withdrawn from the Collection Account and the Note Distribution
Account for payments of Notes shall be paid over to the Issuer except as
provided in this Section.
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On or before [noon (New York time)] on each Payment Date and Redemption
Date, the Issuer shall deposit or cause to be deposited in the Note Distribution
Account an aggregate sum sufficient to pay the amounts then becoming due under
the Notes, such sum to be held in trust for the benefit of the Persons entitled
thereto and (unless the Paying Agent is the Indenture Trustee) shall promptly
notify the Indenture Trustee of its action or failure so to act.
The Issuer will cause each Paying Agent other than the Indenture
Trustee to execute and deliver to the Indenture Trustee an instrument in which
such Paying Agent shall agree with the Indenture Trustee (and if the Indenture
Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section, that such Paying Agent will:
(i) hold sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and pay such sums to such Persons as
herein provided;
(ii) give the Indenture Trustee notice of any default by the
Issuer of which it has actual knowledge (or any other obligor upon the
Notes) in the making of any payment required to be made with respect to
the Notes;
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Indenture Trustee all sums held by it in trust for the payment of Notes
if at any time it ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Paying Agent to pay to the Indenture Trustee all sums held in
trust by such Paying Agent, such sums to be held by the Indenture Trustee upon
the same terms as those upon which the sums were held by such Paying
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Agent; and upon such payment by any Paying Agent to the Indenture Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Subject to applicable laws with respect to escheat of funds, any money
held by the Indenture Trustee or any Paying Agent in trust for the payment of
any amount due with respect to any Note and remaining unclaimed for years
-----
after such amount has become due and payable shall be discharged from such
trust, and the Indenture Trustee or such Paying Agent, as the case may be, shall
give prompt notice of such occurrence to the Issuer and shall release such money
to the Issuer on Issuer Request; and the Holder of such Note shall thereafter,
as an unsecured general creditor, look only to the Issuer for payment thereof
(but only to the extent of the amounts so paid to the Issuer), and all liability
of the Indenture Trustee or such Paying Agent with respect to such trust money
shall thereupon cease; provided, however, that the Indenture Trustee or such
-------- -------
Paying Agent, before being required to make any such repayment, may at the
expense of the Issuer cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the City of , notice that such money remains
-------------
unclaimed and that, after the date specified therein, which shall not be less
than days from the date of such publication, any unclaimed balance of
------
such money then remaining will be repaid to the Issuer. The Indenture Trustee
may also adopt and employ, at the expense of the Issuer, any other reasonable
means of notification of such repayment (including, but not limited to, mailing
notice of such repayment to Holders whose Notes have been called but have not
been surrendered for redemption or whose right to or interest in moneys due and
payable but not claimed is determinable from the records of the Indenture
Trustee or of any Paying Agent, at the last address of record for each such
Holder).
SECTION 3.4 Existence. The Issuer will keep in full effect its
---------
existence, rights and franchises as a business trust under the laws of the State
of (unless it becomes, or any successor Issuer hereunder is or
---------
becomes, organized under the laws of any other State or of the United States of
America, in which case the Issuer will keep in full effect its existence, rights
and franchises under the laws of such other jurisdiction) and will obtain and
preserve its qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Indenture, the Notes, the Collateral and each other
instrument or agreement included in the Trust Estate.
SECTION 3.5 Protection of Trust Estate. The Issuer will from time
--------------------------
to time prepare, execute, deliver and file all such supplements and amendments
hereto and all such financing
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statements, continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
(i) maintain or preserve the lien and security interest (and the
priority thereof) of this Indenture or carry out more effectively the
purposes hereof;
(ii) perfect, publish notice of or protect the validity of any
Grant made or to be made by this Indenture;
(iii) enforce any of the Collateral; or
(iv) preserve and defend title to the Trust Estate and the rights
of the Indenture Trustee and the Noteholders in such Trust Estate
against the claims of all persons and parties. The Issuer hereby
designates the Indenture Trustee, and hereby authorizes the Indenture
Trustee as its agent and attorney-in-fact, to execute any financing
statement, continuation statement or other instrument required by the
Indenture Trustee pursuant to this Section.
SECTION 3.6 Opinions as to Trust Estate.
---------------------------
(a) On the Closing Date, the Issuer shall furnish to the Indenture
Trustee an Opinion of Counsel either stating that, in the opinion of such
counsel, such action has been taken with respect to the recording and filing of
this Indenture, any indentures supplemental hereto, and other requisite
documents, and with respect to the execution and filing of any financing
statements and continuation statements, as are necessary to perfect and make
effective the lien and security interest of this Indenture and reciting the
details of such action, or stating that, in the opinion of such counsel, no such
action is necessary to make such lien and security interest effective.
(b) On or before in each calendar year, beginning in
---------------
199 , the Issuer shall furnish to the Indenture Trustee an Opinion of Counsel
-
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording, filing, re-recording and refiling of this
Indenture, any indentures supplemental hereto and any other requisite documents
and with respect to the execution and filing of any financing statements and
continuation statements as is necessary to maintain the lien and security
interest created by this Indenture and reciting the details of such action or
stating that in the opinion of such counsel no such action is necessary to
maintain such lien and security interest. Such Opinion of Counsel shall also
describe the recording, filing, re-recording and refiling of this Indenture, any
indentures supplemental
24
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hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest of this
Indenture until in the following calendar year.
-----------------
SECTION 3.7 Performance of Obligations; Servicing of Receivables.
----------------------------------------------------
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any instrument
or agreement included in the Trust Estate or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Pooling and Servicing Agreement or
such other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in
performing its duties under this Indenture, and any performance of such duties
by a Person identified to the Indenture Trustee in an Officers' Certificate of
the Issuer shall be deemed to be action taken by the Issuer. Initially, the
Issuer has contracted with the Servicer to assist the Issuer in performing its
duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Estate, including but
not limited to filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Pooling and Servicing Agreement in accordance with and within the time
periods provided for herein and therein. Except as otherwise expressly provided
therein, the Issuer shall not waive, amend, modify, supplement or terminate any
Basic Document or any provision thereof without the consent of the Indenture
Trustee or the Holders of at least a majority of the Outstanding Amount of the
Notes.
(d) If the Issuer shall have knowledge of the occurrence of a Servicer
Default under the Pooling and Servicing Agreement, the Issuer shall promptly
notify the Indenture Trustee and the Rating Agencies thereof, and shall specify
in such notice the action, if any, the Issuer is taking with respect to such
default. If a Servicer Default shall arise from the failure of the Servicer to
perform any of its duties or obligations under
25
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the Pooling and Servicing Agreement with respect to the Receivables, the Issuer
shall take all reasonable steps available to it to remedy such failure.
(e) As promptly as possible after the giving of notice of termination
to the Servicer of the Servicer's rights and powers pursuant to Section of
----
the Pooling and Servicing Agreement, the Issuer shall appoint a successor
servicer (the "Successor Servicer"), and such Successor Servicer shall accept
its appointment by a written assumption in a form acceptable to the Indenture
Trustee. In the event that a Successor Servicer has not been appointed and
accepted its appointment at the time when the Servicer ceases to act as
Servicer, the Indenture Trustee without further action shall automatically be
appointed the Successor Servicer, subject to Section of the Pooling and
----
Servicing Agreement. The Indenture Trustee may resign as the Servicer by giving
written notice of such resignation to the Issuer and in such event will be
released from such duties and obligations, such release not to be effective
until the date a new servicer enters into a servicing agreement with the Issuer
as provided below. Upon delivery of any such notice to the Issuer, the Issuer
shall obtain a new servicer as the Successor Servicer under the Pooling and
Servicing Agreement. Any Successor Servicer other than the Indenture Trustee
shall (i) be an established financial institution having a net worth of not less
than $ and whose regular business includes the servicing of
---------------
automobile receivables and (ii) enter into a servicing agreement with the Issuer
having substantially the same provisions as the provisions of the Pooling and
Servicing Agreement applicable to the Servicer. If within days after the
-----
delivery of the notice referred to above, the Issuer shall not have obtained
such a new servicer, the Indenture Trustee may appoint, or may petition a court
of competent jurisdiction to appoint, a Successor Servicer. In connection with
any such appointment, the Indenture Trustee may make such arrangements for the
compensation of such successor as it and such successor shall agree, subject to
the limitations set forth below and in the Pooling and Servicing Agreement, and
in accordance with Section of the Pooling and Servicing Agreement, the
----
Issuer shall enter into an agreement with such successor for the servicing of
the Receivables (such agreement to be in form and substance satisfactory to the
Indenture Trustee). If the Indenture Trustee shall succeed to the Servicer's
duties as servicer of the Receivables as provided herein, it shall do so in its
capacity as servicer and not in its capacity as Indenture Trustee and,
accordingly, the provisions of Article VI hereof shall be inapplicable to the
Indenture Trustee in its duties as the successor to the Servicer and the
servicing of the Receivables. In case the Indenture Trustee shall become
successor to the Servicer under the Pooling and Servicing Agreement, the
Indenture Trustee shall be entitled to appoint as Servicer any one of its
affiliates, provided that it shall be
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fully liable for the actions and omissions of such affiliate in such capacity as
Successor Servicer.
(f) Upon any termination of the Servicer's rights and powers pursuant
to the Pooling and Servicing Agreement, the Issuer shall promptly notify the
Indenture Trustee. As soon as a Successor Servicer is appointed, the Issuer
shall notify the Indenture Trustee of such appointment, specifying in such
notice the name and address of such Successor Servicer.
(g) Without derogating from the absolute nature of the assignment
granted to the Indenture Trustee under this Indenture or the rights of the
Indenture Trustee hereunder, the Issuer agrees that it will not, without the
prior written consent of the Indenture Trustee or the Holders of a least a
majority in Outstanding Amount of the Notes, amend, modify, waive, supplement,
terminate or surrender, or agree to any amendment, modification, supplement,
termination, waiver or surrender of, the terms of any Collateral (except to the
extent otherwise provided in the Pooling and Servicing Agreement) or the Basic
Documents, or waive timely performance or observance by the Servicer or the
Depositor under the Pooling and Servicing Agreement or the Originator under the
Receivables Acquisition Agreement; provided, however, that no such amendment
shall (i) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on Receivables or distributions that are
required to be made for the benefit of the Noteholders or (ii) reduce the
aforesaid percentage of the Notes which are required to consent to any such
amendment, without the consent of the holders of all the outstanding Notes. If
any such amendment, modification, supplement or waiver shall be so consented to
by the Indenture Trustee or such Holders, the Issuer agrees, promptly following
a request by the Indenture Trustee to do so, to execute and deliver, in its own
name and at its own expense, such agreements, instruments, consents and other
documents as the Indenture Trustee may reasonably deem necessary or appropriate
in the circumstances.
SECTION 3.8 Negative Covenants. So long as any Notes are
------------------
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture, the
Receivables Acquisition Agreement or the Pooling and Servicing
Agreement, sell, transfer, exchange or otherwise dispose of any of the
properties or assets of the Issuer, including those included in the
Trust Estate, unless directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the principal
or interest payable in respect of, the Notes (other than amounts
properly withheld from
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such payments under the Code) or assert any claim against any present
or former Noteholder by reason of the payment of the taxes levied or
assessed upon any part of the Trust Estate;
(iii) dissolve or liquidate in whole or in part; or
(iv) (A) permit the validity or effectiveness of this Indenture
to be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations with respect to
the Notes under this Indenture except as may be expressly permitted
hereby, (B) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien of this Indenture)
to be created on or extend to or otherwise arise upon or burden the
Trust Estate or any part thereof or any interest therein or the
proceeds thereof (other than tax liens, mechanics' liens and other
liens that arise by operation of law, in each case on a Financed
Vehicle and arising solely as a result of an action or omission of the
related Obligor) or (C) permit the lien of this Indenture not to
constitute a valid first priority (other than with respect to any such
tax, mechanics' or other lien) security interest in the Trust Estate.
SECTION 3.9 Annual Statement as to Compliance. The Issuer will
---------------------------------
deliver to the Indenture Trustee, within 120 days after the end of each fiscal
year of the Issuer (commencing with the fiscal year 199 ), an Officers'
-
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that
(i) a review of the activities of the Issuer during the 12-month
period ending at the end of such fiscal year (or in the case of the
fiscal year ending , the period from the Closing Date to
---------------
and of performance under this Indenture has been made
--------------
under such Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a
default in the compliance of any such condition or covenant, specifying
each such default known to such Authorized Officer and the nature and
status thereof.
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SECTION 3.10 Issuer May Consolidate, etc., Only on Certain Term.
--------------------------------------------------
(a) The Issuer shall not consolidate or merge with or into any
other Person, unless
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger shall be a Person organized and existing
under the laws of the United States of America or any State and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Indenture Trustee, in form satisfactory to the
Indenture Trustee, the due and punctual payment of the principal of and
interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture on the part of the Issuer to
be performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Trust, any Noteholder or any Securityholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officers' Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with
this Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
(b) The Issuer shall not convey or transfer any of its properties or
assets, including those included in the Trust Estate, to any Person, unless
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which
is hereby restricted shall (A) be a United States citizen or a Person
organized and existing under the laws of the United
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States of America or any State, (B) expressly assumes, by an indenture
supplemental hereto, executed and delivered to the Indenture Trustee,
in form satisfactory to the Indenture Trustee, the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agrees by means of such supplemental
indenture that all right, title and interest so conveyed or transferred
shall be subject and subordinate to the rights of Holders of the Notes,
(D) unless otherwise provided in such supplemental indenture, expressly
agrees to indemnify, defend and hold harmless the Issuer against and
from any loss, liability or expense arising under or related to this
Indenture and the Notes and (E) expressly agrees by means of such
supplemental indenture that such Person (or if a group of Persons, then
one specified Person) shall make all filings with the Commission (and
any other appropriate Person) required by the Exchange Act in
connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Indenture Trustee) to the
effect that such transaction will not have any material adverse tax
consequence to the Trust, any Noteholder or any Securityholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
conveyance or transfer and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act).
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SECTION 3.11 Successor or Transferee.
-----------------------
(a) Upon any consolidation or merger of the Issuer in accordance with
Section 3.10(a), the Person formed by or surviving such consolidation or merger
(if other than the Issuer) shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this Indenture with the same
effect as if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.10(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery to and
acceptance by the Indenture Trustee of the Officer's Certificate and Opinion of
Counsel specified in Section 3.10(b)(vi) stating that the Issuer is to be so
released.
SECTION 3.12 No Other Business. The Issuer shall not engage in any
-----------------
business other than financing, purchasing, owning, selling and managing the
Receivables in the manner contemplated by this Indenture and the Basic
Documents, issuing the Notes and Securities and activities incidental thereto.
SECTION 3.13 No Borrowing. The Issuer shall not issue, incur,
------------
assume, guarantee or otherwise become liable, directly or indirectly, for any
indebtedness except for the Notes.
SECTION 3.14 Servicer's Obligations. The Issuer shall cause the
----------------------
Servicer to comply with Sections 4.9, 4.10, 4.11 and 5.06 of the Pooling and
Servicing Agreement.
SECTION 3.15 Guarantees, Loans, Advances and Other Liabilities.
-------------------------------------------------
Except as contemplated by the Pooling and Servicing Agreement or this Indenture,
the Issuer shall not make any loan or advance or credit to, or guarantee
(directly or indirectly another's payment or performance on any obligation or
capability of so doing or otherwise), endorse or otherwise become contingently
liable, directly or indirectly, in connection with the obligations, stocks or
dividends of, or own, purchase, repurchase or acquire (or agree contingently to
do so) any stock, obligations, assets or securities of, or any other interest
in, or make any capital contribution to, any other Person.
SECTION 3.16 Capital Expenditures. The Issuer shall not make any
--------------------
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17 Removal of Administrator. So long as any Notes are
------------------------
Outstanding, the Issuer shall not remove the
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Administrator without cause unless the Rating Agency Condition shall have been
satisfied in connection with such removal.
SECTION 3.18 Restricted Payments. The Issuer shall not, directly or
-------------------
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
- -------- -------
to the Servicer, the Owner Trustee and the Securityholders as permitted by, and
to the extent funds are available for such purpose under, the Pooling and
Servicing Agreement. The Issuer will not, directly or indirectly, make payments
to or distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
SECTION 3.19 Notice of Events of Default. The Issuer agrees to give
---------------------------
the Indenture Trustee and the Rating Agencies prompt written notice of each
Event of Default hereunder and, within _______ days after obtaining knowledge of
any of the following occurrences, written notice of each default on the part of
the Servicer or the Depositor of its obligations under the Pooling and Servicing
Agreement and each default on the part of the Originator of its obligations
under the Receivables Acquisition Agreement.
SECTION 3.20 Further Instruments and Acts. Upon request of the
----------------------------
Indenture Trustee, the Issuer will execute and deliver such further instruments
and do such further acts as may be reasonably necessary or proper to carry out
more effectively the purpose of this Indenture.
ARTICLE IV
Satisfaction and Discharge
--------------------------
SECTION 4.1 Satisfaction and Discharge of Indenture. This Indenture
---------------------------------------
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8,
3.10, 3.12 and 3.13, (v) the rights, obligations and immunities of the Indenture
Trustee hereunder (including the rights of the Indenture Trustee under Section
6.7 and the obligations of the Indenture Trustee under Section 4.2) and (vi)
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the rights of Noteholders as beneficiaries hereof with respect to the property
so deposited with the Indenture Trustee payable to all or any of them, and the
Indenture Trustee, on demand of and at the expense of the Issuer, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other than
(i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 2.5 and (ii) Notes for whose
payment money has theretofore been deposited in trust or segregated and
held in trust or discharged form such trust, as provided in Section
3.3) have been delivered to the Indenture Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Indenture Trustee
for cancellation
(i) have become due and payable.
(ii) will become due and payable at the [Class A-2] Final
Schedule Payment Date within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving
of notice of redemption by the Indenture Trustee in the name, and
at the expense, of the Issuer,
and the Issuer, in the case of (i), (ii) or (iii) and the Issuer, in
the case of (i), (ii) or (iii) above, has irrevocably deposited or
caused to be irrevocably deposited with the Indenture Trustee cash or
direct obligations of or obligations guaranteed by the United States of
America (which will mature prior to the date such amounts are payable),
in trust for such purpose, in an amount sufficient to pay and discharge
the entire indebtedness on such Notes not theretofore delivered to the
Indenture Trustee for cancellation when due on the [Class A-2] Final
Scheduled Payment Date or Redemption Date (if Notes shall have been
called for redemption pursuant to Section 10.1(a)), as the case may be;
(B) The Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(C) the Issuer has delivered to the Indenture Trustee an Officers'
Certificate, an Opinion of Counsel and (if
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required by the TIA) an Independent Certificate from a firm of certified
public accountants, each meeting the applicable requirements of Section
11.1(a) and each stating that all conditions precedent herein provided for
relating to the satisfaction and discharge of this Indenture have been
complied with.
SECTION 4.2 Application of Trust Money. All moneys deposited with
--------------------------
the Indenture Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent, as the
Indenture Trustee may determine, to the Holders of the particular Notes for the
payment or redemption of which such moneys have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest; but such moneys need not be segregated from other funds except to the
extent required herein or in the Pooling and Servicing Agreement or required by
law.
SECTION 4.3 Repayment of Moneys Held by Paying Agent. In connection
----------------------------------------
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.3 and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
ARTICLE V
Remedies
--------
SECTION 5.1 Events of Default. "Event of Default", wherever used
-----------------
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note when the
same becomes due and payable, and such default shall continue for a
period of _____ days; or
(ii) default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and
payable; or
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(iii) default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant
or agreement, a default in the observance or performance of which is
elsewhere in this Section specifically dealt with), or any
representation or warranty of the Issuer made in this Indenture or in
any certificate or other writing delivered pursuant hereto or in
connection herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made, and such
default shall continue or not be cured, or the circumstance or
condition in respect of which such representation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of _____ days after there shall have been given, by registered
or certified mail, to the Issuer by the Indenture Trustee or to the
Issuer and the Indenture Trustee by the Holders of at least [____%] of
the Outstanding Amount of the Notes, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(iv) the filing of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Issuer or any
substantial part of the Trust Estate in an involuntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for the
Issuer or for any substantial part of the Trust Estate, or ordering the
winding-up or liquidation of the Issuer's affairs, and such decree or
order shall remain unstayed and in effect for a period of _____
consecutive days; or
(v) the commencement by the Issuer of a voluntary case under any
applicable federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or the consent by the Issuer to the entry
of an order for relief in an involuntary case under any such law, or
the consent by the Issuer to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Issuer or for any substantial part of the Trust
Estate, or the making by the Issuer of any general assignment for the
benefit of creditors, or the failure by the Issuer generally to pay its
debts as such debts become due, or the taking of action by the Issuer
in furtherance of any of the foregoing.
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The Issuer shall deliver to the Indenture Trustee, within _______ days
after the occurrence thereof, written notice in the form of an Officers'
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clause (iii), its status and what action
the Issuer is taking or proposes to take with respect thereto.
SECTION 5.2 Acceleration of Maturity; Rescission and Annulment. If
--------------------------------------------------
an Event of Default should occur and be continuing, then and in every such case
the Indenture Trustee or the Holders of Notes representing a majority of the
Outstanding Amount of the Notes may declare all the Notes to be immediately due
and payable, by a notice in writing to the Issuer (and to the Indenture Trustee
if given by Noteholders), and upon any such declaration the unpaid principal
amount of the Notes, together with accrued and unpaid interest thereon through
the date of acceleration, shall become immediately due and payable.
At any time after such declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee as hereinafter in this Article V provided, the
Holders of Notes representing a majority of the Outstanding Amount of the Notes,
by written notice to the Issuer and the Indenture Trustee, may rescind and annul
such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee a
sum sufficient to pay
(A) all payment of principal of and interest on all Notes and
all other amounts that would then be due hereunder or upon such
Notes if the Event of Default giving rise to such acceleration had
not occurred; and
(B) all sums paid or advanced by the Indenture Trustee
hereunder and the reasonable compensation, expenses, disbursements
and advances of the Indenture Trustee and its agents and counsel;
and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3 Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Indenture Trustee.
- -----------------
36
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(a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of [five] days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable, the Issuer will, upon demand of the Indenture Trustee,
pay to it, for the benefit of the Holders of the Notes, the whole amount then
due and payable on such Notes for principal and interest, with interest upon the
overdue principal, and, to the extent payment at such rate of interest shall be
legally enforceable, upon overdue installments of interest, at the respective
Note Interest Rate borne by the Notes and in addition thereto such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and counsel.
(b) In case the Issuer shall fail forthwith to pay such amounts upon
such demand, the Indenture Trustee, in its own name and as trustee of an express
trust, may institute a Proceeding for the collection of the sums so due and
unpaid, and may prosecute such Proceeding to judgment or final decree, and may
enforce the same against the Issuer or other obligor upon such Notes and collect
in the manner provided by law out of the property of the Issuer or other obligor
upon such Notes, wherever situated, the moneys adjudged or decreed to be
payable.
(c) If an Event of Default occurs and is continuing, the Indenture may,
as more particularly provided in Section 5.4, in its discretion, proceed to
protect and enforce its rights and the rights of the Noteholders, by such
appropriate Proceedings as the Indenture Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Indenture Trustee by this Indenture or by law.
(d) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, Proceedings under Title 11 of the United States Code or any
other applicable Federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or
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otherwise and irrespective of whether the Indenture Trustee shall have made any
demand pursuant to the provisions of this Section, shall be entitled and
empowered, by intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to
file such other papers or documents as may be necessary or advisable in
order to have the claims of the Indenture Trustee (including any claim
for reasonable compensation to the Indenture Trustee and each
predecessor Indenture Trustee, and their respective agents, attorneys
and counsel, and for reimbursement of all expenses and liabilities
incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee, except as a result of negligence or bad
faith) and of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote
on behalf of the Holders of Notes in any election of a trustee, a
standby trustee or Person performing similar functions in any such
Proceedings;
(iii) to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Indenture Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the
Indenture Trustee or the Holders of Notes allowed in any judicial
proceedings relative to the Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Indenture Trustee except as a result of negligence or bad faith.
(e) Nothing herein contained shall be deemed to authorize the
Indenture Trustee to authorize or consent to or
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vote for or accept or adopt on behalf of any Noteholder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof or to authorize the Indenture Trustee to vote
in respect of the claim of any Noteholder in any such proceeding except, as
aforesaid, to vote for the election of a trustee in bankruptcy or similar
Person.
(f) All rights of action and of asserting claims under this Indenture,
or under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial of other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(g) In any Proceedings brought by the Indenture Trustee (and also any
Proceedings involving the interpretation of any provision of this Indenture to
which the Indenture Trustee shall be a party), the Indenture Trustee shall be
held to represent all the Holders of the Notes, and it shall not be necessary to
make any Noteholder a party to any such Proceedings.
SECTION 5.4 Remedies; Priorities. (a) If an Event of Default shall
--------------------
have occurred and be continuing, the Indenture Trustee may do one or more of the
following (subject to Section 5.5):
(i) institute Proceedings in its own name and as trustee of an
express trust for the collection of all amounts then payable on the
Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect
from the Issuer and any other obligor upon such Notes moneys adjudged
due;
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(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC and
take any other appropriate action to protect and enforce the rights and
remedies of the Indenture Trustee and the Holders of the Notes; and
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law;
provided, however, that the Indenture Trustee may not sell or otherwise
-------- -------
liquidate the Trust Estate following an Event of Default, other than an
Event of Default described in Section 5.01(i) or (ii), unless (A) the
Holders of 100% of the Outstanding Amount of the Notes consent thereto,
(B) the proceeds of such sale or liquidation distributable to the
Noteholders are sufficient to discharge in full all amounts then due
and unpaid upon such Notes for principal and interest or (C) the
Indenture Trustee determines that the Trust Estate will not continue to
provide sufficient funds for the payment of principal of and interest
on the Notes as they would have become due if the Notes had not been
declared due and payable, and the Indenture Trustee obtains the consent
of Holders of _______% of the Outstanding Amount of the Notes. In
determining such sufficiency or insufficiency with respect to clause
(B) and (C), the Indenture Trustee may, but need not, obtain and rely
upon an opinion of an independent investment banking or accounting firm
of national reputation as to the feasibility of such proposed action
and as to the sufficiency of the Trust Estate for such purpose.
(b) If the Indenture Trustee collects any money or property pursuant
to this Article V, it shall pay out the money or property in the following
order:
FIRST: to the Indenture Trustee for amounts due under Section 6.7;
SECOND: to Noteholders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts
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due and payable on the Notes for principal and interest, respectably; and
THIRD: to the Issuer for distribution to the Certificateholders.
The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section. At least ____ days before such
record date, the Issuer shall mail to each Noteholder and the Indenture Trustee
a notice that states the record date, the payment date and the amount to be
paid.
SECTION 5.5 Optional Preservation of the Receivables. If the Notes
----------------------------------------
have been declared to be due and payable under Section 5.2 following an Event
of Default and such declaration and its consequences have not been rescinded and
annulled, the Indenture Trustee may, but need not, elect to maintain possession
of the Trust Estate. It is the desire of the parties hereto and the Noteholders
that there be at all times sufficient funds for the payment of principal of and
interest on the Notes, and the Indenture Trustee shall take such desire into
account when determining whether or not to maintain possession of the Trust
Estate, the Indenture Trustee may, but need not, obtain and rely upon an opinion
of an Independent investment banking or accounting firm of national reputation
as to the feasibility of such for such purpose.
SECTION 5.6 Limitation of Suits. No Holder of any Note shall have
-------------------
any right to institute any Proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(i) such Holder has previously given written notice to the
Indenture Trustee of a continuing Event of Default;
(ii) the Holders of not less than [____%] of the Outstanding
Amount of the Notes have made written request to the Indenture Trustee
to institute such Proceeding in respect of such Event of Default in its
own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee
indemnity against the costs, expenses and liabilities to be incurred in
complying with such request;
(iv) the Indenture Trustee for _____ days after its receipt of
such notice, request and offer of indemnity has failed to institute
such Proceedings; and
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(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such ____-day period by the
Holders of a majority of the Outstanding Amount of the Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatsoever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders of Notes or to obtain or seek to obtain priority or preference
over any other Holders or to enforce any right under this Indenture, except in
the manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture, and
shall have no liability to any person for such action or inaction.
SECTION 5.7 Unconditional Rights of Noteholders To Receive Principal
--------------------------------------------------------
and Interest. Notwithstanding any other provisions in this Indenture, the
- ------------
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of the interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.
SECTION 5.8 Restoration of Rights and Remedies. If the Indenture
----------------------------------
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Issuer, the
Indenture Trustee and the Noteholders shall, subject to any determination in
such Proceeding, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
SECTION 5.9 Rights and Remedies Cumulative. No right or remedy
------------------------------
herein conferred upon or reserved to the Indenture Trustee or to the Noteholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or
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now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 5.10 Delay or Omission Not a Waiver. No delay or omission of
------------------------------
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
SECTION 5.11 Control by Noteholders. The Holders of a majority of
----------------------
the Outstanding Amount of the Notes shall have the right to direct the time,
method and place of conducting any Proceeding for any remedy available to the
Indenture Trustee with respect to the Notes or exercising any trust or power
conferred on the Indenture Trustee; provided that
--------
(i) such direction shall not be in conflict with any rule of law
or with this Indenture;
(ii) subject to the express terms of Section 5.4, any direction
to the Indenture Trustee to sell or liquidate the Trust Estate shall be
by the Holders of Notes representing not less than [____%] of the
Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Indenture Trustee elects to retain the Trust Estate
pursuant to such Section, then any direction to the Indenture Trustee
by Holders of Notes representing less than [____%] of the Outstanding
Amount of the Notes to sell or liquidate the Trust Estate shall be of
no force and effect; and
(iv) the Indenture Trustee may take any other action deemed
proper by the Indenture Trustee that is not inconsistent with such
direction;
provided, however, that, subject to Section 6.1, the Indenture Trustee need not
- -------- -------
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.
SECTION 5.12 Waiver of Past Defaults. Prior to the declaration of
-----------------------
the acceleration of the maturity of the Notes as provided in Section 5.2, the
Holders of Notes of not less than a
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majority of the Outstanding Amount of the Notes may waive any past Default or
Event of Default and its consequences except a Default (a) in payment of
principal of or interest on any of the Notes or (b) in respect of a covenant or
provision hereof which cannot be modified or amended without the consent of the
Holder of each Note. In the case of any such waiver, the Issuer, the Indenture
Trustee and the Holders of the Notes shall be restored to their former positions
and rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.13 Undertaking for Costs. All parties to this Indenture
---------------------
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than [____%] of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.14 Waiver of Stay or Extension Laws. The Issuer covenants
--------------------------------
(to the extent it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
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Trustee, but will suffer and permit the execution of every such power as though
no such law has been enacted.
SECTION 5.15 Action on Notes. The Indenture Trustee's right to seek
---------------
and recover judgment on the Notes or under this Indenture shall not be affected
by the seeking, obtaining or application of any other relief under or with
respect to this Indenture. Neither the lien of this Indenture nor any rights or
remedies of the Indenture Trustee or the Noteholders shall be impaired by the
recovery of any judgment by the Indenture Trustee against the Issuer or by the
levy of any execution under such judgment upon any portion of the Trust Estate
or upon any of the assets of the Issuer. Any money or property collected by the
Indenture Trustee shall be applied in accordance with Section 5.4(b).
SECTION 5.16 Performance and Enforcement of Certain Obligations. (a)
--------------------------------------------------
Promptly following a request from the Indenture Trustee to do so, the Issuer
agrees to take all such lawful action as the Indenture Trustee may request to
compel or secure the performance and observance by the Depositor and the
Servicer, as applicable, of each of their obligations to the Issuer under or in
connection with the Pooling and Servicing Agreement or to the Originator under
or in connection with the Receivables Acquisition Agreement in accordance with
the terms thereof, and to exercise any and all rights, remedies, powers and
privileges lawfully available to the Issuer under or in connection with the
Pooling and Servicing Agreement to the extent and in the manner directed by the
Indenture Trustee, including the transmission of notices of default on the part
of the Depositor or the Servicer thereunder and the institution of legal or
administrative actions or proceedings to compel or secure performance by the
Depositor or the Servicer of each of their obligations under the Pooling and
Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the
Indenture Trustee at the direction (which direction shall be in writing or by
telephone (confirmed in writing promptly thereafter)) of the Holders of [___%]
of the Outstanding Amount of the Notes shall exercise all rights, remedies,
powers, privileges and claims of the Issuer against the Depositor or the
Servicer under or in connection with the Pooling and Servicing Agreement,
including the right or power to take any action to compel or secure performance
or observance by the Depositor or the Servicer of each of their obligations to
the Issuer thereunder and to give any consent, request, notice, direction,
approval, extension or waiver under the Pooling and Servicing Agreement, and any
right of the Issuer to take such action shall be suspended.
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(c) Promptly following a request from the Indenture Trustee to do so,
the Issuer agrees to take all such lawful action as the Indenture Trustee may
request to compel or secure the performance and observance by the Originator of
each of its obligations to the Depositor under or in connection with the
Receivables Acquisition Agreement in accordance with the terms thereof, and to
exercise any and all rights, remedies, powers and privileges lawfully available
to the Issuer under or in connection with the Receivables Acquisition Agreement
to the extent and in the manner directed by the Indenture Trustee, including the
transmission of notices of default on the part of the Depositor thereunder and
the institution of legal or administrative actions or proceedings to compel or
secure performance by the Originator of each of its obligations under the
Receivables Acquisition Agreement.
(d) If an Event of Default has occurred and is continuing, the
Indenture Trustee at the direction (which direction shall be in writing or by
telephone (confirmed in writing promptly thereafter)) of the Holders of [___%]
of the Outstanding Amount of the Notes shall exercise all rights, remedies,
powers, privileges and claims of the Depositor against the Originator under or
in connection with the Receivables Acquisition Agreement, including the right or
power to take any action to compel or secure performance or observance by the
Originator of each of its obligations to the Depositor thereunder and to give
any consent, request, notice, direction, approval, extension or waiver under the
Receivables Acquisition Agreement, and any right of the Depositor to take such
action shall be suspended.
ARTICLE VI
Indenture Trustee
-----------------
SECTION 6.1 Duties of Indenture Trustee.
---------------------------
(a) If an Event of Default has occurred and is continuing, the
Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Indenture Trustee; and
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(ii) in the absence of bad faith on its part, the Indenture
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform on their face to the requirements of this Indenture.
Except for its calculation of LIBO, the Indenture Trustee shall not be required
to determine, confirm or recalculate the information contained in the Servicer's
Certificate delivered to it pursuant to the Pooling and Servicing Agreement.
(c) the Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own wilful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts; and
(iii) the Indenture Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.11 or otherwise from
Holders under the Indenture.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer.
(f) Money held in trust by the Indenture Trustee need not be
segregated from other funds except to the extent required by law or the terms of
this Indenture or the Pooling and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if
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it shall have reasonable grounds to believe that repayments of such funds or
adequate indemnity satisfactory to it against such loss, liability or expense is
not reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
SECTION 6.2 Rights of Indenture Trustee.
---------------------------
(a) The Indenture Trustee may rely on any document believed by it to
be genuine and to have been signed or presented by the proper person. The
Indenture Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Indenture
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on the Officers' Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
-------- -------
not constitute wilful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
SECTION 6.3 Individual Rights of Indenture Trustee. The Indenture
--------------------------------------
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee must comply with Sections 6.10 and 6.11.
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SECTION 6.4 Indenture Trustee's Disclaimer. The Indenture Trustee
------------------------------
shall not be responsible for and makes no representation as to the validity or
adequacy of the Trust Estate, this Indenture or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Indenture Trustee's certificate of authentication.
SECTION 6.5 Notice of Defaults. If a Default occurs and is
------------------
continuing and if it is actually known to a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall mail to each Noteholder notice of the
Default within 90 days after it occurs. Except in the case of a Default in
payment of principal of or interest on any Note (including payments pursuant to
the mandatory redemption provision of such Note), the Indenture Trustee may
withhold the notice if and so long as a committee of its Responsible Officers in
good faith determines that withholding the notice is in the interests of
Noteholders; and provided that in the case of any default of the character
specified in Section 5.1(iii), no such notice to Holders shall be given until at
least _____ days after the occurrence thereof.
SECTION 6.6 Reports by Indenture Trustee to Holders. The Indenture
---------------------------------------
Trustee shall deliver to each Noteholder such information as may be required to
enable such holder to prepare its Federal and state income tax returns. The
Indenture Trustee shall only be required to provide to the Noteholders the
information given to it by the Servicer. The Indenture Trustee shall not be
required to determine, confirm or recompute any such information.
SECTION 6.7 Compensation and Indemnity. The Issuer shall or shall
--------------------------
cause the Servicer to pay to the Indenture Trustee from time to time reasonable
compensation for its services. The Indenture Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Issuer shall or shall cause the Servicer to reimburse the Indenture Trustee for
all reasonable out-of-pocket expenses incurred or made by it, including costs of
collection, in addition to the compensation for its services. Such expenses
shall include the reasonable compensation and expenses, disbursements and
advances of the Indenture Trustee's agents, counsel, accountants and experts.
The Issuer shall or shall cause the Servicer to indemnify the Indenture Trustee
against any and all loss, liability or expense (including the fees of either in-
house counsel or outside counsel, but not both) incurred by it in connection
with the administration of this trust and the performance of its duties
hereunder. The Indenture Trustee shall notify the Issuer and the Servicer
promptly of any claim for which it may seek indemnity. Failure by the Indenture
Trustee to
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so notify the Issuer and the Servicer shall not relieve the Issuer or the
Servicer of its obligations hereunder. The Issuer shall or shall cause the
Servicer to defend the claim and the Indenture Trustee may have separate counsel
and the Issuer shall or shall cause the Servicer to pay the fees and expenses of
such counsel. Neither the Issuer nor the Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own wilful misconduct, negligence or bad
faith.
The Issuer's payment obligations to the Indenture Trustee pursuant to
this Section shall survive the discharge of this Indenture. When the Indenture
Trustee incurs expenses after the occurrence of a Default specified in Section
5.1(iv) or (v) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or similar law.
SECTION 6.8 Replacement of Indenture Trustee. No resignation or
--------------------------------
removal of the Indenture Trustee and no appointment of a successor Indenture
Trustee shall become effective until the acceptance of appointment by the
successor Indenture Trustee pursuant to this Section 6.8. The Indenture Trustee
may resign at any time by so notifying the Issuer. The Holders of a majority in
Outstanding Amount of the Notes may remove the Indenture Trustee by so notifying
the Indenture Trustee and may appoint a successor Indenture Trustee. The Issuer
shall remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) the Indenture Trustee is adjudged a bankrupt or insolvent;
(iii) a receiver or other public officer takes charge of the
Indenture Trustee or its property; or
(iv) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee, which successor shall be,
if the Originator is the Servicer, reasonably acceptable to the Depositor.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee
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and to the Issuer. Thereupon the resignation or removal of the retiring
Indenture Trustee shall become effective, and the successor Indenture Trustee
shall have all the rights, powers and duties of the Indenture Trustee under this
Indenture. The successor Indenture Trustee shall mail a notice of its
succession to Noteholders. The retiring Indenture Trustee shall promptly
transfer all property held by it as Indenture Trustee to the successor Indenture
Trustee.
If a successor Indenture Trustee does not take office within ______
days after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority in Outstanding Amount
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's obligations under Section 6.7 shall continue for the
benefit of the retiring Indenture Trustee.
SECTION 6.9 Successor Indenture Trustee by Merger. If the Indenture
-------------------------------------
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation or
banking association without any further act shall be the successor Indenture
Trustee. The Indenture Trustee shall provide the Rating Agencies prior written
notice of any such transaction, provided that such corporation or banking
association shall be otherwise qualified and eligible under Section 6.11.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
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SECTION 6.10 Appointment of Co-Trustee or Separate Trustee.
---------------------------------------------
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust may at the time be located, the Indenture Trustee
shall have the power and may execute and deliver all instruments to appoint one
or more Persons reasonably acceptable to the Depositor to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders, such title to the Trust, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and no
notice to Noteholders of the appointment of any co-trustee or separate trustee
shall be required under Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon
and exercised or performed by the Indenture Trustee and such separate
trustee or co-trustee jointly (it being understood that such separate
trustee or co-trustee is not authorized to act separately without the
Indenture Trustee joining in such act), except to the extent that under
any law of any jurisdiction in which any particular act or acts are to
be performed the Indenture Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust or any
portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at
the direction of the Indenture Trustee;
(ii) no trustee hereunder shall be personally liable by reason of
any act or omission of any other trustee hereunder; and
(iii) the Indenture Trustee may at any time accept the resignation
of or remove any separate trustee or co-trustee.
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(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or co-
trustee shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Indenture Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 6.11 Eligibility; Disqualification. The Indenture Trustee
-----------------------------
shall at all times satisfy the requirements of TIA (S) 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $__________ as set
forth in its most recent published annual report of condition and its long-term
unsecured debt shall be rated at least ______ by ________. The Indenture
Trustee shall comply with TIA (S) 310(b), including the optional provision
permitted by the second sentence of TIA (S) 310(b)(9); provided, however, that
-------- -------
there shall be excluded from the operation of TIA (S) 310(b)(1) any indenture or
indentures under which other securities of the issuer are outstanding if the
requirements for such exclusion set forth in TIA (S) 310(b)(1) are met.
SECTION 6.12 Preferential Collection of Claims Against Issuer. The
------------------------------------------------
Indenture Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). An indenture trustee who has resigned or
been removed shall be subject to TIA (S) 311(a) to the extent indicated.
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ARTICLE VII
Noteholders' Lists and Reports
------------------------------
SECTION 7.1 Issuer to Furnish Indenture Trustee Names and Addresses
-------------------------------------------------------
to Noteholders. The Issuer will furnish or cause to be furnished to the
- --------------
Indenture trustee (a) not more than ______ days after the earlier of (i) each
Record Date and (ii) ________ months after the last Record Date, a list, in such
form as the Indenture Trustee may reasonably require, of the names and addresses
of the Holders of Notes as of such Record Date, (b) at such other times as the
Indenture Trustee may request in writing, within ____ days after receipt by the
Issuer of any such request, a list of similar form and content as of a date not
more than _____ days prior to the time such list is furnished; provided,
--------
however, that so long as the Indenture Trustee is the Note Registrar, no such
- -------
list shall be required to be furnished.
SECTION 7.2 Preservation of Information; Communications to
----------------------------------------------
Noteholders.
- -----------
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders of Notes
contained in the most recent list furnished to the Indenture Trustee as provided
in Section 7.1 and the names and addresses of Holders of Notes received by the
Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may
destroy any list furnished to it as provided in such Section 7.1 upon receipt of
a new list so furnished.
(b) Noteholders may communicate pursuant to TIA (S) 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA (S) 312(c).
SECTION 7.3 Reports by Issuer.
-----------------
(a) The Issuer shall:
(i) file with the Indenture Trustee, within [15] days after the
Issuer is required to file the same with the Commission, copies of the
annual reports and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) which the Issuer
may be required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act;
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(ii) file with the Indenture Trustee and the Commission in
accordance with rules and regulations prescribed from time to time by
the Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Noteholders described in TIA (S) 313(c))
such summaries of any information, documents and reports required to be
filed by the Issuer pursuant to clauses (i) and (ii) of this Section
7.3(a) as may be required by rules and regulations prescribed from time
to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on __________ of each year.
SECTION 7.4 Reports by Indenture Trustee. If required by TIA (S)
----------------------------
313(a), within _____ days after each _________ beginning with _______________,
the Indenture Trustee shall mail to each Noteholder as required by TIA (S)
313(c) a brief report dated as of such date that complies with TIA (S) 313(a).
The Indenture Trustee also shall comply with TIA (S) 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII
Accounts, Disbursements and Releases
------------------------------------
SECTION 8.1 Collection of Money. Except as otherwise expressly
-------------------
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture. The
Indenture Trustee shall apply all such money received by it as provided in this
Indenture. Except as otherwise expressly provided in this Indenture, if any
default occurs in the making of any payment or performance under any agreement
or instrument that is part of the Trust Estate, the Indenture Trustee may take
such action as may be appropriate to enforce such payment or performance,
including the institution and prosecution of appropriate Proceedings. Any such
action
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shall be without prejudice to any right to claim a Default or Event of Default
under this Indenture and any right to proceed thereafter as provided in
Article V.
SECTION 8.2 Trust Accounts.
--------------
(a) On or prior to the Closing Date, the Issuer shall cause the
Servicer to establish and maintain, in the name of the Indenture Trustee, for
the benefit of the Noteholders and the Certificateholders, the Trust Accounts as
provided in Section _____ of the Pooling and Servicing Agreement.
(b) Not less than _____ Business Days prior to each Payment Date, the
Total Distribution Amount with respect to the preceding Collection Period will
be deposited in the Collection Account as provided in Section _____ of the
Pooling and Servicing Agreement. On or before each Payment Date, the
Noteholders' Distributable Amount with respect to the preceding Collection
Period will be transferred from the Collection Account and/or the Reserve
Account to the Note Distribution Account as provided in Sections ______ and
______ of the Pooling and Servicing Agreement.
(c) On each Payment Date and Redemption Date, the Indenture Trustee
shall distribute all amounts on deposit in the Note Distribution Account to
Noteholders in respect of the Notes to the extent of amounts due and unpaid on
the Notes for principal and interest in the following amounts and in the
following order of priority (except as otherwise provided in Section 5.4(b)):
(i) accrued and unpaid interest on the Notes; provided that if
there are not sufficient funds in the Note Distribution Account to pay
the entire amount of accrued and unpaid interest then due on the Notes,
the amount in Note Distribution Account shall be applied to the payment
of such interest on the Notes pro rata on the basis of the total such
interest due on the Notes;
(ii) to the [Class A-1] Noteholders until the Outstanding Amount
of the [Class A-1] Notes is reduced to zero; and
(iii) to the [Class A-2] Noteholders until the Outstanding Amount
of the [Class A-2] Notes is reduced to zero.
(d) The Indenture Trustee shall calculate LIBO for each Payment Date
(other than the first Payment Date) as soon as such calculation can be made.
Upon telephone request, the Indenture Trustee shall inform, by telephone
(confirmed in
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writing), a representative of each of the Issuer, [and the Underwriter] of LIBO
for a Payment Date.
SECTION 8.3 General Provisions Regarding Accounts.
-------------------------------------
(a) So long as no Default or Event of Default shall have occurred and
be continuing, all or a portion of the funds in the Trust Accounts shall be
invested in Eligible Investments and reinvested by the Indenture Trustee upon
Issuer Order, subject to the provisions of Section _______ of the Pooling and
Servicing Agreement. All income or other gain from investments of monies
deposited in the Trust Accounts net of any investment expenses and any losses
resulting from such investments shall be deposited by the Indenture Trustee in
the Collection Account. The Issuer will not direct the Indenture Trustee to
make any investment of any funds or to sell any investment held in any of the
Trust Accounts unless the security interest granted and perfected in such
account will continue to be perfected in such investment or the proceeds of such
sale, in either case without any further action by any Person, and, in
connection with any direction to the Indenture Trustee to make any such
investment or sale, if requested by the Indenture Trustee, the Issuer shall
deliver to the Indenture Trustee an Opinion of Counsel, acceptable to the
Indenture Trustee, to such effect.
(b) Subject to Section 6.1(c), the Indenture Trustee shall not in any
way be held liable by reason of any insufficiency in any of the Trust Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the Indenture Trustee, in its commercial capacity
as principal obligor and not as Indenture Trustee, in accordance with their
terms.
(c) If (i) the issuer shall have failed to give investment directions
for any funds on deposit in the Trust Accounts to the Indenture Trustee by
[12:00 noon New York Time] (or such other time as may be agreed by the Issuer
and Indenture Trustee) on any Business Day; or (ii) a Default or Event of
Default shall have occurred and be continuing with respect to the Notes but the
Notes shall not have been declared due and payable pursuant to Section 5.2, or,
if such Notes shall have been declared due and payable following an Event of
Default, amounts collected or receivable from the Trust Estate are being applied
in accordance with Section 5.3 as if there had not been such a declaration; then
the Indenture Trustee shall, to the fullest extent practicable, invest and
reinvest funds in the Trust Accounts in one or more Eligible Investments.
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SECTION 8.4 Release of Trust Estate.
-----------------------
(a) Subject to the payment of its fees and expenses pursuant to Section
6.7, the Indenture Trustee may, and when required by the provisions of this
Indenture shall, execute instruments to release property from the lien of this
Indenture, or convey the Indenture Trustee's interest in the same, in a manner
and under circumstances that are not inconsistent with the provisions of this
Indenture. No party relying upon an instrument executed by the Indenture
Trustee as provided in this Article VIII shall be bound to ascertain the
Indenture Trustee's authority, inquire into the satisfaction of any conditions
precedent or see to the application of any monies.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due the Indenture Trustee pursuant to Section 6.7 have
been paid, release any remaining portion of the Trust Estate that secured the
Notes from the lien of this Indenture and release to the Issuer or any other
Person entitled thereto any funds then on deposit in the Trust Accounts. The
Indenture Trustee shall release property from the lien of this Indenture
pursuant to this Section 8.4(b) only upon receipt of an Issuer Request
accompanied by an Officers' Certificate, an Opinion of Counsel and (if required
by the TIA) Independent Certificates in accordance with TIA (S)(S) 314(c) and
314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.5 Opinion of Counsel. The Indenture Trustee shall receive
------------------
at least _______ days' notice when requested by the Issuer to take any action
pursuant to Section 8.4(a), accompanied by copies of any instruments involved,
and the Indenture Trustee shall also require as a condition to such action, an
Opinion of Counsel, in form and substance satisfactory to the Indenture Trustee,
stating the legal effect of any such action, outlining the steps required to
complete the same, and concluding that all conditions precedent to the taking of
such action have been complied with and such action will not materially and
adversely impair the security for the Notes or the rights of the Noteholders in
contravention of the provisions of this Indenture; provided, however, that such
-------- -------
Opinion of Counsel shall not be required to express an opinion as to the fair
value of the Trust Estate. Counsel rendering any such opinion may rely, without
independent investigation, on the accuracy and validity of any certificate or
other instrument delivered to the Indenture Trustee in connection with any such
action.
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ARTICLE IX
Supplemental Indentures
-----------------------
SECTION 9.1 Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
(a) Without the consent of the Holders of any Notes but with prior
notice to the Rating Agencies, the Issuer and the Indenture Trustee, when
authorized by an Issuer Order, at any time and from time to time, may enter into
one or more indentures supplemental hereto, in form satisfactory to the
Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey
and confirm unto the Indenture Trustee any property subject or required
to be subjected to the lien of this Indenture, or to subject to the
lien of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit of
the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture; provided that such action shall not, as evidenced by an
--------
Opinion of Counsel, adversely affect in any material respect the
interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the
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trusts hereunder by more than one trustee, pursuant to the requirements
of Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
Federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the Notes but with
prior notice to the Rating Agencies, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
-------- -------
Opinion of Counsel, adversely affect in any material respect the interests of
any Noteholder.
SECTION 9.2 Supplemental Indentures with Consent of Noteholders.
---------------------------------------------------
The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies and with the consent of the
Holders of not less than a majority of the Outstanding Amount of the Notes, by
Act of such Holders delivered to the Issuer and the Indenture Trustee, enter
into an indenture or indentures supplemental hereto for the purpose of adding
any provisions to, or changing in any manner or eliminating any of the
provisions of, this Indenture or of modifying in any manner the right of the
Holders of the Notes under this Indenture; provided, however, that no such
-------- -------
supplemental indenture shall, without the consent of the Holder of each
Outstanding Note affected thereby:
(i) change the date of payment of any installment of principal
amount thereof, the interest rate thereon or the Redemption Price with
respect thereto, change the provision of this Indenture relating to the
application of collections on, or the proceeds of the sale of, the
Trust Estate to payment of principal of or interest on the Notes, or
change any place of payment where, or the coin or currency in which,
any Note or the interest thereon is payable, or impair the right to
institute suit for the enforcement
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of the provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof (or, in the case of redemption, on or after the Redemption
Date);
(ii) reduce the percentage of the Outstanding Amount of the
Notes, 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 this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
(iii) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Indenture Trustee to direct the Issuer to
sell or liquidate the Trust Estate pursuant to Section 5.04;
(v) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified
or waived without the consent of the Holder of each Outstanding Note
affected thereby;
(vi) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation) or to affect the rights of the Holders of Notes to the
benefit of any provisions for the mandatory redemption of the Notes
contained herein; or
(vii) permit the creation of any lien ranking prior to or on a
parity with the lien of this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein,
terminate the lien of this Indenture on any property at any time
subject hereto or deprive the Holder of any Note of the security
provided by the lien of this Indenture.
The Indenture Trustee may in its discretion determine whether or not
any Notes would be affected by any supplemental indenture and any such
determination shall be conclusive upon the Holders of all Notes, whether
theretofore or thereafter
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authenticated and delivered hereunder. The Indenture Trustee shall not be
liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee of
any supplemental indenture pursuant to this Section, the Indenture Trustee shall
mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 9.3 Execution of Supplemental Indentures. In executing, or
------------------------------------
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.01 and 6.02, shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
SECTION 9.4 Effect of Supplemental Indenture. Upon the execution of
--------------------------------
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Indenture Trustee, the Issuer and the Holders of the Notes shall thereafter
be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5 Conformity with Trust Indenture Act. Every amendment of
-----------------------------------
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
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SECTION 9.6 Reference in Notes to Supplemental Indentures. Notes
---------------------------------------------
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
ARTICLE X
Redemption of Notes
-------------------
SECTION 10.1 Redemption. (a) The Notes are subject to redemption in
----------
whole, but not in part, at the written direction of the Servicer pursuant to
Section _______ of the Pooling and Servicing Agreement, on any Payment Date, if
the then outstanding Pool Balance is [___%] or less of the Original Pool
Balance, for a purchase price equal to the Redemption Price; provided, however,
-------- -------
that the Issuer has available funds sufficient to pay the Redemption Price. The
Servicer or the Issuer shall furnish the Rating Agencies notice of such
redemption. If the Notes are to be redeemed pursuant to this Section 10.01(a),
the Servicer or the Issuer shall furnish notice of such election to the
Indenture Trustee not later than ____ days prior to the Redemption Date and the
Issuer shall deposit with the Indenture Trustee in the Note Distribution Account
the Redemption Price of the Notes to be redeemed whereupon all such Notes shall
be due and payable on the Redemption Date upon the furnishing of a notice
complying with Section 10.2 to each Holder of the Notes.
(b) In the event that the assets of the Trust are sold pursuant to
Section 9.2 of the Trust Agreement, all amounts on deposit in the Note
Distribution Account shall be paid to the Noteholders up to the Outstanding
Amount of the Notes and all accrued and unpaid interest thereon. If amounts are
to be paid to Noteholders pursuant to this Section 10.1(b), the Servicer or the
Issuer shall, to the extent practicable, furnish notice of such event to the
Indenture Trustee not later than ____ days prior to the Redemption Date
whereupon all such amounts shall be payable on the Redemption Date.
SECTION 10.2 Form of Redemption Notice.
-------------------------
(a) Notice of redemption under Section 10.1(a) shall be given by the
Indenture Trustee by first-class mail, postage prepaid, mailed not less than
_____ days prior to the applicable
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Redemption Date to each Holder of Notes, as of the close of business on the
Record Date preceding the applicable Redemption Date, at such Holder's address
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the place where such Notes are to be surrendered
for payment of the Redemption Price (which shall be the office or
agency of the Issuer to be maintained as provided in Section 3.2); and
(iv) CUSIP number.
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
(b) Prior notice of redemption under Section 10.1(b) is not required to
be given to Noteholders.
SECTION 10.3 Notes Payable on Redemption Date: The Notes or portions
--------------------------------
thereof to be redeemed shall, following notice of redemption as required by
Section 10.02 (in the case of redemption pursuant to Section 10.1(a)), on the
Redemption Date become due and payable at the Redemption Price and (unless the
Issuer shall default in the payment of the Redemption Price) no interest shall
accrue on the Redemption Price for any period after the date to which accrued
interest is calculated for purposes of calculating the Redemption Price.
ARTICLE XI
Miscellaneous
-------------
SECTION 11.1 Compliance Certificates and Opinions, etc.
------------------------------------------
(a) Upon any application or request by the Issuer to the Indenture
Trustee to take any action under any provision of this Indenture, the Issuer
shall furnish to the Indenture Trustee (i) an Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm
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of certified public accountants meeting the applicable requirements of this
Section, except that, in the case of any such application or request as to which
the furnishing of such documents is specifically required by any provision of
this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory, such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for the
release of any property or securities subject to the lien of this Indenture, the
Issuer shall, in addition to any obligation imposed in Section 11.1(a) or
elsewhere in this Indenture, furnish to the Indenture Trustee an Officers'
Certificate certifying or stating the opinion of each person signing such
certificate as to the fair value (within _____ days of such deposit) to the
Issuer of the Collateral or other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officers' Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the Issuer shall also
deliver to the Indenture Trustee an Independent Certificate as to the same
matters, if the fair value to the Issuer of the securities to be so deposited
and of all other such securities made the basis of any such withdrawal or
release since the commencement of the then-current fiscal year of the Issuer, as
set forth in the
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certificates delivered pursuant to clause (i) above and this clause (ii), is
[___%] or more of the Outstanding Amount of the Notes, but such a certificate
need not be furnished with respect to any securities so deposited, if the fair
value thereof to the Issuer as set forth in the related Officers' Certificate is
less than $________ or less than _____ percent of the Outstanding Amount of the
Notes.
(iii) Other than with respect to the release of any Purchased
Receivables or Defaulted Receivables, whenever any property or securities are to
be released from the lien of this Indenture, the Issuer shall also furnish to
the Indenture Trustee an Officers' Certificate certifying or stating the opinion
of each person signing such certificate as to the fair value (within ____ days
of such release) of the property or securities proposed to be released and
stating that in the opinion of such person the proposed release will not impair
the security under this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officers' Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (iii) above, the Issuer shall also
furnish to the Indenture Trustee an Independent Certificate as to the same
matters if the fair value of the property or securities and of all other
property other than Purchased Receivables and Defaulted Receivables, or
securities released from the lien of this Indenture since the commencement of
the then current calendar year, as set forth in the certificates required by
clause (iii) above and this clause (iv), equals [___%] or more of the
Outstanding Amount of the Notes, but such certificate need not be furnished in
the case of any release of property or securities if the fair value thereof as
set forth in the related Officers' Certificate is less than $________ or less
than ____ percent of the then Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.9 or any other provision of this
Section, the Issuer may (A) collect, liquidate, sell or otherwise dispose of
Receivables as and to the extent permitted or required by the Basic Documents
and (B) make cash payments out of the Trust Accounts as and to the extent
permitted or required by the Basic Documents.
SECTION 11.2 Form of Documents Delivered to Indenture Trustee. In
------------------------------------------------
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such
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Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Servicer, the Depositor or the Issuer, stating that the information with
respect to such factual matters is in the possession of the Servicer, the
Depositor or the Issuer, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the grating of such application, or
as evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the grating of such application or at the
effective date of such certificate or report (as the case may be), of the facts
and opinions stated in such document shall in such case be conditions precedent
to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3 Acts of Noteholders.
-------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided
such action shall become effective when such instrument or instruments are
deliver to the Indenture Trustee, and, where it is hereby expressly required, to
the Issuer. Such instrument or instruments (and the action embodied therein and
evidenced
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thereby) are herein sometimes referred to as the "Act" of the Noteholders
signing of such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.1) conclusive in favor of
the Indenture Trustee and the Issuer, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(c) The ownership of Notes shall be provided by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 11.4 Notices, etc., to Indenture Trustee, Issuer and Rating
------------------------------------------------------
Agencies. Any request, demand, authorization, direction, notice, consent,
- --------
waiver or Act of Noteholders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to or filed with:
(a) The Indenture Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or filed
in writing to or with the Indenture Trustee and received at its Corporate
Trust Office, or
(b) the Issuer by the Indenture Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if in writing and mailed, first-
class, postage prepaid, to the Issuer addressed to: Chevy Chase Auto
Receivables Trust, 199_-_, [Owner Trustee], Attention:
____________________, or at any other address previously furnished in
writing to the Indenture Trustee by Issuer. The Issuer shall promptly
transmit any notice received by it from the Noteholders to the Indenture
Trustee.
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally delivered
or mailed by certified mail, return receipt requested to (i) in the case of
_________, at the following address: __________________________________________
______________________________________________________________, (ii) in the case
of __________________, at the following address:
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<PAGE>
_______________________________________________________________________________
_____________________, (iii) in the case of _________________, at the following
address: ____________________________________________________________________
[and (iv) in the case of _____________, at the following address: _____________
_________________________________]; or as to each of the foregoing, at such
other address as shall be designated by written notice to the other parties.
SECTION 11.5 Notices to Noteholders; Waiver. Where this Indenture
------------------------------
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6 Alternate Payment and Notice Provisions. Notwithstanding
---------------------------------------
any provision of this Indenture or any of the Notes to the contrary, to the
extent satisfactory to the Indenture Trustee, the Issuer may enter into any
agreement with any Holder of a Note providing for a method of payment, or notice
by the Indenture Trustee or any Paying Agent to such Holder, that is different
from the methods provided for in this Indenture for
69
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such payments or notices. The Issuer will furnish to the Indenture Trustee a
copy of each such agreement and the Indenture Trustee will cause payments to be
made and notices to be given in accordance with such agreements.
SECTION 11.7 Conflict with Trust Indenture Act. If any provision
---------------------------------
hereof limits, qualifies or conflict with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA (S)(S) 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8 Effect of Headings and Table of Contents. The Article
----------------------------------------
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 11.9 Successors and Assigns. All covenants and agreements in
----------------------
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not.
All agreements of the Indenture Trustee in this Indenture shall bind
its successors, co-trustees and agents of the Indenture Trustee.
SECTION 11.10 Separability. In case any provision in this Indenture
------------
or in the Notes shall be invalid, illegal or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 11.11 Benefits of Indenture. Nothing in this Indenture or in
---------------------
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Trust Estate, any benefit or any legal or equitable right, remedy or
claim under this Indenture.
SECTION 11.12 Legal Holidays. In any case where the date on which any
--------------
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due.
70
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SECTION 11.13 GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF ___________.
SECTION 11.14 Counterparts. This Indenture may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15 Recording of Indenture. If this Indenture is subject to
----------------------
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee) to the effect that such recording is
necessary either for the protection of the Noteholders or any other Person
secured hereunder or for the enforcement of any right or remedy granted to the
Indenture Trustee under this Indenture.
SECTION 11.16 Trust Obligation. No recourse may be taken, directly or
----------------
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under this Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes
of this Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Articles VI, VII and VIII of the Trust
Agreement.
SECTION 11.17 No Petition. The Indenture Trustee, by entering into
-----------
this Indenture, and each Noteholder, by accepting a Note, hereby covenant and
agree that they will not at any time institute against the Depositor or the
Trust, or join in any institution against the Depositor or the Trust of, any
bankruptcy, reorganization, arrangement, insolvency or
71
<PAGE>
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or similar law in connection with any obligations relating to
the Notes, this Indenture or any of the Basic Documents.
SECTION 11.18 Inspection. The Issuer agrees that, on reasonable prior
----------
notice, it will permit any representative of the Indenture Trustee, during the
issuer's normal business hours, to examine all the books of account, records,
reports, and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees, and independent certified public accountants, and at such
reasonable times and as often as may be reasonably requested. The Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, thereunto duly
authorized, all as of the day and year first above written.
[CHEVY CHASE AUTO RECEIVABLES TRUST 199 -__],
By:___________________, not in its individual
capacity but solely as Owner Trustee,
By: ____________________
Name:
Title
_____________________, not in its individual
capacity but solely as Indenture Trustee,
By: _________________________
Name:
Title:
72
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public in and for said
County and State, on this day personally appeared _______________, known to me
to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said [CHEVY
CHASE AUTO RECEIVABLES Trust 19 - ], a _______ business trust, and that he
executed the same as the act of the said business trust for the purpose and
consideration therein expressed, and in the capacities therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the day of ________, 199 .
_________________________
Notary Public
My commission expires:
__________________________
73
<PAGE>
STATE OF ________ )
) ss.:
COUNTY OF ________ )
BEFORE ME, the undersigned authority, a Notary Public in and for said
County and State, on this day personally appeared _______________, known to me
to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that the same was the act of the said bank and
that he executed the same as the corporation for the purposes and consideration
therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this the day of ________, 199 .
_________________________
Notary Public
My commission expires:
__________________________
74
<PAGE>
EXHIBIT A
Schedule of Receivables
-----------------------
[To be delivered to the Trust at Closing]
A-1
<PAGE>
EXHIBIT B
[Form of Pooling and Servicing Agreement]
-----------------------------------------
B-1
<PAGE>
EXHIBIT C
[Form of Depository Agreement]
------------------------------
C-1
<PAGE>
EXHIBIT D
REGISTERED $_______________
No. R
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
[Unless this Note is presented by an authorized representative of The
Depository Trust company, a New York corporation ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any note issued is
registered in the name of Ceede & Co. or in such other name as is requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC) - ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IN WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.]
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
[CHEVY CHASE AUTO RECEIVABLES TRUST 199 - ]
[FLOATING RATE] AUTO RECEIVABLES BACKED NOTES,
[CLASS A-1]
[Chevy Chase Auto Receivables Trust 199 , - a business trust organized
and existing under the laws of the State of ________ (herein referred to as the
"Issuer"), for value received, hereby promises to pay to [_________________], or
registered assigns, the principal sum of [_______________] DOLLARS payable on
each Payment Date in an amount equal to the result obtained by multiplying (i) a
fraction the numerator of which is $[INSERT INITIAL PRINCIPAL AMOUNT OF NOTE]
and the denominator of which is [$________________________] by (ii) the
aggregate amount, if any, payable from the Note Distribution Account in respect
of principal on the [Class A-1] Notes pursuant to Section 8.2(c) of the
Indenture; provided, however, that the entire unpaid principal amount of this
-------- -------
Note shall be due and payable on the earlier of ____________, 199 and the
Redemption Date, if any, pursuant to Section 10.1(a) of the Indenture. No
payments of principal of the [Class A-2] Notes shall be made until the principal
of the [Class A-1] Notes has been paid in its entirety. The Issuer will pay
interest on this Note at the
D-1
<PAGE>
[Class A-1] Note Interest Rate on each Payment Date until principal of this Note
is paid or made available for payment, on the principal amount of this Note
outstanding on the preceding Payment Date after giving effect to all payments of
principal made on such preceding Payment Date (or in the case of the first
Payment Date, on the initial principal amount of this Note). Interest on this
Note will accrue for each Payment Date from and including the most recent
Payment Date on which interest has been paid to but excluding such Payment Date
or, if no interest has yet been paid, from ________, 199 . Interest will be
computed on the basis of a 360-day year for the actual number of days in the
period for which such interest is payable. Such principal of and interest on
this Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of Payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth o
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer.
Date: _______________ [CHEVY CHASE AUTO RECEIVABLES
TRUST 199 - ],
By: [Owner Trustee] not in its individual capacity
but solely as Owner Trustee,
By:___________________________
Name:
Title
D-2
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
_____________________, not in its individual
capacity but solely as Indenture Trustee,
By:__________________________
Authorized Signatory
D-3
<PAGE>
[REVERSE OF NOTE]
This Note is one of the [Class A-1] Notes of a duly authorized issue of
Notes of the Issuer, designated as its [Floating Rate] Auto Receivables Backed
Notes (herein called the "Notes"), all issued under an Indenture dated as of
_______________, 199 (such indenture, as supplemented or amended, is herein
called the "Indenture"), between the Issuer and ____________________, as
indenture trustee (the "Indenture Trustee", which term includes any successor
indenture trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Indenture Trustee and the
Holders of the Notes. The Notes are subject to all terms of the Indentures.
All terms used in this Note that are defined in the Indenture, as supplemented
or amended, shall have the meanings assigned to them in or pursuant to the
Indenture, as so supplemented or amended.
The Notes are and will be equally and ratably secured by the collateral
pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the __th day of each
------------
________, ________, ________ and ________ or, if any such date is not a Business
Day, the next succeeding Business Day, commencing ________, 199 .
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of ________, 199 and the Redemption
Date, if any, pursuant to Section 10.1(a) of the Indenture. Notwithstanding the
foregoing, the entire unpaid principal amount of the Notes shall be due and
payable on the date on which an Event of Default shall have occurred and be
continuing and the Indenture Trustee or the Holders of the Notes representing
not less than a majority of the Outstanding Amount of the Notes have declared
the Notes to be immediately due and payable in the manner provided in Section
5.2 of the Indenture. All principal payments on the Notes of a Class shall be
made pro rata to the Noteholders of such Class entitled thereto.
Payments of interest on this Note due and payable on each Payment Date,
together with the installment of principal, if any, to the extent not in full
payment of this Note, shall be made by check mailed to the Person whose name
appears as the Registered Holder of this Note (or one or more Predecessor Notes)
on the Note Register as of the close of business on each Record Date, except
that with respect to Notes registered on the Record Date in the name of the
nominee of the Clearing Agency (initially, such nominee to be Cede & Co.),
payments will be made by wire transferring immediately available funds to the
account designated by such nominee. Such checks shall be mailed to the
D-4
<PAGE>
Person entitled thereof at the address of such Person as it appears on the Note
Register as of the applicable Record Date without requiring that this Note be
submitted for notation of payment. Any reduction in the principal amount of
this Note (or any one or more Predecessor Notes) effected by any payments made
on any Payment Date shall be binding upon all future Holders of this Note and of
any Note issued upon the registration of transfer hereof or in exchanged hereof
or in lieu hereof, whether or not noted hereon. If funds are expected to be
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Payment Date, then the
Indenture Trustee, in the name of and on behalf of the Issuer, will notify the
Person who was the Registered Holder hereof as of the Record Date preceding such
Payment Date by notice mailed within _____ days of such Payment Date and the
amount then due and payable shall be payable only upon presentation and
surrender of this Note at the Indenture Trustee's principal Corporate Trust
Office or at the office of the Indenture Trustee's agent appointed for such
purposes located in ______________________.
The Issuer shall pay interest on overdue installments of interest at
the [Class A-1] Note Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed in whole, but
not in part, at the option of the Servicer, on any Payment Date on or after the
date on which the Pool Balance is less than or equal to ten percent of the
Initial Pool Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly authorized in writing, with such signature guaranteed by
a commercial bank or trust company located, or having a correspondent located,
in The City of New York or the city in which the Corporate Trust Office is
located, or a member firm of a national securities exchange, and such other
documents as the Indenture Trustee may require, and thereupon one or more new
Notes of authorized denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Note, but
the transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or
D-5
<PAGE>
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under the Indenture or any certificate or
other writing delivered in connection therewith, against (i) the Indenture
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary,
agent, officer, director or employee of the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Owner Trustee or the Indenture Trustee or of any successor or assign
of the Indenture Trustee or the Owner Trustee in its individual capacity, except
as any such Person my have expressly agreed and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the indenture that such Noteholder will not at any
time institute against the Depositor of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
Federal or state bankruptcy or similar law in connection with any obligations
relating to the Notes, the indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of all Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of this
Note (or any one or more Predecessor Notes) shall be conclusive and binding upon
such Holder and upon all future Holders of this Note and of any Note issued upon
the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. the
Indenture also permits the Indenture Trustee to amend or waive certain terms and
D-6
<PAGE>
conditions set forth in the Indenture without the consent of Holders of the Note
issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
The Note and the Indenture shall be construed in accordance with the
laws of the State of __________, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the time, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, neither [Owner Trustee] in its individual
capacity, [Indenture Trustee], in its individual capacity, any owner of a
beneficial in the Issuer, nor any of their respective partners, beneficiaries,
agents, officers, directors, employees or successors or assigns shall be
personally liable for, nor shall recourse be had to any of them for, the payment
of principal of or interest on, or performance of, or omission to perform, any
of the covenants, obligations or indemnifications contained in this Note or the
Indenture, it being expressly understood that said covenants, obligations and
indemnifications have been made by the Owner Trustee for the sole purposes of
binding the interests of the Owner Trustee in the assets of the Issuer. The
Holder of this Note by the acceptance hereof agrees that except as expressly
provided in the Basic Documents, in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency loss or claim therefrom; provided, however, that nothing contained
-------- -------
herein shall be taken to prevent recourse to, and enforcement against, the
assets of the Issuer for any and all liabilities, obligations and undertakings
contained in the Indenture or in this Note.
D-7
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
_________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________
_________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: ______________ ________________________NOTE: The signature to
this assignment must correspond with the name of
the registered owner as it appears on the face of
the within Note in every particular, without
alteration, enlargement or any change whatsoever.
Signature Guaranteed:
_______________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of
the Indenture Trustee which requirements will
include membership or participation in STAMP or
such other "signature guarantee program" as may be
determined by the Indenture Trustee in addition to,
or in substitution for, STAMP, all in accordance
with the Securities Act of 1934, as amended.
___________________
D-8
<PAGE>
EXHIBIT E
REGISTERED $_________
No. R
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO.
[Unless this note is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the issuer or its
agent for registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC) - ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.]
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
[CHEVY CHASE AUTO RECEIVABLES TRUST 199_-_]
[FLOATING RATE] AUTO RECEIVABLES BACKED NOTES,
[Class A-2]
[Chevy Chase Auto Receivables Trust 199_, - a business trust organized
and existing under the laws of the State of __________ (herein referred to as
the "Issuer"), for value received, hereby promises to pay to
[_____________________], or registered assigns, the principal sum of
[____________] DOLLARS payable on each Payment Day in an amount equal to the
result obtained by multiplying (i) a fraction the numerator of which is $[INSERT
INITIAL PRINCIPAL AMOUNT OF NOTE] and the denominator of which is
[$_____________] by (ii) the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the [Class A-2] Notes pursuant
to Section 8.02(c) of the Indenture; provided, however, that the entire unpaid
-------- -------
principal amount of this Note shall be due and payable on the earlier of
___________, 199_ and the Redemption Date, if any, pursuant to Section 10.1(a)
of the Indenture. No payments of principal of the [Class A-2] Notes shall be
made until the principal of the [Class A-1] Notes has been paid in its entirety.
The Issuer will pay interest on this Note at the [Class A-2] Note
E-1
<PAGE>
Interest Rate on each Payment Date until the principal of this Note is paid or
made available for payment, on the principal amount of this Note outstanding on
the preceding Payment Date after giving effect to all payments of principal made
on such preceding Payment Date (or in the case of the first Payment Date, on the
initial principal amount of this Note). Interest on this Note will accrue for
each Payment Date from and including the most recent Payment Date on which
interest has been paid to but excluding such Payment Date or, if no interest has
yet been paid, from ________, 199_. Interest will be computed on the basis of a
360-day year for the actual number of days in the period for which such interest
is payable. Such principal of and interest on this Note shall be paid in the
manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereof has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer.
Date: [CHEVY CHASE AUTO RECEIVABLES
TRUST 199_-_,]
By: [OWNER TRUSTEE],
not in its individual capacity but solely as
Owner Trustee under the Trust Agreement,
By:___________________________
Name:
Title:
E-2
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
By:______________________________,
not in its individual capacity
but solely as Trustee,
By:___________________________
Authorized Signatory
E-3
<PAGE>
[REVERSE OF NOTE]
This Note is one of the [Class A-2] Notes of a duly authorized issue of
Notes of the Issuer, designated as its [Floating Rate] Auto Receivables Backed
Notes (herein called the "Notes"), all issued under an Indenture dated as of
_____________, 199_ (such indenture, as supplemented or amended, is herein
called the "Indenture"), between the Issuer and __________________, as indenture
trustee (the "Indenture Trustee", which term includes any successor indenture
trustee under the Indenture), to which Indenture and all indentures supplemental
thereto reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Notes are and will be equally and ratably secured by the collateral
pledged as security therefor as provided in the Indenture.
Principal of the Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the __th day of each
------------
______, ______, ______ and ______ or, if any such date is not a Business Day,
the next succeeding Business Day, commencing _____________, 1993.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of _______, 199_ and the Redemption
Date, if any, pursuant to Section 10.01(a) of the Indenture. Notwithstanding
the foregoing, the entire unpaid principal amount of the Notes shall be due and
payable on the date on which an Event of Default shall have occurred and be
continuing and the Indenture Trustee or the Holders of the Notes representing
not less than a majority of the Outstanding Amount of the Notes have declared
the Notes to be immediately due and payable in the manner provided in Section
5.02 of the Indenture. All principal payments on the Notes of a Class shall be
made pro rata to the Noteholders of such Class entitled thereto.
Payments of interest on this Note due and payable on each Payment Date,
together with the installment of principal, if any, to the extent not in full
payment of this Note, shall be made by check mailed to the Person whose name
appears as the Registered Holder of this Note (or one or more Predecessor Notes)
on the Note Register as of the close of business on each Record Date, except
that with respect to Note registered on the Record
E-4
<PAGE>
Date in the name of the nominee of the Clearing Agency (initially, such nominee
to be Cede & Co.), payments will be made by wire transfer in immediately
available funds to the account designated by such nominee. Such checks shall be
mailed to the Person entitled thereto at the address of such Person as it
appears on the Note Register as of the applicable Record Date without requiring
that this Note be submitted for notation of payment. Any reduction in the
principal amount of this Note (or any one or more Predecessor Notes) effected by
any payments made on any Payment Date shall be binding upon all future Holders
of this Note and of any Note issued upon the registration of transfer hereof or
in exchange hereof or in lieu hereof, whether or not noted hereon. If funds are
expected to be available, as provided in the Indenture, for payment in full of
the then remaining unpaid principal amount of this Note on a Payment Date, then
the Indenture Trustee, in the name of and on behalf of the Issuer, will notify
the Person who was the Registered Holder hereof as of the Record Date preceding
such Payment Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the Indenture Trustee's principal
Corporate Trust Office or at the office of the Indenture Trustee's agent
appointed for such purposes located in ____________________.
The Issuer shall pay interest on overdue installments of interest at
the [Class A-2] Note Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed in while, but
not in part, at the option of the Servicer, or any Payment Date on or after the
date on which the Pool Balance is less than or equal to ten percent of the
Initial Pool Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, with such signature guaranteed by a commercial bank or
trust company located, or having a correspondent located, in The City of New
York or the city in which the Corporate Trust Office is located, or a member
firm of a national securities exchange, and such other documents as the
Indenture Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
E-5
<PAGE>
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Indenture Trustee or the Owner Trustee in its
individual capacity, (ii) any owner of a beneficial interest in the Issuer or
(iii) any partner, owner, beneficiary, agent, officer, director or employee of
the Indenture Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Owner Trustee or the
Indenture Trustee or the Owner Trustee or its individual capacity, except as any
such Person may have expressly agreed and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the indenture that such Noteholder will not at any
time institute against the Depositor, or join in any institution against the
Depositor of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Indenture Trustee and any agent of the Issuer or the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the
E-6
<PAGE>
Holders of the Notes under the Indenture at any time by the Issuer with the
consent of the Holders of Notes representing a majority of the Outstanding
amount of all Notes at the time Outstanding. The Indenture also contains
provisions permitting the Holders of Notes representing specified percentages of
the Outstanding Amount of the Notes, on behalf of the Holders of Notes
representing specified percentages of the Outstanding Amount of the Notes, on
behalf of the Holders of all the Notes, to waive compliance by the Issuer with
certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note (or any one or more Predecessor Notes) shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the Issuer
under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Indenture Trustee and the
Holders of Notes under the Indenture.
The Notes are issuable only in registered form in denominations as provided
in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the laws
of the State of ____________, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of the
Indenture shall alter or impair the obligation of the issuer, which is absolute
and unconditional, to pay the principal of and interest on this Note at the
times, place, and rate, and i the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Basic Documents, neither [Owner Trustee] in its individual
capacity, [Indenture Trustee], in its individual capacity, any owner of a
beneficial interest in the Issuer, nor any of their respective partners,
beneficiaries, agents, officers, directors, employees or successors or assigns
E-7
<PAGE>
shall be personally liable for, nor shall recourse be had to any of them for,
the payment of principal of or interest on, or performance of, or omission to
perform, any of the covenants, obligations or indemnifications contained in this
Note or the Indenture, it being expressly understood that said covenants,
obligations and indemnifications have been made by the Owner Trustee for the
sole purposes of binding the interests of the Owner Trustee in the assets of the
Issuer. The Holder of this Note by the acceptance hereof agrees that except as
expressly provided in the Basic Documents, in the case of an Event of Default
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
-------- -------
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
E-8
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
____________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_____________________________________________
________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: _______________ ________________________NOTE:
The signature to this assignment must correspond
with the name of the registered owner as it appears
on the face of the within Note in every particular,
without alteration, enlargement or any change
whatsoever.
Signature Guaranteed:
_________________________
Signatures must be guaranteed by an "eligible
guarantor institution" meeting the requirements of
the Indenture Trustee which requirements will
include membership or participation in STAMP or
such other "signature guarantee program" as may be
determined by the Indenture Trustee in addition to,
or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as
amended.
_________________________
E-9
<PAGE>
EXHIBIT F
[Form of Transferee Certificate]
------------------------------
F-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CHEVY CHASE BANK, F.S.B.
SPONSOR
AND
____________________________________
INDENTURE TRUSTEE
---------------------------
INDENTURE
Dated as of _____________, 199__
---------------------------
$___________ _____% AUTO RECEIVABLES-BACKED NOTES, [CLASS A]
$___________ _____% AUTO RECEIVABLES-BACKED NOTES, [CLASS B]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL
APPLICATION................................................... 3
SECTION 1.01. General Definitions............................. 3
SECTION 1.02. Compliance Certificates and
Opinions........................................ 21
SECTION 1.03. Form of Documents Delivered to
Indenture Trustee............................... 22
SECTION 1.04. Acts of Noteholders, etc........................ 23
SECTION 1.05. Notices, etc., to Trustee,
Servicer and Issuer............................. 24
SECTION 1.06. Notice to Noteholders; Waiver................... 25
SECTION 1.07. Effect of Headings and Table of
Contents........................................ 26
SECTION 1.08. Successors and Assigns.......................... 26
SECTION 1.09. Severability Clause............................. 26
SECTION 1.10. Benefits of Indenture........................... 26
SECTION 1.11. Governing Law................................... 26
SECTION 1.12. Legal Holidays.................................. 26
SECTION 1.13. Execution in Counterparts....................... 27
SECTION 1.14. Inspection...................................... 27
SECTION 1.15. Survival of Representations and
Warranties...................................... 27
ARTICLE II THE NOTES..................................................... 28
SECTION 2.01. General Provisions.............................. 28
SECTION 2.02. Execution, Authentication,
Delivery, and Dating............................ 30
SECTION 2.03. Registration, Transfer and
Exchange........................................ 30
SECTION 2.04. Mutilated, Destroyed, Lost and
Stolen Notes.................................... 32
SECTION 2.05. Delivery of [Class C] Notes..................... 33
SECTION 2.06. Payment of Interest and Principal;
Rights Preserved................................ 34
SECTION 2.07. Persons Deemed Owners........................... 35
SECTION 2.08. Cancellation.................................... 35
ARTICLE III ACCOUNTS; INVESTMENT OF MONEYS;
COLLECTION AND APPLICATION OF MONEYS;
REPORTS....................................................... 35
SECTION 3.01. Accounts; Investments by Indenture
Trustee......................................... 35
SECTION 3.02. Collection of Moneys; Lockbox
Facility; Lockbox Account....................... 39
SECTION 3.03. Collection of Moneys............................ 39
i
<PAGE>
SECTION 3.04. Collection Account............................. 39
SECTION 3.05. Reserve Account................................ 43
SECTION 3.06. Pre-Funding Account............................ 44
SECTION 3.07. Capitalized Interest Account................... 44
SECTION 3.08. Reserved....................................... 45
SECTION 3.09. Reports by Indenture Trustee;
Notices of Certain Payments.................... 45
SECTION 3.10. Indenture Trustee May Rely on
Certain Information from
Originator and Servicer........................ 46
ARTICLE IV RELEASE OF CONTRACTS AND VEHICLES............................ 46
SECTION 4.01. Release of Contracts and Vehicles
Upon Final Contract Payment.................... 46
SECTION 4.02. Release of Contracts and Vehicles
Following Substitution or
Repurchase..................................... 47
SECTION 4.03. Execution of Documents......................... 47
ARTICLE V SERVICER EVENTS OF DEFAULT; SUBSTITUTE
SERVICER..................................................... 47
SECTION 5.01. Servicer Events of Default..................... 47
SECTION 5.02. Substitute Servicer............................ 47
SECTION 5.03. Notification to Noteholders.................... 48
ARTICLE VI EVENTS OF DEFAULT; REMEDIES.................................. 48
SECTION 6.01. Events of Default.............................. 48
SECTION 6.02. Acceleration of Maturity;
Rescission and Annulment....................... 50
SECTION 6.03. Remedies....................................... 51
SECTION 6.04. Indenture Trustee May File Proofs
of Claim....................................... 51
SECTION 6.05. Indenture Trustee May Enforce
Claims Without Possession of
Notes.......................................... 52
SECTION 6.06. Application of Money Collected................. 53
SECTION 6.07. Limitation on Suits............................ 54
SECTION 6.08. Unconditional Right of Noteholders
to Receive Payment............................. 55
SECTION 6.09. Restoration of Rights and
Remedies....................................... 55
SECTION 6.10. Rights and Remedies Cumulative................. 55
SECTION 6.11. Delay or Omission Not Waiver................... 56
SECTION 6.12. Control by Noteholders......................... 56
SECTION 6.13. Waiver of Events of Default.................... 57
SECTION 6.14. Waiver of Stay or Extension Laws............... 57
SECTION 6.15. Sale of Trust Estate........................... 57
ii
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE VII THE INDENTURE TRUSTEE...................................... 59
SECTION 7.01. Certain Duties and
Responsibilities................................... 59
SECTION 7.02. Notice of Defaults or Events of
Default............................................ 60
SECTION 7.03. Certain Rights of Indenture
Trustee............................................ 61
SECTION 7.04. Not Responsible for Recitals or
Issuance of Notes.................................. 62
SECTION 7.05. Money Held in Trust................................ 62
SECTION 7.06. Compensation, Reimbursement, etc................... 62
SECTION 7.07. Corporate Indenture Trustee
Required; Eligibility.............................. 63
SECTION 7.08. Resignation and Removal;
Appointment of Successor........................... 63
SECTION 7.09. Acceptance of Appointment by
Successor.......................................... 64
SECTION 7.10. Merger, Conversion, Consolidation
or Succession to Business.......................... 65
SECTION 7.11. Co-trustees and Separate Indenture
Trustees........................................... 65
SECTION 7.12. Indenture Trustee to Hold
Contracts.......................................... 67
SECTION 7.13. Request for Opinion of Counsel..................... 67
SECTION 7.14. Financing Statements............................... 67
SECTION 7.15. Power of Attorney.................................. 67
ARTICLE VIII COVENANTS.................................................. 68
SECTION 8.01. Payment of Principal and
Interest........................................... 68
SECTION 8.02. Maintenance of Office or Agency;
Chief Executive Office............................. 68
SECTION 8.03. Money for Payments to Noteholders
to be Held in Trust................................ 68
SECTION 8.04. Corporate Existence; Merger;
Consolidation, etc................................. 69
SECTION 8.05. Protection of Trust Estate;
Further Assurances................................. 70
SECTION 8.06. Reserved........................................... 71
SECTION 8.07. Performance of Obligations;
Receivables Acquisition
Agreement.......................................... 71
SECTION 8.08. Negative Covenants................................. 72
SECTION 8.09. Information as to the Issuer....................... 73
SECTION 8.10. Taxes.............................................. 74
SECTION 8.11. Indemnification.................................... 75
SECTION 8.12. Certificates of Title.............................. 75
ARTICLE IX AMENDMENTS AND SUPPLEMENTAL INDENTURES..................... 76
</TABLE>
iii
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<TABLE>
<CAPTION>
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<S> <C> <C>
SECTION 9.01. Amendments and Supplemental
Indentures............................................ 76
SECTION 9.02. Execution of Amendments and
Supplemental Indentures............................... 76
SECTION 9.03. Effect of Amendments and
Supplemental Indentures............................... 77
SECTION 9.04. Reference in Notes to Amendments
and Supplemental Indentures........................... 77
ARTICLE X REDEMPTION OF NOTES........................................... 77
SECTION 10.01. Optional Redemption; Election to
Redeem................................................ 77
SECTION 10.02. Notice to Indenture Trustee........................... 78
SECTION 10.03. Notice of Redemption by the
Issuer................................................ 78
SECTION 10.04. Deposit of the Redemption Price....................... 78
SECTION 10.05. Notes Payable on Redemption Date...................... 79
ARTICLE XI SATISFACTION AND DISCHARGE.................................... 79
SECTION 11.01. Satisfaction and Discharge of
Indenture............................................. 79
SECTION 11.02. Application of Trust Money............................ 80
SCHEDULE 1 - Contract Schedule
SCHEDULE 2 - Amortization Schedule
EXHIBIT A - Form of [Class A] Notes
EXHIBIT B - Form of [Class B] Notes
EXHIBIT C - Form of Class C Notes
</TABLE>
iv
<PAGE>
INDENTURE
This INDENTURE dated as of _____________, 199__, is between CHEVY
CHASE BANK, F.S.B., a _____________ corporation (herein called the "Issuer"),
and ___________________________, a national banking association, as trustee
(herein called the "Indenture Trustee").
RECITALS OF THE ISSUER
The Issuer has duly authorized the issue of $_____________ in aggregate
principal amount of its _____% Auto Receivables Backed Notes, [Class A] (the
"[Class A] Notes") and $_____________ _____% Auto Receivables Backed Notes,
[Class B] (the "[Class B] Notes" and together with the [Class A] Notes, the
"Offered Notes") of substantially the tenor hereinafter set forth, and to
provide therefor the Issuer has duly authorized the execution and delivery of
this Indenture.
The Issuer may, from time to time, subject to certain conditions set forth
herein, enter into a Supplement directing the issuance of a third class of Notes
(the "[Class C] Notes" and together with the Offered Notes, the "Notes") which
will be subordinate to the [Class A] Notes and to the [Class B] Notes.
All things necessary to make the Notes, when executed by the Issuer and
authenticated and delivered hereunder, the valid obligations of the Issuer, and
to make this Indenture a valid agreement of the Issuer, in accordance with its
terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes by
the holders thereof, it is mutually covenanted and agreed, for the benefit of
all Noteholders, as follows:
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee, for the benefit and
security of the Noteholders, all of the Issuer's right, title and interest in
and to (a) the Initial Contracts and all Contract Payments, [Repurchase
Amounts,] Prepayment Amounts and other amounts now due or hereafter becoming due
with respect thereto (other than any prepayments of rent required pursuant to
the terms of any Initial Contract at or before the commencement of the Contract
and any payments due before the Cut-Off Date for such Initial Contract), (b) any
and all Additional Contracts or Substitute Contracts and
<PAGE>
all Contract Payments, [Repurchase Amounts,] Prepayment Amounts and other
amounts now due or hereafter becoming due with respect thereto (other than any
prepayments of rent required pursuant to the terms of any Additional Contract or
Substitute Contract at or before the commencement of any such Additional
Contract or Substitute Contract and any payments due before the related Cut-Off
Date for such Additional Contract or Substitute Contract), (c) all rights of the
Issuer to or under any guarantees of or collateral for the Obligor's obligations
under any Contract, [(d) all Vehicles at any time subject to any Contract,] (e)
all moneys from time to time held by the Indenture Trustee pursuant to Section
3.01 hereof pending deposit in one of the accounts referred to therein, (f) all
moneys from time to time on deposit in the Collection Account, including all
investments and income from the investment of such moneys, (g) all moneys from
time to time on deposit in the Reserve Account, including all investments and
income from the investment of such moneys, (h) all moneys from time to time on
deposit in the Pre-Funding Account, including all investments and income from
the investment of such moneys, (i) all moneys from time to time on deposit in
the Capitalized Interest Account, including all investments and income from the
investment of such moneys, (j) all rights of the Issuer under the Receivables
Acquisition Agreement, (k) all rights of the Issuer under any program agreement,
purchase agreement, assignment agreement or other document pursuant to which the
Originator acquired an interest in any Contract and the Vehicles subject
thereto, and (l) all proceeds of any of the foregoing. Such Grant is made in
trust to secure (i) the payment of all amounts due on the Notes in accordance
with their terms, equally and ratably without prejudice, priority, or
distinction between any Note of the same class and any other Note of the same
class by reason of differences in time of issuance or otherwise, except as
otherwise may be provided in this Indenture or any Supplement, (ii) the payment
of all other sums payable under this Indenture with respect to the Notes and
(iii) compliance with the provisions of this Indenture and any Supplement with
respect to the Notes.
The Indenture Trustee acknowledges such Grant, accepts the trusts hereunder
in accordance with the provisions hereof, and agrees to perform the duties
herein required to the best of its ability and to the end that the interests of
the Noteholders may be adequately and effectively protected as hereinafter
provided.
2
<PAGE>
ARTICLE 1.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.0.1. General Definitions.
-------------------
Except as otherwise specified or as the context may otherwise require,
the following terms have the meanings set forth below for all purposes of this
Indenture and any Supplement, and the definitions of such terms are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
Accrual Date: ____________, 199__
------------
Act: with respect to any Noteholder, as defined in Section 1.04.
---
Additional Contract: each separate installment sale contract and each
-------------------
contract schedule acquired by the Issuer from the Originator out of funds on
deposit in the Pre-Funding Account pursuant to the related Additional Contract
Transfer Agreement.
Additional Contract Transfer Agreement: as provided in Section ____ of
--------------------------------------
the Receivables Acquisition Agreement.
Additional Contract Transfer Date: the date specified in each
---------------------------------
Additional Contract Transfer Agreement.
Affiliate: of any specified Person, any other Person (i) which
---------
directly or indirectly controls, or whose directors or officers directly or
indirectly control, or is controlled by, or is under common control with, such
specified Person, (ii) which beneficially owns or holds, or whose directors or
officers beneficially own or hold, 25% or more of any class of the Voting Stock
(or, in the case of an entity that is not a corporation, 25% of the equity
interest) of such specified Person, or (iii) 25% or more of the Voting Stock
(or, in the case of an entity that is not a corporation, 25% of the equity
interest) of which is owned or held by such specified Person. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
Aggregate Implicit Contract Balance: means, with respect to any
-----------------------------------
Calculation Date, the sum of the Implicit Contract Balances of all Contracts.
3
<PAGE>
Authorized Officer: with respect to any matter, any officer of or
------------------
other Person representing the Issuer, the Originator, the Servicer, the
Indenture Trustee or a Noteholder, as the case may be, who is authorized to act
for that party.
Available Funds: means, with respect to each Payment Date, the
---------------
collections from the immediately preceding Collection Period on deposit in the
Collection Account.
Business Day: any day that is not a Saturday, Sunday or other day on
------------
which commercial banking institutions in the city in which the Corporate Trust
Office is located are authorized or obligated by law or executive order to
remain closed.
Calculation Date: the first day of any calendar month.
----------------
Capitalized Interest Account: the account by that name established and
----------------------------
maintained by the Indenture Trustee pursuant to Section 3.01.
Capitalized Interest Requirement: means, with respect to each Payment
--------------------------------
Date, the excess, if any, of (x) the interest due on the Notes on such Payment
Date over (y) the sum of (i) one-month's interest on the Implicit Contract
Balance of all Contracts as of the close of business on the last day of the
immediately preceding Collection Period, calculated at the Weighted Average Note
Rate and (ii) any Pre-Funding Earnings to be transferred to the Collection
Account on such Payment Date pursuant to Section 3.06(c) hereof.
Capital Stock: as defined in Section ____ of the Receivables
-------------
Acquisition Agreement.
[Class A] Distribution Account: the account or accounts by that name
------------------------------
established and maintained by the Indenture Trustee pursuant to Section 3.01.
[Class A] Monthly Interest: means, for the initial Payment Date, one-
--------------------------
twelfth of the product of the [Class A] Note Rate and the initial [Class A] Note
Balance, and for any subsequent Payment Date, one-twelfth of the product of (a)
the [Class A] Note Rate and (b) the sum of (i) the Outstanding [Class A] Note
Balance as of the immediately preceding Payment Date (after giving effect to all
payments of [Class A] Monthly Principal and [Class A] Overdue Principal made on
such immediately preceding Payment Date) and (ii) any [Class A] Overdue
Interest.
[Class A] Monthly Principal: with respect to all of the Contracts for
----------------------------
any Payment Date, the product of (x) the sum
4
<PAGE>
of (i) the Contract Payments due during the related Collection Period minus the
aggregate of the Monthly Contract Yield for all Contracts, (ii) for each
Contract that is a Defaulted Contract, the Implicit Contract Balance and (iii)
for each Contract that is the subject of a prepayment (provided that such
Prepayment Amount has actually been deposited in the Collection Account), an
amount equal to the Implicit Contract Balance immediately prior to prepayment
and (y) the [Class A] Percentage. To the extent that an amount is included in
any of clauses (i) through (iii) above, such amount shall not be included in any
other such clause for purposes of calculating the [Class A] Monthly Principal.
[Class A] Noteholder: at any time, any Person in whose name a [Class
--------------------
A] Note is registered in the Note Register.
[Class A] Note Balance: means, as of the Closing Date, $_____________
----------------------
and thereafter, as of each Payment Date, an amount equal to the initial [Class
A] Note Balance reduced by all payments on the [Class A] Notes pursuant to
Section 3.04(b)(vi) hereof.
[Class A] Note Rate: the rate at which interest accrues on the [Class
-------------------
A] Notes, which rate shall be ____% per annum.
[Class A] Notes: any [Class A] Notes described in Article II of, and
---------------
authorized by, and authenticated and delivered under, this Indenture.
[Class A] Overdue Interest: with respect to any Payment Date, the
--------------------------
excess, if any, of (a) the aggregate amount of [Class A] Monthly Interest due on
all prior Payment Dates over (b) the aggregate amount of [Class A] Monthly
Interest (from whatever source) actually paid to [Class A] Noteholders on all
prior Payment Dates.
[Class A] Overdue Principal: with respect to any Payment Date, the
---------------------------
excess, if any, of (a) the aggregate amount of [Class A] Monthly Principal due
on all prior Payment Dates over (b) the aggregate amount of [Class A] Monthly
Principal (from whatever source) actually paid to [Class A] Noteholders on all
prior Payment Dates.
[Class A] Percentage: _____%.
--------------------
[Class B] Distribution Account: the account or accounts by that name
------------------------------
established and maintained by the Indenture Trustee pursuant to Section 3.01.
[Class B] Monthly Interest: means, for the initial Payment Date, one-
--------------------------
twelfth of the product of the [Class B] Note
5
<PAGE>
Rate and the initial [Class B] Note Balance, and for any subsequent Payment
Date, one-twelfth of the product of (a) the [Class B] Note Rate and (b) the sum
of (i) the Outstanding [Class B] Note Balance as of the immediately preceding
Payment Date (after giving effect to all payments of [Class B] Monthly Principal
and [Class B] Overdue Principal made on such immediately preceding Payment Date)
and (ii) any [Class B] Overdue Interest.
[Class B] Monthly Principal: with respect to all of the Contracts for
---------------------------
any Payment Date, the product of (x) the sum of (i) the Contract Payments due
during the related Collection Period minus the aggregate of the Monthly Contract
Yield for all Contracts, (ii) for each Contract that is a Defaulted Contract,
the Implicit Contract Balance and (iii) for each Contract that is the subject of
a prepayment (provided that such Prepayment Amount has actually been deposited
in the Collection Account), an amount equal to the Implicit Contract Balance
immediately prior to prepayment and (y) the [Class B] Percentage. To the extent
that an amount is included in any of clauses (i) through (iii) above, such
amount shall not be included in any other such clause for purposes of
calculating the [Class B] Monthly Principal.
[Class B] Noteholder: at any time, any Person in whose name a [Class
--------------------
B] Note is registered in the Note Register.
[Class B] Note Balance: means, as of the Closing Date, $_____________
----------------------
and thereafter, as of each Payment Date, an amount equal to the initial [Class
B] Note Balance reduced by all payments on the [Class B] Notes pursuant to
Section 3.04(b)(vii) hereof.
[Class B] Note Rate: the rate at which interest accrues on the [Class
-------------------
B] Notes, which rate shall be _____% per annum.
[Class B] Notes: any [Class B] Notes described in Article II of, and
---------------
authorized by, and authenticated and delivered under, this Indenture.
[Class B] Overdue Interest: with respect to any Payment Date, the
--------------------------
excess, if any, of (a) the aggregate amount of [Class B] Monthly Interest due on
all prior Payment Dates over (b) the aggregate amount of [Class B] Monthly
Interest (from whatever source) actually paid to [Class B] Noteholders on all
prior Payment Dates.
[Class B] Overdue Principal: with respect to any Payment Date, the
excess, if any, of (a) the aggregate amount of [Class B] Monthly Principal due
on all prior Payment Dates over (b) the aggregate amount of [Class B] Monthly
Principal
6
<PAGE>
(from whatever source) actually paid to [Class B] Noteholders on all prior
Payment Dates.
[Class B] Percentage: _____%.
--------------------
[Class C] Distribution Account: the account or accounts by that name
------------------------------
established and maintained by the Indenture Trustee pursuant to Section 3.01.
[Class C] Monthly Interest: means, for the initial Payment Date of the
--------------------------
[Class C] Notes, if any, one-twelfth of the product of the [Class C] Note Rate
and the Initial [Class C] Note Balance, and for any subsequent Payment Date,
one-twelfth of the product of (a) the [Class C] Note Rate and (b) the sum of (i)
the Outstanding [Class C] Note Balance as of the immediately preceding Payment
Date (after giving effect to all payments of [Class C] Monthly Principal and
[Class C] Overdue Principal made on such immediately preceding Payment Date) and
(ii) any [Class C] Overdue Interest.
[Class C] Monthly Principal: with respect to all of the Contracts for
---------------------------
any Payment Date, the product of (x) the sum of (i) the Contract Payments due
during the related Collection Period minus the aggregate of the Monthly Contract
Yield for all Contracts, (ii) for each Contract that is a Defaulted Contract,
the Implicit Contract Balance and (iii) for each Contract that is the subject of
a prepayment (provided that such Prepayment Amount has actually been deposited
in the Collection Account), an amount equal to the Implicit Contract Balance
immediately prior to prepayment and (y) the [Class C] Percentage. To the extent
that an amount is included in any of clauses (i) through (iii) above, such
amount shall not be included in any other such clause for purposes of
calculating the [Class C] Monthly Principal.
[Class C] Noteholder: at any time, any Person in whose name a [Class
--------------------
C] Note is registered in the Note Register.
[Class C] Note Balance: means an amount equal to the Initial [Class C]
----------------------
Note Balance reduced by all payments on the [Class C] Notes pursuant to Section
3.04(b)(viii) hereof.
[Class C] Note Rate: the rate at which interest accrues on the [Class
-------------------
C] Notes, which rate shall be established on the date of original issuance of
the [Class C] Notes in the related Supplement.
[Class C] Notes: any [Class C] Notes described in Article II of, and
---------------
authorized by, and authenticated and delivered under, this Indenture and the
related Supplement.
7
<PAGE>
[Class C] Overdue Interest: with respect to any Payment Date, the
--------------------------
excess, if any, of (a) the aggregate amount of [Class C] Monthly Interest due on
all prior Payment Dates over (b) the aggregate amount of [Class C] Monthly
Interest (from whatever source) actually paid to [Class C] Noteholders on all
prior Payment Dates.
[Class C] Overdue Principal: with respect to any Payment Date, the
---------------------------
excess, if any, of (a) the aggregate amount of [Class C] Monthly Principal due
on all prior Payment Dates over (b) the aggregate amount of [Class C] Monthly
Principal (from whatever source) actually paid to [Class C] Noteholders on all
prior Payment Dates.
[Class C] Percentage: a specified percentage of the Initial Aggregate
--------------------
Balance, as determined on the date of issuance of the [Class C] Notes, not to
exceed _____%.
Closing Date: ______________, 199__.
------------
Collection Account: the account or accounts by that name established
------------------
and maintained by the Indenture Trustee pursuant to Section 3.01.
Collection Period: with respect to a Payment Date, the period from the
-----------------
first day of the calendar month immediately preceding the month in which such
Payment Date occurs through the last day of such calendar month.
Contract: at any time, each Initial Contract, Substitute Contract and
--------
Additional Contract subject to the lien of this Indenture; provided, that, for
--------
purposes of calculating the [Class A] Monthly Principal, the [Class B] Monthly
Principal or the [Class C] Monthly Principal with respect to any Payment Date,
(i) any Contract released from the lien of this Indenture pursuant to Sections
4.01 or 4.02 hereof following the Indenture Trustee's receipt of a Default
Payment shall, notwithstanding such release, be deemed to be a Contract
hereunder to and including the Payment Date next following the date on which
such Default Payment was received and (ii) any other Contract released from the
lien of this Indenture following the Indenture Trustee's receipt of the final
Contract Payment, or a Prepayment Amount shall, notwithstanding such release, be
deemed to be a Contract to and including the Payment Date next following the
Contract Payment Period during which such final Contract Payment was received.
Contract Payment: each periodic installment payable by a Obligor
----------------
under a Contract (excluding any Excess Contract Receivables). Prepayment
Amounts, prepayments required pursuant to the terms of a Contract at or before
the commencement of the Contract, payments becoming due before the
8
<PAGE>
Cut-Off Date and supplemental or additional payments required by the terms of a
Contract with respect to taxes, insurance, maintenance, indemnities, or other
specific charges shall not be Contract Payments hereunder.
Contract Payment Period: with respect to any Payment Date and the
-----------------------
Determination Date with respect thereto, the calendar month prior to the month
in which such Payment Date and such Determination Date occur.
Corporate Trust Office: the principal corporate trust office of the
----------------------
Indenture Trustee located at ________________________________, or at such other
address as the Trustee may designate from time to time by notice to the
Noteholders and the Issuer.
Cut-Off Date: as defined in Section _____ of the Note Agreement.
------------
Default: any occurrence that is, or with notice or the lapse of time
-------
or both would become, an Indenture Event of Default.
Defaulted Contract: any Contract with respect to which either (i) four
------------------
Contract Payments are due and unpaid as of any Calculation Date or (ii) the
Servicer has declined to advance any delinquent Contract Payment in accordance
with Section _____ of the Receivables Acquisition Agreement on the grounds that
such advance would be a Nonrecoverable Advance or (iii) such Contract has been
rejected by or on behalf of the Obligor in a bankruptcy proceeding.
Default Payment: any payment made with respect to a Defaulted Contract
---------------
(i) by the Obligor under or with respect to such Contract (or by the application
of any security deposit or other monies owed or belonging to such Obligor) as
actual, liquidated or punitive damages resulting from the breach of such
Contract, (ii) by a transfer to the Collection Account pursuant to Section 3.04,
or (iii) by the Servicer or the Indenture Trustee from the proceeds of any
disposition of the Vehicle subject to such Contract. Contract Payments for any
Contract Payment Period prior to a Contract becoming a Defaulted Contract are
not Default Payments.
Default Pay-Through Amount: with respect to any Contract with respect
--------------------------
to which a Default Payment is made or due, an amount equal to the Implicit
Contract Balance of such Contract as of the Payment Date immediately following
the first Determination Date on which such Contract was a Defaulted Contract.
Delinquency Condition: the condition which exists on and as of any
----------------------
Payment Date or on and as of the related
9
<PAGE>
Determination Date if (x) the aggregate of the Contract Payments due during the
related Contract Payment Period under all Contracts with respect to which any
Contract Payment or portion thereof was overdue as of each of the two
immediately preceding Payment Dates (after excluding any such Contract Payment
which was paid in full prior to the related Determination Date) exceeds (y) ____
percent of the aggregate of the Contract Payments due during the related
Contract Payment Period under all Contracts. If a Delinquency Condition exists
on any Payment Date, such Delinquency Condition shall be deemed to continue to
and include the day immediately preceding the next Payment Date.
Delinquency Payment: any payment made with respect to a Delinquent
-------------------
Contract in an amount equal to all or part of any specific Contract Payment due
with respect to such Contract (i) by the Servicer pursuant to Section ____ of
the Receivables Acquisition Agreement or (ii) by a transfer to the Collection
Account pursuant to Section 3.04.
Delinquent Contract: as of any Determination Date, any Contract (other
-------------------
than a Contract which became a Defaulted Contract prior to such Determination
Date) with respect to which the Obligor has not paid all Contract Payments then
due.
Determination Date: with respect to any Payment Date, the [_____]
------------------
Business Day immediately preceding such Payment Date.
Discount Rate: _____% per annum, which rate represents the Weighted
-------------
Average Note Rate plus the Servicing Fee Rate on an annualized basis.
Eligible Account: any one or more of the following accounts:
----------------
(i) an account maintained with a depository institution or trust
company whose long-term unsecured debt obligations are rated at least A by
the Rating Agency at the time of any deposit therein (or, if such
obligations are, at the time of such deposit, not rated by the Rating
Agency, its equivalent rating from one other nationally recognized rating
agency); or
(ii) a trust account or accounts maintained with a federal or
state chartered depository institution or trust company subject to
regulations regarding collateralized fiduciary funds on deposit
substantially similar to 12 C.F.R. Section 9.10(b).
Eligible Investments: any one or more of the following obligations or
--------------------
securities:
10
<PAGE>
(i) direct obligations of, and obligations fully guaranteed by,
the United States of America, or any agency or instrumentality of the
United States of America the obligations of which are backed by the full
faith and credit of the United States of America;
(ii) (A) demand and time deposits in, certificates of deposit of,
bankers' acceptances issued by, or federal funds sold by any commercial
bank, depository institution or trust company (including the Indenture
Trustee acting in its commercial capacity) incorporated under the laws of
the United States of America or any state thereof provided, that (x) such
--------
commercial bank, depository institution or trust company shall have a
combined capital and surplus of at least $500,000,000 and be subject to
supervision and examination by federal and/or state banking authorities and
(y) at the time of such investment or contractual commitment providing for
such investment such commercial bank, depository institution or trust
company has a long-term unsecured debt rating of at least AA issued by the
Rating Agency (or, if such obligations are, at the time of such deposit,
not rated by the Rating Agency, its equivalent rating from one other
nationally recognized agency) (or, in the case of a commercial bank or
depository institution which is the principal subsidiary of a holding
company, such holding company has a short-term credit rating of at least
_____ issued by the Rating Agency (or, if such obligations are, at the time
of such deposit, not rated by the Rating Agency, its equivalent rating from
one other nationally recognized rating agency) and (B) any other demand or
time deposit or certificate of deposit which is fully insured by the
Federal Deposit Insurance Corporation;
(iii) repurchase obligations with respect to and collateralized by
(A) any security described in clause (i) above or (B) any other security
issued or guaranteed by an agency or instrumentality of the United States
of America, in each case entered into with a depository institution or
trust company (acting as principal) of the type described in clause (ii)
above, provided that the Indenture Trustee has taken delivery of such
--------
security;
(iv) commercial paper (including both non-interest bearing discount
obligations and interest-bearing obligations) payable on demand or on a
specified date not more than 270 days after the date of issuance thereof
having a short-term credit rating of at least ____ from the Rating Agency
(or, if such obligations are, at the time of such deposit, not rated by the
Rating Agency, its equivalent rating from one other nationally recognized
rating agency) at the time of such investment; and
11
<PAGE>
(v) shares with a constant net asset value in a mutual fund
investing solely in short-term securities of the United States government
and having the highest short-term credit rating of at least Duff-1 from the
Rating Agency (or, if such obligations are, at the time of such deposit,
not rated by the Rating Agency, its equivalent rating from one other
nationally recognized rating agency) which shares are freely transferable
by the holder on a daily basis.
Excess Collections: as of each Payment Date, the amount on deposit
------------------
in the Collection Account after payments to the Servicer, [Class A] Noteholders
and [Class B] Noteholders.
Excess Contract Receivables: with respect to any Excess Receivables
---------------------------
Contract and any Payment Date, the excess, if any, of (x) the Contract Payment
with respect to such Contract over (y) the amount which would have been received
with respect to such Contract during the Contract Payment Period with respect to
such Payment Date if the Implicit Contract Balance of such Contract or its
Predecessor Contract, in the case of a Substitute Contract, on the Closing Date
had equalled _____% of the Initial Aggregate Balance, which amount with respect
to each Initial Contract is set forth on Schedule 1 hereto.
Excess Receivables Contract: any Initial Contract which at the
---------------------------
Closing Date has an Implicit Contract Balance in excess of _____% of the Initial
Aggregate Balance, any Additional Contract which at the related Additional
Contract Transfer Date has an Implicit Contract Balance in excess of _____% of
the Initial Aggregate Balance and any Substitute Contract substituted pursuant
to Section ____ of the Receivables Acquisition Agreement for a Predecessor
Contract which is an Excess Receivables Contract.
Final Additional Closing Date: three months following the end of the
-----------------------------
month which includes the Closing Date.
Financing Statement: as defined in Section ____ of the Note
-------------------
Agreement.
Grant: grant, bargain, sell, convey, assign, transfer, mortgage,
-----
pledge, create and grant a security interest in and right of set-off against,
deposit, set over and confirm. The Grant of the Trust Estate effected by this
Indenture shall include all rights, powers, and options (but none of the
obligations) of the Issuer with respect thereto, including, without limitation,
the immediate and continuing right to claim for, collect, receive, and give
receipts for Contract Payments in respect of the Contracts and all other moneys
payable thereunder, to give and receive notices and
12
<PAGE>
other communications, to make waivers, amendments or other agreements, to
exercise all rights and options, to bring judicial proceedings in the name of
the Issuer or otherwise, to terminate a contract pursuant to the terms thereof,
and generally to do and receive anything that the Issuer is or may be entitled
to do or receive thereunder or with respect thereto.
Implicit Contract Balance: means, with respect to a Contract, the
-------------------------
present value of all Contract Payments that become due thereon on or after the
immediately preceding Calculation Date, discounted monthly at the product of (i)
one-twelfth and (ii) the Discount Rate.
Indenture or this Indenture: this instrument as originally executed
---------------------------
and as from time to time supplemented or amended pursuant to the applicable
provisions hereof.
Indenture Event of Default: as defined in Section 6.01.
--------------------------
Indenture Trustee: The Person named as the "Indenture Trustee" in
-----------------
the first paragraph of this instrument until a successor Person shall have
become the Indenture Trustee pursuant to the applicable provisions of this
Indenture, and thereafter "Indenture Trustee" shall mean such successor;
provided, that the provisions of Section 7.06 and Section 8.11, as applicable to
- --------
any Person at any time serving as Indenture Trustee hereunder, shall survive
(with respect to any period prior to the date of such termination) the
termination of such Person's status as Indenture Trustee hereunder and the
succession of any other Person to such status.
Initial Aggregate Balance: an amount equal to $_____________,
-------------------------
calculated as the sum of the Initial Aggregate Implicit Contract Balance and the
Original Pre-Funded Amount.
Initial Aggregate Implicit Contract Balance: an amount equal to
-------------------------------------------
$_______________.
Initial [Class C] Note Balance: an amount equal to the product of
------------------------------
(x) $_____________ minus all principal theretofore paid by the Trustee to the
-----
[Class A] Noteholders, the [Class B] Noteholders or the Issuer and (y) the
[Class C] Percentage.
Initial Contract: each separate installment sale contract and each
----------------
contract schedule described in Schedule 1 hereto, as the same may be amended or
modified from time to time in accordance with the provisions hereof and thereof.
13
<PAGE>
Initial Deposit: the initial amount, equal to _____% of the Initial
---------------
Aggregate Balance, to be deposited by the Trustee in the Reserve Account.
Insurance Policy: any insurance policy required to be maintained by
----------------
the Obligor pursuant to the related Contract that covers physical damage to the
Vehicle or any liability arising out of the use of such Vehicle.
Insurance Proceeds: any proceeds of an Insurance Policy not applied
------------------
to repair or replacement of a Vehicle.
Issuer Order or Issuer Request: a written order or request delivered
------------ --------------
to the Indenture Trustee and signed in the name of the Issuer by an Authorized
Officer.
Lockbox Account: as defined in Section 3.02(a).
---------------
Lockbox Facility: as defined in Section 3.02(a).
----------------
Maturity Date: with respect to any installment of principal of or
-------------
interest on any Note, the date on which such installment is due and payable as
therein or herein provided, whether at the Stated Maturity Date, by declaration
of acceleration, or otherwise.
Maximum Reserve Amount: means, with respect to any Payment Date, an
----------------------
amount equal to the lesser of (i) _____% of the Initial Aggregate Balance or
(ii) the sum of (x) the Outstanding [Class A] Note Balance and (y) the
Outstanding [Class B] Note Balance less (z) the Outstanding [Class C] Note
----
Balance.
Monthly Contract Yield: with respect to each Contract, on any
----------------------
Payment Date, one-twelfth of the product of the Discount Rate and the Aggregate
Implicit Contract Balance on the immediately preceding Payment Date (or the Cut-
Off Date in the case of the initial Payment Date).
Monthly Servicer Report: the report attached as Exhibit ___ to the
-----------------------
Receivables Acquisition Agreement.
Nonrecoverable Advance: as defined in Section ____ of the
----------------------
Receivables Acquisition Agreement.
Note Agreement: the agreement dated as of the date hereof between
--------------
the Issuer and the initial purchasers of the Offered Notes with respect to the
purchase and sale of the Offered Notes as the same may be modified or amended
from time to time in accordance with its terms.
Noteholder: at any time, any Person in whose name a Note is
----------
registered in the Note Register.
14
<PAGE>
Note Rate: the [Class A] Note Rate, the [Class B] Note Rate or the
---------
[Class C] Note Rate, as applicable.
Note Register: as defined in Section 2.03.
-------------
Notes: any notes described in Article II of, and authorized by, and
-----
authenticated and delivered under, this Indenture or any Supplement.
Obligor: the obligor under any Contract including the guarantor.
-------
Offered Notes: the [Class A] Notes and the [Class B] Notes.
-------------
[Officers' Certificate: a certificate delivered to the Indenture
---------------------
Trustee and signed by the Chairman, the President, or a Vice President of the
Issuer, and by another Vice President, the Treasurer, an Assistant Treasurer,
the Secretary, or an Assistant Secretary of the Issuer who is not the same
Person as the other officer signing such certificate.]
Opinion of Counsel: a written opinion, which shall be satisfactory
------------------
in form and substance to the Indenture Trustee, of counsel who may, except as
otherwise expressly provided in this Indenture, be inside or outside counsel for
the Issuer and who shall be satisfactory to the Indenture Trustee.
Optional Redemption: prepayment of the Offered Notes, in their
-------------------
entirety, by the Issuer, without premium, on any Payment Date when the
Outstanding [Class A] Note Balance is less than or equal to _____% of the
initial [Class A] Note Balance and the Outstanding [Class B] Note Balance is
less than or equal to _____% of the initial [Class B] Note Balance (after giving
effect to payments of principal on such Payment Date).
Original Capitalized Interest Amount: means the amount deposited in
------------------------------------
the Capitalized Interest Account on the Closing Date pursuant to Section 3.07(a)
of this Indenture.
Original Pre-Funded Amount: means the amount deposited in the Pre-
--------------------------
Funding Account on the Closing Date pursuant to Section 3.06(a) of this
Indenture.
Originator: _______________, a _____________ organized and existing
----------
under the laws of the State of ___________________, and its successors.
15
<PAGE>
Outstanding: with respect to the Notes, as of any date of
determination, all Notes theretofore authenticated and delivered under this
Indenture or any Supplement except:
(i) Notes theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Notes or portions thereof for whose payment money in the
necessary amount has been theretofore irrevocably deposited with the
Indenture Trustee in trust for the holders such Notes; and
(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered pursuant to this Indenture or any
Supplement unless proof satisfactory to the Indenture Trustee is presented
that any such Notes are held by a Person in whose hands the Note is a valid
obligation;
provided, however, that in determining whether the holders of Notes evidencing
- -------- -------
the requisite percentage of Voting Rights have given any request, demand,
authorization, direction, notice, consent, or waiver hereunder, (i) Notes owned
by the Issuer or any Affiliate of the Issuer shall be disregarded and deemed not
to be Outstanding, except that, in determining whether the Indenture Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent, or waiver, only Notes that a Responsible Officer of
the Indenture Trustee actually knows to be so owned shall be so disregarded and
(ii) Notes owned by the Indenture Trustee or any Affiliate of the Indenture
Trustee shall be disregarded and deemed not to be Outstanding for purposes of
determining whether the requisite holders of the Notes have voted in favor of
any action or matter to be approved by them in accordance with Section 7.08
hereof.
Overfunded Interest Amount: means, with respect to each Payment
--------------------------
Date, the excess of (A) the amount on deposit in the Capitalized Interest
Account (after giving effect to any withdrawals on such Payment Date from the
Capitalized Interest Account pursuant to Section 3.07(b) of this Indenture) over
(B) the product of (i) one twelfth, (ii) the Weighted Average Note Rate, (iii)
the number of months remaining in the maximum Funding Period and (iv) the excess
of (x) the amount on deposit in the Pre-Funding Account as of the immediately
preceding Payment Date (excluding Pre-Funding Earnings) (or, in the case of the
initial Payment Date, the Original Pre-Funded Amount) over (y) the amount on
deposit in the Pre-Funding Account on such Payment Date (excluding Pre-Funding
Earnings).
Payment Date: the [_____________] day of each month (or if such
------------
date is not a Business Day, the next succeeding
16
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Business Day), commencing ____________, 199__, and ending with the Stated
Maturity Date.
Person: any individual, corporation, partnership, joint venture,
------
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political subdivision
thereof.
Predecessor Contract: with respect to any Substitute Contract
--------------------
acquired by the Issuer by substitution pursuant to Section ____ of the
Receivables Acquisition Agreement, the Contract or Contracts for which such
Substitute Contract or any intervening Substitute Contract has been substituted.
Predecessor Notes: with respect to any particular Note, every
-----------------
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.04 in lieu of a lost, destroyed or
stolen Note (or a mutilated Note surrendered to the Indenture Trustee) shall be
deemed to evidence the same debt as the lost, destroyed or stolen Note (or a
mutilated Note surrendered to the Indenture Trustee).
Pre-Funded Amount: with respect to any Determination Date, the
-----------------
amount on deposit in the Pre-Funding Account.
Pre-Funding Account: the account or accounts by that name
-------------------
established and maintained by the Indenture Trustee pursuant to Section 3.01.
Pre-Funding Earnings: the actual investment earnings earned on the
--------------------
Pre-Funding Account during each Collection Period.
Prepayment Amount: means, with respect to any Contract, the sum of
-----------------
(1) the Implicit Contract Balance as of the first day of the Collection Period
preceding such prepayment, together with one month of interest thereon at the
Discount Rate, (2) any unreimbursed Servicer Advances with respect to such
Contract and (3) any Contract Payments due and outstanding under such Contract
that are not the subject of a Servicer Advance.
Prepayment Premium: means the greater of (i) zero and (ii) the
------------------
excess of (A) the product of (1) the present value of the remaining payments on
the Outstanding [Class A] Notes, the Outstanding [Class B] Notes or the
Outstanding [Class C] Notes, as applicable, discounted on a monthly basis
(assuming a calendar year consisting of twelve 30-day months)
17
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at a discount rate equal to the sum of (x) the rate on U.S. Treasury securities
with a remaining maturity equal to the weighted average life of the prepaid
principal plus (y) _____%, and (2) a fraction, the numerator of which is the
prepaid principal and the denominator of which is the Outstanding [Class A] Note
Balance, the Outstanding [Class B] Note Balance or the Outstanding [Class C]
Note Balance, as applicable, over (B) the prepaid principal. A Prepayment
Premium shall be payable only pursuant to Section 2.01(c) and (d) hereof.
Purchaser: an initial purchaser of Offered Notes under the Note
---------
Agreement.
Rating Agency: _________________ and any successor thereto.
-------------
Receivables Acquisition Agreement: the Receivables Acquisition
---------------------------------
Agreement dated as of the date hereof between the Issuer and the Originator, as
the same may be amended or modified from time to time in accordance with the
provisions hereof and thereof.
Record Date: with respect to any Payment Date, the last Business Day
-----------
of the month immediately preceding such Payment Date.
Redemption Date: with respect to any redemption of Offered Notes, a
---------------
date fixed pursuant to Section 10.01.
Redemption Price: with respect to any Offered Note, and as of any
----------------
redemption date fixed by the Indenture Trustee, the Outstanding [Class A] Note
Balance or the Outstanding [Class B] Note Balance, as applicable, of such
Offered Note, together with interest accrued thereon to such redemption date at
the [Class A] Note Rate or the [Class B] Note Rate, as applicable (exclusive of
installments of interest and principal maturing on or prior to such date,
payment of which shall have been made to the holder of such Note on the
applicable Record Date or as otherwise provided herein).
Redemption Record Date: with respect to any redemption of Offered
----------------------
Notes, a date fixed pursuant to Section 10.01.
[Repurchase Amount: an amount equal to the sum of (1) the Implicit
-----------------
Contract Balance as of the first day of the Collection Period preceding such
repurchase, together with one month of interest thereon at the Discount Rate,
(2) any unreimbursed Servicer Advances with respect to such Contract and (3) any
Contract Payments due and outstanding under such Contract that are not the
subject of a Servicer Advance.]
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Required Deposit Date: as defined in Section 3.02(b).
---------------------
Required Payments: the payments required pursuant to clauses (i),
-----------------
(ii) and (iii) of Section 3.04(b) hereof.
Reserve Account: the account or accounts by that name established
---------------
and maintained by the Indenture Trustee pursuant to Section 3.01.
Reserve Account Payment: as of any Payment Date, an amount equal to
-----------------------
the excess, if any, of Required Payments over the amount on deposit in the
Collection Account.
Responsible Officer: with respect to the Indenture Trustee, any
-------------------
officer regularly engaged in the administration or supervision of corporate
trust accounts and also, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
Restricting Event: as of any Payment Date or as of the related
-----------------
Determination Date, the occurrence and continuance of a Delinquency Condition on
(i) such Payment Date, (ii) such related Determination Date or (iii) any of the
five previous Payment Dates.
Servicer: the Originator and any Successor Servicer appointed
--------
pursuant to the terms hereof and of the Receivables Acquisition Agreement.
Servicer Advance: as defined in Section ____ of the Receivables
----------------
Acquisition Agreement.
Servicer Event of Default: as defined in Section ____ of the
-------------------------
Receivables Acquisition Agreement.
Servicer Order: a written order or request delivered to the
--------------
Indenture Trustee and signed in the name of the Servicer by an Authorized
Officer.
Servicing Fee: an amount equal to the sum of (a) the product of
-------------
(i) one-twelfth, (ii) the Servicing Fee Rate and (iii) the Aggregate Implicit
Contract Balance as of the beginning of the previous Collection Period, (b)
late payment fees and certain other fees paid by the Obligors during the
previous Collection Period and (c) any investment earnings on amounts held in
the Collection Account.
Servicing Fee Rate: _____%.
------------------
19
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Sponsor: Chevy Chase Bank, F.S.B., a corporation organized and
-------
existing under the laws of the State of _______, and its successors.
Stated Maturity Date: the date on which the entire unpaid principal
--------------------
amount of the Notes is due and payable, which date is ________ __, 199__.
Substitute Contract: each separate installment sale contract and
-------------------
each contract schedule substituted for another Contract pursuant to the
provisions of Section ____ of the Receivables Acquisition Agreement, as the same
may be amended or modified from time to time in accordance with the provisions
hereof and thereof.
Successor Servicer: the Indenture Trustee or any successor to the
------------------
Servicer pursuant to the Receivables Acquisition Agreement.
Supplement: with respect to the [Class C] Notes, if any are issued,
----------
a supplement to this Indenture complying with the terms of Section 2.05 hereof.
Transaction Payment Amount: for each Required Deposit Date, the
--------------------------
amount of all Contract Payments, Excess Contract Receivables, Delinquency
Payments, Default Payments, Prepayment Amounts and other payments on or in
respect to a Contract received by the Trustee in the Lockbox Facility or
otherwise and deposited in the Lockbox Account pursuant to Section 3.02(a)
hereof and reported by the Servicer for such Required Deposit Date in accordance
with Section ____ of the Receivables Acquisition Agreement.
Trust Estate: all Contracts, Vehicles, money, instruments, accounts
------------
and other property subject to or intended to be subject to the lien of this
Indenture including all proceeds thereof.
Uniform Commercial Code or UCC: with respect to a particular
------------------------------
jurisdiction, the Uniform Commercial Code, as in effect from time to time in
such jurisdiction, or any successor statute thereto.
Vehicles: each item of property, together with any replacement
--------
parts, additions, and repairs thereto, any replacements thereof, any accessories
incorporated therein and/or affixed thereto, subject to a Contract or, following
expiration or termination of the Contract to which the same was previously
subject, remaining subject to the lien of this Indenture in accordance with the
provisions hereof.
Voting Rights: means, for so long as any [Class A] Notes remain
-------------
Outstanding, 100% of the Voting Rights shall be
20
<PAGE>
exercised by the [Class A] Noteholders, with each [Class A] Noteholder having
its proportionate percentage interest in all Voting Rights. When no [Class A]
Note is Outstanding, 100% of the Voting Rights shall be exercised by the [Class
B] Noteholders, with each [Class B] Noteholder having its proportionate
percentage interest in all Voting Rights. When no [Class A] Notes and [Class B]
Notes are Outstanding, 100% of the Voting Rights shall be exercised by the
[Class C] Noteholders, if any, with each [Class C] Noteholder having its
proportionate percentage interest in all Voting Rights.
Voting Stock: capital stock of any class of a corporation having
------------
power to vote for the election of the members of the board of directors of such
corporation, or persons performing similar functions (whether or not at the time
stock of any class shall have or might have special voting powers or rights by
reason of the happening of any contingency).
Weighted Average Note Rate: the weighted average of the [Class A]
--------------------------
Note Rate, the [Class B] Note Rate and the [Class C] Note Rate, calculated as of
the Closing Date. For purposes of calculating the Weighted Average Note Rate,
the [Class C] Note Rate shall be equal to the [Class B] Note Rate and the
balance applicable thereto shall equal _____% of the Initial Aggregate Balance.
SECTION 1.02. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Issuer to the Indenture
Trustee to take any action under any provision of this Indenture or any
Supplement, other than any request that (i) the Indenture Trustee authenticate
the Notes specified in such request, (ii) the Indenture Trustee invest moneys in
the Collection Account, the Reserve Account, the Pre-Funding Account or the
Capitalized Interest Account pursuant to the written directions specified in
such request, or (iii) the Indenture Trustee pay moneys due and payable to the
Issuer hereunder to the Issuer's assignee specified in such request, the
Indenture Trustee may require the Issuer to furnish to the Indenture Trustee an
Officers' Certificate stating that all conditions precedent, if any, provided
for in this Indenture or any Supplement relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such requested action as to which other evidence of
satisfaction of the conditions precedent thereto is specifically required by any
provision of this Indenture or any Supplement, no additional certificate or
opinion need be furnished.
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SECTION 1.03. Form of Documents Delivered to Indenture Trustee.
-----------------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any Officer's Certificate or opinion and any Opinion of Counsel may be
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an Authorized Officer or Authorized Officers of the
Issuer as to such factual matters unless such Authorized Officer or counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous. Any
Opinion of Counsel may be based on the written opinion of other counsel, in
which event such Opinion of Counsel shall be accompanied by a copy of such other
counsel's opinion, which shall include the Noteholders as addressees thereof,
and shall include a statement to the effect that such counsel believes that such
counsel, the Indenture Trustee and the Noteholders may reasonably rely upon the
opinion of such other counsel.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture or any Supplement, they may, but need not, be
consolidated and form one instrument.
Wherever in this Indenture or any Supplement, in connection with any
application or certificate or report to the Indenture Trustee, it is provided
that the Issuer shall deliver any document as a condition of the granting of
such application, or as evidence of compliance with any term hereof, it is
intended that the truth and accuracy, at the time of the granting of such
application or at the effective date of such certificate or report (as the case
may be), of the facts and opinions stated in such document shall in such case be
conditions precedent to the right of the Issuer to have such application granted
or to the sufficiency of such certificate or report. The foregoing shall not,
however, be construed to affect the Indenture Trustee's right to rely upon the
truth and accuracy of any statement or opinion contained in any such document as
provided in Section 7.01(a)(ii).
Whenever in this Indenture or any Supplement it is provided that the
absence of the occurrence and continuation
22
<PAGE>
of a Default or an Indenture Event of Default or a Servicer Event of Default is
a condition precedent to the taking of any action by the Indenture Trustee at
the request or direction of the Issuer, then, notwithstanding that the
satisfaction of such condition is a condition precedent to the Issuer's right to
make such request or direction, the Indenture Trustee shall be protected in
acting in accordance with such request or direction if it does not have
knowledge of the occurrence and continuation of such Default or Indenture Event
of Default or Servicer Event of Default. For all purposes of this Indenture and
any Supplement, the Indenture Trustee shall not be deemed to have knowledge of
any Default or Indenture Event of Default (other than an Indenture Event of
Default of the kind described in clause (i) of Section 6.01) or Servicer Event
of Default unless a Responsible Officer of the Indenture Trustee shall have
actual knowledge thereof or shall have been notified in writing thereof by the
Issuer, the Servicer or any Noteholder.
SECTION 1.04. Acts of Noteholders, etc.
-------------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture or any Supplement to be given
or taken by Noteholders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Noteholders in person
or by agents duly appointed in writing; and, except as herein otherwise
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Indenture Trustee, with a copy (or if expressly
required an original) to the Issuer and the Servicer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
or any Supplement and (subject to Section 7.01) conclusive in favor of the
Indenture Trustee and the Issuer, if made in the manner provided in this Section
1.04.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person
23
<PAGE>
executing the same, may also be proved in any other manner which the Indenture
Trustee deems sufficient.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the holder of any Note shall bind every future holder of
the same Note and the holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Indenture Trustee or the
Issuer in reliance thereon, whether or not notation of such action is made upon
such Note.
(d) By accepting the Notes issued pursuant to this Indenture and any
Supplement, each Noteholder irrevocably appoints the Indenture Trustee hereunder
as the special attorney-in-fact for such Noteholder vested with full power on
behalf of such Noteholder to effect and enforce the rights of such Noteholder
pursuant hereto and the provisions hereof for the benefit of such Noteholder.
SECTION 1.05. Notices, etc., to Trustee, Servicer and Issuer
----------------------------------------------
Any request, demand, authorization, direction, notice, consent,
waiver, Act of Noteholders, or other document provided or permitted by this
Indenture or any Supplement to be made upon, given or furnished to, or filed
with, the Indenture Trustee, the Issuer or the Servicer shall be sufficient for
every purpose hereunder if in writing and telexed, telecopied (with a copy of
the telexed or telecopied material sent to the recipient by overnight courier on
the day of the telex or telecopy), mailed, first-class postage prepaid, or hand
delivered. Unless otherwise specifically provided herein, no such request,
demand, authorization, direction, notice, consent, waiver, Act of Noteholders or
other document shall be effective until received and any provision hereof
requiring the making, giving, furnishing, or filing of the same on any date
shall be interpreted as requiring the same to be sent or delivered in such
fashion that it will be received on such date. Any such request, demand,
authorization, direction, notice, consent, waiver, Act of Noteholders, or other
document shall be sent or delivered to the following addresses:
(i) if to the Indenture Trustee, at the [Corporate Trust Office],
Attention: ________________ (Number for telecopy: ______________;
(ii) if to the Issuer, at [______________________ (Number for
telecopy: ____________)], or at any other address previously furnished in
writing to the Indenture Trustee and the Servicer by the Issuer;
24
<PAGE>
(iii) if to the Originator, at ________ ________________________
(Number for telecopy: (___) ________), or at any other address previously
furnished in writing to the Indenture Trustee, the Issuer and the Servicer by
the Originator; or
(iv) if to the Servicer, at ___________
___________________________________________________ (Number for telecopy:
_______________, or at any other address previously furnished in writing to the
Indenture Trustee, the Issuer and the Originator by the Servicer.
The Indenture Trustee will send to each Noteholder a copy of any
notice it receives hereunder by the Business Day following the receipt thereof
by the Indenture Trustee.
SECTION 1.06. Notice to Noteholders; Waiver.
-----------------------------
(a) Where this Indenture or any Supplement provides for notice to
Noteholders of any event, or the mailing of any report to Noteholders, such
notice or report shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, certified mail return-receipt requested, or
sent by private courier or confirmed telecopy (with a copy of the telecopied
material sent to the recipient by overnight courier on the day of the telecopy)
to each Noteholder affected by such event or to whom such report is required to
be mailed, at his address as it appears in the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice or the mailing of such report. In any case where a notice or
report to Noteholders is mailed, neither the failure to mail such notice or
report, nor any defect in any notice or report so mailed, to any particular
Noteholder shall affect the sufficiency of such notice or report with respect to
other Noteholders. Where this Indenture or any Supplement provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Noteholders shall be filed
with the Indenture Trustee, but such filing shall not be a condition precedent
to the validity of any action taken in reliance upon such waiver.
(b) In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to mail or send notice to
Noteholders, in accordance with Section 1.06(a), of any event or any report to
Noteholders when such notice or report is required to be delivered pursuant to
any provision of this Indenture or any Supplement, then such notification or
delivery as shall be made with the approval of the Indenture Trustee shall
25
<PAGE>
constitute a sufficient notification for every purpose hereunder.
SECTION 1.07. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and in the Table of Contents
are for convenience only and shall not affect the construction hereof.
SECTION 1.08. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Issuer or the
Indenture Trustee shall bind its respective successors and permitted assigns,
whether so expressed or not.
SECTION 1.09. Severability Clause.
-------------------
In case any provision in this Indenture, any Supplement or in the
Notes shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 1.10. Benefits of Indenture.
---------------------
Nothing in this Indenture, any Supplement or in the Notes, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, any separate trustee or co-trustee appointed under Section
7.11 hereof and the holders of Notes, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 1.11. Governing Law.
-------------
This Indenture, any Supplement and the Notes shall be governed by, and
construed in accordance with, the laws of the State of [New York], without
regard to conflict of laws principles; provided that any provision of this
--------
Indenture which relates to, or provides for, the rights, duties and obligations
of the Indenture Trustee shall be governed by, and construed in accordance with,
the laws of the State of _____________. This Indenture is not subject to the
Trust Indenture Act of 1939 and shall not be governed thereby or construed in
accordance therewith.
SECTION 1.12. Legal Holidays.
--------------
In any case where any Payment Date or the Stated Maturity Date or any
other date on which principal of or interest on any Note is proposed to be paid
shall not be a Business Day, then (notwithstanding any other provision of
26
<PAGE>
this Indenture or of the Notes) such payment shall be made on the immediately
succeeding Business Day.
SECTION 1.13. Execution in Counterparts.
-------------------------
This Indenture may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
SECTION 1.14. Inspection.
----------
The Issuer agrees that it will permit the representatives of the
Indenture Trustee or any Noteholder, during the Issuer's normal business hours,
to examine all of the books of account, records, reports and other papers of the
Issuer, to make copies thereof and extracts therefrom, to cause such books to be
audited by independent accountants selected by the Issuer and reasonably
acceptable to the Indenture Trustee or such Noteholder, as the case may be, and
to discuss its affairs, finances and accounts with its officers, employees and
independent accountants (and by this provision the Issuer hereby authorizes its
accountants to discuss with such representatives such affairs, finances and
accounts), all at such times and as often as may be reasonably requested for the
purpose of reviewing or evaluating the financial condition or affairs of the
Issuer or the performance of and compliance with the covenants and undertakings
of the Issuer in this Indenture, the Note Agreement, the Receivables Acquisition
Agreement, or any of the other documents referred to herein or therein. Any
expense incident to the exercise by the Indenture Trustee or any Noteholder
during the continuance of any Default or Indenture Event of Default of any right
under this Section 1.14 shall be borne by the Issuer, but any expense due to the
exercise of a right by any such Person prior to the occurrence of a Default or
Indenture Event of Default shall be borne by such Person.
SECTION 1.15. Survival of Representations and Warranties.
------------------------------------------
The representations, warranties and certifications of the Issuer made
in this Indenture or in any certificate or other writing delivered by the Issuer
pursuant hereto shall survive the authentication and delivery of the Notes
hereunder, but unless explicitly provided to the contrary, they are made only as
of the Closing Date.
27
<PAGE>
ARTICLE II
THE NOTES
SECTION 2.01. General Provisions.
------------------
(a) The Notes issuable hereunder shall be issued as registered
Notes in no more than [three classes] as from time to time shall be
authorized by the Issuer on or before __________, 199__. The Notes of all
classes shall be known and entitled generally as the "Chevy Chase Bank,
F.S.B. Auto Receivables Backed Notes." The Notes of each class shall have
further particular designation as the Issuer may adopt for each class, and
each Note issued hereunder shall bear upon the face thereof the designation
so adopted for the class to which it belongs. The Indenture Trustee is
hereby authorized and directed to authenticate and deliver Notes to be
issued hereunder in two classes entitled "_____% Auto Receivables Backed
Notes, [Class A]" and "_____% Auto Receivables Backed Notes, [Class B]",
respectively. The Issuer may, from time to time, subject to certain
conditions precedent set forth in this Article II, direct the issuance of
the [third class] of Notes which will be subordinate to the [Class A] Notes
and to the [Class B] Notes by entering into a Supplement. The form of each
class of Notes and of the Indenture Trustee's certificate of authentication
shall be in substantially the forms set forth in Exhibits A, B and C
hereto, with such appropriate insertions, omissions, substitutions, and
other variations as are required or permitted by this Indenture. The
aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $_____________ (of which the
aggregate principal amount of the [Class A] Notes and the [Class B] Notes
is $_____________) except for Notes authenticated and delivered upon
registration of, transfer of, or in exchange for, or in lieu of, other
Notes pursuant to Section 2.03, 2.04, or 9.04. The [Class A] Notes shall be
issuable only in registered form and only in denominations of at least
$_____________, provided that the foregoing shall not restrict or prevent
--------
the transfer or issuance in accordance with Sections 2.03 or 2.04 of any
[Class A] Note having a remaining outstanding principal amount of less than
$_____________. The [Class B] Notes shall be issuable only in registered
form and only in denominations of at least $_____________, provided that
--------
the foregoing shall not restrict or prevent the transfer or issuance in
accordance with Sections 2.03 or 2.04 of any [Class B] Note having a
remaining outstanding principal amount of less than $_____________. [Class
C] Notes, if any, shall be issued in the minimum denominations indicated
in the related Supplement.
(b) The aggregate amount of principal due and payable on
each class of Notes on each Payment Date shall be equal to the [Class A]
Monthly Principal, the [Class B]
28
<PAGE>
Monthly Principal or the [Class C] Monthly Principal, as applicable, with
respect to such Payment Date. Except (i) for Optional Redemption pursuant to
Section 10.01, (ii) Prepayment Amounts, (iii) Repurchase Amounts, (iv)
prepayments from funds remaining in the Pre-Funding Account, or (v) as otherwise
provided in Section 6.02, no part of the principal of any Note shall be paid
prior to the Payment Date on which such principal is due in accordance with the
preceding provisions of this Section 2.01(b).
(c) If the [Class A] Monthly Principal, the [Class B] Monthly
Principal or the [Class C] Monthly Principal, as applicable, to be paid on the
Notes on any Payment Date includes any amount pursuant to clause (iii) of the
definition of the [Class A] Monthly Principal, the [Class B] Monthly Principal
or the [Class C] Monthly Principal, as applicable (other than any prepayment in
connection with casualty to Vehicles or a Defaulted Contract), there shall also
be paid to the Noteholders on such Payment Date a premium equal to the
Prepayment Premium with respect to such amount to be paid pursuant to such
clause (iii).
(d) Any amounts on deposit in the Pre-Funding Account after the Final
Additional Closing Date will be applied as a prepayment of the Notes to the
Noteholders on the next succeeding Payment Date in accordance with their
respective Class Percentages. If such prepayment is of an amount greater than
$_____________, a Prepayment Premium shall also be paid to the [Class A]
Noteholders and [Class B] Noteholders.
(e) Interest on the unpaid principal amount of each Outstanding Note
shall be payable on each Payment Date at the [Class A] Note Rate, the [Class B]
Note Rate or the [Class C] Note Rate, as applicable, for the period from the
Accrual Date, in the case of the [Class A] Notes and the [Class B] Notes, and
from and including the closing date thereof in the case of [Class C] Notes or,
in either case, such later date to which interest has been paid or duly provided
for, to such Payment Date. Interest on the Notes shall be computed on the basis
of a 360-day year of twelve 30-day months.
(f) All payments made with respect to any Note shall be made in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts and shall be applied first
to the interest then due and payable on such Notes, then to Prepayment Premium,
if any, and finally the principal thereof.
(g) All Notes of the same class issued under this Indenture or any
Supplement shall be in all respects equally and ratably entitled to the benefits
hereof and thereof without preference, priority or distinction on account of the
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actual time or times of authentication and delivery, all in accordance with the
terms and provisions of this Indenture or any Supplement. Payments of principal,
the Prepayment Premium, if any, and interest on Notes of the same class shall be
made pro rata among all Outstanding Notes of such class, without preference or
priority of any kind.
SECTION 2.02. Execution, Authentication, Delivery, and Dating.
-----------------------------------------------
(a) The Notes shall be manually executed on behalf of the
Issuer by an Authorized Officer.
(b) Any Note bearing the signature of an individual who was at the
time of execution thereof a proper officer of the Issuer shall bind the Issuer,
notwithstanding that such individual ceases to hold such office prior to the
authentication and delivery of such Note or did not hold such office at the date
of such Note.
(c) No Note shall be entitled to any benefit under this Indenture or
any Supplement or be valid or obligatory for any purpose unless there appears on
such Note a certificate of authentication substantially in the form provided for
herein, executed by the Indenture Trustee by manual signature, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder. Each Note
shall be dated the date of its authentication.
(d) The Notes may from time to time be executed by the Issuer and
delivered to the Indenture Trustee for authentication together with an Issuer
Request to the Indenture Trustee directing the authentication and delivery of
such Notes and thereupon the same shall be authenticated and delivered by the
Indenture Trustee in accordance with such Issuer Request.
SECTION 2.03. Registration, Transfer and Exchange.
-----------------------------------
(a) The Issuer shall cause to be kept at the Corporate Trust Office a
register (the "Note Register") in which, subject to such reasonable regulations
as the Indenture Trustee may prescribe, the Issuer shall provide for the
registration of Notes and of transfers of Notes. The Indenture Trustee is hereby
appointed "Note Registrar" for the purpose of registering Notes and transfers of
Notes as herein provided.
(b) Upon surrender for registration of transfer of any Note at the
office of the Issuer designated pursuant to Section 8.02 for such purpose, the
Issuer shall execute and the Indenture Trustee upon request shall authenticate
and
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deliver, in the name of the designated transferee or transferees, one or
more new Notes of the same class, of any authorized denominations and of a like
aggregate original principal amount. The Indenture Trustee shall make a notation
on any such new Note of the amount of principal, if any, that has been paid on
such Note and shall make the appropriate entries in the Note Register.
(c) All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture and any Supplement, as
the Notes surrendered upon such registration of transfer or exchange.
(d) Every Note presented or surrendered for registration of transfer
or for exchange shall (if so required by the Issuer or the Indenture Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Indenture Trustee duly executed, by the
holder thereof or his attorney duly authorized in writing.
(e) No service charge shall be made for any registration of transfer
or exchange of Notes, but the Issuer or the Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Notes, other than exchanges pursuant to Section 9.04 not involving any transfer.
(f) Each prospective initial Noteholder acquiring a Note, each
prospective transferee acquiring a Note and each prospective owner of a
beneficial interest in Notes acquiring such beneficial interest (the prospective
initial Noteholder, the prospective transferee and the prospective beneficial
owner, each, a "Prospective Owner"), shall either (i) represent and warrant, in
writing, to the Issuer, the Trustee, the Servicer and any Successor Servicer
that the Prospective Owner is not an "employee benefit plan" within the meaning
of Section 3(3) of ERISA or a "plan" within the meaning of Section 4975(e)(1) of
the Code (any such plan or employee benefit plan, a "Plan") and the Prospective
Owner is not directly or indirectly acquiring the Note on behalf of, as
investment manager of, as named fiduciary of, as trustee of, or with assets of a
Plan, or (ii) furnish to the Issuer, the Indenture Trustee, the Servicer and any
Successor Servicer an opinion of counsel acceptable to the Issuer, the Indenture
Trustee, the Servicer and any Successor Servicer that (a) the proposed
acquisition or transfer will not cause any of the assets of the Issuer to be
deemed to be assets of a Plan, or (b) the proposed acquisition or transfer will
not cause the Issuer, the Indenture Trustee, the Servicer or any Successor
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Servicer to be a fiduciary of a Plan within the meaning of Section 3(21) of
ERISA and will not give rise to a transaction described in Section 406 of ERISA
or Section 4975(e)(1) of the Code for which a statutory or administrative
exemption is unavailable.
SECTION 2.04. Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
(a) If any mutilated Note is surrendered to the Indenture Trustee, the
Issuer shall execute and the Indenture Trustee shall authenticate and deliver in
exchange therefor a replacement Note of the same class, of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
(b) If there shall be delivered to the Issuer and the Indenture
Trustee (i) evidence to their satisfaction of the destruction, loss or theft of
any Note (provided, that any Noteholder's affidavit shall be sufficient evidence
--------
for these purposes) and (ii) such security or indemnity as may be required by
them to save each of them and any agent of either of them harmless (provided,
that any institutional Noteholder's own unsecured agreement of indemnity shall
be sufficient for these purposes), then, in the absence of actual notice to the
Issuer or the Indenture Trustee that such Note has been acquired by a bona fide
purchaser, the Issuer shall execute and upon its request the Indenture Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Note, a replacement Note of the same class, of like tenor and principal amount
and bearing a number not contemporaneously outstanding.
(c) In case the final installment of principal on any such mutilated,
destroyed, lost or stolen Note has become or will at the next Payment Date
become due and payable, the Issuer in its discretion may, instead of issuing a
replacement Note, pay such Note.
(d) Upon the issuance of any replacement Note under this Section, the
Issuer or the Indenture Trustee may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed as a result of
the issuance of such replacement Note.
(e) Every replacement Note issued pursuant to this Section in lieu of
any destroyed, lost or stolen Note shall constitute an original additional
contractual obligation of the Issuer, whether or not the destroyed, lost or
stolen Note shall be at any time enforceable by anyone, and shall be entitled to
all the benefits of this Indenture and any Supplement equally and
proportionately with any and all other Notes of the same class, duly issued
hereunder.
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(f) The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.05. Delivery of [Class C] Notes.
---------------------------
(a) Upon delivery to the Indenture Trustee of an Officers'
Certificate of the Issuer (a) requesting the authentication of the [Class C]
Notes and (b) stating the date upon which such [Class C] Notes are to be issued
(such date, the "Issuance Date" and such notice, the "Issuance Notice") and
certifying the satisfaction of the conditions stated in this Section and Section
2.01, the Indenture Trustee shall, subject to Section 2.05(b), authenticate
pursuant to Section 2.02 and deliver to or upon the order of the Issuer on such
Issuance Date such [Class C] Notes. Any such [Class C] Note shall be
substantially in the form of Exhibit C hereto and shall bear, upon its face, the
designation for such class to which it belongs so selected by the Issuer and set
forth in the related Supplement. All [Class C] Notes shall be identical in all
respects except for the denominations thereof and shall be equally and ratably
entitled among themselves to the benefits of this Agreement and any Supplement
thereof without preference, priority or distinction on account of the actual
title or times of authentication and delivery, all in accordance with the terms
and provisions of this Agreement and such Supplement. Notwithstanding anything
contained in any Supplement, no [Class C] Notes issued pursuant to the
provisions of this Section shall adversely affect the method of allocating
Available Funds to [Class A] Notes or [Class B] Notes for any period over which
such [Class C] Notes shall be outstanding.
(b) On the Issuance Date, the Indenture Trustee shall authenticate
and deliver any such [Class C] Notes upon delivery to it of the following: (i) a
Supplement substantially in the form of ____________ and in form reasonably
satisfactory to the Indenture Trustee executed by the Issuer and the Indenture
Trustee and specifying the items provided in Section 2.05(c) and any other terms
(the "Principal Terms"), (ii) an Opinion of Counsel delivered by outside counsel
to the Issuer reasonably acceptable to the Indenture Trustee, to the effect that
(A) the newly issued [Class C] Notes would be treated as debt for Federal income
tax purposes under existing law, (B) immediately following the issuance of the
[Class C] Notes, the Outstanding [Class A] Notes and the Outstanding [Class B]
Notes will continue to be treated as debt for Federal income tax purposes under
existing law and (C) such issuance of the [Class C] Notes will not have a
material adverse tax effect on any Outstanding [Class A] Notes or Outstanding
[Class B] Notes, (iii) written confirmation from the Rating Agency that the
issuance of such
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[Class C] Notes will not result in the Rating Agency's reducing or withdrawing
its rating on the Outstanding [Class A] Notes or Outstanding [Class B] Notes,
(iv) such other closing documents, certificates and opinions of counsel as may
be required by the applicable Supplement. Notwithstanding the foregoing, the
Indenture Trustee shall not authenticate and deliver any [Class C] Notes
hereunder unless it also received on or prior to the Issuance Date, an Officers'
Certificate of the Issuer stating: (A) the [Class C] Percentage, which
percentage shall not exceed _____%, (B) the Initial [Class C] Note Balance, and
(C) the [Class C] Note Rate.
(c) Any Supplement relating to [Class C] Notes shall define or make
provision with respect to the [Class C] Notes to be issued pursuant thereto
including, but not limited to, the following Principal Terms: (i) the name or
designation of the [Class C] Notes, (ii) the Initial [Class C] Note Balance
thereof, (iii) the [Class C] Note Rate (or the formula for the determination
thereof, which may provide that such rate is a floating rate), (iv) the [Class
C] Percentage, (v) the Stated Maturity Date and (vi) the Redemption Price, if
any.
SECTION 2.06. Payment of Interest and Principal; Rights Preserved.
---------------------------------------------------
(a) Any installment of interest or principal and Prepayment
Premium, if any, payable on any Note that is paid or duly provided for by the
Issuer on the applicable Payment Date shall be paid to the Person in whose name
such Note was registered at the close of business on the Record Date for such
Payment Date by wire transfer of federal funds to the account and number
specified in the Note Register on such Record Date for such Person (which shall
be, as to each original purchaser of the Notes, the account and number specified
on Exhibit A to the Note Agreement until such time as such purchaser notifies
the Indenture Trustee in writing of a change therein) or, if no such account or
number is so specified, then by check mailed to such Person's address as it
appears in the Note Register on such Record Date.
(b) All reductions in the principal amount of a Note effected by
payments of installments of principal made on any Payment Date shall be binding
upon all holders of such Note and of any Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof, whether or not such
payment is noted on such Note. All payments on the Notes shall be paid without
any requirement of presentment but each holder of any Note shall be deemed to
agree, by its acceptance of the same, to surrender such Note at the Corporate
Trust Office within ten Business Days following payment of the final installment
of principal of such Note.
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SECTION 2.07. Persons Deemed Owners. Prior to due presentment of
---------------------
a Note for registration or transfer, the Issuer, the Indenture Trustee, and any
agent of the Issuer or the Indenture Trustee may treat the Noteholder as the
owner of such Note for the purpose of receiving payment of principal of and
interest on such Note and for all other purposes whatsoever, whether or not such
Note be overdue, and neither the Issuer, the Indenture Trustee, nor any agent of
the Issuer or the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.08. Cancellation. All Notes surrendered for registration of
------------
transfer or exchange or following final payment shall, if surrendered to any
Person other than the Trustee, be delivered to the Indenture Trustee and shall
be promptly cancelled by it. The Issuer may at any time deliver to the Indenture
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Issuer may have acquired in any manner whatsoever, and all
Notes so delivered shall be promptly cancelled by the Indenture Trustee. No
Notes shall be authenticated in lieu of or in exchange for any Notes cancelled
as provided in this Section, except as expressly permitted by this Indenture.
All cancelled Notes held by the Indenture Trustee may be disposed of in the
normal course of its business or as directed by an Issuer Order.
ARTICLE III
ACCOUNTS; INVESTMENT OF MONEYS; COLLECTION
AND APPLICATION OF MONEYS; REPORTS6.
SECTION 3.01. Accounts; Investments by Indenture Trustee.
------------------------------------------
(a) On or before the Closing Date, the Indenture Trustee shall
establish in the name of the Indenture Trustee for the benefit of the
Noteholders and the Issuer to the extent of their interests therein as provided
in this Indenture and in the Receivables Acquisition Agreement, the following
accounts, which accounts shall be trust accounts maintained at the Corporate
Trust Office:
(i) Collection Account;
(ii) [Class A] Distribution Account;
(iii) [Class B] Distribution Account;
(iv) [Class C] Distribution Account;
(v) Reserve Account;
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(vi) Pre-Funding Account;
(vii) Capitalized Interest Account; and
(viii) Lockbox Account.
Each of such accounts shall be established and maintained as an Eligible
Account. Subject to the further provisions of this Section 3.01(a), the
Indenture Trustee shall, upon receipt or upon transfer from another account, as
the case may be, deposit into such accounts all amounts received by it which are
required to be deposited therein in accordance with the provisions of this
Indenture. All such amounts and all investments made with such amounts,
including all income and other gain from such investments, shall be held by the
Indenture Trustee in such accounts as part of the Trust Estate as herein
provided, subject to withdrawal by the Indenture Trustee in accordance with, and
for the purposes specified in the provisions of, this Indenture.
(b) Subject to Section 3.02, the Indenture Trustee shall hold in trust
but shall not be required to deposit in any account specified in Section 3.01(a)
any payment received by it until such time as the Indenture Trustee shall have
identified to its reasonable satisfaction the nature of such payment and, on the
basis thereof, the proper account or accounts into which such payment is to be
deposited. In determining into which of the accounts, if any, referred to above
any amount received by the Indenture Trustee is to be deposited, the Indenture
Trustee may conclusively rely (in the absence of bad faith on the part of the
Indenture Trustee) on the written instructions of the Servicer. Subject to
Section 3.02, unless otherwise advised in writing by the Obligor making the
payment or by the Servicer, the Indenture Trustee shall assume that any amount
remitted to it by such Obligor is to be deposited into the Collection Account
pursuant to Section 3.03. The Indenture Trustee may establish from time to time
such deadline or deadlines as it shall determine are reasonable or necessary in
the administration of the Trust Estate after which all amounts received or
collected by the Indenture Trustee on any day shall not be deemed to have been
received or collected until the next succeeding Business Day.
(c) The Indenture Trustee shall have no right of set-off with respect
to the Lockbox Account, the Collection Account, the [Class A] Distribution
Account, the [Class B] Distribution Account, the [Class C] Distribution Account,
the Reserve Account, the Pre-Funding Account, the Capitalized Interest Account
or any investment therein, whether or not commingled.
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(d) So long as no Default or Indenture Event of Default shall have
occurred and be continuing, the amounts in the Collection Account, the Reserve
Account, the Pre-Funding Account and the Capitalized Interest Account shall be
invested and reinvested by the Indenture Trustee pursuant to an Issuer's Order
or Servicer Order in one or more Eligible Investments. Subject to the
restrictions on the maturity of investments set forth in Section 3.01(f), each
such Issuer Order or Servicer Order may authorize the Indenture Trustee to make
the specific Eligible Investments set forth therein, to make Eligible
Investments from time to time consistent with the general instructions set forth
therein, or to make specific Eligible Investments pursuant to instructions
received in writing or by telegraph or facsimile transmission from the employees
or agents of the Issuer or the Servicer, as the case may be, identified therein,
in each case in such amounts as such Issuer Order or Servicer Order shall
specify. The Issuer agrees to report as income for financial reporting and tax
purposes (to the extent reportable) all investment earnings on amounts in the
Collection Account, the Reserve Account, the Pre-Funding Account, and the
Capitalized Interest Account.
(e) In the event that either (i) the Issuer or the Servicer, as
applicable, shall have failed to give investment directions to the Indenture
Trustee by ________________ on any Business Day on which there may be uninvested
cash or (ii) a Default or Indenture Event of Default shall have occurred and be
continuing, then the Indenture Trustee shall promptly notify each Noteholder of
such fact and indicate that the Indenture Trustee is prepared to invest such
funds in one or more Eligible Investments in accordance with the instructions of
the holders of Notes evidencing more than [50%] of Voting Rights. In the absence
of such instructions, the Indenture Trustee shall invest and reinvest the funds
then in the Collection Account, the Reserve Account, the Pre-Funding Account, or
the Capitalized Interest Account, as the case may be, to the fullest extent
practicable in one or more Eligible Investments. All investments made by the
Indenture Trustee shall mature no later than the maturity date therefor
permitted by Section 3.01(f).
(f) No investment of any amount held in the Collection Account, the
Reserve Account, the Pre-Funding Account, or the Capitalized Interest Account
shall mature later than the Business Day immediately preceding the Payment Date
which is scheduled to occur immediately following the date of investment. All
income or other gains from the investment of moneys deposited in the Collection
Account, the Reserve Account, the Pre-Funding Account, or the Capitalized
Interest Account shall be deposited by the Indenture Trustee in such account
immediately upon receipt. Any net loss of principal (determined on a month by
month basis) resulting
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from such investment of amounts in the Collection Account, the Reserve Account,
the Pre-Funding Account, or the Capitalized Interest Account shall be charged to
the Issuer, and upon notice thereof by the Indenture Trustee, the Issuer shall
reimburse such account for such loss within [three] Business Days.
(g) Any investment of any funds in the Collection Account, the
Reserve Account, the Pre-Funding Account, or the Capitalized Interest Account,
and any sale of any investment held in such accounts, shall be made under the
following terms and conditions:
(i) each such investment shall be made in the name of the
Indenture Trustee (in its capacity as such) or in the name of a nominee of
the Indenture Trustee;
(ii) the investment earnings of any investment shall be credited to
the account for which such investment was made;
(iii) any certificate or other instrument evidencing such investment
shall be delivered directly to the Indenture Trustee or its agent and the
Indenture Trustee shall have sole possession of such instrument, and all
income on such investment; and
(iv) the proceeds of any sale of an investment shall be remitted by
the purchaser thereof directly to the Indenture Trustee for deposit in the
account in which such investment was held.
(h) If any amounts are needed for disbursement from the Collection
Account, the Reserve Account, the Pre-Funding Account, or the Capitalized
Interest Account, and sufficient uninvested funds are not collected and
available therein to make such disbursement, in the absence of an Issuer Order
or Servicer Order for the liquidation of investments held therein in an amount
sufficient to provide the required funds, the Indenture Trustee shall cause to
be sold or otherwise converted to cash a sufficient amount of the investments in
such account selected by it in its absolute discretion and shall not be liable
for any loss resulting therefrom.
(i) The Indenture Trustee shall not in any way be held liable by
reason of any insufficiency in the Collection Account, the Reserve Account, the
Pre-Funding Account, or the Capitalized Interest Account, resulting from losses
on investments made in accordance with the provisions of this Section 3.01 (but
the institution serving as Indenture Trustee shall at all times remain liable
for its own debt obligations, if any, constituting part of such investments).
The Indenture Trustee shall not be liable for any investment made by it in
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accordance with this Section 3.01 on the grounds that it could have made a more
favorable investment.
SECTION 3.02. Collection of Moneys; Lockbox Facility; Lockbox
-----------------------------------------------
Account.
-------
(a) On or before the Closing Date, the Indenture Trustee shall
establish, in the name of the Indenture Trustee, a post office box (the "Lockbox
Facility") for the receipt directly from Obligors of all Contract Payments,
Excess Contract Receivables and Prepayment Amounts on or in respect of each
Contract. No Person other than the Indenture Trustee shall be permitted to have
access to such Lockbox Facility. On each Business Day, the Indenture Trustee
shall cause all items received in the Lockbox Facility since the preceding
Business Day to be deposited into an account maintained with the Indenture
Trustee in the name of (and under the sole control of) the Indenture Trustee
(the "Lockbox Account"). All Contract Payments, [Repurchase Amounts,] Prepayment
Amounts and other payments relating to a Contract received in the Lockbox
Facility and so deposited in the Lockbox Account shall constitute part of the
Trust Estate.
(b) The Indenture Trustee shall, on each Business Day on which the
Indenture Trustee receives a report from the Servicer pursuant to Section _____
of the Receivables Acquisition Agreement (each such day, a "Required Deposit
Date"), in accordance with the information provided therein, withdraw from the
Lockbox Account and deposit in the Collection Account the Transaction Payment
Amount.
SECTION 3.03. Collection of Moneys. If at any time the Issuer
--------------------
shall receive any payment on or in respect of any Contract or Vehicle, it shall
hold such payment in trust for the benefit of the Indenture Trustee and the
holders of the Notes, shall segregate such payment from the other property of
the Issuer, and shall, within one day of receipt, deliver such payment in the
form received (with any necessary endorsement) by it to the Indenture Trustee.
SECTION 3.04. Collection Account.
------------------
(a) The Indenture Trustee shall deposit the following into the
Collection Account:
(i) each Contract Payment received by the Indenture Trustee in
the Lockbox Facility or otherwise received by the Indenture Trustee,
including all Contract Payments deposited with the Indenture Trustee by the
Originator on the Closing Date pursuant to Section ________ of the Note
Agreement;
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(ii) the amount of each Delinquency Payment or portion thereof
received by the Indenture Trustee (whether from the Servicer as a Servicer
Advance pursuant to Section ____ of the Receivables Acquisition Agreement,
from transfers from the Reserve Account, or from a combination thereof);
(iii) the amount of each Default Payment or portion thereof
received by the Indenture Trustee (whether from transfers from the Reserve
Account or otherwise); and the proceeds of any repurchase of Contracts and
Vehicles pursuant to Section ________ of the Receivables Acquisition
Agreement;
(iv) each Prepayment Amount received in the Lockbox Facility or
otherwise received by the Indenture Trustee;
[(v) each Repurchase Amount received in the Lockbox Facility or
otherwise received by the Indenture Trustee;]
(vi) each Excess Contract Receivable received in the Lockbox
Facility or otherwise received by the Indenture Trustee;
(vii) any Insurance Proceeds received in the Lockbox Facility or
otherwise received by the Indenture Trustee;
(viii) the Pre-Funding Earnings, if any, on each Payment Date; and
(ix) the Capitalized Interest Requirement, if any, on each Payment
Date from amounts on deposit in the Capitalized Interest Account.
(b) Unless the Notes have been declared due and payable pursuant to
Section 6.02 and moneys collected by the Indenture Trustee are being applied in
accordance with Section 6.06, the Indenture Trustee shall on each Payment Date
withdraw and pay or cause to be paid all Available Funds and any Reserve Account
Payment deposited in the Collection Account (including any investment income
with respect to monies on deposit in the Collection Account) the amounts
required, for application in the following order of priority:
(i) to the Servicer, the Servicing Fee due to the Servicer on
such Payment Date and any unreimbursed Nonrecoverable Advances or Servicer
Advances, with respect to Defaulted Contracts;
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(ii) to the [Class A] Distribution Account, in the following
order of priority, the sum of:
(a) the [Class A] Overdue Interest, if any;
(b) the [Class A] Monthly interest;
(c) the Prepayment Premium due to [Class A] Noteholders on
such Payment Date, if any;
(d) if such Payment Date follows the Final Additional
Closing Date, the product of (x) the amount, if any,
remaining in the Pre-Funding Account on such Payment
Date and (y) the [Class A] Percentage;
(e) the [Class A] Overdue Principal, if any; and
(f) the [Class A] Monthly Principal.
(iii) to the [Class B] Distribution Account, in the following
order of priority, the sum of:
(a) the [Class B] Overdue Interest, if any;
(b) the [Class B] Monthly Interest;
(c) the Prepayment Premium due to [Class B] Noteholders on
such Payment Date, if any;
(d) if such Payment Date follows the Final Additional
Closing Date, the product of (x) the amount, if any,
remaining in the Pre-Funding Account on such Payment
Date and (y) the [Class B] Percentage;
(e) the [Class B] Overdue Principal, if any; and
(f) the [Class B] Monthly Principal.
(iv) to the Reserve Account, an amount equal to the excess, if
any, of the Maximum Reserve Amount for the next succeeding Payment Date
over the amount on deposit in the Reserve Account (after giving effect to
any withdrawals from the Reserve Account on such Payment Date);
(v) to the [Class C] Distribution Account, in the following
order of priority, the sum of:
(a) the [Class C] Overdue Interest, if any;
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(b) the [Class C] Monthly Interest;
(c) the Prepayment Premium due to [Class C] Noteholders on such
Payment Date, if any;
(d) if such Payment Date follows the Final Additional Closing
Date, the product of (x) the amount, if any, remaining in
the Pre-Funding Account on such Payment Date and (y) the
[Class C] Percentage;
(e) the [Class C] Overdue Principal, if any; and
(f) the [Class C] Monthly Principal;
provided, however, that if a Restricting Event shall have occurred and be
-------- -------
continuing on such Payment Date, any such amounts otherwise payable under
this clause (v) shall be deposited in the Reserve Account;
(vi) to the [Class A Noteholders], pro rata, the amount then on
--------
deposit in the [Class A] Distribution Account;
(vii) to the [Class B Noteholders], pro rata, the amount then on
--------
deposit in the [Class B] Distribution Account;
(viii) to the [Class C Noteholders], pro rata, the amount then on
--------
deposit in the [Class C] Distribution Account; and
(ix) all remaining amounts in the Collection Account shall be paid
to the Issuer; provided, however, that if a Restricting Event shall have
-------- -------
occurred and be continuing on such Payment Date, any such amounts otherwise
payable under this clause (ix) shall be deposited in the Reserve Account.
If at any time any amount or portion thereof previously distributed pursuant to
this Section 3.04(b) shall have been recovered, or shall be subject to recovery,
in any proceeding with respect to the Issuer or otherwise, then for purposes of
determining future distributions pursuant to this Section 3.04(b) such amount or
portion thereof shall be deemed not to have been previously so distributed. The
Indenture Trustee shall make no disbursal pursuant to any clause of this Section
3.04 on any Payment Date if funds are not available after all prior payments are
made on such Payment Date.
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SECTION 3.05. Reserve Account.
---------------
(a) On the Closing Date, the Issuer shall direct the
Indenture Trustee to deposit in the Reserve Account an amount equal to
_______ % of the Initial Aggregate Balance from proceeds of the sale of the
Offered Notes. On each Payment Date, the Excess Collections shall be
deposited in the Reserve Account to the extent necessary, if any, to bring
the balance in the Reserve Account to the Maximum Reserve Amount.
(b) If by [_________________________], on the Business
Day preceding any Payment Date, Available Funds are insufficient to permit,
on such Payment Date, the distribution of all Required Payments under this
Indenture, then the Indenture Trustee shall transfer, not later than the
end of such Business Day, from the Reserve Account to the Collection
Account such amount as shall be necessary to make all Required Payments on
such Payment Date.
(c) If at the time of any required transfer from the
Reserve Account to the Collection Account pursuant to Section 3.05(b) or
any addition or substitution of one or more Additional Contracts or
Substitute Contracts pursuant to Section_________ of the Receivables
Acquisition Agreement, the Indenture Trustee has been advised in writing by
the Servicer that the Servicer has made one or more Servicer Advances
pursuant to Section_________ of the Receivables Acquisition Agreement with
respect to any Contract which has become a Defaulted Contract for which the
Servicer has not otherwise been reimbursed, before transferring any funds
from the Reserve Account to the Collection Account, the Indenture Trustee
shall first transfer from the amounts available in the Reserve Account to
the Servicer the amount of such advance or advances.
(d) On each Payment Date, funds on deposit in the
Reserve Account (after withdrawal of any Reserve Account Payment) in excess
of the Maximum Reserve Amount will be distributed to the [Class C]
Distribution Account to the extent of [Class C] Overdue Interest and [Class
C] Overdue Principal and any remainder shall be distributed to the Issuer
in accordance with this Indenture; provided, however, that if a Restricting
-------- -------
Event exists on such Payment Date, all funds on deposit in the Reserve
Account (after withdrawal of any Reserve Account Payment) shall remain in
the Reserve Account, subject to use as otherwise provided in this Section.
If the amount on deposit in the Reserve Account is insufficient to pay the
Required Payments, no other assets will be available on the related Payment
Date for the payment of the deficiency. Upon discharge of this Indenture,
after all obligations to the Noteholders have been fully and irrevocably
satisfied, any balance remaining in the Reserve Account shall be paid to
the Issuer.
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SECTION 3.06. Pre-Funding Account.
-------------------
(a) On the Closing Date, the Indenture Trustee shall
deposit, on behalf of the Noteholders, in the Pre-Funding Account the
Original Pre-Funded Amount in an amount equal to $_________ from the
proceeds of the sale of the Offered Notes.
(b) On any Additional Contract Transfer Date, the Issuer
shall instruct the Indenture Trustee to withdraw from the Pre-Funding
Account an amount equal to ___% of the Implicit Contract Balance of the
Additional Contracts sold to the Issuer on such Additional Contract
Transfer Date and pay such amount to the Originator upon an Issuer Order
detailing satisfaction of the conditions set forth in Section_________ of
the Receivables Acquisition Agreement with respect to such transfer.
(c) On each Payment Date through and including the
Payment Date immediately following the Final Additional Closing Date (or,
if the Final Additional Closing Date is also a Payment Date, then on the
Final Additional Closing Date), the Indenture Trustee shall transfer from
the Pre-Funding Account to the Collection Account the Pre-Funding Earnings,
if any, applicable to each such Payment Date.
(d) If the Pre-Funding Account has not been reduced to
zero on the Final Additional Closing Date, the Indenture Trustee, upon a
Servicer Order, shall withdraw from the Pre-Funding Account on such Final
Additional Closing Date the remaining Pre-Funded Amount on deposit in the
Pre-Funding Account and shall distribute such amounts on such Final
Additional Closing Date to the Noteholders, in accordance with their
respective Class Percentages, as a prepayment on the Notes. To the extent
that such prepayment is of an amount greater than $___________, a
Prepayment Premium shall also be paid to the [Class A Noteholders] and
[Class B Noteholders] pursuant to Section 2.01(d) of this Indenture.
SECTION 3.07. Capitalized Interest Account.
----------------------------
(a) On the Closing Date, the Indenture Trustee shall
deposit in the Capitalized Interest Account the Original Capitalized
Interest Amount in an amount equal to $_________ from the proceeds of the
sale of the Offered Notes.
(b) On each Payment Date through and including the
Payment Date immediately following the Final Additional Closing Date (or,
if the Final Additional Closing Date is also a Payment Date, then on the
Final Additional Closing Date), the Indenture Trustee shall transfer from
the Capitalized Interest Account to the Collection Account the Capitalized
Interest Requirement for such Payment Date.
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(c) On each Payment Date prior to the Final Additional
Closing Date, the Indenture Trustee, upon an Issuer Order, shall withdraw
from the Capitalized Interest Account and pay on such Payment Date to the
Issuer the Overfunded Interest Amount for such Payment Date.
(d) On the Payment Date following the Final Additional
Closing Date (or, if the Final Additional Closing Date is also a Payment
Date, then on the Final Additional Closing Date), any amounts remaining in
the Capitalized Interest Account, after taking into account the transfers
on such Payment Date described in clause (c) above, shall be paid to the
Issuer on such Payment Date and the Capitalized Interest Account shall be
closed.
SECTION 3.08. Reserved.
--------
SECTION 3.09. Reports by Indenture Trustee; Notices of
----------------------------------------
Certain Payments.
----------------
(a) The Indenture Trustee shall on each Business Day
report to the Originator and the Servicer the name of each Obligor from
which any payment has been received by the Indenture Trustee (in the
Lockbox Facility or otherwise) since the preceding report of the Indenture
Trustee pursuant to this Section 3.09(a), the amount of such payment, and
(if such payment was accompanied by information identifying the Contract or
Contracts to which it relates), the Contract or Contracts to which such
payment relate.
(b) Concurrently with each payment to the Noteholders,
the Indenture Trustee shall mail to the Issuer, the Originator, the
Servicer and each Noteholder the following information:
(i) the Monthly Servicer Report furnished by the Servicer to the
Indenture Trustee following such Payment Date pursuant to Section
________ of the Receivables Acquisition Agreement (or if such report
has not been received, a written statement to such effect); and
(ii) the amount on deposit as of such Payment Date in the
Collection Account, the Reserve Account, the Pre-Funding Account and
the Capitalized Interest Account, in each case after giving effect to
all of the withdrawals and applications or transfers required on such
Payment Date pursuant to Article III.
(c) The Indenture Trustee shall within [____] Business
Days after the request of the Issuer or the Servicer, deliver to the Issuer
and the Servicer a written report setting forth the amounts on deposit in
the Collection Account, the Reserve Account, Pre-Funding Account and the
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Capitalized Interest Account, and identifying the investments included
therein.
SECTION 3.10. Indenture Trustee May Rely on Certain
-------------------------------------
Information from Originator and Servicer.
----------------------------------------
Pursuant to Sections_________, _________and ________ through
of the Receivables Acquisition Agreement, the Originator and the
--------
Servicer are required to furnish to the Indenture Trustee from time to time
certain information and make various calculations which are relevant to the
performance of the Indenture Trustee's duties in this Article Three and in
Article Four of this Indenture. The Indenture Trustee shall be entitled to
rely in good faith on any such information and calculations in the
performance of its duties hereunder, (i) unless and until a Responsible
Officer of the Indenture Trustee has actual knowledge, or is advised by any
Noteholder (either in writing or orally with prompt written or telecopied
confirmation), that such information or calculations is or are incorrect,
or (ii) unless there is a manifest error in any such information; provided
--------
that the Indenture Trustee shall verify, using all available information,
the [Class A] Monthly Principal, the [Class B] Monthly Principal, the
[Class C] Monthly Principal, the [Class A] Monthly Interest, the [Class B]
Monthly Interest, the [Class C] Monthly Interest and the Prepayment
Premium, if any, to be paid on each Payment Date.
ARTICLE IV
RELEASE OF CONTRACTS AND VEHICLES.
SECTION 4.01. Release of Contracts and Vehicles Upon Final
--------------------------------------------
Contract Payment. In the event that the Indenture Trustee shall have
----------------
received written certification from an Authorized Officer of the Servicer
that the Indenture Trustee has received from amounts paid by the Obligor or
from the proceeds of the Vehicle subject to any Contract (i) the final
Contract Payment due and payable under any Contract, or (ii) a Prepayment
Amount in respect of any Contract and, following such final Contract
Payment or Prepayment Amount, no further payments on or in respect of such
Contract are or will be due and payable, or (iii) the full amount of any
Contract Default Pay-Through Amount with respect to any Contract, such
Contract and the Vehicle subject thereto shall be released from the lien of
this Indenture.
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SECTION 4.02. Release of Contracts and Vehicles Following
-------------------------------------------
Substitution or Repurchase.
- --------------------------
In the event that (i) the Originator shall have substituted a
Substitute Contract and the Vehicle subject thereto for a Predecessor Contract
and the Vehicle subject thereto in accordance with Section of the
--------
Receivables Acquisition Agreement, or (ii) the Originator shall have repurchased
a Contract and the related Vehicle in accordance with Section of the
--------
Receivables Acquisition Agreement, the Predecessor Contract, or the repurchased
Contract, and the Vehicle subject thereto shall be released from the lien of
this Indenture when the Indenture Trustee shall have received written
certification from an Authorized Officer of the Servicer that there are no
unreimbursed amounts drawn on the Reserve Account with respect to such Contract.
If there are such unreimbursed amounts any proceeds received with respect to
such Predecessor Contract and the related Vehicle shall be applied hereunder
only to the extent necessary to reimburse the Reserve Account for such amounts
drawn thereon and the balance of such proceeds, if any, shall be paid to, or as
directed by, the Originator.
SECTION 4.03. Execution of Documents.
----------------------
The Indenture Trustee shall promptly execute and deliver such
documents (which shall be furnished to the Indenture Trustee by the Issuer) and
take such other actions as the Issuer, by Issuer Request, may reasonably request
to fully effectuate the release from this Indenture of any Contract and Vehicle
required to be so released pursuant to Sections 4.01 and 4.02.
ARTICLE V
SERVICER EVENTS OF DEFAULT; SUBSTITUTE SERVICER
SECTION 5.01. Servicer Events of Default.
--------------------------
If a Servicer Event of Default shall have occurred and be continuing,
the Indenture Trustee shall, upon the request of the holders of Notes evidencing
more than [ %] of Voting Rights, give notice in writing to the Servicer of its
--
termination as Servicer and shall act as substitute Servicer in accordance with
Section of the Receivables Acquisition Agreement.
--------
SECTION 5.02. Substitute Servicer.
-------------------
Notwithstanding the provisions of Section 5.01, the Indenture Trustee
may, if it shall be unwilling to continue to act as the Successor Servicer in
accordance with Section 5.01
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or if it is unable to continue to so act, appoint a Successor Servicer in
accordance with the provisions of Section of the Receivables
--------
Acquisition Agreement.
SECTION 5.03. Notification to Noteholders.
---------------------------
Upon any termination of the Servicer or appointment of a Successor
Servicer, the Indenture Trustee shall give prompt notice of such termination or
appointment to each Noteholder in the manner provided herein.
ARTICLE VI
EVENTS OF DEFAULT; REMEDIES
SECTION 6.01. Events of Default.
-----------------
"Indenture Event of Default," wherever used herein, means any one of
the following (whatever the reason for such Indenture Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) default in the payment of any principal of or interest and
premium, if any, upon any Outstanding Note when it becomes due and payable;
(ii) default in the performance, or breach, of any covenant set
forth in Section 8.07(b), 8.07(e) and Section 8.08;
(iii) default in the performance, or breach, of any covenant of the
Issuer in this Indenture (other than a covenant default the performance of
which or breach of which is elsewhere in this Section 6.01 specifically
dealt with), the Note Agreement or the Receivables Acquisition Agreement
and continuance of such default or breach for a period of [ ] days after
--
the earliest of (A) any officer of the Issuer first acquiring knowledge
thereof, (B) the Indenture Trustee's giving written notice thereof to the
Issuer or (C) the holder of any Note giving written notice thereof to the
Issuer;
(iv) if any representation or warranty of the Issuer or the
Originator made in this Indenture, the Note Agreement or the Receivables
Acquisition Agreement or any other writing provided to the Noteholders in
connection with the foregoing documents shall prove to be incorrect in any
material respect as of the time when the same shall have been made;
provided, however, that the breach
-------- -------
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of any representation or warranty made by the Originator in Section
or of the Receivables Acquisition Agreement with respect
-------- --------
to any of the Contracts or the Vehicle subject thereto shall not constitute
an Indenture Event of Default if the Originator substitutes one or more
Substitute Contracts and the Vehicle subject thereto for such Contract and
Vehicle in accordance with Section of the Receivables Acquisition
--------
Agreement or repurchases a Contract and the related Vehicle in accordance
with Section of the Receivables Acquisition Agreement;
--------
(v) the entry by a court having jurisdiction in the premises of (A)
a decree or order for relief in respect of the Issuer in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization, or other similar law or (B) a decree or order
adjudging the Issuer a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment, or
composition of or in respect of the Issuer under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator, or other similar official of the Issuer or of any
substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order for relief
or any such other decree or order unstayed and in effect for a period of 60
consecutive days;
(vi) the commencement by the Issuer of a voluntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Issuer in an involuntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization, or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, or the consent by it to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator, or
similar official of the Issuer or of any substantial part of its property,
or the making by it of an assignment for the benefit of creditors, or the
Issuer's failure to pay its debts generally as they become due, or the
taking of corporate action by the Issuer in furtherance of any such action;
or
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(vii) the rendering against the Issuer of a final judgment, decree or
order for the payment of money in excess of [$ ] and the continuance
------
of such judgment, decree or order unsatisfied for any period of [ ]
--
consecutive days without a stay of execution.
SECTION 6.02. Acceleration of Maturity; Rescission and
----------------------------------------
Annulment.
---------
(a) If an Indenture Event of Default of the kind
specified in clauses (v) or (vi) of Section 6.01 occurs, the unpaid
principal amount of the Notes shall automatically become due and payable at
par together with all accrued and unpaid interest thereon, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Issuer. If an Indenture Event of Default (other than an
Indenture Event of Default of the kind described in clauses (v) or (vi) of
Section 6.01) occurs and is continuing, then and in every such case the
Indenture Trustee or the holders of Notes evidencing not less than
[ %] of Voting Rights may declare the unpaid principal amount of all
------
the Notes to be due and payable immediately, by a notice in writing to the
Issuer (and to the Indenture Trustee if given by the Noteholders), and upon
any such declaration such principal amount shall become immediately due and
payable together with all accrued and unpaid interest thereon, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Issuer.
(b) At any time after such a declaration of acceleration
has been made and before a judgment or decree for payment of the money due
has been obtained by the Indenture Trustee as hereinafter in this Article
provided, the holders of Notes evidencing not less than [______%] of Voting
Rights, by written notice to the Issuer and the Indenture Trustee, may
rescind and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee a
sum sufficient to pay:
(A) all principal of and premium, if any, of any Notes which have
become due otherwise than by such declaration of acceleration and
interest thereon from the date when the same first became due at the
applicable Note Rate plus basis points,
-----
(B) all interest which has became due with respect to the Notes
and, to the extent that payment of such interest is lawful, interest
upon overdue interest from the date when the same first became due at
a rate per annum equal to the applicable Note Rate plus basis
-----
points, and
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(C) all sums paid or advanced by the Indenture Trustee hereunder
and the reasonable compensation, expenses, disbursements, and advances
of the Indenture Trustee, its agents and counsel; and
(ii) all Indenture Events of Default, other than the non-payment of
the aggregate principal amount of the Notes which has become due solely by
such declaration of acceleration, have been cured or waived as provided in
Section 6.13.
No such rescission shall affect any subsequent Indenture Event of Default or
impair any right consequent thereon.
SECTION 6.03. Remedies.
--------
(a) If an Indenture Event of Default occurs and is continuing of which
a Responsible Officer has actual knowledge, the Indenture Trustee shall give
notice to each Noteholder as set forth in Section 7.02 and shall solicit the
Noteholders for advice. The Indenture Trustee shall then take such action, if
any, as may be directed by the holders of Notes evidencing not less than
[ %] of Voting Rights.
------
(b) Following any acceleration of the Notes, the Indenture Trustee
shall have all of the rights, powers and remedies with respect to the Trust
Estate as are available to secured parties under the Uniform Commercial Code or
other applicable law. Such rights, powers and remedies may be exercised by the
Indenture Trustee in its own name as trustee of an express trust.
SECTION 6.04. Indenture Trustee May File Proofs of Claim.
------------------------------------------
(a) In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition,
or other judicial proceeding relative to the Issuer, the Originator, the
Servicer or any other obligor upon the Notes or the other obligations secured
hereby or relating to the property of the Issuer, the Originator, the Servicer
or of such other obligor or their creditors, the Indenture Trustee (irrespective
of whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Indenture Trustee shall have made any demand on the Issuer, the Originator or
the Servicer for the payment of overdue principal or overdue interest or any
such other obligation) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
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(i) to file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Notes and any other obligation
secured hereby and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Indenture Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee, its agents and
counsel) and of the Noteholders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator, or
other similar official in any such judicial proceeding is hereby authorized by
each Noteholder to make such payments to the Indenture Trustee and, in the event
that the Indenture Trustee shall consent to the making of such payments directly
to the Noteholders to pay to the Indenture Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Indenture
Trustee, its agents and counsel, and any other amounts due the Indenture Trustee
under Section 7.06.
(b) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any holder thereof or to authorize the
Indenture Trustee to vote in respect of the claim of any Noteholder in any such
proceeding.
SECTION 6.05. Indenture Trustee May Enforce Claims Without
--------------------------------------------
Possession of Notes.
-------------------
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Indenture Trustee without the possession of any
of the Notes or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Indenture Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Indenture Trustee, its agents and counsel, be
for the ratable benefit of the holders of the Notes in respect of which such
judgment has been recovered.
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SECTION 6.06. Application of Money Collected.
------------------------------
Any money collected by the Indenture Trustee pursuant to this Article,
and any moneys that may then be held or thereafter received by the Indenture
Trustee, shall be applied in the following order, at the date or dates fixed by
the Indenture Trustee and, in case of the distribution of the entire amount due
on account of principal or interest, upon presentation of the Notes and
surrender thereof:
first, to the payment of all costs and expenses of collection incurred
-----
by the Indenture Trustee (including the reasonable fees and expenses of any
counsel to the Indenture Trustee) and all other amounts due the Indenture
Trustee under Section 7.06 and, after such costs and expenses incurred by
the Indenture Trustee have been paid, then to the payment of any such costs
and expenses incurred by the Noteholders;
second, to the payment of all unreimbursed Servicer Advances and
------
Servicing Fees then due to such Person;
third, to the payment of all accrued and unpaid interest on the
-----
Outstanding [Class A] Note Balance to the date of payment thereof,
including (to the extent permitted by applicable law) interest on any
overdue installment of interest and principal from the date such
installment was due to the date of payment thereof at the rate per annum
equal to the [Class A] Note Rate plus ________ basis points, all such
amounts to be paid ratably among the [Class A] Notes, without preference or
priority of any kind;
fourth, to the payment of the Outstanding [Class A] Note Balance and
------
any other amounts due to the [Class A] Noteholders ratably, without
preference or priority of any kind;
fifth, to the payment of all accrued and unpaid interest on the
-----
Outstanding [Class B] Note Balance to the date of payment thereof,
including (to the extent permitted by applicable law) interest on any
overdue installment of interest and principal from the date such
installment was due to the date of payment thereof at the rate per annum
equal to the [Class B] Note Rate plus ________ basis points, all such
amounts to be paid ratably among the [Class B] Notes, without preference or
priority of any kind;
sixth, to the payment of the Outstanding [Class B] Note Balance and
-----
any other amounts due to the [Class B] Noteholders ratably, without
preference or priority of any kind;
53
<PAGE>
seventh, to the payment of all accrued and unpaid interest on the
-------
Outstanding [Class C] Note Balance to the date of payment thereof,
including (to the extent permitted by applicable law) interest on any
overdue installment of interest and principal from the date such
installment was due to the date of payment thereof at the rate per annum
equal to the [Class C] Note Rate plus ________ basis points, all such
amounts to be paid ratably among the [Class C] Notes, without preference or
priority of any kind;
eighth, to the payment of the Outstanding [Class C] Note Balance and
------
any other amounts due to the [Class C] Noteholders ratably, without
preference or priority of any kind; and
ninth, to the payment of the remainder, if any, to or at the order of
-----
the Issuer.
SECTION 6.07. Limitation on Suits.
-------------------
The holder of any Note shall not have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(i) such Noteholder has previously given written notice to the
Indenture Trustee of a continuing Indenture Event of Default;
(ii) the holders of Notes evidencing not less than ________% of
Voting Rights shall have made written request to the Indenture Trustee to
institute proceedings in respect of such Indenture Event of Default in its
own name as Indenture Trustee hereunder;
(iii) such Noteholder or Noteholders have offered to the Indenture
Trustee adequate indemnity (which the Indenture Trustee agrees, in the case
of each of the original purchasers of the Notes, need only be the written
promise of such Person) against the costs, expenses and liabilities to be
incurred in compliance with such request;
(iv) the Indenture Trustee for [__] days after its receipt of such
notice, request and offer of indemnity has failed to institute any such
proceeding; and
(v) so long as any of the Notes remain Outstanding, no direction
inconsistent with such written request has been given to the Indenture
Trustee during such [__-day] period by the holders of Notes evidencing more
than [__%] of Voting Rights;
54
<PAGE>
it being understood and intended that no one or more Noteholder shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb, or prejudice the rights of any other
Noteholder, or to obtain or to seek to obtain priority or preference over any
other Noteholder or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the
Noteholders.
SECTION 6.08. Unconditional Right of Noteholders to Receive
---------------------------------------------
Payment.
- -------
Notwithstanding any other provision in this Indenture, other than the
provisions hereof establishing priorities of payment or limiting the right to
recover amounts due on the Notes to recoveries from the property of the Trust
Estate, the holder of any Note shall have the absolute and unconditional right
to receive payment of the principal of and interest on such Note on the Payment
Dates for such payments, including the Stated Maturity Date, and to institute
suit for the enforcement of any such payment, and such rights shall not be
impaired without the consent of such Noteholder.
SECTION 6.09. Restoration of Rights and Remedies.
----------------------------------
If the Indenture Trustee or any Noteholder has instituted any
proceeding to enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Indenture Trustee or to such Noteholder, then and in
every such case, subject to any determination in such proceeding, the Issuer,
the Indenture Trustee and the Noteholders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Indenture Trustee and the Noteholders shall continue as though
no such proceeding had been instituted.
SECTION 6.10. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost, or stolen Notes in the last paragraph of
Section 2.04, no right or remedy herein conferred upon or reserved to the
Indenture Trustee or to the Noteholders is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
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SECTION 6.11. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Indenture Trustee or of any holder of any
Note to exercise any right or remedy accruing upon any Indenture Event of
Default shall impair any such right or remedy or constitute a waiver of any such
Indenture Event of Default or an acquiescence therein. Every right and remedy
given by this Article or by law to the Indenture Trustee or to the Noteholders
may be exercised from time to time, and as often as may be deemed expedient, by
the Indenture Trustee or by the Noteholders, as the case may be.
SECTION 6.12. Control by Noteholders.
----------------------
Except as provided in Sections 4.01 and 5.01, until such time as the
conditions specified in Sections 11.01(a)(i) and (ii) have been satisfied in
full, the holders of Notes evidencing not less than [________%] of Voting Rights
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Indenture Trustee or exercising any
trust or power conferred on the Indenture Trustee. Notwithstanding the
foregoing:
(i) no such direction shall be in conflict with any rule of law or
with this Indenture;
(ii) any direction to the Indenture Trustee by the Noteholders to
undertake a private sale of the Trust Estate shall be by the holders of
Notes evidencing ________% of the Voting Rights, unless the condition set
forth in Section 6.15(b)(ii) is met;
(iii) the Indenture Trustee shall not be required to follow any such
direction which the Indenture Trustee reasonably believes may be
prejudicial to any Noteholder not joining in such direction or which the
Indenture Trustee reasonably believes might result in any personal
liability on the part of the Indenture Trustee for which the Indenture
Trustee is not adequately indemnified;
(iv) the Indenture Trustee shall not undertake a private sale of the
Trust Estate unless the conditions set forth in Section 6.15(b) are met;
and
(v) the Indenture Trustee may take any other action deemed proper
by the Indenture Trustee which is not inconsistent with any such direction;
provided, that the Indenture Trustee shall give notice of any such action
--------
to each Noteholder.
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SECTION 6.13. Waiver of Events of Default.
---------------------------
(a) The holders of Notes evidencing not less than [66-2/3%]
of Voting Rights may, by one or more instruments in writing, waive any Indenture
Event of Default hereunder and its consequences, except a continuing Indenture
Event of Default:
(i) in respect of the payment of the principal of or premium or
interest on any Outstanding Note (which may only be waived by the holder of
such Note), or
(ii) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
holder of each Outstanding Note affected (which only may be waived by the
holders of all Outstanding Notes affected).
(b) A copy of each waiver pursuant to Section 6.13(a) shall be
furnished by the Issuer to the Indenture Trustee. Upon any such waiver, such
Indenture Event of Default shall cease to exist and shall be deemed to have been
cured, for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other Indenture Event of Default or impair any right
consequent thereon.
SECTION 6.14. Waiver of Stay or Extension Laws.
--------------------------------
The Issuer covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Indenture Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
SECTION 6.15. Sale of Trust Estate.
--------------------
(a) The power to effect any sale of any portion of the Trust Estate
pursuant to Section 6.03 shall not be exhausted by any one or more sales as to
any portion of the Trust Estate remaining unsold, but shall continue unimpaired
until the entire Trust Estate shall have been sold or all amounts payable on the
Notes shall have been paid. The Indenture Trustee may from time to time postpone
any public sale by public announcement made at the time and place of such sale.
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(b) To the extent permitted by applicable law, the Indenture Trustee
shall not in any private sale sell to a third party the Trust Estate, or any
portion thereof unless either (i) the holders of Notes evidencing 100% of the
Voting Rights consent to or direct the Indenture Trustee to make such sale; or
(ii) the proceeds of such sale would be not less than the sum of all amounts due
to the Indenture Trustee hereunder and the entire unpaid principal amount of the
Notes and the Prepayment Premium, if any, and interest due or to become due
thereon in accordance with Section 6.06 on the Payment Date next succeeding the
date of such sale.
The Indenture Trustee may not purchase all or any portion of the Trust
Estate at a private sale.
(c) In connection with a sale of all or any portion of the Trust
Estate:
(i) any one or more Noteholders may bid for and purchase the
property offered for sale, and upon compliance with the terms of sale may
hold, retain, and possess and dispose of such property, without further
accountability, and any Noteholder may, in paying the purchase money
therefor, deliver in lieu of cash any Outstanding Notes or claims for
interest thereon for credit in the amount that shall, upon distribution of
the net proceeds of such sale, be payable thereon, and such Notes, in case
the amounts so payable thereon shall be less than the amount due thereon,
shall be returned to the Noteholders after being appropriately stamped to
show such partial payment;
(ii) the Indenture Trustee may not bid for and acquire the property
offered for sale in connection with any public sale thereof;
(iii) the Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Trust Estate in connection with a sale thereof;
(iv) the Indenture Trustee is hereby irrevocably appointed the agent
and attorney-in-fact of the Issuer to transfer and convey its interest in
any portion of the Trust Estate in connection with a sale thereof, and to
take all action necessary to effect such sale; and
(v) no purchaser or transferee at such a sale shall be bound to
ascertain the Indenture Trustee's authority, inquire into the satisfaction
of any conditions precedent or see to the application of any moneys.
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(d) The method, manner, time, place and terms of any sale of all or
any portion of the Trust Estate shall be commercially reasonable.
(e) The provisions of this Section 6.15 shall not be construed to
restrict the ability of the Indenture Trustee to exercise any rights and powers
against the Issuer or the Trust Estate that are vested in the Indenture Trustee
by this Indenture, including, without limitation, the power of the Indenture
Trustee to proceed against the collateral subject to the lien of this Indenture
and to institute judicial proceedings for the collection of any deficiency
remaining thereafter.
ARTICLE VII
THE INDENTURE TRUSTEE
SECTION 7.01. Certain Duties and Responsibilities.
-----------------------------------
(a) Except during the continuance of an Indenture Event of Default
known to the Indenture Trustee,
(i) the Indenture Trustee undertakes to perform such duties and
only such duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this Indenture against
the Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; but in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Indenture Trustee, the Indenture Trustee shall be under a
duty to examine the same to determine whether or not they conform to the
requirements of this Indenture.
(b) In case an Indenture Event of Default has occurred and is
continuing to the actual knowledge of a Responsible Officer of the Indenture
Trustee, the Indenture Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Indenture Trustee from liability for
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its own negligent action, its own negligent failure to act, or its own wilful
misconduct, except that:
------
(i) this subsection shall not be construed to limit the effect of
subsection (a) of this Section;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless it shall be
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts;
(iii) the Indenture Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Noteholders in accordance with Section 6.12 relating
to the time, method, and place of conducting any proceeding for any remedy
available to the Indenture Trustee, or exercising any trust or power
conferred upon the Indenture Trustee, under this Indenture; and
(iv) no provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Indenture Trustee (solely in its role as Indenture
Trustee and not in its role as substitute Servicer) shall be subject to the
provisions of this Section.
SECTION 7.02. Notice of Defaults or Events of Default.
---------------------------------------
Within two Business Days after a Responsible Officer obtains knowledge of
the occurrence of any Default or Indenture Event of Default hereunder or
Servicer Event of Default under the Receivables Acquisition Agreement, the
Indenture Trustee shall transmit by facsimile (if a facsimile number is
reasonably obtainable by the Indenture Trustee), with a copy by registered mail,
to all Noteholders, as their names, addresses and facsimile numbers appear in
the Note Register, the Issuer, the Servicer and the Originator notice of such
Default, Indenture Event of Default or Servicer Event of Default hereunder known
to the Indenture Trustee, unless such Default, Indenture Event of Default or
Servicer Event of Default shall have been cured or waived.
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SECTION 7.03. Certain Rights of Indenture Trustee.
-----------------------------------
Subject to the provisions of Section 7.01:
(i) the Indenture Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
note, debenture, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(ii) any request or direction of the Issuer mentioned herein shall
be sufficiently evidenced by an Issuer Request or Issuer Order and any
action of the Issuer may be sufficiently evidenced by an Issuer Order;
(iii) whenever in the administration of this Indenture the Indenture
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the Indenture
Trustee (unless other evidence be herein specifically prescribed) may, in
the absence of bad faith on its part, rely upon an Officers' Certificate;
(iv) the Indenture Trustee may consult with counsel as to legal
matters and the written advice of any such counsel selected and supervised
by the Indenture Trustee with due care shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(v) the Indenture Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the request
or direction of any of the Noteholders pursuant to this Indenture, unless
such Noteholders shall have offered to the Indenture Trustee reasonable
security or indemnity against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction;
(vi) the Indenture Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, note, debenture, other evidence of indebtedness,
or other paper or document, but the Indenture Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Indenture Trustee shall determine to make
such further inquiry or investigation, it shall be
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entitled to examine the books, records and premises of the Issuer,
personally or by agent or attorney; and
(vii) the Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Indenture Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney appointed
and supervised with due care by it hereunder.
SECTION 7.04. Not Responsible for Recitals or Issuance of Notes.
-------------------------------------------------
The recitals contained herein and in the Notes, except the Indenture
Trustee's certificates of authentication, shall be taken as the statements of
the Issuer, and the Indenture Trustee assumes no responsibility for their
correctness. The Indenture Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Notes. The Indenture Trustee shall
not be accountable for the use or application by the Issuer of the proceeds of
the Notes.
SECTION 7.05. Money Held in Trust.
-------------------
Money and investments held by the Indenture Trustee shall be held in
trust in one or more trust accounts as required hereunder.
SECTION 7.06. Compensation, Reimbursement, etc.
---------------------------------
The Issuer agrees:
(i) to pay to the Indenture Trustee from time to time such
compensation for all services rendered by it hereunder as the Issuer and
the Indenture Trustee have agreed in writing prior to the Closing Date
(which compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust), such payment to be
made independent of the other payment obligations of the Issuer hereunder;
and
(ii) except as otherwise expressly provided herein, to reimburse the
Indenture Trustee upon its request for all reasonable expenses,
disbursements, and advances incurred or made by the Indenture Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement, or advance as may be attributable to
its negligence or bad faith.
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SECTION 7.07. Corporate Indenture Trustee Required; Eligibility.
--------------------------------------------------
There shall at all times be an Indenture Trustee hereunder which (i)
shall be a corporation organized and doing business under the laws of the United
States of America, any state thereof or the District of Columbia, authorized
under such laws to exercise corporate trust powers; (ii) shall have a combined
capital and surplus of at least [$___________] or be a wholly owned subsidiary
of a bank holding company having such a capital and surplus; (iii) shall be
subject to supervision or examination by federal or state authority; (iv) at the
time of appointment, shall have commercial paper or other short-term debt
obligations (or, if the Indenture Trustee does not have outstanding commercial
paper or other short-term obligations and is a subsidiary of a holding company,
which holding company shall have commercial paper or other short term
obligations) having either of the two highest short-term credit ratings
available from the Rating Agency (or if the Rating Agency does not rate such
obligations, its equivalent from one other nationally recognized rating agency);
and (v) shall not be affiliated (as such term is defined in Rule 405 under the
Securities Act of 1933, as amended) with the Issuer or with any Person involved
in the organization or operation of the Issuer. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of said supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Indenture Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 7.08. Resignation and Removal; Appointment of Successor.
--------------------------------------------------
(a) No resignation or removal of the Indenture Trustee and no
appointment of a successor Indenture Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor Indenture
Trustee under Section 7.09.
(b) The Indenture Trustee may resign for cause at any time by giving
written notice thereof to the Issuer and by mailing notice of resignation by
first-class mail, postage prepaid, to the Noteholders at their addresses
appearing on the Note Register.
(c) The Indenture Trustee may be removed at any time by Act of the
holders of Notes evidencing more than [50%]
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of Voting Rights, delivered to the Indenture Trustee and the Issuer.
(d) If the Indenture Trustee shall resign, be removed, or become
incapable of acting, or if a vacancy shall occur in the office of Indenture
Trustee for any cause, the Issuer, with the consent of the holders of Notes
evidencing not less than [______%] of Voting Rights, by an act of the Issuer,
shall promptly appoint a successor Indenture Trustee.
(e) If no successor Indenture Trustee shall have been so appointed by
the Issuer as hereinbefore provided and accepted appointment in the manner
hereinafter provided within 30 days after any such resignation or removal,
existence of incapability, or occurrence of such vacancy, the Indenture Trustee
or any Noteholder may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee.
(f) The Issuer shall give notice of each resignation and each removal
of the Indenture Trustee and each appointment of a successor Indenture Trustee
by mailing written notice of such event by first-class mail, postage prepaid, to
all Noteholders, as their names and addresses appear in the Note Register. Each
notice shall include the name of the successor Indenture Trustee and the address
of its Corporate Trust Office.
SECTION 7.09. Acceptance of Appointment by Successor.
--------------------------------------
(a) Every successor Indenture Trustee appointed hereunder shall
execute, acknowledge and deliver to the Issuer and to the retiring Indenture
Trustee an instrument accepting such appointment, and thereupon the resignation
or removal of the retiring Indenture Trustee shall become effective and such
successor Indenture Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Indenture Trustee; but, on request of the Issuer or the successor Indenture
Trustee, such retiring Indenture Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Indenture
Trustee all the rights, powers and trusts of the retiring Indenture Trustee and
shall duly assign, transfer and deliver to such successor Indenture Trustee all
property and money held by such retiring Indenture Trustee hereunder. Upon
request of any such successor Indenture Trustee, the Issuer shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Indenture Trustee all such rights, powers and trusts.
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(b) No successor Indenture Trustee shall accept its appointment unless at
the time of such acceptance such successor Indenture Trustee shall be qualified
and eligible under this Article.
SECTION 7.10. Merger, Conversion, Consolidation or Succession to Business.
------------------------------------------------------------
Any Person into which the Indenture Trustee may be merged or converted or
with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Indenture Trustee shall be a party, or
any Person succeeding to all or substantially all the corporate trust business
of the Indenture Trustee, shall be the successor of the Indenture Trustee
hereunder, provided such Person shall be otherwise qualified and eligible under
this Article, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Indenture Trustee then in office, any
successor by merger, conversion, or consolidation to such authenticating
Indenture Trustee may adopt such authentication and deliver the Notes so
authenticated with the same effect as if such successor Indenture Trustee had
itself authenticated such Notes.
SECTION 7.11. Co-trustees and Separate Indenture Trustees.
--------------------------------------------
(a) At any time or times, for the purpose of meeting the legal requirements
of any jurisdiction in which any of the Trust Estate may at the time be located,
the Issuer and the Indenture Trustee shall have power to appoint, and, upon the
written request of the Indenture Trustee, the holders of Notes evidencing more
than [__%] of Voting Rights, the Issuer shall for such purpose join with the
Indenture Trustee in the execution, delivery, and performance of all instruments
and agreements necessary or proper to appoint one or more Persons approved by
the Indenture Trustee either to act as co-trustee, jointly with the Indenture
Trustee, of all or any part of such Trust Estate, or to act as separate trustee
of any such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section. If the Issuer does not join in
such appointment within [__] days after the receipt by it of a request so to do,
or in case an Indenture Event of Default has occurred and is continuing, the
Indenture Trustee alone shall have power to make such appointment.
(b) Should any written instrument from the Issuer be required by any co-
trustee or separate trustee so appointed for more fully confirming to such co-
trustee or separate
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trustee such property, title, right, or power, any and all such instruments
shall, on request, be executed, acknowledged and delivered by the Issuer.
(c) Every co-trustee or separate trustee shall, to the extent permitted
by law, but to such extent only, be appointed subject to the following terms:
(i) The Notes shall be authenticated and delivered and all rights,
powers, duties, and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Indenture Trustee hereunder, shall be
exercised solely by the Indenture Trustee.
(ii) The rights, powers, duties, and obligations hereby conferred or
imposed upon the Indenture Trustee in respect of any property covered by
such appointment shall be conferred or imposed upon and exercised or
performed by the Indenture Trustee or by the Indenture Trustee and such co-
trustee or separate trustee jointly, as shall be provided in the instrument
appointing such co-trustee or separate trustee, except to the extent that,
under any law of any jurisdiction in which any particular act is to be
performed, the Indenture Trustee shall be incompetent or unqualified to
perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee or separate
trustee.
(iii) The Indenture Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Issuer evidenced by an Issuer
Order, may accept the resignation of or remove any co-trustee or separate
trustee appointed under this Section, and, in case an Indenture Event of
Default has occurred and is continuing, the Indenture Trustee shall have
power to accept the resignation of, or remove, any such co-trustee or
separate trustee without the concurrence of the Issuer. Upon the written
request of the Indenture Trustee, the Issuer shall join with the Trustee in
the execution, delivery and performance of all instruments and agreements
necessary or proper to effectuate such resignation or removal. A successor
to any co-trustee or separate trustee so resigned or removed may be
appointed in the manner provided in this Section.
(iv) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Indenture Trustee or any
other such trustee hereunder and the Indenture Trustee shall not be
personally liable by reason of any act or omission of any co-trustee or
other such separate trustee hereunder
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selected and supervised by the Indenture Trustee with due care or appointed
in accordance with directions to the Indenture Trustee pursuant to Section
6.12.
(v) Any Act of Noteholders delivered to the Indenture Trustee shall
be deemed to have been delivered to each such co-trustee and separate
trustee.
SECTION 7.12. Indenture Trustee to Hold Contracts.
-----------------------------------
The Indenture Trustee shall hold the sole original, manually executed
counterpart of each Contract that constitutes chattel paper, together with any
documents relating thereto that may from time to time be delivered to the
Indenture Trustee, until such time as such Contract is released from the lien of
this Indenture pursuant to the provisions hereof.
SECTION 7.13. Request for Opinion of Counsel.
------------------------------
By its execution of this Indenture, the Indenture Trustee specifically
requests [counsel], the Indenture Trustee's special counsel in connection with
the transactions contemplated hereby, to prepare and deliver to each initial
purchaser of the Offered Notes the closing opinion contemplated by Section ____
of the Note Agreement.
SECTION 7.14. Financing Statements.
--------------------
The Indenture Trustee shall execute such Financing Statements and
continuation statements as shall be necessary and shall furnish the Servicer
with any powers of attorney or other documents necessary or appropriate to
enable the Servicer to fulfill its obligations under Section ______ of the
Receivables Acquisition Agreement and to carry out its servicing and
administration duties under the Receivables Acquisition Agreement.
SECTION 7.15. Power of Attorney.
-----------------
The Issuer hereby grants to the Indenture Trustee the power as its
attorney-in-fact to file Financing Statements in the appropriate offices
evidencing the conveyance of the Contracts and related Vehicles, and proceeds
thereof, to the Indenture Trustee for the benefit of the Noteholders, and to do
any and all other acts as may be necessary or appropriate to effect the
transaction contemplated herein and in the Receivables Acquisition Agreement and
the Note Agreement. The Issuer will execute any document or instrument deemed
necessary by the Indenture Trustee to effect or to evidence this power of
attorney. All costs associated with such filing or instructions shall be paid
by the Issuer.
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ARTICLE VIII
COVENANTS
SECTION 8.01. Payment of Principal and Interest.
---------------------------------
The Issuer will duly and punctually pay the principal of and interest and
premium, if any, on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 8.02. Maintenance of Office or Agency; Chief Executive Office.
-------------------------------------------------------
(a) The Issuer will maintain in the State of _________________ an
office or agency where notices and demands to or upon the Issuer in respect of
the Notes and this Indenture may be served.
(b) The chief executive office of the Issuer, and the office at which
the Issuer maintains its records with respect to the Contracts, the Vehicles,
and the transactions contemplated hereby, is located in [__________________].
The Issuer will not change the location of such office without giving the
Indenture Trustee and each Noteholder at least 60 days' prior written notice
thereof.
SECTION 8.03. Money for Payments to Noteholders to be Held in Trust.
-----------------------------------------------------
(a) All payments of amounts due and payable with respect to any Notes
that are to be made from amounts withdrawn from the Collection Account, the
Reserve Account, the Pre-Funding Account or the Capitalized Interest Account
pursuant to Section 3.04(b) or Section 6.06 shall be made on behalf of the
Issuer by the Indenture Trustee, and no amounts so withdrawn from the Collection
Account, the Reserve Account, the Pre-Funding Account or the Capitalized
Interest Account for payments of Notes shall be paid over to the Issuer under
any circumstances except as provided in this Section 8.03 or in Sections 3.04,
3.05, 3.06, 3.07 or 6.06.
(b) In making payments hereunder, the Indenture Trustee will:
(i) allocate all sums received for payment to the Noteholders on
each Payment Date among such Noteholders in accordance with Section 3.04(b)
hereof;
(ii) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as
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herein provided and pay such sums to such Persons as herein provided; and
(iii) comply with all requirements of the Internal Revenue Code of
1986, as amended (or any successor statutes), and all regulations
thereunder, with respect to the withholding from any payments made by it on
any Notes of any applicable withholding taxes imposed thereon and with
respect to any applicable reporting requirements in connection therewith.
(c) Except as required by applicable law, any money held by the
Indenture Trustee in trust for the payment of any amount due with respect to any
Note and remaining unclaimed for three years after such amount has become due
and payable to the Noteholder shall be discharged from such trust and, subject
to applicable escheat laws, paid to the Issuer upon request; and such Noteholder
shall thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof, and all liability of the Indenture Trustee with respect to such
trust money shall thereupon cease.
SECTION 8.04. Corporate Existence; Merger; Consolidation, etc.
-----------------------------------------------
(a) The Issuer will keep in full effect its existence, rights, and
franchises as a corporation under the laws of the State of [______], and will
obtain and preserve its qualification to do business as a foreign corporation in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of the Indenture, the Notes, or any of
the Contracts.
(b) The Issuer shall at all times observe and comply in all material
respects with (i) all laws, regulations and court orders applicable to it, (ii)
all requirements of law in the declaration and payment of dividends on its
Capital Stock, and (iii) all requisite and appropriate corporate and other
formalities (including, without limitation, annual and all other appropriate
meetings of the Issuer's board of directors and, if required by law, its charter
or otherwise, meetings and votes of shareholders to authorize corporate action)
in the management of its business and affairs and the conduct of the
transactions contemplated hereby and by the Note Agreement and the Receivables
Acquisition Agreement.
(c) The Issuer shall not issue or register the transfer of any of its
Capital Stock to any Person other than the Originator.
(d) The Issuer shall not (i) consolidate or merge with or into any
other Person or convey or transfer its properties and assets substantially as an
entirety to any
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other Person except under or in compliance with this Indenture or (ii) commingle
any of its funds or other assets with those of any other Person.
(e) The Issuer will, at all times, (i) maintain (A) corporate and
financial books and records separate from those of any other Person and (B)
minutes of the meetings and other proceedings of its shareholders and board of
directors; (ii) continuously maintain the resolutions, agreements and other
instruments underlying the transactions contemplated hereby and by the Note
Agreement and the Receivables Acquisition Agreement as official records of the
Issuer; (iii) act solely in its corporate name and through its duly authorized
officers or agents to maintain an arm's-length relationship with the Originator
and its Affiliates; (iv) pay all of its operating expenses and liabilities from
its own funds; (v) maintain an office separate from that of the Originator on
the premises currently rented by the Originator; and (vi) transact the majority
of its business with entities that are not Affiliates of the Originator.
(f) The Issuer shall conduct its business solely in its own name so as
to not mislead others as to the identity of the corporation with which those
others are concerned, and particularly will avoid the appearance of conducting
business on behalf of the Originator or any of its Affiliates or that the assets
of the Issuer are available to pay the creditors of the Originator or any of its
Affiliates. Without limiting the generality of the foregoing, all oral and
written communications, including without limitation, letters, invoices,
purchase orders, contracts, statements and loan applications, will be made
solely in the name of the Issuer.
(g) The Issuer will be operated so as not to be substantively
consolidated with the Originator.
SECTION 8.05. Protection of Trust Estate; Further Assurances.
----------------------------------------------
The Issuer will from time to time execute and deliver all such
supplements and amendments hereto and all such Financing Statements,
continuation statements, instruments of further assurance, and other
instruments, and will take such other action as may be necessary or advisable
to:
(i) Grant more effectively all or any portion of the Trust Estate;
(ii) maintain or preserve the lien of this Indenture or carry out
more effectively the purposes hereof;
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(iii) publish notice of, or protect the validity of, any Grant made or
to be made by this Indenture and perfect the security interest contemplated
hereby in favor of the Indenture Trustee in the Trust Estate; provided,
--------
that the Issuer shall not be required to file Financing Statements with
respect to the Vehicles in addition to those contemplated by Section _____
of the Note Agreement and Section _____ of the Receivables Acquisition
Agreement;
(iv) enforce or cause the Servicer to enforce any of the Contracts;
or
(v) preserve and defend title to any Contract (including the right
to receive all payments due or to become due thereunder), Vehicles, or
other property included in the Trust Estate and preserve and defend the
rights of the Indenture Trustee and the Noteholders in such Contract
(including the right to receive all payments due or to become due
thereunder), Vehicles and other property against the claims of all persons
and parties.
The Issuer, upon the Issuer's failure to do so, hereby designates the Indenture
Trustee its agent and attorney-in-fact to execute any Financing Statement or
continuation statement required pursuant to this Section 8.05; provided,
--------
however, that such designation shall not be deemed to create a duty in the
- -------
Indenture Trustee to monitor the compliance of the Issuer with the foregoing
covenants, and provided, further, that the duty of the Indenture Trustee to
-------- -------
execute any instrument required pursuant to this Section 8.05 shall arise only
if a Responsible Officer of the Indenture Trustee has actual knowledge of any
failure of the Issuer to comply with the provisions of this Section 8.05.
SECTION 8.06. Reserved.
--------
SECTION 8.07. Performance of Obligations; Receivables Acquisition
---------------------------------------------------
Agreement.
---------
(a) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, any Supplement, the
Notes, the Note Agreement and the Receivables Acquisition Agreement.
(b) The Issuer will not take any action or permit any action to be
taken by others which would release any Person from any of such Person's
covenants or obligations under any Contract or any other instrument included in
the Trust Estate other than any such release occasioned by the early termination
of a Contract after receipt of the
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Prepayment Amount, or which would result in the amendment, hypothecation,
subordination, termination, or discharge of, or impair the validity or
effectiveness of, any Contract or such other instrument, except as expressly
provided in this Indenture or the Receivables Acquisition Agreement.
(c) The Issuer will clearly mark its books and records to reflect each
assignment and transfer of a Contract and the Vehicle subject thereto from the
Originator.
(d) The Issuer will reply to all inquiries by third parties with
respect to the transactions contemplated by the Receivables Acquisition
Agreement by indicating that the Originator has assigned and transferred to it
the Contracts and the Originator's right, title and interest in and to the
related Vehicles.
(e) If any Authorized Officer shall have knowledge of the occurrence
of a default under the Receivables Acquisition Agreement, the Issuer shall
promptly notify the Indenture Trustee and the Noteholders thereof, and shall
specify in such notice the action, if any, the Issuer is taking in respect of
such default. Unless consented to by the Indenture Trustee, the Issuer may not
waive any default under or amend the Receivables Acquisition Agreement.
SECTION 8.08. Negative Covenants.
------------------
The Issuer will not:
(i) sell, transfer, exchange or otherwise dispose of any portion of
the Trust Estate except as expressly permitted by this Indenture or any
Supplement;
(ii) claim any credit on, or make any deduction from, the principal
of, or interest on, any of the Notes by reason of the payment of any taxes
levied or assessed upon any portion of the Trust Estate;
(iii) engage in any business or activity other than in connection
with, or relating to the ownership of, the Contracts and the Vehicles, the
issuance of the Notes, and the specific transactions contemplated hereby;
(iv) become liable for, issue, incur, assume, or allow to remain
outstanding any indebtedness, or guaranty any indebtedness of any Person,
other than the Notes, except as contemplated by this Indenture, any
Supplement, the Receivables Acquisition Agreement and the Note Agreement;
(v) seek dissolution or liquidation in whole or in part or
reorganization of its business or affairs;
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(vi) (A) permit the validity or effectiveness of this Indenture or
any Grant hereby to be impaired, or permit the lien of this Indenture to be
amended, hypothecated, subordinated, terminated or discharged, or permit
any Person to be released from any covenants or obligations under this
Indenture, except as may be expressly permitted hereby, (B) permit any
lien, charge, security interest, mortgage or other encumbrance to be
created on or to extend to or otherwise arise upon or burden the Trust
Estate or any part thereof or any interest therein or the proceeds thereof
other than the lien of this Indenture and the rights of Obligors, or (C)
permit the lien of this Indenture not to constitute a valid first priority
security interest in the Trust Estate; or
(vii) conduct its business or engage in any activity in violation of
the provisions contained in its Articles of Incorporation.
SECTION 8.09. Information as to the Issuer.
----------------------------
The Issuer shall deliver to the Indenture Trustee and each
institutional holder of Outstanding Notes (and, upon the request of any
Noteholder, to any prospective transferee of any Notes):
(a) Annual Statements - within [__] days after the end of
-----------------
each fiscal year of the Issuer, three copies of:
(i) a balance sheet of the Issuer, at the end of that year,
and
(ii) statements of income, retained earnings and cash flows of
the Issuer for that year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and accompanied by an opinion of a
firm of independent certified public accountants of recognized national
standing stating that such financial statements present fairly the
financial condition of the Issuer and have been prepared in accordance with
generally accepted accounting principles consistently applied (except for
changes in application in which such accountants concur and footnote), and
that the examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards, and accordingly included such tests of the accounting records
and such other auditing procedures as were considered necessary in the
circumstances;
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(b) Officers' Certificate - with each set of financial statements
---------------------
delivered pursuant to Section 8.09(a), the Issuer will deliver a
certificate from an Authorized Officer stating that such Authorized Officer
has reviewed the relevant terms of this Indenture, any Supplement, the Note
Agreement and the Receivables Acquisition Agreement (including, without
limitation, Section 8.04 hereof) and has made, or caused to be made, under
such officer's supervision, a review of the transactions and conditions of
the Issuer during the period covered by the income statements then being
furnished and that the review has not disclosed the existence of any
Indenture Event of Default or, if an Indenture Event of Default exists,
describing its nature;
(c) Notice of Indenture Event of Default - immediately upon
------------------------------------
becoming aware of the existence of any condition or event which constitutes
a Default or an Indenture Event of Default, a written notice describing its
nature and period of existence and what action the Issuer is taking or
proposes to take with respect thereto;
(d) Report on Proceedings - promptly upon the Issuer's becoming
---------------------
aware of:
(i) any proposed or pending investigation
of it by any governmental authority or agency, or
(ii) any pending or proposed court or administrative
proceeding which involves or may involve the possibility,
individually or in the aggregate, of materially and adversely
affecting the properties, business, prospects, profits or
condition (financial or otherwise) of the Issuer, a written notice
specifying the nature of such investigation or proceeding and what
action the Issuer is taking or proposes to take with respect
thereto and evaluating its merits; and
(e) Requested Information - with reasonable promptness, any other
---------------------
data and information which may be reasonably requested from time to time.
SECTION 8.10. Taxes.
-----
The Issuer shall pay all taxes when due and payable or levied
against its assets, properties or income, including any property that is part of
the Trust Estate, except to the extent the Issuer is contesting the same in good
faith and has set aside adequate reserves in accordance with generally accepted
accounting principles for the payment thereof. The
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Issuer shall be included as a consolidated entity in the federal tax returns
filed by the Originator.
SECTION 8.11. Indemnification.
---------------
The Issuer agrees to indemnify and hold harmless the Indenture
Trustee and each Noteholder (each an "Indemnified Party") against any and all
liabilities, losses, damages, penalties, costs and expenses (including costs of
defense and legal fees and expenses) which may be incurred or suffered by such
Indemnified Party without negligence or willful misconduct on its part as a
result of claims, actions, suits or judgments asserted or imposed against it and
arising out of the transactions contemplated hereby or by the Note Agreement or
the Receivables Acquisition Agreement, including, without limitation, any claims
resulting from any use, operation, maintenance, repair, storage or
transportation of any Vehicle, whether or not in the Issuer's possession or
under its control, and any tort claims and any fines or penalties arising from
any violation of the laws or regulations of the United States or any state or
local government or governmental authority; provided that, all amounts payable
--------
pursuant to this Section 8.11 shall be fully subordinated to amounts payable
under the Notes, shall be without recourse to the Issuer except to the extent
that all amounts otherwise due and payable under the terms of this Indenture
have been fully paid and shall not, to the extent that such amounts are unpaid,
constitute a claim against the Issuer except to the extent that all amounts
otherwise due and payable under the terms of this Indenture have been fully
paid. The provisions of this Section 8.11 shall survive the termination of this
Indenture.
SECTION 8.12. Certificates of Title.
---------------------
For any Vehicle for which a certificate of title is pending or
for which the Issuer has requested, but has not yet received, an application to
change its certificate of title, the Issuer shall apply to have the Indenture
Trustee named as a lienholder on such Vehicle immediately upon receiving such
certificate of title or application, respectively. The Issuer shall furnish to
the Indenture Trustee copies of all applications for changes to certificates of
title prepared by it and all changed certificates of title received by it.
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ARTICLE IX
AMENDMENTS AND SUPPLEMENTAL INDENTURES
SECTION 9.01. Amendments and Supplemental Indentures.
--------------------------------------
With the consent of the holders of Notes evidencing not less
than [______%] of Voting Rights, by Act of said Noteholders delivered to the
Issuer and the Indenture Trustee, and with the consent of the Issuer, by an
Issuer Order, and the Indenture Trustee may enter into an amendment to this
Indenture or an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Noteholders under this Indenture. Without the consent of Noteholders, amendments
may be made by the Issuer and the Indenture Trustee to cure any ambiguity, to
correct or supplement any provision that is inconsistent with another provision
or to add or amend any provision with respect to matters or questions arising
under this Indenture; provided, however, that no amendment to this Indenture or
-------- -------
any supplemental indenture may modify the amount of, or the timing of payment
of, any amount due any Noteholder without the consent of such Noteholder, or any
other rights of the holders of a class of Notes, without the consent of
[______%] of the Outstanding Note Balance of the Notes of such class; and
provided, further, that no supplemental indenture may (i) modify any provision
- -------- -------
of this Indenture requiring the consent of all Noteholders or (ii) release any
of the Trust Estate from the lien hereof or modify Sections 2.05 or 6.06 hereof
without the consent of all Noteholders.
SECTION 9.02. Execution of Amendments and Supplemental Indentures.
---------------------------------------------------
In executing any amendment to this Indenture or any supplemental
indenture pursuant to Section 9.01 of this Indenture, the Indenture Trustee
shall be entitled to receive, and (subject to Section 7.01) shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
such amendment to this Indenture or any supplemental indenture is authorized or
permitted by this Indenture. The Indenture Trustee may, but shall not be
obligated to, enter into any supplemental indenture which affects the Indenture
Trustee's own rights, duties, protections, or immunities under this Indenture or
otherwise.
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SECTION 9.03. Effect of Amendments and Supplemental Indentures.
------------------------------------------------
Upon the execution of any amendment to this Indenture or any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such amendment or supplemental indenture shall form a
part of this Indenture for all purposes, and every Noteholder of Notes
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
SECTION 9.04. Reference in Notes to Amendments and Supplemental
-------------------------------------------------
Indentures.
- ----------
Notes authenticated and delivered after the execution of any
amendment to this Indenture or any supplemental indenture pursuant to this
Article may, and shall if required by the Indenture Trustee, bear a notation in
form approved by the Indenture Trustee as to any matter provided for in such
amendment or supplemental indenture. If the Issuer shall so determine, new Notes
so modified as to conform, in the opinion of the Indenture Trustee and the
Issuer, to any such amendment or supplemental indenture may be prepared and
executed by the Issuer and authenticated and delivered by the Indenture Trustee
in exchange for Outstanding Notes.
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. Optional Redemption; Election to Redeem.
---------------------------------------
The Notes may be redeemed by the Issuer, in whole but not in
part, as to the then Outstanding Offered Notes, on any Payment Date when (i) the
Outstanding [Class A] Note Balance is less than or equal to ___% of the initial
[Class A] Note Balance and (ii) the Outstanding [Class B] Note Balance is less
than or equal to ___% of the initial [Class B] Note Balance, at the Redemption
Price.
The Issuer, by an Authorized Officer, shall set the Redemption
Date and the Redemption Record Date and give notice thereof to the Indenture
Trustee pursuant to Section 10.02.
Installments of interest and principal due on or prior to a
Redemption Date shall continue to be payable to the Holders of Offered Notes
called for redemption as of the relevant Record Dates according to their terms
and the provisions of Section 2.06. The election of the Issuer to redeem any
Offered Notes pursuant to this Section shall be
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evidenced in writing by an Authorized Officer directing the Indenture Trustee to
make the payment of the Redemption Price on all of the Offered Notes to be
redeemed from monies deposited with the Indenture Trustee pursuant to Section
10.04.
SECTION 10.02. Notice to Indenture Trustee.
---------------------------
In the case of any redemption pursuant to Section 10.01, the
Issuer shall, at least [__] days prior to the Redemption Date (unless a shorter
notice shall be satisfactory to the Indenture Trustee), notify the Indenture
Trustee of such Redemption Date.
SECTION 10.03. Notice of Redemption by the Issuer.
----------------------------------
Notice of redemption pursuant to Section 10.01 shall be given
by first class mail, postage prepaid, mailed not less than [__] days prior to
the applicable Redemption Date, to each Noteholder, at his address in the Note
Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price; and
(3) that on the Redemption Date, the Redemption Price will
become due and payable upon each such Note, and that
interest thereon shall cease to accrue on such date.
Notice of redemption of Offered Notes shall be given by the
Issuer, by an Authorized Officer, or, at the request of such Authorized Officer,
by the Indenture Trustee in the name and at the expense of the Issuer. Failure
to give notice of redemption, or any defect therein, to any Noteholder selected
for redemption shall not impair or affect the validity of the redemption of any
other Note.
SECTION 10.04. Deposit of the Redemption Price.
-------------------------------
On or before the Business Day next preceding any Redemption
Date, the Issuer shall deposit with the Indenture Trustee an amount of monies
sufficient to pay the Redemption Price of all Offered Notes Outstanding on such
Redemption Date (less any portion of such payment to be made from monies in the
Collection Account).
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SECTION 10.05. Notes Payable on Redemption Date.
--------------------------------
Notice of redemption having been given as provided in Section
10.03, the Note shall, on the applicable Redemption Date, become due and payable
at the Redemption Price and on such Redemption Date (unless the Issuer shall
default in the payment of the Redemption Price) such Notes shall cease to bear
interest. The Noteholders shall be paid the Redemption Price by the Indenture
Trustee on behalf of the Issuer; provided, however, that installments of
-------- -------
principal and interest which are due on or prior to the Redemption Date shall be
payable to the Noteholders registered as such on the relevant Record Dates
according to their terms and the provisions of Section 2.06.
If the Holders of any Offered Note called for redemption shall
not be so paid, the principal and premium, if any, shall, until paid, bear
interest from the Redemption Date at the related Note Rate.
ARTICLE XI
SATISFACTION AND DISCHARGE
SECTION 11.01. Satisfaction and Discharge of
-----------------------------
Indenture.
- ---------
(a) This Indenture shall cease to be of further effect (except
as to any surviving rights herein expressly provided for), and the Indenture
Trustee, on demand of and at the expense of the Issuer, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when:
(i) either:
(A) all Notes theretofore authenticated and delivered
(other than (x) Notes which have been destroyed, lost, or
stolen and which have been replaced or paid as provided in
Section 2.04 and (y) Notes for whose payment money has
theretofore been deposited in trust or segregated and held in
trust by the Issuer and thereafter repaid to the Issuer or
discharged from such trust, as provided in Section 8.03(c))
have been irrevocably paid and delivered to the Indenture
Trustee for cancellation; or
(B) the final installments of principal on all such
Notes not theretofore delivered to the Indenture Trustee for
cancellation:
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(1) have become due and payable, or
(2) will become due and payable at their Stated
Maturity Date within one year,
and the Issuer has deposited or caused to be deposited with the
Indenture Trustee as trust funds in trust for the purpose an
amount sufficient to pay and discharge the entire indebtedness
on such Notes not theretofore delivered to the Indenture
Trustee for cancellation, for principal and interest to the
date of such deposit (in the case of Notes which have become
due and payable) or to the Stated Maturity Date thereof;
(ii) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer for the benefit of the Noteholders; and
(iii) the Issuer has delivered to the Indenture Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.
At such time, the Indenture Trustee shall deliver to the Issuer or, upon Issuer
Order, its assignee, all cash, securities and other property held by it as part
of the Trust Estate other than funds deposited with the Indenture Trustee
pursuant to Section 11.01(a)(i)(B) for the payment and discharge of the Notes.
(b) Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Issuer under Sections 7.06 and 8.11, and, if
money shall have been deposited with the Indenture Trustee pursuant to Section
11.01(a)(i)(B), the obligations of the Indenture Trustee under Section 11.02 and
Section 8.03(c) shall survive.
SECTION 11.02. Application of Trust Money. Subject to the
--------------------------
provisions of Section 8.03(c), all money deposited with the Indenture
Trustee pursuant to Sections 11.01 and 8.03 shall be held in trust and applied
by it, in accordance with the provisions of the Notes and this Indenture, to the
payment to the Persons entitled thereto of the principal and interest for whose
payment such money has been deposited with the Indenture Trustee.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and witnessed, all as of the day and year first above written.
Attest: CHEVY CHASE BANK, F.S.B.
By:
- ------------------------------ -----------------------------------
Name: Name:
Title: Title:
Attest:
---------------------------------------,
, as Indenture
------------------------
Trustee
By:
- -------------------------------- -----------------------------------
Name: Name:
Title: Title:
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EXHIBIT A
TO INDENTURE
------------
[FORM OF [CLASS A] NOTES]
_____% AUTO RECEIVABLES BACKED NOTE, [CLASS A]
No. [A-__________] $______________
CHEVY CHASE BANK, F.S.B., a ____________ corporation (the
"Issuer"), for value received, hereby promises to pay to ___________________ or
registered assigns, the principal sum of _____________________ Dollars
($____________) in monthly installments equal to the [Class A] Monthly
Principal, if any, on the [twentieth] day of each month commencing ________,
199_ and ending not later than _________ __, 199__, when all remaining principal
and interest are due and payable in their entirety (each, a "Payment Date"); to
pay interest (computed on the basis of a 360-day year of twelve 30-day months)
on each Payment Date on the unpaid principal amount of this [Class A Note] from
the Accrual Date or such later date to which interest has been paid or duly
provided for, to such Payment Date, at the rate of _____% per annum; to the
extent provided in the Indenture referred to below, to pay the Prepayment
Premium with respect to the [Class A Notes]; and (to the extent permitted by
applicable law) to pay interest on any overdue installments of interest,
premium, if any, and principal at the rate of _____% per annum. Capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Indenture.
Payments of principal, premium, if any, and interest on this
Note shall be made on each Payment Date in such coin or currency of the United
States of America as at such time is legal tender for payment of public and
private debts to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on the Record Date for such
Payment Date, which shall be the [_____] Business Day preceding such Payment
Date, by wire transfer of federal funds to the account and number specified in
the Note Register on such Record Date for such Person or, if no such account or
number is so specified, then by check mailed to such Person's address as it
appears in the Note Register on such Record Date. Within 10 Business Days
following receipt of the final installment of principal of this Note, the holder
hereof shall surrender this Note at the principal Corporate Trust Office of the
Indenture Trustee.
This Note is one of a duly authorized issue of [Class A Notes]
of the Issuer designated as its ____% Auto Receivables Backed Notes, [Class A]
with aggregate principal
A-1
<PAGE>
amount of $____________ and to be issued under an Indenture dated as of
__________, 199_ (herein called the "Indenture"), between the Issuer and
______________________, as trustee (herein called the "Indenture Trustee", which
term includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement of
the respective rights, limitations of rights, duties, and immunities thereunder
of the Issuer, the Indenture Trustee, and the holders of the Notes and of the
terms upon which the Notes are, and are to be, authenticated and delivered. The
Trust Estate secures the Notes equally and ratably without prejudice, priority,
or distinction between any Note of the same class and any other Note of the same
class by reason of difference in time of issuance or otherwise, and also secures
the payment of certain other amounts and certain other obligations as set forth
in the Indenture.
As provided in the Indenture, the aggregate amount of
principal due and payable on the [Class A Notes] on each Payment Date is equal
to the [Class A] Monthly Principal with respect to such Payment Date. All such
payments shall be made pro rata among the Outstanding [Class A Notes], without
preference or priority of any kind.
If an Indenture Event of Default as defined in the Indenture
shall occur and be continuing, the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.
As provided in the Indenture and subject to the limitations
set forth therein and above, the transfer of this Note is registrable in the
Note Register, upon surrender of this Note for registration of transfer at the
office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Indenture Trustee duly executed by, the
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same original aggregate
principal amount, will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons
in denominations as provided in the Indenture and subject to certain limitations
therein set forth. No service charge shall be made for any such registration of
transfer or exchange, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Issuer, the Indenture Trustee
A-2
<PAGE>
and any agent of the Issuer or the Trustee may treat the Person in whose name
this Note is registered as the owner hereof for all purposes, whether or not
this Note be overdue, and neither the Issuer, the Indenture Trustee nor any such
agent shall be affected by notice to the contrary.
By accepting this Note, the holder hereof irrevocably appoints
the Indenture Trustee under the Indenture as the special attorney-in-fact for
the holder vested with full power on behalf of the holder to effect and enforce
the rights of such holder and the provisions of the Indenture for the benefit of
the holder. The preceding provision in no way shall limit the right of the
holder hereof to demand payment hereunder or bring an action to enforce payment
hereof.
All terms used in this Note which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
As provided in the Indenture, this Note and the Indenture
shall be governed by, and construed in accordance with, the laws of the State of
[________], except that any provision of the Indenture which relates to, or
provides for, the rights, duties and obligations of the Indenture Trustee shall
be governed by, and construed in accordance with, the laws of the State of
____________.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee by manual signature, this Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed in its name by the manual signature of its President or one of
its Vice Presidents.
CHEVY CHASE BANK, F.S.B.
By:
--------------------------
Name:
Title:
A-3
<PAGE>
[FORM OF INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
, as Indenture
---------------
Trustee
Dated: ________ __, 19__ By:
--------------------------
Authorized Signatory
A-4
<PAGE>
EXHIBIT B
TO INDENTURE
------------
[FORM OF [CLASS B] NOTES]
_____% AUTO RECEIVABLES BACKED NOTE, [CLASS B]
No. [B-__________] $______________
CHEVY CHASE BANK, F.S.B., a ________ corporation (the
"Issuer"), for value received, hereby promises to pay to ___________________ or
registered assigns, the principal sum of _____________________ Dollars
($____________) in monthly installments equal to the [Class B] Monthly
Principal, if any, on the [_________] day of each month commencing ________,
199_ and ending not later than _________ __, 199__, when all remaining principal
and interest are due and payable in their entirety (each, a "Payment Date"); to
pay interest (computed on the basis of a 360-day year of twelve 30-day months)
on each Payment Date on the unpaid principal amount of this [Class B Note] from
the Accrual Date or such later date to which interest has been paid or duly
provided for, to such Payment Date, at the rate of _____% per annum; to the
extent provided in the Indenture referred to below, to pay the Prepayment
Premium with respect to the [Class B Notes]; and (to the extent permitted by
applicable law) to pay interest on any overdue installments of interest,
premium, if any, and principal at the rate of _____% per annum. Capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Indenture.
THE RIGHTS TO RECEIVE PAYMENTS WITH RESPECT TO THIS [CLASS B]
NOTE ARE SUBORDINATE TO THE PRIOR PAYMENT IN FULL OF ALL AMOUNTS OF PRINCIPAL
AND INTEREST DUE AND PAYABLE ON THE [CLASS A] NOTES ON EACH PAYMENT DATE.
Payments of principal, premium, if any, and interest on this
Note shall be made on each Payment Date in such coin or currency of the United
States of America as at such time is legal tender for payment of public and
private debts to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on the Record Date for such
Payment Date, which shall be the [_____] Business Day preceding such Payment
Date, by wire transfer of federal funds to the account and number specified in
the Note Register on such Record Date for such Person or, if no such account or
number is so specified, then by check mailed to such Person's address as it
appears in the Note Register on such Record Date. Within 10 Business Days
following receipt of the final installment of principal of this Note, the holder
B-1
<PAGE>
hereof shall surrender this Note at the principal Corporate Trust Office of the
Indenture Trustee.
This Note is one of a duly authorized issue of [Class B Notes]
of the Issuer designated as its ____% Auto Receivables Backed Notes, [Class B]
with aggregate principal amount of $____________ and to be issued under an
Indenture dated as of __________, 199_ (herein called the "Indenture"), between
the Issuer and ______________________, as trustee (herein called the "Indenture
Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties, and
immunities thereunder of the Issuer, the Indenture Trustee, and the holders of
the Notes and of the terms upon which the Notes are, and are to be,
authenticated and delivered. The Trust Estate secures the Notes equally and
ratably without prejudice, priority, or distinction between any Note of the same
class and any other Note of the same class by reason of difference in time of
issuance or otherwise, and also secures the payment of certain other amounts and
certain other obligations as set forth in the Indenture.
As provided in the Indenture, the aggregate amount of
principal due and payable on the [Class B Notes] on each Payment Date is equal
to the [Class B] Monthly Principal with respect to such Payment Date. All such
payments shall be made pro rata among the Outstanding [Class B Notes], without
preference or priority of any kind.
If an Indenture Event of Default as defined in the Indenture
shall occur and be continuing, the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.
As provided in the Indenture and subject to the limitations
set forth therein and above, the transfer of this Note is registrable in the
Note Register, upon surrender of this Note for registration of transfer at the
office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Indenture Trustee duly executed by, the
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same original aggregate
principal amount, will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons
in denominations as provided in the Indenture and subject to certain limitations
therein set forth. No service charge shall be made for any such registration of
B-2
<PAGE>
transfer or exchange, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Issuer, the Indenture Trustee nor any such agent shall be affected by notice to
the contrary.
By accepting this Note, the holder hereof irrevocably appoints
the Indenture Trustee under the Indenture as the special attorney-in-fact for
the holder vested with full power on behalf of the holder to effect and enforce
the rights of such holder and the provisions of the Indenture for the benefit of
the holder. The preceding provision in no way shall limit the right of the
holder hereof to demand payment hereunder or bring an action to enforce payment
hereof.
All terms used in this Note which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
As provided in the Indenture, this Note and the Indenture
shall be governed by, and construed in accordance with, the laws of the State of
[________], except that any provision of the Indenture which relates to, or
provides for, the rights, duties and obligations of the Indenture Trustee shall
be governed by, and construed in accordance with, the laws of the State of
____________.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee by manual signature, this Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed in its name by the manual signature of its President or one of
its Vice Presidents.
CHEVY CHASE BANK, F.S.B.
By:_______________________________
Name:
Title:
B-3
<PAGE>
[FORM OF INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
______________________, as Indenture
Trustee
Dated: ________ __, 19__ By:_______________________________________
Authorized Signatory
B-4
<PAGE>
EXHIBIT C
TO INDENTURE
------------
[FORM OF [CLASS C] NOTES]
_____% AUTO RECEIVABLES BACKED NOTE, [CLASS C]
No. [C-__________] $______________
CHEVY CHASE BANK, F.S.B., a Nevada corporation (the "Issuer"),
for value received, hereby promises to pay to ___________________ or registered
assigns, the principal sum of _____________________ Dollars ($____________) in
monthly installments equal to the [Class C] Monthly Principal, if any, on the
[_________] day of each month commencing ________, 199_ and ending not later
than _________ __, 199__, when all remaining principal and interest are due and
payable in their entirety (each, a "Payment Date"); to pay interest (computed on
the basis of a 360-day year of twelve 30-day months) on each Payment Date on the
unpaid principal amount of this [Class C Note] from the Accrual Date or such
later date to which interest has been paid or duly provided for, to such Payment
Date, at the rate of _____% per annum; to the extent provided in the Indenture
referred to below, to pay the Prepayment Premium with respect to the [Class C
Notes]; and (to the extent permitted by applicable law) to pay interest on any
overdue installments of interest, premium, if any, and principal at the rate of
_____% per annum. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Indenture.
THE RIGHTS TO RECEIVE PAYMENTS WITH RESPECT TO THIS [CLASS C]
NOTE ARE SUBORDINATE TO THE PRIOR PAYMENT IN FULL OF ALL AMOUNTS OF PRINCIPAL
AND INTEREST DUE AND PAYABLE ON THE [CLASS A] AND THE [CLASS B] NOTES ON EACH
PAYMENT DATE.
Payments of principal, premium, if any, and interest on this
Note shall be made on each Payment Date in such coin or currency of the United
States of America as at such time is legal tender for payment of public and
private debts to the Person in whose name this Note (or one or more Predecessor
Notes) is registered at the close of business on the Record Date for such
Payment Date, which shall be the [_____] Business Day preceding such Payment
Date, by wire transfer of federal funds to the account and number specified in
the Note Register on such Record Date for such Person or, if no such account or
number is so specified, then by check mailed to such Person's address as it
appears in the Note Register on such Record Date. Within 10 Business Days
following receipt of the final installment of principal of this Note, the holder
C-1
<PAGE>
hereof shall surrender this Note at the principal Corporate Trust Office of the
Indenture Trustee.
This Note is one of a duly authorized issue of [Class C Notes]
of the Issuer designated as its ____% Auto Receivables Backed Notes, [Class C]
with aggregate principal amount of $____________ and to be issued under an
Indenture dated as of __________, 199_ (herein called the "Indenture"), between
the Issuer and ______________________, as trustee (herein called the "Indenture
Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties, and
immunities thereunder of the Issuer, the Indenture Trustee, and the holders of
the Notes and of the terms upon which the Notes are, and are to be,
authenticated and delivered. The Trust Estate secures the Notes equally and
ratably without prejudice, priority, or distinction between any Note of the same
class and any other Note of the same class by reason of difference in time of
issuance or otherwise, and also secures the payment of certain other amounts and
certain other obligations as set forth in the Indenture.
As provided in the Indenture, the aggregate amount of
principal due and payable on the [Class C Notes] on each Payment Date is equal
to the [Class C] Monthly Principal with respect to such Payment Date. All such
payments shall be made pro rata among the Outstanding [Class C Notes], without
preference or priority of any kind.
If an Indenture Event of Default as defined in the Indenture
shall occur and be continuing, the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.
As provided in the Indenture and subject to the limitations
set forth therein and above, the transfer of this Note is registrable in the
Note Register, upon surrender of this Note for registration of transfer at the
office or agency designated by the Issuer pursuant to the Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Issuer and the Indenture Trustee duly executed by, the
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same original aggregate
principal amount, will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons
in denominations as provided in the Indenture and subject to certain limitations
therein set forth. No service charge shall be made for any such registration of
C-2
<PAGE>
transfer or exchange, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of
transfer, the Issuer, the Indenture Trustee and any agent of the Issuer or the
Trustee may treat the Person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Issuer, the Indenture Trustee nor any such agent shall be affected by notice to
the contrary.
By accepting this Note, the holder hereof irrevocably appoints
the Indenture Trustee under the Indenture as the special attorney-in-fact for
the holder vested with full power on behalf of the holder to effect and enforce
the rights of such holder and the provisions of the Indenture for the benefit of
the holder. The preceding provision in no way shall limit the right of the
holder hereof to demand payment hereunder or bring an action to enforce payment
hereof.
All terms used in this Note which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
As provided in the Indenture, this Note and the Indenture
shall be governed by, and construed in accordance with, the laws of the State of
[________], except that any provision of the Indenture which relates to, or
provides for, the rights, duties and obligations of the Indenture Trustee shall
be governed by, and construed in accordance with, the laws of the State of
____________.
Unless the certificate of authentication hereon has been
executed by the Indenture Trustee by manual signature, this Note shall not be
entitled to any benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to
be duly executed in its name by the manual signature of [the Trustee] [its
President or one of its Vice Presidents].
CHEVY CHASE BANK, F.S.B.
By:_______________________________
Name:
Title:
C-3
<PAGE>
[FORM OF INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
___________________________, as Indenture
Trustee
Dated: ________ __, 19__ By:____________________________________
Authorized Signatory
C-4
<PAGE>
CHEVY CHASE BANK, F.S.B.,
Seller and Servicer
and
_____________________________________,
Trustee
POOLING AND SERVICING AGREEMENT,
Dated as of ___________________
$_____________________
Chevy Chase Auto Receivables Trust _____
___% Auto Receivables Backed Securities
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS................................................. 1
SECTION 1.1 DEFINITIONS............................................ 1
SECTION 1.2 USAGE OF TERMS......................................... 18
SECTION 1.3 CUT-OFF DATE AND RECORD DATE........................... 18
SECTION 1.4 SECTION REFERENCES..................................... 18
SECTION 1.5 INTEREST CALCULATIONS.................................. 18
ARTICLE II CREATION OF THE TRUST;
CONVEYANCE OF RECEIVABLES................................... 19
SECTION 2.1 CREATION OF TRUST...................................... 19
SECTION 2.2 CONVEYANCE OF RECEIVABLES.............................. 19
SECTION 2.3 ACCEPTANCE BY TRUSTEE.................................. 21
ARTICLE III THE RECEIVABLES............................................. 21
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF
SELLER................................................. 21
SECTION 3.2 REPURCHASE UPON BREACH................................. 26
SECTION 3.3 CUSTODY OF RECEIVABLE FILES............................ 26
SECTION 3.4 DUTIES OF SERVICER AND SUB-SERVICER
AS CUSTODIAN........................................... 27
SECTION 3.5 INSTRUCTIONS; AUTHORITY TO ACT......................... 28
SECTION 3.6 EFFECTIVE PERIOD AND TERMINATION....................... 28
ARTICLE IV ADMINISTRATION AND SERVICING OF
RECEIVABLES................................................. 29
SECTION 4.1 DUTIES OF SERVICER..................................... 29
SECTION 4.2 COLLECTION OF RECEIVABLE PAYMENTS...................... 29
SECTION 4.3 REALIZATION UPON RECEIVABLES........................... 30
SECTION 4.4 INSURANCE.............................................. 30
SECTION 4.5 MAINTENANCE OF SECURITY INTERESTS
IN FINANCED VEHICLES................................... 31
SECTION 4.6 COVENANTS OF SERVICER.................................. 31
SECTION 4.7 PURCHASE OF RECEIVABLES UPON
BREACH................................................. 35
SECTION 4.8 SERVICING FEES......................................... 35
SECTION 4.9 SERVICER'S CERTIFICATE................................. 36
SECTION 4.10 ANNUAL STATEMENT AS TO COMPLIANCE;
NOTICE OF DEFAULT...................................... 36
SECTION 4.11 ANNUAL INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS' REPORT.................................... 37
SECTION 4.12 ACCESS TO CERTAIN DOCUMENTATION AND
INFORMATION REGARDING RECEIVABLES...................... 37
SECTION 4.13 SERVICER EXPENSES...................................... 38
SECTION 4.14 REPORTS TO SECURITYHOLDERS............................. 38
i
<PAGE>
ARTICLE V DISTRIBUTIONS; STATEMENTS TO
SECURITYHOLDERS............................................. 38
SECTION 5.1 ESTABLISHMENT OF ACCOUNTS.............................. 38
SECTION 5.2 COLLECTIONS............................................ 41
SECTION 5.3 PURCHASE AMOUNTS....................................... 42
SECTION 5.4 DISTRIBUTIONS.......................................... 42
SECTION 5.5 CERTIFICATE INSURANCE POLICY........................... 43
SECTION 5.6 RESERVE ACCOUNT AND YIELD
MAINTENANCE ACCOUNT.................................... 46
SECTION 5.7 STATEMENTS TO CERTIFICATEHOLDERS....................... 47
ARTICLE VI THE CERTIFICATES............................................ 49
SECTION 6.1 THE CERTIFICATES....................................... 49
SECTION 6.2 AUTHENTICATION OF CERTIFICATES......................... 50
SECTION 6.3 REGISTRATION OF TRANSFER AND
EXCHANGE OF CERTIFICATES............................... 50
SECTION 6.4 MUTILATED, DESTROYED, LOST, OR
STOLEN CERTIFICATES.................................... 51
SECTION 6.5 PERSONS DEEMED OWNERS.................................. 51
SECTION 6.6 ACCESS TO LIST OF
CERTIFICATEHOLDERS' NAMES AND
ADDRESSES.............................................. 51
SECTION 6.7 MAINTENANCE OF OFFICE OR AGENCY........................ 52
SECTION 6.8 BOOK-ENTRY CERTIFICATES................................ 52
SECTION 6.9 NOTICES TO CLEARING AGENCY............................. 53
SECTION 6.10 DEFINITIVE CERTIFICATES................................ 53
ARTICLE VII THE SELLER.................................................. 54
SECTION 7.1 REPRESENTATIONS OF SELLER.............................. 54
SECTION 7.2 LIABILITY OF SELLER.................................... 57
SECTION 7.3 MERGER OR CONSOLIDATION OF, OR
ASSUMPTION OF THE OBLIGATIONS OF
THE SELLER............................................. 57
SECTION 7.4 LIMITATION ON LIABILITY OF CERTAIN
PERSONS OF SELLER...................................... 57
ARTICLE VIII THE SERVICER................................................ 58
SECTION 8.1 REPRESENTATIONS OF SERVICER............................ 58
SECTION 8.2 LIABILITIES OF SERVICER, INDEMNITIES................... 60
SECTION 8.3 MERGER OR CONSOLIDATION OF, OR
ASSUMPTION OF THE OBLIGATIONS OF
THE SERVICER........................................... 62
SECTION 8.4 LIMITATION ON LIABILITY OF CERTAIN
PERSONS OF SERVICER.................................... 62
SECTION 8.5 SERVICER NOT TO RESIGN................................. 63
SECTION 8.6 DELEGATION OF DUTIES................................... 64
ii
<PAGE>
ARTICLE IX DEFAULT..................................................... 64
SECTION 9.1 EVENTS OF DEFAULT...................................... 64
SECTION 9.2 APPOINTMENT OF SUCCESSOR............................... 66
SECTION 9.3 NOTIFICATION TO CERTIFICATEHOLDERS..................... 67
SECTION 9.4 WAIVER OF PAST DEFAULTS................................ 67
SECTION 9.5 EFFECT OF EVENT OF DEFAULT ON SUB-SERVICER............. 68
ARTICLE X THE TRUSTEE................................................. 68
SECTION 10.1 DUTIES OF TRUSTEE...................................... 68
SECTION 10.2 TRUSTEE'S CERTIFICATE.................................. 70
SECTION 10.3 TRUSTEE'S ASSIGNMENT OF PURCHASED RECEIVABLES.......... 70
SECTION 10.4 CERTAIN MATTERS AFFECTING THE TRUSTEE.................. 71
SECTION 10.5 TRUSTEE NOT LIABLE FOR CERTIFICATES OR RECEIVABLES..... 73
SECTION 10.6 TRUSTEE MAY OWN CERTIFICATES........................... 74
SECTION 10.7 TRUSTEE'S FEES......................................... 74
SECTION 10.8 ELIGIBILITY REQUIREMENTS FOR TRUSTEE................... 74
SECTION 10.9 RESIGNATION OR REMOVAL OF TRUSTEE...................... 75
SECTION 10.10 SUCCESSOR TRUSTEE...................................... 75
SECTION 10.11 MERGER OR CONSOLIDATION OF TRUSTEE..................... 76
SECTION 10.12 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.......... 76
SECTION 10.13 REPRESENTATIONS AND WARRANTIES OF TRUSTEE.............. 78
SECTION 10.14 TAX RETURNS............................................ 79
ARTICLE XI TERMINATION................................................. 79
SECTION 11.1 TERMINATION OF THE TRUST............................... 79
SECTION 11.2 OPTIONAL PURCHASE OF ALL
RECEIVABLES............................................ 80
ARTICLE XII MISCELLANEOUS PROVISIONS.................................... 81
SECTION 12.1 AMENDMENT.............................................. 81
SECTION 12.2 PROTECTION OF TITLE TO TRUST........................... 82
SECTION 12.3 LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS............. 84
SECTION 12.4 GOVERNING LAW.......................................... 86
SECTION 12.5 NOTICES................................................ 86
SECTION 12.6 SEVERABILITY OF PROVISIONS............................. 86
SECTION 12.7 ASSIGNMENT............................................. 86
SECTION 12.8 CERTIFICATES NONASSESSABLE AND FULLY PAID.............. 87
SECTION 12.9 COUNTERPARTS........................................... 87
SECTION 12.10 BENEFITS OF AGREEMENT.................................. 87
SECTION 12.11 TAX TREATMENT.......................................... 87
iii
<PAGE>
Exhibit A Schedule of Receivables
Exhibit B Form of Security
Exhibit C Form of Trustee's Certificate (assignment to Seller)
Exhibit D Form of Trustee's Certificate (assignment to Servicer)
Exhibit E Form of Servicer's Certificate
Exhibit F List of Designated Loans
iv
<PAGE>
This POOLING AND SERVICING AGREEMENT (this "Agreement" or this "Pooling
and Servicing Agreement"), dated as of -____________________, is made with
respect to the formation of the Chevy Chase Auto Receivables Trust
_____________, among CHEVY CHASE BANK, F.S.B., a federally chartered savings
bank, as seller and servicer (the "Seller" or the "Servicer" in its respective
capacities as such), and _______________________, as trustee (the "Trustee").
WITNESSETH THAT: In consideration of the premises and of the mutual
agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS.
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
"ACCOUNT" means any of the Collection Account, the Certificate
Account, the Yield Maintenance Account and the Reserve Account.
"ADDITIONAL FEES" means any late fees, prepayment charges, extension
fees or other administrative fees or similar charges allowed by applicable law
with respect to the Receivables and collected by the Servicer.
"AMOUNT FINANCED", with respect to a Receivable, means the amount
advanced under the Receivable toward the purchase price of the Financed Vehicle
and any related costs, except with respect to Receivables originated through
applications submitted by Obligors directly to the Seller, exclusive of the
amount allocable to the premium of credit life, disability or hospitalization
insurance covering the Financed Vehicle or the Obligor.
"ANNUAL PERCENTAGE RATE" or "APR" of a Receivable means the annual
interest rate stated in the Receivable.
"APR": see "Annual Percentage Rate."
"AVAILABLE DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the sum of the amounts described in clauses (w), (x) and (y)
of Section 5.4(a) on such Distribution Date.
"AVAILABLE FUNDS" means the amount defined as such in Section 5.2(c).
The term "Available Funds" does not
<PAGE>
include Insured Payments and does not include any amounts that cannot be
distributed to the Securityholders by the Trustee as a result of proceedings
under the United States Bankruptcy Code.
"BALLOON PAYMENT" means, with respect to a Balloon Receivable, the
payment to be made by the Obligor on the stated maturity date of such Balloon
Receivable.
"BALLOON RECEIVABLE" means any Receivable that on the date of
origination provided for scheduled monthly payments in level amounts
substantially lower than the amount of the final scheduled payment.
"BOOK-ENTRY SECURITIES" means beneficial interests in the Definitive
Security described in Section 6.8, the ownership and transfers of which shall be
made through book entries by a Clearing Agency as described in Section 6.8.
"BUSINESS DAY" means, unless otherwise specified in this Agreement,
any day other than a Saturday, a Sunday, or a day on which banking institutions
in New York, New York, ______ or Chevy Chase, Maryland shall be authorized or
obligated by law, executive order, or governmental decree to be closed.
"CLAIM DATE" shall have the meaning specified in Section 5.5(b).
"CLEARING AGENCY" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. The initial Clearing Agency shall be The Depository Trust Company.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other
financial institution or other person for whom from time to time a Clearing
Agency effects book-entry transfers of securities deposited with the Clearing
Agency.
"CLOSING DATE" means _________________.
"CODE" means the Internal Revenue Code of 1986, as it may be amended
from time to time, or any successor statute thereto, and applicable temporary or
final regulations of the U.S. Department of the Treasury promulgated thereunder.
"COLLATERAL INSURANCE" shall have the meaning specified in Section
4.4(b).
"COLLECTION ACCOUNT" means the account designated as such, established
and maintained pursuant to Section 5.1.
2
<PAGE>
"COLLECTION PERIOD" means (i) initially, the period from and including
the Cut-off Date through and including the last day of the calendar month in
which the Cut-off Date occurs and (ii) thereafter, each calendar month until the
Trust shall terminate pursuant to Article XI.
"CORPORATE TRUST OFFICE" at the date hereof, is located at
_____________________________________; the telecopy number for the Corporate
Trust Office on the date of the execution of this Agreement is _______________.
"CUT-OFF DATE" means ______________________.
"DEALER" means the seller of a Financed Vehicle who arranged for a
sales contract or loan from a Lender to the purchaser of a Financed Vehicle
under an existing agreement with such Lender.
"DEFAULTED RECEIVABLE", with respect to a Distribution Date, means a
Receivable (other than a Purchased Receivable) as to which the earlier of the
following has occurred (i) a scheduled payment is 180 days past due as of the
end of the most recently completed Collection Period or (ii) the Servicer has
determined in accordance with its customary servicing practices, during the
Collection Period preceding such Distribution Date, that eventual payment in
full of the Amount Financed is unlikely.
"DEFICIENCY AMOUNT" shall have the meaning specified in Section
5.5(b).
"DEFINITIVE SECURITIES" shall have the meaning specified in Section
6.8.
"DELINQUENCY PERCENTAGE" means, with respect to any Distribution Date,
the fraction, expressed as a percentage, equal to (x) the aggregate principal
balances of all Receivables 30 or more days delinquent (including any
Receivables relating to repossessed Financed Vehicles held in the Servicer's
inventory) as of the last day of the related Collection Period divided by (y)
the Pool Balance as of such date.
"DELIVERY" when used with respect to any Eligible Investments means:
(a) with respect to bankers' acceptances, commercial paper, negotiable
certificates of deposit and other obligations that constitute "instruments"
within the meaning of Section 9-105(1)(i) of the UCC and are susceptible of
physical delivery, transfer thereof by physical delivery to the Trustee
endorsed to, or registered in the name of, the Trustee or its
3
<PAGE>
nominee or endorsed in blank, and, with respect to a certificated security
(as defined in Section 8-102 of the UCC) transfer thereof (i) by delivery
of such certificated security to the Trustee or by delivery of such
certificated security to a financial intermediary endorsed to, or
registered in the name of, the Trustee or its nominee or endorsed in blank
to a financial intermediary (as defined in Section 8-313 of the UCC) and
the making by such financial intermediary of entries on its books and
records identifying such certificated securities as belonging to the
Trustee and the sending by such financial intermediary of a confirmation of
the purchase of such certificated security by the Trustee, or (ii) by
delivery thereof to a "clearing corporation" (as defined in Section 8-102
(3) of the UCC) and the making by such clearing corporation of appropriate
entries on its books reducing the appropriate securities account of the
transferor and increasing the appropriate securities account of a financial
intermediary by the amount of such certificated security, the
identification by the clearing corporation of the certificated securities
for the sole and exclusive account of the financial intermediary, the
maintenance of such certificated securities by such clearing corporation or
a "custodian bank" (as defined in Section 8-102(4) of the UCC) or the
nominee of either subject to the clearing corporation's exclusive control,
the sending of a confirmation by the financial intermediary of the purchase
by the Trustee of such securities and the making by such financial
intermediary of entries on its books and records identifying such
certificated securities as belonging to the Trustee (all of the foregoing,
"Physical Property"), and such additional or alternative procedures as may
hereafter become appropriate to effect the complete transfer of ownership
of or a security interest in any such Eligible Investment to the Trustee,
consistent with changes in applicable law or regulations or the
interpretation thereof;
(b) with respect to any security issued by the U.S. Treasury, the
Federal Home Loan Mortgage Corporation or the Federal National Mortgage
Association that is a book-entry security held through the Federal Reserve
System pursuant to federal book-entry regulations, the following
procedures, all in accordance with applicable law, including applicable
federal regulations and Articles 8 and 9 of the UCC: book-entry
registration of such Eligible Investment to an appropriate book-entry
account maintained with a Federal Reserve Bank by a financial intermediary
which is also a "depositary" pursuant to applicable federal
4
<PAGE>
regulations and issuance by such financial intermediary of a deposit advice
or other written confirmation of such book-entry registration to the
Trustee of the purchase by the Trustee of such book-entry securities; the
making by such financial intermediary of entries in its books and records
identifying such book-entry security held through the Federal Reserve
System pursuant to federal book-entry regulations as belonging to the
Trustee and indicating that such financial intermediary holds such Eligible
Investment solely as agent for the Trustee; and such additional or
alternative procedures as may hereafter become appropriate to effect
complete transfer of ownership of or a security interest in any such
Eligible Investment to the Trustee, consistent with changes in applicable
law or regulations or the interpretation thereof; and
(c) with respect to any Eligible Investment that is an uncertificated
security under Article 8 of the UCC and that is not governed by clause (b)
above, registration on the books and records of the issuer thereof in the
name of the financial intermediary, the sending of a confirmation by the
financial intermediary of the purchase by the Trustee or its nominee of
such uncertificated security, and the making by such financial intermediary
of entries on its books and records identifying such uncertificated
certificates as belonging to the Trustee.
"DEPOSIT DATE" means, with respect to any Distribution Date, the
Business Day immediately preceding such Distribution Date.
"DESIGNATED LOANS" means any Receivable with an APR below the Required
Rate, as listed on Exhibit F.
"DESIGNATED LOAN REQUIRED AMOUNT" means, with respect to any
Distribution Date, and with respect to each Designated Loan held by the Trust as
of the opening of business on the first day of the Collection Period in which
such Distribution Date occurs, the sum, for such Collection Period and each
future Collection Period (assuming that such Designated Loan amortizes in
accordance with its terms) of the products of (x) one-twelfth, (y) such
Designated Loan's principal balance as of the opening of business on the first
day of such Collection Period and all future Collection Periods, assuming that
such Designated Loan amortizes according to its terms and (z) the excess of (i)
the Required Rate over (ii) such Designated Loan's APR.
"DETERMINATION DATE" means the earlier of the ________ Business Day or
the ___________ calendar day of the month (or, if such ____________ calendar day
is not a
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Business Day, the Business Day preceding the _____________ calendar day of the
month).
"DISTRIBUTION DATE", with respect to each Collection Period, means the
_________ day of the following month, or if the __________ day shall not be a
Business Day, the next following Business Day, commencing _______________.
"ELIGIBLE ACCOUNT" means either (a) a segregated account with an
Eligible Bank or (b) a segregated trust account with the corporate trust
department of a depository institution with corporate trust powers organized
under the laws of the United States of America or any state thereof or the
District of Columbia (or any United States branch of a foreign bank) and whose
deposits are insured by the FDIC, provided that such institution must have a net
worth in excess of $______________ and must have a rating of Baa3 or higher from
Moody's and a rating of BBB- or higher from Standard & Poor's with respect to
long-term deposit obligations.
"ELIGIBLE BANK" shall mean a depository institution organized under
the laws of the United States or any one of the states thereof, including the
District of Columbia (or any United States branch or agency of a foreign bank),
which is subject to supervision and examination by federal or state banking
authorities, the deposits of which are insured by the Federal Deposit Insurance
Corporation ("FDIC") and which at all times (a) has a net worth in excess of
$______________ and (b) has either (x) a long-term unsecured debt rating of at
least A2 by Moody's and AA by Standard & Poor's or (y) a short-term certificate
of deposit rating of P-1 by Moody's and A-1+ by Standard & Poor's.
"ELIGIBLE INVESTMENT" means any of the following:
(i) Direct obligations of the United States of America and
securities fully and unconditionally guaranteed as to the timely payment of
principal and interest by the United States of America; PROVIDED, that the
full faith and credit of the United States of America must be pledged to
any such direct obligation or guarantee ("Direct Obligations");
(ii) Direct Obligations and fully guaranteed certificates of
beneficial interest of the Export-Import Bank of the United States;
consolidated debt obligations and letter of credit-backed issues of the
Federal Home Loan Banks; participation certificates and senior debt
obligations of the Federal Home Loan Mortgage Corporation ("FHLMCs");
debentures of the Federal Housing Administration; mortgage-backed
securities (except stripped mortgage securities which
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are valued greater than par on the portion of unpaid principal) and senior
debt obligations of the Federal National Mortgage Association ("FNMAs");
participation certificates of the General Services Administration;
guaranteed mortgage backed securities and guaranteed participation
certificates of the Government National Mortgage Association ("GNMAs");
guaranteed participation certificates and guaranteed pool certificates of
the Small Business Administration; debt obligations and letter of credit-
backed issues of the Student Loan Marketing Association; local authority
bonds of the U.S. Department of Housing & Urban Development; guaranteed
Title XI financings of the U.S. Maritime Administration; guaranteed transit
bonds of the Washington Metropolitan Area Transit Authority; and Resolution
Funding Corporation securities; all of the foregoing rated, at the time of
purchase, "P-1" or "A2" by Moody's.
(iii) Direct obligations of any state of the United States of
America or any subdivision or agency thereof whose unsecured, uninsured and
unguaranteed general obligation debt is rated, at the time of purchase "A2"
or better by Moody's and "A" or better by Standard & Poor's, or any
obligation fully and unconditionally guaranteed by any state, subdivision
or agency whose unsecured, uninsured and unguaranteed general obligation
debt is rated, at the time of purchase, "A2" or better by Moody's and "A"
or better by Standard & Poor's;
(iv) Commercial paper (having original maturities of not more
than 270 days) rated, at the time of purchase, "P-1" by Moody's and "A-1"
or better by Standard & Poor's;
(v) Federal funds, unsecured certificates of deposit, time
deposits or bankers acceptances (in each case having maturities of not more
than 365 days) of any domestic bank including a branch office of a foreign
bank which branch office is located in the United States, provided legal
opinions are received to the effect that full and timely payment of such
deposit or similar obligation is enforceable against the principal office
or any branch of such bank, which, at the time of purchase, has a short-
term "Bank Deposit" rating of "P-1" by Moody's and a "Short-Term CD" rating
of "A-1" or better by Standard & Poor's and further provided that the bank
is subject to the supervision and examination of federal and state banking
authorities.
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(vi) Deposits of any bank or savings and loan association which
has combined capital, surplus and undivided profits of not less than $3
million, provided such deposits are continuously and fully insured by the
Bank Insurance Fund or the Savings Association Insurance Fund of the FDIC;
(vii) Investments in money-market funds rated "AAAm" or "AAAm-G"
by Standard & Poor's and "Aaa" by Moody's;
(viii) Repurchase agreements collateralized by Direct
Obligations, GNMAs, FNMAs or FHLMCs, as defined above, with any registered
broker/dealer subject to the Securities Investors' Protection Corporation
jurisdiction or any commercial bank insured by the FDIC, if such broker/dealer
or bank has an uninsured, unsecured and unguaranteed obligation rated "P-1" or
"A2" or better by Moody's, and "A-1" or "A-" or better by Standard Poor's,
provided:
a. a master repurchase agreement or specific written repurchase
agreement governs the transaction; and
b. the securities are held free and clear of any lien by the
Trustee or an independent third party acting solely as agent ("Agent")
for the Trustee, and such third party is (i) a Federal Reserve Bank,
(ii) a bank which is a member of the FDIC and which has combined
capital, surplus and undivided profits of not less than $50 million
or (iii) a bank approved in writing for such purpose by the
Certificate Insurer, and the Trustee shall have received written
confirmation from such third party that it holds such securities, free
and clear of any lien, as agent for the Trustee; and
c. a perfected first security interest under the Uniform
Commercial Code, or book entry procedures prescribed at 31 C.F.R.
306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created
for the benefit of the Trustee; and
d. the repurchase agreement has a term of 180 days or less, and
the Trustee or the Agent will value the collateral securities no less
frequently than weekly and will liquidate the collateral securities if
any deficiency in the required collateral percentage is not restored
within two business days of such valuation; and
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e. the fair market value of the securities in relation to
the amount of the repurchase obligation, including principal and
interest, is equal to at least 103%.
f. the securities have a rating, at the time of purchase of
"P-1" or "A-2" or better by Moody's.
(ix) Investment agreements, the issuer, form and substance of
which are specifically approved by the Certificate Insurer with notice to
Standard & Poor's and Moody's.
Notwithstanding the foregoing, Eligible Investments shall not include (i)
"stripped securities" and investments which contractually may return less than
the purchase price therefore, and (ii) instruments with a purchase price greater
than par if such instrument may be prepaid or called at a price less than its
purchase price prior to its stated maturity.
"EVENT OF DEFAULT" means an event specified in Section 9.1.
"FINANCED VEHICLE" means an automobile, light duty truck or van,
together with all accessions thereto, securing an Obligor's indebtedness under
the respective Receivable.
["FITCH" means Fitch Investors Service, Inc.]
"HOLDER" see "Securityholder."
"INDEMNIFICATION AGREEMENT" means the Indemnification Agreement dated
as of __________________ by and among _________________________________, Chevy
Chase Bank, F.S.B., and ____________________________, as representative of
itself, ______________________________, and __________________________.
"INITIAL SECURITY PRINCIPAL BALANCE" shall be $________________.
$____________________
"INITIAL YIELD MAINTENANCE AMOUNT" means $_________________.
$____________________
"INSURANCE POLICIES" means the insurance policies described in Section
3.1(xiii).
"INSURED PAYMENT" means (i) as of any Distribution Date, any
Deficiency Amount and (ii) any Preference Amount.
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"LATE PAYMENT RATE" means, for any Distribution Date, the "Prime Rate"
of interest as published in THE WALL STREET JOURNAL in New York, New York plus
2%. The Late Payment Rate shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
"LENDERS" means, together, the Seller and the Seller's wholly- owned
subsidiary, Consumer Finance Corporation, a Virginia corporation, and "Lender"
means the Seller or Consumer Finance Corporation.
"LIEN" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind other than tax liens, mechanics' liens, and any liens
which attach to the respective Receivable by operation of law.
"LIQUIDATION PROCEEDS" means, with respect to a Distribution Date, all
monies collected on a Defaulted Receivable from whatever source (other than
withdrawals from the Reserve Account or the Yield Maintenance Account and the
proceeds of a claim under the Security Insurance Policy), including insurance
proceeds and proceeds of Financed Vehicles which have been sold or otherwise
disposed of, during the preceding Collection Period, net of the sum of any
amounts expended by the Servicer for the account of the Obligor plus any amounts
required by law to be remitted to the Obligor.
"MONTHLY INTEREST" for any Distribution Date will equal one-twelfth of
the product of the Pass-Through Rate on the Security Principal Balance
immediately prior to such Distribution Date.
"MONTHLY PRINCIPAL" for any Distribution Date will equal the Principal
Balances of the Receivables on the last day of the second preceding Collection
Period (or, in the case of the first Distribution Date, the Initial Security
Principal Balance) less the Pool Balance of the Receivables on the last day of
the preceding Collection Period; PROVIDED, HOWEVER, that Monthly Principal on
the Final Scheduled Distribution Date will equal the Security Principal Balance
on such date. For the purpose of determining Monthly Principal, the Principal
Balance of a Defaulted Receivable or a Purchased Receivable is deemed to be zero
on and after the last day of the Collection Period in which such Receivable
became a Defaulted Receivable or a Purchased Receivable.
"MONTHLY SERVICING FEE" means, for any Distribution Date, one- twelfth
of the product of (a) the Pool Balance as of the beginning of the Collection
Period for the month prior to the month of such Distribution Date and (b) the
Servicing Fee Rate.
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"MONTHLY TRUSTEE'S FEE" means, for any Distribution Date, one twelfth
of the product of (a) the Security Principal Balance as of the end of the
Collection Period for the month prior to the month of such Distribution Date and
(b) ___%.
["MOODY'S" means Moody's Investors Service, Inc.]
"NET AVAILABLE DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the excess of (x) the Available Distribution Amount for such
Distribution Date over (y) the amounts described in clauses (i) and (ii) of
Section 5.4(a) on such Distribution Date.
"NET AVAILABLE FUNDS" means the amount defined as such in Section
5.2(c).
"NET LOSSES" means with respect to a Collection Period and with
respect to each Receivable which became a Defaulted Receivable during such
Collection Period, the excess of (x) the principal balance of each such
Defaulted Receivable over (y) the Liquidation Proceeds, if any, collected during
such Collection Period.
"NET LOSS PERCENTAGE" means, with respect to any Distribution Date,
the fraction, expressed as a percentage, equal to (x) twelve times the Net
Losses for the related Collection Period divided, by (y) the Pool Balance as of
the last day of such Collection Period.
"OBLIGOR" on a Receivable means the purchaser or the co-purchasers of
the Financed Vehicle or any other Person who owes payments under the Receivable.
The phrase "payment made on behalf of an Obligor" shall mean all payments made
with respect to a Receivable except payments made by a Lender or the Servicer.
"OFFICERS' CERTIFICATE" means a certificate signed by any two of the
chairman of the board, the president, any vice chairman of the board, any
executive vice president, any senior vice president, any vice president, the
treasurer, or the controller of the Seller or the Servicer, as appropriate;
provided that no individual shall sign in a dual capacity.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
in-house counsel to the Seller or Servicer, which counsel shall be acceptable to
the Trustee and the Security Insurer.
"OPTIONAL PURCHASE PRICE" means the amount specified as such in
Section 11.2.
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"ORIGINAL POOL BALANCE" shall be $_______________.
"PASS-THROUGH RATE" shall be ___% per annum.
"PERSON" means any individual, corporation, estate, partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization, or government or any agency or political
subdivision thereof.
"POOL BALANCE" as of any date means the aggregate Principal Balance of
the Receivables as of such date.
"PREFERENCE AMOUNT" means, as to any Distribution Date, any amounts
included in previous distributions to Securityholders of Required Payments
(exclusive of Insured Payments) which are recovered from such Securityholders as
a voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a
final, nonappealable order of a court having competent jurisdiction and which
have not theretofore been repaid to such Securityholders, provided such
Securityholders have complied with the provisions of Section 5.5(e).
"PREFERENCE ORDER" shall have the meaning set forth in Section 5.5(e).
"PREMIUM AMOUNT" means, as to any Distribution Date, one-twelfth of
the product of (x) the Premium Percentage and (y) the Security Principal Balance
on such Distribution Date (after taking into account any distributions of
Principal to the Securityholders to be made on such Distribution Date).
"PREMIUM PERCENTAGE" has the meaning set forth in the letter agreement
between the Seller and the Security Insurer.
"PRINCIPAL BALANCE" of a Receivable, at any time, means the Amount
Financed minus that portion of all payments received by the Servicer on or
before such time allocable to principal of such Receivable.
"PURCHASE AMOUNT" means, with respect to a Purchased Receivable as of
a Distribution Date, the amount equal to the sum of the Principal Balance of
such Receivable as of the last day of the preceding Collection Period and any
unpaid interest accrued thereon through the date such Receivable is repurchased.
"PURCHASED RECEIVABLE" means, with respect to a Distribution Date, a
Receivable purchased not later than the
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Determination Date immediately preceding such Distribution Date by the Servicer
pursuant to Section 4.2, 4.7 or 11.2 or repurchased not later than such
Determination Date by the Seller pursuant to Section 3.2.
"RATING AGENCIES" means ______________, _____________ and
________________.
"RECEIVABLE" means any motor vehicle retail installment sales contract
or motor vehicle installment loan executed by an obligor in respect of a
Financed Vehicle, including, without limitation, any extension or revision
agreement relating thereto and all payments due thereunder on or after the Cut-
off Date and all proceeds thereof, which Receivable appears on the Schedule of
Receivables.
"RECEIVABLE FILES" means the documents specified in Section 3.3.
"RECORD DATE" means, as to any Distribution Date, the close of
business, if applicable, on the day (whether or not a Business Day) immediately
preceding such Distribution Date or, if Definitive Securities are issued
pursuant to Section 6.8, the last day of the calendar month immediately
preceding the month in which such Distribution Date occurs.
"REIMBURSEMENT AMOUNT" means, as of any Distribution Date, the sum of
(i) all Insured Payments previously paid by the Security Insurer and not
previously repaid to the Security Insurer pursuant to Section 5.5(d), plus the
amount of any unpaid Premium Amount not paid to the Security Insurer pursuant to
Section 5.4(a)(ii), plus (ii) interest accrued on each such Insured Payment not
previously repaid and each such unpaid Premium Amount, calculated at the Late
Payment Rate in each case from the date the Security Insurer paid the related
Insured Payment, or the date the related Premium Amount was due, as the case may
be. The Security Insurer shall notify in writing the Trustee and the Seller of
the amount of any Reimbursement Amount due in respect of any Distribution Date
at least two days prior to the related Determination Date.
"REQUIRED PAYMENTS" means, with respect to any Distribution Date, the
sum of the Monthly Interest and the Monthly Principal for such Distribution
Date.
"REQUIRED RATE" means ____% per annum.
"RESERVE ACCOUNT" means the Reserve Account established pursuant to
Section 5.6.
"RESERVE ACCOUNT DEPOSIT AMOUNT" means, with respect to any
Distribution Date, the lesser of (x) the
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excess of (i) the Specified Reserve Balance on such Distribution Date over (ii)
the amount on deposit in the Reserve Account on such Distribution Date, after
taking into account the amount of any Reserve Account Withdrawal Amount on such
Distribution Date and (y) the amount remaining in the Security Account after
taking into account the distributions therefrom described in clauses (i) through
(v) of Section 5.4(a).
"RESERVE ACCOUNT WITHDRAWAL AMOUNT" means, with respect to any
Distribution Date, the lesser of (x) the excess of (i) the sum of the amounts
described in clauses (i) through (v) of Section 5.4 (a) over (ii) the Available
Funds for such Distribution Date and (y) the amount on deposit in the Reserve
Account on such Distribution Date before taking into account any withdrawal
therefrom on such Distribution Date.
"RESERVE INITIAL DEPOSIT" shall be $______________.
"RESPONSIBLE OFFICER" means, when used with respect to the Trustee,
any officer within the Corporate Trust Department (or any successor group of the
Trustee), including any senior vice president, vice president, assistant vice
president, assistant secretary, assistant treasurer or any other officer or
assistant officer of the Trustee customarily performing functions similar to
those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred at the Corporate
Trust Department because of his knowledge of and familiarity with the particular
subject.
"SCHEDULE OF RECEIVABLES" shall be, as of any date, the schedule of
Receivables included in the Trust on such date. The initial Schedule of
Receivables as of the Cut-off Date is attached hereto as Exhibit A and sets
forth as to each Receivable, among other things, (a) its identifying number and
the state of residence of the related Obligor; (b) its date of origination; (c)
the original number of months to stated maturity; (d) the original stated
maturity; (e) the Amount Financed; (f) the Principal Balance as of the Cut-off
Date; (g) the original Principal Balance; (h) the APR; (i) the scheduled monthly
payment of principal and interest; (j) the amount of the Balloon Payment, if
any; and (k) whether such Receivable is with recourse to any Dealer and the type
of such recourse.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SECURITY" means a security executed on behalf of the Trustee and
authenticated by the Trustee substantially in the form attached as Exhibit B.
"SECURITYHOLDER" or "HOLDER" means the Person in whose name the
respective Security shall be registered in the Security Register, except that,
solely for the purposes of giving any consent, waiver, request, or demand
pursuant to this Agreement, the interest evidenced by any Security registered in
the name of the Seller or the Servicer, or any Person controlling, controlled
by, or under common control with the Seller or the Servicer, shall not be taken
into account in determining whether the requisite percentage necessary to effect
any such consent, waiver, request, or demand shall have been obtained unless all
of the Securities outstanding are registered in the name of the Seller, the
Servicer and any such Persons.
"SECURITY ACCOUNT" means the account designated as such, established
and maintained pursuant to Section 5.1.
"SECURITY FACTOR" means, at any time, a seven digit decimal number
equal to the current Security Principal Balance divided by the Initial Security
Principal Balance.
"SECURITY INSURANCE POLICY" means the security guaranty insurance
policy number _____, issued by the Security Insurer to the Trustee for the
benefit of the Securityholders.
"SECURITY INSURER" means _____________________________, and any
successor thereto.
"SECURITY OWNER" means, with respect to a Book-Entry Security, the
Person who is the owner of such Book-Entry Security, as reflected on the books
of the Clearing Agency, or on the books of a direct or indirect Clearing Agency
Participant.
"SECURITY PRINCIPAL BALANCE" means, at any time, the Initial Security
Principal Balance minus all distributions of Monthly Principal made up to such
time plus all amounts referred to in Section 5.4(c) unless paid pursuant to the
Security Insurance Policy.
"SECURITY REGISTER" and "SECURITY REGISTRAR" mean the register
maintained and the registrar appointed pursuant to Section 6.3.
"SELLER" means Chevy Chase Bank, F.S.B. in its capacity as the seller
of the Receivables under this
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Agreement, and each successor to Chevy Chase Bank, F.S.B. (in the same capacity)
pursuant to Section 2.2.
"SERVICER" means Chevy Chase Bank, F.S.B. in its capacity as the
servicer of the Receivables, and each successor to Chevy Chase Bank, F.S.B. (in
the same capacity) pursuant to Sections 3.3, 3.4 and 9.2.
"SERVICER'S CERTIFICATE" means a certificate completed and executed by
the Servicer by its chairman of the board, its president, any vice chairman of
its board, any executive vice president, any senior vice president, any vice
president, the treasurer, or the controller of the Servicer pursuant to Section
4.9.
"SERVICING FEE RATE" means ____%.
"SERVICING OFFICE" means, at the date of this Agreement, the office of
the Servicer specified in this Agreement, or such other address as the Servicer
may designate from time to time by notice to the Seller, the Trustee and the
Security Insurer.
"SERVICING OFFICER" means any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Receivables whose name
appears on a list of servicing officers annexed to an Officers, Certificate
furnished to the Trustee by the Servicer, as the case may be, as such list may
from time to time be amended.
"SPECIFIED RESERVE BALANCE" means, with respect to any Distribution
Date, the greater of (i) $_____________, and (ii) __% of the Pool Balance on the
first day of the related Collection Period; except that if on any Distribution
Date (a) the average of the Net Loss Percentage for the three preceding
Collection Periods exceeds __%, or (b) the average of the Delinquency
Percentages for the three preceding Collection Periods exceeds __%, then the
Specified Reserve Balance applicable to such Distribution Date shall be an
amount equal to the greater of (x) $______________ and (y) ____% of the Pool
Balance on the first day of the related Collection Period.
["STANDARD & POOR'S" means Standard & Poor's Ratings Services, a
division of The McGraw Hill Companies, Inc.]
"STATE" means (i) any state of the United States of America or (ii)
the District of Columbia.
"STATED FINAL DISTRIBUTION DATE" means the Distribution Date in
____________________.
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"SUB-SERVICER" means, as to the Sub-Serviced Receivables, the
Servicer's wholly-owned subsidiary, Consumer Finance Corporation, a Virginia
corporation.
"SUB-SERVICED RECEIVABLES" means those Receivables sold to Chevy Chase
Bank, F.S.B. pursuant to the Purchase and Sale Agreement dated as of
_________________, _____ between Chevy Chase Bank, F.S.B. as Purchaser and
Consumer Finance Corporation as Seller.
"TRUST" means the trust created by this Agreement, the estate of which
shall consist of the Receivables (other than Purchased Receivables) and all
monies due (including accrued interest) or received thereon on or after the Cut-
off Date; security interests in the Financed Vehicles, the Security Account and
the Collection Account; funds deposited in the Collection Account and the
Security Account; proceeds of Purchased Receivables; the right to receive
payments from funds deposited in the Reserve Account and the Yield Maintenance
Account (under the conditions specified herein); all rights to receive payments
under the Security Insurance Policy; any property (including the right to
receive future Liquidation Proceeds) that shall have secured a Receivable and
that shall have been acquired by or on behalf of the Trust; proceeds from
recourse to Dealers relating to the Receivables; proceeds from claims on any
physical damage, lender's. single interest, credit life, disability, or
hospitalization insurance policies covering Financed Vehicles or obligors; the
rights of recourse of the Seller against any cosigner or under any personal
guarantee and any and all of the proceeds of the foregoing.
"TRUSTEE" means _________________________________, or its successor in
interest, or any successor trustee appointed as herein provided.
"TRUSTEE'S CERTIFICATE" means a certificate completed and executed by
the Trustee by a Responsible Officer pursuant to Section 10.2, substantially in
the form of, in the case of an assignment to the Seller, Exhibit C, and, in the
case of an assignment to the Servicer, Exhibit D.
"UCC" means the Uniform Commercial Code as in effect in the applicable
jurisdiction.
"YIELD MAINTENANCE ACCOUNT" means the Yield Maintenance Account
established pursuant to Section 5.6.
"YIELD MAINTENANCE AMOUNT" means, with respect to any Distribution
Date, the sum of all Designated Loan Required Amounts as of such Distribution
Date.
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"YIELD MAINTENANCE WITHDRAWAL AMOUNT" means, as of any Distribution
Date, the lesser of (i) the sum of, with respect to each Designated Loan held by
the Trust as of the opening of business on the first day of the related
Collection Period, the products of (x) one-twelfth, (y) such Designated Loan's
Principal Balance as of such time and (z) the excess of (1) the Required Rate
over (2) such Designated Loan's APR and (ii) the amount on deposit in the Yield
Maintenance Account on such Distribution Date, exclusive of any net investment
earnings.
SECTION 1.2 USAGE OF TERMS.
With respect to all terms in this Agreement, the singular includes the
plural and the plural the singular; words importing any gender include the other
genders; references to "writing" include printing, typing, lithography, and
other means of reproducing words in a visible form; references to agreements and
other contractual instruments include all subsequent amendments thereto or
changes therein entered into in accordance with their respective terms and not
prohibited by this Agreement; references to Persons include their permitted
successors and assigns; and the term "including" means "including without
limitation."
SECTION 1.3 CUT-OFF DATE AND RECORD DATE.
All references to the Record Date prior to the first Record Date in
the life of the Trust shall be to the Cut-off Date.
SECTION 1.4 SECTION REFERENCES.
All section references in this Agreement shall be to sections in this
Agreement.
SECTION 1.5 INTEREST CALCULATIONS.
(a) All allocations of payments with respect to a Receivable to
principal and interest and determinations of periodic charges and the like shall
be made using the simple interest method, based on the actual number of days
elapsed and the actual number of days in the calendar year. Each payment on a
Receivable (net of fees and charges) shall be applied first to the amount of
interest accrued on such Receivable to the date of receipt and then to reduce
the principal amount outstanding on the Receivable.
(b) All calculations of interest on the Securities shall be made on
the basis of a 360-day year comprised of twelve 30-day months.
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ARTICLE II
CREATION OF THE TRUST;
CONVEYANCE OF RECEIVABLES
SECTION 2.1 CREATION OF TRUST.
Upon the execution of this Pooling and Servicing Agreement by the
parties hereto and the concurrent conveyance of the Receivables by the Seller to
the Trustee pursuant to Section 2.2, there is hereby created the Chevy Chase
Auto Receivables Trust _________.
SECTION 2.2 CONVEYANCE OF RECEIVABLES.
In consideration of the Trustee's delivery to or upon the order of the
Seller of authenticated Securities with an initial Security Principal Balance
equal to $___________________, the Seller does hereby sell, transfer, assign,
and otherwise convey to the Trustee, in trust for the benefit of the
Securityholders and the Security Insurer, without re-course (subject to the
obligations herein):
(i) all right, title, and interest of the Seller in and to the
Receivables listed in the Schedule of Receivables, including all monies due
or received thereunder on or after the Cut-off Date;
(ii) the security interests of the Seller in the Financed
Vehicles granted by obligors pursuant to the Receivables;
(iii) the Security Account and the Collection Account and funds
deposited therein;
(iv) the interest of the Seller in the documents constructively
delivered to the Trustee pursuant to Section 3.3;
(v) the interest of the Seller in any proceeds from recourse to
Dealers relating to the Receivables;
(vi) the interest of the Seller in any Liquidation Proceeds and
any proceeds from claims on any physical damage, theft, vendor's single
interest, credit life, disability or hospitalization insurance policies
covering Financed Vehicles or Obligors;
(vii) the rights of the Seller to proceeds of Insurance
Policies;
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(viii) the right to receive payments as set forth herein from
the Reserve Account and the Yield Maintenance Account;
(ix) the right to receive payments as set forth herein from the
Security Insurance Policy; and
(x) the proceeds of any and all of the foregoing.
It is the express intention of the Seller and the Trustee that (a) the
assignment and transfer herein contemplated constitute a sale of the Receivables
and the other property of the Trust described above, conveying good title
thereto free and clear of any liens, encumbrances, security interests or rights
of other Persons, from the Seller to the Trust and (b) the Receivables and the
other property of the Trust described above not be a part of the Seller's estate
in the event of an insolvency of the Seller. In the event that such conveyance
is deemed to be a pledge in connection with a financing, the parties intend that
the Seller shall have granted to the Trustee a first priority perfected security
interest in all of the Seller's right, title and interest in the items of
property listed in clauses (i) through (ix) above, and all proceeds of the
foregoing, and that this Agreement shall constitute a security agreement under
applicable law and the Trustee shall have all of the rights and remedies of a
secured party and creditor under the UCC as in force in the relevant
jurisdictions.
The Seller hereby pledges, grants, assigns and otherwise sets over to
the Trustee, in trust, the Yield Maintenance Account and the Reserve Account and
all amounts on deposit therein and all Eligible Investments held therein from
time to time and all proceeds thereof, and hereby grants to the Trustee for the
benefit of the Securityholders and the Security Insurer a first priority
perfected security interest in such Accounts, amounts and Eligible Investments.
It is the intention of the Seller that, with respect to such Accounts and such
amounts and Eligible Investments, this Agreement shall constitute a security
agreement under applicable law and the Trustee shall have all of the rights and
remedies of a secured party and creditor under the UCC and other applicable law
as in force in the relevant jurisdictions.
SECTION 2.3 ACCEPTANCE BY TRUSTEE.
The Trustee does hereby accept the assignment by the Seller pursuant
to Section 2.2 and declares that the Trustee accepts such assignment upon the
trusts herein set
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forth for the benefit of the Securityholders and the Security Insurer, as their
respective interests may appear, subject to the terms and provisions of this
Agreement. The assignment will not constitute, and is not intended to result in,
an assumption by the Trustee, any Securityholder or the Security Insurer of any
obligation of the Seller or any other Persons in connection with the
Receivables, the Receivables Files, the Insurance Policies or under any
agreements or instruments relating to any of them.
ARTICLE III
THE RECEIVABLES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF SELLER.
The Seller makes, the following representations and warranties as to
the Receivables on which the Trustee relies in accepting the Receivables in
trust and executing and authenticating the Securities and upon which the
Security Insurer relies in executing and delivering the Security Insurance
Policy. Such representations and warranties speak as of the Closing Date, but
shall survive the sale, transfer, and assignment of the Receivables to the
Trustee.
(i) CHARACTERISTICS OF RECEIVABLES. Each Receivable (a)
shall have been originated or purchased by a Lender, (b) shall have been
fully and properly executed by the parties thereto, (c) is a fully-
amortizing simple interest installment contract or installment loan which
provides for level monthly payments over its original term, provided that
(x) some Receivables may include a payment in the last month in the life of
the Receivable which due to delinquencies or partial prepayments may be
different from the level monthly payment and (y) ___% of the Receivables
(measured as a percentage of the Original Pool Balance) may be Balloon
Receivables, (d) shall have created or shall create a valid, subsisting,
and enforceable first priority security interest in favor of such Lender in
the Financed Vehicle, which security interest shall be assignable and shall
have been validly assigned by the Seller to the Trustee, and (e) shall
contain customary and enforceable provisions such that the rights and
remedies of the holder thereof shall be adequate for realization against
the collateral of the benefits of the security.
(ii) SCHEDULE OF RECEIVABLES. The information set forth in
the Schedule of Receivables shall be true and correct in all material
respects as of the opening of business on the Cut-off Date. The
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Seller shall have caused each Lender's electronic ledger relating to each
related Receivable to be clearly and unambiguously marked to show that such
Receivable has been sold to the Trust for the benefit of the
Securityholders pursuant to this Agreement.
(iii) COMPLIANCE WITH LAW. Each Receivable and each sale of
the related Financed Vehicle shall have complied at the time it was
originated or made and at the execution of this Agreement shall comply in
all material respects with all requirements of applicable federal, State,
and local laws, and regulations thereunder, including, without limitation,
usury laws, the Federal Truth-in-Lending Act, the Equal Credit Opportunity
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair
Debt Collection Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and
Z, and State adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code, and other applicable consumer credit laws and equal
credit opportunity and disclosure laws.
(iv) BINDING OBLIGATION. Each Receivable represents the
genuine, legal, valid, and binding payment obligation in writing of the
related Obligor, enforceable by the holder thereof in accordance with its
terms. All parties to such Receivable have full legal capacity to execute
and deliver such Receivable and all other documents related thereto and to
grant the security interest granted thereby and the terms of such
Receivable have not been waived or modified in any respect (other than
extensions of payments granted in the ordinary course of the Servicer's
collection procedures and the term of which does not extend beyond the last
day of the Collection Period immediately preceding the Stated Final
Distribution Date).
(v) NO GOVERNMENT OBLIGOR. None of the Receivables shall be
due from the United States of America or any State or local government or
from any agency, department, or instrumentality of the United States of
America or any State or local government.
(vi) SECURITY INTEREST IN FINANCED VEHICLE. Immediately prior
to the sale, assignment, and transfer thereof to the Trustee, each
Receivable shall be secured by a validly perfected first priority security
interest in the Financed Vehicle in favor of the Lender that originated or
purchased such Receivable as secured party and all necessary and
appropriate actions with respect to such Receivable shall have been taken
to
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perfect a first priority security interest in the Financed Vehicle in favor
of such Lender as secured party, which security interest is assignable and
has been so assigned to the Trustee.
(vii) RECEIVABLES IN FORCE. No Receivable shall have been
satisfied, subordinated, or rescinded, nor shall any Financed Vehicle have
been released from the lien granted by the related Receivable in whole or
in part.
(viii) NO WAIVER. No provision of a Receivable shall have been
waived (other than extensions of payments granted in the ordinary course of
the collection procedures of the Servicer (or of the Sub-Servicer, with
respect to the Sub-Serviced Receivables) and the term of which does not
extend beyond the last day of the Collection Period immediately preceding
the Stated Final Distribution Date).
(ix) NO AMENDMENTS. No Receivable shall have been amended
such that the number of the Obligor's scheduled payments shall have been
increased.
(x) NO DEFENSES. No facts exist which would give rise to any
right of rescission, setoff, counterclaim or defense nor shall have any
right of rescission, setoff, counterclaim, or defense been asserted or
threatened with respect to any Receivable.
(xi) NO LIENS. No liens or claims shall have been filed,
including liens for work, labor, materials or taxes relating to a Financed
Vehicle, that shall be liens prior to, or equal or coordinate with, the
security interest in the Financed Vehicle granted by the Obligor pursuant
to the Receivable.
(xii) NO DEFAULT. Except for payment defaults continuing for a
period of not more than 59 days as of the Cut-off Date, no default, breach,
violation or event permitting acceleration under the terms of any
Receivable shall exist; no continuing condition that with notice or lapse
of time would constitute a default, breach, violation or event permitting
acceleration under the terms of any Receivable shall exist; and the related
Lender shall not have waived any of the foregoing.
(xiii) INSURANCE. The Servicer, in accordance with its
customary procedures, shall have (i) required that the Obligor obtain
physical damage and theft insurance covering the Financed Vehicle as of the
date
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of related contract and (ii) obtained vendor's single interest insurance
covering the Financed Vehicle.
(xiv) TITLE. It is the intention of the Seller that the
transfer and assignment herein contemplated, taken as a whole, constitutes
a sale of the Receivables and other property of the Trust from the Seller
to the Trust and that the beneficial interest in and title to the
Receivables and other Trust property not be part of the receivership or
conservatorship estate in the event of the appointment of a receiver or
conservator for the Seller. No Receivable has been sold, transferred,
assigned, or pledged by the Seller to any Person other than the Trustee.
Immediately prior to the transfer and assignment herein contemplated, the
Seller had good and marketable title to each Receivable free and clear of
all Liens, and, immediately upon the transfer thereof, the Trustee for the
benefit of the Securityholders and the Security Insurer shall have good and
marketable title to each Receivable, free and clear of all Liens and rights
of others, except for the rights of the Securityholders and the Security
Insurer; and the transfer has been perfected under the UCC.
(xv) LAWFUL ASSIGNMENT. No Receivable shall have been
originated in, or shall be subject to the laws of, any jurisdiction under
which the sale, transfer, and assignment of such Receivable under this
Agreement or transfers of the Securities would be unlawful, void, or
voidable.
(xvi) ALL FILINGS MADE. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the Trustee
a first priority perfected ownership interest in the Receivables shall have
been made.
(xvii) ONE ORIGINAL. There shall be only one original executed
copy of each Receivable, and immediately prior to the constructive delivery
thereof to the Trustee pursuant to Section 3.3, such copy shall have been
in the custody and possession of the applicable Lender.
(xviii) NO BANKRUPT OBLIGOR. None of the Receivables shall be
due from an Obligor who has commenced a voluntary case under the United
States Bankruptcy Code or consented to the entry of or failed to have
stayed within 60 days of entry an order for relief against it in an
involuntary case under the United States Bankruptcy Code.
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(xix) CHATTEL PAPER. The Receivables constitute "chattel
paper" within the meaning of the UCC as in effect in the State of Maryland.
The chief executive office of the Seller is located in the State of
Maryland.
(xx) MAXIMUM AMOUNT FINANCED. No Obligor shall be the Obligor
on Receivables on which the sum of the Principal Balances of such
Receivables is greater than $_________.
(xxi) NO ASSIGNMENT. The related Lender has not taken any
action to convey any right to any Person that would result in such Person
having a right to payments due under the Receivable that is senior to or
equal with that of the Trust.
(xxii) COMPOSITION OF RECEIVABLES. Each Receivable is secured
by a Financed Vehicle which is a new or used automobile, light duty truck
or van.
(xxiii) MATURITY OF RECEIVABLES. Each Receivable shall have an
original term to stated maturity of at least __ months and not more than __
months.
(xxiv) MINIMUM AND MAXIMUM ANNUAL PERCENTAGE RATE. Each
Receivable shall have an Annual Percentage Rate no less than ____% and no
more than _____%.
(xxv) MINIMUM AND MAXIMUM PRINCIPAL BALANCE. Each Receivable
shall have a Principal Balance no less than $________ and no more than
$_________.
(xxvi) PAYMENT. With respect to Sub-Serviced Receivables only,
the Obligor under each Sub-Serviced Receivable has made at least one
payment with respect thereto as of the Cut-off Date.
(xxvii) STATES OF OBLIGOR RESIDENCE. Except with respect to
Receivables with an aggregate Principal Balance representing ___% of the
Original Pool Balance, the Obligor under each Receivable resides in
__________, _____________ or _______________.
(xxviii) LOCATION OF RECEIVABLE FILES. The Receivable Files shall
be kept by the Servicer as custodian for the Trustee at
_____________________, or at such other location or locations as may be
designated from time to time by notice to the Trustee and the Security
Insurer.
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(xxix) ADVANCE PAYMENTS. No Receivable has been paid more than
___ months in advance.
(xxx) NO ADVERSE SELECTION. The Receivables were selected from
retail installment sales contracts and motor vehicle installment loans in
the Seller's portfolio that had met the applicable conditions specified in
this Section 3.1 utilizing no selection procedures adverse to the
Securityholders or the Security Insurer relative to similar retail
installment sales contracts and motor vehicle installment loans in the
Seller's portfolio.
SECTION 3.2 REPURCHASE UPON BREACH.
The Seller, the Servicer, the Trustee or the Security Insurer, as the
case may be, shall inform the other parties promptly, in writing, upon the
discovery of any breach of the Seller's representations and warranties contained
in Section 3.1; PROVIDED, that the Trustee shall have no duty to inquire
concerning, or to investigate, the breach of any of such representations and
warranties. Unless the breach shall have been cured by the last day of the
Collection Period following the Collection Period during which the Seller
becomes aware of, or receives written notice of, such breach, the Seller shall
repurchase as of such day (or, at the Seller's option, as of the last day of the
month in which such breach was discovered) any Receivable materially and
adversely affected by such breach and any Receivable in which the interest of
the Trust is materially and adversely affected by such breach. In consideration
of the purchase of the Receivable, the Seller shall remit the Purchase Amount,
in the manner specified in Section 5.3. The sole remedy of the Trustee, the
Trust or the Securityholders with respect to a breach of the Seller's
representations and warranties contained in Section 3.1 shall be to require the
Seller to repurchase Receivables pursuant to this Section 3.2. The Seller shall
notify the Security Insurer of any repurchase of any Receivable pursuant to this
Section.
SECTION 3.3 CUSTODY OF RECEIVABLE FILES.
To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trustee, upon the execution and delivery of this
Agreement, hereby revocably appoints the Servicer, and the Servicer hereby
accepts such appointment, to act as the agent of the Trustee as custodian of the
following documents or instruments which are hereby constructively delivered to
the Trustee with respect to each Receivable:
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(i) The original of the Receivable fully executed by the
Obligor.
(ii) The original credit application fully executed by the
Obligor.
(iii) The original certificate of title held by the Lender
that originated or purchased such Receivable evidencing the security
interest of such Lender in the Financed Vehicle.
(iv) Any and all other documents that the Servicer or the
applicable Lender shall keep on file, in accordance with its customary
procedures, relating to a Receivable, an Obligor, or a Financed Vehicle.
SECTION 3.4 DUTIES OF SERVICER AND SUB-SERVICER AS CUSTODIAN.
(a) SAFEKEEPING. The Servicer, in its capacity as custodian, shall
hold the Receivable Files on behalf of the Trustee for the use and benefit of
all present and future Securityholders and the Security Insurer and maintain
such accurate and complete accounts, records, and computer systems pertaining to
each Receivable File as shall enable the Trustee to comply with this Agreement.
In performing its duties as custodian, the Servicer shall act with reasonable
care, using that degree of skill and attention that the Servicer exercises with
respect to the receivable files relating to all comparable automotive
receivables that the Servicer services for itself. The Servicer shall conduct,
or cause to be conducted, periodic audits of the Receivable Files held by it
under this Agreement, and of the related accounts, records, and computer
systems, in such a manner as shall enable the Trustee to verify the accuracy of
the Servicer's record keeping. The Servicer shall promptly report to the Trustee
and the Security Insurer any failure on the Servicer's part to hold the
Receivable Files and maintain its accounts, records, and computer systems as
herein provided and promptly take appropriate action to remedy any such failure.
(b) MAINTENANCE OF AND ACCESS TO RECORDS. The Servicer shall maintain
each Receivable File at its office specified in this Agreement, or at such other
office or offices as shall be specified by the Servicer to the Trustee and the
Security Insurer by prior written notice. The Servicer shall make available to
the Trustee and the Security Insurer or their respective duly authorized
representatives, attorneys, or auditors a list of locations of the Receivable
Files, and the related accounts, records, and computer systems maintained by the
Servicer at such times during normal business hours as the Trustee or the
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Security Insurer shall instruct, which does not unreasonably interfere with the
Servicer's normal operations or customer or employee relations.
(c) RELEASE OF DOCUMENTS. Upon instruction from the Trustee, the
Servicer shall release any document in a Receivable File to the Trustee, the
Trustee's agent, or the Trustee's designee, as the case may be, at such place or
places as the Trustee may designate, as soon as practicable.
(d) The Servicer shall require the Sub-Servicer to comply with the
preceding provisions of this Section 3.4 with respect to the Sub-Serviced
Receivables. Notwithstanding anything to the contrary, the Servicer shall remain
primarily liable for its duties as Custodian with respect to all Receivables,
including the Sub-Serviced Receivables.
SECTION 3.5 INSTRUCTIONS; AUTHORITY TO ACT.
The Servicer and the Sub-Servicer shall be deemed to have received
proper instructions with respect to the Receivable Files upon its receipt of
written instructions signed by a Responsible officer of the Trustee.
SECTION 3.6 EFFECTIVE PERIOD AND TERMINATION.
The appointment of the Servicer as custodian shall become effective as
of the Cut-off Date and shall continue in full force and effect for the term of
the Trust unless terminated earlier pursuant to this Section 3.6. If the
Servicer shall resign in accordance with the provisions of Section 8.5 or if all
of the rights and obligations of the Servicer shall have been terminated under
Section 9.1, the appointment of the Servicer and the Sub-Servicer as custodian
may be terminated (1) by the Trustee or by the Holders of Securities evidencing
not less than a majority of the Security Principal Balance, in either case, with
the consent of the Security Insurer or (ii) by the Security Insurer, by written
notification to the Servicer. The Trustee with the consent of the Security
Insurer may terminate the Servicer's appointment as custodian with cause at any
time upon written notification to the Servicer, in which case the Sub-Servicer
shall also be terminated as a custodian. The Trustee shall notify the Rating
Agencies of any termination of the Servicer's appointment as custodian pursuant
to this Section 3.6. As soon as practicable after any termination of such
appointment, the Servicer and the Sub-Servicer shall deliver the Receivable
Files to the Trustee or the Trustee's agent at such place or places as the
Trustee may reasonably designate.
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ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 4.1 DUTIES OF SERVICER.
The Servicer as agent for the Trustee shall manage, service,
administer, and make collections on the Receivables with reasonable care, using
that degree of skill and attention that the Servicer exercises with respect to
all comparable automotive receivables that it services for itself. The
Servicer's duties shall include the collection and posting of all payments,
responding to inquiries of Obligors or of federal, state or local governmental
authorities with respect to the Receivables, investigating delinquencies,
sending payment coupons to Obligors, accounting for collections, and furnishing
monthly and annual statements to the Trustee and the Security Insurer with
respect to distributions. The Servicer shall follow its customary standards,
policies, and procedures in performing its duties as Servicer; PROVIDED, that
with respect to the Sub-Serviced Receivables and for so long as the Sub-Servicer
is sub-servicing the Sub-Serviced Receivables, the Servicer shall follow the
Sub-Servicer's customary standards, policies and procedures. Without limiting
the generality of the foregoing, the Servicer is authorized and empowered by the
Trustee to execute and deliver, on behalf of itself, the Trust, the
Securityholders, or the Trustee or any of them, any and all instruments of
satisfaction or cancellation, or partial or full release or discharge, and all
other comparable instruments, with respect to such Receivables or to the
Financed Vehicles securing such Receivables. If the Servicer shall commence a
legal proceeding to enforce a Receivable, the Trustee shall thereupon be deemed
to have automatically assigned, solely for the purpose of collection, such
Receivable to the Servicer. The Trustee shall execute any documents prepared by
the Servicer and delivered to the Trustee for execution that are necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties hereunder.
SECTION 4.2 COLLECTION OF RECEIVABLE PAYMENTS.
The Servicer shall use its best efforts to collect all payments called
for under the terms and provisions of the Receivables as and when the same shall
become due and shall follow such collection procedures as it follows with
respect to all comparable automotive receivables that it services for itself. If
payments are extended in the ordinary course of the Servicer's collection
procedures, and, as a result, any Receivable would be outstanding on the first
day after the end of the Collection Period immediately
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preceding the Stated Final Distribution Date, then the Servicer shall be
obligated to purchase such Receivable in the manner set forth in Section 4.7
(unless such Receivable is otherwise being purchased pursuant to Section 11.2)
as of the last day of the Collection Period following the Collection Period in
which the extension was made (or, at the Servicer's option, as of the last day
of the Collection Period in which the extension was made); PROVIDED, HOWEVER,
that the purchase obligation with respect to a Receivable shall be the
obligation of the Servicer which granted the extension, and not of any successor
Servicer; and PROVIDED, FURTHER, that the purchase obligation of any Servicer
shall survive the termination of such Servicer as Servicer. The Servicer may in
its discretion waive any Additional Fees.
SECTION 4.3 REALIZATION UPON RECEIVABLES.
On behalf of the Trust, the Servicer shall use its best efforts,
consistent with its customary servicing procedures, to repossess or otherwise
convert the ownership of the Financed Vehicle securing any Receivable as to
which the Servicer shall have determined that eventual payment in full is
unlikely. The Servicer shall follow such customary and usual practices and
procedures as it shall deem necessary or advisable in its servicing of
automotive receivables, which may include reasonable efforts to realize upon any
recourse to Dealers and selling the Financed Vehicle at a public or private
sale. The foregoing shall be subject to the provision that, in any case in which
the Financed Vehicle shall have suffered damage, the Servicer shall not expend
funds in connection with the repair or the repossession of such Financed Vehicle
unless it shall determine in its discretion that such repair and/or repossession
will increase the Liquidation Proceeds of the related Receivable by an amount
equal to or greater than the amount of such expenses.
SECTION 4.4 INSURANCE.
(a) The Servicer may sue to enforce or collect upon the Insurance
Policies, in its own name, if possible, or as agent of the Trust. If the
Servicer elects to commence a legal proceeding to enforce an Insurance Policy,
the act of commencement shall be deemed to be an automatic assignment of the
rights of the Trust under such Insurance Policy to the Servicer for purposes of
collection only. If, however, in any enforcement suit or legal proceeding it is
held that the Servicer may not enforce an Insurance Policy on the grounds that
it is not a real party in interest or a holder entitled to enforce the Insurance
Policy, the Trustee, on behalf of the Trust, at the Servicer's expense, or the
Seller, at the Seller's expense, shall take such steps as the Servicer deems
necessary to enforce such
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Insurance Policy, including bringing suit in its name or the name of the Trustee
for the benefit of the Securityholders.
(b) The Servicer shall maintain a vendor's single interest or other
collateral protection insurance policy with respect to all Financed Vehicles
("Collateral Insurance") which policy by its terms insures against physical
damage in the event any Obligor fails to maintain physical damage insurance with
respect to the related Financed Vehicles. The Seller will be the named insured
under all policies of Collateral Insurance. The Servicer shall maintain
Collateral Insurance at all times unless the Security Insurer otherwise consents
in writing.
(c) Costs incurred by the Servicer in maintaining Collateral
Insurance shall be paid by the Servicer.
SECTION 4.5 MAINTENANCE OF SECURITY INTERESTS IN FINANCED VEHICLES.
The Servicer shall, in accordance with its customary servicing
procedures, take such steps as are necessary to maintain perfection of the
security interest created by each Receivable in the related Financed Vehicle.
The Trustee hereby authorizes the Servicer to take such steps as are necessary
to re-perfect such security interest on behalf of the Trust in the event of the
relocation of a Financed Vehicle or for any other reason. In the event that the
assignment of a Receivable to the Trust is insufficient, without a notation on
the related Financed Vehicle's certificate of title, or without fulfilling any
additional administrative requirements under the laws of the State in which the
Financed Vehicle is located, to grant to the Trust a perfected security interest
in the related Financed Vehicle, the Seller hereby agrees on behalf of itself
and the other Lender that the listing of the applicable Lender as the secured
party on the certificate of title is in its capacity as agent of the Trust.
SECTION 4.6 COVENANTS OF SERVICER.
(a) The Servicer shall not release the Financed Vehicle securing any
Receivable from the security interest granted by such Receivable in whole or in
part except in the event of payment in full by or on behalf of the Obligor
thereunder or repossession, nor shall the Servicer impair the rights of the
Trust or the Securityholders in the Receivables, nor shall the Servicer change
the amount of the scheduled payment under a Receivable (except for an extension
permitted pursuant to Section 4.2) or change the APR of or the Amount Financed
under a Receivable, nor shall the Servicer fail to comply with the provisions of
any Insurance Policy, if the failure to so comply would impair
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the protection or benefit to be afforded by such Insurance Policy.
(b) COMPLIANCE WITH APPLICABLE LAWS. The Servicer shall comply with
any law or, to the best of the Servicer's knowledge, any order, rule or
regulation applicable to the Servicer of any court or of any federal or state
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over the Servicer or its properties, the failure to comply
with which may materially and adversely affect the performance by the Sellers of
its obligations under, or the validity or enforceability of, this Agreement or
the Securities.
(c) CORPORATE EXISTENCE. The Servicer and its successors and assigns
shall maintain their corporate existence and shall at all times continue to be
duly organized under the laws of their respective jurisdictions of incorporation
and duly qualified and duly authorized and shall conduct their business in
accordance with the terms of their certificates of incorporation and bylaws,
PROVIDED, HOWEVER, that the Servicer shall not be required to maintain its
existence as a federally chartered thrift if the board of directors shall
determine that the preservation of such status is no longer desirable and that
the loss thereof is not disadvantageous in any material respect to the
Securityholders or the Security Insurer.
(d) FINANCIAL STATEMENTS; ACCOUNTANTS' REPORTS; OTHER INFORMATION.
The Servicer shall keep or cause to be kept in reasonable detail books and
records of account of its assets and business, including, but not limited to,
books and records relating to this Agreement. The Servicer shall furnish or
cause to be furnished to the Security Insurer:
(i) ANNUAL FINANCIAL STATEMENTS. As soon as available, and in
any event within 120 days after the close of each fiscal year of the
Servicer, the audited consolidated balance sheets of the Servicer and its
subsidiaries as of the end of such fiscal year and the related audited
consolidated statements of income, changes in shareholders' equity and cash
flows for such fiscal year, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date and
period in the preceding fiscal year, prepared in accordance with generally
accepted accounting principles, consistently applied, and accompanied by
the audit opinion of the Servicer's independent accountants (which shall be
a nationally recognized independent public accounting firm or otherwise
acceptable to the Security Insurer).
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(ii) QUARTERLY FINANCIAL STATEMENTS. As soon as available, and
in any event within 90 days after each of the first three fiscal quarters
of each fiscal year of the Servicer, the unaudited consolidated balance
sheets of the Servicer and its subsidiaries as of the end of such fiscal
quarter and the related unaudited consolidated statements of income,
changes in shareholders' equity and cash flows for such fiscal quarter, all
in reasonable detail and stating in comparative form the respective figures
for the corresponding date and period in the preceding fiscal year,
prepared in accordance with generally accepted accounting principles,
consistently applied.
(iii) CERTAIN INFORMATION. Upon the reasonable request of the
Security Insurer, the Servicer shall promptly provide copies of any
requested proxy statements, financial statements, reports and registration
statements which the Servicer files with, or delivers to, the Securities
and Exchange Commission or any national securities exchange.
All financial statements specified in clause (i) above shall be
furnished in consolidated form for the Servicer and its subsidiaries in the
event the Servicer shall consolidate its financial statements with its
subsidiaries.
The Security Insurer, by the issuance of the Security Insurance
Policy, agrees that it and its agents, accountants and attorneys shall keep
confidential all financial statements, reports and other information delivered
by the Servicer pursuant to this Section 4.6(d).
(e) MAINTENANCE OF INSURANCE. The Servicer shall maintain with a
responsible company, and at its own expense, a blanket fidelity bond and an
errors and omissions insurance policy in a minimum amount generally maintained
by prudent federally chartered thrift institutions engaged in the servicing of
automotive receivables and having servicing portfolios of a similar size.
(f) ACCESS TO RECORDS; DISCUSSIONS WITH OFFICERS AND ACCOUNTANTS.
On an annual basis, or upon the occurrence of an event that could have a
material adverse effect on the ability of the Servicer to perform its
obligations under, or the validity or enforceability of, this Agreement or the
Securities, the Servicer shall, upon the reasonable request of the Security
Insurer, permit the Security Insurer or its authorized agents:
(i) to discuss the affairs, finances and accounts of the
Servicer with the chief operating
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officer and the chief financial officer of the Servicer, in each case, to
the extent related to the Receivables, or the duty of the Servicer
hereunder; and
(ii) with the Servicer's consent, which consent shall not be
unreasonably withheld, to discuss the affairs, finances and accounts of the
Servicer with the Servicer's independent accountants, in each case, to the
extent related to the Receivables, or the duty of the Servicer hereunder,
provided that an officer of the Servicer shall have the right to be present
during such discussions.
Such inspections and discussions shall be conducted during normal
business hours and shall not unreasonably disrupt the business of the Servicer.
The Security Insurer, by the issuance of the Security Insurance
Policy, agrees that it and its shareholders, directors, agents, accountants and
attorneys shall keep confidential any matter of which it becomes aware through
such inspections or discussions (unless readily available from public sources),
except as may be otherwise required by regulation, law or court order or
requested by appropriate governmental authorities or as necessary to preserve
its rights or security under or to enforce this Agreement, provided that the
foregoing shall not limit the right of the Security Insurer to make such
information available to its regulators, securities rating agencies, reinsurers,
credit and liquidity providers, counsel and accountants. If the Security
Insurer is requested or required (by oral questions, interrogatories, requests
for information or documents subpoena, civil investigative demand or similar
process) to disclose any information of which it becomes aware through such
inspections or discussions, the Security Insurer will promptly notify the
Servicer of such request(s) so that the Servicer may seek an appropriate
protective order and/or waive the Security Insurer's compliance with the
provisions of this Agreement. If, in the absence of a protective order or the
receipt of a waiver hereunder, the Security Insurer is, nonetheless, in the
opinion of its counsel, compelled to disclose such information to any tribunal
or else stand liable for contempt or suffer other censure or significant
penalty, the Security Insurer may disclose such information to such tribunal
that the Security Insurer is compelled to disclose, provided that a copy of all
information disclosed is provided to the Servicer promptly upon such disclosure.
(g) NOTICE OF MATERIAL EVENTS. The Servicer shall promptly inform
the Security Insurer in writing of the receipt of notice of any proceeding by
any regulatory body seeking any determination or ruling that might materially
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and adversely affect the performance by the Sellers of its obligations under, or
the validity or enforceability of, this Agreement or the Securities.
(h) MAINTENANCE OF LICENSES. The Servicer, or any successors
thereof, shall maintain all licenses, permits, charters and registrations which
are material to the performance of its obligations under this Agreement or the
Securities.
SECTION 4.7 PURCHASE OF RECEIVABLES UPON BREACH.
The Servicer, the Trustee or the Security Insurer shall inform the
other parties promptly, in writing, upon the discovery of any breach by the
Servicer of its obligations under Section 4.5 or 4.6; PROVIDED, that the Trustee
shall have no duty to inquire concerning, or to investigate, the breach of any
of such obligations. Unless the breach shall have been cured by the last day of
the Collection Period following the Collection Period during which the Seller
becomes aware of, or receives written notice of such breach, the Servicer shall
purchase as of such day (or, at the Servicer's option, as of the last day of the
month in which such breach was discovered) any Receivable materially and
adversely affected by such breach and any Receivable in which the interest of
the Trust is materially and adversely affected by such breach. In consideration
of the purchase of such Receivable, the Servicer shall remit the Purchase Amount
with respect to such Receivable in the manner specified in Section 5.3. The
sole remedy of the Trustee, the Trust or the Securityholders with respect to a
breach pursuant to Section 4.5 or 4.6 shall be to require the Servicer to
purchase Receivables pursuant to this Section 4.7. The Servicer shall notify the
Security Insurer of any purchase of a Receivable pursuant to this Section 4.7.
SECTION 4.8 SERVICING FEES.
The servicing fee for a Collection Period shall equal the Monthly
Servicing Fee (except that in the case of a successor Servicer, the servicing
fee shall equal such amount as is arranged in accordance with Section 9.2). The
Servicer shall deposit into the Collection Account all Additional Fees.
Investment earnings on the Collection Account, the Security Account, the Yield
Maintenance Account and the Reserve Account, if any, shall be deposited into the
respective accounts. The Monthly Servicing Fee may be retained by the Servicer
from the aggregate interest collections on the Receivables during the related
Collection Period, prior to the deposit in the Collection Account pursuant to
Section 5.2; in no event shall the Servicer retain with respect to any
Collection Period, an amount of
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base servicing compensation in excess of the Monthly Servicing Fee, even if
multiple payments ("advance payments" or "payaheads") are received from the
Obligors during such Collection Period.
SECTION 4.9 SERVICER'S CERTIFICATE.
On or before each Determination Date, the Servicer shall deliver to
the Trustee and the Security Insurer by 12:00 pm New York City time a Servicer's
Certificate in the form of Exhibit E attached hereto containing all information
necessary to make the distributions pursuant to Section 5.4, to make any
transfers of funds pursuant to Sections 5.1, 5.2 and 5.6, and to make any
demands on the Security Insurance Policy pursuant to Section 5.5 for the
Collection Period preceding the date of such Servicer's Security and all
information necessary for the Trustee to send statements to Securityholders
pursuant to Section 5.7. Receivables purchased by the Servicer or repurchased by
the Seller as of the last day of such Collection Period shall be identified by
the Seller's account number with respect to such Receivable (as specified in the
Schedule of Receivables).
SECTION 4.10 ANNUAL STATEMENT AS TO COMPLIANCE; NOTICE OF DEFAULT.
(a) The Servicer shall deliver to the Trustee and the Security
Insurer, on or before _____________________ of each year, beginning
___________________, an Officers' Certificate stating that (i) a review of the
activities of the Servicer during the preceding 12-month period ended
_________________________ of such year (or such longer period since the date of
this Agreement) and of its performance under this Agreement has been made under
such officers' supervision and (ii) to the best of such officers' knowledge,
based on such review, the Servicer has fulfilled all of its obligations under
this Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officers and the nature and status thereof.
(b) The Servicer shall deliver to the Trustee and the Security
Insurer, promptly after having obtained knowledge thereof, but in no event later
than one Business Day thereafter, written notice in an Officers' Security of any
event which with the giving of notice or lapse of time, or both, would become an
Event of Default under clause (i) of Section 9.1. The Seller shall deliver to
the Trustee and the Security Insurer, promptly after having obtained knowledge
thereof, but in no event later than five Business Days thereafter, written
notice in an Officers' Certificate of any event which with the giving of notice
or lapse of
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time, or both, would become an Event of Default under any other clause of
Section 9.1.
SECTION 4.11 ANNUAL INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT.
The Servicer shall cause a firm of independent certified public
accountants, who may also render other services to the Servicer, to deliver to
the Trustee and the Security Insurer on or before __________________ of each
year concerning the 12-month period ended ________________ of such year (or such
longer period since the date of this Agreement), beginning ____________________,
a report addressed to the Board of Directors of the Servicer, the Trustee and
the Security Insurer, to the effect that such firm has read the monthly
Servicer's Certificates delivered pursuant to Section 4.9 with respect to each
Collection Period during such one-year (or longer) period and reviewed the
servicing of the Receivables by the Servicer and that such review (1) included
tests relating to automobile, light duty truck and van loans serviced for others
in accordance with the requirements of the Uniform Single Attestation Program
for Mortgage Bankers, to the extent the procedures in such program are
applicable to the servicing obligations set forth in this Agreement, and (2)
except as described in the report, disclosed no exceptions or errors in the
records relating to automobile, light duty truck and van loans serviced for
others that, in the firm's opinion, paragraph four of such program requires such
firm to report.
The report will also indicate that the firm is independent of the
Servicer within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
SECTION 4.12 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
RECEIVABLES.
The Servicer shall provide (and shall require the Sub-Servicer to
provide) to the Securityholders and the Trustee access to the Receivables Files
in such cases where the Securityholder or the Trustee shall be required by
applicable statutes or regulations to review such documentation. The Security
Insurer shall be afforded such access at any time, subject to the requirements
of the next sentence. Access shall be afforded without charge, but only upon
reasonable request and during the normal business hours at the respective
offices of the Servicer. Nothing in this Section shall affect the obligation of
the Servicer to observe any applicable law prohibiting disclosure of information
regarding the Obligors, and the failure of the Servicer to provide access to
information as a result of
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such obligation shall not constitute a breach of this Section 4.12.
SECTION 4.13 SERVICER EXPENSES.
The Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder, including fees and disbursements of
independent accountants and taxes imposed on the Servicer.
SECTION 4.14 REPORTS TO CERTIFICATEHOLDERS.
The Trustee shall provide to any Securityholder, who so requests in
writing (addressed to the Corporate Trust Office) and the Rating Agencies a copy
of any certificate described in Section 4.9, or the annual statement described
in Section 4.10, or the annual report described in Section 4.11. The Trustee may
require the Securityholder to pay a reasonable sum to cover the cost of the
Trustee's compliance with such request.
ARTICLE V
DISTRIBUTIONS; STATEMENTS TO
SECURITYHOLDERS
SECTION 5.1 ESTABLISHMENT OF ACCOUNTS.
(a) The Trustee, on behalf of the Trust, shall establish the
Collection Account and the Security Account as segregated trust accounts in the
name of the Trust for the benefit of Securityholders and the Security Insurer
with the Corporate Trust Office of the Trustee. The Servicer shall direct the
Trustee to invest the amounts in the Collection Account and the Security Account
in Eligible Investments that, with respect to the Collection Account, mature not
later than the Business Day prior to the next succeeding Determination Date or,
with respect to the Security Account, mature not later than the next succeeding
Deposit Date, and to hold such Eligible Investments to maturity. The Collection
Account and the Security Account shall always be maintained as Eligible
Accounts. The Trustee may trade with itself or an affiliate in the purchase or
sale of Eligible Investments.
(b)(i) The Seller shall establish and maintain the Reserve Account
and the Yield Maintenance Account in the name of the Trustee, each as an
Eligible Account for the benefit of the Trust, the Securityholders and the
Security Insurer. The Reserve Account and the Yield Maintenance Account
shall not be property of the Trust.
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(ii) Funds on deposit in the Reserve Account shall be
invested by the Trustee in Eligible Investments, in each case selected by
the Servicer by a written direction, which shall certify that any such
investment is authorized by this Section; PROVIDED, HOWEVER, the Trustee
shall not be liable for any loss arising from such investment in Eligible
Investments (other than as Obligor under any Eligible Investment). All such
Eligible Investments shall be held by the Trustee for the benefit of the
beneficiaries of the Reserve Account and the Yield Maintenance Account;
PROVIDED that on each Distribution Date all interest and other investment
income (net of investment losses and expenses) on funds on deposit in the
Yield Maintenance Account shall be withdrawn from the Yield Maintenance
Account at the direction of the Servicer and shall be paid to the Seller;
all interest and other investment income (net of investment losses and
expenses) on funds on deposit in the Reserve Account shall be deposited to
the Reserve Account. Funds on deposit in the Reserve Account and the Yield
Maintenance Account shall be invested in Eligible Investments that will
mature so that such funds will be available at the close of business on the
related Deposit Date. Funds deposited in the Reserve Account and the Yield
Maintenance Account on the day which immediately precedes a Distribution
Date upon the maturity of any Eligible Investments are not required to be
(but may be) invested overnight in accordance with the investment
provisions contained herein. The Seller shall treat the funds and other
assets in the Reserve Account and the Yield Maintenance Account as its own
for federal, state and local income tax and franchise tax purposes and
shall report on its tax returns all income and gain from the Reserve
Account and the Yield Maintenance Account.
(iii) The Trustee agrees as follows with respect to the
Eligible Investments, and the proceeds thereof, held from time to time in
the Reserve Account and the Yield Maintenance Account:
(A) any Eligible Investment that is held in deposit
accounts shall be subject to the exclusive custody and control of the
Trustee, and the Trustee shall have sole signature authority with
respect thereto;
(B) any Eligible Investment that constitutes Physical
Property (as defined in the definition of Delivery) shall be delivered
to the Trustee in accordance with paragraph (a) of the definition of
"Delivery" and shall be held, pending maturity or
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disposition, solely by the Trustee or a financial intermediary (as
such term is defined in Section 8-313 (4) of the UCC) acting solely
for the Trustee;
(C) any Eligible Investment that is a book-entry security
held through the Federal Reserve System pursuant to federal book-entry
regulations shall be delivered in accordance with paragraph (b) of the
definition of "Delivery" and shall be maintained by the Trustee,
pending maturity or disposition, through continued book entry
registration of such Eligible Investment as described in such
paragraph; and
(D) any Eligible Investment that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by
clause (C) above shall be delivered to the Trustee in accordance with
paragraph (c) of the definition of "Delivery" and shall be maintained
by the Trustee, pending maturity or disposition, through continued
registration of the Trustee's (or its nominee's) ownership of such
security directly or through one or more financial intermediaries.
(iv) The Servicer shall have the power, revocable by the
Trustee, to instruct the Trustee to make withdrawals and payments from the
Reserve Account and the Yield Maintenance Account for the purpose of making
distributions of funds on deposit in such Accounts in accordance with the
provisions hereof.
(c) In the event of any change of law regarding matters
relating to the perfection of security interests in any Account, the amounts or
any Eligible Investments held therein, the Seller shall cause to be furnished to
the Trustee, the Security Insurer and each Rating Agency, an opinion of Counsel
addressing such matters and if necessary, the Seller shall cooperate with the
Trustee in taking all actions necessary to comply with the change in law.
SECTION 5.2 COLLECTIONS.
(a) The Servicer shall remit to the Collection Account within
two Business Days following receipt thereof all payments by or on behalf of the
obligors on the Receivables and all Liquidation Proceeds (including payments
made under any of the Insurance Policies or the Collateral Insurance to the
extent applicable to payments due on the Receivables) , both as collected during
the Collection Period, net of (i) the Servicer's actual out-of-pocket expenses
reasonably incurred with respect to Defaulted
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Receivables or Vehicles, which shall be paid from amounts actually recovered
with respect to any Defaulted Receivable or Vehicle, (ii) charge backs
attributable to errors in posting, returned checks, or rights of offset for
amounts that should not have been paid or that must be refunded as the result of
a successful claim or defense under bankruptcy or similar laws and (iii) the
Monthly Servicing Fee, as provided in Section 4.8.
(b) On the Determination Date in each month, the Servicer shall
instruct the Trustee to withdraw from the Collection Account the amount
collected with respect to Receivables, including Additional Fees and Liquidation
Proceeds, received during the Collection Period and investment earnings related
to such Determination Date and deposit such amount in immediately available
funds or by wire transfer in immediately available funds into the Security
Account.
(c) On or before each Determination Date, the Servicer shall determine
(i) the sum of (x) the amount of payments on all Receivables, including all
Additional Fees and Liquidation Proceeds (including payments made under any of
the Insurance Policies or the Collateral Insurance to the extent applicable to
payments due on the Receivables), received during the related Collection
Period, investment earnings deposited in the Collection Account or Security
Account during the related Collection Period, investment earnings earned through
such Determination Date and not yet deposited in the Collection Account or
Security Account, and the Purchase Amounts for all Receivables to be purchased
or repurchased with respect to such Collection Period which have been deposited
in the Security Account (the "Net Available Funds") and (y) the Yield
Maintenance Withdrawal Amount for the related Distribution Date (the sum of (x)
and (y) being the "Available Funds"), and (ii) the amount of funds necessary to
make the distributions required pursuant to clauses (i) through (iv) of Section
5.4(a) on the next Distribution Date. The Servicer shall by a Servicer's
Certificate notify the Trustee of such amounts by telecopy to the Corporate
Trust office (or such other number as the Trustee may from time to time
provide), followed promptly by mailing such notice to the Trustee at the
Corporate Trust Office, and the Trustee shall provide such notice to the
Security Insurer.
SECTION 5.3 PURCHASE AMOUNTS.
On the Determination Date following each Collection Period, the
Servicer or the Seller, as the case may be, shall remit to the Security Account
the aggregate Purchase Amount for such Collection Period pursuant to Sections
3.2, 4.2 and 4.7.
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SECTION 5.4 DISTRIBUTIONS.
(a) On each Distribution Date, the Trustee shall apply or cause to be
applied the sum of (w) the Net Available Funds in the Security Account (after
withdrawing amounts deposited in error and Liquidation Proceeds relating to
Purchased Receivables) for the prior Collection Period, (x) the Yield
Maintenance Withdrawal Amount, (y) the Reserve Account Withdrawal Amount and (z)
the amount of any Insured Payment to make the following distributions in the
listed order of priority:
(i) the Monthly Trustee's Fee, including any overdue Monthly
Trustee's Fee, to the Trustee;
(ii) the Premium Amount, including any overdue Premium Amount, to
the Security Insurer;
(iii) Monthly Interest, including any overdue Monthly Interest, to
the Securityholders;
(iv) Monthly Principal, including any overdue Monthly Principal,
to the Securityholders;
(v) the Reimbursement Amount, to the Security Insurer;
(vi) the Reserve Account Deposit Amount, to the Reserve Account;
and
(vii) the remainder, to the Seller.
If the Servicer exercises the purchase option on any Distribution Date
pursuant to Section 11.2, the Optional Purchase Price shall be deposited into
the Security Account on the Determination Date related to such Distribution
Date.
In making such distributions, the Trustee shall be entitled to rely
upon (without investigation, confirmation or recalculation) all information and
calculations contained in the Servicer's Security delivered to the Trustee
pursuant to Section 4.9.
(b) All monthly distributions to Securityholders shall be made by wire
transfer (if wiring instructions are received from the Securityholders), or, in
the absence of such instructions, by check mailed to each Securityholder of
record on the preceding Record Date at its address appearing on the Security
Register, or by such other means as the Securityholder and the Trustee shall
agree. Payments to the Security Insurer or the Seller shall be made by wire
transfer based on instructions received by the Trustee from either of them.
Notwithstanding the foregoing, the final
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payment on each Security shall be made only against the presentation and
surrender of the Security at the office or agency then maintained by the
Trustee.
(c) Each Securityholder shall promptly notify the Trustee and the
Security Insurer in writing upon the receipt of a nonappealable court order of a
court having competent jurisdiction seeking to recover payments to
Securityholders or the Trust as a voidable preference by a trustee in bankruptcy
pursuant to the United States Bankruptcy Code and shall enclose a copy of such
order with such notice to the Trustee and the Security Insurer.
(d) If the Servicer has failed to provide the Trustee with the notice
required pursuant to Section 5.2, the Trustee may calculate Monthly Interest and
apply funds, if any, in the Security Account as of the last day of the prior
Collection Period, plus any payments from the Security Insurer, to make a
distribution of Monthly Interest to the Securityholders.
SECTION 5.5 SECURITY INSURANCE POLICY.
(a) By 12:00 noon New York City time on each Determination Date the
Trustee shall, based solely on the information set forth in the related
Servicer's Security, determine the Net Available Distribution Amount with
respect to the immediately following Distribution Date.
(b) If the Required Payments for any Distribution Date exceed the Net
Available Distribution Amount for such Distribution Date (such event giving rise
to a "Deficiency Amount") and the Security Insurer does not otherwise fund such
Deficiency Amount by 12:00 p.m. New York City time on the third Business Day
preceding the related Distribution Date (the "Claim Date"), the Trustee shall
complete a Notice in the form of Exhibit A attached to the Security Insurance
Policy and submit such notice to the Security Insurer no later than 12:00 p.m.
New York City time on the Claim Date as a claim for an Insured Payment in an
amount equal to such Deficiency Amount. The Notice shall specify the amount of
the Insured Payment and shall constitute a claim for an Insured Payment pursuant
to the Security Insurance Policy.
(c) The Trustee shall report to the Seller and the Security Insurer
with respect to the amounts then held in each Account held by the Trustee and
the identity of the investments included therein, as the Seller or the Security
Insurer may from time to time request. Without limiting the generality of the
foregoing, the Trustee shall, at the request of the Seller or the Security
Insurer, transmit promptly to the Security Insurer and the Seller copies of
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all accountings of receipts in respect of the Receivables furnished to it by the
Servicer.
(d) The Trustee shall (i) receive as attorney-in-fact of the
Securityholders any Insured Payment from the Security Insurer and (ii) disburse
the same to such Securityholders as set forth in Section 5.4. Insured Payments
disbursed by the Trustee from proceeds of the Security Insurance Policy shall
not be considered payment by the Trust with respect to the Securities, and the
Security Insurer shall become the owner of such unpaid amounts due from the
Trust in respect of Insured Payments as the deemed assignee of such
Securityholders, as hereinafter provided. The Trust and the Trustee hereby
agree on behalf of each Securityholder for the benefit of the Security Insurer
that to the extent the Security Insurer pays Insured Payments, either directly
or indirectly (as by paying through the Trustee), to the Securityholders, the
Security Insurer shall be subrogated to the rights of the Securityholders with
respect to such Insured Payments, shall be deemed to the extent of the Insured
Payments so made to be a Securityholder and shall receive future distributions
until all such Insured Payments by the Security Insurer have been fully
reimbursed, as described in the following paragraph. To evidence such
subrogation, the Trustee shall note the Security Insurer's rights as subrogee on
the Security Register upon receipt from the Security Insurer of proof of the
payment of any Insured Payment, after making the distribution on any such future
Distribution Date to the Securityholders other than to the Security Insurer.
The Security Insurer shall be entitled to receive the related
Reimbursement Amount pursuant to Section 5.4 with respect to each Insured
Payment made by the Security Insurer. The Trustee hereby agrees on behalf of
each Securityholder and the Trust for the benefit of the Security Insurer that
it recognizes that to the extent the Security Insurer makes Insured Payments,
either directly or indirectly (as by paying through the Trustee), to the
Securityholders, or to the extent any Premium Amount remains unpaid, as the case
may be, the Security Insurer shall be entitled to receive the related
Reimbursement Amount pursuant to Section 5.4. It is understood and agreed that
the intention of the parties is that the Security Insurer shall not be entitled
to reimbursement on any Distribution Date for amounts previously paid by it
unless on such Distribution Date the Securityholders shall also have received
the full amount of the Required Payments for such Distribution Date.
(e) Each Securityholder which pays any Preference Amounts theretofore
received by such Securityholder on account of such Security will be entitled to
receive
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reimbursement for such amounts from the Security Insurer in accordance with the
terms of the Security Insurance Policy, but only after (i) delivering a copy to
the Security Insurer of a final, nonappealable order (a "Preference Order") of a
court having competent jurisdiction under the United States Bankruptcy Code
demanding payment of such amount to the bankruptcy court and (ii) irrevocably
assigning such Securityholder's claim with respect to such Preference Order to
the Security Insurer in such form as is required by the Security Insurer. In no
event shall the Security Insurer pay more than one Insured Payment in respect of
any Preference Amount. Consequently, the Trustee shall not be entitled to
reimbursement with respect to any Preference Order relating to the
Securityholder's receipt of funds representing Insured Payments made by the
Security Insurer in respect of such Distribution Date.
The Trustee, for itself and on behalf of the Securityholders, agrees
that the Security Insurer may at any time during the continuation of any
proceeding relating to a Preference Order direct all matters relating to such
Preference Order, including, without limitation, the direction of any appeal of
any order relating to such Preference Order and the posting of any surety,
supersedeas or performance bond pending any such appeal. In addition and
without limitation of the foregoing, the Security Insurer shall be subrogated,
to the extent of Insured Payments, to the rights of the Seller, the Servicer,
the Trustee and each Securityholder in the conduct of any such preference claim,
including, without limitation, all rights of any party to any adversarial
proceeding or action with respect to any court order issued in connection with
any such preference claim.
(f) The Trustee shall keep a complete and accurate record of the
amount of interest and principal paid in respect of any Security from moneys
received under the Security Insurance Policy. The Security Insurer shall have
the right to inspect such records at reasonable times during normal business
hours upon one Business Day's prior notice to the Trustee.
(g) The Security Insurer shall have the right to give participations
in its rights under this Agreement and to enter into contracts of reinsurance
with respect to the Security Insurance Policy; PROVIDED that no such grant of
participation shall operate to relieve the Security Insurer of liability on the
Security Insurance Policy, and provided further that no such participation or
contract of reinsurance shall require the Servicer, the Trustee or the Seller to
deal with any person other than the Security Insurer.
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SECTION 5.6 RESERVE ACCOUNT AND YIELD MAINTENANCE ACCOUNT.
(a) On the Closing Date, the Seller shall deposit the Reserve Initial
Deposit into the Reserve Account. Amounts held from time to time in the Reserve
Account shall be held by the Trustee for the benefit of Seller, subject to the
first priority security interest granted under Section 2.2 hereof to the Trustee
for the benefit of the Securityholders and the Security Insurer, but the Reserve
Account shall not be an asset of the Trust.
The Security Insurer may, by written notice to the Trustee, direct the
Trustee to reduce the amount of the Specified Reserve Balance; PROVIDED,
HOWEVER, that no such notice given to the Trustee shall be effective unless
accompanied by written evidence from each Rating Agency that such reduction in
the Specified Reserve Balance will not result in the reduction or withdrawal of
any rating then assigned to the Securities.
On each Distribution Date (i) if the amount on deposit in the Reserve
Account is less than the Specified Reserve Balance, the Trustee shall, after
payment of any amounts required to be distributed pursuant to clauses (i)
through (iv) of Section 5.4(a) deposit in the Reserve Account the Reserve
Account Deposit Amount and (ii) if the amount on deposit in the Reserve Account
on any Distribution Date (after giving effect to all other deposits thereto and
withdrawals therefrom to be made on such Distribution Date) is greater than the
Specified Reserve Balance, the Trustee shall distribute the amount of such
excess to the Seller on such Distribution Date.
(b) On each Distribution Date, the Servicer shall instruct the Trustee
(based on the information contained in the Servicer's Security delivered on the
related Determination Date) to withdraw the Reserve Account Withdrawal Amount
from the Reserve Account and deposit such amount in the Security Account.
(c) On the Closing Date, the Seller shall deposit the Initial Yield
Maintenance Amount into the Yield Maintenance Account. Amounts held from time
to time in the Yield Maintenance Account shall be held by the Trustee for the
benefit of the Seller, subject to the first priority security interest granted
under Section 2.2 hereof to the Trustee for the benefit of the Securityholders
and the Security Insurer, but the Yield Maintenance Account shall not be an
asset of the Trust.
On each Distribution Date (i) the Trustee shall withdraw the Yield
Maintenance Withdrawal Amount from the
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Yield Maintenance Account and distribute such amount to the Securityholders
pursuant to Section 5.4 hereof, (ii) the Trustee shall withdraw from the Yield
Maintenance Account the net investment earnings then on deposit thereon and
distribute such amount to the Seller and (iii) if the amount then on deposit in
the Yield Maintenance Account (after giving effect to all withdrawals therefrom
to be made on such Distribution Date) is greater than the Yield Maintenance
Amount, the Trustee shall distribute the amount of such excess to the Seller on
such Distribution Date.
(d) Amounts properly received by the Seller pursuant to this Agreement
shall not be available to the Trustee or the Trust for the purpose of making
deposits to the Reserve Account, or making payments to the Securityholders, nor
shall the Seller be required to refund any amount properly received by it.
SECTION 5.7 STATEMENTS TO SECURITYHOLDERS.
On each Distribution Date, the Trustee shall mail or send by facsimile
to the Securityholders, the Rating Agencies and the Security Insurer a
statement, based on information in the Servicer's Security furnished to the
Trustee by the Servicer pursuant to Section 4.9, setting forth for the
Collection Period relating to such Distribution Date the following information
(which in the case of items (i), (ii) and (iii) shall be based on a Security in
a principal amount of $1,000):
(i) the amount of the distribution allocable to principal,
including any overdue principal;
(ii) the amount of the distribution allocable to interest,
including any overdue interest;
(iii) the Monthly Servicing Fee, including any overdue Monthly
Servicing Fee, and the Monthly Trustee's Fee;
(iv) the amount of any Insured Payments;
(v) the Reserve Account Withdrawal Amount and the Yield
Maintenance Withdrawal Amount;
(vi) the aggregate Net Losses on the Receivables for the related
Collection Period;
(vii) the Pool Balance and Security Factor as of the end of the
related Collection Period;
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(viii) the aggregate Principal Balance of all Receivables which
were delinquent 30 days or more as of the last day of the related
Collection Period;
(ix) the Security Principal Balance (after giving effect to any
distribution of Monthly Principal made on such Distribution Date) on which
Monthly Interest will be calculated with respect to the next succeeding
Distribution Date;
(x) the Delinquency Percentage relating to such Distribution
Date;
(xi) the aggregate of all Purchase Amounts received on the
related Determination Date;
(xii) the aggregate amount received with respect to Defaulted
Receivables, including Liquidation Proceeds, during the related Collection
Period; and
(xiii) the Reimbursement Amount for such Distribution Date.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of this Agreement, the Trustee
shall mail, to each Person who at any time during such calendar year shall have
been a Securityholder, a statement containing the sum of the amounts determined
in clauses (i), (ii) and (iii) for such calendar year or, in the event such
Person shall have been a Securityholder during a portion of such calendar year,
for the applicable portion of such year, unless substantially comparable
information has been provided to such Securityholder, for the purposes of such
Securityholder's preparation of federal income tax returns.
ARTICLE VI
THE SECURITIES
SECTION 6.1 THE SECURITIES.
(a) The Securities shall be issued in denominations of $1,000 and
integral multiples thereof; PROVIDED, HOWEVER, that one Security may be issued
in a denomination that includes any residual amount. The Securities shall be
executed on behalf of the Trust by manual signature of a Responsible Officer of
the Trustee. Securities bearing the signatures of individuals who were, at the
time when such signatures shall have been affixed, authorized to sign on behalf
of the Trust, shall be valid and binding obligations of the Trust,
notwithstanding that
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such individuals or any of them shall have ceased to be so authorized prior to
the authentication and delivery of such Securities or did not hold such offices
at the date of such Securities.
(b) The Securities are pass-through securities having the rights
described therein and herein. Notwithstanding references herein or therein with
respect to the Securities as to "principal" and "interest" no debt of any Person
is represented thereby, nor are the Securities or the underlying Receivables
guaranteed by any Person (except that the Receivables may be recourse to the
Obligors thereof to the extent permitted by law and except for the rights of the
Trustee with respect to the Security Insurance Policy). Distributions on the
Securities are payable solely from payments received on or with respect to the
Receivables, moneys in the Collection Account and the Security Account, except
as otherwise provided herein, from earnings on moneys and the proceeds of
property held as a part of the Trust and, upon the occurrence of certain events
as herein provided, from draws on the Reserve Account and the Yield Maintenance
Account and claims under the Security Insurance Policy. Each Security entitles
the Security Owner thereof to receive monthly on each Distribution Date a
specified portion of such payments with respect to the Receivables, earnings,
proceeds and withdrawals from the Reserve Account and the Yield Maintenance
Account and claims under the Security Insurance Policy PRO RATA in accordance
with the ownership interest of such Security Owner.
SECTION 6.2 AUTHENTICATION OF SECURITIES.
The Trustee shall cause the Securities to be executed on behalf of the
Trust, authenticated, and delivered to or upon the written order of the Seller,
signed by its chairman of the board, any vice chairman of the board, its
president, any executive vice president, any senior vice president or any vice
president, without further corporate action by the Seller, in authorized
denominations, pursuant to this Agreement. No Security shall entitle its holder
to any benefit under this Agreement, or shall be valid for any purpose, unless
there shall appear on such Security a certificate of authentication,
substantially as set forth in the form of Security attached as Exhibit B hereto,
executed by the Trustee by manual signature; such authentication shall
constitute conclusive evidence that such Security shall have been duly
authenticated and delivered hereunder. All Securities shall be dated the date
of their authentication.
SECTION 6.3 REGISTRATION OF TRANSFER AND EXCHANGE OF SECURITIES.
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The Security Registrar shall keep or cause to be kept, at the office
or agency maintained pursuant to Section 6.7, a Security Register in which,
subject to such reasonable regulations as it may prescribe, the Trustee shall
provide for the registration of Securities and of transfers and exchanges of
Securities as herein provided. The Trustee shall be the initial Security
Registrar.
Upon surrender for registration of transfer of any Security at the
Corporate Trust Office, the Trustee shall execute, authenticate, and deliver, in
the name of the designated transferee or transferees, one or more new Securities
in authorized denominations of a like aggregate amount dated the date of
authentication by the Trustee. At the option of a Holder, Securities may be
exchanged for other Securities of authorized denominations of a like aggregate
amount upon surrender of the Securities to be exchanged at the Corporate Trust
Office.
Every Security presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Trustee and the Security Registrar duly executed by the
Holder or his or her attorney duly authorized in writing. Each Security
surrendered for registration of transfer and exchange shall be canceled and
subsequently destroyed by the Trustee.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Trustee may require payment of a sum sufficient
to cover any tax or governmental charge that may be imposed in connection with
any transfer or exchange of Securities.
SECTION 6.4 MUTILATED, DESTROYED, LOST, OR STOLEN SECURITIES.
If (a) any mutilated Security shall be surrendered to the Security
Registrar, or if the Security Registrar shall receive evidence to its
satisfaction of the destruction, loss, or theft of any Security and (b) there
shall be delivered to the Security Registrar or the Trustee such security or
indemnity as may be required by them to save each of them harmless, then in the
absence of notice that such Security shall have been acquired by a bona fide
purchaser other than the Person who requested a replacement Security, the
Trustee on behalf of the Trust shall execute and the Trustee shall authenticate
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost,
or stolen Security, a new Security of like tenor and denomination. in connection
with the issuance of any new Security under this Section 6.4, the Trustee and
the Security Registrar may require the payment of a sum
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sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Security issued pursuant to this Section
6.4 shall constitute conclusive evidence of ownership [debt issued by a Trust]
in the Trust, as if originally issued, whether or not the lost, stolen, or
destroyed Security shall be found at any time.
SECTION 6.5 PERSONS DEEMED OWNERS.
Prior to registration of transfer, the Trustee or the Security
Registrar may treat the Person in whose name any Security shall be registered as
the owner of such Security for the purpose of receiving distributions pursuant
to Section 5.4 and for all other purposes whatsoever, and neither the Trustee,
the Security Insurer nor the Security Registrar shall be bound by any notice to
the contrary.
SECTION 6.6 ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES.
The Trustee shall furnish or cause to be furnished to the Servicer and
the Security Insurer, within 15 days after receipt by the Trustee of a request
therefor from such party in writing, a list, in such form as such party may
reasonably require, of the names and addresses of the Securityholders as of the
most recent Record Date. If three or more Securityholders, or one or more
Holders of Securities aggregating not less than 25% of the Security Principal
Balance, apply in writing to the Trustee, and such application states that the
applicants desire to communicate with other Securityholders with respect to
their rights under this Agreement or under the Securities and such application
shall be accompanied by a copy of the communication that such applicants propose
to transmit, then the Trustee shall, within five Business Days after the receipt
of such application, afford such applicants access during normal business hours
to the current list of Securityholders. Each Holder, by receiving and holding a
Security, shall be deemed to have agreed to hold neither the Servicer nor the
Trustee accountable by reason of the disclosure of its name and address,
regardless of the source from which such information was derived.
SECTION 6.7 MAINTENANCE OF OFFICE OR AGENCY.
The Trustee shall maintain an office or offices or agency or agencies
where Securities may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Trustee in respect of the Securities
and this Agreement may be served. The Trustee initially designates the
Corporate Trust Office as specified in this Agreement as its office for such
purposes. The Trustee
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shall give prompt written notice to the Servicer, the Security Insurer and
Securityholders of any change in the location of the Security Register or any
such office or agency.
SECTION 6.8 BOOK-ENTRY SECURITIES.
The Securities (other than a Security representing any residual
portion of the Pool Balance as of the Cut-Off Date), upon original issuance,
shall be issued in the form of typewritten Securities representing the Book-
Entry Securities, to be delivered to The Depository Trust Company, the initial
Clearing Agency, by the Seller or on its behalf. The Securities shall initially
be registered on the Security Register in the name of CEDE & Co., the nominee of
the initial Clearing Agency, and no Security Owner will receive a definitive
certificate representing such Security Owner's interest in the Securities,
except as provided in Section 6.10. Unless and until definitive, fully
registered Securities ("Definitive Securities") have been issued to
Securityholders pursuant to Section 6.10:
(i) the provisions of this Section 6.8 shall be in full force and
effect;
(ii) the Seller, the Servicer and the Trustee may deal with the
Clearing Agency and the Clearing Agency Participants for all purposes
(including the making of distributions on the Securities and the taking of
actions by the Securityholders) as the authorized representatives of the
Security Owners;
(iii) to the extent that the provisions of this Section 6.8
conflict with any other provisions of this Agreement, the provisions of
this Section 6.8 shall control;
(iv) the rights of Security Owners shall be exercised only
through the Clearing Agency (or to the extent Security Owners are not
Clearing Agency Participants through the Clearing Agency Participants
through which such Security Owners own Book-Entry Securities) and shall be
limited to those established by law and agreements between such Security
Owners and the Clearing Agency and/or the Clearing Agency Participants, and
all references in this Agreement to actions by Securityholders shall refer
to actions taken by the Clearing Agency upon instructions from the Clearing
Agency Participants, and all references in this Agreement to distributions,
notices, reports and statements to Securityholders shall refer to
distributions, notices, reports and statements to the Clearing Agency or
its nominee, as registered Holder of
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the Securities, as the case may be, for distribution to Security Owners in
accordance with the procedures of the Clearing Agency; and
(v) pursuant to an agreement between the Clearing Agency and the
Seller, the initial Clearing Agency will make Book-Entry transfers among
the Clearing Agency Participants and receive and transmit distributions of
principal and interest on the Securities to the Clearing Agency
Participants, for distribution by such Clearing Agency Participants to the
Security Owners or their nominees.
SECTION 6.9 NOTICES TO CLEARING AGENCY.
Whenever notice or other communication to the Securityholders is
required under this Agreement, unless and until Definitive Securities shall have
been issued to Security Owners pursuant to Section 6.10, the Trustee shall give
to the Clearing Agency all such notices and communications specified herein to
be given to Securityholders.
SECTION 6.10 DEFINITIVE Securities.
If (i)(A) the Servicer advises the Trustee in writing that the
Clearing Agency is no longer willing or able properly to discharge its
responsibilities as Clearing Agency with respect to the Securities, and (B) the
Trustee or the Servicer is unable to locate a qualified successor, (ii) the
Servicer, at its option, elects to terminate the Book-Entry system through the
Clearing Agency or (iii) after the occurrence of an Event of Default, Security
Owners representing in the aggregate not less than a majority of the Security
Principal Balance advise the Clearing Agency through the Clearing Agency
Participants in writing that the continuation of a Book-Entry system through the
Clearing Agency is no longer in the best interests of the Security Owners, the
Trustee shall notify the Clearing Agency of the occurrence of any such event and
of the availability of Definitive Securities to Security Owners requesting the
same. Upon surrender to the Trustee by the Clearing Agency, accompanied by re-
registration instructions from the Clearing Agency for registration and
instructions and directions from the Servicer to execute and authenticate new
Securities, the Trustee shall issue authenticated Definitive Securities. The
Servicer shall arrange for, and will bear all costs of, the printing and
issuance of such Definitive Securities. None of the Seller, the Servicer, the
Trustee or the Security Insurer shall be liable for any delay in delivery of
such instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Securities, all
references
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herein to obligations imposed upon or to be performed by the Clearing Agency
shall be deemed to be imposed upon and performed by the Trustee, to the extent
applicable with respect to such Definitive Securities and the Trustee shall
recognize the Holders of the Definitive Securities as Securityholders hereunder.
ARTICLE VII
THE SELLER
SECTION 7.1 REPRESENTATIONS OF SELLER.
The Seller makes the following representations on which the Trustee
relies in accepting the Receivables in trust and executing and authenticating
the Securities and upon which the Security Insurer relies in executing and
delivering the Security Insurance Policy. The representations speak as of the
Closing Date and shall survive the sale of the Receivables to the Trustee.
(i) DUE ORGANIZATION AND GOOD STANDING. The Seller shall have
been duly organized and shall be validly existing as a federal savings bank
in good standing under the laws of the United States of America, with the
corporate power and authority to own its properties and to conduct its
business as such properties shall be currently owned and such business is
presently conducted, and had at all relevant times, and shall have, the
corporate power and authority and legal right to acquire and own the
Receivables.
(ii) DUE QUALIFICATION. The Seller shall be duly qualified to do
business as a foreign corporation in good standing, and shall have obtained
all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business shall require
such qualifications, except where the failure to be so qualified or to have
obtained such licenses or approvals would not have a material adverse
effect on the transactions contemplated by this Agreement.
(iii) POWER AND AUTHORITY. The Seller shall have the corporate
power and authority to execute and deliver this Agreement and to carry out
its terms, the Seller shall have full power and authority to sell and
assign the property to be sold and assigned to and deposited with the
Trustee as part of the Trust and shall have duly authorized such sale and
assignment to the Trustee by all necessary corporate action; and the duly
authorized by the Seller by all necessary corporate action.
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(iv) VALID SALE; BINDING OBLIGATIONS. This Agreement shall evidence a
valid sale, transfer, and assignment of the Receivables, enforceable
against creditors of and purchasers from the Seller; and shall a legal,
valid, and binding obligation of the Seller enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, or other similar laws affecting the enforcement
of creditors' rights or other obligees' rights in general or the rights of
creditors or obligees of federally chartered stock savings banks, the
deposits of which are insured by the FDIC, and by general principles of
equity, regardless of whether such enforceability shall be considered in a
proceeding in equity or at law.
(v) NO VIOLATION. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
shall not conflict with, result in any breach of any of the terms and
provisions of, nor constitute (with or without notice or lapse of time) a
default under, the charter or by-laws of the Seller, or any indenture,
agreement, or other instrument to which the Seller is a party or by which
it shall be bound; nor result in the creation or imposition of any Lien
upon any of its properties pursuant to the terms of any such indenture,
agreement, or other instrument (other than this Agreement); nor violate any
law or, to the best of the Seller's knowledge, any order, rule, or
regulation applicable to the Seller of any court or of any federal or state
regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Seller or its properties.
(vi) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the Seller's best knowledge, threatened before any court,
regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Seller or its properties (A)
asserting the invalidity of this Agreement or the Securities, (B) seeking
to prevent the issuance of the Securities or the consummation of any of the
transactions contemplated by this Agreement, (C) seeking any determination
or ruling that might materially and adversely affect the performance by the
Seller of its obligations under, or the validity or enforceability of, this
Agreement or the Securities, or (D) which might adversely affect the
federal income tax attributes of the Securities.
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(vii) NO CONSENT REQUIRED. The Seller is not required to obtain
the consent of any other Person or any consent, license, approval or
authorization of, or make any registration or declaration with, any
governmental authority or agency in connection with the execution, delivery
and performance of this Agreement (except as have been obtained), other
than as may be required under the Blue Sky laws of any state or the
Securities Act.
(viii) NO INSOLVENCY. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby were
not made in contemplation of the insolvency of the Seller or after the
commission of any act of insolvency by the Seller.
(ix) NOT AN INVESTMENT COMPANY. The Trust is not required to be
registered as an "investment company" under the Investment Company Act of
1940, as amended.
(x) OFFICIAL RECORD. This Agreement and all other documents
related hereto to which the Seller is a party have been approved by the
Seller's board of directors, which approval is reflected in the minutes of
such board, and shall continuously from the time of each such document's
execution, be maintained as an official record of the Seller.
SECTION 7.2 LIABILITY OF SELLER.
The Seller shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken and the representations made by the
Seller under this Agreement.
SECTION 7.3 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS OF THE
SELLER.
Any Person (a) into which the Seller may be merged or consolidated,
(b) which may result from any merger or consolidation to which the Seller shall
be a party, or (c) which may succeed to the properties and assets of the Seller
substantially as a whole, which Person in any of the foregoing cases executes an
agreement of assumption to perform every obligation of the Seller under this
Agreement, shall be the successor to the Seller hereunder without the execution
or filing of any document or any further act by any of the parties to this
Agreement; PROVIDED, HOWEVER, that (x) the Seller shall have delivered to the
Trustee and the Security Insurer an Officers' Security and an Opinion of Counsel
each stating that such consolidation, merger, or succession and such agreement
of
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assumption comply with this Section 7.3, and (y) all conditions precedent, if
any, provided for in this Agreement relating to such merger, consolidation or
succession have been complied with. Notwithstanding the above, no such
transaction shall result in the Seller becoming subject to the provisions of the
United States Bankruptcy Code or similar laws of any State. The Seller or its
successor hereunder shall provide the Trustee, the Servicer, the Security
Insurer and the Rating Agencies with prompt notice of any such transaction.
SECTION 7.4 LIMITATION ON LIABILITY OF CERTAIN PERSONS OF SELLER.
No recourse under or upon any obligation or covenant of this
Agreement, or of any Security or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, shareholder, officer or
director as such, of the Seller or of any successor corporation, either directly
or through the Seller, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise. This
Agreement and the obligations created hereunder are solely corporate
obligations, and no personal liability whatever shall attach to, or is or shall
be incurred by the incorporators, shareholders, officers or directors, as such,
of the Seller, or any of them, because of the issuance of the Securities, or
under or by reason of the obligations, covenants or agreements contained in this
Agreement or in any of the Securities or implied therefrom. Any and all such
personal liability, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, shareholder, officer or director, as such, because of the issuance
of the Securities, or under or by reason of the obligations, covenants or
agreements contained in this Agreement or in any of the Securities or implied
therefrom, are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Agreement and the issuance of the
Securities. The Seller and any director, officer, employee or agent of the
Seller may rely in good faith on any document of any kind PRIMA FACIE properly
executed and submitted by any Person respecting any matters arising hereunder.
ARTICLE VIII
THE SERVICER
SECTION 8.1 REPRESENTATIONS OF SERVICER.
The Servicer makes the following representations on which the Trustee
relies in accepting the Receivables in
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trust and executing and authenticating the Securities and upon which the
Security Insurer relies in executing and delivering the Security Insurance
Policy. The representations speak as of the Closing Date and shall survive the
sale of the Receivables to the Trustee.
(a) DUE ORGANIZATION AND GOOD STANDING. The Servicer shall have been
duly organized and shall be validly existing as a federal savings bank in good
standing under the laws of the United States of America, with the corporate
power and authority to own its properties and to conduct its business as such
properties shall be currently owned and such business is presently conducted,
and had at all relevant times, and shall have, the corporate power and authority
and legal right to acquire, own, sell, and service the Receivables and to hold
the Receivable Files as custodian on behalf of the Trustee.
(b) DUE QUALIFICATION. The Servicer shall be duly qualified to do
business as a foreign corporation in good standing, and shall have obtained all
necessary licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business (including the servicing of the
Receivables as required by this Agreement) shall require such qualifications,
except where the failure to be so qualified or to have obtained such licenses or
approvals would not have a material adverse effect on the transactions
contemplated by this Agreement and would not render any Receivable unenforceable
by the Trustee on behalf of the Securityholders and the Security Insurer.
(c) POWER AND AUTHORITY. The Servicer shall have the corporate power
and authority to execute and deliver this Agreement and to carry out its terms,
and the execution, delivery, and performance of this Agreement shall have been
duly authorized by the Servicer by all necessary corporate action.
(d) BINDING OBLIGATIONS. This Agreement shall constitute a legal,
valid, and binding obligation of the Servicer enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors' or
other obligees' rights in general or the rights of creditors or obligees of
federally chartered stock savings banks, the deposits of which are insured by
the Federal Deposit Insurance Corporation, and by general principles of equity,
regardless of whether such enforceability shall be considered in a proceeding in
equity or at law.
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(e) NO VIOLATION. The consummation of the transactions contemplated
by this Agreement and the fulfillment of the terms hereof shall not conflict
with, result in any breach of any of the terms and provisions of, nor constitute
(with or without notice or lapse of time) a default under, the charter or by-
laws of the Servicer, or any indenture, agreement, or other instrument to which
the Servicer is a party or by which it shall be bound; nor result in the
creation or imposition of any Lien upon any of its properties pursuant to the
terms of any such indenture, agreement, or other instrument (other than this
Agreement); nor violate any law or, to the best of the Servicer's knowledge any
order, rule, or regulation applicable to the Servicer of any court or of any
federal or State regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Servicer or its properties.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the Servicer's best knowledge, threatened before any court,
regulatory body, administrative agency, or other governmental instrumentality
having jurisdiction over the Servicer or its properties (A) asserting the
invalidity of this Agreement or the Securities, (B) seeking to prevent the
issuance of the Securities or the consummation of any of the transactions
contemplated by this Agreement, (C) seeking any determination or ruling that
might materially and adversely affect the performance by the Servicer of its
obligations under, or the validity or enforceability of, this Agreement or the
Securities, or (D) which might adversely affect the federal income tax
attributes of the Securities.
SECTION 8.2 LIABILITIES OF SERVICER, INDEMNITIES.
(a) The Servicer shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken and the representations made
by the Servicer under this Agreement, including its duties as custodian of the
Receivable Files.
(i) The Servicer, except as set forth in this Section 8.2, shall
not be under any liability to the Trust or the Securityholders for taking
any action or for refraining from taking any action pursuant to this
Agreement, or for errors in judgment; PROVIDED, HOWEVER, that this
provision shall not protect the Servicer against any liability which would
otherwise be imposed upon the Servicer by reason of its willful
misfeasance, bad faith or negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and duties as Servicer
hereunder.
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(ii) The Servicer shall indemnify, defend, and hold harmless
the Trustee, its officers, directors, agents and employees, the Trust, the
Securityholders and the Security Insurer from and against any and all
costs, expenses, losses, damages, claims, and liabilities, arising out of
or resulting from the use, ownership or operation by the Servicer or any
affiliate thereof of a Financed Vehicle; PROVIDED, that the Servicer shall
have no obligation to indemnify any Person against any credit losses on any
Receivable serviced by the Servicer in accordance with the requirements of
this Agreement.
(iii) The Servicer shall indemnify, defend and hold harmless the
Trust, the Trustee and its officers, directors, employees and agents and
the Security Insurer from and against any loss, liability, expense, damage
or injury, including any judgment, award, settlement and other costs or
expenses incurred in connection with the defense of any action, proceeding
or claim, to the extent such loss, liability, expense, damage or injury
arose out of, or was imposed upon such persons through, the willful
misfeasance, bad faith or negligence of the Servicer in the performance of
its duties or by reason of its reckless disregard of its obligations and
duties as Servicer hereunder.
(iv) The initial Servicer shall indemnify, defend and hold
harmless the Trustee, its officers, directors, employees and agents from
and against any loss, liability or expense incurred without negligence or
bad faith on the part of the Trustee or its officers, directors, employees
or agents and arising out of or in connection with the acceptance or
administration by the Trustee of this Trust, as applicable, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of the Trustee's powers
or duties hereunder.
(v) The Servicer shall defend, indemnify and hold harmless the
Trust and the Trustee, its respective officers, directors, agents and
employees, the Security Insurer and the Securityholders from and against
any taxes that may at any time be asserted against the Trust, the Trustee,
the Security Insurer or the Securityholders with respect to the
transactions contemplated in this Agreement, including, without limitation,
any sales, gross receipts, general corporation, tangible personal property,
privilege or license taxes (but not including any personal property taxes
asserted with respect to ownership of the Receivables, or federal or other
income taxes arising
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out of distributions on the Securities) and costs and expenses in defending
against the same.
Indemnification under this Section 8.2 shall include reasonable fees
and expenses of counsel and expenses of litigation.
Within a reasonable period after receipt by the Trustee, the Trust,
the Security Insurer or the Securityholders of notice of the commencement of any
action with respect to which indemnification is sought under this Section 8.2,
such party shall notify the Servicer in writing of the commencement thereof. In
case any such action shall be brought, the Servicer shall be entitled to
participate in and, to the extent that it shall wish, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after notice
from the Servicer to the indemnified party of its election so to assume the
defense thereof, the Servicer shall not be liable to such indemnified party for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.
The Servicer shall not be liable for any settlement of any litigation
or proceeding effected without the written consent of the Servicer (which shall
not be unreasonably withheld). The indemnified party shall not, without the
Servicer's written consent (which shall not be unreasonably withheld), settle or
compromise any claim or consent to entry of any judgment which would impose an
injunction or other equitable relief on the Servicer or which does not include
as an unconditional term thereof the release by the claimant or the plaintiff of
the Servicer from all liability in respect of such claim.
The rights to indemnification under this Section 8.2 shall survive the
termination, resignation or removal of the Servicer with respect to acts and
omissions to act of the Servicer giving rise to such rights and occurring prior
to such termination, resignation or removal. In addition, the rights to
indemnification under this Section 8.2 shall survive the termination of the
Trust.
SECTION 8.3 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS OF
THE SERVICER.
Any Person (a) into which the Servicer may be merged or consolidated,
(b) which may result from any merger or consolidation to which the Servicer
shall be a party, or (c) which may succeed to the properties and assets of the
Servicer substantially as a whole, which Person in any of the foregoing cases
executes an agreement of assumption to perform every obligation of the Servicer
hereunder, shall be
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the successor to the Servicer under this Agreement without the execution or
filing of any document or any further act on the part of any of the parties to
this Agreement; PROVIDED, HOWEVER, that (x) the Servicer shall have delivered to
the Trustee and the Security Insurer an Officers' Certificate and an Opinion of
Counsel each stating that such consolidation, merger or succession and such
agreement of assumption comply with this Section 8.3 and (y) all conditions
precedent, if any, provided for in this Agreement relating to such merger,
consolidation or succession have been complied with. The Servicer or its
successor hereunder shall provide the Trustee, the Seller, the Security Insurer
and the Rating Agencies with prompt notice of any such transaction.
SECTION 8.4 LIMITATION ON LIABILITY OF CERTAIN PERSONS OF SERVICER.
No recourse under or upon any obligation or covenant of this
Agreement, or of any Security or for any claim based thereon or otherwise in
respect thereof, shall be had against any incorporator, shareholder, officer or
director as such, of the Servicer or of any successor corporation, either
directly or through the Servicer, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or penalty or otherwise.
This Agreement and the obligations created hereunder are solely corporate
obligations, and no personal liability whatever shall attach to, or is or shall
be incurred by the incorporators, shareholders, officers or directors, as such,
of the Servicer, or any of them, because of the issuance of the Securities, or
under or by reason of the obligations, covenants or agreements contained in this
Agreement or in any of the Securities or implied therefrom. Any and all such
personal liability, either at common law or in equity or by constitution or
statute, of, and any and all such rights and claims against, every such
incorporator, shareholder, officer or director, as such, because of the issuance
of the Securities, or under or by reason of the obligations, covenants or
agreements contained in this Agreement or in any of the Securities or implied
therefrom, are hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Agreement and the issuance of the
Securities. The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on any document of any kind PRIMA FACIE properly
executed and submitted by any Person respecting any matters arising hereunder.
Except as provided in this Agreement, the Servicer shall not be under
any obligation to appear in, prosecute, or defend any legal action that shall
not be incidental to its duties to service the Receivables in accordance with
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this Agreement (collection actions with respect to Defaulted Receivables are
understood to be incidental to the Servicer's duties to service the
Receivables), and that in its opinion may involve it in any expense or
liability.
SECTION 8.5 SERVICER NOT TO RESIGN.
The Servicer shall not resign from its obligations and duties under
this Agreement except upon determination that the performance of its duties
shall no longer be permissible under applicable law (any such determination
permitting the resignation of the Servicer shall be evidenced by an Opinion of
Counsel to such effect delivered to the Trustee and the Security Insurer).
Notice of any such determination permitting the resignation of the Servicer,
shall be communicated to the Trustee, the Security Insurer and the Rating
Agencies at the earliest practicable time and any such determination permitting
the resignation of the Servicer shall be evidenced by an Opinion of Counsel to
such effect delivered to the Trustee concurrently with such notice. No such
resignation shall become effective until the Trustee or other successor
Servicer shall have assumed the responsibilities and obligations of the Servicer
in accordance with Section 9.2.
SECTION 8.6 DELEGATION OF DUTIES.
The Servicer may at any time delegate any duties hereunder to any
Person, including, without limitation, the Sub-Servicer, who agrees to conduct
such duties in accordance with this Agreement; PROVIDED, HOWEVER, that the
Servicer may not delegate its duties as Custodian except (i) with the consent of
the Security Insurer, or (ii) as provided in Section 3.3 and 3.4 of this
Agreement. Such delegation shall not relieve the Servicer of its
responsibilities and liabilities with respect to such duties, and shall not
constitute a resignation within the meaning of Section 8.5.
ARTICLE IX
DEFAULT
SECTION 9.1 EVENTS OF DEFAULT.
If any one of the following events ("Events of Default") shall occur
and be continuing:
(i) any failure by the Servicer to deliver to the Trustee the
Servicer's Security for a Collection Period or to deliver to the Trustee
for distribution to Securityholders any proceeds or payment required to be
so delivered under the terms of the Securities and this
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Agreement that shall continue unremedied for a period of more than three
Business Days after written notice from (x) the Trustee or the Holders of
Securities evidencing not less than 25% of the Security Principal Balance,
which notice, in either case, shall be consented to by the Security
Insurer, or (y) the Security Insurer is received by the Servicer as
specified in this Agreement; or
(ii) failure on the part of the Servicer or the Seller duly to
observe or to perform in any material respect any other covenants or
agreements of the Servicer or the Seller, as the case may be, set forth in
the Securities or in this Agreement, which failure shall (a) materially and
adversely affect the rights of Securityholders (determined without regard
to the availability of the Security Insurance Policy) and (b) continue
unremedied for a period of more than 30 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given (x) (1) to the Servicer or the Seller, as the case may be,
by the Trustee, or (2) to the Servicer or the Seller, as the case may be,
and to the Trustee by the Holders of Securities evidencing not less than
25% of the Security Principal Balance, which notice, in either case, shall
be consented to by the Security Insurer, or (y) to the Servicer or the
Seller, as the case may be, by the Security Insurer; or
(iii) the entry of a decree or order by a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a conservator, receiver, or liquidator for the Servicer in
any insolvency, readjustment of debt, marshaling of assets and liabilities,
or similar proceedings, or for the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(iv) the consent by the Servicer to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of
debt, marshaling of assets and liabilities, or similar proceedings of or
relating to the Servicer or of or relating to substantially all of its
property; or the admission by the Servicer in writing of its inability to
pay its debts generally as they become due, the filing by the Servicer of a
petition to take advantage of any applicable insolvency or reorganization
statute, the making by the servicer of an assignment for the benefit of its
creditors, or the voluntary suspension by the Servicer of payment of its
obligations;
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then, and in each and every case, so long as an Event of Default shall not have
been remedied, (x) the Trustee or the Holders of Securities evidencing not less
than 51% of the Security Principal Balance, in either case with the consent of
the Security Insurer or (y) the Security Insurer, by notice then given in
writing to the Servicer (and to the Trustee if given by the Security Insurer or
the Securityholders), may terminate all of the rights and obligations of the
Servicer under this Agreement.
On or after the receipt by the Servicer of such written notice, all
authority and power of the Servicer under this Agreement, whether with respect
to the Securities or the Receivables or otherwise, shall, without further
action, pass to and be vested in the Trustee or such successor Servicer as may
be appointed under Section 9.2 pursuant to and under this Section 9.1; and,
without limitation, the Servicer, the Trustee or such other successor Servicer,
as the case may be, is hereby authorized and empowered to execute and deliver,
on behalf of the predecessor Servicer, as attorney-in-fact or otherwise, any and
all documents and other instruments, and to do or accomplish all other acts or
things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement of the Receivables
and related documents, or otherwise; PROVIDED, HOWEVER, that the Trustee or any
successor Servicer shall not be liable for any acts, omissions or obligations of
the Servicer prior to such succession. The predecessor Servicer shall cooperate
with the successor Servicer and the Trustee in effecting the termination of the
responsibilities and rights of the predecessor Servicer under this Agreement,
including the transfer to the successor Servicer of electronic records related
to the Receivables or such form as the successor Servicer may reasonably request
and the transfer to the successor Servicer for administration by it of all cash
amounts that shall at the time be held by the predecessor Servicer for deposit,
or shall thereafter be received with respect to a Receivable. The Trustee shall
give the Rating Agencies and the Security Insurer notice of any termination of
the Servicer pursuant to the terms of this Section 9.1.
SECTION 9.2 APPOINTMENT OF SUCCESSOR.
(a) Upon the Servicer's receipt of notice of termination pursuant to
Section 9.1 or the Servicer's resignation in accordance with the terms of this
Agreement, the predecessor Servicer shall continue to perform its functions as
Servicer under this Agreement, in the case of termination, only until the date
specified in such termination notice or, if no such date is specified in a
notice of termination, until receipt of such notice and, in
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the case of resignation, until the later of (x) the date 45 days from the
delivery to the Trustee and the Security Insurer of written notice of such
resignation (or written confirmation of such notice) in accordance with the
terms of this Agreement and (y) the date upon which the predecessor Servicer
shall become unable to act as Servicer, as specified in the notice of
resignation and accompanying Opinion of Counsel. In the event of the Servicer's
resignation or termination hereunder, the Trustee shall, with the consent of the
Security Insurer, appoint a successor Servicer, and the successor Servicer shall
accept its appointment by a written assumption in form acceptable to the
Trustee. In the event that a successor Servicer has not been appointed at the
time when the predecessor Servicer has ceased to act as Servicer in accordance
with this Section 9.2, the Trustee without further action shall automatically be
appointed the successor Servicer; PROVIDED, HOWEVER, that the Trustee shall not
be liable for any acts, omissions or obligations of the Servicer prior to such
succession. Notwithstanding the above, the Trustee shall, if it shall be legally
unable so to act, appoint, or petition a court of competent jurisdiction to
appoint, any established financial institution, having a net worth of not less
than $_______________ and whose regular business shall include the servicing of
automotive receivables, as the successor to the Servicer under this Agreement.
(b) Upon appointment, the successor Servicer shall be the successor
in all respects to the predecessor Servicer and shall be subject to all the
responsibilities, duties, and liabilities arising thereafter relating thereto
placed on the predecessor Servicer, and shall be entitled to all of the rights
granted to the predecessor Servicer, by the terms and provisions of this
Agreement.
(c) In connection with such appointment, the Trustee may make such
arrangements for the compensation of a successor Servicer out of payments on
Receivables as it and such successor Servicer shall agree; PROVIDED, HOWEVER,
that no such compensation shall be in excess of that permitted the original
Servicer under this Agreement. The Trustee and such successor Servicer shall
take such action, consistent with this Agreement, as shall be necessary to
effectuate any such succession.
The Servicer shall cooperate with the successor Servicer in effecting
the transfer of the rights and responsibilities of the Servicer under this
Agreement.
SECTION 9.3 NOTIFICATION TO SECURITYHOLDERS.
Upon any notice of an Event of Default or upon any termination of, or
appointment of a successor to, the
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Servicer pursuant to this Article IX, the Trustee shall give prompt written
notice thereof to Securityholders at their respective addresses appearing in the
Security Register, to the Rating Agencies and to the Security Insurer.
SECTION 9.4 WAIVER OF PAST DEFAULTS.
The Security Insurer or, provided they have obtained the prior consent
of the Security Insurer, the Holders of Securities evidencing not less than 51%
of the Security Principal Balance may, on behalf of all Holders of Securities,
waive any default by the Servicer or the Seller in the performance of its
obligations hereunder and its consequences, except a default in making any
required deposits to or payments from the Security Account in accordance with
this Agreement. Upon any such waiver of a past default, such default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent
thereon.
SECTION 9.5 EFFECT OF EVENT OF DEFAULT ON SUB-SERVICER.
Any removal of the Servicer pursuant to this Article IX shall IPSO
FACTO constitute a removal of the Sub-Servicer.
ARTICLE X
THE TRUSTEE
SECTION 10.1 DUTIES OF TRUSTEE.
The Trustee both prior to and after the occurrence of an Event of
Default, shall undertake to perform such duties as are specifically set forth in
this Agreement. If an Event of Default shall have occurred and shall not have
been cured, the Trustee shall exercise such of the rights and powers vested in
it by this Agreement, and shall use the same degree of care and skill in their
exercise, as a prudent man or woman would exercise or use under the
circumstances in the conduct of his or her own affairs; PROVIDED, HOWEVER, that
if the Trustee shall assume the duties of the Servicer pursuant to Section 9.2,
the Trustee in performing such duties shall use the degree of skill and
attention customarily exercised by a servicer with respect to automobile
receivables that it services for itself or others.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee that
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shall be specifically required to be furnished pursuant to any provision of this
Agreement, shall examine them to determine whether they conform as to form to
the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own bad faith; PROVIDED, HOWEVER, that:
(i) prior to the occurrence of an Event of Default, and after the
curing of all such Events of Default that may have occurred, the duties and
obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for
the performance of such duties and obligations as shall be specifically set
forth in this Agreement, no implied covenants or obligations shall be read
into this Agreement against the Trustee and, in the absence of bad faith on
the part of the Trustee, or manifest error, the Trustee may conclusively
rely on the truth of the statements and the correctness of the opinions
expressed in any certificates or opinions furnished to the Trustee and
conforming to the requirements of this Agreement;
(ii) the Trustee shall not be liable for an error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee shall have been negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action
taken, suffered, or omitted to be taken in good faith in accordance with
this Agreement or at the direction of the Security Insurer or the Holders
of Securities evidencing not less than 25% of the Security Principal
Balance with the consent of the Security Insurer relating to the time,
method, and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee,
under this Agreement;
(iv) the Trustee shall not be charged with knowledge of any failure
by the Servicer to comply with the obligations of the Servicer referred to
in clause (i) or (ii) of Section 9.1, or of any failure by the Seller to
comply with the obligations of the Seller referred to in clause (ii) of
Section 9.1, unless a Responsible Officer of the Trustee receives written
notice of such failure (it being understood that knowledge of the Servicer
or the Servicer as custodian, in its capacity as agent for the Trustee, is
not
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attributable to the Trustee) from the Servicer, the Seller or the Security
Insurer, as the case may be, or the Holders of Securities evidencing not
less than 25% of the Security Principal Balance; and
(v) without limiting the generality of this Section or Section
10.4, the Trustee shall have no duty (i) to see to any recording, filing,
or depositing of this Agreement or any agreement referred to therein or any
financing statement evidencing a security interest in the Receivables or
the Financed Vehicles, or to see to the maintenance of any such recording
or filing or depositing or to any rerecording, refiling or redepositing of
any thereof, (ii) to see to any insurance of the Financed Vehicles or
Obligors or to effect or maintain any such insurance, (iii) to see to the
payment or discharge of any tax, assessment, or other governmental charge
or any Lien or encumbrance of any kind owing with respect to, or assessed
or levied against, any part of the Trust, (iv) to confirm or verify the
contents of any reports or certificates of the Servicer delivered to the
Trustee pursuant to this Agreement believed by the Trustee to be genuine
and to have been signed or presented by the proper party or parties, or (v)
to inspect the Financed Vehicles at any time or ascertain or inquire as to
the performance or observance of any of the Seller's or the Servicer's
representations, warranties or covenants or the Servicer's duties and
obligations as Servicer and as custodian of the Receivable Files under this
Agreement.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there shall be
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability shall not be reasonably assured to it,
and none of the provisions contained in this Agreement shall in any event
require the Trustee to perform, or be responsible for the manner of performance
of, any of the obligations of the Servicer under this Agreement except during
such time, if any, as the Trustee shall be the successor to, and be vested with
the rights, duties, powers, and privileges of, the Servicer in accordance with
the terms of this Agreement.
SECTION 10.2 TRUSTEE'S SECURITY.
On or as soon as practicable after each Distribution Date on which
Receivables shall be (i) assigned to the Seller pursuant to Section 3.2 or (ii)
assigned to the Servicer pursuant to Section 4.2, 4.7 or 11.2, the Trustee shall
execute a Trustee's Security, substantially in
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the form of, in the case of an assignment to the Seller, Exhibit C, or, in the
case of an assignment to the Servicer, Exhibit D, based on the information
contained in the Servicer's Security for the related Collection Period, amounts
deposited to the Security Account, and notices received pursuant to this
Agreement, identifying the Receivables repurchased by the Seller pursuant to
Section 3.2 or purchased by the Servicer pursuant to Section 4.2, 4.7 or 11.2
with respect to such Collection Period, and shall deliver such Trustee's
Security, accompanied by a copy of the Servicer's Security for such Collection
Period to the Seller or the Servicer, as the case may be, with a copy to the
Security Insurer. The Trustee's Security shall be an assignment pursuant to
Section 10.3.
SECTION 10.3 TRUSTEE'S ASSIGNMENT OF PURCHASED RECEIVABLES.
With respect to each Receivable repurchased by the Seller pursuant to
Section 3.2 or purchased by the Servicer pursuant to Section 4.2, 4.7 or 11.2,
the Trustee shall assign, on the day on which the Trustee receives payment for
such Receivable, effective as of the last day of the Collection Period during
which such Receivable became subject to repurchase by the Seller or purchase by
the Servicer, without recourse, representation, or warranty, to the Seller or
the Servicer (as the case may be) all the Trustee's right, title, and interest
in and to such Receivables, and all security and documents relating thereto, and
all proceeds thereof, such assignment being an assignment outright and not for
security. If in any enforcement suit or legal proceeding it shall be held that
the Servicer may not enforce a Receivable on the ground that it shall not be a
real party in interest or a holder entitled to enforce the Receivable, the
Trustee shall, at the Servicer's expense, take such steps as the Trustee deems
necessary to enforce the Receivable, including bringing suit in its name or the
name of the Securityholders.
SECTION 10.4 CERTAIN MATTERS AFFECTING THE TRUSTEE.
Except as otherwise provided in Section 10.1:
(i) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
Servicer's Security, certificate of auditors, or any other certificate,
statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond, or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties.
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(ii) The Trustee may consult with counsel and any Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken or suffered or omitted by it under this Agreement in
good faith and in accordance with such Opinion of Counsel.
(iii) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Agreement, or to institute,
conduct, or defend any litigation under this Agreement or in relation to
this Agreement, at the request, order, or direction of any of the
Securityholders pursuant to the provisions of this Agreement, unless such
Securityholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses, and liabilities that may be incurred
therein or thereby; nothing contained in this Agreement, however, shall
relieve the Trustee of the obligations, upon the occurrence of an Event of
Default (that shall not have been cured), to exercise such of the rights
and powers vested in it by this Agreement, and to use the same degree of
care and skill in their exercise as a prudent man or woman would exercise
or use under the circumstances in the conduct of his or her own affairs.
(iv) The Trustee shall not be liable for any action taken,
suffered, or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Agreement.
(v) Prior to the occurrence of an Event of Default and after
the curing of all Events of Default that may have occurred, the Trustee
shall not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond, or other paper or
document, unless requested in writing to do so by the Holders of Securities
evidencing not less than 25% of the Security Principal Balance or the
Security Insurer; PROVIDED, HOWEVER, that if the payment within a
reasonable time to the Trustee of the costs, expenses, or liabilities
likely to be incurred by it in the making of such investigation shall be,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such cost, expense, or liability as a
condition to so proceeding. Nothing in this clause (v) shall affect the
obligation of the Servicer to observe any
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applicable law prohibiting disclosure of information regarding the
Obligors.
(vi) The Trustee may execute any of the trusts or powers
hereunder or perform any duties under this Agreement either directly or by
or through agents or attorneys or a custodian and shall not be liable for
the negligence of any of such agents, attorneys or custodians appointed
with due care. The Trustee shall not be responsible for any misconduct or
negligence solely attributable to the acts or omissions of the Servicer in
its capacity as Servicer or custodian.
(vii) Subsequent to the sale of the Receivables by the Seller to
the Trustee, the Trustee shall have no duty of independent inquiry, except
as may be required by Section 10.1, and the Trustee may rely upon the
representations and warranties and covenants of the Seller and the
Servicer contained in this Agreement with respect to the Receivables and
the Receivable Files.
SECTION 10.5 TRUSTEE NOT LIABLE FOR SECURITIES OR RECEIVABLES.
The recitals contained herein and in the Securities (other than the
certificate of authentication on the Securities) shall be taken as the
statements of the Seller or the Servicer, as the case may be, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee shall make
no representations as to the validity or sufficiency of this Agreement or of the
Securities (other than the certificate of authentication on the Securities), or
of any Receivable or related document. The Trustee shall at no time have any
responsibility or liability for or with respect to the legality, validity, and
enforceability of any security interest in any Financed Vehicle or any
Receivable, or the perfection and priority of such a security interest or the
maintenance of any such perfection and priority, or for or with respect to the
efficacy of the Trust or its ability to generate the payments to be distributed
to Securityholders under this Agreement, including, without limitation, the
existence, condition, location, and ownership of any Financed Vehicle; the
existence and enforceability of any physical damage insurance, lender's single
interest insurance, or credit life or disability and hospitalization insurance
with respect to any Receivable; the existence and contents of any Receivable or
any computer or other record thereof; the validity of the assignment of any
Receivable to the Trust or of any intervening assignment; the completeness of
any Receivable; the performance or enforcement of any Receivable; the compliance
by the Seller or the Servicer with any warranty or
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representation made under this Agreement or in any related document and the
accuracy of any such warranty or representation prior to the Trustee's receipt
of notice or other discovery of any noncompliance therewith or any breach
thereof; any investment of monies by the Servicer or any loss resulting
therefrom other than investments in obligations of or guaranteed by the Trustee
(it being understood that the Trustee shall remain responsible for any Trust
property that it may hold); the acts or omissions of the Seller, the Servicer,
or any Obligor; any action of the Servicer taken in the name of the Trustee; or
any action by the Trustee taken at the instruction of the Servicer; PROVIDED,
HOWEVER, that the foregoing shall not relieve the Trustee of its obligation to
perform its duties under this Agreement. Except with respect to a claim based
on the failure of the Trustee to perform its duties under this Agreement or
based on the Trustee's negligence or willful misconduct, no recourse shall be
had for any claim based on any provision of this Agreement, the Securities, or
any Receivable or assignment thereof against the Trustee in its individual
capacity, the Trustee shall not have any personal obligation, liability, or duty
whatsoever to any Securityholder or any other Person with respect to any such
claim, and any such claim shall be asserted solely against the Trust or any
indemnitor who shall furnish indemnity as provided in this Agreement. The
Trustee shall not be accountable for the use or application by the Seller of any
of the Securities or of the proceeds of such Securities, or for the use or
application of any funds paid to the Seller or the Servicer in respect of the
Receivables. The Trustee shall not be responsible for any statement in any
document prepared, executed or delivered in connection with the sale and
issuance of the Securities other than any such document prepared, executed or
delivered by the Trustee in connection therewith on the Closing Date.
SECTION 10.6 TRUSTEE MAY OWN SECURITIES.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities with the same rights as it would have if it were
not Trustee.
SECTION 10.7 TRUSTEE'S FEES.
The Trustee's fee for a Collection Period shall equal the Monthly
Trustee's Fee. The Monthly Trustee's Fee will be paid from the funds of the
Trust in accordance with Section 5.4.
SECTION 10.8 ELIGIBILITY REQUIREMENTS FOR TRUSTEE.
The Trustee under this Agreement shall at all times be a corporation
having an office in the same State as
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the location of the Corporate Trust Office as specified in this Agreement, or
another state of the United States of America or the District of Columbia; and
organized and doing business under the laws of such State, district or the
United States of America; authorized under such laws to exercise corporate trust
powers; having a combined capital and surplus of at least $_________________ and
subject to supervision or examination by federal or State authorities; having a
rating of its long-term debt obligations by Moody's of no less than Baa3; and
reasonably satisfactory to the Security Insurer. If such corporation shall
publish reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purpose of this Section 10.8, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 10.8, the Trustee shall resign immediately in the manner and with the
effect specified in Section 10.9.
SECTION 10.9 RESIGNATION OR REMOVAL OF TRUSTEE.
The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Servicer. Upon receiving
such notice of resignation, the Servicer shall, with the consent of the Security
Insurer, promptly appoint a successor Trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. If no successor Trustee shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 10.8 and shall fail to resign after written
request therefor by the Servicer or the Security Insurer, or if at any time the
Trustee shall be legally unable to act, or shall be adjudged a bankrupt or
insolvent, or a receiver of the Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation, or
liquidation, then the Servicer or the Security Insurer may remove the Trustee.
If it shall remove the Trustee under the authority of the immediately preceding
sentence, the Servicer shall promptly appoint a successor Trustee by written
instrument, in duplicate, one copy of which
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instrument shall be delivered to the Trustee so removed and one copy to the
successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 10.9 shall
not become effective without the consent of the Security Insurer and until
acceptance of appointment by the successor Trustee pursuant to Section 10.10.
SECTION 10.10 SUCCESSOR TRUSTEE.
Any successor Trustee appointed pursuant to Section 10.9 shall
execute, acknowledge, and deliver to the Servicer and to its predecessor Trustee
an instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Trustee shall become effective and
such successor Trustee, without any further act, deed, or conveyance, shall
become fully vested with all the rights, powers, duties, and obligations of its
predecessor under this Agreement, with like effect as if originally named as
Trustee. The predecessor Trustee shall deliver to the successor Trustee all
documents and statements held by it under this Agreement; and the Servicer and
the predecessor Trustee shall execute and deliver such instruments and do such
other things as may reasonably be required for fully and certainly vesting and
confirming in the successor Trustee all such rights, powers, duties, and
obligations.
No successor Trustee shall accept appointment as provided in this
Section 10.10 unless at the time of such acceptance such successor Trustee shall
be eligible pursuant to Section 10.8.
Upon acceptance of appointment by a successor Trustee pursuant to this
Section 10.10, the Servicer shall mail notice of the successor of such Trustee
under this Agreement to all Holders of Securities at their addresses as shown in
the Security Register, to the Security Insurer and to the Rating Agencies. If
the Servicer shall fail to mail such notice within 10 days after acceptance of
appointment by the successor Trustee, the successor Trustee shall cause such
notice to be mailed at the expense of the Servicer.
SECTION 10.11 MERGER OR CONSOLIDATION OF TRUSTEE.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion, or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the
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successor of the Trustee hereunder, provided such corporation shall be eligible
pursuant to Section 10.8, without the execution or filing of any instrument or
any further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding. The Trustee or its successor hereunder shall provide
the Servicer, the Security Insurer and the Rating Agencies with prompt notice of
any such transaction.
SECTION 10.12 APPOINTMENT OF CO-TRUSTEE OR SEPARATE TRUSTEE.
Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust or any Financed Vehicle may at the time be located, the
Servicer and the Trustee with the consent of the Security Insurer acting jointly
shall have the power and shall execute and deliver all instruments to appoint
one or more Persons approved by the Trustee to act as co-trustee, jointly with
the Trustee, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person, in such capacity and for the benefit of the
Securityholders and the Security Insurer, such title to the Trust, or any part
thereof, and, subject to the other provisions of this Section 10.12, such
powers, duties, obligations, rights, and trusts as the Servicer and the Trustee
may consider necessary or desirable. If the Servicer shall not have joined in
such appointment within 15 days after the receipt by it of a request so to do,
or in the case an Event of Default shall have occurred and be continuing, the
Trustee alone shall have the power to make such appointment. No co-trustee or
separate trustee under this Agreement shall be required to meet the terms of
eligibility as a successor Trustee pursuant to Section 10.8 and no notice to
Securityholders of the appointment of any co-trustee or separate trustee shall
be required pursuant to Section 10.10.
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(A) all rights, powers, duties, and obligations conferred or
imposed upon the Trustee shall be conferred upon and exercised or performed
by the Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to
act separately without the Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular act
or acts are to be performed (whether as Trustee under this Agreement or as
successor to the
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Servicer under this Agreement), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties, and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be exercised
and performed singly by such separate trustee or co-trustee, but solely at
the direction of the Trustee;
(B) no trustee under this Agreement shall be personally liable by
reason of any act or omission of any other trustee under this Agreement;
and
(C) the Servicer, the Trustee and the Security Insurer acting
jointly may at any time accept the resignation of or remove any separate
trustee or co-trustee.
Any notice, request, or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article X. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Trustee. Each such instrument shall be filed with the Trustee and a
copy thereof given to the Servicer and the Security Insurer.
Any separate trustee or co-trustee may at any time appoint the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign, or be removed, all of its
estates, properties, rights, remedies, and trusts shall vest in and be exercised
by the Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
SECTION 10.13 REPRESENTATIONS AND WARRANTIES OF TRUSTEE.
The Trustee shall make the following representations and warranties on
which the Seller, the Security Insurer and Securityholders may rely:
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(A) DUE ORGANIZATION AND GOOD STANDING. The Trustee is a
national banking association duly organized, validly existing, and in good
standing under the laws of the United States of America.
(B) POWER AND AUTHORITY. The Trustee has full power, authority,
and legal right to execute, deliver, and perform this Agreement, and shall
have taken all necessary action to authorize the execution, delivery, and
performance by it of this Agreement.
(C) NO VIOLATION. The execution, delivery, and performance by
the Trustee of this Agreement shall not violate any provision of any law
governing the banking and trust powers of the Trustee or, to the best of
the Trustee's knowledge, any order, writ, judgment, or decree of any court,
arbitrator, or governmental authority applicable to the Trustee or any of
its assets.
(D) NO PROCEEDINGS. The execution, delivery, and performance by
the Trustee of this Agreement shall not require the authorization,
consent, or approval of, the giving of notice to, the filing or
registration with, or the taking of any other action in respect of any
governmental authority or agency regulating the banking and corporate trust
activities of the Trustee.
(E) DULY EXECUTED. This Agreement shall have been duly executed
and delivered by the Trustee and shall constitute the legal, valid, and
binding agreement of the Trustee, enforceable in accordance with its terms.
(F) SECURITIES INTERMEDIARY. The Trustee is a securities
intermediary as defined under Article 8 of the Minnesota Uniform Commercial
Code.
SECTION 10.14 TAX RETURNS.
The Servicer shall prepare or shall cause to be prepared any tax
returns required to be filed by the Trust and the Trustee shall promptly sign
and file such returns. In no event shall the Trustee be liable for any
liabilities, costs or expenses of the Trust or the Securityholders under any tax
law, including without limitation federal, state or local income or excise
taxes or any other tax imposed on or measured by income (or any interest or
penalty with respect thereto or arising from a failure to comply therewith).
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ARTICLE XI
TERMINATION
SECTION 11.1 TERMINATION OF THE TRUST.
The respective obligations and responsibilities of the Seller, the
Servicer, and the Trustee created hereby and the Trust created by this Agreement
shall terminate upon (i) the purchase as of the last day of any Collection
Period by the Servicer at its option, pursuant to Section 11.2, of the corpus of
the Trust or (ii) the payment to Securityholders and the Security Insurer of all
amounts required to be paid to them pursuant to this Agreement and the
disposition of all property held as part of the Trust; PROVIDED, HOWEVER, that
in no event shall the trust created by this Agreement continue beyond the
expiration of 21 years from the death of the last survivor of the descendants of
Joseph P. Kennedy, the late ambassador of the Court of St. James, living on the
date of this Agreement. The Servicer shall promptly notify the Trustee and the
Security Insurer of any prospective termination pursuant to this Section 11.1.
Notice of any termination, specifying the Distribution Date upon which
the Securityholders may surrender their Securities to the Trustee for payment of
the final distribution and cancellation, shall be given promptly by the Trustee
by letter to Securityholders mailed not later than the first day of the month in
which the specified Distribution Date occurs, stating (A) the Distribution Date
upon which final payment of the Securities shall be made upon presentation and
surrender of the Securities at the office of the Trustee therein designated, (B)
the amount of any such final payment, and (C) that the Record Date otherwise
applicable to such Distribution Date is not applicable, payments being made only
upon presentation and surrender of the Securities at the office of the Trustee
therein specified. The Trustee shall give such notice to the Security Registrar
(if other than the Trustee) at the time such notice is given to Securityholders.
Upon presentation and surrender of the Securities, the Trustee shall cause to be
distributed to Securityholders and the Security Insurer amounts distributable on
such Distribution Date pursuant to Section 5.4.
In the event that all of the Securityholders shall not surrender their
Securities for cancellation within six months after the date specified in the
above-mentioned written notice, the Trustee shall give a second written notice
to the remaining Securityholders to surrender their Securities for cancellation
and receive the final distribution with respect thereto. If within one year
after
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the second notice all the Securities shall not have been surrendered for
cancellation, the Trustee may take appropriate steps, or may appoint an agent to
take appropriate steps, to contact the remaining Securityholders concerning
surrender of their Securities, and the cost thereof shall be paid out of the
funds and other assets that shall remain subject to this Agreement. Any funds
remaining in the Trust after exhaustion of such remedies shall, upon notice to
the Trustee, be paid by the Trustee to the Servicer for deposit into an escrow
account, and thereafter Securityholders shall look only to such escrow account
with respect to any claims in respect of such funds.
SECTION 11.2 OPTIONAL PURCHASE OF ALL RECEIVABLES.
The Seller shall have the option to purchase the corpus of the Trust
on any Distribution Date following a Record Date on which the Pool Balance is
% or less of the Original Pool Balance. To exercise such option, the Seller
- ---
shall deposit in the Security Account an amount equal to the aggregate Purchase
Amounts for the Receivables, together with any Reimbursement Amount then owed to
the Security Insurer (the "Optional Purchase Price"); PROVIDED, HOWEVER, that
the Seller may not effect any such purchase unless the Trustee and the Security
Insurer shall have received an Opinion of Counsel acceptable to them that such
purchase does not constitute a fraudulent conveyance under applicable federal
and state laws. Such price shall be deposited to the Security Account in
immediately available funds by 12:00 noon, New York City time, on the
Distribution Date and, upon notice to the Trustee of such deposit, the Trustee
shall release the Receivables and the Receivable Files and all other property of
the Trust to the Seller, whereupon the Securities shall no longer evidence any
right or interest in the Receivables or other property of the Trust or any
proceeds thereof.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.1 AMENDMENT.
This Agreement may be amended by the Seller, the Servicer and the
Trustee, without the consent of any of the Securityholders but with the consent
of the Security Insurer, to cure any ambiguity or defect, to correct or
supplement any provisions in this Agreement, to correct any typographical error
or to add any other provisions with respect to matters or questions arising
under this Agreement; PROVIDED, HOWEVER, that such action shall not, as
evidenced by an Opinion of Counsel, adversely affect in any material respect the
interests of any Securityholder.
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This Agreement may also be amended from time to time by the Seller,
the Servicer and the Trustee with the consent of the Security Insurer and the
Holders of Securities evidencing not less than 51% of the Security Principal
Balance for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement, or of modifying in any
manner the rights of the Holders of Securities; PROVIDED, HOWEVER, that no such
amendment shall, without the consent of the Holders of all Securities then
outstanding, reduce the aforesaid percentage required to consent to any such
amendment. In no case may any such amendment increase or reduce in any manner
the amount of, or accelerate or delay the timing of, collections of payments on
Receivables or distributions that shall be required to be made on any Security
without the consent of the Holder of such Security.
The Trustee shall notify each Rating Agency prior to any amendment of
this Agreement; to the extent practicable, such notice shall be given not less
than 10 days prior to the date on which such amendment is executed.
Promptly after the execution of any amendment or consent, the Trustee
shall furnish written notification of the substance of such amendment or consent
to each Securityholder, each Rating Agency and the Security Insurer; a copy of
any proposed amendment shall be furnished to the Security Insurer by the Seller
prior to its execution by the Seller.
It shall not be necessary for the consent of Securityholders pursuant
to this Section 12.1 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Securityholders shall be subject to
such reasonable requirements as the Trustee may prescribe.
Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel stating that
the execution of such amendment is authorized or permitted by this Agreement and
the Opinion of Counsel referred to in Section 12.2(i)(1). The Trustee may, but
shall not be obligated to, enter into any such amendment which affects the
Trustee's own rights, duties, or immunities under this Agreement.
SECTION 12.2 PROTECTION OF TITLE TO TRUST.
(a) The Seller shall execute and file, or cause to be executed and
filed, such financing statements and cause to be executed and filed such
continuation statements,
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all in such manner and in such places as may be required by law fully to
preserve, maintain, and protect the interest of the Securityholders, the
Security Insurer and the Trustee under this Agreement in the Receivables and in
the proceeds thereof. The Seller shall deliver (or cause to be delivered) to
the Trustee and the Security Insurer file-stamped copies of, or filing receipts
for, any document filed as provided above, as soon as available following such
filing.
(b) Neither the Seller nor the Servicer shall change its name,
identity, or corporate structure in any manner that would, could, or might make
any financing statement or continuation statement filed by the Seller in
accordance with paragraph (a) above seriously misleading within the meaning of
Section 9-402(7) of the UCC, unless the Seller or Servicer shall have filed (or
cause to be filed) UCC financing statements upon any of the stated events.
(c) If, as a result of a relocation of the Seller's or Servicer's
principal executive office, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement, then the Seller or the Servicer
shall file or cause to be filed such amendment or continuation statement or new
financing statement within the period of time necessary fully to preserve and
protect the interest of the Trustee in the Receivables. The Servicer shall at
all times maintain each office from which it shall service Receivables, and its
principal executive office, within the United States of America.
(d) The Servicer shall maintain accounts and records as to each
Receivable accurately and in sufficient detail to permit (i) the reader thereof
to know at any time the status of such Receivable, including payments and
recoveries made and payments owing (and the nature of each) and (ii)
reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Security Account
in respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that, from and
after the time of sale under this Agreement of the Receivables to the Trustee,
the Servicer's master computer records (including any back-up archives) that
refer to a Receivable shall indicate clearly with reference to the particular
grantor trust that such Receivable is owned by the Trustee. Indication of the
Trustee's ownership of a Receivable shall be deleted from or modified on the
Servicer's computer systems when, and only
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when, the Receivable shall have been paid in full or repurchased.
(f) If at any time the Seller or the Servicer shall propose to sell,
grant a security interest in, or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender, or other transferee, the
Servicer shall give to such prospective purchaser, lender, or other transferee
computer tapes, records, or print-outs (including any restored from back-up
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate clearly that such Receivable has been sold and is owned by the
Trustee.
(g) The Servicer shall permit the Trustee and the Security Insurer and
their respective agents at any time during normal business hours to inspect,
audit, and make copies of and abstracts from the Servicer's records regarding
any Receivable to the extent permitted by applicable banking, privacy and other
laws limiting such access.
(h) Upon request, the Servicer shall furnish to the Trustee and to the
Security Insurer, within five Business Days, a list of all Receivables (by
contract number and name of Obligor) then held as part of the Trust, together
with a reconciliation of such list to the Schedule of Receivables and to each of
the Servicer's Certificates furnished before such request indicating removal of
Receivables from the Trust.
(i) The Servicer shall deliver to the Trustee and the Security
Insurer:
(A) promptly after the execution and delivery of this Agreement
and of each amendment hereto and at the time of any merger,
consolidation or succession of the Seller or the Servicer, an Opinion
of Counsel either (a) stating that, in the opinion of such counsel,
all financing statements and continuation statements have been
executed and filed that are necessary fully to preserve and protect
the first priority perfected security interest of the Trustee in the
Receivables, and reciting the details of such filings or referring to
prior Opinions of Counsel in which such details are given, or (b)
stating that, in the opinion of such counsel, no such action shall be
necessary to preserve and protect such interest; and (2) by
of each calendar year beginning ,
-------------- --------------------
an Opinion of Counsel, dated as of a date during the 90-day period
ending on such date, either
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(a) stating that, in the opinion of such counsel, all financing
statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the first priority
perfected security interest of the Trustee in the Receivables, and
reciting the details of such filings or referring to prior Opinions of
Counsel in which such details are given, or (b) stating that, in the
opinion of such counsel, no such action shall be necessary to preserve
and protect such interest.
SECTION 12.3 LIMITATION ON RIGHTS OF SECURITYHOLDERS.
The death or incapacity of any Securityholder shall not operate to
terminate this Agreement or the Trust, nor entitle such Securityholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations, and liabilities of the parties to
this Agreement or any of them.
No Securityholder shall have any right to vote (except as provided in
Section 9.1, 9.4, 12.1, 12.3 or 12.7) or in any manner otherwise control the
operation and management of the Trust, or the obligations of the parties to this
Agreement, nor shall anything in this Agreement set forth, or contained in the
terms of the Securities, be construed so as to constitute the Securityholders
from time to time as partners or members of an association; nor shall any
Securityholder be under any liability to any third person by reason of any
action taken pursuant to any provision of this Agreement.
No Securityholder shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit, action, or proceeding
in equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have received the written consent of the Security
Insurer and shall have given to the Trustee a written notice of default and of
the continuance thereof, as hereinbefore provided, and unless also the Holders
of Securities evidencing not less than 25% of the Security Principal Balance
shall have made written request upon the Trustee to institute such action, suit,
or proceeding in its own name as Trustee under this Agreement and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses, and liabilities to be incurred therein or thereby, and the
Trustee, for 30 days after its receipt of such notice, request, and offer of
indemnity, shall have neglected or refused to institute any such action, suit,
or proceeding
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and during such 30-day period no direction inconsistent with such written
request has been given to the Trustee pursuant to Section 9.4; no one or more
Holders of Securities shall have any right in any manner whatever by virtue or
by availing itself or themselves of any provisions of this Agreement to affect,
disturb, or prejudice the rights of the Holders of any other of the Securities,
or to obtain or seek to obtain priority over or preference to any other such
Holder, or to enforce any right, under this Agreement except in the manner
provided in this Agreement and for the equal, ratable, and common benefit of all
Securityholders. For the protection and enforcement of the provisions of this
Section 12.3, each Securityholder and the Trustee shall be entitled to such
relief as can be given either at law or in equity.
SECTION 12.4 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES) APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED WITHIN THE
STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS, AND REMEDIES OF THE PARTIES
UNDER THIS AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 12.5 NOTICES.
All demands, notices, and communications under this Agreement shall be
in writing, personally delivered or mailed by certified mail, return receipt
requested, and shall be deemed to have been duly given upon receipt (a) in the
case of the Seller or the Servicer, to the agent for service as specified in
this Agreement, at the following address: Chevy Chase Bank, F.S.B., 8401
Connecticut Avenue, 6th Floor, Chevy Chase, Maryland 20815, Attention: General
Counsel, or at such other address as shall be designated by the Seller or the
Servicer in a written notice to the Trustee and (b) in the case of the Trustee,
at the Corporate Trust Office, (c) in the case of the Security Insurer, at
, Attention:
- --------------------------------------
. Any notice required or permitted to be mailed
- --------------------------------
to a Securityholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Security Register. Any notice so mailed
within the time prescribed in this Agreement shall be conclusively presumed to
have been duly given, whether or not the Securityholder shall receive such
notice.
SECTION 12.6 SEVERABILITY OF PROVISIONS.
If any one or more of the covenants, agreements, provisions, or terms
of this Agreement shall be for any reason whatsoever held invalid, then such
covenants,
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agreements, provisions, or terms shall be deemed severable from the remaining
covenants, agreements, provisions, or terms of this Agreement and shall in no
way affect the validity or enforceability of the other provisions of this
Agreement or of the Securities or the rights of the Holders thereof or the
rights of the Security Insurer.
SECTION 12.7 ASSIGNMENT.
Notwithstanding anything to the contrary contained herein, except as
provided in Sections 7.3 and 8.3 and as provided in the provisions of this
Agreement concerning the resignation of the Servicer, this Agreement may not be
assigned by the Seller or the Servicer without the prior written consent of (x)
the Security Insurer or (y) the Trustee or the Holders of Securities evidencing
not less than % of the Security Principal Balance, in either case acting with
---
the consent of the Security Insurer.
SECTION 12.8 SECURITIES NONASSESSABLE AND FULLY PAID.
Securityholders shall not be personally liable for obligations of the
Trust. The interests represented by the Securities shall be nonassessable for
any losses or expenses of the Trust or for any reason whatsoever, and, upon
authentication thereof by the Trustee pursuant to Section 6.2, Securities shall
be deemed fully paid.
SECTION 12.9 COUNTERPARTS.
For the purpose of facilitating the execution of this Agreement and
for other purposes, this Agreement may be executed simultaneously in any number
of counterparts, each of which counterparts shall be deemed to be an original,
and all of which counterparts shall constitute but one and the same instrument.
SECTION 12.10 BENEFITS OF AGREEMENT.
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, the Securityholders and their respective successors and assigns,
and to the extent provided herein, the Security Insurer. Without limiting the
generality of the foregoing, all covenants and agreements in this Agreement
which expressly confer rights upon the Security Insurer shall be for the benefit
of and run directly to the Security Insurer, and the Security Insurer shall be
entitled to rely on and enforce such covenants to the same extent as if it were
a party hereto. Except as otherwise provided in this Agreement, no other person
shall have any rights or obligations hereunder.
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SECTION 12.11 TAX TREATMENT.
The parties hereto agree that the Trust created hereby will at all
times be characterized as a grantor trust for federal, state and local income
tax purposes.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers as of the day and year first above
written.
CHEVY CHASE BANK, F.S.B.,
as Seller and Servicer
By:
---------------------------
Name:
Title:
------------------------------
, as Trustee
By:
---------------------------
Name:
Title:
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EXHIBIT A
SCHEDULE OF RECEIVABLES
<PAGE>
EXHIBIT B
FORM OF SECURITY
UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY SECURITY
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
CHEVY CHASE AUTO RECEIVABLES TRUST ________
____% AUTO RECEIVABLES BACKED CERTIFICATE
evidencing a fractional undivided interest in the Trust, as defined below,
the property of which includes a pool of simple interest retail installment
sales contracts and installment loans and other similar evidences of
installment indebtedness, secured by new and used automobiles, light duty
trucks and vans and sold to the Trustee by Chevy Chase Bank, F.S.B.
This Security does not represent an interest in or obligation of Chevy Chase
Bank, F.S.B. or any of its affiliates. This Security is not a savings account
or a deposit and neither this Security nor the underlying Receivables (as
defined below) and other property are insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. This Security is
limited in right of payment to certain collections in respect of the Receivables
and payments made pursuant to the Security Insurance Policy and, under certain
circumstances, amounts available in the Reserve Account and the Yield
Maintenance Account.
2
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NUMBER: CUSIP:___________
$______________
THIS CERTIFIES THAT _________ is the registered owner of a
$___________ dollars nonassessable, fully paid, fractional undivided interest in
the Chevy Chase Auto Receivables Trust ______ (the "Trust") formed by Chevy
Chase Bank, F.S.B., a federally chartered savings bank (the "Bank", or the
"Seller" or the "Servicer" in its respective capacities as such). The Trust was
created pursuant to a Pooling and Servicing Agreement dated as of ____________
(the "Agreement") between Chevy Chase Bank, F.S.B., as Seller and Servicer, and
_______________________, as trustee (the "Trustee"), a summary of certain of the
pertinent provisions of which is set forth below. To the extent not otherwise
defined herein, the capitalized terms used herein have the meanings assigned to
them in the Agreement. This Security is one of the duly authorized Securities
designated as "____% Auto Receivables Backed Securities" (the "Certificates").
This Security is issued under and is subject to the terms, provisions, and
conditions of the Agreement, to which Agreement the holder of this Security by
virtue of the acceptance hereof assents and by which such holder is bound. The
property of the Trust includes a pool of simple interest retail installment
sales contracts and installment loans for new and used automobiles, light duty
trucks and vans (the "Receivables"), all monies due or received thereon on or
after ___________________, security interests in the vehicles financed thereby,
such amounts as from time to time may be held in the Collection Account and the
Security Account, all rights to receive payments under certain circumstances
from the Reserve Account and the Yield Maintenance Account, the Security
Insurance Policy (described below), proceeds from claims on physical damage,
credit life, and disability or hospitalization insurance policies covering
vehicles financed thereby and the obligors thereunder, any property (including
the right to receive future Liquidation Proceeds) that secures a Receivable that
may from time to time be acquired by or on behalf of the Trustee, proceeds from
recourse to Dealers relating to the Receivables, and the proceeds of any and all
of the foregoing.
Under the Agreement, there will be distributed on the first Business
Day on or after the ____ day of each month (the "Distribution Date"), commencing
on _____________, to the person in whose name this Security is registered at the
close of business, if applicable, on the day (whether or not a Business Day)
immediately preceding such Distribution Date (the "Record Date"), such
Securityholder's fractional interest in Monthly Interest and Monthly Principal.
Each Securityholder's "fractional interest" is equal to the original principal
amount of such
3
<PAGE>
Securityholder's Security, as set forth on the face thereof, divided by the
aggregate original principal amount of all of the Securities.
Distributions on this Security will be made by the Trustee by wire
transfer (if wiring instructions are received from the Securityholder), by check
or money order mailed to the Person entitled thereto, or by such other means as
the Securityholder and the Trustee shall agree, without the presentation or
surrender of this Security or the making of any notation hereon. Except as
otherwise provided in the Agreement and notwithstanding the above, the final
distribution on this Security will be made after due notice by the Trustee of
the pendency of such distribution and only upon presentation and surrender of
this Security at the office or agency maintained for that purpose by the
Trustee in __________________, or at such other office as the Trustee may
designate.
Unless the certificate of authentication hereon shall have been
executed by a Responsible Officer of the Trustee, by manual signature, this
Security shall not entitle the holder hereof to any or benefit under the
Agreement or be valid for any purpose.
Pursuant to the Security Insurance Policy, the Security Insurer is
required, to the extent of any insufficiency in the Available Distribution
Amount, to make Insured Payments available to the Trustee necessary to
distribute the full amount of the Required Payments with respect to the
Securities on each Distribution Date.
The Securities do not represent an obligation of, or an interest in,
the Bank or any affiliate of the Bank. The Securities are limited in right of
payment to certain collections and recoveries respecting the Receivables and
rights to payments under certain circumstances from the Reserve Account, the
Yield Maintenance Account and the Security Insurance Policy, all as more
specifically set forth in the Agreement. A copy of the Agreement may be
examined during normal business hours at the principal office of the Seller, and
at such other places, if any, designated by the Seller, by any Securityholder
upon request.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Seller and the rights of the Securityholders under the Agreement at any time by
the Seller, the Servicer and the Trustee with the consent of the Security
Insurer and the Holders of Securities evidencing not less than 51% of the
Security Principal Balance. Any such consent by the Holder of this Security
4
<PAGE>
shall be conclusive and binding on such Holder and on all future Holders of this
Security and of any Security issued upon the transfer hereof or in exchange
herefor or in lieu hereof whether or not notation of such consent is made upon
this Security. The Agreement also permits the amendment thereof, in certain
limited circumstances, without the consent of the Holders of any of the
Securities.
As provided in the Agreement and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register upon surrender of this Security for registration of transfer at the
offices or agencies maintained by the Trustee in its capacity as Security
Registrar, or by any successor Security Registrar, accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Security
Registrar duly executed by the holder hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Securities of authorized
denominations evidencing the same aggregate interest in the Trust will be issued
to the designated transferee.
The Securities are issuable only as registered Securities without
coupons in integral multiples of $______; PROVIDED, HOWEVER, that one Security
may be issued in a denomination that includes any residual amount. As provided
in the Agreement and subject to certain limitations therein set forth,
Securities are exchangeable for new Securities of authorized denominations
evidencing the same aggregate denomination, as requested by the holder
surrendering the same.
No service charge will be made for any such registration of transfer
or exchange, but the Trustee may require payment of a sum sufficient to cover
any tax or governmental charges payable in connection therewith.
The Trustee, the Security Registrar, and any agent of the Trustee or
the Security Registrar may treat the person in whose name this Security is
registered as the owner hereof for all purposes, and neither the Trustee, the
Security Registrar, nor any such agent shall be affected by any notice to the
contrary.
The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon the payment to Securityholders and
the Security Insurer of all amounts required to be paid to them pursuant to the
Agreement or the disposition of all property held as part of the Trust. The
Seller of the Receivables may at its option purchase the corpus of the Trust at
a price specified in the Agreement, and such purchase of the Receivables and
other property of the Trust will effect early retirement of the
5
<PAGE>
Securities; however, such right of purchase is exercisable on any Distribution
Date following a Record Date on which the Pool Balance is __% or less of the
original aggregate principal balance of the Receivables.
STATEMENT OF INSURANCE
The Security Insurer has issued the Security Insurance Policy
containing the following provisions, such Security Insurance Policy being on
file at the offices of the Trustee at _______________________________________.
The Security Insurer, in consideration of the payment of the premium
and subject to the terms of the Security Guaranty Insurance Policy (the
"Security Insurance Policy"), thereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete Insured
Payment will be received by __________, or its successor, as trustee for the
Owners (the "Trustee"), on behalf of the Owners from the Security Insurer, for
distribution by the Trustee to each Owner of each Owner's proportionate share of
the Insured Payment. The Security Insurer's obligations under the Security
Insurance Policy with respect to a particular Insured Payment shall be
discharged to the extent funds equal to the applicable Insured Payment are
received by the Trustee, whether or not such funds are properly applied by the
Trustee. Insured Payments shall be made only at the time set forth in the
Security Insurance Policy and no accelerated Insured Payments shall be made
regardless of any acceleration of the Securities, unless such acceleration is at
the sole option of the Security Insurer.
Notwithstanding the foregoing paragraph, the Security Insurance Policy
does not cover shortfalls, if any, attributable to the liability of the Trust or
the Trustee for withholding taxes, if any (including interest and penalties in
respect of any such liability).
The Security Insurer will pay any Insured Payment that is a Preference
Amount on the Business Day following receipt on a Business Day by the Fiscal
Agent (as described below) of (i) a certified copy of the order requiring the
return of a preference payment, (ii) an opinion of counsel satisfactory to the
Security Insurer that such order is final and not subject to appeal, (iii) an
assignment in such form as is reasonably required by the Security Insurer,
irrevocably assigning to the Security Insurer all rights and claims of the Owner
relating to or arising under the Securities against the debtor which made such
preference payment or otherwise with respect to such preference payment and (iv)
appropriate instruments to effect the appointment of the Security Insurer as
agent for such Owner in any legal
6
<PAGE>
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Security Insurer, provided that if such documents are
received after ___________________ time on such Business Day, they will be
deemed to be received on the following Business Day. Such payments shall be
disbursed to the receiver or trustee in bankruptcy named in the final order of
the court exercising jurisdiction on behalf of the Owner and not to any Owner
directly unless such Owner has returned principal or interest paid on the
Securities to such receiver or trustee in bankruptcy, in which case such payment
shall be disbursed to such Owner.
The Security Insurer will pay any other amount payable under the
Security Insurance Policy no later than ___________________ time on the later of
the Distribution Date on which the related Deficiency Amount is due or the third
Business Day following receipt in _______________ on a Business Day by
_____________________________________, as Fiscal Agent for the Security Insurer
or any successor fiscal agent appointed by the Security Insurer (the "Fiscal
Agent") of a Notice (as described below); provided that if such Notice is
received after _______________ time on such Business Day, it will be deemed to
be received on the following Business Day. If any such Notice received by the
Fiscal Agent is not in proper form or is otherwise insufficient for the purpose
of making claim under the Security Insurance Policy it shall be deemed not to
have been received by the Fiscal Agent for purposes of this paragraph, and the
Security Insurer or the Fiscal Agent, as the case may be, shall promptly so
advise the Trustee and the Trustee may submit an amended Notice.
Insured Payments due under the Security Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the Trustee on
behalf of the Owners by wire transfer of immediately available funds in the
amount of the Insured Payment less, in respect of Insured Payments related to
Preference Amounts, any amount held by the Trustee for the payment of such
Insured Payment and legally available therefor.
The Fiscal Agent is the agent of the Security Insurer only and the
Fiscal Agent shall in no event be liable to Owners for any acts of the Fiscal
Agent or any failure of the Security Insurer to deposit, or cause to be
deposited, sufficient funds to make payments due under the Security Insurance
Policy.
As used in the Security Insurance Policy, the following terms shall
have the following meanings:
7
<PAGE>
"AGREEMENT" means the Pooling and Servicing Agreement dated as of
_____________, among Chevy Chase Bank, F.S.B., as Seller and as Servicer, and
the Trustee, as trustee, without regard to any amendment or supplement thereto,
unless such amendment or modification has been approved in writing by the
Security Insurer.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which banking institutions in New York City, Chevy Chase, Maryland or in the
city in which the corporate trust office of the Trustee under the Agreement or
the Security Insurer is located are authorized or obligated by law or executive
order to close.
"DEFICIENCY AMOUNT" means the excess, if any, of Required Payments
over Net Available Distribution Amount for such Distribution Date.
"INSURED PAYMENT" means (i) as of any Distribution Date, any
Deficiency Amount and (ii) any Preference Amount.
"NOTICE" means the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of Exhibit A attached
to the Security Insurance Policy, the original of which is subsequently
delivered by registered or certified mail, from the Trustee specifying the
Insured Payment which shall be due and owing on the applicable Distribution
Date.
"OWNER" means each Holder (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Securities to payment thereunder.
"PREFERENCE AMOUNT" means any amount previously distributed to an
Owner on the Securities that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a
final nonappealable order of a court having competent jurisdiction.
Capitalized terms used in the Security Insurance Policy and not
otherwise defined in the Security Insurance Policy shall have the respective
meanings set forth in the Agreement as of the date of execution of the Security
Insurance Policy, without giving effect to any subsequent amendment or
modification to the Agreement unless such amendment or modification has been
approved in writing by the Security Insurer.
Any notice under the Security Insurance Policy or service of process
on the Fiscal Agent of the Security
8
<PAGE>
Insurer may be made at the address listed below for the Fiscal Agent of the
Security Insurer or such other address as the Security Insurer shall specify in
writing to the Trustee.
The notice address of the Fiscal Agent is
___________________________________________ Attention: _____________________, or
such other address as the Fiscal Agent shall specify to the Trustee in writing.
The Security Insurance Policy is being issued under and pursuant to,
and shall be construed under, the laws of the State of ____________, without
giving effect to the conflict of laws principles thereof.
[The insurance provided by the Security Insurance Policy is not
covered by the Property/Casualty Insurance Security Fund specified in Article 76
of the New York Insurance Law.]
The Security Insurance Policy is not cancelable for any reason. The
premium on the Security Insurance Policy is not refundable for any reason
including payment, or provision being made for payment, prior to maturity of the
Securities.
__________________
IN WITNESS WHEREOF, the Trustee on behalf of the Trust and not in its
individual capacity has caused this Security to be duly executed.
Dated: ____________, 1996
CHEVY CHASE AUTO RECEIVABLES
TRUST _________
By:
-----------------------------
___________, as Trustee
By:
-----------------------------
[name]
9
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to
in the within-mentioned Agreement
_______________________________, as
Trustee
By:________________________________
[name]
Dated: ____________
10
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE _________________
_______________________________________________________________________________
(Please print or typewrite name and address, including postal zip code, of
assignee)
_______________________________________________________________________________
the within Security, and all rights thereunder, hereby irrevocably constituting
and appointing
_______________________________________________________________________ Attorney
to transfer said Security on the books of the Security Registrar, with full
power of substitution in the premises.
Dated:
_________________________ *
Signature Guaranteed
_________________________ *
* NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Security in every particular, without
alteration, enlargement or any change whatever. Such a signature must be
guaranteed by a member of the New York Stock Exchange or a commercial bank or
trust company.
11
<PAGE>
EXHIBIT C
FORM OF TRUSTEE'S CERTIFICATE
PURSUANT TO SECTION 10.2
OF THE POOLING AND SERVICING AGREEMENT
__________________________, as trustee (the "Trustee") of the Chevy
Chase Auto Receivables Trust _____ created pursuant to the Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of
________________, between Chevy Chase Bank, F.S.B. (the "Seller") and the
Trustee, does hereby sell, transfer, assign and otherwise convey to the Seller,
without recourse, representation or warranty, all of the Trustee's right, title
and interest in and to all of the Receivables (as defined in the Pooling and
Servicing Agreement) identified in the attached Servicer's Certificate as
"Purchased Receivables," which are to be repurchased by the Seller pursuant to
Section 3.2, and all Insurance Policies, security and documents relating
thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of
__________.
_______________________________
12
<PAGE>
EXHIBIT D
FORM OF TRUSTEE'S CERTIFICATE
PURSUANT TO SECTION 10.2
OF THE POOLING AND SERVICING AGREEMENT
_______________________________, as trustee (the "Trustee") of the
Chevy Chase Auto Receivables Trust ______ created pursuant to the Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of
________________, between Chevy Chase Bank, F.S.B. (the "Seller") and the
Trustee, does hereby sell, transfer, assign and otherwise convey to the
Servicer, without recourse, representation or warranty, all of the Trustee's
right, title and interest in and to all of the Receivables (as defined in the
Pooling and Servicing Agreement) identified in the attached Servicer's
Certificate as "Purchased Receivables," which are to be purchased by the
Servicer pursuant to Sections 4.2, 4.7 or 11.2, and all Insurance Policies,
security and documents relating thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this ___ day of
______________.
_______________________________
13
<PAGE>
EXHIBIT E
FORM OF SERVICER'S CERTIFICATE
CHEVY CHASE AUTO RECEIVABLES TRUST ______
_____% AUTO RECEIVABLES BACKED SECURITIES
Distribution Date: _______________
Collection Period: _______________
Record Date: _______________
Under the Pooling and Servicing Agreement, dated as of
________________, between Chevy Chase Bank, F.S.B. (as "Seller" and "Servicer")
and ____________________, as trustee, the Servicer is required to prepare
certain information each month regarding current distributions to
Securityholders and the performance of the Chevy Chase Auto Receivables Trust
_______ (the "Trust") during the previous month. The information which is
required to be prepared with respect to the Distribution Date and Collection
Period listed above is set forth below. Certain of the information is presented
on the basis of an original principal amount of $_____ per Securities, and
certain other information is presented based upon the aggregate amounts for the
Trust as a whole.
A. INFORMATION REGARDING THE CURRENT MONTHLY DISTRIBUTION.
1. SECURITIES.
(a) The aggregate amount of the
distribution to Securityholders
on the Distribution Date
set forth above....................... $______
(b) The amount of the distribution
set forth in paragraph (a)
above allocable to principal,
including any overdue
principal............................. $______
(c) The amount of the distribution
set forth in paragraph (a) above
allocable to interest, including
any overdue interest.................. $______
(d) The Insured Payments, if any,
with respect to such Distribution
Date.................................. $______
14
<PAGE>
(e) The Premium Amount, with respect
to such Distribution Date....... $______
(f) The amount of the distribution
set forth in paragraph (a) above,
per Security in a principal
amount of $_____................ $______
(g) The amount of the distribution
set forth in paragraph (b)
above, per Security in a
principal amount of $_____...... $______
(h) The amount of the distribution
set forth in paragraph (c) above,
per Security in a principal
amount of $_____................ $______
(i) The amount set forth in paragraph
(d) above, per Security in a
principal amount of $_____...... $______
(j) The Security Principal Balance
as of such Distribution Date
(after giving effect to any
distribution on such Distribution
Date)........................... $______
(k) The balance of the Reserve Account,
after giving effect to distributions
and deposits and the change in the
balances from that of the prior
Distribution Date............... $______
(l) The balance of the Yield Maintenance
Account, after giving effect to
distributions from the prior
Distribution Date............... $______
B. INFORMATION REGARDING THE PERFORMANCE OF THE TRUST.
1. NET LOSSES, DELINQUENCIES AND POOL BALANCE.
(a) The aggregate net losses on the
Receivables for the related
Collection Period............... $______
(b) The aggregate principal balance
of all Receivables which were
delinquent 30 days or more as
of the last day of the related
Collection Period............... $______
15
<PAGE>
(c) The Pool Balance as of the
end of the related Collection
Period.......................... $______
(d) The Security Factor as of the
end of the related Collection
Period.......................... $______
16
<PAGE>
EXHIBIT F
LIST OF DESIGNATED LOANS
17
<PAGE>
================================================================================
TRUST AGREEMENT
among
CHEVY CHASE BANK, F.S.B.
_________________________,
not in its individual capacity but solely as Owner Trustee,
and
_________________________,
as Servicer
Dated as of __________, 199__
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS................................................... 2
SECTION 1.1 Capitalized Terms......................................... 2
SECTION 1.2 Other Definitional Provisions............................. 4
ARTICLE II ORGANIZATION.................................................. 5
SECTION 2.1 Name...................................................... 5
SECTION 2.2 Office.................................................... 5
SECTION 2.3 Purposes and Powers....................................... 5
SECTION 2.4 Appointment of Owner Trustee.............................. 6
SECTION 2.5 Organizational Expenses................................... 6
SECTION 2.6 Declaration of Trust...................................... 6
SECTION 2.7 Liability of the Securityholders.......................... 7
SECTION 2.8 Title to Trust Property................................... 7
SECTION 2.9 Situs of Trust............................................ 7
SECTION 2.10 Representations and Warranties of
the Sponsor............................................. 7
SECTION 2.11 Books and Records; Tax Returns........................... 8
SECTION 2.12 Authorized Representative................................ 9
ARTICLE III THE SECURITIES................................................ 9
SECTION 3.1 The Securities............................................ 9
SECTION 3.2 Registration of Transfer and Exchange
of Securities........................................... 10
SECTION 3.3 No Charge; Destruction of Void
Securities.............................................. 10
SECTION 3.4 Mutilated, Destroyed, Lost or Stolen...................... 10
SECTION 3.5 Persons Deemed Securityholders............................ 11
SECTION 3.6 Access to List of Securityholders'
Names and Addresses..................................... 11
SECTION 3.7 Acts of Securityholders................................... 12
SECTION 3.8 Limitation on Transfer and Exchange....................... 12
SECTION 3.9 Payments to Securityholders............................... 13
ARTICLE IV ACTIONS BY THE OWNER TRUSTEE.................................. 13
SECTION 4.1 Prior Notice to Securityholders with
Respect to Certain Matters.............................. 13
SECTION 4.2 Bankruptcy................................................ 14
SECTION 4.3 Rights of Securityholders to Direct
Owner Trustee........................................... 14
SECTION 4.4 Suits for Enforcement..................................... 14
SECTION 4.5 Owner Trustee May Enforce Claims
without Possession of Securities........................ 14
SECTION 4.6 Limitation on Rights of
Securityholders......................................... 15
i
<PAGE>
Page
----
ARTICLE V AUTHORITY AND DUTIES OF THE OWNER
TRUSTEE....................................................... 16
SECTION 5.1 General Authority......................................... 16
SECTION 5.2 General Duties............................................ 16
SECTION 5.3 Action upon Instruction................................... 16
SECTION 5.4 No Duties Except as Specified in this
Agreement or in Instructions............................ 17
SECTION 5.5 No Action Except Under Specified
Documents or Instructions............................... 17
SECTION 5.6 Restrictions.............................................. 17
ARTICLE VI CONCERNING THE OWNER TRUSTEE.................................. 18
SECTION 6.1 Acceptance of Trusts and Duties........................... 18
SECTION 6.2 Furnishing of Documents................................... 19
SECTION 6.3 Representations and Warranties............................ 19
SECTION 6.4 Reliance; Advice of Counsel............................... 20
SECTION 6.5 Owner Trustee Not Liable for
Securities or Contracts................................. 21
SECTION 6.6 Not Acting in Individual Capacity......................... 21
SECTION 6.7 Interpretation of Trust Agreement......................... 22
ARTICLE VII COMPENSATION AND INDEMNIFICATION OF OWNER
TRUSTEE....................................................... 22
SECTION 7.1 Owner Trustee's Fees and Expenses......................... 22
SECTION 7.2 Indemnification........................................... 23
ARTICLE VIII SUCCESSOR OWNER TRUSTEES AND ADDITIONAL
OWNER TRUSTEES................................................ 23
SECTION 8.1 Eligibility Requirements for Owner
Trustee................................................. 23
SECTION 8.2 Resignation or Removal of Owner
Trustee................................................. 23
SECTION 8.3 Successor Owner Trustee................................... 24
SECTION 8.4 Merger or Consolidation of Owner
Trustee................................................. 25
SECTION 8.5 Appointment of Co-Owner Trustee or
Separate Owner Trustee.................................. 25
ARTICLE IX TERMINATION OF TRUST AGREEMENT................................ 27
SECTION 9.1 Termination of Trust Agreement............................ 27
SECTION 9.2 Dissolution upon Bankruptcy of the
Sponsor................................................. 28
ARTICLE X MISCELLANEOUS................................................. 29
SECTION 10.1 Supplements and Amendments............................... 29
ii
<PAGE>
Page
----
SECTION 10.2 Notices.................................................. 30
SECTION 10.3 Merger and Integration................................... 31
SECTION 10.4 Headings................................................. 31
SECTION 10.5 Governing Law............................................ 31
SECTION 10.6 Counterparts............................................. 31
SECTION 10.7 No Legal Title to Trust Estate in
Securityholder......................................... 31
SECTION 10.8 Limitation on Rights of Others........................... 32
SECTION 10.9 Severability............................................. 32
SECTION 10.10 Successors and Assigns.................................. 32
SECTION 10.11 No Implied Waiver....................................... 32
SECTION 10.12 No Petition............................................. 32
SECTION 10.13 No Recourse............................................. 33
Exhibit A Form of Security.............................................. A-1
Exhibit B Investment Letter............................................. B-1
iii
<PAGE>
THIS TRUST AGREEMENT, dated as of ____________, 199_ (the "Trust
Agreement"), among CHEVY CHASE BANK, F.S.B. Corporation, a ______ corporation
(the "Sponsor"), __________________, a _____________ banking corporation, not in
-------
its individual capacity but solely as trustee (together with its permitted
successors in the trusts hereunder, the "Owner Trustee") of the [Chevy Chase
-------------
Auto Receivables Trust 199__] (the "Trust"), ____________________, as Servicer
-----
(the "Servicer") and the holders (the "Securityholders") of undivided percentage
-------- ---------------
interests in the Trust.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements, covenants and undertakings herein contained, the parties
intending to be legally bound, hereby agree as follows:
PRELIMINARY STATEMENTS
----------------------
In the regular course of its business, ____________________, a
__________ corporation (the "Originator"), has acquired the Receivables. All
capitalized terms used in these Preliminary Statements which are not defined
shall have the meanings ascribed to such terms in Article I.
Pursuant to the Receivables Acquisition Agreement, dated ______,
199__, between the Originator and the Sponsor, the Originator assigned the
Contracts and the Vehicles to the Sponsor.
The Sponsor will immediately thereafter transfer and assign the
Contracts and grant a security interest in the related Vehicles to the Trust.
The Receivables will be serviced by the Servicer, pursuant to a Servicing
Agreement, dated as of the date hereof (the "Servicing Agreement"), among the
-------------------
Servicer, the Sponsor, ____________________, not in its individual capacity but
solely as Collateral Trustee (the "Collateral Trustee"), _______________, and
------------------
the Trust.
Each Securityholder by accepting its Security shall be deemed to have
agreed to the terms of this Agreement and to have authorized the Trust to
acquire the Contracts from the Sponsor and hold such Contracts and other assets
described in the Receivables Acquisition Agreement in trust for the use and
benefit of the Securityholders. Subject to the terms and conditions set forth
in this Agreement, the Owner Trustee will issue auto receivables backed
securities (the "Securities") to the Securityholders.
----------
1
<PAGE>
ARTICLE I
DEFINITIONS
-----------
SECTION 1.1 Capitalized Terms. For all purposes of this Agreement,
-----------------
the following terms shall have the meanings set forth below:
"Agreement" means this Trust Agreement as originally executed and, if
---------
from time to time supplemented or amended by one or more amendments entered into
pursuant to the applicable provisions hereof, as so supplemented or amended.
"Applicants" has the meaning ascribed to such term in Section 3.6.
----------
"Basic Documents" means this Agreement, the Servicing Agreement, the
---------------
Indenture, the Receivables Acquisition Agreement, and the other documents and
certificates delivered in connection therewith.
"Security" means a Security evidencing a Percentage Interest in the
--------
Trust, executed and delivered by the Owner Trustee to an investor substantially
in the form of Exhibit A.
"Securityholder" means the Person in whose name a Security is
--------------
registered in the Security Register, other than the Sponsor.
"Security Register" means the register maintained pursuant to
-----------------
Section 3.2.
"Security Registrar" or "Registrar" means the registrar appointed
------------------ ---------
pursuant to Section 3.2.
"Closing Date" means __________, 199___.
------------
"Code" means the Internal Revenue Code of /1986, as amended.
----
"Collateral Trustee" has the meaning ascribed to such term in the
------------------
Preliminary Statements.
"Contracts" means the installment sale contracts for new and used
---------
automobiles and light duty trucks described in the List of Contracts and
includes, without limitation: the originally, manually executed counterpart of
each Contract, including all amendments thereto, and all rights to receive the
Scheduled Payments which are due pursuant thereto; any and all security
interests and any and all rights to enforce the monetary and non-monetary
2
<PAGE>
covenants of each Obligor thereunder; and all proceeds of the any of the
foregoing.
"Corporate Trust Office" means the office of the Owner Trustee located
----------------------
at ________________________________; or at such other address as the Owner
Trustee may designate by notice to the Securityholders and the Sponsor, or the
principal trust office of any successor Owner Trustee.
"Sponsor" means Chevy Chase Bank, F.S.B., a ________ corporation.
-------
"Eligible Bank" means [Trustee], so long as such bank continues to act
-------------
as Owner Trustee hereunder; thereafter, Eligible Bank means any depository
institution with trust powers organized under the laws of the United States or
any state having capital and surplus in excess of $50,000,000, the deposits of
which are insured to the full extent permitted by law by the Federal Deposit
Insurance Corporation and which is subject to supervision and examination by
federal or state authorities. If such depository institution publishes reports
of condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published.
"Expenses" has the meaning ascribed to such term in Section 7.2.
--------
"Indenture" means the Indenture, dated as of the date hereof, between
---------
_____________, not in its individual capacity but solely as Indenture Trustee,
and the Trust, as such agreement may be further amended, modified or
supplemented from time to time.
"Note" means a debt instrument issued by the Trust pursuant to the
----
Indenture and secured by the assets of the Trust, executed and delivered by the
Owner Trustee to an investor.
"Noteholders" means any Person in whose name a Note is registered,
-----------
other than the Sponsor.
"Obligor" means the obligor under each Contract, its successors and
-------
assigns and any other person who owes or has guaranteed payment under a
Contract.
"Owner Trustee" means _____________, not in its individual capacity
-------------
but solely as trustee under this Agreement, until a successor Owner Trustee
shall have been
3
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appointed pursuant to the applicable provisions of this Agreement, and
thereafter such successor Owner Trustee.
"Percentage" or "Percentage Interest", means the undivided interest in
---------- -------------------
the Trust expressed as a percentage owned by the holder of a particular
Security.
"Person" means any legal person, including any individual,
------
corporation, limited liability company, partnership, joint venture, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Receivables Acquisition Agreement" has the meaning ascribed to
---------------------------------
such term in the Preliminary Statements.
"Servicer" has the meaning ascribed to such term in the first
--------
paragraph hereof.
"Servicing Agreement" has the meaning ascribed to such term in the
-------------------
Preliminary Statements.
"Trust Estate" means all right, title and interest of the Trust in and
------------
to the property and rights assigned to the Trust pursuant to the Receivables
Acquisition Agreement, and all other property of the Trust from time to time,
including any rights of the Owner Trustee and the Trust pursuant to the
Servicing Agreement.
"Vehicles" means the new and used automobiles and light duty
--------
trucks sold to Obligors as described in the Contracts.
SECTION 1.2 Other Definitional Provisions. (a) Capitalized terms
-----------------------------
used herein and not otherwise defined have the meanings assigned to them in the
Servicing Agreement or, if not defined therein, in the Indenture.
(b) All terms defined in this Agreement shall have the defined
meanings when used in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles in effect on the date
hereof. To the extent that the definitions of accounting terms in this
Agreement or in any such
4
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certificate or other document are inconsistent with the meanings of such terms
under generally accepted accounting principles, the definitions contained in
this Agreement or in any such certificate or other documents shall control.
(d) The words "hereof", "herein", "hereunder", and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
ARTICLE II
ORGANIZATION
------------
SECTION 2.1 Name. The Trust created hereby shall be known as ["Chevy
----
Chase Auto Receivables Trust 199__-___"], in which name the Owner Trustee may
conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.2 Office. The office of the Trust shall be in care of the
------
Owner Trustee at the Corporate Trust Office or at such other address as the
Owner Trustee may designate by written notice to the Securityholders and the
Sponsor.
SECTION 2.3 Purposes and Powers. (a) The purpose of the Trust is to
-------------------
engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Securities pursuant to this Agreement and to sell the Notes and/or
Securities in one or more transactions;
(ii) with the proceeds of the sale of the Notes and the
Securities, to pay such proceeds to, or as directed in writing by, the
Sponsor;
(iii) to assign, grant, transfer, pledge, mortgage and convey the
Trust Estate pursuant to the Indenture and to hold, manage and distribute
to the Securityholders pursuant to the terms of the Servicing
5
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Agreement any portion of the Trust Estate released from the lien of, and
remitted to the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is to be a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with conservation
of the Trust Estate and the making of distributions to the Securityholders
and the Noteholders.
The Trust shall not engage in any activity other than in connection with the
foregoing or other than as required or authorized by the terms of this Agreement
or the Basic Documents.
SECTION 2.4 Appointment of Owner Trustee. The Seller hereby appoints
----------------------------
the Owner Trustee as trustee of the Trust effective as of the date hereof, to
have all the rights, powers and duties set forth herein.
SECTION 2.5 Organizational Expenses. The Sponsor shall pay
-----------------------
organizational expenses of the Trust as they may arise or shall, upon the
request of the Owner Trustee, promptly reimburse the Owner Trustee for any such
expenses paid by the Owner Trustee.
SECTION 2.6 Declaration of Trust. The Owner Trustee hereby declares
--------------------
that it will hold the Trust Estate in trust upon and subject to the condition
set forth herein for the use and benefit of the Securityholders, subject to the
obligations of the Trust under the Basic Documents. It is the intention of the
parties hereto that the Trust constitute a trust and that this Agreement
constitute the governing instrument of such trust. It is the intention of the
parties hereto that, solely for income and franchise tax purposes, the Trust
shall be treated as a partnership, with the assets of the partnership being the
Receivables and other assets held by the Trust, the partners of the partnership
being the Securityholders and the Notes being the debt of the partnership. The
parties agree that, unless otherwise required by appropriate tax authorities,
the Trust will file or cause to be filed annual or other necessary returns,
reports and other forms consistent with the characterization of the Trust as a
partnership for such tax
6
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purposes. Effective as of the date hereof, the Servicer and the Owner Trustee
(subject to the provisions hereof) shall have all rights, powers and duties set
forth herein with respect to accomplishing the purposes of the Trust.
SECTION 2.7 Liability of the Securityholders. (a) The Sponsor shall
--------------------------------
be liable directly to and will indemnify the Securityholders, Noteholders or any
other injured party for all losses, claims, damages, liabilities and expenses of
the Trust (including expenses, to the extent not paid out of the Trust Estate)
to the extent that the Sponsor would be liable if the Trust were a ___________
limited partnership in which the Sponsor were a general partner; provided,
--------
however, that the Sponsor shall not be liable (i) to any Securityholder or
- -------
Noteholder for any losses incurred by such Securityholder in the capacity of an
investor in the Securities or such Noteholder in the capacity of an investor in
the Notes or (ii) to any Person for any losses incurred by such Person as a
result of the fraudulent actions, misrepresentations or willful misconduct of
such Person.
(b) No Securityholder (other than to the extent set forth in
paragraph (a) above) shall have any personal liability for any liability or
obligation of the Trust.
SECTION 2.8 Title to Trust Property. Legal title to all the Trust
-----------------------
Estate shall be vested at all times in the Trust as a separate legal entity
except where applicable law in any jurisdiction requires title to any part of
the Trust Estate to be vested in a trustee or trustees, in which case title
shall be deemed to be vested in the Owner Trustee, a co-trustee and/or a
separate trustee, as the case may be.
SECTION 2.9 Situs of Trust. The Trust will be located and
--------------
administered in the State of _________. All bank accounts maintained by the
Owner Trustee on behalf of the Trust shall be located in the State of
_____________. The Trust shall not have any employees in any state other than
_______; provided, however, that nothing herein shall restrict or prohibit the
-------- -------
Owner Trustee from having employees within or without the State of ________.
The only office of the Trust will be at the Corporate Trust Office in ________.
SECTION 2.10 Representations and Warranties of the Sponsor. The
---------------------------------------------
Sponsor hereby represents and warrants to the Owner Trustee that:
(a) The Sponsor is duly organized and validly existing as a
corporation in good standing
7
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under the laws of the State of ______, with corporate power and authority
to own its properties and to conduct its business as such properties are
currently owned and such business is presently conducted.
(b) The Sponsor is duly qualified to do business as a foreign limited
liability company in good standing, and has obtained all necessary licenses
and approvals in all jurisdictions in which the ownership or lease of
property or the conduct of its business shall require such qualifications.
(c) The Sponsor has the corporate power and authority to execute and
deliver this Agreement and to carry out its terms; the Sponsor has full
power and authority to sell and assign the property to be sold and assigned
to and deposited with the Trust and the Sponsor shall have duly authorized
such sale and assignment and deposit to the Trust by all necessary
corporate action; and the execution, delivery and performance of this
Agreement has been duly authorized by the Sponsor by all necessary
corporate action.
(d) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute
(with or without notice or lapse of time) a default under, the Articles of
Incorporation of the Sponsor, or any indenture, agreement or other
instrument to which the Sponsor is a party or by which it is bound; nor
result in the creation or imposition of any lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to the Basic Documents); nor violate any law or, to
the best of the Sponsor's knowledge, any order, rule or regulation
applicable to the Sponsor of any court or of any federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Sponsor or its properties.
SECTION 2.11 Books and Records; Tax Returns. Except as otherwise
------------------------------
expressly provided in this Agreement, the Owner Trustee shall be responsible for
the keeping of all appropriate books and records relating to the receipt and
disbursement by the Owner Trustee of all monies under this Agreement or any
agreement contemplated hereby. The Owner Trustee agrees to file an application
prepared by the Servicer with the Internal Revenue Service for a taxpayer
identification number with respect to the trust created hereby. The Sponsor
shall cause to be timely prepared and the Sponsor shall cause to be timely filed
at the expense of
8
<PAGE>
the Sponsor the federal fiduciary tax return for the Trust created hereby and,
upon the request of the Sponsor, such other tax returns as are required to be
executed by the Owner Trustee. The Owner Trustee and the Sponsor, upon request,
will furnish each other with all such information as may reasonably be requested
and shall otherwise cooperate with each other in connection with the preparation
of such income tax returns. The Owner Trustee shall keep copies of all returns
delivered to or filed by it. The Owner Trustee will give to the Sponsor, upon
request, periodic information concerning receipts and disbursements by it with
respect to the Trust created by this Agreement.
SECTION 2.12 Authorized Representative. Any officer of the Servicer
-------------------------
will be authorized to act as an authorized representative ("Authorized
----------
Representative") for the Trust in matters relating to the Trust and must be
- --------------
identified on a list of Authorized Representatives delivered by the Servicer to
the Indenture Trustee on the Closing Date and such list may be modified or
supplemented from time to time thereafter. The Servicer agrees to cause its
Authorized Representatives to execute and deliver all documents and to perform
all acts required by the Basic Documents to be executed, delivered and performed
by such Authorized Representatives.
ARTICLE III
THE SECURITIES
--------------
SECTION 3.1 The Securities. The Securities shall be substantially
--------------
in the form of Exhibit A. The Securities shall be issuable only as registered
Securities representing undivided interests in the Trust. The rights to receive
payments with respect to the Securities are subordinated to the prior payment in
full of all amounts of principal and interest on the Notes. The Securities
shall be executed by the Owner Trustee on behalf of the Trust by the manual
signature of a duly authorized officer of the Owner Trustee under the seal of
and attested by the manual signature of the Secretary or an Assistant Secretary
or other authorized officer of the Owner Trustee. Securities bearing the
signatures of individuals who were at the time the proper officers or authorized
signatories of the Owner Trustee shall bind the Owner Trustee, notwithstanding
that such individuals or any of them have ceased to hold such offices or
positions prior to the delivery of such Securities or did not hold such offices
or positions at the date of such Securities. All Securities shall be dated the
date of their execution.
9
<PAGE>
SECTION 3.2 Registration of Transfer and Exchange of Securities.
---------------------------------------------------
(a) The Owner Trustee shall maintain, or cause to be maintained, at the
Corporate Trust Office a Security Register in which the Owner Trustee shall
provide or cause to be provided the registration of Securities and transfers and
exchanges of Securities as herein provided. The Owner Trustee is hereby
initially appointed the "Security Registrar" and transfer agent for the purpose
------------------
of registering Securities and transfers and exchanges of Securities as provided
herein.
(b) Subject to Section 3.3 and subject to the conditions set forth in
Section 3.8 hereof, upon surrender for registration or transfer of any Security
at such office, the Owner Trustee shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Securities of a like
aggregate Percentage Interest and dated the date of execution by the Owner
Trustee.
(c) At the option of a Securityholder, Securities may be exchanged for
other Securities representing undivided interests in the Trust and of a like
aggregate Percentage Interest, upon surrender of the Securities to be exchanged
at such office. Whenever any Securities are so surrendered for exchange, the
Owner Trustee shall execute and deliver the Securities which the Securityholder
making the exchange is entitled to receive. Every Security presented or
surrendered for transfer or exchange shall be duly endorsed by, or be
accompanied by a written instrument of transfer in form satisfactory to the
Owner Trustee and the Security Registrar, duly executed by the holder thereof or
his or her attorney duly authorized in writing.
SECTION 3.3 No Charge; Destruction of Void Securities. No service
-----------------------------------------
charge shall be made to the Securityholder for any transfer or exchange of
Securities, but the Owner Trustee or Security Registrar may require payment or a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any transfer or exchange of Securities. All Securities
surrendered for transfer and exchange shall be disposed of in a manner approved
by the Owner Trustee. All Securities surrendered to the Paying Agent for
payment, shall be delivered by the Paying Agent to the Owner Trustee for
disposition as aforesaid.
SECTION 3.4 Mutilated, Destroyed, Lost or Stolen Securities. If (a)
-----------------------------------------------
any mutilated Security is surrendered to the Security Registrar, or the Security
Registrar receives evidence to its satisfaction of the destruction, loss or
theft of any Security, and (b) there is delivered to the Security Registrar and
the Owner Trustee
10
<PAGE>
such security or indemnity as may be required by each to save it harmless, then
in the absence of notice to the Security Registrar or the Owner Trustee that
such Security has been acquired by a bona fide purchaser, the Owner Trustee
shall execute and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Security, a new Security of like tenor and Percentage.
Upon the issuance of any new Security under this Section 3.4, the Owner Trustee
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses connected therewith. Any duplicate Security issued pursuant to this
Section 3.4 shall constitute complete and indefeasible evidence of ownership of
the Percentage Interest evidenced thereby, as if originally issued, whether or
not the mutilated, destroyed, lost or stolen Security shall be found at any
time.
SECTION 3.5 Persons Deemed Securityholders. Prior to due
------------------------------
presentation of a Security for registration of transfer, the Owner Trustee and
the Security Registrar may treat the person in whose name any Security is
registered as the owner of such Security for the purpose of receiving
remittances pursuant to Section 3.3(e) of the Servicing Agreement and for all
other purposes whatsoever, and neither the Owner Trustee, the Security Registrar
nor any agent of the Owner Trustee or the Security Registrar shall be affected
by notice to the contrary.
SECTION 3.6 Access to List of Securityholders' Names and Addresses.
------------------------------------------------------
The Security Registrar will furnish to the Sponsor and the Servicer, within five
days after receipt by the Security Registrar of a request therefor from the
Sponsor or the Servicer in writing, a list, in such form as the Owner Trustee
may reasonably require, of the names and addresses of the Securityholders as of
the most recent Record Date. If Securityholders with an aggregate Percentage of
25% or more (hereinafter referred to as "Applicants") apply in writing to the
----------
Owner Trustee, and such application states that the Applicants desire to
communicate with other Securityholders with respect to their rights under this
Agreement or under the Securities and is accompanied by a copy of the
communication which such Applicants propose to transmit, then the Owner Trustee
shall, within five Business Days after the receipt of such application, afford
such Applicants access during normal business hours to the most recent list of
Securityholders held by the Owner Trustee. If such list is as of a date more
than 90 days prior to the date of receipt of such Applicants' request, the Owner
Trustee shall promptly request from the Security Registrar a current list as
provided above, and shall afford such Applicants access to such list promptly
upon receipt. Every
11
<PAGE>
Securityholder, by receiving and holding a Security, agrees with the Security
Registrar and the Owner Trustee that neither the Sponsor, the Servicer, the
Security Registrar nor the Owner Trustee shall be held accountable by reason of
the disclosure of any such information as to the names and addresses of the
Securityholders hereunder, regardless of the source from which such information
was derived.
SECTION 3.7 Acts of Securityholders. (a) Any request, demand,
-----------------------
authorization, direction, notice, consent, waiver or other action provided by
this Agreement to be given or taken by Securityholders or Noteholders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Securityholders or Noteholders in person or by agent duly
appointed in writing; and except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Owner Trustee. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Agreement
and conclusive in favor of the Owner Trustee, the Sponsor and the Servicer, if
made in the manner provided in this Section.
(b) The fact and date of the execution by any Securityholder or
Noteholder of any such instrument or writing may be proved in any reasonable
manner which the Owner Trustee deems sufficient.
(c) The ownership of Securities and Notes shall be proved by the
Security Register and the Note Register, respectively.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Securityholder or a Noteholder shall bind every holder
of every Security or Note issued upon the registration of transfer thereof or in
exchange therefor or in lieu thereof, in respect of anything done, or omitted to
be done by the Owner Trustee or the Servicer in reliance thereon, whether or not
notation of such action is made upon such Security or Note.
(e) The Owner Trustee may require such additional proof of any matter
referred to in this Section as it shall deem necessary.
SECTION 3.8 Limitation on Transfer and Exchange. (a) No
-----------------------------------
Securityholder may sell or transfer any Security (whether voluntarily,
involuntarily or by operation of law) except with the prior written consent of
the other Securityholders, which consent shall not be unreasonably withheld or
delayed. Any sale or transfer without the prior
12
<PAGE>
written consent of the Securityholders shall be null and void and confer no
rights on the purchaser or transferee with respect to the Trust, this Agreement
or the Owner Trustee.
(b) No Security may be transferred to the Owner Trustee, the
Collateral Trustee or the Indenture Trustee.
(c) The Owner Trustee shall have no liability to the Trust Estate or
any Securityholder arising from a transfer of any such Security in reliance upon
a certification described in this Section 3.8. No transfer or exchange of a
Security shall be made unless the transferee delivers to the Owner Trustee the
Investment Letter required by this Section 3.8.
SECTION 3.9 Payments to Securityholders. The Owner Trustee, by
---------------------------
executing this Agreement, is deemed to have instructed the Collateral Trustee to
distribute to the Securityholders on each applicable Payment Date, in accordance
with their respective Percentage Interests, amounts due and payable to the
Securityholders on deposit in the Security Account pursuant to Section 3.3(e) of
the Servicing Agreement.
ARTICLE IV
ACTIONS BY THE OWNER TRUSTEE
----------------------------
SECTION 4.1 Prior Notice to Securityholders with Respect to Certain
-------------------------------------------------------
Matters. With respect to the following matters, the Owner Trustee shall not
- -------
take action unless, at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Securityholders in writing of the proposed
action and the Securityholders shall not have notified the Owner Trustee in
writing prior to the 30th day after such notice is given that such
Securityholders have withheld consent or provided alternative direction:
(a) the initiation of any claim or lawsuit by the Trust (except claims
or lawsuits brought in connection with the collection of the Contracts) and
the compromise of any action, claim or lawsuit brought by or against the
Trust (except with respect to the aforementioned claims or lawsuits for
collection of Receivables);
(b) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is required; and
13
<PAGE>
(c) the amendment of the Indenture by a supplemental indenture in
circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Securityholders.
SECTION 4.2 Bankruptcy. The Owner Trustee shall not have the power
----------
to commence a voluntary proceeding in bankruptcy relating to the Trust without
the unanimous prior approval of all Securityholders and the delivery to the
Owner Trustee by each such Securityholder of a certificate certifying that such
Securityholder reasonably believes that the Trust is insolvent.
SECTION 4.3 Rights of Securityholders to Direct Owner Trustee.
-------------------------------------------------
Securityholders with aggregate Percentage Interests representing [__%] or more
shall have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Owner Trustee, or exercising any
trust or power conferred on the Owner Trustee; provided, however, that, the
-------- -------
Owner Trustee shall have the right to decline to follow any such direction if
the Owner Trustee, being advised by counsel, determines that the action so
directed may not lawfully be taken, or if the Owner Trustee in good faith
determines that the action so directed would be illegal or involve it in
personal liability or be unduly prejudicial to the rights of Securityholders not
parties to such direction; and provided, further that nothing in this Agreement
-------- -------
shall impair the right of the Owner Trustee to take any action deemed proper by
the Owner Trustee and which is not inconsistent with such direction by the
Securityholders.
SECTION 4.4 Suits for Enforcement. The Owner Trustee, in its
---------------------
discretion may, subject to the provisions of this Article IV, proceed to protect
and enforce its rights and the rights of the Securityholders under this
Agreement by a suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the execution of any power granted in this Agreement
or for the enforcement of any other legal, equitable or other remedy, as the
Owner Trustee, being advised by counsel, shall deem most effectual to protect
and enforce any of the rights of the Owner Trustee or the Securityholders.
SECTION 4.5 Owner Trustee May Enforce Claims without Possession of
------------------------------------------------------
Securities. All rights of action and claims under this Agreement or the
- ----------
Securities may be prosecuted and enforced by the Owner Trustee without the
possession of any of the Securities or the production thereof in any proceeding
relating thereto, and any such proceedings instituted by the Owner Trustee shall
be brought
14
<PAGE>
in its own name or in its capacity as Owner Trustee. Any recovery of judgment
shall, after provision of or the payment of the reasonable compensation,
expenses, disbursements and advances of the Owner Trustee, its agents and
counsel, be for the ratable benefit of the Securityholders in respect of which
such judgment has been recovered.
SECTION 4.6 Limitation on Rights of Securityholders. (a) The
---------------------------------------
Securityholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3, nor shall the Owner Trustee be
obligated to follow any such direction, if given.
(b) Except as provided herein, no Securityholder shall have any right
to vote or in any manner otherwise control the operation and management of the
Securityholders' interest or the obligations of the parties hereto.
(c) No Securityholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless such Securityholder previously shall have given to the Owner Trustee a
written notice of default and of the continuance thereof as hereinbefore
provided, and unless also the holders of Securities evidencing a Percentage of
__% or more shall have made written request upon the Owner Trustee to institute
such action, suit or proceeding in its own name as Owner Trustee hereunder and
shall have offered to the Owner Trustee such reasonable indemnity as it may
require against the costs, expenses, and liabilities to be incurred therein or
thereby, and the Owner Trustee, for 30 days after its receipt of such notice,
request, and offer of indemnity, shall have neglected or refused to institute
any such actions, suit, or proceeding; it being understood and intended, and
being expressly covenanted by each Securityholder with every other
Securityholder and the Owner Trustee, that no one or more Securityholders shall
have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb, or prejudice
the rights of any other Securityholders, or to obtain or seek to obtain priority
over or preference to any other such Securityholder, or to enforce any right
under this Agreement, except in the manner herein provided and for the equal,
ratable, and common benefit of all Securityholders. For the protection and
enforcement of the provisions of this Section, each and every Securityholder
15
<PAGE>
and the Owner Trustee shall be entitled to such relief as can be given either at
law or in equity.
ARTICLE V
AUTHORITY AND DUTIES OF THE OWNER TRUSTEE
-----------------------------------------
SECTION 5.1 General Authority. The Owner Trustee is authorized and
-----------------
directed to execute and deliver the Basic Documents to which the Trust is to be
a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is to be a party, in each
case, in such form as the Sponsor shall have approved as evidenced conclusively
by the Owner Trustee's execution thereof. In addition to the foregoing, the
Owner Trustee is authorized, but shall not be obligated, to take all actions
required of the Trust pursuant to the Basic Documents.
SECTION 5.2 General Duties. It shall be the duty of the Owner
--------------
Trustee to discharge (or cause to be discharged) all of its responsibilities
pursuant to the terms of this Agreement and the Basic Documents to which the
Trust is a party and to administer the Trust in the interest of the
Securityholders, subject to the Basic Documents and in accordance with the
provisions of this Agreement.
SECTION 5.3 Action upon Instruction. (a) Subject to Article IV, the
-----------------------
Securityholders may by written instruction direct the Owner Trustee in the
management of the Trust (except with respect to any actions to be taken by the
Servicer pursuant to the terms of the Servicing Agreement or under any other
Basic Document). Such direction may be exercised at any time by written
instruction of the Securityholders pursuant to Article IV.
(b) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or under any Basic Document, the Owner Trustee shall promptly give
notice (in such form as shall be appropriate under the circumstances) to the
Securityholders requesting instruction as to the course of action to be adopted,
and to the extent the Owner Trustee acts in good faith in accordance with any
written instruction of the Securityholders with aggregate Percentage Interests
of __% or more received, the Owner Trustee shall not be liable on account of
such action to any Person. If the Owner Trustee shall not have received
appropriate instruction from the Securityholders with aggregate Percentage
Interests of __% or more within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under
16
<PAGE>
the circumstances) it may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the Basic Documents,
as it shall deem to be in the best interests of the Securityholders, and shall
have no liability to any Person for such action or inaction.
SECTION 5.4 No Duties Except as Specified in this Agreement or in
-----------------------------------------------------
Instructions. The Owner Trustee shall not have any duty or obligations to
- ------------
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 5.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any
financing or continuation statement in any public office at any time or to
otherwise perfect or maintain the perfection of any security interest or lien
granted to it hereunder or to record this Agreement or any Basic Document. The
Owner Trustee nevertheless agrees that it will, at its own cost and expense,
promptly take all action as may be necessary to discharge any liens on any part
of the Owner Trustee Estate that result from actions by, or claims against, the
Owner Trustee that are not related to the ownership or the administration of the
Trust Estate.
SECTION 5.5 No Action Except Under Specified Documents or
---------------------------------------------
Instructions. The Owner Trustee shall not manage, control, use, sell, dispose
- ------------
of or otherwise deal with any part of the Trust Estate except (i) in accordance
with the powers granted to and the authority conferred upon the Owner Trustee
pursuant to this Agreement, (ii) in accordance with the Basic Documents and
(iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 5.3.
SECTION 5.6 Restrictions. The Owner Trustee shall not take any
------------
action that is inconsistent with the purposes of the Trust set forth in Section
2.3.
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ARTICLE VI
CONCERNING THE OWNER TRUSTEE
----------------------------
SECTION 6.1 Acceptance of Trusts and Duties. The Owner Trustee
-------------------------------
accepts the trusts hereby created and agrees to perform its duties hereunder
with respect to such trusts but only upon the express terms of this Agreement.
The Owner Trustee also agrees to disburse all moneys actually received by it
constituting part of the Trust Estate upon the terms of the Basic Documents and
this Agreement. The Owner Trustee shall not be answerable or accountable
hereunder or under any Basic Document under any circumstances, except (i) for
its own willful misconduct or gross negligence or (ii) in the case of the
inaccuracy of any representation or warranty contained in Section 6.3 expressly
made by the Owner Trustee. In particular, but not by way of limitation (and
subject to the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of judgment
made by an officer of the Owner Trustee absent willful misconduct or gross
negligence by such officer;
(b) the Owner Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in accordance with the instructions of
the Servicer or any Securityholder;
(c) no provision of this Agreement or any Basic Document shall require
the Owner Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder or
under any Basic Document, if the Owner Trustee shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable for
indebtedness evidenced by or arising under any of the Basic Documents,
including the principal of and interest on the Notes, or for any amounts
due with respect to the Securities;
(e) the Owner Trustee shall not be responsible for or in respect of
the validity or sufficiently of this Agreement or for the due execution
hereof by the Sponsor or for the form, character, genuineness, sufficiency,
value or validity of any of the Trust Estate or for or in respect of the
validity or sufficiency of the Basic Documents, other than the
18
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certificate of authentication on the Securities, and the Owner Trustee
shall in no event assume or incur any liability, duty, or obligation to any
Noteholder or to any Securityholder, other than is expressly provided for
herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Sponsor, the Indenture Trustee, the Collateral Trustee or
the Servicer under any of the Basic Documents or otherwise; and
(g) the Owner Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Basic Document, at the request, order or
direction of the Securityholders with aggregate Percentage Interests of
[___%] or more, unless such Securityholders have offered to the Owner
Trustee security or indemnity satisfactory to it against the costs,
expenses and liabilities that may be incurred by the Owner Trustee therein
or thereby. The right of the Owner Trustee to perform any discretionary act
enumerated in this Agreement or in any Basic Document shall not be
construed as a duty, and the Owner Trustee shall not be answerable for
other than its negligence or willful misconduct in the performance of any
such act.
SECTION 6.2 Furnishing of Documents. The Owner Trustee shall furnish
-----------------------
to the Securityholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents.
SECTION 6.3 Representations and Warranties. The Owner Trustee hereby
------------------------------
represents and warrants to the Sponsor, for the benefit of the Securityholders,
that:
(a) It is a banking corporation duly organized and validly existing in
good standing under the laws of the State of _____________. It has all
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and the other Basic Documents to which it
is a party.
(b) It has taken all corporate action necessary to authorize the
execution and delivery by it of this Agreement and such other Basic
Documents to which it is a party, and this Agreement and such other
19
<PAGE>
documents will be executed and delivered by one of its officers who is
duly authorized to execute and deliver this Agreement and such other
documents on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement and the other Basic Documents to which it is a party, nor the
consummation by it of the transactions contemplated hereby or thereby nor
compliance by it with any of the terms or provisions hereof or thereof will
contravene any federal or _______ law, governmental rule or regulation
governing the banking or trust powers of the Owner Trustee or any judgment
or order binding on it, or constitute any default under its charter
documents or by-laws.
SECTION 6.4 Reliance; Advice of Counsel. (a) The Owner Trustee
---------------------------
shall incur no liability to anyone in acting upon any signature, instrument,
notice, resolution, request, consent, order, certificate, report, opinion, bond,
or other document or paper believed by it to be genuine and believed by it to be
signed by the proper party or parties. The Owner Trustee may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the method of the determination of which is not specifically
prescribed herein, the Owner Trustee may, for all purposes hereof, rely on a
certificate, signed by the President or any Vice President or by the Treasurer
or other authorized officer of the relevant party, as to such fact of matter and
such certificate shall constitute full protection to the Owner Trustee for any
action taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and
in the performance of its duties and obligations under this Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Owner
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled persons to be selected with reasonable care and employed by it.
The Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such persons and not contrary to this Agreement or
any Basic Document.
20
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SECTION 6.5 Owner Trustee Not Liable for Securities or Contracts.
----------------------------------------------------
(a) Without limiting the representations and warranties of the Owner Trustee
set forth in Section 6.3, the Owner Trustee makes no representations as to the
validity or sufficiency of this Agreement, any other Basic Document or of the
Securities (other than its execution thereof) or of any Contract or related
document.
(b) The Owner Trustee shall have no responsibility for or with
respect to the validity of any security interest in any Contract or Vehicle, the
perfection of any such security interest (whether as of the date hereof or at
any future time), the maintenance of or the taking of any action to maintain
such perfection, the existence or validity of any Contract, the validity of the
assignment of any Contract to the Trust or of any intervening assignment, the
review of any Contract, the completeness of any Contract, the receipt by it or
the Collateral Trustee of any Contract, the performance or enforcement of any
Contract, the existence, condition and ownership of any Vehicle, the existence
and enforceability of any insurance thereon, the compliance by the Servicer, the
Sponsor, the Indenture Trustee or the Collateral Trustee with any covenant,
warranty or representation made under any Basic Document or in any related
document or the accuracy of any such warranty or representation, the acts or
omissions of the Servicer, the Sponsor, the Collateral Trustee, the Indenture
Trustee or any Obligor, any action of the Servicer or the Collateral Trustee
taken in the name of the Owner Trustee or the Trust, any action by the Owner
Trustee taken at the instruction of the Servicer or the preparation and filing
of tax returns for the Trust. No recourse shall be had for any claim based on
any provision of this Agreement, the Basic Documents, the Securities or any
Contract or assignment thereof against [Trustee] in its individual capacity, and
[Trustee] shall not have any personal obligation, liability or duty whatsoever
to any Securityholder or any other Person with respect to any such claim, and
any such claim shall be asserted solely against the Trust or any indemnitor who
shall furnish indemnity as provided herein, except for such liability as is
finally determined to have resulted from its own gross negligence or willful
misconduct.
SECTION 6.6 Not Acting in Individual Capacity. In accepting the
---------------------------------
trusts hereby created, the Owner Trustee acts in its individual capacity, but in
the performance of its duties as Owner Trustee hereunder and under any document
authorized hereby, the Owner Trustee acts solely as trustee hereunder and not in
its individual capacity, except to the extent expressly agreed otherwise, and
all Persons, other than the Securityholders as provided herein, having any claim
against the Owner Trustee by reason
21
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of the transactions contemplated hereby shall look only to the Trust Estate for
payment or satisfaction thereof, except to the extent the Owner Trustee shall
expressly agree otherwise in any Basic Document to which it is a party.
SECTION 6.7 Interpretation of Trust Agreement. In the event that
---------------------------------
the Owner Trustee is uncertain as to the application of any provision of this
Agreement or any other agreement relating to the transactions contemplated
hereby, or such provision is ambiguous as to its application or is, or appears
to be, in conflict with any other applicable provision hereof or any other
agreement relating to the transactions contemplated hereby, or in the event that
this Agreement or any other agreement relating to the transactions contemplated
hereby permits any determination by the Owner Trustee or is silent or incomplete
as to the course of action which the Owner Trustee is required to take with
respect to a particular set of facts, the Owner Trustee may seek instructions
from the Securityholders and shall not be liable to any person to the extent
that it acts in good faith in accordance with the instructions of the
Securityholders.
ARTICLE VII
COMPENSATION AND INDEMNIFICATION OF OWNER TRUSTEE
-------------------------------------------------
SECTION 7.1 Owner Trustee's Fees and Expenses. Until the Trust has
---------------------------------
been terminated in accordance with Section 9.1, as compensation for its services
hereunder, the Owner Trustee shall be entitled to receive the Owner Trustee's
Fee pursuant to Section ____ of the Servicing Agreement, payable in advance on
the Closing Date and on each [__________] Payment Date. The following fees and
expenses of the Owner Trustee (in addition to the Owner Trustee's Fee) shall be
payable from the Trust Estate:
(a) except as otherwise expressly provided herein, all reasonable
expenses, disbursements and advances incurred or made by the Owner Trustee
in accordance with any provision of this Agreement (including the
reasonable compensation and the expenses and disbursements of its agents
and counsel) except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(b) any loss, liability or expense incurred by the Owner Trustee
without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this Trust and its
duties hereunder and under any Basic Documents, including the costs and
expenses of defending itself
22
<PAGE>
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
SECTION 7.2 Indemnification. The Servicer shall be liable as
---------------
primary obligor for, and shall indemnify the Owner Trustee and its successors,
assigns, agents and servants (collectively, the "Indemnified Parties") from and
-------------------
against any and all liabilities, obligations, losses, damages, taxes, claims,
actions and suits, and any and all reasonable costs, expenses and disbursements
(including reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively "Expenses") which may at any time be imposed on, incurred by, or
--------
asserted against the Owner Trustee or any Indemnified Party in any way relating
to or arising out of this Agreement, the Basic Documents, the Trust Estate, the
administration of the Trust Estate or the action or inaction of the Owner
Trustee hereunder, except only that the Servicer shall not be liable for or
required to indemnify an Indemnified Party from and against Expenses arising or
resulting from (i) its own willful misconduct or gross negligence or (ii) with
respect to the Owner Trustee, the inaccuracy of any representation or warranty
contained in Section 6.3 expressly made by the Owner Trustee. The indemnities
contained in this Section shall survive the resignation or termination of the
Owner Trustee or the termination of this Agreement. In the event of any claim,
action or proceeding for which indemnity will be sought pursuant to this
Section, the Owner Trustee's choice of legal counsel shall be subject to the
approval of the Servicer, which approval shall not be unreasonably withheld.
ARTICLE VIII
SUCCESSOR OWNER TRUSTEES AND ADDITIONAL OWNER TRUSTEES
------------------------------------------------------
SECTION 8.1 Eligibility Requirements for Owner Trustee. The Owner
------------------------------------------
Trustee hereunder shall at all times be an Eligible Bank. In case at any time
the Owner Trustee shall cease to be eligible in accordance with the provisions
of this Section 8.1, the Owner Trustee shall resign immediately in the manner
and with the effect specified in Section 8.2.
SECTION 8.2 Resignation or Removal of Owner Trustee. The Owner
---------------------------------------
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Sponsor. Upon receiving such notice of
resignation, the Sponsor shall promptly appoint a successor Owner Trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the Sponsor and one copy to the successor Owner Trustee. If no
23
<PAGE>
successor Owner Trustee shall have been so appointed and have accepted
appointment within 30 days after the giving of such notice of resignation, the
resigning Owner Trustee may petition any court of competent jurisdiction for the
appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 8.1 and shall fail to resign after
written request therefor by the Sponsor, or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged a bankrupt or insolvent, or
a receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Sponsor or any Securityholder on behalf of itself and all
others similarly situated may petition any court of competent jurisdiction for
the removal of the Owner Trustee and the appointment of a successor Owner
Trustee.
Any resignation or removal of the Owner Trustee and appointment of
a successor trustee pursuant to any of the provisions of this Section 8.2 shall
not become effective until acceptance of appointment by the successor trustee as
provided in Section 8.3.
SECTION 8.3 Successor Owner Trustee. Any successor Owner Trustee
-----------------------
appointed as provided in Section 8.2 shall execute, acknowledge and deliver to
the Sponsor, and to its predecessor Owner Trustee an instrument accepting such
appointment hereunder, and thereupon the resignation or removal of the
predecessor Owner Trustee shall become effective and such successor Owner
Trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Owner Trustee. The
predecessor Owner Trustee shall, upon payment of its charges, deliver or cause
to be delivered to the successor Owner Trustee the Contracts and any related
documents and statements held by it hereunder; and the Sponsor and the
predecessor Owner Trustee shall execute and deliver such instruments and do such
other things as may reasonably be requested by the successor Owner Trustee for
fully and certain vesting and confirming in the successor Owner Trustee all such
rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in
this Section 8.3 unless, at the time of such acceptance, such successor Owner
Trustee shall be eligible under the provisions of Section 8.1.
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<PAGE>
Upon acceptance of appointment by a successor Owner Trustee as
provided in this Section 8.3, the successor Owner Trustee shall mail notice of
such succession to each Securityholder at their addresses as shown in the
Security Register.
SECTION 8.4 Merger or Consolidation of Owner Trustee. Any
----------------------------------------
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to the corporate trust business of the Owner Trustee,
shall be the successor for the Owner Trustee hereunder, provided such
corporation shall be eligible under the provisions of Section 8.1 without the
execution or filing of any paper or any further act on the party of any of the
parties hereto, anything herein to the contrary notwithstanding.
SECTION 8.5 Appointment of Co-Owner Trustee or Separate Owner
-------------------------------------------------
Trustee. Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust may at the time be located, the Sponsor and the Owner
Trustee acting jointly shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Owner Trustee to act
as co-trustee, jointly with the Owner Trustee, or separate trustee or separate
trustees, of all or any part of the Trust Estate, and to vest in such Person, in
such capacity, such title to the Trust Estate, or any part thereof, and, subject
to the other provisions of this Section, such powers, duties, obligations,
rights and trusts as the Sponsor and the Owner Trustee may consider necessary or
desirable. If the Sponsor shall not have joined in such appointment within [__]
days after receipt by it of a request so to do, the Owner Trustee alone shall
have the power to make such appointment. No co-trustee or separate trustee
under this Agreement shall be required to meet the terms of eligibility as a
successor trustee pursuant to Section 8.1 and no notice of the appointment of
any co-trustee or separate trustee shall be required pursuant to Section 8.3.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate
25
<PAGE>
trustee or co-trustee is not authorized to act separately without the Owner
Trustee joining in such act), except to the extent that under any law of
any jurisdiction in which any particular act or acts are to be performed,
the Owner Trustee shall be incompetent or unqualified to perform such act
or acts, in which event such rights, powers, duties, and obligations
(including the holding of title to the Trust or any portion thereof in any
such jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be personally liable
by reason of any act or omission of any other trustee under this Agreement;
and
(iii) the Sponsor and the Owner Trustee acting jointly may at any
time accept the resignation of or remove any separate trustee or co-
trustee.
Any notice, request or other writing given to the Owner Trustee
shall be deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Sponsor.
Any separate trustee or co-trustee may at any time appoint the
Owner Trustee as its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or co-
trustee shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Owner Trustee, to the extent permitted by law, without the appointment of
a new or successor trustee.
26
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ARTICLE IX
TERMINATION OF TRUST AGREEMENT
------------------------------
SECTION 9.1 Termination of Trust Agreement. (a) This Agreement
------------------------------
(other than Article VII) and the Trust shall terminate and be of no further
force or effect, (i) upon the final distribution by the Paying Agent or the
Servicer, as the case may be, of all moneys or other property or proceeds of the
Trust Estate in accordance with Section ____ of the Servicing Agreement or (ii)
at the time provided in Section ____. The bankruptcy, liquidation, dissolution,
death or incapacity of any Securityholder, other than the Sponsor as described
in Section ______, shall not (i) operate to terminate this Agreement or the
Trust, nor (ii) entitle such Securityholder's legal representatives or heirs to
claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Trust Estate nor
(iii) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Except as provided in Section 9.1(a), neither the Sponsor nor
any Securityholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment
Date upon which the Securityholders shall surrender their Securities to the
Paying Agent for payment of the final distribution and cancellation, shall be
given promptly by the Owner Trustee by letter to Securityholders mailed within
five Business Days of receipt of notice of termination of the Servicing
Agreement from the Servicer given pursuant to Section _____ of the Servicing
Agreement stating (i) the Payment Date upon which final payment of the
Securities shall be made upon presentation and surrender of the Securities at
the office of the Paying Agent therein designated, (ii) the amount of any such
final payment and (iii) that the Record Date otherwise applicable to such
Payment Date is not applicable, payments being made only upon presentation and
surrender of the Securities at the office of the Paying Agent therein specified.
The Owner Trustee shall give such notice to the Security Registrar (if other
than the Owner Trustee) and the Paying Agent at the time such notice is given to
Securityholders.
In the event that all of the Securityholders shall not surrender
their Securities for cancellation within six months after the date specified in
the above mentioned written notice, the Owner Trustee shall give a second
written notice to the remaining Securityholders to surrender their Securities
for cancellation and receive the final distribution with respect thereto. If
within one year after
27
<PAGE>
the second notice all the Securities shall not have been surrendered for
cancellation, the Owner Trustee may take appropriate steps, or may appoint an
agent to take appropriate steps, to contact the remaining Securityholders
concerning surrender of their Securities, and the cost thereof shall be paid out
of the funds and other assets that shall remain subject to this Agreement. Any
funds remaining in the Trust after exhaustion of such remedies shall be
distributed by the Owner Trustee to the Sponsor.
(d) In no event shall the Trust established pursuant to this
Agreement remain in existence for more than __ years from ____________, 199__.
SECTION 9.2 Dissolution upon Bankruptcy of the Sponsor. In the
------------------------------------------
event that any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding or other proceeding, voluntary or involuntary, under any
federal or state bankruptcy or similar law (each, an "Insolvency Event") shall
----------------
occur with respect to the Sponsor, this Agreement shall be terminated in
accordance with Section 9.1 60 days after the date of such Insolvency Event,
unless, before the end of such 60-day period the Owner Trustee shall have
received written instructions from each of the Securityholders (other than the
Sponsor) and each of the Noteholders, to the effect that each such party
disapproves of the liquidation of the Contracts and termination of the Trust.
Promptly after the occurrence of any Insolvency Event with respect to the
Sponsor, (i) the Sponsor shall give the Indenture Trustee and the Owner Trustee
written notice of such Insolvency Event, (ii) the Owner Trustee shall, upon the
receipt of such written notice from the Sponsor, give prompt written notice to
the Securityholders of the occurrence of such event and (iii) the Indenture
Trustee shall, upon receipt of written notice of such Insolvency Event from the
Owner Trustee or the Sponsor, give prompt written notice to the Noteholders of
the occurrence of such event; provided, however, that any failure to give a
-------- -------
notice required by this sentence shall not prevent or delay, in any manner, a
termination of the Trust pursuant to the first sentence of this Section 9.2.
Upon a termination pursuant to this Section, the Owner Trustee shall direct the
Collateral Trustee promptly to sell the assets of the Trust in a commercially
reasonable manner and on commercially reasonable terms. The proceeds of such a
sale of the assets of the Trust shall be treated as collections under the
Servicing Agreement.
28
<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1 Supplements and Amendments. (a) This Agreement may be
--------------------------
amended from time to time by the Owner Trustee and the Sponsor, without the
consent of any of the Securityholders or Noteholders, to cure any ambiguity, to
correct or supplement any provisions herein or therein which may be inconsistent
with any other provisions herein or therein, as the case may be, or to add any
other provisions with respect to matters or questions arising under this
Agreement which shall not be inconsistent with the provisions of this Agreement;
provided, however, that such action shall not, as evidenced by an opinion of
- -------- -------
counsel for the Sponsor or the Servicer, adversely affect in any material
respect the interests of any Securityholder or any Noteholder.
(b) This Agreement may also be amended from time to time by the
Sponsor and the Owner Trustee, with the consent of (x) Noteholders owning a
majority in principal amount of the Notes outstanding and (y) Securityholders
with an aggregate Percentage Interest of [__%] or more, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Securityholders; provided, however, that no such amendment shall (a) reduce in
-------- -------
any manner the amount of, or delay the timing of, collections of Receivables or
distributions which are required to be made on any Note or any Security or (b)
reduce the aforesaid percentage of Note principal balance or Security Percentage
Interest required to consent to any such amendment, without the unanimous
consent of the Noteholders and the Securityholders.
(c) Promptly after the execution of any amendment or consent
pursuant to this Section 10.1, the Owner Trustee shall furnish written
notification of the substance of such amendment to each Securityholder.
(d) It shall not be necessary for the consent of Securityholders or
Noteholders under this Section 10.1 to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Securityholders or Noteholders shall
be subject to such reasonable requirements as the Owner Trustee may prescribe.
(e) The Owner Trustee may, but shall not be obligated to, enter into
any such amendment which affects
29
<PAGE>
the Owner Trustee's own rights, duties or immunities under this Agreement or
otherwise.
(f) Upon the execution of any amendment to this Agreement, this
Agreement shall be modified in accordance therewith, and such amendment shall
form a part of this Agreement for all purposes; and every holder of a Security
theretofore or thereafter executed and delivered hereunder shall be bound
thereby.
(g) In connection with any amendment pursuant to this Section 10.1
the Owner Trustee shall be entitled to receive an opinion of counsel to the
Sponsor or the Servicer acceptable to the Owner Trustee to the effect that such
amendment is authorized or permitted by the Agreement.
SECTION 10.2 Notices. All communications and notices pursuant hereto
-------
to the Sponsor, the Servicer, the Owner Trustee or the Security Registrar or the
Indenture Trustee shall be in writing and delivered or mailed to it at the
following address:
If to the Sponsor:
Chevy Chase Bank, F.S.B.
------------------------
------------------------
Attention:
Telecopy Number:
If to the Servicer:
----------------
----------------
----------------
Attention:
Telecopy Number:
If to the Owner Trustee:
----------------
----------------
----------------
Attention:
Telecopy Number:
If to the Security Registrar:
----------------
----------------
----------------
Attention:
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Telecopy Number:
If to the Indenture Trustee or to the Noteholders:
----------------
----------------
----------------
Attention:
Telecopy Number:
or at such other address as the party may designate by notice to the other
parties hereto, which shall be effective when received.
All communications and notices pursuant hereto to a Securityholder
shall be in writing and delivered or mailed at the address shown in the Security
Register.
SECTION 10.3 Merger and Integration. Except as specifically stated
----------------------
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement. This Agreement may not be
modified, amended, waived, or supplemented except as provided herein.
SECTION 10.4 Headings. The headings of the various Articles and
--------
Sections herein and the Table of Contents are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
SECTION 10.5 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the laws of the State of ___________.
SECTION 10.6 Counterparts. This Agreement may be executed in two or
------------
more counterparts (and by different parties on separate counterparts), each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
SECTION 10.7 No Legal Title to Trust Estate in Securityholder. The
------------------------------------------------
Securityholders shall not have legal title to any part of the Trust Estate. The
Securityholders shall be entitled to receive distributions with respect to their
undivided ownership interest only in accordance with Section 3.9 and Article IX.
No transfer, by operation of law or otherwise, of any right, title or interest
of the Securityholders to and in their ownership interest in the Trust Estate
shall operate to terminate this Agreement or the trusts hereunder or entitle any
transferee to an accounting or
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<PAGE>
to the transfer to it of legal title to any part of the Trust Estate.
SECTION 10.8 Limitation on Rights of Others. Except for the terms of
------------------------------
Section 2.7, nothing in this Agreement, whether express or implied, shall be
construed to give to any Person other than the Owner Trustee and the Sponsor any
legal or equitable right, remedy or claim under or in respect of this Trust
Agreement or any covenants, conditions or provisions contained herein. Such
covenants, conditions and provisions are, and shall be held to be, for the sole
and exclusive benefit of the Owner Trustee and the Sponsor.
SECTION 10.9 Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or of any provision in any other
Basic Document, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. The provisions of this Agreement shall remain valid and
enforceable notwithstanding the invalidity, unenforceability, impossibility or
illegality of performance of any Basic Document.
SECTION 10.10 Successors and Assigns. All covenants and agreements
----------------------
contained herein shall be binding upon, and inure to the benefit of, the Owner
Trustee, the Sponsor and each Securityholder and their respective successors and
assigns. Any request, notice, direction, consent, waiver or other instrument or
action by a Securityholder shall bind its successors and assigns.
SECTION 10.11 No Implied Waiver. No term or provision of this
-----------------
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing entered into as provided in Section 10.1 hereof; and
any such waiver of the terms hereof shall be effective only in the specific
instance and for the specific purpose given.
SECTION 10.12 No Petition. The Owner Trustee (not in its individual
-----------
capacity but solely as Owner Trustee), by entering into this Agreement, each
Securityholder, by accepting a Security, and the Indenture Trustee and each
Noteholder by accepting the benefits of this Agreement, hereby covenant and
agree that they will not at any time institute against the Sponsor or the Trust,
or join in any institution against the Sponsor or the Trust of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any federal or state bankruptcy or similar law in connection
with any obligations
32
<PAGE>
relating to the Securities, the Notes, this Agreement or any of the Basic
Documents.
SECTION 10.13 No Recourse. Each Securityholder by accepting a
-----------
Security acknowledges that such Securityholder's Securities represent beneficial
interests in the Trust only and do not represent interests in or obligations of
the Sponsor, the Servicer, the Owner Trustee, the Indenture Trustee, the
Collateral Trustee or any Affiliate thereof and no recourse may be had against
such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Securities or the Basic Documents.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized this ____ day
of ____________, 199_.
CHEVY CHASE BANK, F.S.B.
By:
-------------------------------------
Name:
Title:
,
---------------------
not in its individual capacity
but solely as Owner Trustee of
[CHEVY CHASE RECEIVABLES TRUST
199__-___]
By:
------------------------------------------
Name:
Title:
,
--------------------------------------------
as Servicer
By:
------------------------------------------
Name:
Title:
34
<PAGE>
EXHIBIT A
---------
[Form of Face Security]
FORM OF SECURITY
----------------
[CHEVY CHASE AUTO RECEIVABLES TRUST 199__-__]
THIS SECURITY DOES NOT REPRESENT AN OBLIGATION OF OR AN INTEREST IN
CHEVY CHASE BANK, F.S.B. [TRUSTEE] OR ANY AFFILIATES THEREOF, AND NEITHER THIS
SECURITY NOR THE CONTRACTS NOR THE RECEIVABLES ARE INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
No. R _________ ____% Percentage Interest
This certifies that ___________________________ is the registered
owner of an undivided _____ Percentage Interest in the [Chevy Chase Auto
Receivables Trust 199__-__] (the "Trust"). The Trust Estate held by the Trust
-----
includes among its assets a pool of installment sale contracts for new and used
automobiles and light duty trucks (the "Contracts") [and a security interest in
---------
the related vehicles (the "Vehicles")], including, without limitation, and any
--------
and all rights to receive payments thereunder after the close of business on
____________, 199__. The Trust has been created pursuant to a Trust Agreement
dated as of _____________, 199_ among Chevy Chase Bank, F.S.A., a ________
corporation (the "Sponsor"), _______________, a __________ banking corporation,
not in its individual capacity but solely as Owner Trustee (herein, together
with its permitted successors in the trusts hereunder, called the "Owner
-----
Trustee") of the Trust, ____________________, a __________ corporation, as
- -------
servicer (the "Servicer") and the holders (the "Securityholders") of undivided
---------------
percentage interests in the Trust, as amended and restated as of ______, 199_
(the "Agreement").
This Security is one of the Securities described in the Agreement and
is issued pursuant and subject to the Agreement. By acceptance of this
Security, the holder assents to and becomes bound by the Agreement. To the
extent not defined herein, all capitalized terms have the meanings assigned to
them in the Agreement.
THE RIGHTS TO RECEIVE PAYMENTS WITH RESPECT TO THIS SECURITY ARE
SUBORDINATED TO THE PRIOR PAYMENT IN FULL OF ALL AMOUNTS OF PRINCIPAL AND
INTEREST ON THE NOTES.
A-1
<PAGE>
Distributions on this Security will be made in accordance with the
terms of the Servicing Agreement by wire transfer to a bank account previously
identified by each Securityholder of record and appearing on the Security
Register, without the presentation or surrender of this Security or the making
of any notation hereon. Except as otherwise provided in the Agreement and
notwithstanding the above, the final distribution on this Security will be made
after due notice by the Owner Trustee of the pendency of such distribution and
only upon presentation and surrender of this Security at the office of the
Collateral Trustee maintained for that purpose at ____________________________.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall have the same
effect as if set forth at this place.
The holder hereof, by its acceptance of this Security, agrees that it
will look solely to the funds in the Trust Estate to the extent available for
distribution to the holder hereof as provided in the Servicing Agreement for
payment hereunder and that the Owner Trustee in its individual capacity is not
personally liable to the holder hereof for any amounts payable under this
Security, the Agreement or the Servicing Agreement or, except as expressly
provided in the Agreement, subject to any liability under the Agreement or any
Basic Document.
This Security does not purport to summarize the Agreement and
reference is made to the Agreement for information with respect to the
interests, rights, benefits, obligations, proceeds and duties evidenced hereby
and the rights, duties and immunities of the Owner Trustee. Copies of the
Agreement and all amendments thereto will be provided to any Securityholder free
of charge upon a written request to the Owner Trustee.
A-2
<PAGE>
IN WITNESS WHEREOF, [Chevy Chase Auto Receivables Trust 199_-_] has
caused this Security to be duly executed by an authorized officer of the Owner
Trustee and attested by one of the Owner Trustee's authorized officers and has
caused the Owner Trustee's corporate seal to be impressed thereon.
Date: [CHEVY CHASE AUTO RECEIVABLES TRUST
-------------
199_-_]
By: [Trustee], not in its individual capacity but
solely as Owner Trustee
[Seal] By:
---------------------------------------
Authorized Officer
Attest:
- ------------------------
Authorized Officer
A-3
<PAGE>
[Form of Reverse of Security]
This Security represents a fractional undivided interest in the Trust.
This Security is limited in right of payment to certain collections respecting
the Contracts, all as more specifically set forth herein and in the Agreement.
This Security is not insured or guaranteed by any person or governmental agency.
The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
Securityholders under the Agreement at any time by the Sponsor and the Owner
Trustee with the consent of the holders of Security evidencing [___%] of the
aggregate Percentage Interests and Noteholders owning a majority in principal
amount of the Notes outstanding. Any such consent by the holder of this
Security shall be conclusive and binding on such holder and upon all future
holders of this Security and of any Security issued upon the transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent is
made upon this Security. The Agreement also permits the amendment thereof, in
certain limited circumstances, without the consent of any of the Securityholders
or Noteholders.
As provided in the Agreement and subject to the limitations set forth
in the following paragraph, the transfer of this Security is registerable in the
Security Register of the Security Registrar upon surrender of this Security for
registration of transfer at the offices or agencies maintained by the Owner
Trustee at ___________________________________, accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Security Registrar duly executed by the holder thereof or his or her attorney
duly authorized in writing, and thereupon one or more new Securities evidencing
the same aggregate Percentage Interest will be issued to the designated
transferee or transferees.
As provided in the Agreement and subject to certain limitations
therein set forth, Securities are exchangeable for new Securities of authorized
denominations evidencing the same Percentage Interest as requested by the holder
surrendering the same.
No service charge will be made for any such registration of transfer
or exchange, but the Security Registrar may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
The Owner Trustee and the Security Registrar and any agent of the
Owner Trustee or the Security Registrar may treat the person in whose name this
Security is registered as
A-4
<PAGE>
the owner hereof for all purposes, and neither the Owner Trustee, the Security
Registrar nor any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the Agreement (other
than Article VII) and the Trust created thereby shall terminate on the Payment
Date next succeeding the Due Period during which the last Contract shall have
been liquidated (but not later than six months after completion of all
collection efforts).
ASSIGNMENT
For value received, the undersigned, subject to the provisions of
Sections 3.2 and 3.8 of the Agreement, sells, assigns and transfers unto (name
and address, including zip code and taxpayer I.D. or social security number of
assignee) _____________________________________ the within Security and does
hereby irrevocably constitute and appoint _______________________ attorney to
transfer the said Security on the books kept for registration thereof with full
power of subscription on the premises.
Dated:
----------------------
Signature Guaranteed:
NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Security in every
particular, without alteration, enlargement or any change whatsoever. Such
signature must be guaranteed by a member of the New York Stock Exchange or a
commercial bank or trust company.
A-5
<PAGE>
EXHIBIT 4.5
SECURITY GUARANTY INSURANCE POLICY
OBLIGATIONS: $______________ POLICY NUMBER:
Chevy Chase Auto Receivables Trust ______
[ ]% Auto Receivables Backed Securities
__________________________ (the "Insurer"), in consideration of the
payment of the premium and subject to the terms of this Security Guaranty
Insurance Policy (this "Policy"), hereby unconditionally and irrevocably
guarantees to any Owner that an amount equal to each full and complete Insured
Payment will be received by First Bank National Association, or its successor,
as trustee for the Owners (the "Trustee"), on behalf of the Owners from the
Insurer, for distribution by the Trustee to each Owner of each Owner's
proportionate share of the Insured Payment. The Insurer's obligations hereunder
with respect to a particular Insured Payment shall be discharged to the extent
funds equal to the applicable Insured Payment are received by the Trustee,
whether or not such funds are properly applied by the Trustee. Insured Payments
shall be made only at the time set forth in this Policy, and no accelerated
Insured Payments shall be made regardless of any acceleration of the
Obligations, unless such acceleration is at the sole option of the Insurer.
Notwithstanding the foregoing paragraph, this Policy does not cover
shortfalls, if any, attributable to the liability of the Trust or the Trustee
for withholding taxes, if any (including interest and penalties in respect of
any such liability).
The Insurer will pay any Insured Payment that is a Preference Amount
on the Business Day following receipt on a Business Day by the Fiscal Agent (as
described below) of (i) a certified copy of the order requiring the return of
such preference payment, (ii) an opinion of counsel satisfactory to the Insurer
that such order is final and not subject to appeal, (iii) an assignment in such
form as is reasonably required by the Insurer, irrevocably assigning to the
Insurer all rights and claims of the Owner relating to or arising under the
Obligations against the debtor which made such preference payment or otherwise
with respect to such preference payment and (iv) appropriate instruments to
effect the appointment of the Insurer as agent for such Owner in any legal
proceeding related to such preference payment, such instruments being in a form
satisfactory to the Insurer, provided that if such documents are received after
______________________________ time, on such Business Day, they will be deemed
to be received on the following
18
<PAGE>
Business Day. Such payments shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Owner and not to any Owner directly unless such Owner has returned
principal or interest paid on the Obligations to such receiver or trustee in
bankruptcy, in which case such payment shall be disbursed to such Owner.
The Insurer will pay any other amount payable hereunder no later than
_________________________ time, on the later of the Distribution Date on which
the related Deficiency Amount is due or the third Business Day following receipt
in __________________ on a Business Day by ________________________, as Fiscal
Agent for the Insurer or any successor fiscal agent appointed by the Insurer
(the "Fiscal Agent") of a Notice (as described below); provided that if such
Notice is received after _____________ time, on such Business Day, it will be
deemed to be received on the following Business Day. If any such Notice
received by the Fiscal Agent is not in proper form or is otherwise insufficient
for the purpose of making claim hereunder, it shall be deemed not to have been
received by the Fiscal Agent for purposes of this paragraph, and the Insurer or
the Fiscal Agent, as the case may be, shall promptly so advise the Trustee and
the Trustee may submit an amended Notice.
Insured Payments due hereunder, unless otherwise stated herein, will
be disbursed by the Fiscal Agent to the Trustee on behalf of the Owners by wire
transfer of immediately available funds in the amount of the Insured Payment
less, in respect of Insured Payments related to Preference Amounts, any amount
held by the Trustee for the payment of such Insured Payment and legally
available therefor.
The Fiscal Agent is the agent of the Insurer only, and the Fiscal
Agent shall in no event be liable to Owners for any acts of the Fiscal Agent or
any failure of the Insurer to deposit, or cause to be deposited, sufficient
funds to make payments due under this Policy.
As used herein, the following terms shall have the following meanings:
"AGREEMENT" means the Pooling and Servicing Agreement dated as of
________________ among Chevy Chase Bank, F.S.B., as Seller and as Servicer, and
the Trustee, as trustee, without regard to any amendment or supplement thereto
unless such amendment or modification has been approved in writing by the
Insurer.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which banking institutions in
19
<PAGE>
New York City, Chevy Chase, Maryland or in the city in which the corporate trust
office of the Trustee under the Agreement or the Insurer is located are
authorized or obligated by law or executive order to close.
"DEFICIENCY AMOUNT" means the excess, if any, of Required Payments
over Net Available Distribution Amount for such Distribution Date.
"INSURED PAYMENT" means (i) as of any Distribution Date, any
Deficiency Amount and (ii) any Preference Amount.
"NOTICE" means the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of Exhibit A attached
hereto, the original of which is subsequently delivered by registered or
certified mail, from the Trustee specifying the Insured Payment which shall be
due and owing on the applicable Distribution Date.
"OWNER" means each Holder (as defined in the Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Obligations to payment thereunder.
"PREFERENCE AMOUNT" means any amount previously distributed to an
Owner on the Obligations that is recoverable and sought to be recovered as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code (11 U.S.C.), as amended from time to time, in accordance with a
final nonappealable order of a court having competent jurisdiction.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Agreement as of the date of
execution of this Policy, without giving effect to any subsequent amendment to
or modification of the Agreement unless such amendment or modification has been
approved in writing by the Insurer.
Any notice hereunder or service of process on the Fiscal Agent of the
Insurer may be made at the address listed below for the Fiscal Agent of the
Insurer or such other address as the Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is
_________________________________________________ Attention:____________________
_____________________________________, or such other address as the Fiscal Agent
shall specify to the Trustee in writing.
This Policy is being issued under and pursuant to, and shall be
construed under, the laws of the State of New
20
<PAGE>
York, without giving effect to the conflict of laws principles thereof.
[The insurance provided by this Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.]
This Policy is not cancelable for any reason. The premium on this
Policy is not refundable for any reason including payment, or provision being
made for payment, prior to maturity of the Obligations.
IN WITNESS WHEREOF, the Insurer has caused this Policy to be executed
and attested this __th day of _______________.
__________________________
By:_______________________________
Attest:
By:______________________
Secretary
21
<PAGE>
EXHIBIT A
TO SECURITY GUARANTY INSURANCE POLICY
NUMBER:
NOTICE UNDER SECURITY GUARANTY
INSURANCE POLICY NUMBER
[Fiscal Agent]
[Insurance Company]
The undersigned, a duly authorized officer of __________, as trustee
(the "Trustee"), hereby certifies to ________________________________________
(the "Fiscal Agent") and __________________________ (the "Insurer"), with
reference to Security Guaranty Insurance Policy Number: (the "Policy") issued
by the Insurer in respect of the $______________ Chevy Chase Auto Receivables
Trust ______ [ ]% Auto Receivables Backed Certificates (the "Obligations"),
that:
(i) the Trustee is the trustee under the Pooling and Servicing
Agreement dated as of ________________ between Chevy Chase Bank, F.S.B., as
Seller and as Servicer, and the Trustee, as trustee for the Owners;
(ii) the amount of Required Payments due for the Distribution Date
occurring on ___________ (the "Applicable Distribution Date") is $__________;
(iii) the amount of the Net Available Distribution Amount for
the Applicable Distribution Date is $_________;
(iv) the excess of the amounts listed in paragraph (ii) over the
amount listed in paragraph (iii) above is $_________ (the "Deficiency Amount");
(v) the amount of previously distributed payments on the Obligations
that is recoverable and sought to be recovered as a voidable preference by a
trustee in bankruptcy pursuant to the Bankruptcy Code in accordance with a final
nonappealable order of a court having competent jurisdiction is $_________ (the
"Preference Amount");
(vi) the total Insured Payment due is $________, which amount equals
the sum of the Deficiency Amount and the Preference Amount;
22
<PAGE>
(vii) the Trustee is making a claim under and pursuant to the terms
of the Policy for the dollar amount of the Insured Payment set forth in (iv)
above to be applied to the payment on the Obligations for the Applicable
Distribution Date in accordance with the Agreement and for the dollar amount of
the Insured Payment set forth in (v) above to be applied to the payment of any
Preference Amount; and
(viii) the Trustee directs that payment of the Insured Payment be
made to the following account by bank wire transfer of federal or other
immediately available funds in accordance with the terms of the Policy:
[TRUSTEE'S ACCOUNT].
Any capitalized term used above in this Notice and not otherwise
defined herein shall have the meaning assigned thereto in the Policy.
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE
COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM
CONTAINING ANY MATERIALLY FALSE INFORMATION, OR CONCEALS FOR THE PURPOSE OF
MISLEADING, INFORMATION CONCERNING ANY FACT MATERIAL THERETO, COMMITS A
FRAUDULENT INSURANCE ACT, WHICH IS A CRIME, AND SHALL ALSO BE SUBJECT TO A CIVIL
PENALTY NOT TO EXCEED FIVE THOUSAND DOLLARS AND THE STATED VALUE OF THE CLAIM
FOR EACH SUCH VIOLATION.
IN WITNESS WHEREOF, the Trustee has executed and delivered this Notice
under the Policy as of the ____ day of __________, 19__.
as Trustee
By: ________________________
Title: _____________________
23
<PAGE>
Exhibit 5.1
-----------
_____________ __, 199__
Chevy Chase Bank, F.S.B.
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
Re: Chevy Chase
Auto Receivables Trust ________
____% Auto Receivables Backed [Certificates/Notes]
--------------------------------------------------
Gentlemen:
We have acted as counsel to Chevy Chase Bank, F.S.B. (the
"Registrant") in connection with the preparation and filing of the registration
statement on Form S-3 (such registration statement, the "Registration
Statement") being filed today with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), in respect of
Auto Receivables Trust ______, ___% Auto Receivables Backed [Certificates/Notes]
("Securities") which the Registrant plans to offer in series, each series to be
issued under a separate Trust Agreement (a "Trust Agreement"), in substantially
one of the forms incorporated by reference as Exhibits to the Registration
Statement, among Chevy Chase Bank, F.S.B. (the "Company"), ___________________,
as issuer, _____________________, as seller, __________________, as back-up
servicer, and a trustee to be identified in the prospectus supplement for such
series of Securities (the "Trustee" for such series).
We have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such documents and records of
the Company and such other instruments and other certificates of public
officials, officers and representatives of the Company and such other persons,
and we have made such investigations of law, as we have deemed appropriate as a
basis for the opinions expressed below.
The opinions expressed below are subject to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting creditors'
rights generally and to general equity principles.
We are admitted to the Bar of the State of New York and we express no
opinion as to the laws of any other
<PAGE>
Chevy Chase Bank, F.S.B.
_____________ __, 199__
Page 2
jurisdiction except as to matters that are governed by Federal law or the laws
of the State of New York. All opinions expressed herein are based on laws,
regulations and policy guidelines currently in force and may be affected by
future regulations.
Based upon the foregoing, we are of the opinion that:
1. When, in respect of a series of Securities, a Trust Agreement has
been duly authorized by all necessary action and duly executed and
delivered by the Company, the issuer, the seller, the back-up servicer and
the Trustee for such series, such Trust Agreement will be a valid and
legally binding obligation of the Company; and
2. When a Trust Agreement for a series of Securities has been duly
authorized by all necessary action and duly executed and delivered by the
Company, the issuer, the seller, the back-up servicer and the Trustee for
such series, and when the Securities of such series have been duly executed
and authenticated in accordance with the provisions of the Trust Agreement,
and issued and sold as contemplated in the Registration Statement and the
prospectus, as amended or supplemented and delivered pursuant to Section 5
of the Act in connection therewith, such Securities will be legally and
validly issued, fully paid and nonassessable, and the holders of such
Securities will be entitled to the benefits of such Trust Agreement.
This opinion is furnished by us as counsel to the Registrant. We
hereby consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to Dewey Ballantine in the Registration Statement
and the related prospectus under the heading "Legal Matters."
Very truly yours,
<PAGE>
EXHIBIT 8.1
-----------
_____________ __, 199__
Chevy Chase Bank, F.S.B.
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
Re: Chevy Chase
Auto Receivables-Trust _______
____% Auto Receivables Backed [Certificates/Notes]
--------------------------------------------------
Gentlemen:
We have acted as counsel to Chevy Chase Bank, F.S.B. in connection
with the preparation and filing of a registration statement on Form S-3 (the
"Registration Statement") being filed today with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"), in
respect of Auto Receivables Trust _______, ___% Auto Receivables Backed
[Certificates/Notes] ("Securities") which the Registrant plans to offer in
series.
The opinion contained in the relevant prospectus supplement
constitutes a part of the Registration Statement under the heading "Certain
Federal Income Tax Consequences", to the extent they constitute legal
conclusions with respect to matters federal law, have been prepared by us and,
in our opinion, provide a fair and accurate summary of such law or conclusions.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to Dewey Ballantine in the
Registration Statement and related prospectus under the heading "Certain Federal
Income Tax Consequences."
Very truly yours,
<PAGE>
Exhibit 99.1
SUBJECT TO COMPLETION DATED _______________, 1997
[Exhibit 99.1 Form of Prospectus Supplement. This form of Prospectus Supplement
-----------------------------
is for illustrative purposes only. A Prospectus Supplement in definitive form
reflecting the terms of each Series of Securities will be filed with the
Commission under the Securities Act of 1933, as amended, pursuant to Rule 424
(b) promulgated thereunder.]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________, 1997)
- --------------------------------------------------------------------------------
CHEVY CHASE AUTO RECEIVABLES FINANCE TRUST
199__-__
$____________ [Class A-1] [Floating Rate] [ %] Auto Receivables Backed
Notes
$____________ [Class A-2 [ %] Auto Receivables Backed Notes
$____________ [Floating Rate] [ %] Auto Receivables Backed Certificates
CHEVY CHASE BANK, F.S.B., Bank
CHEVY CHASE BANK, F.S.B., Servicer
- --------------------------------------------------------------------------------
CHEVY CHASE AUTO RECEIVABLES FINANCE TRUST 199__-__ (the "Trust" or the
"Issuer") will be formed pursuant to a Trust Agreement, to be dated as of
____________, 199__ between Chevy Chase Bank, F.S.B. (the "Bank") and
__________________, as [Owner] Trustee, and will issue $____________ aggregate
principal amount of [Class A-1] [Floating Rate] [ %] Auto Receivables Backed
Notes (the ["A-1 Notes"]) and $____________ aggregate principal amount of [Class
A-2] [Floating Rate] [ %] Auto Receivables Backed Notes (the ["A-2 Notes"] and,
together with the [A-1 Notes], the "Notes"). The Notes will be issued pursuant
to an Indenture, to be dated as of ____________, 199__ (the "Indenture"),
between the Trust and __________________, as Indenture Trustee. The Trust will
also issue $____________ aggregate principal amount of [Floating Rate] [ %] Auto
Receivables Backed Certificates (the "Certificates" and, together with the
Notes, the "Securities"). The assets of the Trust will consist of any
combination of retail installment sales and finance contracts between
manufacturers, dealers or certain other originators and retail purchasers
secured by new and used automobiles, light duty trucks and vans financed
thereby, or participation interests therein,] all monies relating thereto (the
"Contracts"), the underlying new and used automobiles, light duty trucks and
vans (the "Vehicles," together with the Contracts, the "Receivables"), and the
proceeds thereof received by the Trust from the Bank on or prior to the date of
the issuance of the Notes and the Certificates. The Bank will acquire the
Receivables from _________________________ (the "Originators") concurrently with
their transfer to the Issuer. The Notes will be secured by the assets of the
Trust pursuant to the Indenture.
Capitalized terms used herein are defined terms having specific meanings.
An "Index of Defined Terms" is set forth as page ___ hereto, which indicates the
page on which such defined terms are defined.
THE RIGHTS OF THE HOLDERS OF THE CERTIFICATES WILL BE SUBORDINATED TO THE
RIGHTS OF THE HOLDERS OF THE NOTES, AS SET FORTH HEREIN UNDER "DESCRIPTION OF
THE TRANSFER AND SERVICING AGREEMENT -- DISTRIBUTIONS".
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" AT PAGE ___ HEREIN AND AT PAGE ___ IN THE PROSPECTUS.
---------------------
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF
THE BANK, THE SERVICER, THE ORIGINATOR OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE NOTES NOR THE CERTIFICATES OR THE RECEIVABLES ARE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY. SEE ALSO "RISK
FACTORS."
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.
---------------------
S-1
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Initial Public Underwriting Proceeds to the
Offering Price(1) Discount(2) Issuer(1)(3)
- ---------------------=================----===========-------============--------
<S> <C> <C> <C>
[Per A-1 Note].....
[Per A-2 Note].....
[Per Certificate]..
Total..............
- --------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from ______________________, 199__.
(2) The Bank has agreed to indemnify the Underwriter(s) against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $____________ payable by the Issuer.
--------------------
[The Notes are offered by __________________ and the Certificates are
offered by __________________ (collectively, the "Underwriter[s]"), subject to
prior sale, when, as and if issued to and accepted by the Underwriter(s) and
subject to the approval of certain legal matters by Dewey Ballantine, counsel
for the Underwriter(s). It is expected that delivery of the Notes will be made
only in book-entry form through the Same Day Funds Settlement System of The
Depository Trust Company on or about ____________, 199__. It is expected that
the Certificates will be ready for delivery in New York, New York on or about
____________, 199__.]
--------------------
[Name(s) of the Underwriter(s)]
<PAGE>
Interest on both the [A-1 Notes] and the [A-2 Notes] will be payable
[monthly] on or about the [15th] day of each [month] (each a "Payment Date")
commencing on ____________, 199__. Principal of the Notes will be payable on
each Payment Date to the extent described herein; provided, however, that no
principal payments in respect of the [A-2 Notes] will be made until the [A-1
Notes] have been paid in full.
The final scheduled payment date for the [A-1 Notes] will be
____________, 199__, and the final scheduled payment date for the [A-2 Notes]
will be ____________, 199__. However, the actual payment in full of the [A-1
Notes] and the [A-2 Notes] could occur sooner.
The interest rate for the [A-1 Notes] will be [__% per annum] [set for
each Payment Date to LIBOR (as defined herein) [minus] [plus] ______%]. The
interest rate for the [A-2 Notes] will be [______% per annum] [set for each
Payment Date to LIBOR [minus] [plus] __%], except as otherwise described herein.
The [A-1 Notes] [A-2 Notes] may be subject to redemption in whole, but
not in part, on any Payment Date if the Servicer exercises its option to
purchase the Receivables when the aggregate principal amount of the Receivables
is reduced to less than ______% of the initial Pool Balance of the Receivables
assigned to the Trust.
The Certificates represent fractional undivided interests in the Trust.
Principal, to the extent described herein, and interest, to the extent of the
Pass-Through Rate which is [__% per annum] [generally equal to ______% per annum
plus an amount equal to the product of ______ multiplied by LIBOR, subject to a
maximum rate described herein,] will be distributed on each Payment Date,
commencing on ____________, 199__. The final scheduled payment date for the
Certificates will be ____________, 199__.
The Issuer will be a newly formed limited-purpose [____________] business
trust and will generally be prohibited from incurring any indebtedness other
than the Notes, and its assets will include the Receivables, the Collection
Account, the Note Distribution Account, the Certificate Distribution Account,
the Reserve Account, the [Class A-1] Maturity Account and the [Class A-2]
Lockout Account.
Prospective investors should consider the factors set forth under "Risk
Factors" herein and 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.
-----------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER(S) MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES
AND THE CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
-----------------------
S-3
<PAGE>
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes are issued, periodic 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. 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 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 thereunder and as are otherwise agreed to by the Commission. Copies
of such periodic reports may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
S-4
<PAGE>
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus.
Issuer............. Chevy Chase Auto Receivables Finance Trust 199__-__, a
business trust organized under the laws of the state of
____________ (the "Trust" or the "Issuer").
Bank............... Chevy Chase Bank, F.S.B. (the "Bank"), a federally
chartered stock savings bank. The principal executive
offices of the Bank are located at 8401 Connecticut
Avenue, Chevy Chase, Maryland 20815, and its telephone
number is (301) 986-7000.
Servicer........... Chevy Chase Bank, F.S.B. (the "Servicer"), a federally
chartered stock savings bank. The principal executive
offices of the Servicer are located at 8401 Connecticut
Avenue, Chevy Chase, Maryland 20815, and its telephone
number is (301) 986-7000.
Originator......... __________________________ (the "Originator"). The
principal executive offices of the Originator are located
at ______________________________ and its telephone number
is ________________.
Indenture Trustee.. __________________, as indenture trustee under the
Indenture (the "Indenture Trustee"). The principal
executive offices of the Indenture Trustee are located at
_______________, and its telephone number is ___________.
[Owner] Trustee.... __________________, as trustee under the Trust Agreement
(the "[Owner] Trustee"). The principal executive offices
of the [Owner] Trustee are located at
____________________________________, and its telephone
number is ________________.
Cut-off Date....... ______________, 19__.
Closing Date....... ______________, 19__.
The Notes.......... [Class A-1] [Floating Rate] [____%] Auto Receivables
Backed Notes (the ["A-1 Notes"]) in the aggregate
principal amount of $____________ and [Class A-2]
[Floating Rate] [______%] Auto Receivables Backed Notes
(the ["A-2 Notes"] and, together with the [A-1 Notes], the
"Notes") in the aggregate principal amount of
$____________.
The Notes will be available for purchase in denominations
of [$1,000] and integral multiples thereof in book-entry
form only. The Noteholders will not be entitled to receive
a Definitive [A-1 Note] or a Definitive [A-2 Note], as the
case may be, except in the event that Definitive [A-1
Notes] and Definitive [A-2 Notes] are issued in the
limited circumstances described herein or in the
Prospectus. See "Description of the Securities--Definitive
Notes" in the Prospectus. The Notes will be issued
pursuant to an Indenture to be dated as of ____________,
199__ (the "Indenture") between the Issuer and the
Indenture Trustee.
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S-5
<PAGE>
- --------------------------------------------------------------------------------
The Certificates........... [Floating Rate] [____%] Auto Receivables Backed
Certificates (the "Certificates") in the aggregate
principal amount of $____________ will be offered.
The Bank will purchase the remaining $____________
principal amount of the Certificates. The
Certificates will be available for purchase in
denominations of $100,000 and integral multiples of
$100,000 in excess thereof.
[The Certificates will be issued in fully
registered, certificated form ("Definitive
Certificates") to Certificateholders or their
nominees.] The Certificates will be issued pursuant
to a Trust Agreement to be dated as of
____________, 199__ (the "Trust Agreement") between
the Bank and the [Owner] Trustee, acting thereunder
not in its individual capacity but solely as
trustee of the Trust. Purchasers of Certificates
and their assignees must represent that they are
United States persons.
The Trust.................. The Trust will be a trust established under the
laws of the State of ________. The activities of
the Trust are limited by the terms of the Trust
Agreement to purchasing, owning and managing the
Receivables, issuing and making payments on the
Notes and the Certificates and other activities
related thereto. The property of the Trust includes
(i) the Receivables, (ii) all monies (including
accrued interest) due thereunder on or after the
Cut-off Date, (iii) such amounts as from time to
time may be held in one or more accounts
established and maintained by the Servicer pursuant
to the Pooling and Servicing Agreement among the
Seller, the Servicer and the Trustee (the "Pooling
Agreement"), as described below, [(iv) the security
interests in the Vehicles, (v) the rights to
proceeds from claims on physical damage, credit
life and disability insurance policies, if any,
covering Vehicles or Obligors, as the case may be,
(vi) any proceeds of repossessed Vehicles,] (vii)
the rights of the Bank under the agreement pursuant
to which the Bank is acquiring the Receivables (the
"Receivables Acquisition Agreement") and (viii)
interest earned on short-term investments made by
the Trust.
Receivables................ The Receivables consist of noncancelable retail
installment sales and finance contracts between
manufacturers, dealers or certain other originators
and retail purchasers secured by new and used
automobiles light duty trucks and vans financed
thereby or participation interest therein.] Each
Obligor's obligation under its Contract is a full
recourse obligation. The "Obligor" is the obligor
under each Contract including any guarantor. The
Contracts contain provisions which unconditionally
obligate the Obligor to make all payments thereon
(the "Contract Payments").
[All of the Contracts were purchased by the Bank
from the Originators in the ordinary course of
business and the Contracts constitute substantially
all of the automobile, light duty truck and van
retail installment sale and finance contracts
included in the Originators' portfolio meeting the
selection criteria described herein. Such selection
criteria included that: (i) each Contract is
secured by a new or used automobile or light duty
truck; (ii) each Contract was originated in the
United States; (iii) each Contract provides for
level monthly payments that fully amortize the
amount financed over its original term except that
the payment in the first or last month in the
- --------------------------------------------------------------------------------
S-6
<PAGE>
- --------------------------------------------------------------------------------
life of the Contract may be minimally different
from the level payment, and a minimal number of the
Contracts provide for monthly payments for a period
of time not exceeding one year after origination in
an amount less than such level payment, provided
that as of the Cutoff Date the monthly payment
currently due under each such Contract is equal to
such level payment; (iv) each Contract was
originated on or prior to _______, 199_; (v) each
Contract has an original term of __ to __ months
and, as of the Cutoff Date, had a remaining term to
maturity of not less than three months nor more
than __ month; (vi) each Contract provides for the
payment of a finance charge at an APR ranging from
__% to __%; (vii) each Contract shall not have a
Scheduled Payment that is more than __ days past
due as of the Cutoff Date; (viii) no Contract shall
be due, to the best knowledge of the related
Originator, from any Obligor who is presently the
subject of a bankruptcy proceeding or is bankrupt
or insolvent; (ix) no Vehicle has been repossessed
without reinstatement as of the Cutoff Date; and
(x) as of the Cutoff Date, physical damage
insurance relating to each Vehicle is not being
force-placed by the Servicer.]
[As of the Cutoff Date, approximately __%,
approximately __% and approximately __% of the
Aggregate Discounted Contract Balance are expected
to represent Contracts secured by automobiles,
light duty trucks and vans, respectively. Based on
the Aggregate Discounted Contract Balance,
approximately __% and approximately __% of the
Contracts are expected to represent financing of
new vehicles and used vehicles, respectively, and
no more than __% of the Contracts are expected to
be due from employees of the Originators or any of
its respective affiliates. As of the Cutoff Date,
the average Principal Balance of Contracts secured
by automobiles, light duty trucks and vans is
expected to be approximately $_____, approximately
$_____ and approximately $_____, respectively. The
majority of the Vehicles are expected to be foreign
and domestic automobiles, light duty trucks and
vans. Except in the case of any breach of
representations and warranties by the Originator,
it is expected that none of the Contracts provide
for recourse to the Originator who originated the
related Contract.] Approximately _____% of the
Receivables (by aggregate principal balance of the
Receivables as of the Cut-Off Date) were purchased
or originated by the Bank and the other _____% of
the Receivables were purchased or originated by the
Bank's wholly-owned subsidiary, Consumer Finance
Corporation ("CFC"). The Receivables purchased or
originated by CFC are referred to herein as the
"CFC Receivables."
The "Pool Balance" at any time represents the
Discounted Contract Balance of the Receivables at
the end of the preceding Collection Period after
giving effect to all payments received from
Obligors, and any other amounts to be remitted by
the Servicer or the Bank, as the case may be, all
for such preceding Collection Period and all losses
realized on Receivables liquidated during such
preceding Collection Period.
Terms of the Notes:
A. Interest Payments....... Interest on the outstanding principal amount of the
Notes will accrue from and including the Closing
Date, or from and including the most recent Payment
Date on which interest has been paid to but
excluding
- --------------------------------------------------------------------------------
S-7
<PAGE>
- --------------------------------------------------------------------------------
the following Payment Date and will be payable
[monthly] on the [___] day of each [month] or, if
any such date is not a Business Day, on the next
succeeding Business Day (each a "Payment Date")
commencing _______________, 199__, to the holders
of record of the [A-1 Notes] (the ["A-1
Noteholders"]) and the holders of record of the [A-
2 Notes] (the ["A-2 Noteholders"]; together with
the [A-1 Noteholders], the "Noteholders", in each
case as of the [____] day of the calendar month in
which such Payment Date occurs (the "Note Record
Date"). Interest shall be calculated on the basis
of a year of 360 days, in each case for the actual
number of days occurring in the period for which
such interest is payable.
[On each Payment Date, the per annum interest rate
for the [A-1 Notes] [A-2 Notes] (the "[A-1 Note]
[A-2 Note] Interest Rate") will be a rate equal to
the London interbank offered rate for one-month
United States dollar deposits ("LIBOR") as of the
second LIBOR Business Day prior to the immediately
preceding Payment Date (or, in the case of the
initial Payment Date, the second LIBOR Business Day
prior to the Closing Date) [minus] [plus] ______%.
See "Description of the Notes--The [A- 1 Notes] [A-
2 Notes]" herein.]
[On each Payment Date, the per annum interest rate
for the [A-1 Notes] [A-2 Notes] (the "[A-1 Note]
[A-2 Note] Interest Rate") will be _______, but
shall not exceed, subject to a minimum rate, the
Receivables Rate borne by the Receivables for the
Collection Period preceding such Payment Date less
the Servicing Fee Rate; provided, however, that, to
the extent that the interest paid to the [A-1
Noteholders] [A-2 Noteholders] is less than ___%
per annum, the difference between the amount paid
and ___% per annum shall be payable on subsequent
Payment Dates as [Class A-1] [Class A-2]
Noteholders' Interest Carryover Amount. See
"Description of the Notes--The [A-1 Notes] [A-2
Notes]" herein.
B. Principal Payments...... Principal of the Notes will be payable on each
Payment Date in an amount calculated as a
percentage of the Principal Distribution Amount for
such Payment Date to the extent of funds available
therefor as described herein. The Principal
Distribution Amount for a Payment Date will be
based upon decreases in the present value of the
scheduled and unpaid payments on the Receivables
(the "Note Value") of the Receivables and/or
collections on and losses in respect of the
principal of the Receivables during the related
Collection Period. "Collection Period" means, with
respect to the first Payment Date, the period from
the Cut-off Date through the ____ fiscal month(s)]
ending on _______________, 199_ and with respect to
each subsequent Payment Date, the Collection Period
means the [____ fiscal month(s)] immediately
following the previous Collection Period. See
"Description of the Transfers and Servicing
Agreements-Distributions" herein.
On each Payment Date, principal of the [A-1 Notes]
will be payable in an amount equal to 100% of the
Principal Distribution Amount and, on and after the
latest of (i) the Payment Date on which the [A-1
Notes] have been paid in full, (ii) the
_______________, 199_ Payment Date and (iii) the
Payment Date on which the lesser of the full amount
of the funds withdrawn from the Reserve Account in
order to pay the [A-1 Noteholders'] Monthly
Principal Distributable Amount on the ________,
- --------------------------------------------------------------------------------
S-8
<PAGE>
- --------------------------------------------------------------------------------
19___ Payment Date (the "Maturity Draw") and the
amount of the Maturity Draw, if any, necessary to
increase the amount on deposit in the Reserve
Account to the amount required to be on deposit in
the Reserve Account (the "Specified Reserve Account
Balance") has been deposited into the Reserve
Account, principal of the [A-2 Notes] will be
payable in an amount equal to the [A-2
Noteholders'] Percentage of the Principal
Distribution Amount for such Payment Date, less any
portion thereof applied on such Payment Date to
reduce the outstanding principal amount of the [A-1
Notes] to zero and any portion thereof deposited on
such date to the Reserve Account in respect of a
Maturity Draw. See "Description of the Transfer and
Servicing Agreement--Distributions" herein.
The Servicer will calculate the [A-2 Noteholders']
Percentage in the manner described under
"Description of the Transfer and Servicing
Agreement--Distributions" herein.
The outstanding principal amount, if any, of the
[A-1 Notes] will be payable in full on
_______________, 199__ (the "[A-1] Final Scheduled
Payment Date") and the outstanding principal
amount, if any, of the [A-2 Notes] will be payable
in full on _______________, ______ (the "[A-2]
Final Scheduled Payment Date").
C. Optional Redemption.... The [A-2 Notes] may be redeemed in whole, but not
in part, on any Payment Date after the [A-1 Notes]
have been paid in full if the Servicer exercises
its option to purchase the Receivables when the
aggregate principal amount of the Receivables is
less than ___% of the initial Pool Balance, at a
redemption price (the "[A-2] Redemption Price")
equal to the unpaid amount of the [A-2 Notes], plus
accrued and unpaid interest thereon.
Terms of the Certificates:
A. Pass-Through Rate...... A rate equal to [__%] [the sum of ______% per annum
plus an amount equal to the product of ______
multiplied by LIBOR as of the second LIBOR business
day prior to the immediately preceding Payment Date
(or, in the case of the initial Payment Date, the
second LIBOR business day prior to the Closing
Date)]; provided, however, that on and after the
_______________, 199__ Payment Date, if the
aggregate amount of Realized Losses during the
period from the Cut-off Date through the end of the
fiscal month ending in ________, 199___ is an
amount, expressed as a percentage, that is (x)
_____% or less (but greater than _____%) of the
Pool Balance as of the Cut-off Date, the Pass-
Through Rate (as determined in the clause preceding
this proviso) for any Payment Date shall be
increased by _____% per annum or (y) _____% or less
of the Pool Balance as of the Cut-off Date, the
Pass-Through Rate (as determined in the clause
preceding this proviso) for any Payment Date shall
be increased by _____% per annum; provided,
further, that notwithstanding the preceding
proviso, the Pass-Through Rate shall be subject to
a maximum rate based on the applicable weighted
average Receivable Rate borne by the Receivable;
for the Collection Period preceding such Payment
Date less the Servicing Fee Rate.
B. Interest............... On each Payment Date, the [Owner] Trustee shall
distribute pro rata to the holders of record of the
Certificates (the "Certificateholders" and
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S-9
<PAGE>
- --------------------------------------------------------------------------------
together with the Noteholders, the
"Securityholders") as of the [last day] of the
immediately preceding [calendar month] (the
"Certificate Record Date") interest at the Pass-
Through Rate on the Certificate Balance as of the
preceding Payment Date (after giving effect to
distributions made on such date) generally to the
extent of funds available therefor following
payment of the Servicing Fee and distributions in
respect of the Notes. Interest for a Payment Date
will accrue from and including the most recent
Payment Date on which interest has been paid (or,
in the case of the first Payment Date, from the
Closing Date) to but excluding such current Payment
Date and will be calculated on the basis of a year
of 360 days, in each case for the actual number of
days occurring in the period for which such
interest is payable. In addition,
Certificateholders will receive on each Payment
Date, if on such Payment Date the amount on deposit
in the Reserve Account, after giving effect to all
withdrawals and deposits required to be made on
such Payment Date, exceeds the Specified Reserve
Account Balance, an amount equal to the lesser of
(1) such excess and (2) [one-twelfth] of the
product of (a) [___%] of the excess, if any, of (i)
the amount of the positive spread, if any, between
the Base Rate in effect on the date that LIBOR for
such Payment Date is established and LIBOR for such
Payment Date over (ii) _____% times (b) [___%] of
the Certificate Balance on the preceding Payment
Date.
C. Principal.............. Principal of the Certificates will be payable on
each Payment Date on and after the latest of (i)
the Payment Date following the Payment Date on
which the [A-1 Notes] have been paid in full, (ii)
the _______________, 199___ Payment Date and (iii)
the Payment Date following the Payment Date on
which the lesser of the full amount of the Maturity
Draw or the amount of the Maturity Draw, if any,
necessary to increase the amount on deposit in the
Reserve Account to the Specified Reserve Account
Balance is deposited into the Reserve Account, in
an amount generally equal to the
Certificateholders' Principal Distributable Amount
for the Collection Period preceding such Payment
Date, to the extent of funds available therefor
following payment of the Servicing Fee and
distributions of interest and principal in respect
of the Notes and interest in respect of the
Certificates. The Certificateholders' Principal
Distributable Amount generally will be based on the
Certificateholders' Percentage of the Principal
Distribution Amount, which for any Payment Date
will be based upon decreases in the Note Value of
the Receivables and/or collections on and losses in
respect of the principal of the Receivables during
the related Collection Period. See "Description of
the Transfer and Servicing Agreements--
Distributions" herein.
The outstanding amount, if any, of the Certificates
will be payable in full on _______________, 199__.
D. Optional Purchase....... If the Servicer exercises its option to purchase
the Receivables when the aggregate principal amount
of the Receivables is less than _____% of the Pool
Balance as of the Cut-off Date, the
Certificateholders will receive an amount in
respect of the Certificates equal to the
Certificate Balance together with accrued interest
at the Pass-Through Rate and the Certificates will
be retired. See "Description of the Certificates--
Optional Purchase" herein.
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S-10
<PAGE>
- --------------------------------------------------------------------------------
Reserve Account............ The Servicer will be obligated to deposit into the
Collection Account an amount equal to the sum of
the interest due, but not collected, with respect
to delinquent Receivables during the prior
Collection Period, but only if, in its good faith
business judgment, the Servicer believes that such
amount will ultimately be recovered from the
related Receivable. Such amounts are "Delinquency
Interest Advances." Delinquency Interest Advances
may be funded by the Servicer from subsequent
collections on the Receivables generally, and are
reimbursable from (i) future collections on the
Receivable which gave rise to the Delinquency
Interest Advance and (ii) Net Liquidation Proceeds
for such Mortgage Loan. See "Description of the
Transfer and Servicing Agreements--Reserve Account"
herein.
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 Indenture Trustee (the
"Collection Account"). Pursuant to the Pooling
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, except as otherwise described herein, such
funds on each Payment 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 Noteholders'
Interest Distributable Amount (which is an amount
generally equal to the aggregate amount of accrued
interest on the Notes), the [A-1] Noteholders'
Principal Distributable Amount and the [A-2]
Noteholders' Principal Distributable Amount into
the Note Distribution Account, (iii) the
Certificateholders Interest Distributable Amount
into the Certificate Distribution Account, (iv) the
Certificateholders' Principal Distributable Amount
into the Certificate Distribution Account, (v) an
amount necessary to make the amount on deposit in
the Reserve Account equal to the Specified Reserve
Account Balance into the Reserve Account, (vi) the
[Class A-2] Noteholders' Interest Carryover Amount
into the Note Distribution Account and (vii) the
remaining balance, if any, to the Reserve Account
for distribution in accordance with the Pooling
Agreement. See "Description of the Transfer and
Servicing Agreements--Distributions" and "--Reserve
Account" herein.
Yield Maintenance Account.. Certain of the Receivables have annual contract
rates of interest ("Receivables Rates") which are
less than the sum of the Certificate Rate, the
Servicing Fee Rate and the rates at which the
Certificate Insurer's premium and the Trustee's fee
are calculated (the sum of such rates, the
"Required Rate"). The Yield Maintenance Account is
a segregated trust account which will not be part
of the Trust into which the Issuer will make a
single deposit on the Closing Date in an amount
(the "Initial Yield Maintenance Amount") necessary
to fund any shortfall on interest collections which
results from Receivables having Receivables Rates
of less than the Required Rate. After the Closing
Date no additional amounts will be deposited in the
Yield Maintenance Account. The Initial Yield
Maintenance Amount has been calculated using a zero
prepayment rate on the Receivables. On each
Determination Date, the Servicer is permitted to
recalculate the amount required to be on deposit in
the Yield Maintenance Account (the "Yield
Maintenance Amount"), which may decline as
Receivables
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S-11
<PAGE>
- --------------------------------------------------------------------------------
having less than the Required Rate prepay or are
otherwise removed from the Trust. Any amounts in
excess of the Yield Maintenance Amount will be
released to the Issuer. Amounts may be withdrawn
from the Yield Maintenance Account only with
respect to the interest shortfalls described above.
Any excess funds in the Yield Maintenance Account
will be released to the Issuer.
Servicing................ The Servicer will be responsible for servicing,
managing, arranging, making collections on and
otherwise enforcing the Contracts. The Servicer
will be required to exercise the degree of skill
and care in performing these functions that it
customarily exercises with respect to similar
contracts owned by the Servicer. The Servicer will
be entitled to receive a monthly fee (the
"Servicing Fee") of the product of (i) one-twelfth,
(ii) ___% (the "Servicing Fee Rate") and (iii) the
Aggregate Discounted Contract Balance as of the
beginning of the previous Collection Period,
payable out of the Collection Account, plus late
payment fees and certain other fees paid by the
Obligors ("Servicing Charges") and investment
earnings on amounts held in the Collection Account
("Investment Earnings"), as compensation for acting
as Servicer.
Except as hereinafter provided, on the day prior to
any Payment Date, the Servicer will be required to
make an advance (a "Servicer Advance") to the
Indenture Trustee in an amount sufficient to cover
all amounts due and unpaid on any Delinquent
Contract as of the previous Determination Date
("Delinquency Amounts"). A "Delinquent Contract"
will mean, as of any Determination Date, any
Contract (other than a Contract which became a
Defaulted Contract prior to such Determination
Date) with respect to which the Obligor has not
paid all Contract Payments then due. With respect
to any Delinquent Contract, whenever the Servicer
shall have determined that it will be unable to
recover a Delinquency Amount or portion thereof on
such Delinquent Contract, the Servicer shall not be
required to make a Servicer Advance on such
unrecoverable Delinquency Amount or portion
thereof, but will be required to enforce its
remedies (including acceleration) under such
Contract. Furthermore, if at any time the
Originator is no longer the Servicer, no Servicer
Advances will be required. In the event that the
Servicer determines that any Servicer Advances
previously made are not recoverable (the
"Nonrecoverable Advances"), or any Delinquent
Contracts for which the Originator has made
advances of Delinquency Amounts in respect thereof
become Defaulted Contracts, then the Indenture
Trustee shall have the right to draw on the
Collection Account and the Reserve Account to repay
such Servicer Advances.
Under the Pooling Agreement, a Contract will
constitute a "Defaulted Contract" at the earlier of
the date on which (i) [four] Contract Payments are
due and unpaid as of any Calculation Date or (ii)
the Servicer has declined to advance any delinquent
Contract Payment in accordance with Section ____ of
the Pooling Agreement on the grounds that such
advance would be a Nonrecoverable Advance or (iii)
such Contract has been rejected by or on behalf of
the Obligor in a bankruptcy proceeding.
- --------------------------------------------------------------------------------
S-12
<PAGE>
- --------------------------------------------------------------------------------
Under certain limited circumstances, the Servicer
may resign or be removed, in which event the
Indenture Trustee will be appointed as successor
Servicer.
The Servicer will be required to cause amounts
collected on the Contracts on behalf of the Issuer
to be deposited in an eligible deposit account in
the name of the Indenture Trustee on behalf of the
[A-1 Noteholders] (the "[Class A-1] Maturity
Account") and in an eligible deposit account in the
name of the Indenture Trustee on behalf of the [A-2
Noteholders] (the "[Class A-2] Lockout Account")
maintained by the Trustee in accordance with the
Pooling Agreement. See "Description of Transfer and
Servicing Agreement -- Accounts", -- "[Class A-1]
Maturity Account]" and -- "[Class A-2 Lockout
Account]" herein.
Certain Legal Aspects
of the Contracts
and the Vehicles.......... The Issuer will be required to take such action as
is required to perfect the Indenture Trustee's
security interest in the Contracts, the Contract
Payments [and the Vehicles] as of the Closing Date,
or in any event, within [___(__)] days from the
date thereof. The Issuer will warrant that the
Indenture Trustee will have a first priority
perfected security interest in the Contracts, the
Contract Payments [and the Vehicles] owned by the
Issuer, [and a perfected security interest in the
Vehicles owned by Obligors,] except for certain
liens which by operation of law have priority over
previously perfected security interests, and, with
certain exceptions, in the proceeds thereof. If
there are any Vehicles as to which the Issuer
failed to obtain a perfected security interest, its
security interest would be subordinate to, among
others, subsequent purchasers of the Vehicles and
holders of perfected security interests. Pursuant
to the Pooling Agreement, the Issuer will assign
its security interests in the Vehicles to the
Trustee. Under the laws of Virginia, Georgia and
North Carolina, such an assignment of security
interests may not be, and under the laws of
Maryland will not be, sufficient to convey to the
Trustee perfected security interests in the
Vehicles. The Issuer will covenant in the Pooling
Agreement to repurchase any Receivable if, on the
Closing Date, a valid, subsisting and enforceable
first priority security interest in the related
Vehicle, which will have been assigned to the
Trust, has not been perfected (or is not in the
process of being perfected) in favor of the
applicable Originator. The Issuer will also
covenant in the Pooling Agreement to repurchase any
Receivable if, after the Closing Date, a valid,
subsisting and enforceable first priority security
interest in the name of the applicable Originator
is not maintained on behalf of the Trust in the
related Vehicle. The Indenture Trustee will act as
custodian of the Receivables on behalf of the [A-1
Noteholders], [the A-2 Noteholders] and the
Certificateholders.
Federal Income Tax
Consequences............... In the opinion of Dewey Ballantine, counsel for the
Trust, the Notes will be characterized as debt for
federal income tax purposes and the Trust will not
be characterized as an association (or a publicly
traded partnership) taxable as a corporation. The
Certificateholders (including the Bank) will agree
to treat the Trust as a partnership in which they
are partners for purposes of federal and state
income tax,
- --------------------------------------------------------------------------------
S-13
<PAGE>
- --------------------------------------------------------------------------------
franchise tax and any other income tax, with the
assets of the partnership being the assets held by
the Trust, the partners of the partnership being
the Certificateholders and the Notes being debt of
the partnership. Alternative characterizations of
the Trust and the Securities are possible, as more
fully described herein. See "Federal Income Tax
Consequences" and "State Tax Consequences" herein
for information regarding the application of
federal and [__________] tax laws to the Securities
and the Trust.
ERISA Considerations....... The acquisition of Notes or Certificates by an
employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA") or the provisions of Section 4975 of the
Code (the "Plan"), could result in a prohibited
transaction under "ERISA" or Section 4975 of the
Code, unless such acquisition is subject to a
statutory or administrative exemption, if, by
virtue of such acquisition, assets held by the
Issuer and pledged to the Indenture Trustee were
deemed to be assets of the Plan. In addition, the
Issuer or other parties may be considered to be a
fiduciary with respect to any Plan. Therefore, the
acquisition and transfer of the Notes or
Certificates are subject to certain restrictions.
See "ERISA Considerations."
Rating of the Securities... It is a condition to the issuance of the Notes that
the [A-1 Notes] be rated in the _____ rating
category, the [A-2 Notes] be rated in the [_____
rating category] and the Certificates be rated at
least [___] or its equivalent, in each case by at
least two nationally recognized rating agencies.
There is no assurance that a rating will not be
lowered or withdrawn by a rating agency based on a
change in circumstances deemed by such rating
agency to adversely affect the Securities. A
security rating is not a recommendation to buy,
sell or hold securities, inasmuch as such rating
does not comment as to market price or suitability
for a particular investor. The ratings of the
Securities are also based on the rating of the
security insurer. Upon a security insurer default,
the rating on the Securities may be lowered or
withdrawn entirely. In the event that any rating
initially assigned to the Securities were
subsequently lowered or withdrawn for any reason,
including by reason of a downgrading of the
security insurer's claims-paying ability, no person
or entity will be obligated to provide any
additional credit enhancement with respect to the
Securities. Any reduction or withdrawal of a rating
will have an adverse effect on the liquidity and
market price of the Securities. See "Ratings."
Risk Factors............... For a discussion of certain factors that should be
considered by prospective investors in the Notes
and Certificates, see "Risk Factors" herein and in
the Prospectus.
Certain Legal Matters...... Certain legal matters relating to the validity of
the issuance of the Notes and Certificates will be
passed upon for the Issuer by Shaw, Pittman, Potts
& Trowbridge, Washington, D.C. and for the
Underwriter by Dewey Ballantine, New York, NY.
- --------------------------------------------------------------------------------
S-14
<PAGE>
RISK FACTORS
In addition to those factors described under "Risk Factors" in the
Prospectus, Securityholders should consider, among other things, the following
factors in connection with the purchase of the Notes and the Certificates:
Risk of Losses on Investment Associated with Limited Obligations of
the Trust. Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
The Certificateholders will not receive any distributions with respect to a
Payment Date until the full amount of interest on and principal of the Notes on
such Payment Date has been deposited in the Note Distribution Account. The
Trust does not have, nor is it permitted or expected to have, any significant
assets or sources of funds other than the Receivables and the Trust Accounts.
The Securities represent solely obligations of, or interests in, the Trust and
the Securities will not be insured or guaranteed by the Bank, the Originator,
the Servicer, the [Owner] Trustee or any other person or entity. Consequently,
holders of the Securities must rely for repayment upon payments on the
Receivables and, if and to the extent available, amounts on deposit in the
Reserve Account. Amounts to be deposited in the Reserve Account are limited in
amount, and the amount required to be on deposit in the Reserve Account will be
reduced as the Pool Balance is reduced. In addition, funds in the Reserve
Account will be available on each Payment Date to cover shortfalls in
distributions of interest and principal on the Notes prior to the application
thereof to cover shortfalls on the Certificates. If the Reserve Account is
exhausted, the Trust will depend solely on current payments on the Receivables
to make payments on the Securities. Although the Trust will covenant to sell
the Receivables if directed to do so by the Indenture Trustee in accordance with
the Indenture following an acceleration of the Notes upon an Event of Default,
there is no assurance that the market value of the Receivables will at any time
be equal to or greater than the aggregate principal amount of outstanding Notes.
Therefore, upon an Event of Default with respect to the Notes there can be no
assurance that sufficient funds will be available to repay Noteholders in full
and consequently the Noteholders run the risk of loss on their investment. In
addition, the amount of principal required to be distributed to Noteholders
under the Indenture is generally limited to amounts available therefor in the
Note Distribution Account. Therefore, the failure to pay principal on the Notes
may not result in the occurrence of an Event of Default until the [A-1] Final
Scheduled Payment Date or the [A-2] Final Scheduled Payment Date.
Risk of Limited Liquidity and Lower Market Price Associated with a
Reduction or Withdrawal of Ratings of the Securities. It is a condition to the
issuance of the Notes and the Certificates that the [A-1 Notes] be rated in the
[_____] rating category, the [A-2 Notes] be rated in the [____] rating category
and the Certificates be rated at least [___] or its equivalent, in each case by
at least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell Securities, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. The rating of the Securities addresses the likelihood of the timely
payment of interest on and the ultimate repayment of principal of the Securities
pursuant to their terms. There is 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 rating of the Notes is based primarily on the creditworthiness of
the Receivables, the subordination provided by the Certificates and the
availability of funds in the Reserve Account. The rating of the Certificates is
based primarily on the creditworthiness of the Receivables and the availability
of funds in the Reserve Account. The ratings of the Securities are also based
on the rating of the Credit Enhancer. Upon a Credit Enhancer default, the
rating on the Securities may be lowered or withdrawn entirely. In the event
that any rating initially assigned to the Securities were subsequently lowered
or withdrawn for any reason, including by reason of a downgrading of the Credit
Enhancer's claims-paying ability, no person or entity will be obligated to
provide any additional credit enhancement with respect to the Securities. Any
reduction or withdrawal of a rating will have an adverse effect on the liquidity
and market price of the Securities. See "Ratings."
[Risk of Reduced Rate of Return Associated with Relationship Between
Base Rate and LIBOR. Allocations of payments on the variable rate Receivables
to principal and interest depend upon the applicable Base Rate. Interest on the
[A-1 Notes], [A-2 Notes] and [the Certificates] accrues at a rate generally
based upon LIBOR. These two rates can and will vary with respect to each other.
Historically, they have increased or decreased roughly in tandem and, during the
last ten years, LIBOR always has
S-15
<PAGE>
remained below the Base Rate. However, no assurance can be given that these
historical trends will continue. There is a risk that if LIBOR were to more
above the Base Rate, the spread used to pay interest to the Securityholders
would disappear and the rate of return to investors would be reduced.]
[The variable rate Receivables bear interest at the Base Rate plus a
Base Rate Additive ranging from _____% to _____%. Each of the [A-1 Note], [A-2]
Interest Rate and the [Pass-Through Rate] is based upon LIBOR. If, in respect
of any Payment Date, there does not exist a positive spread between the weighted
average of the Receivables Rate [A-1 Note Interest Rate] [the A-2 Note Interest
Rate] less the Servicing Fee Rate (such difference between the Receivables Rate
and the Servicing Fee Rate being the "Net Receivables Rate") for the Collection
Period preceding such Payment Date, on the one hand, and the [A-1 Note Interest
Rate], [the A-2 Note Interest Rate] [Pass-Through Rate] for such Payment Date
(calculated before giving effect to this sentence), on the other hand, then the
[Pass-Through Rate] for such Payment Date shall not exceed the Net Receivables
Rate.]
[Risk of Reduced Rate of Return Associated with Yield Considerations.
The Certificateholders will bear the risk associated with the possible narrowing
of the spread between the [A-1 Note Interest Rate] [the A-2 Note Interest Rate]
[Pass-Through Rate], and the Net Receivables Rate. If this spread disappears
(i.e., if the [A-1 Note Interest Rate] [the A-2 Note Interest Rate] [Pass-
Through Rate] exceeds or equals the Net Receivables Rate), the interest payable
on the [A-1 Notes] [A-2 Notes] [Certificates] for the related Payment Date will
not exceed such Net Receivables Rate. A substantial change in LIBOR at a time
when the Net Receivables Rate does not experience a similar change could result
in limiting the [A-1 Note Interest Rate] [A-2 Note Interest Rate] [Pass-Through
Rate] and consequently could reduce the rate of return to investors as described
above.]
Risk of Lower Yield Associated with Prepayment Considerations. If
purchased at other than par, the yield to maturity on the Securities will be
affected by the rate of the payment of principal of the Contracts. If the
actual rate of payments on the Contracts is slower than the rate anticipated by
an investor who purchases the Securities at a discount, the actual yield to such
investor will be lower than such investor's anticipated yield. If the actual
rate of payments on the Contracts is faster than the rate anticipated by an
investor who purchases the Securities at a premium, the actual yield to such
investor will be lower than such investor's anticipated yield.
[All of the Contracts are fixed-rate contracts. The rate of
prepayments with respect to conventional fixed contracts has fluctuated
significantly in recent years. In general, if prevailing interest rates fall
significantly below the interest rates on fixed rate contracts, such contracts
are likely to be subject to higher prepayment rates than if prevailing rates
remain at or above the interest rate on such contracts. However, the monthly
payment on contracts similar to the Contracts is often smaller than the monthly
payment on other types of consumer debt, for example, a typical mortgage loan.
Consequently, a decrease in the interest rate payable as a result of a
refinancing would result in a relatively small reduction in the amount of the
contracts monthly payment, as a result of the relatively small loan balance.
Conversely, if prevailing interest rates rise appreciably above the interest
rates on fixed rate contracts, such contracts are likely to experience a lower
prepayment rate than if prevailing rates remain at or below the interest rates
on such contracts. As of the Cut-off Date, ____% of the aggregate principal
balance of the Contracts had prepayment penalties.]
[All of the Contracts are adjustable rate contracts. As is the case
with conventional fixed rate contracts, adjustable rate contracts may be subject
to a greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly,
adjustable rate contracts could be subject to higher prepayment rates than if
prevailing interest rates remain constant because the availability of fixed-rate
contracts at competitive interest rates may encourage obligors to refinance
their adjustable rate contracts to "lock in" a lower fixed interest rate.
However, no assurance can be given as to the level of prepayments that the
contracts will experience. As of the Cut-off Date, ____% of the aggregate
principal balance of the Contracts had prepayment penalties.]
S-16
<PAGE>
THE RECEIVABLES
Contracts
[Description of collateral is transaction dependent - an example
of disclosure language is set forth below.]
[All of the Contracts were purchased by the Bank from the Originators
in the ordinary course of business and the Contracts constitute substantially
all of the automobile, light duty truck and van retail installment sale and
finance contracts included in the Originators' portfolio meeting the selection
criteria described herein. Such selection criteria included that: (i) each
Contract is secured by a new or used automobile, light duty truck or van; (ii)
each Contract was originated in the United States; (iii) each Contract provides
for level monthly payments that fully amortize the amount financed over its
original term except that the payment in the first or last month in the life of
the Contract may be minimally different from the level payment, and a minimal
number of the Contracts provide for monthly payments for a period of time not
exceeding one year after origination in an amount less than such level payment,
provided that as of the Cutoff Date the monthly payment currently due under each
such Contract is equal to such level payment; (iv) each Contract was originated
on or prior to _______, 199_; (v) each Contract has an original term of __ to __
months and, as of the Cutoff Date, had a remaining term to maturity of not less
than three months nor more than __ month; (vi) each Contract provides for the
payment of a finance charge at an APR ranging from __% to __%; (vii) each
Contract shall not have a Scheduled Payment that is more than 30 days past due
as of the Cutoff Date; (viii) no Contract shall be due, to the best knowledge of
the Originator, from any Obligor who is presently the subject of a bankruptcy
proceeding or is bankrupt or insolvent; (ix) no Vehicle has been repossessed
without reinstatement as of the Cutoff Date; and (x) as of the Cutoff Date,
physical damage insurance relating to each Vehicle is not being force-placed by
the Servicer.
Certain information with respect to the Receivables expected to be
sold by the Originators to the Bank pursuant to the Receivables Acquisition
Agreement and in turn transferred by the Bank to the Trust pursuant to the
Pooling Agreement is set forth below. The description of the Receivables
presented in this Prospectus Supplement is based upon the pool of Receivables as
it is expected to be constituted on the Cutoff Date. While information as of
the Closing Date for the Receivables that actually will be sold to the Trust may
differ somewhat from the information presented herein, the Bank does not expect
that the characteristics of the Receivables that are sold to the Trust will vary
materially from the information presented in this Prospectus Supplement
concerning the Receivables.
As of the Cutoff Date, approximately __%, approximately __% and
approximately __% of the Aggregate Discounted Contract Balance are expected to
represent Contracts secured by automobiles, light duty trucks and vans,
respectively. Based on the Aggregate Discounted Contract Balance, approximately
__% and approximately __% of the Contracts are expected to represent financing
of new vehicles and used vehicles, respectively, and no more than __% of the
Contracts are expected to be due from employees of the Originator or any of its
respective affiliates. As of the Cutoff Date, the average Principal Balance of
Contracts secured by automobiles, light duty trucks and vans is expected to be
approximately $_____, approximately $_____ and approximately $_____,
respectively. The majority of the Vehicles are expected to be foreign and
domestic automobiles, light duty trucks and vans. Except in the case of any
breach of representations and warranties by the related Originator, it is
expected that none of the Contracts provide for recourse to the Originator who
originated the related Contract.
Each Contract provides for fixed level monthly payments which will
amortize the full amount of the Contract over its term. The Contracts provide
for allocation of payments according to the "sum of periodic balances" or "sum
of monthly payments" method (the "Rule of 78s"). Each Contract provides for the
payment by the Obligor of a specified total amount of payments, payable in
monthly installments on the related due date, which total represents the
principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such Contract.
The rate at which such amount of finance charges is earned and, correspondingly,
the amount of each fixed monthly payment allocated to reduction of the
outstanding principal balance of the related Contract are calculated in
accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Contract and lower during later
S-17
<PAGE>
months than that under a constant yield method for allocating payments between
interest and principal. Notwithstanding the foregoing, all payments received by
the Servicer on or in respect of the Contract will be allocated pursuant to the
Pooling Agreement on an actuarial basis.
If an Obligor elects to prepay a Contract in full, it is entitled to a
rebate of the portion of the outstanding balance then due and payable
attributable to unearned finance charges, calculated in accordance with the Rule
of 78s. The amount of a rebate under a Contract calculated in this manner will
always be less than had such rebate been calculated on an actuarial basis.
Distributions to Noteholders and Certificateholders will not be affected by Rule
of 78s rebates under the Contract because pursuant to the Pooling Agreement such
distributions will be determined using the actuarial method.]
The expected composition, distribution by APR and geographical
distribution of the Contracts are as set forth in the following tables.
Expected Composition of the Contracts
<TABLE>
<S> <C>
Aggregate Discounted Contract Balance... $
Number of Contracts.....................
--
Average Original Principal Balance...... $
Range of Original Principal Balances.. $ to $
-- --
Weighted Average APR(1)................. %
--
Range of APRs......................... % to %
-- --
Weighted Average Original Maturity(1)... months
--
Range of Original Maturities.......... months to months
-- --
Weighted Average Remaining Maturity(1).. months
--
Range of Remaining Maturities......... months to months
-- --
</TABLE>
- --------------
(1) Weighted by Aggregate Discounted Contract Balance as of the Cutoff Date.
Expected Distribution of the Contracts by APR
<TABLE>
<CAPTION>
Percentage of
Percentage of Aggregate Aggregate
Aggregate Discounted Discounted
Number of Number Contract Contract
Range of APRs Contracts of Contracts Balance Balance
- --------------- --------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
% to % ..... % $ %
% to % .....
% to % .....
% to % .....
% to % .....
% to % .....
% to % .....
% to % .....
% to % .....
% to % .....
% to % .....
% to % .....
% to % .....
Total ..... % $ %
========= ==== ===== ====
</TABLE>
S-18
<PAGE>
Expected Distribution of the Contracts by State
<TABLE>
<CAPTION>
Percentage
of Aggregate Aggregate
Aggregate Discounted Discounted
Number of Number Contract Contract
State(1) Contracts of Contracts Balance Balance
- ----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
% $ %
Total... % $ %
===== ===== ====== =====
</TABLE>
- ------------
(1) Based on the addresses of the Obligors.
Substitution
Pursuant to the Pooling Agreement, the Servicer will have the right
(but not the obligation) at any time to substitute one or more Eligible
Receivables (each a "Substitute Receivable") [and the Vehicles subject thereto
(or a perfected security interest therein)] for a Receivable ("Predecessor
Receivable") [and the Vehicles subject thereto (or a perfected security interest
therein)] if:
(i) the Predecessor Receivable is then in default and, as of the
most recent Determination Date, has been in default for at least [____(__)]
consecutive days or a bankruptcy petition has been filed by or against the
Obligor;
[(ii) the Vehicles subject to the Substitute Receivable or Receivables
has a current estimated fair market value and a projected residual value,
respectively, equal to or greater than the current fair market value and
projected residual value of the Vehicles subject to the Predecessor
Receivable;] and
(iii) the Substitute Receivable or Receivables require the obligor or
obligors thereunder to make Contract Payments during each month ending on
or prior to the final Scheduled Payment Date of the Certificates in an
amount which is at least as great as the Contract Payment required under
the Predecessor Receivable during each such month.
[provided, however, that the Aggregate Discounted Contract Balance of all
Contracts substituted shall not exceed [10%] of the Aggregate Discounted
Contract Balance of the Initial Receivables and the Additional Receivables.]
[Upon repossession and disposition of any Vehicles subject to a
Defaulted Contract, any deficiency remaining will be pursued to the extent
deemed practicable by the Servicer. [The Servicer on behalf of the Issuer is
directed to maximize the Net Residual Value of the Vehicles relating to any
Defaulted Contract, and, in such regard, the Servicer may sell such Vehicles at
the best available price, refurbish such Vehicles and re-lease such Vehicles to
third parties, or take any other commercially reasonable steps to maximize such
Vehicles's Net Residual Value. Liquidation proceeds with respect to any such
Defaulted Contract, including any future payments received with respect to such
Defaulted Contracts, shall be paid to the Collection Account. If the Servicer
reasonably believes that the Net Residual Value of any Vehicles is zero or de
minimis, it will dispose of such Vehicles in accordance with its standard
procedures.]
S-19
<PAGE>
[The original counterpart of each Contract constituting chattel paper
and the Contract Files will be held by _________________, as Trustee on behalf
of the [A-1 Noteholders] [A-2 Noteholders] and the Certificateholders. The
Trustee will be required to indicate that the Contracts have been transferred by
the Originators to the Issuer.]
THE BANK
General
The Bank is a federally chartered stock savings bank. The Bank's home
office is located at 7926 Jones Branch Dr. McClean VA, 22102, and it's executive
offices are located at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815, and
the Bank's telephone number is (301) 986-7000. The Bank is subject to
comprehensive regulation, examination and supervision by the Office of Thrift
Supervision (the "OTS") within the Department of the Treasury and the Federal
Deposit Insurance Corporation (the "FDIC"). Deposits at the Bank are fully
insured up to $100,000 per insured depositor by the Savings Association
Insurance Fund ("SAIF"), which is administered by the FDIC.
Based on unaudited results, at September 30, 1996, the Bank had
consolidated assets of approximately $6.2 billion, deposits of approximately
$4.2 billion, and stockholders' equity of approximately $344.4 million. As a
savings bank chartered under the laws of the United States, the Bank is subject
to certain minimum regulatory capital requirements imposed under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
("FIRREA"). At December 31, 1996, the Bank's tangible, core, tier 1 risk-based
and total risk-based regulatory capital ratios were 6.58%, 6.58%, 7.05% and
14.06%, respectively. As of such date, the Bank's capital ratios exceeded the
requirements under FIRREA as well as the standards established for "well
capitalized" institutions under the prompt corrective action regulations
established pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") (both as applicable on June 30, 1996 and on a fully
phased-in basis). Based on unaudited results, at September 30, 1996, the Bank's
tangible, core, tier 1 risk-based and total risk-based regulatory capital ratios
decreased to 5.21%, 5.21%, 5.80% and 10.14%, respectively. As of such date, the
Bank's capital ratios exceeded the requirements under FIRREA as well as the
standards established for "well-capitalized" institutions under the prompt
corrective action regulations established pursuant to FDICIA. The OTS has the
discretion to treat an "well-capitalized" institution as an "adequately
capitalized" institution for purposes of the prompt corrective action
regulations if, after notice and an opportunity for a hearing, the OTS
determines that the institution (i) is being operated in an unsafe or unsound
condition or (ii) has received and has not corrected a less than satisfactory
examination rating for asset quality, management, earnings or liquidity.
On December 3, 1996, the Bank sold $100 million of its 9 1/4% Subordinated
Debentures due 2008 (the "1996 Debentures"), the principal amount of which is
includable in the Bank's supplementary capital. In addition on December 3, 1996
a new real estate investment trust subsidiary of the Bank (the "REIT
Subsidiary") sold $150 million of its 10 3/8% Noncumulative Exchangeable
Preferred Stock, Series A (the "REIT Preferred Stock"), which is eligible for
inclusion as core capital of the Bank in an amount up to 25% of the Bank's total
core capital.
Economic Development and Regulatory Paperwork Reduction Act of 1996 (the "Act")
Congress is considering legislation in various form that would require the
Merger of the Bank Insurance Fund ("BIF") and the SAIF into a single Deposit
Insurance Fund on January 1, 1999 but only if the thrift charter is eliminated
by that date. The Treasury Department is required to submit a comprehensive
study on thrift charter issues by March 31, 1997. In the absence of appropriate
"grandfather" provisions such legislation could have a material adverse effect
on the Bank and its parent company, the B.F. Saul Real Estate Investment Trust
(the "Trust") because among other things, the Trust engages in activities that
are not permissible to bank holding companies and the regulatory capital and
accounting treatment for banks and thrifts differs in certain respects. The
Bank cannot determine whether, or in what form, such legislation will
eventually be enacted and there can be no assurances that any such legislation
that is enacted will contain adequate grandfather rights for the Bank and the
Trust.
S-20
<PAGE>
Because of the continued improvement in the financial condition of the
Bank, on March 29, 1996, the OTS released the Bank from certain restrictions and
requirements contained in an agreement with the OTS, which had been amended in
October 1993. In connection with the termination of the written agreement at the
request of the OTS, the Board of Directors of the Bank has adopted a resolution
that addresses certain issues previously addressed by the written agreement. The
resolution also provides that the Bank will present a plan annually to the OTS
detailing anticipated consumer loan securitization activity.
The other Lender, CFC, is a wholly-owned subsidiary of the Bank, formed in
December 1994 for the purpose of providing automobile financing to applicants
who may have experienced certain adverse credit events. See "The Receivables
Pool."
Delinquency and Default Experience
There can be no assurance that the levels of delinquency and loss
experience reflected in the tables below, are indicative of the performance of
the Receivables included in the Trust.
CHEVY CHASE BANK, F.S.B.
Delinquency Experience
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------------------------------
1992 1993 1994 1995
----------------------- ------------------------ ----------------------- -----------------------
Dollar Percentage Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total Amount of Total
(000) Receivables (000) Receivables (000) Receivables (000) Receivables
---------- ----------- ---------- ----------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1)........... $ 84,533 $ 166,307 $ 299,096 $431,351
Delinquencies:(2)(3)
30-59 Days................ $ 1,469 1.74% $ 1,210 0.73% $ 4,074 1.36% $ 2,491 0.58%
60-89 Days................ 237 0.28% 223 0.13% 729 0.24% 742 0.17%
90 days or more........... 328 0.39% 226 0.14% 1,209 0.40% 1,667 0.39%
------- ----- ------- ----- ------- ----- ----- -----
Total Delinquencies....... $ 2,034 2.41% $ 1,659 1.00% $ 6,012 2.00% $ 4,900 1.14%
======== ===== ========= ===== ========= ===== ======== =====
<CAPTION>
As of December 31,
-----------------------
1996
-----------------------
Dollar Percentage
Amount of Total
(000) Receivables
--------- ------------
<S> <C> <C>
Receivables
Outstanding(1)........... $
Delinquencies:(2)(3)
30-59 Days................ $ %
60-89 Days................
90 days or more........... %
--
Total Delinquencies....... $
==
</TABLE>
- -------------------------
(1) Total Bank Portfolio is the net remaining principal balance.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Includes repossessions in inventory.
CHEVY CHASE BANK, F.S.B.
Loss Experience
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------------------------------------
1992 1993 1994 1995
----------------------- ---------------------- ---------------------- ---------------------
Percentage Percentage Percentage Percentage
Dollar of Average Dollar of Average Dollar of Average Dollar of Average
Amount Receivables Amount Receivables Amount Receivables Amount Receivables
(000) Outstanding (000) Outstanding (000) Outstanding (000) Outstanding
--------- ----------- --------- ----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1).......... $ 90,271 $ 116,475 $ 245,295 $363,845
Gross Charge-offs(2)...... $ 811 0.90% $ 627 0.54% $ 766 0.31% $ 2,120 0.58%
Recoveries................ 103 0.12% 115 0.10% 219 0.09% 275 0.07%
-------- ----- --------- ----- --------- ----- ------- -----
Net Losses................ $ 708 0.78% $ 512 0.44% $ 547 0.22% $ 1,845 0.51%
======== ===== ========= ===== ========= ===== ======== =====
<CAPTION>
As of December 31,
----------------------
1996
----------------------
Percentage
Dollar of Average
Amount Receivables
(000) Outstanding
--------- -----------
<S> <C> <C>
Average Receivables
Outstanding(1).......... $
Gross Charge-offs(2)...... $ %
Recoveries................ %
--
Net Losses................ $ %
== ==
</TABLE>
- -------------------------
(1) Equals the arithmetic average of the month-end balances.
(2) Gross Charge-offs represent the excess of the outstanding loan balance over
net liquidation proceeds, where net liquidation proceeds are the excess of
liquidation proceeds over the sum of repossession, liquidation and other
related expenses.
(3) Annualized.
(4) Includes current post-disposition recoveries on receivables previously
charged off.
S-21
<PAGE>
CONSUMER FINANCE CORPORATION
Delinquency Experience
<TABLE>
<CAPTION>
As of As of
December 31, 1995 December 31, 1996
------------------------ -----------------------
Dollar Percentage of Dollar Percentage of
Amount Total Amount Total
(000) Receivables (000) Receivables
------- ------------- ------ -------------
<S> <C> <C> <C> <C>
Receivables Outstanding/(1)/.. $49,375 $
Delinquencies/(2)//(3)/:
30-59 Days.................... $ 2,528 5.12% $ %
60-89 Days.................... $ 609 1.23% $ %
90 Days or more............... $ 871 1.76% $ %
------- ---- ------ --
Total Delinquencies........... $ 4,008 8.11% $ %
======= ==== ====== ==
</TABLE>
- ------------------------------
/(1)/ Receivables Outstanding consists of all amounts due from obligors as
posted to the related accounts.
/(2)/ The period of delinquency is based on the number of days payments are
contractually past due.
/(3)/ Includes repossessions in inventory.
CONSUMER FINANCE CORPORATION
Loss Experience
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1995 December 31, 1996
------------------------- ----------------------
Dollar Percentage Dollar Percentage
Amount of Total Amount of Total
(000) Receivables (000) Receivables
------- ------------- ------ -------------
<S> <C> <C> <C> <C>
Average Receivables $21,383 $
Outstanding/(1)/............
Gross Charge-offs/(2)/: $ 144 0.67% $ %/(3)/
Recoveries/(4)/.............. $ 0 0.00% $ %/(3)/
Net Losses................... $ 144 0.67% $ %/(3)/
</TABLE>
- -----------------------------
/(1)/ Equals the arithmetic average of the month-end balances.
/(2)/ Gross Charge-offs represent the excess of the outstanding loan balance
over net liquidation proceeds, where net liquidation proceeds are the
excess of liquidation proceeds over the sum of repossession, liquidation
and other related expenses.
/(3)/ Annualized.
/(4)/ Includes current post-disposition recoveries on receivables previously
charged off.
S-22
<PAGE>
Litigation
The Bank is not involved in any legal proceedings, and is not aware of any
pending or threatened legal proceedings, that would have a material adverse
effect upon its financial condition or results of operations.
[THE ORIGINATOR]
General
[The Originator] is principally a company engaged in the business of
originating and acquiring retail installment sale contract financing to retail
customers of automotive dealers. [The Originator] provides full-service
financing, primarily through installment sales contracts, to retail purchasers
of new and used automobiles and light duty trucks through dealer programs.
[[The Originator] has financed over $___ million of vehicles, representing
over _______ vehicles. [The Originator] currently services over ___ customers
through its direct servicing activities and an additional ______ customers in
connection with its subsidiaries' activities. As of ____________________, [the
Originator] had __ employees.]
S-23
<PAGE>
Litigation
[The Originator] is not involved in any legal proceedings, and is not aware
of any pending or threatened legal proceedings that would have a material
adverse effect upon its financial condition or results of operations.
THE SERVICER
Servicing
The Receivables will be serviced by the Servicer pursuant to the
Receivables Acquisition Agreement.
The Receivables Acquisition Agreement requires that servicing of the
Receivables by the Servicer shall be carried out in the same manner in which it
services contracts and vehicles held for its own account and consistent with
customary practices of servicers in the retail automobile industry, but in
performing
S-24
<PAGE>
its duties hereunder, the Servicer will act on behalf and for the benefit of the
Issuer, the Trustee and the holders of the Notes, subject at all times to the
provisions of the Indenture, without regard to any relationship which the
Servicer or any Affiliate of the Servicer may otherwise have with an Obligor.
Except as permitted by the terms of any Contract following a default thereunder,
the Servicer shall not take any action which would result in the interference
with the Obligor's right to quiet enjoyment of the Vehicles subject to the
Contract during the term thereof. The Servicer may designate CFC to act as sub-
servicer with respect to the CFC Receivables, although such designation will not
relieve the Servicer from its servicing obligations with respect to such CFC
Receivables. CFC's collection procedures differ in certain respects from those
employed by the Bank. On an Obligor's fifth day of delinquency, CFC sends a
late payment notice and begins the collection process, while the Bank initiates
these steps on the obligor's tenth day of delinquency. CFC's collections
department is currently staffed to have approximately one collector for every
1,400 loans outstanding, compared to the Bank's ratio of approximately one
collector for every 4,000 loans outstanding. In general, both the Bank and CFC
initiate the repossession process by the 45th day of delinquency.
Following each Determination Date, the Servicer shall advance and remit to
the Trustee, in such manner as will ensure that the Trustee will have
immediately available funds on account thereof by 11:00 a.m. New York time on
the [_______] Business Day prior to the next succeeding Payment Date, a Servicer
Advance equal to the Contract Payment due during the preceding Collection Period
with respect to each Contract (other than a Contract which became a Defaulted
Contract on or prior to such Determination Date) under which the Obligor has not
made such payment by such Determination Date; provided, however, that the
Servicer will not be obligated to make a Servicer Advance with respect to any
Contract if Originator, in its good faith judgment, believes that such Servicer
Advance would be a Nonrecoverable Advance. If the Servicer determines that any
Contract Payment it has made, or is contemplating making, would be a
Nonrecoverable Advance, the Servicer shall deliver to the Trustee an Officers'
Certificate stating the basis for such determination.
Servicing Compensation and Payment of Expenses
For its servicing of the Receivables, the Servicer will be entitled to
receive a monthly Servicing Fee equal to the product of (i) one-twelfth,
(ii) ___% and (iii) the Aggregate Discounted Contract Balance of all Contracts
as of the preceding Determination Date, payable out of the Collection Account,
plus Servicing Charges and Investment Earnings.
All costs of servicing each Receivable in the manner required by the
Receivables Acquisition Agreement shall be borne by the Servicer, but the
Servicer shall be entitled to retain, out of any amounts actually recovered with
respect to any Defaulted Contract [or the Vehicles subject thereto,] the
Servicer's actual out-of-pocket expenses reasonably incurred with respect to
such Defaulted Contract [or Vehicles]. In addition, the Servicer shall be
entitled to receive on each Payment Date any unreimbursed Nonrecoverable
Advances or Servicer Advances with respect to any Defaulted Contract and the
Servicing Fee.
Evidence as to Compliance
The Receivables Acquisition Agreement requires that with each set of
financial statements delivered pursuant to the Receivables Acquisition
Agreement, the Servicer will deliver an Officers' Certificate stating (i) that
the officers signing such Certificate have reviewed the relevant terms of the
Receivables Acquisition Agreement and have made, or caused to be made under such
officers' supervision, a review of the activities of the Servicer during the
period covered by the statements then being furnished, (ii) that the review has
not disclosed the existence of any Servicer Event of Default or, if a Servicer
Event of Default exists, describing its nature and what action the Servicer has
taken and is taking with respect thereto, and (iii) that on the basis of such
review the officers signing such certificate are of the opinion that during such
period the Servicer has serviced the Receivables in compliance with the required
procedures except as described in such certificate.
The Servicer shall cause a firm of independent certified public accountants
(who may also render other services to the Servicer) to deliver to the Trustee,
with a copy to the Rating Agency and each holder of the Notes, within [90] days
following the end of each fiscal year of the Servicer, beginning with the
S-25
<PAGE>
Servicer's fiscal year ending ____________, 199__, a written statement to the
effect that such firm has examined in accordance with generally accepted
practices samples of the accounts, records, and computer systems of the Servicer
for the fiscal year ended on the previous ________ relating to the Receivables
(which accounts, records, and computer systems shall be described in one or more
schedules to such statement), that such firm has compared the information
contained in the Servicer's reports delivered in the relevant period with
information contained in the accounts, records, and computer systems for such
period, and that, on the basis of such examination and comparison, such firm is
of the opinion that the Servicer has, during the relevant period, serviced the
Receivables in compliance with such servicing procedures, manuals, and guides
and in the same manner as it services comparable contracts for itself or others,
that such accounts, records, and computer systems have been maintained, and that
such certificates, accounts, records, and computer systems have been properly
prepared and maintained in all material respects, except in each case for (a)
such exceptions as such firm shall believe to be immaterial and (b) such other
exceptions as shall be set forth in such statement.
Other Servicing Procedures
At least [___] days prior to each Payment Date, the Servicer shall deliver
a report in writing (the "[Monthly] Servicer Report") to each holder of the
Notes, the Trustee and the Rating Agency.
If an Obligor has [___] Contract Payments which are due and unpaid as of
any Determination Date, such Obligor's Contract shall become a Defaulted
Contract. Where no satisfactory arrangements can be made for collection of
delinquent payments within [__] days of a Contract becoming a Defaulted
Contract, the Servicer shall foreclose or otherwise liquidate any such Defaulted
Contract [(together with the related Vehicles)] within [60] days of such
Contract becoming a Defaulted Contract. In connection with any foreclosure or
other liquidation, the Servicer will take such action as is appropriate,
consistent with the Servicer's administration of contracts in its own portfolio,
including such action as may be necessary to cause, or attempt to cause, the
Obligor thereunder to cure such default (if the same may be cured) or to
terminate or attempt to terminate such Contract and to recover, or attempt to
recover, all damages resulting from such default.
[The Servicer will use its best efforts (i) to sell or re-lease any
Vehicles subject to a Defaulted Contract in a timely manner and upon reasonable
terms and conditions so as to reduce as expeditiously as is consistent with
sound commercial practice any unreimbursed amounts drawn by the Trustee on the
Reserve Account and (ii) to sell or re-lease any Vehicles remaining subject to
the lien of the Indenture upon the expiration of the Contract to which such
Vehicles is subject, in a timely manner and in a manner consistent with that
utilized by the Servicer with respect to vehicles owned by it so as to realize,
to the extent possible under then prevailing market conditions, the Net Residual
Value of such Vehicles.]
[All Residual Payments realized by the Servicer in the performance of its
duties with respect to any item of Vehicles remaining subject to the Lien of the
Indenture (net of the Servicer's actual out-of-pocket expenses reasonably
incurred in such realization) shall be held in trust by the Servicer, as agent
for the Trustee, and turned over to the Trustee within [___] Business Days for
application in accordance with the provisions of the Indenture; provided that,
to the extent that (i) the Servicer has made any advances with respect to any
Contract which thereafter became a Defaulted Contract and (ii) the Servicer has
not otherwise been fully reimbursed for such advances, the Servicer shall
reimburse itself for such advances from any Residual Payments recovered with
respect to such Defaulted Contract before remitting to the Trustee any such
amounts for deposit in the Collection Account.]
Removal of the Servicer
The Receivables Acquisition Agreement will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. The Servicer can only be removed pursuant to
a Servicer Event of Default. If a Servicer Event of Default shall have occurred
and be continuing, the Trustee shall give written notice to the Servicer of the
termination of all of the rights and obligations of the Servicer (but none of
the Servicer's obligations thereunder, which shall survive any such termination)
under the Receivables Acquisition Agreement. On and after the time the Servicer
receives a notice of termination, the Trustee shall be the successor in all
respects to the Servicer in its capacity as servicer
S-26
<PAGE>
under the Receivables Acquisition Agreement of the Receivables. The Trustee
may, if it shall be unwilling to so act, or shall, if it is unable to so act,
give notice of such fact to each holder of the Notes and (i) appoint an
established institution, satisfactory to the holders of Notes evidencing not
less than [_______] of the Voting Rights, as the successor to the Servicer to
assume all of the rights and obligations of the Servicer, including, without
limitation, the Servicer's right to receive the Servicing Fee (but not the
obligations of the Servicer contained in the Receivables Acquisition Agreement)
or, (ii) if no such institution is so appointed, petition a court of competent
jurisdiction to appoint an institution meeting such criteria as the Servicer.
THE INDENTURE TRUSTEE
The Indenture Trustee, _________, has an office at __________________.
The Indenture Trustee may resign, subject to the conditions set forth
below, at any time upon written notice to the Bank, the Servicer and the [Owner]
Trustee, in which event the Servicer will be obligated to appoint a successor
Indenture Trustee. If no successor Indenture Trustee shall have been so
appointed and have accepted such appointment within [30] days after the giving
of such notice of resignation, the resigning Indenture Trustee may petition a
court of competent jurisdiction for the appointment of a successor Indenture
Trustee. Any successor Indenture Trustee shall meet the financial and other
standards for qualifying as a successor Indenture Trustee under the Pooling
Agreement. The Servicer, the [Owner] Trustee or Noteholders evidencing more
than [___%] of the Pool Balance may also remove the Indenture Trustee if the
Indenture Trustee ceases to be eligible to continue as such under the Pooling
Agreement and fails to resign after written request therefor, or is legally
unable to act, or if the Indenture Trustee is adjudicated to be insolvent. In
such circumstances, the Servicer, the [Owner] Trustee or such Noteholders will
also be obligated to appoint a successor Indenture Trustee. Any resignation or
removal of the Indenture Trustee and appointment of a successor Indenture
Trustee will not become effective until acceptance of the appointment by the
successor Indenture Trustee.
THE [OWNER] TRUSTEE
______________________________ will be the [Owner] Trustee under the
Trust Agreement. __________________________ is a banking corporation and its
principal offices are located at ________________________________________. The
[Owner] Trustee's liability in connection with the issuance and sale of the
Notes and the Certificates is limited solely to the express obligations of the
[Owner] Trustee set forth in the Trust Agreement and the Pooling Agreement.
THE TRUST
The Trust will be formed in accordance with the laws of the State of
__________, pursuant to the Trust Agreement, solely for the purpose of
effectuating the transactions described herein. Prior to formation, the Trust
will have had no assets or obligations and no operating history. Upon
formation, the Trust will not engage in any business activity other than
acquiring and holding the Receivables, issuing the Securities Certificates and
distributing payments thereon. As described under "Description of the Transfer
and Servicing Agreements - Servicing Compensation," a portion of the monthly
collections with respect to the Contracts will be paid to the Servicer as
servicing compensation. All other expenses of the Trust will be paid on behalf
of the Sponsor by the Servicer or by the applicable Originator, as provided in
the Trust Agreement.
The Trust Fund will consist of the [Vehicles], the Contracts and any
Scheduled Contract Payments to be made by Obligors (but not including any
payments due on or prior to the Cut-Off Date or, with respect to an Additional
Receivable, the day prior to the Payment Date on which the Trust acquires such
Additional Receivable; any guaranties of an Obligor's obligations under a
Contract; any documents in the Contract Files; the insurance policies maintained
by the Obligors with respect to the Vehicles (the "Insurance Policies") and the
proceeds of such Insurance Policies; any rights of the Sponsor under the
Receivables Acquisition Agreement (including the right to instruct the
Originator to exercise any
S-27
<PAGE>
unassignable rights of enforcement under the Contracts and any guaranties
thereof, the Originator's rights ("Vendor Agreement Rights") under agreements
with any vendors from which the Contracts were acquired, and the Insurance
Policies); a security interest in the Reserve Account and amounts on deposit
therein; and any and all income and proceeds of the foregoing. Neither the
Pooling Agreement permit the Trust to acquire any additional assets. Because
the Trust does not have any operating history and will not engage in any
business activity other than owning the Trust Fund, issuing the Securities and
making distributions thereon, there has not been included any historical or pro
forma ratio of earnings to fixed charges with respect to the Trust.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture. 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 qualified in its
entirety by reference to the provisions of the Notes and the Indenture.
______________________, a _______________ banking corporation, will be the
Indenture Trustee under the Indenture.
The [A-1 Notes]
Payments of Interest. Interest on the principal balance of the [A-1 Notes]
will be payable to the [A-1 Noteholders] [monthly] on each Payment Date
commencing _______________, 199__. "Payment Date" shall mean the [____] day of
each [month] or, if any such date is not a business day, on the next succeeding
business day. Interest will accrue from and including the Closing Date or from
and including the most recent Payment Date to but excluding such Payment Date
and will be calculated on the basis of a year of 360 days, in each case for the
actual number of days occurring in the period for which such interest is
payable. Interest accrued as of any Payment Date but not paid on such Payment
Date will be due on the next Payment Date together with interest on such amount
at the rate per annum specified below. Interest payments on the [A-1 Notes]
will generally be derived from the Total Distribution Amount remaining after the
payment of the Servicing Fee and amounts from the Reserve Account. See
"Description of the Transfer and Servicing Agreements--Distributions" and "--
Reserve Account" herein. If the amount of interest on the principal balance of
the [A-1 Notes] and the [A-2 Notes] payable on any Payment Date exceeds the
excess of (A) the sum of (i) collections on the Receivables for the related
Collection Period plus (ii) the amount of cash on deposit in the Reserve Account
over (B) the amount of the Servicing Fees payable on such Payment Date, the [A-1
Noteholders] and the [A-2 Noteholders] will receive their ratable share (based
upon the total amount of interest due to the [A-1 Noteholders] and the [A-2
Noteholders], as the case may be) of the amount available to be distributed in
respect of interest on the [A-1 Notes] and the [A-2 Notes].
[On each Payment Date, the [A-1 Note] Interest Rate will equal LIBOR for
such Payment Date [minus][plus] _____%. "LIBOR" with respect to any Payment
Date shall be established by the Indenture Trustee and shall equal the
arithmetic mean (rounded upwards, if necessary, to the nearest one-sixteenth of
one percent) of the offered rates for United States dollar deposits for one
month which appear on the Reuters Screen LIBO Page (as defined below) as of
11:00 A.M., London time, on the second LIBOR Business Day prior to the
immediately preceding Payment Date (or, in the case of the initial Payment Date,
the second LIBOR Business Day prior to the Closing Date); provided that at least
two such offered rates appear on the Reuters Screen LIBO Page on such date. If
fewer than two offered rates appear, LIBOR will be determined on such date as
described in the paragraph below. "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). "LIBOR Business
Day", for purposes of the Indenture, is a day that is both a Business Day and a
day on which banking institutions in the City of London, England, are not
required or authorized by law to be closed. A "Business Day" is a day other
than a Saturday, a Sunday or a day on which banking institutions or trust
companies in New York City are authorized or obligated by law, regulation or
executive order to remain closed.]
S-28
<PAGE>
[If on such date fewer than two offered rates appear on the Reuters Screen
LIBO Page, the Indenture Trustee will request of each of the reference banks
(which shall be major banks that are engaged in transactions in the London
interbank market, selected by the Indenture Trustee after consultation with the
Sponsor) to provide the Indenture Trustee with its offered quotation for United
States dollar deposits for one month to prime banks in the London inter-bank
market as of 11:00 A.M., London time, on such date. If at least two reference
banks provide the Indenture Trustee with such offered quotations, LIBOR on such
date will be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-sixteenth of one percent) of all such quotations. If on such date fewer
than two of the Reference Banks provide the Indenture Trustee with such an
offered quotation, LIBOR on such date will be the arithmetic mean (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent) of the
offered per annum rates which one or more leading banks in The City of New York
selected by the Indenture Trustee after consultation with the Bank are quoting
as of 11:00 A.M., New York City time, on such date to leading European banks for
United States dollar deposits for one month; provided, however, that if such
banks are not quoting as described above, LIBOR will be the LIBOR applicable to
the immediately preceding Payment Date.]
[On each Payment Date the [A-1 Note] Interest Rate will equal _____%;
provided, however, that it the [A-1 Note] Interest Rate for such Payment Date
computed without giving effect to this proviso exceeds the Net Receivables Rate
borne by the Receivables during the related Collection Period, then the [A-1
Note] Interest Rate for such Payment Date will be the [A-1 Note] Alternative
Interest Rate. The "[A-1 Note] Alternative Interest Rate" for any Payment Date
means the Net Receivables Rate borne by the Receivables during the related
Collection Period; provided, however, that in no event shall the [A-1 Note]
Alternative Interest Rate be less than _____% per annum; provided, further, that
to the extent that the interest paid to the [A-1 Noteholders] is less than
_____% per annum, the difference between the amount of interest paid and
interest at _____% per annum shall be payable on subsequent Payment Dates as
[Class A-1] Noteholders' Interest Carryover Amount.]
Payments of Principal. Principal payments will be made to the [A-1
Noteholders] on each Payment Date in an amount generally equal to the Principal
Distribution Amount until the principal balance of the [A-1 Notes] is reduced to
zero. Principal payments on the [A-1 Notes] will generally be derived from the
Total Distribution Amount remaining after the payment of the Servicing Fee and
the Noteholders' Interest Distributable Amount, and from funds, if any, in the
Reserve Account remaining after the payment of the Noteholders' Interest
Distributable Amount and from funds, if any, in the [Class A-1] Maturity
Account. See "Description of the Transfer and Servicing Agreements--
Distributions" and "--Reserve Account" herein. The outstanding principal
amount, if any, of the [A-1 Notes] will be payable in full on the [A-1] Final
Scheduled Payment Date.
The A-2 Notes
Payments of Interest. Interest on the principal balance of the [A-2 Notes]
will be payable to the [A-2 Noteholders] [monthly] on each Payment Date
commencing _______________, 199__. Interest will accrue from and including the
Closing Date or the most recent Payment Date to but excluding each Payment Date
and will be calculated on the basis of a year of 360 days, in each case for the
actual number of days occurring in the period for which such interest is
payable. Interest accrued as of any Payment Date but not paid on such Payment
Date will be due on the next Payment Date together with interest on such amount
at the rate per annum specified below. Interest payments on the [A-2 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. If the amount of interest on the principal balance of the [A-1 Notes]
and the [A-2 Notes] payable on any Payment Date exceeds the excess of (A) the
sum of (i) collections on the Receivables plus (ii) the amount of cash on
deposit in the Reserve Account over (B) the amount of the Servicing Fees payable
on such Payment Date, the [A-1 Noteholders] and the [A-2 Noteholders] will
receive their ratable share (based upon the total amount of interest due to the
[A-1 Noteholders] and the [A-2 Noteholders], as the case may be) of the amount
available to be distributed in respect of interest on the [A-1 Notes] and the
[A-2 Notes].
S-29
<PAGE>
[On each Payment Date, the [A-1 Note] Interest Rate will equal LIBOR for
such Payment Date [minus][plus] _____%. "LIBOR" with respect to any Payment
Date shall be established by the Indenture Trustee and shall equal the
arithmetic mean (rounded upwards, if necessary, to the nearest one-sixteenth of
one percent) of the offered rates for United States dollar deposits for one
month which appear on the Reuters Screen LIBO Page (as defined below) as of
11:00 A.M., London time, on the second LIBOR Business Day prior to the
immediately preceding Payment Date (or, in the case of the initial Payment Date,
the second LIBOR Business Day prior to the Closing Date); provided that at least
two such offered rates appear on the Reuters Screen LIBO Page on such date. If
fewer than two offered rates appear, LIBOR will be determined on such date as
described in the paragraph below. "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). "LIBOR Business
Day", for purposes of the Indenture, is a day that is both a Business Day and a
day on which banking institutions in the City of London, England, are not
required or authorized by law to be closed. A "Business Day" is a day other
than a Saturday, a Sunday or a day on which banking institutions or trust
companies in New York City are authorized or obligated by law, regulation or
executive order to remain closed.]
[If on such date fewer than two offered rates appear on the Reuters Screen
LIBO Page, the Indenture Trustee will request of each of the reference banks
(which shall be major banks that are engaged in transactions in the London
interbank market, selected by the Indenture Trustee after consultation with the
Bank) to provide the Indenture Trustee with its offered quotation for United
States dollar deposits for one month to prime banks in the London inter-bank
market as of 11:00 A.M., London time, on such date. If at least two reference
banks provide the Indenture Trustee with such offered quotations, LIBOR on such
date will be the arithmetic mean (rounded upwards, if necessary, to the nearest
one-sixteenth of one percent) of all such quotations. If on such date fewer
than two of the Reference Banks provide the Indenture Trustee with such an
offered quotation, LIBOR on such date will be the arithmetic mean (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent) of the
offered per annum rates which one or more leading banks in The City of New York
selected by the Indenture Trustee after consultation with the Bank are quoting
as of 11:00 A.M., New York City time, on such date to leading European banks for
United States dollar deposits for one month; provided, however, that if such
banks are not quoting as described above, LIBOR will be the LIBOR applicable to
the immediately preceding Payment Date.]
[On each Payment Date the [A-2 Note] Interest Rate will equal _____%;
provided, however, that it the [A-2 Note] Interest Rate for such Payment Date
computed without giving effect to this proviso exceeds the Net Receivables Rate
borne by the Receivables during the related Collection Period, then the [A-2
Note] Interest Rate for such Payment Date will be the [A-2 Note] Alternative
Interest Rate. The "[A-2 Note] Alternative Interest Rate" for any Payment Date
means the Net Receivables Rate borne by the Receivables during the related
Collection Period; provided, however, that in no event shall the [A-2 Note]
Alternative Interest Rate be less than _____% per annum; provided, further, that
to the extent that the interest paid to the [A-2 Noteholders] is less than
_____% per annum, the difference between the amount of interest paid and
interest at _____% per annum shall be payable on subsequent Payment Dates as
[Class A-2] Noteholders' Interest Carryover Amount.]
Payments of Principal. Principal payments will be made to the [A-2
Noteholders] on and after the latest to occur of (x) the Payment Date on which
the [A-1 Notes] have been paid in full, (y) the _______________, 199__ Payment
Date and (z) the Payment Date on which the lesser of the full amount of the
Maturity Draw or the amount of the Maturity Draw, if any, necessary to increase
the amount on deposit in the Reserve Account to the Specified Reserve Account
Balance is deposited into the Reserve Account, in an amount generally equal to
the [A-2 Noteholders'] Percentage of the difference between the Principal
Distribution Amount and the portion thereof, if any, of the Principal
Distribution Amount paid in respect of the [A-1 Notes] on such Payment Date or
deposited in the Reserve Account in respect of a Maturity Draw. Principal
payments on the [A-2 Notes] will generally be derived from the Total
Distribution Amount remaining after the payment of the Servicing Fee, and the
Noteholders' Interest Distributable Amount, from funds, if any, in the Reserve
Account remaining after the payment of the Noteholders' Interest Distributable
Amount, and from funds, if any, in the [Class A-2] Lockout Account. In
addition, on and after the _______________, 199__ Payment Date, certain amounts
available to be released from the
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Reserve Account will be distributed to the [A-2 Noteholders] as a payment of
principal after such amounts are applied to pay the outstanding [Class A-2]
Noteholders' Interest Carryover Amount, if any, in full. See "Description of
the Transfer and Servicing Agreements Distributions" and "--Reserve Account"
herein. The outstanding principal amount, if any, of the [A-2 Notes] will be
payable in full on the [A-2] Final Scheduled Payment Date.
Optional Redemption. The [A-2 Notes] will be redeemed in whole, but not in
part, on any Payment Date after the date on which the [A-1 Notes] have been paid
in full on which the Servicer exercises its option to purchase the Receivables
when the aggregate principal amount of the Receivables shall be less than ___%
of the initial Pool Balance. The [A-2] Redemption Price is equal to the unpaid
principal amount of the [A-2 Notes], plus accrued but unpaid interest thereon.
The [A-1 Notes] are not redeemable prior to maturity.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement. 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 qualified in its entirety by reference to the
provisions of the Certificates and the Trust Agreement.
Distributions of principal of, and interest on, the Certificates will be
made by the [Owner] Trustee in accordance with the procedures set forth in the
Trust Agreement directly to holders of Certificates in whose names the
Certificates were registered at the close of business on the Certificate Record
Date. Such distributions will be made by check mailed to the address of such
holder as it appears on the register maintained by the [Owner] Trustee or by
wire transfer. The final payment on any Certificate, however, will be made only
upon presentation and surrender of such Certificate at the office or agency
specified in the notice of final distribution to Certificateholders.
Certificates will be transferable and exchangeable at the offices of the
[Owner] Trustee or a certificate registrar named in a notice delivered to
holders of Certificates. No service charge will be imposed for any registration
of transfer or exchange, but the [Owner] Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
Purchasers (including nominees of beneficial owners) of Certificates and
their assignees must represent that the beneficial owners are individuals or
entities that are U.S. persons (generally, citizens or residents of the U.S. and
corporations or partnerships organized under U.S. law), and each must provide a
certification of non-foreign status under penalties of perjury.
The Certificates
Distributions of Interest Income. 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 Pass-Through Rate for
any Payment Date means [___%] [a rate per annum equal to _____% plus an amount
equal to the product of _____ multiplied by LIBOR for such Payment Date;]
provided, however that on and after the _______________, 199__ Payment Date, if
the aggregate amount of Realized Losses during the period from the Cut-off Date
through the end of the fiscal month ending in _______________, 199__ is ar
amount that is (x) _____% or less (but greater than _____%) of the Pool Balance
as of the Cut-off Date the Pass-Through Rate (as determined in the clause
preceding this proviso) for any Payment Date shall be increased by _____% per
annum or (y) _____% or less of the Pool Balance as of the Cut-off Date, the
Pass-Through Rate (as determined in the clause preceding this proviso) for any
Payment Date shall be increased by _____% per annum; provided, further, that
notwithstanding the preceding proviso, if the Net Receivables Rate borne by the
Receivables during the prior Collection Period is less than the Pass Through
Rate thus calculated for such Payment Date, then the Pass-Through Rate payable
on the Certificates will equal such Net Receivables Rate. [In addition,
Certificateholders will receive on each
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Payment Date, if on such Payment Date the amount on deposit in the Reserve
Account, after giving effect to all withdrawals for payments on the Notes and
the Certificates and all deposits required to be made on such Payment Date,
exceeds the Specified Reserve Account Balance, an amount equal to the lesser of
(1) such excess and (2) [one-twelfth] of the product of (a) ___% of the excess,
if any, of (i) the amount of the positive spread, if any, between the Base Rate
in effect on the date that LIBOR for such Payment Date is established and LIBOR
for such Payment Date over (ii) _____% times (b) _____% of the Certificate
Balance on the preceding Payment Date.] Interest will be calculated on the
basis on a year of 360 days, in each case for the actual number of days
occurring in the period for which interest is payable. Such amounts will be
distributable every [month] on each Payment Date commencing _______________,
199__. Interest for each Payment Date will accrue from and including "the
Closing Date or from the most recent Payment Date but excluding the current
Payment Date. Interest distributions due for any Payment Date but not
distributed on such Payment Date will be due on the next Payment Date increased
by an amount equal to interest on such amount at the Pass-Through Rate.
Interest distributions with respect to the Certificates will 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 on each Payment Date in an amount generally equal to the
Certificateholders' Percentage of (or, following the payment in full of the
Notes, all of) the Principal Distribution Amount. Distributions with respect to
principal payments will be funded from the portion of the Total Distribution
Amount remaining after the distribution of the Servicing Fee, the Noteholders'
Distributable Amount and the Certificateholders' Interest Distributable Amount,
and from funds, if any, in the Reserve Account remaining after the payment of
the Noteholders' Distributable Amount and the Certificateholders' Interest
Distributable Amount. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account" herein. Until the Payment
Date following the latest to occur of (i) the Payment Date after the Payment
Date on which the principal balance of the [A-1 Notes] is reduced to zero, (ii)
the _______________, 199__ Payment Date and (iii) the Payment Date after the
Payment Date on which the lesser of the full amount of the Maturity Draw or the
amount of the Maturity Draw, if any, necessary to increase the amount on deposit
in the Reserve Account to the Specified Reserve Account Balance is deposited
into the Reserve Account, the Certificateholders' Percentage will be zero.
Thereafter, the Certificateholders' Percentage will be _____%. However, if the
amount on deposit in the Reserve Account is less than the lower of _____% of the
initial Pool Balance and the sum of the aggregate outstanding principal amount
of the Notes and the Certificate Balance on any Payment Date, then, with respect
to each Payment Date thereafter, the Certificateholders will not receive any
distributions of principal until the Notes have been paid in full.
Optional Purchase. If the Servicer exercises its option to purchase the
Receivables when the aggregate principal amount of the Receivables is less than
_____% of the initial Pool Balance, the Certificateholders will receive an
amount in respect of the Certificates equal to the Certificate Balance together
with accrued interest at the Pass-Through Rate and the Certificates will be
retired.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Pooling Agreement
pursuant to which the Trust is receiving and the Servicer is undertaking to
service, the Receivables, the Receivables Acquisition Agreement pursuant to
which the Bank is acquiring the Receivables, and the Trust Agreement pursuant to
which the Trust will be created and the Certificates will be issued
(collectively, the "Transfer and Servicing Agreements"). A copy of the Transfer
and Servicing Agreements will be filed with the Commission following the
issuance of the Securities. This summary does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Transfer and Servicing Agreements.
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Transfer and Assignment of Receivables
Certain information with respect to the conveyance on the Closing Date of
the Receivables from the Originator to the Sponsor pursuant to the Receivables
Acquisition Agreement and from the Sponsor to the Trust pursuant to the Pooling
Agreement is set forth under "Description of the Transfer and Servicing
Agreements--Assignment of the Receivables Pursuant to Receivables Acquisition
Agreement" in the Prospectus.
Accounts
In addition to the Accounts referred to in the Prospectus under
"Description of Transfer and Servicing Agreements--Trust Agreements--Accounts",
the Servicer will also establish and maintain at the office of the Indenture
Trustee (i) the Reserve Account, in the name of the Indenture Trustee on behalf
of the Noteholders and the Certificateholders, (ii) the [Class A-1] Maturity
Account, and (iii) the [Class A-2] Lockout Account.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period in an amount equal to _____% per annum of the Pool Balance as
of the first day of such Collection Period. The Servicing Fee (together with
any portion of the Servicing Fee that remains unpaid from prior Payment Dates)
will be paid solely to the extent of the Interest Distribution Amount. However,
the Servicing Fee will be paid prior to the distribution of any portion of the
Interest Distribution Amount to the Noteholders or the Certificateholders. See
"Description of the Transfer and Servicing Agreements--Servicing Compensation"
in the Prospectus.
Distributions
Deposits to Collection Account. By the [____] business day prior to a
Payment Date (each a "Determination Date"), the Servicer will provide the
Indenture Trustee with certain information with respect to the related
Collection Period, including the amount of aggregate collections on the
Receivables and the aggregate Discounted Contract Balance of Receivables to be
acquired by the Bank or to be purchased by the Servicer.
On or before each Payment Date, the Servicer will cause the Total
Distribution Amount to be deposited into the Collection Account. The "Total
Distribution Amount" for a Payment Date shall be the aggregate collections
(including any Liquidation Proceeds) in respect of the Receivables during the
related Collection Period plus Investment Earnings during such Collection
Period. The Total Distribution Amount on any Payment Date shall exclude all
payments and proceeds (including Liquidation Proceeds) of (i) any Receivables
the Discounted Contract Balance of which has been included in the Total
Distribution Amount in a prior Collection Period and (ii) any Liquidated
Receivable after the reassignment of such Liquidated Receivable by the Trust to
the Bank.
"Liquidated Receivables" means defaulted Receivables in respect of which
the Vehicles has been sold or otherwise disposed of and "Liquidation Proceeds"
means all proceeds of the 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.
The "Interest Distribution Amount" for a Payment Date shall be the excess,
if any, of the Total Distribution Amount over the Principal Distribution Amount
for such Payment Date.
The "Principal Distribution Amount" for a Payment Date shall mean either
(i) in all cases when clause (ii) does not apply, the Note Value Decline for the
fiscal month ending immediately prior to such Payment Date or (ii) if the Base
Rate at the beginning of the fiscal month ending immediately prior to such
Payment Date is not equal to the Base Rate at the beginning of the next fiscal
month, the Alternate Principal Distribution Amount for such fiscal month.
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Deposits to the Distribution Accounts. On the [_____] business day prior
to each Payment Date, the Servicer shall instruct the Indenture Trustee to make
deposits and distributions for receipt by the Servicer or for deposit in the
applicable Trust Account or Certificate Distribution Account on the following
Payment Date.
Distributions of the Total Distribution Amount shall be made in the
following order of priority:
[(i) to the Servicer, from the Interest Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection Periods;
(ii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clause (i), the Noteholders'
Interest Distributable Amount;
(iii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) and (ii), the [A-1
Noteholders'] Principal Distributable Amount; provided, however, that if
funds were withdrawn from the Reserve Account in order to pay the [A-1
Noteholders'] Monthly Principal Distributable Amount on the
_______________, 199__ Payment Date (the "Maturity Draw"), the Reserve
Account will be reimbursed up to the lesser of the amount of such draw and
the amount of the Maturity Draw, if any, necessary to increase the amount
on deposit in the Reserve Account to the Specified Reserve Account Balance
out of the amount of the Total Distribution Amount that would have been
distributable to the holders of the [A-1 Notes] as principal had the
outstanding principal balance of the [A-1 Notes] on the _______________,
19__ Payment Date remained outstanding and had no withdrawal from the
Reserve Account been made;
(iv) on each Payment Date prior to the _______________, 19__ Payment
Date, to the [Class A-2] Lockout Account, and thereafter, to the Note
Distribution Account, from the Total Distribution Amount remaining after
the application of clauses (i), (ii) and (iii), the [A-2 Noteholders']
Principal Distributable Amount;
(v) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) through
(iv), the Certificateholders' Interest Distributable Amount;
(vi) to the Certificate Distribution Account, from the Total
Distribution Amount remaining after the application of clauses (i) through
(v), the Certificateholders' Principal Distributable Amount;
(vii) to the Reserve Account, from the Total Distribution Amount
remaining after the application of clauses (i) through (vi) the amount, if
any, necessary to increase the amount on deposit in the Reserve Account to
the Specified Reserve Account Balance;
(viii) to the Note Distribution Account, from the Total Distribution
Amount remaining after the application of clauses (i) through (vii), the
[Class A-2 Noteholders'] Interest Carryover Amount; and
(ix) to the Reserve Account, the Total Distribution Amount remaining
after the application of clauses (i) through (viii).]
The "Note Value" of the Receivables represents the principal amount of
Notes and Certificates that, based on the assumptions stated below, can be
supported by the scheduled payments on the Receivables.
"Note Value" of the Receivables means, with respect to any day, the present
value of the scheduled and unpaid payments on the Receivables, discounted to
such day monthly at an annual rate equal to the Receivables Rate on such day.
[For purposes of calculating Note Value, in the event of a defaulted Receivable,
(a) prior to repossession of the Vehicles securing such defaulted Receivable,
the scheduled payments on such Receivable will be computed based on the amounts
that would have been
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the scheduled payments had such default not occurred, (b) after the time at
which the Vehicles securing such defaulted Receivable has been repossessed, but
prior to liquidation of such defaulted Receivable, the principal balance of such
defaulted Receivable shall be added to such Note Value, but there shall be
deemed to be no scheduled payments due on such defaulted Receivable and (c)
after liquidation of such defaulted Receivable there shall be deemed to be no
scheduled payments due on such Receivable. As a result of the calculations
described in the preceding sentence, as of the end of any Collection Period, the
Note Value of the Receivables, to the extent it relates to a defaulted
Receivable, will be reduced only after liquidation of any defaulted Receivable.]
"Note Value Decline", with respect to any fiscal month, means the amount
(not less than zero) equal to (i) the Note Value as of the beginning of such
fiscal month less (ii) the Note Value as of the beginning of the next fiscal
month.
"Alternate Principal Distribution Amount" for a fiscal month means (a) the
sum of (i) the collections in respect of the Receivables (including Liquidation
Proceeds) during such fiscal month and (ii) Realized Losses in respect of
Receivables that become Liquidated Receivables in such fiscal month less (b)
[one-twelfth] of the product of (x) the Note Value at the beginning of the
preceding fiscal month and (y) the Receivables Rate at the beginning of such
preceding fiscal month.
"Realized Losses" means the excess of the principal balance of the
Liquidated Receivables over Liquidation Proceeds to the extent allocable to
principal.
"Noteholders' Distributable Amount" means, with respect to any Payment
Date, the sum of the [A-1 Noteholders'] Principal Distributable Amount, the [A-2
Noteholders'] Principal Distributable Amount and the Noteholders' Interest
Distributable Amount.
"Noteholders' Interest Distributable Amount" means, with respect to any
Payment Date, the sum of the Noteholders' Monthly Interest Distributable Amount
for such Payment Date and the Noteholders Interest Carryover Shortfall for such
Payment Date.
"Noteholders' Monthly Interest Distributable Amount" means, with respect to
any Payment Date an amount equal to the sum of (i) the interest accrued from and
including the immediately preceding Payment Date (or, in the case of the first
Payment Date, the Closing Date) to, but excluding such Payment Date at a rate
equal to the [A-1 Note] Interest Rate on the outstanding principal balance of
the [A-1 Notes] on the immediately preceding Payment Date (or, in the case of
the first Payment Date, the Closing Date) after giving effect to all
distributions of principal to [A-1 Noteholders] on such Payment Date and (ii)
the interest accrued from and including the immediately preceding Payment Date
(or, in the case of the first Payment Date, the Closing Date) to but excluding
such Payment Date at a rate equal to the [A-2 Note] Interest Rate on the
outstanding principal balance of the [A-2 Notes] on the immediately preceding
Payment Date (or, in the case of the first Payment Date, on the Closing Date)
after giving effect to all distributions of principal to the [A-2 Noteholders]
on such Payment Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Payment Date, the excess of the Noteholders' Monthly Interest Distributable
Amount for the preceding Payment Date and any outstanding Noteholders' Interest
Carryover Shortfall on such preceding Payment Date, over the amount in respect
of interest that is actually deposited in the Note Distribution Account on such
preceding Payment Date, plus interest on the amount of interest due but not paid
to Noteholders on the preceding Payment Date, to the extent permitted by law, at
the weighted average interest rate borne by the [A-1 Notes] and the [A-2 Notes]
from such preceding Payment Date through the current Payment Date.
"[A-1 Noteholders'] Principal Distributable Amount" means, with respect to
any Payment Date, the sum of the [A-1 Noteholders'] Monthly Principal
Distributable Amount for such Payment Date and the [A-1 Noteholders'] Principal
Carryover Shortfall as of the close of the preceding Payment Date; provided,
however, that the [A-1 Noteholders'] Principal Distributable Amount shall not
exceed the outstanding principal balance of the [A-1 Notes]. In addition, on
the [A-1] Final Scheduled Payment Date, the principal required to be deposited
in the Note Distribution Account will include the amount necessary (i) after
giving effect to the other amounts to be deposited in the Note Distribution
Account on such Payment Date and allocable to principal) to reduce the
outstanding principal balance of the [A-1 Notes] to zero.
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"[A-2 Noteholders'] Principal Distributable Amount" means, with respect to
any Payment Date the sum of the [A-2 Noteholders'] Monthly Principal
Distributable Amount for such Payment Date and the [A-2 Noteholders'] Principal
Carryover Shortfall as of the close of the preceding Payment Date; provided,
however, that, until an amount sufficient to reduce the outstanding principal
balance of the [A-1 Notes] to zero has been deposited in the Note Distribution
Account, the [A-2 Noteholders'] Principal Distribution Amount shall be zero;
provided, further, that the [A-2 Noteholders'] Principal Distribution Amount
shall not exceed the outstanding principal balance of the [A-2 Notes]. In
addition, on the [A-2] Final Scheduled Payment Date, the principal required to
be deposited in the Note Distribution Account will include the amount necessary
(after giving effect to the other amounts to be deposited in the Note
Distribution Account on such Payment Date and allocable to principal) to reduce
the outstanding principal balance of the [A-2 Notes] to zero.
"[A-1 Noteholders'] [Monthly] Principal Distributable Amount" means, with
respect to any Payment Date until the later of (i) the Payment Date on which the
outstanding principal balance of the [A-1 Notes] has been reduced to zero and
(ii) the Payment Date on which the lesser of the full amount of the Maturity
Draw or the amount of the Maturity Draw, if any, necessary to increase the
amount on deposit in the Reserve Account to the Specified Reserve Account
Balance is deposited into the Reserve Account, ___% of the Principal
Distribution Amount, but not in excess of the outstanding principal balance of
the [A-1 Notes] or the amount of the Maturity Draw required to be deposited in
the Reserve Account on such Payment Date but not previously deposited in the
Reserve Account, as the case may be.
"[A-2 Noteholders'] [Monthly] Principal Distributable Amount" means, with
respect to any Payment Date on or after the later to occur of (i) the Payment
Date on which an amount sufficient to reduce the outstanding principal balance
of the [A-1 Notes] to zero has been deposited in the Note Distribution Account
and (ii) the Payment Date on which the lesser of the full amount of the Maturity
Draw and the amount of the Maturity Draw, if any, necessary to increase the
amount on deposit in the Reserve Account to the Specified Reserve Account
Balance is deposited into the Reserve Account, the [A-2 Noteholders'] Percentage
of the difference between the Principal Distribution Amount and the portion
thereof, if any, applied to reduce the principal balance of the [A-1 Notes] to
zero or the portion thereof deposited into the Reserve Account in respect of a
Maturity Draw, as the case may be; provided, however, that if the amount on
deposit in the Reserve Account is less than the lesser of _______% of the
initial Pool Balance and the sum of the outstanding principal amount of the
Notes and the Certificate Balance on any Payment Date, then, with respect to
each Payment Date thereafter, the [A-2 Noteholders'] Monthly Principal
Distributable Amount means 100% of the Principal Distribution Amount less the
portion thereof, if any, necessary on such Payment Date to be deposited in the
Note Distribution Account to reduce the outstanding principal balance of the [A-
1 Notes] to zero. In addition, on or after the ___________________, 199__
Payment Date, certain amounts from the Reserve Account may be paid as
accelerated principal on the [A-2 Notes] as described under "Reserve Account"
below.
"[A-2 Noteholders'] Percentage" means (i) for each Payment Date to and
including the latest to occur of (x) the Payment Date on which the principal
balance of the Class [A-1 Notes] is reduced to zero, (y) the
___________________, 199__ Payment Date and (z) the Payment Date on which the
lesser of the full amount of the Maturity Draw or the amount of the Maturity
Draw, if any, necessary to increase the amount on deposit in the Reserve Account
to the Specified Reserve Account Balance is deposited into the Reserve Account,
_____% and (ii) thereafter, ____%; provided, however, that if, on or after the
latest occur of (x) the Payment Date on which the principal balance of the [A-1
Notes] is reduced to zero, (y) the ______________, 19__ Payment Date and (z) the
Payment Date on which the lesser of the full amount of the Maturity Draw or the
amount of the Maturity Draw, if any, necessary to increase the amount on deposit
in the Reserve Account to the Specified Reserve Account Balance is deposited
into the Reserve Account, the amount on deposit in the Reserve Account is less
than the lesser of ____% of the initial Pool Balance and the sum of the
outstanding principal amount of the Notes and the Certificate Balance, then,
with respect to each Payment Date thereafter, the [A-2 Noteholders'] Percentage
shall be _____%.
"[A-1 Noteholders'] Principal Carryover Shortfall" means, as of the close
of any Payment Date, the excess of the [A-1 Noteholders'] [Monthly] Principal
Distributable Amount and any outstanding [A-1 Noteholders'] Principal Carryover
Shortfall from the preceding Payment Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account in respect
of the [A-1 Notes.]
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"[A-2 Noteholders'] Principal Carryover Shortfall" means, as of the close
of any Payment Date, the excess of the [A-2 Noteholders'] [Monthly] Principal
Distributable Amount and any outstanding [A-2 Noteholders'] Principal Carryover
Shortfall from the preceding Payment Date over the amount in respect of
principal that is actually deposited in the Note Distribution Account in respect
of the [A-2 Notes].
"[Class A-2 Noteholders]' Interest Carryover Amount" means, if on any
Payment Date the [A-2 Notes] bear interest at the [A-2 Note] Alternative
Interest Rate, the excess of (a) the amount of interest on the [A-2 Notes] that
would have accrued in respect of such Payment Date had such interest been
calculated at _______% per annum over (b) the amount of interest on the [A-2
Notes] actually accrued in respect of such Payment Date based on the [A-2 Note]
Alternative Interest Rate, together with the unpaid portion of any such excess
from prior Payment Dates and interest accrued thereon, to the extent permitted
by law, calculated at the [A-2 Note] Interest Rate without taking into account
the [A-2 Note] Alternative Interest Rate.
"Certificateholders' Distributable Amount" means, with respect to any
Payment Date, the sum of the Certificateholders' Principal Distributable Amount
and the Certificateholders' Interest Distributable Amount.
"Certificateholders' Interest Distributable Amount" means, with respect to
any Payment Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Payment Date and the Certificateholders' Interest
Carryover Shortfall for such Payment Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Payment Date, the sum of (i) interest accrued from and including
the preceding Payment Date to, but not including, such current Payment Date (or,
in the case of the first Payment Date, interest accrued from and including the
Closing Date to, but excluding, such current Payment Date) at the Pass-Through
Rate on the Certificate Balance on the last day of the preceding Collection
Period (or, in the case of the first Payment Date, on the Closing Date) [plus
(ii) if on such Payment Date the amount on deposit in the Reserve Account, after
giving effect to all withdrawals for payment on the Notes and the Certificates
(other than pursuant to this clause (ii)) and all deposits required to be made
on such Payment Date, exceeds the Specified Reserve Account Balance, an amount
equal to the lesser of (1) such excess and (2) [one-twelfth] of the product of
(a) ___% of the excess, if any, of (x) the amount of the positive spread, if
any, between the Base Rate in effect on the date that LIBOR is established for
such Payment Date and LIBOR for such Payment Date over (y) _____% times (b) ___%
of the Certificate Balance on the preceding Payment Date.]
"Pass-Through Rate" means, with respect to the Certificates, on any Payment
Date a rate per annum equal to _______% [plus an amount equal to the product of
0.___ multiplied by LIBOR for such Payment Date;] provided, however, that on and
after the ______________, 199_ Payment Date, if the aggregate amount of Realized
Losses during the period from the Cut-off Date through the fiscal month ending
in ______________, 199__, is an amount, expressed as a percentage, that is (x)
0.___% or less (but greater than 0.___%) of the Pool Balance as of the Cut-off
Date, the Pass-Through Rate (as determined in the clause preceding this proviso)
for any Payment Date shall be increased by 0.___% per annum or (y) 0.___% or
less of the Pool Balance as of the Cut-off Date, the Pass-Through Rate (as
determined in the clause preceding this proviso) for any Payment Date shall be
increased by 0.___% per annum; provided, further, that notwithstanding the
preceding proviso, if the Net Receivables Rate borne by the Receivables during
the prior Collection Period is less than the Pass-Through Rate thus calculated
for such Payment Date, then the Pass-Through Rate for such Payment Date shall
equal such Net Receivables Rate.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Payment Date, the excess of the Certificateholders' [Monthly] Interest
Distributable Amount for the preceding Payment Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Payment Date,
over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Payment Date, plus interest
on such excess, to the extent permitted by law, at the Pass-Through Rate from
such preceding Payment Date through the current Payment Date.
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"Certificateholders' Principal Distributable Amount" means, with respect to
any Payment Date, the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Payment Date and the Certificateholders' Principal
Carryover Shortfall as of the close of the preceding Payment Date; provided,
however, that the Certificateholders' Principal Distributable Amount shall not
exceed the Certificate Balance. In addition, on _______________, 199__, the
principal required to be distributed to Certificateholders will include the
amount necessary (after giving effect to the other amounts to be deposited in
the Certificate Distribution Account on such Payment Date and allocable to
principal) to reduce the Certificate Balance to zero.
"Certificateholders' [Monthly] Principal Distributable Amount" means, with
respect to any Payment Date on or after the latest to occur of (i) the Payment
Date following the Payment Date on which the principal balance of the [A-1
Notes] is reduced to zero, (ii) the _______________, 199__ Payment Date and
(iii) the Payment Date following the Payment Date on which the lesser of the
full amount of the Maturity Date or the amount of the Maturity Draw, of any,
necessary to increase the amount on deposit in the Reserve Account to the
Specified Reserve Account Balance is deposited into the Reserve Account, the
Certificateholders' Percentage of the Principal Distribution Amount (less the
portion thereof, if any, applied on such Payment Date to reduce the principal
balance of the [A-1 Notes] to zero or deposited in the Reserve Account in
respect of a Maturity Draw) and, with respect to any Payment Date on or after
the Payment Date on which the outstanding principal balance of the [A-2 Notes]
is reduced to zero, ____% of the Principal Distribution Amount (less the portion
thereof required on the first such Payment Date to reduce the outstanding
principal balance of the A-2 Notes to zero, which shall be deposited into the
Note Distribution Account); provided, however, that if as described in the
definition of "[A-2 Noteholders'] [Monthly] Principal Distributable Amount",
____% of the Principal Distribution Amount is required to be deposited in the
Note Distribution Account, then no portion of the Principal Distribution Amount
will be deposited in the Certificate Distribution Account until the Notes have
been paid in full.
"Certificateholders' Percentage" means 100% minus the [A-2 Noteholders']
Percentage.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Payment Date, the sum of (i) the excess of the Certificateholders'
[Monthly] Principal Distributable Amount and any outstanding Certificateholders'
Principal Carryover Shortfall from the preceding Payment Date, over the amount
in respect of principal that is actually deposited in the Certificate
Distribution Account and (ii) the unreimbursed portion of the amount by which
the Certificate Balance has been reduced as described in the second sentence of
the definition of "Certificate Balance" immediately following.
"Certificate Balance" equals, initially, $____________________ and,
thereafter, equals the initial Certificate Balance, reduced by all amounts
allocable to principal previously distributed to Certificateholders. The
Certificate Balance shall also be reduced on any Payment Date by the excess, if
any, of the sum of the Certificate Balance and the outstanding principal balance
of the Notes (after giving effect to amounts allocable to principal to be
deposited in the Certificate Distribution Account and the Note Distribution
Account on such Payment Date) over the sum of the Note Value as of the close of
business on the last day of the preceding Collection Period and the amount on
deposit in the Reserve Account after giving effect to any distributions
therefrom on such Payment Date. Thereafter, the Certificate Balance shall be
increased to the extent that any portion of the Total Distribution Amount is
available to pay the existing Certificateholders' Principal Carryover Shortfall,
but not by more than the aggregate reductions in the Certificate Balance.
On each Payment Date, all amounts on deposit in the Note Distribution
Account (other than investment earnings, if any) will be distributed to the
Noteholders.
On each Payment Date, all amounts on deposit in the Certificate
Distribution Account (other than investment earnings, if any) will be
distributed to the Certificateholders.
[Class A-1] Maturity Account
If, on any Payment Date prior to the _______________, 199__ Payment Date,
the aggregate amount on deposit in the [Class A-1] Maturity Account exceeds the
aggregate principal balance of the [A-1 Notes] outstanding on such Payment Date,
the amount of such excess shall be deposited in the Reserve
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Account for distribution on such Payment Date to the Bank and the amount of such
excess shall be distributed to the Bank on such Business Day regardless of
whether the amount on deposit in the Reserve Account is less than, equal to or
greater than the Specified Reserve Account Balance; provided, however, that
prior to paying the amount of such excess to the Bank, such excess shall be
deposited into the Note Distribution Account to the extent necessary to pay any
outstanding [Class A-2 Noteholders'] Interest Carryover Amount. On the second
Business Day prior to the _______________, 199__ Payment Date, the Servicer
shall instruct the Indenture Trustee to withdraw all funds on deposit in the
[Class A-1] Maturity Account and to deposit such funds in the Note Distribution
Account for distribution as principal to the [A-1 Noteholders] in an amount such
that the outstanding principal balance of the [A-1 Notes] (after taking into
account any deposits to the Note Distribution Account on such Payment Date in
respect of principal) is reduced to zero. Any amount remaining in the [Class A-
1] Maturity Account after such withdrawal shall be deposited in the Reserve
Account for distribution on such Payment Date to the Bank and the amount of such
excess shall be distributed to the Bank on such Business Day regardless of
whether the amount on deposit in the Reserve Account is less than, equal to or
greater than the Specified Reserve Account Balance; provided, however, that
prior to paying the amount of such excess to the Bank, such excess shall be
deposited into the Note Distribution Account to the extent necessary to pay any
outstanding [Class A-2 Noteholders'] Interest Carryover Amount.
[Class A-2] Lockout Account
On the second Business Day prior to the _______________, 199__ Payment
Date, the Servicer shall instruct the Indenture Trustee to withdraw all funds on
deposit in the [Class A-2] Lockout Account and to deposit such funds in the Note
Distribution Account for distribution as principal to the [A-2 Noteholders.]
Reserve Account
The Servicer shall be required, not later than each Payment Date, to
deposit into the Collection Account the Delinquency Interest Advances. The
Servicer will be permitted to fund its payment of Delinquency Interest Advances
on any Payment Date from collections on any Receivable deposited to the
Collection Account subsequent to the related Collection Period and will be
required to deposit into the collection with respect thereto (i) collections
from the Obligor whose delinquency gave rise to the shortfall which resulted in
such Delinquency Interest Advance and (ii) Net Liquidation Proceeds recovered on
account of the related Receivable to the extent of the amount of aggregate
Delinquency Interest Advance related thereto.
A Receivable is "delinquent" if any payment due thereon is not made by the
close of business on the day such payment is scheduled to be due.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
In the opinion of Dewey Ballantine, special tax counsel to the Trust, the
Bank and the Underwriters ("Tax Counsel"), the following discussion accurately
reflects the material federal income tax consequences relevant to the purchase,
ownership and disposition of the Notes and the Certificates. The discussion
herein does not purport to deal with all aspects of federal income taxation that
may be relevant to holders of the Notes or holders of the Certificates in light
of their specific investment circumstances, nor to certain types of holders
subject to special treatment under the federal income tax laws (for example,
banks, life insurance companies and tax-exempt organizations). This discussion
is based upon current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations (proposed, temporary and final)
promulgated thereunder, judicial decisions and Internal Revenue Service ("IRS")
rulings, all of which are subject to change, which change may be retroactively
applied in a manner that could adversely affect a holder of one or more of the
Notes or the Certificates. The information below is directed to investors that
will hold the Notes or the Certificates, as the case may be, as capital assets
(generally, property held for investment) within the meaning of Section 1221 of
the Code.
Prospective investors are advised to consult their own tax advisors with
regard to the federal income tax consequences of purchasing, holding and
disposing of the Notes and the Certificates, as well
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as the tax consequences arising under the laws of any state, foreign country or
other jurisdiction. The Trust will be provided with an opinion of Tax Counsel
regarding certain federal income tax matters discussed below. An opinion of
counsel, however, is not binding on the IRS or the courts. The Trust has not
sought, nor does it intend to seek, a ruling from the IRS that its position as
reflected in the discussion below will be accepted by the IRS. [Moreover, there
are no cases or IRS rulings on similar transactions involving both debt and
equity interests issued by a trust similar to those of the Notes and the
Certificates and, as a result, there can be no assurance that the IRS will agree
with the conclusions and discussion below.]
[The discussion below of original issue discount is based in part on
regulations proposed, but not yet effective (the "Proposed OID Regulations"),
under the Code. While the Proposed OID Regulations are proposed to be effective
for debt instruments issued sixty or more days after final regulations are
issued, the Proposed OID Regulations are a current indication of the views of
the IRS with respect to the federal income tax treatment of debt instruments
under the original issue discount rules. Because of their proposed effective
date, however, their application in the case of the Notes is not clear and,
further, subsequent versions of the Proposed OID Regulations or final
regulations may be adopted that have different rules that change the treatment
of the Notes under the original issue discount rules from the treatment
described below.]
Tax Classification of the Trust
Tax Counsel will advise the Trust that, based upon the terms of the Trust
Agreement and related documents and transactions as described in the Prospectus
and herein (and assuming ongoing compliance with such agreement and documents),
the Trust will not be classified as an association (or as a publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
advice is based upon conclusions by Tax Counsel that (1) the Trust will not have
certain characteristics necessary for a business trust to be classified as an
association taxable as a corporation, and (2) the nature of the income of the
Trust will exempt it from the rule that certain publicly traded partnerships are
taxable as corporations.
[Prospective investors should be aware, however, that the proper
characterization of the arrangement involving the Trust, the Certificates, the
Notes, the Bank and the Servicer is not entirely clear because there is no
authority on transactions closely comparable to that contemplated herein.] If,
contrary to the opinion of Tax Counsel, the IRS successfully argued that the
Trust should be classified (and thus taxable) as a corporation, the Trust,
including the income from the Receivables (reduced by deductions, including
interest expense on the Notes if the Notes were treated as debt of the Trust and
not otherwise recharacterized), would be subject to federal income tax at
corporate rates. Such a tax could substantially reduce the amounts available to
make payments on the Notes and distributions on the Certificates (and holders of
Certificates could be liable for any such tax that is unpaid by the Trust).
Tax Considerations for Noteholders
Treatment of Notes as Indebtedness. Tax Counsel will advise the Trust
that, based upon the terms of the Notes and the documents and transactions
relating thereto as described in the Prospectus and herein, the Notes will be
classified as debt for federal income tax purposes. 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 might be taxable as
a corporation with the adverse consequences noted above (and the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity). Alternatively, and more
likely in the view of Tax Counsel, the Trust might be 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 U.S. tax
return filing and withholding requirements, and individual holders might be
subject to certain limitations on their ability to deduct their share of Trust
expenses. The remainder of this discussion assumes, in accordance with the
opinion of Tax Counsel, the Notes would be treated as debt for federal income
tax purposes.
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Interest Income on the Notes. Subject to the discussion below, stated
interest on the Notes will be taxable to a Noteholder as ordinary income when
received or accrued in accordance with such Noteholder's method of tax
accounting. If, as expected, the [A-1 Notes] and the [A-2 Notes] have scheduled
maturity dates that are more than one year from their date of original issue,
then neither class of Notes should be subject to the special rules for short-
term obligations under Code Sections 1281 to 1283. It is further expected that,
except as described below, the Notes will not be issued with original issue
discount because the Notes will be sold to the public at a first price of par or
at a first price representing a de minimis discount from par. Under the
[Proposed OID Regulations], a holder of a Note issued with a de minimis amount
of original issue discount must include such discount in income, on a pro rata
basis, as principal payments are made on the Note.
[Based upon the Proposed OID Regulations, the Trust intends to take the
position that stated interest on the Notes does not represent original issue
discount. Prospective holders are advised, however, that the Proposed OID
Regulations are ambiguous in certain respects and there are certain features in
interest rate provisions of the Notes that, while unlikely, might be interpreted
to require a contrary result under these regulations. Further, it is possible
that a portion of the stated interest on the [A-2 Notes,] to the extent stated
interest is payable at an amount in excess of the minimum rate, would be treated
as contingent interest and taxable when the amount becomes fixed and
unconditionally payable. This treatment should not significantly affect the tax
consequences to [A-2 Noteholders], although this treatment might require holders
to report such interest payable on a Payment Date as interest income as of the
end of the related Collection Period or on the related Determination Date and
thus somewhat in advance of the receipt of the cash attributable to such
income.]
If the Notes were treated as having original issue discount, a Noteholder
(including a cash basis holder) generally would be required to include the
interest on the Notes in income for federal income tax purposes on the accrual
method on a constant yield basis, resulting in the inclusion of interest in
income somewhat in advance of the receipt of cash attributable to that income.
Under Section 1272(a)(6) of the Code, special provisions apply to debt
instruments on which payments may be accelerated due to prepayments of other
obligations securing those debt instruments. However, no regulations have been
issued interpreting those provisions and the manner in which those provisions
would apply to the Notes is unclear.
Market Discount and Premium. A holder who purchases a Note at a market
discount (generally, at a cost less than its remaining principal amount) that
exceeds a statutorily defined de minimis amount will be subject to the "market
discount" rules of the Code. These rules provide, in part, that gain on the
sale or other disposition of a debt instrument with a term of more than one year
and partial principal payments on such a debt instrument are treated as ordinary
income to the extent of accrued market discount. The market discount rules also
provide for deferral of interest deductions with respect ta debt incurred to
purchase or carry a Note that has market discount. A holder who purchases a
Note at a premium may elect to be subject to the premium amortization rules of
the Code.
Sale or Other Disposition. If a Noteholder sells a Note, such 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 or original issue discount
previously included by such Noteholder in income with respect to the Note and
decreased by the amount of bond premium (if any) previously amortized and by the
amount of principal payments previously received by such Noteholder with respect
to such Note. Any such gain or loss will be capital gain or loss if the Note
was held as a capital asset, except for gain attributable to accrued interest or
accrued market discount not previously included in income. Capital losses
generally may be used only to offset capital gains.
Foreign Holders. If interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") is not effectively connected with the conduct of a trade or
business within the United States by the foreign person, the interest generally
will be considered "portfolio interest", and generally will not be subject to
United States federal income tax and withholding tax provided the foreign person
(i) is not actually or constructively a "10 percent shareholder" of the Trust
(including a holder of 10 percent of the outstanding Certificates) or the
Originator or a "controlled foreign corporation" with respect to which the Trust
or the Originator is a "related person" within
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the meaning of the Code and (ii) provides the person otherwise required to
withhold U.S. tax an appropriate statement, signed under penalties of perjury,
certifying that the beneficial owner of the Note is a foreign person and
providing the foreign person's name and address. The statement may be made on a
Form W-8 or substantially similar substitute form and, if the information
provided in the statement changes, the foreign person must so inform the person
otherwise required to withhold U.S. tax within 30 days of such change. The
statement generally must be provided in the year a payment occurs or in either
of the two preceding years. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide a signed statement to the withholding agent. However,
in that case, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If interest
on a Note is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
The Revenue Reconciliation Act of 1993, enacted into law in August 1993,
repealed the portfolio interest exemption for certain contingent interest income
received by foreign persons. As noted in the discussion above regarding
interest income on the Notes, a portion of the stated interest on the [A-2
Notes], to the extent stated interest is payable in an amount that exceeds the
minimum interest rate, may represent contingent interest. However, the
contingent interest feature on the [A-2 Notes] is not the type of contingency
contemplated by this newly enacted rule that denies portfolio interest treatment
for certain contingent interest and further such contingent interest on the
Notes should fall within statutory exception to the new rule. Thus the entire
amount of stated interest on the [A-2 Notes] should be eligible for treatment as
portfolio interest as described above if the other requirements for such
treatment have been satisfied.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) the gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Information Reporting and Backup Withholding. The Trust will be required
to report to the IRS, and to each Noteholder of record, the amount of interest
paid on the Notes (and the amount of interest withheld for federal income taxes,
if any) for each calendar year, except as to exempt holders (generally, holders
that are corporations, tax-exempt organizations, qualified pension and profit-
sharing trusts, individual retirement accounts, or nonresident aliens who
provide certification as to their status as nonresidents). Accordingly, each
holder (other than exempt holders who are not subject to this reporting
requirements) will be required to provide, under penalties of perjury, a
certificate containing the holder's name, address, correct federal taxpayer
identification number and a statement that the holder is not subject to backup
withholding. [Should a nonexempt Noteholder fail to provide the required
certification, the Trust will be required to withhold 31% of the amount of
interest otherwise payable to the holder, and remit the withheld amount to the
IRS as a credit against the holder's federal income tax liability. Legislation
has been proposed in Congress that would increase the rate of back-up
withholding to 36%.]
Tax Considerations for Certificateholders
Partnership Treatment of the Trust. The Bank and the Servicer will express
their intent in the Trust Agreement and related documents and will agree, and
the other 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 taxes 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 Bank in its
capacity as recipient of distributions from the Reserve Account), and the Notes
representing indebtedness of the partnership. The Bank and the other
Certificateholders will further agree in such documents to take no action
inconsistent with the treatment of Certificates for such purposes as partnership
interests in the Trust.
[In view of the lack of cases or rulings on similar transactions, a variety
of alternative characterizations are possible in addition to the position to be
taken by Certificateholders that the Certificates represent equity interests in
a partnership with the Bank.] For example, because the
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Certificates have certain features characteristic of debt, the Certificates
might be considered for tax purposes as debt of the Bank or of the Trust. It is
also possible that the Trust might be treated for tax purposes as holding debt
of the Bank rather than the Receivables. Any such characterization should not
result in materially adverse tax consequences to Certificateholders as compared
to the consequences from treatment of the Certificates as equity in a
partnership, as described below, although there could be some timing differences
for income inclusion by Certificateholders. Accordingly, the following
discussion assumes that the Certificates represent equity interests in a
partnership that owns the Receivables for federal income tax purposes.
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 distributive share of income, gains,
losses, deductions and credits of the Trust and to report such items on his
personal income tax return for the taxable year with or within which ends the
Trust's taxable year. (As explained below, the Trust's taxable year ends
_________________.) The income of the Trust will consist primarily of interest
and finance charges earned on the Receivables (including appropriate adjustments
for market discount, original issue discount, and premium) and any income or
gain upon collection or disposition of Receivables. The expenses of the Trust
will consist primarily of interest accruing on 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 fiscal month equal to the sum of (i) the Certificateholders'
[Monthly] Interest Distributable Amount for the Payment Date following such
fiscal month; (ii) an amount equivalent to interest that accrues on amounts
previously due on Certificates but not yet distributed; and (iii) subject to the
discussion below on discount and premium, any Trust income attributable to
discount (of less any offset attributable to allowable premium) on the
Receivables that corresponds to any difference of the principal amount of the
Certificates and their initial issue price. All remaining taxable income of the
Trust will be allocated to the Sponsor. [Based upon the economic arrangement of
the parties this approach for allocating Trust income should be permissible, but
because of the absence of authority directly on point, 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,
holders of Certificates 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 such holders have not received cash from the Trust to pay such
taxes. In addition, under such allocation a Certificateholders' taxable income
could exceed the amount of net income allocated to him because of limitations on
deductions for expenses or losses of the Trust allocated to such holder.
Alternatively, it is possible that the IRS would treat Certificateholders as
receiving guaranteed payments from the Trust, in which case the payments on
Certificates would be treated as ordinary income but not as interest income. 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. Under the Trust Agreement,
the Bank is authorized to adjust the allocations described above if necessary to
reflect the economic income, gain or loss to the Certificateholders (including
the Bank) or as otherwise required by the Code.
All of the taxable income allocated for taxable years of the Trust
beginning on or before December 31, 1994 to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code. For Trust
taxable years beginning after December 31, 1994, a portion of the taxable income
allocated to such a Certificateholder will be treated as income from "debt
financed property", which generally will be taxable as unrelated business
taxable income.
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An individual taxpayer's share of expenses of the Trust (including fees for
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or
in part because of the two percent limitation on miscellaneous itemized
deductions 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 Trust 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 not expected that there
will be any significant adverse tax effect on Certificateholders.
Discount and Premium. As a result of their interest rate and payment
features, it is likely that state interest on some of the Receivables would be
treated as original issue discount under the [Proposed OID Regulations] that is
includible in income by holders as such discount accrues. Since the Trust will
elect the accrual method of tax accounting, it is not expected that such
treatment would, as a general rule, have any materially adverse tax effect on
holders of Certificates. Certificateholders should be aware, however, that
interest accruing on some Receivables for a payment period could exceed payments
due thereunder for such period, in which case the likelihood might increase that
holders of Certificates would recognize Trust income prior to the receipt of
cash from the Trust that is attributable to such income.
The cost of acquisition by the Trust for the Receivables (exclusive of
amounts paid for accrued interest thereon) may be greater or less than the
remaining principal balance of the Receivables at the time of acquisition. If
so, the Receivables will have been acquired at a premium or discount, as the
case may be, exclusive of Receivables treated as contributed by the Bank as a
partner to the Trust (as indicated above, the Trust will make this calculation
of discount or premium 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 premium or at a market discount,
the Trust will elect to include such discount in income as it accrues over the
life of the Receivables or (to the extent allowable) may offset such premium
against interest income or original issue discount on the Receivables. If the
aggregate initial principal amount of Certificates differs from their aggregate
issue price, market discount income or allowable premium deductions attributable
to such difference will be allocated to Certificateholders. Because some
Receivables have indefinite maturities, the method and timing for including
market discount or offsetting premium against income thereon is not clear under
present law and the offset for premium might be deferred until maturity; one
reasonable approach, however, would be on the basis of principal payments when
made.
Constructive Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a 12-
month period. If such a termination occurs, there will be a closing of the
partnership's taxable year for all partners and the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. (Furthermore, the Trust might not be able to
comply due to lack of data.) Moreover, if the tax year of the Trust is not a
calendar year the closing of a tax year of the Trust may cause a
Certificateholder reporting on a calendar year to report more than 12 months'
taxable income of the Trust.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate generally will equal his cost
increased by his share of Trust income (includible in his income) and decreased
by any distributions received with respect to such Certificate. In addition,
both tax basis in a Certificate and the amount realized on a sale of such
Certificate would include the holder's share of the outstanding balance 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 pro rata portion of such aggregate tax basis to the
Certificates sold
S-44
<PAGE>
(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, if any, on the Receivables would generally
be treated as ordinary income to the holder and might 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 the Receivables are acquired at a market discount.
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 generally will 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 each fiscal month and the tax items
for a particular fiscal 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 the corresponding calendar month, which is the
Certificate Record Date for the next Payment Date. As a result of this monthly
allocation, a holder purchasing Certificates may be allocated tax items (which
will affect its tax liability and tax basis) attributable to periods before the
actual transfer.
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 Bank is
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future regulations.
No Section 754 Election. In the event that a Certificateholder sells its
Certificates at a gain (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than that of the selling
Certificateholder. 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 cause
to be kept complete and accurate books of the Trust. Code Section 706 requires
that a partnership adopt the taxable year of its majority interest partners, or,
if none, its principal partners, and the Bank has a taxable year that ends
___________________. Accordingly, such books will be maintained for financial
reporting and tax purposes on an accrual basis and the fiscal and taxable year
of the Trust will be the 12-month period ending _____________ (or, in the case
of _______________, 199__, the period from the Closing Date to _______________,
199__). The [Owner] Trustee will file a partnership information return (IRS
Form 1065) with the IRS for each taxable year of the Trust and will report to
holders and the IRS each Certificateholder s allocable share of items of Trust
income and expense 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 Code Section 6031, any person that holds Certificates as a nominee at
any time during the Trust taxable year is required to furnish the Trust with a
statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. The information referred to below or any taxable
year must be furnished to the Trust on or before the last day of the first month
following the close of the Trust's taxable year, i.e., _________________. Such
information includes (i) the name, address
S-45
<PAGE>
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer 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, acquired or transferred 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 that holds an interest
in a partnership as a nominee is not required to furnish any such information
statement to the Trust. Nominees, brokers and financial institutions that fail
to provide the Trust with the information described above may be subject to
penalties.
The Bank, as the tax matters partner, 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 since the later of the
filing or the last date for filing of the partnership information return. 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.
Foreign Persons. Ownership of Certificates by nonresident aliens and
foreign corporations and other foreign persons raises tax issues unique to such
persons, may have substantially adverse tax consequences to them, and will
subject the Trust to U.S. tax withholding and reporting requirements. For this
reason, purchasers (including nominees of beneficial owners) of Certificates and
their assignees must represent that the beneficial owners of Certificates are
individuals or entities that are U.S. persons (generally, citizens or residents
of the U.S. and corporations or partnerships organized under U.S. law), and each
purchaser must provide a certification of non-foreign status signed under
penalties of perjury.
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% (proposed to be increased to 36%) 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.
STATE, LOCAL AND OTHER TAX CONSEQUENCES
Investors should consult their own tax advisors regarding whether the
purchase of the Offered Notes, either alone or in conjunction with an investor's
other activities, may subject an investor to any state or local taxes based on
an assertion that the investor is either "doing business" in, or deriving income
from a source located in, any state or local jurisdiction. Additionally,
potential investors should consider the state, local and other tax consequences
of purchasing, owning or disposing of an Offered Note. State and local tax laws
may differ substantially from the corresponding federal tax law, and the
foregoing discussion does not purport to describe any aspect of the tax laws of
any state or other jurisdiction. Accordingly, potential investors should
consult their own tax advisors with regard to such matters.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT BE APPLICABLE TO
ANY INDIVIDUAL INVESTOR, DEPENDING UPON A NOTEHOLDER'S OR A 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 THE NOTES AND THE 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.
S-46
<PAGE>
ERISA CONSIDERATIONS
The Notes
The Notes may be purchased by an employee benefit plan or an
individual retirement account (a "Plan") subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code.
A fiduciary of a Plan must determine that the purchase of a Note is consistent
with its fiduciary duties under ERISA and does not result in a nonexempt
prohibited transaction as defined in Section 406 of ERISA or Section 4975 of the
Code. Employee benefit plans which are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to the fiduciary responsibility or prohibited transaction
provisions of ERISA or the Code. For additional information regarding treatment
of the Notes under ERISA, see "ERISA Considerations" in the Prospectus.
If the Notes constitute equity interests, there can be no assurance
that any of the exceptions set forth in the Regulations will apply to the
purchase of Notes offered hereby. Under the terms of the Regulations, if the
Issuer were deemed to hold Plan assets by reason of a Plan's investment in
Notes, such Plan assets would include an undivided interest in the Receivables,
and any other assets held by the Issuer. In such an event, the Originator, the
Bank, the Issuer, the Indenture Trustee and other persons providing services
with respect to the Receivables, may be subject to the fiduciary responsibility
provisions of Title One of ERISA and be subject to the prohibited transaction
provisions of Section 4975 of the Code with respect to transactions involving
the Receivables unless such transactions are subject to a statutory or
administrative exemption. Additionally, if the Issuer were deemed to hold Plan
assets, each Noteholder may be subject to the fiduciary responsibility
provisions of Title One of ERISA with respect to its right to consent or
withhold consent to amendments to the Indenture and with respect to its right to
vote on action to be taken or not taken if an Indenture Event of Default occurs.
In addition, certain affiliates of the Originator, the Bank, the
Issuer and the Indenture Trustee may be considered to be parties in interest or
fiduciaries with respect to many Plans. An investment by such a Plan in Notes
may be a prohibited transaction under ERISA and the Code unless such investment
is subject to a statutory or administrative exemption.
Any Plan fiduciary that proposes to cause a Plan to purchase Notes
should consider whether such purchase would be appropriate under the general
fiduciary standards of prudence and diversification, taking into account the
overall investment policy of the Plan and its existing portfolio and should
consult with its counsel with respect to the potential applicability of ERISA
and the Code.
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 (each, a "Benefit Plan"). By its acceptance of a
Certificate, each Certificateholder will be deemed to have represented and
warranted that it is not a Benefit Plan.
RATINGS
As a condition to the issuance of the Notes, the [A-1 Notes] must be
rated at least "__" by the Rating Agency, the [A-2 Notes] must be rated at least
"____" by the Rating Agency and the Certificates must be rated at least "____"
by the Rating Agency. A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time. The
rating of ________________________ assigned to the Notes and Certificates
addresses the likelihood of the receipt by [A-1] Noteholders, [A-2] Noteholders
and Certificateholders of all distributions to which such [A-1] Noteholders, [A-
2] Noteholders and Certificateholders are entitled. The ratings assigned to the
[A-1 Notes], [A-2 Notes] and Certificates do not represent any assessment of the
likelihood that principal prepayments might differ from those originally
anticipated or address the possibility that [A-1] Noteholders, [A-2] Noteholders
or Certificateholders might suffer a lower than anticipated yield. The ratings
of the
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<PAGE>
Securities are also based on the rating of the security insurer. Upon a
security insurer default, the rating on the Securities may be lowered or
withdrawn entirely. In the event that any rating initially assigned to the
Securities were subsequently lowered or withdrawn for any reason, including by
reason of a downgrading of the security insurer's claims-paying ability, no
person or entity will be obligated to provide any additional credit enhancement
with respect to the Securities. Any reduction or withdrawal of a rating will
have an adverse effect on the liquidity and market price of the Securities.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the "Note Underwriting Agreement"), the Bank has agreed to cause the
Trust to sell to [each of] the underwriter(s) named below (the "Note
Underwriter(s)"), and each of the Note Underwriter(s) has severally, and not
jointly, agreed to purchase, the principal amount of Notes set forth opposite
its name below.
<TABLE>
<CAPTION>
Principal Principal
Amount of Amount of
Underwriter(s) [A-1 Notes] [A-2 Notes]
- -------------- ----------- -----------
<S> <C> <C> <C>
$ $
- ----------------- ......................... ----- -----
- ----------------- ......................... ----- -----
TOTAL ......................... $ $
===== =====
</TABLE>
In the Note Underwriting Agreement, the Note Underwriter(s) have agreed,
subject to the terms and conditions therein, to purchase all the Notes offered
hereby if any of such Notes are purchased. The Bank has been advised by the
Note Underwriter(s) that they propose initially to offer the [A-1 Notes] and the
[A-2 Notes] to the public at the respective prices set forth herein, and to
certain dealers at such prices less a concession not in excess of _____% per [A-
1 Note] and 0.__% per [A-2 Note]. The Note Underwriter(s) may allow and such
dealers may reallow a concession not in excess of 0.__% per [A-1 Note] and
0.___% per [A-2 Note] to certain other dealers. After the initial public
offering, such prices and such concessions may be changed.
The Note Underwriting Agreement provides that the Bank and the Originators
will indemnify the Note Underwriter(s) against certain civil liabilities,
including liabilities under the Securities Act, or contribute to payments the
Note Underwriter(s) may be required to make in respect thereof.
The Indenture Trustee (on behalf of the Trust) may, from time to time,
invest the funds in the Trust Accounts in Eligible Investments acquired from the
Note Underwriter(s).
The closing of the sale of the Notes is conditioned on the closing of the
sale of the Certificates.
Subject to the terms and conditions set forth in a certificate underwriting
agreement the "Certificate Underwriting Agreement"), the Bank has agreed to
cause the Trust to sell to ___________________________ (the "Certificate
Underwriter(s)"; and, together with the Note Underwriter(s), the
"Underwriter(s)"), and the Certificate Underwriter(s) [has][have] agreed to
purchase, Certificates in an aggregate principal amount of
$____________________. The Bank will purchase Certificates in an aggregate
principal amount of $____________________ from the Certificate Underwriters and
will purchase Certificates in an aggregate principal amount of $_______________
from the Trust.
The Bank has been advised by the Certificate Underwriter(s) that they
propose initially to offer the Certificates to the public at the prices set
forth herein, and to certain dealers at such price less the initial concession
not in excess of ____% per Certificate. The Certificate Underwriter(s) 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.
S-48
<PAGE>
The Certificate Underwriting Agreement provides that the Bank and the
Originator will indemnify the Certificate Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or contribute to
payments the Certificate Underwriter(s) may be required to make in respect
thereof. The Commission is of the opinion that indemnification for securities
law violations is contrary to the public policy expressed in the federal
securities laws, and, consequently, that such indemnification provisions are
unenforceable.
The Indenture Trustee (on behalf of the Trust) may, from time to time,
invest the funds in the Trust Accounts in Eligible Investments acquired from the
Certificate Underwriter(s).
The closing of the sale of the Certificates is conditioned on the closing
of the sale of the Notes.
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the issuance of the Notes and the Certificates, as
well as other matters, will be passed upon for the Trust and the Bank by Shaw,
Pittman, Potts & Trowbridge, Washington, D.C. and for the Underwriter(s) by
Dewey Ballantine, New York, New York.
S-49
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
<TABLE>
Page
----
<S> <C>
A-1 Noteholders.........................................................8
A-1 Notes............................................................1, 5
A-2 Noteholders.........................................................8
A-2 Notes............................................................1, 5
Act....................................................................20
Adequately capitalized.................................................20
Alternate Principal Distribution Amount................................35
APR....................................................................17
APRs...................................................................11
Backup.................................................................46
Bank.................................................................1, 5
Benefit Plan...........................................................47
Business Day.......................................................28, 30
Cede....................................................................4
Certificate Balance....................................................38
Certificate Record Date................................................10
Certificate Underwriter(s).............................................48
Certificate Underwriting Agreement.....................................48
Certificateholders......................................................9
Certificateholders' Distributable Amount...............................37
Certificateholders' Interest Carryover Shortfall.......................37
Certificateholders' Interest Distributable Amount......................37
Certificateholders' Monthly Interest Distributable Amount..............37
Certificateholders' Percentage.........................................38
Certificateholders' Principal Carryover Shortfall......................38
Certificateholders' Principal Distributable Amount.....................38
Certificateholders' [Monthly] Principal Distributable Amount...........38
Certificates.........................................................1, 6
CFC.....................................................................7
CFC Receivables.........................................................7
Closing Date............................................................5
Code...................................................................39
Collection Account.....................................................11
Collection Period.......................................................8
Commission..............................................................4
Contract Payments.......................................................6
Contracts...............................................................1
Controlled foreign corporation.........................................41
Cut-off Date............................................................5
Debt financed property.................................................43
Defaulted Contract.....................................................12
Definitive Certificates.................................................6
Delinquency Amounts....................................................12
Delinquent Contract....................................................12
Determination Date.....................................................33
DTC.....................................................................4
ERISA..............................................................14, 47
Exchange Act............................................................4
FDIC...................................................................20
FDICIA.................................................................20
FIRREA.................................................................20
Foreign person.........................................................41
Indenture............................................................1, 5
Indenture Trustee.......................................................5
Initial Yield Maintenance Amount.......................................11
</TABLE>
S-50
<PAGE>
<TABLE>
Page
----
<S> <C>
Insurance Policies.....................................................27
Interest Distribution Amount...........................................33
Investment Earnings....................................................12
IRS....................................................................39
Issuer...............................................................1, 5
LIBO...............................................................28, 30
LIBOR...........................................................8, 28, 30
LIBOR Business Day.................................................28, 30
Liquidated Receivables.................................................33
Liquidation Proceeds...................................................33
Maturity Draw.......................................................9, 34
Net Receivables Rate...................................................16
Nonrecoverable Advances................................................12
Note Record Date........................................................8
Note Underwriter(s)....................................................48
Note Underwriting Agreement............................................48
Note Value..........................................................8, 34
Note Value Decline.....................................................35
Noteholders.............................................................8
Noteholders' Distributable Amount......................................35
Noteholders' Interest Carryover Shortfall..............................35
Noteholders' Interest Distributable Amount.............................35
Noteholders' Monthly Interest Distributable Amount.....................35
Notes................................................................1, 5
Obligor.................................................................6
Originator...........................................................1, 5
OTS....................................................................20
Owner Trustee...........................................................5
Pass-Through Rate......................................................37
Payment Date.....................................................3, 8, 28
Plan...............................................................14, 47
Pool Balance............................................................7
Pooling Agreement.......................................................6
Portfolio interest.....................................................41
Predecessor Receivable.................................................19
Principal Distribution Amount..........................................33
Principal Payments......................................................8
Proposed OID Regulations...............................................40
Prospectus..............................................................4
Rating Agencies........................................................15
Realized Losses........................................................35
Receivables.............................................................1
Receivables Acquisition Agreement.......................................6
Related person.........................................................41
Required Rate..........................................................11
Reserve Account........................................................11
Reuters Screen LIBO Page...........................................28, 30
Risk Factors............................................................3
Rule of 78s............................................................17
SAIF...................................................................20
Securities..............................................................1
Securityholders........................................................10
Servicer................................................................5
Servicer Advance.......................................................12
Servicing Charges......................................................12
Servicing Fee..........................................................12
Servicing Fee Rate.....................................................12
Specified Reserve Account Balance.......................................9
</TABLE>
S-51
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Substitute Receivable..................................................19
Tax Counsel............................................................39
Total Distribution Amount..............................................33
Transfer and Servicing Agreements......................................32
Trust................................................................1, 5
Trust Agreement.........................................................6
Undercapitalized.......................................................20
Underwriter(s).........................................................48
Underwriter[s]..........................................................2
Unrelated business taxable income..................................40, 43
Vehicles................................................................1
Vendor Agreement Rights................................................28
Well capitalized.......................................................20
Yield Maintenance Amount...............................................11
[A-1 Noteholders'] Principal Carryover Shortfall.......................36
[A-1 Noteholders'] Principal Distributable Amount......................35
[A-1 Noteholders'] [Monthly] Principal Distributable Amount............36
[A-1 Note] Alternative Interest Rate...................................29
[A-1 Note] [A-2 Note] Interest Rate.....................................8
[A-1] Final Scheduled Payment Date......................................9
[A-2 Noteholders'] Percentage..........................................36
[A-2 Noteholders'] Principal Carryover Shortfall.......................37
[A-2 Noteholders'] Principal Distributable Amount......................36
[A-2 Noteholders'] [Monthly] Principal Distributable Amount............36
[A-2 Note] Alternative Interest Rate...................................30
[A-2] Final Scheduled Payment Date......................................9
[A-2] Redemption Price..................................................9
[Class A-1] Maturity Account...........................................13
[Class A-2 Noteholders]' Interest Carryover Amount.....................37
[Class A-2] Lockout Account............................................13
</TABLE>
S-52
<PAGE>
Exhibit 99.2
SUBJECT TO COMPLETION DATED __________, 1997
[Exhibit 99.2 Form of Prospectus Supplement. This form of Prospectus Supplement
-----------------------------
is for illustrative purposes only. A Prospectus Supplement in definitive form
reflecting the terms of each Series of Notes will be filed with the Commission
under the Securities Act of 1933, as amended, pursuant to Rule 424(b)
promulgated thereunder.]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED __________, 1997)
- --------------------------------------------------------------------------------
CHEVY CHASE AUTO RECEIVABLES FINANCE CORPORATION, 199_-_
$_________ Auto Receivables Backed Notes, [Class A]
$_________ Auto Receivables Backed Notes, [Class B]
CHEVY CHASE BANK, F.S.B., Bank
CHEVY CHASE BANK, F.S.B., Servicer
- --------------------------------------------------------------------------------
The Auto Receivables Backed Notes (the "Notes") offered hereby represent
the right to receive repayment of the initial principal amount ($ ) of
the Notes and monthly interest on the unpaid portion of such principal amount.
The Notes will be issued by Chevy Chase Auto Receivables Finance Corporation
199_-_ (the "Issuer"), a limited purpose corporation organized under the laws of
the State of _______. The Notes will initially be issued in two classes:
[Class A] Notes (the "[Class A] Notes") with an interest rate of ___% per annum
and representing the right to receive __% (the "[Class A] Percentage") of the
Initial Aggregate Balance and [Class B] Notes (the "[Class B] Notes") with an
interest rate of ___% per annum and representing the right to receive __% (the
"[Class B] Percentage") of the Initial Aggregate Balance. The Indenture
provides that the Issuer may, from time to time, subject to certain conditions
set forth therein, enter into Supplements directing the issuance of a third
class of Notes (the "[Class C] Notes") which will be subordinate to the [Class
A] Notes and to the [Class B] Notes. If any such [Class C] Notes are issued,
the [Class C] Noteholders shall have the right to receive a specified percentage
of the Initial Aggregate Balance (the "[Class C] Percentage") which shall not
exceed ___%. Only the [Class A] Notes and the [Class B] Notes are hereby being
offered (together, the "Offered Notes"). The Series 199__-__ Collateral (the
"Collateral") will consist of any combination of retail installment sales and
finance contracts between manufacturers, dealers or certain other originators
and retail purchasers secured by new and used automobiles, light duty trucks and
vans financed thereby or participation interests therein,] together with all
monies received relating thereto (the "Contracts") [the underlying new and used
automobiles and light duty trucks (the "Vehicles," together with the Contracts],
the "Receivables"), and the proceeds thereof received by the Issuer from the
Originator on or prior to the date of the issuance of the Notes. [The
Collateral also will include a perfected security interest in the Vehicles,
certain of the Originator's rights under certain Insurance Policies relating to
the Receivables, any amounts deposited from time to time
(cover continued on next page)
Capitalized terms used herein are defined terms having specific meanings.
An "Index of Defined Terms" is set forth as page ___ hereto, which indicates the
page on which such defined terms are defined.
THE RIGHTS OF THE HOLDERS OF THE CLASS B NOTES WILL BE SUBORDINATED TO THE
RIGHTS OF THE HOLDERS OF THE CLASS A NOTES, AS SET FORTH HEREIN UNDER
"RECEIVABLES ACQUISITION AGREEMENT -- FLOW OF FUNDS".
---------------------
THE NOTES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND TO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE ORIGINATORS, THE SERVICER, ANY SUCCESSOR
SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE NOTES NOR THE
RECEIVABLES ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE ISSUER, THE ORIGINATORS OR THE SERVICER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
AT PAGE ___ HEREIN AND PAGE ___ IN THE PROSPECTUS.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Initial Public Underwriting Proceeds to
Offering Price Discount(1) the Issuer
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
[Per Class A Note]..........
[Per Class B Note]..........
Total.......................
- ----------------------------------------------------------------------
</TABLE>
(1) The Issuer has agreed to indemnify the Underwriter(s) against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $____________ payable by the Issuer.
[The Notes are offered, subject to prior sale, when, as and if accepted by
the Underwriter(s) and subject to the approval of certain legal matters by Dewey
Ballantine, counsel for the Underwriter(s). It is expected that delivery of the
Notes will be made only in book-entry form through the Same Day Funds Settlement
System of The Depository Trust Company on or about ____________, 199__.]
[Name(s) of the Underwriter(s)]
<PAGE>
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(continued from cover)
in the Collection Account or the Reserve Account and any amounts on deposit in
the Pre-Funding Account.]
The Notes will be issued by the Issuer pursuant to that certain indenture
(the "Indenture") entered into between the Issuer and ____________________, as
Trustee. Pursuant to the Indenture, the Collateral will be pledged to secure
the repayment of the Notes.
The Originator will transfer all of its right, title and interest in and to
the Receivables to the Issuer pursuant to the Receivables Acquisition Agreement
to be entered into between the Originator and the Issuer (the "Receivables
Acquisition Agreement"). [The Vehicles are principally ___________.]
[Form of Credit Enhancement]
[On or before the issuance of the Notes, the Issuer will obtain from
______________ (the "Bond Insurer") certificate guaranty insurance policies,
each relating to a class of Notes (the "Bond Insurance Policies"), in favor of
____________, as Trustee for the holders of the Notes. The Bond Insurance
Policies will provide for 100% coverage of the amounts due on the related
Notes.]
Principal and interest with respect to the Notes is payable on the [twenty-
fifth] day (each, a "Payment Date") of each month (or, if such day is not a
Business Day, the next succeeding Business Day), commencing _____________ [25,]
199_. Distributions of interest and principal on the [Class B] Notes will be
subordinated in priority of payment to interest and principal due on the [Class
A] Notes to the extent described herein in the event of defaults and
delinquencies on the Receivables. Distributions of interest and principal on
the [Class C] Notes will be subordinated in priority of payment to interest and
principal due on the Offered Notes to the extent described herein. The maturity
date of the Notes will be _______, 19__ (the "Stated Maturity Date").
________________________________
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES. 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 MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
___________________________
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER(S) MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
___________________________
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes are issued, periodic and annual
unaudited reports containing information concerning the Receivables will be
prepared by the Servicer and sent on behalf of the Issuer only to Cede & Co.
("Cede"), as nominee of The Depository Trust Company ("DTC") and registered
holders of the Notes. See "Description of 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 Issuer 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 thereunder and as are otherwise agreed to by the Commission.
Copies of such periodic reports may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
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S-2
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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 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................. Chevy Chase Auto Receivables Finance Corporation
199_-_, a [limited purpose] corporation organized
under the laws of the State of _____. The principal
executive offices of the Issuer are located at 8401
Connecticut Avenue, Chevy Chase, Maryland 20815, and
its telephone number is (301) 986-7000.
Servicer............... Chevy Chase Bank, F.S.B. (the "Servicer"), a
federally chartered stock savings bank. The principal
executive offices of the Servicer are located at 8401
Connecticut Avenue, Chevy Chase, Maryland 20815, and
its telephone number is (301) 986-7000.
Originators............ ___________ (the "Originators"), a ___________
corporation. The principal executive offices of the
Originator are located at
________________________________________________.
Trustee................ ________________________________ (the "Trustee"), a
[national banking association]. The principal
executive offices of the Trustee are located at ___
____________________________________, and its
telephone number is ______________. The Servicer will
be responsible for payment of the fees of the
Trustee.
Cut-Off Date........... ________ __, 199__.
Closing Date........... ________ __, 199__.
Offered Securities..... The "Securities" consist of Auto Receivables Backed
Notes which will initially be issued in two classes
entitled ____% Auto Receivables Backed Notes, [Class
A] and ____% Auto Receivables Backed Notes, [Class
B]. The Indenture provides that the Issuer may, from
time to time, subject to certain conditions set forth
therein, enter into supplements to the Indenture
(each a "Supplement") directing the issuance of
[Class C] Notes which will be subordinate to the
[Class A] Notes and to the [Class B] Notes. Only the
[Class A] Notes and the [Class B] Notes are being
offered hereby. Each Note will be secured by a
fractional undivided security interest in the
Collateral. Payments of principal and interest on the
Notes will be full recourse obligations of the
Issuer.
The [Class A] Notes will be issued in minimum
denominations of $[1,000] and the [Class B] Notes
will be sold in minimum denominations of $[1,000] and
integral multiples thereof.
Series 199_-_ Collateral The Collateral will consist of any combination of
retail installment sales and finance contracts
between manufacturers, dealers or certain other
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S-3
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originators and retail purchasers secured by new and used
automobiles, light duty trucks and vans financed thereby or
[participation interests] therein, all monies relating
thereto (the "Contracts"), [the underlying new and used
automobiles and light duty trucks ([the "Vehicles,"
together with the Contracts], the "Receivables") and the
proceeds thereof. [The Collateral also will include a
perfected security interest in the Vehicles, certain of the
Originators' rights under certain insurance policies
relating to the Receivables, any amounts deposited from
time to time in the Collection Account or the Reserve
Account and any amounts on deposit in the Pre-Funding
Account.]
[The Originators will transfer all of their right, title
and interest in and to the Receivables to the Issuer
pursuant to the Receivables Acquisition Agreement to be
entered into between the Originators and the Issuer. In
the Receivables Acquisition Agreement, each Originator will
make certain representations and warranties to the Issuer
with respect to, among other things, the Receivables, which
representations and warranties will be assigned to the
Trustee under the Indenture.]
[The maximum collateral value of any Contract will not
exceed $ (_% of the Initial Aggregate Balance). The
excess, if any, of the Discounted Contract Balance (as
hereinafter defined) of any Contract over $ (the
"Excess Contract Balance") will act as additional credit
support, and all Contract Payments under each Contract will
be paid through to the Issuer, as collected, and as
available.]
The Receivables.... The Receivables consist of noncancelable retail
installment sales and finance contracts between
manufacturers, dealers or certain other originators and
retail purchasers secured by new and used automobiles,
light duty trucks and vans financed thereby or
participation interests therein]. Each Obligor's
obligation under its Contract is a full recourse
obligation. The Contracts also contain provisions which
unconditionally obligate the Obligor to make all Contract
Payments.
[All of the Contracts were purchased by the Sponsor from
the Originator in the ordinary course of business and the
Contracts constitute substantially all of the automobile,
light duty truck and van retail installment sale and
finance contracts included in the Originators' portfolio
meeting the selection criteria described herein. Such
selection criteria included that: (i) each Contract is
secured by a new or used automobile, light duty truck or
van; (ii) each Contract was originated in the United
States; (iii) each Contract provides for level monthly
payments that fully amortize the amount financed over its
original term except that the payment in the first or last
month in the life of the Contract may be minimally
different from the level payment, and a minimal number of
the Contracts provide for monthly payments for a period of
time not exceeding one year after origination in an amount
less than such level payment, provided that as of the
Cutoff Date the monthly payment currently due under each
such Contract is equal to such level payment; (iv) each
Contract was originated on or prior to _______, 199_; (v)
each Contract has an original term of __ to __ months and,
as of the Cutoff Date, had a remaining term to maturity of
not less than three months nor more than __ month; (vi)
each Contract provides for the payment of a finance
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S-4
<PAGE>
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charge at an APR ranging from __% to __%; (vii) each
Contract shall not have a Scheduled Payment that is more
than 30 days past due as of the Cutoff Date; (viii) no
Contract shall be due, to the best knowledge of the
related Originator, from any Obligor who is presently
the subject of a bankruptcy proceeding or is bankrupt or
insolvent; (ix) no Vehicle has been repossessed without
reinstatement as of the Cutoff Date; and (x) as of the
Cutoff Date, physical damage insurance relating to each
Vehicle is not being force-placed by the Servicer.]
[As of the Cutoff Date, approximately __%, approximately
__% and approximately __% of the Aggregate Discounted
Contract Balance are expected to represent Contracts
secured by automobiles, light duty trucks and vans,
respectively. Based on the Aggregate Discounted Contract
Balance, approximately __% and approximately __% of the
Contracts are expected to represent financing of new
vehicles and used vehicles, respectively, and no more
than __% of the Contracts are expected to be due from
employees of the Originator or any of its respective
affiliates. As of the Cutoff Date, the average Principal
Balance of Contracts secured by automobiles, light duty
trucks and vans is expected to be approximately $_____,
approximately $___ and approximately $_____,
respectively. The majority of the Vehicles are expected
to be foreign and domestic automobiles, light duty
trucks and vans. Except in the case of any breach of
representations and warranties by the related
Originators, it is expected that none of the Contracts
provide for recourse to the Originator who originated
the related Contract.] Approximately _____% of the
Receivables (by aggregate principal balance of the
Receivables as of the Cut-Off Date) were purchased or
originated by the Bank and the other _____% of the
Receivables were purchased or originated by the Bank's
wholly-owned subsidiary, Consumer Finance Corporation
("CFC"). The Receivables purchased or originated by CFC
are referred to herein as the "CFC Receivables."
[Pre-Funding Account.. On the Closing Date, the Trustee will deposit into an
account established and maintained by the Trustee (the
"Pre-Funding Account") an amount (the "Pre-Funded
Amount") equal to the difference between the Initial
Aggregate Balance and the Aggregate Discounted Contract
Balance of all Contracts actually acquired on the
Closing Date (as defined below). During the period (the
"Funding Period") beginning on the Closing Date and
until the earliest of the date on which (a) the amount
on deposit in the Pre-Funding Account is less than $____
(b) an Indenture Event of Default occurs, or (c) the
close of business on __________ __, 199_, the Pre-Funded
Amount will be maintained in the Pre-Funding Account,
subject to withdrawals on each Additional Receivable
Transfer Date (as defined below). During the Funding
Period, on each date on which additional Receivables
(the "Additional Receivables") are acquired by the
Issuer from the Originator (each an "Additional
Receivable Transfer Date"), the Trustee will release to
the Originator an amount equal to the Discounted
Contract Balance of such Additional Receivables. Any
amounts on deposit in the Pre-Funding Account after the
final Additional Receivable Transfer Date will be
applied as a prepayment of the Notes to the Noteholders
on the next succeeding Payment Date in accordance with
their respective Class Percentages.
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S-5
<PAGE>
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[Capitalized
Interest Account... On the Closing Date, the Trustee will be required to
deposit $__________ of the proceeds of the sale of the
Notes in an account (the "Capitalized Interest Account") in
the name of the Trustee on behalf of the Issuer. The
amount deposited therein will be used by the Trustee on
each Payment Date through the Final Additional Closing Date
to fund the negative arbitrage on the Pre-Funding Account.
Any amounts remaining in the Capitalized Interest Account
after the Payment Date following the Final Additional
Closing Date are required to be paid to the Issuer on such
Payment Date.]
Interest........... Interest on the Notes will be paid on each Payment Date,
commencing _____________ [___], 199_, to holders of record
of the Notes (the "Noteholders") on the last business day
of the [month] preceding the [month] in which such Payment
Date occurs (or in the case of the initial Payment Date,
the Closing Date) (the "Record Date"). Interest on the
[Class A] Notes is required to be paid to holders of record
of the [Class A] Notes (the "[Class A] Noteholders") in an
amount equal to the sum of the (A) product of (i) one
twelfth, (ii) ____% per annum (the "[Class A] Note Rate")
and (iii) the outstanding [Class A] Note Balance on the
preceding Payment Date (or, in the case of the first
Payment Date, on the Closing Date) after giving effect to
any payments of principal made on that Payment Date, (B)
plus [Class A] Overdue Interest (the "[Class A] [Monthly]
Interest"). The "[Class A] Note Balance" shall equal,
initially, $ and thereafter shall equal the initial
[Class A] Note Balance reduced by all principal payments on
the [Class A] Notes. The "[Class A] Overdue Interest" to
be paid on any Payment Date will mean the excess, if any,
of (a) the aggregate amount of [Class A] [Monthly] Interest
due on all prior Payment Dates over (b) the aggregate
amount of [Class A] [Monthly] Interest (from whatever
source) actually paid to [Class A] Noteholders on all prior
Payment Dates. [Class A] Overdue Interest, if any, not
previously paid to Noteholders will accumulate and be paid
on the immediately succeeding Payment Date.
Interest on the [Class B] Notes is required to be paid to
holders of record of the [Class B] Notes (the "[Class B]
Noteholders") in an amount equal to the sum of (A) the
product of (i) one twelfth, (ii) ____% per annum (the
"[Class B] Note Rate") and (iii) the outstanding [Class B]
Note Balance on the preceding Payment Date (or, in the case
of the first Payment Date, on the Closing Date) after
giving effect to any payments of principal made on that
Payment Date, (B) plus [Class B] Overdue Interest (the
"[Class B] [Monthly] Interest"). The "[Class B] Note
Balance" shall equal, initially, $ and thereafter
shall equal the initial [Class B] Note Balance reduced by
all principal payments on the [Class B] Notes. The "[Class
B] Overdue Interest" to be paid on any Payment Date will
mean the excess, if any, of (a) the aggregate amount of
[Class B] [Monthly] Interest due on all prior Payment Dates
over (b) the aggregate amount of [Class B] [Monthly]
Interest (from whatever source) actually paid to [Class B]
Noteholders on all prior Payment Dates. [Class B] Overdue
Interest, if any, not previously paid to [Class B]
Noteholders will accumulate and be paid on the immediately
succeeding Payment Date.
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S-6
<PAGE>
Interest on the [Class C] Notes (if any are issued) is
required to be paid to holders of record of the [Class C]
Notes (the "[Class C] Noteholders") in an amount equal to
the sum of (A) the product of (i) one twelfth, (ii) the
[Class C] Note Rate to be established in connection with
the original issuance of the [Class C] Notes (the "[Class
C] Note Rate") and (iii) the outstanding [Class C] Note
Balance on the preceding Payment Date (or, in the case of
the first Payment Date, on the Closing Date) after giving
effect to any payments of principal made on that Payment
Date, (B) plus [Class C] Overdue Interest (the "[Class C]
[Monthly] Interest"). If any [Class C] Notes are issued,
they shall be issued in an initial principal amount equal
to the product of (A) $ minus all principal
-----
theretofore paid by the Trustee to the [Class A]
Noteholders, and the [Class B] Noteholders and (B) the
[Class C] Percentage (such initial principal amount, being
the "Initial [Class C] Note Balance"). The "[Class C] Note
Balance" shall equal the Initial [Class C] Note Balance
reduced by all principal payments on the [Class C] Notes.
The "[Class C] Overdue Interest" to be paid on any Payment
Date will mean the excess, if any, of (a) the aggregate
amount of [Class C] [Monthly] Interest due on all prior
Payment Dates over (b) the aggregate amount of [Class C]
[Monthly] Interest (from whatever source) actually paid to
[Class C] Noteholders on all prior Payment Dates. [Class
C] Overdue Interest, if any, not previously paid to [Class
C] Noteholders will accumulate and be paid on the
immediately succeeding Payment Date.
Principal.......... Principal payments on the Notes are required to be made
on each Payment Date to Noteholders on the related Record
Date. Principal on the [Class A] Notes is required to be
paid in an amount equal to the sum of (i) the [Class A]
[Monthly] Principal and (ii) the [Class A] Overdue
Principal. The "[Class A] [Monthly] Principal" to be paid
to [Class A] Noteholders on each Payment Date will mean,
with respect to all of the Receivables for any Payment
Date, the product of (x) the sum of (i) the Contract
Payments due during the related Collection Period minus the
aggregate of the [Monthly] Yield for all Contracts, (ii)
for each Contract that is a Defaulted Contract, the
Discounted Contract Balance and (iii) for each Contract
that is the subject of a prepayment (provided that such
Prepayment Amount has actually been deposited in the
Collection Account), an amount equal to the Discounted
Contract Balance immediately prior to prepayment and (y)
the [Class A] Percentage. To the extent that an amount is
included in any of clauses (i) through (iii) above, such
amount shall not be included in any other such clause for
purposes of calculating the [Class A] [Monthly] Principal.
The "[Class A] Overdue Principal" to be paid to [Class A]
Noteholders will mean, with respect to any Payment Date,
the excess, if any, of (a) the aggregate amount of [Class
A] [Monthly] Principal due on all prior Payment Dates over
(b) the aggregate amount of [Class A] [Monthly] Principal
(from whatever source) actually paid to [Class A]
Noteholders on all prior Payment Dates.
Principal on the [Class B] Notes is required to be paid in
an amount equal to the sum of (i) the [Class B] [Monthly]
Principal and (ii) the [Class B] Overdue Principal. The
"[Class B] [Monthly] Principal" to be paid to [Class B]
Noteholders on each Payment Date will mean, with respect to
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S-7
<PAGE>
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all of the Receivables for any Payment Date, the product of
(x) the sum of (i) the Contract Payments due during the
related Collection Period minus the aggregate of the
[Monthly] Yield for all Contracts, (ii) for each Contract
that is a Defaulted Contract, the Discounted Contract
Balance and (iii) for each Contract that is the subject of
a prepayment (provided that such Prepayment Amount has
actually been deposited in the Collection Account), an
amount equal to the Discounted Contract Balance immediately
prior to prepayment and (y) the [Class B] Percentage. To
the extent that an amount is included in any of clauses (i)
through (iii) above, such amount shall not be included in
any other such clause for purposes of calculating the
[Class B] [Monthly] Principal.
The "[Class B] Overdue Principal" to be paid to [Class B]
Noteholders will mean, with respect to any Payment Date,
the excess, if any, of (a) the aggregate amount of [Class
B] [Monthly] Principal due on all prior Payment Dates over
(b) the aggregate amount of [Class B] [Monthly] Principal
(from whatever source) actually paid to [Class B]
Noteholders on all prior Payment Dates.
Principal on the [Class C] Notes (if any are issued) is
required to be paid in an amount equal to the sum of (i)
the [Class C] [Monthly] Principal and (ii) the [Class C]
Overdue Principal. The "[Class C] [Monthly] Principal" to
be paid to [Class C] Noteholders on each Payment Date will
mean, with respect to all of the Receivables due for any
Payment Date, the product of (x) the sum of (i) the
Contract Payments due during the related Collection Period
minus the aggregate of the [Monthly] Yield for all
Contracts, (ii) for each Contract that is a Defaulted
Contract, the Discounted Contract Balance and (iii) for
each Contract that is the subject of a prepayment (provided
that such Prepayment Amount has actually been deposited in
the Collection Account), an amount equal to the Discounted
Contract Balance immediately prior to prepayment and (y)
the [Class C] Percentage. To the extent that an amount is
included in any of clauses (i) through (iii) above, such
amount shall not be included in any other such clause for
purposes of calculating the [Class C] [Monthly] Principal.
The "[Class C] Overdue Principal" to be paid to [Class C]
Noteholders will mean, with respect to any Payment Date,
the excess, if any, of (a) the aggregate amount of [Class
C] [Monthly] Principal due on all prior Payment Dates over
(b) the aggregate amount of [Class C] [Monthly] Principal
(from whatever source) actually paid to [Class C]
Noteholders on all prior Payment Dates.
The "[Monthly] Yield" with respect to each Contract, on any
Payment Date, will mean one-twelfth of the product of the
Discount Rate and the Aggregate Discounted Contract Balance
on the immediately preceding Payment Date (or the Cut-Off
Date in the case of the initial Payment Date). The
"Discounted Contract Balance" of any Contract as of the
Cut-Off Date will mean the present value of all Contract
Payments due thereon after the Cut-Off Date, discounted
monthly at the product of (i) one-twelfth and (ii) ____%
(the "Discount Rate"). The Discount Rate is the sum of (a)
the weighted average of the [Class A] Note Rate, the [Class
B] Note Rate and the [Class C] Note Rate, calculated as of
the
S-8
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<PAGE>
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Closing Date (the "Weighted Average Note Rate") and (b) the
Servicing Fee Rate (as hereinafter defined). (For purposes
of calculating the Weighted Average Note Rate, the [Class
C] Note Rate shall be equal to the [Class B] Note Rate and
the balance applicable thereto shall equal _% of the
Initial Aggregate Balance.) Thereafter, the Discounted
Contract Balance on the first day of any calendar month (a
"Calculation Date") is the present value of each remaining
Contract Payment to become due under a Contract, discounted
monthly from the date such payment is to become due at a
rate equal to one-twelfth of the Discount Rate. On the
date that a Contract becomes a Defaulted Contract, the
Discounted Contract Balance for such Contract will be
reduced to zero. The "Aggregate Discounted Contract
Balance" for any Calculation Date is the sum of the
Discounted Contract Balances of all Contracts.
Subordination...... [Payments of interest and principal on the [Class B]
Notes will be subordinated in priority of payment to
interest and principal due on the [Class A] Notes to the
extent described herein in the event of defaults and
delinquencies with respect to the Receivables. The [Class
B] Notes will not receive any payments of interest and
principal with respect to a Collection Period until the
full amount of interest and principal on the [Class A]
Notes relating to such Collection Period has been deposited
in the [Class A] Distribution Account. Distributions of
interest and principal on the [Class C] Notes will be
subordinated in priority of payment to interest and
principal due on the Offered Notes.]
[Reserve Account... Pursuant to the Indenture, the [Class A] Noteholders and
[Class B] Noteholders will have the benefit of an account
(the "Reserve Account") established and maintained by the
Trustee. Not later than the business day prior to each
Payment Date, the Trustee is required to draw on the
Reserve Account for payment, to the extent that the
collections from the immediately preceding Collection
Period (the "Available Funds") on deposit in an account
established and maintained by the Trustee (the "Collection
Account") are not sufficient to pay [Class A] [Monthly]
Interest, [Class A] Overdue Interest, [Class A] [Monthly]
Principal, [Class A] Overdue Principal, [Class B] [Monthly]
Interest, [Class B] Overdue Interest, [Class B] [Monthly]
Principal, [Class B] Overdue Principal and the Servicing
Fee (the "Required Payments") on any Payment Date (such
shortfall, the "Reserve Account Payment"), and the proceeds
thereof will be deposited in the Collection Account.
On the Closing Date, the Trustee will deposit in the
Reserve Account an amount equal to _% of the Initial
Aggregate Balance from proceeds of the sale of the Offered
Notes. On the initial Payment Date and on each Payment
Date thereafter, if necessary, monies on deposit in the
Collection Account after payments to the Servicer, [Class
A] Noteholders and [Class B] Noteholders (the "Excess
Collections") shall be deposited in the Reserve Account to
the extent necessary to bring the balance in the Reserve
Account to the Maximum Reserve Amount (as defined below).
If, on any Payment Date, a Restricting Event shall exist,
amounts otherwise distributable to the [Class C]
Noteholders, if any, and to the Issuer shall be deposited
into the Reserve Account pursuant to the
S-9
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<PAGE>
Indenture. A "Restricting Event" exists as of any
Payment Date or as of the related Determination
Date, when a Delinquency Condition (as defined
below) exists on (i) such Payment Date, (ii) such
related Determination Date or (iii) any of the
________ previous Payment Dates. A "Delinquency
Condition" shall be deemed to exist on and as of
any Payment Date or on and as of the related
Determination Date if (x) the aggregate of the
Contract Payments due during the related Collection
Period under all Contracts with respect to which
any Contract Payment or portion thereof was overdue
as of each of the two immediately preceding Payment
Dates (after excluding any such Contract Payment
which was paid in full prior to the related
Determination Date) exceeds (y) __ percent of the
aggregate of the Contract Payments due during the
related Collection Period under all Contracts. If a
Delinquency Condition exists on any Payment Date,
such Delinquency Condition shall be deemed to
continue to and include the day immediately
preceding the next Payment Date.
On each Payment Date, funds on deposit in the
Reserve Account (after withdrawal of any Reserve
Account Payment) in excess of the Maximum Reserve
Amount will be distributed to the [Class C]
Distribution Account to the extent of the amount
equal to the aggregate of [Class C] Overdue
Interest, [Class C] [Monthly] Interest, [Class C]
Overdue Principal and [Class C] [Monthly] Principal
(such aggregate amount (the "[Class C]
Distributions") and any remainder shall be
distributed to the Issuer in accordance with the
Indenture; provided, however, that if a Restricting
-------- -------
Event exists on such Payment Date, all funds on
deposit in the Reserve Account (after withdrawal of
any Reserve Account Payment) shall remain in the
Reserve Account, subject to use as otherwise
provided in the Indenture. The "Maximum Reserve
Amount" shall, on any Payment Date, be equal to the
lesser of (i) _% of the Initial Aggregate Balance
or (ii) the sum of (x) the Outstanding [Class A]
Note Balance and (y) the Outstanding [Class B] Note
Balance less (z) the Outstanding [Class C] Note
----
Balance. If the amount on deposit in the Reserve
Account is insufficient to pay the Required
Payments, no other assets beyond the credit
enhancement specified in the prospectus will be
available on the related Payment Date for the
payment of the deficiency.]
[Bond Insurer.............. __________________, a __________ corporation (the
"Bond Insurer").]
[Bond Insurance Policies... The Issuer will obtain the bond insurance policies
(the "Bond Insurance Policies"), which are
noncancelable, in favor of the Trustee on behalf of
the Noteholders which provide for the funding of an
amount equal to 100% coverage of the amounts due on
the Notes on each Payment Date. On each Payment
Date, the Bond Insurer will be required to make
Insured Payments to the Trustee, as paying agent.
Payment of Insured Payments together with all other
distributions by the Issuer are intended to provide
the Trustee with sufficient funds to make
distributions of the full amount due to Noteholders
on such Payment Date. The Bond Insurance Policies
do not guarantee the Receivables and do not protect
against any adverse consequences caused by any
specified rate of prepayments. See "Credit
Enhancement" and "The Bond Insurance Policies and
the Bond Insurer" herein and "Description of the
Trust Agreements - Credit and Cash Flow
Enhancements" in the Prospectus.]
S-10
<PAGE>
Yield Maintenance Account Certain of the Receivables have annual contract
rates of interest ("Receivables Rates") which are
less than the sum of the Certificate Rate, the
Servicing Fee Rate and the rates at which the Bond
Insurer's premium and the Trustee's fee are
calculated (the sum of such rates, the "Required
Rate"). The Yield Maintenance Account is a
segregated trust account which will not be part of
the Collateral into which the Issuer will make a
single deposit on the Closing Date in an amount
(the "Initial Yield Maintenance Amount") necessary
to fund any shortfall on interest collections which
results from Receivables having Receivables Rates
of less than the Required Rate. After the Closing
Date no additional amounts will be deposited in the
Yield Maintenance Account. The Initial Yield
Maintenance Amount has been calculated using a zero
prepayment rate on the Receivables. On each
Determination Date, the Servicer is permitted to
recalculate the amount required to be on deposit in
the Yield Maintenance Account (the "Yield
Maintenance Amount"), which may decline as
Receivables having less than the Required Rate
prepay or are otherwise removed from the
Collateral. Any amounts in excess of the Yield
Maintenance Amount will be released to the Issuer.
Amounts may be withdrawn from the Yield Maintenance
Account only with respect to the interest
shortfalls described above. Any excess funds in the
Yield Maintenance Account will be released to the
Issuer.
Servicing................ The Servicer will be responsible for servicing,
making collections on and otherwise enforcing the
Contracts. The Servicer will be required to
exercise the degree of skill and care in performing
these functions that it customarily exercises with
respect to similar contracts owned by the Servicer.
The Servicer will be entitled to receive a monthly
fee (the "Servicing Fee") of the product of (i)
one-twelfth, (ii) ___% (the "Servicing Fee Rate")
and (iii) the Aggregate Discounted Contract Balance
as of the beginning of the previous Collection
Period, payable out of the Collection Account, plus
late payment fees and certain other fees paid by
the Obligors ("Servicing Charges") and investment
earnings on amounts held in the Collection Account
("Investment Earnings"), as compensation for acting
as Servicer.
[Except as hereinafter provided, on the day prior
to any Payment Date, the Servicer will be required
to make an advance (a "Servicer Advance") to the
Trustee in an amount sufficient to cover all
amounts due and unpaid on any Delinquent Contract
as of the previous Determination Date ("Delinquency
Amounts"). A "Delinquent Contract" will mean, as of
any Determination Date, any Contract (other than a
Contract which became a Defaulted Contract prior to
such Determination Date) with respect to which the
Obligor has not paid all Contract Payments then
due. With respect to any Delinquent Contract,
whenever the Servicer shall have determined that it
will be unable to recover a Delinquency Amount or
portion thereof on such Delinquent Contract, the
Servicer shall not be required to make a Servicer
Advance on such unrecoverable Delinquency Amount or
portion thereof, but will be required to enforce
its remedies (including acceleration) under such
Contract. Furthermore, if at any time the
Originator is no longer the Servicer, no Servicer
Advances will be required. In the event that the
Servicer determines that any Servicer Advances
previously made are Nonrecoverable Advances, or any
Delinquent Contracts for which the Originator has
made advances of
S-11
<PAGE>
- --------------------------------------------------------------------------------
Delinquency Amounts in respect thereof become
Defaulted Contracts, then the Trustee shall have
the right to draw on the Collection Account and the
Reserve Account to repay such Servicer Advances.]
Under the Receivables Acquisition Agreement, a
Contract will constitute a "Defaulted Contract"
at the earlier of the date on which (i) [______]
Contract Payments are due and unpaid as of any
Calculation Date or (ii) the Servicer has declined
to make a Servicer Advance in accordance with
Section _______ of the Receivables Acquisition
Agreement on the grounds that such advance would be
a Nonrecoverable Advance or (iii) such Contract has
been rejected by or on behalf of the Obligor in a
bankruptcy proceeding.
Under certain limited circumstances, the Servicer
may resign or be removed, in which event the
Trustee will be appointed as successor Servicer.
The Servicer will be required to cause amounts
collected on the Receivables on behalf of the
Issuer to be deposited in a lockbox account (the
"Lockbox Account") maintained by the Trustee. Funds
in the Lockbox Account will be distributed to the
Collection Account maintained with the Trustee no
later than the [______] Business Day following
receipt of such amounts.
[Receivable Substitution.. The related Originator shall have the right (but
not the obligation) to substitute a Receivable for
any Receivable which defaults or prepays.
Substitute Receivables must be at least equal in
Discounted Contract Balance and comparable in terms
of residual value, credit quality, and monthly
payment, provided, that in no event shall the
--------
maturity date of any Substitute Receivable be later
than the last maturity date of any Initial
Receivable or Additional Receivable.]
[Optional Redemption...... The Issuer will have the option, subject to certain
conditions set forth in the Indenture, to prepay
all of the Offered Notes on any Payment Date on
which the Outstanding [Class A] Note Balance is
less than [____%] of the Initial [Class A] Note
Balance and the Outstanding [Class B] Note Balance
is less than [___%] of the Initial [Class B] Note
Balance (after giving effect to payments of
principal on such Payment Date) (an "Optional
Redemption"). In the event such option is
exercised, the entire outstanding principal balance
of the Offered Notes, together with accrued
interest thereon at the [Class A] Note Rate or
[Class B] Note Rate, as applicable, will be
required to be paid to the [Class A] Noteholders
and the [Class B] Noteholders on such Payment
Date.]
Limited Repurchase
Obligation................ In the Receivables Acquisition Agreement, each
Originator will make certain representations and
warranties with respect to, among other things, the
related Receivables. The related Originator will be
obligated to repurchase a Receivable if the
interest of the Trustee or the Noteholders is
materially adversely affected by a breach of such a
representation or warranty with respect to such
Receivable and if such breach has not been cured as
of the [_______] Record Date following such
Originator's discovery or receipt of notice of such
breach.
- --------------------------------------------------------------------------------
S-12
<PAGE>
Certain Legal Aspects
of the Receivables........ The Issuer will be required to take such action as
is required to perfect the Trustee's security
interest in the Contracts, the Contract Payments
[and the Vehicles] as of the Closing Date, or in
any event, within [________ (__)] days from the
date thereof. The Issuer will warrant that the
Trustee will have a first priority perfected
security interest in the Contracts, the Contract
Payments owned by the Issuer, [and a perfected
security interest in the Vehicles owned by
Obligors,] except for certain liens which by
operation of law have priority over previously
perfected security interests, and, with certain
exceptions, in the proceeds thereof. If there are
any Vehicles as to which the Issuer failed to
obtain a perfected security interest, its security
interest would be subordinate to, among others,
subsequent purchasers of the Vehicles and holders
of perfected security interests. Pursuant to the
Indenture, the Issuer will assign its security
interests in the Vehicles to the Trustee. Under the
laws of Virginia, Georgia and North Carolina, such
an assignment of security interests may not be, and
under the laws of Maryland will not be, sufficient
to convey to the Trustee perfected security
interests in the Vehicles. The Issuer will covenant
in the Indenture to repurchase any Receivable if,
on the Closing Date, a valid, subsisting and
enforceable first priority security interest in the
related Vehicle, which will have been assigned to
the Trustee, has not been perfected (or is not in
the process of being perfected) in favor of the
applicable Originator. The Issuer will also
covenant in the Indenture to repurchase any
Receivable if, after the Closing Date, a valid,
subsisting and enforceable first priority security
interest in the name of the applicable Originator
is not maintained on behalf of the Trustee in the
related Vehicle. The Trustee will act as custodian
of the Receivables on behalf of the Noteholders.
Certain Federal and State
Income Tax Considerations. Subject to the discussion below, under the Internal
Revenue Code of 1986, as amended, and existing
regulations, administrative rules and judicial
decisions, counsel to the Issuer is of the opinion
that the Offered Notes will be characterized as
indebtedness for federal income tax purposes. As a
result, a portion of each payment on the Notes will
be treated as interest. Holders of the Offered
Notes will be required to include interest paid or
accrued on the Offered Notes in gross income.
Principal payments on the Offered Notes should, to
the extent of the Noteholder's basis in the Offered
Notes allocable thereto, be treated as a return of
capital. See "Certain Federal Income Tax
Considerations" regarding the foregoing and
additional information concerning the application
of federal income tax laws.
ERISA Considerations..... The acquisition of Notes by an employee benefit
plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or the
provisions of Section 4975 of the Code (a "Plan"),
could result in a prohibited transaction under
"ERISA" or Section 4975 of the Code, unless such
acquisition is subject to a statutory or
administrative exemption, if, by virtue of such
acquisition, assets held by the Issuer and pledged
to the Trustee were deemed to be assets of the
Plan. In addition, the Issuer or other parties may
be considered to be a fiduciary with respect to any
Plan. Therefore, the acquisition and transfer of
the Notes are subject to certain restrictions. See
"ERISA Considerations."
S-13
<PAGE>
- --------------------------------------------------------------------------------
Ratings................... It is a condition of the original issuance of the
Offered Notes that the Offered Notes receive
ratings of ___ by ____________________ ("____"),
and ___ by ___________________________
("_________"). A security rating is not a
recommendation to buy, sell or hold securities, and
may be subject to revision or withdrawal at any
time by the assigning entity. See "Projected
Prepayments and Yields for Notes" and "Rating of
the Notes" herein and "Yield Considerations" in the
Prospectus.
Risk Factors.............. For a discussion of certain factors that should be
considered by prospective investors in the Offered
Notes, see "Risk Factors" herein and in the
Prospectus.
Certain Legal Matters..... Certain legal matters relating to the validity of
the issuance of the Offered Notes will be passed
upon for the Issuer by Shaw, Pittman, Potts &
Trowbridge, Washington, D.C. and for the
Underwriter by Dewey Ballantine, New York, NY.
- --------------------------------------------------------------------------------
S-14
<PAGE>
RISK FACTORS
In addition to those factors described under "Risk Factors" in the
Prospectus, prospective Noteholders should consider, among other things, the
following factors in connection with the purchase of the Offered Notes:
Risk of Losses on Investment Associated with Limited Obligations of the
Trust. Distributions of interest and principal on the Notes will be subordinated
in priority of payment to interest and principal due on the Notes. The
Noteholders will not receive any distributions with respect to a Payment Date
until the full amount of interest on and principal of the Notes on such Payment
Date has been deposited in the Note Distribution Account. The Trust does not
have, nor is it permitted or expected to have, any significant assets or sources
of funds other than the Receivables and the Trust Accounts. The Securities
represent solely obligations of, or interests in, the Trust and the Securities
will not be insured or guaranteed by the Bank, the Originators, the Servicer,
the Trustee or any other person or entity. Consequently, holders of the
Securities must rely for repayment upon payments on the Receivables and, if and
to the extent available, amounts on deposit in the Reserve Account. Amounts to
be deposited in the Reserve Account are limited in amount, and the amount
required to be on deposit in the Reserve Account will be reduced as the Pool
Balance is reduced. In addition, funds in the Reserve Account will be available
on each Payment Date to cover shortfalls in distributions of interest and
principal on the Notes prior to the application thereof to cover shortfalls on
the Notes. If the Reserve Account is exhausted, the Trust will depend solely on
current payments on the Receivables to make payments on the Securities. Although
the Trust will covenant to sell the Receivables if directed to do so by the
Indenture Trustee in accordance with the Indenture following an acceleration of
the Notes upon an Event of Default, there is no assurance that the market value
of the Receivables will at any time be equal to or greater than the aggregate
principal amount of outstanding Notes. Therefore, upon an Event of Default with
respect to the Notes there can be no assurance that sufficient funds will be
available to repay Noteholders in full and consequently the Noteholders run the
risk of loss on their investment. In addition, the amount of principal required
to be distributed to Noteholders under the Indenture is generally limited to
amounts available therefor in the Note Distribution Account. Therefore, the
failure to pay principal on the Notes may not result in the occurrence of an
Event of Default until the Final Scheduled Payment Date.
Risk of Limited Liquidity and Lower Market Price Associated with a
Reduction or Withdrawal of Ratings of the Securities. It is a condition to the
issuance of the Notes and the Notes that the [Class A Notes] be rated in the
[_____] rating category, the [Class B Notes] be rated in the [____] rating
category and the Notes be rated at least [___] or its equivalent, in each case
by at least two nationally recognized rating agencies (the "Rating Agencies"). A
rating is not a recommendation to purchase, hold or sell Securities, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. The rating of the Securities addresses the likelihood of the timely
payment of interest on and the ultimate repayment of principal of the Securities
pursuant to their terms. There is 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 rating of the Notes is based primarily on the creditworthiness of the
Receivables, the subordination provided by the Notes and the availability of
funds in the Reserve Account. The rating of the Notes is based primarily on the
creditworthiness of the Receivables and the availability of funds in the Reserve
Account. The ratings of the Securities are also based on the rating of the
Credit Enhancers. Upon a Credit Enhancers default, the rating on the Securities
may be lowered or withdrawn entirely. In the event that any rating initially
assigned to the Securities were subsequently lowered or withdrawn for any
reason, including by reason of a downgrading of the Credit Enhancer's claims-
paying ability, no person or entity will be obligated to provide any additional
credit enhancement with respect to the Securities. Any reduction or withdrawal
of a rating will have an adverse effect on the liquidity and market price of the
Securities. See "Ratings."
[Risk of Reduced Rate of Return Associated with Relationship Between Base
Rate and LIBOR. Allocations of payments on the variable rate Receivables to
principal and interest depend upon the applicable Base Rate. Interest on the
[Class A] Notes, [Class B] Notes and the [Class C] Notes accrues at a rate
generally based upon LIBOR. These two rates can and will vary with respect to
each other.
S-15
<PAGE>
Historically, they have increased or decreased roughly in tandem and, during the
last ten years, LIBOR always has remained below the Base Rate. However, no
assurance can be given that these historical trends will continue. There is a
risk that if LIBOR were to more above the Base Rate, the spread used to pay
interest to the Securityholders would disappear and the rate of return to
investors would be reduced.]
[The variable rate Receivables bear interest at the Base Rate plus a Base
Rate Additive ranging from _____% to _____%. Each of the [Class A] Interest
Rate, the [Class B] Interest Rate and the [Class C] Interest Rate is based upon
LIBOR. If, in respect of any Payment Date, there does not exist a positive
spread between the weighted average of the Receivables Rate [Class A Interest
Rate] [the Class B Interest Rate] less the Servicing Fee Rate (such difference
between the Receivables Rate and the Servicing Fee Rate being the "Net
Receivables Rate") for the Collection Period preceding such Payment Date, on the
one hand, and the [Class A Interest Rate], [the Class B Interest Rate], [the
Class C Interest Rate]for such Payment Date (calculated before giving effect to
this sentence), on the other hand, then the Interest Rate for such Payment Date
shall not exceed the Net Receivables Rate.]
[Risk of Reduced Rate of Return Associated with Yield Considerations. The
Noteholders will bear the risk associated with the possible narrowing of the
spread between the [Class A Interest Rate] [the Class B Interest Rate] [Class C
Interest Rate], on the one hand, and the Net Receivables Rate, on the other
hand. If this spread disappears (i.e., if the [Class A] Note Rate, the [Class B]
Note Rate [Class C] Note Rate exceeds or equals the Net Receivables Rate), the
interest payable on the [Class A Notes] [Class B Notes] [Class C Notes] for the
related Payment Date will not exceed such Net Receivables Rate. A substantial
change in LIBOR at a time when the Net Receivables Rate does not experience a
similar change could result in limiting the [Class A Interest Rate] [Class B
Interest Rate] [Class C Interest Rate] and consequently could reduce the rate of
return to investors as described above.]
Risk of Lower Yield Associated with Prepayment Considerations. If purchased
at other than par, the yield to maturity on the Securities will be affected by
the rate of the payment of principal of the Contracts. If the actual rate of
payments on the Contracts is slower than the rate anticipated by an investor who
purchases the Securities at a discount, the actual yield to such investor will
be lower than such investor's anticipated yield. If the actual rate of payments
on the Contracts is faster than the rate anticipated by an investor who
purchases the Securities at a premium, the actual yield to such investor will be
lower than such investor's anticipated yield.
[All of the Contracts are fixed-rate contracts. The rate of prepayments
with respect to conventional fixed contracts has fluctuated significantly in
recent years. In general, if prevailing interest rates fall significantly below
the interest rates on fixed rate contracts, such contracts are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rate on such contracts. However, the monthly payment on contracts
similar to the Contracts is often smaller than the monthly payment on other
types of consumer debt, for example, a typical mortgage loan. Consequently, a
decrease in the interest rate payable as a result of a refinancing would result
in a relatively small reduction in the amount of the contracts monthly payment,
as a result of the relatively small loan balance. Conversely, if prevailing
interest rates rise appreciably above the interest rates on fixed rate
contracts, such contracts are likely to experience a lower prepayment rate than
if prevailing rates remain at or below the interest rates on such contracts. As
of the Cut-off Date, ____% of the aggregate principal balance of the Contracts
had prepayment penalties.]
[All of the Contracts are adjustable rate contracts. As is the case with
conventional fixed rate contracts, adjustable rate contracts may be subject to a
greater rate of principal prepayments in a declining interest rate environment.
For example, if prevailing interest rates fall significantly, adjustable rate
contracts could be subject to higher prepayment rates than if prevailing
interest rates remain constant because the availability of fixed-rate contracts
at competitive interest rates may encourage obligors to refinance their
adjustable rate contracts to "lock in" a lower fixed interest rate. However, no
assurance
S-16
<PAGE>
can be given as to the level of prepayments that the contracts will experience.
As of the Cut-off Date, ____% of the aggregate principal balance of the
Contracts had prepayment penalties.]
THE RECEIVABLES
Contracts
[Description of collateral is transaction dependent - an example of disclosure
language is set forth below].
[All of the Contracts were purchased by the Issuer from the Originators in
the ordinary course of business and the Contracts constitute substantially all
of the automobile, light duty truck and van retail installment sale and finance
contracts included in the Originators' portfolio meeting the selection criteria
described herein. Such selection criteria included that: (i) each Contract is
secured by a new or used automobile, light duty truck or van; (ii) each Contract
was originated in the United States; (iii) each Contract provides for level
monthly payments that fully amortize the amount financed over its original term
except that the payment in the first or last month in the life of the Contract
may be minimally different from the level payment, and a minimal number of the
Contracts provide for monthly payments for a period of time not exceeding one
year after origination in an amount less than such level payment, provided that
as of the Cutoff Date the monthly payment currently due under each such Contract
is equal to such level payment; (iv) each Contract was originated on or prior to
_______, 199_; (v) each Contract has an original term of __ to __ months and, as
of the Cutoff Date, had a remaining term to maturity of not less than three
months nor more than __ month; (vi) each Contract provides for the payment of a
finance charge at an APR ranging from __% to __%; (vii) each Contract shall not
have a Scheduled Payment that is more than 30 days past due as of the Cutoff
Date; (viii) no Contract shall be due, to the best knowledge of the related
Originator, from any Obligor who is presently the subject of a bankruptcy
proceeding or is bankrupt or insolvent; (ix) no Vehicle has been repossessed
without reinstatement as of the Cutoff Date; and (x) as of the Cutoff Date,
physical damage insurance relating to each Vehicle is not being force-placed by
the Servicer.
Certain information with respect to the Receivables expected to be sold by
the Originator to the Sponsor pursuant to the Receivables Acquisition Agreement
and in turn transferred by the Issuer to the Trust pursuant to the Trust
Agreement is set forth below. The description of the Receivables presented in
this Prospectus Supplement is based upon the pool of Receivables as it is
expected to be constituted on the Cutoff Date. While information as of the
Closing Date for the Receivables that actually will be sold to the Trust may
differ somewhat from the information presented herein, the Issuer does not
expect that the characteristics of the Receivables that are sold to the Trust
will vary materially from the information presented in this Prospectus
Supplement concerning the Receivables.
As of the Cutoff Date, approximately __%, approximately __% and
approximately __% of the Aggregate Discounted Contract Balance are expected to
represent Contracts secured by automobiles, light duty trucks and vans,
respectively. Based on the Aggregate Discounted Contract Balance, approximately
__% and approximately __% of the Contracts are expected to represent financing
of new vehicles and used vehicles, respectively, and no more than __% of the
Contracts are expected to be due from employees of the Originators or any of
their respective affiliates. As of the Cutoff Date, the average Principal
Balance of Contracts secured by automobiles, light duty trucks and vans is
expected to be approximately $_____, approximately $___ and approximately
$_____, respectively. The majority of the Vehicles are expected to be foreign
and domestic automobiles, light duty trucks and vans. Except in the case of any
breach of representations and warranties by the Originator, it is expected that
none of the Contracts provide for recourse to an Originator who originated the
related Contract.
Each Contract provides for fixed level monthly payments which will amortize
the full amount of the Contract over its term. The Contracts provide for
allocation of payments according to the "sum of periodic
S-17
<PAGE>
balances" or "sum of monthly payments" method (the "Rule of 78s"). Each Contract
provides for the payment by the Obligor of a specified total amount of payments,
payable in monthly installments on the related due date, which total represents
the principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such Contract.
The rate at which such amount of finance charges is earned and, correspondingly,
the amount of each fixed monthly payment allocated to reduction of the
outstanding principal balance of the related Contract are calculated in
accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Contract and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, all payments received by the Servicer on or in respect of the
Contract will be allocated pursuant to the Indenture on an actuarial basis.
If an Obligor elects to prepay a Contract in full, it is entitled to a
rebate of the portion of the outstanding balance then due and payable
attributable to unearned finance charges, calculated in accordance with the Rule
of 78s. The amount of a rebate under a Contract calculated in this manner will
always be less than had such rebate been calculated on an actuarial basis.
Distributions to Noteholders will not be affected by Rule of 78s rebates under
the Contract because pursuant to the Indenture such distributions will be
determined using the actuarial method.]
S-18
<PAGE>
The expected composition, distribution by APR and geographical distribution
of the Contracts are as set forth in the following tables.
Expected Composition of the Contracts
<TABLE>
<CAPTION>
<S> <C>
Aggregate Discounted Contract Balance $
Number of Contracts..................... ___
Average Original Principal Balance...... $
Range of Original Principal Balances.. $___ to $___
Weighted Average APR(1)................. ___%
Range of APRs......................... ___% to ___%
Weighted Average Original Maturity(1)... ___ months
Range of Original Maturities.......... _ months to _ months
Weighted Average Remaining Maturity(1).. _ months
Range of Remaining Maturities......... _ months to _ months
</TABLE>
- ----------
(1) Weighted by Aggregate Discounted Contract Balance as of the Cutoff Date.
Expected Distribution of the Contracts by APR
<TABLE>
<CAPTION>
Percentage of
Percentage of Aggregate Aggregate
Aggregate Discounted Discounted
Number of Number Contract Contract
Range of APRs Contracts of Contracts Balance Balance
- --------------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
% to %... % $ %
% to %...
% to %...
% to %...
% to %...
% to %...
% to %...
% to %...
% to %...
% to %...
% to %...
% to %...
% to %...
Total.... % $ %
==== ==== ======
</TABLE>
S-19
<PAGE>
<TABLE>
<CAPTION>
Expected Distribution of the Contracts by State
Percentage
of Aggregate
Aggregate Discounted Percentage of
Number of Number Contract Aggregate
Contracts of Contracts Balance Discounted
State(1) --------- ------------ ----------- Contract Balance
- -------- ----------------
<S> <C> <C> <C> <C>
% $ %
Total... % $ %
=== ==== ==== =====
</TABLE>
(1) Based on the addresses of the Obligors.
Substitution
Pursuant to the Receivables Acquisition Agreement, the Servicer will have
the right (but not the obligation) at any time to substitute one or more
Eligible Receivables (each a "Substitute Receivable") for a Receivable
("Predecessor Receivable") if:
(i) the Predecessor Receivable is then in default and, as of the most
recent Determination Date, has been in default for at least [____(__)]
consecutive days or a bankruptcy petition has been filed by or against the
Obligor;
[(ii) the Vehicles comprising part of the Substitute Receivable or
Receivables has a current estimated fair market value and a projected
residual value, respectively, equal to or greater than the current fair
market value and projected residual value of the Vehicles comprising part
of the Predecessor Receivable;] and
(iii) the Substitute Receivable or Receivables require the obligor
or obligors thereunder to make Contract Payments during each month
ending on or prior to the Stated Maturity Date of the Notes in an amount
which is at least as great as the Contract Payment required under the
Predecessor Receivable during each such month.
[provided, however, that the Aggregate Discounted Contract Balance of all
-------- -------
Contracts substituted shall not exceed [10%] of the Aggregate Discounted
Contract Balance of the Initial Receivables and the Additional Receivables.]
[Upon repossession and disposition of any Vehicles subject to a Defaulted
Contract, any deficiency remaining will be pursued to the extent deemed
practicable by the Servicer. The Servicer on behalf of the Issuer is directed to
maximize the Net Residual Value of the Vehicles relating to any Defaulted
Contract, and, in such regard, the Servicer may sell such Vehicles at the best
available price, refurbish such Vehicles and re-lease such Vehicles to third
parties, or take any other commercially reasonable steps to maximize such
Vehicles' Net Residual Value. Liquidation proceeds with respect to any such
Defaulted Contract, including any future payments received with respect to such
Defaulted Contracts, shall be paid
S-20
<PAGE>
to the Collection Account. If the Servicer reasonably believes that the Net
Residual Value of any Vehicles is zero or de minimis, it will dispose of such
-- -------
Vehicles in accordance with its standard procedures.
[The original counterpart of each Contract constituting chattel paper and
the Contract Files will be held by _________________, as Trustee on behalf of
the Noteholders. The Trustee will be required to indicate that the Contracts
have been transferred by the Originators to the Issuer.]
[The Additional Receivables
Subject to the conditions set forth below, in consideration of the
Trustee's delivery on the related Additional Receivable Transfer Date upon the
order of the Issuer of all or a portion of the balance of funds in the Pre-
Funding Account, each applicable Originator shall on any Additional Receivable
Transfer Date sell, transfer, assign, set over and otherwise convey without
recourse, to the Issuer, all right, title and interest of such Originator in and
to each Additional Receivable listed on the schedule delivered by such
Originator to the Issuer and the Trustee (including all Contract Payments due
thereunder); provided, however, that the Originator reserves and retains all of
-------- -------
its right, title and interest in and to all Contract Payments collected and
interest accruing on each such Additional Receivable prior to the related
Additional Receivable Transfer Date.
The amount released from the Pre-Funding Account shall be ___________
percent (_____%) of the Discounted Contract Balances of each Additional
Receivable so transferred.
Each applicable Originator shall transfer to the Issuer the Additional
Receivables and the other property and rights related thereto only upon the
satisfaction of each of the following conditions on or prior to the related
Additional Receivable Transfer Date:
a. such Originator shall have provided the Trustee with a timely
Addition Notice and shall have provided any information reasonably
requested by the Issuer or the Trustee with respect to the related
Additional Receivables;
b. such Originator shall have delivered to the Issuer and the Trustee
a duly executed written assignment (including an acceptance by the Trustee)
(the "Additional Receivable Transfer Agreement"), which shall include
schedules listing the related Additional Receivables and any other exhibits
listed thereon;
c. such Originator shall have deposited in the Collection Account all
collections in respect of the related Additional Receivables received on or
after the related Additional Receivable Transfer Date;
d. as of each Additional Receivable Transfer Date, such Originator was
not insolvent, will not be made insolvent by such transfer nor is it aware
of any pending insolvency;
e. such addition will not result in a material adverse tax consequence
to the Issuer or the Noteholders;
f. such Originator shall have delivered to the Trustee an Officers'
Certificate confirming the satisfaction of each condition precedent
specified in this paragraph and in the related Additional Receivable
Transfer Agreement;
g. the obligation of the Issuer to purchase an Additional Receivable
any Additional Receivable Transfer Date is subject to the requirement that
such Additional Receivable comply in all material respects with the
representations and warranties made by such Originator on the Initial
Receivables in the Receivables Acquisition Agreement.]
S-21
<PAGE>
THE BANK
General
The Bank is a federally chartered stock savings bank. The Bank's home
office is located at 7926 Jones Branch Dr. McClean VA, 22102, and its executive
offices are located at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815, and
the Bank's telephone number is (301) 986-7000. The Bank is subject to
comprehensive regulation, examination and supervision by the Office of Thrift
Supervision (the "OTS") within the Department of the Treasury and the Federal
Deposit Insurance Corporation (the "FDIC"). Deposits at the Bank are fully
insured up to $100,000 per insured depositor by the Savings Association
Insurance Fund ("SAIF"), which is administered by the FDIC.
Based on unaudited results, at September 30, 1996, the Bank had
consolidated assets of approximately $6.2 billion, deposits of approximately
$4.2 billion, and stockholders' equity of approximately $344.7 million. As a
savings bank chartered under the laws of the United States, the Bank is subject
to certain minimum regulatory capital requirements imposed under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
("FIRREA"). At December 31, 1996, the Bank's tangible, core, tier 1 risk-based
and total risk-based regulatory capital ratios were 6.58%, 6.58%, 7.05% and
14.06%, respectively. As of such date, the Bank's capital ratios exceeded the
requirements under FIRREA as well as the standards established for "well
capitalized" institutions under the prompt corrective action regulations
established pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") (both as applicable on June 30, 1996 and on a fully
phased-in basis). Based on unaudited results, at September 30, 1996, the Bank's
tangible, core, tier 1 risk-based and total risk-based regulatory capital ratios
decreased to 5.21%, 5.21%, 5.80% and 10.14%, respectively. As of such date, the
Bank's capital ratios exceeded the requirements under FIRREA as well as the
standards established for "adequately capitalized" institutions under the prompt
corrective action regulations established pursuant to FDICIA. The OTS has the
discretion to treat a "well-capitalized" institution as an "adequately
capitalized" institution for purposes of the prompt corrective action
regulations if, after notice and an opportunity for a hearing, the OTS
determines that the institution (i) is being operated in an unsafe or unsound
condition or (ii) has received and has not corrected a less than satisfactory
examination rating for asset quality, management, earnings or liquidity.
On December 3, 1996, the Bank sold $100 million of its 9 1/4% Subordinated
Debentures due 2008 (the "1996 Debentures"), the principal amount of which is
includable in the Bank's supplementary capital. In addition, on December 3,
1996, a new real estate investment trust subsidiary of the Bank (the "REIT
Subsidiary") sold $150 million of its 10 3/4% Noncumulative Exchangeable
Preferred Stock, Series A (the "REIT Preferred Stock"), which is eligible for
inclusion as core capital of the Bank in an amount up to 25% of the Bank's total
core capital.
Economic Development and Regulatory Paperwork Reduction Act of 1996 (the "Act")
Congress is considering legislation in various forms that would require the
Merger of the Bank Insurance Fund ("BIF") and the SAIF into a single Deposit
Insurance Fund on January 1, 1999 but only if the thrift charter is eliminated
by that date. The Treasury Department is required to submit a comprehensive
study on thrift charter issues by March 31, 1997. In the absence of appropriate
"grandfather" provisions, such legislation could have a material adverse effect
on the Bank and its parent company, the B.F. Saul Real Estate Investment Trust
(the "Trust") because, among other things, the Trust engages in activities that
are not permissible to bank holding companies and the regulatory capital and
accounting treatment for banks and thrifts differs in certain respects. The Bank
cannot determine whether, or in what form, such legislation will eventually be
enacted and there can be no assurances that any such legislation that is enacted
will contain adequate grandfather rights for the Bank and the Trust.
Because of the continued improvement in the financial condition of the
Bank, on March 29, 1996, the OTS released the Bank from certain restrictions and
requirements contained in an agreement with the OTS, which had been amended in
October 1993. In connection with the termination of the written agreement at the
request of the OTS, the Board of Directors of the Bank has adopted a resolution
that addresses certain issues previously addressed by the written agreement. The
resolution also provides that the Bank will present a plan annually to the OTS
detailing anticipated consumer loan securitization activity.
S-22
<PAGE>
CFC, a wholly-owned subsidiary of the Bank, was formed in December
1994 for the purpose of providing automobile financing to applicants who may
have experienced certain adverse credit events.
Delinquency and Default Experience
There can be no assurance that the levels of delinquency and loss
experience reflected in the tables below, are indicative of the performance of
the Receivables included in the Trust.
CHEVY CHASE BANK, F.S.B.
Delinquency Experience
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------------------------------
1992 1993 1994 1995
----------------------- ------------------------ ----------------------- -----------------------
Dollar Percentage Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total Amount of Total
(000) Receivables (000) Receivables (000) Receivables (000) Receivables
---------- ----------- ---------- ----------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1)........... $ 84,533 $ 166,307 $ 299,096 $431,351
Delinquencies:(2)(3)
30-59 Days................ $ 1,469 1.74% $ 1,210 0.73% $ 4,074 1.36% $ 2,491 0.58%
60-89 Days................ 237 0.28% 223 0.13% 729 0.24% 742 0.17%
90 days or more........... 328 0.39% 226 0.14% 1,209 0.40% 1,667 0.39%
------- ----- ------- ----- ------- ----- ----- -----
Total Delinquencies....... $ 2,034 2.41% $ 1,659 1.00% $ 6,012 2.00% $ 4,900 1.14%
======== ===== ========= ===== ========= ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------
Dollar Percentage
Amount of Total
(000) Receivables
--------- ------------
<S> <C> <C>
Receivables
Outstanding(1)........... $
Delinquencies:(2)(3)
30-59 Days................ $ %
60-89 Days................
90 days or more........... %
-
Total Delinquencies....... $
=
</TABLE>
- -------------------------
(1) Total Bank Portfolio is the net remaining principal balance.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Includes repossessions in inventory.
CHEVY CHASE BANK, F.S.B.
Loss Experience
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------------------------------------
1992 1993 1994 1995
----------------------- ---------------------- ---------------------- ---------------------
Percentage Percentage Percentage Percentage
Dollar of Average Dollar of Average Dollar of Average Dollar of Average
Amount Receivables Amount Receivables Amount Receivables Amount Receivables
(000) Outstanding (000) Outstanding (000) Outstanding (000) Outstanding
--------- ----------- --------- ----------- --------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1).......... $ 90,271 $ 116,475 $ 245,295 $363,845
Gross Charge-offs(2)...... $ 811 0.90% $ 627 0.54% $ 766 0.31% $ 2,120 0.58%
Recoveries................ 103 0.12% 115 0.10% 219 0.09% 275 0.07%
-------- ----- --------- ----- --------- ----- ------- -----
Net Losses................ $ 708 0.78% $ 512 0.44% $ 547 0.22% $ 1,845 0.51%
======== ===== ========= ===== ========= ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
1996
----------------------
Percentage
Dollar of Average
Amount Receivables
(000) Outstanding
--------- -----------
<S> <C> <C>
Average Receivables
Outstanding(1).......... $
Gross Charge-offs(2)...... $ %
Recoveries................ %
-
Net Losses................ $ %
= =
</TABLE>
- -------------------------
(1) Equals the arithmetic average of the month-end balances.
(2) Gross Charge-offs represent the excess of the outstanding loan balance over
net liquidation proceeds, where net liquidation proceeds are the excess of
liquidation proceeds over the sum of repossession, liquidation and other
related expenses.
(3) Annualized.
(4) Includes current post-disposition recoveries on receivables previously
charged off.
S-23
<PAGE>
CONSUMER FINANCE CORPORATION
Delinquency Experience
<TABLE>
<CAPTION>
As of As of
December 31, 1995 December 31, 1996
------------------------ -----------------------
Percentage Percentage
Dollar of Dollar of
Amount Total Amount Total
(000) Receivables (000) Receivables
------- ------------- ------ -------------
<S> <C> <C> <C> <C>
Receivables Outstanding/(1)/.. $49,375 $
Delinquencies/(2)(3)/:
30-59 Days.................... $ 2,528 5.12% $ %
60-89 Days.................... $ 609 1.23% $ %
90 Days or more............... $ 871 1.76% $ %
------- ---- ------ -------------
Total Delinquencies........... $ 4,008 8.11% $ %
======= ==== ====== =============
- ---------------------------------
</TABLE>
/(1)/ Receivables Outstanding consists of all amounts due from obligors as
posted to the related accounts.
/(2)/ The period of delinquency is based on the number of days payments are
contractually past due.
/(3)/ Includes repossessions in inventory.
CONSUMER FINANCE CORPORATION
Loss Experience
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1995 December 31, 1996
------------------------- ----------------------
Dollar Percentage Dollar Percentage
Amount of Total Amount of Total
(000) Receivables (000) Receivables
------- ------------- ------ -------------
<S> <C> <C> <C> <C>
Average Receivables $21,383 $
Outstanding/(1)/............
Gross Charge-offs/(2)/: $ 144 0.67% $ %/(3)/
Recoveries/(4)/.............. $ 0 0.00% $ %/(3)/
Net Losses................... $ 144 0.67% $ %/(3)/
- ---------------------------------
</TABLE>
/(1)/ Equals the arithmetic average of the month-end balances.
/(2)/ Gross Charge-offs represent the excess of the outstanding loan balance
over net liquidation proceeds, where net liquidation proceeds are the
excess of liquidation proceeds over the sum of repossession, liquidation
and other related expenses.
/(3)/ Annualized.
/(4)/ Includes current post-disposition recoveries on receivables previously
charged off.
S-24
<PAGE>
Litigation
The Bank is not involved in any legal proceedings, and is not aware of
any pending or threatened legal proceedings, that would have a material
adverse effect upon its financial condition or results of operations.
[THE ORIGINATOR]
General
[The Originator] is principally a company engaged in the business of
originating and acquiring retail installment sale and finance contract
financing to retail customers of automotive dealers. [The Originator]
provides full-service financing, primarily through installment sales and
finance contracts, to retail purchasers of new and used automobiles, light
duty trucks and vans through dealer programs.
[[The Originator] has financed over $___ million of vehicles,
representing over _______ vehicles. [The Originator] currently services over
___ customers through its direct servicing activities and an additional
______ customers in connection with its subsidiaries' activities. As of
____________________, [the Originator] had __ employees.]
<PAGE>
Litigation
[The Originator] is not involved in any legal proceedings, and is not aware
of any pending or threatened legal proceedings that would have a material
adverse effect upon its financial condition or results of operations.
Insurance
[[The Originator] requires each obligor under an automobile, light duty
truck or van retail installment sale or finance contract to obtain comprehensive
and collision insurance with respect to the related financed vehicle and
verifies the existence of such insurance before it will purchase such contract.
Following such purchase, [the Originator] monitors the maintenance of such
physical damage insurance
S-26
<PAGE>
but does not force-place physical damage insurance if the related obligor
does not maintain such insurance. Instead, each such financed vehicle is
covered by a policy of vendor's single interest physical damage insurance in
favor of [the Originator] issued by ______________ (the "VSI Insurance
Policy"), which provides limited coverage (subject to deductibles) for, among
other things, (i) physical loss or damage from any external cause to such
financed vehicle and (ii) inability to locate such financed vehicle or the
related obligor. The VSI Insurance Policy is in effect from the date a
contract is purchased from the related Dealer and the premium for such VSI
Insurance Policy is paid for by [the Originator]. [The Originator] will
represent and warrant in the Receivables Acquisition Agreement, and the Bank
will represent and warrant in the Indenture, as to each Contract, that the
related Vehicle is insured under the VSI Insurance Policy, the premiums for
which have been paid in full, and that such VSI Insurance Policy is in full
force and effect.
[The Originator] does not require obligors to maintain credit disability
or life or credit or health insurance or other similar insurance coverage
which provides for payments to be made on the automobile, light duty truck
and van retail installment sale and finance contracts which it purchases on
behalf of such obligors in the event of disability or death. To the extent
that any such insurance coverage is obtained on behalf of an Obligor,
payments received in respect of such coverage may be applied to payments on
the related Contract to the extent that the Obligor's beneficiary chooses to
do so.]
THE SERVICER
General
The Receivables will be serviced by the as Servicer pursuant to the
Receivables Acquisition Agreement.
The Receivables Acquisition Agreement requires that servicing of the
Receivables by the Servicer shall be carried out in the same manner in which
it services contracts and vehicles held for its own account and consistent
with customary practices of servicers in the retail automobile industry, but
in performing its duties hereunder, the Servicer will act on behalf and for
the benefit of the Issuer, the Trustee and the holders of the Notes, subject
at all times to the provisions of the Indenture, without regard to any
relationship which the Servicer or any Affiliate of the Servicer may
otherwise have with an Obligor. Except as permitted by the terms of any
Contract following a default thereunder, the Servicer shall not take any
action which would result in the interference with the Obligor's right to
quiet enjoyment of the Vehicles subject to the Contract during the term
thereof. The Servicer may designate CFC to act as sub-servicer with respect
to the CFC Receivables, although such designation will not relieve the
Servicer from its servicing obligations with respect to such CFC Receivables.
CFC's collection procedures differ in certain respects from those employed by
the Bank. On an obligor's fifth day of delinquency, CFC sends a late payment
notice and begins the collection process, while the Bank initiates these
steps on the obligor's tenth day of delinquency. CFC's collections
department is currently staffed to have approximately one collector for every
1,400 loans outstanding, compared to the Bank's ratio of approximately one
collector for every 4,000 loans outstanding. In general, both the Bank and
CFC initiate the repossession process by the 45th day of delinquency.
Following each Determination Date, the Servicer shall advance and remit
to the Trustee, in such manner as will ensure that the Trustee will have
immediately available funds on account thereof by 11:00 a.m. New York time on
the [_______] Business Day prior to the next succeeding Payment Date, a
Servicer Advance equal to the Contract Payment due during the preceding
Collection Period with respect to each Contract (other than a Contract which
became a Defaulted Contract on or prior to such Determination Date) under
which the Obligor has not made such payment by such Determination Date;
provided, however, that the Servicer will not be obligated to make a Servicer
-------- -------
Advance with respect to any Contract if the Servicer, in its good faith
judgment, believes that such Servicer Advance would be a Nonrecoverable
Advance. If the Servicer determines that any Contract Payment it has made,
or is contemplating making,
S-27
<PAGE>
would be a Nonrecoverable Advance, the Servicer shall deliver to the Trustee
an Officers' Certificate stating the basis for such determination.
Servicing Compensation and Payment of Expenses
For its servicing of the Receivables, the Servicer will be entitled to
receive a monthly Servicing Fee equal to the product of (i) one-twelfth, (ii)
___% and (iii) the Aggregate Discounted Contract Balance of all Contracts as
of the preceding Determination Date, payable out of the Collection Account,
plus Servicing Charges and Investment Earnings.
All costs of servicing each Receivable in the manner required by the
Receivables Acquisition Agreement shall be borne by the Servicer, but the
Servicer shall be entitled to retain, out of any amounts actually recovered
with respect to any Defaulted Contract [or the Vehicles subject thereto,] the
Servicer's actual out-of-pocket expenses reasonably incurred with respect to
such Defaulted Contract [or Vehicles]. In addition, the Servicer shall be
entitled to receive on each Payment Date any unreimbursed Nonrecoverable
Advances or Servicer Advances with respect to any Defaulted Contract and the
Servicing Fee.
Evidence as to Compliance
The Receivables Acquisition Agreement requires that with each set of
financial statements delivered pursuant to the Receivables Acquisition
Agreement, the Servicer will deliver an Officers' Certificate stating (i)
that the officers signing such Certificate have reviewed the relevant terms
of the Receivables Acquisition Agreement and have made, or caused to be made
under such officers' supervision, a review of the activities of the Servicer
during the period covered by the statements then being furnished, (ii) that
the review has not disclosed the existence of any Servicer Event of Default
or, if a Servicer Event of Default exists, describing its nature and what
action the Servicer has taken and is taking with respect thereto, and (iii)
that on the basis of such review the officers signing such certificate are of
the opinion that during such period the Servicer has serviced the Receivables
in compliance with the required procedures except as described in such
certificate.
The Servicer shall cause a firm of independent certified public
accountants (who may also render other services to the Servicer) to deliver
to the Trustee, with a copy to the Rating Agency and each holder of the
Notes, within [90] days following the end of each fiscal year of the
Servicer, beginning with the Servicer's fiscal year ending ____________,
199__, a written statement to the effect that such firm has examined in
accordance with generally accepted practices samples of the accounts,
records, and computer systems of the Servicer for the fiscal year ended on
the previous ________ relating to the Receivables (which accounts, records,
and computer systems shall be described in one or more schedules to such
statement), that such firm has compared the information contained in the
Servicer's reports delivered in the relevant period with information
contained in the accounts, records, and computer systems for such period, and
that, on the basis of such examination and comparison, such firm is of the
opinion that the Servicer has, during the relevant period, serviced the
Receivables in compliance with such servicing procedures, manuals, and guides
and in the same manner as it services comparable contracts for itself or
others, that such accounts, records, and computer systems have been
maintained, and that such certificates, accounts, records, and computer
systems have been properly prepared and maintained in all material respects,
except in each case for (a) such exceptions as such firm shall believe to be
immaterial and (b) such other exceptions as shall be set forth in such
statement.
Other Servicing Procedures
At least [___] days prior to each Payment Date, the Servicer shall
deliver a report in writing (the "[Monthly] Servicer Report") to each holder
of the Notes, the Trustee and the Rating Agency.
S-28
<PAGE>
If an Obligor has [___] Contract Payments which are due and unpaid as of
any Determination Date, such Obligor's Contract shall become a Defaulted
Contract. Where no satisfactory arrangements can be made for collection of
delinquent payments within [__] days of a Contract becoming a Defaulted
Contract, the Servicer shall foreclose or otherwise liquidate any such
Defaulted Contract [(together with the related Vehicles)] within [60] days of
such Contract becoming a Defaulted Contract. In connection with any
foreclosure or other liquidation, the Servicer will take such action as is
appropriate, consistent with the Servicer's administration of contracts in
its own portfolio, including such action as may be necessary to cause, or
attempt to cause, the Obligor thereunder to cure such default (if the same
may be cured) or to terminate or attempt to terminate such Contract and to
recover, or attempt to recover, all damages resulting from such default.
Removal of the Servicer
The Receivables Acquisition Agreement will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder, except
upon a determination that the Servicer's performance of such duties is no
longer permissible under applicable law. The Servicer can only be removed
pursuant to a Servicer Event of Default. If a Servicer Event of Default
shall have occurred and be continuing, the Trustee shall give written notice
to the Servicer of the termination of all of the rights and obligations of
the Servicer (but none of the Servicer's obligations thereunder, which shall
survive any such termination) under the Receivables Acquisition Agreement.
On and after the time the Servicer receives a notice of termination, the
Trustee shall be the successor in all respects to the Servicer in its
capacity as servicer under the Receivables Acquisition Agreement of the
Receivables. The Trustee may, if it shall be unwilling to so act, or shall,
if it is unable to so act, give notice of such fact to each holder of the
Notes and (i) appoint an established institution, satisfactory to the holders
of Notes evidencing not less than [_______] of the Voting Rights, as the
successor to the Servicer to assume all of the rights and obligations of the
Servicer, including, without limitation, the Servicer's right to receive the
Servicing Fee (but not the obligations of the Servicer contained in the
Receivables Acquisition Agreement) or, (ii) if no such institution is so
appointed, petition a court of competent jurisdiction to appoint an
institution meeting such criteria as the Servicer.
THE TRUSTEE
The Trustee, ____________, has an office at ________________________.
The Trustee may resign, subject to the conditions set forth below, at
any time upon written notice to the Issuer, and the Servicer, in which event
the Issuer, will be obligated to appoint a successor Trustee. If no
successor Trustee shall have been so appointed and have accepted such
appointment within [30] days after the giving of such notice of resignation,
the resigning Trustee or any Noteholder may petition a court of competent
jurisdiction for the appointment of a successor Trustee. Any successor
Trustee shall meet the financial and other standards for qualifying as a
successor Trustee under the Indenture. The Noteholders evidencing more than
[__%] of the Voting Rights of the Trust may also remove the Trustee if the
Trustee ceases to be eligible to continue as such under the Indenture and
fails to resign after written request therefor, or is legally unable to act,
or if the Trustee is adjudicated to be insolvent. Any resignation or removal
of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
S-29
<PAGE>
DESCRIPTION OF THE NOTES AND INDENTURE
The Notes will be issued pursuant to the Indenture entered into by and
between the Issuer and the Trustee. The Trustee will provide a copy of the
Indenture, together with copies of the Receivables Acquisition Agreement and
the Note Agreement (collectively, the "Agreements") to Noteholders, without
charge, upon written request addressed to its Corporate Trust Office.
The following summary which describes certain provisions of the
Indenture, together with certain provisions of the Receivables Acquisition
Agreement as they relate to the Notes, does not purport to be complete, and
is subject to and qualified in its entirety by reference to such Agreements.
Wherever provisions of such Agreements are referred to, such provisions are
hereby incorporated herein by reference.
The obligations evidenced by the Notes are recourse obligations of the
Issuer only and are not recourse to the Originators, the Servicer, the
Trustee or any other Person. The Issuer will agree in the Indenture and in
the Notes to pay to the Noteholders (i) an amount of principal equal to the
product of (x) the Initial Aggregate Balance and (y) the applicable Class
Percentage and (ii) interest at the applicable Note Rate from the sources and
on the terms and conditions set forth in the Indenture, the Receivables
Acquisition Agreement and in the Notes.
Interest accrues on the Notes from Payment Date to Payment Date, and is
payable, along with required principal, on the [____] day of each month (or,
if such day is not a Business Day, the immediately following Business Day).
The Notes will be issued in fully registered form only, as authenticated
by the Trustee. Each [Class A] Note will evidence $___________ or more of
the Initial Aggregate Balance and each [Class B] Note will evidence
$___________ or more of the Initial Aggregate Balance. The Initial Aggregate
Balance shall be ____% of the Initial Aggregate Discounted Contract Balance
and the Original Pre-Funded Amount. The Notes are transferable and
exchangeable through the Trustee at its Corporate Trust Office. No service
charge will be made for any registration of transfer or exchange of Notes,
but a sum sufficient to cover any tax or other governmental charge may be
required to be paid by the Noteholder.
Payments on the Notes are required to be made by the Trustee on each
Payment Date, to persons in whose names Notes are registered as of the Record
Date.
The first Payment Date for the Notes will be _______ [__, 199_].
Payments are required to be made by the Trustee by wire transfer of
immediately available funds, to Noteholders entitled thereto at the account
for such Noteholder appearing in the Note Register on the Record Date or, if
no such account is so specified, then by check mailed to the address for such
Noteholder appearing in the Note Register on such Record Date.
THE BOND INSURANCE POLICY
AND THE BOND INSURER
The following information has been furnished by the Bond Insurer
for use in this Prospectus Supplement.
The Bond Insurer, in consideration of the payment of the premium
and subject to the terms of the Bond Insurance Policy, thereby
unconditionally and irrevocably guarantees to any Noteholder (as described
below) that an amount equal to the full and complete Insured Payments (as
described below) will be received by the Trustee, on behalf of the
Noteholders, for distribution to each Noteholder of each Noteholder's
proportionate share of the Insured Payment. "Insured Payment" means (A) with
respect to
S-30
<PAGE>
any Payment Date, the Insufficiency Amount, if any, remaining after making
all required transfers to the Collection Account from the Reserve Account
pursuant to the Trust Agreement, and (B) the reimbursement of any portion of
any interest or principal payment previously paid which is subsequently
recovered from the Trustee or any Noteholder pursuant to a final
nonappealable judgment by a court of competent jurisdiction to the effect
that such payment constitutes a voidable preference to such Noteholder or the
Trustee within the meaning of any applicable bankruptcy law. Insured
Payments shall be made only at the time set forth in the Bond Insurance
Policy and no accelerated Insured Payments shall be made regardless of any
acceleration of the Notes, unless such acceleration is at the sole option of
the Bond Insurer.
The Bond Insurer will pay any amount payable under the Bond
Insurance Policy pursuant to clause (A) above no later than [12:00 noon New
York City] time on the later of the Payment Date on which the related
Insufficiency Amount is due or the Business Day following receipt on a
Business Day by ____________, as Fiscal Agent for the Bond Insurer, or any
successor fiscal agent appointed by the Bond Insurer (the "Fiscal Agent") of
a Notice of Nonpayment; provided that if such Notice of Nonpayment is
received after [12:00 noon New York City] time on such Business Day, it will
be deemed to be received on the following Business Day. If any such Notice
of Nonpayment received by the Fiscal Agent is not in proper form or is
otherwise insufficient for the purpose of making claim under the Bond
Insurance Policy it shall be deemed not to have been received by the Fiscal
Agent for purposes of this paragraph, and the Bond Insurer or the Fiscal
Agent, as the case may be, shall promptly so advise the Trustee and the
Trustee may submit an amended Notice of Nonpayment.
The Bond Insurer will pay any amount payable under the Bond
Insurance Policy pursuant to clause (B) above voided as a preference under
any applicable bankruptcy law on the Business Day following receipt on a
Business Day by the Fiscal Agent of (i) a certified copy of the final order
of the court which exercised jurisdiction to the effect that the Trustee or
the Certificateholder is required to return principal or interest paid on the
Notes because such payments were voidable preferences under applicable
bankruptcy law, (ii) an opinion of counsel satisfactory to the Bond Insurer
that such order is final and not subject to appeal, (iii) an assignment in
such form as is reasonably required by the Bond Insurer, irrevocably
assigning to the Bond Insurer all rights and claims of the Noteholder
relating to or arising under the Notes against the debtor which made such
preference payment or otherwise with respect to such preference payment and
(iv) appropriate instruments to effect the appointment of the Bond Insurer as
agent for such Noteholder in any legal proceeding related to payment of
principal or interest distributed thereunder, such instruments being in a
form satisfactory to the Bond Insurer, provided that if such documents are
received after [12:00 noon New York City] time on such Business Day, they
will be deemed to be received on the following Business Day. Such payments
shall be disbursed to the receiver or trustee in bankruptcy named in the
final order of the court exercising jurisdiction on behalf of the Noteholder
and not to any Noteholder directly unless such Noteholder has returned
principal or interest paid on the Notes to such receiver or trustee in
bankruptcy, in which case such payment shall be disbursed to such Noteholder.
Insured Payments due under the Note Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the Trustee
on behalf of the Noteholders by wire transfer of immediately available funds
in the amount of the Insured Payment less, in respect of Insured Payments
described in (B) of the definition thereof, any amount held by the Trustee
for the payment of such Insured Payment and legally available therefor. The
Bond Insurer's obligations under the Bond Insurance Policy shall be
discharged to the extent funds are transferred to the Trustee for
distribution to such Noteholders as provided therein whether or not such
funds are properly applied by the Trustee.
The Fiscal Agent is the agent of the Note Insurer only and the
Fiscal Agent shall in no event be liable to Noteholders for any acts of the
Fiscal Agent or any failure of the Note Insurer to deposit or cause to be
deposited, sufficient funds to make payments due under the Note Insurance
Policy.
S-31
<PAGE>
Subject to the prior right of the Noteholders to the receipt of the
Note Interest, the Overdue Interest, the Principal Distribution Amount and
the Overdue Principal on each Payment Date, the Note Insurer shall be
entitled to reimbursement of amounts previously paid by the Note Insurer
under the Bond Insurance Policy plus interest thereon.
As used in this section of the Prospectus Supplement, the following
terms shall have the following meanings:
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in New York City or in the city in which
the corporate trust office of the Trustee under the Trust Agreement is
located are authorized or obligated by law or executive order to close.
"Insufficiency Amount" is the amount by which the Required Payments
in respect of the Notes for the applicable Payment Date exceeds the Available
Funds for distribution to Noteholders on the Business Day preceding such
Payment Date.
"Notice of Nonpayment" means the telephonic or telegraphic notice,
promptly confirmed in writing by telecopy substantially in the form attached
to the Bond Insurance Policy, the original of which is subsequently delivered
by registered or certified mail, from the Trustee specifying the
Insufficiency Amount which shall be due and owing on the Payment Date.
"Noteholder" means any Noteholder as defined in the Indenture
(other than the Originators, the Servicer or any affiliate thereof) who, on
the applicable Payment Date, is entitled under the terms of the Notes to
payment thereunder.
Capitalized terms used in the Bond Insurance Policy and not
otherwise defined therein shall have the respective meanings set forth in the
Indenture as of the date of execution of the Bond Insurance Policy, without
giving effect to any subsequent amendment or modification to the Indenture.
Any notice under the Bond Insurance Policy or service of process on
the Fiscal Agent of the Bond Insurer maybe made at the address listed below
for the Fiscal Agent of the Bond Insurer or such other address as the Bond
Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is ________________________,
Attention: ____________ or such other address as the Fiscal Agent shall
specify to the Trustee in writing.
The Bond Insurance Policy is being issued under and pursuant to,
and shall be construed under, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof.
The insurance provided by the Bond Insurance Policy is not covered
by the Property/Casualty Insurance Security specified in Article 76 of the
New York Insurance Law.
The Bond Insurance Policy is noncancellable for any reason. The
premium on the Bond Insurance Policy is not refundable for any reason
including payment, or provision being made for payment, prior to maturity of
the Certificates.
The Bond Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted here from, other than with respect to
the accuracy of the information regarding the Bond Insurance Policy and Bond
Insurer set forth under this heading "The Bond Insurance Policy and the Bond
Insurer".
S-32
<PAGE>
RECEIVABLES ACQUISITION AGREEMENT
Conveyance of Collateral
On the Closing Date, each Originator will transfer to the Issuer,
without recourse, all of its right, title and interest in and to the related
Collateral (other than the Additional Receivables. On behalf of the Issuer,
the Trustee will cause the Issuer to issue the Notes offered hereby to the
initial investors.
The Receivables will be serviced by the Servicer. See "Summary of Terms
- The Servicer".
The Receivables are described on the list of Receivables (the "List of
Receivables") heretofore delivered to the Trustee with respect to the
Receivables. The List of Receivables will include for each Contract, a
number identifying the Contract, the Discounted Contract Balance, the
Obligor's name and address, the original term of each Contract, the remaining
term of each Contract, the Discounted Contract Balance as of the Cut-Off Date
and the original balance of each Contract. The List of Receivables will be
available for inspection by any Noteholder at the principal executive office
of the Servicer.
Each Originator has heretofore delivered the Contract Files to the
Trustee as required by the Receivables Acquisition Agreement. The Trustee
will retain possession of the Contracts and the Contract Files, and the
Servicer will retain copies of any other documents which relate to the
Contracts, any related evidence of insurance and payment, delinquency and
related reports maintained by the Servicer in the ordinary course of business
with respect to each Contract. The Servicer has caused its electronic ledger
to be marked to show that such Contracts have been transferred by the
Originators to the Issuer.
Representations and Warranties of the Originators
Each Originator will make certain warranties in the Receivables
Acquisition Agreement for the benefit of the Trustee, the Noteholders and the
Issuer, among other things: that (i) the information provided with respect to
the related Receivables is correct in all material respects; (ii) the Obligor
on each related Receivable is required to maintain physical damage insurance
covering the Vehicles in accordance with such Originator's normal
requirements; (iii) at the applicable Closing Date, 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) at the applicable Closing Date, each of the related Contracts is secured
by a [first perfected] security interest in the Vehicles in favor of such
Originator; and (v) each Receivable, at the time it was originated, complied
and, at the applicable Closing Date, complies in all material respects with
applicable federal and state laws.
Indemnification
The Receivables Acquisition Agreement provides that each Originator will
defend and indemnify any servicer, the Trustee, the Issuer and the
Noteholders against any and all losses, claims, damages and liabilities to
the extent that the same have been suffered by any such party by virtue of a
breach by the such Originator of its obligations under the Receivables
Acquisition Agreement.
Pursuant to the Receivables Acquisition Agreement, neither the Servicer
nor any of the directors, officers, employees or agents of the Servicer shall
incur any liability to the Issuer, the Trustee or the holders of the Notes,
for any action taken or not taken in good faith pursuant to the terms of the
Receivables Acquisition Agreement with respect to any Contract (including any
Defaulted Contract) [or the Vehicles subject thereto;] provided, however,
-------- -------
that this provision shall not protect the Servicer or any such person against
any breach of warranties or representations made by it in the Receivables
Acquisition Agreement or in any certificate delivered in conjunction with the
purchase of the Notes pursuant to the Note Agreement or for any liability
which would otherwise be imposed for any action or inaction resulting
S-33
<PAGE>
from willful misconduct or bad faith or resulting from gross negligence in
the performance of its duties thereunder.
Indenture Accounts; Investment of Funds
The Trustee, pursuant to the Indenture, is required to establish and
maintain at all times the Collection Account, the [Class A] Distribution
Account, the [Class B] Distribution Account, the [Class C] Distribution
Account, [the Pre-Funding Account, the Capitalized Interest Account and the
Lockbox Account,] each in the name of the Trustee and for the benefit of the
Originators, the Noteholders and the Servicer, as their interests may appear.
Each such account will be one or more segregated trust accounts held by the
Trustee. The Indenture permits the Issuer to direct the investment of
amounts in the Collection Account, [the Pre-Funding Account, the Capitalized
Interest Account and the Reserve Account.]
[Pre-Funding Account and Capitalized Interest Account
On the Closing Date, the Trustee will deposit into the Pre-Funding
Account an amount equal to the difference between the Initial Aggregate
Balance and the Aggregate Discounted Contract Balance of all Contracts
actually acquired on the Closing Date. On each Additional Receivable
Transfer Date until the Final Additional Closing Date, the Trustee will
distribute from the Pre-Funding Account to the related Originator an amount
equal to the Discounted Contract Balance of the Additional Receivables sold
to the Issuer on such Additional Receivable Transfer Date upon an Issuer
Order detailing satisfaction of the conditions set forth in the Receivables
Acquisition Agreement with respect to such transfer.
If the Pre-Funding Account has not been reduced to zero on the Final
Additional Closing Date, the Servicer will instruct the Trustee to withdraw
from the Pre-Funding Account on such Final Additional Closing Date the
remaining Pre-Funded Amount and such amount shall be applied as a prepayment
on the Notes to Noteholders in accordance with their respective Class
Percentages.
On the Closing Date, the Trustee shall deposit in the Capitalized
Interest Account an amount equal to $_________ (the "Original Capitalized
Interest Amount") from the proceeds of the sale of the Offered Notes. On
each Payment Date through and including the Payment Date immediately
following the Final Additional Closing Date (or, if the Final Additional
Closing Date is also a Payment Date, then on the Final Additional Closing
Date), the Trustee shall transfer from the Capitalized Interest Account to
the Collection Account the Capitalized Interest Requirement for such Payment
Date.
On each Payment Date prior to the Final Additional Closing Date, the
Trustee, upon an Issuer Order, shall withdraw from the Capitalized Interest
Account and pay on such Payment Date to the Issuer the Overfunded Interest
Amount for such Payment Date. On the Payment Date following the Final
Additional Closing Date (or, if the Final Additional Closing Date is also a
Payment Date, then on the Final Additional Closing Date), any amounts
remaining in the Capitalized Interest Account, after taking into account the
transfers on such Payment Date described above, shall be paid to the Issuer
on such Payment Date and the Capitalized Interest Account shall be closed.]
Reserve Account
On the Closing Date, the Issuer shall direct the Trustee to deposit in
the Reserve Account an amount equal to ___% of the Initial Aggregate Balance
from proceeds of the sale of the Offered Notes.
If by 12:00 noon, New York time, on the Business Day preceding any
Payment Date, Available Funds are insufficient to permit, on such Payment
Date, the distribution of all Required Payments under the Indenture, then the
Trustee shall transfer, not later than the end of such Business Day, from the
Reserve Account to the Collection Account such amount as shall be necessary
to make all Required Payments on such Payment Date.
S-34
<PAGE>
On each Payment Date, funds on deposit in the Reserve Account (after
withdrawal of any Reserve Account Payment) in excess of the Maximum Reserve
Amount will be distributed to the [Class C] Distribution Account to the
extent of [Class C] Distributions and any remainder shall be distributed to
the Issuer in accordance with the Indenture; provided, however, that if a
-------- -------
Restricting Event exists on such Payment Date, all funds on deposit in the
Reserve Account (after withdrawal of any Reserve Account Payment) shall
remain in the Reserve Account, subject to use as otherwise provided in the
Indenture. The Maximum Reserve Amount shall, on any Payment Date, be equal
to the lesser of (i) ___% of the Initial Aggregate Balance or (ii) the sum of
(x) the Outstanding [Class A] Note Balance and (y) the Outstanding [Class B]
Note Balance less (z) the Outstanding [Class C] Note Balance. If the amount
on deposit in the Reserve Account is insufficient to pay the Required
Payments, no other assets will be available on the related Payment Date for
the payment of the deficiency. Upon discharge of the Indenture, after all
obligations to the Noteholders have been fully and irrevocably satisfied, any
balance remaining in the Reserve Account shall be paid to the Issuer.
Flow of Funds
On or before the Closing Date, the Servicer shall establish, in the name
of the Servicer, a post office box (the "Lockbox Facility") for the receipt
directly from Obligors of all Contract Payments, on or in respect of each
Receivable. No Person other than the Servicer shall be permitted to have
access to such Lockbox Facility. On [each] Business Day, the Servicer shall
cause all items received in the Lockbox Facility since the [preceding]
Business Day to be deposited into the Lockbox Account maintained with the
Servicer in the name of (and under the sole control of) the Servicer. All
Contract Payments and other payments relating to a Contract received in the
Lockbox Facility and so deposited in the Lockbox Account shall constitute
part of the Collateral.
The Servicer shall, on ___ Business Day pursuant to Section _____ of the
Receivables Acquisition Agreement (each such day, a "Required Deposit Date")
withdraw from the Lockbox Account and deposit in the Collection Account the
Transaction Payment Amount.
The Trustee shall deposit the following into the Collection Account:
[(i) each Contract Payment received by the Trustee in the Lockbox
Facility or otherwise received by the Trustee, including all Contract
Payments deposited with the Trustee by the Originators on the Closing
Date pursuant to Section _____ of the Note Agreement;
(ii) the amount of each Delinquency Payment or portion thereof
received by the Trustee (whether from the Servicer as a Servicer Advance
pursuant to Section ______ of the Receivables Acquisition Agreement,
from transfers from the Reserve Account, or from a combination thereof);
(iii) the amount of each Default Payment or portion thereof received
by the Trustee (whether from transfers from the Reserve Account or
otherwise); and the proceeds of any repurchase of Contract [and
Vehicles] pursuant to Section ____ of the Receivables Acquisition
Agreement;
(iv) any Insurance Proceeds received in the Lockbox Facility or
otherwise received by the Trustee;
(v) the Pre-Funding Earnings, if any, on each Payment Date; and
(vi) the Capitalized Interest Requirement, if any, on each Payment
Date from amounts on deposit in the Capitalized Interest Account.]
S-35
<PAGE>
Unless the Notes have been declared due and payable pursuant to Section
______ of the Indenture and moneys collected by the Trustee are being applied
in accordance with Section ______ of the Indenture, the Trustee shall on each
Payment Date withdraw and pay or cause to be paid all Available Funds and any
Reserve Account Payment deposited in the Collection Account (including any
investment income with respect to monies on deposit in the Collection
Account) the amounts required, for application in the following order of
priority:
[(i) To the Servicer, the Servicing Fee due to the Servicer on such
Payment Date and any unreimbursed Nonrecoverable Advances or Servicer
Advances, with respect to Defaulted Receivables;
(ii) To the [Class A] Distribution Account, in the following order
of priority, the sum of:
(a) the [Class A] Overdue Interest, if any;
(b) the [Class A] Monthly Interest;
(c) if such Payment Date follows the Final Additional
Closing Date, the product of (x) the amount, if any,
remaining in the Pre-Funding Account on such Payment
Date and (y) the [Class A] Percentage;
(d) the [Class A] Overdue Principal, if any; and
(e) the [Class A] Monthly Principal.
(iii) To the [Class B] Distribution Account, in the following order
of priority, the sum of:
(a) the [Class B] Overdue Interest, if any;
(b) the [Class B] Monthly Interest;
(c) if such Payment Date follows the Final Additional
Closing Date, the product of (x) the amount, if any,
remaining in the Pre-Funding Account on such Payment
Date and (y) the [Class B] Percentage;
(d) the [Class B] Overdue Principal, if any; and
(e) the [Class B] Monthly Principal.
(iv) To the Reserve Account, an amount equal to the excess, if any,
of the Maximum Reserve Amount for the next succeeding Payment Date over
the amount on deposit in the Reserve Account (after giving effect to any
withdrawals from the Reserve Account on such Payment Date);
(v) To the [Class C] Distribution Account, in the following order
of priority, the sum of:
(a) the [Class C] Overdue Interest, if any;
(b) the [Class C] Monthly Interest;
S-36
<PAGE>
(c) if such Payment Date follows the Final Additional
Closing Date, the product of (x) the amount remaining,
if any, in the Pre-Funding Account on such Payment
Date and (y) the [Class C] Percentage;
(d) the [Class C] Overdue Principal, if any; and
(e) the [Class C] Monthly Principal;]
[provided, however, that if a Restricting Event shall have occurred and
-------- -------
be continuing on such Payment Date, any such amounts otherwise payable
under this clause (v) shall be deposited in the Reserve Account.
(vi) To the [Class A] Noteholders, pro rata, the amount then on
--- ----
deposit in the [Class A] Distribution Account;
(vii) To the [Class B] Noteholders, pro rata, the amount then on
--- ----
deposit in the [Class B] Distribution Account;
(viii) To the [Class C] Noteholders, pro rata, the amount then on
--- ----
deposit in the [Class C] Distribution Account; and
(ix) All remaining amounts in the Collection Account shall be paid
to the Issuer; provided, however, that if a Restricting Event shall have
-------- -------
occurred and be continuing on such Payment Date, any such amounts
otherwise payable under this clause (ix) shall be deposited in the
Reserve Account.]
Reports to Noteholders
Concurrently with each payment to the Noteholders, the Trustee shall
mail to the Issuer, the Originator, the Servicer and each Noteholder the
following information: (i) the Monthly Servicer Report furnished to the
Trustee by the Servicer following such Payment Date pursuant to Section ____
of the Receivables Acquisition Agreement or, if such report has not been
received, a written statement to such effect; and (ii) the amount on deposit
as of such Payment Date in the Collection Account, the Reserve Account, the
Pre-Funding Account and the Capitalized Interest Account, in each case after
giving effect to all of the withdrawals and applications or transfers
required on such Payment Date pursuant to the Indenture.
Optional Redemption
The Indenture provides that the Notes may be redeemed by the Issuer, in
whole but not in part, as to the then Outstanding Offered Notes, at any time
after (i) the [Class A] Note Balance is less than [___%] of the Initial
[Class A] Note Balance and (ii) the [Class B] Note Balance is less than
[___%] of the Initial [Class B] Note Balance, at the Redemption Price.
The Issuer, by an Authorized Officer, shall set the redemption date and
the redemption record date and give notice thereof to the Trustee.
Installments of interest and principal due on or prior to a redemption
date shall continue to be payable to the Holders of Offered Notes called for
redemption as of the relevant Record Dates according to their terms and the
provisions of the Indenture. The election of the Issuer to redeem any
Offered Notes as described in this Section shall be evidenced in writing by
an Authorized Officer directing the Trustee to make the payment of the
Redemption Price on all of the Offered Notes to be redeemed from monies
deposited with the Trustee pursuant to the Indenture.
S-37
<PAGE>
Indenture Events of Default and Acceleration
"Indenture Event of Default" wherever used herein means any one of the
following events:
(i) default in the payment of any principal of or interest and
premium, if any, upon any Outstanding Note when it becomes due and
payable;
(ii) default in the performance, or breach, of any covenant set
forth in the Indenture;
(iii) default in the performance, or breach, of any covenant of the
Issuer in the Indenture, the Underwriting Agreement or the Receivables
Acquisition Agreement and continuance of such default or breach for a
period of [___] days after receipt of the written notice thereof;
(iv) if any representation or warranty of the Issuer or the
Originators made in the Indenture, the Note Agreement or the Receivables
Acquisition Agreement shall prove to be incorrect in any material
respect as of the time when the same shall have been made;
(v) voluntary bankruptcy;
(vi) involuntary bankruptcy;
(vii) the rendering against the Issuer of a final judgment, decree
or order for the payment of money in excess of [$________] and the
continuance of such judgment, decree or order unsatisfied for any period
of [___] consecutive days without a stay of execution.
If an Indenture Event of Default occurs and is continuing, then and in
every such case the Trustee or the holders of Notes evidencing not less than
[______%] of Voting Rights may declare the unpaid principal amount of all the
Notes to be due and payable immediately, by a notice in writing to the Issuer
(and to the Trustee if given by such Noteholders), and upon any such
declaration such principal amount shall become immediately due and payable
together with all accrued and unpaid interest thereon, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived
by the Issuer.
Remedies
If an Indenture Event of Default occurs and is continuing of which an
Authorized Officer has actual knowledge, the Trustee shall give notice to
each Noteholder as set forth in Section _______ of the Indenture and shall
solicit the Noteholders for advice. The Trustee shall then take such action,
if any, as may be directed by the holders of Notes evidencing not less than
[______%] of Voting Rights. Following any acceleration of the Notes, the
Trustee shall have all of the rights, powers and remedies with respect to the
Collateral as are available to secured parties under the Uniform Commercial
Code or other applicable law. Such rights, powers and remedies may be
exercised by the Trustee in its own name as trustee of an express trust.
Servicer Events of Default
Any of the following acts or occurrences shall constitute a Servicer
Event of Default by the Servicer under the Receivables Acquisition Agreement:
(i) failure on the part of the Servicer to remit any payment to
the Trustee within the time period required by the Receivables
Acquisition Agreement or to make any Servicer Advance;
S-38
<PAGE>
(ii) failure on the part of the Servicer to observe or perform in
any material respect any other of their respective covenants or
agreements in the Receivables Acquisition Agreement which failure
continues unremedied for a period of [___] days;
(iii) if any representation or warranty of the Originators or the
Servicer made in the Receivables Acquisition Agreement or in any
certificate or other writing delivered pursuant thereto or the Note
Agreement or made by the Trustee or any other successor to the Servicer
(the "Successor Servicer") in connection with such Successor Servicer's
assumption of the duties of the Servicer shall prove to be incorrect in
any material respect as of the time when the same shall have been made;
(iv) voluntary bankruptcy;
(v) involuntary bankruptcy;
(vi) the failure of the Servicer to make one or more payments due
with respect to recourse debt or other recourse obligations, which debt
or obligations in the aggregate exceed [$__________] or the occurrence
of any event or the existence of any condition, the effect of which
event or condition is to cause (or permit one or more Persons to cause)
more than [$_________] of aggregate recourse debt or other recourse
obligations of the Servicer to become due before its (or their) stated
maturity or before its (or their) regularly scheduled dates of payment
so long as such failure, event or condition shall be continuing and
shall not have been waived by the Person or Persons entitled to
performance; and
(vii) the rendering against the Servicer of a final judgment, decree
or order for the payment of money in excess of [$_________] and the
continuance of such judgment, decree or order unsatisfied and in effect
for any period of [___] consecutive days without a stay of execution.
Rights Upon an Event of Servicing Termination
If a Servicer Event of Default shall have occurred and be continuing,
the Trustee shall, upon the request of the holders of Notes evidencing more
than [___%] of the Voting Rights, give written notice to the Servicer of the
termination of all of the rights and obligations of the Servicer under the
Receivables Acquisition Agreement. On the receipt by the Servicer of such
written notice, all rights and obligations of the Servicer under the
Receivables Acquisition Agreement, including without limitation the
Servicer's right thereunder to receive unaccrued Servicing Fees, shall cease
and the same shall pass to and be vested in, and assumed by, the Trustee
pursuant to and under the Receivables Acquisition Agreement and the
Indenture; and, without limitation, the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as attorney-in-
fact or otherwise, any and all other acts or things necessary or appropriate
to effect the purposes of such notice of termination, whether to complete the
transfer and assignment of any Contract [and the related Vehicles] or such
passing, vesting or assumption or to cause Obligors to remit all future
Contract Payments and other amounts due under any Contract to such account as
shall be specified by the Trustee.
On and after the time the Servicer receives a notice of termination, the
Trustee shall be the successor in all respects to the Servicer in its
capacity as servicer under the Receivables Acquisition Agreement of the
Receivables and, to such extent, shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof and shall be entitled to receive
from the Issuer the Servicing Fee provided for in the Receivables Acquisition
Agreement; provided that the Trustee shall in no way be responsible or liable
--------
for any action or actions of the Servicer before the time the Servicer
receives such a notice of termination.
S-39
<PAGE>
Amendment of Agreements
Indenture
---------
With the consent of the holders of Notes evidencing not less than
[_______%] of Voting Rights, by act of said Noteholders delivered to the
Issuer and the Trustee, and with the consent of the Issuer, by an Issuer
Order, the Trustee may enter into an amendment to the Indenture or an
indenture or indentures supplemental thereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Indenture or of modifying in any manner the rights of the Noteholders
under the Indenture. Without the consent of Noteholders, amendments may be
made by the Issuer and the Trustee to cure any ambiguity, to correct or
supplement any provision that is inconsistent with another provision or to
add or amend any provision with respect to matters or questions arising under
the Indenture; provided, however, that no amendment to the Indenture or
-------- -------
supplemental indenture may modify the amount of, or the timing of payment of,
any amount due any Noteholder without the consent of such Noteholder, or any
other rights of the holders of a class of Notes, without the consent of
[_______%] of the Outstanding Note Balance of the Notes of such class; and
provided further that no supplemental indenture may (i) modify any provision
-------- -------
of the Indenture requiring the consent of all Noteholders or (ii) release any
of the Collateral from the lien of the Indenture or modify Sections ______ or
______ of the Indenture without the consent of all Noteholders.
Receivables Acquisition Agreement
---------------------------------
The terms of the Receivables Acquisition Agreement shall not be waived,
modified or amended without the written consent of the party against whom
such waiver, modification or amendment is claimed and, in any case, the
Trustee (acting upon the instructions of the holders of Notes evidencing not
less than [_______%] of Voting Rights), provided however, that amendments may
-------- -------
be made by the Issuer and the Trustee to cure any ambiguity, to correct or
supplement any provision that is inconsistent with another provision or to
add or amend any provision with respect to matters or questions arising under
the Receivables Acquisition Agreement, without the consent of such
Noteholders.
Duties and Immunities of the Trustee
The Trustee will make no representations as to the validity or
sufficiency of the Indenture, the Notes (other than the authentication
thereof) or of any Receivable or related document. The Trustee will be
required to perform only those duties specifically required of it under the
Indenture. However, upon receipt of the various resolutions, certificates,
statement, opinions, reports, documents, orders or other instruments required
to be furnished to it, the Trustee will be required to examine them to
determine whether they conform as to form to the requirements of the
Indenture.
No recourse is available based on any provision of the Indenture, the
Notes or any Receivable or assignment thereof against the Trustee, and the
Trustee has no personal obligation, liability or duty whatsoever to any
Noteholder or any other person with respect to any such claim and such claim
shall be asserted solely against the Collateral or any indemnitor, except for
such liability as is determined to have resulted from the Trustee's own gross
negligence or willful misconduct.
The Issuer agrees to pay to the Trustee from time to time such
compensation for all services rendered by it under the Indenture as the
Issuer and the Trustee have agreed in writing prior to the Closing Date
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust), such payment to be made
independent of the other payment obligations of the Issuer thereunder; and,
except as otherwise expressly provided in the Indenture, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements, and
advances incurred or made by the Trustee in accordance with any provision of
the Indenture (including the reasonable compensation and
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<PAGE>
the expenses and disbursements of its agents and counsel), except any such
expense, disbursement, or advance as may be attributable to its negligence or
bad faith.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes will be directly related to
the scheduled rate of principal payments on the underlying Contracts. If
purchased at a price of other than par, the yield to maturity will also be
affected by the rate of principal payments. The principal payments on such
Contracts may be in the form of scheduled principal payments or liquidations
due to default, casualty and the like. Any such payments will result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Contracts. In general, the rate
of such payments may be influenced by a number of other factors, including
general economic conditions. The rate of payment of principal may also be
affected by any removal of the Contracts from the pool and the deposit of the
related Prepayment Amount or Repurchase Amount into the Collection Account.
The Contracts [generally] do not provide for the right of the Obligor to
prepay. Under the Receivables Acquisition Agreement, the Servicer will be
permitted to allow such Prepayments in full or in part, provided that no
Prepayment of a Contract will be allowed in an amount less than the
Prepayment Amount.
The effective yield to Noteholders will depend upon, among other things,
the price at which the Notes are purchased, the amount of and rate at which
principal, including both scheduled and nonscheduled payments thereof, is
paid to the Noteholders. The yield to Noteholders will be affected by lags
between the time interest accrues to Noteholders and the time the related
interest income is received by the Noteholders.
CERTAIN FEDERAL AND STATE INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain federal income
tax consequences under the Internal Revenue Code of 1986 (the "Code") of the
purchase, ownership and disposition of the Offered Notes offered hereunder.
It is based upon the provisions of the Code, the Treasury regulations
thereunder, and published rulings and court decisions in effect as of the
date hereof, all of which authorities are subject to change or differing
interpretations, which could apply retroactively. The discussion below does
not purport to deal with federal income tax consequences applicable to all
categories of investors and is directed solely to [Class A] Noteholders and
[Class B] Noteholders that hold the Offered Notes as capital assets within
the meaning of section 1221 of the Code, and acquire such Offered Notes for
investment and not as a dealer or for resale. Further, this discussion does
not address every aspect of the federal income tax laws that may be relevant
to a [Class A] Noteholder or a [Class B] Noteholder in light of its
particular investment circumstances or to certain types of [Class A]
Noteholders or [Class B] Noteholders subject to special treatment under the
federal income tax laws (for example, banks, insurance companies and foreign
investors).
[Class A] Noteholders and [Class B] Noteholders and preparers of tax
returns should be aware that under applicable Treasury regulations a provider
of advice on specific issues of law is not considered an income tax return
preparer unless the advice is (i) given with respect to events that have
occurred at the time the advice is rendered and is not given with respect to
the consequences of contemplated actions, and (ii) is directly relevant to
the determination of an entry on a tax return. Accordingly, [Class A]
Noteholders and [Class B] Noteholders should consult their own tax advisors
and tax return preparers regarding the preparation of any item on a tax
return, even where the anticipated tax treatment has been discussed herein.
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<PAGE>
The Servicer and the Issuer make no representations regarding the tax
consequences of purchase, ownership or disposition of the Offered Notes under
the tax laws of any state, locality or foreign jurisdiction. Investors
considering an investment in the Offered Notes should consult their own tax
advisors regarding such tax consequences. All investors also should consult
their own tax advisors in determining the federal, state, local and foreign
and any other tax consequences to them of an investment in the Offered Notes
and the purchase, ownership and disposition thereof.
Characterization of the Offered Notes as Indebtedness
Dewey Ballantine, special tax counsel to the Issuer, has advised the
Issuer that in its opinion, assuming compliance with the provisions of the
Indenture in all material respects, and based on the application of existing
law, the provisions of the Indenture, the Receivables Acquisition Agreement
and other relevant documents, the facts set forth above in this Prospectus
and additional information (including [valuation assumptions relating to the
Vehicles] and financial calculations relating to the Contracts provided by
the Originators), the Offered Notes will be treated as indebtedness for
federal income tax purposes.
Taxation of [Class A] Noteholders and [Class B] Noteholders
Assuming that the Offered Notes are characterized as indebtedness,
generally, interest on the Offered Notes will be taxable as ordinary income
for federal income tax purposes when received by a [Class A] Noteholder or
[Class B] Noteholder using the cash method of accounting and when accrued by
a [Class A] Noteholder or [Class B] Noteholder using the accrual method of
accounting.
If a portion of the purchase price of an Offered Note paid by a [Class A]
Noteholder or [Class B] Noteholder reflects interest that accrued on such
Note prior to the Closing Date ("pre-issuance accrued interest"), the
interest payable on the first Payment Date will include such pre-issuance
accrued interest. If applicable, for purposes of information returns to the
[Class A] Noteholders and [Class B] Noteholders and the Internal Revenue
Service (the "IRS"), the Servicer currently intends to treat the applicable
portion of the stated interest payable on the first Payment Date as a return
of such pre-issuance accrued interest (as a separate asset), rather than as
an amount payable on the Offered Note. This position is based upon the rules
governing original issue discount that are set forth in proposed Treasury
regulations (the "[Proposed OID Regulations"]) issued under sections [1271-
1273 and 1275 of the Code.] However, the [Proposed OID Regulations] suggest
that such pre-issuance accrued interest also may be treated as included in
the issue price of the Note and that, under such alternative treatment, the
portion of the interest paid on the first Payment Date in excess of interest
accrued for a number of days corresponding to the number of days from the
Closing Date to the first Payment Date should be included in the stated
redemption price of the Note for purposes of the original issue discount
rules under the [Proposed OID Regulations.] It is unclear whether a [Class
A] Noteholder or [Class B] Noteholder could adopt such alternative treatment
unilaterally. Accordingly, [Class A] Noteholders and [Class B] Noteholders
should consult their own tax advisors to determine the issue price and stated
redemption price at maturity of an Offered Note and the consequences thereof
under the original issue discount rules. The [Proposed OID Regulations] are
subject to change and are not binding authority before their adoption as
final or temporary regulations. [The Proposed OID Regulations are proposed
to be effective sixty days after the date their publication as final
regulations, and prior proposed regulations already have been withdrawn.]
Original Issue Discount. [While it is not anticipated that the Offered
-----------------------
Notes will be issued with original issue discount within the meaning of
section 1273 of the Code ("OID"),] if the Offered Notes are in fact issued at
a discount, the following rules will apply. The excess of the principal
amount of the Offered Notes over their initial issue price (in this case,
with respect to each Offered Note the price paid by the first buyer of such
Offered Note) will constitute OID. [Class A] Noteholders and [Class B]
Noteholders must include OID (unless the amount of such OID is treated as de
--
minimis) in income as interest over the term of the Offered Note under a
-------
constant yield method. In general, OID must be
S-42
<PAGE>
included in income in advance of the receipt of cash representing that
income. Any de minimis OID on the Offered Notes will be required to be
----------
allocated among the principal payments to be made on such Offered Notes, and
the portion of such discount allocated to each principal payment will be
required to be reported as income as each principal payment is made.
In the case of a debt instrument as to which the repayment of principal
may be accelerated as a result of the prepayment of other obligations
securing the debt instrument, under section 1272(a)(6) of the Code the
periodic accrual of OID is determined by taking into account (i) a reasonable
prepayment assumption in accruing OID (generally, the assumption used to
price the debt offering) and (ii) adjustments in the accrual of OID when
prepayments do not conform to the prepayment assumption, and regulations
could be adopted applying those provisions to the Offered Notes. It is
unclear whether those provisions would be applicable to the Offered Notes in
the absence of such regulations or whether use of a reasonable prepayment
assumption may be required or permitted without reliance on these rules. If
this provision applies to the Offered Notes, the amount of OID that will
accrue in any given "accrual period" may either increase or decrease
depending upon the actual prepayment rate. In the absence of such
regulations, the Servicer currently intends that any information reports or
returns to the IRS and the [Class A] Noteholders and [Class B] Noteholders
regarding OID, if any, will be based on the assumption that there will be no
prepayments under the Contracts. However, neither the Issuer, the Trustee,
the Underwriter(s) nor the Originator will make any representation regarding
the prepayment rate of the Contracts. See "Prepayment and Yield
Considerations." Accordingly, [Class A] Noteholders and [Class B]
Noteholders are advised to consult their own tax advisors regarding the
impact of any prepayments under the Contracts (and the OID rules) if the
Offered Notes are issued with OID.
If any Prepayment Premium is payable on any Payment Date as a result of
certain prepayments under the Offered Notes, as described above (see "Summary
of Memorandum -- Prepayment Premium" and "Prepayment and Yield
Considerations"), it is unclear when such amounts will be taxable to a [Class
A] Noteholder or [Class B] Noteholder. It is possible that such holder of an
Offered Note would not be required to include any such amounts in income
unless and until such Prepayment Premium becomes payable to such holder,
depending upon the holder's method of accounting. However, the IRS could
require such amounts to be accrued as income in earlier periods based on
anticipated prepayments or other factors. In the absence of further
guidance, the Servicer currently intends to treat such amounts as not
includible by the [Class A] Noteholders and [Class B] Noteholders prior to
the Payment Date immediately following any actual prepayment under a Contract
(or the Payment Date on which any other prepayment of the Offered Notes
occurs) that creates the entitlement of such [Class A] Noteholders and [Class
B] Noteholders to a redemption premium. Holders of the Offered Notes should
consult their own tax advisors concerning the tax treatment of such
Prepayment Premium. It appears that such income would be ordinary income
rather than capital gain. However, this is not entirely clear and [Class A]
Noteholders and [Class B] Noteholders also should consult their own tax
advisors concerning such aspect of the tax treatment of such Prepayment
Premiums.
The foregoing discussion is based in part on the [Proposed OID
Regulations], which do not address certain issues relevant to, or are not
applicable to, prepayable securities such as the Offered Notes in the event
that the OID rules apply to the Offered Notes. [Moreover, final regulations
may differ from such proposed regulations, and may have retroactive effect.]
[Class A] Noteholders and [Class B] Noteholders should consult their own tax
advisors regarding the proper method of reporting taxable income from the
Offered Notes. Furthermore, if the Offered Notes are issued with OID the
Servicer will calculate the yield of each Offered Note based on the initial
issue price of the Offered Notes and will report such amount annually to the
IRS and each holder of an Offered Note. The amount of OID, if any, reported
to [Class A] Noteholders and [Class B] Noteholders by the Servicer for a
calendar year may not be the proper amount of OID required to be reported by
any holder who did not purchase its Offered Note at such initial issue price,
or by any holders of Offered Notes who are not original purchasers.
Accordingly, [Class A] Noteholders and [Class B] Noteholders should consult
their own tax advisors to determine the amount of OID includible in income
during a calendar year. See "Information Reporting" below.
S-43
<PAGE>
Market Discount. A subsequent holder who purchases an Offered Note at a
---------------
discount may be subject to the "market discount" rules of the Code. These
rules provide, in part, for the treatment of gain attributable to accrued
market discount as ordinary income upon the receipt of partial principal
payments or on the sale or other disposition of the Offered Note, and for the
deferral of interest deductions with respect to debt incurred to acquire or
carry the market discount Offered Note. In particular, under section 1276 of
the Code, a holder who purchases an Offered Note at a discount that exceeds
de minimis market discount generally will be required to allocate a portion
----------
of each such partial principal payment or proceeds of disposition to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. If the provisions of section 1272(a)(6) of the Code
apply to the Offered Notes, as described above with respect to the use of a
reasonable prepayment assumption (and adjustments resulting from actual
prepayments), such provisions also would affect accrual of any market
discount. Accordingly, [Class A] Noteholders and [Class B] Noteholders are
advised to consult their own tax advisors regarding the impact of such
requirement if the Offered Notes are purchased at a discount.
A [Class A] Noteholder or [Class B] Noteholder may elect to include such
market discount in income currently as it accrues rather than including it on
a deferred basis in accordance with the foregoing. If made, such election
will apply to all market-discount bonds acquired by such [Class A] Noteholder
or [Class B] Noteholder on or after the first day of the first taxable year
to which such election applied. If such election is made, the interest
deferral rule described above will not apply. If an Offered Note is
purchased at a de minimis market discount, the actual discount will be
----------
required to be allocated among the principal payments to be made on such
Offered Note, and the portion of such discount allocated to each principal
payment will be required to be reported as income as each principal payment
is made, in the same manner as discussed above regarding de minimis OID.
----------
Premium. In the event that an Offered Note is purchased at a premium
-------
(i.e., the purchase price exceeds the sum of principal payments to be made
----
thereon), such premium will be amortizable by a [Class A] Noteholder or
[Class B] Noteholder as an offset to interest income (with a corresponding
reduction in the [Class A] Noteholder's or [Class B] Noteholder's basis)
under a constant yield method over the term of the Offered Note if such
holder makes (or has in effect) an election under section 171 of the Code.
Sales of Offered Notes. Except as described above with respect to the
----------------------
market discount rules and as provided under section 582(c) of the Code in the
case of banks and other financial institutions, any gain or loss, equal to
the difference between the amount realized on the sale and the adjusted basis
of such Offered Note, recognized on the sale or exchange of an Offered Note
by an investor who holds such Offered Note as a capital asset will be capital
gain or loss. However, a portion of any gain from the sale of an Offered
Note that might otherwise be capital gain may be treated as ordinary income
to the extent such Offered Note is held as part of a "conversion transaction"
within the meaning of new section 1258 of the Code, recently enacted pursuant
to the Omnibus Budget Reconciliation Act of 1993. A conversion transaction
generally is one in which the taxpayer has taken two or more positions in
Offered Notes or similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the time value
of the taxpayer's net investment in such conversion transaction. The amount
of gain so realized in a conversion transaction that is recharacterized as
ordinary income in general will not exceed the amount of interest that would
have accrued on the taxpayer's net investment in such conversion transaction
at 120% of the appropriate "applicable Federal rate" (which rate is computed
and published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction (to the extent
provided in regulations to be issued) to reflect prior inclusion of interest
or other ordinary income items from the transaction.
The adjusted basis of an Offered Note generally will equal its cost,
increased by any income previously reported (including any OID and market
discount income) by the selling [Class A] Noteholder or [Class B] Noteholder
and reduced (but not below zero) by any deduction previously allowed for
losses and any amortized premium and by any payments previously received with
respect to such Offered Note.
S-44
<PAGE>
Principal payments on the Offered Note will be treated as amounts received
upon a sale or exchange of the Offered Note under the foregoing rules.
Information Reporting
The Servicer is required to furnish or cause to be furnished to each
[Class A] Noteholder or [Class B] Noteholder with each payment a statement
setting forth the amount of such payment allocable to principal on the
Offered Note and to interest thereon at the applicable interest rate. In
addition, the Servicer is required to furnish or cause to be furnished,
within a reasonable time after the end of each calendar year, to each [Class
A] Noteholder or [Class B] Noteholder who was such a holder at any time
during such year, a report indicating such other customary factual
information as the Servicer deems necessary to enable holders of Offered
Notes to prepare their tax returns. If the [Class A] Notes or the [Class B]
Notes are issued with OID, the Servicer will provide or cause to be provided
to the IRS and, as applicable, to the [Class A] Noteholders or [Class B]
Noteholders information statements with respect to OID as required by the
Code or as such holders of the Offered Notes may reasonably request from time
to time. For the reasons described under "Taxation of [Class A] Noteholders
and [Class B] Noteholders -- Original Issue Discount," above, if Offered
Notes are issued with OID, the amount of OID reported for a calendar year may
not be the proper amount of OID required to be reported by any holder thereof
who did not purchase its Offered Note for the initial issue price at which
such Offered Notes were first sold, or by holders of such Offered Notes who
are not original purchasers. Accordingly, [Class A] Noteholders and [Class
B] Noteholders should consult their own tax advisors to determine the amount
of any OID and market discount includible in income during a calendar year.
Foreign Investors
A [Class A] Noteholder or [Class B] Noteholder that is not a "United
States person" (as defined below) and is not subject to federal income tax as
a result of any direct or indirect connection to the United States in
addition to its ownership of an Offered Note generally will not be subject to
United States federal income or withholding tax in respect of interest
(including accrued OID, if any) paid on an Offered Note, provided that the
[Class A] Noteholder or [Class B] Noteholder complies to the extent necessary
with certain identification requirements (including delivery of a statement
(IRS Form W-8), signed by the [Class A] Noteholder or [Class B] Noteholder
under penalties of perjury, certifying that such [Class A] Noteholder or
[Class B] Noteholder is not a United States person and providing the name and
address of such [Class A] Noteholder or [Class B] Noteholder). The foregoing
exemption does not apply to payments of interest (including payments in
respect of accrued OID, if any), received by a [Class A] Noteholder or [Class
B] Noteholder that either (i) owns directly or indirectly a 10% or greater
interest in the Issuer, (ii) is a bank that purchased its Note in the
ordinary course of its trade or business, (iii) is a person within a foreign
country which the IRS has included in a list of countries that do not provide
adequate exchange of information with the United States to prevent tax
evasion by United States persons, or (iv) is a "controlled foreign
corporation" (within the meaning of section 957 of the Code) with respect to
which the Issuer is a "related person" (within the meaning of section
881(c)(3)(C) of the Code). If the [Class A] Noteholder or [Class B]
Noteholder does not qualify for the foregoing exemption from withholding,
payments of interest (including payments in respect of any accrued OID) to
such [Class A] Noteholder or [Class B] Noteholder may be subject to
withholding tax at a tax rate of 30%, subject to reduction (including
exemption) under any applicable tax treaty, provided the [Class A] Noteholder
or [Class B] Noteholder supplies (at the time of its initial purchase, and at
such subsequent times as are required under the Treasury regulations) a
completed IRS Form 1001 to report its eligibility for such reduced rate or
exemption.
Amounts allocable to interest (including accrued OID,if any), received by
a [Class A] Noteholder or [Class B] Noteholder that is not a United States
person, which constitute income that is effectively connected with a United
States trade or business carried on by the [Class A] Noteholder or [Class B]
Noteholder, will not be subject to withholding tax, but rather will be
subject to United States income tax at the graduated rates applicable to
United States persons, provided the [Class A] Noteholder or [Class
S-45
<PAGE>
B] Noteholder supplies (at the time of its initial purchase, and at such
subsequent times as are required under the Treasury regulations) a completed
IRS Form 4224 to report its exemption from withholding.
For these purposes, "United States person" means a citizen or resident of
the United States, a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or any political
subdivision thereof or an estate or trust the income of which from sources
without the United States is includible in gross income for United States
federal income tax purposes regardless of its connection with the conduct of
a trade or business within the United States. [Class A] Noteholders and
[Class B] Noteholders who are not United States persons should consult their
own tax advisors regarding the tax consequences of purchasing, owning or
disposing of an Offered Note.
Backup Withholding
Payments of interest and principal, as well as payments of proceeds from
the sale of Offered Notes, may be subject to the "backup withholding tax"
under section 3406 of the Code at a rate of 31% if recipients of such
payments fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a distribution to a
recipient would be allowed as a credit against such recipient's federal
income tax liability. Furthermore, certain penalties may be imposed by the
IRS on a recipient of payments that is required to supply information but
that does not do so in the proper manner. Information returns will be sent
annually to the IRS and each [Class A] Noteholder and [Class B] Noteholder
setting forth the amount of interest paid on the Offered Notes and the amount
of any tax withheld thereon.
State, Local and Other Taxes
Investors should consult their own tax advisors regarding whether the
purchase of the Offered Notes, either alone or in conjunction with an
investor's other activities, may subject an investor to any state or local
taxes based on an assertion that the investor is either "doing business" in,
or deriving income from a source located in, any state or local jurisdiction.
Additionally, potential investors should consider the state, local and other
tax consequences of purchasing, owning or disposing of an Offered Note.
State and local tax laws may differ substantially from the corresponding
federal tax law, and the foregoing discussion does not purport to describe
any aspect of the tax laws of any state or other jurisdiction. Accordingly,
potential investors should consult their own tax advisors with regard to such
matters.
THE FEDERAL AND STATE INCOME TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
NOTEHOLDER'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 THE NOTES, 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
The Notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to the Employees Retirement Income
Security Act of 1974, as amended ("ERISA"), or section 4975 of the Code. A
fiduciary of a Plan must determine that the purchase of a Note is consistent
with its fiduciary duties under ERISA and does not result in a nonexempt
prohibited transaction as defined in Section 406 of ERISA or Section 4975 of
the Code. Employee benefit plans which are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to the fiduciary responsibility or prohibited
transaction provisions of ERISA or the Code. For additional information
regarding treatment of the Notes under ERISA, see "ERISA Considerations" in
the Prospectus.
S-46
<PAGE>
If the Notes constitute equity interests, there can be no assurance that
any of the exceptions set forth in the Regulations will apply to the purchase
of Notes offered hereby. Under the terms of the Regulations, if the Issuer
were deemed to hold Plan assets by reason of a Plan's investment in Notes,
such Plan assets would include an undivided interest in the Receivables, and
any other assets held by the Issuer. In such an event, the Servicer, the
Issuer, the Trustee and other persons providing services with respect to the
Receivables, may be subject to the fiduciary responsibility provisions of
Title One of ERISA and be subject to the prohibited transaction provisions of
Section 4975 of the Code with respect to transactions involving the
Receivables unless such transactions are subject to a statutory or
administrative exemption. Additionally, if the Issuer were deemed to hold
Plan assets, each Noteholder may be subject to the fiduciary responsibility
provisions of Title One of ERISA with respect to its right to consent or
withhold consent to amendments to the Indenture and with respect to its right
to vote on action to be taken or not taken if an Indenture Event of Default
occurs.
In addition, certain affiliates of the Originators, the Issuer, the
Servicer and the Trustee may be considered to be parties in interest or
fiduciaries with respect to many Plans. An investment by such a Plan in
Notes may be a prohibited transaction under ERISA and the Code unless such
investment is subject to a statutory or administrative exemption.
Any Plan fiduciary that proposes to cause a Plan to purchase Notes should
consider whether such purchase would be appropriate under the general
fiduciary standards of prudence and diversification, taking into account the
overall investment policy of the Plan and its existing portfolio and should
consult with its counsel with respect to the potential applicability of ERISA
and the Code.
RATINGS
As a condition to the issuance of the Offered Notes, the [Class A] Notes
must be rated at least "____" by the Rating Agency and the [Class B] Notes
must be rated at least "____" by the Rating Agency. A security rating is not
a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time. The rating of ________________________
assigned to the Offered Notes addresses the likelihood of the receipt by
[Class A] Noteholders and [Class B] Noteholders of all distributions to which
such Noteholders are entitled. The ratings assigned to the Offered Notes do
not represent any assessment of the likelihood that principal prepayments
might differ from those originally anticipated or address the possibility
that [Class A] Noteholders and [Class B] Noteholders might suffer a lower
than anticipated yield.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Issuer has agreed to sell to each of the
Underwriter(s) named below (the "Underwriter(s)"), and each of the
Underwriter(s) has severally agreed to purchase, the principal amount of
Notes set forth opposite its name below.
Principal Principal
Amount Amount
Underwriter(s) of A Notes of B Notes
-------------- ---------- ----------
$ $
---------- ----------
Total $
--------- ----------
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<PAGE>
In the Underwriting Agreement, the Underwriter(s) have agreed, subject to
the terms and conditions therein, to purchase all the Notes offered hereby if
any of such Notes are purchased. The Issuer has been advised by the
Underwriter(s) that they propose initially to offer the Class A Notes and the
Class B Notes to the public at the price set forth herein, and to certain
dealers at such price less a concession not in excess of ___% per Class A
Note and __% per Class B Note. The Underwriter(s) may allow and such dealers
may reallow a concession not in excess of __% per Class A Note and ___% per
Class B Note to certain other dealers. After the initial public offering,
such prices and such concessions may be changed.
The Underwriting Agreement provides that the Issuer and Originators will
indemnify the Underwriter(s) against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the [several]
Underwriter(s) may be required to make in respect thereof. The Commission is
of the opinion that indemnification for securities law violations is contrary
to the public policy expressed in the federal securities laws, and,
consequently, that such indemnification provisions are unenforceable.
The Trustee may, from time to time, invest the funds in certain accounts
in Eligible Investments acquired from the Underwriter(s).
REPORT OF EXPERTS
The financial statements of the Certificate Insurer, _____________, for
each of the two years in the periods ending December 31, 199_ and 199_,
appearing in Appendix A of this Prospectus Supplement have been audited by
_____________, independent accountants, as indicated in their report thereon
appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report and upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus,
certain legal matters relating to the issuance of the Notes, as well as other
matters, will be passed upon for the Issuer by Shaw, Pittman, Potts &
Trowbridge, Washington, D.C. and for the Underwriter(s) by Dewey Ballantine,
New York, New York.
S-48
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Act....................................... 23
Additional Receivable Transfer Agreement.. 22
Additional Receivable Transfer Date....... 6
Additional Receivables.................... 6
Adequately capitalized.................... 23
Aggregate Discounted Contract Balance..... 10
Agreements................................ 31
Applicable Federal rate................... 45
APR....................................... 19
Available Funds........................... 10
Backup Withholding Tax.................... 47
Bond Insurance Policies................... 3, 11
Bond Insurer.............................. 11
Business Day.............................. 32
Calculation Date.......................... 10
Capitalized Interest Account.............. 7
Cede...................................... 3
CFC....................................... 6
CFC Receivables........................... 6
Class A Monthly Interest.................. 7
Class A Monthly Principal................. 8
Class A Note Balance...................... 7
Class A Note Rate......................... 7
Class A Noteholders....................... 7
Class A Notes............................. 1
Class A Overdue Interest.................. 7
Class A Overdue Principal................. 8
Class A Percentage........................ 1
Class B Monthly Interest.................. 7
Class B Monthly Principal................. 8
Class B Note Balance...................... 7
Class B Note Rate......................... 7
Class B Noteholders....................... 7
Class B Notes............................. 1
Class B Overdue Interest.................. 7
Class B Overdue Principal................. 9
Class B Percentage........................ 1
Class C Distributions..................... 11
Class C Monthly Interest.................. 8
Class C Monthly Principal................. 9
Class C Note Balance...................... 8
Class C Note Rate......................... 8
Class C Noteholders....................... 8
Class C Notes............................. 1
Class C Overdue Interest.................. 8
Class C Overdue Principal................. 9
Code...................................... 42
Collateral................................ 1
Collection Account........................ 10
</TABLE>
S-49
<PAGE>
<TABLE>
Page
----
<S> <C>
Commission................................ 3
Contracts................................. 1
Contribution and Servicing Agreement...... 3
Defaulted Contract........................ 13
Delinquency Amounts....................... 12
Delinquency Condition..................... 11
Delinquent Contract....................... 12
Discount Rate............................. 9
Discounted Contract Balance............... 9
ERISA..................................... 14
Excess Collections........................ 10
Excess Contract Balance................... 5
FDIC...................................... 23
FDICIA.................................... 23
FIRREA.................................... 23
Funding Period............................ 6
Indenture................................. 3
Initial Yield Maintenance Amount.......... 12
Investment Earnings....................... 12
IRS....................................... 43
Issuer.................................... 1
List of Receivables....................... 34
Lockbox Account........................... 13
Lockbox Facility.......................... 36
Maximum Reserve Amount.................... 11
Monthly Yield............................. 9
Net Receivables Rate...................... 17
Noteholders............................... 7
Notes..................................... 1
Offered Notes............................. 1
Optional Redemption....................... 13
Original Capitalized Interest Amount...... 35
OTS....................................... 23
Payment Date.............................. 3
Pre-Funded Amount......................... 6
Pre-Funding Account....................... 6
Predecessor Receivable.................... 21
Rating Agencies........................... 16
Receivables............................... 1
Record Date............................... 7
Required Deposit Date..................... 36
Required Payments......................... 10
Required Rate............................. 12
Reserve Account........................... 10
Reserve Account Payment................... 10
Restricting Event......................... 11
Rule of 78s............................... 19
SAIF...................................... 23
Servicer.................................. 4
Servicer Advance.......................... 12
Servicing Charges......................... 12
</TABLE>
S-50
<PAGE>
<TABLE>
Page
----
<S> <C>
Servicing Fee............................. 12
Servicing Fee Rate........................ 12
Stated Maturity Date...................... 3
Successor Servicer........................ 40
Supplement................................ 4
Trustee................................... 4
Undercapitalized.......................... 23
VSI Insurance Policy...................... 28
Weighted-Average Note Rate................ 10
Well capitalized.......................... 23
Yield Maintenance Amount.................. 12
[Class C] Percentage...................... 1
</TABLE>
S-51
<PAGE>
Exhibit 99.3
SUBJECT TO COMPLETION DATED ___________, 1997
[Exhibit 99.3 Form of Prospectus Supplement. This form of Prospectus Supplement
-----------------------------
is for illustrative purposes only. A Prospectus Supplement in definitive form
reflecting the terms of each Series of Certificates will be filed with the
Commission under the Securities Act of 1933, as amended, pursuant to Rule 424(b)
promulgated thereunder.]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED _________, 1997)
- --------------------------------------------------------------------------------
CHEVY CHASE RECEIVABLES FINANCE TRUST 199__-__
$_____________
_____% Auto Receivables Certificates, Class __
CHEVY CHASE BANK, F.S.B.
Bank
_______________________
Servicer
_______________________
Originator
- --------------------------------------------------------------------------------
The Class ___ Auto Receivables Backed Certificates (the
"Certificates") offered hereby represent the right to receive repayment of the
Initial Certificate Principal Amount ($____________) of the Certificates and
monthly interest at a rate of _____% per annum on the unpaid portion of such
principal amount. The rights to receive such payments are based solely upon the
interests represented by the Certificates in the Chevy Chase Auto Receivables
Trust 199__-__ (the "Trust") formed pursuant to a Pooling and Servicing
Agreement (the "Pooling Agreement"), dated as of ____________, 199__, among
______________________________, as originators, (the "Originators") as servicer
of the receivables (the "Servicer") Chevy Chase Bank, F.S.B. (the "Bank") and
____________, as trustee (the "Trustee"). The assets of the Trust will consist
of any combination of retail installment sales and finance contracts between
manufacturers, dealers or certain other originators and retail purchasers
secured by new and used automobiles, light duty trucks and vans financed thereby
or participation interests therein, all monies relating thereto (the
"Contracts"), the underlying new and used automobiles, light duty trucks and
vans (the "Vehicles," together with the Contracts], the "Receivables") and the
proceeds thereof received by the Trust from the Bank on or prior to the date of
the issuance of the Certificates. [The assets of the Trust also will include a
certificate guaranty insurance policy issued with respect to the Certificates
(the "Certificate Insurance Policy") by _____________ (the "Certificate
Insurer"), and during the Funding Period, amounts on deposit in the Pre-funding
Account and the Capitalized Interest Account. The Trustee will also have access
to the Reserve Account to be established for the benefit of the holders of the
Certificates (the "Certificateholders") and the Certificate Insurer. Capitalized
terms used herein are defined terms having specific meanings. An "Index of
Defined Terms" is set forth as page __ hereto, which indicates the page on which
such defined terms are defined.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
AS PAGE __ HEREIN AND IN THE PROSPECTUS AT PAGE __.
[FORM OF CREDIT ENHANCEMENT]
------------------
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE ORIGINATORS, THE BANK, THE
SERVICER, ANY SUCCESSOR SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER
THE SECURITIES NOR THE UNDERLYING RECEIVABLES WILL BE GUARANTEED OR INSURED BY
ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY THE ORIGINATORS OR THE BANK.
SEE ALSO "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Price to Underwriting Proceeds to the
Public(1) Discount(2) Bank/(1)//(3)/
- ---------------------------- ----------- --------------- ----------------
<S> <C> <C> <C>
Per Certificate............ % % %
Total...................... $ $ $
- ---------------------------- -----------===================================
</TABLE>
(1) Plus accrued interest, if any, from ____________, 199__.
(2) The Bank has agreed to indemnify the Underwriter(s) against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".
(3) Before deducting estimated expenses of $____________ payable by the Bank.
[The Certificates are offered subject to prior sale, when, as,
and if accepted by the Underwriter(s) and subject to the approval of certain
legal matters by Dewey Ballantine, counsel for the Underwriter(s). It is
expected that delivery of the Certificates will be made only in book-entry
form through the Same Day Funds Settlement System of The Depository Trust
Company on or about _____________, 19__]
[Name(s) of the Underwriter(s)]
<PAGE>
The Contracts are contracts for the sale of the Vehicles,
entitling the originator thereunder to payments of principal and interest
(hereinafter, "Contract Principal" and "Contract Interest," respectively).
Principal and interest will be paid to the Certificateholders
[monthly] on the _____ day (or the next succeeding business day thereafter) of
each [month], commencing (except as provided below) in ____________ 199__. The
final payment of principal and interest on the Certificates will not be later
than the ____________ Payment Date. The Pooling Agreement and the Receivables
Acquisition Agreement will provide that, to the extent additional, qualifying
Receivables satisfactory to the Certificate Insurer are available from the
Originators during the period prior to the ____________ 199__ Payment Date, or,
if a Required Amortization Event (as defined herein) occurs with respect to a
Payment Date prior to the ____________ 199__ Payment Date, such earlier Payment
Date (the ____________ 199__ or such earlier Payment Date being the "Initial
Amortization Date"), the Pre-Funded Amount and all Contract Principal received
by the Trust will be disbursed to the Bank in consideration of the conveyance of
such additional, qualifying Receivables (the "Additional Receivables").
On the Funding Distribution Date, the amount, if any, remaining
on deposit in the Pre-Funding Account will be transferred to the Remittance
Account for distribution to the Certificateholders as a prepayment of principal.
Beginning with the Initial Amortization Date, the Certificateholders will
generally be entitled to receive the Applicable Percentage of all Contract
Principal (other than Contract Principal resulting from certain Prepayments)
received by the Trust during the prior calendar month together with, as a
payment of principal, ___% of the lesser of (x) all Contract Interest received
by the Trust during the preceding calendar month in excess of the amount of
interest then due on the Certificates, subject to certain adjustments (the
"Excess Contract Interest") and (y) the amount then remaining in the Remittance
Account. On and after the Initial Amortization Date (unless a Required
Amortization Event has occurred) the Bank will have the option on each Payment
Date to convey Additional Receivables to the Trust, having an aggregate
Discounted Contract Balance not in excess of the aggregate amount of Prepayments
deposited to the Remittance Account with respect to the prior Remittance Period.
The Trust shall disburse to the Bank an amount equal to the aggregate Discounted
Contract Balance of such Additional Receivables.
The Certificate Insurer will be unconditionally obligated, to the
extent that Available Funds on any Payment Date are insufficient, to pay the
full amount of the required payments of principal and interest then due and
payable under the Certificates. "Available Funds" shall mean all amounts held by
the Trust received with respect to the Receivables, all amounts in the
Capitalized Interest Account and the Reserve Account established by the Bank for
the benefit of the Certificateholders, other than payments under the Certificate
Insurance Policy or payments received by the Servicer which relate to subsequent
collection periods.
------------------------------------------
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.
------------------------------------------
S-2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER(S) MAY OVER-
ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF
THE CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------------------------
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, periodic 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 &
Company ("Cede"), as nominee of The Depository Trust Company ("DTC") and
registered holders of the Certificates. See "Description of the Securities --
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 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 thereunder and as are otherwise
agreed to by the Commission. Copies of such periodic reports may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference
to the detailed information appearing elsewhere herein and in the Prospectus.
Certain capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
<TABLE>
<S> <C>
Issuer................ CHEVY CHASE AUTO RECEIVABLES TRUST 199_-_ (the "Trust"
or the "Issuer").
Bank.................. Chevy Chase Bank, F.S.B. (the "Bank"), a federally
chartered stock savings bank. The Bank will acquire
the Receivables from the Originators and will
simultaneously transfer the Receivables (including
from time to time the Additional Receivables) to the
Trust. The principal executive offices of the Bank are
located at 8401 Connecticut Avenue, Chevy Chase,
Maryland 20815, and its telephone number is (301)
986-7000.
Servicer.............. ________________________________ (the "Servicer"). The
principal executive offices of the Servicer are
located at 8401 Connecticut Avenue, Chevy Chase,
Maryland 20815, and its telephone number is (301)
986-7000.
Originators........... _____________________, a ________ (the "Originators").
The principal executive offices of [_______________]
are located at
______________________________________________________
__, and its telephone number is __________.
Trustee............... ________________________ (the "Trustee"), a
___________ association. The corporate trust offices
of the Trustee are located at ______________________
and its telephone number is (___) ______.
Certificate
Insurer............... ________________________, a ____________ corporation
(the "Certificate Insurer"). The principal executive
offices of the Certificate Insurer are located at
________________________ and its telephone number is
(___) ____________.
Cut-Off Date.......... ____________, 199__.
Closing Date.......... ____________, 199__.
The Certificates...... The Certificates will represent the right to receive a
specified principal amount and [monthly] interest at a
rate of _____% per annum on the unpaid portion of that
principal amount (the "Required Payments"). The rights
to such payments are based solely on the interest in
the Trust represented by the Certificates. The
Certificates will be issued in a principal amount of
$____________, which is not greater than the sum of
(i) ___% of the aggregate Contract Principal Balance
of the Contracts as of the close of business on
____________, 199__ (the "Cut-Off Date") (the "Initial
Contract Principal Balance") and (ii) the Original
Pre-
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
Funded Amount. As of any date of determination, the
aggregate outstanding Discounted Contract Balance of
all Contracts (including all Additional Receivables)
then owned by the Trust and not represented by the
Certificates is the "Transferor's Balance." The
Discounted Contract Balance was derived using a
discount rate of ___%. As discussed below, the
Transferor's Balance as evidenced by the Bank's
Certificate represents a subordinate interest in the
Trust because all amounts received with respect to the
Transferor's Balance (as well as all Residual Receipts
and all Excess Contract Interest) are available to
provide payment for any shortfall in the amounts
available to meet Required Payments under the
Certificates.
The interest in the Trust to be evidenced by a
Certificate will represent at least [$1,000,000] of
the Initial Certificate Principal Amount.
As described below under "Trust Assets" and below
under "Flow of Funds," from time to time the Bank may
convey Additional Receivables to the Trust. The
Pooling Agreement provides that, unless a Required
Amortization Event occurs prior to the ____________
199__ Payment Date, all Contract Principal which would
otherwise be paid to the Certificateholders or
distributed to the Bank will be disbursed to the Bank
in consideration of the conveyance of Additional
Receivables, with the result that the
Certificateholders will receive payments of interest
only, and no payments of principal, on each Payment
Date prior to the ____________ 199__ Payment Date
except for a possible prepayment of principal
resulting from the distribution of amounts remaining
on deposit in the Pre-Funding Account on the Funding
Distribution Date. See "Description of the
Certificates" and "Prepayment and Yield
Considerations" in the Prospectus.
The Trust............. The Trust will be a trust established under the laws
of the State of ____________. The activities of the
Trust are limited by the terms of the Trust Agreement
to purchasing, owning and managing the Receivables,
issuing and making payments on the Certificates and
other activities related thereto. The Trust Property
includes (i) the Receivables, (ii) all monies
(including accrued interest) due thereunder on or
after the Cut-off Date, (iii) such amounts as from
time to time may be held in one or more accounts
established and maintained by the Servicer pursuant to
the Pooling Agreement, as described below, [(iv) the
security interests in the Vehicles, (v) the rights to
proceeds from claims on physical damage, credit life
and disability insurance policies, if any, covering
Vehicles or Obligors, as the case may be, (vi) any
proceeds of repossessed Vehicles,] (vii) the rights of
the Bank under the Receivables Acquisition Agreement
and (viii) interest earned on short-term investments
made by the Trust.
In the Receivables Acquisition Agreement, the
Originator will make certain representations and
warranties to the Bank with respect to, among other
things, the Vehicles and the Contracts, which
representations and warranties will be assigned to the
Trustee under the Pooling Agreement.
S-5
</TABLE>
<PAGE>
<TABLE>
<S> <C>
The Receivables....... The Receivables consist of noncancelable retail
installment sales and finance contracts between
manufacturers, dealers or certain other originators
and retail purchasers serviced by new and used
automobiles, light duty trucks and vans financed
thereby or participation interest therein. Each
Obligor's obligation under its Contract is a full
recourse obligation. The "Obligor" is the obligor
under each Contract including any guarantor. The
Receivables contain provisions which unconditionally
obligate the Obligor to make all Contract Payments.
Approximately _____% of the Receivables (by aggregate
principal balance of the Receivables as of the Cut-Off
Date) were purchased or originated by the Bank and the
other _____% of the Receivables were purchased or
originated by the Bank's wholly-owned subsidiary,
Consumer Finance Corporation ("CFC"). The Receivables
purchased or originated by CFC are referred to herein
as the "CFC Receivables."
[All of the Contracts were purchased by the Bank from
the Originators in the ordinary course of business and
the Contracts constitute substantially all of the
automobile, light duty truck and van retail
installment sale and finance contracts included in the
Originators' portfolio meeting the selection criteria
described herein. Such selection criteria included
that: (i) each Contract is secured by a new or used
automobile, light duty truck or van; (ii) each
Contract was originated in the United States; (iii)
each Contract provides for level monthly payments that
fully amortize the amount financed over its original
term except that the payment in the first or last
month in the life of the Contract may be minimally
different from the level payment, and a minimal number
of the Contracts provide for monthly payments for a
period of time not exceeding one year after
origination in an amount less than such level payment,
provided that as of the Cutoff Date the monthly
payment currently due under each such Contract is
equal to such level payment; (iv) each Contract was
originated on or prior to _______, 199_; (v) each
Contract has an original term of __ to __ months and,
as of the Cutoff Date, had a remaining term to
maturity of not less than three months nor more than
__ month; (vi) each Contract provides for the payment
of a finance charge at an APR ranging from __% to __%;
(vii) each Contract shall not have a Scheduled Payment
that is more than 30 days past due as of the Cutoff
Date; (viii) no Contract shall be due, to the best
knowledge of the related Originator, from any Obligor
who is presently the subject of a bankruptcy
proceeding or is bankrupt or insolvent; (ix) no
Vehicle has been repossessed without reinstatement as
of the Cutoff Date; and (x) as of the Cutoff Date,
physical damage insurance relating to each Vehicle is
not being force-placed by the Servicer.]
[As of the Cutoff Date, approximately __%,
approximately __%, and approximately __% of the
Aggregate Discounted Contract Balance are expected to
represent Contracts secured by automobiles, light duty
trucks and vans, respectively. Based on the Aggregate
Discounted Contract Balance, approximately ___% and
approximately ___% of the Contracts are expected to
represent financing of new vehicles and used vehicles,
respectively, and no more than ___% of the Contracts
are
S-6
</TABLE>
<PAGE>
<TABLE>
<S> <C>
expected to be due from employees of the Originator or
any of its respective affiliates. As of the Cutoff
Date, the average Principal Balance of Contracts
secured by automobiles, light duty trucks and vans is
expected to be approximately $________, approximately
$____ and approximately $________, respectively. The
majority of the Vehicles are expected to be foreign
and domestic automobiles, light duty trucks and vans.
Except in the case of any breach of representations
and warranties by the Originator, it is expected that
none of the Contracts provide for recourse to the
Originator who originated the related Contract.]
Flow of Funds......... The Pooling Agreement will require that the Trustee
establish an account (the "Remittance Account") and
that the Servicer deposit to the Remittance Account
all collections received by the Servicer on the
Contracts on the next business day following receipt
of such amounts.
The Pooling Agreement will also require that the
Trustee establish an account (the "Pre-Funding
Account") and that the Bank deposit to the Pre-Funding
Account on the Closing Date cash in the amount of
$____________ (the "Original Pre-Funded Amount"). On
the Funding Distribution Date, the Trustee will
transfer the amount, if any, then on deposit in the
Pre-Funding Account to the Remittance Account for
distribution to the Certificateholders as a prepayment
of principal.
On each Payment Date the Trustee will be required to
make the following payments from the Available Funds
then on deposit in the Remittance Account, in the
following order of priority:
(i) to the Servicer, the Servicing Fee then due,
together with certain miscellaneous amounts;
(ii) on the Payment Date which is also the Funding
Distribution Date, to the Certificateholders, the
Pre-Funded Amount, if any;
(iii) to the Certificateholders, the Certificate
Interest and Overdue Interest for the related
Remittance Period;
(iv) on and after the Payment Date which is also
the Initial Amortization Date and until the
Certificate Principal Balance has been reduced to
zero, to the Certificateholders, the Base Principal
Distribution Amount and any Overdue Principal for
the related Remittance Period;
(v) to the Certificate Insurer, the premiums then
due with respect to the Certificate Insurance
Policy (the cost of which will be debited against
the Bank's Interest);
(vi) to the Certificate Insurer, any amounts
previously paid by it under the Certificate
Insurance Policy and not theretofore repaid,
together with interest thereon;
S-7
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(vii) to the Reserve Account, the amount of any
insufficiency therein;
(viii) on and after the Payment Date which is also
the Initial Amortization Date and until the
Certificate Principal Balance has been reduced to
zero, to the Certificateholders, the Excess
Principal Amount as of such Payment Date;
(ix) to the Servicer, certain remaining amounts as
reimbursement for certain expenses; and
(x) to the holder of the Bank's Certificate, any
remaining amounts.
See "Description of the Certificates - Flow of Funds"
for the definitions of certain defined terms used
above.
Credit Enhancement.... The credit enhancement available for the benefit of
the Certificateholders takes the following forms: the
Transferor's Interest, the Capitalized Interest
Account, the Reserve Account and the Certificate
Insurance Policy.
A. Bank's Interest... The "Bank's Interest", as evidenced by the Bank's
Certificate, is the right of the holder of the Bank's
Certificate to receive the Transferor's Balance plus
other remaining Available Funds as described in clause
(x) of "Flow of Funds" above.
The Transferor's Balance as of any date of
determination is equal to the excess of (x) the
aggregate outstanding Discounted Contract Balance of
all Contracts as of such date (computed as stated
above) over (y) the outstanding Certificate Principal
Balance minus the Pre-Funded Amount, if any, as of
such date. As of the Cut-Off Date the Transferor's
Balance was equal to ___% of the sum of the Initial
Aggregate Discounted Contract Balance.
The Pooling Agreement provides that 100% of any losses
on Defaulted Contracts be allocated to the
Transferor's Balance until the Transferor's Balance is
reduced to zero. If losses on Defaulted Contracts
occur when the Transferor's Balance is zero, then the
Applicable Percentage of the outstanding Discounted
Contract Balance of such Defaulted Contracts will be
due to the Certificateholders on the next Payment
Date, such amount to be paid from any Available Funds
on deposit in the Remittance Account on such Payment
Date, amounts transferred from the Reserve Account on
such Payment Date and, if the foregoing sources are
insufficient, Insured Payments made by the Certificate
Insurer.
In addition to the repayment of the Transferor's
Balance, the holder of the Bank's Certificate as owner
of the Bank's Interest will be entitled to receive on
each Payment Date any Available Funds not required to
be
S-8
</TABLE>
<PAGE>
<TABLE>
<S> <C>
used for repayments to the Certificate Insurer, the
making of any required deposits to the Reserve Account
or other required purposes.
If, prior to the Initial Amortization Date, the
Transferor's Balance is reduced below ___%, then the
Bank will be required on the next Payment Date to
transfer to the Trust Additional Receivables having an
aggregate Discounted Contract Balance necessary to
increase the Transferor's Balance to the ___% level.
The Trust will disburse to the Bank Excess Contract
Interest and other excess cash with respect to such
transfers, and the obligation of the Bank to transfer
such Additional Receivables is limited by the amount
of the Excess Contract Interest and other excess cash
available.
B. Capitalized Interest
Account........... The Pooling Agreement will require that the Trustee
establish an account (the "Capitalized Interest
Account") and that the Bank deposit to the Capitalized
Interest Account on the Closing Date cash in the
amount of $_________ (the "Initial Capitalized
Interest Amount"). On each Payment Date during the
Funding Period, amounts on deposit in the Capitalized
Interest Account will be required to be transferred to
the Remittance Account to the extent the aggregate
amount of Contract Interest for the related Remittance
Period is insufficient to fund the full amount of the
Certificate Interest and Servicer Fee payable on such
Payment Date. On each such Payment Date, the Bank will
have the right to instruct the Trustee to transfer to
the Bank from the Capitalized Interest Account the
Overfunded Interest Amount. The amount, if any, on
deposit in the Capitalized Interest Account on the
Funding Distribution Date will be disbursed to the
Bank.
C. Reserve Account.... Pursuant to the terms of the Insurance Agreement,
dated as of ____________, 199__, among the
Originators, the Servicer, the Bank, the Collateral
Agent, the Trustee and the Certificate Insurer (the
"Insurance Agreement"), and the Pooling Agreement, the
Trustee will hold a reserve account (the "Reserve
Account") for the benefit of the Certificateholders,
the Certificate Insurer and the Transferor, as their
interests may appear, which will be funded with cash
on the Closing Date in the initial amount of
$____________.
In connection with each payment to the Bank from the
Pre-Funding Account, the Trustee will transfer from
the Pre-Funding Account to the Reserve Account an
amount equal to __% of the aggregate Contract
Principal Balances of the Additional Contracts
conveyed to the Trust on the date of such payment. The
amount on deposit in the Reserve Account on the
Funding Termination Date will be required to be
maintained until the date two years after the Closing
Date (the "Determination Date"). On each Payment Date
thereafter, the amount on deposit in the Reserve
Account will be required to be maintained in an amount
equal to the greater of (i) the product of (x) a
fraction, the numerator of which is the amount on
deposit in the Reserve Account on the Determination
Date and the denominator of which is the aggregate
Contract Principal Balances as of the Calculation Date
immediately
S-9
</TABLE>
<PAGE>
preceding the Determination Date and (y) the aggregate
Contract Principal Balances as of the related
Calculation Date and (ii) $________. On each Payment
Date, amounts on deposit in the Reserve Account are
required to be transferred to the Remittance Account
to the extent that Available Funds are insufficient to
fund the full amount of Required Payments on such
Payment Date.
D. Certificate Insurance
Policy............. In the event that Available Funds plus any amounts
available to be withdrawn from the Reserve Account and
the Capitalized Interest Account are insufficient to
fund the full amount of the Required Payments due on
any Payment Date, the Trustee will be required to make
a claim under the Certificate Insurance Policy.
"Required Payments" means, with respect to any Payment
Date, the amounts described in clauses (ii), (iii) and
(iv) under "Flow of Funds" above on such Payment Date.
E. Yield Maintenance
Account............ Certain of the Receivables have annual contract rates
of interest ("Receivables Rates") which are less than
the sum of the Certificate Rate, the Servicing Fee
Rate and the rates at which the Certificate Insurer's
premium and the Trustee's fee are calculated (the sum
of such rates, the "Required Rate"). The Yield
Maintenance Account is a segregated trust account
which will not be part of the Trust into which the
Bank will make a single deposit on the Closing Date in
an amount (the "Initial Yield Maintenance Amount")
necessary to fund any shortfall on interest
collections which results from Receivables having
Receivables Rates of less than the Required Rate.
After the Closing Date no additional amounts will be
deposited in the Yield Maintenance Account. The
Initial Yield Maintenance Amount has been calculated
using a zero prepayment rate on the Receivables. On
each Determination Date, the Servicer is permitted to
recalculate the amount required to be on deposit in
the Yield Maintenance Account (the "Yield Maintenance
Amount"), which may decline as Receivables having less
than the Required Rate prepay or are otherwise removed
from the Trust. Any amounts in excess of the Yield
Maintenance Amount will be released to the Bank.
Amounts may be withdrawn from the Yield Maintenance
Account only with respect to the interest shortfalls
described above. Any excess funds in the Yield
Maintenance Account will be released to the Bank.
Servicing............. The Servicer will be responsible for servicing,
managing, arranging, making collections on and
otherwise enforcing the Contracts. The Servicer will
be required to exercise the degree of skill and care
in performing these functions that it customarily
exercises with respect to similar contracts owned by
the Servicer. The Servicer will be entitled to receive
a monthly fee (the "Servicing Fee") of the product of
(i) one-twelfth, (ii) ___% (the "Servicing Fee Rate")
and (iii) the Aggregate Discounted Contract Balance as
of the beginning of the previous Remittance Period,
payable out of the Collection Account, plus late
S-10
<PAGE>
payment fees and certain other fees paid by the
Obligors ("Servicing Charges") and investment earnings
on amounts held in the Remittance Account ("Investment
Earnings"), as compensation for acting as Servicer.
Except as hereinafter provided, on the day prior to
any Payment Date, the Servicer will be required to
make an advance (a "Servicer Advance") to the Trustee
in an amount sufficient to cover all amounts due and
unpaid on any Delinquent Contract as of the previous
Determination Date ("Delinquency Amounts"). A
"Delinquent Contract" will mean, as of any
Determination Date, any Contract (other than a
Contract which became a Defaulted Contract prior to
such Determination Date) with respect to which the
Obligor has not paid all Contract Payments then due.
With respect to any Delinquent Contract, whenever the
Servicer shall have determined that it will be unable
to recover a Delinquency Amount or portion thereof on
such Delinquent Contract, the Servicer shall not be
required to make a Servicer Advance on such
unrecoverable Delinquency Amount or portion thereof,
but will be required to enforce its remedies
(including acceleration) under such Contract.
Furthermore, if at any time the Bank is no longer the
Servicer, no Servicer Advances will be required. In
the event that the Servicer determines that any
Servicer Advances previously made are Nonrecoverable
Advances, or any Delinquent Contracts for which the
Bank has made advances of Delinquency Amounts in
respect thereof become Defaulted Contracts, then the
Trustee shall have the right to draw on the Collection
Account and the Reserve Account to repay such Servicer
Advances.
Optional Termination.. The Bank will have the option, subject to certain
conditions set forth in the Pooling Agreement,
including the deposit of the sum specified in the
Pooling Agreement, to remove all, but not less than
all, of the property in the Trust, and thereby cause
early retirement of the Certificates and the Bank's
Certificate as of any Payment Date on which the
Certificate Principal Balance is less than ____% of
the Initial Certificate Principal Amount (after giving
effect to payment of principal on such Payment Date).
In the event of such a removal, the entire outstanding
Certificate Principal Balance, together with accrued
interest thereon at the Certificate Interest Rate,
will be required to be paid to the Certificateholders
on such Payment Date, and the Transferor's Balance, if
any, will be required to be paid to the holder of the
Bank's Certificate on such Payment Date.
Certain Legal
Aspects of the
Receivables.......... With respect to the transfer of the Receivables, the
Original Pre-Funded Amount and the Initial Capitalized
Interest Amount to the Trust, the Bank will warrant in
the Pooling Agreement that the transfer by it to the
Trust is either a valid transfer and assignment of the
Receivables, the Original Pre-Funded Amount and the
Initial Capitalized Interest Amount to the Trust or
the grant of a security interest in the Receivables,
the Original Pre-Funded Amount and the Initial
Capitalized Interest Amount.
S-11
<PAGE>
The Bank will be required to take such action as is
required to perfect the Trust's security interest in
the Receivables, the Original Pre-Funded Amount and
the Initial Capitalized Interest Amount. The Bank will
warrant that if the transfer by it to the Trust is
deemed to be a grant to the Trust of a security
interest in the Receivables, the Original Pre-Funded
Amount and the Initial Capitalized Interest Amount,
then the Trust will have a first priority perfected
security interest therein, except for certain liens
which have priority over previously perfected security
interests by operation of law, and, with certain
exceptions, in the proceeds thereof. If the Bank, the
Servicer, or the Trustee, while in possession of an
item of Receivables, sells or pledges and delivers
such Receivables to another party, in violation of the
Pooling Agreement, there is a risk that the purchaser
could acquire an interest in such an item of
Receivables having priority over the Trust's interest.
[Because of the administrative burden and expense that
would be entailed in so doing, none of the Originators
nor the Bank has filed or will be required to file UCC
(as herein defined) financing statements in favor of
the Trustee identifying the Vehicles as collateral
pledged to the Trustee on behalf of the Trust. In the
absence of such filings any security interest in the
Vehicles will not be perfected in favor of the
Trustee. Upon request, the Originators and/or the Bank
will be required to make such filings with respect to
Defaulted Contracts. If there are any Vehicles as to
which the Bank failed to obtain a perfected security
interest, its security interest would be subordinate
to, among others, subsequent purchasers of the
Vehicles and holders of perfected security interests.
Pursuant to the Pooling Agreement, the Bank will
assign its security interests in the Vehicles to the
Trustee. Under the laws of Virginia, Georgia and North
Carolina, such an assignment of security interests may
not be, and under the laws of Maryland will not be,
sufficient to convey to the Trustee perfected security
interests in the Vehicles. The Bank will covenant in
the Pooling Agreement to repurchase any Receivable if,
on the Closing Date, a valid, subsisting and
enforceable first priority security interest in the
related Vehicle, which will have been assigned to the
Trust, has not been perfected (or is not in the
process of being perfected) in favor of the applicable
Originator. The Bank will also covenant in the Pooling
Agreement to repurchase any Receivable if, after the
Closing Date, a valid, subsisting and enforceable
first priority security interest in the name of the
applicable Originator is not maintained on behalf of
the Trust in the related Vehicle. See "Risk Factors --
Certain Legal Aspects" and "Certain Legal Aspects --
UCC and Bankruptcy Considerations."]
Federal Income Tax
Consequences.......... The Certificates will be characterized as indebtedness
for federal income tax purposes. Under the Pooling
Agreement, the Bank and the Certificateholders and
other parties will agree to treat the Certificates as
debt for federal and state income tax purposes. See
"Federal Income Tax Consequences" for additional
information concerning the application of federal and
state income tax laws.
S-12
<PAGE>
ERISA
Considerations........ The acquisition of a Certificate by an employee
benefit plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the
provisions of Section 4975 of the Code (a "Plan"),
could result in a prohibited transaction under ERISA
and Section 4975 of the Code, unless such acquisition
is subject to a statutory or administrative exemption,
if, by virtue of such acquisition, assets held by the
Trust and pledged to the Trustee were deemed to be
assets of the Plan. In addition, the Originators, the
Servicer or other parties may be considered to be a
fiduciary with respect to any Plan. Therefore, the
acquisition and transfer of the Certificates are
subject to certain restrictions. See "ERISA
Considerations."
Ratings............... It is a condition of the original issuance of the
Certificates that the Certificates receive ratings of
___ by ____________________ ("____"), and ___ by
___________________________ ("_________"). A security
rating is not a recommendation to buy, sell or hold
securities, and may be subject to revision or
withdrawal at any time by the assigning entity. See
"Ratings."
Risk Factors.......... For a discussion of certain factors that should be
considered by prospective investors in the
Certificates, see "Risk Factors" herein and in the
Prospectus.
Certain Legal
Matters............... Certain legal matters relating to the validity of the
issuance of the Certificates will be passed upon for
the Issuer by Shaw, Pittman, Potts & Trowbridge,
Washington, D.C. and for the Underwriter by Dewey
Ballantine, New York, NY.
S-13
<PAGE>
RISK FACTORS
In addition to those factors described under "Risk Factors" in the
Prospectus, prospective Certificateholders should consider, among other
things, the following factors in connection with the purchase of the
Certificates:
Risk of Losses on Investment Associated with Limited Obligations of the
Trust. Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the
Certificates. The Certificateholders will not receive any distributions with
respect to a Payment Date until the full amount of interest on and principal
of the Certificates on such Payment Date has been deposited in the Certificate
Distribution Account. The Trust does not have, nor is it permitted or
expected to have, any significant assets or sources of funds other than the
Receivables and the Trust Accounts. The Certificates represent solely
obligations of, or interests in, the Trust and the Certificates will not be
insured or guaranteed by the Bank, any Originator, the Servicer, the Trustee
or any other person or entity. Consequently, 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. Amounts to be deposited
in the Reserve Account are limited in amount, and the amount required to be on
deposit in the Reserve Account will be reduced as the Pool Balance is reduced.
In addition, funds in the Reserve Account will be available on each Payment
Date to cover shortfalls in distributions of interest and principal on the
Certificates prior to the application thereof to cover shortfalls on the
Certificates. If the Reserve Account is exhausted, the Trust will depend
solely on current payments on the Receivables to make payments on the
Certificates.
Risk of Limited Liquidity and Lower Market Price Associated with a
Reduction or Withdrawal of Ratings of the Securities. It is a condition to
the issuance of the Certificates and the Certificates that the Certificates be
rated in the [_____] rating category or its equivalent, by at least two
nationally recognized rating agencies (the "Rating Agencies"). A rating is
not a recommendation to purchase, hold or sell Certificates, inasmuch as such
rating does not comment as to market price or suitability for a particular
investor. The rating of the Certificates addresses the likelihood of the
timely payment of interest on and the ultimate repayment of principal of the
Certificates pursuant to their terms. There is 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 rating of the Certificates is based primarily on
the creditworthiness of the Receivables, the subordination provided by the
Certificates and the availability of funds in the Reserve Account. The rating
of the Certificates is based primarily on the creditworthiness of the
Receivables and the availability of funds in the Reserve Account. The ratings
of the Certificates are also based on the rating of the Credit Enhancer. Upon
a Credit Enhancer default, the rating on the Certificates may be lowered or
withdrawn entirely. In the event that any rating initially assigned to the
Certificates were subsequently lowered or withdrawn for any reason, including
by reason of a downgrading of the Credit Enhancer's claims-paying ability, no
person or entity will be obligated to provide any additional credit
enhancement with respect to the Certificates. Any reduction or withdrawal of
a rating will have an adverse effect on the liquidity and market price of the
Certificates. See "Ratings."
[Risk of Reduced Rate of Return Associated with Relationship Between Base
Rate and LIBOR. Allocations of payments on the variable rate Receivables to
principal and interest depend upon the applicable Base Rate. Interest on the
Certificates accrues at a rate generally based upon LIBOR. These two rates
can and will vary with respect to each other. Historically, they have
increased or decreased roughly in tandem and, during the last ten years, LIBOR
always has remained below the Base Rate. However, no assurance can be given
that these historical trends will continue. There is a risk that if LIBOR
were to more above the Base Rate, the spread used to pay interest to the
Certificateholders would disappear and the rate of return to investors would
be reduced.]
S-14
<PAGE>
[The variable rate Receivables bear interest at the Base Rate plus a Base
Rate Additive ranging from _____% to _____%. The Certificate Interest is
based upon LIBOR. If, in respect of any Payment Date, there does not exist a
positive spread between the weighted average of the Receivables Rate less the
Servicing Fee Rate (such difference between the Receivables Rate and the
Servicing Fee Rate being the "Net Receivables Rate") for the Collection Period
preceding such Payment Date, on the one hand, and the Certificate Rate for
such Payment Date (calculated before giving effect to this sentence), on the
other hand, then the Certificate Rate for such Payment Date shall not exceed
the Net Receivables Rate.]
[Risk of Reduced Rate of Return Associated with Yield Considerations.
The Certificateholders will bear the risk associated with the possible
narrowing of the spread between the Certificate Rate and the Net Receivables
Rate. If this spread disappears (i.e., if the Certificate Rate exceeds or
equals the Net Receivables Rate), the interest payable on the Certificates for
the related Payment Date will not exceed such Net Receivables Rate. A
substantial change in LIBOR at a time when the Net Receivables Rate does not
experience a similar change could result in limiting the Certificate Rate and
consequently could reduce the rate of return to investors as described above.]
Risk of Lower Yield Associated with Prepayment Considerations. If
purchased at other than par, the yield to maturity on the Certificates will be
affected by the rate of the payment of principal of the Contracts. If the
actual rate of payments on the Contracts is slower than the rate anticipated
by an investor who purchases the Certificates at a discount, the actual yield
to such investor will be lower than such investor's anticipated yield. If the
actual rate of payments on the Contracts is faster than the rate anticipated
by an investor who purchases the Certificates at a premium, the actual yield
to such investor will be lower than such investor's anticipated yield.
[All of the Contracts are fixed-rate contracts. The rate of prepayments
with respect to conventional fixed contracts has fluctuated significantly in
recent years. In general, if prevailing interest rates fall significantly
below the interest rates on fixed rate contracts, such contracts are likely to
be subject to higher prepayment rates than if prevailing rates remain at or
above the interest rate on such contracts. However, the monthly payment on
contracts similar to the Contracts is often smaller than the monthly payment
on other types of consumer debt, for example, a typical mortgage loan.
Consequently, a decrease in the interest rate payable as a result of a
refinancing would result in a relatively small reduction in the amount of the
contracts monthly payment, as a result of the relatively small loan balance.
Conversely, if prevailing interest rates rise appreciably above the interest
rates on fixed rate contracts, such contracts are likely to experience a lower
prepayment rate than if prevailing rates remain at or below the interest rates
on such contracts. As of the Cut-off Date, ____% of the aggregate principal
balance of the Contracts had prepayment penalties.]
[All of the Contracts are adjustable rate contracts. As is the case with
conventional fixed rate contracts, adjustable rate contracts may be subject to
a greater rate of principal prepayments in a declining interest rate
environment. For example, if prevailing interest rates fall significantly,
adjustable rate contracts could be subject to higher prepayment rates than if
prevailing interest rates remain constant because the availability of fixed-
rate contracts at competitive interest rates may encourage obligors to
refinance their adjustable rate contracts to "lock in" a lower fixed interest
rate. However, no assurance can be given as to the level of prepayments that
the Contracts will experience. As of the Cut-off Date, ____% of the aggregate
principal balance of the Contracts had prepayment penalties.]
S-15
<PAGE>
THE RECEIVABLES
Contracts
[Description of collateral is transaction dependent - an example of
disclosure language is set forth below.]
[All of the Contracts were purchased by the Bank from the
Originators in the ordinary course of business and the Contracts constitute
substantially all of the automobile, light duty truck and van retail
installment sale and finance contracts included in the Originators' portfolio
meeting the selection criteria described herein. Such selection criteria
included that: (i) each Contract is secured by a new or used automobile or
light duty truck; (ii) each Contract was originated in the United States;
(iii) each Contract provides for level monthly payments that fully amortize
the amount financed over its original term except that the payment in the
first or last month in the life of the Contract may be minimally different
from the level payment, and a minimal number of the Contracts provide for
monthly payments for a period of time not exceeding one year after origination
in an amount less than such level payment, provided that as of the Cutoff Date
the monthly payment currently due under each such Contract is equal to such
level payment; (iv) each Contract was originated on or prior to _______, 199_;
(v) each Contract has an original term of __ to __ months and, as of the
Cutoff Date, had a remaining term to maturity of not less than three months
nor more than __ month; (vi) each Contract provides for the payment of a
finance charge at an APR ranging from __% to __%; (vii) each Contract shall
not have a Scheduled Payment that is more than 30 days past due as of the
Cutoff Date; (viii) no Contract shall be due, to the best knowledge of the
related Originator, from any Obligor who is presently the subject of a
bankruptcy proceeding or is bankrupt or insolvent; (ix) no Vehicle has been
repossessed without reinstatement as of the Cutoff Date; and (x) as of the
Cutoff Date, physical damage insurance relating to each Vehicle is not being
force-placed by the Servicer.
Certain information with respect to the Receivables expected to be
sold by the Originators to the Bank pursuant to the Receivables Acquisition
Agreement and in turn transferred by the Bank to the Trust pursuant to the
Pooling Agreement is set forth below. The description of the Receivables
presented in this Prospectus Supplement is based upon the pool of Receivables
as it is expected to be constituted on the Cutoff Date. While information as
of the Closing Date for the Receivables that actually will be sold to the
Trust may differ somewhat from the information presented herein, the Bank does
not expect that the characteristics of the Receivables that are sold to the
Trust will vary materially from the information presented in this Prospectus
Supplement concerning the Receivables.
As of the Cutoff Date, approximately __%, __% and approximately __%
of the Aggregate Discounted Contract Balance are expected to represent
Contracts secured by automobiles, light duty trucks and vans, respectively.
Based on the Aggregate Discounted Contract Balance, approximately __% and
approximately __% of the Contracts are expected to represent financing of new
vehicles and used vehicles, respectively, and no more than __% of the
Contracts are expected to be due from employees of the Originator or any of
its respective affiliates. As of the Cutoff Date, the average Principal
Balance of Contracts secured by automobiles, light duty trucks and vans is
expected to be approximately $_____, approximately $ ______ and approximately
$_____, respectively. The majority of the Vehicles are expected to be foreign
and domestic automobiles, light duty trucks and vans. Except in the case of
any breach of representations and warranties by the related Originator, it is
expected that none of the Contracts provide for recourse to the Originator who
originated the related Contract.
Each Contract provides for fixed level monthly payments which will
amortize the full amount of the Contract over its term. The Contracts provide
for allocation of payments according to the "sum of periodic balances" or "sum
of monthly payments" method (the "Rule of 78s"). Each Contract provides for
the payment by the Obligor of a specified total amount of payments, payable in
monthly installments on the related due date, which total represents the
principal amount financed and finance
S-16
<PAGE>
charges in an amount calculated on the basis of a stated annual percentage
rate ("APR") for the term of such Contract. The rate at which such amount of
finance charges is earned and, correspondingly, the amount of each fixed
monthly payment allocated to reduction of the outstanding principal balance of
the related Contract are calculated in accordance with the Rule of 78s. Under
the Rule of 78s, the portion of each payment allocable to interest is higher
during the early months of the term of a Contract and lower during later
months than that under a constant yield method for allocating payments between
interest and principal. Notwithstanding the foregoing, all payments received
by the Servicer on or in respect of the Contract will be allocated pursuant to
the Pooling Agreement on an actuarial basis.
If an Obligor elects to prepay a Contract in full, it is entitled to
a rebate of the portion of the outstanding balance then due and payable
attributable to unearned finance charges, calculated in accordance with the
Rule of 78s. The amount of a rebate under a Contract calculated in this
manner will always be less than had such rebate been calculated on an
actuarial basis. Distributions to Certificateholders will not be affected by
Rule of 78s rebates under the Contract because pursuant to the Pooling
Agreement such distributions will be determined using the actuarial method.]
S-17
<PAGE>
The expected composition, distribution by APR and geographical
distribution of the Contracts are as set forth in the following tables.
Expected Composition of the Contracts
<TABLE>
<CAPTION>
<S> <C>
Initial Aggregate Discounted Contract Balance........ $
Number of Contracts.................................. ____
Average Original Principal Balance................... $
Range of Original Principal Balances............... $___ to $___
Weighted Average APR(1).............................. ___%
Range of APRs...................................... ___% to___%
Weighted Average Original Maturity(1)................ ___ months
Range of Original Maturities....................... ___ months to ___ months
Weighted Average Remaining Maturity(1)............... ___ months
Range of Remaining Maturities.................... ___ months to ___ months
- ------------
</TABLE>
(1) Weighted by Aggregate Discounted Contract Balance as of the Cutoff Date.
Expected Distribution of the Contracts by APR
<TABLE>
<CAPTION>
Aggregate Percentage of
Percentage of Discounted Aggregate
Aggregate Contract Discounted
Number of Number Principal Contract
Range of APRs Contracts of Contracts Balance Balance
- --------------- --------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
% to %..... % $ %
% to %.....
% to %.....
% to %.....
% to %.....
% to %.....
% to %.....
% to %.....
% to %.....
% to %.....
% to %.....
% to %.....
% to %.....
Total..... % $ %
======= ====== ====== =====
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
Expected Distribution of the Contracts by State
Percentage of
Percentage of Aggregate Aggregate
Aggregate Discounted Discounted
Number of Number Contract Contract
State(1) Contracts of Contracts Balance Balance
- -------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
% $ %
Total...... % $ %
=============== ====== ====== ====== ======
</TABLE>
(1) Based on the addresses of the Obligors.
Substitution
Pursuant to the Receivables Acquisition Agreement, the Servicer will
have the right (but not the obligation) at any time to substitute one or more
Eligible Receivables (each a "Substitute Receivable") for a Receivable
("Predecessor Receivable") if:
(i) the Predecessor Receivable is then in default and, as of the
most recent Cut-Off Date, has been in default for at least [(60)]
consecutive days or a bankruptcy petition has been filed by or against
the Obligor;
[(ii) the Vehicles comprising part of the Substitute Receivable or
Receivables has a current estimated fair market value and a projected
residual value, respectively, equal to or greater than the current fair
market value and projected residual value of the Vehicles comprising part
of the Predecessor Receivable;] and
(iii) the Substitute Receivable or Receivables require the obligor
or obligors thereunder to make Contract Payments during each month ending
on or prior to the final payment date of the Certificate in an amount
which is at least as great as the Contract Payment required under the
Predecessor Receivable during each such month.
[provided, however, that the Aggregate Discounted Contract Balance of all
-------- -------
Contracts substituted shall not exceed [10%] of the Aggregate Discounted
Contract Balance of the Initial Receivables and the Additional Receivables.]
[The original counterpart of each Contract constituting chattel
paper and the Contract Files will be held by _________________, as Trustee on
behalf of the Certificateholders. The Trustee will be required to indicate
that the Contracts have been transferred by the Originators to the Trust.]
The Additional Receivables
Subject to the conditions set forth below, in consideration of the
Trustee's delivery on the related Additional Receivable Transfer Date upon the
order of the Bank of all or a portion of the balance of funds in the Pre-
Funding Account, the Originators shall on any Additional Receivable Transfer
Date sell, transfer, assign, set over and otherwise convey without recourse,
to the Bank, all right, title and interest
S-19
<PAGE>
of the Originators in and to each Additional Receivable listed on the schedule
delivered by the Originators to the Bank and the Trustee (including all
Contract Payments due thereunder); provided, however, that the related
-------- -------
Originator reserves and retains all of its right, title and interest in and to
all Contract Payments collected and interest accruing on each such Additional
Receivable prior to the related Additional Receivable Transfer Date.
The amount released from the Pre-Funding Account shall be __________
percent (___%) of the Discounted Contract Balances of each Additional
Receivables so transferred.
The Originators shall transfer to the Issuer the Additional
Receivable and the other property and rights related thereto only upon the
satisfaction of each of the following conditions on or prior to the related
Additional Receivable Transfer Date:
(i) the Originators shall have provided the Trustee with a timely
Addition Notice and shall have provided any information reasonably
requested by the Bank or the Trustee with respect to the Additional
Receivables;
(ii) the Originators shall have delivered to the Bank and the
Trustee a duly executed written assignment (including an acceptance by
the Trustee) (the "Additional Receivable Transfer Agreement"), which
shall include schedules listing the Additional Receivables and any other
exhibits listed thereon;
(iii) the Originators shall have deposited in the Remittance
Account all collections in respect of the Additional Receivables received
on or after the related Additional Receivable Transfer Date;
(iv) as of each Additional Receivable Transfer Date, each
Originator was not insolvent nor will it be made insolvent by such
transfer nor is it aware of any pending insolvency;
(v) such addition will not result in a material adverse tax
consequence to the Bank or the Certificateholders;
(vi) each Originator shall have delivered to the Trustee an
Officers' Certificate confirming the satisfaction of each condition
precedent specified in this paragraph and in the related Additional
Receivable Transfer Agreement; and
(vii) the obligation of the Bank to purchase an Additional
Receivable on any Additional Receivable Transfer Date is subject to the
requirement that such Additional Receivable comply in all material
respects with the representations and warranties made by the related
Originator on the Initial Receivables in the Pooling Agreement.
THE BANK
General
The Bank is a federally chartered stock savings bank. The Bank's
home office is located at 7926 Jones Branch Drive, McClean, VA 22102, and its
executive offices are located at 8401 Connecticut Avenue, Chevy Chase,
Maryland 20815, and the Bank's telephone number is (301) 986-7000. The Bank
is subject to comprehensive regulation, examination and supervision by the
Office of Thrift Supervision (the "OTS") within the Department of the Treasury
and the Federal Deposit Insurance Corporation (the "FDIC"). Deposits at the
Bank are fully insured up to $100,000 per insured depositor by the Savings
Association Insurance Fund ("SAIF"), which is administered by the FDIC.
S-20
<PAGE>
Based on unaudited results, at September 30, 1996, the Bank had
consolidated assets of approximately $6.2 billion, deposits of approximately
$4.2 billion, and stockholders' equity of approximately $344.7 million. As a
savings bank chartered under the laws of the United States, the Bank is
subject to certain minimum regulatory capital requirements imposed under the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as
amended ("FIRREA"). At December 31, 1996, the Bank's tangible, core, tier 1
risk-based and total risk-based regulatory capital ratios were 6.58%, 6.58%,
7.05% and 14.06%, respectively. As of such date, the Bank's capital ratios
exceeded the requirements under FIRREA as well as the standards established
for "well capitalized" institutions under the prompt corrective action
regulations established pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") (both as applicable on June 30, 1996 and on
a fully phased-in basis). Based on unaudited results, at September 30, 1996,
the Bank's tangible, core, tier 1 risk-based and total risk-based regulatory
capital ratios decreased to 5.21%, 5.21%, 5.80% and 10.14%, respectively. As
of such date, the Bank's capital ratios exceeded the requirements under FIRREA
as well as the standards established for "adequated capitalized" institutions
under the prompt corrective action regulations established pursuant to FDICIA.
The OTS has the discretion to treat a "well capitalized" institution as an
"adequately capitalized" institution for purposes of the prompt corrective
action regulations if, after notice and an opportunity for a hearing, the OTS
determines that the institution (i) is being operated in an unsafe or unsound
condition or (ii) has received and has not corrected a less than satisfactory
examination rating for asset quality, management, earnings or liquidity.
On December 3, 1996, the Bank sold $100 million of its 9 1/4%
Subordinated Debentures due 2008 (the "1996 Debentures"), the principal amount
of which is includable in the Bank's supplementary capital. In addition, on
December 3, 1996, a new real estate investment trust subsidiary of the Bank
(the "REIT Subsidiary") sold $150 million of its 10 3/8% Noncumulative
Exchangeable Preferred Stock, Series A (the "REIT Preferred Stock"), which is
eligible for inclusion as core capital of the Bank in an amount up to 25% of
the Bank's total core capital.
Economic Development and Regulatory Paperwork Reduction Act of 1996 ("the
Act")
Congress is considering legislation in various forms that would require
the Merger of the Bank Insurance Fund ("BIF") and the SAIF into a single
Deposit Insurance Fund on January 1, 1999 but only if the thrift charter is
eliminated by that date. The Treasury Department is required to submit a
comprehensive study on thrift charter issues by March 31, 1997. In the absence
of appropriate "grandfather" provisions, such legislation could have a
material adverse effect on the Bank and its parent company, the B.F. Saul Real
Estate Investment Trust (the "Trust") because, among other things, the Trust
engages in activities that are not permissible to bank holding companies and
the regulatory capital and accounting treatment for banks and thrifts differs
in certain respects. The Bank cannot determine whether or in what form such
legislation will eventually be enacted and there can be no assurances that any
such legislation that is enacted will contain adequate grandfather rights for
the Bank and the Trust.
Because of the continued improvement in the financial condition of the
Bank, on March 29, 1996, the OTS released the Bank from certain restrictions
and requirements contained in an agreement with the OTS, which had been
amended in October 1993. In connection with the termination of the written
agreement at the request of the OTS, the Board of Directors of the Bank has
adopted a resolution that addresses certain issues previously addressed by the
written agreement. The resolution also provides that the Bank will present a
plan annually to the OTS detailing anticipated consumer loan securitization
activity.
The other Lender is CFC, a wholly-owned subsidiary of the Bank, formed in
December 1994 for the purpose of providing automobile financing to applicants
who may have experienced certain adverse credit events.
S-21
<PAGE>
Delinquency and Default Experience
There can be no assurance that the levels of delinquency and loss
experience reflected in the tables below, are indicative of the performance of
the Receivables included in the Trust.
S-22
<PAGE>
<TABLE>
<CAPTION>
CHEVY CHASE BANK, F.S.B.
Delinquency Experience
As of December 31,
--------------------------------------------------------------------------------------------------
1992 1993 1994 1995
----------------------- ------------------------ --------------------- -----------------------
Dollar Percentage Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total Amount of Total
(000) Receivables (000) Receivables (000) Receivables (000) Receivables
---------- --------- ---------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1)........... $ 84,533 $166,307 $299,096 $431,351
Delinquencies:(2)(3)
30-59 Days................ $ 1,469 1.74% $ 1,210 0.73% $ 4,074 1.36% $ 2,491 0.58%
60-89 Days................ 237 0.28% 223 0.13% 729 0.24% 742 0.17%
90 days or more........... 328 0.39% 226 0.14% 1,209 0.40% 1,667 0.39%
------- ----- ------- ----- ------- ----- ----- -----
Total Delinquencies....... $ 2,034 2.41% $ 1,659 1.00% $ 6,012 2.00% $ 4,900 1.14%
======== ===== ========= ===== ========= ===== ======== =====
<CAPTION>
As of December 31,
1996
---------------------
Dollar Percentage
Amount of Total
(000) Receivables
--------- -----------
<S> <C> <C>
Receivables
Outstanding(1)........... $
Delinquencies:(2)(3)
30-59 Days................ $ %
60-89 Days................
90 days or more........... %
-
Total Delinquencies....... $
=
- -------------------------
(1) Total Bank Portfolio is the net remaining principal balance.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Includes repossessions in inventory.
</TABLE>
CHEVY CHASE BANK, F.S.B.
Loss Experience
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------------------------------
1992 1993 1994 1995
----------------------- ------------------------ --------------------- -----------------------
Percentage Percentage Percentage Percentage
Dollar of Average Dollar of Average Dollar of Average Dollar of Average
Amount Receivables Amount Receivables Amount Receivables Amount Receivables
(000) Outstanding (000) Outstanding (000) Outstanding (000) Outstanding
---------- --------- ---------- --------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Average Receivables
Outstanding(1).......... $90,271 $116,475 $245,295 $363,845
Gross Charge-offs(2)...... $ 811 0.90% $ 627 0.54% $ 766 0.31% $ 2,120 0.58%
Recoveries................ 103 0.12% 115 0.10% 219 0.09% 275 0.07%
-------- ----- --------- ----- --------- ----- ------- -----
Net Losses................ $ 708 0.78% $ 512 0.44% $ 547 0.22% $ 1,845 0.51%
======== ===== ========= ===== ========= ===== ======== =====
<CAPTION>
As of December 31,
1996
---------------------
Percentage
Dollar of Average
Amount Receivables
(000) Outstanding
-------- ------------
<S> <C> <C>
Average Receivables
Outstanding(1).......... $
Gross Charge-offs(2)...... $ %
Recoveries................ %
-
Net Losses................ $ %
= =
- -------------------------
</TABLE>
(1) Equals the arithmetic average of the month-end balances.
(2) Gross Charge-offs represent the excess of the outstanding loan balance over
net liquidation proceeds, where net liquidation proceeds are the excess of
liquidation proceeds over the sum of repossession, liquidation and other
related expenses.
(3) Annualized.
(4) Includes current post-disposition recoveries on receivables previously
charged off.
S-23
<PAGE>
CONSUMER FINANCE CORPORATION
Delinquency Experience
<TABLE>
<CAPTION>
As of As of
December 31, 1995 December 31, 1996
---------------------------- ---------------------------
Dollar Percentage of Dollar Percentage of
Amount Total Amount Total
(000) Receivables (000) Receivables
---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Receivables Outstanding/(1)/.. $49,375 $
Delinquencies/(2)(3)/:
30-59 Days.................... $ 2,528 5.12% $ %
60-89 Days.................... $ 609 1.23% $ %
90 Days or more............... $ 871 1.76% $ %
------- ---- -------- -------------
Total Delinquencies........... $ 4,008 8.11% $ %
======= ==== ======== =============
- -------------------------
</TABLE>
/(1)/ Receivables Outstanding consists of all amounts due from obligors as
posted to the related accounts.
/(2)/ The period of delinquency is based on the number of days payments are
contractually past due.
/(3)/ Includes repossessions in inventory.
CONSUMER FINANCE CORPORATION
Loss Experience
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1995 December 31, 1996
------------------------- ----------------------
<S> <C> <C> <C> <C>
Dollar Percentage Dollar Percentage
Amount of Total Amount of Total
(000) Receivables (000) Receivables
------- ------------- ------ -------------
Average Receivables $21,383 $
Outstanding/(1)/............
Gross Charge-offs/(2)/: $ 144 0.67% $ %/(3)/
Recoveries/(4)/.............. $ 0 0.00% $ %/(3)/
Net Losses................... $ 144 0.67% $ %/(3)/
- -----------------------------
</TABLE>
/(1)/ Equals the arithmetic average of the month-end balances.
/(2)/ Gross Charge-offs represent the excess of the outstanding loan balance
over net liquidation proceeds, where net liquidation proceeds are the
excess of liquidation proceeds over the sum of repossession, liquidation
and other related expenses.
/(3)/ Annualized.
/(4)/ Includes current post-disposition recoveries on receivables previously
charged off.
Litigation
The Bank is not involved in any legal proceedings, and is not aware
of any pending or threatened legal proceedings, that would have a material
adverse effect upon its financial condition or results of operations.
S-24
<PAGE>
[THE ORIGINATOR]
General
[The Originator] is principally a company engaged in the business of
originating and acquiring retail installment sales contract financing to
retail customers of automotive dealers. [The Originator] provides full-
service financing, primarily through installment sales contracts, to servicing
of new and used automobiles and light duty trucks through dealer programs.
[[The Originator] has financed over [$______ million of vehicles,
representing over __________ vehicles. [The Originator] currently services
over ___ customers through its direct servicing activities and an additional
_______ customers in connection with its subsidiaries' activities.] As of
[_________________, [the Originator] had ____ employees.
<PAGE>
Litigation
[The Originator] is not involved in any legal proceedings, and is
not aware of any pending or threatened legal proceedings that would have a
material adverse effect upon its financial condition or results of operations.
THE SERVICER
General
The Receivables will be serviced by the Servicer pursuant to the
Pooling Agreement.
The Pooling Agreement requires that servicing of the Receivables by
the Servicer shall be carried out in the same manner in which it services
contracts and vehicles held for its own account and consistent with customary
practices of servicers in the retail automobile industry, but in performing
its duties hereunder, the Servicer will act on behalf and for the benefit of
the Bank, the Trustee and the holders of the Certificates, subject at all
times to the provisions of the Pooling Agreement, without regard to any
relationship which the Servicer or any Affiliate of the Servicer may otherwise
have with a Obligor. Except as permitted by the terms of any Contract
following a default thereunder, the Servicer shall not take any action which
would result in the interference with the Obligor's right to quiet enjoyment
of the Vehicles subject to the Contract during the term thereof. The Servicer
may designate CFC to act as sub-servicer with respect to the CFC Receivables,
although such designation will not relieve the Servicer from its servicing
obligations with respect to such CFC Receivables. CFC's collection procedures
differ in certain respects from those employed by the Bank. On an obligor's
fifth day of delinquency, CFC sends a late payment notice and begins the
collection process, while the Bank initiates these steps on the obligor's
tenth day of delinquency. CFC's collections department is currently staffed
to have approximately one collector for every 1,400 loans outstanding,
compared to the Bank's ratio of approximately one collector for every 4,000
loans outstanding. In general, both the Bank and CFC initiate the
repossession process by the 45th day of delinquency.
Following each Determination Date, the Servicer shall advance and
remit to the Trustee, in such manner as will ensure that the Trustee will have
immediately available funds on account thereof by 11:00 a.m. New York time on
the [______] Business Day prior to the next succeeding Payment Date, a
Servicer Advance equal to the Contract Payment due during the preceding
Contract Payment Period with respect to each Contract (other than a Contract
which became a Defaulted Contract on or prior to such Determination Date)
under which the Obligor has not made such payment by such Determination Date;
S-26
<PAGE>
provided, however, that the Servicer will not be obligated to make a Servicer
-------- -------
Advance with respect to any Contract if the Servicer, in its good faith
judgment, believes that such Servicer Advance would be a Nonrecoverable
Advance. If the Servicer determines that any Contract Payment it has made, or
is contemplating making, would be a Nonrecoverable Advance, the Servicer shall
deliver to the Trustee an Officers' Certificate stating the basis for such
determination.
Servicing Compensation and Payment of Expenses
For its servicing of the Receivables, the Servicer will be entitled
to receive a Servicing Fee equal to the product of (i) one-twelfth, (ii) ___%
and (iii) the Aggregate Discounted Contract Balance of all Contracts as of the
preceding Determination Date, payable out of the Remittance Account, plus
Servicing Charges and Investment Earnings.
All costs of servicing each Contract in the manner required by the
Pooling Agreement shall be borne by the Servicer, but the Servicer shall be
entitled to retain, out of any amounts actually recovered with respect to any
Defaulted Contract [or the Vehicles subject thereto,] the Servicer's actual
out-of-pocket expenses reasonably incurred with respect to such Defaulted
Contract [or Vehicles]. In addition, the Servicer shall be entitled to
receive on each Payment Date any unreimbursed Nonrecoverable Advances or
Servicer Advances with respect to any Defaulted Contract and the Servicing
Fee.
Evidence as to Compliance
The Pooling Agreement requires that with each set of financial
statements delivered pursuant to the Pooling Agreement, the Servicer will
deliver an Officers' Certificate stating (i) that the officers signing such
Certificate have reviewed the relevant terms of the Pooling Agreement and have
made, or caused to be made under such officers' supervision, a review of the
activities of the Servicer during the period covered by the statements then
being furnished, (ii) that the review has not disclosed the existence of any
Servicer Event of Default or, if a Servicer Event of Default exists,
describing its nature and what action the Servicer has taken and is taking
with respect thereto, and (iii) that on the basis of such review the officers
signing such certificate are of the opinion that during such period the
Servicer has serviced the Receivables in compliance with the required
procedures except as described in such certificate.
The Servicer shall cause a firm of independent certified public
accountants (who may also render other services to the Servicer) to deliver to
the Trustee, with a copy to the Rating Agency and each holder of the
Certificates, within [90] days following the end of each fiscal year of the
Servicer, beginning with the Servicer's fiscal year ending ____________,
199__, a written statement to the effect that such firm has examined in
accordance with generally accepted practices samples of the accounts, records,
and computer systems of the Servicer for the fiscal year ended on the previous
__________ relating to the Receivables (which accounts, records, and computer
systems shall be described in one or more schedules to such statement), that
such firm has compared the information contained in the Servicer's reports
delivered in the relevant period with information contained in the accounts,
records, and computer systems for such period, and that, on the basis of such
examination and comparison, such firm is of the opinion that the Servicer has,
during the relevant period, serviced the Receivables in compliance with such
servicing procedures, manuals, and guides and in the same manner as it
services comparable contracts for itself or others, that such accounts,
records, and computer systems have been maintained, and that such
certificates, accounts, records, and computer systems have been properly
prepared and maintained in all material respects, except in each case for (a)
such exceptions as such firm shall believe to be immaterial and (b) such other
exceptions as shall be set forth in such statement.
S-27
<PAGE>
Other Servicing Procedures
At least [___] days prior to each Payment Date, the Servicer shall
deliver a report in writing (the "[Monthly] Servicer Report") to each holder
of the Certificates, the Trustee and the Rating Agency.
If an Obligor has [____] Contract Payments which are due and unpaid
as of any Determination Date, such Obligor's Contract shall become a Defaulted
Contract. Where no satisfactory arrangements can be made for collection of
delinquent payments within [___] days of a Contract becoming a Defaulted
Contract, the Servicer shall foreclose or otherwise liquidate any such
Defaulted Contract [(together with the related Vehicles)] within [60] days of
such Contract becoming a Defaulted Contract. In connection with any
foreclosure or other liquidation, the Servicer will take such action as is
appropriate, consistent with the Servicer's administration of contracts in its
own portfolio, including such action as may be necessary to cause, or attempt
to cause, the Obligor thereunder to cure such default (if the same may be
cured) or to terminate or attempt to terminate such Contract and to recover,
or attempt to recover, all damages resulting from such default.
[The Servicer will use its best efforts (i) to sell or re-lease any
Vehicles subject to a Defaulted Contract in a timely manner and upon
reasonable terms and conditions so as to reduce as expeditiously as is
consistent with sound commercial practice any unreimbursed amounts drawn by
the Trustee on the Reserve Account and (ii) to sell or re-lease any Vehicles
remaining subject to the lien of the Trustee upon the expiration of the
Contract to which such Vehicles is subject, in a timely manner and in a manner
consistent with that utilized by the Servicer with respect to vehicles owned
by it so as to realize, to the extent possible under then prevailing market
conditions, the Net Residual Value of such Vehicles.]
[All Residual Payments realized by the Servicer in the performance
of its duties with respect to any item of Vehicles remaining subject to the
Lien of the Trustee (net of the Servicer's actual out-of-pocket expenses
reasonably incurred in such realization) shall be held in trust by the
Servicer, as agent for the Trustee, and turned over to the Trustee within
[___] Business Days for application in accordance with the provisions of the
Pooling Agreement, provided that, to the extent that (i) the Originator has
--------
made any advances with respect to any Contract which thereafter became a
Defaulted Contract and (ii) the Originator has not otherwise been fully
reimbursed for such advances, the Originator shall reimburse itself for such
advances from any Residual Payments recovered with respect to such Defaulted
Contract before remitting to the Trustee any such amounts for deposit in the
Remittance Account.]
Removal of the Servicer
The Pooling Agreement will provide that the Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. The Servicer can only be removed pursuant
to a Servicer Event of Default. If a Servicer Event of Default shall have
occurred and be continuing, the Trustee shall give written notice to the
Servicer of the termination of all of the rights and obligations of the
Servicer (but none of the Servicer's obligations thereunder, which shall
survive any such termination) under the Pooling Agreement. On and after the
time the Servicer receives a notice of termination, the Trustee shall be the
successor in all respects to the Originator in its capacity as servicer under
the Pooling Agreement of the Receivables. The Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act, give notice of such
fact to each holder of the Certificates and (i) appoint an established
institution, satisfactory to the holders of Certificates evidencing not less
than [66-2/3%] of the Voting Rights, as the successor to the Servicer to
assume all of the rights and obligations of the Servicer, including, without
limitation, the Servicer's right to receive the Servicing Fee (but not the
obligations of the Servicer contained in the Pooling Agreement) or, (ii) if no
such institution is so appointed, petition a court of competent jurisdiction
to appoint an institution meeting such criteria as the Servicer.
S-28
<PAGE>
THE TRUSTEE
The Trustee, ____________, has an office at _______________________.
The Trustee may resign, subject to the conditions set forth below,
at any time upon written notice to the Bank, the Servicer and the Credit
Enhancer, in which event the Servicer, with the consent of the Credit
Enhancer, will be obligated to appoint a successor Trustee. If no successor
Trustee shall have been so appointed and have accepted such appointment within
[30] days after the giving of such notice of resignation, the resigning
Trustee may petition a court of competent jurisdiction for the appointment of
a successor Trustee. Any successor Trustee shall meet the financial and other
standards for qualifying as a successor Trustee under the Pooling Agreement.
The Servicer, the Credit Enhancer or Certificateholders evidencing more than
[___%] of the Percentage Interests of the Trust may also remove the Trustee if
the Trustee ceases to be eligible to continue as such under the Pooling
Agreement and fails to resign after written request therefor, or is legally
unable to act, or if the Trustee is adjudicated to be insolvent. In such
circumstances, the Servicer, the Credit Enhancer or such Certificateholders
will also be obligated to appoint a successor Trustee. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
THE TRUST
The Trust will be formed in accordance with the laws of the State of
[______], pursuant to the Pooling Agreement, solely for the purpose of
effectuating the transactions described herein. Prior to formation, the Trust
will have had no assets or obligations and no operating history. Upon
formation, the Trust will not engage in any business activity other than
acquiring and holding the Receivables and, during the Funding Period, the Pre-
Funded Amount, issuing the Certificates and distributing payments thereon. As
described under "Description of the Certificates - Servicing Compensation and
Payment of Expenses," a portion of the monthly collections with respect to the
Contracts will be paid to the Servicer as servicing compensation. All other
expenses of the Trust will be paid on behalf of the Bank by the Servicer or by
the Originators, as provided in the Pooling Agreement.
The Trust Fund will consist of the [Vehicles], the Contracts and any
Scheduled Contract Payments to be made by Obligors (but not including any
payments due on or prior to the Cut-Off Date or, with respect to an Additional
Receivable, the day prior to the Payment Date on which the Trust acquires such
Additional Receivable; any guaranties of an Obligor's obligations under a
Contract; any documents in the Contract Files; the insurance policies
maintained by the Obligors with respect to the Vehicles (the "Insurance
Policies") and the proceeds of such Insurance Policies; any rights of the Bank
under the Receivables Acquisition Agreement (including the right to instruct
the Originator to exercise any unassignable rights of enforcement under the
Contracts and any guaranties thereof, the Originator's rights ("Vendor
Agreement Rights") under agreements with any vendors from which the Contracts
were acquired, and the Insurance Policies); a security interest in the Reserve
Account and amounts on deposit therein; funds from time to time deposited in
the Pre-Funding Account, the Capitalized Interest Account, the Remittance
Account, the Advance Payment Account and the Additional Receivables Funding
Account; the Certificate Insurance Policy; and any and all income and proceeds
of foregoing. The Pooling Agreement does not permit the Trust to acquire any
additional assets other than Additional Receivables. Because the Trust does
not have any operating history and will not engage in any business activity
other than owning the Trust Fund, issuing the Certificates and making
distributions thereon, there has not been included any historical or pro forma
ratio of earnings to fixed charges with respect to the Trust.
S-29
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling Agreement to
be entered into by the Servicer, the Bank, and the Trustee. The Trustee will
provide a copy of the Pooling Agreement to subsequent Certificateholders
without charge on written request addressed to its Corporate Trust Department
at ________________________.
The following summary describes certain terms of the Pooling
Agreement, does not purport to be complete and is subject to and qualified in
its entirety by reference to the Pooling Agreement. Wherever provisions of
the Pooling Agreement are referred to, such provisions are hereby incorporated
herein by reference.
General
The obligations evidenced by the Certificates are recourse to the
assets of the Trust only and are not recourse to the Bank, the Originators,
the Servicer, the Trustee, or any other Person. The Trustee will agree in the
Pooling Agreement and in the Certificates to pay to the Certificateholders (i)
an amount of principal equal to the Initial Certificate Principal Amount and
(ii) Certificate Interest, in each case at the times, from the sources and on
the terms and conditions set forth in the Pooling Agreement and in the
Certificates.
The Certificates will be issued in fully registered form only, as
authenticated by the Trustee. Each Certificate will evidence [$1,000,000] or
more of the Initial Certificate Principal Amount.
The "Percentage Interest" owned by a Certificateholder will be
expressed, for voting and certain other purposes under the Pooling Agreement,
as the percentage obtained by dividing the denomination representing the
Percentage Interest of the related Certificate by the Initial Certificate
Principal Amount. The Certificates are transferable and exchangeable through
the Trustee at its Corporate Trust Department in ____________. No service
charge will be made for any registration of transfer or exchange of
Certificates, but a sum sufficient to cover any tax or other governmental
charge may be required to be paid by the Certificateholder.
Payments on the Certificates are required to be made by the Trustee
on each Payment Date, to persons in whose names Certificates are registered as
of the last day of the immediately preceding calendar month (the "Record
Date").
The first Payment Date for distributions to the Certificateholders
will be __________, 199__. Payments are required to be made by the Trustee,
by check mailed or, if requested by the Certificateholder, by wire transfer of
immediately available funds, to Certificateholders entitled thereto at the
address appearing on the Certificate register on the Record Date.
Conveyance of Receivables
On the date of issuance of the Certificates (the "Closing Date"),
the Bank will transfer, assign, set over and otherwise convey to the Trust,
without recourse (except as expressly set forth in the Pooling Agreement), all
of its right, title and interest in and to [(a) the Initial Vehicles,] (b) the
Initial Contracts, (c) any guaranties of an Obligor's obligations under a
Contract, (d) any documents in the Contract files, (e) Insurance Policies with
respect to the Initial Vehicles and insurance proceeds thereof, (f) the Vendor
Agreement Rights with respect to the Initial Vehicles, (g) the rights of the
Bank pursuant to the Receivables Acquisition Agreement, (h) a security
interest in the Reserve Account and amounts on deposit therein and (i) all
income and proceeds of the foregoing (collectively, the "Initial Receivables")
and cash in an amount equal to the Original Pre-Funded Amount. On the
instructions of the Bank, the Trustee will cause the Trust to issue the
Certificates offered hereby to the initial investors.
S-30
<PAGE>
During the Funding Period, the Bank may transfer to the Trust
Additional Receivables relating to and including Contracts having an aggregate
Discounted Contract Balance not less than $____________. In consideration of
the conveyance of such Additional Receivables, the Trust shall disburse to the
Bank and the Reserve Account from the Pre-Funding Account an amount not
exceeding ____% and ___%, respectively, of the aggregate Discounted Contract
Balances of such Additional Receivables. Any amounts remaining on deposit in
the Pre-Funding Account on the Funding Distribution Date shall be transferred
to the Remittance Account for distribution to the Certificateholders as a
prepayment of principal.
During the Interest-Only Period, and provided that (a) the amount on
deposit in the Pre-Funding Account has been reduced to zero and (b) no
Required Amortization Event has occurred, all Contract Principal deposited to
the Remittance Account with respect to each Remittance Period (including the
principal portions of Servicer Advances and of Reconveyance Amounts deposited
on the related Notice Date) shall be disbursed on the next Payment Date to the
Bank in consideration of the conveyance of Additional Receivables. The
Contracts relating to such Additional Receivables shall have an aggregate
Discounted Contract Balance as nearly as possible equal to, but in no event
less than, the Contract Principal deposited to the Remittance Account with
respect to the prior Remittance Period (including the principal portions of
Servicer Advances and of Reconveyance Amounts deposited on the related Notice
Date).
On and after the Initial Amortization Date (unless a Required
Amortization Event has occurred) the Bank will have the option to transfer to
the Trust Additional Receivables relating to and including Contracts having an
aggregate Discounted Contract Balance not in excess of the aggregate amount of
Contract Principal Payments received by the Servicer during the prior
Remittance Period. In consideration of the conveyance of such Additional
Receivables, the Trust shall disburse to the Bank an amount equal to the
aggregate Discounted Contract Balances of such Additional Receivables. This
option of the Bank is limited to $____________ aggregate Discounted Contract
Balance of such Additional Receivables.
In connection with each such additional transfer, the Bank will be
required to send to the Trustee, by facsimile, on the Notice Date preceding
each such Payment Date and the Funding Distribution Date, in the event of a
transfer on such date, a list of Additional Receivables listing all Contracts
to be transferred to the Trust on such date, together with (i) an Additional
Receivables Agreement in the form required by the Pooling Agreement, properly
completed by an appropriate officer of the Bank (an "Additional Pooling
Agreement") and, (ii) an opinion of counsel in the form required by the
Pooling Agreement.
If a Required Amortization Event occurs, then no further conveyances
of Additional Receivables shall occur, and all amounts that would otherwise
have been paid in consideration of such conveyances shall be retained in the
Remittance Account or, during the Funding Period, the Pre-Funding Account and
shall be distributed, in the case of amounts on deposit in the Remittance
Account, on each Payment Date or, in the case of amounts on deposit in the
Pre-Funding Account, on the Funding Distribution Date.
The Bank will be required to deliver the Contract files to the
Servicer as required by the Pooling Agreement. The Servicer will retain
possession of the Contracts and the Contract files, and the Servicer will
retain copies of any other documents which relate to the Receivables, any
related evidence of insurance and payment, delinquency and related reports
maintained by the Servicer in the ordinary course of business with respect to
each Receivable. Prior to transfer of the Receivables to the Trust, the
Servicer will cause its electronic ledger to be marked to show that such
Receivables have been transferred to the Bank and then to the Trust, and the
Bank will file UCC financing statements reflecting the transfer and assignment
of the Receivables with the Secretary of State of the State of __________ and
the County Clerk of ____________ County, __________. See "Certain Legal
Aspects of the Receivables."
S-31
<PAGE>
Indemnification
The Pooling Agreement will provide that each Originator will defend
and indemnify the Servicer, the Certificate Insurer, the Bank, the Trustee,
the Trust and the Certificateholders against any and all losses, claims,
damages and liabilities to the extent, but only to the extent, that the same
have been suffered by any such party by virtue of a breach by such Originator
of its obligations (other than breach of such Originator's representations and
warranties, with respect to which the sole remedy is expressly limited to the
removal of the affected Receivables and the remittance of the Reconveyance
Amount by such Originator as discussed above) under the Pooling Agreement.
The Pooling Agreement will also provide that the Servicer will
defend and indemnify the Bank, the Certificate Insurer, the Trustee, the Trust
and the Certificateholders against any and all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel and expenses of litigation, reasonably incurred, arising out of or
resulting from [(i) the use, repossession or operation by the Servicer or any
affiliate thereof of any Vehicles] and (ii) the failure of the Servicer to
perform its duties under the Pooling Agreement. The obligations of the
Servicer to indemnify the Trust and the Certificateholders for acts or
omissions of the Servicer will survive the removal of the Servicer but will
not apply to any acts or omissions of a successor Servicer.
The Trustee is required to establish and maintain in accordance with
the Pooling Agreement the Pre-Funding Account, the Capitalized Interest
Account, the Remittance Account, the Advance Payment Account and the
Additional Receivables Funding Account, each in the name of the Trust and for
the benefit of Certificateholders. Each such Account will be one or more
segregated trust accounts.
On the Closing Date, the Bank shall deposit in the Pre-Funding
Account and the Capitalized Interest Account the Original Pre-Funded Amount
and the Initial Capitalized Interest Account, respectively, from the proceeds
of the sale of the Certificates.
During the Funding Period, it is anticipated that amounts on deposit
in the Pre-Funding Account will generate Investment Earnings in an amount less
than the interest payable on the Certificates issued in respect of the
Original Pre-Funded Amount. The Capitalized Interest Account will hold
amounts that may be required to be disbursed to the Certificateholders on each
Payment Date during the Funding Period in the event the aggregate Contract
Interest deposited in the Remittance Account for the related Remittance Period
is insufficient to fund the payment of Certificate Interest payable to the
Certificateholders on such Payment Date. On each Payment Date during the
Funding Period, the Bank will have the right to direct the Trustee to transfer
to the Bank from the Capitalized Interest Account the Overfunded Interest
Amount. The Overfunded Interest Amount arises as a result of the Bank's
conveyance of Additional Receivables to the Trust in exchange for cash on
deposit in the Pre-Funding Account. It is expected that the Contract Interest
with respect to the Contracts included in such Additional Receivables will
exceed the Investment Earnings on the amount of cash disbursed to the Bank
from the Pre-Funding Account in exchange for such Additional Receivables by
the Overfunded Interest Amount. On the funding Distribution Date, the amount,
if any, on deposit in the Capitalized Interest Account shall be disbursed to
the Bank.
Section _____ of the Pooling Agreement outlines the amounts to be
deposited in the Remittance Account. In particular, (A) the Servicer is
required to deposit, within [___] business days following receipt, Actual
Payments; (B) the Servicer is required to deposit Servicer Advances not later
than the Notice Date for a Remittance Period; (C) the Trustee will deposit,
not later than the Notice Date, that portion of any Advance Payments that
constitute Scheduled Payments due during the immediately preceding Remittance
Period; (D) an Originator or the Servicer will deposit, not later than the
Notice Date, any Reconveyance Amount then due and payable by it and the
Certificate Insurer will deposit prior to the Payment Date the repurchase
price for any Defaulted Contracts it elects to purchase; (E) the Trustee will
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deposit, on the Funding Distribution Date, the amount, if any, on deposit in
the Pre-Funding Account; (F) the Trustee will deposit from the Capitalized
Interest Account, on each Payment Date during the Funding Period, the
Capitalized Interest Requirement, if any; (G) the Trustee will deposit from
the Reserve Account, on the Claim Date, any Insufficiency Amount; and (H) the
Certificate Insurer is required to deposit, not later than 12:00 noon New York
City time on the later of the Business Day immediately following receipt by
the Fiscal Agent of a Notice of Nonpayment or the Payment Date, any Insured
Payment required to be paid for such Payment Date.
The Servicer is required to deposit all Advance Payments to the
Advance Payment Account. "Advance Payments" are amounts paid by a user during
a Remittance Period with respect to amounts due from such user in subsequent
Remittance Periods.
The Additional Receivables Funding Account will hold amounts
required to be disbursed to the Bank pending the transfer of Additional
Receivables to the Trust. From and after the Payment Date two months after
the Funding Distribution Date, the amount on deposit in the Additional
Receivables Funding Account may not exceed $____________. The purpose of the
Additional Receivables Funding Account is to prevent a temporary shortfall in
the supply of Additional Receivables from becoming a Required Amortization
Event.
The Pooling Agreement permits the Servicer to direct the investment
of amounts in the Pre-Funding Account, the Capitalized Interest Account, the
Remittance Account, the Advance Payment Account and the Additional Receivables
Funding Account in Eligible Investments that mature not later than the
business day prior to the next succeeding Payment Date, on which Payment Date
such amounts shall be distributed as described below, and such amounts shall
be held to maturity. Generally, the holder of the Bank's Certificate shall be
entitled to any income from such investments.
"Eligible Investments" for amounts on deposit in the Pre-Funding
Account, the Remittance Account, the Advance Payment Account and the
Additional Receivables Funding Account are described in [Article I] of the
Pooling Agreement.
The Servicer may deduct from amounts otherwise payable to the
Remittance Account with respect to a Remittance Period an amount equal to
amounts previously deposited by the Servicer into the Remittance Account but
(i) subsequently uncollectible as a result of dishonor of the instrument of
payment for or on behalf of the Obligor or (ii) later determined to have
resulted from mistaken deposits.
Servicer Advances
In the event that any Obligor fails to remit its full Scheduled
Payment by the Calculation Date, the Servicer is required to make an advance
from its own funds of an amount equal to such unpaid Scheduled Payment (a
"Servicer Advance") if the Servicer, in its sole discretion, determines that
eventual repayment of such Servicer Advance is likely from collections from or
on behalf of the related Obligor. The Pooling Agreement provides for the
reimbursement of the Servicer for such Servicer Advances from funds available
for distribution in the Remittance Account on each Payment Date after the
Required Payments to Certificateholders have been made as set forth below in
"Distributions on Certificates".
Reserve Account
Pursuant to the Insurance Agreement, the Bank will establish the
Reserve Account with the Collateral Agent and a security interest in the
Reserve Account will be granted to the Trust. On each Payment Date, as
described below under "Flow of Funds," certain amounts are required to be
deposited into the Reserve Account. No later than each Claim Date, amounts on
deposit in the Reserve Account will be deposited in the Remittance Account to
the extent that Required Payments for the following Payment Date exceed
Available Funds in the Remittance Account. Amounts on deposit in the Reserve
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Account that are in excess of the specified Reserve Account Requirement set
forth in the Insurance Agreement will be paid to the Bank on each Payment
Date.
Amounts on deposit in the Reserve Account will be invested in
Eligible Investments.
Flow of Funds
On the [_________] calendar day of each month, or if such day is not
a Business Day, on the immediately preceding business day (the "Notice Date"),
the Servicer is required to deliver to the Trustee, the Rating Agencies and
the Certificate Insurer a certificate (the "Servicer's Certificate") setting
forth the information needed to make payments on the upcoming Payment Date.
If, in preparing the Servicer's Certificate the Servicer determines
that the Required Payments exceed the Available Funds, the Servicer shall
calculate the Insufficiency Amount and notify the Trustee and the Certificate
Insurer thereof. Pursuant to the Pooling Agreement and the Insurance
Agreement, the Trustee will deposit an amount equal to such Insufficiency
Amount in the Remittance Account from the amounts, if necessary, the Reserve
Account. Unless the Certificate Insurer has otherwise caused the remaining
Insufficiency Amount (after any deposits from the Reserve Account) to be
deposited into the Remittance Account not later than [12:00 p.m New York
City] time on the Claim Date preceding any Payment Date, the Trustee shall
deliver on such Claim Date a completed Notice of Nonpayment to the Certificate
Insurer and the Fiscal Agent (with the amount of the Insufficiency Amount as
of such Claim Date and any other data appropriately completed). The
Certificate Insurer will then pay the remaining balance of the Insufficiency
Amount as of such Claim Date as provided under the terms of the Certificate
Insurance Policy.
On each Payment Date, the Trustee is required to pay the entire
amount of money then on deposit in the Remittance Account in the following
order of priority:
[(a) Amounts inadvertently deposited in the Remittance Account, to
the Person entitled thereto;
(b) To the Servicer by wire transfer to the account designated in
writing by the Servicer of immediately available funds, the
aggregate amount of the following:
(1) The Servicer Fee;
(2) An amount necessary to reimburse the Servicer for any
unreimbursed Servicer Advances; and
(3) Any Servicing Charges inadvertently deposited in the
Remittance Account;
(c) To the Certificateholders, the Certificate Interest and Overdue
Interest for the related Remittance Period;
(d) On the Payment Date which is also the Funding Distribution
Date, to the Certificateholders, the Pre-Funded Amount, if any,
deposited into the Remittance Account on such Payment Date;
(e) On and after the Payment Date which is also the Initial
Amortization Date, to the Certificateholders, until the
Certificate Principal Balance has been reduced to zero, the
Base Principal Distribution Amount and any Overdue Principal
for the related Remittance Period;
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(f) To the Certificate Insurer, an amount equal to any Premium owed
for such Payment Date;
(g) To the Certificate Insurer, by wire transfer of immediately
available funds to the account designated in writing by the
Certificate Insurer, the Reimbursement Amount, if any, then
owed to the Certificate Insurer;
(h) To the Reserve Account, for disposition in accordance with the
terms of the Insurance Agreement, by wire transfer of
immediately available funds, the lesser of (1) the difference,
if any, between (x) the Specified Reserve Account Requirement
as of such Payment Date and (y) the amount then on deposit in
the Reserve Account and (2) the aggregate amount remaining in
the Remittance Account;
(i) On and after the Payment Date which is also the Initial
Amortization Date, to the Certificateholders, until the
Certificate Principal Balance has been reduced to zero, the
Excess Principal Amount as of such Payment Date;
(j) To the Servicer, any other amounts due the Servicer as
expressly provided in the Pooling Agreement; and
(k) To the holder of the Bank's Certificate, any remaining
amounts.]
As used in this Prospectus Supplement, the following terms have the following
meanings:
Actual Payment: With respect to a Remittance Period and a Contract,
--------------
all Scheduled Payments, Prepayments and Residual Receipts received by the
Servicer from or on behalf of an Obligor with respect to such Contract during
such Remittance Period. Actual Payments do not include Initial Unpaid
Amounts, Reconveyance Amounts, Advance Payments and Servicer Advances.
Adjusted Certificate Rate: The sum of (i) the Certificate Rate,
-------------------------
(ii) the Servicing Fee Rate and (iii) the Certificate Insurance Premium Rate,
i.e., _____% per annum.
----
Administrative Amount: For any Remittance Period, the product of
---------------------
(x) one-twelfth of the sum of (i) the Servicing Fee Rate and (ii) the
Certificate Insurance Premium Rate and (y) the aggregate Discounted Contract
Balances of all Contracts outstanding as of the immediately preceding
Calculation Date (or as of the Cut-Off Date in the case of the initial
Remittance Period).
Advance Payment: With respect to a Receivables and a Remittance
---------------
Period, any Scheduled Payment or portion thereof made by or on behalf of an
Obligor and received by the Servicer during such Remittance Period, which
Scheduled Payment or portion thereof does not become due until a subsequent
Remittance Period.
Applicable Percentage: As of any Payment Date the greater of (x)
---------------------
_____% and (y) the Certificate Percentage with respect to such Payment Date.
Available Funds: With respect to a Payment Date, shall mean for the
---------------
related Notice Date any and all amounts held in the Remittance Account on such
Notice Date and shall mean for the related Claim Date, any and all amounts
held in the Remittance Account on such Claim Date, but in each case shall not
include any (i) moneys to be disbursed to the Bank in connection with its
conveyance of Additional Receivables to the Trust on such Payment Date, (ii)
moneys to be applied as described in clauses (a) and (b) under Flow of Funds
above, (iii) payments under the Certificate Insurance Policy or (iv) any
Actual Payments received by the Servicer after the immediately preceding
Calculation Date.
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Bank's Certificate Principal Balance: As of any Payment Date, the
------------------------------------
difference, if any, between (i) the sum of (x) the aggregate Discounted
Contract Balances of all Contracts as of the immediately preceding Calculation
Date, (y) the aggregate Discounted Contract Balances as of the day prior to
such Payment Date of all Additional Receivables to be conveyed to the Trust on
such Payment Date and (z) the amount on deposit in the Additional Receivables
Funding Account as of such Payment Date (and after taking into account any
deposits or withdrawals therein on such payment Date) and (ii) the outstanding
Certificate Principal Balance as of such Payment Date, after taking into
account any distribution of the Base Principal Distribution Amount and of the
Excess Principal Amount on such Payment Date, minus the Pre-Funded Amount, if
any.
Bank's Certificates: The certificates evidencing the Bank's
-------------------
Interest.
Base Interest Amount: With respect to any Remittance Period, the
--------------------
product (x) [one-twelfth] of the Certificate Rate and (y) the aggregate
Discounted Contract Balances of all Contracts outstanding as of the
immediately preceding Calculation Date (or as of the Cut-Off Date in the case
of the initial Remittance Period).
Base Principal Distribution Amount: With respect to any Payment
----------------------------------
Date occurring prior to the Initial Amortization Date, zero. With respect to
any Payment Date occurring on or after the Initial Amortization Date, an
amount equal to the product of (x) the Applicable Percentage with respect to
such Payment Date and (y) the sum, without duplication, of (i) all Scheduled
Discounted Contract due during the related Remittance Period with respect to
each Contract that has not become a Defaulted Contract, (ii) for each Contract
that was the subject of a Prepayment in full during the related Remittance
Period, the Discounted Contract Balance of such Contract as of the date of
such Prepayment, but only to the extent of the amount actually deposited in
the Remittance Account with respect to such Prepayment, (iii) for each
Contract that was the subject of a partial Prepayment during the related
Remittance Period, an amount equal to the difference between (a) the
Discounted Contract Balance of such Contract immediately prior to such partial
Prepayment and (b) the Discounted Contract Balance immediately after such
partial Prepayment, but only to the extent of the amount actually deposited in
the Remittance Account with respect to such partial Prepayment, (iv) for each
Receivable which is removed from the Trust pursuant to the Pooling Agreement
during the related Remittance Period, the Discounted Contract Balance of such
Receivable to the extent actually deposited in the Remittance Account pursuant
to the Pooling Agreement, (v) the principal portion of all Insurance Proceeds
received during the prior Remittance Period, and (vi) the amount, if any, by
which (A) the Certificate Principal Balance as of such Payment Date, after
giving effect to all other distributions to be made on such Payment Date,
exceeds (B) the aggregate Discounted Contract Balance of all Receivables as of
the last day of the related Remittance Period plus the aggregate Discounted
Contract Balances of all Additional Receivables conveyed by the Bank on such
Payment Date; provided, however, that with respect to the Remittance Period
-------- -------
during which the Required Amortization Event occurs, if ever, the phrase
"during the related Remittance Period" shall refer only to the portion of such
Remittance Period occurring on and after the Required Amortization Event; and
provided, further that the amounts described in clauses (y)(ii) and (y)(iii)
--------- -------
shall be reduced on any Payment Date by the amount, if any, of such
Prepayments disbursed to the Bank in consideration of Additional Receivables
on such Payment Date.
Calculation Date: The last day of a Remittance Period. Amounts
----------------
calculated from Calculation Date balances shall be calculated from such
balances as of the close of business on the Calculation Date.
Capitalized Interest Rate: _____%.
-------------------------
Capitalized Interest Requirement: With respect to each Payment Date
--------------------------------
prior to the Funding Termination Date, the excess if any, of (x) the Class A
Certificate Interest for the related Remittance
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Period over (y) the product of (i) the aggregate Discounted Contract Balances
of all Receivables as of the related Calculation Date and (ii) one-twelfth of
the Capitalized Interest Rate.
Certificate Insurance Premium Rate: _____% per annum, except that
----------------------------------
such rate is zero for the first year.
Certificate Interest: With respect to any Payment Date, the product
--------------------
of (x) [one-twelfth] of the Certificate Rate and (y) the aggregate Certificate
Principal Balance outstanding immediately prior to such Payment Date.
Certificate Percentage: With respect to the Certificates and as of
----------------------
any Payment Date, the fraction equal to (x)(A) the Certificate Principal
Balance as of such Payment Date (following distributions on such Payment Date)
minus (B) the Pre-Funded Amount divided by (y) the aggregate sum of (i)
outstanding Discounted Contract Balances of all Receivables as of the
Calculation Date immediately preceding such Payment Date, (ii) the aggregate
Discounted Contract Balances as of the day preceding such Payment Date of all
Additional Contracts to be transferred to the Trust on such Payment Date and
(iii) the amount on deposit in the Additional Receivables Funding Account on
such Payment Date.
Certificate Principal Balance: At any time, the Initial Certificate
-----------------------------
Principal Amount minus all payments theretofore received by the
Certificateholders on account of principal.
Certificate Rate: _____% per annum.
----------------
Claim Date: With respect to a Payment Date, the second business day
----------
immediately preceding such Payment Date.
Contract Principal: With respect to any Remittance Period, the sum,
------------------
without duplication, of all amounts actually deposited in the Remittance
Account during such Remittance Period with respect to Scheduled Contract
Principal, full and partial Prepayments to the extent of the principal portion
of such Prepayments and the principal portion of all Servicer Advances,
Insurance Proceeds and Reconveyance Amounts. Residual Receipts are not part
of "Contract Principal."
Contract Rate: _____%.
-------------
Cut-Off Date: With respect to the Initial Receivables, the close of
------------
business on ____________, 199__. With respect to any Additional Receivable
transferred to the Trust on any Transfer Date, the close of business on the
day preceding such Transfer Date.
Defaulted Contract: A Delinquent Contract (a)(i) with respect to
------------------
which a Obligor is contractually delinquent for four consecutive months
(without regard to any Servicer Advances or the application of any Security
Deposit) or (ii) as to which the Servicer has determined in accordance with
its customary servicing practices, for purposes of this Agreement, that
eventual payment of the Scheduled Payments is unlikely and (b) as to which the
Servicer has accelerated the remaining Scheduled Payments to become due
thereunder, and as permitted in the Contract.
Delinquent Contract: A Contract (a) as to which the Scheduled
-------------------
Payment was not received when due by the Servicer as of the close of business
on the last day of the month in which such payment was due and (b) which is
not a Defaulted Contract.
Discounted Contract Balance: On any date of calculation with
---------------------------
respect to a Contract which does not include a Defaulted Contract, the present
value of the Scheduled Payments to become due with respect to such Receivable
on and after such date of calculation, discounted monthly to the Calculation
Date immediately following such date of calculation (or to such date of
calculation if such date of
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calculation is a Calculation Date) at one-twelfth of the Receivable Rate; with
respect to any Contract which has a Defaulted Contract, zero.
Excess Contract Interest: With respect to any Payment Date, the
------------------------
product of (x) the difference between (i) [one-twelfth] of the Contract Rate
and (ii) one-twelfth of the Adjusted Certificate Rate and (y) the aggregate
Discounted Contract Balances of all Contracts outstanding as of the beginning
of the immediately preceding Remittance Period.
Excess Principal Amount: With respect to any Payment Date, the
-----------------------
product of (i) _____% and (ii) the lesser of (x) the amount, if any, remaining
in the Remittance Account after the making of the distributions described in
clauses (a) through (h) (inclusive) under "Flow of Funds" above on such
Payment Date and (y) the Excess Contract Interest with respect to such Payment
Date.
Funding Distribution Date: The earlier to occur of (x) the Payment
-------------------------
Date in _______ 199__ and (y) the Payment Date which immediately follows the
Required Amortization Event.
Funding Termination Date: The earlier of (x) the date on which the
------------------------
Required Amortization Event has occurred and (y) ____________, 199__.
Initial Certificate Principal Amount: $____________.
------------------------------------
Initial Unpaid Amount: With respect to a Contract, the excess of
---------------------
the aggregate amount of all Scheduled Payments due prior to the related Cut-
Off Date, over the aggregate of all Scheduled Payments made prior to the
related Cut-Off Date with respect to such Contract.
Insufficiency Amount: With respect to a Notice Date or a Claim
--------------------
Date, as applicable, the excess, if any, of (a) Required Payments over (b)
Available Funds.
Interest-Only Period. The period from the Closing Date to, but
--------------------
excluding, the Initial Amortization Date.
Overdue Interest: With respect to any Payment Date, the difference,
----------------
if any, equal to (a) the aggregate amount of Certificate Interest due on all
prior Payment Dates and (b) the aggregate amount of Certificate Interest (from
whatever source) actually paid to Certificateholders on all prior Payment
Dates.
Overdue Principal: With respect to any Payment Date, the
-----------------
difference, if any, equal to (a) the aggregate of the Base Principal
Distribution Amounts due on all prior Payment Dates and (b) the aggregate
amount of the Base Principal Distribution Amounts (from whatever source)
actually paid to Certificateholders on all prior Payment Dates.
Overfunded Interest Amount: With respect to each Transfer Date
--------------------------
during the Funding Period, the excess, if any, of (x) in the case of a
Transfer Date occurring in ____________ 199__, (i) three-months' interest on
the aggregate Discounted Contract Balances of the Additional Receivables
conveyed to the Trust on such Transfer Date, calculated at the Capitalized
Interest Rate over (ii) three-months' interest on the aggregate Discounted
Contract Balances of such Additional Receivables, calculated at the rate at
which the Pre-Funded Amount is invested as of such Transfer Date, (y) in the
case of a Transfer Date occurring in ____________, 199__, (i) two-months'
interest on the aggregate Discounted Contract Balances of the Additional
Receivables conveyed to the Trust on such Transfer Date, calculated at the
Capitalized Interest Rate over (ii) two-months' interest on the aggregate
Discounted Contract Balances of such Additional Receivables, calculated at the
rate at which the Pre-Funded Amount is invested as of such Transfer Date and
(z) in the case of a Transfer Date occurring in ____________ 199__ or on the
Funding Termination Date, (i) one-months' interest on the aggregate Discounted
Contract Balances of the Additional Receivables conveyed to the Trust on such
Transfer Date, calculated at the
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Capitalized Interest Rate over (ii) [one-months'] interest on the aggregate
Discounted Contract Balances of such Additional Receivables, calculated at the
rate at which the Pre-Funded Amount is invested as of such Transfer Date.
Payment Date: The _____ day of each month, or, if such day is not a
------------
business day, the next succeeding business day.
Prepayment: With respect to a Remittance Period and a Receivable
----------
(except a Receivable which includes a Defaulted Contract), the amount received
by the Servicer during such Remittance Period from or on behalf of an Obligor
with respect to such Contract in excess of the sum of (x) the Scheduled Payment
due during such Remittance Period plus (y) the aggregate of any overdue
Scheduled Payments, Initial Unpaid Amounts and unpaid Servicing Charges for such
Receivable, so long as such amount is designated by the Obligor as a Prepayment
and the Servicer has consented to such Prepayment. Residual Receipts are not
"Prepayments."
Prepayment Amount: With respect to a Payment Date and a Receivable,
-----------------
an amount, without duplication, equal to the sum of (i) the Discounted Contract
Balance as of the immediately preceding Payment Date (without any deduction for
any Security Deposit paid by an Obligor, unless such Security Deposit has been
deposited in the Remittance Account pursuant to the Pooling Agreement); (ii) the
product of (x) such Contract's Discounted Contract Balance as of the immediately
preceding Payment Date and (y) [one-twelfth] of the Contract Rate and (iii) any
Scheduled Payments not paid by an Obligor.
Reimbursement Amount: With respect to any Payment Date, the
--------------------
aggregate of unreimbursed Insured Payments as of such Payment Date, plus accrued
interest at the rate specified in the Insurance Agreement.
Reconveyance Amount: The sum, without duplication, of (i) the
-------------------
Discounted Contract Balance of such Contract (without any deduction for any
Security Deposit paid by a Obligor, unless such Security Deposit has been
deposited in the Remittance Account pursuant to the Pooling Agreement) as of the
date of reconveyance with respect to a Contract that is reconveyed by the Trust
or as of the Closing Date with respect to a Receivable that shall have been
prepaid in full on or after the Cut-Off Date and prior to the Closing Date, (ii)
the product of (x) such Contract's Discounted Contract Balance as of the
immediately preceding Payment Date and (y) [one-twelfth] of the Contract Rate
and (iii) any Scheduled Payments not paid by a Obligor.
Remittance Period: With respect to any Payment Date, the
-----------------
immediately preceding calendar month.
Required Amortization Event: The earliest to occur of any of the
----------------------------
following: (i) the delivery by the Originator to the Bank, the Trustee and the
Certificate Insurer of a notice stating that the Originator, due to a lack of
supply, will be unable thereafter to transfer Additional Receivables to the
Bank, (ii) the occurrence of an "Event of Servicing Termination" under the
Pooling Agreement, (iii) the Subordinated Amount is reduced to below _____% of
the aggregate Discounted Contract Balances of all Receivables, (iv) at any time
on or after the second Payment Date following the Funding Distribution Date the
amount on deposit in the Additional Receivables Funding Account exceeds
$____________, (v) the bankruptcy of the Originator or the Bank or (vi) as of
any Notice Date, the [three month] average ratio of the aggregate Discounted
Contract Balance of Delinquent Contracts which are [61] days or more delinquent
to the aggregate Discounted Contract Balance of all Receivables, exceeds _____%
and the [three month] average ratio of the aggregate Discounted Contract
Balances of all Defaulted Contracts which became Defaulted Contracts during the
related Remittance Period to the aggregate Discounted Contract Balances of all
Receivables, exceeds _____%.
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Required Payments: With respect to any Payment Date, the sum of the
-----------------
Certificate Interest as of such Payment Date and the Base Principal Distribution
Amount as of such Payment Date, together with any Overdue Interest and any
Overdue Principal and, on the Funding Distribution Date, the Pre-Funded Amount;
provided, however, that for any Payment Date as to which, during the related
- -------- -------
Remittance Period, an amount has been withdrawn from the Remittance Account in
respect of withholding taxes, an equal amount shall be deducted from the
Required Payments for such Payment Date.
Reserve Account Advance: Amounts deposited in the Remittance
-----------------------
Account from the Reserve Account.
[Residual Receipts: All amounts collected as judgments against a
-----------------
Obligor or others related to the failure of such Obligor to pay any required
amounts under the related Contract or to return the Vehicles, in each case as
reduced by (i) any unreimbursed Servicer Advances with respect to such Contract
and (ii) any reasonably incurred out-of-pocket expenses incurred by the Servicer
in enforcing such Contract or in liquidating such Vehicles.]
Scheduled Contract Principal: With respect to any Remittance
----------------------------
Period, the difference between (x) all Scheduled Payments due in such Remittance
Period and (y) the sum of (i) the Administrative Amount for such Remittance
Period, (ii) the Base Interest Amount for such Remittance Period and (iii) the
Excess Contract Interest for such Remittance Period.
Scheduled Payments: With respect to a Payment Date and a Contract,
------------------
the periodic payment (exclusive of any amounts in respect of insurance or taxes
and reflecting any adjustment for any partial Prepayment) set forth in such
Contract due from the Obligor (including any Security Deposit applied with
respect thereto) in the related Remittance Period.
Servicer Fee: The fee payable to the Servicer on the first day of
------------
each month in consideration for the Servicer's performance of its duties
pursuant to the Pooling Agreement, in an amount equal to the product of (x)
[one-twelfth] of the Servicer Fee Rate and (y) the aggregate Discounted Contract
Balances as of the prior Calculation Date.
Servicer Fee Rate: _____% per annum.
-----------------
Specified Reserve Account Requirement: As of any date, the
-------------------------------------
"Specified Reserve Account Requirement" applicable to such date, as set forth
in the Insurance Agreement.
Subordinated Amount: As of any date of determination, the sum on
-------------------
such date of (x) the Bank's Certificate Principal Balance and (y) the amount
then on deposit in the Reserve Account.
Withholding
The Trustee is required to comply with all federal income tax
withholding requirements respecting payments to Certificateholders of interest
or original issue discount with respect to the Certificates that the Trustee
reasonably believes are applicable under the Code. The consent of
Certificateholders will not be required for such withholding. In the event that
the Trustee does withhold or causes to be withheld any amount from interest or
original issue discount payments or advances thereof to any Certificateholders
pursuant to federal income tax withholding requirements, the Trustee is required
to indicate the amount withheld in its monthly report to such
Certificateholders.
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Reports to Certificateholders
On each Payment Date the Trustee will furnish or cause to be
furnished with each payment to Certificateholders, a statement (a "Monthly
Report"), based on information in the Servicer's Certificate, setting forth the
following information (per $1,000 of Initial Certificate Principal Amount as to
(a) and (b) below):
a. The amount of such payment allocable to such
Certificateholder's Percentage Interest of the Base Principal
Distribution Amount, Overdue Principal, the Excess Principal Amount and,
if applicable, the Pre-Funded Amount;
b. The amount of such payment allocable to such
Certificateholder's Percentage Interest of Certificate Interest and
Overdue Interest;
c. The aggregate amount of fees and compensation received by the
Servicer for the Remittance Period;
d. The aggregate Certificate Principal Balance, the aggregate
Discounted Contract Balance, the Certificate Percentage, the Certificate
Factor and the Pool Factor, after taking into account all distributions
made on such Payment Date;
e. The total unreimbursed Servicer Advances and the total Insured
Payment with respect to the related Remittance Period;
f. The Subordinated Amount as of such Payment Date;
g. The amount of Residual Receipts for the related Remittance
Period and the aggregate Discounted Contract Balances for all Contracts
that become Defaulted Contracts during the related Remittance Period; and
h. Information provided by the Servicer concerning losses and
delinquencies with respect to the Contracts.
The "Certificate Factor" is the seven digit decimal that the
Servicer will compute or cause to be computed for each Remittance Period and
will make available on the related Notice Date representing the ratio of (x)
Certificate Principal Balance which will be outstanding on the next Payment Date
(after taking into account all distributions to be made on such Payment Date) to
(y) the Initial Certificate Principal Amount.
The "Pool Factor" is the seven digit decimal that the Servicer will
compute or cause to be computed for each Remittance Period and will make
available on the related Notice Date representing the ratio of (x) the aggregate
Discounted Contract Balance as of the immediately preceding Calculation Date to
(y) the aggregate Discounted Contract Balance as of the Cut-Off Date.
In addition, by [January 31] of each calendar year following any
year during which the Certificates are outstanding, commencing [January 31,]
199__, the Trustee will furnish to the Certificate Insurer and to each
Certificateholder of record at any time during such preceding calendar year,
information as to the aggregate of amounts reported pursuant to items (a) and
(b) above for such calendar year to enable Certificateholders to prepare their
federal income tax returns.
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Optional Removal
The Pooling Agreement will provide that on any Payment Date
following the Record Date on which the Certificate Principal Balance is _____%
or less of the Initial Certificate Principal Amount (after giving effect to the
payment of any principal on such Payment Date), the Bank will have the option to
acquire all rights, title and interest in all, but not less than all,
Receivables held in the Trust, by paying into the Trust for retirement of the
Certificates and the Bank's Certificates an amount equal to the sum of the
aggregate outstanding Certificate Principal Balance and all other amounts due to
the Certificateholders, the Transferor's Balance, the premium due to the
Certificate Insurer, all Insured Payments that remain unreimbursed, all other
amounts owing to the Certificate Insurer and all amounts owing to the Trustee.
Remittance and Other Servicing Procedures
The Servicer has agreed to manage, administer and service the
Receivables and to enforce and make collections on the Receivables and any
Insurance Policies, exercising the degree of skill and care consistent with that
which the Servicer customarily exercises with respect to similar property owned
by it.
The Servicer may grant to an Obligor any rebate, refund or
adjustment that the Servicer in good faith believes is required, because of
Prepayment in full of a Contract. The Servicer may deduct the amount of any such
rebate, refund or adjustment from the amount otherwise payable by the Servicer
into the Remittance Account; provided, however, that the Servicer will not
-------- -------
permit any rescission or cancellation of any Contract which would materially
impair the rights of the Trust or the Certificateholders or the Certificate
Insurer in the Contracts or the proceeds thereof, nor will the prepayment price
after giving effect to any such rebate, refund or adjustment (and without any
adjustment for any Security Deposit previously paid by the Obligor) be less than
the Prepayment Amount. The Servicer may waive, modify or vary any term of a
Contract if the Servicer, in its reasonable and prudent judgment, determines
that it will not be materially adverse to the Certificateholders or the
Certificate Insurer. However, the Servicer will covenant in the Pooling
Agreement that (i) it will not forgive any payment of rent, principal or
interest (except for certain offsets for Security Deposits which offsets are
only permitted after the Servicer has deposited in the Remittance Account an
amount equal to such offset), (ii) unless an Obligor is in default, it will not
permit any modification with respect to a Contract which would defer the payment
of any principal or interest or any Scheduled Payment or change the final
maturity date on any Contract; provided, however, that no change in the final
-------- -------
maturity date of any Contract shall be permitted under any circumstances if such
new maturity date is after ____________, and (iii) the Servicer may accept
Prepayment in part or in full; provided, however that (1) in the event of
-------- -------
Prepayment in full, the Servicer may consent to such Prepayment only in an
amount not less than the Prepayment Amount and (2) in the event of a partial
Prepayment, the Servicer may consent to such partial Prepayment only if (x)
following such partial Prepayment there are no delinquent amounts then due from
the Obligor and (y) such partial Prepayment will not reduce the Discounted
Contract Balance by more than an amount equal to (I) the amount of such partial
Prepayment, minus (II) unpaid interest at the Contract Rate, accrued through the
Payment Date immediately following such partial Prepayment on the outstanding
Discounted Contract Balance prior to such partial Prepayment. In the case of a
partial Prepayment, the Servicer is required to accurately recalculate the
Discounted Contract Balance, and the allocation of Scheduled Payments to
principal and interest.
Servicing Compensation and Payment of Expenses
For its servicing of the Contracts, the Servicer will receive
servicing compensation including the monthly Servicer Fee for each Remittance
Period (payable on the next succeeding Payment Date) and Servicing Charges.
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The servicing compensation will compensate the Servicer for
customary servicing activities to be performed by the Servicer for the Trust,
additional administrative services performed by the Servicer on behalf of the
Trust and expenses paid by the Servicer on behalf of the Trust.
The Servicer, as an independent contractor on behalf of the Trust
and for the benefit of the Certificateholders, the Bank and the Certificate
Insurer, will be responsible for the managing, servicing and administering the
Receivables and enforcing and making collections on the Contracts and any
Insurance Policies [and for the enforcing of any security interest in any item
of Vehicles,] all as set forth in the Pooling Agreement. The Servicer's
responsibilities will include collecting and posting of all payments, responding
to inquiries of Obligors, investigating delinquencies, accounting for
collections, furnishing monthly and annual statements to the Trustee and the
Certificate Insurer with respect to distributions, making Servicer Advances,
providing appropriate federal income tax information for use in providing
information to Certificateholders, collecting and remitting sales and property
taxes on behalf of taxing authorities and maintaining the perfected security
interest of the Trust in the Vehicles and the Contracts.
Evidence as to Compliance
The Pooling Agreement requires that the Servicer cause an
independent accountant (who may also render other services to the Servicer) to
prepare a statement to the Trustee, the Rating Agencies and the Certificate
Insurer dated as of ____________, 199__, and annually as of the same month and
day thereafter, to the effect that the independent accountant has examined the
servicing procedures, manuals, guides and records of the Servicer and the
accounts and records of the Servicer relating to the Receivables and the
Contract Files (which procedures, manuals, guides and records shall be described
in one or more schedules to such statement), that such firm has compared the
information contained in the Servicer's Certificates delivered in the relevant
period with information contained in the accounts and records for such period
and that, on the basis of such examination and comparison, nothing has come to
the independent accountant's attention to indicate that the Servicer has not,
during the relevant period, serviced the Receivables in compliance with such
servicing procedures, manuals and guides and in the same manner required by the
Servicer's standards and with the same degree of skill and care consistent with
that which the Servicer customarily exercises with respect to similar property
owned by it, that such accounts and records have not been maintained in
accordance with the Pooling Agreement, that the information contained in the
Servicer's Certificates does not reconcile with the information contained in the
accounts and records or that such certificates, accounts and records have not
been properly prepared and maintained in all material respects, except in each
case for (a) such exceptions as the independent accountant shall believe to be
immaterial and (b) such other exceptions as shall be set forth in such
statement. On or before ____________ of each year, commencing on ____________,
199__, the Servicer shall deliver to the Trustee, the Rating Agencies and the
Certificate Insurer a copy of such statement.
The Pooling Agreement will also provide for annual delivery of a
report (the "Supplementary Report") by the Servicer to the Trustee and the
Certificate Insurer not later than 90 days after the end of each fiscal year,
signed by a Servicing Officer of the Servicer and dated as of the last day of
such fiscal year, stating that (a) a review of the activities of the Servicer
and the Servicer's performance under the Pooling Agreement for the previous 12-
month period has been made under such Servicing Officer's supervision and (b)
nothing has come to such Servicing Officer's attention to indicate that the
Servicer could be terminated as such under the terms of the Pooling Agreement
(an "Event of Servicing Termination"), or, if such Event of Servicing
Termination has so occurred and is continuing, specifying each such event known
to the officer, the nature and status thereof and the steps necessary to remedy
such event.
The Servicer is also required to furnish to the Trustee, and the
Trustee is required to furnish to the Certificateholders, copies of the Servicer
annual audited and quarterly unaudited financial statements.
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<PAGE>
The Pooling Agreement will provide that the Servicer, upon request
of the Trustee, will furnish to the Trustee such underlying data necessary for
administration of the Trust or enforcement actions as can be generated by the
Servicer's existing data processing system.
Certain Matters Relating to the Servicer
The Pooling Agreement will provide that the Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. The Servicer can only be removed pursuant to
an Event of Servicing Termination as discussed below.
Events of Servicing Termination
An Event of Servicing Termination under the Pooling Agreement will
occur (a) if the Servicer fails to make (i) any Servicing Advance within [two]
business days or (ii) any other payment or deposit required under the Pooling
Agreement within [three] business days; (b) if the Servicer fails to submit a
Servicer's Certificate, within [two] business days following notice of non-
receipt; (c) (i) if the Servicer fails to observe or perform in any material
respect any covenant or agreement in the Pooling Agreement or the Certificates
or (ii) if any representation or warranty of the Servicer in the Pooling
Agreement is incorrect, and such failure or breach materially affects the rights
of the Trustee or the Certificateholders and continues unremedied for [15] days
after the earlier to occur of (x) written notice to the Servicer by the Trustee
or to the Trustee and the Servicer by the Certificate Insurer or any
Certificateholders or (y) any Servicing Officer knows, or reasonably should have
known, of such failure or of such breach; (d) upon the filing of an involuntary
petition in bankruptcy or the decree or order of a court, agency or supervisory
authority having jurisdiction over the Servicer for the appointment of a
conservator, receiver, trustee in bankruptcy or liquidator in any bankruptcy,
insolvency or similar proceedings, and the continuance of any such petition,
decree or order undismissed or unstayed and in effect for a period of [60]
consecutive days; (e) upon the voluntary filing of such petition or assignment
for the benefit of creditors, the consent by the Servicer to any such
appointment or the admission in writing by the Servicer of its inability to pay
its debts as they become due; (f) in the event that the Servicer assigns or
attempts to assign its rights and duties under the Pooling Agreement except as
specifically permitted therein; (g) the Servicer shall fail to respond within
[60] days to judgments against it of [$250,000] or more or (h) the occurrence
and continuance of a default under recourse debt or other obligations of the
Servicer aggregating more than $____________. (Section 10.01.)
Rights Upon an Event of Servicing Termination
If an Event of Servicing Termination has occurred and is continuing,
either the Trustee, the Certificate Insurer or the Majority Holders (with the
consent of the Certificate Insurer) may terminate all (but not less than all) of
the Servicer's rights and obligations under the Pooling Agreement. Upon such
termination, the Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Pooling Agreement; provided, however, that
-------- -------
neither the Trustee nor any successor Servicer (i) will assume any obligation to
reacquire Receivables by reason of misrepresentations or breaches of warranties,
(ii) will be required to make any Servicer Advance if such Servicer Advance
would be prohibited by applicable law or (iii) will be liable for acts,
omissions or breaches of representations or warranties by the Servicer occurring
prior to transfer of the servicing functions. Notwithstanding such termination,
the Servicer shall be entitled to payment of certain amounts payable to it prior
to such termination for services rendered prior to such termination. The
Trustee, with the consent of the Certificate Insurer, also may appoint, or
petition a court of competent jurisdiction for the appointment of, a successor
Servicer in accordance with the procedures set forth in Sections _____ and _____
of the Pooling Agreement.
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Termination of the Trust
The Trust and the Pooling Agreement will terminate [123] days after
the payment to Certificateholders and holders of the Bank's Certificates of all
amounts required to be paid to them pursuant to the Pooling Agreement, reducing
the Certificate Principal Balance and the Transferor's Balance to zero;
provided, however, in the event of insolvency of the Certificate Insurer or a
- -------- -------
default by the Certificate Insurer under the Certificate Insurance Policy, the
Trust shall in no event continue to exist beyond [123] days after the Payment
Date next succeeding the Remittance Period during which the last Contract not
removed by the Servicer shall have been liquidated and any Residual Receipts
shall have been deposited in the Remittance Account or the Advance Payment
Account, as applicable. Upon termination of the Trust, any remaining Trust Fund
shall be distributed to the Bank.
Upon a liquidation of the Bank with the prior written consent of the
Certificate Insurer, the Trust shall terminate and the assets thereof shall be
sold as and to the extent necessary to fund the payment in cash to the
Certificateholders of the Certificate Principal Balance then outstanding, any
Overdue Principal and all Certificate Interest and Overdue Interest due thereon
and any Reimbursement Amounts due to the Certificate Insurer, and the remaining
assets of the Trust shall be distributed to the Bank. If the assets of the Trust
shall be insufficient to pay all amounts due the Certificateholders, the
Certificate Insurer shall be liable for such deficiency .
The respective representations, warranties and indemnities of the
Originators, the Servicer and the Bank will survive any termination of the
Trust and the Pooling Agreement.
Amendment
The Pooling Agreement may be amended by agreement of the Trustee,
the applicable Originators, the Bank and the Servicer at any time, without
consent of the Certificateholders, to cure any ambiguity, upon receipt of an
opinion of counsel to the Servicer that such amendment will not adversely affect
in any respect the interests of any Certificateholder.
The Pooling Agreement may also be amended from time to time by the
Trustee, the applicable Originators, the Bank, and the Servicer with the consent
of the Certificate Insurer and Holders of Certificates evidencing Percentage
Interests of not less than [___%] (such Holders, the "Majority Holders") for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Pooling Agreement or the Certificate Insurance Policy
or of modifying in any manner the rights of the Certificateholders; provided,
--------
however, that no such amendment shall (a) increase or reduce in any manner the
- -------
amount of, or accelerate or delay the timing of, collections of payments on the
Receivables or distributions which are required to be made on any Certificate
without the consent of the holder of such Certificate, (b) reduce the aforesaid
percentage of Certificateholders required to consent to any amendment, without
unanimous consent of the Certificateholders or (c) adversely affect in any
material respect the interests of any Certificateholder with respect to the
Certificate Insurance Policy.
The Trustee is required under the Pooling Agreement to furnish
Certificateholders, the Certificate Insurer and the Rating Agencies with written
notice of the substance of any such amendment to the Pooling Agreement promptly
upon execution of such amendment.
Duties and Immunities of the Trustee
The Trustee will make no representations as to the validity or
sufficiency of the Pooling Agreement, the Certificates (other than the
authentication thereof) or of any Receivable or related document and will not be
accountable for the use or application by the Originators or the Bank of any
funds paid to the Bank, in consideration of the sale of the Certificates to the
Investor. If no Event of Servicing Termination has occurred, then the Trustee
will be required to perform only those duties
S-45
<PAGE>
specifically required of it under the Pooling Agreement. However, upon receipt
of the various resolutions, certificates, statement, opinions, reports,
documents, orders or other instruments required to be furnished to it, the
Trustee will be required to examine them to determine whether they conform as to
form to the requirements of the Pooling Agreement.
No recourse is available based on any provision of the Pooling
Agreement, the Certificates or any Receivable or assignment thereof against
____________, in its individual capacity, and ____________ shall not have any
personal obligation, liability or duty whatsoever to any Certificateholder or
any other person with respect to any such claim and such claim shall be asserted
solely against the Trust assets or any indemnitor, except for such liability as
is determined to have resulted from the Trustee's own gross negligence or
willful misconduct.
The Servicer, to the extent provided in the Pooling Agreement, will
agree to pay to the Trustee (a) reasonable compensation for its services, (b)
reimbursement for its reasonable expenses and (c) indemnification for loss,
liability or expense incurred without gross negligence or bad faith on its part,
arising out of performance of its duties thereunder.
THE CERTIFICATE INSURANCE POLICY
AND THE CERTIFICATE INSURER
The following information has been furnished by the Certificate
Insurer for use in this Prospectus Supplement. Reference is made to Exhibit ___
for a specimen of the Certificate Insurance Policy.
The Certificate Insurer, in consideration of the payment of the
premium and subject to the terms of the Certificate Insurance Policy, thereby
unconditionally and irrevocably guarantees to any Certificateholder (as
described below) that an amount equal to the full and complete Insured Payments
(as described below) will be received by the Trustee, on behalf of the
Certificateholders, for distribution to each Certificateholder of each
Certificateholder's proportionate share of the Insured Payment. "Insured
Payment" means (A) with respect to any Payment Date, the Insufficiency Amount,
if any, remaining after making all required transfers to the Remittance Account
from the Reserve Account pursuant to the Pooling Agreement, and (B) the
reimbursement of any portion of any interest or principal payment previously
paid which is subsequently recovered from the Trustee or any Certificateholder
pursuant to a final nonappealable judgment by a court of competent jurisdiction
to the effect that such payment constitutes a voidable preference to such
Certificateholder or the Trustee within the meaning of any applicable bankruptcy
law. Insured Payments shall be made only at the time set forth in the
Certificate Insurance Policy and no accelerated Insured Payments shall be made
regardless of any acceleration of the Certificates, unless such acceleration is
at the sole option of the Certificate Insurer.
The Certificate Insurer will pay any amount payable under the
Certificate Insurance Policy pursuant to clause (A) above no later than [12:00
noon New York City] time on the later of the Payment Date on which the related
Insufficiency Amount is due or the Business Day following receipt on a Business
Day by ____________, as Fiscal Agent for the Certificate Insurer, or any
successor fiscal agent appointed by the Certificate Insurer (the "Fiscal Agent")
of a Notice of Nonpayment; provided that if such Notice of Nonpayment is
received after [12:00 noon New York City] time on such Business Day, it will be
deemed to be received on the following Business Day. If any such Notice of
Nonpayment received by the Fiscal Agent is not in proper form or is otherwise
insufficient for the purpose of making claim under the Certificate Insurance
Policy it shall be deemed not to have been received by the Fiscal Agent for
purposes of this paragraph, and the Certificate Insurer or the Fiscal Agent, as
the case may be, shall promptly so advise the Trustee and the Trustee may submit
an amended Notice of Nonpayment.
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The Certificate Insurer will pay any amount payable under the
Certificate Insurance Policy pursuant to clause (B) above voided as a preference
under any applicable bankruptcy law on the Business Day following receipt on a
Business Day by the Fiscal Agent of (i) a certified copy of the final order of
the court which exercised jurisdiction to the effect that the Trustee or the
Certificateholder is required to return principal or interest paid on the
Certificates because such payments were voidable preferences under applicable
bankruptcy law, (ii) an opinion of counsel satisfactory to the Certificate
Insurer that such order is final and not subject to appeal, (iii) an assignment
in such form as is reasonably required by the Certificate Insurer, irrevocably
assigning to the Certificate Insurer all rights and claims of the
Certificateholder relating to or arising under the Certificates against the
debtor which made such preference payment or otherwise with respect to such
preference payment and (iv) appropriate instruments to effect the appointment of
the Certificate Insurer as agent for such Certificateholder in any legal
proceeding related to payment of principal or interest distributed thereunder,
such instruments being in a form satisfactory to the Certificate Insurer,
provided that if such documents are received after [12:00 noon New York City]
time on such Business Day, they will be deemed to be received on the following
Business Day. Such payments shall be disbursed to the receiver or trustee in
bankruptcy named in the final order of the court exercising jurisdiction on
behalf of the Certificateholder and not to any Certificateholder directly unless
such Certificateholder has returned principal or interest paid on the
Certificates to such receiver or trustee in bankruptcy, in which case such
payment shall be disbursed to such Certificateholder.
Insured Payments due under the Certificate Insurance Policy unless
otherwise stated therein will be disbursed by the Fiscal Agent to the Trustee on
behalf of the Certificateholders by wire transfer of immediately available funds
in the amount of the Insured Payment less, in respect of Insured Payments
described in (B) of the definition thereof, any amount held by the Trustee for
the payment of such Insured Payment and legally available therefor. The
Certificate Insurer's obligations under the Certificate Insurance Policy shall
be discharged to the extent funds are transferred to the Trustee for
distribution to such Certificateholders as provided therein whether or not such
funds are properly applied by the Trustee.
The Fiscal Agent is the agent of the Certificate Insurer only and
the Fiscal Agent shall in no event be liable to Certificateholders for any acts
of the Fiscal Agent or any failure of the Certificate Insurer to deposit or
cause to be deposited, sufficient funds to make payments due under the
Certificate Insurance Policy.
Subject to the prior right of the Certificateholders to the receipt
of the Certificate Interest, the Overdue Interest, the Base Principal
Distribution Amount and the Overdue Principal on each Payment Date, the
Certificate Insurer shall be entitled to reimbursement of amounts previously
paid by the Certificate Insurer under the Certificate Insurance Policy plus
interest thereon.
As used in this section of the Prospectus Supplement, the following
terms shall have the following meanings:
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee under the Pooling Agreement is located are
authorized or obligated by law or executive order to close.
"Insufficiency Amount" is the amount by which the Required Payments
in respect of the Certificates for the applicable Payment Date exceeds the
Available Funds for distribution to Certificateholders on the Business Day
preceding such Payment Date.
"Notice of Nonpayment" means the telephonic or telegraphic notice,
promptly confirmed in writing by telecopy substantially in the form of Exhibit A
attached to the Certificate Insurance Policy, the original of which is
subsequently delivered by registered or certified mail, from the Trustee
specifying the Insufficiency Amount which shall be due and owing on the Payment
Date.
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<PAGE>
"Certificateholder" means any Certificateholder as defined in the
Pooling Agreement (other than the Trust Fund, the Bank, the Originators, the
Servicer or any affiliate thereof) who, on the applicable Payment Date, is
entitled under the terms of the Certificates to payment thereunder.
"Pooling Agreement" means the Pooling Agreement dated and effective
as of ____________, 199__, by and among the Servicer, the Bank, and the Trustee
without regard to any amendment or supplement thereto.
Capitalized terms used in the Certificate Insurance Policy and not
otherwise defined therein shall have the respective meanings set forth in the
Pooling Agreement as of the date of execution of the Certificate Insurance
Policy, without giving effect to any subsequent amendment or modification to the
Pooling Agreement.
Any notice under the Certificate Insurance Policy or service of
process on the Fiscal Agent of the Certificate Insurer may be made at the
address listed below for the Fiscal Agent of the Certificate Insurer or such
other address as the Certificate Insurer shall specify in writing to the
Trustee.
The notice address of the Fiscal Agent is ________________________,
Attention: ____________ or such other address as the Fiscal Agent shall specify
to the Trustee in writing.
The Certificate Insurance Policy is being issued under and pursuant
to, and shall be construed under, the laws of the State of New York, without
giving effect to the conflict of laws principles thereof.
The insurance provided by the Certificate Insurance Policy is not
covered by the Property/Casualty Insurance Security specified in Article 76 of
the New York Insurance Law.
The Certificate Insurance Policy is noncancellable for any reason.
The premium on the Certificate Insurance Policy is not refundable for any reason
including payment, or provision being made for payment, prior to maturity of the
Certificates.
The Certificate Insurer does not accept any responsibility for the
accuracy or completeness of this Prospectus Supplement or any information or
disclosure contained herein, or omitted herefrom, other than with respect to the
accuracy of the information regarding the Certificate Insurance Policy and
Certificate Insurer set forth under this heading "The Certificate Insurance
Policy and the Certificate Insurer".
PREPAYMENT AND YIELD CONSIDERATIONS
The Originators will transfer the Receivables to the Bank pursuant
to the Receivables Acquisition Agreement, dated as of ____________, 199__,
between the Originators and the Bank (the "Receivables Acquisition Agreement").
On each Payment Date during the Funding Period and, if no Required Amortization
has occurred, on the Funding Termination Date, to the extent Additional
Receivables satisfactory to the Certificate Insurer are available from the
Originators, the Original Pre-Funded Amount will be disbursed by the Trust to
the Bank in consideration of the conveyance of Additional Receivables which
include Contracts having an aggregate Discounted Contract Balance equal as
nearly as practicable to _____% of the Original Pre-Funded Amount. The amount,
if any, remaining on deposit in the Pre-Funding Account on the Funding
Distribution Date will be transferred to the Remittance Account for distribution
to the Certificateholders as a prepayment of principal. Thereafter, on each
Payment Date on and prior to the ____________ 199__ Payment Date, or, if a
Required Amortization Event occurs with respect to a Payment Date prior to the
____________ 199__ Payment Date, on such earlier Payment Date, all Contract
Principal received by the Trust on the Contracts with respect to the related
Remittance
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Period will be disbursed by the Trust to the Bank in consideration of the
conveyance of Additional Receivables having an aggregate Contract Principal
Balance on such Payment Date equal as nearly as practicable to the amount of
such Contract Principal. Beginning with the Initial Amortization Date, the
Certificateholders will generally be entitled to receive the Applicable
Percentage of all Discounted Contract (other than Prepayments) received by the
Trust during the prior calendar month together with, as a payment of
principal, the Applicable Percentage of all Excess Contract Interest received
by the Trust during the prior calendar month. On and after the Initial
Amortization Date (unless a Required Amortization Event has occurred), the
Bank will have the option on each Payment Date to transfer to the Trust
Additional Receivables having an aggregate Discounted Contract Balance not in
excess of the aggregate amount of Prepayments received by the Servicer during
the prior Remittance Period and to remove from the Trust cash in an amount not
in excess of the aggregate Discounted Contract Balance of such Additional
Receivables. This option of the Bank is limited to $____________ aggregate
Discounted Contract Balance of such Additional Receivables.
Following the Interest-Only Period, the rate of principal payments
on the Certificates will be directly related to the scheduled rate of
principal payments on the underlying Contracts. If purchased at a price of
other than par, the yield to maturity also will be affected by the rate of
principal payments. The principal payments on such Contracts may be in the
form of scheduled principal payments or liquidations due to default, casualty
and the like. Any such payments will result in distributions to
Certificateholders of amounts which would otherwise have been distributed over
the remaining term of the Contracts. In general, the rate of such payments
may be influenced by a number of other factors, including general economic
conditions. The rate of payment of principal may also be affected by any
removal of the Receivables from the Trust and the deposit of the Reconveyance
Amount into the Trust. See "Description of the Certificates --
Representations and Warranties" and "Description of the Certificates --
Optional Termination." In such event, following the Interest-Only Period the
Certificate Percentage of the Reconveyance Amount is required to be paid to
the Certificateholders as a payment of principal in the month following the
month of such removal.
The effective yield to Certificateholders will depend upon, among
other things, the price at which such Certificates are purchased and the
amount of and rate at which Principal, including both scheduled and
nonscheduled payments thereof, is paid to the Certificateholders. The after-
tax yield to Certificateholders may be affected by lags between the time
interest accrues to Certificateholders and the time the related interest
income is received by the Certificateholders.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences to the original purchasers of the Certificates of the purchase,
ownership and disposition of the Certificates. It does not purport to discuss
all federal income tax consequences that may be applicable to investment in
the Certificates or to particular categories of investors, some of which may
be subject to special rules. In particular, this discussion applies only to
institutional investors that purchase Certificates directly from the Bank and
hold the Certificates as capital assets.
The discussion that follows, and the opinion set forth below of
Dewey Ballantine, special tax counsel to Trust ("Tax Counsel"), are based on
the provisions of the Internal Revenue Code of 1986, as amended (the "Code")
and the Treasury regulations promulgated thereunder as in effect on the date
hereof and on existing judicial and administrative interpretations thereof.
These authorities are subject to change and to differing interpretations,
which could apply retroactively. The opinion of Tax Counsel is not binding on
the courts or the Internal Revenue Service (the "IRS"). Potential investors
should 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 Certificates.
S-49
<PAGE>
Characterization of the Certificates as Indebtedness
In the opinion of Tax Counsel, based on the application of existing
law to the facts as set forth in the Receivables Acquisition Agreement,
Pooling Agreement, Insurance Agreement and other relevant documents and such
investigations as it deemed appropriate, the Certificates will be treated as
indebtedness for federal income tax purposes.
In general, whether instruments such as the Certificates constitute
indebtedness for federal income tax purposes is a question of fact, the
resolution of which is based primarily upon the economic substance of the
instruments and the transaction pursuant to which they are issued rather than
the form of the transaction or the manner in which the instruments are
labeled. The IRS and the courts have set forth various factors to be taken
into account in determining whether or not an instrument constitutes
indebtedness for federal income tax purposes. On the basis of a review of
such factors as applied to the facts of the contemplated transaction, Tax
Counsel has concluded, as stated above, that the Certificates constitute
indebtedness for federal income tax purposes.
In Article ____ of the Pooling Agreement, the parties thereto and
all successors and assigns thereof, including, upon acquisition of the
Certificates, the Certificateholders, express their mutual intent that the
Certificates shall constitute indebtedness for all applicable tax purposes
and, further, covenant and agree to treat the Certificates as indebtedness for
all applicable tax purposes in all tax filings, reports and returns and
otherwise. Notwithstanding such agreement, because different criteria are
used to determine the non-tax accounting characterization of the issuance and
sale of the Certificates, the Originators and the Bank intend to treat the
transaction as a sale by the Bank of interests in the Receivables for
financial accounting purposes.
Although the economic substance of a transaction is generally of
primary importance in determining its proper treatment for federal income tax
purposes, nevertheless, a party to a transaction will be held to a high
standard of proof in establishing that the form of the transaction, if at
variance with the economic substance of the transaction, should not be treated
as controlling. In some instances, courts have indicated that a taxpayer
should be bound by the particular form it has chosen for a transaction, even
if the substance of the transaction does not accord with its form. Tax
Counsel is nonetheless of the opinion that the Certificates will be treated as
indebtedness for federal income tax purposes because (i) in many respects the
form of the transaction as reflected in the operative provisions of the
documents accords with the characterization of the Certificates as
indebtedness, (ii) the parties have stated unambiguously their intention to
treat the Certificates as indebtedness for tax purposes and (iii) the
characteristics of the Certificates strongly indicate that in economic
substance the Certificates are a form of indebtedness.
Possible Classification of the Transaction as a Partnership or Association
Taxable as a Corporation
Notwithstanding Tax Counsel's opinion, potential investors should
recognize that there is some uncertainty as to the correct characterization of
the Certificates. It is possible that the IRS could assert that, for federal
income tax purposes, the transaction contemplated by this Prospectus
Supplement constitutes the sale of a direct or indirect interest in [the
Vehicles and] the Receivables to the Certificateholders and that the proper
classification of the legal relationship between the Servicer, the Bank and
the Certificateholders resulting from this transaction is that of a
partnership or an association taxable as a corporation. Since Tax Counsel is
of the opinion that the Certificates will be treated as indebtedness in the
hands of the Certificateholders for federal income tax purposes, the Servicer
and the Bank will not attempt to comply with the federal income tax reporting
requirements applicable to either partnerships or corporations.
If the transaction were treated as creating a partnership between
the Certificateholders, the Servicer and the Bank, the partnership itself
would not be subject to federal income tax (unless
S-50
<PAGE>
characterized as a publicly traded partnership taxable as a corporation);
rather, the Servicer, the Bank and each Certificateholder would be taxed
individually on their respective distributive shares of the partnership's
income, gain, loss, deductions and credits. The amount, timing and
characterization of items of income and deductions for a Certificateholder
would differ if the Certificates were held to constitute partnership
interests, rather than indebtedness.
If it were determined that this transaction created an entity
classified as a corporation (including a publicly traded partnership taxable
as a corporation), the Trust would be subject to federal income tax at
corporate income tax rates on the income it derives from the Receivables,
which would reduce the amounts available for distribution to the
Certificateholders. Cash distributions to the Certificateholders generally
would be treated as dividends for tax purposes to the extent of such
corporation's earnings and profits.
Taxation of Interest Income of Certificateholders
Assuming, in accordance with the opinion of Tax Counsel, that the
Certificates will constitute indebtedness for federal income tax purposes,
interest thereon will be includable as ordinary income when received or
accrued by the Certificateholders in accordance with their respective methods
of tax accounting.
Sales of Certificates
Upon the sale or exchange of a Certificate, the Certificateholder
will realize a gain or loss equal to the difference between the amount
realized on the sale and the adjusted basis of such Certificate.
Backup Withholding with Respect to Certificates
Payments of interest and principal, together with payments of
proceeds from the sale of Certificates, may be subject to the "backup
withholding tax" under Section 3406 of the Code at a rate of 31% if recipients
of such payments fail to furnish to the payor certain information, including
their taxpayer identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from a payment to
a recipient would be allowed as a credit against such recipient's federal
income tax. Furthermore, certain penalties may be imposed by the IRS on a
recipient of payments that is required to supply information but that does not
do so in the proper manner.
Foreign Investors in Certificates
A Certificateholder that is not a "United States person" may be
subject to United States federal withholding tax in respect of distributions
on a Certificate. Whether withholding of tax would be required, and, if so,
the rate at which such withholding would be imposed, would depend upon a
number of factors, including the characterization of the Certificates and the
Trust for federal income tax purposes, and, under current law, the withholding
rate could be as high as 35 percent. For these purposes, "United States
person" means a citizen or resident of the United States, a corporation,
partnership organized in or under the laws of the United States or any
political subdivision thereof or an estate or trust the income of which from
sources without the United States is includable in gross income for United
States federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States.
THE FEDERAL INCOME TAX DISCUSSIONS SET FORTH ABOVE MAY NOT BE
APPLICABLE TO ANY INDIVIDUAL INVESTOR DEPENDING UPON A 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 THE CERTIFICATES, INCLUDING THE TAX CONSEQUENCES
S-51
<PAGE>
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL OR OTHER TAX LAWS.
STATE, LOCAL AND OTHER TAX CONSIDERATIONS
Investors should consult their own tax advisors regarding whether
the purchase of the Certificates, either alone or in conjunction with an
investor's other activities, may subject an investor to any state or local
taxes based on an assertion that the investor is either "doing business" in,
or deriving income from a source located in, any state or local jurisdiction.
Additionally, potential investors should consider the state, local and other
tax consequences of purchasing, owning or disposing of a Certificate. State
and local tax laws may differ substantially from the corresponding federal tax
law, and the foregoing discussion does not purport to describe any aspect of
the tax laws of any state or other jurisdiction. Accordingly, potential
investors should consult their own tax advisors with regard to such matters.
ERISA CONSIDERATIONS
The Certificates may be purchased by an employee benefit plan or an
individual retirement account (a "Plan") subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the
Code. A fiduciary of a Plan must determine that the purchase of 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. Employee benefit plans which are governmental plans (as
defined in Section 3(32) of ERISA) and certain church plans (as defined in
Section 3(33) of ERISA) are not subject to the fiduciary responsibility or
prohibited transaction provisions of ERISA or the Code. For additional
information regarding treatment of the Certificates under ERISA, see "ERISA
Considerations" in the Prospectus.
If the Certificates constitute equity interests, there can be no
assurance that any of the exceptions set forth in the Regulations will apply
to the purchase of Certificates offered hereby. Under the terms of the
Regulations, if the Trust were deemed to hold Plan assets by reason of a
Plan's investment in Certificates, such Plan assets would include an undivided
interest in the Receivables, and any other assets held by the Trust. In such
an event, the Originators, the Bank, the Trust, the Trustee and other persons
providing services with respect to the Receivables, may be subject to the
fiduciary responsibility provisions of Title One of ERISA and be subject to
the prohibited transaction provisions of Section 4975 of the Code with respect
to transactions involving the Receivables unless such transactions are subject
to a statutory or administrative exemption. Additionally, if the Trust were
deemed to hold Plan assets, each Certificateholder may be subject to the
fiduciary responsibility provisions of Title One of ERISA with respect to its
right to consent or withhold consent to amendments to the Trust Agreement.
In addition, certain affiliates of the Originators, the Bank, the
Trust and the Trustee may be considered to be parties in interest or
fiduciaries with respect to many Plans. An investment by such a Plan in
Certificates may be a prohibited transaction under ERISA and the Code unless
such investment is subject to a statutory or administrative exemption.
Any Plan fiduciary that proposes to cause a Plan to purchase
Certificates should consider whether such purchase would be appropriate under
the general fiduciary standards of prudence and diversification, taking into
account the overall investment policy of the Plan and its existing portfolio
and should consult with its counsel with respect to the potential
applicability of ERISA and the Code.
S-52
<PAGE>
RATINGS
It is a condition to the issuance of the Certificates that they be
rated "_____" by ____________ and "_____" by ____________. A security rating
is not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time. The ratings of ____________ and
____________ assigned to Certificates addresses the likelihood of the receipt
by Certificateholders of all distributions to which such Certificateholders
are entitled. The ratings do not address the timely or ultimate payment of
any withholding tax imposed. The ratings assigned to Certificates do not
represent any assessment of the likelihood that principal Prepayments might
differ from those originally anticipated or address the possibility that
Certificateholders might suffer a lower than anticipated yield.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the Bank has agreed to cause the
Trust to sell to [each of] the underwriter(s) named below (the
"Underwriter(s)"), and each of the Underwriter(s) has severally, and not
jointly, agreed to purchase, the principal amount of Certificates set forth
opposite its name below.
<TABLE>
<CAPTION>
Principal
Amount of
Certificates
------------
Underwriter(s)
--------------
<S> <C>
$
----------------........ -------
----------------........ -------
-------
TOTAL......... $
=======
</TABLE>
In the Underwriting Agreement, the Underwriter(s) have agreed,
subject to the terms and conditions therein, to purchase all the Certificates
offered hereby if any of such Certificates are purchased. The Bank has been
advised by the Underwriter(s) that they propose initially to offer the
Certificates to the public at the respective prices set forth herein, and to
certain dealers at such prices less a concession not in excess of _____% per
Certificate. The Underwriter(s) may allow and such dealers may reallow a
concession not in excess of 0.__% per Certificate to certain other dealers.
After the initial public offering, such prices and such concessions may be
changed.
The Underwriting Agreement provides that the Bank and the
Originators will indemnify the Underwriter(s) against certain civil
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriter(s) may be required to make in respect thereof. The
Commission is of the opinion that indemnification for securities law
violations is contrary to the public policy expressed in the federal
securities laws, and consequently, that such indemnification provisions are
unenforceable.
The Trustee (on behalf of the Trust) may, from time to time, invest
the funds in the Trust Accounts in Eligible Investments acquired from the
Underwriter(s).
S-53
<PAGE>
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus,
certain legal matters relating to the issuance of the Certificates, as well as
other matters, will be passed upon for the Trust and the Bank by Shaw,
Pittman, Potts & Trowbridge, Washington, D.C. and for the Underwriter(s) by
Dewey Ballantine, New York, New York.
S-54
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Act.......................................................................21
Actual Payment............................................................35
Additional Pooling Agreement..............................................31
Additional Receivable Transfer Agreement..................................20
Additional Receivables.....................................................2
Adequately capitalized....................................................21
Adjusted Certificate Rate.................................................35
Administrative Amount.....................................................35
Advance Payment...........................................................35
Advance Payments..........................................................33
Applicable Percentage.....................................................35
APR.......................................................................17
APRs......................................................................10
Available Funds........................................................2, 35
Base Interest Amount......................................................36
Base Principal Distribution Amount........................................36
Business Day..............................................................47
Calculation Date..........................................................36
Capitalized Interest Account...............................................9
Capitalized Interest Rate.................................................36
Capitalized Interest Requirement..........................................36
Certificate Factor........................................................41
Certificate Insurance Policy...............................................1
Certificate Insurance Premium Rate........................................37
Certificate Insurer.....................................................1, 4
Certificate Interest......................................................37
Certificate Percentage....................................................37
Certificate Principal Balance.............................................37
Certificate Rate..........................................................37
Certificateholder.........................................................48
Certificateholders........................................................ 1
Certificates.............................................................. 1
CFC....................................................................... 6
CFC Receivables........................................................... 6
Claim Date................................................................37
Closing Date..............................................................30
Code......................................................................49
Commission.................................................................3
Contract Interest..........................................................2
Contract Principal.....................................................2, 37
Contract Rate.............................................................37
Contracts..................................................................1
Contribution Agreement....................................................48
Cut-Off Date...........................................................4, 37
Defaulted Contract........................................................37
Delinquency Amounts.......................................................11
Delinquent Contract...................................................11, 37
Depositor..................................................................4
Depositor's Certificate Principal Balance.................................36
</TABLE>
S-55
<PAGE>
<TABLE>
Page
----
<S> <C>
Depositor's Certificates..................................................36
Determination Date........................................................ 9
Discounted Contract Balance...............................................37
Distributions on Certificates.............................................33
Eligible Investments......................................................33
ERISA.................................................................13, 52
Event of Servicing Termination............................................43
Excess Contract Interest...............................................2, 38
Excess Principal Amount...................................................38
Exchange Act...............................................................3
FDIC......................................................................20
FDICIA....................................................................21
FIRREA....................................................................21
Fiscal Agent..............................................................46
Funding Distribution Date.................................................38
Funding Termination Date..................................................38
Initial Amortization Date..................................................2
Initial Capitalized Interest Amount........................................9
Initial Certificate Principal Amount......................................38
Initial Contract Principal Balance.........................................4
Initial Receivables.......................................................30
Initial Unpaid Amount.....................................................38
Initial Yield Maintenance Amount..........................................10
Insufficiency Amount..................................................38, 47
Insurance Agreement........................................................9
Insurance Policies........................................................29
Insured Payment...........................................................46
Interest-Only Period......................................................38
Investment Earnings.......................................................11
IRS.......................................................................49
Issuer.....................................................................4
Majority Holders..........................................................45
Monthly Report............................................................41
Net Receivables Rate......................................................15
Notice Date...............................................................34
Notice of Nonpayment......................................................47
Obligor....................................................................6
Original Pre-Funded Amount.................................................7
Originator.................................................................4
OTS.......................................................................20
Overdue Interest..........................................................38
Overdue Principal.........................................................38
Overfunded Interest Amount................................................38
Payment Date..............................................................39
Plan..................................................................13, 52
Pool Factor...............................................................41
Pooling Agreement......................................................1, 48
Pre-Funding Account........................................................7
Predecessor Receivable....................................................19
Prepayment................................................................39
Prepayment Amount.........................................................39
</TABLE>
S-56
<PAGE>
<TABLE>
Page
----
<S> <C>
Prospectus................................................................. 3
Rating Agencies............................................................14
Receivables.................................................................1
Reconveyance Amount........................................................39
Record Date................................................................30
Reimbursement Amount.......................................................39
Remittance Account..........................................................7
Remittance Period..........................................................39
Required Amortization Even.................................................39
Required Payments...................................................4, 10, 40
Required Rate..............................................................10
Reserve Account.............................................................9
Reserve Account Advance....................................................40
Residual Receipts..........................................................40
Rule of 78s................................................................16
SAIF.......................................................................20
Scheduled Contract Principal...............................................40
Scheduled Payments.........................................................40
Servicer....................................................................1
Servicer Advance.......................................................11, 33
Servicer Fee...............................................................40
Servicer Fee Rate..........................................................40
Servicer's Certificate.....................................................34
Servicing Charges..........................................................11
Servicing Fee..............................................................10
Servicing Fee Rate.........................................................10
Specified Reserve Account Requirement......................................40
Subordinated Amount........................................................40
Substitute Receivable......................................................19
Supplementary Report.......................................................43
Tax Counsel................................................................49
Transferor's Balance........................................................5
Trust....................................................................1, 4
Trustee..................................................................1, 4
Undercapitalized...........................................................21
Underwriter(s).............................................................53
Underwriting Agreement.....................................................53
United States person.......................................................51
Vehicles....................................................................1
Vendor Agreement Rights....................................................29
Well capitalized...........................................................21
Yield Maintenance Amount...................................................10
[Monthly] Servicer Report..................................................28
</TABLE>
S-57
<PAGE>
Exhibit 99.4
SUBJECT TO COMPLETION DATED __________, 1997
[Exhibit 99.4 Form of Prospectus Supplement. This form of Prospectus Supplement
-----------------------------
is for illustrative purposes only. A Prospectus Supplement in definitive form
reflecting the terms of each Series of Certificates will be filed with the
Commission under the Securities Act of 1933, as amended, pursuant to Rule 424(b)
promulgated thereunder.]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ___________, 1997)
- --------------------------------------------------------------------------------
[CHEVY CHASE AUTO RECEIVABLES MASTER TRUST
199__-__]
$_______________
_____% Class [A] Auto Receivables Backed Certificates, Series 199__-__
CHEVY CHASE BANK, F.S.B.
Bank
________________
Servicer
- --------------------------------------------------------------------------------
The _____% Class [A] Auto Receivables Backed Certificates, Series
199__-__ (the "[Class A] Certificates") offered hereby represent the right to
receive repayment of the Initial Certificate Principal Amount ($____________) of
the [Class A] Certificates and monthly interest at a rate of _____% per annum on
the unpaid portion of such principal amount. The rights to receive such
payments are based solely upon the interests represented by the [Class A]
Certificates in the Chevy Chase Auto Receivables Master Trust 199__-__ (the
"Trust") formed pursuant to a Pooling Agreement (the "Pooling Agreement"), dated
as of ____________, 199__, among ______________________, as originator (each an
"Originator"), ________, as servicer of the Receivables (the "Servicer") Chevy
Chase Bank, F.S.B. (the "Bank") and ____________, as trustee (the "Trustee").
The assets of the Trust will consist of any combination of retail installment
sales or finance contracts between manufacturers, dealers or certain other
originators and retail purchasers secured by new and used automobiles, light
duty trucks and vans financed thereby or participation interests therein,
together with all monies received relating thereto (the "Contracts"), the
underlying new and used automobiles, light duty trucks and vans (the "Vehicles,"
together with the Contracts, the "Receivables") and the proceeds thereof
received by the Trust from the Bank on or prior to the date of the issuance of
the [Class A] Certificates. The Trustee will also have access to the Reserve
Account to be established for the benefit of the holders of the [Class A]
Certificates (the "[Class A] Certificateholders") and the Certificate Insurer.
Concurrently with issuance of the [Class A] Certificates, the Trust will issue
from the same Series another Class of Certificates (the "[Class B]
Certificates"; collectively with the [Class A] Certificates, the "Series 199__-1
Certificates") described herein, which initially will, to the extent provided
herein, be retained by the Bank and will be subordinated to the [Class A]
Certificates in the right to payments of principal and interest. Only the
[Class A] Certificates are offered hereby. In addition, from time to time, the
Bank may offer other Series of Certificates that evidence undivided interests in
the Trust which may have terms significantly different from the [Class A]
Certificates.
Capitalized terms used herein are defined terms having specific
meanings. An "Index of Defined Terms" is set forth as page ___ hereof, which
indicates the page on which such defined terms are defined.
THE RIGHTS OF THE HOLDERS OF THE CLASS A CERTIFICATES OFFERED HEREBY
ARE NOT SUBORDINATED, BUT ARE OF AN EQUAL PRIORITY WITH CERTAIN OUTSTANDING
SERIES. SEE "SERIES PROVISIONS" HEREIN.
[FORM OF CREDIT ENHANCEMENT]
------------------
THE [CLASS A] CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND
DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE ORIGINATORS, THE BANK OR ANY
OF THEIR RESPECTIVE AFFILIATES. NEITHER THE [CLASS A] CERTIFICATES NOR THE
UNDERLYING RECEIVABLES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY THE ORIGINATOR OR THE BANK. SEE ALSO "RISK FACTORS."
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 REPRESENTATIONS TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK FACTORS"
AT PAGE ___ HEREIN AND AT PAGE ___ IN THE PROSPECTUS.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------
Price to Underwriting Proceeds to the
Public(1) Discount(2) Bank/(1)(3)/
- -----------------------------==============================================
<S> <C> <C> <C>
Per [Class A] Certificate.... % % %
Total ....................... $ $ $
- ---------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from ____________, 199__.
(2) The Bank has agreed to indemnify the Underwriter(s) against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting estimated expenses of $____________ payable by the Bank.
[The [Class A] Certificates are offered subject to prior sale, when,
as, and if accepted by the Underwriter(s) and subject to the approval of certain
legal matters by Dewey Ballantine, counsel for the Underwriter(s).]
[Name(s) of the Underwriter(s)]
S-2
<PAGE>
The Contracts are contracts for the sale of the Vehicles, entitling the
originator thereunder to payments of principal and interest (hereinafter,
"Contract Principal" and "Contract Interest," respectively).
Interest will accrue on the [Class A] Certificates at the rate of ___% per
annum (the "Certificate Rate"). Interest and Principal will be distributed on
_________, 19__, and on the __ day of each month thereafter (or, of any such ___
day is not a business day, the next succeeding business day) (each a
"Distribution Date"). Principal is scheduled to be distributed as described
herein under "Series Provisions--Principal," and its distribution may be
accelerated under certain circumstances described under "Series Provisions--Pay
Out Events" herein. If not previously paid, a principal payment equal to the
then outstanding Invested Amount of the [Class A] Certificates will be due on
the __________________ Distribution Date (the "Final Payment Date").
The Trust will have the benefit of funds on deposit in a reserve account
(the "Reserve Account") which will be funded by an initial deposit of
$10,000,000. Amounts available to be withdrawn from the Reserve Account will be
applied as described herein under "Summary of Series Terms--Reserve Account" and
"Series Provisions--Reserve Account."
The [Class A] Certificates initially will be represented by certificates
which will be registered in the name of Cede & Co., the nominee of The
Depository Trust Company. [Class A] Certificateholders will be represented by
book entries on the records of The Depository Trust Company and participating
members thereof. Definitive Certificates will be available to [Class A]
Certificateholders only under the limited circumstances described under
"Description of the Securities--Definitive Notes" in the Prospectus.
There currently is no secondary market for the [Class A] Certificates, and
there is no assurance that one will develop or, if one does develop, that it
will continue until the [Class A] Certificates are paid in full.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE [CLASS A] CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE [CLASS A] CERTIFICATES MAY
NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER(S) MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE [CLASS
A] CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO CERTIFICATEHOLDERS
Periodic and annual unaudited reports containing information
concerning the Receivables will be prepared by the Servicer and sent on behalf
of the Trust to the registered holders of the [Class A] Certificates. See
"Description of the Securities--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 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 thereunder and as are otherwise agreed to by the Commission.
Copies of such periodic reports may be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.w., Washington, D.C. 20549, at
prescribed rates.
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
Issuer: ................... Chevy Chase Auto Receivables Trust 199__-__ (the
"Trust" or the "Issuer").
Bank: ..................... Chevy Chase Bank, F.S.B. (the "Bank"), a federally
chartered stock savings bank. The Bank will
acquire the Receivables from the Originators and
will simultaneously transfer the Receivables
(including from time to time the Additional
Receivables) to the Trust. The Bank's principal
executive offices are located at 8401 Connecticut
Avenue, Chevy Chase, Maryland 20815, and its
telephone number is (301) 986-7000.
Servicer .................. Chevy Chase Bank, F.S.B., a federally chartered
stock savings bank (the "Servicer"). The
principal executive offices of the Servicer are
located at _______________________, and its
telephone number is __________________.
Originators ............... _________________, a _____________ (the
"________"). The principal executive offices of
the _________ are located at
_______________________, and its telephone number
is __________________.
Trustee: .................. ________________________ (the "Trustee"), a
____________ association. The corporate trust
offices of the Trustee are located at
______________________ and its telephone number is
(___) ______.
Cut-Off Date: ............. ____________, 199__.
Closing Date: ............. ____________, 199__.
[Class A] Certificates
Initial [Class A] Invested
Amount .................. $_____________________
Certificate Rate ......... _____% per annum.
Distribution Date ........ The ____ day of each month (or, if any such ____
day is not a business day, the next succeeding
business day), commencing __________, 19__.
S-4
<PAGE>
Record Date .............. The business day preceding the related
Distribution Date (or, if Definitive Certificates
are issued, the last day of the month preceding
the month in which the related Distribution Date
occurs).
Principal Commencement
Date .................... The __________________, 199__ Distribution Date.
Final Payment Date ....... The _________________________ Distribution Date.
[Class A] Controlled
Amortization Amount ..... For each Distribution Date with respect to the
Scheduled Amortization Period, the amount shown
for such date on the "Schedule of [Class A]
Controlled Amortization Amounts." See "Series
Provisions--Applications of Collections--Payments
of Principal" in this Prospectus Supplement.
Scheduled Amortization
Period .................. The Scheduled Amortization Period with respect to
the Series 199__-_ Certificates will commence on
the Series Cut-Off Date and will end at the close
of business on _____________, 199__, unless
terminated earlier upon the occurrence of a Pay
Out Event. Available Principal Collections will be
distributed to the [Class A] Certificateholders up
to the [Class A] Controlled Distribution Amount on
each Distribution Date with respect to the
Scheduled Amortization Period.
Full Amortization
Period .................. At the close of business on the last day of the
Scheduled Amortization Period, the Full
Amortization Period with respect to the Series
199__-_ Certificates will commence. The [Class A]
Controlled Amortization Amount will not apply to
any distributions to [Class A] Certificateholders
on any Distribution Date with respect to the Full
Amortization Period. Principal will be
distributed to [Class A] Certificateholders on
each Distribution Date with respect to the Full
Amortization Period in an amount equal to the
lesser of (i) all Available Principal Collections
with respect to the related Collection Period,
(ii) all Principal Payments allocated to the
[Class A] Certificateholders' Interest and (iii)
the remaining Invested Amount of [Class A]
Certificates on such Distribution Date. The Full
Amortization Period will continue until the
Invested Amount of the Series 199__-_ Certificates
is paid in full or the Full Amortization Pool
Balance is zero, whichever first occurs.
Upon the commencement of the Full Amortization
Period, the Trustee will include all the
Receivables then included in the Trust's Floating
Receivable Pool in the Full Amortization Pool for
the Series 199__-_
S-5
<PAGE>
Certificates. Following commencement of the Full
Amortization Period, the Series 199__-_
Certificateholders will have an interest only in
the Full Amortization Pool and will not have any
interest in Receivables subsequently transferred
to the Trust, in the Floating Receivable Pool or
in Full Amortization Pools subsequently segregated
with respect to other Series.
The Full Amortization Pool, and Contract Payments
and the Defaulted Amount with respect to Contracts
therein, will be allocated to the Series 199__-_
Certificateholders' Interest on the basis of the
Fixed Allocation Percentage for the Series 199__-_
Certificates. The Full Amortization Pool and such
Contract Payments and Defaulted Amount will be
further allocated to the [Class A] Certificates on
the basis of its Floating Allocation Percentage.
The portion of the Contract Payments and the
Defaulted Amount with respect to Contracts in the
Full Amortization Pool not allocated to the Series
199__-_ Certificateholders' Interest (the
"Participation Interest") initially will be
included in the Floating Receivable Pool and
subsequently included in the next Full
Amortization Pool created for another Series, if
any.
[Class B] Certificates ... Concurrently with the issuance of the [Class A]
Certificates, the Trust will issue another Class
of Certificates of the same Series, the [Class B]
Certificates, which initially will, to the extent
provided herein, be retained by the Bank. The
[Class A] Certificates and the [Class B]
Certificates collectively comprise the first
Series to be issued by the Trust. Only the [Class
A] Certificates are offered hereby.
Payments of interest and principal on the [Class
B] Certificates will be subordinated to payments
of interest and certain other amounts due with
respect to the [Class A] Certificates as described
under "Series Provisions--Application of
Collections--Subordination."
The Receivables ........... The Receivables consist of simple interest retail
installment sales and finance contracts between
dealers and retail purchasers and installment
loans which are secured by the new and used
automobiles, light duty trucks and vans financed
thereby. Each Obligor's obligation under its
Receivable is a full recourse obligation. The
"Obligor" is the obligor under each Receivable
including any guarantor. The Receivables contain
provisions which unconditionally obligate the
Obligor to make all payments under the related
Receivable. Approximately _____% of the
Receivables
S-6
<PAGE>
(by aggregate principal balance of the Receivables
as of the Cut-Off Date) were purchased or
originated by the Bank and the other _____% of the
Receivables were purchased or originated by the
Bank's wholly-owned subsidiary, Consumer Finance
Corporation ("CFC"). The Receivables purchased or
originated by CFC are referred to herein as the
"CFC Receivables."
[Reserve Account ......... The Reserve Account will be established in the
name of the Trustee for the benefit of the [Class
A] Certificateholders. The Reserve Account will be
funded on the Series Issuance Date from the
proceeds of the [Class A] Certificates in the
amount of $________________ (the "Initial Reserve
Amount"). On each Distribution Date, the Available
Reserve Amount will be applied to fund the
Required Amount, if any, with respect to such
Distribution Date.
On each Distribution Date, Available Finance
Charge Collections and Available Principal
Collections allocated and available for that
purpose (as described under "Series Provisions--
Application of Collections--Payments of Interest,
Fees and Other Items" and "--Payments of
Principal) will be applied to increase the amount
on deposit in the Reserve Account (to the extent
such amount is less than the Required Reserve
Amount). In addition, if on any Distribution Date
the amount on deposit in the Reserve Account
exceeds the Required Reserve Amount, such excess
will be withdrawn and paid to the Bank (the
"Reserve Bank"). See "Series Provisions--Reserve
Account."]
Yield Maintenance
Account ................. Certain of the Receivables have annual contract
rates of interest ("Receivables Rates") which are
less than the sum of the Certificate Rate, the
Servicing Fee Rate and the rates at which the
Certificate Insurer's premium and the Trustee's
fee are calculated (the sum of such rates, the
"Required Rate"). The Yield Maintenance Account
is a segregated trust account which will not be
part of the Trust into which the Bank will make a
single deposit on the Closing Date in an amount
(the "Initial Yield Maintenance Amount") necessary
to fund any shortfall on interest collections
which results from Receivables having Receivable
Rates of less than the Required Rate. After the
Closing Date no additional amounts will be
deposited in the Yield Maintenance Account. The
Initial Yield Maintenance Amount has been
calculated using a zero prepayment rate on the
Receivables. On each Determination Date, the
Servicer is permitted to recalculate the amount
required to be on
S-7
<PAGE>
deposit in the Yield Maintenance Account (the
"Yield Maintenance Amount"), which may decline as
Receivables having less than the Required Rate
prepay or are otherwise removed from the Trust.
Any amounts in excess of the Yield Maintenance
Amount will be released to the Bank. Amounts may
be withdrawn from the Yield Maintenance Account
only with respect to the interest shortfalls
described above. Any excess funds in the Yield
Maintenance Account will be released to the Bank.
Series Servicing Fee
Percentage .............. For so long as the Bank is the Servicer, ___% per
annum or, in the event a successor Servicer has
been appointed, a percentage determined by the
Trustee which shall not exceed ___%. See
"Description of the Trust Agreements--Servicing
Compensation" in the Prospectus.
Registration ............. The [Class A] Certificates initially will be
represented by certificates registered in the name
of Cede, as nominee of DTC, and no purchaser of
[Class A] Certificates will be entitled to receive
a definitive certificate except under certain
limited circumstances. [Class A]
Certificateholders may elect to hold their [Class
A] Certificates through DTC (in the United States)
or CEDEL or Euroclear (in Europe). See
"Description of the Securities--Book-Entry
Registration" and "--Definitive Notes" in the
Prospectus.
Optional Repurchase ...... On any Distribution Date occurring on or after the
day on which the Series 199__-1 Invested Amount is
reduced to 5% or less of the Series 199__-1
Initial Invested Amount, the Bank will have the
option to repurchase all, but not less than all,
the Series 199__-1 Certificateholders' Interest.
The purchase price will be equal to the sum of the
Series 199__-1 Invested Amount plus accrued and
unpaid interest on the Series 199__-1 Certificates
through the day preceding such Distribution Date.
See "Description of the Trust Agreements--
Termination" in the Prospectus.
Certain Legal Aspects of
the Receivables ......... Because of the administrative burden and expense
that would be entailed in doing so, the
certificates of title for the Vehicles will not be
amended to identify the Trustee as the secured
party. If there are any Vehicles as to which the
Bank failed to obtain a perfected security
interest, its security interest would be
subordinate to, among others, subsequent
purchasers of the Vehicles and holders of
perfected security interests. Pursuant to the
Pooling Agreement, the Bank will assign its
security
S-8
<PAGE>
interests in the Vehicles to the Trustee. Under
the laws of Virginia, Georgia and North Carolina,
such an assignment of security interests may not
be, and under the laws of Maryland will not be,
sufficient to convey to the Trustee perfected
security interests in the Vehicles. The Bank will
covenant in the Pooling Agreement to repurchase
any Receivable if, on the Closing Date, a valid,
subsisting and enforceable first priority security
interest in the related Vehicle, which will have
been assigned to the Trust, has not been perfected
(or is not in the process of being perfected) in
favor of the applicable Originator. The Bank will
also covenant in the Pooling Agreement to
repurchase any Receivable if, after the Closing
Date, a valid, subsisting and enforceable first
priority security interest in the name of the
applicable Originator is not maintained on behalf
of the Trust in the related Vehicle.
ERISA Eligibility ........ [Class A] Certificates may be eligible for
purchase by Benefit Plans. See "ERISA
Considerations" herein.
Ratings .................. It is a condition to the issuance of the [Class A]
Certificates that they be rated in the highest
rating category by at least one nationally
recognized rating agency.
[Class B] Certificates
Initial [Class B]
Invested Amount ......... $____________________.
[Class B]
Certificateholder ....... The [Class B] Certificates initially may be
retained by the Bank. The Bank must retain ____%
of the [Class B] Certificates, which are
nontransferable, but, subject to certain
conditions and limitations, the Bank may sell up
to _____% of the [Class B] Certificates on or
after the Series Issuance Date. In connection
with such a transfer, the Trustee and the Bank may
agree to amend the Supplement and the Pooling
Agreement with respect to the [Class B]
Certificates, including changing the Series
Enhancement provided for Series 199__-_
Certificates to add Series Enhancement for the
[Class B] Certificates, so long as no Rating
Effect or Pay Out Event results from such
amendment. The [Class B] Certificates are not
offered hereby.
[Class B] Certificate
Rate .................... _____% per annum.
[Class B] Controlled
Amortization Amount ..... For each Distribution Date during the Scheduled
Amortization Period, the amount provided in the
Series 199__-_ Supplement.
S-9
<PAGE>
Subordination of
Distributions to
[Class B]
Certificateholders ...... Collections of Principal Payments and
collections of Finance Charge Payments otherwise
allocable to the [Class B] Certificateholders will
be subordinated to the payment of interest and
certain other amounts due with respect to the
[Class A] Certificates. No principal or interest
will be payable on the [Class B] Certificates with
respect to a Distribution Date until all interest
payments, the Investor Default Amount and
aggregate unreimbursed Investor Charge-Offs have
been covered with respect to the [Class A]
Certificates with respect to such Distribution
Date and the Available Reserve Amount equals the
Required Reserve Amount on such Distribution Date.
The [Class B] Certificates will receive
distributions of interest on each Distribution
Date equal to the lesser of Available [Class B]
Finance Charge Collections and interest accrued
and unpaid on the [Class B] Invested Amount at the
[Class B] Certificate Rate. The [Class B]
Certificates will receive distributions of
principal on each Distribution Date during the
Scheduled Amortization Period equal to the lesser
of the Available [Class B] Principal Collections
and the [Class B] Controlled Amortization Amount.
During the Full Amortization Period, the [Class B]
Certificates will receive distributions of
principal on each Distribution Date equal to
Available [Class B] Principal Collections.
Payments of principal to the [Class B]
Certificates will reduce the [Class B] Invested
Amount available for subordination. See "Series
Provisions--Application of Collections--
Subordination" herein.
Risk Factors ............. For a discussion of certain factors that should be
considered by prospective investors in the
Certificates, see "Risk Factors" herein and in the
Prospectus.
Certain Legal Matters ... Certain legal matters relating to the validity of
the issuance of the Certificates will be passed
upon for the Issuer by Shaw, Pittman, Potts &
Trowbridge, Washington, D.C. and for the
Underwriter by Dewey Ballantine, New York, NY.
S-10
<PAGE>
RISK FACTORS
In addition to those factors described under "Risk Factors" in the
Prospectus, prospective Certificateholders should consider, among other things,
the following factors in connection with the purchase of the Certificates:
Risk of Losses on Investment Associated with Limited Obligations of the
Trust. Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the
Certificates. The Certificateholders will not receive any distributions with
respect to a Payment Date until the full amount of interest on and principal of
the Certificates on such Payment Date has been deposited in the Certificate
Distribution Account. The Trust does not have, nor is it permitted or expected
to have, any significant assets or sources of funds other than the Receivables
and the Trust Accounts. The Certificates represent solely obligations of, or
interests in, the Trust and the Certificates will not be insured or guaranteed
by the Bank, any Originator, the Servicer, the Trustee or any other person or
entity. Consequently, 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. Amounts to be deposited in the Reserve Account
are limited in amount, and the amount required to be on deposit in the Reserve
Account will be reduced as the Pool Balance is reduced. In addition, funds in
the Reserve Account will be available on each Payment Date to cover shortfalls
in distributions of interest and principal on the Certificates prior to the
application thereof to cover shortfalls on the Certificates. If the Reserve
Account is exhausted, the Trust will depend solely on current payments on the
Receivables to make payments on the Certificates.
Risk of Limited Liquidity and Lower Market Price Associated with a
Reduction or Withdrawal of Ratings of the Securities. It is a condition to the
issuance of the Certificates and the Certificates that the Certificates be rated
in the [_____] rating category or its equivalent, by at least two nationally
recognized rating agencies (the "Rating Agencies"). A rating is not a
recommendation to purchase, hold or sell Certificates, inasmuch as such rating
does not comment as to market price or suitability for a particular investor.
The rating of the Certificates addresses the likelihood of the timely payment of
interest on and the ultimate repayment of principal of the Certificates pursuant
to their terms. There is 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
rating of the Certificates is based primarily on the creditworthiness of the
Receivables, the subordination provided by the Certificates and the availability
of funds in the Reserve Account. The rating of the Certificates is based
primarily on the creditworthiness of the Receivables and the availability of
funds in the Reserve Account. The ratings of the Certificates are also based on
the rating of the Credit Enhancer. Upon a Credit Enhancer default, the rating
on the Certificates may be lowered or withdrawn entirely. In the event that any
rating initially assigned to the Certificates were subsequently lowered or
withdrawn for any reason, including by reason of a downgrading of the Credit
Enhancer's claims-paying ability, no person or entity will be obligated to
provide any additional credit enhancement with respect to the Certificates. Any
reduction or withdrawal of a rating will have an adverse effect on the liquidity
and market price of the Certificates. See "Ratings."
[Risk of Reduced Rate of Return Associated with Relationship Between Base
Rate and LIBOR. Allocations of payments on the variable rate Receivables to
principal and interest depend upon the applicable Base Rate. Interest on the
Certificates accrues at a rate generally based upon LIBOR. These two rates can
and will vary with respect to each other. Historically, they have increased or
decreased roughly in tandem and, during the last ten years, LIBOR always has
remained below the Base Rate. However, no assurance can be given that these
historical trends will continue. There is a risk that if LIBOR were to more
above the Base Rate, the spread used to pay interest to the Certificateholders
would disappear and the rate of return to investors would be reduced.]
[The variable rate Receivables bear interest at the Base Rate plus a Base
Rate Additive ranging from _____% to _____%. The Certificate Rate is based upon
LIBOR. If, in respect of any Payment Date,
S-11
<PAGE>
there does not exist a positive spread between the weighted average of the
Receivables Rate less the Servicing Fee Rate (such difference between the
Receivables Rate and the Servicing Fee Rate being the "Net Receivables Rate")
for the Collection Period preceding such Payment Date, on the one hand, and the
Certificate Rate for such Payment Date (calculated before giving effect to this
sentence), on the other hand, then the Certificate Rate for such Payment Date
shall not exceed the Net Receivables Rate.]
[Risk of Reduced Rate of Return Associated with Yield Considerations. The
Certificateholders will bear the risk associated with the possible narrowing of
the spread between the Certificate Rate and the Net Receivables Rate. If this
spread disappears (i.e., if the Certificate Rate exceeds or equals the Net
Receivables Rate), the interest payable on the Certificates for the related
Payment Date will not exceed such Net Receivables Rate. A substantial change in
LIBOR at a time when the Net Receivables Rate does not experience a similar
change could result in limiting the Certificate Rate and consequently could
reduce the rate of return to investors as described above.]
Risk of Lower Yield Associated with Prepayment Considerations. If
purchased at other than par, the yield to maturity on the Certificates will be
affected by the rate of the payment of principal of the Contracts. If the
actual rate of payments on the Contracts is slower than the rate anticipated by
an investor who purchases the Certificates at a discount, the actual yield to
such investor will be lower than such investor's anticipated yield. If the
actual rate of payments on the Contracts is faster than the rate anticipated by
an investor who purchases the Certificates at a premium, the actual yield to
such investor will be lower than such investor's anticipated yield.
[All of the Contracts are fixed-rate contracts. The rate of prepayments
with respect to conventional fixed contracts has fluctuated significantly in
recent years. In general, if prevailing interest rates fall significantly below
the interest rates on fixed rate contracts, such contracts are likely to be
subject to higher prepayment rates than if prevailing rates remain at or above
the interest rate on such contracts. However, the monthly payment on contracts
similar to the Contracts is often smaller than the monthly payment on other
types of consumer debt, for example, a typical mortgage loan. Consequently, a
decrease in the interest rate payable as a result of a refinancing would result
in a relatively small reduction in the amount of the contracts monthly payment,
as a result of the relatively small loan balance. Conversely, if prevailing
interest rates rise appreciably above the interest rates on fixed rate
contracts, such contracts are likely to experience a lower prepayment rate than
if prevailing rates remain at or below the interest rates on such contracts. As
of the Cut-off Date, ____% of the aggregate principal balance of the Contracts
had prepayment penalties.]
[All of the Contracts are adjustable rate contracts. As is the case with
conventional fixed rate contracts, adjustable rate contracts may be subject to a
greater rate of principal prepayments in a declining interest rate environment.
For example, if prevailing interest rates fall significantly, adjustable rate
contracts could be subject to higher prepayment rates than if prevailing
interest rates remain constant because the availability of fixed-rate contracts
at competitive interest rates may encourage obligors to refinance their
adjustable rate contracts to "lock in" a lower fixed interest rate. However, no
assurance can be given as to the level of prepayments that the Contracts will
experience. As of the Cut-off Date, ____% of the aggregate principal balance of
the Contracts had prepayment penalties.]
THE RECEIVABLES
Contracts
[Description of collateral is transaction dependent -- an example of disclosure
language is set forth below.]
[All of the Contracts were purchased by the Bank from the Originators in
the ordinary course of business and the Contracts constitute substantially all
of the automobile, light duty truck, and van retail installment sale and finance
contracts included in the Originators' portfolio meeting the selection criteria
S-12
<PAGE>
described herein. Such selection criteria included that: (i) each Contract is
secured by a new or used automobile, light duty truck or van; (ii) each Contract
was originated in the United States; (iii) each Contract provides for level
monthly payments that fully amortize the amount financed over its original term
except that the payment in the first or last month in the life of the Contract
may be minimally different from the level payment, and a minimal number of the
Contracts provide for monthly payments for a period of time not exceeding one
year after origination in an amount less than such level payment, provided that
as of the Cutoff Date the monthly payment currently due under each such Contract
is equal to such level payment; (iv) each Contract was originated on or prior to
_______, 199_; (v) each Contract has an original term of __ to __ months and, as
of the Cutoff Date, had a remaining term to maturity of not less than three
months nor more than __ month; (vi) each Contract provides for the payment of a
finance charge at an APR ranging from __% to __%; (vii) each Contract shall not
have a Scheduled Payment that is more than 30 days past due as of the Cutoff
Date; (viii) no Contract shall be due, to the best knowledge of the related
Originator, from any Obligor who is presently the subject of a bankruptcy
proceeding or is bankrupt or insolvent; (ix) no Vehicle has been repossessed
without reinstatement as of the Cutoff Date; and (x) as of the Cutoff Date,
physical damage insurance relating to each Vehicle is not being force-placed by
the Servicer.
Certain information with respect to the Receivables expected to be sold by
the Originators to the Bank pursuant to the Receivables Acquisition Agreement
and in turn transferred by the Bank to the Trust pursuant to the Pooling
Agreement is set forth below. The description of the Receivables presented in
this Prospectus Supplement is based upon the pool of Receivables as it is
expected to be constituted on the Cutoff Date. While information as of the
Closing Date for the Receivables that actually will be sold to the Trust may
differ somewhat from the information presented herein, the Bank does not expect
that the characteristics of the Receivables that are sold to the Trust will vary
materially from the information presented in this Prospectus Supplement
concerning the Receivables.
As of the Cutoff Date, approximately __%, __% and approximately __% of the
Aggregate Discounted Contract Balance are expected to represent Contracts
secured by automobiles, light duty trucks and vans, respectively. Based on the
Aggregate Discounted Contract Balance, approximately __% and approximately __%
of the Contracts are expected to represent financing of new vehicles and used
vehicles, respectively, and no more than __% of the Contracts are expected to be
due from employees of the Originator or any of its respective affiliates. As of
the Cutoff Date, the average Principal Balance of Contracts secured by
automobiles, light duty trucks and vans is expected to be approximately $_____,
approximately $_____ and approximately $_____, respectively. The majority of
the Vehicles are expected to be foreign and domestic automobiles, light duty
trucks and vans. Except in the case of any breach of representations and
warranties by the related Originator, it is expected that none of the Contracts
provide for recourse to the Originator who originated the related Contract.
Each Contract provides for fixed level monthly payments which will amortize
the full amount of the Contract over its term. The Contracts provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method (the "Rule of 78s"). Each Contract provides for the
payment by the Obligor of a specified total amount of payments, payable in
monthly installments on the related due date, which total represents the
principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such Contract.
The rate at which such amount of finance charges is earned and, correspondingly,
the amount of each fixed monthly payment allocated to reduction of the
outstanding principal balance of the related Contract are calculated in
accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Contract and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, all payments received by the Servicer on or in respect of the
Contract will be allocated pursuant to the Pooling Agreement on an actuarial
basis.
If an Obligor elects to prepay a Contract in full, it is entitled to a
rebate of the portion of the outstanding balance then due and payable
attributable to unearned finance charges, calculated in
S-13
<PAGE>
accordance with the Rule of 78s. The amount of a rebate under a Contract
calculated in this manner will always be less than had such rebate been
calculated on an actuarial basis. Distributions to Certificateholders will not
be affected by Rule of 78s rebates under the Contract because pursuant to the
Pooling Agreement such distributions will be determined using the actuarial
method.]
The expected composition, distribution by APR and geographical distribution
of the Contracts are as set forth in the following tables.
Expected Composition of the Contracts
<TABLE>
<CAPTION>
<S> <C>
Aggregate Discounted Contract Balance.................... $
Number of Contracts...................................... __
Average Original Principal Balance....................... $
Range of Original Principal Balances................... $__ to $ __
Weighted Average APR(1).................................. __%
Range of APRs.......................................... __% to__%
Weighted Average Original Maturity(1).................... _ months
Range of Original Maturities........................... _ months to _ months
Weighted Average Remaining Maturity(1)................... _ months
Range of Remaining Maturities.......................... _ months to _ months
</TABLE>
(1) Weighted by Aggregate Discounted Contract Balance as of the Cutoff Date.
S-14
<PAGE>
Expected Distribution of the Contracts by APR
<TABLE>
<CAPTION>
Percentage of Aggregate Percentage of
Aggregate Discounted Aggregate
Number of Number Contract Discounted
Range of APRs Contracts of Contracts Balance Contract Balance
- ------------- --------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
% to %.... % $ %
% to %..
% to %..
% to %..
% to %..
% to %..
% to %..
% to %..
% to %..
% to %..
% to %..
% to %..
% to %..
Total... % $ %
===== ===== ===== =====
</TABLE>
Expected Distribution of the Contracts by State
<TABLE>
<CAPTION>
Percentage
of Percentage of
Aggregate Aggregate Aggregate
Number of Number Discounted Discounted
Contracts of Contracts Contract Contract
State(1) --------- ------------- Balance Balance
- -------- ---------- -------------
<S> <C> <C> <C> <C>
% $ %
Total... % $ %
==== ==== ==== ====
</TABLE>
(1) Based on the addresses of the Obligors.
S-15
<PAGE>
Substitution
Pursuant to the Receivables Acquisition Agreement, the Servicer will have
the right (but not the obligation) at any time to substitute one or more
Eligible Receivables (each a "Substitute Receivable") [and the Vehicles subject
thereto (or a perfected security interest therein)] for a Receivable
("Predecessor Receivable") [and the Vehicles subject thereto (or a perfected
security interest therein)] if:
(i) the Predecessor Receivable is then in default and, as of the most
recent Cut-Off Date, has been in default for at least ________ [(___)]
consecutive days or a bankruptcy petition has been filed by or against the
Obligor;
[(ii) the Vehicles subject to the Substitute Receivable or
Receivables has a current estimated fair market value and a projected
residual value, respectively, equal to or greater than the current fair
market value and projected residual value of the Vehicles subject to the
Predecessor Receivable;] and
(iii) the Substitute Receivable or Receivables require the obligor
or obligors thereunder to make Contract Payments during each month ending
on or prior to the final payment date of the Certificate in an amount which
is at least as great as the Contract Payment required under the Predecessor
Receivable during each such month.
[provided, however, that the Aggregate Discounted Contract Balance of all
Contracts substituted shall not exceed [10%] of the Aggregate Discounted
Contract Balance of the Initial Receivables and the Additional Receivables.]
[Upon repossession and disposition of any Vehicles subject to a Defaulted
Contract, any deficiency remaining will be pursued to the extent deemed
practicable by the Servicer. [The Servicer on behalf of the Issuer is directed
to maximize the Net Residual Value of the Vehicles relating to any Defaulted
Contract, and, in such regard, the Servicer may sell such Vehicles at the best
available price, refurbish such Vehicles and re-lease such Vehicles to third
parties, or take any other commercially reasonable steps to maximize such
Vehicles's Net Residual Value. Liquidation proceeds with respect to any such
Defaulted Contract, including any future payments received with respect to such
Defaulted Contracts, shall be paid to the Collection Account. If the Servicer
reasonably believes that the Net Residual Value of any Vehicles is zero or de
minimis, it will dispose of such Vehicles in accordance with its standard
procedures.]
The original counterpart of each Contract constituting chattel paper and
the Contract Files will be held by _________________, as Trustee on behalf of
the Certificateholders. The Trustee will be required to indicate that the
Contracts have been transferred by the related Originator to the Trust.
[The Additional Receivables
Subject to the conditions set forth below, in consideration of the
Trustee's delivery on the related Additional Receivable Transfer Date upon the
order of the Bank of all or a portion of the balance of funds in the Pre-Funding
Account, the applicable Originator shall on any Additional Receivable Transfer
Date sell, transfer, assign, set over and otherwise convey without recourse, to
the Bank, all right, title and interest of the Originators in and to (i) each
Additional Receivable listed on the schedule delivered by the Originators to the
Bank and the Trustee (including all Contract Payments due thereunder); and [(ii)
the related Vehicles; provided, however, that the related Originator reserves
and retains all of its right, title and interest in and to all Contract Payments
collected and interest accruing on each such Additional Receivable prior to the
related Additional Receivable Transfer Date.]
The amount released from the Pre-Funding Account shall be ___________
percent (___%) of the Discounted Contract Balances of the Additional Receivables
so transferred.
S-16
<PAGE>
The Originators shall transfer to the Issuer the Additional Receivables and
the other property and rights related thereto only upon the satisfaction of each
of the following conditions on or prior to the related Additional Receivable
Transfer Date:
(i) the Originators shall have provided the Trustee with a timely
Addition Notice and shall have provided any information reasonably
requested by the Bank or the Trustee with respect to the Additional
Receivables;
(ii) the Originators shall have delivered to the Bank and the Trustee
a duly executed written assignment (including an acceptance by the Trustee)
(the "Additional Receivable Transfer Agreement"), which shall include
schedules listing the Additional Receivables and any other exhibits listed
thereon;
(iii) the Originators shall have deposited in the Remittance Account
all collections in respect of the Additional Receivables received on or
after the related Additional Receivable Transfer Date;
(iv) as of each Additional Receivable Transfer Date, each Originator
was not insolvent, will not be made insolvent by such transfer nor is it
aware of any pending insolvency;
(v) such addition will not result in a material adverse tax
consequence to the Bank or the Certificateholders;
(vi) each Originator shall have delivered to the Trustee an Officers'
Certificate confirming the satisfaction of each condition precedent
specified in this paragraph and in the related Additional Receivable
Transfer Agreement;
(vii) the obligation of the Bank to purchase an Additional
Receivable on any Additional Receivable Transfer Date is subject to the
requirement that such Additional Receivable comply in all material respects
with the representations and warranties made by the related Originator on
the Initial Receivables in the Pooling Agreement.]
THE BANK
General
The Bank is a federally chartered stock savings bank. The Bank's home
office is located at 7926 Jones Branch Dr. McClean VA, 22101, and its executive
offices are located at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815, and
the Bank's telephone number is (301) 986-7000. The Bank is subject to
comprehensive regulation, examination and supervision by the Office of Thrift
Supervision (the "OTS") within the Department of the Treasury and the Federal
Deposit Insurance Corporation (the "FDIC"). Deposits at the Bank are fully
insured up to $100,000 per insured depositor by the Savings Association
Insurance Fund ("SAIF"), which is administered by the FDIC.
Based on unaudited results, at September 30, 1996, the Bank had
consolidated assets of approximately $6.2 billion, deposits of approximately
$4.2 billion, and stockholders' equity of approximately $344.7 million. As a
savings bank chartered under the laws of the United States, the Bank is subject
to certain minimum regulatory capital requirements imposed under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
("FIRREA"). At December 31, 1996, the Bank's tangible, core, tier 1 risk-based
and total risk-based regulatory capital ratios were 6.58%, 6.58%, 7.05% and
14.06%, respectively. As of such date, the Bank's capital ratios exceeded the
requirements under FIRREA as well as the standards established for "well
capitalized" institutions under the prompt corrective action regulations
established pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") (both as applicable on June 30, 1996 and on a fully
phased-in basis). Based on unaudited
S-17
<PAGE>
results, at September 30, 1996, the Bank's tangible, core, tier 1 risk-based and
total risk-based regulatory capital ratios decreased to 5.21%, 5.21%, 5.80% and
10.14%, respectively. As of such date, the Bank's capital ratios exceeded the
requirements under FIRREA as well as the standards established for "adequately
capitalized" institutions under the prompt corrective action regulations
established pursuant to FDICIA. The OTS has the discretion to treat
"well-capitalized" institution as an "adequately capitalized" institution for
purposes of the prompt corrective action regulations if, after notice and an
opportunity for a hearing, the OTS determines that the institution (i) is being
operated in an unsafe or unsound condition or (ii) has received and has not
corrected a less than satisfactory examination rating for asset quality,
management, earnings or liquidity.
On December 3, 1996, the Bank sold $100 million of its 9 1/4% Subordinated
Debentures due 2008 (the "1996 Debentures"), the principal amount of which is
includable in the Bank's supplementary capital. In addition, on December 3,
1996, a new real estate investment trust subsidiary of the Bank (the "REIT
Subsidiary") sold $150 million of its 10 3/8% Noncumulative Exchangeable
Preferred Stock, Series A (the "REIT Preferred Stock"), which is eligible for
inclusion as core capital of the Bank in an amount up to 25% of the Bank's total
core capital.
Economic Development and Regulatory Paperwork Reduction Act of 1996 (the "Act")
Congress is considering legislation in various forms that would regulate
the Merger of the Bank Insurance Fund ("BIF") and the SAIF into a single Deposit
Insurance Fund on January 1, 1999 but only if the thrift charter is eliminated
by that date. The Treasury Department is required to submit a comprehensive
study on thrift charter issues by March 31, 1997. In the absence of appropriate
"grandfather" provisions such legislation could have a material adverse effect
on the Bank and its parent company, the B.F. Saul Real Estate Investment Trust
(the "Trust") because among other things, the Trust engages in activities that
are not permissible to bank holding companies and the regulatory capital and
accounting treatment for banks and thrifts differs in certain respects. The Bank
cannot determine whether, or in what form, such legislation will eventually be
enacted and there can be no assurances that any such legislation that is enacted
will contain adequate grandfather rights for the Bank and the Trust.
Because of the continued improvement in the financial condition of the
Bank, on March 29, 1996, the OTS released the Bank from certain restrictions and
requirements contained in an agreement with the OTS, which had been amended in
October 1993. In connection with the termination of the written agreement at
the request of the OTS, the Board of Directors of the Bank has adopted a
resolution that addresses certain issues previously addressed by the written
agreement. The resolution also provides that the Bank will present a plan
annually to the OTS detailing anticipated consumer loan securitization activity.
The other Lender is CFC, a wholly-owned subsidiary of the Bank, formed
in December 1994 for the purpose of providing automobile financing to applicants
who may have experienced certain adverse credit events.
Delinquency and Default Experience
There can be no assurance that the levels of delinquency and loss
experience reflected in the tables below, are indicative of the performance of
the Receivables included in the Trust.
S-18
<PAGE>
CHEVY CHASE BANK, F.S.B.
Delinquency Experience
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------------------------------------------
1992 1993 1994 1995
------------------------ ------------------------ ------------------------ -------------------
Dollar Percentage Dollar Percentage Dollar Percentage Dollar Percentage
Amount of Total Amount of Total Amount of Total Amount of Total
(000) Receivables (000) Receivables (000) Receivables (000) Receivables
------- ----------- -------- ----------- -------- ----------- -------- -----------
<S>
Receivables
Outstanding(1)............ $84,533 $166,307 $299,096 $431,351
Delinquencies:(2)(3)
30-59 Days................. $ 1,469 1.74% $ 1,210 0.73% $ 4,074 1.36% $ 2,491 0.58%
60-89 Days................. 237 0.28% 223 0.13% 729 0.24% 742 0.17%
90 days or more............ 328 0.39% 226 0.14% 1,209 0.40% 1,667 0.39%
------- ---- -------- ---- -------- ---- -------- ----
Total Delinquencies........ $ 2,034 2.41% $ 1,659 1.00% $ 6,012 2.00% $ 4,900 1.14%
======= ==== ======== ==== ======== ==== ======== ====
- -------------------------
<CAPTION>
1996
------------------------
Dollar Percentage
Amount of Total
(000) Receivables
------- -----------
<S> <C> <C>
Receivables
Outstanding(1)............ $
Delinquencies:(2)(3)
30-59 Days................. $ %
60-89 Days.................
90 days or more............ %
Total Delinquencies........ $
=
- -------------------------
</TABLE>
(1) Total Bank Portfolio is the net remaining principal balance.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Includes repossessions in inventory.
CHEVY CHASE BANK, F.S.B.
Loss Experience
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------------------------------------------
1992 1993 1994 1995
----------------------- ------------------------ ------------------------ ------------------------
Percentage Percentage Percentage Percentage
Dollar of Average Dollar of Average Dollar of Average Dollar of Average
Amount Receivables Amount Receivables Amount Receivables Amount Receivables
(000) Outstanding (000) Outstanding (000) Outstanding (000) Outstanding
------- ----------- -------- ----------- -------- ----------- -------- -----------
Average Receivables
Outstanding(1)........... $90,271 $116,475 $245,295 $363,845
Gross Charge-offs(2)....... $ 811 0.90% $ 627 0.54% $ 766 0.31% $ 2,120 0.58%
Recoveries................. 103 0.12% 115 0.10% 219 0.09% 275 0.07%
------- ---- -------- ---- -------- ---- -------- ----
Net Losses................. $ 708 0.78% $ 512 0.44% $ 547 0.22% $ 1,845 0.51%
======= ==== ======== ==== ======== ==== ======== ====
- -------------------------
<CAPTION>
1996
--------------------
Percentage
Dollar of Average
Amount Receivables
(000) Outstanding
------ -----------
<S> <C> <C>
Average Receivables
Outstanding(1)........... $ %
Gross Charge-offs(2)....... $ %
Recoveries................. %
---
Net Losses................. $ %
====
- -------------------------
</TABLE>
(1) Equals the arithmetic average of the month-end balances.
(2) Gross Charge-offs represent the excess of the outstanding loan balance over
net liquidation proceeds, where net liquidation proceeds are the excess of
liquidation proceeds over the sum of repossession, liquidation and other
related expenses.
(3) Annualized.
(4) Includes current post-disposition recoveries on receivables previously
charged off.
S-19
<PAGE>
CONSUMER FINANCE CORPORATION
Delinquency Experience
<TABLE>
<CAPTION>
As of As of
December 31, 1995 December 31, 1996
------------------------ ---------------------------
Dollar Percentage Dollar Percentage of
Amount of Total Amount Total
(000) Receivables (000) Receivables
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Receivables Outstanding/(1)/.. $49,375 $
Delinquencies/(2)(3)/:
30-59 Days.................... $ 2,528 5.12% $ %
60-89 Days.................... $ 609 1.23% $ %
90 Days or more............... $ 871 1.76% $ %
------- ----- - -
Total Delinquencies........... $ 4,008 8.11% $ %
======= ===== = =
</TABLE>
- ------------------------------
/(1)/ Receivables Outstanding consists of all amounts due from obligors as
posted to the related accounts.
/(2)/ The period of delinquency is based on the number of days payments are
contractually past due.
/(3)/ Includes repossessions in inventory.
CONSUMER FINANCE CORPORATION
Loss Experience
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1995 December 31, 1996
------------------------- ----------------------
Dollar Percentage Dollar Percentage
Amount of Total Amount of Total
(000) Receivables (000) Receivables
------- ------------- ------ -------------
<S> <C> <C> <C> <C>
Average Receivables $21,383 $
Outstanding/(1)/............
Gross Charge-offs/(2)/: $ 144 0.67% $ %/(3)/
Recoveries/(4)/.............. $ 0 0.00% $ %/(3)/
Net Losses................... $ 144 0.67% $ %/(3)/
</TABLE>
- -----------------------------
/(1)/ Equals the arithmetic average of the month-end balances.
/(2)/ Gross Charge-offs represent the excess of the outstanding loan balance
over net liquidation proceeds, where net liquidation proceeds are the
excess of liquidation proceeds over the sum of repossession, liquidation
and other related expenses.
/(3)/ Annualized.
/(4)/ Includes current post-disposition recoveries on receivables previously
charged off.
S-20
<PAGE>
Litigation
The Bank is not involved in any legal proceedings, and is not aware of any
pending or threatened legal proceedings, that would have a material adverse
effect upon its financial condition or results of operations.
THE ORIGINATOR
General
[The Originator] is a company engaged in the business of originating and
acquiring retail installment sale contract financing to retail customers of
automotive dealers. [The Originator] provides full-service financing, primarily
through installment sales contracts, to retail purchasers of new and used
automobiles and light duty trucks through dealer programs.
[The Originator] has financed over $___ million of vehicles, representing
over _________ vehicles. [The Originator] currently services over ___ customers
through its direct servicing activities and an additional __________ customers
in connection with its subsidiaries activities. As of _________________, [the
Originator] had __ employees.
Delinquency and Default Experience
S-21
<PAGE>
Litigation
[The Originator] is not involved in any legal proceedings, and is not
aware of any pending or threatened legal proceedings that would have a material
adverse effect upon its financial condition or results of operations.
S-22
<PAGE>
THE SERVICER
General
The Contracts will be serviced by the Servicer, pursuant to the Pooling
Agreement.
The Pooling Agreement requires that servicing of the Contracts by the
Servicer shall be carried out in the same manner in which it services contracts
and vehicles held for its own account and consistent with customary practices of
servicers in the retail automobile industry, but in performing its duties
hereunder, the Servicer will act on behalf and for the benefit of the Bank, the
Trustee and the holders of the Certificates, subject at all times to the
provisions of the Pooling Agreement, without regard to any relationship which
the Servicer or any Affiliate of the Servicer may otherwise have with a Obligor.
Except as permitted by the terms of any Contract following a default thereunder,
the Servicer shall not take any action which would result in the interference
with the Obligor's right to quiet enjoyment of the Vehicles subject to the
Contract during the term thereof. The Servicer may designate CFC to act as sub-
servicer with respect to the CFC Receivables, although such designation will not
relieve the Servicer from its servicing obligations with respect to such CFC
Receivables. CFC's collection procedures differ in certain respects from those
employed by the Bank. On an Obligor's fifth day of delinquency, CFC sends a late
payment notice and begins the collection process, while the Bank initiates these
steps on the obligor's tenth day of delinquency. CFC's collections department is
currently staffed to have approximately one collector for every 1,400 loans
outstanding, compared to the Bank's ratio of approximately one collector for
every 4,000 loans outstanding. In general, both the Bank and CFC initiate the
repossession process by the 45th day of delinquency.
Following each Determination Date, the Servicer shall advance and remit to
the Trustee, in such manner as will ensure that the Trustee will have
immediately available funds on account thereof by 11:00 a.m. New York time on
the [______] Business Day prior to the next succeeding Payment Date, a Servicer
Advance equal to the Contract Payment due during the preceding Contract Payment
Period with respect to each Contract (other than a Contract which became a
Defaulted Contract on or prior to such Determination Date) under which the
Obligor has not made such payment by such Determination Date; provided, however,
that the Servicer will not be obligated to make a Servicer Advance with respect
to any Contract if the Servicer, in its good faith judgment, believes that such
Servicer Advance would be a Nonrecoverable Advance. If the Servicer determines
that any Contract Payment it has made, or is contemplating making, would be a
Nonrecoverable Advance, the Servicer shall deliver to the Trustee an Officers'
Certificate stating the basis for such determination.
Servicing Compensation and Payment of Expenses
For its servicing of the Receivables, the Servicer will be entitled to
receive a Servicing Fee equal to the product of (i) one-twelfth, (ii) ___% and
(iii) the Aggregate Discounted Contract Balance of all Contracts as of the
preceding Determination Date, payable out of the Remittance Account, plus
Servicing Charges and Investment Earnings.
All costs of servicing each Contract in the manner required by the Pooling
Agreement shall be borne by the Servicer, but the Originator shall be entitled
to retain, out of any amounts actually recovered with respect to any Defaulted
Contract [or the Vehicles subject thereto,] the Servicer's actual out-of-pocket
expenses reasonably incurred with respect to such Defaulted Contract [or
Vehicles]. In addition, the Servicer shall be entitled to receive on each
Payment Date any unreimbursed Nonrecoverable Advances or Servicer Advances with
respect to any Defaulted Contract and the Servicing Fee.
The servicing compensation will compensate the Servicer for customary
contract servicing activities to be performed for the Sponsor and the Servicer,
as well as additional administrative services to be performed by the Servicer.
S-23
<PAGE>
Evidence as to Compliance
The Pooling Agreement requires that with each set of financial statements
delivered pursuant to the Pooling Agreement, the Servicer will deliver an
Officers' Certificate stating (i) that the officers signing such Certificate
have reviewed the relevant terms of the Pooling Agreement and have made, or
caused to be made under such officers' supervision, a review of the activities
of the Servicer during the period covered by the statements then being
furnished, (ii) that the review has not disclosed the existence of any Servicer
Event of Default or, if a Servicer Event of Default exists, describing its
nature and what action the Servicer has taken and is taking with respect
thereto, and (iii) that on the basis of such review the officers signing such
certificate are of the opinion that during such period the Servicer has serviced
the Receivables in compliance with the required procedures except as described
in such certificate.
The Servicer shall cause a firm of independent certified public accountants
(who may also render other services to the Servicer) to deliver to the Trustee,
with a copy to the Rating Agency and each holder of the Certificates, within
[90] days following the end of each fiscal year of the Servicer, beginning with
the Servicer's fiscal year ending ____________, 199__, a written statement to
the effect that such firm has examined in accordance with generally accepted
practices samples of the accounts, records, and computer systems of the Servicer
for the fiscal year ended on the previous _______ relating to the Receivables
(which accounts, records, and computer systems shall be described in one or more
schedules to such statement), that such firm has compared the information
contained in the Servicer's reports delivered in the relevant period with
information contained in the accounts, records, and computer systems for such
period, and that, on the basis of such examination and comparison, such firm is
of the opinion that the Servicer has, during the relevant period, serviced the
Receivables in compliance with such servicing procedures, manuals, and guides
and in the same manner as it services comparable contracts for itself or others,
that such accounts, records, and computer systems have been maintained, and that
such certificates, accounts, records, and computer systems have been properly
prepared and maintained in all material respects, except in each case for (a)
such exceptions as such firm shall believe to be immaterial and (b) such other
exceptions as shall be set forth in such statement.
Other Servicing Procedures
At least [___] days prior to each Payment Date, the Servicer shall deliver
a report in writing (the "[Monthly] Servicer Report") to each holder of the
Certificates, the Trustee and the Rating Agency.
If an Obligor has [____] Contract Payments which are due and unpaid as of
any Calculation Date, such Obligor's Contract shall become a Defaulted Contract.
Where no satisfactory arrangements can be made for collection of delinquent
payments within [___] days of a Contract becoming a Defaulted Contract, the
Servicer shall foreclose or otherwise liquidate any such Defaulted Contract
[(together with the related Vehicles)] within [60] days of such Contract
becoming a Defaulted Contract. In connection with any foreclosure or other
liquidation, the Servicer will take such action as is appropriate, consistent
with the Servicer's administration of contracts in its own portfolio, including
such action as may be necessary to cause, or attempt to cause, the Obligor
thereunder to cure such default (if the same may be cured) or to terminate or
attempt to terminate such Contract and to recover, or attempt to recover, all
damages resulting from such default.
[The Servicer will use its best efforts (i) to sell or re-lease any
Vehicles subject to a Defaulted Contract in a timely manner and upon reasonable
terms and conditions so as to reduce as expeditiously as is consistent with
sound commercial practice any unreimbursed amounts drawn by the Trustee on the
Reserve Account and (ii) to sell or re-lease any Vehicles remaining subject to
the lien of the Trustee upon the expiration of the Contract to which such
Vehicles is subject, in a timely manner and in a manner consistent with that
utilized by the Servicer with respect to vehicles owned by it so as to realize,
to the extent possible under then prevailing market conditions, the Net Residual
Value of such Vehicles.]
S-24
<PAGE>
[All Residual Payments realized by the Servicer in the performance of its
duties with respect to any item of Vehicles remaining subject to the Lien of the
Trustee (net of the Servicer's actual out-of-pocket expenses reasonably incurred
in such realization) shall be held in trust by the Servicer, as agent for the
Trustee, and turned over to the Trustee within [___] Business Days for
application in accordance with the provisions of the Pooling Agreement, provided
that, to the extent that (i) the Servicer has made any advances with respect to
any Contract which thereafter became a Defaulted Contract and (ii) the Servicer
has not otherwise been fully reimbursed for such advances, the Servicer shall
reimburse itself for such advances from any Residual Payments recovered with
respect to such Defaulted Contract before remitting to the Trustee any such
amounts for deposit in the Remittance Account.]
Removal of the Servicer
The Pooling Agreement will provide that the Servicer may not resign from
its obligations and duties as Servicer thereunder, except upon a determination
that the Servicer's performance of such duties is no longer permissible under
applicable law. The Servicer can only be removed pursuant to a Servicer Event of
Default. If a Servicer Event of Default shall have occurred and be continuing,
the Trustee shall give written notice to the Servicer of the termination of all
of the rights and obligations of the Servicer (but none of the Servicer's
obligations thereunder, which shall survive any such termination) under the
Pooling Agreement. On and after the time the Servicer receives a notice of
termination, the Trustee shall be the successor in all respects to the Servicer
in its capacity as servicer under the Pooling Agreement of the Receivables. The
Trustee may, if it shall be unwilling to so act, or shall, if it is unable to so
act, give notice of such fact to each holder of the Certificates and (i) appoint
an established institution, satisfactory to the holders of Certificates
evidencing not less than [______%] of the Voting Rights, as the successor to the
Servicer to assume all of the rights and obligations of the Servicer, including,
without limitation, the Servicer's right to receive the Servicing Fee (but not
the obligations of the Servicer contained in the Pooling Agreement) or, (ii) if
no such institution is so appointed, petition a court of competent jurisdiction
to appoint an institution meeting such criteria as the Servicer.
THE TRUSTEE
The Trustee, ____________, has an office at ________________________.
The Trustee may resign, subject to the conditions set forth below, at any
time upon written notice to the Bank, the Servicer and the Credit Enhancers, in
which event the Servicer, with the consent of the Bank, will be obligated to
appoint a successor Trustee. If no successor Trustee shall have been so
appointed and have accepted such appointment within [30] days after the giving
of such notice of resignation, the resigning Trustee may petition a court of
competent jurisdiction for the appointment of a successor Trustee. Any successor
Trustee shall meet the financial and other standards for qualifying as a
successor Trustee under the Pooling Agreement. The Servicer, the Credit
Enhancers or Certificateholders evidencing more than [___%] of the Percentage
Interests of the Trust may also remove the Trustee if the Trustee ceases to be
eligible to continue as such under the Pooling Agreement and fails to resign
after written request therefor, or is legally unable to act, or if the Trustee
is adjudicated to be insolvent. In such circumstances, the Servicer, the Credit
Enhancers or such Certificateholders will also be obligated to appoint a
successor Trustee. Any resignation or removal of the Trustee and appointment of
a successor Trustee will not become effective until acceptance of the
appointment by the successor Trustee.
THE TRUST
The Trust, as a master trust, is expected to issue additional Series from
time to time. The Trust has not engaged and will not engage in any business
activity other than acquiring and holding Trust Assets and proceeds therefrom,
issuing Series of Certificates and making payments thereon and related
activities. As a consequence, the Trust does not and is not expected to have any
source of capital resources other
S-25
<PAGE>
than the Trust Assets. The Trust will be administered in accordance with the
laws of the State of New York.
The Bank will convey to the Trust, without recourse, its interest in all
the Receivables listed in the Series 199__-1 Supplement. The Trust Fund will
consist of the Contracts, [any related Vehicles or a security interest in such
Vehicles,] all monies due or to become due thereunder, the proceeds of the
Contracts, all monies on deposit in the Collection Account and in certain other
accounts maintained for the benefit of the Certificateholders and any Series
Enhancements. The Trust Fund is expected to change over the life of the Trust as
Additional Receivables become subject to the Trust and as Contracts terminate,
are charged off or removed and are no longer subject to the Trust. Pursuant to
the Pooling Agreement, the Bank will have the right (subject to certain
limitations and conditions), and in some circumstances will be obligated, to
designate Additional Receivables to the Trust Fund.
USE OF PROCEEDS
The net proceeds from the sale of the [Class A] Certificates will be used
by the Bank or a Trust for the acquisition of the related Receivables, to fund
reserve accounts, for issuance expenses, and/or general corporate purposes,
including, without limitation, the purchase of additional Receivables, the
repayment of indebtedness and general working capital purposes.
SERIES PROVISIONS
The Series 199__-1 Certificates will consist of two Classes, the [Class A]
Certificates and the [Class B] Certificates. The [Class A] Certificates and
[Class B] Certificates will be issued pursuant to the Pooling Agreement and a
Supplement thereto relating to the [Class A] Certificates and [Class B]
Certificates (the "Series 199__-1 Supplement"). The following summary describes
the material terms generally applicable to Series 199__-1 and is qualified in
its entirety by reference to the Series 199__-1 Supplement. The Servicer will
provide, without charge, to any prospective purchaser of the [Class A]
Certificates a copy of the Pooling Agreement and the Series 199__-1 Supplement.
Reference should be made to "Description of the Securities" and "Description of
the Trust Agreements" in the Prospectus for additional information concerning
the Series 199__-1 Certificates and the Pooling Agreement.
Payments with respect to [Class B] Certificates will be subordinated to the
payment of interest and certain other amounts due with respect to the [Class A]
Certificates. The [Class B] Certificates initially will be retained by the Bank;
however, subject to certain restrictions, the Bank may sell a portion of the
Class B Certificates subsequent to the Series Issuance Date. Certificates are
not offered hereby.
Interest
Interest will accrue on the [Class A] Invested Amount at the Certificate
Rate. Interest will be distributed to the [Class A] Certificateholders on
____________, 199__, and on each Distribution Date thereafter in an amount equal
to one-twelfth of the product of the Certificate Rate and the [Class A] Invested
Amount as of the preceding Record Date, except that interest for the first
Distribution Date will be equal to the interest accrued at the Certificate Rate
for the period from and including ___________, 199__ to but excluding such first
Distribution Date. Interest will be calculated on the basis of a 360-day year of
twelve 30-day months. Interest with respect to the [Class A] Certificates due
but not paid on any Distribution Date will be due on the next succeeding
Distribution Date with additional interest on such amount at the Certificate
Rate to the extent permitted by law. Interest payments on the [Class A]
Certificates on any Distribution Date will be funded from (a) Available Finance
Charge Collections for the related Collection Period as described herein under
"--Application of Collections--Payments of Interest, Fees and Other Items" and
(b) to the extent necessary, withdrawals from the Reserve Account as described
under "--Reserve Account."
S-26
<PAGE>
Principal
During the Scheduled Amortization Period principal will be paid to the
[Class A] Certificateholders monthly on each Distribution Date in an amount up
to the Controlled Distribution Amount with respect to such Distribution Date.
The Scheduled Amortization Period will commence on the Series Cut-Off Date and
will end at the close of business on _____________, 199__, unless terminated
earlier upon the occurrence of a Pay Out Event, in which case it will end at the
close of business on the last day of the Collection Period during which the Pay
Out Event occurs. Upon the completion or termination of the Scheduled
Amortization Period, the Full Amortization Period will begin, and principal
equal to the Available Principal Collections for each Collection Period will be
paid to the [Class A] Certificateholders monthly on each Distribution Date until
the Invested Amount of the [Class A] Certificates is paid in full.
Allocation Percentages
Pursuant to the Pooling Agreement, for each Collection Period during the
Scheduled Amortization Period, the Servicer will allocate among the [Class A]
Certificateholders' Interest, the [Class B] Certificateholders' Interest and the
Certificateholders' Interest of the other Series issued and outstanding from
time to time that are in their Scheduled Amortization Periods, all Finance
Charge Payments and Principal Payments and the Defaulted Amount with respect to
Receivables allocated to the Trust's Floating Receivable Pool. Because Series
199__-1 is the first Series to be issued by the Trust, the Floating Receivable
Pool is not expected to contain any Participation Interests created in
connection with the formation of Full Amortization Pools with respect to other
Series while Series 199__-1 is in its Scheduled Amortization Period. Collections
of Finance Charge Payments, Principal Payments and the Defaulted Amount with
respect to Receivables (and Participation Interests, if any) in the Floating
Receivable Pool will be allocated during the Scheduled Amortization Period to
the [Class A] Certificateholders' Interest based on the Floating Allocation
Percentage with respect to the [Class A] Certificates and to the [Class B]
Certificateholders' Interest based on the Floating Allocation Percentage with
respect to the [Class B] Certificates.
The "[Class A] Invested Amount" for any day means an amount equal to (i)
the initial principal amount of the [Class A] Certificates, minus (ii) the
amount of principal payments made to [Class A] Certificateholders prior to such
day, and minus (iii) the excess, if any, of the aggregate amount of Investor
Charge-Offs for all Distribution Dates preceding such day over the aggregate
amount of Investor Charge-Offs reimbursed prior to such day.
The "[Class B] Invested Amount" for any day means an amount determined with
respect to the [Class B Certificates] in the same manner as the [Class A]
Invested Amount.
"Series 199__-1 Invested Amount" for any day means the sum of the [Class A]
Invested Amount and the [Class B] Invested Amount.
"Floating Allocation Percentage" means, for the [Class A] Certificates and
the [Class B] Certificates, as applicable, with respect to any Collection
Period, the percent equivalent of a fraction, the numerator of which equals the
Invested Amount of such Class as of the day before the last day of the
Collection Period and the denominator of which equals (i) during the Scheduled
Amortization Period, the Floating Contract Pool Balance or (ii) during the Full
Amortization Period, the Full Amortization Pool Balance allocated to Series
199__-1, as applicable, as of such day.
Upon the commencement of the Full Amortization Period, the Trustee will
segregate all the Receivables (and Participation Interests, if any) included in
the Trust's Floating Receivable Pool as of such date into a Full Amortization
Pool. Contract Payments and the Defaulted Amount with respect to the Receivables
allocated to the Full Amortization Pool will be the only Contract Payments and
Defaulted Amounts allocated to the Full Amortization Pool and Series 199__-1
Certificateholders will thereafter have an interest in only such Contract
Payments and Defaulted Amount. The interest in such Contract
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<PAGE>
Payments and Defaulted Amount not allocated to the Series 199__-1
Certificateholders' Interest will represent the Participation Interest and will
be allocated initially to the Floating Receivable Pool. The Full Amortization
Pool for Series 199__-1 is expected to be the first Full Amortization Pool
created for the Trust. Consequently, the Floating Pool is not expected to
contain any Participation Interest at the time the Series 199__-1 Full
Amortization Pool is segregated, and the Series 199__-1 Full Amortization Pool
is not expected to have a Participation Interest allocated to it.
Contract Payments and the Defaulted Amount allocated to the Full
Amortization Pool will be allocated to the Series 199__-1 Certificateholders'
Interest on the basis of the applicable Fixed Allocation Percentage. Contract
Payments and the Defaulted Amount initially allocated to the Series 199__-1
Certificateholders' Interest will be allocated further between the [Class A]
Certificateholders' Interest and the [Class B] Certificateholders' Interest on
the basis of the Floating Allocation Percentage applicable to each such Class.
The Full Amortization Period will continue until the Invested Amount of the
Series 199__-1 Certificates is paid in full or the Full Amortization Pool
Balance is zero, whichever first occurs.
"Fixed Allocation Percentage" for Series 199__-1 shall equal the percentage
equivalent of a fraction, the numerator of which is the Invested Amount of
Series 199__-1 on the day before the last day of the first Collection Period in
the Full Amortization Period and the denominator of which is the Full
Amortization Pool Balance on such day.
Application of Collections
Payments of Interest, Fees and Other Items. On each Distribution Date, the
Trustee, acting pursuant to the Servicer's instructions, will apply all amounts
allocated to the [Class A] Certificateholders' Interest with respect to
collections of Finance Charge Payments for the preceding Collection Period (as
described above under "--Allocation Percentages"), all amounts allocated to the
[Class B] Certificateholders' Interest with respect to collections of Finance
Charge Payments and Principal Payments for the preceding Collection Period (as
described under "--Subordination") and any Additional Finance Charges with
respect to other Series that are allocated to Series 199__-1 in accordance with
the Pooling Agreement (collectively, "Available Finance Charge Collections"), to
make the following payments and deposits in the following order of priority:
[(i) an amount equal to the Monthly Investor Servicing Fee with
respect to the Series 199__-1 Certificates for such Distribution Date, plus
the amount of any Monthly Investor Servicing Fee with respect to the Series
199__-1 Certificates previously due but not distributed to the Servicer on
a prior Distribution Date, plus the amount of any outstanding Servicer
Advances allocable to the Series 199__-1 Certificates that the Servicer has
determined will not be recovered from the Receivables to which the Servicer
Advances were related as described under "Description of the Trust
Agreements--Servicing Procedures" in the Prospectus, will be distributed to
the Servicer;
(ii) an amount equal to Monthly Interest for such Distribution Date
due on the [Class A] Certificates, plus the amount of any Monthly Interest
previously due but not distributed to the [Class A] Certificateholders on a
prior Distribution Date, plus any additional interest at the Certificate
Rate with respect to interest amounts that were due but not paid to [Class
A] Certificateholders on a prior Distribution Date, will be distributed to
the [Class A] Certificateholders;
(iii) an amount equal to the Investor Default Amount for such
Distribution Date will be treated as a portion of Available Principal
Collections for such Distribution Date;
(iv) an amount equal to the aggregate amount of Investor Charge-Offs
which have not been previously reimbursed will be treated as a portion of
Available Principal Collections for such Distribution Date;
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<PAGE>
(v) an amount up to the deficiency, if any, between the Required
Reserve Amount and the remaining Available Reserve Amount will be used to
increase the amount on deposit in the Reserve Account up to the Required
Reserve Amount;
(vi) an amount equal to any unreimbursed draws under any letter of
credit or surety bond obtained by the Servicer will be paid to the provider
of such letter of credit or surety bond;
(vii) an amount equal to the amount of Finance Charge Payments with
respect to the [Class B] Certificates included in Available Finance Charge
Collections will be reallocated to the [Class B] Certificates for the
payment of interest on the [Class B] Certificates pursuant to the terms of
the Series 199__-1 Supplement ("Class B Reallocated Finance Charge
Collections");
(viii) an amount equal to the amount of Principal Payments with
respect to the [Class B] Certificates included in Available Finance Charge
Collections will be reallocated to the [Class B] Certificates for the
payment of principal on the [Class B] Certificates pursuant to the Series
199__-1 Supplement ("[Class B] Reallocated Principal Collections"); and
(ix) the balance, if any, will constitute a portion of Additional
Finance Charges for such Distribution Date and will be available for
allocation to other Series in the Trust or to the Bank.]
"Monthly Interest" means, with respect to any Distribution Date, one-
twelfth of the product of (i) the Certificate Rate and (ii) the [Class A]
Invested Amount as of the preceding Record Date; provided, however, that Monthly
Interest with respect to the first Distribution Date will be equal to the
interest accrued on the initial principal amount of the [Class A] Certificates
at the Certificate Rate for the period from the Series Issuance Date to but
excluding the first Distribution Date.
"Required Amount" means, with respect to any Distribution Date, the excess,
if any, of the full amount required to be allocated pursuant to paragraphs (i),
(ii) and (iii) of the second preceding paragraph for such Distribution Date over
the amount of Available Finance Charge Collections for such Distribution Date.
"Investor Default Amount" means, (x) with respect to any Distribution Date
in the Scheduled Amortization Period, the product of (i) the Floating Allocation
Percentage with respect to the [Class A] Certificates for the related Collection
Period and (ii) the Defaulted Amount with respect to the Floating Contract Pool
for such Collection Period and (y) with respect to any Distribution Date in the
Full Amortization Period, the product of (i) the Fixed Allocation Percentage
with respect to Series 199__-1, (ii) the Floating Allocation Percentage with
respect to the [Class A] Certificates for the related Collection Period and
(iii) the Defaulted Amount with respect to the Full Amortization Pool for such
Collection Period.
Payments of Principal. On each Distribution Date, the Trustee, acting
pursuant to the Servicer's instructions, will apply all amounts allocated to the
[Class A] Certificateholders' Interest with respect to collections of Principal
Payments for the preceding Collection Period (as described above under "--
Allocation Percentages"), any Shared Principal Collections with respect to other
Series that are allocable to the [Class A] Certificates and any other amounts
which are to be allocated in the same manner as Available Principal Collections
(as described above under "--Payment of Interest, Fees and Other Items")
(collectively, "Available Principal Collections") and will distribute such
amounts on each Distribution Date with respect to the Scheduled Amortization
Period or the Full Amortization Period in the following order of priority:
[(i) an amount equal to Monthly Principal for such Distribution Date
will be distributed to the [Class A] Certificates;
(ii) an amount up to the deficiency, if any, between the Required
Reserve Amount and the remaining Available Reserve Amount (after giving
effect to any deposit made from Available
S-29
<PAGE>
Finance Charge Collections as described above) will be used to increase the
amount on deposit in the Reserve Account up to the Required Reserve Amount;
(iii) the amount necessary to be paid to the Bank in exchange for any
related Additional Receivables;
(iv) an amount equal to any unreimbursed draws under any letter of
credit or surety bond obtained by the Servicer will be paid to the provider
of such letter of credit or surety bond;
(v) the balance, if any, will be allocated to Shared Principal
Collections.]
"Monthly Principal" with respect to any Distribution Date relating to the
Scheduled Amortization Period or the Full Amortization Period will equal the
least of (i) the Available Principal Collections for such Distribution Date,
(ii) for each Distribution Date with respect to the Scheduled Amortization
Period, the Controlled Deposit Amount for such Distribution Date and (iii) the
[Class A] Invested Amount.
"Controlled Distribution Amount" means, for any Distribution Date with
respect to the Scheduled Amortization Period, an amount equal to the sum of the
Controlled Amortization Amount for such Distribution Date and any Deficit
Controlled Amortization Amount for the preceding Distribution Date.
"Controlled Amortization Amount" means, for any Distribution Date with
respect to the Scheduled Amortization Period, the amount set forth for such
Distribution Date on the "Schedule of Class A Controlled Amortization Amounts."
"Deficit Controlled Amortization Amount" means, (x) on the first
Distribution Date with respect to the Scheduled Amortization Period, the excess,
if any, of the Controlled Amortization Amount for such Distribution Date over
the amount distributed as Monthly Principal for such Distribution Date and (y)
on each subsequent Distribution Date with respect to the Scheduled Amortization
Period, the excess, if any, of the sum of the Controlled Amortization Amount for
such subsequent Distribution Date and any Deficit Controlled Amortization Amount
for the prior Distribution Date over the amount distributed as Monthly Principal
on such subsequent Distribution Date.
The schedule below shows the [Class A] Invested Amount and the [Class A]
Controlled Amortization Amount for each Distribution Date with respect to the
Scheduled Amortization Period for the [Class A] Certificates, assuming each
[Class A] Controlled Amortization Amount is paid in full on the date indicated,
no Payout Event occurs and losses allocable to the [Class A] Certificates do not
exceed the amounts available to cover such losses. The [Class A] Controlled
Amortization Amount is equal to the [Class A] Certificateholders' allocable
share of Scheduled Principal Payments due with respect to the Original
Receivables for each of the Distribution Dates shown.
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<PAGE>
SCHEDULE OF CLASS A
CONTROLLED AMORTIZATION AMOUNTS
<TABLE>
<CAPTION>
Class A
Class A Controlled
Invested Amortization
Distribution Date Amount Amount
- ----------------------------------------------- ------------ ----------------
<S> <C> <C>
Original Invested Amount....................... $ $
December 199_..................................
January 199_...................................
February 199_..................................
March 199_.....................................
April 199_.....................................
May 199_.......................................
June 199_......................................
July 199_......................................
August 199_....................................
September 199_.................................
October 199_...................................
November 199_..................................
</TABLE>
Subordination. The fractional undivided interest in the Trust represented
by the [Class B] Certificates will be subordinated to the extent described
herein to fund payments with respect to the [Class A] Certificates. The [Class
B] Invested Amount represents the [Class B] Certificateholders' Interest in the
Trust Assets and represents the subordinated amount which, in addition to the
Reserve Account, any Additional Finance Charges and any Shared Principal
Collections, is available to fund payments of interest and certain other amounts
due with respect to the [Class A] Certificates as described under "Series
Provision--Application of Collections--Payments of Interest, Fees and Other
Items." No principal or interest will be distributed on the [Class B]
Certificates with respect to a Distribution Date unless all interest payments,
the Investor Default Amount and aggregate unreimbursed Investor Charge-Offs have
been covered with respect to the [Class A] Certificates with respect to such
Distribution Date and the Available Reserve Amount equals the Required Reserve
Amount on such Distribution Date. See "--Payments of Interest, Fees and Other
Items" and "--Payments of Principal." To the extent the [Class B] Invested
Amount is reduced to zero, withdrawals will then be made from the Reserve
Account. If the Reserve Account is reduced to zero as described under "--Reserve
Account," the [Class A] Invested Amount may be reduced as described under "--
Investor Charge-Offs" and the [Class A] Certificateholders will bear directly
the credit and other risks associated with their interest in the Trust.
The [Class B] Certificates will receive distributions of interest on each
Distribution Date equal to the lesser of (x) [Class B] Available Finance Charge
Collections and (y) interest accrued and unpaid on the [Class B] Invested Amount
at the [Class B] Certificate Rate ("[Class B] Monthly Interest"). Any remaining
[Class B] Available Finance Charge Collections will be allocated in the
following priority: (a) an amount equal to the [Class B] Investor Default
Amount for the Collection Period will be treated as a portion of [Class B]
Available Principal Collections for such Distribution Date, (b) an amount equal
to the aggregate amount of [Class B] Investor Charge-Offs which have not
previously been reimbursed will be treated as a portion of [Class B] Available
Principal Collections for such Distribution Date and (c) the balance will be
available for allocation to the Bank. The [Class B] Certificates will receive
distributions of principal on each Distribution Date equal to the lesser of the
[Class B] Available Principal Collections and the principal payable to the
[Class B] Certificates pursuant to the Series 199__-1 Supplement. Any remaining
[Class B] Available Principal Collections will be allocated in the following
priority: (x) the amount necessary to be paid to the Bank in exchange for any
related Additional Receivables and (y) the balance, if any, will be remitted to
the Seller.
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<PAGE>
"[Class B] Required Amount" means, with respect to any Distribution Date,
the excess, if any, of the full amount required to be allocated pursuant to
clause (a) in the preceding paragraph for such Distribution Date over the
remaining [Class B] Available Finance Charge Collections for such Distribution
Date.
"[Class B] Available Finance Charge Collections" for any Distribution Date
means [Class B] Reallocated Finance Charge Collections as described above under
"--Payments of Interest, Fees and Other Items."
"[Class B] Available Principal Collections" for any Distribution Date means
the sum of [Class B] Reallocated Principal Collections and any other amounts
treated as a portion of [Class B] Available Principal Collections as described
above.
"[Class B] Investor Default Amount" will be calculated with respect to the
[Class B] Certificates for any Distribution Date in the same manner as Investor
Default Amount is calculated with respect to the [Class A] Certificates.
Reserve Account
The Trustee will hold the Reserve Account for the benefit of the [Class A]
Certificateholders and the Reserve Sponsor, as their interests may appear. The
interest of the Reserve Sponsor will be subordinated to the interests of the
[Class A] Certificateholders as provided in the Series 199__-1 Supplement. The
Reserve Account will be one or more Eligible Deposit Accounts and funds on
deposit in the Reserve Account will be invested in Eligible Investments. A
portion of such funds may be invested in debt obligations of the Reserve Sponsor
or its affiliates to the extent such obligations qualify as Eligible
Investments.
The Reserve Account will be funded on the Series Issuance Date by the
Sponsor from the proceeds of the issuance of the [Class A] Certificates in an
amount equal to the Initial Reserve Amount (with respect to the Reserve Account,
the Sponsor shall be referred to as the "Reserve Sponsor"). The Reserve Account
will be terminated following the earlier to occur of (a) the date on which the
[Class A] Certificates are paid in full and (b) the termination of the Trust.
Any amounts then remaining on deposit in the Reserve Account will be distributed
to the Reserve Sponsor.
On each Distribution Date, the amount available to be withdrawn from the
Reserve Account (the "Available Reserve Amount") will be equal to the lesser of
the amount on deposit in the Reserve Account (before giving effect to any
deposit to be made to the Reserve Account on such Distribution Date) and the
Required Reserve Amount. The "Required Reserve Amount" shall mean, with respect
to any Distribution Date, $______________ plus, if as of any Determination Date
an Additional Reserve Event shall have occurred and be continuing, the excess,
if any, of (i) __% of the [Class A] Invested Amount as of the last day of the
previous Collection Period over (ii) $____________. An "Additional Reserve
Event" shall occur with respect to Series 199__-1 if the average ratio on the
three preceding Determination Dates (as determined by the Servicer on any
Determination Date) of (x) the product of 12 and the aggregate Contract
Discounted Balances as of the last day of the previous Collection Period of all
Defaulted Contracts which became Defaulted Contracts during the previous
Collection Period to (y) the Discounted Contract Balance of the Receivables Pool
as of the last day of the previous Collection Period, exceeds ___%.
On each Distribution Date, a withdrawal will be made from the Reserve
Account in an amount equal to the Required Amount, if any, with respect to such
Distribution Date (but not in excess of the Available Reserve Amount on such
Distribution Date). Any such funds withdrawn from the Reserve Account will be
applied in accordance with, and subject to the priorities set forth in,
paragraphs (i), (ii) and (iii) under "--Application of Collections--Payment of
Interest, Fees and Other Items" above.
S-32
<PAGE>
On each Distribution Date, the Trustee, acting pursuant to the Servicer's
instructions, will apply Available Finance Charge Collections and Available
Principal Collections (to the extent described above under "--Application of
Collections--Payment of Interest, Fees and Other Items" and "--Application of
Collections--Payments of Principal") to increase the amount on deposit in the
Reserve Account (to the extent such amount is less than the Required Reserve
Amount). On each Distribution Date, after giving effect to any deposit to be
made to, and any withdrawal to be made from, the Reserve Account on such
Distribution Date, the Trustee will withdraw from the Reserve Account an amount
equal to the excess, if any, of the amount on deposit in the Reserve Account
over the Required Reserve Amount and shall distribute such excess to (a) the
provider of any letter of credit or surety bond described in clause (vi) under
"--Application of Collections--Payments of Interest, Fees and Other Items" to
the extent of any unreimbursed draws under the letter of credit or surety bond
and (b) the balance, if any, will be treated as [Class B] Available Principal
Collections and distributed as provided under "--Application of Collections--
Subordination." Any amounts withdrawn from the Reserve Account and distributed
as described above will not be available for distribution to the [Class A]
Certificateholders.
Investor Charge-Offs
On each Distribution Date, if the Required Amount for such Distribution
Date exceeds the Available Reserve Amount with respect to such Distribution
Date, the [Class B] Invested Amount will be reduced by the amount of such
excess, but not by more than the Investor Default Amount for such Distribution
Date (a "[Class B] Investor Charge-Off"). If such reduction would cause the
[Class B] Invested Amount to be a negative number (or if the [Class B] Invested
Amount is already zero), the [Class B] Invested Amount will be reduced to or
remain at zero, and the [Class A] Invested Amount will be reduced by the amount
by which the [Class B] Invested Amount would have been reduced below zero, but
not more than the excess, if any, of the Investor Default Amount for such
Distribution Date over the amount of such reduction, if any, of the [Class B]
Invested Amount with respect to such Distribution Date (an "Investor Charge-
Off").
If the [Class A] Invested Amount has been reduced by the amount of any
Investor Charge-Offs, it will thereafter be increased on any Distribution Date
(but not by an amount in excess of the aggregate Investor Charge-Offs) by the
amount of Available Finance Charge Collections allocated and available for such
purpose as described under "--Application of Collections--Payments of Interest,
Fees and Other Items." If an Investor Charge-Off is not subsequently
reimbursed, it will have the effect of slowing or reducing the return of
principal to the [Class A] Certificateholders.
On each Distribution Date, if the [Class B] Required Amount for such
Distribution Date is greater than zero, the [Class B] Invested Amount will be
reduced by the amount of such excess, but not below zero, and such reduction
will be a [Class B] Investor Charge-Off.
If the [Class B] Invested Amount has been reduced by the amount of any
[Class B] Investor Charge-Offs, it will thereafter be increased on any
Distribution Date (but not by an amount in excess of the aggregate [Class B]
Investor Charge-Offs) by the amount of Available [Class B] Finance Charge
Collections allocated and available for such purpose as described under "--
Application of Collections--Subordination."
Pay Out Events
A Pay Out Event will occur with respect to Series 199__-1 if the average ratio
on the three preceding Determination Dates (as determined by the Servicer on any
Determination Date) of (i) the product of 12 and the aggregate Discounted
Contract Balances as of the last day of the previous Collection Period of all
Defaulted Contracts which became Defaulted Contracts during the previous
Collection Period to (ii) the Discounted Contract Balance of the Receivables
Pool as of the last day of the previous Collection Period, exceeds ___%. Such
Pay Out Event shall occur immediately on such
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<PAGE>
Determination Date without notice or other action on the part of the Trustee or
the Series 199__-1 Certificateholders.
Distributions
Payments to [Class A] Certificateholders will be made from the Collection
Account. The Servicer shall instruct the Trustee to apply, or have the Paying
Agent apply, the funds on deposit in such account to make the following
distributions:
(a) on each Distribution Date with respect to the [Class A]
Certificates, all amounts on deposit in the Collection Account which are
allocated and available to pay interest on the [Class A] Certificates will
be distributed to the [Class A] Certificateholders or applied as described
under "--Application of Collections--Payments of Interest, Fees and Other
Items"; and
(b) on each Distribution Date all amounts on deposit in the
Collection Account which are allocated and available to pay principal of
the [Class A] Certificates (as described under "--Application of
Collections--Payments of Principal") will be distributed to [Class A]
Certificateholders up to a maximum amount on any such date equal to (i)
during the Scheduled Amortization Period, the Controlled Distribution
Amount, and (ii) during the Full Amortization Period, the [Class A]
Invested Amount on such date (unless there has been an optional repurchase
of the [Class A] Certificateholders' Interest due to the failure to find a
successor Servicer upon a Servicer Default (as described in the Prospectus
under "Description of Trust Agreements--Servicer Default") in which event
the foregoing limitation shall not apply).
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences to the original purchasers of the [Class A] Certificates of the
purchase, ownership and disposition of the [Class A] Certificates. It does not
purport to discuss all federal income tax consequences that may be applicable to
investment in the [Class A] Certificates or to particular categories of
investors, some of which may be subject to special rules. In particular, this
discussion applies only to institutional investors that purchase Series 199__-__
Certificates directly from the Bank and hold the Series 199__-__ Certificates as
capital assets.
The discussion that follows, and the opinion set forth below of Dewey
Ballantine, special tax counsel to Trust ("Tax Counsel"), are based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code") and the
Treasury regulations promulgated thereunder as in effect on the date hereof and
on existing judicial and administrative interpretations thereof. These
authorities are subject to change and to differing interpretations, which could
apply retroactively. The opinion of Tax Counsel is not binding on the courts or
the Internal Revenue Service (the "IRS"). Potential investors should 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
[Class A] Certificates.
Characterization of the [Class A] Certificates as Indebtedness
In the opinion of Tax Counsel, based on the application of existing law to
the facts as set forth in the Trust Agreement, Pooling Agreement, Insurance
Agreement and other relevant documents and such investigations as it deemed
appropriate, the [Class A] Certificates will be treated as indebtedness for
federal income tax purposes.
In general, whether instruments such as the [Class A] Certificates
constitute indebtedness for federal income tax purposes is a question of fact,
the resolution of which is based primarily upon the economic substance of the
instruments and the transaction pursuant to which they are issued rather than
S-34
<PAGE>
the form of the transaction or the manner in which the instruments are labeled.
The IRS and the courts have set forth various factors to be taken into account
in determining whether or not an instrument constitutes indebtedness for federal
income tax purposes. On the basis of a review of such factors as applied to the
facts of the contemplated transaction, Tax Counsel has concluded, as stated
above, that the [Class A] Certificates constitute indebtedness for federal
income tax purposes.
In Article ____ of the Pooling Agreement, the parties thereto and all
successors and assigns thereof, including, upon acquisition of the [Class A]
Certificates, the Certificateholders, express their mutual intent that the
[Class A] Certificates shall constitute indebtedness for all applicable tax
purposes and, further, covenant and agree to treat the [Class A] Certificates as
indebtedness for all applicable tax purposes in all tax filings, reports and
returns and otherwise. Notwithstanding such agreement, because different
criteria are used to determine the non-tax accounting characterization of the
issuance and sale of the [Class A] Certificates, the Originators and the Bank
intend to treat the transaction as a sale by the Bank of interests in the
Receivables for financial accounting purposes.
Although the economic substance of a transaction is generally of primary
importance in determining its proper treatment for federal income tax purposes,
nevertheless, a party to a transaction will be held to a high standard of proof
in establishing that the form of the transaction, if at variance with the
economic substance of the transaction, should not be treated as controlling. In
some instances, courts have indicated that a taxpayer should be bound by the
particular form it has chosen for a transaction, even if the substance of the
transaction does not accord with its form. Tax Counsel is nonetheless of the
opinion that the [Class A] Certificates will be treated as indebtedness for
federal income tax purposes because (i) in many respects the form of the
transaction as reflected in the operative provisions of the documents accords
with the characterization of the [Class A] Certificates as indebtedness, (ii)
the parties have stated unambiguously their intention to treat the [Class A]
Certificates as indebtedness for tax purposes and (iii) the characteristics of
the [Class A] Certificates strongly indicate that in economic substance the
[Class A] Certificates are a form of indebtedness.
Possible Classification of the Transaction as a Partnership or Association
Taxable as a Corporation
Notwithstanding Tax Counsel's opinion, potential investors should recognize
that there is some uncertainty as to the correct characterization of the [Class
A] Certificates. It is possible that the IRS could assert that, for federal
income tax purposes, the transaction contemplated by this Prospectus Supplement
constitutes the sale of a direct or indirect interest in [the Vehicles and] the
Receivables to the Certificateholders and that the proper classification of the
legal relationship between the Servicer, the Bank and the [Class A]
Certificateholders resulting from this transaction is that of a partnership or
an association taxable as a corporation. Since Tax Counsel is of the opinion
that the [Class A] Certificates will be treated as indebtedness in the hands of
the Certificateholders for federal income tax purposes, the Servicer and the
Bank will not attempt to comply with the federal income tax reporting
requirements applicable to either partnerships or corporations.
If the transaction were treated as creating a partnership between the
Certificateholders, the Servicer and the Bank, the partnership itself would not
be subject to federal income tax (unless characterized as a publicly traded
partnership taxable as a corporation); rather, the Servicer, the Bank and each
Certificateholder would be taxed individually on their respective distributive
shares of the partnership's income, gain, loss, deductions and credits. The
amount, timing and characterization of items of income and deductions for a
Certificateholder would differ if the [Class A] Certificates were held to
constitute partnership interests, rather than indebtedness.
If it were determined that this transaction created an entity classified as
a corporation (including a publicly traded partnership taxable as a
corporation), the Trust would be subject to federal income tax at corporate
income tax rates on the income it derives from the Receivables, which would
reduce the amounts available for distribution to the Certificateholders. Cash
distributions to the Certificateholders
S-35
<PAGE>
generally would be treated as dividends for tax purposes to the extent of such
corporation's earnings and profits.
Taxation of Interest Income of Certificateholders
Assuming, in accordance with the opinion of Tax Counsel, that the [Class A]
Certificates will constitute indebtedness for federal income tax purposes,
interest thereon will be includable as ordinary income when received or accrued
by the Certificateholders in accordance with their respective methods of tax
accounting.
Sales of [Class A] Certificates
Upon the sale or exchange of a [Class A] Certificate, the Certificateholder
will realize a gain or loss equal to the difference between the amount realized
on the sale and the adjusted basis of such [Class A] Certificate.
Backup Withholding with Respect to Certificates
Payments of interest and principal, together with payments of proceeds from
the sale of [Class A] Certificates, may be subject to the "backup withholding
tax" under Section 3406 of the Code at a rate of 31% if recipients of such
payments fail to furnish to the payor certain information, including their
taxpayer identification numbers, or otherwise fail to establish an exemption
from such tax. Any amounts deducted and withheld from a payment to a recipient
would be allowed as a credit against such recipient's federal income tax.
Furthermore, certain penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the
proper manner.
Foreign Investors in [Class A] Certificates
A Certificateholder that is not a "United States person" may be subject to
United States federal withholding tax in respect of distributions on a [Class A]
Certificate. Whether withholding of tax would be required, and, if so, the rate
at which such withholding would be imposed, would depend upon a number of
factors, including the characterization of the [Class A] Certificates and the
Trust for federal income tax purposes, and, under current law, the withholding
rate could be as high as 35 percent. For these purposes, "United States person"
means a citizen or resident of the United States, a corporation, partnership
organized in or under the laws of the United States or any political subdivision
thereof or an estate or trust the income of which from sources without the
United States is includable in gross income for United States federal income tax
purposes regardless of its connection with the conduct of a trade or business
within the United States.
STATE, LOCAL AND OTHER TAX CONSEQUENCES
Investors should consult their own tax advisors regarding whether the
purchase of the [Class A] Certificates, either alone or in conjunction with an
investor's other activities, may subject an investor to any state or local taxes
based on an assertion that the investor is either "doing business" in, or
deriving income from a source located in, any state or local jurisdiction.
Additionally, potential investors should consider the state, local and other tax
consequences of purchasing, owning or disposing of a [Class A] Certificate.
State and local tax laws may differ substantially from the corresponding federal
tax law, and the foregoing discussion does not purport to describe any aspect of
the tax laws of any state or other jurisdiction. Accordingly, potential
investors should consult their own tax advisors with regard to such matters.
THE FEDERAL INCOME TAX DISCUSSIONS SET FORTH ABOVE MAY NOT BE APPLICABLE TO
ANY INDIVIDUAL INVESTOR DEPENDING UPON A 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
S-36
<PAGE>
DISPOSITION OF THE CERTIFICATES, INCLUDING THE POSSIBLE EFFECTS OF CHANGES IN
FEDERAL TAX LAWS.
ERISA CONSIDERATIONS
The [Class A] Certificates may be purchased by an employee benefit plan or
an individual retirement account (a "Plan") subject to the Employee Retirement
Income Security Act of 1974, as amended ("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. Employee benefit plans which are governmental
plans (as defined in Section 3(32) of ERISA) and certain church plans (as
defined in Section 3(33) of ERISA) are not subject to the fiduciary
responsibility or prohibited transaction provisions of ERISA or the Code. For
additional information regarding treatment of the [Class A] Certificates under
ERISA, see "ERISA Considerations" in the Prospectus.
If the [Class A] Certificates constitute equity interests, there can be no
assurance that any of the exceptions set forth in the Regulations will apply to
the purchase of [Class A] Certificates offered hereby. Under the terms of the
Regulations, if the Trust were deemed to hold Plan assets by reason of a Plan's
investment in [Class A] Certificates, such Plan assets would include an
undivided interest in the Receivables, and any other assets held by the Trust.
In such an event, the Originators, the Bank, the Trust, the Trustee and other
persons providing services with respect to the Receivables, may be subject to
the fiduciary responsibility provisions of Title One of ERISA and be subject to
the prohibited transaction provisions of Section 4975 of the Code with respect
to transactions involving the Receivables unless such transactions are subject
to a statutory or administrative exemption. Additionally, if the Trust were
deemed to hold Plan assets, each Certificateholder may be subject to the
fiduciary responsibility provisions of Title One of ERISA with respect to its
right to consent or withhold consent to amendments to the Trust Agreements.
In addition, certain affiliates of the Originators, the Bank, the Trust and
the Trustee may be considered to be parties in interest or fiduciaries with
respect to many Plans. An investment by such a Plan in [Class A] Certificates
may be a prohibited transaction under ERISA and the Code unless such investment
is subject to a statutory or administrative exemption.
Any Plan fiduciary that proposes to cause a Plan to purchase Certificates
should consider whether such purchase would be appropriate under the general
fiduciary standards of prudence and diversification, taking into account the
overall investment policy of the Plan and its existing portfolio and should
consult with its counsel with respect to the potential applicability of ERISA
and the Code.
RATINGS
It is a condition to the issuance of the [Class A] Certificates that they
be rated "_____" by ____________. A security rating is not a recommendation to
buy, sell or hold securities and may be subject to revision or withdrawal at any
time. The ratings of ____________ assigned to [Class A] Certificates addresses
the likelihood of the receipt by Certificateholders of all distributions to
which such Certificateholders are entitled. The ratings do not address the
timely or ultimate payment of any withholding tax imposed. The ratings assigned
to [Class A] Certificates do not represent any assessment of the likelihood that
principal prepayments might differ from those originally anticipated or address
the possibility that Certificateholders might suffer a lower than anticipated
yield.
S-37
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Bank has agreed to cause the Trust to sell
to [each of] the underwriter(s) named below (the "Underwriter(s)"), and each of
the Underwriter(s) has severally, and not jointly, agreed to purchase, the
principal amount of [Class A] Certificates set forth opposite its name below .
<TABLE>
<CAPTION>
Principal
Amount of
Underwriter(s) Certificates
-------------- ------------
<S> <C>
__________________.............. $______
__________________..............
______
______
TOTAL..................... $
======
</TABLE>
In the Underwriting Agreement, the Underwriter(s) have agreed, subject to
the terms and conditions therein, to purchase all the [Class A] Certificates
offered hereby if any of such [Class A] Certificates are purchased. The Bank has
been advised by the Underwriter(s) that they propose initially to offer the
[Class A] Certificates to the public at the respective prices set forth herein,
and to certain dealers at such prices less a concession not in excess of _____%
per [Class A] Certificate. The Underwriter(s) may allow and such dealers may
reallow a concession not in excess of 0.__% per [Class A] Certificate to certain
other dealers. After the initial public offering, such prices and such
concessions may be changed.
The Underwriting Agreement provides that the Bank and the Originators will
indemnify the Underwriter(s) against certain civil liabilities, including
liabilities under the Securities Act, or contribute to payments the
Underwriter(s) may be required to make in respect thereof. The Commission is of
the opinion that indemnification for securities law violations is contrary to
the public policy expressed in the federal securities laws, and, consequently,
that such indemnification provisions are unenforceable.
The Trustee (on behalf of the Trust) may, from time to time, invest the
funds in the Trust Accounts in Eligible Investments acquired from the
Underwriter(s).
LEGAL MATTERS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the issuance of the Series 199__-__ Certificates, as
well as other matters, will be passed upon for the Trust and the Bank by Shaw,
Pittman, Potts & Trowbridge, Washington, D.C. and for the Underwriter(s) by
Dewey Ballantine, New York, New York.
S-38
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Act........................................................................ 18
Additional Receivable Transfer Agreement................................... 17
Adequately capitalized..................................................... 18
APR........................................................................ 13
Available Finance Charge Collections....................................... 28
Available Principal Collections............................................ 29
Available Reserve Amount................................................... 32
Bank..................................................................... 1, 4
Certificate Rate............................................................ 3
CFC......................................................................... 7
CFC Receivables............................................................. 7
Class B Reallocated Finance Charge Collections............................. 29
Code....................................................................... 34
Commission.................................................................. 3
Contract Interest........................................................... 3
Contract Principal.......................................................... 3
Contracts................................................................... 1
Controlled Amortization Amount............................................. 30
Controlled Distribution Amount............................................. 30
Deficit Controlled Amortization Amount..................................... 30
Distribution Date........................................................... 3
ERISA...................................................................... 37
Exchange Act................................................................ 3
FDIC....................................................................... 17
FDICIA..................................................................... 17
Final Payment Date.......................................................... 3
FIRREA..................................................................... 17
Fixed Allocation Percentage................................................ 28
Floating Allocation Percentage............................................. 27
Initial Reserve Amount...................................................... 7
Initial Yield Maintenance Amount............................................ 7
Investor Charge-Off........................................................ 33
Investor Default Amount.................................................... 29
IRS........................................................................ 34
Issuer...................................................................... 4
Monthly Interest........................................................... 29
Monthly Principal.......................................................... 30
Net Receivables Rate....................................................... 12
Obligor..................................................................... 6
Originator.................................................................. 1
OTS........................................................................ 17
Participation Interest...................................................... 6
Plan....................................................................... 37
Pooling Agreement........................................................... 1
Predecessor Contract....................................................... 16
Prospectus.................................................................. 3
Rating Agencies............................................................ 11
Receivables................................................................. 1
Required Amount............................................................ 29
Required Rate............................................................... 7
Required Reserve Amount.................................................... 32
</TABLE>
S-39
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reserve Account............................................................. 3
Reserve Bank................................................................ 7
Reserve Sponsor............................................................ 32
Rule of 78s................................................................ 13
SAIF....................................................................... 17
Series 199__-1 Certificates................................................. 1
Series 199__-1 Invested Amount............................................. 27
Series 199__-1 Supplement.................................................. 26
Servicer................................................................. 1, 4
Substitute Receivable...................................................... 16
Tax Counsel................................................................ 34
Trust.................................................................... 1, 4
Trustee.................................................................. 1, 4
Undercapitalized........................................................... 18
Underwriter(s)............................................................. 38
Underwriting Agreement..................................................... 38
United States person....................................................... 36
Vehicles.................................................................... 1
Well capitalized....................................................... 17, 18
Yield Maintenance Amount.................................................... 8
[Class A] Certificateholders................................................ 1
[Class A] Certificates...................................................... 1
[Class A] Invested Amount.................................................. 27
[Class B] Available Finance Charge Collections............................. 32
[Class B] Available Principal Collections.................................. 32
[Class B] Certificates...................................................... 1
[Class B] Invested Amount.................................................. 27
[Class B] Investor Charge-Off.............................................. 33
[Class B] Investor Default Amount.......................................... 32
[Class B] Monthly Interest................................................. 31
[Class B] Reallocated Principal Collections................................ 29
[Class B] Required Amount.................................................. 32
[Monthly] Servicer Report.................................................. 24
</TABLE>
S-40
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MARCH 11, 1997
$209,433,212.14
CHEVY CHASE AUTO RECEIVABLES TRUST 1997-1
% AUTO RECEIVABLES BACKED CERTIFICATES
CHEVY CHASE BANK, F.S.B.
Seller and Servicer
-----------
Principal, and interest to the extent of the pass-through rate of % per annum
(the "Pass-Through Rate"), will be distributed to owners of the Certificates
(the "Certificateholders") on the 15th day of each month (or, if such 15th day
is not a Business Day, the next following Business Day) (as defined herein),
beginning April 15, 1997. The aggregate principal balance of the Receivables as
of the Cut-Off date is $209,433,212.14. The final scheduled distribution date
of the Certificates will be the Distribution Date in October, 2003 (the "Final
Scheduled Distribution Date").
The % Auto Receivables Backed Certificates (the "Certificates") represent
fractional undivided interests in the assets of the Chevy Chase Auto
Receivables Trust 1997-1 (the "Trust") to be formed pursuant to a Pooling and
Servicing Agreement (the "Pooling Agreement"), dated as of March 1, 1997, among
Chevy Chase Bank, F.S.B. (the "Bank"), as seller and as servicer of the
receivables (the "Seller" and the "Servicer," respectively), and First Bank
National Association, as trustee (the "Trustee"). The assets of the Trust will
primarily consist of simple interest retail installment sales contracts and
installment loans (the "Receivables") secured by new and used automobiles,
light duty trucks and vans financed thereby (the "Vehicles"), certain payments
made thereunder on or after March 1, 1997 (the "Cut-Off Date"), security
interests in the Vehicles and the proceeds thereof received by the Trust from
the Seller on or prior to the date of the issuance of the Certificates, all as
more fully described herein.
(cover continued on next page)
THERE CURRENTLY IS NO SECONDARY MARKET FOR THE CERTIFICATES. THE UNDERWRITERS
INTEND TO MAKE A SECONDARY MARKET IN THE CERTIFICATES BUT HAVE NO OBLIGATION TO
DO SO. POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH UNDER "RISK FACTORS" ON PAGE [S-10] HEREIN AND UNDER "RISK FACTORS"
ON PAGE 12 IN THE ACCOMPANYING PROSPECTUS.
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE BANK OR ANY AFFILIATES OF THE
BANK. NEITHER THE CERTIFICATES NOR THE UNDERLYING RECEIVABLES OR ANY
COLLECTIONS THEREON ARE INSURED OR GUARANTEED BY THE SAVINGS ASSOCIATION
INSURANCE FUND, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL 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 SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO THE
PUBLIC (1) COMMISSIONS SELLER (1)(2)
---------- ------------ ---------------
<S> <C> <C> <C>
Per Certificate............................ ( %) ( %) ( %)
Total...................................... $ $ $
</TABLE>
- -----
(1) Plus accrued interest, if any, at the Pass-Through Rate from March 1, 1997.
(2) Before deduction of expenses payable by the Bank estimated at $625,000.
The Certificates are offered by the Underwriters when, as and if issued by the
Trust, delivered to and accepted by the Underwriter and subject to its right to
reject orders in whole or in part. It is expected that the Certificates will be
offered globally and delivered in book-entry form on or about March 19, 1997
through the facilities of The Depository Trust Company, Cedel Bank, societe
anonyme and Euroclear System, against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON
J. P. MORGAN & CO.
SMITH BARNEY INC
The date of this Prospectus Supplement is March , 1997.
<PAGE>
(cover continued from previous page)
The assets of the Trust also will include a financial guaranty insurance
policy (the "Certificate Insurance Policy") from AMBAC Indemnity Corporation
(the "Certificate Insurer"), which will unconditionally and irrevocably
guarantee payment of amounts due to the holders of the Certificates (the
"Certificateholders") to the extent described herein. The Trustee will also
have access to a Reserve Account and a Yield Maintenance Account to be
established for the benefit of the Certificateholders and the Certificate
Insurer.
[AMBAC LOGO]
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Servicer will provide without charge to each person to whom this
Prospectus Supplement is delivered, on the written or oral request of such
person, a copy of any or all of the documents referred to above that have been
or may be incorporated by reference in this Prospectus Supplement or the
Prospectus (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that this Prospectus Supplement or the Prospectus
incorporates). Written requests for such copies should be directed to: Chevy
Chase Bank, F.S.B., 8401 Connecticut Avenue, Chevy Chase, Maryland 20815,
Attention: Chief Financial Officer. Telephone requests for such copies should
be directed to Chevy Chase Bank, F.S.B. at (301) 986-7000.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and the
Prospectus. Certain capitalized terms used in this Summary of Terms are defined
elsewhere in this Prospectus Supplement on the pages indicated in the Index of
Defined Terms and in the accompanying Prospectus on the pages indicated in the
Index of Defined Terms.
Issuer......................
Chevy Chase Auto Receivables Trust 1997-1 (the
"Trust" or the "Issuer").
Seller/Servicer............. Chevy Chase Bank, F.S.B., a federally chartered
stock savings bank (the "Bank", the "Seller" or
the "Servicer"). See "The Seller and the
Servicer" herein.
Trustee..................... First Bank National Association, a national
banking association. The corporate trust offices
of the Trustee are located at 180 East 5th
Street, St. Paul, Minnesota 55101, and the
telephone number of the Trustee is 1-800-934-6802
(bond holder services).
Cut-Off Date................
March 1, 1997 (the "Cut-Off Date").
Closing Date................ March 19, 1997 (the "Closing Date").
Securities Offered.......... The % Auto Receivables Backed Certificates (the
"Certificates"). The Certificates will evidence
fractional undivided ownership interests in the
assets of the Trust. The Certificates will be
offered for purchase in denominations of $1,000
and integral multiples thereof. See "The
Certificates--General." Each Certificateholder
will also purchase the right to receive a pro
rata share of amounts payable under the Yield
Maintenance Account established pursuant to the
Pooling Agreement (such amounts, "Yield
Maintenance Amounts").
The Trust................... The Trust will be a trust established under the
laws of the State of New York. The activities of
the Trust are limited by the terms of the Pooling
Agreement to purchasing, owning and managing the
Receivables, issuing and making payments on the
Certificates and other activities related
thereto.
Trust Property.............. The assets of the Trust (the "Trust Property")
include (i) the Receivables, (ii) all monies
(including accrued interest) due or received on
or after the Cut-Off Date, (iii) the Collection
Account (as defined herein) and the Certificate
Account (as defined here) and such amounts as
from time to time may be held in one or more
accounts established and maintained by the
Servicer and the Trustee pursuant to the Pooling
Agreement, as described below, (iv) the security
interests in the Vehicles, (v) the rights to
proceeds from claims on physical damage, credit
life and disability insurance policies, if any,
covering Vehicles or Obligors (as defined
herein), as the case may be, (vi) any proceeds
from the sale of repossessed Vehicles, (vii) all
rights to receive payments under certain
circumstances from the Reserve Account (as
defined herein), (viii) the Certificate Insurance
Policy and (ix) certain other property, as more
fully described herein. See "The 1997-1 Trust
Property" and "The Trust Property" herein in the
Prospectus.
S-3
<PAGE>
The Receivables............. The Receivables consist of simple interest retail
installment sales contracts between dealers and
retail purchasers and installment loans which are
secured by the new and used automobiles, light
duty trucks and vans financed thereby. Each
Obligor's obligation under its Receivable is a
full recourse obligation. The "Obligor" is the
obligor under each Receivable including any
guarantor. The Receivables contain provisions
which unconditionally obligate the Obligor to
make all payments under the related Receivable.
Approximately 74.47% of the Receivables (by
aggregate principal balance of the Receivables as
of the Cut-Off Date) were purchased or originated
by the Bank and the other 25.53% of the
Receivables were purchased or originated by the
Bank's wholly-owned subsidiary, Consumer Finance
Corporation ("CFC" together with the bank, the
"Lenders"). The Receivables purchased or
originated by CFC are referred to herein as the
"CFC Receivables." See "The Receivables Pool"
herein.
Book-Entry Registration.....
The Certificates will initially be available only
in book-entry form. See "Description of the
Securities--Book-Entry Registration" on the
accompanying Prospectus.
Pass-Through Rate........... % per annum, calculated on the basis of a 360-
day year consisting of twelve 30-day months (the
"Pass-Through Rate").
Distribution Date........... The 15th day of each month (or, if such 15th day
is not a day on which banks located in New York,
New York, St. Paul, Minnesota or Chevy Chase,
Maryland are open for the purpose of conducting
commercial banking business (a "Business Day"),
the next following Business Day) (each a
"Distribution Date") beginning April 15, 1997.
Monthly Interest............ On each Distribution Date, the Trustee will
distribute pro rata to the Certificateholders of
record as of the close of business on the day
(whether or not a Business Day) immediately
preceding such Distribution Date (or, if
Definitive Certificates are issued, the close of
business on the last day of the calendar month
immediately preceding the month of such
Distribution Date) (the "Record Date") interest
at one-twelfth of the Pass-Through Rate on the
Certificate Principal Balance immediately prior
to such Distribution Date (the "Monthly
Interest"). To the extent interest collections
received by the Trust are insufficient to pay
such interest as a result of the annual
percentage rates ("APRs") on certain of the
Receivables, the Certificateholders will be
entitled to Yield Maintenance Amounts. The
"Certificate Principal Balance" shall equal,
initially, $209,433,212. 14 (the "Original
Certificate Principal Balance") and thereafter,
the Original Certificate Principal Balance,
reduced by all amounts previously distributed to
Certificateholders and allocable to principal. A
"Collection Period" with respect to a
Distribution Date will be the calendar month
preceding the month in which such Distribution
Date occurs. See "The Certificates--Flow of
Funds" herein.
S-4
<PAGE>
Monthly Principal........... On Distribution Date, the Trustee will distribute
to Certificateholders, as of the related Record
Date, the Monthly Principal (as defined herein)
relating to such Distribution Date. See "The
Certificates--Flow of Funds" herein.
The Pooling Agreement will require that the
Accounts.................... Trustee establish an account (the "Collection
Account") and that the Servicer deposit into the
Collection Account all collections received by
the Servicer on the Receivables within two
Business Days following receipt of such amounts.
With respect to any Distribution Date and on the
related Determination Date, the Servicer shall
instruct the holder of the Collection Account to
deposit into an account established by the
Trustee (the "Certificate Account") all funds
collected on the Receivables during the most
recently completed Collection Period.
The credit enhancement available for the benefit
Credit Enhancement.......... of the Certificateholders will consist of the
Reserve Account and the Certificate Insurance
Policy.
The Trustee will hold a Reserve Account (the
A. Reserve Account.......... "Reserve Account") for the benefit of the
Certificateholders and the Certificate Insurer.
The Reserve Account will be created with an
initial deposit by the Seller of cash in an
amount required by the Pooling Agreement (the
"Reserve Initial Deposit"). The Reserve Initial
Deposit will be augmented on each Distribution
Date by the deposit in the Reserve Account of
amounts otherwise distributable to the Seller
from Excess Interest (as defined below) until the
amount in the Reserve Account reaches an amount
equal to the Specified Reserve Balance.
Thereafter, amounts otherwise distributable to
the Seller will be deposited in the Reserve
Account to the extent necessary to maintain the
amount in the Reserve Account at an amount equal
to the Specified Reserve Balance. Amounts in the
Reserve Account (including any investment
earnings thereon) on any Distribution Date (after
giving effect to all distributions made on such
Distribution Date) in excess of the Specified
Reserve Balance for such Distribution Date
generally will be released to the Seller. With
respect to any Distribution Date, "Excess
Interest" shall mean funds on deposit in the
Certificate Account after distribution of the
Monthly Interest and Monthly Principal (together,
the "Required Payments") to the
Certificateholders on such Distribution Date and
payment of the fee due the Trustee, the premium
then due to the Certificate Insurer and the
Reimbursement Amount (as defined herein).
The "Specified Reserve Balance" with respect to
any Distribution Date means the amount so
specified in the Pooling Agreement. The Reserve
Account will be maintained with the Trustee as an
Eligible Deposit Account, and will not be part of
the Trust.
The Certificate Insurer may, at its option and
without notice to, or the consent of, the
Certificateholders, reduce the Specified Reserve
Balance.
S-5
<PAGE>
B. The Certificate On or before the Closing Date, the Seller will
Insurance Policy............ obtain the Certificate Insurance Policy (the
"Certificate Insurance Policy") which is
noncancelable, in favor of the Trustee on behalf
of the Certificateholders. On each Distribution
Date, the Certificate Insurer will be required to
make available to the Trustee the amount, if any,
by which the Required Payments on the
Certificates exceed the sum of (x) Available
Funds as of such Distribution Date and (y) the
amount, if any, then on deposit in the Reserve
Account. The Certificate Insurance Policy does
not guarantee to the Certificateholders any
specified rate of prepayments. A payment by the
Certificate Insurer under the Certificate
Insurance Policy is referred to herein as an
"Insured Payment." See "The Certificate Insurance
Policy" and "The Certificate Insurer" herein.
The Trustee will (i) receive as attorney-in-fact
of each Certificateholder, any Insured Payment
from the Certificate Insurer and (ii) disburse
such Insured Payment to each Certificateholder in
accordance with the Pooling Agreement. The
Pooling Agreement will provide that to the extent
the Certificate Insurer makes Insured Payments,
either directly or indirectly (as by paying
through the Trustee), to the Certificateholders,
the Certificate Insurer will be subrogated to the
rights of such Certificateholders with respect to
such Insured Payments. The Certificate Insurer
will receive reimbursement for such Insured
Payments, but only from the sources and in the
manner provided in the Pooling Agreement. Such
subrogation and reimbursement will have no effect
on the Certificate Insurer's obligations under
the Certificate Insurance Policy.
Yield Maintenance Account... A Yield Maintenance Account will be established
for the benefit of the Certificateholders with
respect to those Receivables which have annual
percentage rates of interest ("APRs") which are
less than the sum of the Pass-Through Rate, the
Servicing Fee Rate and the rates at which the
Certificate Insurer's premium and the Trustee's
fee are calculated (the sum of such rates, the
"Required Rate"). See "Description Of the Trust
Agreements--Yield Maintenance Account and Yield
Maintenance Agreement" in the accompanying
Prospectus.
Certificate Insurer......... AMBAC Indemnity Corporation and any successor
thereto.
Servicing................... The Servicer will be responsible for servicing,
managing, arranging, making collections on and
otherwise enforcing the Receivables, and will be
entitled to retain from collections on the
Receivables a monthly fee (the "Servicing Fee")
equal to one-twelfth the product of (i) 1.50%
(the "Servicing Fee Rate") and (ii) the Pool
Balance as of the beginning of the immediately
preceding Collection Period. The Servicer may
designate CFC to act as sub-servicer with respect
to the CFC Receivables.
Optional Termination........ The Seller will have the option, subject to
certain conditions set forth in the Pooling
Agreement, including the deposit of the sum
specified in the Pooling Agreement, to remove
all, but not less than
S-6
<PAGE>
all, of the property in the Trust, and thereby
cause early retirement of the Certificates as of
any Distribution Date following a Record Date on
which the Pool Balance is 5% or less of the
Original Certificate Principal Balance (such
option, the "Optional Termination"). In the event
of such a removal, the entire outstanding
Certificate Principal Balance, together with
accrued interest thereon at the Pass-Through
Rate, will be required to be paid to the
Certificateholders on such Distribution Date. The
Certificate Insurance Policy will not insure
payments to Certificateholders resulting from an
Optional Termination. See "The Certificates--
Optional Termination" herein.
Certain Legal Aspects of
the Receivables.............
Because of the administrative burden and expense
that would be entailed in doing so, the
certificates of title for the Vehicles will not
be amended to identify the Trustee as the secured
party. If there are any Vehicles as to which the
Bank failed to obtain a perfected security
interest, its security interest would be
subordinate to, among others, subsequent
purchasers of the Vehicles and holders of
perfected security interests. Pursuant to the
Pooling Agreement, the Seller will assign its
security interests in the Vehicles to the
Trustee. Under the laws of Virginia, Georgia and
North Carolina, such an assignment of security
interests may not be, and under the laws of
Maryland will not be, sufficient to convey to the
Trustee perfected security interests in the
Vehicles. The Seller will covenant in the Pooling
Agreement to repurchase any Receivable if, on the
Closing Date, a valid, subsisting and enforceable
first priority security interest in the related
Vehicle, which will have been assigned to the
Trust, has not been perfected (or is not in the
process of being perfected) in favor of the
applicable Lender. The Seller will also covenant
in the Pooling Agreement to repurchase any
Receivable if, after the Closing Date, a valid,
subsisting and enforceable first priority
security interest in the name of the applicable
Lender is not maintained on behalf of the Trust
in the related Vehicle. See "Certain Legal
Aspects of the Receivables" in the Prospectus.
Certain Federal Tax In the opinion of Dewey Ballantine, special tax
Considerations.............. counsel to the Underwriters, the Trust will be
classified as a grantor trust and not as an
association taxable as a corporation for federal
income tax purposes. The Beneficial Owners of the
Certificates must report their respective
allocable shares of all income earned on the
Trust Property and may deduct their respective
allocable shares of reasonable servicing fees.
See "Certain Federal Income Tax Consequences,"
herein.
ERISA Considerations........ Certificates may be purchased by or with the
assets of an employee benefit plan subject to the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and the provisions of
Section 4975 of the Code. An acquisition of
Certificates by such an employee benefit plan is
subject to the general fiduciary standards
S-7
<PAGE>
of ERISA and satisfaction of the conditions
imposed under the terms of a prohibited
transaction exemption granted to the
Underwriters. See "ERISA Considerations" herein.
Ratings..................... It is a condition of the original issuance of the
Certificates that the Certificates be rated in
the highest rating category by at least one of
Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. ("S&P") or Fitch
Investors Service, Inc. ("Fitch")(Moody's, S&P
and Fitch, collectively, the "Rating Agencies").
The rating of the Certificates will depend
primarily on an assessment by the Rating Agencies
of the claims-paying ability of the Certificate
Insurer. Any reduction in the rating assigned to
the claims-paying ability of the Certificate
Insurer below the rating initially given to the
Certificates would likely result in a reduction
of the rating of the Certificates. A security
rating is not a recommendation to buy, sell or
hold securities, and may be subject to revision
or withdrawal at any time by the assigning
entity. See "Ratings" herein.
Certain Legal Matters....... Certain legal matters relating to the validity of
the issuance of the Certificates will be passed
upon for the Seller by Shaw, Pittman, Potts &
Trowbridge, Washington, D.C. and for the
Underwriters by Dewey Ballantine, New York, New
York.
S-8
<PAGE>
RISK FACTORS
In addition to those factors described under "Risk Factors" in the
Prospectus, prospective Certificateholders should consider, among other things,
the following factors in connection with the purchase of the Certificates:
Limited Liquidity. There currently is no secondary market for the
Certificates, and there is no assurance that one will develop or, if one does
develop, that it will continue until the Certificates are paid in full. The
Underwriters intend to make a market in the Certificates but have no obligation
to do so.
Yield And Prepayment Considerations. The weighted average life of the
Certificates will be reduced by full or partial prepayments on the Receivables.
The Receivables will generally be prepayable at any time without penalty.
Prepayments (or, for this purpose, equivalent payments to the Trust) may result
from payments by Obligors, liquidations due to default, the receipt of proceeds
from physical damage or credit life and/or credit disability insurance,
repurchases by the Seller as a result of certain uncured breaches of
representations and warranties made with respect to the Receivables, purchases
by the Servicer as a result of certain uncured breaches of the covenants made
by it with respect to the Receivables, or the exercise by the Seller of its
Optional Termination.
The Seller has not as of the date hereof prepared data on prepayment rates
and is not aware of publicly available industry statistics that set forth
principal prepayment experience for retail installment sales contracts similar
to the Receivables. The Seller can make no prediction as to the actual
prepayment rates that will be experienced on the Receivables. The Seller,
however, believes that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life of the Receivables.
Geographic Concentration. As of the Cut-Off Date, based upon billing address
information provided to the Seller, the Obligors resided in 31 states and the
District of Columbia, four of which, Maryland, Virginia, North Carolina and
Georgia, account for 21.45%, 33.01%, 17.76% and 17.69%, respectively, of the
aggregate principal balance of the Receivables in the Trust. Adverse economic
conditions in Maryland, Virginia, North Carolina or Georgia could adversely
affect the delinquency, loan loss or repossession experience of the Trust with
respect to the Receivables.
FORMATION OF THE TRUST
The Seller will establish the Trust by selling and assigning the Receivables
and certain other Trust Property to the Trustee in exchange for the
Certificates. Prior to such sale and assignment, the Trust will have no assets
or obligations or any operating history. The Trust will not engage in any
business other than acquiring and holding the Trust Property, issuing the
Certificates and distributing payments on the Certificates.
The Seller, immediately prior to its transfer of the Receivables to the
Trust, will acquire the CFC Receivables from CFC.
The Servicer will hold the Receivables and the certificates of title or
ownership relating to the Vehicles as custodian for the Trustee. However, the
Receivables will not be marked or stamped to indicate that they have been sold
to the Trust, and the certificates of title or ownership for the Vehicles will
not be endorsed or otherwise amended to identify the Trust as the new secured
party. Under such circumstances and in certain jurisdictions, the Trust's
interest in the Receivables and the Vehicles may be defeated. See "Certain
Legal Aspects of the Receivables" in the accompanying Prospectus.
The Trust will not acquire any assets other than the Trust Property, and it
is not anticipated that the Trust will have any need for additional capital
resources. Because the Trust will have no operating history upon its
establishment and will not engage in any business other than acquiring and
holding the Trust Property, issuing the Certificates and distributing payments
on the Certificates, no historical or pro forma financial statements or ratios
of earnings to fixed charges with respect to the Trust have been included
herein.
S-9
<PAGE>
If the protection provided to the Certificateholders by the Certificate
Insurance Policy, the Reserve Account and the Yield Maintenance Account is
insufficient, the Certificateholders would have to look principally to the
Obligors on the Receivables and to the proceeds from the repossession and sale
of Vehicles which secure Defaulted Receivables (as defined herein). In such
event, certain factors, such as the Trustee's failure to have perfected
security interests in the Vehicles in all states, may affect the Trust's
ability to repossess and sell the Vehicles securing the Receivables, and thus
may reduce the proceeds to be distributed to Certificateholders. See "The
Certificates--Flow of Funds" and "The Certificate Insurance Policy" herein, as
well as and "Certain Legal Aspects of the Receivables" in the accompanying
Prospectus.
THE 1997-1 TRUST PROPERTY
Each Certificate will represent a fractional undivided interest in the Trust.
The Trust Property will include (i) the Receivables, (ii) all monies (including
accrued interest) due or received thereon on or after the Cut-Off Date, (iii)
all amounts and property from time to time held in or credited to the
Collection Account and the Certificate Account, (iv) all of the Seller's
security interests in the Vehicles, (v) all rights to receive payments under
certain circumstances from the Reserve Account, (vi) the Certificate Insurance
Policy, (vii) all of the Seller's rights to receive proceeds from claims on
physical damage, credit life and disability insurance policies covering the
Vehicles or the Obligors, as the case may be, to the extent that such insurance
policies relate to the Receivables, (viii) all of the Seller's right to all
documents contained in the Receivable Files, (ix) all of the Seller's rights of
recourse against Dealers relating to the Receivables, (x) all property
(including the right to receive future Liquidation Proceeds (as defined herein)
and Recoveries (as defined herein)) that secures a Receivable and that shall
have been acquired by or on behalf of the Trustee and (xi) all proceeds (within
the meaning of Section 9-306 of the UCC) of the foregoing. The Pooling
Agreement does not permit the Trust to acquire any additional assets. The Yield
Maintenance Account will hold certain amounts relating to the provision of the
Yield Maintenance Payments. The Trustee will hold the Certificate Insurance
Policy.
USE OF PROCEEDS
A portion of the net proceeds to be received by the Seller from the sale of
the Certificates will be used by the Seller to purchase the CFC Receivables
from CFC; the remainder of such net proceeds will be used by the Seller for
general corporate purposes.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Certificates will be directly related
to the scheduled rate of principal payments on the underlying Receivables. If
the Certificates are purchased at a price of other than par, the yield to
maturity on the Certificates also will be affected by the rate of principal
payments. The principal payments on such Receivables may be in the form of
scheduled principal payments or liquidations due to default, casualty and the
like. Any such payments will result in distributions to the Certificateholders
of amounts which would otherwise have been distributed over the remaining term
of the Receivables. In general, the rate of such payments may be influenced by
a number of other factors, including general economic conditions.
The effective yield to the Certificateholders will depend upon, among other
things, the price at which such Certificates are purchased, the amount of
principal, including both scheduled and nonscheduled payments thereof, which is
paid to the Certificateholders and the rate at which such principal is paid.
Interest on the Receivables will be passed through to Certificateholders on
each Distribution Date to the extent of the Pass-Through Rate applied to the
Certificate Principal Balance immediately prior to such Distribution Date. In
the event of prepayments on a Receivable, Certificateholders will receive
thirty (30) days' interest on such Receivable to the extent that amounts are
available from the Reserve Account, the Yield Maintenance Account and the
Certificate Insurance Policy and are sufficient for such purpose. See "The
Certificates--Flow of Funds."
S-10
<PAGE>
THE RECEIVABLES POOL
GENERAL
The Receivables in the pool were purchased or originated by Chevy Chase Bank
F.S.B. (the "Bank") or its wholly-owned subsidiary, CFC ("CFC," together with
the Bank, the "Lenders"). Of the aggregate principal balance of the Receivables
as of the Cut-off Date, 74.47% were purchased or originated by the Bank (the
"Bank Receivables") and 25.53% were purchased or originated by CFC (the "CFC
Receivables").
Of the Bank Receivables as of the Cut-Off Date, 99.12% by aggregate principal
balance, were purchased by the Bank from dealers ("Dealers") in new and used
automobiles, light duty trucks and vans in the ordinary course of business and
0.88% were originated directly by the Bank at or through its deposit branches.
Approximately 45.14% of the aggregate principal balance of the Bank Receivables
represents financing of new automobiles, light duty trucks and vans, and
approximately 54.86% represents financing of used automobiles, light duty
trucks and vans.
All of the CFC Receivables as of the Cut-Off Date were purchased from
Dealers. Approximately 29.35% of the aggregate principal balance of the CFC
Receivables represents financing of new automobiles, light duty trucks and
vans, and approximately 70.65% represents financing of used automobiles, light
duty trucks and vans.
UNDERWRITING PROCEDURES
Each Receivable was originated or purchased by the Lenders after a review by
the Lenders in accordance with their established underwriting procedures. Each
Lender has its own underwriting procedures.
The underwriting procedures of each Lender are designed to provide a basis
for assessing the Obligor's ability and willingness to repay the loan. In
conducting this assessment, the Lenders consider the Obligor's ratio of debt to
income and evaluate the Obligor's credit history through a review of a written
credit report compiled by a recognized consumer credit reporting bureau. The
Obligor's equity in the collateral and the terms of the loan are of secondary
importance in the Lenders' analysis. For the Obligor's purchase of an
automobile, the Bank's guidelines provide for financing up to 115% of the
dealer cost for new vehicles and of the Trade-In Value (as published by the
National Automobile Dealers Association, a standard reference source for
dealers in used vehicles, the "Trade-In Value") for used vehicles. CFC has two
sets of guidelines which vary based on the Obligor's credit history. For new
vehicles, CFC will finance up to 105% of dealer cost, plus sales taxes, license
fees and a maximum of $2,000 of rebatable warranties and insurance, or 130% of
dealer cost, inclusive of all additional expenses. For used vehicles, CFC will
finance up to 110% of the Trade-in Value, plus sales taxes, license fees and a
maximum of $2,000 of rebatable warranties and insurance, or 130% of the Trade-
in Value, inclusive of all additional expenses. The Lenders' guidelines are
intended only to provide a basis for lending decisions, and exceptions to such
guidelines may, within certain limits, be made based upon the credit judgment
of the lending officer. The Lenders periodically conduct quality audits to
ensure compliance with their established policies and procedures.
CFC's underwriting guidelines relate to a category of lending in which loans
may be made to applicants who have experienced certain adverse credit events
(and therefore would not necessarily meet all of the Bank's guidelines for its
traditional loan program) but who meet certain other creditworthiness tests.
Such loans may experience higher rates of delinquencies, repossessions and
losses, especially under adverse economic conditions, as compared with loans
originated pursuant to the Bank's traditional lending program.
SELECTION CRITERIA
The Receivables were selected from the Lenders' portfolios on the basis of a
number of criteria, including the following: each Receivable (i) has an
original term to maturity of 12 to 72 months, (ii) has a maturity of not later
than March 1, 2003 (iii) except with respect to the Balloon Receivables (as
defined herein), provides for level monthly payments that fully amortize the
amount financed over the original term, (iv) was not more than
S-11
<PAGE>
59 days past due as of the Cut-Off Date, (v) has an unpaid principal balance
of not less than $1,000 as of the Cut-Off Date and (vi) if such Receivable was
purchased or originated by CFC only, the Obligor has made at least one payment
with respect thereto as of the Cut-Off Date. The weighted average remaining
term (number of payments) of the Receivables was 56.81 months as of the Cut-
Off Date.
All the Receivables are prepayable at any time. Neither Lender maintains
records of the historical prepayment experience of its automobile receivables
portfolio, and the Seller makes no prediction as to the actual prepayment
experience on the Receivables. See also "The Certificates--Optional
Termination" herein regarding the Seller's option to purchase the Receivables
when the Pool Balance is 5% or less of the Original Certificate Principal
Balance.
The Receivables are simple interest installment sales contracts and
installment loans which provide for equal monthly payments, except for 0.25%
of the Receivables (as a percentage of the initial Pool Balance) with respect
to which the last scheduled monthly payment of each such Receivable is
significantly larger than any prior scheduled monthly payment (each such
Receivable, a "Balloon Receivable"). As payments are received under a simple
interest receivable, interest accrued to date is paid first and the remaining
payment is applied to reduce the unpaid principal balance. Accordingly, if an
obligor pays a fixed monthly installment before its due date, the portion of
the payment allocable to interest for the period since the preceding payment
will be less than it would have been had the payment been made on the due
date, and the portion of the payment applied to reduce the principal balance
will be correspondingly greater. Conversely, if an obligor pays a fixed
monthly installment after its due date, the portion of the payment allocable
to interest for the period since the preceding payment will be greater than it
would have been had the payment been made on the due date, and the portion of
the payment applied to reduce the principal balance will be correspondingly
less, in which case a larger portion of the principal balance will be due on
the final scheduled payment date. In the case of a liquidation or
repossession, amounts recovered are applied first to the expenses of
repossession, then to unpaid interest and finally to unpaid principal.
The composition, distribution by APR and geographical distribution of the
Receivables as of the Cut-Off Date are as set forth in the following tables.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C> <C> <C>
Initial Aggregate Principal Balance.... $209,433,212.14
Number of Receivables.................. 14,285
Average Original Principal Balance..... $ 14,987.95
Range of Original Principal Bal-
ances............................... $ 2,138.00 to $39,416.91
Average Remaining Principal Balance.... $ 14,661.06
Range of Remaining Principal Bal-
ances............................... $ 1,204.24 to $39,416.91
Weighted Average APR(1)................ 12.50%
Range of APRs........................ 6.25% to 31.00%
Weighted Average Original Term to Matu-
rity(1)............................... 58.63 months
Range of Original Terms to Maturity.. 12 months to 72 months
Weighted Average Remaining Term to Ma-
turity(1)............................. 56.81 months
Range of Remaining Terms to Maturi-
ty.................................. 12 months 72 months
</TABLE>
- --------
(1) Weighted by remaining principal balance.
S-12
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF NUMBER OF AGGREGATE AGGREGATE
RANGE OF APRS RECEIVABLES RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
------------- ----------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
6.000% to 6.999%...... 2 0.01% $ 24,629.85 0.01%
7.000% to 7.999%...... 1,062 7.43 18,011,210.48 8.60
8.000% to 8.999%...... 2,229 15.60 36,041,424.96 17.21
9.000% to 9.999%...... 2,345 16.41 36,924,708.86 17.63
10.000% to 10.999%...... 1,733 12.13 27,868,609.28 13.31
11.000% to 11.999%...... 1,145 8.01 17,900,829.64 8.55
12.000% to 12.999%...... 771 5.40 11,131,090.24 5.31
13.000% to 13.999%...... 322 2.25 4,371,737.08 2.09
14.000% to 14.999%...... 168 1.18 2,319,183.86 1.11
15.000% to 15.999%...... 223 1.56 3,199,830.91 1.53
16.000% to 16.999%...... 423 2.96 5,409,967.19 2.58
17.000% to 17.999%...... 751 5.26 10,764,354.60 5.14
18.000% to 18.999%...... 1,307 9.15 15,939,354.37 7.61
19.000% to 19.999%...... 326 2.28 4,274,494.74 2.04
20.000% to 20.999%...... 78 0.55 710,618.70 0.34
21.000% to 21.999%...... 244 1.71 2,594,792.40 1.24
22.000% to 22.999%...... 100 0.70 1,033,792.32 0.49
23.000% to 23.999%...... 298 2.09 2,993,721.72 1.43
24.000% to 24.999%...... 301 2.11 3,603,754.29 1.72
25.000% to 25.999%...... 24 0.17 291,675.12 0.14
26.000% to 26.999%...... 185 1.29 1,738,215.24 0.83
27.000% to 27.999%...... 78 0.55 708,455.82 0.34
28.000% to 28.999%...... 54 0.38 548,069.88 0.26
29.000% to 29.999%...... 104 0.73 922,920.58 0.44
30.000% to 30.999%...... 1 0.01 10,526.55 0.00
31.000% to 31.999%...... 11 0.08 95,243.46 0.05
Total............... 14,285 100.00% $209,433,212.14 100.00%
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF NUMBER OF AGGREGATE AGGREGATE
STATE(1) RECEIVABLES RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
-------- ----------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
District of Columbia.... 246 1.72% $ 3,606,498.74 1.72%
Georgia................. 2,402 16.81 37,044,050.58 17.69
Maryland................ 3,005 21.04 44,922,497.87 21.45
North Carolina.......... 2,632 18.42 37,185,712.76 17.76
Pennsylvania............ 468 3.28 6,581,305.16 3.14
Virginia................ 4,705 32.94 69,141,292.57 33.01
Other................... 827 5.79 10,951,854.46 5.23
Total............... 14,285 100.00% $209,433,212.14 100.00%
</TABLE>
- --------
(1) Based upon the billing address of the Obligors.
S-13
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY REMAINING PRINCIPAL BALANCE AS OF THE CUT-
OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF NUMBER OF AGGREGATE AGGREGATE
RANGE OF REMAINING PRINCIPAL BALANCES RECEIVABLES RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------- ----------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
$ 00.00 to $ 4,999.99.... 152 1.07% $ 620,175.87 0.30%
$ 5,000.00 to $ 9,999.99.... 2,477 17.34 20,387,216.20 9.73
$10,000.00 to $14,999.99.... 5,804 40.63 73,084,264.49 34.90
$15,000.00 to $19,999.99.... 3,706 25.94 63,716,539.90 30.42
$20,000.00 to $24,999.99.... 1,481 10.37 32,692,999.84 15.61
$25,000.00 to $29,999.99.... 494 3.46 13,330,974.39 6.36
$30,000.00 to $34,999.99.... 139 0.97 4,433,512.05 2.12
$35,000.00 to $39,999.99.... 32 0.22 1,167,529.40 0.56
Total................... 14,285 100.00% $209,433,212.14 100.00%
</TABLE>
DISTRIBUTION OF THE RECEIVABLES BY REMAINING TERMS TO MATURITY AS OF THE CUT-
OFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
NUMBER OF NUMBER OF AGGREGATE AGGREGATE
RANGE OF REMAINING TERMS TO MATURITY RECEIVABLES RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------ ----------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
1 to 12.................... 3 0.02% $ 25,310.62 0.01%
13 to 24.................... 103 0.72 734,620.59 0.35
25 to 36.................... 667 4.67 5,846,833.27 2.79
37 to 48.................... 2,361 16.53 26,268,421.57 12.54
49 to 60.................... 9,728 68.10 147,019,691.53 70.20
61 to 72.................... 1,423 9.96 29,538,334.56 14.11
Total................... 14,285 100.00% $209,433,212.14 100.00%
</TABLE>
THE SELLER AND THE SERVICER
GENERAL
The Seller, which is one of the Lenders, is a federally chartered stock
savings bank. The Seller's home office is located at 7926 Jones Branch Drive,
McLean, Virginia 22102, and its executive offices are located at 8401
Connecticut Avenue, Chevy Chase, Maryland 20815. The Seller's telephone number
is (301) 986-7000. The Seller is subject to comprehensive regulation,
examination and supervision by the Office of Thrift Supervision (the "OTS")
within the Department of the Treasury and the Federal Deposit Insurance
Corporation (the "FDIC"). Deposits at the Seller are fully insured up to
$100,000 per insured depositor by the Savings Association Insurance Fund
("SAIF"), which is administered by the FDIC.
Based on unaudited results, at December 31, 1996, the Bank had consolidated
assets of approximately $6.2 billion, deposits of approximately $4.2 billion,
and stockholders' equity of approximately $344.7 million. As a savings bank
chartered under the laws of the United States, the Bank is subject to certain
minimum regulatory capital requirements imposed under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
("FIRREA"). At December 31, 1996, the Bank's tangible, core, tier 1 risk-based
and total risk-based regulatory capital ratios were 6.58%, 6.58%, 7.05% and
14.06%, respectively. As of such date, the Bank's capital ratios exceeded the
requirements under FIRREA as well as the standards established for "well
capitalized" institutions under the prompt corrective action regulations
established pursuant to the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). The OTS has the discretion to treat a "well-
capitalized" institution as an "adequately capitalized" institution for
purposes of the prompt corrective action regulations if, after notice and an
opportunity for a hearing, the OTS determines that the institution (i) is being
operated in an unsafe or unsound condition or (ii) has received and has not
corrected a less than satisfactory examination rating for asset quality,
management, earnings or liquidity.
S-14
<PAGE>
On December 3, 1996, the Bank sold $100 million of its 9 1/4% Subordinated
Debentures due 2008 (the "1996 Debentures"), the principal amount of which is
includable in the Bank's supplementary capital. In addition, on December 3,
1996, a new real estate investment trust subsidiary of the Bank (the "REIT
Subsidiary") sold $150 million of its 10 3/8% Noncumulative Exchangeable
Preferred Stock, Series A (the "REIT Preferred Stock"), which is eligible for
inclusion as core capital of the Bank in an amount up to 25% of the Bank's
total core capital.
Congress is considering legislation in various forms that would require
federal thrifts, like the Bank, to convert their charters to national or state
bank charters. Recent legislation requires the merger of the Bank Insurance
Fund ("BIF") and the SAIF into a single Deposit Insurance Fund on January 1,
1999 but only if the thrift charter is eliminated by that date. The Treasury
Department is required to submit a comprehensive study on thrift charter
issues by March 31, 1997. In the absence of appropriate "grandfather"
provisions, such legislation could have a material adverse effect on the Bank
and its parent company, the B.F. Saul Real Estate Investment Trust (the "Real
Estate Investment Trust") because, among other things, the Real Estate
Investment Trust engages in activities that are not permissible to bank
holding companies and the regulatory capital and accounting treatment for
banks and thrifts differs in certain respects. The Bank cannot determine
whether, or in what form, such legislation will eventually be enacted and
there can be no assurances that any such legislation that is enacted will
contain adequate grandfather rights for the Bank and the Real Estate
Investment Trust.
Because of the continued improvement in the financial condition of the Bank,
on March 29, 1996, the OTS released the Bank from certain restrictions and
requirements contained in an agreement with the OTS, which had been amended in
October 1993. In connection with the termination of the written agreement at
the request of the OTS, the Board of Directors of the Bank has adopted a
resolution that addresses certain issues previously addressed by the written
agreement. The resolution also provides that the Bank will present a plan
annually to the OTS detailing anticipated consumer loan securitization
activity.
The other Lender, CFC, is a wholly-owned subsidiary of the Seller, formed in
December 1994 for the purpose of providing automobile financing to applicants
who may have experienced certain adverse credit events. See "The Receivables
Pool" herein.
DELINQUENCY AND DEFAULT EXPERIENCE
There can be no assurance that the levels of delinquency and loss experience
reflected in the tables below, are indicative of the performance of the
Receivables included in the Trust.
CHEVY CHASE BANK, F.S.B.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------------- -------------------- -------------------- -------------------- --------------------
DOLLAR PERCENTAGE DOLLAR PERCENTAGE DOLLAR PERCENTAGE DOLLAR PERCENTAGE DOLLAR PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
(000) RECEIVABLES (000) RECEIVABLES (000) RECEIVABLES (000) RECEIVABLES (000) RECEIVABLES
------- ----------- -------- ----------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1).. $84,533 $166,307 $299,096 $431,351 $714,320
Delinquencies:(2)(3)
30-59 Days...... $ 1,469 1.74% $ 1,210 0.73% $ 4,074 1.36% $ 2,491 0.58% $ 8,516 1.19%
60-89 Days...... 237 0.28% 223 0.13% 729 0.24% 742 0.17% 2,176 0.31%
90 days or
more........... 328 0.39% 226 0.14% 1,208 0.40% 1,667 0.39% 3,588 0.50%
------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Total
Delinquencies.. $ 2,034 2.41% $ 1,659 1.00% $ 6,012 2.00% $ 4,900 1.14% $ 14,280 1.99%
======= ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- --------
(1)Total Seller Portfolio is the net remaining principal balance.
(2)The period of delinquency is based on the number of days payments are
contractually past due.
(3)Includes repossessions in inventory.
S-15
<PAGE>
CHEVY CHASE BANK, F.S.B.
LOSS EXPERIENCE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------------- -------------------- -------------------- -------------------- --------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
DOLLAR OF AVERAGE DOLLAR OF AVERAGE DOLLAR OF AVERAGE DOLLAR OF AVERAGE DOLLAR OF AVERAGE
AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES AMOUNT RECEIVABLES
(000) OUTSTANDING (000) OUTSTANDING (000) OUTSTANDING (000) OUTSTANDING (000) OUTSTANDING
------- ----------- -------- ----------- -------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
Outstanding(1).. $90,271 $116,475 $245,295 $363,845 $565,963
------- -------- -------- -------- --------
Gross
Charge-offs(2).. $ 811 0.90% $ 627 0.54% $ 766 0.31% $ 2,120 0.58% $ 3,795 0.67%
Recoveries(3)... 103 0.11% 115 0.10% 219 0.09% 275 0.08% 277 0.05%
------- ---- -------- ---- -------- ---- -------- ---- -------- ----
Net Losses...... $ 708 0.78% $ 512 0.44% $ 547 0.22% $ 1,845 0.51% $ 3,518 0.62%
======= ==== ======== ==== ======== ==== ======== ==== ======== ====
</TABLE>
- --------
(1) Equals the arithmetic average of the month-end balances.
(2) Gross Charge-offs represent the excess of the outstanding loan balance over
net liquidation proceeds where net liquidation proceeds are the excess of
liquidation proceeds over the sum of repossession, liquidation and other
related expenses.
(3) Includes current post-disposition recoveries on receivables as previously
charged off.
CONSUMER FINANCE CORPORATION
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------
1995 1996
------------------- --------------------
DOLLAR PERCENTAGE DOLLAR PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL
(000) RECEIVABLES (000) RECEIVABLES
------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Receivables Outstanding(1)............ $49,375 $179,105
Delinquencies(2)(3):
30-59 Days.......................... $ 2,528 5.12% $ 11,222 6.27%
60-89 Days.......................... 609 1.23% 2,529 1.41%
90 Days or more..................... 871 1.76% 5,547 3.10%
------- ---- -------- -----
Total Delinquencies............... $ 4,008 8.11% $ 19,298 10.78%
======= ==== ======== =====
</TABLE>
- --------
(1) Receivables Outstanding consists of all amounts due from obligors as posted
to the related accounts.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) Includes repossessions in inventory.
S-16
<PAGE>
CONSUMER FINANCE CORPORATION
CFC AUTO PORTFOLIO
LOSS EXPERIENCE
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------
1995 1996
------------------- ----------------------
PERCENTAGE PERCENTAGE OF
DOLLAR OF AVERAGE DOLLAR AVERAGE
AMOUNT OUTSTANDING AMOUNT RECEIVABLES
(000) RECEIVABLES (000) OUTSTANDING
------- ----------- -------- -------------
<S> <C> <C> <C> <C>
Average Receivables Outstand-
ing(1)........................ $21,383 $111,510
Gross Charge-Offs.............. $ 144 0.67% $ 2,922 2.62%
Recoveries(3).................. $ 0 0.00% $ 141 0.13%
Net Losses..................... $ 144 0.67% $ 2,781 2.49%
</TABLE>
- --------
(1) Equals the arithmetic average of the month-end balances.
(2) Gross Charge-offs represent the excess of the outstanding loan balance over
net liquidation proceeds, where net liquidation proceeds are the excess of
liquidation proceeds over the sum of repossession, liquidation and other
related expenses.
(3) Includes current post-disposition recoveries on receivables previously
charged off.
LITIGATION
The Seller is not involved in any legal proceedings, and is not aware of any
pending or threatened legal proceedings, that would have a material adverse
effect upon its financial condition or results of operations.
THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling Agreement to be
entered into by the Servicer, the Seller and the Trustee. The Trustee will
provide a copy of the Pooling Agreement to Certificateholders without charge on
written request addressed to its Corporate Trust Department at 180 East 5th
Street, St. Paul, Minnesota 55101, Att: Structured Finance/Chevy Chase 1997-1.
The following summary describes certain terms of the Pooling Agreement, does
not purport to be complete and is subject to and qualified in its entirety by
reference to the Pooling Agreement. Wherever provisions of the Pooling
Agreement are referred to, such provisions are hereby incorporated herein by
reference.
GENERAL
The Certificates will be offered for purchase in denominations of $1,000 and
integral multiples thereof and will be represented initially by physical
certificates registered in the name of Cede as nominee of DTC. No Certificate
Owner will be entitled to receive a definitive certificate representing such
person's interest in the Trust except in the event that Definitive Certificates
are issued under the limited circumstances described herein. Unless and until
Definitive Certificates are issued, all references to actions by
Certificateholders shall refer to actions taken by DTC upon instructions from
DTC Participants and all references to distributions, notices, reports, and
statements to Certificateholders shall refer to distributions, notices,
reports, and statements to DTC. See "Description of the Trust Agreements--Book-
Entry Registration" and "--Definitive Securities" in the accompanying
Prospectus.
In general, it is intended that Certificateholders receive, on each
Distribution Date, an amount of principal equal to the decrease in the Pool
Balance from the beginning to the end of the related Collection Period, plus
interest at one-twelfth of the pass-through rate on the Certificate Principal
Balance immediately prior to such Distribution Date. See "--Flow of Funds"
herein. Principal and interest to be distributed to Certificateholders
S-17
<PAGE>
may be provided by payments made by or on behalf of Obligors, the payment of
Purchase Amounts by the Seller or the Servicer, amounts, if any, from the
Reserve Account and the Yield Maintenance Account, proceeds from physical
damage insurance, Liquidation Proceeds (net of certain Servicer expenses) upon
the repossession and sale of Vehicles or Recoveries (net of certain Servicer
expenses) after the repossession and sale of Vehicles and any Insured Payments
remitted by the Certificate Insurer under the Certificate Insurance Policy. See
"The Certificate Insurance Policy" herein.
Distribution of principal and interest on the Certificates with respect to
each Collection Period will be made on the Distribution Date immediately
succeeding such Collection Period, commencing on April 15, 1997. Each
Collection Period will be one calendar month.
CONVEYANCE OF RECEIVABLES
On the Closing Date, the Seller will sell, transfer, assign, set over and
otherwise convey to the Trustee, without recourse (except as expressly set
forth in the Pooling Agreement), all of its right, title and interest in and to
the Receivables, including its security interests in the Vehicles. CFC will
convey the CFC Receivables to the Seller prior to such sale and assignment. The
Trustee will, concurrently with such sale and assignment, execute, authenticate
and deliver the definitive certificates representing the Certificates to the
Underwriter against payment to the Seller of the net purchase price of the sale
of the Certificates.
SERVICING PROCEDURES
The Receivables will be serviced by the Servicer pursuant to the Pooling
Agreement. The Servicer may designate CFC to act as sub-servicer with respect
to the CFC Receivables, although such designation will not relieve the Servicer
from its servicing obligations with respect to such CFC Receivables. The
Pooling Agreement requires that servicing of the Receivables by the Servicer
shall generally be carried out in the same manner in which it services
receivables and vehicles held for its own account. In performing its duties
thereunder, the Servicer will act on behalf and for the benefit of the Trustee
and the Holders and the Certificate Insurer, subject at all times to the
provisions of the Pooling Agreement, without regard to any relationship which
the Servicer or any affiliate of the Servicer may otherwise have with an
Obligor.
CFC's collection procedures differ in certain respects from those employed by
the Bank. On an Obligor's fifth day of delinquency, CFC sends a late payment
notice and begins the collection process, while the Bank initiates these steps
on the Obligor's tenth day of delinquency. CFC's collections department is
currently staffed to have approximately one collector for every 1,400 loans
outstanding, compared to the Bank's ratio of approximately one collector for
every 4,000 loans outstanding. In general, both the Bank and CFC initiate the
repossession process by the 45th day of delinquency.
The Servicer, as an independent contractor on behalf of the Trust and for the
benefit of the Certificateholders and the Certificate Insurer, will be
responsible for managing, servicing and administering the Receivables and
enforcing and making collections on the Receivables and any Insurance Policies
and for enforcing any security interest in any of the Vehicles, all as set
forth in the Pooling Agreement. The Servicer's responsibilities will include
collecting and posting of all payments, responding to inquiries of Obligors,
investigating delinquencies, accounting for collections, furnishing monthly and
annual statements to the Trustee and the Certificate Insurer, with respect to
distributions, providing appropriate federal income tax information for use in
providing information to Certificateholders, collecting and remitting sales and
property taxes on behalf of taxing authorities and maintaining the perfected
security interest of the Seller in the Vehicles.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For its servicing of the Receivables, the Servicer will be entitled to retain
from collections on the Receivables a Servicing Fee equal to one-twelfth of the
product of (i) 1.50% and (ii) the Pool Balance of all Receivables as of the
first day of the immediately preceding Collection Period. A portion of such
Servicing Fee may be paid over by the Servicer to CFC with respect to its sub-
servicing of the CFC Receivables.
S-18
<PAGE>
All costs of servicing each Receivable in the manner required by the Pooling
Agreement shall be borne by the Servicer, but the Servicer shall be entitled to
retain, out of any amounts actually recovered with respect to any Defaulted
Receivable or the Vehicles subject thereto, the Servicer's actual out-of-pocket
expenses reasonably incurred with respect to such Defaulted Receivable or
Vehicle.
The "Purchase Amount" of any Receivable means, with respect to any
Distribution Date an amount equal to the sum of (a) the outstanding principal
balance of such Receivable as of the last day of the preceding Collection
Period and (b) the amount of accrued interest on such principal balance at the
related APR from the date a payment was last made by or on behalf of the
Obligor through the Determination Date immediately preceding such Distribution
Date, and after giving effect to the receipt of monies collected on such
Receivable in such preceding Collection Period.
ACCOUNTS
On the Closing Date, the Trustee will establish the Collection Account, into
which all payments (other than amounts representing the Servicing Fee and other
amounts payable to the Servicer as additional servicing compensation) made on
or with respect to the Receivables will be deposited, and the Certificate
Account, from which all distributions with respect to the Receivables and the
Certificates will be made. The Seller will establish the Reserve Account and
the Yield Maintenance Account with the Trustee. The Collection Account, the
Certificate Account, the Reserve Account and the Yield Maintenance Account are
collectively referred to as the "Accounts." Each Account will be established in
the name of the Trustee on behalf of the Trust, the Certificateholders and the
Certificate Insurer. The Reserve Account and the Yield Maintenance Account will
not be assets of the Trust, although such accounts will be pledged to the
Trust. Any net investment earnings on the Yield Maintenance Account will be
released to the Seller on each Distribution Date. Any act investment earnings
on the Reserve Account will be deposited to the Reserve Account.
On each Distribution Date, as described under "Flow of Funds" herein, certain
amounts are required to be deposited in the Reserve Account. No later than the
Claim Date, amounts, if any, on deposit in the Reserve Account will be
deposited in the Certificate Account to the extent that Required Payments for
the following Distribution Date exceed Available Funds (as defined herein).
Amounts on deposit in the Reserve Account that are in excess of the Specified
Reserve Balance will be released to the Seller. The Certificate Insurer may, at
its option and without notice to, or the consent of, the Certificateholders,
reduce the Specified Reserve Balance.
FLOW OF FUNDS
On or before the earlier of the eighth Business Day or the eleventh calendar
day of each month (each, a "Determination Date"), the Servicer will (x)
instruct the Trustee to withdraw from the Collection Account and deposit into
the Certificate Account the amount deposited to the Collection Account with
respect to the Receivables during or otherwise with respect to the related
Collection Period, including Liquidation Proceeds, and (y) deliver to the
Trustee, the Rating Agencies and the Certificate Insurer a certificate (the
"Servicer's Certificate") setting forth the information needed to make payments
and other distributions and transfers on the upcoming Distribution Date.
If, in preparing the Servicer's Certificate, the Servicer determines that the
Required Payments exceed Available Funds, the Servicer will calculate the
Insufficiency Amount (as defined herein) and notify the Trustee and the
Certificate Insurer thereof. Pursuant to the Pooling Agreement, the Trustee
will withdraw from the Reserve Account and deposit in the Certificate Account
an amount equal to the lesser of (x) such Insufficiency Amount and (y) the
amount then on deposit in the Reserve Account. Unless the Certificate Insurer
has otherwise caused the remaining Insufficiency Amount (after any deposits
from the Reserve Account) to be deposited in the Certificate Account not later
than 12:00 p.m. St. Paul, Minnesota time on the Claim Date preceding any
Distribution Date, the Trustee will deliver on such Claim Date a completed
notice to the Certificate Insurer (with the Insufficiency Amount as of such
Claim Date, the amount withdrawn from the Reserve Account, the amount
S-19
<PAGE>
of the Insured Payment, and any other data appropriately completed). The
Certificate Insurer will then pay such Insured Payment as provided under the
terms of the Certificate Insurance Policy.
On each Distribution Date, the Trustee is required to pay the entire amount
of money then on deposit in the Certificate Account, other than amounts
deposited into the Certificate Account in error and Liquidation Proceeds from
Receivables purchased by the Seller or the Servicer, as the case may be, in
the following order of priority:
(a) to itself, the Trustee fee;
(b) to the Certificate Insurer, an amount equal to any premium owed to it
for such Distribution Date;
(c) to the Certificateholders, pro rata, the Monthly Interest, including
any overdue Monthly Interest;
(d) to the Certificateholders, pro rata, the Monthly Principal, including
any overdue Monthly Principal;
(e) to the Certificate Insurer, by wire transfer of immediately available
funds to the account designated in writing by the Certificate Insurer, the
Reimbursement Amount, if any, then owed to the Certificate Insurer;
(f) to the Reserve Account, by wire transfer of immediately available
funds, the lesser of (i) the difference, if any, between (x) the Specified
Reserve Balance as of such Distribution Date and (y) the amount on deposit
in the Reserve Account and (ii) the aggregate amount remaining in the
Certificate Account;
(g) to the Servicer, the Trustee and the Certificate Insurer, certain
indemnification amounts to which they may be entitled; and
(h) to the Seller, the aggregate amount remaining in the Certificate
Account.
As used in this Prospectus Supplement, the following terms have the
following meanings:
"Available Funds" means, with respect to a Distribution Date, for the
related Determination Date, any and all amounts then held in the Collection
Account and deposited thereto with respect to the Receivables during or
otherwise with respect to the related Collection Period, together with amounts
to be transferred from the Yield Maintenance Account to the Certificate
Account with respect to such Distribution Date, less the amount described in
clauses (a) and (b) above for such Distribution Date. "Available Funds" does
not include amounts, if any, on deposit in the Reserve Account or any amounts
paid by the Certificate Insurer under the Certificate Insurance Policy.
"Claim Date" means, with respect to a Distribution Date, the third Business
Day immediately preceding such Distribution Date.
"Defaulted Receivable" means, with respect to any Distribution Date, a
Receivable with respect to which the earlier of the following has occurred:
(i) the related Obligor is contractually delinquent for 180 days as of the end
of the most recently completed Collection Period or (ii) as to which the
Servicer has determined in accordance with its customary servicing practices
that eventual payment of the scheduled payments is unlikely.
"Insufficiency Amount" means, with respect to any Distribution Date, the
excess, if any, of (x) the Required Payments over (y) Available Funds.
"Late Payment Rate" means, for any Distribution Date, the "Prime Rate" of
interest as published in The Wall Street Journal in New York, New York plus
2%. The Late Payment Rate shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
"Liquidated Receivable" means a Defaulted Receivable with respect to which
the Servicer has determined that eventual payment in full is unlikely or has
repossessed and disposed of the related Vehicle.
"Liquidation Proceeds" means, with respect to any Liquidated Receivable and
Collection Period, the monies collected with respect to such Liquidated
Receivable during such Collection Period from whatever source
S-20
<PAGE>
(other than claims under the Certificate Insurance Policy or withdrawals from
the Reserve Account or the Yield Maintenance Account), net of the sum of (i)
any amounts expended by the Servicer for the account of the Obligor and (ii)
any amount required by law to be remitted to the Obligor.
"Monthly Interest" for any Distribution Date will equal one-twelfth of the
product of the pass-through rate and the Certificate Principal Balance
immediately prior to such Distribution Date.
"Monthly Principal" for any Distribution Date will equal the excess of (x)
the aggregate unpaid principal balances of the Receivables on the last day of
the second preceding Collection Period (or, in the case of the first
Distribution Date, the Original Certificate Principal Balance) over (y) the
aggregate unpaid principal balances of the Receivables on the last day of the
preceding Collection Period; provided, however, that Monthly Principal on the
Final Scheduled Distribution Date will equal the Certificate Principal Balance
on such date. For the purpose of determining Monthly Principal, the unpaid
principal balance of a Defaulted Receivable or a Purchased Receivable is
deemed to be zero on and after the last day of the Collection Period in which
such Receivable became a Defaulted Receivable or a Purchased Receivable. In no
event shall the Monthly Principal to be distributed exceed the Certificate
Principal Balance.
"Pool Balance" means, with respect to any date of determination, the
aggregate outstanding principal balance of all the Receivables as of the close
of business on such date.
"Purchased Receivable" means, with respect to a Distribution Date, a
Receivable purchased by the Seller or the Servicer on or prior to the
Determination Date immediately preceding such Distribution Date.
"Recoveries" means all amounts collected as judgments against an Obligor or
others related to the failure of such Obligor to pay any required amounts
under the related Receivable or to return the Vehicles, in each case as
reduced by any out-of-pocket expenses reasonably incurred by the Servicer in
enforcing such Receivable or in liquidating such Vehicles.
"Reimbursement Amount" means, with respect to any Distribution Date, the
aggregate of unreimbursed Insured Payments paid by the Certificate Insurer
under the Certificate Insurance Policy as of such Distribution Date, plus the
amount of any unpaid premium owed to the Certificate Insurer, plus accrued
interest on each at the Late Payment Rate.
"Required Payments" means, with respect to any Distribution Date, the sum of
the Monthly Principal and Monthly Interest.
WITHHOLDING
The Trustee is required to comply with all federal income tax withholding
requirements respecting payments to Certificateholders of interest or original
issue discount with respect to the Certificates that the Trustee reasonably
believes are applicable under the Code. Foreign Owners will be subject to U.S.
income and withholding tax unless they provide certain certifications as
described under "Certain Federal Income Tax Consequences--Foreign Beneficial
Owners" herein. The consent of neither the Certificateholders nor the
Beneficial Owners will be required for such withholding. In the event that the
Trustee does withhold or causes to be withheld any amount from interest or
original issue discount payments or advances thereof to any Certificateholders
pursuant to federal income tax withholding requirements, the Trustee is
required to indicate the amount withheld in its monthly report to such
Certificateholders. If any withholding or other tax is imposed by any
jurisdiction, neither the Certificateholders nor the Owners have any right to
receive additional interest or other amounts in consequence thereof.
S-21
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Trustee will furnish or cause to be furnished
with each payment to Certificateholders, a statement (a "Monthly Report"),
based on information in the Servicer's Certificate, setting forth the following
information for such Distribution Date:
(a) the amount of the distribution allocable to principal, including any
overdue principal;
(b) the amount of the distribution allocable to interest, including any
overdue interest;
(c) the aggregate amount of fees and compensation received by the
Servicer and the Trustee for the Collection Period;
(d) the amount, if any, of Insured Payments with respect to such
Distribution Date;
(e) the amount, if any, withdrawn from the Reserve Account and the Yield
Maintenance Account with respect to such Distribution Date;
(f) the aggregate net losses on the Receivables for the related
Collection Period;
(g) the Pool Balance and the Pool Factor as of the end of the related
Collection Period;
(h) the aggregate principal balance of all Receivables which were
delinquent 30 days or more as of the last day of the related Collection
Period; and
(i) the Certificate Principal Balance as of such Distribution Date (after
giving effect to the distributions on such Distribution Date).
OPTIONAL TERMINATION
The Pooling Agreement will provide that on any Distribution Date following
the Record Date on which the Pool Balance is 5% or less of the Original
Certificate Principal Balance, the Seller will have the option to acquire all
rights, title and interest in all, but not less than all, Receivables held in
the Trust, by paying into the Trust for retirement of the Certificates an
amount equal to the aggregate Purchase Amounts for the Receivables, together
with any Reimbursement Amounts then owed to the Certificate Insurer.
THE CERTIFICATE INSURER
AMBAC Indemnity Corporation ("AMBAC") is a Wisconsin-domiciled stock
insurance corporation regulated by the Office of the Commissioner of Insurance
of the State of Wisconsin and licensed to do business in 50 states, the
District of Columbia, and the Commonwealth of Puerto Rico and Guam. AMBAC
primarily insures newly issued municipal and structured finance obligations.
AMBAC is a wholly owned subsidiary of AMBAC Inc., a 100% publicly-held company.
Moody's Investors Service, Inc., Standard & Poor's Ratings Services, a division
of The McGraw-Hill Companies and Fitch Investors Service, Inc. have each
assigned a triple-A claims-paying ability rating to AMBAC.
The consolidated financial statements of AMBAC and its subsidiaries as of
December 31, 1996 and December 31, 1995 and for the three years ended December
31, 1996, prepared in accordance with generally accepted accounting principles,
included in the Current Report on Form 8-K of AMBAC Inc. (which was filed with
the Commission on January 30, 1997) are hereby incorporated by reference into
this Prospectus Supplement and shall be deemed to be a part hereof. Any
statement contained in a document incorporated herein by reference shall be
modified or superseded for the purposes of this Prospectus Supplement to the
extent that a statement contained herein by reference herein also modified or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus Supplement.
All financial statements of AMBAC and its subsidiaries included in documents
filed by AMBAC Inc. with the Commission pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the
date of this Prospectus Supplement and prior to the termination of the offering
of
S-22
<PAGE>
the Certificates shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
The following table sets forth the capitalization of AMBAC as of December 31,
1994, December 31, 1995 and December 31, 1996, respectively, in conformity with
generally accepted accounting principles. No material adverse change in the
capitalization of AMBAC has occurred since December 31, 1996.
AMBAC INDEMNITY CORPORATION CONSOLIDATED CAPITALIZATION TABLE
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
(AUDITED) (AUDITED) (AUDITED)
----------------- ----------------- -----------------
($ MILLIONS)
<S> <C> <C> <C>
Unearned premiums........ $ 840 $ 906 $ 995
Other liabilities........ 136 295 259
------ ------ ------
Total liabilities........ 976 1,201 1,254
------ ------ ------
Stockholder's equity:
Common stock........... 82 82 82
Additional paid-in cap-
ital.................. 444 481 516
Unrealized gains (loss-
es) on investments,
net of tax............ (46) 87 66
Retained earnings...... 782 907 992
------ ------ ------
Total stockholder's equi-
ty...................... 1,262 1,557 1,655
------
Total liabilities and
stockholder's equity.... $2,238 $2,758 $2,909
====== ====== ======
</TABLE>
Copies of the financial statements of AMBAC incorporated herein by reference
and copies of AMBAC's annual statement for the year ended December 31, 1996
prepared in accordance with statutory accounting standards are available,
without charge from AMBAC. The address of AMBAC's administrative offices and
its telephone number are One State Street Plaza, 17th Floor, New York, New
York, 10004 and (212) 668-0340.
The Certificate Insurance Policy is not covered by the property/casualty
insurance certificate fund specified in Article 76 of the New York Insurance
Laws.
AMBAC makes no representation regarding the Certificates or the advisability
of investing in the Certificates and makes no representation regarding, nor has
it participated in the preparation of, this Prospectus Supplement other than
the information supplied by AMBAC and presented under the heading "The
Certificate Insurance Policy."
THE CERTIFICATE INSURANCE POLICY
The following information has been supplied by AMBAC Indemnity Corporation
(the "Certificate Insurer") for inclusion in this Prospectus Supplement.
The Certificate Insurer, in consideration of the payment of the premium and
subject to the terms of the Certificate Insurance Policy, thereby
unconditionally and irrevocably guarantees to any Owner that an amount equal to
each full and complete Insured Payment will be received by the Trustee, or its
successor, as trustee for the Owners, on behalf of the Owners from the
Certificate Insurer, for distribution by the Trustee to each Owner of each
Owner's proportionate share of the Insured Payment. The Certificate Insurer's
obligations under the Certificate Insurance Policy with respect to a particular
Insured Payment shall be discharged to the extent funds equal to the applicable
Insured Payment are received by the Trustee, whether or not such funds are
properly applied by the Trustee. Insured Payments shall be made only at the
time set forth in the Certificate Insurance
S-23
<PAGE>
Policy and no accelerated Insured Payments shall be made regardless of any
acceleration of the Certificates, unless such acceleration is at the sole
option of the Certificate Insurer.
Notwithstanding the foregoing paragraph, the Certificate Insurance Policy
does not cover shortfalls, if any, attributable to the liability of the Trust
or the Trustee for withholding taxes, if any (including interest and penalties
in respect of any such liability).
The Certificate Insurer will pay any Insured Payment that is a Preference
Amount on the Business Day following receipt on a Business Day by the Fiscal
Agent (as described below) of (i) a certified copy of the order requiring the
return of a preference payment, (ii) an opinion of counsel satisfactory to the
Certificate Insurer that such order is final and not subject to appeal, (iii)
an assignment in such form as is reasonably required by the Certificate
Insurer, irrevocably assigning to the Certificate Insurer all rights and claims
of the Owner relating to or arising under the Certificates against the debtor
which made such preference payment or otherwise with respect to such preference
payment and (iv) appropriate instruments to effect the appointment of the
Certificate Insurer as agent for such Owner in any legal proceeding related to
such preference payment, such instruments being in a form satisfactory to the
Certificate Insurer, provided that if such documents are received after 12:00
noon New York City time on such Business Day, they will be deemed to be
received on the following Business Day. Such payments shall be disbursed to the
receiver or trustee in bankruptcy named in the final order of the court
exercising jurisdiction on behalf of the Owner and not to any Owner directly
unless such Owner has returned principal or interest paid on the Certificates
to such receiver or trustee in bankruptcy, in which case such payment shall be
disbursed to such Owner.
The Certificate Insurer will pay any other amount payable under the
Certificate Insurance Policy no later than 12:00 noon New York City time on the
later of the Distribution Date on which the related Deficiency Amount is due or
the third Business Day following receipt in New York, New York on a Business
Day by [State Street Bank and Trust Company, N.A.,] as Fiscal Agent for the
Certificate Insurer or any successor fiscal agent appointed by the Certificate
Insurer (the "Fiscal Agent") of a Notice (as described below); provided that if
such Notice is received after 12:00 noon New York City time on such Business
Day, it will be deemed to be received on the following Business Day. If any
such Notice received by the Fiscal Agent is not in proper form or is otherwise
insufficient for the purpose of making claim under the Certificate Insurance
Policy it shall be deemed not to have been received by the Fiscal Agent for
purposes of this paragraph, and the Certificate Insurer or the Fiscal Agent, as
the case may be, shall promptly so advise the Trustee and the Trustee may
submit an amended Notice.
Insured Payments due under the Certificate Insurance Policy unless otherwise
stated therein will be disbursed by the Fiscal Agent to the Trustee on behalf
of the Owners by wire transfer of immediately available funds in the amount of
the Insured Payment less, in respect of Insured Payments related to Preference
Amounts, any amount held by the Trustee for the payment of such Insured Payment
and legally available therefor.
The Fiscal Agent is the agent of the Certificate Insurer only and the Fiscal
Agent shall in no event be liable to Owners for any acts of the Fiscal Agent or
any failure of the Certificate Insurer to deposit, or cause to be deposited,
sufficient funds to make payments due under the Certificate Insurance Policy.
As used [in the Certificate Insurance Policy,] the following terms shall have
the following meanings:
"Agreement" means the Pooling and Servicing Agreement dated as of March 1,
1997 among Chevy Chase Bank, F.S.B., as Seller and as Servicer, and the
Trustee, as trustee, without regard to any amendment or supplement thereto,
unless such amendment or modification has been approved in writing by the
Certificate Insurer.
"Business Day" means any day other than a Saturday, a Sunday or a day on
which banking institutions in New York City, Chevy Chase, Maryland or in the
city in which the Corporate Trust Office of the Trustee under the Agreement or
the Certificate Insurer is located are authorized or obligated by law or
executive order to close.
S-24
<PAGE>
"Deficiency Amount" means the excess, if any, of Required Payments over Net
Available Distribution Amount for such Distribution Date.
"Insured Payment" means (i) as of any Distribution Date, any Deficiency
Amount and (ii) any Preference Amount.
"Net Available Distribution Account" means, with respect to any Distribution
Date, the sum of (i) Available Funds (other than amounts deposited to the
Certificate Account in error and Liquidation Proceeds from Receivables
purchased by the Seller or the Services) and (ii) amounts withdrawn from the
Reserve Account for deposit into the Certificate Account with respect to such
Destination Date.
"Notice" means the telephonic or telegraphic notice, promptly confirmed in
writing by telecopy substantially in the form of Exhibit A attached to the
Certificate Insurance Policy, the original of which is subsequently delivered
by registered or certified mail, from the Trustee specifying the Insured
Payment which shall be due and owing on the applicable Distribution Date.
"Owner" means each Holder (as defined in the Pooling Agreement) who, on the
applicable Distribution Date, is entitled under the terms of the applicable
Certificates to payment thereunder.
"Preference Amount" means any amount previously distributed to an Owner on
the Certificates that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the United States Bankruptcy
Code (11 U.S.C.), as amended from time to time, in accordance with a final
nonappealable order of a court having competent jurisdiction.
[Capitalized terms used in the Certificate Insurance Policy and not otherwise
defined in the Certificate Insurance Policy shall have the respective meanings
set forth in the Agreement as of the date of execution of the Certificate
Insurance Policy, without giving effect to any subsequent amendment or
modification to the Pooling Agreement, unless such amendment or modification
has been approved in writing by the Certificate Insurer.]
Any notice under the Certificate Insurance Policy or service of process on
the Fiscal Agent of the Certificate Insurer may be made at the address listed
below for the Fiscal Agent of the Certificate Insurer or such other address as
the Certificate Insurer shall specify in writing to the Trustee.
The notice address of the Fiscal Agent is 15th Floor, 61 Broadway, New York,
New York 10006 Attention: Municipal Registrar and Paying Agency, or such other
address as the Fiscal Agent shall specify to the Trustee in writing. The
Certificate Insurance Policy is being issued under and pursuant to, and shall
be construed under, the laws of the State of New York, without giving effect to
the conflict of laws principles thereof.
The insurance provided by the Certificate Insurance Policy is not covered by
the Property/Casualty Insurance Security Fund specified in Article 76 of the
New York Insurance Law.
The Certificate Insurance Policy is not cancelable for any reason. The
premium on the Certificate Insurance Policy is not refundable for any reason
including payment, or provision being made for payment, prior to maturity of
the Certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal income tax
consequences to the original holders of the Certificates of the purchase,
ownership and disposition of the Certificates. This summary is based upon laws,
regulations, rulings and decisions currently in effect, all of which are
subject to change. The discussion does not deal with all federal tax
consequences applicable to all categories of investors, some of which may be
subject to special rules. In addition, this summary is generally limited to
investors who will hold the Certificates as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the
Internal Revenue
S-25
<PAGE>
Code of 1986, as amended (the "Code"). Investors should consult their own tax
advisors to determine the federal, state, local and other tax consequences of
the purchase, ownership and disposition of the Certificates. Prospective
investors should note that no rulings have been or will be sought from the
Internal Revenue Service (the "IRS") with respect to any of the federal income
tax consequences discussed below, and no assurance can be given that the IRS
will not take contrary positions.
TAX STATUS OF THE TRUST
In the opinion of Dewey Ballantine, special tax counsel to the Underwriter,
the Trust will be classified as a grantor trust and not as an association
taxable as a corporation for federal income tax purposes. Each Beneficial Owner
("Beneficial Owner") will be treated as the owner of an interest in the
ordinary income and corpus portions of the Trust.
For purposes of federal income tax, the Servicer will be deemed to have
retained a fixed portion of the interest due on each Receivable (the "Retained
Yield") equal to the difference between (x) the APR of such Receivable and (y)
the sum of the Pass-Through Rate and reasonable fees and expenses payable by
the Trust. The Retained Yield will be treated as a "stripped coupon" within the
meaning of Section 1286 of the Code. Accordingly, each Beneficial Owner will be
treated as owning an interest in the principal of, and certain interest payable
on, each Receivable (minus the portion of the interest payable on such
Receivable that exceeds the sum of the Pass-Through Rate on the Certificates
and the fees and expenses payable by the Trust) and such ownership interest
will be treated as a "stripped bond" within the meaning of Section 1286 of the
Code.
TAXATION OF BENEFICIAL OWNERS
The Beneficial Owners of the Certificates and the related rights to receive
amounts from the Yield Maintenance Account (the "Yield Maintenance Payments")
will be treated for tax purposes as owning two separate investments: (i) the
respective Certificates without the right to receive Yield Maintenance Payments
and (ii) the right to receive the Yield Maintenance Payments. The Owners of the
respective Certificates must allocate the purchase price of their Certificates
between these two investments based on their relative fair market values. The
purchase price allocated to the first investment will be the issue price of the
respective Certificates for calculating accruals of original issue discount (if
any). See "Certain Federal Income Tax Consequences--Discount and Premium,"
herein.
A Beneficial Owner of a Certificate will be treated for federal income tax
purpose with respect to its right to receive Yield Maintenance Payments as
having entered into a notional principal contract on the date that it purchase
its Certificates. Treasury Regulations under Section 446 of the Code relating
to notional principal contracts (the "Notional Principal Contract Regulations")
provide that taxpayers, regardless of their method of accounting, generally
must recognize the ratable daily portion of a periodic payment for the taxable
year to which that portion relates. Any Yield Maintenance Payments will be
periodic payments. Income with respect to periodic payments under a notional
principal contract for a taxable year should constitute ordinary income. The
purchase price allocated to the right to receive the related Yield Maintenance
Payments will be treated as a nonperiodic payment under the Notional Principal
Contract Regulations. Such a nonperiodic payment may be amortized using several
methods, including the level payment method described in the Notional Principal
Contract Regulations.
With respect to a Beneficial Owner's interest in a Certificate without regard
to the right to receive Yield Maintenance Payments, each Beneficial Owner is
required to include in income for federal income tax purposes its share of the
gross income of the Trust, including interest and certain other charges accrued
on the Receivables and any gain upon collection or disposition of the
Receivables subject to the discussion below under the heading "Discount and
Premium" herein. Such gross income attributable to interest on the Receivables
will exceed the Pass-Through Rate by an amount equal to the Beneficial Owner's
share of the reasonable expenses of the Trust for the period during which it
owns a Certificate. Each Beneficial Owner is entitled to deduct its share of
the amount used to pay expenses of the Trust to the extent described below. Any
amounts received by a Beneficial
S-26
<PAGE>
Owner from the Reserve Account or from the Certificate Insurance Policy will be
treated for federal income tax purposes as having the same characteristics as
the payments they replace.
Each Beneficial Owner should report its share of the income of the Trust
under its usual method of accounting. Accordingly, interest may be included in
a Beneficial Owner's gross income when it accrues on the Receivables, or in the
case of Beneficial Owners who are cash basis taxpayers, when received by the
Servicer on behalf of the Beneficial Owners. Because (i) interest accrues on
the Receivables over differing monthly periods and is paid in arrears and (ii)
interest collected on a Receivable generally is paid to Beneficial Owners in
the following month, the amount of interest accruing to a Beneficial Owner
during any calendar month will not equal the interest distributed in that
month. Discount on any Certificate would be includible in income as described
below. The discussion herein is based on special tax counsel's advice that each
Beneficial Owner's interest in the Trust should be treated as a single debt
instrument bearing interest equal to the sum of the Pass-Through Rate plus such
Certificate's share of the expenses of the Trust. The Trustee will report tax
information consistent with such advice. Because the Certificates are stripped
bonds, alternative characterizations are possible. Investors should consult
their own tax advisors regarding the proper treatment of the Certificates for
federal income tax purposes.
Each Beneficial Owner will be entitled to deduct, consistent with its method
of accounting, its pro rata share of reasonable servicing fees and other fees
paid or incurred by the Trust as provided in Section 162 or 212 of the Code. If
a Beneficial Owner is an individual, estate or trust, the deduction for such
Beneficial Owner's share of such fees will be allowed only to the extent that
all of such Beneficial Owner's miscellaneous itemized deductions, including
such Beneficial Owner's share of such fees, exceed 2% of such Beneficial
Owner's adjusted gross income. In addition, in the case of Beneficial Owners
who are individuals, certain otherwise allowable itemized deductions will be
reduced by an amount equal to 3% of such Beneficial Owner's adjusted gross
income in excess of a statutorily defined threshold, but not by more than 80%
of such itemized deductions. To the extent that any fee is determined to be in
excess of a reasonable amount (and hence not deductible), such excess should be
characterized as an additional ownership right that has been stripped from the
Receivables. Accordingly, the gross income of the Beneficial Owners should not
include any amount attributable to such excess fee.
DISCOUNT AND PREMIUM
A Beneficial Owner that purchases a Certificate at a discount (i.e., for an
amount less than its face amount) must include such discount in income over the
life of the Certificate. The rate at which discount must be included in income
depends on whether it is greater or less than a statutorily defined de minimis
amount. Although not entirely certain, it would appear that the determination
of the amount of discount and the de minimis computation can be made for each
overall Certificate and need not be done on a Receivable-by-Receivable basis.
Generally, discount is treated as de minimis if it is less than 1/4 of one
percent of the principal amount of the Certificate times the number of full
years remaining to the weighted average maturity date of the Certificate. It is
not clear in calculating the weighted average maturity date whether expected
prepayments are taken into account.
If the discount is de minimis (which should be the case for original
purchasers of Certificates) it would appear that such discount is includible in
income as principal distributions are received on the Receivables and in
proportion to such principal distributions. Although not entirely clear, the
income attributable to de minimis discount should be treated as capital gain if
the Certificate was held as a capital asset.
If the discount is more than a de minimis amount, such discount must be
included in income as it accrues on the basis of the yield to maturity of the
Certificate, to the particular purchaser. It is not clear whether a prepayment
assumption must be taken into account in computing this yield to maturity and
how actual prepayments will affect accruals of discount. Unless the
Certificates are originally issued with more than a de minimis amount of
discount, the Trustee will not be providing any information relating to the
computation of the accruals of discount by subsequent purchasers of
Certificates.
S-27
<PAGE>
In the event that a Certificate is treated as purchased at a premium (i.e.,
the purchase price exceeds the portion of the remaining Principal Balance of
the Receivables allocable to such Certificate), such premium will be
amortizable by a Beneficial Owner as an offset to interest income (with a
corresponding reduction in the Beneficial Owner's basis) under a constant yield
method over the term of the Receivable if an election under Section 171 of the
Code is made (or was previously in effect) with respect to the Certificates.
Any such election will also apply to debt instruments held by the taxpayer
during the year in which the election is made and to all debt instruments
acquired thereafter.
SALE OF A CERTIFICATE
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Beneficial Owner's
adjusted basis in the Receivables and any other assets held by the Trust. A
Beneficial Owner's adjusted basis will equal the Beneficial Owner's cost for
the Certificate increased by any discount previously included in income, and
decreased by any payments received that are attributable to accrued discount
(or by any offset previously allowed for accrued premium) and by the amount of
principal distributions previously received on the Receivables. Any gain or
loss will be capital gain or loss if the Certificate was held as a capital
asset.
FOREIGN BENEFICIAL OWNERS
Interest attributable to Receivables which is received by a Beneficial Owner
who or which is not a United States person, as defined below (other than a
foreign bank and certain other persons), generally will not be subject to the
normal 30 percent United States withholding tax (or lower treaty rate) imposed
with respect to such payments, provided that such Beneficial Owner fulfills
certain certification requirements. Under such requirements, the holder must
certify, under penalties of perjury, that it is not a "United States person"
and provide its name and address. If income or gain with respect to a
Certificate is effectively connected with a United States trade or business
carried on by a Beneficial Owner who or which is not a United States person,
the 30 percent withholding tax will not apply but such Beneficial Owner will be
subject to United States federal income tax at graduated rates applicable to
United States persons. For this purpose, "United States person" means a person
who or which is for United States federal income tax purposes a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust that is subject to United States
federal income tax, regardless of the source of its income.
BACKUP WITHHOLDING
Backup withholding of federal income tax at a rate of 31 percent may apply to
payments made in respect of the Certificates as well as payments of proceeds
from the sale of Certificates, to Beneficial Owners that are not "exempt
recipients" and that fail to provide certain identifying information (such as
the taxpayer identification number of the Beneficial Owner) to the Trustee or
its agent in the manner required. Individuals generally are not exempt
recipients, whereas corporations and certain other entities generally are
exempt recipients. Payments made in respect of the Certificates must be
reported to the IRS, unless the recipient is an exempt recipient or establishes
an exemption. Any amounts withheld under the backup withholding rules from a
payment to a person would be allowed as a refund or a credit against such
person's United States federal income tax, provided that the required
information is furnished to the IRS. Furthermore, certain penalties may be
imposed by the IRS on a Beneficial Owner who is required to supply information
but who does not do so in the proper manner.
STATE AND LOCAL INCOME TAX CONSEQUENCES
State tax consequences to each Beneficial Owner will depend upon the
provisions of the state tax laws to which the Beneficial Owner is subject. Most
states modify or adjust the taxpayer's federal taxable income to arrive at the
amount of income potentially subject to state tax. Resident individuals
generally pay state tax on 100 percent of such state-modified income, while
corporations and other taxpayers generally pay state tax only
S-28
<PAGE>
on that portion of state-modified income assigned to the taxing state under the
state's own apportionment and allocation rules.
Because each state's income tax laws vary, it is impossible to predict the
income tax consequences to the Beneficial Owners in all of the state taxing
jurisdictions in which they are already subject to tax. There can be no
assurance that other states will not claim that the Servicer has not undertaken
activities in such states. If such a claim were made, no assurances can be
given as to the treatment of the Beneficial Owner by any particular state.
Beneficial Owners are urged to consult their own tax advisors with respect to
state and local taxes.
THE FEDERAL INCOME TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON AN INVESTOR'S
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISERS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF THE 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 pension, profit
sharing, or other employee benefit plans, individual retirement accounts or
annuities, employee annuity plans and Keogh plans subject to ERISA or Section
4975 of the Code (collectively referred to as "Benefit Plans") from engaging in
certain transactions involving "plan assets" with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
the plan. ERISA also imposes certain duties on persons who are fiduciaries of
plans subject to ERISA. Under ERISA, any person who exercises any authority or
control respecting the management or disposition of the assets of a plan is
considered to be a fiduciary of such plan (subject to certain exceptions not
here relevant). A violation of these "prohibited transaction" rules may
generate excise tax and other liabilities under ERISA and the Code for
fiduciaries, "parties in interest" and "disqualified persons."
Unless a statutory, regulatory or administrative exemption is available, a
violation of the prohibited transaction rules could occur if any Certificates
were to be acquired by a Benefit Plan or with "plan assets" of any Benefit
Plan, and if any of the Transferor, the Trustee, any Underwriter or any of
their affiliates were a "party in interest" or a "disqualified person" with
respect to such Benefit Plan. The Seller, the Trustee and the Underwriter are
likely to be "parties in interest" or "disqualified persons" with respect to
many Benefit Plans.
Pursuant to the Final Regulation issued by the U.S. Department of Labor
("DOL") concerning the definition of what constitutes the "plan assets" of a
Benefit Plan, the assets and properties of certain entities in which a Benefit
Plan makes an equity investment could be deemed to be assets of the Benefit
Plan unless certain exceptions under the Final Regulation apply or an exemption
is available. There can be no assurance that any of the exceptions provided in
the Final Regulation will apply. If the underlying assets of the Trust were
deemed to be plan assets by reason of the acquisition of Certificates by
Benefit Plans, the Seller, the Servicer the Trustee and other persons who
provide services with respect to the Trust might be subject to the fiduciary
responsibility provisions of Title I of ERISA and the operations of the Trust
could result in prohibited transactions.
The DOL has granted to Credit Suisse First Boston, to J.P. Morgan & Co. and
to Smith Barney Inc administrative exemptions (Prohibited Transactions
Exemption 89-90), (the "Exemptions") which generally exempts from the
application of the prohibited transaction provisions of Section 406(a), Section
406(b)(1), Section 406(b)(2) and Section 407(a) of ERISA and the excise taxes
imposed pursuant to Sections 4975(a) and (b) of the Code, certain transactions
relating to the servicing and operation of asset pools, including pools of
motor vehicle installment obligations such as the Receivables and the purchase,
sale and holding of asset-backed pass-through certificates, including pass-
through certificates evidencing interests in certain receivables, loans and
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<PAGE>
other obligations, such as the Certificates, provided that certain conditions
set forth in the Exemption are satisfied. Each Exemption sets forth the
following six general conditions which must be satisfied for a transaction to
be eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Benefit Plan is on terms
(including the price for the 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 Certificates acquired by
the Benefit Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust;
(3) The Certificates acquired by the Benefit Plan have received a rating
at the time of such acquisition that is one of the three highest general
rating categories from either S&P, Moody's, Fitch or Duff & Phelps Credit
Rating Co.
(4) The Trustee is not an affiliate of any other member of the Restricted
Group (as defined below);
(5) The sum of all payments made to and retained by the related
Underwriter in connection with the distribution of the Certificates
represents not more than reasonable compensation for its services. The sum
of all payments made and retained by the Seller pursuant to the assignment
of the Receivables to the Trust represents not more than the fair market
value of such Receivables. The sum of all payments made to and retained by
the Servicer represents not more than reasonable compensation for such
person's services under the Pooling Agreement and reimbursement of such
person's reasonable expenses in connection therewith; and
(6) The Benefit Plan investing in the Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act.
If the general conditions of each Exemption are satisfied, such Exemption
provides an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(c)(1)(A)
through (D) of the Code) in connection with the direct or indirect sale,
exchange or transfer of Certificates by Benefit Plans in the initial issue of
Certificates, the holding of Certificates by Benefit Plans or the direct or
indirect acquisition or disposition in the secondary market of Certificates by
Benefit Plans. However, no exemption is provided from the restrictions of
Section 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding
of a Certificate on behalf of an "Excluded Plan" by any person who has
discretionary authority or renders investment advice with respect to the assets
of such Excluded Plan. For purposes of the Certificates, an Excluded Plan is a
Benefit Plan sponsored by (1) an Underwriter, (2) the Certificate Insurer, (3)
the Issuer, (4) the Seller, (5) the Servicer, (6) the Trustee, (7) any Obligor
with respect to Receivables constituting more than 5% of the aggregate
unamortized principal balance of the Receivables as of the date of initial
issuance and (8) any affiliate or successor of a person described in (1) to (7)
above (the "Restricted Group").
If the specific conditions of Section I.B. of each Exemption are also
satisfied, such Exemption provides an exemption from the restrictions imposed
by Sections 406(b)(1) and (b)(2) of ERISA and the taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c)(1)(E) of the Code in
connection with (1) the direct or indirect sale, exchange or transfer of
Certificates in the initial issuance of Certificates to a Benefit Plan when the
person who has discretionary authority or renders investment advice with
respect to the investment of plan assets in Certificates is (a) an Obligor with
respect to 5% or less of the fair market value of the Receivables or (b) an
affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Certificates by Benefit Plans and (3)
the holding of Certificates by Benefit Plans. Among the specific conditions
that must be satisfied is the condition that the Benefit Plan acquires no more
than 25% of the Certificates and immediately after the acquisition of the
Certificates no more than 25% of the assets of the Benefit Plan with respect to
which the person is a fiduciary are invested in certificates representing an
interest in a trust containing assets sold or serviced by the same entity. As
of the Cut-off Date, the Seller believes no Obligor with respect to Receivables
included in the Trust constitutes more than % of the aggregate unamortized
principal balance of the Trust.
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<PAGE>
If the specific conditions of Section I.C. of each Exemption are also
satisfied, such Exemption provides an exemption from the restrictions imposed
by Sections 406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code
for transactions in connection with the servicing, management and operation of
the Trust.
Section I.D of each Exemption provides an exemption from the restrictions
imposed by Section 406(a) and 407(a) of ERISA, and the taxes imposed by
Sections 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A)
through (D) of the Code if such restrictions are deemed to otherwise apply
merely because a person is deemed to be a "party in interest" or a
"disqualified person" with respect to an investing Benefit Plan by virtue of
providing services to the Benefit Plan (or by virtue of having certain
specified relationships to such a person) solely as a result of such Benefit
Plan's ownership of Certificates.
Before purchasing a Certificate based on each Exemption, a fiduciary of a
Benefit Plan should itself confirm (1) that such Certificate constitutes a
"certificate" for purposes of such Exemption and (2) that the specific
conditions and other requirements set forth in such Exemption would be
satisfied.
Prospective Benefit Plan investors in the Certificates should consult with
their legal advisors concerning the impact of ERISA and the Code, the
applicability of each Exemption, and the potential consequences in their
specific circumstances, prior to making an investment in the Certificates.
Moreover, each Benefit Plan fiduciary should determine whether, under the
general fiduciary standards of investment prudence and diversification, an
investment in the Certificates is appropriate for the Benefit Plan, taking
into account the overall investment policy of the Benefit Plan and the
composition of the Benefit Plan's investment portfolio.
RATINGS
It is a condition to the issuance of the Certificates that they be rated in
the highest rating category by at least one of the Rating Agencies. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time. The ratings of Rating Agencies
assigned to Certificates addresses the likelihood of the receipt by the
Certificateholders of all distributions to which such Certificateholders are
entitled. The ratings do not address the timely or ultimate payment of any
withholding tax imposed. The ratings assigned to Certificates do not represent
any assessment of the likelihood that principal prepayments might differ from
those originally anticipated or address the possibility that
Certificateholders might suffer a lower than anticipated yield.
UNDERWRITING
Under the terms and subject to the conditions set forth in an Underwriting
Agreement dated March , 1997 (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters") have agreed to purchase from the Seller the
following respective principal amounts of the Certificates:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER CERTIFICATES
----------- ------------
<S> <C>
CS First Boston Corporation..................................
J.P. Morgan Securities Inc...................................
Smith Barney Inc.............................................
----
Total....................................................
====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the Certificates, if any are purchased.
S-31
<PAGE>
The Seller has been advised by the Underwriters that the Underwriters propose
to offer the Certificates to the public initially at the public offering price
set forth on the cover page of this Prospectus Supplement and to certain
dealers at such price less a concession of % of the principal amount per
Certificate, and the Underwriters and such dealers may allow a discount of %
of such principal amount per Certificate on sales to certain other dealers.
After the initial public offering, the public offering price and concession and
discount to dealers may be changed by the Underwriters.
The Certificates are a new issue of securities with no established trading
market. The Underwriters have advised the Seller that they intend to act as a
market maker for the Certificates. However, no Underwriter is obligated to do
so and may discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of any Underwriter trading market
for the Certificates.
The Seller has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
Each Underwriter has represented and agreed that (a) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 and
the Public Offers of Securities Regulations 1995 (the "Regulations") with
respect to anything done by it in relation to the Series 1997-1 Certificates
in, from or otherwise involving the United Kingdom; (b) it has only issued or
passed on and will only issue or pass on to any person in the United Kingdom
any document received by it in connection with the issue of the Series 1997-1
Certificates if that person 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 such document may otherwise lawfully be issued or passed
on; and (c) it has not offered or sold and, during the period of six months
from the date hereof, will not offer or sell any Series 1997-1 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 which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Regulations.
In the ordinary course of its business, each Underwriter and its respective
affiliates have engaged and may in the future engage in commercial banking and
investment banking transactions with Chevy Chase Bank, F.S.B. and its
affiliates.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Certificates in Canada is being made only on a
private placement basis exempt from the requirement that the Seller prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of the Certificates are effected. Accordingly, any resale of the
Certificates in Canada must be made in accordance with applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the Certificates.
REPRESENTATIONS OF PURCHASERS
Each purchaser of a Certificate in Canada who receives a purchase
confirmation will be deemed to represent to the Seller and the dealer from whom
such purchase confirmation is received that (i) such purchaser is entitled
under applicable provincial securities laws to purchase such Certificate
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, that such purchaser is purchasing as principal and not
as agent and (iii) such purchaser has reviewed the text above under "Resale
Restrictions" herein.
S-32
<PAGE>
RIGHTS OF ACTIONS AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of a Certificate to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Certificates acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #88/5, a copy of which may be obtained from the Seller. Only one
such report must be filed in respect of the Certificates acquired on the same
date and under the same prospectus exemption.
EXPERTS
The consolidated financial statements of the Certificate Insurer as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters relating to the validity of the issuance of the
Certificates will be passed upon for the Seller by Shaw, Pittman, Potts &
Trowbridge, Washington, D.C. and for the Underwriters by Dewey Ballantine, New
York, New York.
S-33
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
1996 Debentures............................................................
Accounts...................................................................
Adequately capitalized.....................................................
Agreement..................................................................
AMBAC......................................................................
APRs.......................................................................
Available Funds............................................................
Balloon Receivable.........................................................
Bank.......................................................................
Bank Receivables...........................................................
Beneficial Owner...........................................................
Beneficial Owners..........................................................
Benefit Plans..............................................................
Business Day...............................................................
CEDEL......................................................................
Certificate Account........................................................
Certificate Insurance Policy...............................................
Certificate Insurer........................................................
Certificate Principal Balance..............................................
Certificateholders.........................................................
Certificates...............................................................
CFC........................................................................
CFC Receivables............................................................
Claim Date.................................................................
Closing Date...............................................................
Code.......................................................................
Collection Account.........................................................
Collection Period..........................................................
Cut-off Date...............................................................
Dealers....................................................................
Defaulted Receivable.......................................................
Deficiency Amount..........................................................
Determination Date.........................................................
Distribution Date..........................................................
DOL........................................................................
ERISA......................................................................
Euroclear..................................................................
Excess Interest............................................................
Exemption..................................................................
FDIC.......................................................................
FDICIA.....................................................................
Final Scheduled Distribution Date..........................................
FIRREA.....................................................................
Fiscal Agent...............................................................
Initial Yield Maintenance Amount...........................................
Insufficiency Amount.......................................................
Insured Payment............................................................
Issuer.....................................................................
Late Payment Rate..........................................................
Lenders....................................................................
</TABLE>
S-34
<PAGE>
<TABLE>
<S> <C>
Liquidated Receivable......................................................
Liquidation Proceeds.......................................................
Monthly Interest...........................................................
Monthly Principal..........................................................
Monthly Report.............................................................
Notice.....................................................................
Obligor....................................................................
Optional Termination.......................................................
Original Certificate Principal Balance.....................................
OTS........................................................................
Owner......................................................................
Pass-Through Rate..........................................................
Pool Balance...............................................................
Pooling Agreement..........................................................
Preference Amount..........................................................
Prime Rate.................................................................
Purchase Amount............................................................
Purchased Receivable.......................................................
Rating Agencies............................................................
Receivables................................................................
Record Date................................................................
Recoveries.................................................................
Regulations................................................................
Reimbursement Amount.......................................................
REIT Preferred Stock.......................................................
REIT Subsidiary............................................................
Required Payments..........................................................
Required Rate..............................................................
Reserve Account............................................................
Reserve Initial Deposit....................................................
Restricted Group...........................................................
Retained Yield.............................................................
SAIF.......................................................................
Seller.....................................................................
Servicer...................................................................
Servicer's Certificate.....................................................
Servicing Fee..............................................................
Servicing Fee Rate.........................................................
Specified Reserve Balance..................................................
Trade-In Value.............................................................
Trust......................................................................
Trust Property.............................................................
Trustee....................................................................
Underwriters...............................................................
Underwriting Agreement.....................................................
United States person.......................................................
Well capitalized...........................................................
Well-capitalized...........................................................
Yield Maintenance Amount...................................................
Yield Maintenance Payments.................................................
</TABLE>
S-35
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE BANK OR THE UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE BANK SINCE SUCH DATE OR THAT THE INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Terms........................................................... S-3
Risk Factors............................................................... S-9
Formation of the Trust..................................................... S-9
The 1997-1 Trust Property.................................................. S-10
Use of Proceeds............................................................ S-10
Prepayment and Yield Considerations........................................ S-10
The Receivables Pool....................................................... S-11
The Seller and the Servicer................................................ S-14
The Certificates........................................................... S-17
The Certificate Insurer.................................................... S-22
The Certificate Insurance Policy........................................... S-23
Certain Federal Income Tax Consequences.................................... S-25
ERISA Considerations....................................................... S-29
Ratings.................................................................... S-31
Underwriting............................................................... S-31
Notice to Canadian Residents............................................... S-32
Experts.................................................................... S-33
Legal Matters.............................................................. S-33
Index of Defined Terms..................................................... S-34
PROSPECTUS
Prospectus Supplement......................................................
Available Information......................................................
Incorporation of Certain Documents by Reference............................
Reports to Certificateholders..............................................
Prospectus Summary.........................................................
Risk Factors...............................................................
The Trust Property.........................................................
The Issuers................................................................
The Receivables............................................................
Automobile Financing Programs..............................................
Pool Factors...............................................................
Use of Proceeds............................................................
The Lenders................................................................
The Trustee(s).............................................................
Description of the Securities..............................................
Description of the Trust Agreements........................................
Certain Legal Aspects of the Receivables...................................
Certain Tax Considerations.................................................
ERISA Considerations.......................................................
Methods of Distribution....................................................
Legal Opinions.............................................................
Annex I.................................................................... A-1
</TABLE>
-----------
UNTIL JUNE , 1997 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PAR-
TICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACT-
ING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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CHEVY CHASE AUTO
RECEIVABLES TRUST 1997-1
$209,433,212.14
% AUTO RECEIVABLES BACKED
CERTIFICATES
CHEVY CHASE BANK, F.S.B.
SELLER AND SERVICER
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
J.P. MORGAN & CO.
SMITH BARNEY INC
- -------------------------------------------------------------------------------
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