As filed with the Securities and Exchange Commission on October 15, 1996
Registration No. 33-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
Form S-3
REGISTRATION STATEMENT
AND POST-EFFECTIVE AMENDMENT
Under
The Securities Act of 1933
____________________________
THE MONEY STORE INC.
(Representative of the Trusts Described Herein)
TMS AUTO HOLDINGS, INC.
(Seller)
_____________________________
New Jersey
Delaware
(State or other jurisdiction of incorporation or organization)
_____________________________
22-2293022
22-3405381
(I.R.S. Employer Identification Number)
_____________________________
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive office)
Eric R. Elwin, Esq.
Vice President and Corporate Counsel
2840 Morris Avenue
Union, New Jersey 07083
(908) 686-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Reed D. Auerbach, Esq.
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
_____________________________
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. X
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.
CALCULATION OF REGISTRATION FEE
<TABLE>
==================================================================================================================================
<CAPTION>
Proposed
Amount Maximum Proposed Maximum Amount of
Title of Securities to be Aggregate Price Aggregate Registration
Being Registered Registered(1) per Unit(2) Offering Price Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Securities $1,000,000 100% $1,000,000 $303.03
==================================================================================================================================
(1) The amount of Securities being registered represents the maximum aggregate principal amount of Securities currently
expected to be offered for sale.
(2) Estimated solely for purposes of calculating the registration fee.
</TABLE>
_____________________________
Pursuant to Rule 429 under the Securities Act of 1933, the Prospectus
included in this Registration Statement is a combined prospectus and relates to
registration statement No. 33-94518 as previously filed by the Registrant on
Form S-3. Such registration statement No. 33-94518 was declared effective on
September 20, 1995. This Registration Statement, which is a new registration
statement, also constitutes Post-Effective Amendment No. 1 to registration
statement No. 33-94518, and such Post- Effective Amendment shall hereafter
become effective concurrently with the effectiveness of this Registration
Statement and in accordance with Section 8(c) of the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus
THE MONEY STORE AUTO TRUSTS
Asset Backed Certificates
Asset Backed Notes
TMS AUTO HOLDINGS, INC.
Seller
THE MONEY STORE INC.
Representative
The Asset Backed Certificates (the "Certificates") and the Asset
Backed Notes (the "Notes" and, collectively with the Certificates, the
"Securities") described herein may be sold from time to time in one or more
series, in amounts, at prices and on terms to be determined at the time of sale
and to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). Each series of Securities will include either one or more classes
of Certificates or, if Notes are issued as part of a series, one or more classes
of Notes and one or more classes of Certificates, as set forth in the related
Prospectus Supplement.
The Certificates and the Notes, if any, of any series of Securities
will be issued by a trust (a "Trust") to be formed with respect to such series
by TMS Auto Holdings, Inc. (the "Seller"), a wholly-owned subsidiary of The
Money Store Inc. (the "Representative"). The assets of each Trust (the "Trust
Property") will include a pool of motor vehicle retail installment sale
contracts ("Receivables") purchased by The Money Store Auto Finance Inc. (the
"Servicer") from motor vehicle dealers and secured by new and used automobiles,
light trucks and vans, certain monies received thereunder on or after the Cutoff
Date set forth in the related Prospectus Supplement, security interests in the
vehicles financed thereby and certain other property, all as more fully
described herein and in the related Prospectus Supplement. In addition, if so
specified in the related Prospectus Supplement, the Trust Property will include
Receivables originated directly by The Money Store Auto Finance Inc. or acquired
from third-party lenders, security interests in the vehicles financed thereby,
monies on deposit in one or more trust accounts to be established with an Owner
Trustee or an Indenture Trustee, as the case may be, which may include a
Pre-Funding Account which would be used to purchase additional Receivables (the
"Subsequent Receivables") from the Seller from time to time during the
Pre-Funding Period specified in the related Prospectus Supplement.
Each Trust will be formed pursuant to either (i) a Pooling and
Servicing Agreement (the "Pooling and Servicing Agreement") to be entered into
among the Seller, the Servicer in its individual capacity and as Servicer, and
the trustee (the "Owner Trustee") and any other party, if any, specified in the
related Prospectus Supplement or (ii) a Trust Agreement (the "Trust Agreement")
to be entered into between the Seller and the Owner Trustee. If the Trust is
formed pursuant to a Trust Agreement, a Sale and Servicing Agreement (the "Sale
and Servicing Agreement") will be entered into among the Seller, the Servicer,
in its individual capacity and as Servicer, the Trust and any other party, if
any, specified in the related Prospectus Supplement. In either case, the Pooling
and Servicing Agreement or the Trust Agreement and the Sale and Servicing
Agreement are collectively referred to herein as the "Trust Documents." The
Notes, if any, of a series will be issued and secured pursuant to an Indenture
(the "Indenture") between the Trust and the Indenture Trustee specified in the
related Prospectus Supplement (the "Indenture Trustee").
Each class of Securities of any series will represent the right to
receive, or be secured by, a specified amount of payments of principal and/or
interest on the related Receivables in the manner described herein and in the
related Prospectus Supplement. The right of each class of Securities to receive
payments may be senior or subordinate to the rights of one or more of the other
classes of such series. A series may include two or more classes of Certificates
or Notes which differ as to the timing and priority of payment, interest rate or
amount of distributions in respect of principal or interest or both. A series
may include one or more classes of Certificates or Notes entitled to
distributions in respect of principal, with disproportionate, nominal or no
interest distributions, or to interest distributions, with disproportionate,
nominal or no distributions in respect of principal. Distributions on
Certificates of any series will be subordinated to prior payments due on the
related Notes, if any, to the extent described herein and in the related
Prospectus Supplement. The Certificates of each series will represent fractional
undivided ownership interests in the related Trust. Holders of Securities are
referred to herein as "Securityholders." At the time of issuance, each series of
Securities will be rated investment grade by at least one Rating Agency (as
defined herein).
Each class of Securities will represent the right to receive
distributions or payments in the amounts, at the rates, and on the dates set
forth in the related Prospectus Supplement. The rate of distributions in respect
of principal on Certificates and payment in respect of principal on Notes, if
any, of any class will depend on the priority of payment of such class and the
rate and timing of payments (including prepayments, liquidations and repurchases
of Receivables) on the related Receivables. A rate of payment lower or higher
than that anticipated may affect the weighted average life of each class of
Securities in the manner described herein and in the related Prospectus
Supplement.
There currently is no secondary market for the Securities. There can
be no assurance that any such market will develop or, if it does develop, that
it will continue. The Securities will not be listed on any securities exchange.
For a discussion of certain factors which should be considered by
prospective purchasers of the Securities, see "Risk Factors" at page 15 herein
and as may be set forth in the related Prospectus Supplement.
_______________
THE CERTIFICATES REPRESENT INTERESTS IN AND THE NOTES REPRESENT
OBLIGATIONS OF THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF THE SERVICER, THE SELLER, THE REPRESENTATIVE OR ANY OF THEIR
RESPECTIVE AFFILIATES. NONE OF THE SECURITIES OR ANY OF THE RELATED RECEIVABLES
ARE ISSUED OR GUARANTEED BY ANY GOVERNMENT OR GOVERNMENT AGENCY.
_______________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
_______________
Retain this Prospectus for future reference. This Prospectus may not
be used to consummate sales of securities offered hereby unless accompanied by a
Prospectus Supplement.
The date of this Prospectus is _____ __, 1996
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
THE RELATED PROSPECTUS SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER,
THE SERVICER, THE REPRESENTATIVE OR ANY UNDERWRITER. THIS PROSPECTUS AND THE
RELATED PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED THEREBY TO ANYONE IN ANY
JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER AND SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS AND THE RELATED PROSPECTUS
SUPPLEMENT NOR ANY SALE MADE THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SINCE THE DATE HEREOF.
_______________
<PAGE>
AVAILABLE INFORMATION
The Representative, as sponsor of each Trust, 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, with
respect to the Securities offered pursuant to this Prospectus. For further
information, reference is made to the Registration Statement which is available
for inspection without charge at the office of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at the Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. 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. In addition,
the Registration Statement may be accessed electronically at the Commission's
site on the World Wide Web located at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed by the Servicer on behalf of each Trust 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"), subsequent to the date of
this Prospectus and prior to the termination of the offering of the related
Securities shall be deemed to be incorporated by reference into this Prospectus
and the related Prospectus Supplement and to be a part hereof and thereof from
the respective dates of filing of such documents. Any statement contained herein
or in a document all or any portion of which is deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus and the related Prospectus Supplement to the extent that a
statement contained herein or in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies 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 or
the related Prospectus Supplement. The Servicer will provide without charge to
each person to whom this Prospectus is delivered, on the written or verbal
request of any such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits). Requests for such copies should be
directed to J. Tom Jones, President, The Money Store Auto Finance Inc., 1625
West North Market Blvd., Suite 210, Sacramento, California 95834 (telephone
(916) 928-4400).
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and by reference to the
information with respect to the Securities contained in the related Prospectus
Supplement to be prepared and delivered in connection with the offering of each
series of Securities. Certain capitalized terms used in this Prospectus Summary
are defined elsewhere herein. A listing of the pages on which some of such terms
are defined is found in the "Index of Terms."
Issuer................................... With respect to each series of
Securities, a trust (the "Trust"), to be formed by the Seller
pursuant to a Pooling and Servicing Agreement among the Seller,
the Servicer and the Owner Trustee and any other party, if any,
specified in the related Prospectus Supplement, or a Trust
Agreement between the Seller and the Owner Trustee specified in
the related Prospectus Supplement. The term "Owner Trustee" is
used herein solely for purposes of reference and nothing herein
shall characterize each Trust as an "owner trust" except as
specified in the related Prospectus Supplement.
Seller................................... TMS Auto Holdings, Inc., a Delaware
corporation. The Seller is a wholly-owned subsidiary of The Money
Store Auto Finance Inc.
Servicer................................. The Money Store Auto Finance Inc., a
Delaware corporation. The Servicer is a wholly-owned subsidiary
of The Money Store Inc., a New Jersey corporation ("The Money
Store" or the "Representative"). The Money Store is a financial
services company headquartered in Sacramento, California and
Union, New Jersey.
Owner Trustee............................ The Owner Trustee will be
specified in the related Prospectus Supplement with respect to
any series of Securities.
Indenture Trustee........................ The Indenture Trustee for any
series of Notes will be specified in the related Prospectus
Supplement.
Securities Offered....................... The Securities offered from time
to time may include one or more series of Certificates and/or one
or more series of Notes, as described herein and in the related
Prospectus Supplement.
The Certificates......................... The Certificates may
consist of one or more classes, each of which will be issued
pursuant to a Pooling and Servicing Agreement or Trust Agreement.
Only a certain class or certain classes of such Certificates,
however, may be offered hereby and by the related Prospectus
Supplement, as specified in the related Prospectus Supplement.
Each Certificate will represent a fractional undivided ownership
interest in the related Trust. Each offered Certificate may also
represent a fractional undivided interest in monies on deposit,
if any, in a trust account (as defined below, the "Pre-Funding
Account") to be established with the Owner Trustee or Indenture
Trustee, as specified in the related Prospectus Supplement, and
any other account established for the benefit of
Certificateholders, as specified in the related Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
offered Certificates shall be issued in fully registered form in denominations
of $1,000 and integral multiples of $1,000 in excess thereof and will be
available in book-entry form only. Unless the related Prospectus Supplement
specifies that the Certificates are offered in definitive form, holders of
Certificates ("Certificateholders") will be able to receive Definitive
Certificates only in the limited circumstances described herein or in the
related Prospectus Supplement. See "Certain Information Regarding the Securities
- - Book-Entry Registration."
Each class of offered Certificates (other than certain Strip
Certificates (as defined below)) will have a stated Certificate
Balance (as defined for each class in the related Prospectus
Supplement) and will accrue interest on such Certificate Balance
at a specified rate (with respect to each class of Certificates,
the "Pass-Through Rate"). Each class of offered Certificates may
have a different Pass-Through Rate, which may be fixed, variable
or adjustable, or any combination of the foregoing. The related
Prospectus Supplement will specify the Pass-Through Rate for each
class of offered Certificates, or the initial Pass-Through Rate
and the method for determining subsequent Pass-Through Rates.
A series of Securities may include two or more classes of
Certificates which may differ as to timing of distributions,
sequential order, priority of payment, seniority, allocation of
loss, Pass-Through Rate or amount of distributions in respect of
principal or interest, or as to which distributions of principal
or interest on any class may or may not be made upon the
occurrence of specified events or on the basis of collections
from designated portions of the Receivables related to such
series. In addition, a series may include one or more classes of
Certificates entitled to (i) distributions in respect of
principal with disproportionate, nominal or no interest
distributions, or (ii) interest distributions with
disproportionate, nominal or no distributions in respect of
principal (such Certificates, "Strip Certificates").
With respect to any series of Securities including one or more classes
of Notes, distributions in respect of the Certificates may be subordinated in
priority of payment to payments on the Notes of such series, to the extent
specified in the related Prospectus Supplement.
If the Servicer exercises its option to purchase the Receivables of a
Trust (or, if not, and if and to the extent provided in the related Prospectus
Supplement, satisfactory bids for the purchase of such Receivables are received
in the manner and on the respective terms and conditions described herein or in
the related Prospectus Supplement), Certificateholders will receive as a
prepayment an amount in respect of the Certificates as specified in the related
Prospectus Supplement.
The Notes................................ Any series of Securities
may include one or more classes of Notes, as specified in the
related Prospectus Supplement, each of which will be issued
pursuant to an Indenture.
Unless otherwise specified in the related Prospectus Supplement, Notes
will be available for purchase in denominations of $1,000 and integral multiples
of $1,000 in book-entry form only. Unless otherwise specified in the related
Prospectus Supplement, holders of Notes ("Noteholders") will be able to receive
Definitive Notes only in the limited circumstances described herein or in the
related Prospectus Supplement. See "Certain Information Regarding the Securities
- - Book-Entry Registration."
Each class of Notes will have a stated principal amount and will bear
interest at a rate or rates (with respect to each class of Notes, the "Interest
Rate"), as specified in the related Prospectus Supplement, which may be
different for each class of Notes and may be fixed, variable, adjustable or any
combination of the foregoing. The related Prospectus Supplement will specify the
Interest Rate for each class of Notes or the method for determining the Interest
Rate. Each Note may also represent a fractional undivided interest in monies on
deposit, if any, in the Pre-Funding Account to be established with the Indenture
Trustee as specified in the related Prospectus Supplement and any other account
established for the benefit of Noteholders, as specified in the related
Prospectus Supplement.
A series may include two or more classes of Notes which differ as
to the timing and priority of payment, seniority, allocations of
loss, Interest Rate or amount of payments of principal or
interest, or as to which payments of principal or interest may or
may not be made upon the occurrence of specified events or on the
basis collections from designated portions of the Receivables for
such series. In addition, a series may include one or more
classes of Notes entitled to (i) principal payments with
disproportionate, nominal or no interest payments or (ii)
interest payments with disproportionate, nominal or no principal
payments (such Notes, "Strip Notes").
If the Servicer exercises its option to purchase the Receivables of a
Trust (or, if not, and if and to the extent provided in the related Prospectus
Supplement, satisfactory bids for the purchase of such Receivables are received
in the manner and on the respective terms and conditions described herein or in
the related Prospectus Supplement) Noteholders will receive as a prepayment an
amount in respect of the Notes as specified in the related Prospectus
Supplement.
Trust Property........................... The Trust property will
include certain non-prime motor vehicle retail installment sale
contracts initially transferred to the Trust (the "Initial
Receivables"), as specified in the related Prospectus Supplement,
secured by new or used automobiles, light trucks and vans (the
"Initial Financed Vehicles"), certain monies received thereunder
on or after a date as specified in the related Prospectus
Supplement (the "Initial Cutoff Date"), security interests in the
Initial Financed Vehicles securing the Initial Receivables,
certain bank accounts and the proceeds thereof, all proceeds of
the foregoing, any proceeds from claims on certain insurance
policies, and certain rights under the related Trust Documents.
If specified in the related Prospectus Supplement, non-prime
motor vehicle retail installment sale contracts to be sold to the
Trust after the date of issuance of the Securities and on or
before a date specified in the related Prospectus Supplement (the
"Subsequent Receivables"), secured by additional new or used
automobiles, light trucks and vans (the "Subsequent Financed
Vehicles"), certain monies received thereunder on or after a date
or dates as specified in the related Prospectus Supplement (the
"Subsequent Cut-Off Date"), security interests in the Subsequent
Financed Vehicles securing the Subsequent Receivables, certain
bank accounts and the proceeds thereof may be purchased by the
Trust from the Seller from funds on deposit in the related
Pre-Funding Account. The Initial Receivables and any Subsequent
Receivables related to each series of Securities are hereinafter,
collectively, referred to as the "Receivables" and the Initial
Financed Vehicles and the Subsequent Financed Vehicles related to
each series of securities are hereinafter, collectively, referred
to as the "Financed Vehicles."
Receivables.............................. The Receivables will be purchased by
the Seller from The Money Store Auto Finance Inc. (in its
individual capacity, "TMS Auto Finance") pursuant to a Purchase
Agreement (the "Purchase Agreement") between the Seller and TMS
Auto Finance providing for such purchase. The Receivables
comprising the property of the Trust consist of non-prime motor
vehicle retail installment sale contracts, with such
characteristics, including their weighted average annual
percentage rate and their weighted average remaining maturity, as
shall be specified in the related Prospectus Supplement. The
Receivables arise or will arise from loans originated by motor
vehicle dealers ("Dealers") and purchased by TMS Auto Finance
pursuant to agreements with the Dealers or other third parties
for subsequent sale to the Seller. If so specified in the related
Prospectus Supplement, the Receivables will also include
automobile loans originated directly by TMS Auto Finance or
acquired in bulk and other purchases from third-party lenders.
The Receivables for any Trust will be selected from the contracts
owned by the Seller based on the criteria specified in the
related Sale and Servicing Agreement or Pooling and Servicing
Agreement, as applicable, and as described herein and in the
related Prospectus Supplement.
Pre-Funding Account......................If and to the extent so specified in
the related Prospectus Supplement, all or a portion of the net
proceeds from the offering of the Securities of a series (such
amount, the "Pre-Funded Amount") may be deposited in a segregated
account (the "Pre-Funding Account") with the Owner Trustee or
Indenture Trustee, as the case may be, for the benefit of the
Securityholders. During the period specified in the related
Prospectus Supplement (the "Funding Period") the Pre-Funded
Amount will be reduced as it is used to purchase Subsequent
Receivables subject to the satisfaction of certain conditions
specified under "Description of the Purchase Agreements and Trust
Documents--Eligibility Criteria" herein and otherwise in
accordance with the Trust Documents. For a Trust that elects to
be characterized as a grantor trust under federal income tax
laws, the maximum length of the Funding Period will not exceed 90
days from the date of issuance of the Securities and otherwise
the maximum length of the Funding Period will not exceed the
period set forth in the related Prospectus Supplement. In any
event, the amount of the initial Pre-Funded Amount and the
maximum length of the Funding Period is intended not to exceed
the aggregate principal balance of Subsequent Receivables
satisfying the eligibility criteria that TMS Auto Finance
anticipates it will be able to acquire and convey to the Trust
during the Funding Period.
Prior to the conveyance of any Subsequent Receivables to the Trust,
TMS Auto Finance will be required to give notice of the Subsequent Receivables
to be conveyed to the Seller and from the Seller to the Trust to the Trustee(s),
the Rating Agencies and any third-party credit enhancement provider. Upon the
satisfaction of the conditions set forth in the Trust Documents, including the
receipt by the Owner Trustee and/or Indenture Trustee, as applicable, of an
executed assignment, an Officer's Certificate and a legal opinion, the Owner
Trustee and/or Indenture Trustee, as applicable, will release from the Pre-
Funding Account the necessary funds to purchase the Subsequent Receivables to be
conveyed to the Trust on such date. In no event will funds be released from the
Pre-Funding Account to purchase Subsequent Receivables unless the Rating
Agencies rating the Securities of such series confirm that the ratings on the
Securities of such series have not been withdrawn or reduced as a result of the
conveyance of the Subsequent Receivables to the Owner Trustee. If any Pre-Funded
Amount remains on deposit in the Pre-Funding Account at the end of the Funding
Period, such amount, in the amounts and in the manner specified in the related
Prospectus Supplement, will be used to prepay some or all classes of the Notes
and/or Certificates. In the event of such prepayment, the Securityholders may be
entitled to receive a prepayment premium in the amount and to the extent
provided in the related Prospectus Supplement.
Revolving Period and Amortization
Period; Retained Interest........................ If the related Prospectus
Supplement so provides, there may be a period commencing on the
date of issuance of a class or classes of Notes or Certificates
of a series and ending on the date set forth in the related
Prospectus Supplement (the "Revolving Period") during which no
principal payments will be made to one or more classes of Notes
or Certificates of the related series as are identified in such
Prospectus Supplement. All collections of principal otherwise
allocated to such classes of Notes or Certificates may be (i)
utilized by the Trust during the Revolving Period to acquire
additional Receivables which satisfy the standards described
under "The Receivables - General" herein and the criteria set
forth in the related Prospectus Supplement, (ii) held in an
account and invested in Eligible Investments for later
distribution to Securityholders, (iii) applied to those Notes or
Certificates, if any, specified in the related Prospectus
Supplement as then are in amortization, or (iv) otherwise applied
as specified in the related Prospectus Supplement.
An "Amortization Period" is the period during which an amount of
principal is payable to holders of a series of Securities which,
during the Revolving Period, were not entitled to such payments.
If so specified in the related Prospectus Supplement, during an
Amortization Period all or a portion of principal collections on
the Receivables may be applied as specified above for a Revolving
Period and, to the extent not so applied, will be distributed to
the classes of Notes or Certificates specified in the related
Prospectus Supplement as then being entitled to payments of
principal. In addition, if so specified in the related Prospectus
Supplement, amounts deposited in certain accounts for the benefit
of one or more classes of Notes or Certificates may be released
from time to time or on a specified date and applied as a payment
of principal on such classes of Notes or Certificates. The
related Prospectus Supplement will set forth the circumstances
which will result in the commencement of an Amortization Period.
Yield and Prepayment Considerations........................... The
weighted average life of the Securities of the related series
will be reduced by full or partial prepayments on the related
Receivables. The Receivables will generally be prepayable at any
time without penalty. Prepayments (or, for this purpose,
equivalent payments to the related Trust) may result from
payments by the retail purchasers obligated under the Receivables
(each, an "Obligor"), liquidations due to default, the receipt of
proceeds from physical damage or credit insurance, repurchases by
(if no other party is described in the related Prospectus
Supplement as obligated to make such repurchases) TMS Auto
Finance and the Seller as a result of certain uncured breaches of
representations and warranties made with respect to the
Receivables, purchases by (if no other party is described in the
related Prospectus Supplement as obligated to make such
purchases) the Servicer as a result of certain uncured breaches
of the covenants made by it with respect to the Receivables, if
so specified in the related Prospectus Supplement, amounts on
deposit, if any, in the Pre-Funding Account at the end of the
Funding Period being applied to the payment of principal of the
Securities, the Servicer exercising its option to purchase all of
the remaining Receivables of a Trust or, if and to the extent
provided in the related Prospectus Supplement, the receipt of
satisfactory bids for the purchase of the Receivables of the
related Trust in the manner and on the respective terms and
conditions specified in the related Prospectus Supplement. In
addition, if a Trust is not a grantor trust and an Insolvency
Event with respect to the entity which serves as such Trust's
general partner (such entity, the "Affiliated Purchaser") occurs,
subject to certain limitations the Receivables will be sold and a
prepayment in respect of the related Securities will result.
Collection ccount....................... With respect to each series of
Securities, the Owner Trustee or the Indenture Trustee will
establish and maintain one or more separate accounts (each, a
"Collection Account") for the benefit of the Certificateholders
and the Noteholders, if any, in the manner specified in each
related Prospectus Supplement. On each Distribution Date (as
specified in the related Prospectus Supplement, the "Distribution
Date"), the Owner Trustee or the Indenture Trustee, as the case
may be, will be required to pass through and distribute to the
Certificateholders, or pay to the Noteholders, as the case may
be, on the date specified in the related Prospectus Supplement
from amounts held in the Collection Account, the amounts of
interest, principal or otherwise distributable with respect to
the applicable classes of
Subordination and
Credit Enhancement....................... In the event of
defaults and delinquencies on the Receivables, certain
distributions of interest and/or principal with respect to one or
more classes of Securities may be subordinated in priority of
payment to distributions due on other classes of Securities as
specified in the related Prospectus Supplement. In addition, to
the extent specified in the related Prospectus Supplement, one or
more classes of Securities may be entitled to the benefits of a
spread account, a reserve account, accelerated payments of
principal relative to the amortization of the related
Receivables, a policy or policies of insurance, a letter or
letters of credit, surety bonds, credit or liquidity facilities,
guaranteed
investment contracts, swaps or other interest rate protection
agreements, repurchase obligations, yield supplement agreements,
other agreements with respect to third party payments or other
support, cash deposits or other arrangements, which may be
subject to certain limitations and exclusions as described in the
related Prospectus Supplement.
Certain Legal Aspects of the
Receivables.......................... In
connection with the sale of the Receivables to a Trust, the
security interests in the Financed Vehicles securing the
Receivables have been, or in the case of the Subsequent
Receivables, will be, assigned by the Seller to such Trust. Due
to administrative burden and expense, the certificates of title
to the Financed Vehicles will not be amended to reflect the
assignment of such security interests to the Trust. In the
absence of such an amendment, the Trust may not have a perfected
security interest in the Financed Vehicles securing the
Receivables in some states. See "Special Considerations--Certain
Legal Aspects".
Repurchases and Purchases of Certain
Receivables.............................. The Seller will be
obligated to repurchase any Receivable sold to the Trust as to
which a security interest in the Financed Vehicle securing such
Receivable shall not have been perfected in favor of TMS Auto
Finance if the Owner Trustee or the Indenture Trustee, as the
case may be, determines such breach shall materially adversely
affect the interest of the Trust in such Receivable and if such
failure or breach shall not have been cured by the second (or, if
the Seller elects, the first) month following the discovery by or
notice of such breach. The Seller also will be obligated to
repurchase any Receivable if the Indenture Trustee or the Owner
Trustee, as the case may be, determines the interest of the Trust
therein is materially adversely affected by a breach of any other
representation or warranty made by the Seller with respect to the
Receivable, and if the breach has not been cured by the last day
of the second (or, if the Seller elects, the first) month
following the discovery by or notice to the Seller of the breach.
Servicing................................ The Servicer will be required to remit
collections (net of the Servicing Fee, the Supplemental Servicing
Fee and reimbursement for Advances, if any (each as defined
herein) included in such collections) to one or more Collection
Accounts established with the Owner Trustee or the Indenture
Trustee as specified in the related Prospectus Supplement. As
specified in the related Prospectus Supplement, the Servicer will
receive from the Trust or retain each month a fee for servicing
the Receivables in an amount specified in the related Prospectus
Supplement out of the collections on the Receivables. See "The
Certificates - Servicing Compensation."
Advances................................. If and to the extent specified in the
related Prospectus Supplement, the Servicer may be required to
advance (each, an "Advance") monthly payments of interest in
respect of a delinquent Receivable that the Servicer, in its sole
discretion, expects to recoup from subsequent payments on or with
respect to such Receivable or from other Receivables. The
Servicer shall be entitled to reimbursement of Advances from
subsequent payments on or with respect to the Receivables to the
extent described in the related Prospectus Supplement.
Optional Purchase........................ With respect to each series of
Securities, the Servicer may purchase all of the Receivables held
by the related Trust as of the last day of any month in which the
Pool Balance of such Trust at the close of business on the
Distribution Date in that month is 10% or less (or such other
percentage specified in the related Prospectus Supplement) of the
Original Pool Balance (calculated after giving effect to the
principal balance of any Subsequent Receivables as of their
respective Subsequent Cutoff Dates). See "The Certificates -
Termination."
Tax Status............................... If the Prospectus
Supplement specifies that the related Trust will be treated as a
grantor trust upon the issuance of the related series of
Securities, Stroock & Stroock & Lavan, federal tax counsel
("Federal Tax Counsel") to the Seller, will deliver an opinion to
the effect that, for federal income tax purposes: (i) any Notes
of such series will be characterized as debt and (ii) such Trust
will not be characterized as an association (or a publicly traded
partnership) taxable as a corporation. In respect of any such
series, each Noteholder, if any, by the acceptance of a Note of
such series, will agree to treat such Note as indebtedness, and
each Certificateholder, by the acceptance of a Certificate of
such series, will agree to treat such Trust as a partnership in
which such Certificateholder is a partner for federal income tax
purposes. Alternative characterizations of such Trust and such
Certificates are possible, but would not result in materially
adverse tax consequences to Certificateholders.
If the Prospectus Supplement specifies that the related Trust will be
treated as a grantor trust, upon the issuance of the related series of
Certificates, Federal Tax Counsel to such Trust will deliver an opinion to the
effect that such Trust will be treated as a grantor trust for federal income tax
purposes and will not be subject to federal income tax.
See "Federal Income Tax Consequences" for additional information
concerning the application of federal tax laws.
ERISA
Considerations........................... Subject to the
considerations discussed under "ERISA Considerations" herein and
in the related Prospectus Supplement, and to the extent specified
in the related Prospectus Supplement, any Notes included in the
offered Securities will be eligible for purchase by employee
benefit plans or other retirement arrangements that are subject
to either Title I of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") or Section 4975 of the Internal
Revenue Code of 1986, as amended (such plans or arrangements,
"Plans"). Certain Certificates may be eligible for purchase by
Plans as specified in the related Prospectus Supplement. See
"ERISA Considerations" herein and in the related Prospectus
Supplement.
Ratings.................................. As a condition of issuance, the
offered Securities of each series will be rated an investment
grade, that is, in one of the four highest rating categories, by
at least one nationally recognized rating agency (a "Rating
Agency"), as specified in the related Prospectus Supplement. The
ratings will be based on the Receivables related to each series,
the terms of the Securities, and the subordination and any credit
enhancement provided therefor. There is no assurance that the
ratings initially assigned to such Securities will not be
subsequently lowered or withdrawn by the Rating Agencies. In the
event the rating initially assigned to any Securities is
subsequently lowered for any reason, no person or entity will be
obligated to provide any credit enhancement unless otherwise
specified in the related Prospectus Supplement. The ratings of
any Securities with respect to which a prepayment premium may be
payable do not evaluate such prepayment premium payable to such
Securityholders or the likelihood that such prepayment premium
will be paid.
<PAGE>
RISK FACTORS
Limited Liquidity
There is currently no market for the Securities of any series. There
can be no assurance that a secondary market for the Securities will develop or,
if such a market does develop, that it will provide Securityholders with
liquidity of investment or that it will continue for the life of the Securities.
See "Plan of Distribution."
Nature of Receivables; Underwriting Process; Subjective Credit
Standards and Sufficiency of Interest Rates
to Cover Losses
The underwriting standards applied by TMS Auto Finance may not be as
stringent as those of other financial institutions or the finance companies of
motor vehicle manufacturers, since TMS Auto Finance actively solicits dealers to
purchase and purchases, and intends to originate directly, primarily non-prime
motor vehicle retail installment sale contracts which may not meet the credit
standards of prime lenders. Although TMS Auto Finance believes that it carefully
reviews and evaluates each credit before acceptance, no assurance can be given
that the standards employed by TMS Auto Finance will be sufficient to protect
the Securityholders from loss due to default by the Obligors.
Because of the greater credit risk associated with non-prime motor
vehicle retail installment contracts, the interest rates charged on such
contracts are generally higher than those rates charged on prime motor vehicle
retail installment sale contracts. The range of APRs of the Receivables will be
set forth in the related Prospectus Supplement. There can be no assurance,
however, that the interest rates on the Receivables in a particular pool will be
sufficient to cover losses on other Receivables in such pool. See "TMS Auto
Finance -- General."
Risk of Loss
No Trust will have any significant assets or sources of funds other
than the Receivables and, to the extent provided in the related Prospectus
Supplement, a Pre-Funding Account and/or any credit enhancement specified in the
related Prospectus Supplement. The Notes, if any, of any series will represent
obligations solely of, and the Certificates of any series will represent
interests solely in, the related Trust, and neither the Notes nor the
Certificates of any series will be insured or guaranteed by the Seller, the
Servicer, the Representative, the applicable Owner Trustee, the applicable
Indenture Trustee or, except as specified in the related Prospectus Supplement,
any other person or entity. Consequently, Securityholders must rely for payment
upon payments on the related Receivables and, if and to the extent available,
amounts on deposit in the Pre-Funding Account, if any, and any credit
enhancement, if any, specified in the related Prospectus Supplement. To the
extent specified in the related Prospectus Supplement, distributions with
respect to some or all classes of Certificates may be subordinated in priority
of payment to distributions on the Notes, if any, of such series and
distributions on other classes of Certificates of such series. Any such
subordination or credit enhancement will not cover all contingencies, and losses
in excess of such coverage will be required to be borne directly by the affected
Securityholders. In addition, holders of certain classes of Securities of a
series may have the right to take actions that are detrimental to the interests
of the Securityholders of certain other classes of Securities of such series, as
specified in the related Prospectus Supplement. See "Description of the Purchase
Agreements and Trust Documents -- Credit Enhancement" and "-- Amendment."
Risk of Unperfected Security Interests in Financed Vehicles
As part of the sale and assignment of Receivables to a Trust, security
interests in the related Financed Vehicles will be assigned by the Seller to
such Trust. In most states, such an assignment is an effective conveyance of a
security interest without amendment of any such security interest noted on a
vehicle's certificate of title, and the assignee succeeds thereby to the
assignor's rights as secured party. Such notation of a secured party's security
interest is generally effected in such states by depositing with the applicable
state motor vehicle registrar or similar state authority, the vehicle's
certificate of title, an application containing the name and address of such
secured party, and the necessary registration fees.
Because of the administrative burden and expense that would be
entailed in doing so, the certificates of title for the Financed Vehicles
related to any Trust will not be endorsed to identify the Trustee as the secured
party, and will not be deposited with the motor vehicle registrar or other state
authorities in any state. In the absence of such action, the Owner Trustee or
the Indenture Trustee, as the case may be, may not have a perfected security
interest in the Financed Vehicles related to such Trust in certain states and,
in the event that another person obtains a perfected security interest in such a
Financed Vehicle subsequent to the transfer of the Receivables to the related
Trust, such person might acquire rights in such Financed Vehicle prior to the
rights of the Trust. The Seller and/or another party, if any, designated in the
related Prospectus Supplement will covenant to repurchase any Receivable if, on
the date of transfer of a Receivable to a Trust, a valid, subsisting and
enforceable first priority security interest shall not have been perfected in
favor of TMS Auto Finance, which shall have been assigned to the Trust, in the
related Financed Vehicle. The Servicer and/or another party, if any, designated
in the related Prospectus Supplement will covenant to repurchase any Receivable
if, after the transfer of such Receivable to a Trust, a valid, subsisting and
enforceable first priority interest in the name of the Servicer is not
maintained on behalf of the Trust in the related Financed Vehicle. If such Trust
does not have a perfected security interest in a Financed Vehicle, its ability
to realize on such Financed Vehicle in the event of a default may be adversely
affected. To the extent the security interest is perfected, such Trust will have
a prior claim over subsequent purchasers of such Financed Vehicles and holders
of subsequently perfected security interests. However, as against liens for
repairs of Financed Vehicles or for taxes unpaid by an Obligor under a
Receivable, or through fraud or negligence, such Trust could lose the priority
of its security interest or its security interest in a Financed Vehicle. Neither
the Seller nor TMS Auto Finance will have any obligation to repurchase a
Receivable as to which any of the aforementioned occurrences result in such
Trust's losing the priority of its security interest or its security interest in
such Financed Vehicle after the date such security interest was conveyed to such
Trust. Federal and state consumer protection laws impose requirements upon
creditors in connection with extensions of credit and collections of retail
installment loans and certain of these laws make an assignee of such a loan
(such as such Trust) liable to the related borrower for any violation by the
lender. The Seller will be obligated to repurchase any Receivable which fails to
comply with such requirements. See "Certain Legal Aspects of the Receivables --
Security Interests in Vehicles."
Insolvency Risks
TMS Auto Finance will intend that any transfer of Receivables to the
Seller will constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of TMS Auto Finance. However, if TMS Auto Finance were to become a
debtor under the federal bankruptcy code or similar applicable state laws
(collectively, the "Insolvency Laws"), a creditor or trustee in bankruptcy
thereof, or TMS Auto Finance as debtor-in-possession, might argue that such sale
of Receivables was a pledge of Receivables rather than a sale and/or that the
assets and liabilities of the Seller should be consolidated with the assets and
liabilities of TMS Auto Finance. This position, if presented to or accepted by a
court, could result in a delay in or reduction of distributions to
Securityholders. In addition, a delay in or reduction of distributions to
Securityholders could result if the Seller were to become a debtor under any
Insolvency Law and a creditor or trustee-in-bankruptcy of such debtor or such
debtor itself were to take the position that the sale of Receivables to such
Trust should instead be treated as a pledge of such Receivables to secure a
borrowing of such debtor. In addition, if the transfer of any Receivables is
recharacterized as a pledge, a tax lien, other governmental lien, or other lien
created by operation of law on the property of the Servicer, the holder of such
lien may have priority over the Trust's interest in such Receivables.
In addition, in a case recently decided by the United States Court of
Appeals for the Tenth Circuit, Octagon Gas System, Inc. v. Rimmer, such Circuit
Court found that "accounts", a defined term under the Uniform Commercial Code,
sold prior to a bankruptcy should be treated as part of the bankruptcy estate of
the seller of such accounts. If TMS Auto Finance or the Seller were to become a
debtor in a bankruptcy proceeding and a court applied the reasoning of the
Circuit Court reflected in the case described above, delays in payments to
Securityholders could occur or reductions in the amounts of such payments could
result.
With respect to each Trust that is not a grantor trust, if an
Insolvency Event with respect to the Affiliated Purchaser occurs, the related
Receivables will be sold, disposed of or otherwise liquidated, except under
certain limited circumstances. If the proceeds from the liquidation of the
Receivables and any amounts on deposit in the Collection Account or other
accounts available for Securityholders with respect to any such Trust and any
amounts available from any credit enhancement are not sufficient to pay any
Notes and the Certificates of the related series in full, the amount of
principal returned to any Noteholders or Certificateholders will be reduced and
such Noteholders and Certificateholders will incur a loss. See "Certain Legal
Aspects -- Insolvency Matters" herein.
Social, Economic and Other Factors Affecting the Receivables
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of a Trust with respect to
the related Receivables. The related Prospectus Supplement will set forth any
restrictions imposed by any Trust on concentrations of Receivables thereunder.
The ability of the Trust to invest in Receivables is largely dependent upon
whether the Obligors thereunder perform the payment and other obligations
required by such Receivables in order that such Receivables meet the
requirements for transfer to a Trust. The performance by such Obligors may be
affected by a variety of social and economic factors. Economic factors include,
but are not limited to, interest rates, unemployment levels, the rate of
inflation and consumer perception of economic conditions, generally. However,
the Seller is unable to determine and has no basis to predict whether or to what
extent economic or social factors will affect the performance by any Obligors,
or the availability of Subsequent Receivables in cases where Subsequent
Receivables are to be transferred to a Trust as specified in the related
Prospectus Supplement. See "TMS Auto Finance."
Prepayments on Receivables Affect On Yield of Securities
The weighted average life of the Securities of the related series will
be reduced by full or partial prepayments on the related Receivables. The
Receivables will generally be prepayable at any time without penalty.
Prepayments (or, for this purpose, equivalent payments to the related Trust) may
result from payments by Obligors, liquidations due to default, the receipt of
proceeds from physical damage or credit insurance, repurchases by (if no other
party is described in the related Prospectus Supplement as obligated to make
such repurchases) TMS Auto Finance and the Seller as a result of certain uncured
breaches of representations and warranties made with respect to the Receivables,
purchases by (if no other party is described in the related Prospectus
Supplement as obligated to make such repurchases) the Servicer as a result of
certain uncured breaches of the covenants made by it with respect to the
Receivables, if so specified in the related Prospectus Supplement, amounts on
deposit in the Pre-Funding Account at the end of the Funding Period being
applied to the payment of principal of the Securities, the Servicer exercising
its option to purchase all of the remaining Receivables of a Trust or, if and to
the extent provided in the related Prospectus Supplement, the receipt of
satisfactory bids for the purchase of the Receivables of the related Trust in
the manner and on the respective terms and conditions specified in the related
Prospectus Supplement. In addition, if a Trust is not a grantor trust and an
Insolvency Event occurs with respect to the Affiliated Purchaser, subject to
certain limitations the Receivables will be sold and a prepayment in respect of
the related Securities will result.
TMS Auto Finance commenced operations in January 1995. Consequently,
it has limited historical experience with respect to prepayments, and has not as
of the date of this Prospectus prepared data on prepayment rates. TMS Auto
Finance can make no prediction as to the actual prepayment rates that will be
experienced on the Receivables. TMS Auto Finance, 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.
Generally, the amounts paid to Securityholders will include all prepayments
(which are not amounts representing Payaheads) on the Receivables. The
Securityholders will bear all reinvestment risk resulting from the timing of
payments on the Securities. See "Yield and Prepayment Considerations."
Risk of Servicer Commingling Funds
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement, the Servicer will deposit all payments (net of certain
fees) on the related Receivables (from whatever source) and all proceeds of such
Receivables collected during each Monthly Period into the Collection Account of
such Trust within two business days of receipt thereof. However, in the event
that TMS Auto Finance satisfies certain requirements for monthly or less
frequent remittances and the Rating Agencies (as such term is defined in the
related Prospectus Supplement, the "Rating Agencies") affirm their ratings of
the related Securities at the initial level, then for so long as TMS Auto
Finance is the Servicer and provided that (i) there exists no Servicer Default,
(ii) the credit enhancement provider, if any, consents, and (iii) each other
condition to making such monthly or less frequent deposits as may be specified
by the Rating Agencies and described in the related Prospectus Supplement is
satisfied, the Servicer will not be required to deposit such amounts into the
Collection Account of such Trust until on or before the business day preceding
each Distribution Date. If such requirements are satisfied, TMS Auto Finance
will deposit the aggregate Purchase Amount of Receivables purchased by it into
the applicable Collection Account on or before the business day preceding each
Distribution Date. Pending deposit into such Collection Account, collections may
be invested by the Servicer at its own risk and for its own benefit and will not
be segregated from funds of the Servicer. If TMS Auto Finance were unable to
remit such funds, the applicable Securityholders might incur a loss. To the
extent set forth in the related Prospectus Supplement, TMS Auto Finance may, in
order to satisfy the requirements described above, obtain a letter of credit or
other security for the benefit of the related Trust to secure timely remittances
of collections on the related Receivables and payment of the aggregate Purchase
Amount with respect to Receivables purchased by TMS Auto Finance. See
"Description of the Purchase Agreements and Trust Documents -- Collections."
Risks of Securityholders Upon Servicer Default
Unless otherwise provided in the related Prospectus Supplement with
respect to a series of Securities that includes Notes, in the event a Servicer
Default occurs, the Indenture Trustee or the Noteholders with respect to such
series may remove the Servicer without the consent of the Owner Trustee or any
of the Certificateholders with respect to such series. The Owner Trustee or the
Certificateholders with respect to such series will not have the ability to
remove the Servicer if a Servicer Default occurs. In addition, the Noteholders
of such series have the ability, with certain specified exceptions, to waive
defaults by the Servicer, including defaults that could materially adversely
affect the Certificateholders of such series. See "The Notes -- The Indenture."
Book-Entry Registration
Unless otherwise specified in the related Prospectus Supplement, each
class of Securities of a given series will be initially represented by one or
more certificates registered in the name of Cede & Co. ("Cede"), or any other
nominee for The Depository Trust Company ("DTC") set forth in the related
Prospectus Supplement, and will not be registered in the names of the holders of
the Securities of such series or their nominees. Unless otherwise specified in
the related Prospectus Supplement, persons acquiring beneficial ownership
interests in any Series of Securities may hold their interests through DTC in
the United States or, in the case of any series of Notes, Cedel Bank, societe
anonyme ("Cedel") or the Euroclear System ("Euroclear") in Europe. Because of
this, unless and until Definitive Securities for such series are issued, holders
of such Securities will not be recognized by the Trustee or any applicable
Indenture Trustee as "Certificateholders", "Noteholders" or "Securityholders",
as the case may be (as such terms are used herein or in the related Pooling and
Servicing Agreement or related Indenture and Trust Agreement, as applicable).
Hence, until Definitive Securities are issued, holders of such Securities will
only be able to exercise the rights of Securityholders indirectly through DTC
and its participating organizations. See "Certain Information Regarding the
Securities - Book-Entry Registration."
THE TRUSTS
The Seller will establish a Trust with respect to each series of
Securities by selling and assigning the Trust property, as described below, to
the Owner Trustee pursuant to the Trust Documents. Prior to the sale and
assignment of the related Receivables pursuant to the related Trust Documents,
such Trust will have no assets or obligations. Each Trust will not engage in any
business activity other than acquiring, holding and, if so specified in the
related Prospectus Supplement, selling the Trust Property, issuing Certificates
and Notes, if any, of such series and distributing payments thereon.
Each Certificate will represent a fractional undivided ownership
interest in, and each Note, if any, will represent an obligation of, the related
Trust. The property of the Trust will include, among other things, (a) motor
vehicle retail installment sale contracts, as specified in the related
Prospectus Supplement, between Dealers and retail purchasers (the "Obligors") of
new or used automobiles, light trucks and vans and (b) all payments received
thereunder on or after the Initial Cutoff Date or Subsequent Cutoff Date, as the
case may be, as specified in the related Prospectus Supplement. The Receivables
were or will be originated by Dealers in accordance with TMS Auto Finance's
requirements under agreements with Dealers for assignment to TMS Auto Finance,
have been or will be so assigned, and evidence or will evidence the indirect
financing made available to the Obligors. If specified in the related Prospectus
Supplement, the Receivables may be originated directly by TMS Auto Finance or
acquired by TMS Auto Finance in bulk and other purchases from third-party
lenders. On or before the closing date specified in the related Prospectus
Supplement, TMS Auto Finance will sell the Initial Receivables to the Seller for
sale to the Trust. Subsequent Receivables, if any, will be conveyed to the Trust
during the applicable Funding Period, as provided in the related Prospectus
Supplement. Any such Subsequent Receivables will constitute property of the
Trust.
The property of each Trust also will include, to the extent set forth
in the Prospectus Supplement, (i) such amounts as from time to time may be held
in separate trust accounts (such as the "Collection Account," the "Certificate
Account" and the "Payahead Account," as may be specified in the related
Prospectus Supplement) established and maintained pursuant to the Trust
Documents, and the proceeds of such accounts; (ii) security interests in the
related Financed Vehicles and any accessions thereto; (iii) amounts payable to
the Servicer under all Dealer Recourse Obligations (in the event of breach of
the warranties of such Dealer); (iv) the right to proceeds of credit life,
credit disability, and physical damage insurance policies covering the related
Financed Vehicles; (v) the rights of the Seller under the Trust Documents; (vi)
certain rebates of premiums and other amounts relating to certain insurance
policies and other items financed under the Receivables, and (viii) any and all
proceeds of the foregoing. To the extent specified in the related Prospectus
Supplement, a Payahead Account, a Pre-Funding Account, a reserve account or
other form of credit enhancement may be a part of the property of any given
Trust or may be held by the Owner Trustee or an Indenture Trustee for the
benefit of holders of the related Securities.
The Servicer will service the Receivables held by each Trust, and will
be compensated for acting as the Servicer. See "Description of the Purchase
Agreement and the Trust Documents - Servicing Compensation." To facilitate
servicing and to minimize administrative burden and expense, the Servicer will
retain physical possession of the Receivables and documents relating thereto as
custodian for the Owner Trustee or the Indenture Trustee, as the case may be.
Due to the administrative burden and expense, the certificates of title to the
Financed Vehicles will not be amended to reflect the assignment of the security
interest in the Financed Vehicles to any Owner Trustee or Indenture Trustee. In
the absence of such amendment, an Owner Trustee or Indenture Trustee may not
have a perfected security interest in the related Financed Vehicles in certain
states. See "Certain Legal Aspects of the Receivables - Security Interest in
Vehicles." The Owner Trustee and any Indenture Trustee will not be responsible
for the legality, validity or enforceability of any security interest in any
Financed Vehicle.
If the protection provided to the holders of any Securities by the
subordination of any Securities or by any credit enhancement is insufficient,
such Securityholders would have to look for payment on their Securities to the
Obligors on the related Receivables, the proceeds from the repossession and sale
of the related Financed Vehicles which secure such Receivables, and the
proceeds, if any, from Dealer Recourse Obligations. In such event, certain
factors, such as the Owner Trustee's or the Indenture Trustee's not having
perfected security interests in the related Financed Vehicles in certain states,
may affect such Trust's ability to repossess and sell the collateral securing
the Receivables, and thus may reduce the proceeds to be distributed to
Securityholders. See "Certain Legal Aspects of the Receivables."
The Owner Trustee
The Owner Trustee for each Trust will be specified in the related
Prospectus Supplement. The Owner Trustee's liability in connection with the
issuance and sale of the Securities of such series will be limited solely to the
express obligations of such Owner Trustee set forth in the related Trust
Documents. An Owner Trustee may resign at any time, in which event the Seller or
its successor will be obligated to appoint a successor trustee which is eligible
under the related Trust Documents. The Seller also may remove the Owner Trustee
if the Owner Trustee ceases to be eligible to continue as Owner Trustee under
the related Trust Documents or if the Owner Trustee becomes insolvent. In such
circumstances, the Seller will be obligated to appoint a successor trustee
eligible under the related Trust Documents. Any resignation or removal of an
Owner Trustee and appointment of a successor trustee will be subject to any
conditions or approvals specified in the related Prospectus Supplement and will
not become effective until acceptance of the appointment by the successor
trustee.
THE RECEIVABLES
General
Unless the related Prospectus Supplement specifies that some or all of
the Receivables were or will be originated directly by TMS Auto Finance or are
to be acquired in bulk and other purchases from third-party lenders, the
Receivables held by each Trust will be purchased by TMS Auto Finance in its
ordinary course of business pursuant to its Contract Acquisition Program. The
underwriting standards of TMS Auto Finance's Contract Acquisition Program
emphasize a review of the borrower's creditworthiness and ability to repay his
or her obligations underlying the related motor vehicle retail installment sale
contract, as well as the asset value of the related vehicle. Unless the related
Prospectus Supplement specifies otherwise, similar underwriting standards will
be applied to Receivables originated by TMS Auto Finance or any third-party
lender from which Receivables are acquired. Each of the Receivables to be held
by Trust (i) will be originated in the United States, (ii) will be secured by
new or used automobiles, light trucks or vans, (iii) will provide for level
monthly payments which fully amortize the amount financed over its original term
to maturity (except for the last payment which may be minimally different), (vi)
will be either a Precomputed Receivable or Simple Interest Receivable (each as
defined below), and (v) will satisfy the other criteria, if any, set forth in
the related Prospectus Supplement. No selection procedures believed to be
adverse to the Securityholders of any series will be utilized in selecting the
Receivables from qualifying non-prime motor vehicle retail installment sale
contracts owned by TMS Auto Finance. Any obligation of a Trust to purchase
Subsequent Receivables shall be subject to such additional conditions as may be
specified in the related Prospectus Supplement.
"Precomputed Receivables" consist of either (i) monthly actuarial
receivables ("Actuarial Receivables") or (ii) receivables that provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78's" ("Rule of 78's
Receivables"). An Actuarial Receivable provides for amortization of the loan
over a series of fixed, level-payment monthly installments. Each monthly
installment, including the monthly installment representing the final payment on
the Receivable, consists of an amount of interest equal to 1/12 of the Annual
Percentage Rate ("APR") of the loan multiplied by the unpaid principal balance
of the loan, and an amount of principal equal to the remainder of the monthly
payment. A Rule of 78's Receivable provides for the payment by the borrower of a
specified total amount of payments, payable in equal monthly installments on
each due date, which total represents the principal amount financed and add-on
interest in an amount calculated on the stated APR for the term of the
receivable. The rate at which such amount of add-on interest is earned and,
correspondingly, the amount of each fixed monthly payment allocated to reduction
of the outstanding principal are calculated in accordance with the "Rule of
78's".
"Simple Interest Receivables" are receivables that provide for the
amortization of the amount financed under each receivable over a series of fixed
level monthly payments. However, unlike the monthly payment under an Actuarial
Receivable, each monthly payment consists of an installment of interest which is
calculated on the basis of the outstanding principal balance of the receivable
multiplied by the stated APR and further multiplied by the period elapsed (as a
fraction of a calendar year) since the preceding payment of interest was made.
As payments are received under a Simple Interest Receivable, the amount received
is applied first to interest accrued to the date of payment and the balance is
applied to reduce the unpaid principal balance. Accordingly, if a borrower 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 a borrower 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 borrower 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.
In the event of the prepayment in full (voluntarily or by
acceleration) of a Rule of 78's Receivable, under the terms of the motor vehicle
retail installment sale contract, a "refund" or "rebate" will be made to the
borrower of the portion of the total amount of payments then due and payable
under such motor vehicle retail installment sale contract allocable to
"unearned" add-on interest, calculated in accordance with a method equivalent to
the Rule of 78's unless otherwise provided by law. If a Simple Interest
Receivable is prepaid, rather than receive a rebate, the borrower is required to
pay interest only to the date of prepayment. The amount of a rebate under a Rule
of 78's Receivable generally will be less than the amount of a rebate on an
Actuarial Receivable and generally will be less than the remaining scheduled
payments of interest that would have been due under a Simple Interest Receivable
for which all payments were made on schedule.
Each Trust will account for the Rule of 78's Receivables as if such
Receivables were Actuarial Receivables. Amounts received upon prepayment in full
of a Rule of 78's Receivable in excess of the then outstanding Principal Balance
of such Receivable and accrued interest thereon (calculated pursuant to the
actuarial method) will not be paid to Noteholders or passed through to
Certificateholders but will be paid to the Servicer as additional servicing
compensations.
Information with respect to the Receivables held by each Trust will be
set forth in the related Prospectus Supplement, including, to the extent
appropriate, the composition, distribution by APR, states of origination and
portion secured by new and used automobiles, light trucks and vans.
Delinquencies, Charge-off Policies and Net Losses
Certain information concerning TMS Auto Finance's delinquency and loss
experience with respect to its portfolio of retail installment sale contracts
for new and used automobiles, light trucks and vans acquired pursuant to its
Contract Acquisition Program (which may include receivables previously sold
which are serviced by TMS Store Auto Finance) will be set forth in the related
Prospectus Supplement.
TMS Auto Finance measures delinquency on a contractual basis which
classifies the accounts into 30, 60, 90 and 120+ categories based on monthly
payment cycles elapsed from the date a payment is due under the motor vehicle
retail installment sale contract (the "due date"). Installment payments must
equal or exceed 90% of the scheduled payment due, after application of any
portion of such installment payment necessary to satisfy any prior shortfalls,
for a contract to be considered current.
Collection activities with respect to delinquent motor vehicle retail
installment sale contracts generally begin five (5) days after the due date for
first payment defaults, and ten (10) days after the due date for all subsequent
delinquencies if the payment has not been received. TMS Auto Finance uses an
automated system of monitoring delinquencies, which management utilizes to
categorize delinquent accounts into different priorities of collection activity,
based on the level of delinquency of each account.
TMS Auto Finance's collectors are assigned to specific delinquent
accounts and attempt to contact the delinquent borrower by telephone, letter, or
field contact based on the duration of the delinquency and history of the
account. Repossession procedures typically begin when a motor vehicle retail
installment sale contract becomes forty-five (45) days delinquent. Repossession
is carried out by independent contractors in conformity with specific procedures
adopted by TMS Auto Finance.
TMS Auto Finance's current policy is generally to charge-off a
contract on the date on which the contract becomes 150 days delinquent or, if
the motor vehicle securing the delinquent contract is repossessed, to charge-off
the contract on the earlier of the date on which the contract becomes 150 days
delinquent or the date on which the motor vehicle is sold and the deficiency, if
any, is determined (in which case the amount of the deficiency is charged-off).
Monies subsequently received, if any, on charged-off accounts are recognized as
recoveries.
TMS Auto Finance follows specific procedures with respect to
extensions of the contract maturity date. Generally, an extension requires the
demonstration of financial difficulties based on extraordinary circumstances and
the approval of management. In addition, contracts are not rewritten unless TMS
Auto Finance is mandated to do so in accordance with state or federal law.
Each applicant for a motor vehicle retail installment sale contract is
required to obtain insurance with respect to the motor vehicle being financed.
The continued maintenance of insurance is tracked, but TMS Auto Finance does not
currently force place insurance. TMS Auto Finance does, however, currently have
lender's comprehensive single interest insurance coverage which generally covers
losses due to physical damage, nonfiling and skips in the event that the
insurance coverage maintained by a motor-vehicle owner is terminated. If so
specified in the related Prospectus Supplement, TMS Auto Finance or any
subsequent servicer may force place insurance. In such event, certain amounts in
respect of a Receivable as to which insurance has been forced placed after the
applicable Cutoff Date or Subsequent Cutoff Date, as applicable, may not be
property of the Trust and may be payable to TMS Auto Finance to the extent
specified in the related Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
Interest paid on the Receivables will be passed through or paid, as
the case may be as specified in the related Prospectus Supplement, to
Securityholders on each Distribution Date set forth in the related Prospectus
Supplement, in an amount equal to one-twelfth of the applicable annual
Pass-Through Rate applied to the applicable Certificate Balance or the
applicable annual Interest Rate on the applicable Note Balance as of the date
specified in the Prospectus Supplement. In the event of prepayments on
Receivables, Securityholders will nonetheless be entitled to receive interest
for the full month in which such prepayment occurs.
All the Receivables are generally prepayable at any time. If
prepayments are received on the Receivables, the actual weighted average life of
the Receivables may be shorter than the scheduled weighted average life (i.e.,
the weighted average life assuming that payments will be made as scheduled, and
that no prepayments will be made). (For this purpose, the term "prepayments"
also includes liquidations due to default, as well as receipt of proceeds from
credit life, credit disability, and casualty insurance policies.) Weighted
average life means the average amount of time during which each dollar of
principal on a Receivable is outstanding. The payment characteristics of the
Receivables held by a Trust will be specified in the related Prospectus
Supplement.
The rate of prepayments on the Receivables may be influenced by a
variety of economic, social, and other factors, including the fact that an
Obligor may not sell or transfer a Financed Vehicle without the consent of the
Servicer. TMS Auto Finance commenced operations in January 1995. Consequently,
TMS Auto Finance has limited historical experience with respect to prepayments,
and has not as of the date of this Prospectus prepared data on prepayment rates.
TMS Auto Finance can make no prediction as to the actual prepayment rates that
will be experienced on the Receivables. TMS Auto Finance, 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. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Receivables will be borne by the Securityholders of the related Trust. See
"Description of the Purchase Agreements and the Trust Documents - Termination"
regarding (i) the Servicer's option to purchase all of the Receivables of a
Trust as of the last day of any month in which the Pool Balance of such Trust at
the close of business on the last day of any Monthly Period is 10% (or such
other percentage specified in the related Prospectus Supplement) or less of the
Original Pool Balance (calculated after giving effect to the principal balance
of any Subsequent Receivables as of their respective Subsequent Cutoff Dates)
and (ii) the sale of the Receivables if so specified in the related Prospectus
Supplement if satisfactory bids for the purchase of the Receivables are
received. See "Description of the Purchase Agreements and Trust Documents -
Insolvency Event" if the Trust is not a grantor trust, for the sale of the
Receivables upon the occurrence of an Insolvency Event with respect to the
Affiliated Purchaser.
Since the rate of payment of principal on the Receivables will depend
on future events and a variety of other factors, no assurance can be given as to
such rate or the rate of principal prepayments. The extent to which the yield to
maturity of a class of Securities may vary from the anticipated yield may depend
upon the degree to which it is purchased at a discount or premium, and the
degree to which the timing of payments thereon is sensitive to prepayments,
liquidations and purchases of the Receivables. Further, an investor should
consider the risk that, in the case of any class of Securities purchased at a
discount, a slower than anticipated rate of principal payments (including
prepayments) on the Receivables could result in an actual yield to such investor
that is lower than the anticipated yield and, in the case of a class of
Securities purchased at a premium, a faster than anticipated rate of principal
payments on the Receivables could result in an actual yield to such investor
that is lower than the anticipated yield.
CERTIFICATE AND NOTE FACTORS AND TRADING INFORMATION
The "Certificate Factor" for each class of Certificates will be a
seven-digit decimal which the Servicer will compute each month indicating the
Certificate Balance, as of the close of business on the Distribution Date as
specified in the related Prospectus Supplement in that month as a fraction of
the respective original outstanding principal balances of all of the
Certificates of such series. The Certificate Factor will not change as a result
of the addition of Subsequent Receivables. The "Note Factor" for each class of
Notes, if any, will be a seven-digit decimal which the Servicer will compute
each month indicating the remaining outstanding principal balance with respect
to such Notes as of each Payment Date as specified in the related Prospectus
Supplement as a fraction of the original outstanding principal balance of such
class of Notes. Each Certificate Factor and each Note Factor will be 1.0000000
as of the Initial Cutoff Date for such series; thereafter, the Certificate
Factor and the Note Factor will decline to reflect reductions in the Certificate
Balance of the applicable class of Certificates and the Note Factor will decline
to reflect reductions in the outstanding principal balance of the applicable
class of Notes, as the case may be, as a result of scheduled payments collected,
prepayments and liquidations of the Receivables (and also as a result of a
prepayment arising from application of amounts on deposit in the Pre-Funding
Account). The amount of a Certificateholder's pro rata share of the Certificate
Balance for the related class of Certificates can be determined on any date by
multiplying the original denomination of the holder's Certificate by the
applicable Certificate Factor as of the close of business on the most recent
Distribution Date. The amount of a Noteholder's pro rata share of the aggregate
outstanding principal balance of the applicable class of Notes can be determined
by multiplying the original denomination of such Noteholder's Note by the then
applicable Note Factor.
Pursuant to each Trust and pursuant to the related Trust Documents,
the Securityholders thereunder will be entitled to receive monthly reports
concerning the payments received on the Receivables, additions of Subsequent
Receivables, if any, and the reduction in the Pre-Funded Amount, if any, the
Certificate Balance, the Note Balance, the Certificate Factor or Certificate
Factors for each class of Certificates, the Note Factor or Note Factors for each
class of Notes and various other items of information with respect to such
series. Securityholders of record during any calendar year will be furnished
information for tax reporting purposes not later than the latest date permitted
by law. See "Certain Information Regarding the Securities - Statements to
Securityholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of each
series of Securities will be applied to the purchase of Receivables from TMS
Auto Finance and, if specified in the related Prospectus Supplement, to the
deposit of the Pre-Funded Amount, if any, in the Pre-Funding Account and/or to
provide for other forms of credit enhancement specified in the related
Prospectus Supplement.
THE SELLER
The Seller, a wholly-owned subsidiary of the Representative, was
incorporated in the State of Delaware in July 1995. The Seller was organized for
limited purposes, which include purchasing receivables from TMS Auto Finance and
transferring such receivables to third parties and any activities incidental to
and necessary or convenient for the accomplishment of such purposes. The
principal executive offices of the Seller are located at 1625 West North Market
Blvd., Suite 210, Sacramento, California 95834. The telephone number of such
offices is (916) 928- 4400.
The Seller has taken and will take steps in structuring the
transactions contemplated hereby and in the related Prospectus Supplement that
are intended to make it unlikely that the voluntary or involuntary application
for relief by TMS Auto Finance, under any Insolvency Law will result in the
consolidation of the assets and liabilities of the Seller with those of TMS Auto
Finance. These steps include the creation of the Seller as a separate,
limited-purpose subsidiary pursuant to Articles of Incorporation containing
certain limitations (including restrictions on the nature of the Seller's
business and a restriction on the Seller's ability to commence a voluntary case
or proceeding under any Insolvency Law without the unanimous affirmative vote of
all of its directors). The Seller's Articles of Incorporation include a
provision that requires the Seller to have at least one director who qualifies
under the Articles of Incorporation as an "Independent Director."
If, notwithstanding the foregoing measures a court concluded that the
assets and liabilities of the Seller should be consolidated with the assets and
liabilities of TMS Auto Finance in the event of the application of any
Insolvency Law to TMS Auto Finance or a filing were made under any Insolvency
Law by or against the Seller, or if an attempt were made to litigate any of the
foregoing issues, delays in the distributions on the Securities (and possible
reductions in the amount of such distributions) could occur.
The Seller will also take certain steps in structuring the
transactions contemplated hereby and in the related Prospectus Supplement to
help ensure that an Insolvency Event with respect to the Affiliated Purchaser
for a Trust will not occur. These steps include the creation of the Affiliated
Purchaser as a separate, limited purpose corporation pursuant to articles of
incorporation containing certain limitations (including restrictions on the
nature of the Affiliated Purchaser's business and a restriction on the
Affiliated Purchaser's ability to commence a voluntary case or proceeding under
any Insolvency Law without the prior affirmative unanimous vote of its
directors). However, there can be no assurance that the activities of the
Affiliated Purchaser would not result in an Insolvency Event.
TMS AUTO FINANCE
TMS Auto Finance was incorporated in October 1994. Its executive
offices are located at 1625 West North Market Blvd., Suite 210, Sacramento,
California 95834, and its telephone number is (916) 928-4400.
General
TMS Auto Finance is an automotive finance company engaged primarily in
the indirect financing (by the purchase of motor vehicle retail installment sale
contracts from automotive dealers) of automotive purchases by individuals with
non-prime credit. The non-prime market segment is comprised of individuals who
are deemed to be relatively high credit risks due to various factors, including,
among other things, the manner in which they have handled previous credit, the
limited extent of their prior credit history and/or their limited financial
resources. Because of the greater credit risk associated with non-prime motor
vehicle retail installment contracts, the interest rates charged on such
contracts are generally higher than those rates charged on prime motor vehicle
retail installment sale contracts. The range of APRs of the Receivables will be
set forth in the related Prospectus Supplement. There can be no assurance,
however, that the interest rates on the Receivables in a particular pool will be
sufficient to cover losses on other Receivables in such pool.
TMS Auto Finance serves as an alternative source of financing to
automotive dealers by offering them the opportunity for increased sales to
customers who typically do not qualify for financing by the automotive dealers'
traditional financing sources. As of September 30, 1996, TMS Auto Finance does
business with approximately 4,729 franchised new car dealers or independent used
car dealers in the following 39 states: Alabama, Arizona, California, Colorado,
Connecticut, Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky,
Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nevada, New
Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma,
Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee,
Texas, Utah, Virginia, Washington, Wisconsin and Wyoming. From time to time, TMS
Auto Finance may determine to commence business in additional jurisdictions or
cease doing business in any state in which it presently does business. The
related Prospectus Supplement will specify the geographic distribution of the
specific Receivables included in the related Trust. In certain cases TMS Auto
Finance may effect purchases of non-prime motor vehicle retail installment sale
contracts, or may hold and effect ownership of contracts by means of a
wholly-owned subsidiary. The related Prospectus Supplement will specify whether
any specific Receivables included in the related Trust have been so acquired or
held and the reasons a subsidiary was used by Servicer.
TMS Auto Finance intends to offer to consumers directly loans for the
purchase of automobiles. The related Prospectus Supplement will disclose whether
any Receivables to be sold to a Trust include loans originated by TMS Auto
Finance. Unless the related Prospectus Supplement provides otherwise, the
underwriting guidelines to be applied by TMS Auto Finance when originating
automobile loans will be the same as those it applies when reviewing credit
applications received from Dealers. Similarly, unless otherwise specified in the
related Prospectus Supplement, with respect to any Receivable originated
directly by TMS Auto Finance or purchased from a third-party lender, TMS Auto
Finance's security interest will be noted on the related vehicle's certificate
of title and such Receivable will be serviced in the same manner as Receivables
originated by Dealers.
TMS Auto Finance has developed certain procedures and controls to
investigate and analyze each credit applicant in an effort to eliminate those
applicants whose credit characteristics indicate too great a probability of
loss. This procedure includes an investigation, verification, and evaluation
process of credit bureau reports as well as the general credit information
provided by both dealer and applicant. In addition, TMS Auto Finance uses
collection procedures and systems that are designed to ensure that the customers
clearly understand their credit obligations. For example, TMS Auto Finance uses
a monthly billing system in order to continually remind borrowers of their
monthly payment obligations and has established a "welcoming" process that
educates each borrower, both verbally and in writing, of its obligations.
Contract Acquisition Program
TMS Auto Finance's Contract Acquisition Program is designed to acquire
automotive contracts through the purchase of such contracts from franchised new
and used car dealers and independent used car dealers.
Indirect Financing
TMS Auto Finance's operations are currently centered on the
indirect financing of automotive purchases by individuals with non-prime credit.
This program is targeted to franchised new car dealers and independent used car
dealers (collectively, "Dealers") in certain markets within the United States
which are selected based on management's assessment of the size and growth
potential of the non-prime market, the economic vitality of the market, the
presence of an active new and used car market and the availability of
experienced branch managers in such market. These markets currently include
Montgomery, Alabama, Phoenix, Arizona, Anaheim, California, Encino, California,
Fresno, California, Ontario, California, Pleasanton, California, Sacramento,
California, San Diego, California, Santa Clara, California, Ventura, California,
Visalia, California, Denver, Colorado, Orlando, Florida, Pensacola, Florida,
Tampa, Florida, Atlanta, Georgia, Norcross, Georgia, Chicago, Illinois,
Indianapolis, Indiana, Kansas City, Kansas, Louisville, Kentucky, Baltimore,
Maryland, Boston, Massachusetts, Detroit, Michigan, St. Louis, Missouri, Las
Vegas, Nevada, Reno, Nevada, Albuquerque, New Mexico, Charlotte, North Carolina,
Raleigh, North Carolina, Columbus, Ohio, Oklahoma City, Oklahoma, Portland,
Oregon, Pittsburgh, Pennsylvania, Columbia, South Carolina, Nashville,
Tennessee, Dallas/Ft. Worth, Texas, Houston, Texas, San Antonio, Texas, Salt
Lake City, Utah, Seattle, Washington and Milwaukee, Wisconsin. This service
offers Dealers the opportunity for increased vehicle sales to customers who
typically do not qualify for financing by Dealers' traditional financing
sources.
Dealer Solicitation
TMS Auto Finance solicits business from Dealers through its marketing
representatives. TMS Auto Finance's marketing representatives identify and
target both franchised new car dealers and independent used car dealers. Once
selected, if a Dealer is interested in TMS Auto Finance's financing program, it
and TMS Auto Finance enter into a non-exclusive written dealer agreement (a
"Dealer Agreement"). TMS Auto Finance's Dealer Agreements generally provide that
contracts are sold by the Dealer to TMS Auto Finance "without recourse" to the
Dealer, except in limited circumstances including, among others, that (i) the
financed vehicle is not properly registered showing TMS Auto Finance as
lienholder; (ii) unless otherwise specified in the related motor vehicle retail
installment sale contract, the full down payment specified in the contract was
not received by the Dealer in cash; (iii) certain representations and warranties
by the Dealer regarding the contract, the financed vehicle, the contract process
and manner of sale are breached or untrue; and (iv) the Dealer has failed to
comply with applicable law.
TMS Auto Finance's representatives train Dealers' personnel in TMS
Auto Finance's finance programs. This training is continuous since dealerships
generally experience a relatively high degree of personnel turnover. The
training provided by TMS Auto Finance is designed to assist Dealers in
identifying consumers who will qualify for financing by TMS Auto Finance and
structuring transactions that meet TMS Auto Finance's requirements. TMS Auto
Finance's representatives generally reside in their assigned market territories
to facilitate the servicing of their respective Dealers.
In the event that an individual elects to finance the purchase through
a Dealer, the Dealer will submit a customer's credit application to TMS Auto
Finance and other financing sources for a review of the customer's credit
worthiness and proposed transaction terms. Such reviews generally take into
account, among other things, the individual's credit history and capacity to
pay, residence and job stability. After reviewing the credit application, each
finance source will notify the Dealer whether it is willing to purchase the
contract and, if so, under what conditions. If more than one finance source has
offered to purchase the contract, the Dealer typically will select the source
based on an analysis of the "buy rate," or the interest rate, discounts, fees,
participation, and other terms and conditions stipulated by the finance source.
Credit Evaluation Procedures
TMS Auto Finance has developed processing procedures and controls
specifically designed to support its evaluation process of non-prime credit
applicants. This process consists of an evaluation of credit bureau reports in
order to eliminate individuals whose credit quality is deteriorating, suggests
too great a probability of default or whose credit experience is too limited for
TMS Auto Finance to assess the probability of performance. TMS Auto Finance will
also require verification of certain applicant and/or Dealer provided
information prior to making its credit decision. This verification process in
many instances requires submission of supporting documentation and is performed
solely by Servicer personnel.
After receiving the applicant's credit application and extracting
information from the credit bureau reports, the application and the proposed
transaction are reviewed on the basis of TMS Auto Finance's credit and
transaction structure criteria and the credit decision is made. This decision
may be to approve the application, approve the application with conditions or
decline the application. The credit analyst documents the decision and the
Dealer is notified by facsimile transmission.
Loss Exposure Management
TMS Auto Finance believes it has designed its finance programs to
limit the loss exposure on each transaction. The degree of exposure in any
transaction is a function of (i) determining the customer's intent to pay; (ii)
determining the customers ability to pay; (iii) the extent of credit granted
compared to the value of the automobile; and (iv) the possibility of physical
damage to the automobile. TMS Auto Finance seeks to control loss exposure by (i)
careful analysis of the applicant's credit history; (ii) determining whether the
applicant has sufficient disposable income to meet existing obligations,
including the obligation resulting from the proposed transaction; (iii) limiting
the credit it is willing to extend based upon its assessment of the value of the
underlying collateral and the applicant's other credit characteristics; and (iv)
requiring physical damage insurance to be maintained at all times to protect its
financial interest. The continued maintenance of insurance is tracked, but TMS
Auto Finance does not currently force place insurance. TMS Auto Finance
currently maintains a lender's comprehensive single interest insurance policy
which generally covers losses due to physical damage, nonfiling and skips in the
event that insurance coverage maintained by a motor vehicle owner is terminated.
Upon purchase of a motor vehicle retail installment sale contract, TMS
Auto Finance acquires a security interest in the vehicle financed. All contracts
purchased by TMS Auto Finance from Dealers through its Contract Acquisition
Program are fully amortizing and provide for equal payments over the term of the
contract (typically 24 to 72 months) other than the final payment which may be
minimally different. The portions of such payments allocable to principal and
interest are, for payoff and deficiency purposes, determined in accordance with
the law of the state in which the contract was originated. In the event that
state law provides for more than one method of allocating principal and
interest, the terms of the acquired installment contract are applied. Unless the
related Prospectus Supplement provides otherwise, any loans originated by TMS
Auto Finance or acquired from third-party lenders will have comparable payment
terms.
Contract Processing, Purchase, Servicing and Administration
Upon submission by a Dealer of a motor vehicle retail installment sale
contract and related documentation, TMS Auto Finance completes a series of
processes and procedures which are designed to (i) substantiate the accuracy of
information critical to TMS Auto Finance's original credit decision; (ii) verify
that the contract submitted by the Dealer complies with both the conditions
under which the credit approval was granted and TMS Auto Finance's transaction
structure criteria; and (iii) confirm that the documentation complies with TMS
Auto Finance's loss management requirements. These processes and procedures
include the verification of employment, income, collateral and insurance prior
to the contract being released for purchase. The customer also may be contacted
to confirm delivery of the vehicle and the terms of the transaction.
Upon a contract being released for purchase, TMS Auto Finance prepares
and issues funds to the Dealer in the appropriate amount, and initiates a
welcoming process through which TMS Auto Finance begins to attempt to educate
borrower both verbally and in writing about their financial obligations upon the
purchase of their contract. This process is designed to ensure that borrowers
clearly understand their credit obligations, including their responsibility to
maintain insurance coverage on the financed vehicle. The education process
includes an initial acknowledgment of the contract purchase, which includes the
first monthly billing statement, which thereafter is mailed approximately 15
days prior to each payment due date. The acknowledgment is followed by a welcome
letter from the insurance tracking vendor that instructs the borrower regarding
the need to maintain insurance as well as the address to send the policy to.
Five days prior to the first payment due date, TMS Auto Finance contacts the
borrower to determine if the first statement was received and to educate the
borrower regarding where to make payments. If the first payment is not received
by approximately the fifth day after the due date, the Collections Department
immediately begins calling the borrower until the payment is received or some
other servicing action is taken.
TMS Auto Finance's servicing and administration activities relate to
the administration and collection of the contracts and have been specifically
tailored to the unique challenges of non-prime credits. Through such services,
TMS Auto Finance (i) collects payments; (ii) accounts for and posts all payments
received; (iii) responds to borrower inquiries; (iv) takes all necessary action
to maintain the security interest granted in the financed vehicle; (v)
investigates delinquencies and communicates with the borrower to obtain timely
payments; (vi) reports tax information to the borrower; (vii) monitors the
contract and its related collateral; and (viii) when necessary, repossesses and
disposes of the financed vehicle.
TMS Auto Finance currently utilizes a monthly billing statement system
(rather than payment coupon books) to remind borrowers of their monthly payment
obligations. This system also serves as an early warning mechanism in the event
the borrower has failed to notify TMS Auto Finance of an address change. TMS
Auto Finance also contacts borrowers substantially earlier than is customary in
the industry, for first payment delinquencies commencing five days after the
borrower's due date and ten days after the due date for other payments (as
opposed to the more conventional initial contact between the 17th and the 21st
day) and continuing until payment has been received. TMS Auto Finance believes
that early and frequent contact with the borrower reinforces the individual's
obligation and TMS Auto Finance's expectation for timely payment and serves to
expedite payments.
Delinquency Control and Collection Strategy
TMS Auto Finance's collection personnel generally review any account
that reaches fifteen (15) days delinquent to assess the collection efforts to
date and to refine, if necessary, the collection strategy. TMS Auto Finance's
collection personnel, together with senior management, generally will design a
collection strategy that includes a specific deadline within which the
obligation must be collected. Accounts that have not been collected during such
period are again reviewed, and, unless there are specific circumstances which
warrant further collection efforts, the account is assigned to outside agencies
for repossession of the financed vehicle. Repossessed vehicles are generally
resold by TMS Auto Finance through wholesale auctions, which are attended
principally by Dealers. Regardless of the actions taken or circumstances
surrounding a specific delinquent account, generally any account which reaches
150 days of delinquency is charged-off and the borrower is pursued, subject to
legal limitations, for both the collateral and the deficiency.
Policies for charging-off an account do not differ based upon whether
a receivable is owned by TMS Auto Finance or sold to a Trust. Repossession
losses, if any, are recognized upon the sale of the financed vehicle and receipt
of sale proceeds. The proceeds of resale of repossessed financed vehicles
generally will be applied first to the expenses of repossession and resale and
then to the satisfaction of the indebtedness on the related Receivable.
THE MONEY STORE
The Money Store Inc., a New Jersey corporation ("The Money Store"), is
a financial services company engaged, through its subsidiaries, in the business
of originating, purchasing, selling and servicing consumer and commercial loans
of specified types and offering related services. Loans originated by The Money
Store and its subsidiaries primarily consist of mortgage loans, loans (the "SBA
Loans") guaranteed in part by the United States Small Business Administration
(the "SBA") and government guaranteed student loans.
Since 1967, The Money Store and its subsidiaries have been active in
the development of the residential home equity lending industry in the United
States. In 1979, The Money Store and its subsidiaries began to originate SBA
Loans and, based upon statistics compiled by the SBA, The Money Store believes
that during each of the last 13 SBA fiscal years it originated a greater
principal amount of SBA Loans than any other originator of such loans in the
United States. In 1984, The Money Store entered into the government guaranteed
student loan origination market.
For the year ended December 31, 1995 and the six months ended June 30,
1996, The Money Store and its subsidiaries originated or purchased approximately
$3.8 billion and $2.5 billion of loans, respectively. Of those loans,
approximately 75% and 76%, respectively, by principal amount were home equity
loans, approximately 12% and 11%, respectively, by principal amount were SBA
Loans, approximately 10% and 6%, respectively, by principal amount were
government guaranteed student loans and approximately 3% and 7%, respectively,
by principal amount were auto loans. The business strategy of The Money Store
has been to identify and pursue niche lending opportunities which management
believes have had widespread unsatisfied demand.
At June 30, 1996, The Money Store and its subsidiaries operated out of
191 branch locations in 50 states, the District of Columbia and the Commonwealth
of Puerto Rico.
The Money Store executive offices are located at 3301 C Street, Suite
100-A, Sacramento, California 95816 and 2840 Morris Avenue, Union, New Jersey
07083. The offices' respective telephone numbers are (916) 446-5000 and (908)
686-2000.
THE CERTIFICATES
General
With respect to each Trust, one or more classes of Certificates of a
given series will be issued pursuant to Trust Documents to be entered into among
the Seller, the Servicer, the Owner Trustee, the Indenture Trustee, if any, and
any other party identified in the related Prospectus Supplement, forms of which
have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The following summary does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all of the
material provisions of such forms of Trust Documents.
Unless otherwise specified in the related Prospectus Supplement, each
class of Certificates will initially be represented by a single Certificate
registered in the name of Cede & Co., the nominee of DTC (together with any
successor depository selected by the Seller, the "Depository"). See "Certain
Information Regarding the Securities - Book-Entry Registration." Unless higher
denominations are specified in the related Prospectus Supplement, the
Certificates evidencing interests in a Trust will be available for purchase in
denominations of $1,000 initial principal amount and integral multiples thereof,
except that one Certificate evidencing an interest in such Trust may be issued
in a denomination that is less than $1,000 initial principal amount.
Certificates may be transferred or exchanged without the payment of any service
charge other than any tax or governmental charge payable in connection with such
transfer or exchange. The Owner Trustee will initially be designated as the
registrar for the Certificates.
Distributions of Interest and Principal
The timing and priority of distributions, seniority, allocations of
loss, Pass-Through Rate and amount of or method of determining distributions
with respect to principal and interest (or, where applicable, with respect to
principal only or interest only) on the Certificates of any series will be
described in the related Prospectus Supplement. Distributions of interest on the
Certificates will be made on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") and, except to the extent specified in
the related Prospectus Supplement, will be made prior to distributions with
respect to principal. A series may include one or more classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distribution, or (ii) interest
distributions, with disproportionate, nominal or no distributions in respect of
principal. Each class of Certificates may have a different Pass-Through Rate,
which may be a fixed, variable or adjustable Pass-Through Rate (and which may be
zero for certain classes of Strip Certificates), or any combination of the
foregoing. The related Prospectus Supplement will specify the Pass-Through Rate
for each class of Certificate, or the initial Pass-Through Rate and the method
for determining the subsequent Pass-Through Rate. Interest on the Certificates
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months. Distributions in respect of the Certificates may be subordinated to all
or certain payments in respect of the Notes, if any, to the extent described in
the related Prospectus Supplement. Distributions in respect of principal of any
class of Certificates will be made on a pro rata basis among all of the
Certificateholders of such class.
In the case of a series of Certificates which includes two or more
classes of Certificates, the timing, sequential order, priority of payment or
amount of distributions in respect of principal, and any schedule or formula or
other provisions applicable to the determination thereof, of each such class
shall be as set forth in the related Prospectus Supplement.
In addition, if the related Prospectus Supplement so provides,
payments of principal on one or more classes of Certificates issued by a Trust
may be delayed during the Revolving Period or an Amortization Period to the
extent described in such Prospectus Supplement.
THE NOTES
General
A series of Securities may include one or more classes of Notes issued
pursuant to the terms of an Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Notes will be issued as a part of any series if and as specified in the related
Prospectus Supplement. The following summary does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all of the
provisions of the Notes and the Indenture, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part, and
the following summary may be supplemented by the related Prospectus Supplement.
Each class of Notes will initially be represented by a single Note
registered in the name of Cede & Co., the nominee of DTC. See "Certain
Information Regarding the Securities - Book-Entry Registration." Notes will be
available for purchase in denominations of $1,000 and integral multiples
thereof. Notes may be transferred or exchanged without the payment of any
service charge other than any tax or governmental charge payable in connection
with such transfer or exchange. The Indenture Trustee will initially be
designated as the registrar for the Notes of any series.
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of loss,
Interest Rate and amount of or method of determining payments of principal and
interest on the Notes will be described in the related Prospectus Supplement.
The right of holders of any class of Notes to receive payments of principal and
interest may be senior or subordinate to the rights of holders of any class or
classes of Notes of such series, or any class of Certificates, as described in
the related Prospectus Supplement. Except to the extent provided in the related
Prospectus Supplement, payments of interest on the Notes will be made prior to
payments of principal thereon. A series may include one or more classes of Strip
Notes entitled to (i) principal payments with disproportionate, nominal or no
interest payment, or (ii) interest payments with disproportionate, nominal or no
principal payments. Each class of Notes may have a different Interest Rate,
which may be a fixed, variable or adjustable Interest Rate (and which may be
zero for certain classes of Strip Notes), or any combination of the foregoing.
The related Prospectus Supplement will specify the Interest Rate for each class
of Notes, or the initial Interest Rate and the method for determining the
Interest Rate. One or more classes of Notes of a series may be redeemable under
the circumstances specified in the related Prospectus Supplement.
In the case of a series of Securities which includes two or more
classes of Notes, the sequential order and priority of payments in respect of
principal and interest on any of the dates specified for payments in the related
Prospectus Supplement (each, a "Payment Date"), and any schedule or formula or
other provisions applicable to the determination thereof, of each such class
will be set forth in the related Prospectus Supplement.
In addition, if the related Prospectus Supplement so provides,
payments of principal on one or more classes of Notes issued by a Trust may be
delayed during the Revolving Period or an Amortization Period to the extent
described in such Prospectus Supplement.
The Indenture
A form of Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Seller will provide a copy
of the applicable Indenture (without exhibits) upon request to any holder of
Notes issued thereunder.
Modification of Indenture Without Noteholder Consent. With respect to
each Trust, without the consent of the related Noteholders, and with notice to
the applicable Rating Agencies, the Indenture Trustee and the Owner Trustee (on
behalf of such Trust), and with the consent of the third party credit
enhancement provider, if any (so long as no Insurer Default (as defined in the
related Prospectus Supplement) has occurred and is continuing) unless the
related Prospectus Supplement provides otherwise, may enter into one or more
supplemental indentures for any of the following purposes: (i) to correct or
amplify the description of the collateral or add additional collateral; (ii) to
evidence and provide for the assumption of the Note and the Indenture
obligations by a permitted successor to the Trust; (iii) to add additional
covenants for the benefit of the related Noteholders, or to surrender any rights
or power conferred upon the Trust: (iv) to convey, transfer, assign, mortgage or
pledge any property to or with the Indenture Trustee; (v) to cure any ambiguity
or correct or supplement any provision in the Indenture or in any supplemental
indenture; (vi) to evidence and provide for the acceptance of the appointment of
a successor Indenture Trustee or to add to or change any of the provisions of
the Indenture as shall be necessary and permitted to facilitate the
administration by more than one trustee; (vii) to modify, eliminate or add to
the provisions of the Indenture in order to comply with the Trust Indenture Act
of 1939, as amended; and (viii) to add any provisions to, change in any manner,
or eliminate any of the provisions of, the Indenture or modify in any manner the
rights of Noteholders under such Indenture; provided that any action specified
in this clause (viii) shall not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any related
Noteholder.
Modifications of Indenture With Noteholder Consent. With respect to
each Trust, with the consent of the holders representing a majority of the
aggregate principal balance of the outstanding related Notes (a "Note
Majority"), with the consent of the third party credit enhancement provider, if
any (so long as no Insurer Default (as defined in the related Prospectus
Supplement) has occurred and is continuing) unless the related Prospectus
Supplement provides otherwise, and with notice to the applicable Rating
Agencies, the Indenture Trustee may execute a supplemental indenture to add
provisions to change in any manner or eliminate any provisions of, the related
Indenture, or modify in any manner the rights of the related Noteholders.
Without the consent of the third party credit enhancement provider, if
any (so long as no Insurer Default (as defined in the related Prospectus
Supplement) has occurred and is continuing) unless the related Prospectus
Supplement provides otherwise, and the holder of each outstanding related Note
affected thereby, however, no supplemental indenture may: (i) change the due
date of any installment of principal of or interest on any Note or reduce the
principal amount thereof, the interest rate thereon or the redemption price with
respect thereto, change the provisions of the Indenture relating to the
application of collections on or the proceeds of the sale of, the collateral for
the Notes 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 any interest
thereon is payable, (ii) impair the right to institute suit for the enforcement
of certain provisions of the Indenture regarding payment, (iii) reduce the
percentage of the aggregate principal amount of the outstanding 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 the Indenture or of certain defaults thereunder and
their consequences as provided for in the Indenture, (iv) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Trust, the
Seller, an affiliate of either of them or any obligor on the Notes, (v) reduce
the percentage of the aggregate outstanding amount of the Notes the consent of
the holders of which is required to direct the Indenture Trustee on behalf of
the Trust to sell or liquidate the Receivables if the proceeds of such sale
would be insufficient to pay the principal amount and accrued but unpaid
interest on the outstanding Notes, (vi) decrease the percentage of the aggregate
principal amount of the Notes required to amend the sections of the Indenture
which specify the applicable percentage of aggregate principal amount of the
Notes necessary to amend the Indenture or certain other related agreements,
(vii) modify any of the provisions of the Indenture in such manner as to affect
the calculation of the amount of any payment of interest on any Distribution
Date or principal due on any Note on any Distribution Date (including the
calculation of any of the individual components of such calculation) or to
affect the rights of the Noteholders to the benefit of any provision for the
mandatory redemption of the Notes contained in the Indenture or (viii) permit
the creation of any lien ranking prior to or on a parity with the lien of the
Indenture with respect to any of the collateral for the Notes or, except as
otherwise permitted or contemplated in the Indenture, terminate the lien of the
Indenture on any such collateral or deprive the holder of any Note of the
security provided by the lien of the Indenture.
Events of Default; Rights Upon Event of Default. With respect to each
Trust, unless otherwise specified in the related Prospectus Supplement, "Events
of Default" under the Indenture will consist of: (i) a default for five days or
more in the payment of any interest on any Note after the same becomes due and
payable; (ii) a default in the payment of the principal or of any installment of
the principal of any Note when the same becomes due and payable; (iii) a default
in the observance or performance of any covenant or agreement of the Trust made
in the Indenture and the continuation of any such default for a period of 30
days after notice thereof is given to the Trust by the Indenture Trustee or to
the Trust and the Indenture Trustee by the holders of at least 25% in aggregate
principal amount of the related Notes then outstanding (or for such longer
period, not in excess of 90 days, as may be reasonably necessary to remedy such
default; provided that such default is capable of remedy within 90 days or less
and the Owner Trustee delivers an officer's certificate to the Indenture Trustee
to the effect that the Trust has commenced, or will promptly commence and
diligently pursue, all reasonable efforts to remedy such default); (iv) any
representation or warranty made by the Trust in the Indenture or in any
certificate delivered pursuant thereto or in connection therewith having been
incorrect in a material respect as of the time made, and such breach not having
been cured within 30 days after notice thereof is given to the Trust by the
Indenture Trustee or to the Trust and the Indenture Trustee by the holders of a
least 25% in aggregate principal amount of the Notes then outstanding (or for
such longer period, not in excess of 90 days as may be reasonably necessary to
remedy such default; provided that such default is capable of remedy within 90
days or less and the Owner Trustee delivers an officer's certificate to the
Indenture Trustee to the effect that the Trust has commenced, or will promptly
commence and diligently pursue, all reasonable efforts to remedy such default)
or (v) certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust. However, the amount of principal due and payable on any class of
Notes on any Payment Date (prior to the final scheduled Payment Date, if any,
for such class) will generally be determined by the amount available to be
deposited in the Note Distribution Account for such Payment Date. Therefore, the
failure to pay principal on a class of Notes generally will not result in the
occurrence of an Event of Default unless such class of Notes has a final
scheduled Payment Date, and then not until such final scheduled Payment Date for
such class of Notes.
Unless otherwise specified in the related Prospectus Supplement, if an
Event of Default should occur and be continuing with respect to the Notes of any
series, the related Indenture Trustee or a Note Majority may declare the
principal of the Notes to be immediately due and payable. Such declaration may
be rescinded by a Note Majority if (i) the Trust has paid to the Indenture
Trustee a sum sufficient to pay all amounts then due with respect to the Notes
(without giving effect to such acceleration) and certain amounts payable to the
Indenture Trustee and (ii) all Events of Default (other than nonpayment of the
principal of the Notes due solely as a result of such acceleration) have been
cured or waived.
Unless otherwise specified in the related Prospectus Supplement, if
the Notes of any series have been declared due and payable following an Event of
Default with respect thereto, the related Indenture Trustee may institute
proceedings to collect amounts due or foreclose on Trust Property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
Trust maintain possession of such Receivables and continue to apply collections
on such Receivables as if there had been no declaration of acceleration. The
Indenture Trustee, however, will be prohibited from selling the related
Receivables following an Event of Default, other than a default in the payment
of any principal or a default for five days or more in the payment of any
interest on any Note, unless (i) the holders of all the outstanding related
Notes consent to such sale; (ii) the proceeds of such sale are sufficient to pay
in full the principal of and the accrued interest on such outstanding Notes at
the date of such sale; or (iii) the Indenture Trustee determines that the
proceeds of the Receivables would not be sufficient on an ongoing basis to make
all payments on the Notes as such payments would have become due if such
obligations had not been declared due and payable, and the Indenture Trustee
obtains the consent of the holders representing 66-2/3% of the aggregate
principal balance of the outstanding related Notes. In the event the Notes are
accelerated and the Receivables are sold, no distributions will be made on the
Certificates until all of the interest on and principal of the Notes has been
paid in full. In such event, all the funds, if any, on deposit in any reserve
account or received from another source of credit support will be available to
first pay interest on and principal of the Notes.
Subject to the provisions of the Indenture relating to the duties of
the Indenture Trustee, if an Event of Default occurs and is continuing with
respect to a series of Notes, the Indenture Trustee will be under no obligation
to exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of such Notes, if the Indenture Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority in a series will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee with respect to the Notes or exercising any
trust or power conferred on the Indenture Trustee and a Note Majority may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or consent
of all of the holders of such outstanding Notes.
No holder of a Note of any series will have the right to institute any
proceeding with respect to the related Indenture unless (i) such holder
previously has given to the Indenture Trustee written notice of a continuing
Event of Default, (ii) the holders of not less than 25% in principal amount of
the outstanding Notes of such series have made written request of the Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee, (iii)
such holder or holders have offered the Indenture Trustee reasonable indemnity,
(iv) the Indenture Trustee has for 60 days failed to institute such proceeding,
(v) no direction inconsistent with such written request has been given to the
Indenture Trustee during such 60-day period by the holders of a majority in
principal amount of such outstanding Notes, and (vi) in the case of a series of
Notes with respect to which a guaranty insurance policy has been issued, unless
otherwise specified in the related Prospectus Supplement, an Insurer Default (as
defined in the related Prospectus Supplement) has occurred and is continuing.
If an Event of Default occurs and is continuing and if it is known to
the Indenture Trustee, the Indenture Trustee will mail to each Noteholder notice
of the Event of Default within 90 days after it occurs. Except in the case of a
failure to pay principal of or interest on any Note, the Indenture Trustee may
withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the Noteholders.
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related Notes, will covenant that they will not at any time
institute against the related Trust, the Seller and the Affiliated Purchaser any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
No recourse may be taken, directly or indirectly, with respect to the
obligations of a Trust, the Seller, the Servicer, the Affiliated Purchaser, the
Owner Trustee or the Indenture Trustee on the related Notes or under the
Indenture or any certificate or other writing delivered in connection therewith,
against (i) the Seller, the Servicer, the Affiliated Purchaser, the Indenture
Trustee or the Owner Trustee in its individual capacity or (ii) any partner,
owner, beneficiary, agent, officer, director, employee or agent of the Seller,
the Servicer, such Trust, the Affiliated Purchaser, the Owner Trustee or the
Indenture Trustee or of any successor or assignee of the Seller, the Servicer,
the Affiliated Purchaser, 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 will 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.
Certain Covenants. Each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless (i) the entity
formed by or surviving such consolidation or merger is organized under the laws
of the United States, any state or the District of Columbia, (ii) such entity
expressly assumes the Trust's obligation to make due and punctual payments upon
the Notes and the performance or observance of every agreement and covenant of
the Trust under the Indenture, (iii) no Default or Event of Default shall have
occurred and be continuing immediately after such merger or consolidation, (iv)
none of the applicable Rating Agencies, after 10 days' prior notice, shall have
notified the Seller, the Servicer or the Trust in writing that such transaction
will result in a reduction or withdrawal of the then current ratings of the
Notes, (v) unless the related Prospectus Supplement provides otherwise, the
third party credit enhancement provider, if any, has consented to such merger or
consolidation and no Insurer Default (as defined in the related Prospectus
Supplement) has occurred and is continuing, (vi) the Trust has received an
opinion of counsel to the effect that such transaction would have no material
adverse Federal or state tax consequence to the Trust or to any
Certificateholder or Noteholder, (vii) any action necessary to maintain the lien
and security interest created by the Indenture has been taken and (viii) the
Trust has delivered to the Indenture Trustee an officers' certificate of the
Trust and an opinion of counsel each stating that such transaction and the
supplemental indenture executed in connection with such transaction comply with
the Indenture and that all conditions precedent relating to the transaction have
been complied with (including any filing required by the Exchange Act).
Also, each Trust may not convey or transfer all or substantially all
its properties or assets to any other entity, unless (i) the entity that
acquires the assets of the Trust (A) agrees that all right, title and interest
conveyed or transferred shall be subject and subordinate to the rights of
Noteholders, (B) unless otherwise agreed, expressly agrees to indemnify, defend
and hold harmless the Trust against and from any loss, liability or expense
arising under or related to the Indenture and the Notes, (C) expressly agrees to
make all filings with the Securities and Exchange Commission (and any other
appropriate entity) required by the Exchange Act in connection with the Notes
and (D) is organized under the laws of the United States or any state; and (ii)
the criteria specified in clauses (ii) through (vii) of the preceding paragraph
have been complied with.
Each Trust will not, among other things, (i) except as expressly
permitted by the Indenture, the Purchase Agreement, the Trust Documents or
certain related documents for such Trust (collectively, the "Related
Documents"), sell, transfer, exchange or otherwise dispose of any of the assets
of the Trust, (ii) claim any credit on or make any deduction from the principal
and interest payable in respect of the related Notes (other than amounts
withheld under the Internal Revenue Code of 1986, as amended, or applicable
state law) or assert any claim against any present or former holder of such
Notes because of the payment of taxes levied or assessed upon the collateral for
the Notes, (iii) except as contemplated by the Related Documents, dissolve or
liquidate in whole or in part, (iv) permit the validity or effectiveness of the
related Indenture to be impaired or permit any person to be released from any
covenants or obligations with respect to the related Notes under such Indenture
except as may be expressly permitted thereby, (v) permit any lien, charge,
excise, claim, security interest, mortgage or other encumbrance to be created on
or extend to or otherwise arise upon or burden the collateral for the Notes or
any part thereof, or any interest therein or proceeds thereof except as
expressly permitted by the Related Documents or (vi) permit the lien of the
Indenture not to constitute a valid first priority security interest in the
collateral for the Receivables.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "The Trust." No Trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
pursuant to the related Notes and the related Indenture or otherwise in
accordance with the Related Documents.
Annual Compliance Statement. Each Trust will be required to file
annually with the related Indenture Trustee a written statement as to the
fulfillment of its obligations under the Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee will be
required to mail each year to all related Noteholders a brief report relating
to, among other things, its eligibility and qualification to continue as
Indenture Trustee under the related Indenture, any amounts advanced by it under
the Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by the Trust to the Indenture Trustee in its individual
capacity, the property and funds physically held by the Indenture Trustee as
such and any action taken by it that materially affects the Notes and that has
not been previously reported.
Satisfaction and Discharge of Indenture. The Indenture will be
discharged with respect to the collateral securing the related Notes upon the
delivery to the related Indenture Trustee for cancellation of all such Notes or,
with certain limitations, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all of such Notes.
Trust Indenture Act. The Indenture will comply with applicable
provisions of the Trust Indenture Act of 1939, as amended.
The Indenture Trustee
The Indenture Trustee for a series of Notes will be specified in the
related Prospectus Supplement. The Indenture Trustee for one series of Notes may
serve as the Owner Trustee with respect to another series of Securities. The
Indenture Trustee may resign at any time, in which event the Seller will be
obligated to appoint a successor trustee eligible under the Indenture which,
unless the related Prospectus Supplement provides otherwise, shall be acceptable
to the third party credit enhancement provider, if any, so long as no Insurer
Default (as defined in the related Prospectus Supplement) has occurred and is
continuing. The Seller may also remove the Indenture Trustee, with the consent
of the third party credit enhancement provider, if any, if the Indenture Trustee
ceases to be eligible to continue as such under the Indenture or if the
Indenture Trustee becomes insolvent. In such circumstances, the Seller will be
obligated to appoint a successor trustee eligible under the Indenture which,
unless the related Prospectus Supplement provides otherwise, shall be acceptable
to the third party credit enhancement provider, if any, so long as no Insurer
Default (as defined in the related Prospectus Supplement) has occurred and is
continuing. Any resignation or removal of the Indenture Trustee and appointment
of a successor trustee will be subject to any conditions or approvals, including
the approval of the issuer of any credit enhancement, if any, specified in the
related Prospectus Supplement and will not become effective until acceptance of
the appointment by a successor trustee.
CERTAIN INFORMATION REGARDING THE SECURITIES
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 maybe 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.
Book-Entry Registration
Unless otherwise specified in the related Prospectus Supplement,
persons acquiring beneficial ownership interests in the Securities of each
Series may hold their interests through DTC in the United States or, in the case
of any series of Notes, Cedel or Euroclear in Europe. Each Class of Certificates
will be registered in the name of Cede as nominee for DTC. Cedel and Euroclear
will hold omnibus positions with respect to the Notes and, if the related
Prospectus Supplement so provides, the Certificates on behalf of Cedel
Participants and Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's name on the books of their
respective depositories (collectively, the "Depositories") which in turn will
hold such positions in customers' securities accounts in the Depositories' names
on the books of DTC. For additional information regarding clearance and
settlement procedures see Annex I hereto.
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 Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is also
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"). The rules applicable to DTC
and its participants are on file with the Commission.
Certificate Owners and Note Owners who are not Participants but desire
to purchase, sell or otherwise transfer ownership of Securities may do so only
through Participants (unless and until Definitive Certificates or Definitive
Notes, each as defined below, are issued). In addition, Certificate Owners and
Note Owners will receive all distributions of principal of, and interest on, the
Securities, from the Owner Trustee or the Indenture Trustee, as applicable,
through DTC and Participants. Certificate Owners and Note Owners will not
receive or be entitled to receive certificates representing their respective
interests in the Securities, except under the limited circumstances described
below and such other circumstances, if any, as may be specified in the related
Prospectus Supplement.
Unless and until Definitive Securities are issued, it is anticipated
that the only Certificateholder of the Certificates and the only Noteholder of
the Notes, if any, will be Cede & Co., as nominee of DTC. Certificate Owners and
Note Owners will not be recognized by the Owner Trustee as Certificateholders or
by the Indenture Trustee as Noteholders as those terms are used in the related
Trust Documents or Indenture. Certificate Owners and Note Owners will be
permitted to exercise the rights of Certificateholders or Noteholders, as the
case may be, only indirectly through Participants and DTC.
With respect to any series of Securities issued in book-entry form,
while such Securities are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit distributions of principal of, and interest on,
the Securities. Participants with whom Certificate Owners or Note Owners have
accounts with respect to Securities are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Certificate Owners and Note Owners. Accordingly, although Certificate
Owners and Note Owners will not possess Securities, the Rules provide a
mechanism by which Certificate Owners and Note Owners will receive distributions
and will be able to transfer their interests.
Transfers between Participants will occur in accordance with DTC
Rules. Transfers between Cedel Participants and Euroclear Participants will
occur in accordance with their respective rules and operating procedures.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date, and any such credits or any transactions in
such securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel or
Euroclear as a result of sales of Notes and, if the related Prospectus
Supplement so provides, Certificates by or through a Cedel Participant or
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.
Cross-market transfers between persons directly holding Notes and, if
the related Prospectus Supplement so provides, Certificates 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 Depository; 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 deadline (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depository 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 to the Depositories.
With respect to any series of Securities, Certificates and Notes (if
any) will be issued in registered form to Certificate Owners and Note Owners, or
their nominees, rather than to DTC (such Certificates and Notes being referred
to herein as "Definitive Certificates" and "Definitive Notes," respectively),
only if (i) the Seller advises the Owner Trustee or the Indenture Trustee, as
the case may be, in writing that DTC is no longer willing or able to discharge
properly its responsibilities as nominee and depository with respect to the
Certificates or the Notes and the Seller is unable to locate a qualified
successor, (ii) the Seller at its sole option has advised the Owner Trustee or
the Indenture Trustee, as the case may be, in writing that it elects to
terminate the book-entry system through DTC or (iii) after the occurrence of an
Event of Default, the holders representing a majority of the Certificate Balance
(a "Certificate Majority") or a Note Majority advises the Owner Trustee or the
Indenture Trustee, as the case may be, through DTC that continuation of a
book-entry system is no longer in their best interests. Upon issuance of
Definitive Certificates or Definitive Notes to Certificate Owners or Note
Owners, such Certificates or Notes will be transferable directly (and not
exclusively on a book-entry basis) and registered holders will deal directly
with the Owner Trustee or the Indenture Trustee, as the case may be, with
respect to transfers, notices and distributions.
DTC has advised the Seller that, unless and until Definitive
Certificates or Definitive Notes are issued, DTC will take any action permitted
to be taken by a Certificateholder or a Noteholder under the related Trust
Documents or Indenture only at the direction of one or more Participants to
whose DTC accounts the Certificates or Notes are credited. DTC has advised the
Seller that DTC will take such action with respect to any fractional interest of
the Certificates or the Notes only at the direction of and on behalf of such
Participants beneficially owning a corresponding fractional interest of the
Certificates or the Notes. DTC may take actions, at the direction of the related
Participants, with respect to some Certificates or Notes which conflict with
actions taken with respect to other Certificates or Notes.
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 its participants
("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 be settled in any of 32 currencies, including United
States dollars. Euroclear 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 the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York the "Euroclear Operator"), under contract
with Euroclear Clearance Systems, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear 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 Euroclear, and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants and has no record of or relationship with persons holding
through Euroclear Participants.
Distributions with respect to Notes and, if the related Prospectus
Supplement so provides, Certificates held through Cedel or Euroclear will be
credited to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depository. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a beneficial holder of Notes and, if the related Prospectus
Supplement so provides, Certificates under the Agreement on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant rules
and procedures and subject to its Depository's ability to effect such actions on
its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of interests in the Notes and, if
the related Prospectus Supplement so provides, the Certificates among Direct
Participants of DTC, Cedel and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
NEITHER THE TRUST, THE SELLER, THE SERVICER, THE REPRESENTATIVE, THE
OWNER TRUSTEE, THE INDENTURE TRUSTEE, NOR ANY OF THE UNDERWRITERS WILL HAVE ANY
RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANTS, CEDEL PARTICIPANTS OR
EUROCLEAR PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT
TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, CEDEL, EUROCLEAR OR ANY
PARTICIPANT, (2) THE PAYMENT BY DTC, CEDEL, EUROCLEAR OR ANY PARTICIPANT OF ANY
AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL BALANCE OF, OR
INTEREST ON, THE NOTES AND, IF THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES,
THE CERTIFICATES, (3) THE DELIVERY BY ANY PARTICIPANT, CEDEL PARTICIPANT OR
EUROCLEAR PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR
PERMITTED UNDER THE TERMS OF THE AGREEMENT TO BE GIVEN TO NOTEHOLDERS AND, IF
THE RELATED PROSPECTUS SUPPLEMENT SO PROVIDES, CERTIFICATEHOLDERS OR (4) ANY
OTHER ACTION TAKEN BY DTC OR ITS NOMINEE AS THE NOTEHOLDER AND, IF THE RELATED
PROSPECTUS SUPPLEMENT SO PROVIDES, THE CERTIFICATEHOLDER.
Issuance of Certificates and Notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
Certificates or Notes in the secondary market and the ability of the Certificate
Owners or Note Owners to pledge them. In addition, since distributions on the
Certificates and the Notes will be made by the Owner Trustee or the Indenture
Trustee to DTC unless and until Definitive Certificates and Definitive Notes are
issued and DTC will credit such distributions to the accounts of its
Participants, with the Participants further crediting such distributions to the
accounts of indirect participants or Certificate Owners or Note Owners,
Certificate Owners and Note Owners may experience delays in the receipt of such
distributions.
Statements to Securityholders
On or prior to each Distribution Date, the Servicer will prepare and
provide to the Owner Trustee a statement to be delivered to the related
Certificateholders on such Distribution Date. On or prior to each Payment Date,
the Servicer will prepare and provide to the Indenture Trustee a Statement to be
delivered to the related Noteholders on such Payment Date. Such statements will
be based on the information in the related Servicer's Certificate setting forth
certain information required under the Trust Documents (the "Servicer's
Certificate"). Each such statement to be delivered to Certificateholders will
include the following information as to the Certificates with respect to such
Distribution Date or the period since the previous Distribution Date, as
applicable, and each such statement to be delivered to Noteholders will include
the following information as to the Notes with respect to such Payment Date or
the period since the previous Payment Date, as applicable:
(i) the amount of the distribution allocable to interest on or with
respect to each class of Securities;
(ii) the amount of the distribution allocable to principal on or with
respect to each class of Securities;
(iii) the Certificate Balance and the Certificate Factor for each
class of Certificates and the aggregate outstanding principal balance and, if
applicable, the Note Factor for each class of Notes, after giving effect to all
payments reported under (ii) above on such date;
(iv) the amount of the Servicing Fee paid to the Servicer with respect
to the related Monthly Period or Periods, as the case may be;
(v) the Pass-Through Rate, Interest Rate or other applicable rate of
return, if any, for the next period for any class of Certificates or Notes with
variable or adjustable rates;
(vi) the amount, if any, distributed to Certificateholders and
Noteholders applicable to payments under any credit enhancement; and
(vii) such other information as may be specified in the related
Prospectus Supplement.
Each amount set forth pursuant to subclauses (i), (ii), (iv), (vi) and
(vii) with respect to Certificates or Notes will be expressed as a dollar amount
per $1,000 of the initial Certificate Balance or the initial principal balance
of the Notes, as applicable.
Unless and until Definitive Certificates or Definitive Notes are
issued, such reports with respect to a series of Securities will be sent on
behalf of the related Trust to the Owner Trustee, the Indenture Trustee and Cede
& Co., as registered holder of the Certificates and the Notes and the nominee of
DTC. Certificate Owners and Note Owners may receive copies of such reports upon
written request, together with a certification that they are Certificate Owners
or Note Owners, as the case may be, and payment of any expenses associated with
the distribution of such reports, from the Owner Trustee or the Indenture
Trustee, as applicable. See "Reports to Securityholders" and " - Book-Entry
Registration" above.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of a Trust, the Owner Trustee and
the Indenture Trustee, as applicable, will mail to each holder of a class of
Securities who at any time during such calendar year has been a Securityholder,
and received any payment thereon, a statement containing certain information for
the purposes of such Securityholder's preparation of federal income tax return.
See "Certain Federal Income Tax Consequences."
List of Securityholders
At such time, if any, as Definitive Certificates have been issued, the
Owner Trustee will, upon written request by three or more Certificateholders or
one or more holders of Certificates evidencing not less than 25% of the
Certificate Balance, within five Business Days after provision to the Owner
Trustee of a statement of the applicants' desire to communicate with other
Certificateholders about their rights under the related Trust Documents or the
Certificates and a copy of the communication that the applicants propose to
transmit, afford such Certificateholders access during business hours to the
current list of Certificateholders for purposes of communicating with other
Certificateholders with respect to their rights under the Trust Documents. The
Trust Documents will not provide for holding any annual or other meetings of
Certificateholders.
At such time, if any, as Definitive Notes have been issued, the
Indenture Trustee will, upon written request by three or more Noteholders or one
or more holders of Notes evidencing not less than 25% of the aggregate principal
balance of the related Notes, within five Business Days after provision to the
Indenture Trustee of a statement of the applicants' desire to communicate with
other Noteholders about their rights under the related Indenture or the Notes
and a copy of the communication that the applicants propose to transmit, afford
such Noteholders access during business hours to the current list of Noteholders
for purposes of communicating with other Noteholders with respect to their
rights under the Indenture. The Indenture will not provide for holding any
annual or other meetings of Noteholders.
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE
TRUST DOCUMENTS
The following summary describes certain terms of the Purchase
Agreements (each a "Purchase Agreement") pursuant to which the Seller will
purchase Receivables from TMS Auto Finance and certain terms of either (i) the
Pooling and Servicing Agreements or (ii) the Sale and Servicing Agreements and
the Trust Agreements (in either case collectively referred to as the "Trust
Documents") pursuant to which the Seller will sell and assign such Receivables
to a Trust and TMS Auto Finance will agree to service such Receivables on behalf
of the Trust, and pursuant to which such Trust will be created and Certificates
will be issued. Forms of the Purchase Agreement and the Trust Documents have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part. The Seller will provide a copy of such agreements (without
exhibits) upon request to a Securityholder described therein. This summary does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the forms of Purchase Agreement and the
Trust Documents.
Sale and Assignment of Receivables
On or prior to the Closing Date with respect to a series of Securities
specified in the related Prospectus Supplement, TMS Auto Finance will enter into
a Purchase Agreement with the Seller pursuant to which TMS Auto Finance will, on
or prior to such Closing Date, sell and assign to the Seller, without recourse,
its entire interest in and to the related Receivables, including its security
interest in the Financed Vehicles securing such Receivables and its rights to
receive all payments on, or proceeds with respect to, such Receivables to the
extent paid or payable after the applicable Cutoff Date. Pursuant to the
Purchase Agreement, unless another party is identified in the related Prospectus
Supplement as having so agreed, TMS Auto Finance will agree that, upon the
occurrence of a breach of a representation or warranty under the related Trust
Documents with respect to any of the Receivables of a Trust which causes the
Seller to be obligated to repurchase a Receivable, the Owner Trustee will be
entitled to require TMS Auto Finance to repurchase such Receivables from the
Trust. Such rights of the Trust under the Purchase Agreement will constitute
part of the property of the Trust and may be enforced directly by the Owner
Trustee and, unless the related Prospectus Supplement provides otherwise, the
third party credit enhancement provider, if any. In addition, the Owner Trustee
will pledge such rights to the Indenture Trustee as collateral for the Notes, if
any, and such rights may be enforced directly by the Indenture Trustee.
On the Closing Date, the Seller will sell and assign to the Owner
Trustee, without recourse, the Seller's entire interest in the related
Receivables and the proceeds thereof, including its security interest in the
Financed Vehicles. Each Receivable transferred by the Seller to the Trust will
be identified in a schedule appearing as an exhibit to the related Trust
Documents (the "Schedule of Receivables"). Concurrently with such transfer and
assignment, the Owner Trustee will execute and deliver the related certificates
representing the Certificates to or upon the order of the Seller, and the Owner
Trustee will execute and the Indenture Trustee will authenticate and deliver the
Notes, if any, to or upon the order of the Seller. The net proceeds received
from the sale of the Certificates and the Notes of a given series will be
applied to the purchase of the related Receivables from the Seller and, to the
extent specified in the related Prospectus Supplement, to the deposit of the
Pre-Funded Amount into the Pre-Funding Account.
Eligibility Criteria
In the Purchase Agreement, TMS Auto Finance will represent and warrant
to the Seller, and in the Trust Documents the Representative and the Seller will
represent and warrant to the Owner Trustee and/or the Indenture Trustee, as the
case may be, 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 required to maintain physical damage insurance in accordance with
the Servicer's normal requirements; (iii) at the date of issuance of the
Certificates and any Notes, the Initial Receivables and on the applicable
Subsequent Transfer Date, if any, the related Subsequent Receivables, as the
case may be, are, to the best of its knowledge, free and clear of all security
interests, liens, charges and encumbrances and no offsets, defenses, or
counterclaims against it have been asserted or threatened; (iv) at the date of
issuance of the Certificates and any Notes, and on the applicable Subsequent
Transfer Date, if any, each of the Initial Receivables or Subsequent
Receivables, as the case may be, is or will be secured by a first perfected
security interest in the Financed Vehicle in favor of TMS Auto Finance; and (v)
each Receivable, at the time it was originated, complied, and at the date of
issuance of the Certificates and any Notes, and on the applicable Subsequent
Transfer Date, if any, the related Subsequent Receivables, as the case may be,
complies in all material respects with applicable federal and state laws,
including consumer credit, truth in lending, equal credit opportunity and
disclosure laws.
If the related Prospectus Supplement specifies that Subsequent
Receivables are to be acquired by a Trust, then during the related Funding
Period, pursuant to the Purchase Agreement, the Seller will be obligated to
purchase from TMS Auto Finance and, pursuant to the Agreement, sell to the Trust
Subsequent Receivables. The aggregate principal balance of the Subsequent
Receivables will be in an amount that TMS Auto Finance anticipates will equal
the amount deposited in the Pre-Funding Account on the date of the issuance of
the related series. On each Subsequent Transfer Date, TMS Auto Finance will sell
and assign to the Seller, without recourse, its entire interest in the
Subsequent Receivables identified in a schedule attached to a supplemental
conveyance relating to such Subsequent Receivables executed on such date by TMS
Auto Finance and the Seller. In connection with each purchase of Subsequent
Receivables, the Trust will be required to pay to the Seller a cash purchase
price equal to the outstanding principal balance of each Subsequent Receivable
as of its Subsequent Cutoff Date, which price the Seller will pay to TMS Auto
Finance. The purchase price will be withdrawn from the Pre-Funding Account and
paid to the Seller for payment to TMS Auto Finance so long as the
representations and warranties set forth in the preceding paragraph and under
"The Receivables -- General" apply to each Subsequent Receivable to be conveyed,
and the conditions set forth below are satisfied. TMS Auto Finance will convey
the Subsequent Receivables to the Seller on each such Subsequent Transfer Date
pursuant to the Purchase Agreement and the applicable Subsequent Transfer
Agreement (each, a "Subsequent Transfer Agreement") executed by TMS Auto Finance
and the Seller on the Subsequent Transfer Date and including as an exhibit a
schedule identifying the Subsequent Receivables transferred on such date. The
Seller will convey the Subsequent Receivables to the Trust on such Subsequent
Transfer Date pursuant to the Agreement and the applicable Subsequent Transfer
Assignment (each, a "Subsequent Transfer Assignment") executed by the Seller and
the Trustee on the Subsequent Transfer Date and including as an exhibit a
schedule identifying the Subsequent Receivables transferred on such date.
Any conveyance of Subsequent Receivables will be subject to the
following conditions, among others specified in the related Prospectus
Supplement: (i) each such Subsequent Receivable must satisfy the eligibility
criteria specified in the preceding paragraph as of its Subsequent Cutoff Date
and such additional criteria as may be specified in the related Prospectus
Supplement; (ii) if and to the extent specified in the related Prospectus
Supplement, the third-party credit enhancement provider, if any, shall have
approved the transfer of such Subsequent Receivables to the Trust; (iii) neither
TMS Auto Finance nor the Seller will have selected such Subsequent Receivables
in a manner that either believes is adverse to the interests of the
Securityholders; (iv) TMS Auto Finance and the Seller will deliver certain
opinions of counsel to the Trustee(s) and the Rating Agencies with respect to
the validity of the conveyance of such Subsequent Receivables; and (v) the
Rating Agencies shall confirm that the ratings on the Securities of such series
have not been withdrawn or reduced as a result of the transfer of such
Subsequent Receivables to the Owner Trustee.
As of the last day of the second (or, if the Seller elects, the first)
month following the discovery by the Seller or receipt by the Seller of notice
from the Representative, the Servicer, the Owner Trustee, the Indenture Trustee
or the third party credit enhancement provider, if any, of a breach of any
representation or warranty of the Seller which the Owner Trustee or the
Indenture Trustee, as the case may be, determines materially and adversely
affects the interests of the Securityholders in a Receivable, the Seller, unless
it cures the breach, will be required to purchase the Receivable from the Owner
Trustee, and TMS Auto Finance will be required to purchase the Receivable from
the Seller, at a price equal to the amount of outstanding principal and accrued
interest of the Receivable (including one month's interest thereon, in the month
of payment, at the APR less, so long as TMS Auto Finance is the Servicer, the
Servicing Fee), after giving effect to the receipt of any moneys collected (from
whatever source) on such Receivable, if any (such price is hereinafter referred
to as the "Purchase Amount"). The "second month" shall mean the month following
the month in which discovery occurs or notice is given, and the "first month"
shall mean the month in which discovery occurs or notice is given. If the Seller
or TMS Auto Finance fails to purchase the Receivable, the Representative will be
obligated to purchase such Receivable on the date such Receivable was required
to be so purchased. The purchase obligation will constitute the sole remedy
available to the Securityholders, the Owner Trustee and the third party credit
enhancement provider, if any, for any such uncured breach.
Custody of Receivable Files
Pursuant to the Trust Documents, the Servicer will service and
administer the Receivables. The Trust Documents will also designate the Servicer
as custodian to maintain possession, as the Owner Trustee's and Indenture
Trustee's, if any, agent, of the motor vehicle retail installment sale contracts
and any other documents relating to the Receivables. The documents will be
physically segregated from other similar documents that are in the Servicer's
possession and are stamped or marked to reflect the transfer to a Trust. Uniform
Commercial Code financing statements reflecting the sale and assignment of the
Receivables to the Seller and by the Seller to the Owner Trustee will be filed,
and TMS Auto Finance's accounting records and computer systems will be marked to
reflect such sale and assignment. See "Certain Legal Aspects of the Receivables
- - Security Interests in Vehicles".
Accounts
With respect to each Trust that issues Notes, the Servicer will
establish and maintain with the related Indenture Trustee one or more accounts,
in the name of the Indenture Trustee on behalf of the related Noteholders and
Certificateholders, into which all payments made on or with respect to the
related Receivables will be deposited (the "Collection Account"). The Servicer
will establish and maintain with such Indenture Trustee an account, in the name
of such Indenture Trustee on behalf of such Noteholders, into which amounts
released from the Collection Account and any Pre-Funding Account, reserve
account or other credit enhancement for payment to such Noteholders will be
deposited and from which all distributions to such Noteholders will be made (the
"Note Distribution Account"). The Servicer will establish and maintain with the
related Owner Trustee an account, in the name of such Owner Trustee on behalf of
such Certificateholders, into which amounts released from the Collection Account
and any Pre-Funding Account, reserve account or other credit or cash flow
enhancement for distribution to such Certificateholders will be deposited and
from which all distributions to such Certificateholders will be made (the
"Certificate Distribution Account"). With respect to each Trust that does not
issue Notes, the Servicer will also establish and maintain the Collection
Account and any other Trust Account specified in the related Prospectus
Supplement in the name of the related Owner Trustee on behalf of the related
Certificateholders.
The Servicer will also establish an additional account (the "Payahead
Account") in the name of the Owner Trustee or the Indenture Trustee, into which
early payments by or on behalf of the Obligors which constitute neither
scheduled payments, full prepayments, nor certain partial prepayments as
described below ("Payaheads") will be deposited until such time as the payment
falls due. Unless otherwise specified in the related Prospectus Supplement, if
the Trust elects to be treated as a grantor trust, the Payahead Account will not
be an asset of such Trust, but will be pledged to the Owner Trustee for the
benefit of Certificateholders and any third-party credit enhancement provider
and all Investment Earnings thereon will be for the benefit of, and will be
distributable to, the Seller.
In addition, the Servicer will establish as additional segregated
trust accounts, if specified in the related Prospectus Supplement, a Pre-Funding
Account and one or more spread accounts or reserve or other accounts in the name
of the Owner Trustee or the Indenture Trustee on behalf of the Securityholders.
For any series of Securities, funds in the Collection Account, the
Note Distribution Account, the Certificate Distribution Account and any Payahead
Account and any Pre-Funding Account, reserve account and other accounts
identified as such in the related Prospectus Supplement (collectively, the
"Accounts") will be invested as provided in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement in Eligible Investments. "Eligible
Investments" are limited to (a) direct obligations of, and obligations fully
guaranteed as to timely payment by, the United States of America; (b) demand
deposits, time deposits or certificates of deposit of any depository institution
or trust company incorporated under the laws of the United States of America or
any state thereof or the District of Columbia (or any domestic branch of a
foreign bank), provided, that at the time of the investment, the commercial
paper or other short-term senior unsecured debt obligations of such depository
institution or trust company shall have a minimum credit rating satisfying each
of the Rating Agencies rating such Securities; (c) commercial paper having a
minimum credit rating satisfying each of the Rating Agencies rating such
Securities; (d) investments in money market funds having a minimum credit rating
satisfying each of the Rating Agencies rating such Securities; (e) repurchase
obligations with respect to any security that is a direct obligation of, or
fully guaranteed by, the United States of America entered into with a depository
institution or trust company (acting as principal) referred to in clause (b)
above; and (f) other investments acceptable to the Rating Agencies rating such
Securities which are consistent with the rating of such Securities. The related
Prospectus Supplement will specify whether and the extent to which investment
earnings on funds deposited in the Accounts, net of losses and investment
expenses (collectively, "Investment Earnings"), will be deposited in the
applicable Collection Account on each Distribution Date and treated as
collections of interest on the related Receivables or distributed to the
Servicer, as additional servicing compensation, the Seller or any other person.
Investment Earnings on a Pre-Funding Account will be deposited in the applicable
Collection Account on each Distribution Date and treated as collections of
interest on the Receivables.
The Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution have a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Owner Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the district of
Columbia (or any domestic branch of a foreign bank), (i) which has either (A) a
long-term unsecured debt rating acceptable to the Rating Agencies or (B) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
Servicing Procedures
The Servicer will be required to make reasonable efforts to collect
all payments due with respect to the Receivables and will be required to
continue such collection procedures as it follows with respect to its own motor
vehicle retail installment sale contracts, in a manner consistent with the Trust
Documents. Consistent with its normal procedures, the Servicer may, in its
discretion, arrange with the Obligor on a Receivable to extend or modify the
payment schedule, but no such arrangement will, for purposes of any Sale and
Servicing Agreement or Pooling and Servicing Agreement, modify the original due
dates (other than to permit payment on a different date in the same month in
which the original due date falls) or the amount of the scheduled payments
(unless the obligor is in default or, in the judgment of the Servicer, such
default is imminent) or extend the final payment date of any Receivable beyond
the Final Scheduled Maturity Date (as such term is defined with respect to any
Receivables Pool in the related Prospectus Supplement). Some of such
arrangements may result in the Representative or the Servicer being required to
purchase the Receivable for the Purchase Amount, while others may result in the
Servicer being required to make Advances. If the Servicer determines that
eventual payment in full of a Receivable is unlikely, the Servicer will follow
its normal practices and procedures to realize upon the Receivable, including
the repossession and disposition of the Financed Vehicle securing the Receivable
at a public or private sale, or the taking of any other action permitted by
applicable law.
Collections
The Servicer will be required to deposit all payments on Receivables
received (net of amounts in respect of the Servicing Fee, the Supplemental
Servicing Fee and reimbursement for Advances, if any, included in such payments)
and all proceeds of Receivables collected during each Monthly Period (net of
amounts in respect of the Servicing Fee, the Supplemental Servicing Fee and
reimbursement for Advances, if any, included in such proceeds) into the
Collection Account as specified in the related Prospectus Supplement. However,
at any time that and for so long as (i) TMS Auto Finance is the Servicer, (ii)
there exists no Servicer Default, (iii) the credit enhancement provider, if any,
consents and (iv) each other condition to making deposits less frequently than
daily as may be specified by the Rating Agencies or set forth in the related
Prospectus Supplement is satisfied, the Servicer will not be required to deposit
such amounts into the Collection Account until on or before the applicable
Distribution Date or Payment Date. Pending deposit into the Collection Account,
collections may be invested by the Servicer at its own risk and for its own
benefit and will not be segregated from its own funds. If the Servicer were
unable to remit such funds, Securityholders might incur a loss. To the extent
set forth in the related Prospectus Supplement, TMS Auto Finance may in order to
satisfy the requirements described above, obtain a letter of credit or other
security for the benefit of the related Trust to secure timely remittances of
collections on the related Receivables and payment of the aggregate Purchase
Amount with respect to Receivables purchased by TMS Auto Finance. If the
conditions specified above are satisfied, TMS Auto Finance, the Seller and the
Representative, as the case may be, will be required to remit the aggregate
Purchase Amount of Receivables to be purchased from the Trust to the Collection
Account on the Business Day immediately preceding the Distribution Date.
For purposes of the Trust Documents, collections on a Receivable made
during a Monthly Period are required to be applied first to the scheduled
payment thereof. To the extent that such collections on a Receivable during a
Monthly Period exceed the scheduled payment on such Receivable, the collections
(other than Payaheads) are required to be applied to prepay the Receivable in
full. In the case of Precomputed Receivables, if the collections are
insufficient to prepay the Receivable in full, they generally are required to be
treated as Payaheads until such later Monthly Period as such Payaheads may be
applied either to the scheduled payment or to prepay the Receivable in full.
Advances
If and to the extent specified in the related Prospectus Supplement,
the Servicer may be required to advance (each, an "Advance") monthly payments of
interest in respect of a delinquent Receivable that the Servicer, in its sole
discretion, expects to receive from subsequent payments on or with respect to
such Receivable or from other Receivables. The Servicer shall be entitled to
reimbursement of Advances from subsequent payments on or with respect to the
Receivables to the extent described in the related Prospectus Supplement.
Servicing Compensation
The Servicer is entitled under the Trust Documents to receive or
retain, as specified in the related Prospectus Supplement on each Distribution
Date a servicing fee (the "Servicing Fee") for the related Monthly Period at the
rate specified in the related Prospectus Supplement (the "Servicing Fee Rate")
multiplied by the Pool Balance as of the first day of such Monthly Period. The
Servicer is also entitled to retain from collections a supplemental servicing
fee (the "Supplemental Servicing Fee") for each Monthly Period equal to any late
fees, prepayment fees, rebates and other administrative fees and expenses
collected during the Monthly Period plus reinvestment proceeds on any payments
received in respect of Receivables. If specified in the related Prospectus
Supplement, the Servicer may be entitled to additional compensation from
investment earnings (net of losses) on certain accounts or otherwise. The
Servicer, in its discretion at its election, may defer receipt of all or any
portion of the Servicing Fee, the Supplemental Servicing Fee or any additional
compensation from investment earnings for any Monthly Period to and until a
later Monthly Period for any reason, including in order to avoid a shortfall in
any payments due on any Securities. Any such deferred amount shall be payable to
(or may be retained from subsequent collections by) the Servicer on demand.
The Servicing Fee and the Supplemental Servicing Fee and any other
amounts specified in the related Prospectus Supplement (collectively, the
"Servicer Fee") are intended to compensate the Servicer for performing the
functions of a third-party servicer of the Receivables as an agent for the
Securityholders, including collecting and posting all payments, responding to
inquiries of Obligors on the Receivables, investigating delinquencies, reporting
tax information to Obligors, paying costs of collections and policing the
collateral. The Servicer Fee will also compensate the Servicer for administering
the Receivables, including accounting for collections, furnishing monthly and
annual statements to the Owner Trustee and any Indenture Trustee with respect to
distributions and generating federal income tax information for the Trust. The
Servicer Fee also will reimburse the Servicer for certain taxes, the Trustee's
fees, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
Mandatory Prepayment
To the extent a Pre-Funding Account is specified in the related
Prospectus Supplement, the Securities will be prepaid in part on the
Distribution Date on which the Funding Period ends (or on the Distribution Date
immediately following the last day of the Funding Period, if the Funding Period
does not end on a Distribution Date) in the event that any amount remains on
deposit in the Pre-Funding Account after giving effect to the purchase of
Subsequent Receivables, if any, on such Distribution Date. The aggregate
principal amount of Securities to be prepaid will be an amount equal to the
amount then on deposit in the Pre-Funding Account in such portions as specified
in the related Prospectus Supplement. In such event, if and to the extent
specified in the related Prospectus Supplement, a limited recourse mandatory
prepayment premium (the "Prepayment Premium") may be payable by the Trust to the
offered Securityholders if the aggregate principal amount of the offered
Securities to be prepaid pursuant to such mandatory prepayment exceeds such
threshold amount as will be specified in the related Prospectus Supplement. The
amount of such Prepayment Premium, if any, will be specified in the related
Prospectus Supplement. A Trust's obligation to pay the Prepayment Premium shall
be limited to funds which are received from the Seller under the Purchase
Agreement as liquidated damages for the failure to deliver Subsequent
Receivables. No other assets of the Trust will be available for the purpose of
making such payment. The ratings of any series of Securities with respect to
which a Prepayment Premium is payable does not evaluate the Prepayment Premium
or the likelihood that the Prepayment Premium will be paid.
Distributions
With respect to each Trust, beginning on the Distribution Date or
Payment Date, as applicable, specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal or
interest only) on each class of Securities entitled thereto will be made by the
Owner Trustee or the Indenture Trustee, as applicable, to the Securityholders.
The timing, calculation, allocation, order, source and priorities of, and
requirements for, all distributions to each class of Certificateholders and all
payments to each class of Noteholders will be set forth in the related
Prospectus Supplement.
Revolving Period and Amortization Period; Retained Interest
If the related Prospectus Supplement so provides, there may be a
period commencing on the date of issuance of a class or classes of Notes or
Certificates of a series and ending in the date set forth on the related
Prospectus Supplement (the "Revolving Period") during which no principal
payments will be made to one or more classes of Notes or Certificates of the
related series as are identified in such Prospectus Supplement. All collections
of principal otherwise allocated to such classes of Notes or Certificates may be
(i) utilized by the Trust during the Revolving Period to acquire additional
Receivables which satisfy the criteria described under "The Receivables -
General" herein and the criteria set forth in the related Prospectus Supplement,
(ii) held in an account and invested in Eligible Investments for later
distribution to Securityholders, (iii) applied to those Notes or Certificates,
if any, specified in the related Prospectus Supplement as then are in
amortization, or (iv) otherwise applied as specified in the related Prospectus
Supplement.
An "Amortization Period" is the period during which an amount of
principal is payable to holders of a series of Securities which, during the
Revolving Period, were not entitled to such payments. If so specified in the
related Prospectus Supplement, during an Amortization Period all or a portion of
principal collections on the Receivables may be applied as specified above for a
Revolving Period and, to the extent not so applied, will be distributed to the
classes of Notes or Certificates specified in the related Prospectus Supplement
as then being entitled to payments of principal. In addition, if so specified in
the related Prospectus Supplement, amounts deposited in certain accounts for the
benefit of one or more classes of Notes or Certificates may be released from
time to time or on a specified date and applied as a payment of principal on
such classes of Notes or Certificates. The related Prospectus Supplement will
set forth the circumstances which will result in the commencement of an
Amortization Period.
Each Trust which has a Revolving Period may also issue to the Seller a
certificate evidencing a Retained Interest in the Trust not represented by the
other Securities issued by such Trust. As further described in the related
Prospectus Supplement, the value of such Retained Interest will fluctuate as the
amount of Trust Property fluctuates and the amount of Notes and Certificates of
the related series of Securities outstanding is reduced.
Net Deposits
As an administrative convenience, unless otherwise specified in the
related Prospectus Supplement, the Servicer will be permitted to make the
deposit of collections, aggregate Advances and Purchase Amounts on the related
Receivables for any Trust for or with respect to the related Monthly Period net
of distributions to be made to the Servicer for such Trust with respect to such
Monthly Period. The Servicer may cause to be made a single, net transfer from
the Collection Account to the related Payahead Account, if any, or vice versa.
The Servicer, however, will account to the Trustee, any Indenture Trustee, the
third party credit enhancement provider, if any, the Noteholders, if any, and
the Certificateholders with respect to each Trust as if all deposits,
distributions and transfers were made individually. With respect to any Trust
that issues both Certificates and Notes, if the related Payment Dates do not
coincide with Distribution Dates, all distributions, deposits or other
remittances made on a Payment Date will be treated as having been distributed,
deposited or remitted on the Distribution Date for the applicable Monthly Period
for purposes of determining other amounts required to be distributed, deposited
or otherwise remitted on such Distribution Date.
Credit Enhancement
The amounts and types of credit enhancement, and the provider of any
credit enhancement, if any, with respect to each class of Securities 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 the
subordination of one or more classes of Securities, a spread account or other
type of reserve account, accelerated payments of principal relative to the
amortization of the related Receivables, financial guaranty insurance
policy, letter of credit, credit or liquidity facility, repurchase obligation,
third party payment or other support, cash deposit or such other arrangement, or
any combination of two or more of the foregoing, as may be described in the
related Prospectus Supplement. A Trust may also include a guaranteed investment
contract or reinvestment agreement pursuant to which funds held in one or more
accounts will be invested at a specified rate. If any class of Certificates or
Notes of a series has a floating interest rate, or if any of the Receivables has
a floating interest rate, the related Trust may include an interest rate swap
contract, an interest rate cap agreement or similar contract providing limited
protection against interest rate risks. If specified in the applicable
Prospectus Supplement, credit enhancement for a series of Securities may cover
one or more other series of Securities.
The presence of credit enhancement is intended to enhance the
likelihood of receipt by the credit enhanced Securityholders of the full amount
of principal and interest due thereon and to decrease the likelihood that such
Securityholders will experience losses. The credit enhancement for a class of
Securities will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal and interest thereon. If losses
occur which exceed the amount covered by any credit enhancement or which are not
covered by any credit enhancement, Securityholders will bear their allocable
share of deficiencies. 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.
Evidence as to Compliance
The Trust Documents will provide that a firm of independent public
accountants will furnish to the Owner Trustee and the Indenture Trustee, if any,
and the third party credit enhancement provider, if any, on or before April 30
of each year, beginning in the calendar year following the establishment of the
related Trust, a statement as to compliance by the Servicer during the preceding
twelve months ended December 31 (or, for the initial report with respect to any
Securities for such longer or shorter period as shall have elapsed from the date
of issuance of the related Securities) with certain standards relating to the
servicing of the Receivables, the Servicer's accounting and computer systems
with respect thereto, and certain other matters.
The Trust Documents will also provide for delivery to the Owner
Trustee and the Indenture Trustee, if any, and the third party credit
enhancement provider, if any, on or before December 31 of each year, commencing
in the calendar year following the establishment of the related Trust, of a
certificate signed by an officer of the Servicer stating that the Servicer has
fulfilled its obligations under the applicable Trust Documents throughout the
preceding twelve months ended April 30 (or, for the initial report with respect
to any Securities for such longer or shorter period as shall have elapsed from
the date of issuance of the related Securities) or, if there has been a default
in the fulfillment of any such obligation, describing each such default.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Owner Trustee or the
Indenture Trustee, as the case may be.
Certain Matters Regarding the Servicer
The Trust Documents will provide that the initial 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. No such resignation will become effective
until the Owner Trustee or, if Notes have been issued, the Indenture Trustee, or
a successor servicer has assumed the Servicer's servicing obligations and duties
under the Trust Documents, and the third-party credit enhancer, if any, does not
elect to waive the obligations of the Servicer to perform the duties which
render it legally unable to act or does not elect to delegate those duties to
another person.
The Trust Documents will further provide that neither the Servicer,
nor any of its directors, officers, employees, and agents will be under any
liability to any Trust or any Securityholders for taking any action or for
refraining from taking any action pursuant to the Trust Documents, 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 (except for errors in
judgment) in the performance of duties, or by reason of reckless disregard of
obligations and duties thereunder. In addition, the Trust Documents will provide
that the Servicer is under no obligation to appear in, prosecute or defend any
legal action that is not incidental to the Servicer's servicing responsibilities
under the Trust Documents and that, in its opinion, may cause it to incur any
expense or liability. The Servicer may, however, undertake any reasonable action
that it may deem necessary or desirable in respect of the Trust Documents, the
rights and duties of the parties thereto and the interests of the
Securityholders thereunder. In such event, the legal expenses and costs of such
action and any liability resulting therefrom will be expenses, costs and
liabilities of the Servicer, and the Servicer will not be entitled to be
reimbursed therefor out of any Account held by the Owner Trustee or the
Indenture Trustee, as applicable.
Any entity into which the Servicer or the Seller, as the case may be,
may be merged or consolidated, or any entity resulting from any merger,
conversion or consolidation to which the Servicer or the Seller, as the case may
be, is a party, or any entity succeeding to the business of the Servicer or the
Seller, as the case may be, which assumes the obligations of the Servicer or the
Seller, as the case may be, will be the successor of the Servicer or the Seller,
as the case may be, under the Trust Documents. The Servicer may at any time
perform its duties as Servicer through one or more subservicers, but no such
delegation shall relieve the Servicer of its obligations under the Trust
Documents.
Servicer Default
"Servicer Default" under the Pooling and Servicing Agreements or the
Sale and Servicing Agreements, as the case may be, will consist of (i) any
failure by the Servicer and/or any other party identified in the related
Prospectus Supplement as so obligated to deliver to the Owner Trustee or the
Indenture Trustee, as applicable, to make any required distributions therefrom,
which failure continues unremedied for five business days after written notice
from the Owner Trustee or Indenture Trustee is received by the Servicer or after
discovery of such failure by the Servicer, (ii) any failure by the Seller or the
Servicer duly to observe or perform in any material respect any other covenant
or agreement in the Trust Documents which failure materially and adversely
affects the rights of Securityholders and which continues unremedied for 60 days
after the giving of written notice of such failure (1) to the Seller or the
Servicer, as applicable, by the Owner Trustee or the Indenture Trustee, or (2)
to the Seller or the Servicer, as applicable, and to the Owner Trustee or the
Indenture Trustee by Securityholders evidencing not less than 25% of a class of
Securities constituting at least 25% of the then Pool Balance for such series;
(or such longer period, not in excess of 120 days, as may be reasonably
necessary to remedy such default; provided that such default is capable of
remedy within 120 days or less and the Servicer delivers an officer's
certificate to the Owner Trustee and, if applicable, Indenture Trustees to such
effect and to the effect that the Servicer has commenced, or will promptly
commence and diligently pursue, all reasonable efforts to remedy such default);
and (iii) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings with respect to the Servicer
indicating its insolvency, reorganization pursuant to bankruptcy proceedings, or
inability to pay its obligations.
Rights Upon Servicer Default
In the case of any Trust that has issued Notes, as long as a Servicer
Default under a Sale and Servicing Agreement remains unremedied, the related
Indenture Trustee or holders of Notes of the related series evidencing not less
than 25% of principal amount of such Notes then outstanding may terminate all
the rights and obligations of the Servicer under such Sale and Servicing
Agreement, whereupon such Indenture Trustee or a successor servicer appointed by
such Indenture Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement and will be
entitled to similar compensation arrangements. In the case of any Trust that has
not issued Notes, as long as a Servicer Default under the related Sale and
Servicing Agreement or Pooling and Servicing Agreement remains unremedied, the
related Owner Trustee or holders of Certificates of the related series
evidencing not less than 25% of the principal amount of such Certificates then
outstanding may terminate all the rights and obligations of the Servicer under
such Sale and Servicing Agreement or Pooling and Servicing Agreement, whereupon
such Owner Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Sale and Servicing Agreement or Pooling
and Servicing Agreement and will be entitled to similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Servicer Default other than such appointment
has occurred, such trustee or official may have the power to prevent such
Indenture Trustee, such Noteholders, such Owner Trustee or such
Certificateholders from effecting a transfer of servicing. In the event that
such Indenture Trustee or Owner Trustee is unwilling or unable to so act, it may
appoint, or petition a court of competent jurisdiction for the appointment of, a
successor with a net worth of at least $50,000,000 and whose regular business
includes the servicing of motor vehicle retail installment sale contracts. Such
Indenture Trustee or Trustee may make such arrangements for compensation to be
paid, which in no event may be greater than the servicing compensation to the
Servicer under such Sale and Servicing Agreement or Pooling and Servicing
Agreement. Notwithstanding the foregoing, if and to the extent specified in the
related Prospectus Supplement, a third-party credit enhancement provider may
exercise the rights and remedies of the Owner Trustee, Indenture Trustee,
Noteholders and Certificateholders specified above.
Waiver of Past Defaults
With respect to each Trust that has issued Notes, the holders of Notes
evidencing at least a majority in principal amount of the then-outstanding Notes
of the related series (or the holders of the Certificates of such series
evidencing not less than a majority of the outstanding Certificate Balance, in
the case of any Servicer Default which does not adversely affect the related
Indenture Trustee or such Noteholders) may, on behalf of all such Noteholders
and Certificateholders, waive any default by the Servicer in the performance of
its obligations under the related Sale and Servicing Agreement and its
consequences, except a Servicer Default in making any required deposits to or
payments from any of the Accounts in accordance with such Sale and Servicing
Agreement. With respect to each Trust that has not issued Notes, holders of
Certificates of such series evidencing not less than a majority of the principal
amount of such Certificates then outstanding may, on behalf of all such
Certificateholders, waive any default by the Servicer in the performance of its
obligations under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement, except a Servicer Default in making any required deposits
to or payments from the Certificate Distribution Account or the related Accounts
in accordance with such Sale and Servicing Agreement or Pooling and Servicing
Agreement. No such waiver will impair such Noteholders' or Certificateholders'
rights with respect to subsequent defaults. Notwithstanding the foregoing, if
and to the extent specified in the related Prospectus Supplement, a third-party
credit enhancement provider may exercise the rights and remedies of the Owner
Trustee, Indenture Trustee, Noteholders and Certificateholders specified above.
Amendment
Unless otherwise specified in the related Prospectus Supplement, each
of the Agreements may be amended by the parties thereto, without the consent of
the related Noteholders or Certificateholders, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Agreements or of modifying in any manner the rights of such Noteholders of
Certificateholders; provided that such action will not, in the opinion of
counsel satisfactory to the related Owner Trustee or Indenture Trustee, as
applicable, materially and adversely affect the interest of any such Noteholder
or Certificateholder. Unless otherwise specified in the related Prospectus
Supplement, the Purchase Agreements, Pooling and Servicing Agreements and Sale
and Servicing Agreements may also be amended by the Seller, the Servicer, the
related Owner Trustee and any related Indenture Trustee with the consent of the
holders of Notes evidencing at least a majority in principal amount of then
outstanding Notes, if any, of the related series and the holders of the
Certificates of such series evidencing at least a majority of the principal
amount of such Certificates then outstanding, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Agreements or of modifying in any manner the rights of such Noteholders or
Certificateholders; provided, however, that no such amendment may (i) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on the related Receivables or distributions that are
required to be made for the benefit of such Noteholders or Certificateholders or
(ii) reduce the aforesaid percentage of the Notes or Certificates of such series
which are required to consent to any such amendment, without the consent of the
holders of all the outstanding Notes or Certificates, as the case may be, of
such series.
In addition, holders of certain classes of Securities of a series may
have the right to take actions that are detrimental to the interests of the
Securityholders of certain other classes of Securities of such series, as
specified in the related Prospectus Supplement. In certain cases, the senior
classes of securities may have the exclusive right to remove the Servicer, waive
defaults or control the disposition of collateral. In addition, because of the
relative size of the senior classes to the subordinate classes in most
senior/subordinate structures, the senior classes may effectively have voting
control over the Trust on matters that require the vote of all classes of
securities. In no event, however, will any class of securities have the right to
affect the interest rate or payment priorities of another class of securities.
Notwithstanding any of the foregoing, if and to the extent specified
in the related Prospectus Supplement, the consent of the third-party credit
enhancement provider, if any, for the related series may be required to any such
amendment.
Insolvency Event
With respect to a Trust that is not a grantor trust, if an Insolvency
Event occurs with respect to the Affiliated Purchaser, the related Receivables
of such Trust will be liquidated and the Trust will be terminated 90 days after
the date of such Insolvency Event, unless, before the end of such 90-day period,
the related Owner Trustee shall have received written instructions from (i)
holders of each class of the Certificates (other than the Affiliated Purchaser)
with respect to such Trust representing more than 50% of the aggregate unpaid
principal amount of each such class (not including the principal amount of such
Certificates held by such Company and (ii) holders of each class of Notes, if
any, with respect to such Trust representing more than 50% of the aggregate
unpaid principal amount of each such class to the effect that each such party
disapproves of the liquidation of such Receivables and termination of such
Trust. Promptly after the occurrence of an Insolvency Event with respect to the
Affiliated Purchaser, notice thereof is required to be given to such Noteholders
and Certificateholders; provided that any failure to give such required notice
will not prevent or delay termination of such Trust. Upon termination of any
Trust, the related Owner Trustee shall, or shall direct the related Indenture
Trustee to, promptly sell the assets of such Trust (other than the Accounts) in
a commercially reasonable manner and on commercially reasonable terms. The
proceeds from any such sale, disposition or liquidation of the Receivables of
such Trust will be treated as collections on such Receivables and deposited in
the related Collection Account. With respect to any Trust, if the proceeds from
the liquidation of the related Receivables and any amounts on deposit in the
reserve account (if any), the Payahead Account (if any), the Note Distribution
Account (if any) and the Certificate Distribution Account are not sufficient to
pay the Notes, if any, and the Certificates of the related series in full, the
amount of principal returned to Noteholders and Certificateholders thereof will
be reduced and some or all of such Noteholders and Certificateholders will incur
a loss.
Each Trust Agreement will provide that the applicable Trustee does not
have the power to commence a voluntary proceeding in bankruptcy with respect to
the related Owner Trust without the unanimous prior approval of all
Certificateholders (including the applicable Affiliated Purchaser) of such Trust
and the delivery to such Trustee by each such Certificateholder (including such
Affiliated Purchaser) of a certificate certifying that such Certificateholder
reasonably believes that such Trust is insolvent.
Payment of Notes
Upon the payment in full of all outstanding Notes of a given series
and the satisfaction and discharge of the related Indenture, the related Owner
Trustee will succeed to all the rights of the Indenture Trustee, and the
Certificateholders of such series will succeed to all the rights of the
Noteholders of such series, under the related Sale and Servicing Agreement,
except as otherwise provided therein.
Affiliated Purchaser Liability
Under each Trust Agreement, the Affiliated Purchaser will agree to be
liable directly to an injured party for the entire amount of any losses, claims,
damages or liabilities (other than those incurred by a Noteholder or a
Certificateholder in the capacity of an investor with respect to such Trust)
arising out of or based on the arrangement created by such Trust Agreement as
though such arrangement created a partnership under the Delaware Revised Uniform
Limited Partnership Act in which such Affiliated Purchaser was a general
partner.
Termination
With respect to each Trust, the obligations of the Servicer, the
Seller, the related Owner Trustee and the related Indenture Trustee, if any,
pursuant to the Pooling and Servicing Agreement or Sale and Servicing Agreement,
as applicable, will terminate upon the latest of (i) the maturity or other
liquidation of the last related Receivable and the disposition of any amounts
received upon liquidation of any such remaining Receivables, (ii) the payment to
Noteholders, if any, and Certificateholders of the related series of all amounts
required to be paid to them pursuant to the Pooling and Servicing Agreement or
Sale and Servicing Agreement, as applicable, and the payment of any fees or
other amounts owing to the third party credit enhancement provider, if any, for
such Trust, and (iii) the occurrence of either event described below or such
other events provided in the related Prospectus Supplement.
The related Prospectus Supplement will specify whether the Servicer
will be permitted at its option to purchase from each Trust, as of the end of
any applicable Monthly Period, when the then outstanding Pool Balance with
respect to the Receivables held by such Trust is 10% (or such other percentage
specified in the related Prospectus Supplement) or less of the Original Pool
Balance (calculated after giving effect to the principal balance of any
Subsequent Receivables as of their respective Cutoff Dates), all remaining
related Receivables at a price equal to the aggregate of the Purchase Amounts
thereof as of the end of such Monthly Period. If specified in the related
Prospectus Supplement, any such repurchase may require the consent of the
third-party credit enhancement provider, if any, of the related series.
If and to the extent provided in the related Prospectus Supplement
with respect to a Trust, the Owner Trustee or, if Notes are outstanding, the
Indenture Trustee, will, within ten days following a Distribution Date as of
which the Pool Balance is equal to or less than the percentage of the Original
Pool Balance (calculated after giving effect to the principal balance of any
Subsequent Receivables as of their respective Subsequent Cutoff Dates) specified
in the related Prospectus Supplement, solicit bids for the purchase of the
Receivables remaining in such Trust, in the manner and subject to the terms and
conditions set forth in such Prospectus Supplement. If the Owner Trustee or
Indenture Trustee, as applicable, receives satisfactory bids as described in
such Prospectus Supplement, then the Receivables remaining in such Trust will be
sold to the highest bidder. If specified in the related Prospectus Supplement,
any such sale may require the consent of the third-party credit enhancement
provider, if any, of the related series.
As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Certificateholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreement or Pooling and Servicing Agreement
will effect early retirement of the Certificates of such series.
Duties of the Owner Trustee and Indenture Trustee
The Owner Trustee and any Indenture Trustee will make no
representations as to the validity or sufficiency of the Trust Documents, the
Certificates (other than the authentication of the Certificates) or the Notes or
any Receivables or related documents, and is not accountable for the use or
application by the Servicer of any funds paid to the Seller or the Servicer in
respect of the Certificates, the Notes or the Receivables. The Owner Trustee and
any Indenture Trustee have not independently verified the Receivables. If no
Event of Default has occurred, the Owner Trustee or the Indenture Trustee is
required to perform only those duties specifically required of it under the
Trust Documents. Generally, those duties are limited to the receipt of the
various certificates, reports or other instruments required to be furnished to
the Owner Trustee or the Indenture Trustee under the Trust Documents, in which
case it is only required to examine them to determine whether they conform to
the requirements of the Trust Documents. The Owner Trustee and any Indenture
Trustee shall not be charged with knowledge of a breach of a representation or
warranty, or a failure by the Servicer to perform its duties under the Trust
Documents which failure constitutes an Event of Default unless the Owner Trustee
or the Indenture Trustee obtains actual knowledge of such breach or such failure
as specified in the Trust Documents.
The Owner Trustee and any Indenture Trustee are under no obligation to
exercise any of the rights or powers vested in them by the Trust Documents or to
make any investigation of matters arising thereunder or to institute, conduct or
defend any litigation thereunder or in relation thereto at the request, order or
direction of any of the Securityholders, unless such Securityholders have
offered to the Owner Trustee or the Indenture Trustee, as the case may be,
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or thereby. No Securityholder will have any right
under the Trust Documents to institute any proceeding with respect to such Trust
Document or any related agreement, unless such holder previously has given to
the Owner Trustee or the Indenture Trustee written notice of default and unless
the Securityholders then outstanding evidencing not less than 25% of a class of
Securities constituting at least 25% of the then Pool Balance for such series
have made written request upon the Owner Trustee or the Indenture Trustee to
institute such proceeding in its own name as Owner Trustee or Indenture Trustee
thereunder and have offered to the Owner Trustee or Indenture Trustee reasonable
indemnity and the Owner Trustee or Indenture Trustee for 30 days has neglected
or refused to institute any such proceeding.
The Owner Trustee and the Indenture Trustee
The Owner Trustee and any Indenture Trustee for each Trust will be
specified in the related Prospectus Supplement. The Owner Trustee or the
Indenture Trustee, in its individual capacity or otherwise, may hold Securities
in its own name or as pledgee. For the purpose of meeting the legal requirements
of certain jurisdictions, the Servicer and the Owner Trustee acting jointly (or
in some instances, the Owner Trustee acting alone) with (unless the related
Prospectus Supplement provides otherwise) the consent of the third party credit
enhancement provider, if any, so long as no Insurer Default (as defined in the
related Prospectus Supplement) has occurred and is continuing, shall have the
power to appoint co-trustees or separate trustees of all or any part of the
Trust. In the event of such appointment, all rights, powers, duties, and
obligations conferred or imposed upon the Owner Trustee by the Trust Documents
shall be conferred or imposed upon the Owner Trustee and such separate trustee
or co-trustee jointly, or, in any jurisdiction in which the Owner Trustee shall
be incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who shall exercise and perform such rights, powers, duties
and obligations solely at the direction of the Owner Trustee.
The Owner Trustee and any Indenture Trustee may resign at any time, in
which event the Seller with (unless the related Prospectus Supplement provides
otherwise) the consent of the third party credit enhancement provider, if any,
so long as no Insurer Default (as defined in the related Prospectus Supplement)
has occurred and is continuing, will be obligated to appoint a successor
trustee. The Sellers with (unless the related Prospectus Supplement provides
otherwise) the consent of the third party credit enhancement provider, if any
(so long as no Insurer Default (as defined in the related Prospectus Supplement)
has occurred and is continuing), may also remove the Owner Trustee if the Owner
Trustee ceases to be eligible to continue as such under the Trust Documents,
becomes legally unable to act or becomes insolvent. In such circumstances, the
Seller will be obligated to appoint a successor trustee. Any resignation or
removal of the Owner Trustee and appointment of a successor trustee does not
become effective until acceptance of the appointment by the successor trustee.
Any Indenture Trustee may be removed as set forth in the related Prospectus
Supplement.
The Trust Documents will provide that the Servicer will pay the Owner
Trustee's and any Indenture Trustee's fees. The Trust Documents will further
provide that the Owner Trustee and any Indenture Trustee will be entitled to
indemnification by the Seller and the Servicer for, and will be held harmless
against, any loss, liability, fee, disbursement or expense incurred by the Owner
Trustee or any Indenture Trustee not resulting from its own willful misfeasance,
bad faith or negligence (other than by reason of a breach of any of its
representations or warranties set forth in the Trust Documents). The Trust
Documents will further provide that the Servicer will indemnify the Owner
Trustee and any Indenture Trustee for certain taxes that may be asserted in
connection with the transaction.
Indemnification of the Insurer
The Trust Documents will provide that the third party credit
enhancement provider with respect to a Trust will be indemnified by the Seller
and the Servicer for, and held harmless against, any loss, liability, fee,
disbursement or expense incurred by such third party credit enhancement provider
not resulting from its own willful misfeasance, bad faith or negligence (other
than by reason of a breach of any of its representations or warranties set forth
in the Trust Documents) and arising out of or resulting from the use, ownership
or operation by the Servicer or any affiliate thereof of a Financial Vehicle.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The Contracts are "chattel paper" as defined in the Uniform Commercial
Code as in effect in California and the other states in which the Contracts are
originated ("UCC"). Pursuant to the UCC, an ownership interest in chattel paper
may be perfected by possession of the chattel paper or filing a UCC-1 financing
statement with the Secretary of State or other central filing office in the
appropriate state as required by the applicable UCC.
TMS Auto Finance will take or cause to be taken such action as is
required to perfect the Trust's rights in the Contracts and will represent and
warrant that the Trust, subject to the interest of the provider of credit
enhancement, if any, has good title, free and clear of liens and encumbrances,
to each Contract on the Closing Date. Under the Trust Documents, TMS Auto
Finance, as Servicer, will have possession of the Contracts following the sale
of the Contracts to the Trust and will hold the Contracts as custodian and agent
of the Owner Trustee and Indenture Trustee, if any. The Contracts will be
physically marked to indicate the ownership interest thereof by the Trust. UCC-1
financing statements will also be filed with the California Secretary of State
to perfect by filing and give notice of the Trust's ownership interest in the
Contracts. TMS Auto Finance will agree in the Trust Documents to take all
necessary action to preserve and protect the Trust's ownership interest in the
Contracts. The Seller will represent and warrant that each Contract is secured
by a Financed Vehicle.
Security Interests in Vehicles
All of the Financed Vehicles were registered in the states where the
related Contracts were originated. Security interests in vehicles registered in
the State of California may be perfected by depositing with the California
Department of Motor Vehicles a properly endorsed certificate of title showing
the secured party as legal owner or an application for an original registration
together with an application for registration of the secured party as legal
owner. Security interests in vehicles registered in most other states are
perfected, generally, in a similar manner. The Seller will represent and warrant
to the Trust in the Trust Documents that all steps necessary to obtain a
perfected first priority security interest with respect to the Financed Vehicles
securing the Contracts have been taken. If the Servicer fails, because of
clerical error or otherwise, to effect or maintain such notation for a Financed
Vehicle, the Trust may not have a first priority security interest in such
Financed Vehicle. Each Receivable in a pool, unless that related Prospectus
Supplement indicates otherwise, typically prohibits the sale or transfer of the
Financed Vehicle without the Servicer's consent.
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 California and the other states in which the Receivables have been
originated, a security interest in a vehicle generally may be perfected only by
causing such vehicle's certificate of title to be amended to note the security
interest of the secured party. Such notation of a secured party's security
interest is generally effected in California and such other states by depositing
with the applicable state motor vehicles registrar, or similar authority, along
with any necessary registration fees, the vehicle's certificate of title and an
application containing the name and address of the secured party.
Pursuant to the Purchase Agreement, TMS Auto Finance will assign its
security interests in the Financed Vehicles securing the Receivables to the
Seller and, pursuant to the Trust Documents, the Seller will assign its security
interests in the Financed Vehicles securing the Receivables to the Owner
Trustee. However, because of the administrative burden and expense, the
Servicer, the Seller and the Owner Trustee will not amend any certificate of
title to identify the Trust as the new secured party on the certificates of
title relating to the Financed Vehicles. Also, the Servicer will continue to
hold any certificates of title relating to the Financed Vehicles in its
possession as custodian for the Owner Trustee pursuant to the Trust Documents.
Under the law of California and most other states, assignments such as
those under the Purchase Agreement and the Trust Documents are an effective
conveyance of a security interest without amendment of any security interest
noted on a vehicle's certificate of title, and the assignee succeeds thereby to
the assignor's rights as secured party. In the absence of fraud or forgery by
the vehicle owner or the Servicer or administrative error by state or local
agencies, the notation of the Servicer's security interest on the certificates
of title or the Servicer's possession of the certificate of title will be
sufficient to protect the Trust against the rights of subsequent purchasers of a
Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. If there are any Financed Vehicles as to which a perfected
security interest was not obtained, the Trust's security interest would be
subordinate to, among others, subsequent purchasers of the Financed Vehicles,
lienholders and holders of perfected security interests. Such a failure,
however, would constitute a breach of TMS Auto Finance's warranties under the
Purchase Agreement and of the Seller's warranties under the Trust Documents and
would create an obligation of TMS Auto Finance and/or another party, if any,
designated, in the related Prospectus Supplement, under the Purchase Agreement
and of the Seller and/or another party, if any, designated, in the related
Prospectus Supplement, under the Trust Documents to purchase the related
Receivable unless the breach is cured. The Seller will assign its rights under
the Purchase Agreement to the Trust. By not identifying the Trust as the secured
party on the certificate of title, the security interest of the Trust in the
Financed Vehicle could be defeated through fraud or negligence.
Under the laws of most states, the perfected security interest in a
vehicle would continue for four months after a vehicle is moved to a state other
than the state in which it is initially registered and thereafter until the
vehicle owner re-registers the vehicle in the new state. A majority of states,
including California, generally require surrender of a certificate of title to
re-register a vehicle; accordingly, a secured party must surrender possession if
it holds the certificate of title to the vehicle, or, in the case of vehicles
registered in states providing for the notation of a security interest on the
certificate of title but not possession by the secured party, the secured party
would receive notice of surrender if the security interest is noted on the
certificate of title. Thus, the secured party would have the opportunity to
re-perfect its security interest in the vehicle in the state of relocation. 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, TMS Auto Finance 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, TMS Auto Finance must
surrender possession of the certificate of title or will receive notice as a
result of its security interest noted thereon and accordingly will have an
opportunity to require satisfaction of the related Receivable before release of
the security interest. Under the Trust Documents, the Servicer is obligated to
take appropriate steps, at the Servicer's expense, to maintain perfection of
security interests in the Financed Vehicles.
Under the laws of California, Texas and most other states, liens for
repairs performed on, and for storage of, a motor vehicle and liens for certain
unpaid taxes take priority over even a perfected security interest in a Financed
Vehicle. The Internal Revenue Code of 1986, as amended, also grants priority to
certain federal tax liens over the security interest 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. TMS Auto Finance will represent to the Seller and the Seller will
represent to the Trust that each security interest in a Financed 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 Financed Vehicle.
However, liens for repairs or taxes, or the confiscation of a Financed Vehicle,
could arise or occur at any time during the term of a Receivable. No notice will
be given to the Owner Trustee, the Indenture Trustee, if any, or any
Securityholders in the event such a lien arises or confiscation occurs.
Repossession
In the event of a default by vehicle purchasers, the holder of the
motor vehicle retail installment sale contract has all the remedies of a secured
party under the UCC, except where specifically limited by other laws. In
addition to the provisions of the UCC, under California law the Contracts
originated in California are subject to the provisions of its Rees-Levering
Motor Vehicle Sales and Finance Act (the "Rees-Levering Act"). Contracts
originated in other states are subject to retail installment sales laws and
similar laws of those states. The provisions of the Rees-Levering Act and
similar laws of other states control in the event of a conflict with the
provisions of the UCC. 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
by outside agencies is the method employed by TMS Auto Finance in the majority
of instances in which a default occurs and is accomplished by retaking
possession of the financed vehicle. The Rees-Levering Act and similar laws of
other states place restrictions on repossession sales, including notice to the
debtor of the intent to sell and of the debtor's right to redeem the vehicle. In
addition, the UCC requires commercial reasonableness in the conduct of the sale.
In cases where the Obligor objects or raises a defense to repossession, or if
otherwise required by applicable state law, a court order must be obtained from
the appropriate state court, and the vehicle must then be repossessed in
accordance with that order. In certain states under certain circumstances after
the vehicle has been repossessed, the Obligor may reinstate the contract by
paying the delinquent installments on the contract and other amounts due.
Notice of Sale; Redemption Rights
In the event of default by the Obligor, some jurisdictions require
that the Obligor be notified of the default and be given a time period within
which the Obligor may cure the default prior to repossession. Generally, this
right of reinstatement may be exercised on a limited number of occasions in any
one-year period.
The UCC and other state laws require the secured party to provide the
Obligor with reasonable notice of the date, time, and place of any public sale
and/or the date after which any private sale of the collateral may be held. In
some states the Obligor has the right to redeem the collateral prior to actual
sale by paying the secured party the unpaid principal balance of the obligation
plus reasonable expenses for repossessing, holding, and preparing the collateral
for disposition and arranging for this sale, plus, in some jurisdictions,
reasonable attorneys' fees, or, in some other states, by payment of delinquent
installments or the unpaid balance. Repossessed vehicles are generally resold by
TMS Auto Finance through automobile auctions which are attended principally by
automotive dealers.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of the repossessed vehicles generally will be
applied to the expenses of resale and repossession and then to the satisfaction
of the indebtedness of the Obligor on the Receivable. While some states impose
prohibitions or limitations on deficiency judgments if the net proceeds from
resale do not cover the full amount of the indebtedness, a deficiency judgment
can be sought in those states that do not prohibit or limit such judgments.
Under California law the proceeds from the resale of the motor vehicle securing
the debtor's loan are required to be applied first to the expenses of resale and
repossession, and if the remaining proceeds are not sufficient to repay the
indebtedness, the creditor may seek a deficiency judgment for the balance. The
priority of application of proceeds of sale as to repossessed vehicles under
Contracts originated in most other states is similar. However, the deficiency
judgment would be a personal judgment against the Obligor for the shortfall, and
a defaulting Obligor can be expected to have very little capital or sources of
income available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment or, if one is obtained, it may be settled
at a significant discount.
Occasionally, after resale of a vehicle and payment of all expenses
and indebtedness, there is a surplus of funds. In that case, the UCC requires
the lender to remit the surplus to any other holder of any lien with respect to
the vehicle or, if no such lienholder exists or there are remaining funds, the
UCC requires the lender to remit the surplus to the former Obligor.
Insolvency Matters
TMS Auto Finance will intend that any transfer of Receivables to the
Seller will constitute a sale, rather than a pledge of the Receivables to secure
indebtedness of TMS Auto Finance. However, if TMS Auto Finance were to become a
debtor under the federal bankruptcy code or similar applicable state laws
(collectively, the "Insolvency Laws"), a creditor or trustee in bankruptcy
thereof, or TMS Auto Finance as debtor-in-possession, might argue that such sale
of Receivables was a pledge of Receivables rather than a sale and/or that the
assets and liabilities of the Seller should be consolidated with the assets and
liabilities of TMS Auto Finance. The Seller has taken and will take steps in
structuring the transactions contemplated hereby and by any Prospectus
Supplement that are intended to minimize the risk that the voluntary or
involuntary application for relief under any Insolvency Law would result in the
assets and liabilities of the Seller being consolidated with the assets and
liabilities of any other person. Nevertheless, if TMS Auto Finance were to
become a debtor under any Insolvency Laws, and such positions - that the
transfer of Receivables was a pledge rather than a sale or otherwise should be
treated as part of its bankruptcy estate and/or that the assets and liabilities
of the Seller should be consolidated - were presented to or accepted by a court,
then delays in payments to Securityholders could occur or reductions in the
amounts of such payments could result. In addition, if the Seller were to become
a debtor under any Insolvency Law and a creditor or trustee-in- bankruptcy of
such debtor or such debtor itself were to take the position that the sale of
Receivables to such Trust should instead be treated as a pledge of such
Receivables to secure a borrowing of such debtor, delays in payments of
collections of Receivables to the related Securityholders could occur or
reductions in the amounts of such payments could result. In addition, if the
transfer of any Receivables is recharacterized as a pledge, a tax lien, other
governmental lien, or other lien created by operation of law on the property of
the Servicer, the holder of such lien may have priority over the Trust's
interest in such Receivables. See "The Seller."
In addition, in a case recently decided by the United States Court of
Appeals for the Tenth Circuit, Octagon Gas System, Inc. v. Rimmer, such Circuit
Court found that "accounts", a defined term under the Uniform Commercial Code,
sold prior to a bankruptcy should be treated as part of the bankruptcy estate of
the seller of such accounts. If TMS Auto Finance or the Seller were to become a
debtor in a bankruptcy proceeding and a court applied the reasoning of the
Circuit Court reflected in the case described above, delays in payments to
Securityholders could occur or reductions in the amounts of such payments could
result.
With respect to each Trust that is not a grantor trust, if an
Insolvency Event with respect to the Affiliated Purchaser (which will be, as
specified in the related Prospectus Supplement, the Seller, a wholly owned
subsidiary of the Seller or a limited partnership of which such subsidiary is
the general partner and the Seller is the limited partner, as set forth in such
Prospectus Supplement) occurs, the Indenture Trustee or Owner Trustee for such
Trust will promptly sell, dispose of or otherwise liquidate the related
Receivables in a commercially reasonable manner on commercially reasonable
terms, except under certain limited circumstances. The proceeds from any such
sale, disposition or liquidation of Receivables will be treated as collections
on the Receivables and deposited in the Collection Account of such Trust. If the
proceeds from the liquidation of the Receivables and any amounts on deposit in
the Collection Account or other accounts available for Securityholders with
respect to any such Trust and any amounts available from any credit enhancement
are not sufficient to pay any Notes and the Certificates of the related series
in full, the amount of principal returned to any Noteholders or the
Certificateholders will be reduced and such Noteholders and Certificateholders
will incur a loss.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance. These laws include the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
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, the
Rees-Levering Act and state motor vehicle retail installment sales acts, retail
installment sales acts and other similar laws. Also, state laws impose finance
charge ceilings and other restrictions on consumer transactions and require
contract disclosures in addition to those required under federal law. These
requirements impose specific statutory liabilities upon creditors who fail to
comply with their provisions. In some cases, this liability could affect an
assignee's (such as the Trust's) ability to enforce consumer finance contracts
such as the Receivables.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule"), the provisions of which are generally duplicated by
the Uniform Consumer Credit Code, state statutes or the common law in certain
states, has the effect of subjecting a seller (and certain related lenders and
their assignees, such as the Trust) in a consumer credit transaction and any
assignee of the seller to all claims and defenses which the obligor in the
transaction could assert against the seller of the goods. Liability under the
FTC Rule is limited to the amounts paid by the obligor under the contract, and
the holder of the contract may also be unable to collect any balance remaining
due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, the Owner Trustee, as holder of the Receivables, will be
subject to any claims or defenses that the purchaser of the Financed Vehicle may
assert against the seller of the Financed Vehicle. Such claims are limited to a
maximum liability equal to the amounts theretofore paid by the obligor on the
Receivable. Under most state motor vehicle dealer licensing laws, sellers of
motor vehicles are required to be licensed to sell motor vehicles at retail
sale. Furthermore, Federal Odometer Regulations promulgated under the Motor
Vehicle Information and Cost Savings Act require that all sellers of new and
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 an
Odometer Disclosure Statement was not provided to the purchaser of the related
financed vehicle, the obligor may be able to assert a defense against the seller
of the vehicle.
Courts have imposed general equitable principles on secured parties
pursuing repossession of collateral 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, obligors have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to consumers.
In addition to those parties, if any, identified in the related
Prospectus Supplement, TMS Auto Finance and the Seller will warrant under the
Purchase Agreement and the Trust Documents, that each Receivable complies with
all requirements of law in all material respects. Accordingly, if an Obligor has
a claim against the Trust for violation of any law and the Owner Trustee or the
Indenture Trustee, as the case may be, determines such claim materially and
adversely affects the Trust's interest in a Receivable, such violation would
constitute a breach of warranty under the Purchase Agreement and the Trust
Documents and would create an obligation of TMS Auto Finance, the Seller and the
party, if any, identified in the related Prospectus Supplement, to repurchase
the Receivable unless the breach is cured.
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 lender to
resale upon collateral or enforce a deficiency judgment. For example, in a
Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
lender 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.
Transfers of Vehicles
The Receivables in a pool, unless the related Prospectus Supplement
indicates otherwise, typically prohibit the sale or transfer of the vehicle
securing a Receivable without the Servicer's consent and permit the Servicer to
accelerate the maturity of the Receivable upon a sale or transfer without its
consent. The Servicer generally will not consent to a sale or transfer without
prepayment of the Receivable. However, in certain circumstances the Servicer may
enter into a transfer of equity agreement with the secondary purchaser for the
purpose of effecting the transfer of the Financed Vehicle.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. Stroock & Stroock & Lavan, special federal tax counsel for the
Seller ("Federal Tax Counsel"), is of the opinion that the discussion hereunder
fully and fairly discloses all material federal tax risks associated with the
purchase, ownership and disposition of the Notes and Certificates. The summary
does not purport to deal with federal income tax consequences of special rules
that are applicable to certain categories of holders. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on all of the issues discussed
below. As a result, the IRS may disagree with all or a part of the discussion
below. Prospective investors are urged to consult their own tax advisors in
determining the federal, state, local foreign and any other tax consequences to
them of the purchase, ownership and disposition of the Notes and the
Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The opinion of Federal Tax
Counsel, however, is not binding on the IRS or the courts. No ruling on any of
the issues discussed below will be sought from the IRS. For purposes of the
following summary, references to the Trust, the Notes, the Certificates and
related terms, parties and documents shall be deemed to refer, unless otherwise
specified herein, to each Trust and the Notes, Certificates and related terms,
parties and documents applicable to such Trust.
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust as a partnership
under the Code or whether the Trust will be treated as a grantor trust. The
Prospectus Supplement for each series of Certificates will specify whether a
partnership election will be made or the Trust will be treated as a grantor
trust. In addition, if the related Prospectus Supplement so provides, the
Transaction Documents for a Trust may provide that an election will be made
on or after September 1, 1997 to qualify such Trust as a Financial Asset
Secuitization Investment Trust pursuant to new provisions of the Code which
will be effective as of such date.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
Tax Characterization of the Trust as a Partnership
Federal Tax Counsel will deliver its opinion that a Trust for which a
partnership election is made will not be an association (or publicly traded
partnership) taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the Trust Agreement
and related documents will be complied with, and on counsel's conclusions that
(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.
If the Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for federal income tax purposes. Federal Tax Counsel will, except as otherwise
provided in the related Prospectus Supplement, advise the Trust that in its
opinion the Notes will be classified as debt for federal income tax purposes.
The discussion below assumes this characterization of the Notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that the
interest formula for the Notes meets the requirements for "qualified stated
interest" under Treasury regulations (the "OID regulations") relating to
original issue discount ("OID"), and that any OID on the Notes (i.e, any excess
of the principal amount of the Notes over their issue price) does not exceed a
de minimis amount (i.e., 1/4% of their principal amount multiplied by the number
of full years included in their term), all within the meaning of the OID
regulations. If these conditions are not satisfied with respect to any given
series of Notes, additional tax considerations with respect to such Notes will
be disclosed in the applicable Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except
as discussed in the following paragraph, the Notes will not be considered issued
with OID. The stated interest thereon will be taxable to a Noteholder as
ordinary interest income when received or accrued in accordance with such
Noteholder's method of tax accounting. Under the OID regulations, a holder of a
Note issued with a de minimis amount of OID must include such OID in income, on
a pro rata basis, as principal payments are made on the Note. It is believed,
but Federal Tax Counsel is unable to opine, that any prepayment premium paid as
a result of a mandatory redemption will be taxable as contingent interest when
it becomes fixed and unconditionally payable. A purchaser who buys a Note for
more or less than its principal amount will generally be subject, respectively,
to the premium amortization or market discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain cash
method holders, including regulated investment companies, as set forth in
Section 1281 of the Code) generally would be required to report interest income
as interest accrues on a straight-line basis over the term of each interest
period. Other cash basis holders of a Short-Term Note would, in general, be
required to report interest income as interest is paid (or, if earlier, upon the
taxable disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include interest on the
Short-Term Note in income as it accrues, but would not be subject to the
interest expense deferral rule referred to in the preceding sentence. Certain
special rules apply if a Short-Term Note is purchased for more or less than its
principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, acquisition discount, OID,
if any, and gain previously included by such Noteholder in income with respect
to the Note and decreased by the amount of bond premium (if any) previously
amortized and by the amount of principal payments previously received by such
Noteholder with respect to such Note. Any such gain or loss will be capital gain
or loss if the Note was held as a capital asset, except for gain representing
accrued interest and accrued market discount not previously included in income.
Capital losses generally may be used only to offset capital gains.
Foreign Holders. Interest payments made (or accrued) to a Noteholder
who is a nonresident alien, foreign corporation or other non-United States
person (a "foreign person") generally will be considered "portfolio interest",
and generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Owner Trustee or other person who is otherwise required to
withhold U.S. tax with respect to the Notes with an appropriate statement (on
Form W-8 or a similar form), signed under penalties of perjury, certifying that
the beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding agent;
in that case, however, the signed statement must be accompanied by a Form W-8 or
substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
federal income and withholding tax at a rate of 30 percent, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Federal Tax Counsel, the IRS successfully asserted that one or more
of the Notes did not represent debt for federal income tax purposes, the Notes
might be treated as equity interests in the Trust. If so treated, the Trust
might be taxable as a corporation with the adverse consequences described above
(and the taxable corporation would not be able to reduce its taxable income by
deductions for interest expense on Notes recharacterized as equity).
Alternatively, the Trust might be treated as a publicly traded partnership that
would not be taxable as a corporation if it met 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.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. The Seller and TMS Auto
Finance will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders, and the
Notes being debt of the partnership. However, the proper characterization of the
arrangement involving the Trust, the Certificates, the Notes, the Seller and TMS
Auto Finance is not clear because there is no authority on transactions closely
comparable to that contemplated herein.
For example, because the Certificates have certain features
characteristic of debt, the Certificates might be considered debt of the Seller
or the Trust. Generally, provided such Certificates are issued at or close to
face value, any characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below. If
Certificates are issued at a substantial discount, a discussion of the relevant
tax consequences will be set forth in the related Prospectus Supplement. The
following discussion assumes that the Certificates represent equity interests in
a partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject
to federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the Trust. In certain instances, however, the
Trust could have an obligation to make payments of withholding tax on behalf of
a Certificateholder. See "Backup Withholding" and "Tax Consequences to Foreign
Certificateholders" below. The Trust's income will consist primarily of interest
and finance charges earned on the Receivables (including appropriate adjustments
for market discount, OID and bond premium) and any gain upon collection or
disposition of Receivables. The Trust's deductions will consist primarily of
interest accruing with respect to the Notes, servicing and other fees, and
losses or deductions upon collection or disposition of Receivables.
The tax items of a partnership are allocable to the partners in
accordance with the Code, Treasury regulations and the partnership agreement
(here, the Trust Agreement and related documents). The Trust Agreement will
provide, in general, that the Certificateholders will be allocated taxable
income of the Trust for each month equal to the sum of (i) the interest that
accrues on the Certificates in accordance with their terms for such month,
including interest accruing at the Pass Through Rate for such month and interest
on amounts previously due on the Certificates but not yet distributed; (ii) any
Trust income attributable to discount on the Receivables that corresponds to any
excess of the principal amount of the Certificates over their initial issue
price; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) any other amounts of income payable to the Certificateholders
for such month. Such allocation will be reduced by any amortization by the Trust
of premium on Receivables that corresponds to any excess of the issue price of
Certificates over their principal amount. All remaining taxable income of the
Trust will be allocated to the Company. Based on the economic arrangement of the
parties, this approach for allocating Trust income should be permissible under
applicable Treasury regulations, although Federal Tax Counsel is unable to opine
that the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be allocated income equal to the entire Pass Through Rate
plus the other items described above even though the Trust might not have
sufficient cash to make current cash distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the Certificates
on the accrual basis and Certificateholders may become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes. In
addition, because tax allocations and tax reporting will be done on a uniform
basis for all Certificateholders but Certificateholders may be purchasing
Certificates at different times and at different prices, Certificateholders may
be required to report on their tax returns taxable income that is greater or
less than the amount reported to them by the Trust.
Substantially all of the taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
An individual taxpayer's share of expenses of the Trust (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables will not be
issued with OID, and, therefore, the Trust should not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Receivables or to offset any such premium against
interest income on the Receivables. As indicated above, a portion of such market
discount income or premium deduction will be allocated to Certificateholders if
the related Trust Agreement so provides. Any such allocation will be disclosed
in the related Prospectus Supplement.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificateholders
in proportion to the principal amount of Certificates owned by them as of the
close of the last day of such month. As a result, a holder purchasing
Certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the actual transaction.
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 Affiliated
Purchaser is authorized to revise the Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust's assets will not be adjusted to reflect that
higher (or lower) basis unless the Trust were to file an election under Section
754 of the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file tax returns that are consistent with
the information return filed by the Trust or be subject to penalties unless the
holder notifies the IRS of all such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as
a nominee at any time during a calendar year is required to furnish the Trust
with a statement containing certain information on the nominee, the beneficial
owners and the Certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly owned agency or
instrumentality of either of the foregoing, and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. As discussed below, an
investment in a Certificate is not suitable for any non-U.S. person which is not
eligible for a complete exemption from U.S. withholding tax on interest under a
tax treaty with the United States. Accordingly, no interest in a Certificate
should be acquired by or on behalf of any such non-U.S. person.
No regulations, published rulings or judicial decisions exist that
would discuss the characterization for Federal withholding tax purposes with
respect to non-U.S. persons of a partnership with activities substantially the
same as the Trust. Depending upon the particular terms of the related Trust
Agreement and Sale and Servicing Agreement, a trust may be considered to be
engaged in a trade or business in the United States for purposes of Federal
withholding taxes with respect to non-U.S. persons. If the Trust is considered
to be engaged in a trade or business in the United States for such purposes, the
income of the Trust distributable to a non-U.S. person would be subject to
Federal withholding tax at a rate of 35% for persons taxable as a corporation
and 39.6% for all other non-U.S. persons. Also, in such cases, a non-U.S.
Certificateholder that is a corporation may be subject to the branch profits
tax. If the Trust is notified that a Certificateholder is a foreign person, the
Trust may withhold as if it were engaged in a trade or business in the United
States in order to protect the Trust from possible adverse consequences of a
failure to withhold. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the Trust to change its
withholding procedures.
If a Trust is engaged in a trade or business, each foreign
Certificateholder will be required to file a U.S. individual or corporate income
tax return (including in the case of a corporation, the branch profits tax) on
its share of the Trust's income. Each foreign holder must obtain a taxpayer
identification number from the IRS and submit that number to the withholding
agent on Form W-8 in order to assure appropriate crediting of any taxes
withheld. A foreign holder generally would be entitled to file with the IRS a
claim for refund with respect to withheld taxes, taking the position that no
taxes were due because the Trust was not engaged in a U.S. trade or business.
However, interest payments made to (or accrued by) a Certificateholder who is a
foreign person may be considered guaranteed payments to the extent such payments
are determined without regard to the income of the Trust and for that reason or
because of the nature of the Receivables, the interest will likely not be
considered "portfolio interest." As a result, even if the Trust is not
considered to be engaged in a U.S. trade or business, Certificateholders would
be subject to United States Federal income tax which must be withheld at a rate
of 30% on their share of the Trust's income (without reduction for interest
expense), unless reduced or eliminated pursuant to an applicable income tax
treaty. If the Trust is notified that a Certificateholder is a foreign person,
the Trust may be required to withhold and pay over such tax, which can exceed
the amounts otherwise available for distribution to such a Certificateholder. A
foreign holder would generally be entitled to file with the IRS a refund claim
for such withheld taxes, taking the position that the interest was portfolio
interest and therefore not subject to U.S. tax. However, the IRS may disagree
and no assurance can be given as to the appropriate amount of tax liability. As
a result, each potential foreign Certificateholder should consult its tax
advisor as to whether the tax consequences of holding an interest in a
Certificate make it an unsuitable investment.
Backup Withholding. Distributions made on the Certificates and
proceeds from the sale of the Certificates will be subject to a "backup"
withholding tax of 31% if, in general, the Certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt recipient
under applicable provisions of the Code.
TRUSTS TREATED AS GRANTOR TRUSTS
Tax Characterization of the Trust as a Grantor Trust
If a partnership election is not made, Federal Tax Counsel will
deliver its opinion that the Trust will not be classified as an association
taxable as a corporation and that such Trust will be classified as a grantor
trust under subpart E, Part I of subchapter J of the Code. In this case, owners
of Certificates (referred to herein as "Grantor Trust Certificateholders") will
be treated for federal income tax purposes as owners of a portion of the Trust's
assets as described below. The Certificates issued by a Trust that is treated as
a grantor trust are referred to herein as "Grantor Trust Certificates."
Characterization. Each Grantor Trust Certificateholder will be treated
as the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables in the Trust. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption and late payment charges received by the Servicer.
Under Sections 162 or 212 each Grantor Trust Certificateholder will be entitled
to deduct its pro rata share of servicing fees, prepayment fees, assumption
fees, any loss recognized upon an assumption and late payment charges retained
by the Servicer, provided that such amounts are reasonable compensation for
services rendered to the Trust. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses only to the extent such expenses plus all other Section 212 expenses
exceed two percent of its adjusted gross income. A Grantor Trust
Certificateholder using the cash method of accounting must take into account its
pro rata share of income and deductions as and when collected by or paid to the
Servicer. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income and deductions as
they become due or are paid to the Servicer, whichever is earlier. If the
servicing fees or other amounts paid to the Servicer exceed reasonable servicing
compensation, the amount of such excess would be considered as an ownership
interest retained by the Servicer (or any person to whom the Servicer assigned
all or a portion of the servicing fees) in a portion of the interest payments on
the Receivables. The Receivables would then be subject to the stripped bond
rules of the Code discussed below.
The first two subsections below describe certain federal income tax
consequences dependent on whether or not the stripped bond rules apply and the
third subsection below describes certain federal income tax consequence which
are not dependent on the applicability of the stripped rules.
Taxation of Holders If Stripped Bond Rules Apply
In the absence of comprehensive regulations, Federal Tax Counsel is
unable to opine as to the tax treatment of stripped bonds. The preamble to
certain stripped bond regulations suggests that each purchaser of a Grantor
Trust Certificate will be treated with respect to each Receivable as the
purchaser of a single stripped bond consisting of all of the stripped portions
of the applicable Receivable (such portions with respect to a Receivable are
referred to herein as a "Stripped Bond") which generally should be treated as a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Generally, under Treasury regulations
relating to Stripped Bonds (the "Section 1286 Treasury Regulations"), if the
discount on a Stripped Bond is larger than a deminimis amount (as calculated for
purposes of the OID rules of the Code) such Stripped Bond will be considered to
have been issued with OID. See "-- Original Issue Discount" herein. Based on the
preamble to the Section 1286 Treasury Regulations, Federal Tax Counsel is of the
opinion that, although the matter is not entirely clear, the interest income on
the Certificates at the sum of the Pass Through Rate and the portion of the
Servicing Fee Rate that does not constitute excess servicing will be treated as
"qualified stated interest" within the meaning of the Section 1286 Treasury
Regulations and such income will be so treated in the Trustee's tax information
reporting.
Original Issue Discount. When Stripped Bonds have more than a de
minimis amount of OID, the special rules of the Code relating to "original issue
discount" (currently Sections 1271 through 1275) will be applicable to a Grantor
Trust Certificateholder's interest in those Stripped Bonds. Generally, a Grantor
Trust Certificateholder that acquires an interest in a Stripped Bond issued or
acquired with OID must include in gross income the sum of the "daily portions,"
as defined below, of the OID on such Stripped Bond for each day on which it owns
a Certificate, including the date of purchase but excluding the date of
disposition. The daily portions of OID with respect to a Stripped Bond generally
would be determined as follows. A calculation will be made of the portion of OID
that accrues on the Stripped Bond during each successive monthly accrual period
(or shorter period in respect of the date of original issue or the final
Distribution Date). This will be done, in the case of each full monthly accrual
period, by adding (i) the present value of all remaining payments to be received
on the Stripped Bond under the prepayment assumption, if any, used in respect of
the Stripped Bonds and (ii) any payments received during such accrual period,
and subtracting from that total the "adjusted issue price" of the Stripped Bond
at the beginning of such accrual period. No representation is made that the
Stripped Bonds will prepay at any prepayment assumption. The "adjusted issue
price" of a Stripped Bond at the beginning of the first accrual period is its
issue price (as determined for purposes of the OID rules of the Code) and the
"adjusted issue price" of a Stripped Bond at the beginning of a subsequent
accrual period is the "adjusted issue price" at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual period
and reduced by the amount of any payment (other than "qualified stated
interest") made at the end of or during that accrual period. The OID accruing
during such accrual period will then be divided by the number of days in the
period to determine the daily portion of OID for each day in the period. With
respect to an initial accrual period shorter than a full monthly accrual period,
the daily portions of OID must be determined according to an appropriate
allocation under either an exact or approximate method set forth in the OID
Regulations, or some other reasonable method, provided that such method is
consistent with the method used to determine the yield to maturity of the
Receivables.
With respect to the Stripped Bonds, the method of calculating OID as
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in any given accrual period to reflect the fact that
prepayments are occurring at a faster or slower rate than the prepayment
assumption used in respect of the Stripped Bonds.
Taxation of Holders If Stripped Bond Rules Do Not Apply
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Receivable based
on each Receivable's relative fair market value, so that such holder's undivided
interest in each Receivable will have its own tax basis. A Grantor Trust
Certificateholder that acquires an interest in Receivables at a premium may
elect to amortize such premium under a constant interest method. Amortizable
bond premium will be treated as an offset to interest income on such Grantor
Trust Certificate. The basis for such Grantor Trust Certificate will be reduced
to the extent that amortizable premium is applied to offset interest payments.
There is no law as to whether a reasonable prepayment assumption should be used
in computing amortization of premium allowable under Section 171. A Grantor
Trust Certificateholder that makes this election for Receivables that are
construed to be acquired at a premium will be deemed to have made an election to
amortize bond premium with respect to all debt instruments having amortizable
bond premium that such Grantor Trust Certificateholder acquires during the year
of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption or it prepays faster than the prepayment assumption, the
holder of a Grantor Trust Certificate acquired at a premium should recognize a
loss if a Receivable prepays in full, equal to the difference between the
portion of the prepaid principal amount of such Receivable that is allocable to
the Grantor Trust Certificate and the portion of the adjusted basis of the
Grantor Trust Certificate that is allocable to such Receivable.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 to the extent an undivided interest in a Receivable
is considered to have been purchased at a "market discount." Generally, the
amount of market discount is equal to the excess of the portion of the principal
amount of such Receivable allocable to such holder's undivided interest over
such holder's tax basis in such interest. Market discount with respect to a
Receivable will be considered to be zero if the amount allocable to the
Receivable is less than 0.25% of the Receivable's stated redemption price at
maturity multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
shall be treated as ordinary income to the extent that it does not exceed the
accrued market discount at the time of such payment. The amount of accrued
market discount for purposes of determining the tax treatment of subsequent
principal payments or dispositions of the market discount bond is to be reduced
by the amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Because the regulations described above have not been issued, Federal Tax
Counsel is unable to opine as to what effect those regulations might have on the
tax treatment of a Grantor Trust Certificate purchased at a discount or premium.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry such Grantor Trust Certificate purchased with market discount. For
these purposes, the de minimis rule referred above applies. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such holder elects to
include market discount in income currently as it accrues on all market discount
instruments acquired by such holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID regulations permit a
Grantor Trust Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were to be
made with respect to a Grantor Trust Certificate with market discount, the
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Grantor Trust Certificateholder owns or acquires. See "--Premium" herein. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Grantor Trust Certificate is irrevocable.
Taxation of Holders Regardless of Whether Stripped Bond Rules Apply
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted basis in the Grantor Trust Certificate. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Such gain or loss generally
will be capital gain or loss to an owner for which a Grantor Trust Certificate
is a "capital asset" within the meaning of Section 1221, and will be long-term
or short-term depending on whether the Grantor Trust Certificate has been owned
for the long-term capital gain holding period (currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Section 582(c)(1), so that gain or loss recognized from the sale
of a Grantor Trust Certificate by a bank or a thrift institution to which such
section applies will be treated as ordinary income or loss.
Non-U.S. Persons. To the extent that a Grantor Trust Certificate
evidences ownership in underlying Receivables that were issued on or before July
18, 1984, interest or OID paid by the person required to withhold tax under
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty. Accrued OID recognized by the owner on the sale or
exchange of such a Grantor Trust Certificate also will be subject to federal
income tax at the same rate. Generally, such payments would not be subject to
withholding to the extent that a Grantor Trust Certificate evidences ownership
in Receivables issued after July 18, 1984, by natural persons if such Grantor
Trust Certificateholder complies with certain identification requirements
(including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor Trust
Certificateholder is the beneficial owner, is not a U.S. Person and providing
the name and address of such Grantor Trust Certificateholder). Additional
restrictions apply to Receivables where the Obligor is not a natural person in
order to qualify for the exemption from withholding.
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws of
the United States or any political subdivision thereof or an estate or trust,
the income of which from sources outside the United States is includible in
gross income for federal income tax purposes regardless of its connection with
the conduct of a trade or business within the United States.
Information Reporting and Backup Withholding. The Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a Grantor Trust Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist Grantor Trust Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold Grantor Trust Certificates as
nominees on behalf of beneficial owners. If a holder, beneficial owner,
financial intermediary or other recipient of a payment on behalf of a beneficial
owner fails to supply a certified taxpayer identification number or if the
Secretary of the Treasury determines that such person has not reported all
interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments. Any
amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
ERISA CONSIDERATIONS
A fiduciary of an employee benefit plan subject to Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), should
consider the fiduciary standards under ERISA in the context of the plan's
particular circumstances before authorizing an investment of a portion of such
plan's assets in the Securities. Accordingly, among other factors, such
fiduciary should consider (i) whether the investment is for the exclusive
benefit of plan participants and their beneficiaries; (ii) whether the
investment satisfies the diversification requirements of Section 404 of ERISA;
(iii) whether the investment is in accordance with the documents and instruments
governing the plan and (iv) whether the investment is prudent, considering the
nature of the investment. Fiduciaries of such plans also should consider ERISA's
prohibition on improper delegation of control over, or responsibility for, plan
assets.
In addition, fiduciaries of employee benefit plans subject to Title I
of ERISA, as well as certain plans or other retirement arrangements not subject
to ERISA, but which are subject to Section 4975 of the Code (such as individual
retirement accounts and Keogh plans covering only a sole proprietor or
partners), or any entity (including an insurance company general account) whose
underlying assets include plan assets by reason of a plan or account investing
in such entity (collectively, "Plans(s)") are prohibited from engaging in a
broad range of transactions involving Plan assets and persons having certain
specified relationships to a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. The Seller, the Trustee, the Owner Trustee and any
underwriter of the offered Securities and certain of their affiliates might be
considered "parties in interest" or "disqualified persons" with respect to a
Plan. If so, the acquisition, holding or transfer of Securities by, or on behalf
of, such Plan could be considered to give rise to a "prohibited transaction"
within the meaning of ERISA and the Code unless a regulatory exception or
administrative exemption is available. In addition, the Department of Labor
("DOL") has issued a regulation (29 C.F.R. Section 2510.3-101) (the "Plan Assets
Regulation") concerning the definition of what constitutes the assets of a Plan,
which provides that, as a general rule, the underlying assets and properties of
corporations, partnerships, trusts and certain other entities in which a Plan
makes an "equity" investment will be deemed for purposes of ERISA to be assets
of the investing Plan unless certain exceptions apply. If an investing Plan's
assets were deemed to include an interest in the Trust Property and not merely
an interest in the Securities, transactions occurring in connection with the
servicing, management and operation of the Trust between the Seller, the Owner
Trustee, the Trustee, the Servicer (or any other servicer), any insurer or any
of their respective affiliates might constitute prohibited transactions, and the
Trust Property would become subject to the fiduciary investment standards of
ERISA, unless a regulatory exception or administrative exemption applies.
With respect to offered Securities which are Certificates, the DOL has
issued to a number of underwriters of pass-through certificates, similar to the
Certificates, administrative exemptions (collectively, the "Exemption"), which
generally exempt from the application of the prohibited transaction provisions
of Section 406(a), Section 406(b)(1) and Section 406(b)(2) of ERISA, and the
excise taxes imposed pursuant to Section 4975(a) and (b) of the Code, the
initial purchase, holding and subsequent resale of mortgage-backed or
asset-backed pass-through certificates representing a beneficial undivided
interest in certain fixed pools of assets held in a trust (as defined in
paragraph III.B of Section III of the Exemption), along with certain
transactions relating to the servicing and operation of such asset pools,
provided that certain conditions set forth in the Exemption are satisfied.
Paragraph III.B of Section III of the Exemption provides in part that a trust
means an investment pool the corpus of which is held in trust and consists
solely of: (1) secured consumer receivables, (2) secured credit instruments, (3)
obligations secured by residential or commercial real property, (4) obligations
secured by motor vehicles or equipment or qualified motor vehicle leases, (5)
guaranteed governmental mortgage pool certificates or (6) an undivided
fractional interest in any of the obligations listed in clauses (1) - (5) above.
If the general conditions of Section II of the Exemption are
satisfied, the Exemption may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA (as well as the excise taxes imposed by
Section 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through
(D) of the Code) in connection with the direct or indirect sale, exchange or
transfer of Certificates by Plans in the initial issue of Certificates, the
holding of Certificates by Plans or the direct or indirect acquisition or
disposition in the secondary market of Certificates by Plans. However, no
exemption is provided from the restrictions of Sections 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 Plan sponsored by (1) an underwriter
which has been granted an Exemption (or certain specified entities affiliated or
associated with such underwriter) ("Underwriter"), (2) the Seller, (3) the
Servicer (or any other servicer), (4) the Trustee or Owner Trustee, (5) any
obligor with respect to Receivables constituting more than 5 percent of the
aggregate unamortized principal balance of the Receivables as of the date of
initial issuance, (6) any insurer and (7) any affiliate or successor of a person
described in (1) to (6) above (the "Restricted Group").
If the specific conditions of paragraph I.B of Section I of the
Exemption are also satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes
imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c)(I)(E) of the Code in connection with (1) the direct or indirect sale,
exchange or transfer of Certificates in the initial issuance of Certificates
between the Seller or Underwriter and a 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
percent 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 Plans and (3) the holding of Certificates by
Plans.
If the specified conditions of paragraph I.C of Section I of the
Exemption are satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code for transactions in connection with the servicing,
management and operation of the Trust and the Trust Property.
The Exemption may provide an exemption from the restrictions imposed
by Sections 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 Plan by virtue of providing services to the Plan (or by
virtue of having certain specified relationships to such a person) solely as a
result of such Plan's ownership of Certificates.
The Exemption sets forth the following seven general conditions which
must be satisfied for a transaction to be eligible for exemptive relief
thereunder.
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for the Certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated party;
(2 The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
Securities issued by the Trust;
(3) The Certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic rating
categories from either Standard & Poor's Structured Ratings Group, Moody's
Investors Service, Inc., Duff & Phelps Credit Rating Co. or Fitch Investors
Service, L.P. ("National Credit Rating Agencies");
(4) Neither the Trustee or the Owner Trustee is an affiliate of any
other member of the Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the Underwriter in
connection with the distribution of Certificates represents not more than
reasonable compensation for underwriting the Certificates. The sum of all
payments made and retained by the Seller pursuant to the assignment of the loans
to the trust fund represents not more than the fair market value of such loans.
The sum of all payments made to and retained by the Servicer or any other
servicer represents not more than reasonable compensation for such person's
services under the pooling and servicing agreement and reimbursement of such
person's reasonable expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D under the Securities Act of 1933.
The Seller assumes that only Plans which are accredited investors under the
federal securities laws will be permitted to purchase the Certificates.
(7) The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets
of the type that have been included in other investment
pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest rating categories of one
of the National Credit Rating Agencies for at least one year
prior to the Plan's acquisition of Certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans
for at least one year prior to any Plan's acquisition of
certificates.
The Exemption may apply to a Plan's purchase, holding and transfer of
Certificates and the operation, management and servicing of the Trust and the
Trust Property as specified in the related Prospectus Supplement. In addition,
in the event the Exemption is not available, certain exemptions from the
prohibited transaction rules may be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a
Certificate. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 96- 23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers".
Certain transactions involving the purchase of Securities which are
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if the Trust Property were deemed to be assets of a Plan. Under the Plan
Assets Regulation, the Trust Property would be treated as plan assets of a Plan
for the purposes of ERISA and the Code only if the Plan acquires an "Equity
Interest" in the Trust and none of the exceptions contained in the Plan Assets
Regulation is applicable. An equity interest is defined under the Plan Assets
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. The Seller believes that the Notes should be treated as indebtedness
without substantial equity features for purposes of the Plan Assets Regulation.
In addition, even in the event that the Notes are deemed to be an Equity
Interest in the Trust, the Exemption may be applicable to both a Plan's
purchase, holding and transfer of Notes (which in this situation are considered
Certificates for purposes of the Exemption) and the operation, management and
servicing of the Trust and the Trust Property, if so specified in the related
Prospectus Supplement.
Without regard to whether the Notes are characterized as Equity
Interests, the acquisition, transfer or holding of Notes by or on behalf of a
Plan could be considered to give rise to a prohibited transaction if the Trust,
the Owner Trustee or the Trustee or any of their respective affiliates is or
becomes a party in interest or a disqualified person with respect to such Plan.
In such case, PTCE 90-1, PTCE 91-38, PTCE 95-60, PTCE 96-23 and PTCE 84-14 may
be applicable depending on the type and circumstances of the plan fiduciary
making the decision to acquire a Note.
Investors that are insurance companies should consult with their legal
counsel with respect to the United States Supreme Court case, John Hancock
Mutual Life Insurance co. v. Harris Trust and Savings Bank, 114 S.Ct. 517
(1993). In Harris Trust, the Supreme Court ruled that assets held in an
insurance company's general account may be deemed plan assets under certain
circumstances. Accordingly, such insurance company general accounts would be
subject to the same considerations under ERISA and would be eligible for the
same relief under the Exemption that would apply to any other Plan investor. In
the event the Exemption is not applicable to the purchase, holding and transfer
of Securities and the operation, management and servicing of the Trust and Trust
Property, PTCE 95-60 may be applicable depending on the circumstances.
Any Plan fiduciary considering the purchase of Securities should
consult with its counsel with respect to the potential applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment.
RATINGS
As a condition of issuance, the offered Securities of each series will
be rated an investment grade, that is, in one of its four highest rating
categories, by at least one nationally recognized rating agency (a "Rating
Agency") as specified in the related Prospectus Supplement. The ratings will be
based on the Receivables related to each series, the terms of the Securities,
and the subordination and any credit enhancement provided therefor. There is no
assurance that the ratings initially assigned to such Securities will not be
subsequently lowered or withdrawn by the Rating Agencies. In the event the
rating initially assigned to any Securities is subsequently lowered for any
reason, no person or entity will be obligated to provide any credit enhancement
unless otherwise specified in the related Prospectus Supplement. The ratings of
any Securities with respect to which a prepayment premium may be payable do not
evaluate such prepayment premium payable to such Securityholders or the
likelihood that such prepayment premium will be paid.
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") with respect to each Trust, the Seller will agree
to sell to each of the underwriters named therein and in the related Prospectus
Supplement, and each of such underwriters will severally agree to purchase from
the Seller, the principal amount of each class of Securities of the related
series set forth therein and in the related Prospectus Supplement.
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the
Securities described therein which are offered hereby and by the related
Prospectus Supplement if any of such Securities are purchased. In the event of a
default by any such underwriter, each Underwriting Agreement will provide that,
in certain circumstances, purchase commitments of the nondefaulting underwriters
may be increased or the Underwriting Agreement may be terminated.
Each Prospectus Supplement will either (i) set forth the price at
which each class of Securities being offered thereby will be offered to the
public and any concessions that may be offered to certain dealers participating
in the offering of such Securities, or (ii) specify that the related Securities
are to be resold by the underwriters in negotiated transactions at varying
prices to be determined at the time of such sale. After the initial public
offering of any Securities, the public offering price and such concessions may
be changed.
Each Underwriting Agreement will provide that the Seller will
indemnify the underwriters against certain liabilities, including liabilities
under the Securities Act.
The Owner Trustee or the Indenture Trustee, if any, may, from time to
time, invest funds held by it in any accounts in Eligible Investments acquired
from one or more of the underwriters.
Under each Underwriting Agreement, the closing of the sale of any
class of Securities subject thereto will be conditioned on the closing of the
sale of all other classes.
The place and time of delivery for the Securities in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of any Series of Securities in Canada ("Canadian
Securities") is being made only on a private placement basis exempt from the
requirement that the Trust prepare and file a prospectus with the securities
regulatory authorities in each province where trades of any Canadian Securities
are effected. Accordingly, any resale of any Canadian Securities 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 any Canadian Securities.
Representations of Purchasers
Each purchaser of any Canadian Securities who receives a purchase
confirmation will be deemed to represent to the Seller, the Trust and the dealer
from whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Canadian
Securities 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."
Rights of Action 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.
The Trust, the Seller, the Representative, the Servicer, the Owner
Trustee, the Indenture Trustee and their respective directors and officers, if
any, 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 any Canadian Securities 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 of the Securities 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. Only one such report must be
filed in respect of any Canadian Securities acquired on the same date and under
the same prospectus exemption.
LEGAL OPINIONS
Unless otherwise specified in the Prospectus Supplement, certain legal
matters relating to the validity of the issuance of the Certificates and the
Notes, if any, of each series will be passed upon for the Seller and the
Representative by Eric R. Elwin, Esq., Corporate Counsel of the Representative,
and certain legal matters relating to the validity of the issuance of the
Certificates and the Notes, if any, of such series will be passed upon for the
Underwriter of the Certificates and the Notes, if any, of such series by Stroock
& Stroock & Lavan, New York, New York. Stroock & Stroock & Lavan has performed
legal services for the Representative and it is expected that it will continue
to perform such services in the future.
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURES
Except in certain limited circumstances, any globally offered Series
of Securities (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities through
any of DTC, Cedel or Euroclear. The Global Securities will be tradeable as home
market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes and, if the related Prospectus Supplement so
provides, Certificates will be effected on a delivery-against-payment basis
through the respective Depositories 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 as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their Participants through their respective
Depositories, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices specified by the Underwriters. 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 securities
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 insure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC Seller and Cedel or Euroclear Purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Cedel Participant or a Euroclear Participant, the purchaser
will send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective 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 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
respective Depository of the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The 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., the 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 accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance the
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Cedel
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective 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 deliver
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last interest 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). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect 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 were taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until
the purchase side of the day trade is reflected in their Cedel or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would
give the Global Securities sufficient time to be reflected in their
Cedel or Euroclear account in order to settle the sale side of the
trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale
to the Cedel Participant or Euroclear Participant.
Certain U.S. Federal Withholding Taxes and Documentation Requirements
A beneficial owner of Global Securities through Cedel or Euroclear (or
through DTC if the holder has an address outside the U.S.) will be subject to
30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (i) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owners take 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 can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of Global
Securities residing in a country that has a tax treaty with the United States
can obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
Certificateholder or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The holder of a Global
Securities or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is includible in gross income for United States tax
purposes, regardless of its source. This summary of documentation requirements
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.
<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.
Accounts....................................................................44
Actuarial Receivables.......................................................20
Advance.....................................................................13
Affiliated Purchaser........................................................11
Amortization Period.........................................................10
APR.........................................................................20
Canadian Securities.........................................................75
Cede........................................................................18
Cedel.......................................................................18
Cedel Participants........................................................(PS)
Certificate Account.........................................................19
Certificate Balance.......................................................(PS)
Certificate Distribution Account............................................44
Certificate Factor..........................................................23
Certificate Majority........................................................38
Certificateholders.......................................................... 5
Certificates................................................................ 1
Code........................................................................60
Collection Account..........................................................11
Commission ................................................................. 3
Commodity Indexed Securities................................................36
Cooperative.................................................................39
Currency Indexed Securities.................................................36
Dealer Agreement............................................................26
Dealers......................................................................8
Definitive Certificates.....................................................38
Definitive Notes............................................................38
Depository..................................................................30
Depositories................................................................37
Distribution Date...........................................................11
DOL.........................................................................71
DTC.........................................................................18
Eligible Deposit Account....................................................45
Eligible Institution........................................................45
Eligible Investments........................................................44
ERISA.......................................................................14
Euroclear...................................................................18
Euroclear Operator..........................................................39
Euroclear Participants......................................................39
Events of Default...........................................................32
Exchange Act................................................................ 3
Exemption...................................................................72
Excluded Plan...............................................................72
Face Amount.................................................................36
Federal Tax Counsel.........................................................13
Financed Vehicles............................................................8
FTC Rule....................................................................59
Funding Period...............................................................8
Global Securities...........................................................77
Grantor Certificateholders................................................. 67
Grantor Trust Certificates................................................. 67
Indenture................................................................... 1
Indenture Trustee........................................................... 1
Index.......................................................................36
Indexed Securities..........................................................36
Indexed Principal Amount....................................................36
Indexed Currency............................................................36
Indexed Commodity...........................................................36
Initial Cutoff Date..........................................................7
Initial Financed Vehicles....................................................7
Initial Receivables..........................................................7
Insolvency Laws.............................................................16
Interest Rate................................................................6
Investment Earnings.........................................................45
IRS.........................................................................60
Issuer...................................................................... 4
National Credit Rating Agencies.............................................73
Note Balance..............................................................(PS)
Note Distribution Account...................................................44
Note Factor.................................................................23
Note Majority...............................................................32
Noteholders..................................................................6
Notes....................................................................... 1
Obligor.....................................................................10
OID.........................................................................61
OID regulations.............................................................61
Owner Trustee............................................................... 1
Participants................................................................37
Pass-Through Rate........................................................... 5
Payahead Account............................................................19
Payaheads...................................................................44
Payment Date................................................................31
Plan Assets Regulations.....................................................71
Plans.......................................................................14
Pooling and Servicing Agreement............................................. 1
Precomputed Receivables.....................................................20
Pre-Funded Amount............................................................8
Pre-Funding Account..........................................................8
Prepayment Premium..........................................................47
Prospectus Supplement....................................................... 1
PTCE........................................................................74
Purchase Agreement ..........................................................8
Purchase Amount.............................................................43
Rating Agency...............................................................14
Receivables................................................................. 1
Rees-Levering Act...........................................................57
Registration Statement...................................................... 3
Related Documents...........................................................35
Representative.............................................................. 1
Required Deposit Rating...................................................(PS)
Restricted Group............................................................72
Retained Interest...........................................................10
Revolving Period.............................................................9
Rules.......................................................................37
Rule of 78's Receivables....................................................20
Sale and Servicing Agreement................................................ 1
SBA.........................................................................29
SBA Loans...................................................................29
Schedule of Receivables.....................................................42
Securities.................................................................. 1
Securityholders............................................................. 2
Seller...................................................................... 1
Section 1286 Treasury Regulations...........................................68
Servicer.................................................................... 1
Servicer Default............................................................50
Servicer Fee................................................................47
Servicer's Certificate......................................................40
Servicing Fee...............................................................46
Servicing Fee Rate..........................................................46
Short-Term Note.............................................................62
Simple Interest Receivables.................................................21
Stock Index.................................................................36
Stock Indexed Securities....................................................36
Strip Certificates.......................................................... 5
Strip Notes..................................................................7
Stripped Bord...............................................................68
Subsequent Cut-Off Date......................................................7
Subsequent Financed Vehicles.................................................7
Subsequent Receivables...................................................... 1
Subsequent Transfer Agreement...............................................43
Subsequent Transfer Assignment..............................................43
Subsequent Transfer Date..................................................(PS)
Supplemental Servicing Fee..................................................46
Terms and Conditions........................................................39
TMS Auto Finance.............................................................8
The Money Store............................................................. 4
Trust....................................................................... 1
Trust Agreement............................................................. 1
Trust Documents............................................................. 1
Trust Property.............................................................. 1
UCC.........................................................................55
Underwriting Agreement......................................................75
U.S. Person.................................................................71
(PS) indicates term is primarily defined in the related Prospectus Supplement.
<PAGE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION, OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED THIS
PROSPECTUS, THE RELATED PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR
DEEMED INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER OR ANY DEALER,
SALESMAN, OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
RELATED PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION HEREIN OR THEREIN SINCE THE DATE HEREOF. THIS PROSPECTUS AND THE
RELATED PROSPECTUS SUPPLEMENT ARE NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
AVAILABLE INFORMATION........................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................3
PROSPECTUS SUMMARY...........................................................4
RISK FACTORS................................................................15
THE TRUSTS..................................................................19
THE RECEIVABLES.............................................................20
YIELD AND PREPAYMENT CONSIDERATIONS.........................................22
CERTIFICATE AND NOTE FACTORS AND TRADING INFORMATION........................23
USE OF PROCEEDS.............................................................24
THE SELLER..................................................................24
TMS AUTO FINANCE............................................................25
THE MONEY STORE.............................................................29
THE CERTIFICATES............................................................29
THE NOTES...................................................................30
CERTAIN INFORMATION REGARDING THE SECURITIES................................36
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE
TRUST DOCUMENTS.............................................................42
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES....................................55
FEDERAL INCOME TAX CONSEQUENCES.............................................61
ERISA CONSIDERATIONS....................................................... 71
RATINGS.................................................................... 75
PLAN OF DISTRIBUTION....................................................... 75
NOTICE TO CANADIAN RESIDENTS............................................... 76
LEGAL OPINIONS............................................................. 77
ANNEX 1.................................................................... 78
INDEX OF TERMS............................................................. 82
<PAGE>
THE MONEY STORE AUTO TRUSTS
Asset Backed Certificates
Asset Backed Notes
_______________
TMS AUTO HOLDINGS, INC.
Seller
THE MONEY STORE INC.
Representative
PROSPECTUS
Until 90 days after the date of each Prospectus Supplement, all
dealers effecting transactions in the related Certificates, whether or not
participating in the distribution thereof, may be required to deliver this
Prospectus and the related Prospectus Supplement. This delivery requirement is
in addition to the obligation of dealers to deliver a Prospectus Supplement ad
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Securities and Exchange Commission
Registration Fee.......................................$
Trustee's Fees.............................................
Printing...................................................
Legal Fees and Expenses....................................
Accountings Fees...........................................
Blue Sky Qualification Fees and Expenses...................
Rating Agency Fees.........................................
Miscellaneous..............................................
Total......................................................
=======
__________
* All amounts other than the Registration Fee are estimates of expenses
incurred or to be incurred in connection with the issuance and
distribution of a Series of Certificates.
** To be filed by amendment.
Item 15. Indemnification of Directors and Officers.
Section 14A:3-5 of the New Jersey Business Corporation Act provides
that New Jersey corporations such as The Money Store Inc. may indemnify any
director, officer, employee or agent against expenses and liabilities in
connection with any proceeding involving the director, officer, employee or
agent by reason of him or her acting in such capacity if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, did not have reasonable cause to believe such conduct was
unlawful. Section Fifth of The Money Store Inc.'s Amended and Restated
Certificate of Incorporation and Article VIII of The Money Store Inc.'s Amended
and Restated By-Laws entitle officers, directors, employees and agents to
indemnification to the fullest extent permitted by Section 14A:3-5 of the New
Jersey Business Corporation Act.
Section Sixth of The Money Stores Inc.'s Amended and Restated
Certificate of Incorporation provides that no director or officer shall have any
personal liability to The Money Store Inc. or its shareholders for any damages
for breach of fiduciary duty as a director or officer, except that such
provision does not limit or eliminate the liability of any director or officer
(i) for breach of such director's or officer's duty of loyalty to The Money
Store Inc. or its shareholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, or (iii) for
any transaction from which such director or officer derived an improper personal
benefit.
The Money Store Inc. maintains directors' and officers' liability
insurance which covers the directors and officers of The Money Store Inc. with
policy limits of $5,000,000.
Unless otherwise specified in the related Prospectus Supplement, each
of the Trust Agreement, Sale and Servicing Agreement and the Indenture will
provide that The Money Store Inc. will indemnify and hold the Indenture Trustee
and the Eligible Lender Trustee harmless against any losses that either may
sustain by reason of the failure of The Money Store Inc. or TMS Auto Holdings,
Inc. to perform its respective obligations under these Agreements.
Item 16. Exhibits.
See the Exhibit Index herein.
Item 17. Undertakings.
(1) The undersigned Registrant hereby undertakes:
(a) 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; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement.
(b) That, 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.
(c) 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.
(2) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in that Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may by permitted to directors, officers and controlling
persons of the Registrant pursuant to this provisions described under "Item
15-Indemnification of Directors and Officers" above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered. The Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Union, State of New Jersey, on the 11 day of
October, 1996.
THE MONEY STORE INC., Representative
TMS AUTO HOLDINGS, INC., Seller
By: /s/ Morton Dear
Morton Dear
Executive Vice President of The Money Store
Inc. and TMS Auto Holdings, Inc.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Morton Dear, Harry Puglisi or Eric Elwin,
or any of them, his true and lawful attorney- in-fact and agent with full power
of substitution and resubstitution, for him or her and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting said attorney-in-fact and agent and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or any of them, or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statements has been signed by the following person in
the capacities indicated on October 11, 1996.
Signature Title
/s/ Alan Turtletaub Chairman of the Board of Directors of The Money
Alan Turtletaub Store Inc.
/s/ Marc Turtletaub President, Chief Executive Officer and Director of
Marc Turtletaub The Money Store Inc.
/s/ Morton Dear Executive Vice President, Chief Financial Officer
Morton Dear (Principal Financial Officer) and Director of The
Money Store Inc. and President and Director of TMS
Auto Holdings, Inc.
<PAGE>
/s/ Anthony R. Medici Executive Vice President and Director of The Money
Anthony R. Medici Store Inc.
/s/ Harry Puglisi Treasurer and Director
Harry Puglisi (Principal Accounting Officer) of The Money
Store Inc.
__________________________ Director of The Money Store Inc.
Alexander C. Schwartz, Jr.
__________________________ Director of The Money Store Inc.
Anthony L. Watson
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EXHIBIT INDEX
Number Description Page
1.l* Form of Underwriting Agreement.
3.1* Articles of Incorporation of the Seller.
3.2* By-laws of the Seller.
4.1** Form of Indenture between the Trust and the
Indenture Trustee.
4.2* Form of Trust Agreement between the Seller and
the Owner Trustee.
5.1** Opinion of Counsel to the Seller.
10.1* Form of Purchase Agreement between the Servicer
and the Seller.
23.1** Consent of Counsel to the Seller (included as
part of Exhibit 5.1).
25.1** Statement of Eligibility of Trustee
99.1* Form of Sale and Servicing Agreement among the
Seller, the Servicer and the Owner Trustee on
behalf of the Trust.
99.2* Form of Pooling and Servicing Agreement among
the Seller, the Servicer and the Trustee.
99.3* Form of The Money Store Auto Trusts Standard Terms
and Conditions of Agreement.
99.4* Form of Prospectus Supplement.
______________
* Filed as exhibit to Registration Statement (No. 33-94518) on Form S-3
and incorporated herein by reference.
** To be filed by amendment.
