<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THIS PROSPECTUS SUPPLEMENT RELATES TO AN EFFECTIVE REGISTRATION STATEMENT +
+UNDER THE SECURITIES ACT OF 1933 AND IS SUBJECT TO COMPLETION OR AMENDMENT. +
+THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS SHALL NOT +
+CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL +
+THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, +
+SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION +
+UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 17, 1996
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 17, 1996)
$200,000,000
THE MONEY STORE [LOGO]
THE MONEY STORE AUTO TRUST 1996-1
$45,100,000 Class A-1 % Money Market Asset Backed Notes
$90,000,000 Class A-2 Floating Rate Asset Backed Notes
$57,900,000 Class A-3 % Asset Backed Notes
$7,000,000 % Asset Backed Certificates
--------
The Money Store Auto Trust 1996-1 (the "Trust") will be formed pursuant to a
Trust Agreement to be entered into by and among TMS Auto Holdings, Inc., as
seller (the "Seller") and Bankers Trust (Delaware), as Owner Trustee, and
will issue $45,100,000.00 aggregate principal amount of Class A-1 %
Money Market Asset Backed Notes (the "Class A-1 Notes"), $90,000,000.00
aggregate principal amount of Class A-2 Floating Rate Asset Backed Notes
(the "Class A-2 Notes") and $57,900,000.00 aggregate principal amount of
Class A-3 % Asset Backed Notes (the "Class A-3 Notes," and together
with the Class A-1 Notes and the Class A-2 Notes, the "Notes"). The
Notes will be issued pursuant to an Indenture, to be dated as of May
31, 1996 (the "Indenture"), between the Trust and Norwest Bank
Minnesota, National Association, as Indenture Trustee and as
Indenture Collateral Agent (the "Indenture Trustee" and the
"Indenture Collateral Agent"). The Trust also will issue
$7,000,000.00 aggregate principal amount of % Asset Backed
Certificates (the "Certificates," and together with the Notes,
the "Securities").
The assets of the Trust will include a pool of non-prime motor vehicle retail
installment sale contracts (the "Initial Receivables") secured by new and
used automobiles, light trucks and vans financed thereby (the "Initial
Financed Vehicles"), certain amounts received under each Initial
Receivable after the later of (x) May 31, 1996 and (y) the date of
its origination but in no event later than the date of issuance
of the Securities (the "Initial Cutoff Date"), security
interests in the Initial Financed Vehicles, the Certificate
Policy and certain other property, as more fully described
herein.
(Cover continued on next page)
--------
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE SECURITIES, SEE "RISK FACTORS" AT PAGE S-16 HEREIN AND AT
PAGE 15 IN THE ACCOMPANYING PROSPECTUS.
THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT INTERESTS
IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN THE
SELLER, THE SERVICER, THE REPRESENTATIVE OR ANY OF THEIR RESPECTIVE
AFFILIATES.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Underwriters have agreed to purchase the Securities at % of the
principal amount thereof, subject to the terms and conditions set forth in the
Underwriting Agreement referred to herein under "Underwriting." The aggregate
proceeds to the Trust, before deducting expenses payable by or on behalf of the
Trust estimated at $ , will be $ .
The Underwriters propose to offer the Securities from time to time in
negotiated transactions or otherwise, at prices determined at the time of sale.
For further information with respect to the plan of distribution and any
discounts, commissions or profits that may be deemed underwriting discounts or
commissions, see "Underwriting" herein.
--------
The Notes and the Certificates are offered by the Underwriters when, as and
if issued by the Trust, delivered to and accepted by the Underwriters, and
subject to their right to reject orders in whole or in part. It is expected
that delivery of the Securities in book-entry form will be made through the
facilities of The Depository Trust Company ("DTC") on the Same Day Funds
Settlement System and, in the case of the Notes, Cedel Bank, societe anonyme
("Cedel") and the Euroclear System ("Euroclear") on or about June 26, 1996.
CS First Boston Prudential Securities Incorporated
The date of this Prospectus Supplement is June , 1996.
<PAGE>
(Continued from preceding page)
From time to time on or before the Distribution Date in September 1996,
additional non-prime motor vehicle retail installment sale contracts (the
"Subsequent Receivables," and together with the Initial Receivables, the
"Receivables") secured by new and used automobiles, light trucks and vans
financed thereby (the "Subsequent Financed Vehicles," and together with the
Initial Financed Vehicles, the "Financed Vehicles"), certain amounts received
under the Subsequent Receivables on and after the related Subsequent Cutoff
Dates (as defined herein), security interests in the Subsequent Financed
Vehicles and certain other property, as more fully described herein, are
intended to be purchased by the Trust from amounts deposited in a pre-funding
account established with the Indenture Collateral Agent (the "Pre-Funding
Account") on the date of issuance of the Securities. Subsequent Receivables
with an aggregate principal balance of up to $50,000,000.00 may be acquired by
the Trust.
The Notes will be secured by the assets of the Trust pursuant to the
Indenture. Interest on the Class A-1 and Class A-3 Notes will accrue at the
per annum interest rates specified above. The per annum rate of interest on
the Class A-2 Notes for each monthly interest period will equal one-month
LIBOR (as defined herein) plus 0. %, subject to a maximum rate equal to 12%
per annum. Interest on the Notes will generally be payable on the twentieth
day of each month (each, a "Distribution Date"), commencing in July 1996.
Principal on the Notes will be payable on each Distribution Date to the extent
described herein, except that no principal will be paid on a Class of Notes
until each Class of Notes having a lower numerical Class designation has been
paid in full.
The Certificates represent fractional undivided interests in the Trust.
Interest, to the extent of the Certificate Rate of % per annum, will be
distributed to the Certificateholders on each Distribution Date. Distributions
of interest on the Certificates will be subordinated in priority of payment to
interest on and principal of the Notes. No principal will be paid on the
Certificates until all of the Notes have been paid in full. The Final
Scheduled Distribution Date for the Class A-1 Notes will be July 18, 1997, for
the Class A-2 Notes will be the December 2002 Distribution Date, and for the
Class A-3 Notes will be the December 2002 Distribution Date. The Final
Scheduled Distribution Date for the Certificates will be the December 2002
Distribution Date. However, payment in full of a Class of Notes or the
Certificates may occur earlier than such dates as described herein. In
addition, the Class A-3 Notes will be subject to redemption in whole, but not
in part, and the Certificates will be subject to prepayment in whole, but not
in part, on any Distribution Date on which the Servicer exercises its option
to purchase the Receivables. The Servicer may purchase the Receivables when
the aggregate principal balance of the Receivables shall have declined to 10%
or less of the Original Pool Balance.
Full and timely payment of the Guaranteed Note Distributions in respect of
the Notes and the Guaranteed Certificate Distributions in respect of the
Certificates (each as defined herein) on each Distribution Date is
unconditionally and irrevocably guaranteed pursuant to financial guaranty
insurance policies (the "Policies") to be issued by
FSA [LOGO]
There currently is no secondary market for the Notes or the Certificates.
The Underwriters expect to make a market in the Securities but have no
obligation to do so. There is no assurance that any such market will develop
or continue or that it will provide Securityholders with sufficient liquidity
of investment.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED A FINAL PROSPECTUS SUPPLEMENT
AND THE FINAL PROSPECTUS. TO THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT SHALL CONTROL.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES AND
THE CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE>
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes or Definitive Certificates are
issued, unaudited monthly and annual reports containing information concerning
the Receivables will be sent on behalf of the Trust to Cede & Co., as registered
holder of the Notes and the Certificates and the nominee of DTC. See "Certain
Information Regarding the Securities -- Statements to Securityholders" and "--
Book-Entry Registration" in the accompanying Prospectus (the "Prospectus").
Such reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. None of the Seller, the
Servicer, the Representative or the Insurer intends to send any of its financial
reports to Securityholders. The Servicer, on behalf of the Trust, will file
with the Securities and Exchange Commission ("the Commission") periodic reports
concerning the Trust to the extent required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents described in the Prospectus under
"Incorporation of Certain Documents by Reference," the financial statements of
Financial Security Assurance Inc. (the "Insurer") included in, or as exhibits
to, the following documents which have been filed with the Commission by
Financial Security Assurance Holdings Ltd. ("Holdings"), are hereby incorporated
by reference in the Registration Statement of which this Prospectus Supplement
and the Prospectus form a part:
(a) Annual Report on Form 10-K for the year ended December 31, 1995, and
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1996.
All financial statements of the Insurer included in documents filed by
Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing of such documents.
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the Prospectus. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings ascribed to such terms elsewhere in this
Prospectus Supplement or the Prospectus.
Issuer The Money Store Auto Trust, 1996-1 (the
"Trust" or the "Issuer"), a Delaware
business trust to be formed pursuant to a
Trust Agreement, dated as of May 31, 1996
(the "Trust Agreement"), among the Seller
and the Owner Trustee.
Seller TMS Auto Holdings, Inc. (the "Seller"), a
Delaware corporation and wholly-owned
subsidiary of the Representative. See "The
Seller" in the Prospectus.
Servicer The Money Store Auto Finance Inc. (in its
individual capacity, "TMS Auto Finance" and,
as servicer, the "Servicer"), a Delaware
corporation and wholly-owned subsidiary of
the Representative. See "TMS Auto Finance"
in the Prospectus.
Representative The Money Store Inc. (the "Representative"),
a New Jersey corporation. See "The Money
Store" in the Prospectus.
Insurer Financial Security Assurance Inc. (the
"Insurer"), a New York financial guaranty
insurance company. See "The Insurer"
herein.
Indenture Trustee Norwest Bank Minnesota, National Association
(the "Indenture Trustee"). See "The Notes -
- The Indenture Trustee" in the Prospectus.
Owner Trustee Bankers Trust (Delaware) (the "Owner
Trustee"). See "The Trusts --The Owner
Trustee" in the Prospectus.
Initial Cutoff Date With respect to each Initial Receivable, the
later of (x) May 31, 1996 and (y) the date
of its origination but in no event later
than the Closing Date.
Closing Date June 26, 1996.
The Notes The Trust will issue Class A-1 % Money
Market Asset-Backed Notes (the "Class A-1
Notes") in the aggregate original principal
amount of $45,100,000.00, Class A-2 Floating
Rate Asset-Backed Notes (the "Class A-2
Notes") in the aggregate original principal
amount of $90,000,000.00, and Class A-3
% Asset-Backed Notes (the "Class A-3 Notes")
in the aggregate original principal amount
of $57,900,000.00. The Class A-1 Notes, the
Class A-2 Notes and the Class A-3 Notes
(collectively, the "Notes") will be issued
pursuant to an Indenture, dated as of May
31, 1996, among the Issuer, the Indenture
Trustee and Norwest Bank Minnesota, National
Association, as Indenture Collateral Agent
(the "Indenture Collateral Agent"). The
Notes will be offered for purchase in
denominations of $1,000 and integral
multiples thereof in
S-4
<PAGE>
book-entry form only. Persons acquiring
beneficial interests in the Notes will hold
their interests through DTC in the United
States or Cedel Bank, societe anonyme
("Cedel") or the Euroclear System
("Euroclear") in Europe. See "Certain
Information Regarding the Securities --
Book-Entry Registration" in the Prospectus
and Annex I thereto.
The Notes will be secured by the assets of
the Trust (other than the Certificate
Distribution Account and the Certificate
Policy) pursuant to the Indenture.
The Certificates The Trust will issue % Asset Backed
Certificates (the "Certificates") with an
aggregate initial Certificate Balance (as
defined herein) of $7,000,000.00. The
Certificates will represent fractional
undivided interests in the Trust. The
Certificates will be issued pursuant to the
Trust Agreement. The Certificates will be
offered for purchase in denominations of
$1,000 and integral multiples thereof in
book-entry form only (other than the
Certificates sold to the Seller, as
described in "The Trust -- General" herein).
See "Certain Information Regarding the
Securities -- Book-Entry Registration" in
the Prospectus.
Trust Property Each Note will represent an obligation of,
and each Certificate will represent a
fractional undivided interest in, the Trust.
The Trust's assets (the "Trust Property")
will include, among other things, certain
non-prime motor vehicle retail installment
sale contracts (the "Initial Receivables"),
secured by new and used automobiles, light
trucks and vans (the "Initial Financed
Vehicles"), certain monies received
thereunder after the Initial Cutoff Date
and, with respect to Initial Receivables
which are Precomputed Receivables, monies
received thereunder on or prior to the
Initial Cutoff Date that are due after the
Initial Cutoff Date, an assignment of the
security interests in the Initial Financed
Vehicles securing the Initial Receivables,
the related Receivables Files, all rights to
proceeds from claims on certain physical
damage, credit life and disability insurance
policies covering the Initial Financed
Vehicles or the Obligors, as the case may
be, all rights to liquidation proceeds with
respect to the Initial Receivables, certain
proceeds from the exercise of rights against
Dealers under agreements between TMS Auto
Finance and such Dealers, certain bank
accounts, all proceeds of the foregoing, the
Certificate Policy, and certain rights under
the Trust Documents. The Initial
Receivables will be purchased by the Seller
from TMS Auto Finance pursuant to a purchase
agreement (the "Purchase Agreement") between
the Seller and TMS Auto Finance on or prior
to the date of issuance of the Securities.
The Trust Property also will include an
assignment of the Seller's rights against
TMS Auto Finance under the Purchase
Agreement upon the occurrence of certain
breaches of representations and warranties.
The Initial Receivables transferred to the
Trust on the Closing Date will also include
certain non-prime motor vehicle retail
installment sale contracts originated by TMS
Auto Finance, some of which may be
originated after May 31, 1996 (the
"Statistical Calculation Date") but on or
prior to the Closing Date.
S-5
<PAGE>
Additional non-prime motor vehicle retail
installment sale contracts (the "Subsequent
Receivables") secured by new or used
automobiles, light trucks and vans (the
"Subsequent Financed Vehicles"), certain
monies received thereunder on or after the
applicable Subsequent Cutoff Date (as
defined below) and, with respect to
Subsequent Receivables which are Precomputed
Receivables, monies received thereunder on
or prior to the related Subsequent Cutoff
Date which are due after such Subsequent
Cutoff Date, an assignment of the security
interests in the Subsequent Financed
Vehicles securing the Subsequent
Receivables, the related Receivables Files,
all rights to proceeds from claims on
certain physical damage, credit life and
disability insurance policies covering the
Subsequent Financed Vehicles or the
Obligors, as the case may be, all rights to
liquidation proceeds with respect to the
Subsequent Receivables, certain proceeds
from the exercise of rights against Dealers
under agreements between TMS Auto Finance
and such Dealers, certain bank accounts and
all proceeds of the foregoing are intended
to be purchased by the Trust from the Seller
from time to time on or before the September
1996 Distribution Date, from funds on
deposit in the Pre-Funding Account. The
Subsequent Receivables will be purchased by
the Seller from TMS Auto Finance pursuant to
one or more subsequent purchase agreements
(each, a "Subsequent Purchase Agreement")
between the Seller and TMS Auto Finance. The
Trust Property also will include an
assignment of the Seller's rights against
TMS Auto Finance under each Subsequent
Purchase Agreement upon the occurrence of
certain breaches of representations and
warranties thereunder. The purchase by the
Trust of the Subsequent Receivables is
subject to the satisfaction of certain
conditions, as described under "The
Receivables" herein. The Initial Receivables
and the Subsequent Receivables are
hereinafter referred to as the
"Receivables," and the Initial Financed
Vehicles and the Subsequent Financed
Vehicles are hereinafter referred to as the
"Financed Vehicles."
Receivables The Receivables consist of non-prime motor
vehicle retail installment sale contracts
originated by Dealers and then acquired by
TMS Auto Finance pursuant to its Contract
Acquisition Program. Non-prime motor
vehicle retail installment sale contracts
are contracts with individuals with less
than perfect credit due to various factors,
including, among other things, the manner in
which such individuals have handled previous
credit, the limited extent of their prior
credit history and/or their limited
financial resources. See "TMS Auto Finance
-- General" in the Prospectus.
The statistical information presented in
this Prospectus Supplement is based on the
Initial Receivables as of the Statistical
Calculation Date. The Initial Receivables
transferred to the Trust on the Closing Date
will include certain other non-prime motor
vehicle retail installment sale contracts,
some of which may be originated after the
Statistical Calculation Date but on or prior
to the Closing Date. While the statistical
distribution of the final characteristics of
all Initial Receivables
S-6
<PAGE>
transferred to the Trust on the Closing Date
will vary from the statistical information
presented in this Prospectus Supplement, the
Seller and the Representative do not believe
that the characteristics of the Initial
Receivables as of their respective Initial
Cutoff Dates will vary materially from the
information presented herein with respect to
the Initial Receivables as of the
Statistical Calculation Date.
The Initial Receivables have, as of the
Statistical Calculation Date, a weighted
average annual percentage rate ("APR") of
approximately 19.55%, a weighted average
original maturity of 52.20 months and a
weighted average remaining maturity of 50.31
months. The Initial Receivables have an
aggregate principal balance of
$135,994,917.70 as of the Statistical
Calculation Date. See "The Receivables."
Each of the Initial Receivables also will
have a remaining term of not more than 72
months and not less than 7 months as of the
Statistical Calculation Date.
Following the Closing Date, the Trust will
be obligated to purchase from time to time
on or before the end of the Funding Period
(as defined below), subject to the
availability thereof, Subsequent Receivables
consisting of non-prime retail automobile
installment sale contracts acquired by the
Seller from TMS Auto Finance. The aggregate
principal balance of the Subsequent
Receivables is anticipated by TMS Auto
Finance to equal approximately $50,000,000.
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 principal amount
thereof from the Pre-Funding Account. Under
the Purchase Agreement, the Seller will be
obligated, subject to the satisfaction of
certain conditions described herein, to
purchase from TMS Auto Finance Subsequent
Receivables, and under the Sale and
Servicing Agreement, dated as of May 31,
1996, among the Representative, the Seller,
the Servicer and the Owner Trustee (the
"Sale and Servicing Agreement"), the Seller
will be obligated to sell such Subsequent
Receivables to the Trust and the Trust will
be obligated, subject to the satisfaction of
certain conditions described herein, to
purchase such Subsequent Receivables from
the Seller. TMS Auto Finance will designate
as a cutoff date (each, a "Subsequent Cutoff
Date") (i) the last day of the month
preceding the month in which Subsequent
Receivables are conveyed to the Seller by
TMS Auto Finance and reconveyed by the
Seller to the Trust or (ii) if any such
Subsequent Receivable is originated in the
month of conveyance, the date of
origination. Subsequent Receivables will be
conveyed to the Seller and then reconveyed
by the Seller to the Trust on designated
dates (each, a "Subsequent Transfer Date")
occurring during the Funding Period. The
Trust may purchase the Subsequent
Receivables only from the Seller and not
from any other person, and the Seller may
purchase the Subsequent Receivables only
from TMS Auto Finance. The Subsequent
Receivables must satisfy certain eligibility
criteria specified herein and in the Sale
and
S-7
<PAGE>
Servicing Agreement. See "The Receivables --
Eligibility Criteria" herein.
Terms of the Notes The principal terms of the Notes will be as
described below:
A. Distribution Dates Payments of interest and principal on the
Notes will be made on the twentieth day of
each month or, if the twentieth day is not a
Business Day, on the next following Business
Day (each, a "Distribution Date") commencing
July 22, 1996. Each reference to a "Payment
Date" in the accompanying Prospectus shall
refer to a Distribution Date. Payments will
be made to holders of record of the Notes
(the "Noteholders") as of the Business Day
immediately preceding such Distribution Date
(a "Record Date"). A "Business Day" is a
day other than a Saturday, Sunday or other
day on which commercial banks located in the
states of California, Delaware, Minnesota or
New York are authorized or obligated to be
closed.
B. Interest Rates The Class A-1 Notes and the Class A-3 Notes
will bear interest at the respective fixed
per annum rates set forth on the cover page
hereof. The Class A-2 Notes will bear
interest at a floating rate equal to the
London interbank offered rates for one-month
U.S. dollar deposits ("LIBOR") plus 0. %,
subject to a maximum rate equal to 12% per
annum. Each such interest rate for a Class
of Notes is referred to as the "Interest
Rate."
C. Interest Interest on the principal amount of the
Notes of each Class outstanding immediately
prior to a Distribution Date will accrue at
the applicable Interest Rate from and
including the most recent Distribution Date
on which interest has been paid (or, in the
case of the first Distribution Date, from
and including the Closing Date) to, but
excluding, the following Distribution Date
(each, an "Interest Period"). Interest on
the Notes for any Distribution Date due but
not paid on such Distribution Date will be
due on the next Distribution Date together
with, to the extent permitted by law,
interest on such amount at the applicable
Interest Rate. The amount of interest
distributable on the Notes on each
Distribution Date will equal interest
accrued during the related Interest Period.
Interest on the Class A-1 Notes and the
Class A-2 Notes will be calculated on the
basis of a 360-day year and the actual
number of days elapsed in the applicable
Interest Period. Interest on the Class A-3
Notes will be calculated on the basis of a
360-day year consisting of twelve 30-day
months. See "Description of the Notes --
Payments of Interest" herein.
D. Principal Principal of the Notes will be payable on
each Distribution Date in an amount equal to
the Noteholders' Principal Distributable
Amount for the calendar month (the "Monthly
Period") preceding such Distribution Date.
The Noteholders' Principal Distributable
Amount will equal the sum of (x) the
Noteholders' Percentage of the Principal
Distributable Amount and (y) any unpaid
portion of the amount described in clause
(x) with respect to a prior Distribution
Date. The "Principal Distributable Amount"
with respect to any Distribution Date
S-8
<PAGE>
will be an amount equal to the sum of the
following amounts with respect to the
related Monthly Period, computed, with
respect to Simple Interest Receivables, in
accordance with the simple interest method,
and, with respect to Precomputed
Receivables, in accordance with the
actuarial method: (i) that portion of all
collections on Receivables allocable to
principal, including full and, with respect
to Simple Interest Receivables, partial
principal prepayments, received during such
Monthly Period (including, with respect to
Precomputed Receivables, amounts withdrawn
from the Payahead Account but excluding
amounts deposited into the Payahead Account)
with respect to such Monthly Period, (ii)
the principal balance of each Receivable
that was repurchased by the Representative,
the Seller or the Servicer as of the last
day of such Monthly Period, (iii) at the
option of the Insurer, the outstanding
principal balance of those Receivables that
were required to be repurchased by the
Seller and/or TMS Auto Finance during such
Monthly Period but were not so repurchased,
(iv) the principal balance of each
Receivable that became a Liquidated
Receivable during such Monthly Period and
(v) the aggregate amount of Cram Down Losses
during such Monthly Period. See "Description
of the Purchase Agreements and the Trust
Documents -- Distributions" herein.
The Noteholders' Percentage will be 100%
until the Class A-3 Notes have been paid in
full and thereafter will be zero. No
principal will be paid on a Class of Notes
until the principal of all Classes of Notes
having a lower numerical Class designation
has been paid in full. In addition, the
outstanding principal amount of the Notes of
any Class, to the extent not previously
paid, will be payable on the respective
Final Scheduled Distribution Date for such
Class.
E. Optional Redemption The Class A-3 Notes, to the extent still
outstanding, may be redeemed in whole, but
not in part, on any Distribution Date on
which the Servicer exercises its option to
purchase the Receivables, which, subject to
certain provisions in the Sale and Servicing
Agreement, can occur after the Pool Balance
declines to 10% or less of the Original Pool
Balance, at a redemption price equal to the
unpaid principal amount of the Notes of such
Class plus accrued and unpaid interest
thereon. See "Description of the Notes --
Optional Redemption" herein. The Original
Pool Balance will equal the sum of (i) the
aggregate principal balance of the Initial
Receivables as of the Initial Cutoff Date
plus (ii) the aggregate principal balances
of all Subsequent Receivables added to the
Trust as of their respective Subsequent
Cutoff Dates.
F. Mandatory
Redemption Each Class of Notes will be redeemed in part
on the Mandatory Redemption Date (as defined
under "Pre-Funding Account" below) in the
event that any portion of the Pre-Funded
Amount remains on deposit in the Pre-Funding
Account after giving effect to the purchase
of all Subsequent Receivables, including any
such purchase on such date. The aggregate
principal amount of each Class of Notes to
be
S-9
<PAGE>
redeemed will be an amount equal to such
Class's pro rata share (based on the
respective current principal amount of each
Class of Notes and the Certificate Balance)
of the Pre-Funded Amount on such date (such
Class's "Note Prepayment Amount").
The Notes may be accelerated and subject to
immediate payment at par upon the occurrence
of an Event of Default under the Indenture.
So long as no Insurer Default shall have
occurred and be continuing, an Event of
Default under the Indenture will occur only
upon delivery by the Insurer to the
Indenture Trustee of notice of the
occurrence of certain events of default
under the Insurance and Indemnity Agreement,
dated as of May 31, 1996 (the "Insurance
Agreement"), among the Insurer, the Trust,
the Seller and the Representative. In the
case of such an Event of Default, the Notes
will automatically be accelerated and
subject to immediate payment at par. See
"Description of the Notes --Events of
Default" herein. The Note Policy does not
guarantee payment of any amounts that become
due on an accelerated basis, unless the
Insurer elects, in its sole discretion, to
pay such amounts in whole or in part. See
"The Policies -- Note Policy" herein.
G. Class A-1 Final
Scheduled Distribution
Date Notwithstanding anything to the contrary
contained herein, on July 18, 1997 (the
"Class A-1 Final Scheduled Distribution
Date") holders of record as of the Business
Day preceding such date shall be entitled to
receive from funds available therefor
interest on the outstanding principal amount
of the Class A-1 Notes immediately prior to
such date at a rate of % per annum for
the period (the "Final Class A-1 Interest
Period") from and including the most recent
Distribution Date on which interest has been
paid on the Class A-1 Notes to but excluding
the Class A-1 Final Scheduled Distribution
Date (together with interest due but not
paid on a prior Distribution Date and, to
the extent permitted by law, interest on
such amount at a rate of % per annum)
plus the unpaid principal amount of the
Class A-1 Notes. Interest will be
calculated on the basis of a 360-day year
and the actual number of days elapsed in the
Final Class A-1 Interest Period.
Terms of the
Certificates The principal terms of the Certificates will
be as described below:
A. Distribution Dates Distributions with respect to the
Certificates will be made on each
Distribution Date, commencing July 22, 1996.
Distributions will be made to holders of
record of the Certificates (the
"Certificateholders" and, together with the
Noteholders, the "Securityholders") as of
the related Record Date.
B. Certificate Rate % per annum payable monthly at one-twelfth
of the annual rate, calculated on the basis
of a 360-day year consisting of twelve 30-
day months.
S-10
<PAGE>
C. Subordination of
Certificates The Certificates will not receive any
distribution with respect to a Distribution
Date until the full amount of the
Noteholders' Distributable Amount with
respect to such Distribution Date has been
deposited in the Note Distribution Account.
D. Interest On each Distribution Date, the Owner Trustee
will distribute to Certificateholders their
pro rata share of interest distributable
with respect to such Certificates. The
amount of interest distributable on the
Certificates on each Distribution Date will
equal interest accrued during the related
Interest Period at the Certificate Rate on
the Certificate Balance immediately prior to
such Distribution Date. Interest on the
Certificates for any Distribution Date due
but not paid on such Distribution Date will
be due on the next Distribution Date
together with, to the extent permitted by
law, interest on such amount at one-twelfth
of the Certificate Rate. Distributions of
interest on the Certificates are subordinate
to payments of interest and principal on the
Notes, as described above under
"Subordination of Certificates." See
"Description of the Certificates --
Distributions of Interest" herein.
E. Principal On each Distribution Date on or after the
date on which the Class A-3 Notes have been
paid in full, principal of the Certificates
will be payable in an amount equal to the
Certificateholders' Principal Distributable
Amount for the Monthly Period preceding such
Distribution Date. The Certificateholders'
Principal Distributable Amount will equal
the sum of (x) the Principal Distributable
Amount and (y) any unpaid portion of the
amount described in clause (x) with respect
to a prior Distribution Date; provided,
--------
however, that the Certificateholders'
-------
Principal Distributable Amount on the
Distribution Date on which the Class A-3
Notes are paid in full will be reduced by
the amount necessary to pay the Class A-3
Notes in full. See "Description of the
Purchase Agreements and Trust Documents --
Distributions" herein.
The remaining Certificate Balance, if any,
will be payable in full on the Final
Scheduled Distribution Date for the
Certificates.
F. Optional Prepayment If the Servicer exercises its option to
purchase the Receivables as described above,
the Certificateholders shall receive an
amount equal to the remaining Certificate
Balance together with accrued interest at
the Certificate Rate, and the Certificates
will be retired.
G. Mandatory Prepayment The Certificates will be prepaid in part on
the Mandatory Redemption Date in the event
that any portion of the Pre-Funded Amount
remains on deposit in the Pre-Funding
Account after giving effect to the purchase
of all Subsequent Receivables, including any
such purchase on such date. The aggregate
principal amount of Certificates to be
prepaid will be an amount equal to the
Certificateholders' pro rata share (based on
the respective current principal amount of
each Class of
S-11
<PAGE>
Notes and the Certificate Balance) of the
Pre Funded Amount (the "Certificate
Prepayment Amount").
Pre-Funding Account On the Closing Date, a cash amount equal to
approximately $50,000,000 (the "Initial Pre-
Funded Amount") will be deposited in an
account (the "Pre-Funding Account") which
will be established with the Indenture
Collateral Agent. The Pre-Funding Account
will be an asset of the Trust and will be
pledged to the Indenture Collateral Agent
for the benefit of the Indenture Trustee, on
behalf of the Noteholders, and the Insurer.
The "Funding Period" is the period from the
Closing Date until the earliest of the date
on which (i) the amount on deposit in the
Pre-Funding Account is less than $100,000,
(ii) a Servicer Default occurs under the
Sale and Servicing Agreement, or (iii) the
Distribution Date in September 1996. The
Initial Pre-Funded Amount as reduced from
time to time during the Funding Period by
the amount thereof used to purchase
Subsequent Receivables in accordance with
the Sale and Servicing Agreement is referred
to herein as the "Pre-Funded Amount." The
Seller expects that the Pre-Funded Amount
will be reduced to less than $100,000 on or
before the end of the Funding Period. Any
Pre-Funded Amount remaining at the end of
the Funding Period will be payable to the
Noteholders and Certificateholders as
described herein. The "Mandatory Redemption
Date" is the earlier of (i) the Distribution
Date in September 1996 or (ii) if the last
day of the Funding Period occurs on or prior
to the Determination Date (as defined
herein) occurring in July or August 1996,
the Distribution Date relating to such
Determination Date.
Capitalized Interest
Account On the Closing Date, a cash amount may be
deposited in an account (the "Capitalized
Interest Account") which will be established
with the Indenture Collateral Agent. The
Capitalized Interest Account will be an
asset of the Trust, and will be pledged to
the Indenture Collateral Agent for the
benefit of the Indenture Trustee, on behalf
of the Noteholders, the Owner Trustee, on
behalf of the Certificateholders, and the
Insurer. The amount, if any, deposited in
the Capitalized Interest Account will be
applied on the Distribution Dates occurring
in July, August and September of 1996 to
fund an amount (the "Monthly Capitalized
Interest Amount") equal to the amount of
interest accrued for each such Distribution
Date at the weighted average Interest Rates
and Certificate Rate on the portion of the
Securities having a principal balance in
excess of the principal balances of the
Receivables (which portion will equal the
Pre-Funded Amount). Any amounts remaining
in the Capitalized Interest Account on the
Mandatory Redemption Date and not used for
such purposes are required to be paid
directly to the Seller on such date. See
"Description of the Purchase Agreements and
the Trust Documents -- Accounts."
Spread Account On the Closing Date, the Seller will make an
initial deposit of an amount to be agreed
upon by the Seller and the Insurer to an
account (the "Spread Account") which will be
established
S-12
<PAGE>
with the Indenture Collateral Agent for the
benefit of the Indenture Trustee, on behalf
of the Noteholders, the Owner Trustee, on
behalf of the Certificateholders, and the
Insurer pursuant to a certain Spread Account
Agreement dated as of May 31, 1996 (the
"Spread Account Agreement"). The Spread
Account will not be an asset of the Trust.
The amount initially deposited in the Spread
Account is referred to as the "Spread
Account Initial Deposit." On each
Distribution Date, additional amounts may be
required to be deposited into the Spread
Account from payments on the Receivables as
described under "Description of the Purchase
Agreements and the Trust Documents --
Distributions" herein. Amounts, if any, on
deposit in the Spread Account will be
available to the extent provided in the
Spread Account Agreement to fund any
Deficiency Claim Amount or Class A-1
Deficiency Claim Amount otherwise required
to be made on a Distribution Date or the
Class A-1 Final Scheduled Distribution Date,
as applicable. The aggregate amount required
to be on deposit at any time in the Spread
Account (the "Specified Spread Account
Requirement") will be determined in
accordance with the Insurance Agreement and
the Spread Account Agreement. The Specified
Spread Account Requirement may increase or
decrease over time as a result of floors,
caps and triggers set forth in the Insurance
Agreement or the Spread Account Agreement.
Amounts in the Spread Account on any
Distribution Date (after giving effect to
all distributions made on such Distribution
Date, as reconciled on such Distribution
Date) in excess of the Specified Spread
Account Requirement for such Distribution
Date will be released to the Seller. Amounts
on deposit or to be deposited in the Spread
Account may be distributed to persons other
than the Insurer or the Securityholders
without the consent of the Securityholders.
In addition, the Seller and the Insurer may
amend the Spread Account Agreement (and any
provisions in the Insurance Agreement
relating to the Spread Account) in any
respect (including, without limitation,
reducing or eliminating the Specified Spread
Account Requirement and/or reducing or
eliminating the funding requirements of the
Spread Account or permitting such funds to
be used for the benefit of persons other
than Securityholders) without the consent
of, or notice to, the Indenture Trustee, the
Owner Trustee or the Securityholders.
Notwithstanding any reduction in or
elimination of the funding requirements of
the Spread Account or the depletion thereof,
the Insurer will be obligated on each
Distribution Date to fund the full amount of
each Guaranteed Note Distribution and each
Guaranteed Certificate Distribution
otherwise required to be made on such
Distribution Date.
The Policies On the Closing Date, the Insurer will issue
a financial guaranty insurance policy (the
"Note Policy") to the Indenture Trustee and
a financial guaranty insurance policy (the
"Certificate Policy") to the Owner Trustee
pursuant to the Insurance Agreement.
Pursuant to the Note Policy, the Insurer
will unconditionally and irrevocably
guarantee to the Noteholders payment of the
Guaranteed Note Distributions (as defined
S-13
<PAGE>
herein) for each Distribution Date.
Pursuant to the Certificate Policy, the
Insurer will unconditionally and irrevocably
guarantee to the Certificateholders payment
of the Guaranteed Certificate Distributions
(as defined herein). See "The Policies" and
"Description of the Purchase Agreements and
the Trust Documents -- Distributions"
herein.
Collection Account The Servicer will establish one or more
accounts in the name of the Indenture
Collateral Agent (the "Collection Account")
for the benefit of the Indenture Trustee, on
behalf of the Noteholders, the Owner
Trustee, on behalf of the
Certificateholders, and the Insurer. All
payments from Obligors that are received by
the Servicer on behalf of the Trust will be
deposited in the Collection Account no later
than two Business Days after receipt thereof
except under certain conditions described
herein. Pursuant to the Sale and Servicing
Agreement, the Indenture Trustee will, on
each Distribution Date, apply the
Distribution Amount with respect to such
Distribution Date to the following (in the
priority indicated): (i) to the Owner
Trustee and the Indenture Trustee, any
accrued and unpaid trustee fees and expenses
and any accrued and unpaid fees and expenses
of the Indenture Collateral Agent (in each
case, to the extent such fees have not been
previously paid by the Servicer or the
Representative), (ii) to the Servicer, the
Servicing Fee for the related Monthly Period
and any overdue Servicing Fees, (iii) into
the Note Distribution Account, the
Noteholders' Interest Distributable Amount,
(iv) into the Note Distribution Account, the
Noteholders' Principal Distributable Amount,
(v) into the Certificate Distribution
Account, the Certificateholders' Interest
Distributable Amount and, after the Class A-
3 Notes have been paid in full, the
Certificateholders' Principal Distributable
Amount, (vi) to the Insurer, amounts owing
and not paid to it under the Insurance
Agreement, (vii) to the Spread Account, up
to the Specified Spread Account Requirement
for such Distribution Date, and (viii) the
remaining balance, if any, to the Seller.
See "Description of the Purchase Agreements
and the Trust Documents -- Distributions"
herein and "Description of the Purchase
Agreements and Trust Documents --
Collections" in the Prospectus.
Tax Status In the opinion of Stroock & Stroock & Lavan,
special federal tax counsel to the Trust,
for federal income tax purposes, the Notes
will be characterized as debt, and the Trust
will not be characterized as an association
(or a publicly traded partnership) taxable
as a corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat
the Notes as debt. Each Certificateholder,
by the acceptance of a Certificate, will
agree to treat the Trust as a partnership in
which the Certificateholders are partners
for federal income tax purposes. See
"Certain Federal Income Tax Consequences"
herein and "Federal Income Tax Consequences"
in the Prospectus.
S-14
<PAGE>
ERISA Considerations Subject to the conditions and considerations
discussed under "ERISA Considerations," the
Notes are eligible for purchase by pension,
profit-sharing or other employee benefit
plans as well as individual retirement
accounts and certain types of Keogh Plans
(each, a "Benefit Plan").
The Certificates may not be acquired
(directly or indirectly) by or on behalf of
any Benefit Plan or any entity (including an
insurance company general account) whose
underlying assets include plan assets of a
Benefit Plan by reason of a plan's
investment in the entity. See "ERISA
Considerations" herein and in the
Prospectus.
Legal Investment The Class A-1 Notes will be eligible
securities for purchase by money market
funds under Rule 2a-7 under the Investment
Company Act of 1940, as amended.
Ratings It is a condition to issuance that the Class
A-1 Notes be rated A-1+ by Standard & Poor's
Ratings Services, a division of The McGraw-
Hill Companies, Inc. ("S&P"), and P-1 by
Moody's Investors Service, Inc. ("Moody's"
and together with S&P, the "Rating
Agencies"), and that the Class A-2 Notes,
the Class A-3 Notes and the Certificates be
rated AAA by S&P and Aaa by Moody's. The
ratings by the Rating Agencies of the
Securities will be based primarily on the
Policies. There is no assurance that the
ratings initially assigned to the Notes and
the Certificates will not subsequently be
lowered or withdrawn by the Rating Agencies.
See "Risk Factors -- Ratings on Securities"
herein.
S-15
<PAGE>
RISK FACTORS
Prospective Noteholders and Certificateholders should consider, in
addition to the factors described under "Risk Factors" in the Prospectus, the
following risk factors in connection with the purchase of the Notes or the
Certificates.
PREPAYMENT FROM THE PRE-FUNDING ACCOUNT; ABILITY TO ORIGINATE SUBSEQUENT
RECEIVABLES
To the extent that the Pre-Funded Amount has not been fully applied to
the purchase of Subsequent Receivables by the Trust by the end of the Funding
Period, the Noteholders and the Certificateholders will receive a prepayment of
principal on the Mandatory Redemption Date in an amount equal to their pro rata
share (based on the current principal balance of each Class and the Certificate
Balance) of the Pre-Funded Amount (exclusive of investment earnings) remaining
in the Pre-Funding Account following the purchase of any Subsequent Receivables
on the last Subsequent Transfer Date in the Funding Period. Any reinvestment
risk from the prepayment of the Securities from the Pre-Funded Amount at the end
of the Funding Period will be borne by the Noteholders and the
Certificateholders. See "Yield and Prepayment Considerations" in the
Prospectus.
The conveyance of Subsequent Receivables to the Trust during the
Funding Period is subject to the conditions described herein under "The
Receivables -- Eligibility Criteria." Each Subsequent Receivable must satisfy
the eligibility criteria specified herein and in the Sale and Servicing
Agreement. The ability of the Trust to invest in Subsequent Receivables is
dependent upon the ability of TMS Auto Finance to originate through Dealers a
sufficient amount of motor vehicle retail installment sales contracts that meet
the requirements in the Subsequent Purchase Agreement and in the Sale and
Servicing Agreement for transfer on a Subsequent Transfer Date. The ability of
TMS Auto Finance to originate sufficient Subsequent Receivables may be affected
by a variety of social and economic factors. Economic factors include interest
rates, unemployment levels, the rate of inflation and consumer perception of
economic conditions generally. Neither TMS Auto Finance nor the Seller has any
basis to predict whether or the extent to which economic or social factors will
affect the availability of Subsequent Receivables. In addition, TMS Auto
Finance commenced operations in January 1995 and has limited performance
history, which makes it difficult to predict the rate of its originations.
Nevertheless, although no assurances can be given, TMS Auto Finance currently
anticipates originating sufficient Receivables satisfying the criteria set forth
in the Sale and Servicing Agreement so as to require the application of the
entire Pre-Funded Amount to the purchase of Subsequent Receivables by the end of
the Funding Period. See "The Receivables" herein.
REINVESTMENT RISKS FROM PREPAYMENTS
The weighted average life of the Securities will be reduced by full
prepayments on the Receivables and partial prepayments on the Simple Interest
Receivables. A partial prepayment in respect of a Precomputed Receivable less
than the amount required to prepay such Receivable in full will be treated as a
Payahead until such later Monthly Period with respect to which such Payahead may
be applied to either the scheduled payment in respect of such Monthly Period or
to prepay such Receivable in full. The Receivables are prepayable at any time
without penalty. Prepayments (or, for this purpose, equivalent payments to the
Trust) may result from payments by Obligors, liquidations due to default, the
receipt of proceeds from physical damage or credit insurance, repurchases by the
Seller or TMS Auto Finance as a result of certain uncured breaches of the
warranties made by it with respect to the Receivables, the application of the
remaining Pre-Funded Amount, if any, on the Mandatory Redemption Date to prepay
the Securities, purchases by the Servicer as a result of certain uncured
breaches of the covenants made by it in the Sale and Servicing Agreement with
respect to the Receivables, or the Servicer exercising its option to purchase
all of the remaining Receivables when the Pool Balance is less than 10% of the
Original Pool Balance.
The Servicer has limited historical experience with respect to
prepayments, has not prepared data on prepayment rates and is not aware of
publicly available industry statistics that set forth principal prepayment
experience for retail installment sale contracts similar to the Receivables.
For these reasons, none of the Representative, the Servicer or the Seller can
make any prediction as to the actual prepayment rates that will be experienced
on the Receivables.
The amounts paid to Securityholders with respect to any Distribution
Date will include all prepayments on the Receivables received thereon during the
related Monthly Period which are not amounts representing Payaheads. As a
result, the Securities may be paid in full prior to their respective Final
Scheduled Distribution Dates. The
S-16
<PAGE>
Securityholders will bear all reinvestment risk resulting from the timing of
payments of principal on the Securities. See "Yield and Prepayment
Considerations" in the Prospectus.
CONCENTRATION OF RECEIVABLES
Economic conditions where Obligors reside may affect the delinquency,
loan loss and repossession experience of the Trust with respect to the
Receivables. As of the Statistical Calculation Date, Obligors with respect to
24.77% of the Initial Receivables (based on the principal balance of the Initial
Receivables and mailing addresses of the Obligors thereon as of the Statistical
Calculation Date) were located in California. Economic conditions in California
are often volatile and from time to time have been adversely affected by natural
disasters, contractions in the defense industry and declining real estate
values. The President of the United States has endorsed a list of military
bases to be closed within the next two to six years, which list includes
significant bases in California. These closures, which have been approved by
Congress, along with the recent general decline in defense spending, could have
an adverse effect on economic conditions in California and the delinquency, loan
loss and repossession experience of the Trust with respect to the Receivables
with Obligors residing in California. No predictions, however, can be made
regarding future economic conditions in California or any other states where
Obligors reside. See "The Receivables" herein and in the Prospectus.
SUBORDINATION OF CERTIFICATES; LIMITED ASSETS
Distributions of interest and principal on the Certificates will be
subordinated in priority of payment to interest and principal due on the Notes.
Consequently, the Certificateholders will not receive any distributions with
respect to a Monthly Period until the full amount of interest and principal
payable on the Notes on such Distribution Date has been deposited in the Note
Distribution Account. The Certificateholders will not receive any distributions
of principal before the Distribution Date on which the Class A-3 Notes have been
paid in full.
If the Notes are accelerated following an Event of Default under the
Indenture, the Notes must be paid in full prior to the distribution of any
amounts on the Certificates.
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables, the Pre-
Funding Account, the Capitalized Interest Account, the Spread Account and the
Policies. Holders of the Notes and the Certificates must rely for repayment
upon payments on the Receivables and, if and to the extent available, amounts on
deposit in the Pre-Funding Account, the Capitalized Interest Account, and the
Spread Account and payments of claims made under the Policies. The Pre-Funding
Account and the Capitalized Interest Account will only be maintained until the
Distribution Date on or immediately following the last day of the Funding
Period. The Pre-Funded Amount on deposit in the Pre-Funding Account will be
used solely to purchase Subsequent Receivables and is not available to cover
losses on the Receivables. The Capitalized Interest Account is designed to
cover obligations of the Trust relating to that portion of its assets not
invested in Receivables and is not designed to provide protection against losses
on the Receivables. Amounts on deposit or to be deposited in the Spread Account
may be distributed to persons other than Securityholders. Similarly, although
the Policies will be available on each Distribution Date to cover shortfalls in
distributions of the Noteholders' Distributable Amount and the
Certificateholders' Distributable Amount on such Distribution Date, if the
Insurer defaults in its obligations under the applicable Policy, the Trust will
depend on current distributions on the Receivables and, amounts, if any,
available therefor in the Spread Account to make payments on the Notes and the
Certificates. See "The Insurer" and "The Policies" herein.
RATINGS ON SECURITIES
A rating is not a recommendation to purchase, hold or sell Notes or
Certificates. The ratings of the Notes and Certificates address the likelihood
of the payment of principal and interest on the Securities pursuant to their
terms. There is no assurance that a rating will remain in effect for any given
period of time or that a rating will not be lowered or withdrawn entirely by a
Rating Agency if in its judgment circumstances in the future so warrant. In the
event that any ratings initially assigned to the Notes and the Certificates were
subsequently lowered or withdrawn for any reason, including by reason of a
downgrading of the claims-paying ability of the Insurer, no person or entity
will be obligated to provide any additional credit enhancement with respect to
the Notes or the Certificates. Any reduction or withdrawal of a rating may have
an adverse effect on the liquidity and market price of the Notes and the
Certificates.
S-17
<PAGE>
EVENTS OF DEFAULT UNDER THE INDENTURE
So long as no Insurer Default shall have occurred and be continuing,
neither the Indenture Trustee nor the Noteholders may declare an Event of
Default under the Indenture. So long as an Insurer Default shall not have
occurred and be continuing, an Event of Default will occur only upon delivery by
the Insurer to the Indenture Trustee of notice of the occurrence of certain
events of default under the Insurance Agreement. Upon the occurrence of an
Event of Default under the Indenture (so long as an Insurer Default shall not
have occurred and be continuing), the Insurer will have the right, but not the
obligation, to cause the liquidation, in whole or in part, of the Trust
Property, which will result in redemption, in whole or in part, of the Notes,
and prepayment, in whole or in part, of the Certificates. Following the
occurrence of an Event of Default, the Indenture Trustee and the Owner Trustee
will continue to submit claims under the Policies as necessary to enable the
Trust to continue to make payments of the Noteholders' Distributable Amount and
the Certificateholders' Distributable Amount on each Distribution Date.
However, following the occurrence of an Event of Default, the Insurer may elect
to pay all or any portion of the outstanding amount of the Notes, plus accrued
interest thereon, and may elect to cause the prepayment, in whole or in part, of
the Certificates.
INSOLVENCY CONSIDERATIONS
The Trust Agreement provides that, in the event that the Seller
becomes insolvent, or is terminated or dissolved (a "Dissolution Event") and the
Owner Trustee is unable to obtain an opinion of counsel satisfactory to the
Insurer to the effect that the Trust will not thereafter be an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes, the Trust will terminate in 90 days and effect redemption of the Notes
and prepayment of the Certificates following the winding-up of the affairs of
the Trust, unless within such 90 days the Certificate Owners of a majority of
the remaining principal balance of the Certificates agree in writing to continue
the business of the Trust and the Owner Trustee is able to obtain the opinion of
counsel described above. See "Description of the Purchase Agreements and the
Trust Documents -- Termination" in the Prospectus.
USE OF PROCEEDS
The net proceeds to be received by the Trust from the sale of the
Securities will be used to pay to the Seller, and in turn, TMS Auto Finance or a
warehouse facility, the purchase price for the Receivables, to make the deposits
of the Pre-Funded Amount into the Pre-Funding Account and to make the initial
deposits into the Capitalized Interest Account and the Spread Account.
THE TRUST
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying Prospectus.
Prospective Securityholders should consider, in addition to the information
below, the information under "The Trusts" in the accompanying Prospectus.
GENERAL
The Issuer, The Money Store Auto Trust, 1996-1, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement
for the transactions described in this Prospectus Supplement. After its
formation, the Trust will not engage in any activity other than (i) acquiring,
holding and managing the Receivables and the other assets of the Trust and
proceeds therefrom, (ii) issuing the Notes and the Certificates, (iii) making
payments on the Notes and the Certificates and (iv) engaging in other activities
that are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
The Trust will initially be capitalized with equity equal to
$7,000,000.00. Certificates with an aggregate original Certificate Balance of
$70,000.00 will be sold to the Seller, and Certificates representing the
remainder of the Certificate Balance will be sold to third party investors that
are expected to be unaffiliated with the Seller, the Servicer, the
Representative or their affiliates. The equity of the Trust, together with the
proceeds of the initial sale of the Notes, will be used by the Trust to purchase
the Initial Receivables from the Seller pursuant to the Sale and Servicing
Agreement and to fund the deposits in the Pre-Funding Account, the Capitalized
Interest Account and the Spread Account.
S-18
<PAGE>
The Trust's principal offices are in Wilmington, Delaware, in care of
Bankers Trust (Delaware), as Owner Trustee, at the address listed below under "-
- - The Owner Trustee."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of
the Initial Cutoff Date, as if the issuance and sale of the Notes and
Certificates had taken place on such date:
<TABLE>
<CAPTION>
<S> <C>
Class A-1 Notes................................... $ 45,100,000.00
Class A-2 Notes................................... $ 90,000,000.00
Class A-3 Notes................................... $ 57,900,000.00
Certificates...................................... $ 7,000,000.00
---------------
Total............................................ $200,000,000.00
===============
</TABLE>
THE OWNER TRUSTEE
Bankers Trust (Delaware) is the Owner Trustee under the Trust
Agreement, is a Delaware banking corporation and its principal offices are
located at 1001 Jefferson Street, Suite 550, Wilmington, Delaware 19801. The
Seller, the Representative, the Servicer and their respective affiliates may
maintain commercial banking relations with the Owner Trustee and its affiliates.
The Owner Trustee will perform limited administrative functions under the Trust
Agreement, including making distributions from the Certificate Distribution
Account. The Owner Trustee's liability in connection with the issuance and sale
of the Certificates and the Notes is limited solely to the express obligations
of the Owner Trustee set forth in the Trust Agreement and the Sale and Servicing
Agreement.
THE TRUST PROPERTY
The Trust Property will include, among other things, the following:
(a) non-prime motor vehicle retail installment sale contracts secured by new and
used vehicles, light trucks and vans; (b) all payments received thereunder after
the Initial Cutoff Date or the Subsequent Cutoff Date, as the case may be, and,
with respect to Precomputed Receivables, certain monies received thereunder on
or prior to the related Cutoff Date that are due after such Cutoff Date; (c)
such amounts as from time to time may be held in the Collection Account, the
Pre-Funding Account, the Capitalized Interest Account and the Payahead Account;
(d) an assignment of the security interests of TMS Auto Finance in the Financed
Vehicles; (e) certain proceeds from the exercise of rights against Dealers under
agreements between TMS Auto Finance and such Dealers (the "Dealer Agreements");
(f) an assignment of the right to receive proceeds from claims on certain
physical damage, credit life and disability insurance policies covering the
Financed Vehicles or the Obligors; (g) the rights of the Seller under the
Purchase Agreement and any Subsequent Purchase Agreements; (h) the Receivables
Files; (i) the Certificate Policy; and (j) certain other rights under the Trust
Documents.
The Initial Receivables were, and the Subsequent 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. Dealer Agreements may provide for
repurchase or recourse against the Dealer in the event of a default by an
Obligor, or upon repossession of the related vehicle by TMS Auto Finance.
Although TMS Auto Finance's rights under the Dealer Agreements have not been
assigned to the Trust, and the Trust will not have any rights against any
Dealer, TMS Auto Finance has assigned or will assign to the Seller, and the
Seller has assigned or will assign to the Trust, the proceeds from any
Receivable repurchased by a Dealer as a result of a breach of a representation
or warranty in the related Dealer Agreement. See "The Trusts" in the
Prospectus.
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Monthly Period, after
giving effect to all payments (other than Payaheads remaining in the Payahead
Account) received from Obligors and any Purchase Amounts to be remitted by TMS
Auto Finance, the Seller or the Representative, as the case may be, for such
Monthly Period and all losses, including Cram Down Losses, realized on
Receivables liquidated during such Monthly Period. The Pool Balance on the
Closing Date (the "Original Pool Balance") will be approximately
$150,000,000.00. As described elsewhere herein, the Original Pool Balance may
include certain other Initial Receivables, some of which may be originated after
the Statistical Calculation Date but on or prior to the Closing Date. In
addition, prior to the Closing Date certain Initial Receivables may be removed
S-19
<PAGE>
and additional Initial Receivables substituted therefor. All of the Initial
Receivables, however, must satisfy the eligibility criteria set forth under "The
Receivables -- Eligibility Criteria" herein.
Each Certificate will represent a fractional undivided interest in the
Trust Property. Pursuant to the Indenture, the Trust will grant a security
interest in the Trust Property (other than the Certificate Distribution Account
and Certificate Policy) in favor of the Indenture Collateral Agent for the
benefit of the Indenture Trustee on behalf of the Noteholders and for the
benefit of the Insurer in support of the obligations owing to it under the
Insurance Agreement. Any proceeds of such security interest in the Trust
Property would be distributed according to the Indenture, as described below
under "Description of the Purchase Agreements and the Trust Documents --
Distributions." The Insurer would be entitled to such distributions only after
payment of amounts owing to, among others, holders of the Notes and
Certificates.
THE RECEIVABLES
The following information supplements the information contained under
"The Receivables" in the accompanying Prospectus.
GENERAL
The Receivables were, or will be, purchased by TMS Auto Finance in the
ordinary course of business pursuant to TMS Auto Finance's Contract Acquisition
Program from Dealers. The Receivables will consist of non-prime motor vehicle
retail installment sale contracts. Non-prime motor vehicle retail installment
sale contracts are contracts with individuals with less than perfect credit due
to various factors, including, among other things, the manner in which such
individuals have handled previous credit, the limited extent of their prior
credit history and/or their limited financial resources. See "Risk Factors --
Nature of Receivables; Underwriting Process; Subjective Credit Standards and
Sufficiency of Interest Rates to Cover Losses," "TMS Auto Finance -- General"
and "-- Credit Evaluation Procedures" in the Prospectus.
ELIGIBILITY CRITERIA
The Receivables were or will be selected according to several
criteria, including those specified under "Receivables -- General" in the
accompanying Prospectus. In addition, the Initial Receivables were selected
from TMS Auto Finance's portfolio of non-prime motor vehicle retail installment
contracts based on several criteria, including the following: (i) each Initial
Receivable has an APR equal to or greater than 9.00%; (ii) each Initial
Receivable has an original term to maturity of not more than 72 months; (iii) as
of the Initial Cutoff Date, the most recent Scheduled Payment of each Initial
Receivable was made by or on behalf of the Obligor or was not contractually
delinquent more than 30 days; (iv) no Initial Financed Vehicle has been
repossessed without reinstatement as of the Initial Cutoff Date; and (v) as of
the Initial Cutoff Date, no Obligor on any Receivable was the subject of a
bankruptcy proceeding commenced following the execution of the related contract.
For purposes of clause (iii), a Receivable is considered 30 days delinquent as
of the end of the month following the date on which a second consecutive
Scheduled Payment has not been made.
During the Funding Period, pursuant to the Purchase Agreement, the
Seller is obligated to purchase from TMS Auto Finance and, pursuant to the Sale
and Servicing Agreement, sell to the Trust, Subsequent Receivables. The
aggregate principal balance of the Subsequent Receivables is anticipated by TMS
Auto Finance to equal approximately $50,000,000. On each Subsequent Transfer
Date, TMS Auto Finance will convey the Subsequent Receivables to the Seller
pursuant to the Subsequent Purchase 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 Sale and Servicing Agreement and the applicable
Subsequent Transfer Agreement executed by the Seller and the Owner Trustee on
the Subsequent Transfer Date and including as an exhibit a schedule identifying
the Subsequent Receivables transferred on such date. 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 the
Subsequent Receivables as of their respective Subsequent Cutoff Dates, 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.
Any conveyance of Subsequent Receivables is subject to the following
conditions, among others: (i) each such Subsequent Receivable and/or Subsequent
Financed Vehicle must satisfy the eligibility criteria specified under
S-20
<PAGE>
"The Receivables -- General" in the Prospectus and the criteria set forth in
clauses (ii) through (vi) of the second preceding paragraph, in each case, as of
the respective Subsequent Cutoff Date of such Subsequent Receivable; (ii) the
Insurer (so long as no Insurer Default shall have occurred and be continuing)
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
Insurer or the Securityholders; (iv) TMS Auto Finance and the Seller will
deliver certain opinions of counsel to the Owner Trustee, the Indenture Trustee,
the Insurer 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 have not been withdrawn or reduced as
a result of the transfer of such Subsequent Receivables to the Trust. Because
the Subsequent Receivables may be originated after the Initial Receivables,
following their conveyance to the Trust the characteristics of the Receivables,
including the Subsequent Receivables, may vary from those of the Initial
Receivables.
In addition, the obligation of the Trust to purchase the Subsequent
Receivables on a Subsequent Transfer Date is subject to the condition that the
Receivables in the Trust, including the Subsequent Receivables to be conveyed to
the Trust on such Subsequent Transfer Date, meet the following criteria: (i)
the weighted average APR of the Receivables in the Trust is not less than 19%;
(ii) the weighted average remaining term of the Receivables on such Subsequent
Cutoff Date is not greater than 55 months; and (iii) not more than 45% of the
Receivables have Obligors whose mailing addresses are in California. As to
clauses (i) and (ii) in the immediately preceding sentence, such criteria will
be based on the characteristics of the Initial Receivables on the Initial Cutoff
Date and the Receivables, including the Subsequent Receivables, on the related
Subsequent Cutoff Date, and as to clause (iii) in the immediately preceding
sentence, such criteria will be based on the mailing addresses of the Obligors
of the Initial Receivables on the Initial Cutoff Date and the Subsequent
Receivables on the related Subsequent Cutoff Dates.
Except for the criteria described in the preceding paragraphs, there
are no required characteristics of the Subsequent Receivables. Therefore,
following the transfer of Subsequent Receivables to the Trust, the aggregate
characteristics of the entire pool of Receivables included in the Trust,
including the composition of the Receivables, the geographic distribution, the
distribution by remaining principal balance, the distribution by APR, the
distribution by remaining term, the distribution of Precomputed Receivables and
Simple Interest Receivables and the distribution of the Receivables secured by
new and used vehicles, may vary from those of the Initial Receivables.
COMPOSITION
The statistical information presented in this Prospectus Supplement,
including the summary statistical information set forth below, is based on the
Initial Receivables as of May 31, 1996 (the "Statistical Calculation Date").
Prior to the Initial Cutoff Date, certain Initial Receivables may be removed and
additional Initial Receivables substituted therefor. Regularly scheduled
payments and prepayments of the Receivables (which are prepayable at any time)
between the Statistical Calculation Date and the Initial Cutoff Date will affect
the balances and percentages set forth below. A Current Report on Form 8-K
containing a detailed description (the "Detailed Description") of the Initial
Receivables will be available to purchasers of the Securities upon request at
the time of the initial issuance of the Securities and will be filed with the
Securities and Exchange Commission within 15 days after such issuance. The
Detailed Description will specify the information set forth below as of the
Initial Cutoff Date.
While the statistical distribution of the final characteristics of all
Initial Receivables transferred to the Trust on the Closing Date will vary from
the statistical information presented in this Prospectus Supplement, the Seller
and the Representative do not believe that the characteristics of the Initial
Receivables on the Closing Date will vary materially.
COMPOSITION OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Weighted Average Aggregate Principal Number of Weighted Average Weighted Average Average Principal
APR of Receivables Balance Receivables Remaining Term Original Term Balance
- -------------------- ------------------- ----------- -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
19.55% $135,994,917.70 14,220 50.31 months 52.20 months $9,563.64
</TABLE>
The geographic distribution, the distribution of Initial Receivables
which are Precomputed Receivables and Simple Interest Receivables, the
distribution of the Initial Receivables secured by new and used vehicles, the
distribution by remaining principal balance, the distribution by APR and the
distribution by remaining term, in each case of the Initial Receivables as of
the Statistical Calculation Date, are set forth below.
S-21
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL
CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
State(1) Receivables Balance Balance(2)
- ----- ----------- ------------ -------
<S> <C> <C> <C>
Alabama......... 834 $ 8,074,305.45 5.94%
Alaska.......... 1 11,262.96 .01
Arizona......... 314 3,274,424.80 2.41
Arkansas........ 4 35,004.28 .03
California...... 3,806 33,688,142.41 24.77
Colorado........ 324 3,117,959.57 2.29
Connecticut..... 188 1,842,565.15 1.35
Florida......... 649 6,142,680.07 4.52
Georgia......... 837 9,610,104.89 7.07
Illinois........ 741 7,806,432.55 5.74
Indiana......... 626 5,387,168.93 3.96
Iowa............ 14 126,926.98 .09
Kansas.......... 82 771,569.73 .57
Kentucky........ 180 1,449,183.25 1.07
Louisiana....... 4 47,405.97 .03
Maine........... 12 93,861.76 .07
Maryland........ 1 6,904.15 .01
Massachusetts... 102 812,766.40 .60
Michigan........ 695 7,182,573.18 5.28
Minnesota....... 4 38,439.01 .03
Mississippi..... 83 987,927.70 .73
Missouri........ 340 3,334,425.48 2.45
Nebraska........ 1 13,385.78 .01
Nevada.......... 173 1,748,749.30 1.29
New Hampshire... 49 337,479.44 .25
New Jersey...... 1 5,295.00 .00
New Mexico...... 2 29,528.48 .02
New York........ 3 28,240.02 .02
North Carolina.. 392 3,317,738.47 2.44
North Dakota.... 14 122,717.84 .09
Ohio............ 460 4,020,793.07 2.96
Oklahoma........ 302 2,805,600.98 2.06
Oregon.......... 622 5,520,212.93 4.06
Pennsylvania.... 283 3,123,381.47 2.30
Rhode Island.... 6 57,117.11 .04
South Carolina.. 96 986,042.69 .73
Tennessee....... 414 3,999,013.53 2.94
Texas........... 1,040 11,081,170.21 8.15
Vermont......... 9 65,250.53 .05
Virginia........ 6 79,858.22 .06
Washington...... 288 2,698,823.01 1.98
Wisconsin....... 216 2,087,245.29 1.53
Wyoming......... 2 25,239.66 .02
Total........ 14,220 $135,994,917.70 100.00%
====== =============== ======
</TABLE>
_____________________
(1) Based on billing addresses of the Obligors as of the Statistical
Calculation Date.
(2) Percentages may not add to 100.00% because of rounding.
S-22
<PAGE>
DISTRIBUTION BY INTEREST ALLOCATION METHOD OF THE INITIAL RECEIVABLES AS OF THE
STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage of
Aggregate Aggregate
Number of Principal Principal
Interest Allocation Method Receivables Balance Balance
- -------------------------- ----------- --------- ------------
<S> <C> <C> <C>
Precomputed Receivables(1)......................................................... 7,332 $ 67,615,827.13 49.72%
Simple Interest Receivables........................................................ 6,888 68,379,090.57 50.28
Total........................................................................ 14,220 $135,994,917.70 100.00%
====== =============== ======
</TABLE>
- --------------------
(1) All of the Precomputed Receivables are Rule of 78's Receivables.
DISTRIBUTION OF THE INITIAL RECEIVABLES BY NEW AND USED FINANCED VEHICLES AS OF
THE STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage of
Aggregate Aggregate
Number of Principal Principal
Collateral Type Receivables Balance Balance
- --------------- ----------- --------- ------------
<S> <C> <C> <C>
New................................................................................ 1,260 $ 16,803,601.46 12.36%
Used............................................................................... 12,960 119,191,316.24 87.64
Total........................................................................ 14,220 $135,994,917.70 100.00%
====== =============== ======
</TABLE>
DISTRIBUTION BY REMAINING PRINCIPAL BALANCE OF THE INITIAL RECEIVABLES AS OF THE
STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage of
Aggregate Aggregate
Range of Remaining Number of Principal Principal
Principal Balance Receivables Balance Balance
- ------------------ ----------- --------- ------------
<S> <C> <C> <C>
$ 0,000.00 to $ 2,499.99........................................................... 191 $ 390,588.24 .29%
$ 2,500.00 to $ 4,999.99........................................................... 1,468 5,821,268.03 4.28
$ 5,000.00 to $ 7,499.99........................................................... 3,002 18,982,590.87 13.96
$ 7,500.00 to $ 9,999.99........................................................... 3,479 30,381,310.81 22.34
$10,000.00 to $12,499.99........................................................... 2,960 33,107,885.08 24.34
$12,500.00 to $14,999.99........................................................... 1,883 25,632,381.66 18.85
$15,000.00 to $17,499.99........................................................... 785 12,598,303.79 9.26
$17,500.00 to $19,999.99........................................................... 289 5,368,971.51 3.95
$20,000.00 to $22,499.99........................................................... 95 2,013,408.19 1.48
$22,500.00 to $24,999.99........................................................... 40 937,870.05 .69
$25,000.00 to $27,499.99........................................................... 19 490,262.14 .36
$27,500.00 to $29,999.99........................................................... 6 171,348.92 .13
$30,000.00 to $39,999.99........................................................... 3 98,728.41 .07
Total........................................................................ 14,220 $135,994,917.70 100.00%
====== =============== ======
</TABLE>
S-23
<PAGE>
DISTRIBUTION BY ANNUAL PERCENTAGE RATE OF THE INITIAL RECEIVABLES AS OF THE
STATISTICAL CALCULATION DATE
<TABLE>
<CAPTION>
Percentage of
Aggregate Aggregate
Annual Percentage Number of Principal Principal
Rate Range Receivables Balance Balance
- -------------------- ----------- --------------- --------------
<S> <C> <C> <C>
9.000% to 9.999%.. 3 $ 59,756.23 .04%
10.000% to 10.999%.. 2 32,475.45 .02
11.000% to 11.999%.. 1 14,446.44 .01
12.000% to 12.999%.. 7 82,383.82 .06
13.000% to 13.999%.. 8 87,372.24 .06
14.000% to 14.999%.. 79 1,029,293.75 .76
15.000% to 15.999%.. 237 3,176,240.46 2.34
16.000% to 16.999%.. 980 13,088,664.19 9.62
17.000% to 17.999%.. 1,602 19,252,787.59 14.16
18.000% to 18.999%.. 1,928 21,503,342.71 15.81
19.000% to 19.999%.. 1,697 17,242,373.32 12.68
20.000% to 20.999%.. 2,735 24,672,228.05 18.14
21.000% to 21.999%.. 2,323 16,540,327.09 12.16
22.000% to 22.999%.. 1,089 8,699,919.80 6.40
23.000% to 23.999%.. 499 4,005,497.23 2.95
24.000% to 24.999%.. 656 4,253,791.31 3.13
25.000% to 25.999%.. 275 1,660,326.73 1.22
26.000% to 26.999%.. 63 388,030.66 .29
27.000% to 27.999%.. 9 50,444.59 .04
28.000% to 28.999%.. 14 86,811.17 .06
29.000% to 29.999%.. 13 68,404.87 .05
------
Total.......... 14,220 $135,994,917.70 100.00%
====== =============== ======
</TABLE>
DISTRIBUTION BY REMAINING TERM OF THE INITIAL RECEIVABLES AS OF THE STATISTICAL
CALCULATION DATE
<TABLE>
<CAPTION>
Percentage
Aggregate of Aggregate
Number of Principal Principal
Range of Remaining Terms Receivables Balance Balance(1)
- ------------------------ ----------- --------- --------
<S> <C> <C> <C>
7 to 11 Months........... 38 $ 75,262.60 .06%
12 to 17 Months........... 154 412,107.25 .30
18 to 23 Months........... 550 2,094,008.71 1.54
24 to 29 Months........... 622 3,110,458.66 2.29
30 to 35 Months........... 1,784 11,000,955.54 8.09
36 to 41 Months........... 1,270 9,421,063.80 6.93
42 to 47 Months........... 2,477 21,699,770.76 15.96
48 to 53 Months........... 1,792 18,066,539.35 13.28
54 to 59 Months........... 4,203 52,231,496.76 38.41
60 to 65 Months........... 1,258 16,608,802.13 12.21
66 to 71 Months........... 56 993,361.74 .73
72 Months................. 16 281,090.40 .21
------ ---------------
Total................ 14,220 $135,994,917.70 100.00%
====== =============== ======
</TABLE>
- ---------------------
(1) Percentages may not add to 100.00% because of rounding.
S-24
<PAGE>
DELINQUENCY AND LOSS EXPERIENCE
TMS Auto Finance began operations in January 1995. The table below
sets forth the delinquency and loss experience as of the end of each of the
quarterly periods indicated. The information set forth in the following table
may be affected by the size, rapid growth and relative lack of seasoning of the
Receivables. Accordingly, no assurances can be given that the delinquency and
loss experience presented in the tables below will be indicative of such
experience on the Receivables.
<TABLE>
<CAPTION>
The Money Store Auto Finance, Inc.
Historical Delinquency and Loss Experience
(Dollar Amounts in Thousands)
1995 1996
------------------------------------------------------------ ---------------------
June 30, September 30, December 31, March 31,
--------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Amount Outstanding $33,978 $69,374 $117,239 $179,986
Average Principal Amount Outstanding
For the Quarter Ended $22,550 $51,676 $ 93,307 $148,613
Number of Loans Outstanding 3,478 7,256 12,398 19,271
Average Number of Loans Outstanding 2,355 5,367 9,827 15,835
Number of Repossessions
For the Quarter Ended 18 86 148 219
Principal Amount of Repossessions
For the Quarter Ended $ 214 $ 928 $ 1,473 $2,202
Number of Repossessions as a
Percent of Average Number of
Loans Outstanding 0.76% 1.60% 1.51% 1.38%
Principal Amount of Repossessions
as a Percent of Average
Principal Amount Outstanding 0.95% 1.80% 1.58% 1.48%
Net Losses
For the Quarter Ended $ 0 $ 88 $ 202 $1,245
Net Losses as a Percent of
Principal
Amount Outstanding (Annualized) 0.00% 0.51% 0.69% 2.77%
Delinquencies
31-60 Days $ 182 0.54% $ 393 0.57% $ 1,881 1.60% $ 3,575 1.99%
61-90 Days $ 0 0.00% $ 61 0.09% $ 177 0.15% $ 807 0.45%
Over 90 Days $ 0 0.00% $ 36 0.05% $ 42 0.04% $ 217 0.12%
</TABLE>
S-25
<PAGE>
THE INSURER
The following information has been obtained from Financial
Security Assurance Inc. ( hereinafter in this section, "Financial
Security") and has not been verified by the Seller, the Representative or
the Underwriters. No representations or warranty is made by the Seller,
the Representative or the Underwriters with respect thereto.
GENERAL
Financial Security is a monoline insurance company incorporated
on March 16, 1984 under the laws of the State of New York. Financial
Security is licensed to engage in the financial guaranty insurance business
in all 50 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the
business of writing financial guaranty insurance, principally in respect of
securities offered in domestic and foreign markets. In general, financial
guaranty insurance consists of the issuance of a guaranty of scheduled
payments of an issuers securities, thereby enhancing the credit rating of
those securities, in consideration for the payment of a premium to the
insurer. Financial Security and its subsidiaries principally insure asset-
backed, collateralized and municipal securities. Asset-backed securities
are generally supported by residential mortgage loans, consumer or trade
receivables, securities or other assets having an ascertainable cash flow
or market value. Collateralized securities include public utility first
mortgage bonds and sale/leaseback obligation bonds. Municipal securities
consist largely of general obligation bonds, special revenue bonds and
other special obligations of state and local governments. Financial
Security insures both newly issued securities sold in the primary market
and outstanding securities sold in the secondary market that satisfy
Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial
Security Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange
listed company. Major shareholders of Holdings include Fund American
Enterprises Holdings, Inc., U S WEST Capital Corporation and The Tokio
Marine and Fire Insurance Co., Ltd. No shareholder of Holdings is
obligated to pay any debt of Financial Security or any claim under any
insurance policy issued by Financial Security or to make any additional
contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located
at 350 Park Avenue, New York, New York 10022, and its telephone number at
that location is (212) 826-0100.
REINSURANCE
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written by Financial Security or any of its subsidiaries
are reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and
reserves, subject to applicable statutory risk limitations. In addition,
Financial Security reinsures a portion of its liabilities under certain of
its financial guaranty insurance policies with other reinsurers under
various quota share treaties and on a transaction-by-transaction basis.
Such reinsurance is utilized by Financial Security as a risk management
device and to comply with certain statutory and rating agency requirements;
it does not alter or limit Financial Security's obligations under any
financial guaranty insurance policy.
RATING OF CLAIMS-PAYING ABILITY
Financial Security's claims-paying ability is rated Aaa by
Moody's and AAA by S&P, Nippon Investors Service Inc. and Standard & Poor's
(Australia) Pty. Ltd. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such
rating agencies. See "Risk Factors -- Ratings on Securities" herein.
S-26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Financial
Security and its wholly owned subsidiaries on the basis of generally
accepted accounting principles as of March 31, 1996 (in thousands):
<TABLE>
<CAPTION>
March 31, 1996
(unaudited)
---------------
<S> <C>
Unearned Premium Reserve
(net of prepaid reinsurance premiums)........................... $ 340,226
Shareholder's Equity:
Common Stock................................................... 15,000
Additional Paid-In Capital..................................... 681,470
Unrealized Gain on Investments (net of deferred income taxes).. (737)
Accumulated Earnings........................................... 83,444
----------
Total Shareholder's Equity...................................... 779,177
----------
Total Unearned Premium Reserve
and Shareholder's Equity........................................ $1,119,403
==========
</TABLE>
For further information concerning Financial Security, see the
Consolidated Financial Statements of Financial Security and Subsidiaries,
and the notes thereto, incorporated by reference herein. The New York
State Insurance Department recognizes only statutory accounting practices
for determining and reporting the financial condition and results of
operations of an insurance company, for determining its solvency under the
New York Insurance Law, and for determining whether its financial condition
warrants the payment of a dividend to its stockholders. No consideration
is given by the New York State Insurance Department to financial statements
prepared in accordance with generally accepted accounting principles in
making such determinations. Copies of the statutory quarterly and annual
statements filed with the State of New York Insurance Department by
Financial Security are available upon request to the State of New York
Insurance Department.
INSURANCE REGULATION
Financial Security is licensed and subject to regulation as a
financial guaranty insurance corporation under the laws of the State of New
York, its state of domicile. In addition, Financial Security and its
insurance subsidiaries are subject to regulation by insurance laws of the
various other jurisdictions in which they are licensed to do business. As
a financial guaranty insurance corporation licensed to do business in the
State of New York, Financial Security is subject to Article 69 of the New
York Insurance Law which, among other things, limits the business of each
such insurer to financial guaranty insurance and related lines, requires
that each such insurer maintain a minimum surplus to policyholders,
establishes contingency, loss and unearned premium reserve requirements for
each such insurer, and limits the size of individual transactions ("single
risks") and the volume of transactions ("aggregate risks") that may be
underwritten by each such insurer. Other provisions of the New York
Insurance Law, applicable to non-life insurance companies such as Financial
Security, regulate, among other things, permitted investments, payment of
dividends, transactions with affiliates, mergers, consolidations,
acquisitions or sales of assets and incurrence of liabilities for
borrowings.
The Policies are not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law.
S-27
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture,
a form of which has been filed as an exhibit to the Registration Statement.
The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Notes and the Indenture. The following summary supplements, and to the
extent inconsistent therewith replaces, the description of the general
terms and provisions of the Notes of any given series and the related
Indenture set forth in the accompanying Prospectus, to which description
reference is hereby made.
The Notes will be offered for purchase in denominations of $1,000
and integral multiples thereof in book-entry form only. Persons acquiring
beneficial interests in the Notes will hold their interests through DTC in
the United States or Cedel or Euroclear in Europe. See "Certain
Information Regarding the Securities -- Book-Entry Registration" in the
Prospectus and Annex I thereto.
PAYMENTS OF INTEREST
Interest on the principal amount of each Class of Notes will
accrue at the applicable Interest Rate and will be payable to the
Noteholders of such Class monthly on each Distribution Date, commencing
July 22, 1996. Interest will accrue from and including the most recent
Distribution Date on which interest has been paid (or, in the case of the
first Distribution Date, from and including the Closing Date) to but
excluding the following Distribution Date (each, an "Interest Period").
Interest on the Class A-1 Notes and the Class A-2 Notes will be calculated
on the basis of a 360-day year and the actual number of days elapsed in the
related Interest Period. Interest on the Class A-3 Notes will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Interest accrued as of any Distribution Date but not paid on such
Distribution Date will be due on the next Distribution Date, together with,
to the extent permitted by law, interest on such amount at the applicable
Interest Rate. In the event that the interest rate for the Class A-2 Notes
for any Interest Period calculated without giving effect to the maximum
rate would exceed the interest rate for such Interest Period after giving
effect to the maximum rate, the amount of such excess will not be due as
additional interest to the Class A-2 Noteholders on the related
Distribution Date nor will it be carried forward and payable as additional
interest to the Class A-2 Noteholders on any subsequent Distribution Date.
Interest payments on the Notes will be made from the Distribution Amount
(as defined herein) after payment of accrued and unpaid trustees' fees and
other administrative fees of the Trust and payment of the Servicing Fee.
See "Description of the Purchase Agreements and the Trust Documents --
Distributions" herein.
Interest on the Class A-2 Notes will accrue during each Interest
Period at a rate per annum equal to the sum of LIBOR plus 0. %, subject to
a maximum rate equal to 12% per annum.
DETERMINATION OF LIBOR
Pursuant to the Indenture, the Indenture Trustee will determine
LIBOR for purposes of calculating the Interest Rate for the Class A-2 Notes
for each given Interest Period on the second business day prior to the
commencement of each Interest Period (each, a "LIBOR Determination Date").
For purposes of calculating LIBOR, a business day means a Business Day and
a day on which banking institutions in the City of London, England are not
required or authorized by law to be closed.
"LIBOR" means, with respect to any Interest Period, the London
interbank offered rate for deposits in U.S. dollars having a maturity of
one month commencing on the related LIBOR Determination Date (the "Index
Maturity") which appears on Telerate Page 3750 as of 11:00 a.m., London
time, on such LIBOR Determination Date. If such rate does not appear on
the Telerate Page 3750, the rate for that day will be determined on the
basis of the rates at which deposits in U.S. dollars, having the Index
Maturity and in a principal amount of not less than U.S. $1,000,000, are
offered at approximately 11:00 a.m., London time, on such LIBOR
Determination Date to prime banks in the London interbank market by the
Reference Banks. The Indenture Trustee will request the principal
London office of each of such Reference Banks to provide a quotation of its
rate. If at least two such quotations are provided, the rate for that day
will be the arithmetic mean, rounded upward, if necessary, to the nearest
1/100,000 of 1% (.0000001), with five one-millionths of a percentage point
rounded upward, of all such quotations. If fewer than two such quotations
are provided, the rate for that day will be the arithmetic mean, rounded
upward, if necessary, to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward, of the offered per
annum rates that one or more leading banks in New York City, selected by
the Indenture Trustee,
S-28
<PAGE>
are quoting as of approximately 11:00 a.m., New York City time, on such
LIBOR Determination Date to leading European banks for United States dollar
deposits for the Index Maturity; provided that if the banks selected as
aforesaid are not quoting as mentioned in this sentence, LIBOR in effect
for the applicable Interest Period will be LIBOR in effect for the previous
Interest Period.
"Telerate Page 3750" means the display page so designated on the
Dow Jones Telerate Service (or such other page as may replace that page on
that service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank
market selected by the Indenture Trustee.
PAYMENTS OF PRINCIPAL
Principal payments will be made to the Noteholders on each
Distribution Date in an amount equal to the Noteholders' Principal
Distributable Amount for the calendar month (the "Monthly Period")
preceding such Distribution Date. The Noteholders' Principal Distributable
Amount will equal the sum of (x) the Noteholders' Percentage of the
Principal Distributable Amount and (y) any unpaid portion of the amount
described in clause (x) with respect to a prior Distribution Date. The
"Principal Distributable Amount" with respect to any Distribution Date will
be an amount equal to the sum of the following amounts with respect to the
related Monthly Period, computed, with respect to Simple Interest
Receivables, in accordance with the simple interest method, and, with
respect to Precomputed Receivables, in accordance with the actuarial
method: (i) that portion of all collections on Receivables allocable to
principal, including full and, with respect to Simple Interest Receivables,
partial principal prepayments, received during such Monthly Period
(including, with respect to Precomputed Receivables, amounts withdrawn from
the Payahead Account but excluding amounts deposited into the Payahead
Account) with respect to such Monthly Period, (ii) the principal balance of
each Receivable that was repurchased by the Representative, the Seller or
the Servicer as of the last day of such Monthly Period, (iii) at the option
of the Insurer, the outstanding principal balance of those Receivables that
were required to be repurchased by the Seller and/or TMS Auto Finance
during such Monthly Period but were not so repurchased, (iv) the principal
balance of each Receivable that became a Liquidated Receivable during such
Monthly Period, and (v) the aggregate amount of Cram Down Losses during
such Monthly Period. Principal payments on the Notes will be made from the
Distribution Amount after payment of accrued and unpaid trustees' fees and
other administrative fees of the Trust, payment of the Servicing Fee and
after distribution of the Noteholders' Interest Distributable Amount. See
"Description of the Purchase Agreements and the Trust Documents --
Distributions" herein.
The Noteholders' Percentage will be 100% until the Class A-3
Notes have been paid in full and thereafter will be zero. Principal
payments on the Notes will be applied on each Distribution Date
sequentially, to the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes, in that order, until the respective principal amount of each such
Class of Notes has been paid in full so that no principal will be paid on a
Class of Notes until the principal of all Classes of Notes having a lower
numerical Class designation has been paid in full. In addition, the
outstanding principal amount of the Notes of any Class, to the extent not
previously paid, will be payable on the respective Final Scheduled
Distribution Date for such Class. The actual date on which the aggregate
outstanding principal amount of any Class of Notes is paid may be earlier
than the Final Scheduled Distribution Date for such Class, depending on a
variety of factors.
MANDATORY REDEMPTION
Each Class of Notes will be redeemed in part on the Mandatory
Redemption Date in the event that any portion of the Pre-Funded Amount
remains on deposit in the Pre-Funding Account after giving effect to the
purchase of all Subsequent Receivables, including any such purchase on such
date. The aggregate principal amount of each Class of Notes to be redeemed
will be an amount equal to such Class's pro rata share (based on the
respective current principal amount of each Class of Notes and the
Certificate Balance) of the remaining Pre-Funded Amount on such date (such
Class's "Note Prepayment Amount").
S-29
<PAGE>
OPTIONAL REDEMPTION
The Class A-3 Notes, to the extent still outstanding, may be
redeemed in whole, but not in part, on any Distribution Date on which the
Servicer exercises its option to purchase the Receivables. The Servicer
may purchase the Receivables when the Pool Balance has declined to 10% or
less of the Original Pool Balance, as described in the accompanying
Prospectus under "Description of the Purchase Agreements and the Trust
Documents --Termination." Such redemption will effect early retirement of
the Notes of such Class. The redemption price will be equal to the unpaid
principal amount of the Notes of such Class, plus accrued and unpaid
interest thereon (the "Redemption Price").
CLASS A-1 FINAL SCHEDULED DISTRIBUTION DATE
Notwithstanding anything to the contrary contained herein, on
July 18, 1997 (the "Class A-1 Final Scheduled Distribution Date") holders
of record as of the Business Day preceding such date shall be entitled to
receive from funds available therefor interest on the outstanding principal
amount of the Class A-1 Notes immediately prior to such date at a rate of
% per annum for the period (the "Final Class A-1 Interest Period") from and
including the most recent Distribution Date on which interest has been paid
on the Class A-1 Notes to but excluding the Class A-1 Final Scheduled
Distribution Date (together with interest due but not paid on a prior
Distribution Date and, to the extent permitted by law, interest on such
amount at %) plus the unpaid principal amount of the Class A-1 Notes.
Interest will be calculated on the basis of a 360-day year and the actual
number of days elapsed in the Final Class A-1 Interest Period.
EVENTS OF DEFAULT
Unless an Insurer Default shall have occurred and be continuing,
"Events of Default" under the Indenture will consist of those events
defined in the Insurance Agreement as Insurance Agreement Indenture Cross
Defaults, and will constitute an Event of Default under the Indenture only
if the Insurer shall have delivered to the Indenture Trustee, and not
rescinded, a written notice specifying that any such Insurance Agreement
Indenture Cross Default constitutes an Event of Default under the
Indenture. "Insurance Agreement Indenture Cross Defaults" consist of: (i)
a demand for payment being made under either of the Policies; (ii) certain
events of bankruptcy, insolvency, receivership or liquidation of the Trust;
(iii) the Trust becoming taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax
purposes; (iv) on any Distribution Date, the sum of the Available Funds
with respect to such Distribution Date plus the amount (if any) on deposit
in the Spread Account being less than the sum of the amounts described in
clauses 1-7 under "Description of the Purchase Agreements and the Trust
Documents -- Distributions" herein; and (v) any failure to observe or
perform in any material respect any other covenants or agreements in the
Indenture, or any representation or warranty of the Trust made in the
Indenture or in any certificate or other writing delivered pursuant thereto
or in connection therewith proving to have been incorrect in any material
respect when made, and such failure continuing or not being cured, or the
circumstance or condition in respect of which such misrepresentation or
warranty was incorrect not having been eliminated or otherwise cured, for
30 days after the giving of written notice of such failure or incorrect
representation or warranty to the Trust and the Indenture Trustee by the
Insurer.
Upon the occurrence of an Event of Default, so long as an Insurer
Default shall not have occurred and be continuing, the Insurer will have
the right, but not the obligation, to cause the Indenture Collateral Agent
to liquidate the Trust Property in whole or in part, on any date or dates
following the acceleration of the Notes due to such Event of Default as the
Insurer, in its sole discretion, shall elect, and to deliver the proceeds
of such liquidation to the Indenture Trustee for distribution in accordance
with the terms of the Indenture. The Insurer may not, however, cause the
Indenture Collateral Agent to liquidate the Trust Property in whole or in
part if the proceeds of such liquidation would not be sufficient to pay all
outstanding principal of and accrued interest on the Notes, unless such
Event of Default arose from a claim being made on the Note Policy or from
certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust. Following the occurrence of any Event of Default, the Indenture
Trustee and the Owner Trustee will continue to submit claims under the
Policies for any shortfalls in the Guaranteed Note Distributions on the
Notes and the Guaranteed Certificate Distributions on the Certificates.
Following any Event of Default under the Indenture, the Insurer may elect
to pay all or any portion of the outstanding amount of the Notes, plus
accrued interest thereon. See "The Policies" herein.
If an Insurer Default has occurred and is continuing, "Events of
Default" under the Indenture will consist of the Events of Default
described in the accompanying Prospectus under "The Notes -- The
Indenture," and the Indenture Trustee will have the rights under the
Indenture described therein.
S-30
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the
Trust Agreement, a form of which has been filed as an exhibit to the
Registration Statement. The following summary describes certain terms of
the Certificates and the Trust Agreement. The summary does not purport to
be complete and is subject to, and qualified in its entirety by reference
to, all the provisions of the Certificates and the Trust Agreement. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the
Certificates of any given series and the related Trust Agreement set forth
in the Prospectus, to which description reference is hereby made.
The Certificates will be offered for purchase in denominations of
$1,000 and integral multiples thereof in book-entry form only. Persons
acquiring beneficial interests in the Certificates will hold their interest
through DTC. See "Certain Information Regarding the Securities -- Book-
Entry Registration" in the Prospectus.
DISTRIBUTIONS OF INTEREST
Interest on the Certificate Balance immediately prior to a
Distribution Date will accrue at the Certificate Rate for the related
Interest Period, and will be distributable to Certificateholders of record
on each Distribution Date, commencing July 22, 1996. Interest for each
Interest Period will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Interest distributions due for any
Distribution Date but not distributed on such Distribution Date will be due
on the next Distribution Date together with, to the extent permitted by
law, interest on such amount at the Certificate Rate. Interest
distributions with respect to the Certificates will be made from the
Distribution Amount after the payment of accrued and unpaid trustees' fees
and other administrative fees of the Trust, the payment of the Servicing
Fee and the distribution of the Noteholders' Distributable Amount. See
"Description of the Purchase Agreements and the Trust Documents --
Distributions" herein.
DISTRIBUTIONS OF PRINCIPAL
Certificateholders will be entitled to distributions of principal
on each Distribution Date on or after the date on which the Class A-3 Notes
have been paid in full in an amount equal to the Certificateholders'
Percentage of the Principal Distributable Amount, as defined under
"Description of the Notes -- Payments of Principal"; provided, however,
-------- -------
that the amount distributable as principal on the Distribution Date on
which the Class A-3 Notes are paid in full will be reduced by the amount
necessary to pay the Class A-3 Notes in full. Distributions with respect
to principal payments will be made from Available Funds after payment of
accrued and unpaid trustees' fees and other administrative fees of the
Trust, payment of the Servicing Fee and the distribution of the
Noteholders' Distributable Amount and the Certificateholders' Interest
Distributable Amount. See "Description of the Purchase Agreements and the
Trust Documents --Distributions" herein.
MANDATORY PREPAYMENT
The Certificates will be prepaid in part on the Mandatory
Redemption Date in the event that any portion of the Pre-Funded Amount
remains on deposit in the Pre-Funding Account after giving effect to the
purchase of all Subsequent Receivables, including any purchase on such
date. The aggregate principal amount of the Certificates to be prepaid
will be an amount equal to the Certificateholders' pro rata share (based on
the respective current principal amount of each Class of Notes and the
Certificate Balance) of the remaining Pre-Funded Amount (the "Certificate
Prepayment Amount").
Upon the occurrence of an Event of Default under the Indenture
(so long as an Insurer Default shall not have occurred and be continuing),
the Insurer will have the right, but not the obligation, to cause the
liquidation of the Trust Property, in whole or in part, on any date or
dates as the Insurer, in its sole discretion, shall elect, as described
under "Description of the Notes -- Events of Default." Any such
liquidation, in whole or in part, may cause a full or partial prepayment of
the Certificates.
S-31
<PAGE>
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables
when the Pool Balance declines to 10% or less of the Original Pool Balance,
Certificateholders will receive an amount in respect of the Certificates
equal to the outstanding Certificate Balance together with accrued interest
at the Certificate Rate, which distribution will effect early retirement of
the Certificates. See "Description of the Purchase Agreements and the
Trust Documents -- Termination" in the Prospectus.
TRANSFERS OF CERTIFICATES
Certificateholders, other than individuals or entities holding
Certificates through a broker who reports sales of securities on Form 1099-
B, are required under the Trust Agreement to notify the Owner Trustee of
any transfer of their Certificates in a taxable sale or exchange within 30
days of such transfer.
WEIGHTED AVERAGE LIFE CONSIDERATIONS
The rate of payment of principal of each Class of Notes and in
respect of the Certificate Balance will depend on the rate of payment
(including prepayments) of the principal balance of the Receivables. As a
result, final payment of any Class of Notes could occur significantly
earlier than the Final Scheduled Distribution Date for such Class of Notes.
The final distribution in respect of principal of the Certificates also
could occur prior to the Final Scheduled Distribution Date for the
Certificates. Reinvestment risk associated with early payment of the Notes
and the Certificates will be borne exclusively by the Noteholders and the
Certificateholders, respectively.
Prepayments on automotive receivables can be measured relative to
a prepayment standard or model. The model used in this Prospectus
Supplement, the Absolute Prepayment Model ("ABS"), represents an assumed
rate of prepayment each month relative to the original number of
receivables in a pool of receivables. ABS further assumes that all the
receivables are the same size and amortize at the same rate and that each
receivable in each month of its life will either be paid as scheduled or be
prepaid in full. For example, in a pool of receivables originally
containing 10,000 receivables, a 1% ABS rate means that 100 receivables
prepay each month. ABS does not purport to be an historical description of
prepayment experience or a prediction of the anticipated rate of prepayment
of any pool of receivables, including the Receivables.
The table captioned "Percent of Initial Note Principal Balance or
Initial Certificate Balance at Various ABS Percentages" (the "ABS Table")
has been prepared on the basis of the following assumptions: (i) the Trust
includes four pools of Receivables with the characteristics set forth in
the following table; (ii) the Receivables prepay in full at the specified
constant percentage of ABS monthly, with no defaults, losses or
repurchases; (iii) each scheduled monthly payment on the Receivables is
made on the last day of each month and each month has 30 days; (iv) the
initial principal amount of each Class of Notes and the initial Certificate
Balance are as set forth on the cover page hereof; (v) interest accrues
during each Interest Period at the applicable Interest Rate and Certificate
Rate; (vi) LIBOR remains constant at 5.50% per annum; (vii) payments on the
Notes and distributions on the Certificates are made on the 20th day of
each month whether or not a Business Day; (viii) the Securities are
purchased on the Closing Date; (ix) the scheduled monthly payment for each
Receivables has been calculated on the basis of the assumed characteristics
in the following table such that each Receivable will amortize in amounts
sufficient to repay the principal balance of such Receivable by its
indicated remaining term to maturity; (x) the first due date for each
Receivable is in the month after the assumed cutoff date for such
Receivable as set forth in the following table; (xi) the entire Pre-Funded
Amount is used to purchase Subsequent Receivables; and (xii) the Servicer
does not exercise its option to purchase the Receivables.
S-32
<PAGE>
<TABLE>
<CAPTION>
Assumed Original Term Remaining Term
Aggregate Cutoff to Maturity to Maturity
Pool Principal Balance APR Date (in Months) (in Months)
- ------- ----------------- ----- ---- ------------- --------------
<S> <C> <C> <C> <C> <C>
1 $135,994,917.70 19.55% 5/31/96 52 50
2 $ 14,005,082.30 19.55% 6/30/96 52 52
3 $ 25,000,000.00 19.55% 7/31/96 52 52
4 $ 25,000,000.00 19.55% 8/31/96 52 52
---------------
Total $200,000,000.00
===============
</TABLE>
The ABS Table indicates, based on the assumptions set forth
above, the percentages of the initial principal amount of each Class of
Notes and of the Certificate Balance of the Certificates that would be
outstanding after each of the Distributions Dates shown at various
percentages of ABS and the corresponding weighted average lives of such
Securities. The actual characteristics and performance of the Receivables
will differ from the assumptions used in constructing the ABS Table. The
assumptions used are hypothetical and have been provided only to give a
general sense of how the principal cash flows might behave under varying
prepayment scenarios. For example, it is very unlikely that the
Receivables will prepay at a constant level of ABS until maturity, that all
of the Receivables will prepay at the same level of ABS or that LIBOR will
remain constant at the level assumed or at any other level. Moreover, the
diverse terms of Receivables could produce slower or faster principal
distributions than indicated in the ABS Table at the various constant
percentages of ABS specified, even if the original and remaining terms to
maturity of the Receivables are as assumed. Any difference between such
assumptions and the actual characteristics and performance of the
Receivables, or actual prepayment experience, will affect the percentages
of initial balances outstanding over time and the weighted average lives of
each Class of Notes and the Certificates.
S-33
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-1 Notes Class A-2 Notes
---------------------------------------------- ----------------------
Distribution Date 0.5% 1.0% 1.7% 2.5% 0.5% 1.0% 1.7% 2.5%
- ----------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date...................... 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
07/20/96.......................... 94.54627 93.01261 90.81215 88.21793 100.00000 100.00000 100.00000 100.00000
08/20/96.......................... 88.53128 85.35201 80.79579 75.43199 100.00000 100.00000 100.00000 100.00000
09/20/96.......................... 81.53071 76.47839 69.24947 60.75608 100.00000 100.00000 100.00000 100.00000
10/20/96.......................... 73.54029 66.39559 56.18840 44.21845 100.00000 100.00000 100.00000 100.00000
11/20/96.......................... 65.51513 56.34072 43.24458 27.90245 100.00000 100.00000 100.00000 100.00000
12/20/96.......................... 57.45514 46.31524 30.42163 11.81422 100.00000 100.00000 100.00000 100.00000
01/20/97.......................... 49.36026 36.32064 17.72325 0.00000 100.00000 100.00000 100.00000 97.97554
02/20/97.......................... 41.23044 26.35845 5.15324 0.00000 100.00000 100.00000 100.00000 90.15137
03/20/97.......................... 33.06563 16.43025 0.00000 0.00000 100.00000 100.00000 96.34965 82.45102
04/20/97.......................... 24.86577 6.53764 0.00000 0.00000 100.00000 100.00000 90.18522 74.87787
05/20/97.......................... 16.63085 0.00000 0.00000 0.00000 100.00000 98.33746 84.09109 67.43537
06/20/97.......................... 8.36082 0.00000 0.00000 0.00000 100.00000 93.41835 78.06937 60.12706
07/20/97(1)....................... 0.05568 0.00000 0.00000 0.00000 100.00000 88.51965 72.12218 52.95655
08/20/97.......................... 0.00000 0.00000 0.00000 0.00000 95.84850 83.64225 66.25171 45.92754
09/20/97.......................... 0.00000 0.00000 0.00000 0.00000 91.65149 78.78707 60.46021 39.04381
10/20/97.......................... 0.00000 0.00000 0.00000 0.00000 87.43688 73.95506 54.74997 32.30921
11/20/97.......................... 0.00000 0.00000 0.00000 0.00000 83.20468 69.14719 49.12333 25.72770
12/20/97.......................... 0.00000 0.00000 0.00000 0.00000 78.95490 64.36448 43.58270 19.30333
01/20/98.......................... 0.00000 0.00000 0.00000 0.00000 74.68757 59.60793 38.13053 13.04023
02/20/98.......................... 0.00000 0.00000 0.00000 0.00000 70.40270 54.87860 32.76935 6.94261
03/20/98.......................... 0.00000 0.00000 0.00000 0.00000 66.10033 50.17757 27.50171 1.01481
04/20/98.......................... 0.00000 0.00000 0.00000 0.00000 61.78050 45.50594 22.33027 0.00000
05/20/98.......................... 0.00000 0.00000 0.00000 0.00000 57.44323 40.86486 17.25770 0.00000
06/20/98.......................... 0.00000 0.00000 0.00000 0.00000 53.08859 36.25549 12.28677 0.00000
07/20/98.......................... 0.00000 0.00000 0.00000 0.00000 48.71662 31.67901 7.42030 0.00000
08/20/98.......................... 0.00000 0.00000 0.00000 0.00000 44.32738 27.13666 2.66118 0.00000
09/20/98.......................... 0.00000 0.00000 0.00000 0.00000 39.92095 22.62970 0.00000 0.00000
10/20/98.......................... 0.00000 0.00000 0.00000 0.00000 35.49738 18.15940 0.00000 0.00000
11/20/98.......................... 0.00000 0.00000 0.00000 0.00000 31.05677 13.72710 0.00000 0.00000
12/20/98.......................... 0.00000 0.00000 0.00000 0.00000 26.59921 9.33414 0.00000 0.00000
01/20/99.......................... 0.00000 0.00000 0.00000 0.00000 22.12477 4.98191 0.00000 0.00000
02/20/99.......................... 0.00000 0.00000 0.00000 0.00000 17.63357 0.67184 0.00000 0.00000
03/20/99.......................... 0.00000 0.00000 0.00000 0.00000 13.12572 0.00000 0.00000 0.00000
04/20/99.......................... 0.00000 0.00000 0.00000 0.00000 8.60134 0.00000 0.00000 0.00000
05/20/99.......................... 0.00000 0.00000 0.00000 0.00000 4.06055 0.00000 0.00000 0.00000
06/20/99.......................... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
07/20/99.......................... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
08/20/99.......................... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
09/20/99.......................... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
10/20/99.......................... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
11/20/99.......................... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
12/20/99.......................... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
01/20/00.......................... 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
Weighted Average Life (years)(2).. 0.596 0.491 0.395 0.324 2.077 1.788 1.446 1.158
</TABLE>
----------------------------------
(1) The Class A-1 Final Scheduled Distribution Date is July 18, 1997;
payment in full of the Class A-1 Notes on such date is guaranteed by
the Note Policy to the extent described herein.
(2) The weighted average life of a Security is determined by (i)
multiplying the amount of each principal payment on a Security by the
number of years from the date of the issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the related initial principal amount of the Security.
S-34
<PAGE>
PERCENT OF INITIAL NOTE PRINCIPAL BALANCE OR
INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
Class A-3 Notes Certificates
---------------------------------------------- ----------------------
Distribution Date 0.5% 1.0% 1.7% 2.5% 0.5% 1.0% 1.7% 2.5%
- ----------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date......... 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
07/20/96............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
08/20/96............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
09/20/96............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
10/20/96............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
11/20/96............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
12/20/96............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
01/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
02/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
03/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
04/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
05/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
06/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
07/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
08/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
09/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
10/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
11/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
12/20/97............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
01/20/98............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
02/20/98............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
03/20/98............. 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000 100.00000
04/20/98............. 100.00000 100.00000 100.00000 92.63405 100.00000 100.00000 100.00000 100.00000
05/20/98............. 100.00000 100.00000 100.00000 83.96851 100.00000 100.00000 100.00000 100.00000
06/20/98............. 100.00000 100.00000 100.00000 75.58799 100.00000 100.00000 100.00000 100.00000
07/20/98............. 100.00000 100.00000 100.00000 67.49983 100.00000 100.00000 100.00000 100.00000
08/20/98............. 100.00000 100.00000 100.00000 59.71152 100.00000 100.00000 100.00000 100.00000
09/20/98............. 100.00000 100.00000 96.91038 52.23073 100.00000 100.00000 100.00000 100.00000
10/20/98............. 100.00000 100.00000 89.86035 45.06530 100.00000 100.00000 100.00000 100.00000
11/20/98............. 100.00000 100.00000 82.99125 38.22323 100.00000 100.00000 100.00000 100.00000
12/20/98............. 100.00000 100.00000 76.30800 31.71272 100.00000 100.00000 100.00000 100.00000
01/20/99............. 100.00000 100.00000 69.81561 25.54214 100.00000 100.00000 100.00000 100.00000
02/20/99............. 100.00000 100.00000 63.51923 19.72004 100.00000 100.00000 100.00000 100.00000
03/20/99............. 100.00000 94.41251 57.42410 14.25516 100.00000 100.00000 100.00000 100.00000
04/20/99............. 100.00000 87.85083 51.53560 9.15643 100.00000 100.00000 100.00000 100.00000
05/20/99............. 100.00000 81.36165 45.85922 4.43299 100.00000 100.00000 100.00000 100.00000
06/20/99............. 99.22820 74.94740 40.40057 0.09416 100.00000 100.00000 100.00000 100.00000
07/20/99............. 92.11961 68.61060 35.16541 0.00000 100.00000 100.00000 100.00000 68.15079
08/20/99............. 84.98617 62.35379 30.15960 0.00000 100.00000 100.00000 100.00000 38.86352
09/20/99............. 77.82815 56.17960 25.38916 0.00000 100.00000 100.00000 100.00000 28.02193
10/20/99............. 70.64581 50.09073 20.86021 0.00000 100.00000 100.00000 100.00000 18.17160
11/20/99............. 63.43943 44.08993 16.57905 0.00000 100.00000 100.00000 100.00000 9.33702
12/20/99............. 56.20931 38.18002 12.55209 0.00000 100.00000 100.00000 100.00000 2.97628
01/20/00............. 48.95577 32.36389 8.78589 0.00000 100.00000 100.00000 100.00000 0.00000
02/20/00............. 41.67912 26.64450 5.28715 0.00000 100.00000 100.00000 100.00000 0.00000
03/20/00............. 34.37973 21.02488 2.06275 0.00000 100.00000 100.00000 100.00000 0.00000
04/20/00............. 27.05794 15.50814 0.00000 0.00000 100.00000 100.00000 92.71852 0.00000
05/20/00............. 19.71415 10.09745 0.00000 0.00000 100.00000 100.00000 70.76149 0.00000
06/20/00............. 12.34875 4.79608 0.00000 0.00000 100.00000 100.00000 51.25138 0.00000
07/20/00............. 4.96217 0.00000 0.00000 0.00000 100.00000 96.75233 34.25012 0.00000
08/20/00............. 0.00000 0.00000 0.00000 0.00000 79.77501 54.79417 19.82100 0.00000
09/20/00............. 0.00000 0.00000 0.00000 0.00000 60.73435 41.21217 13.88113 0.00000
10/20/00............. 0.00000 0.00000 0.00000 0.00000 41.63900 27.91994 8.71326 0.00000
11/20/00............. 0.00000 0.00000 0.00000 0.00000 22.49012 14.92627 4.33687 0.00000
</TABLE>
S-35
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/20/00............. 0.00000 0.00000 0.00000 0.00000 7.50350 4.93519 1.33955 0.00000
01/20/01............. 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000 0.00000
Weighted Average
Life (years)(1).... 3.595 3.374 2.926 2.333 4.327 4.267 4.064 3.205
</TABLE>
----------------------------------
(1) The weighted average life of a Security is determined by (i)
multiplying the amount of each principal payment on a Security by the
number of years from the date of the issuance of the Security to the
related Distribution Date, (ii) adding the results and (iii) dividing
the sum by the related initial principal amount of the Security.
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<PAGE>
DESCRIPTION OF THE PURCHASE AGREEMENTS AND THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase
Agreement and any Subsequent Purchase Agreement (together, the "Purchase
Agreements"), and the Sale and Servicing Agreement, any Subsequent Transfer
Agreement and the Trust Agreement (together, the "Trust Documents"). Forms
of the Purchase Agreements and the Trust Documents have been filed as
exhibits to the Registration Statement. The summary does not purport to be
complete and is subject to, and qualified in its entirety by reference to,
all the provisions of the Purchase Agreements and the Trust Documents. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the
Purchase Agreements and the Trust Documents (as such terms are used in the
Prospectus) set forth in the Prospectus, to which description reference is
hereby made.
SALE AND ASSIGNMENT OF RECEIVABLES; SUBSEQUENT RECEIVABLES
Certain information with respect to the sale of the Initial
Receivables by TMS Auto Finance to the Seller pursuant to the Purchase
Agreements and the conveyance of the Initial Receivables from the Seller to
the Trust on the Closing Date pursuant to the Sale and Servicing Agreement
is set forth under "Description of the Purchase Agreements and the Trust
Documents -- Sale and Assignment of Receivables" in the accompanying
Prospectus. In addition, during the Funding Period, pursuant to the Sale
and Servicing Agreement, the Seller will be obligated to sell to the Trust
Subsequent Receivables having an aggregate principal balance equal to
approximately $50,000,000 (such amount being equal to the initial Pre-
Funded Amount) to the extent that such Subsequent Receivables are
available.
During the Funding Period, on each Subsequent Transfer Date, subject
to the conditions described under "The Receivables -- Eligibility
Criteria," the Seller will sell and assign to the Trust, without recourse,
the Seller's entire interest in the Subsequent Receivables designated by
the Seller as of the related Subsequent Cutoff Date and identified in a
schedule attached to a Subsequent Transfer Agreement relating to such
Subsequent Receivables executed on such date by the Seller. Upon the
conveyance of Subsequent Receivables to the Trust on a Subsequent Transfer
Date, (i) the Pool Balance will increase in an amount equal to the
aggregate principal balances of the Subsequent Receivables and (ii) an
amount equal to the aggregate principal balances of such Subsequent
Receivables will be withdrawn from the Pre-Funding Account and paid to or
upon the order of the Seller.
ACCOUNTS
The Servicer will establish and maintain one or more accounts, in the
name of the Indenture Collateral Agent, for the benefit of the Indenture
Trustee, on behalf of the Noteholders, the Owner Trustee, on behalf of the
Certificateholders, and the Insurer, into which all payments made on or
with respect to the Receivables will be deposited (the "Collection
Account"). The Servicer will be required to remit collections to the
Collection Account within two Business Days of receipt thereof. Such
collections may be remitted less any payments owed thereon to the Servicer.
However, at any time that and for so long as (i) TMS Auto Finance is the
Servicer, (ii) there exists no Event of Servicer Termination, (iii) there
exists no Insurer Default and the Insurer has furnished its prior written
consent, and (iv) each other condition to making deposits less frequently
than every two Business Days as may be specified by the Rating Agencies is
satisfied, the Servicer will not be required to deposit such amounts into
the Collection Account until on or before the applicable Distribution 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.
The Servicer will also establish and maintain an account, in the name
of the Indenture Collateral Agent, for the benefit of the Indenture
Trustee, on behalf of the Noteholders, and the Insurer in which amounts
released from the Collection Account for distribution to Noteholders will
be deposited and from which all distributions to Noteholders will be made
(the "Note Distribution Account"). The Servicer will establish and
maintain an account, in the name of the Indenture Collateral Agent, for the
benefit of the Owner Trustee, on behalf of the Certificateholders, and the
Insurer in which amounts released from the Collection Account for
distribution to Certificateholders will be deposited and from which all
distributions to Certificateholders will be made (the "Certificate
Distribution Account").
On the Closing Date, a cash amount equal to approximately $50,000,000
(the "Initial Pre-Funded Amount") will be deposited in an account (the
"Pre-Funding Account") which will be established with the Indenture
Collateral Agent. The Pre-Funding Account will be an asset of the Trust
and will be pledged to the Indenture Collateral Agent for the benefit of
the Indenture Trustee, on behalf of the Noteholders, and the Insurer. The
"Funding Period" is the period from the Closing Date until the earliest of
the date on which (i) the amount on deposit in the Pre-Funding
S-37
<PAGE>
Account is less than $100,000, (ii) a Servicer Default occurs under the
Sale and Servicing Agreement, or (iii) the Distribution Date in September
1996. The Initial Pre-Funded Amount as reduced from time to time during the
Funding Period by the amount thereof used to purchase Subsequent
Receivables in accordance with the Sale and Servicing Agreement is referred
to herein as the "Pre-Funded Amount." The Seller expects that the Pre-
Funded Amount will be reduced to less than $100,000 on or before the end of
the Funding Period. Any Pre-Funded Amount remaining at the end of the
Funding Period will be payable to the Noteholders and Certificateholders as
described herein. The "Mandatory Redemption Date" is the earlier of (i) the
Distribution Date in September 1996 or (ii) if the last day of the Funding
Period occurs on or prior to the Determination Date (as defined herein)
occurring in July or August 1996, the Distribution Date relating to such
Determination Date.
On the Closing Date, a cash amount may be deposited in an account (the
"Capitalized Interest Account") which will be established with the
Indenture Collateral Agent. The Capitalized Interest Account will be an
asset of the Trust, and will be pledged to the Indenture Collateral Agent
for the benefit of the Indenture Trustee, on behalf of the Noteholders, the
Owner Trustee, on behalf of the Certificateholders, and the Insurer. The
amount, if any, deposited in the Capitalized Interest Account will be
applied on the Distribution Dates occurring in July, August and September
of 1996 to fund an amount (the "Monthly Capitalized Interest Amount") equal
to the amount of interest accrued for each such Distribution Date at the
weighted average Interest Rates and Certificate Rate on the portion of the
Securities having a principal balance in excess of the principal balances
of the Receivables (which portion will equal the Pre-Funded Amount). Any
amounts remaining in the Capitalized Interest Account on the Mandatory
Redemption Date and not used for such purposes are required to be paid
directly to the Seller on such date. See "Description of the Purchase
Agreements and the Trust Documents -- Accounts."
In addition, the Servicer will also establish and will maintain the
Payahead Account in the name of the Indenture Collateral Agent for the
benefit of the Indenture Trustee, on behalf of the Noteholders, the Owner
Trustee, on behalf of the Certificateholders, and the Insurer.
All such Accounts shall be Eligible Accounts (as defined in the
Prospectus) acceptable to the Insurer (so long as no Insurer Default has
occurred and is continuing).
SERVICING COMPENSATION AND TRUSTEES' FEES
The Servicer is entitled under the Sale and Servicing Agreement on
each Distribution Date to a servicing fee (the "Servicing Fee") for the
related Monthly Period equal to the sum of (i) one-twelfth of 1.50% (the
"Servicing Fee Rate") multiplied by the Pool Balance as of the first day of
such Monthly Period (the "Base Servicing Fee") and (ii) the investment
earnings (net of losses) on the Collection Account. The Servicer may
retain the Base Servicing Fee from collections on the Receivables. The
Servicer will 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.
On each Distribution Date under the Agreement, the Indenture Trustee
is entitled to a fee for its services as Indenture Trustee and Indenture
Collateral Agent during the prior Monthly Period equal to an amount agreed
upon by the Indenture Trustee and the Representative. On each Distribution
Date under the Agreement, the Owner Trustee is entitled to a fee for its
services as Owner Trustee during the prior Monthly Period equal to an
amount agreed upon by the Owner Trustee and the Representative.
CERTAIN ALLOCATIONS
On or about the fifth Business Day immediately preceding each
Distribution Date or, in the case of the Class A-1 Final Scheduled
Distribution Date and the succeeding Distribution Date, if any
distributions are required to be made on the Class A-1 Final Scheduled
Distribution Date, preceding such Class A-1 Final Scheduled Distribution
Date (in each case, the "Determination Date"), the Servicer will be
required to deliver the Servicer's Certificate to the Indenture Trustee,
the Owner Trustee and the Insurer specifying, among other things, the
amount of aggregate collections on the Receivables and the aggregate
Purchase Amount of Receivables to be purchased by the Seller, the Servicer
or the Representative, all with respect to the preceding Monthly Period.
On the fourth Business Day immediately preceding each Distribution
Date (or, in the case of the Class A-1 Final Scheduled Distribution Date,
preceding such date) (the "Deficiency Claim Date") the Indenture Trustee
and/or the Owner Trustee, as applicable, will (based solely on the
information contained in the Servicer's Certificate delivered on the
related Determination Date) deliver to the Indenture Collateral Agent, the
Insurer and the Servicer a Deficiency Notice specifying the Deficiency
Claim Amount, if any, or the Class A-1 Deficiency Claim Amount,
S-38
<PAGE>
if any, for such Distribution Date or Class A-1 Final Scheduled
Distribution Date, as applicable. Such Deficiency Notice will direct the
Indenture Collateral Agent to remit such Deficiency Claim Amount from
amounts on deposit in the Spread Account (to the extent of funds available
therein) for deposit in the Collection Account.
On each Distribution Date, the Indenture Trustee will (based solely on
the information contained in the Servicer's Certificate delivered on the
related Determination Date) cause to be made the following transfers and
distributions in the amounts set forth in the Servicer's Certificate for
such Distribution Date:
(i) from the Collection Account to the Payahead Account in
immediately available funds, the aggregate Payaheads collected during
the preceding Monthly Period;
(ii) from the Payahead Account (a) to the Collection Account, in
immediately available funds, the portion of Payaheads constituting
scheduled payments on Precomputed Receivables or that are to be
applied to prepay a Precomputed Receivable in full and (b) to the
Seller, in immediately available funds, all investment earnings on
funds in the Payahead Account with respect to the preceding Monthly
Period;
(iii) during the Funding Period, from the Capitalized Interest
Account (a) to the Collection Account, in immediately available funds,
the Monthly Capitalized Interest Amount for such Distribution Date and
(b) to the Seller, in immediately available funds, all investment
earnings on funds in the Capitalized Interest Account with respect to
the preceding Monthly Period or, if such Distribution Date is the
Mandatory Redemption Date, all remaining funds in the Capitalized
Interest Account after distributions of interest on Securities on such
date; and
(iv) during the Funding Period, from the Pre-Funding Account (a)
if such Distribution Date is the Mandatory Redemption Date, to the
Collection Account, in immediately available funds, the Pre-Funded
Amount (exclusive of investment earnings), after giving effect to the
purchase of Subsequent Receivables if any, on the Mandatory Redemption
Date and (b) to the Seller, in immediately available funds, all
investment earnings on funds in the Pre-Funding Account with respect
to the preceding Monthly Period or, if such Distribution Date is the
Mandatory Redemption Date, all remaining funds in the Pre-Funding
Account.
To the extent that collections on a Precomputed Receivable in the
related Monthly Period exceed the scheduled payment and late fees or other
fees, if any, for such Monthly Period but are insufficient to prepay the
Precomputed Receivable in full, such collections will be treated as
"Payaheads."
The scheduled payment with respect to a Precomputed Receivable is that
portion of the payment required to be made by the related Obligor during
each calendar month sufficient to amortize the principal balance thereof
under the actuarial method over the term of the Receivable and to provide
interest at the APR of such Receivable.
DISTRIBUTIONS
On each Distribution Date, the Servicer is required to instruct the
Indenture Trustee to distribute the Distribution Amount in the following
order of priority:
1. To the Indenture Trustee and the Owner Trustee, any accrued
and unpaid trustees' fees and any accrued and unpaid fees of
the Indenture Collateral Agent (in each case, to the extent
such fees have not been previously paid by the Servicer or
the Representative).
2. To the Servicer, the Servicing Fee for the related Monthly
Period, any Supplemental Servicing Fees for such month and
certain other amounts relating to mistaken deposits,
postings or checks returned for insufficient funds to the
extent the Servicer has not reimbursed itself in respect of
such amount to the extent not retained by the Servicer.
3. To the Note Distribution Account, the Noteholders' Interest
Distributable Amount.
4. To the Note Distribution Account, the Noteholders' Principal
Distributable Amount, to be distributed as described under
"Description of the Notes -- Payments of Principal."
5. To the Certificate Distribution Account, the
Certificateholders' Interest Distributable Amount.
S-39
<PAGE>
6. To the Certificate Distribution Account, the
Certificateholders' Principal Distributable Amount.
7. To the Insurer, any amounts owing to the Insurer under the
Insurance Agreement and not paid.
8. To the Indenture Collateral Agent, up to the Specified
Spread Account Requirement for deposit in the Spread
Account.
9. To the Seller, any remaining funds.
If the Notes are accelerated following an Event of Default under the
Indenture, amounts collected will be distributed in the order described
above.
On the Class A-1 Final Scheduled Distribution Date, the Servicer is
required to instruct the Indenture Trustee to distribute the Class A-1
Distribution Amount in the following order of priority:
A. To the Note Distribution Account, the sum of (x) the Noteholders'
Monthly Interest Distributable Amount for the Class A-1 Notes (calculated
as if the Class A-1 Final Scheduled Distribution Date were a Distribution
Date) and (y) the Noteholders' Interest Carryover Shortfall for the Class
A-1 Notes (calculated as if the Class A-1 Final Scheduled Distribution Date
were a Distribution Date).
B. To the Note Distribution Account, the Noteholders' Principal
Distributable Amount for the Class A-1 Notes.
In the event that there are any distributions made on the Class A-1
Final Scheduled Distribution Date, the Distribution Amount for the
Distribution Date following the Class A-1 Final Scheduled Distribution Date
will be reduced by the amount thereof applied on the Class A-1 Final
Scheduled Distribution Date in accordance with the Sale and Servicing
Agreement.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Distribution Date to cover
the distributions required pursuant to clauses 1 through 4 above on such
Distribution Date, the Indenture Trustee shall furnish to the Insurer no
later than 12:00 noon New York City time on the related Draw Date a
completed notice of claim in the amount of the Note Policy Claim Amount.
Amounts paid by the Insurer pursuant to any such notice of claim shall be
deposited by the Insurer into the Note Distribution Account for payment to
Noteholders on the related Distribution Date.
In the event that the Servicer's Certificate indicates that the Class
A-1 Distribution Amount will be insufficient on the Class A-1 Final
Scheduled Distribution Date to cover the distributions required pursuant to
clauses A and B above on such date, the Indenture Trustee shall furnish to
the Insurer no later than 12:00 noon New York City time on the related Draw
Date a completed notice of claim in the amount of the Class A-1 Note Policy
Claim Amount. Amounts paid by the Insurer pursuant to any such notice of
claim shall be deposited by the Insurer into the Note Distribution Account
for payment to the Class A-1 Noteholders on the Class A-1 Final Scheduled
Distribution Date.
In the event that the Servicer's Certificate indicates that the
Distribution Amount will be insufficient on any Distribution Date to cover
the distributions required by clauses 1 through 6 above on such
Distribution Date, the Owner Trustee shall furnish to the Insurer no later
than 12:00 noon New York City time on the related Draw Date a completed
notice of claim in the amount of the Certificate Policy Claim Amount.
Amounts paid by the Insurer pursuant to any such notice of claim shall be
deposited by the Insurer into the Certificate Distribution Account for
payment to Certificateholders on the related Distribution Date.
For the purposes hereof, the following terms shall have the following
meanings:
"Amount Financed" means, with respect to a Receivable, the aggregate
amount advanced under such Receivable toward the purchase price of the
Financed Vehicle and related costs, including amounts advanced in respect
of accessories, insurance premiums, service, car club and warranty
contracts, other items customarily financed as part of retail automobile
installment sale contracts or promissory notes, and related costs.
"Available Funds" means, with respect to any Determination Date, the sum
of (i) the Collected Funds for such Determination Date (including amounts
withdrawn from the Payahead Account but excluding amounts deposited
S-40
<PAGE>
into the Payahead Account), plus (ii) all Purchase Amounts deposited in the
Collection Account during the related Monthly Period, plus (iii) the
Monthly Capitalized Interest Amount with respect to the related
Distribution Date.
"Certificate Balance" equals, initially, $7,000,000.00 and, thereafter,
equals the initial Certificate Balance. reduced by all amounts allocable
to principal previously distributed to Certificateholders.
"Certificateholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal
Distributable Amount and the Certificateholders' Interest Distributable
Amount.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Interest
Distributable Amount for the preceding Distribution Date, over the amount
in respect of interest on the Certificates that was actually deposited in
the Certificate Distribution Account on such preceding Distribution Date,
plus interest on such excess, to the extent permitted by law, at the
Certificate Rate from such preceding Distribution Date to but excluding the
current Distribution Date.
"Certificateholders' Interest Distributable Amount" means, with respect
to any Distribution Date, the sum of the Certificateholders' Monthly
Interest Distributable Amount for such Distribution Date and the
Certificateholders' Interest Carryover Shortfall for such Distribution
Date.
"Certificateholders' Monthly Interest Distributable Amount" means, with
respect to any Distribution Date, interest accrued during the related
Interest Period at the Certificate Rate on the Certificate Balance
immediately preceding such Distribution Date, calculated on the basis of a
360-day year consisting of twelve 30-day months.
"Certificateholders' Monthly Principal Distributable Amount" means, with
respect to any Distribution Date, the Certificateholders' Percentage of the
Principal Distributable Amount.
"Certificateholders' Percentage" means (i) for each Distribution Date
prior to the Distribution Date on which the Class A-3 Notes are paid in
full, zero, (ii) on the Distribution Date on which the Class A-3 Notes are
paid in full, the percentage equivalent of a fraction, the numerator of
which is the excess, if any, of (x) the Principal Distributable Amount for
such Distribution Date over (y) the outstanding principal amount of the
Class A-3 Notes immediately prior to such Distribution Date, and the
denominator of which is the Principal Distributable Amount for such
Distribution Date, and (iii) for each Distribution Date thereafter to and
including the Distribution Date on which the Certificate Balance is reduced
to zero, 100%.
"Certificate Policy Claim Amount" for any Distribution Date, shall equal
the lesser of (i) the sum of the Certificateholders' Interest Distributable
Amount and the Certificateholders' Principal Distributable Amount for such
Distribution Date and (ii) the excess, if any, of the amount required to be
distributed pursuant to clauses 1 through 6 above over the Distribution
Amount with respect to such Distribution Date.
"Certificateholders' Principal Carryover Shortfall" means, as of the
close of any Distribution Date, the excess of the Certificateholders'
Principal Distributable Amount for the preceding Distribution Date, over
the amount in respect of principal that was actually deposited in the
Certificate Distribution Account on such Distribution Date.
"Certificateholders' Principal Distributable Amount" means, with respect
to any Distribution Date (other than the Final Scheduled Distribution Date
for the Certificates), the sum of the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date; provided, however, that the Certificateholders' Principal
Distributable Amount shall not exceed the Certificate Balance. In
addition, on the Final Scheduled Distribution Date for the Certificates,
the Certificateholders' Principal Distributable Amount will equal the
Certificate Balance on such Distribution Date.
"Class A-1 Deficiency Claim Amount" means, with respect to the
Determination Date relating to the Class A-1 Final Scheduled Distribution
Date, the excess, if any, of (i) the sum of the amounts payable on the
Class A-1 Final Scheduled Distribution Date pursuant to clauses A and B
above over (ii) the sum of the Available Funds for such Determination Date.
"Class A-1 Distribution Amount" means, with respect to the Class A-1
Final Scheduled Distribution Date, the sum of (i) the Available Funds for
the immediately preceding Determination Date plus (ii) the Class A-1
Deficiency Claim Amount, if any, received (from an Insurer Optional Deposit
or the Spread Account or otherwise other than the Policies).
S-41
<PAGE>
"Class A-1 Note Policy Claim Amount" for the Class A-1 Final Scheduled
Distribution Date, shall equal the lesser of (i) the sum of the amounts
required to be distributed pursuant to clauses A and B above on such Class
A-1 Final Scheduled Distribution Date and (ii) the excess, if any, of the
amount specified in clause (i) over the Class A-1 Distribution Amount with
respect to the Class A-1 Final Scheduled Distribution Date.
"Collected Funds" means, with respect to any Determination Date, the
amount of funds in the Collection Account representing collections on the
Receivables during the related Monthly Period, including all Net
Liquidation Proceeds collected during the related Monthly Period (but
excluding any Purchase Amounts).
"Cram Down Loss" means, with respect to a Receivable if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an
order reducing the amount owed on such Receivable or otherwise modifying or
restructuring the scheduled payments to be made on such Receivable, an
amount equal to (i) the excess of the principal balance of such Receivable
immediately prior to such order over the principal balance of such
Receivable as so reduced and/or (ii) if such court shall have issued an
order reducing the effective rate of interest on such Receivable, the net
present value (using as the discount rate the higher of the APR on such
Receivable or the rate of interest, if any, specified by the court in such
order) of the scheduled payments as so modified or restructured. A "Cram
Down Loss" shall be deemed to have occurred on the date of issuance of such
order.
"Deficiency Claim Amount" means, with respect to any Determination Date,
the excess, if any, of the sum of the amounts payable on the related
Distribution Date pursuant to clauses 1 through 7 above over the amount of
Available Funds with respect to such Determination Date.
"Deficiency Notice" means a written notice delivered by the Indenture
Trustee or the Owner Trustee, as applicable, to the Insurer, the Servicer
and any other person required under the Insurance Agreement, specifying the
Deficiency Claim Amount for such Distribution Date or the Class A-1
Deficiency Claim Amount for the Class A-1 Final Scheduled Distribution
Date.
"Distribution Amount" means, with respect to any Distribution Date the
sum of (i) the Available Funds for the immediately preceding Determination
Date plus (ii) the Deficiency Claim Amount, if any, received (from an
Insurer Optional Deposit or the Spread Account or otherwise) by the
Indenture Trustee with respect to such Distribution Date.
"Insurer Optional Deposit" means, with respect to any Distribution Date,
an amount delivered by the Insurer, at its sole option, other than the
Policies for deposit into the Collection Account for any of the following
purposes: (i) to provide funds in respect of the payment of fees or
expenses of any provider of services to the Trust with respect to such
Distribution Date; or (ii) to include such amount as part of the
Distribution Amount for such Distribution Date to the extent that without
such amount a draw would be required to be made on a Policy.
"Liquidated Receivable" means, with respect to any Determination Date, a
Receivable as to which, as of the last day of the related Monthly Period,
(i) 90 days have elapsed since the Servicer repossessed the Financed
Vehicle, (ii) the Servicer has determined in good faith that all amounts it
expects to recover have been received, (iii) 10% or more of a scheduled
payment shall have become 150 or more days delinquent, or (iv) the Financed
Vehicle has been sold and the proceeds received.
"Net Liquidation Proceeds" means, with respect to Liquidated Receivables,
(i) proceeds from the disposition of the underlying automobile securing the
Liquidated Receivables, less reasonable Servicer out-of-pocket costs,
including repossession and resale expenses not already deducted from such
proceeds, and any amounts required by law to be remitted to the Obligor,
(ii) any insurance proceeds, or (iii) other monies received from the
Obligor or otherwise.
"Noteholders' Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable
Amount and the Noteholders' Interest Distributable Amount.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date and a Class of Notes, the excess of the Noteholders'
Interest Distributable Amount for such Class for the preceding Distribution
Date, over the amount in respect of interest that was actually deposited in
the Note Distribution Account with respect to such Class on such preceding
Distribution Date, plus interest on the amount of interest due but not paid
to Noteholders of such Class on the preceding Distribution Date, to the
extent permitted by law, at the Interest Rate borne by such Class of Notes
from such preceding Distribution Date to but excluding the current
Distribution Date.
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"Noteholders' Interest Distributable Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest
Distributable Amount for each Class of Notes for such Distribution Date and
the Noteholders' Interest Carryover Shortfall for each Class of Notes for
such Distribution Date.
"Noteholder Monthly Interest Distributable Amount" means, with respect to
any Distribution Date and any Class of Notes, interest accrued during the
applicable Interest Period at the Interest Rate borne by such Class of
Notes on the outstanding principal amount of such Class immediately prior
to such Distribution Date, calculated on the basis of a 360-day year and
(a) the actual number of days elapsed, in the case of the Class A-1 Notes
and the Class A-2 Notes and (b) twelve 30-day months, in the case of the
Class A-3 Notes.
"Noteholders' Monthly Principal Distributable Amount" means, with respect
to any Distribution Date, the Noteholders' Percentage of the Principal
Distributable Amount.
"Note Policy Claim Amount" for any Distribution Date, shall equal the
lesser of (i) the sum of the Noteholders' Interest Distributable Amount and
Noteholders' Principal Distributable Amount for such Distribution Date and
(ii) the excess, if any, of the amount required to be distributed pursuant
to clauses 1 through 4 above over the Distribution Amount with respect to
such Distribution Date.
"Noteholders' Percentage" means (i) for each Distribution Date to the
Distribution Date on which the Class A-3 Notes are paid in full, 100%, (ii)
on the Distribution Date on which the Class A-3 Notes are paid in full, the
percentage equivalent of a fraction, the numerator of which is the
outstanding principal amount of the Class A-3 Notes immediately prior to
such Distribution Date, and the denominator of which is the Principal
Distributable Amount for such Distribution Date, and (iii) for any
Distribution Date thereafter, zero.
"Noteholders' Principal Carryover Shortfall" means, as of the close of
any Distribution Date, the excess of the Noteholders' Principal
Distributable Amount for the preceding Distribution Date over the amount in
respect of principal that was actually deposited in the Note Distribution
Account on such Distribution Date.
"Noteholders' Principal Distributable Amount" means, with respect to any
Distribution Date (other than the Final Scheduled Distribution Date for any
Class of Notes), the sum of the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date and the Noteholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date. The Noteholders' Principal Distributable Amount on the Final
Scheduled Distribution Date for any Class of Notes will equal the sum of
(i) the Noteholders' Monthly Principal Distributable Amount for such
Distribution Date, (ii) the Noteholders' Principal Carryover Shortfall as
of the close of the preceding Distribution Date, and (iii) the excess of
the outstanding principal amount of such Class of Notes, if any, over the
amounts described in clauses (i) and (ii).
"Principal Balance" means, with respect to any Receivable, as of any
date, the Amount Financed minus (i) that portion of all amounts received
(including Payaheads applied to scheduled payments) on or prior to such
date and allocable to principal in accordance with the terms of the
Receivable, and (ii) any Cram Down Loss in respect of such Receivable.
"Principal Distributable Amount" means, with respect to any Distribution
Date, the amount equal to the sum of the following amounts with respect to
the related Monthly Period, computed, with respect to Simple Interest
Receivables, in accordance with the simple interest method, and, with
respect to Precomputed Receivables, in accordance with the actuarial
method: (i) that portion of all collections on Receivables allocable to
principal, including full and, with respect to Simple Interest Receivables,
partial principal prepayments, received during such Monthly Period
(including, with respect to Precomputed Receivables, amounts withdrawn from
the Payahead Account but excluding amounts deposited into the Payahead
Account) with respect to such Monthly Period, (ii) the principal balance of
each Receivable that was repurchased by the Representative, the Seller or
the Servicer as of the last day of such Monthly Period, (iii) at the option
of the Insurer, the outstanding principal balance of those Receivables that
were required to be repurchased by the Seller and/or TMS Auto Finance
during such Monthly Period but were not so repurchased, (iv) the principal
balance of each Receivable that became a Liquidated Receivable during such
Monthly Period and (v) the aggregate amount of Cram Down Losses during such
Monthly Period.
"Purchase Amount" means, with respect to a Receivable, the Principal
Balance and accrued interest on 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.
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STATEMENTS TO SECURITYHOLDERS
On or prior to each Distribution Date, the Indenture Trustee will be
required to forward a statement to the Noteholders and the Owner Trustee
will be required to forward a statement to the Certificateholders on such
Distribution Date. Such statements will be based on the information in the
related Servicer's Certificate setting forth certain information required
under the Trust Documents. Each such statement to be delivered to
Noteholders will include the following information as to the Notes, and
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:
(i) the amount of the distribution allocable to interest on or with
respect to the Notes and the Certificates:
(ii) the amount of the distribution allocable to principal with
respect to the Notes and the Certificates;
(iii) the amount of the distribution payable pursuant to a claim on
the Note Policy or the Certificate Policy, as the case may be, or out
of amounts on deposit in the Spread Account;
(iv) the aggregate outstanding principal amount and the Note Pool
Factor for each Class of Notes and the Certificate Balance and the
Certificate Pool Factor for the Certificates, in each case, after
giving effect to all payments reported under (ii) above on such date;
(v) the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest
Carryover Shortfall and the Certificateholders' Principal Carryover
Shortfall, if any, and the change in such amounts from the preceding
statement;
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Monthly Period;
(vii) for each such date during the Funding Period, the remaining
Pre-Funded Amount, the amount in the Pre-Funding Account and the
amount remaining in the Capitalized Interest Account; and
(viii) for the final Subsequent Transfer Date, the amount of any
remaining Pre-Funded Amount that has not been used to fund the
purchase of Subsequent Receivables and is being passed through as
payments of principal of the Notes and Certificates.
Each amount set forth pursuant to subclauses (i) through (vi) with
respect to Certificates or Notes will be expressed as a dollar amount per
$1,000 of the initial principal amount of the Notes or initial Certificate
Balance, as applicable.
Unless and until Definitive Notes or Definitive Certificates are issued,
such reports will be sent on behalf of the Trust to Cede & Co., as
registered holder of the Notes and the Certificates and the nominee of DTC.
See "Reports to Securityholders" and "Certain Information Regarding the
Securities" in the Prospectus.
Within the required period of time after the end of each calendar year,
the Indenture Trustee and the Owner Trustee, as applicable, will furnish to
each person who at any time during such calendar year was a Noteholder or
Certificateholder, a statement as to the aggregate amounts of interest and
principal paid to such Noteholder or Certificateholder, information
regarding the amount of servicing compensation received by the Servicer and
such other information as the Seller deems necessary to enable such
Noteholder or Certificateholder to prepare its tax returns.
SPREAD ACCOUNT
On the Closing Date, the Seller will make an initial deposit of an amount
to be agreed upon by the Seller and the Insurer (the "Spread Account
Initial Deposit") to the Spread Account which will be established with the
Indenture Collateral Agent for the benefit of the Indenture Trustee on
behalf of the Noteholders, the Owner Trustee, on behalf of the
Certificateholders, and the Insurer pursuant to a certain Spread Account
Agreement dated as of May 31, 1996 (the "Spread Account Agreement"). The
Spread Account will not be an asset of the Trust. On each Distribution
Date, the Indenture Trustee will be required to deposit additional amounts
into the Spread Account from payments on the Receivables as described under
"-- Distributions" above. Amounts, if any, on deposit in the Spread
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Account will be available to the extent provided in the Spread Account
Agreement to fund any Deficiency Claim Amount or the Class A-1 Deficiency
Claim Amount otherwise required to be made on a Distribution Date or the
Class A-1 Final Scheduled Distribution Date, as applicable. The aggregate
amount required to be on deposit at any time in the Spread Account (the
"Specified Spread Account Requirement") will be determined in accordance
with the Insurance Agreement and the Spread Account Agreement. The
Specified Spread Account Requirement may increase or decrease over time as
a result of floors, caps and triggers set forth in the Insurance Agreement
or the Spread Account Agreement, even if no withdrawals are made from the
Spread Account. Amounts on deposit in the Spread Account on any
Distribution Date (after giving effect to all distributions made on such
Distribution Date) in excess of the Specified Spread Account Requirement
for such Distribution Date will be released to the Seller. Amounts on
deposit or to be deposited in the Spread Account may be distributed to
persons other than the Insurer or the Securityholders without the consent
of the Securityholders.
Amounts held from time to time in the Spread Account will continue to be
held for the benefit of holders of the Securities and the Insurer. Funds
in the Spread Account will be invested in Eligible Investments. Investment
income (net of investment losses and expenses) on amounts in the Spread
Account will not be available for distribution to holders of Securities,
and will only be distributed to the Seller.
In addition, the Seller, the Insurer and the Indenture Collateral Agent
may amend the Spread Account Agreement (and any provisions in the Insurance
Agreement relating to the Spread Account) in any respect (including,
without limitation, reducing or eliminating the Specified Spread Account
Requirement and/or reducing or eliminating the funding requirements of the
Spread Account or permitting such funds to be used for the benefit of
persons other than Securityholders) without the consent of, or notice to,
the Indenture Trustee, the Owner Trustee or the Securityholders. The
Indenture Collateral Agent shall not withhold or delay its consent with
respect to any amendment that does not adversely affect the Indenture
Collateral Agent. Notwithstanding any reduction in or elimination of the
funding requirements of the Spread Account or the depletion thereof, the
Insurer will be obligated on each Distribution Date to fund the full amount
of each Guaranteed Note Distribution and each Guaranteed Certificate
Distribution otherwise required to be made on such Distribution Date. If
the Insurer breaches its obligations, any losses on the Receivables will be
borne by the Securityholders.
SERVICER DEFAULT; RIGHTS UPON SERVICER DEFAULT
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Servicer Default" in the
Prospectus, a "Servicer Default" under the Sale and Servicing Agreement
will consist of (i) any failure by the Servicer to deliver to the Owner
Trustee or the Indenture Trustee any deposit or payment required to be so
made, which failure continues unremedied for five Business Days after
written notice from the Owner Trustee or the Indenture Trustee or the
Insurer is received by the Servicer or after discovery of such failure by
the Servicer, (ii) any failure by the Servicer duly to observe or perform
in any material respect any other covenant or agreement in the Sale and
Servicing Agreement which failure materially and adversely affects the
rights of Certificateholders or Noteholders and which continues unremedied
for 60 days after the giving of written notice of such failure (1) to the
Servicer by the Owner Trustee or the Indenture Trustee or the Insurer or
(2) to the Servicer and to the Owner Trustee and the Indenture Trustee by
holders of Certificates or Notes evidencing not less than 25% in aggregate
principal amount of the outstanding Certificates or Notes, respectively (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, the Indenture Trustee and the Insurer 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); (iii) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with respect
to the Servicer or the Seller and certain actions by the Servicer or the
Seller indicating its insolvency, reorganization pursuant to bankruptcy
proceedings, or inability to pay its obligations; and (iv) unless an
Insurer Default has occurred and is continuing, certain defaults under the
Insurance Agreement.
As long as a Servicer Default under the Sale and Servicing Agreement
remains unremedied, the Insurer or, if an Insurer Default exists, either
the Indenture Trustee or the Noteholders holding not less than a majority
of the principal amount of Notes outstanding may terminate all of the
rights and obligations of the Servicer under the Sale and Servicing
Agreement. All authority, power, obligations and responsibilities of the
Servicer under the Sale and Servicing Agreement automatically then pass to
the Indenture Trustee, as backup servicer, or a successor servicer
appointed by the Insurer in accordance with the Sale and Servicing
Agreement.
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"Insurer Default" shall mean the occurrence and continuance of any of the
following events:
(a) the Insurer shall have failed to make a payment required under
the Policy in accordance with its terms;
(b) the Insurer shall have (i) filed a petition or commenced any
case or proceeding under any provision or chapter of the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization,
(ii) made a general assignment for the benefit of its creditors, or
(iii) had an order for relief entered against it under the United
States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or
(c) a court of competent jurisdiction, the New York Department of
Insurance or other competent regulatory authority shall have entered a
final and nonappealable order, judgement or decree (i) appointing a
custodian, trustee, agent or receiver for the Insurer or for all or
any material portion of its property or (ii) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the Insurer
(or the taking of possession of all or any material portion of the
property of the Insurer).
WAIVER OF PAST DEFAULTS
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreements and the Trust Documents -- Waiver of Past Defaults"
in the Prospectus, the Insurer may, on behalf of all holders of Securities,
waive any default by the Servicer in the performance of its obligations
under the Sale and Servicing Agreement and its consequences. No such
waiver will impair the Securityholders' rights with respect to subsequent
defaults.
AMENDMENT
Notwithstanding anything to the contrary set forth under "Description of
the Purchase Agreement and the Trust Documents -- Amendment" in the
Prospectus, the Agreement may be amended by the Representative, the Seller,
the Servicer and the Owner Trustee with the consent of the Indenture
Trustee, (which consent may not be unreasonably withheld) and with the
consent of the Insurer (so long as no Insurer Default has occurred and is
continuing), but without the consent of the Securityholders, to cure any
ambiguity, or to correct or supplement any provision therein which may be
inconsistent with any other provision therein; provided that such action
shall not adversely affect in any material respect the interests of any
Securityholder; provided, further, that if an Insurer Default has occurred
and is continuing, such action shall not materially adversely affect the
interests of the Insurer. The Representative, the Seller, the Servicer and
the Owner Trustee may also amend the Sale and Servicing Agreement with the
consent of the Insurer, the consent of the Indenture Trustee, the consent
of Noteholders holding a majority of the principal amount of the Notes and
the consent of Certificateholders holding a majority of the principal
amount of Certificates outstanding to add, change or eliminate any other
provisions with respect to matters or questions arising under such
Agreement or affecting the rights of the Noteholders or the
Certificateholders; provided that such action will not (i) increase or
reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or distributions that are required
to be made for the benefit of the Noteholders or Certificateholders or (ii)
reduce the aforesaid percentage of the Noteholders or Certificateholders
required to consent to any such amendment, without, in either case, the
consent of the holders of all Notes and Certificates outstanding; provided,
further, that if an Insurer Default has occurred and is continuing, such
action shall not materially adversely affect the interest of the Insurer.
The Seller and Servicer must deliver to the Owner Trustee, the Indenture
Trustee and the Insurer upon the execution and delivery of the Sale and
Servicing Agreement and any amendment thereto an opinion of counsel,
satisfactory to the Indenture Trustee, that all financing statements and
continuation statements have been filed that are necessary to fully protect
and preserve the Trustee's interest in the Receivables.
THE POLICIES
NOTE POLICY
Simultaneously with the issuance of the Notes, the Insurer will deliver
the Note Policy to the Indenture Trustee for the benefit of each
Noteholder. Under the Note Policy, the Insurer will unconditionally and
irrevocably
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guarantee to the Indenture Trustee for the benefit of each Noteholder the
full and complete payment of (i) Guaranteed Note Distributions (as defined
below) on the Notes and (ii) the amount of any Guaranteed Note Distribution
which subsequently is avoided in whole or in part as a preference payment
under applicable law. In the event the Indenture Trustee fails to make a
claim under the Note Policy, Noteholders do not have the right to make a
claim directly under the Note Policy, but may sue to compel the Indenture
Trustee to do so.
"Guaranteed Note Distributions" means payments which are scheduled to be
made on the Notes during the term of the Note Policy in accordance with the
original terms of the Notes when issued and without regard to any
subsequent amendment or modification of the Notes that has not been
consented to by the Insurer, which payments are (i) the Noteholders'
Interest Distributable Amount and (ii) the Noteholders' Principal
Distributable Amount; Guaranteed Note Distributions do not include payments
which become due on an accelerated basis as a result of (a) a default by
the Trust, (b) an election by the Trust to pay principal on an accelerated
basis, (c) the occurrence of an Event of Default under the Indenture or (d)
any other cause, unless the Insurer elects, in its sole discretion, to pay
in whole or in part such principal due upon acceleration, together with any
accrued interest to the date of acceleration. In the event the Insurer
does not so elect, the Note Policy will continue to guarantee Guaranteed
Note Distributions due on the Notes in accordance with their original
terms. Guaranteed Note Distributions shall not include (x) any portion of
a Noteholders' Interest Distributable Amount due to Noteholders because the
appropriate notice and certificate for payment in proper form was not
timely Received (as defined below) by the Insurer, (y) any portion of a
Noteholders' Interest Distributable Amount due to Noteholders representing
interest on any Noteholders' Interest Carryover Shortfall accrued from and
including the date of payment of the amount of such Noteholders' Interest
Carryover Shortfall pursuant to the Note Policy, or (z) any Note Prepayment
Amounts unless, in each case, the Insurer elects, in its sole discretion,
to pay such amount in whole or in part.
Payment of claims on the Note Policy made in respect of Guaranteed Note
Distributions will be made by the Insurer following Receipt by the Insurer
of the appropriate notice for payment on the later to occur of (i) 12:00
noon, New York City time, on the third Business Day following Receipt of
such notice for payment, and (ii) 12:00 noon, New York City time, on the
date on which such payment was due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made
under the Note Policy, the Insurer shall cause such payment to be made no
earlier than the first to occur of (a) the fourth Business Day following
Receipt by the Insurer from the Indenture Trustee of (i) a certified copy
of the order (the "Order") of the court or other governmental body which
exercised jurisdiction to the effect that the Noteholder is required to
return principal or interest paid on the Notes during the term of the Note
Policy because such payments were avoidable as preference payments under
applicable bankruptcy law, (ii) a certificate of the Noteholder that the
Order has been entered and is not subject to any stay and (iii) an
assignment duly executed and delivered by the Noteholder, in such form as
is reasonably required by the Insurer and provided to the Noteholder by the
Insurer, irrevocably assigning to the Insurer all rights and claims of the
Noteholder relating to or arising under the Notes against the Trust or
otherwise with respect to such preference payment, or (b) the date of
Receipt (as defined below) by the Insurer from the Indenture Trustee of the
items referred to in clauses (i), (ii) and (iii) above if, at least four
Business Days prior to such date of Receipt, the Insurer shall have
received written notice from the Indenture Trustee that such items were to
be delivered on such date and such date was specified in such notice. Such
payment shall be disbursed to the receiver, conservator, debtor-in-
possession or trustee in bankruptcy named in the Order and not to the
Indenture Trustee or any Noteholder directly (unless a Noteholder has
previously paid such amount to the receiver, conservator, debtor-in-
possession or trustee in bankruptcy named in the Order, in which case such
payment shall be disbursed to the Indenture Trustee for distribution to
such Noteholder upon proof of such payment reasonably satisfactory to the
Insurer). In connection with the foregoing, the Insurer shall have the
rights provided in the Indenture.
CERTIFICATE POLICY
Simultaneously with the issuance of the Certificates, the Insurer will
deliver the Certificate Policy to the Owner Trustee for the benefit of each
Certificateholder. Under the Certificate Policy, the Insurer will
unconditionally and irrevocably guarantee to the Owner Trustee for the
benefit of each Certificateholder the full and complete payment of (i)
Guaranteed Certificate Distributions (as defined below) with respect to the
Certificates and (ii) the amount of any Guaranteed Certificate Distribution
which subsequently is avoided in whole or in part as a preference payment
under applicable law. In the event that the Owner Trustee fails to make a
claim under the Certificate Policy, Certificateholders do not have the
right to make a claim directly under the Certificate Policy but may sue to
compel the Owner Trustee to do so.
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"Guaranteed Certificate Distributions" means the distributions to be made
on the Certificates with respect to a Distribution Date during the term of
the Certificate Policy in accordance with the original terms of the
Certificates when issued and without regard to any amendment or
modification of the Certificates or the Trust Agreement which has not been
consented to by the Insurer, which distributions are equal to (i) the
Certificateholders' Interest Distributable Amount with respect to such
Distribution Date and (ii) the Certificateholders' Principal Distributable
Amount with respect to such Distribution Date; provided, however, that
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Guaranteed Certificate Distributions shall not include (x) any portion of a
Certificateholder's Interest Distributable Amount due to Certificateholders
because the appropriate notice and certificate for payment in proper form
was not timely Received (as defined below) by the Insurer, (y) any portion
of a Certificateholder's Interest Distributable Amount due to
Certificateholders representing interest on any Certificateholders'
Interest Carryover Shortfall accrued from and including the date of payment
of the amount of such Certificateholders' Interest Carryover Shortfall
pursuant to the Certificate Policy, or (z) any Certificate Prepayment
Amount, unless, in each case, the Insurer elects, in its sole discretion,
to pay such amount in whole or in part.
Payment of claims on the Certificate Policy made in respect of Guaranteed
Certificate Distributions will be made by the Insurer following Receipt by
the Insurer of the appropriate notice for payment on the later to occur of
(i) 12:00 noon New York City time, on the third Business Day following
Receipt (as defined below) of such notice for payment, or (ii) 12:00 noon,
New York City time, on the date on which such payment was due on the
Certificates.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made
under the Certificate Policy, the Insurer shall cause such payment to be
made no earlier than the first to occur of (a) the fourth Business Day
following Receipt by the Insurer from the Owner Trustee of (i) a certified
copy of the order (the "Order") of the court or other governmental body
which exercised jurisdiction to the effect that the Certificateholder is
required to return the amount of any Guaranteed Certificate Distributions
distributed with respect to the Certificates during the term of the
Certificate Policy because such distributions were avoidable as preference
payments under applicable bankruptcy law, (ii) a certificate of the
Certificateholder that the Order has been entered and is not subject to any
stay and (iii) an assignment duly executed and delivered by the
Certificateholder, in such form as is reasonably required by the Insurer
and provided to the Certificateholder by the Insurer, irrevocably assigning
to the Insurer all rights and claims of the Certificateholder relating to
or arising under the Certificates against the debtor which made such
preference payment or otherwise with respect to such preference payment, or
(b) the date of Receipt by the Insurer from the Owner Trustee of the items
referred to in clauses (i), (ii) and (iii) above if, at least four Business
Days prior to such date of Receipt, the Insurer shall have Received written
notice from the Owner Trustee that such items were to be delivered on such
date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Owner Trustee or any
Certificateholder directly (unless a Certificateholder has previously paid
such amount to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order in which case such payment shall be
disbursed to the Owner Trustee for distribution to such Certificateholder
upon proof of such payment reasonably satisfactory to the Insurer). In
connection with the foregoing, the Insurer shall have the rights provided
in the Sale and Servicing Agreement.
OTHER PROVISIONS OF THE POLICIES
The terms "Receipt" and "Received" with respect to a Policy shall mean
actual delivery to the Insurer and to its fiscal agent, if any, prior to
12:00 noon, New York City time, on a Business Day; delivery either on a day
that is not a Business Day or after 12:00 noon, New York City time, shall
be deemed to be Received on the next succeeding Business Day. If any
notice or certificate given under a Policy by the Indenture Trustee or the
Owner Trustee, as the case may be, is not in proper form or is not properly
completed, executed or delivered, it shall be deemed not to have been
Received, and the Insurer or its fiscal agent shall promptly so advise the
Indenture Trustee or the Owner Trustee and the Indenture Trustee or the
Owner Trustee may submit an amended notice.
Under the Policies, "Business Day" means any day other than a Saturday,
Sunday, legal holiday or other day on which commercial banking institutions
in Wilmington, Delaware, the City of New York or Minneapolis, Minnesota or
any other location of any successor Servicer, successor Owner Trustee or
successor Indenture Collateral Agent are authorized or obligated by law,
executive order or governmental decree to be closed.
The Insurer's obligations under the respective Policies in respect of
Scheduled Payments and Guaranteed Distributions shall be discharged to the
extent funds are transferred to the Indenture Trustee or the Owner Trustee
S-48
<PAGE>
as provided in the related Policy whether or not such funds are properly
applied by the Indenture Trustee or the Owner Trustee.
The Insurer shall be subrogated to the rights of each Noteholder or
Certificateholder to receive payments of principal and interest to the
extent of any payment by the Insurer under the related Policy.
Claims under the Policies constitute direct, unsecured and unsubordinated
obligations of the Insurer ranking not less than pari passu with other
unsecured and unsubordinated indebtedness of the Insurer for borrowed
money. Claims against the Insurer under each other financial guaranty
insurance policy issued thereby constitute pari passu claims against the
general assets of the Insurer. The terms of the Policies cannot be
modified or altered by any other agreement or instrument, or by the merger,
consolidation or dissolution of the Trust. The Note Policy may not be
canceled or revoked prior to distribution in full of all Scheduled
Payments, and the Certificate Policy may not be canceled or revoked prior
to distribution in full of all Guaranteed Distributions. THE POLICIES ARE
NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN
ARTICLE 76 OF THE NEW YORK INSURANCE LAW. The Policies are governed by the
laws of the State of New York.
It is a condition to issuance that the Class A-1 Notes be rated A-1+ by
S&P and P-1 by Moody's, and that the Class A-2 Notes, the Class A-3 Notes
and the Certificates be rated AAA by S&P and Aaa by Moody's. The ratings
by the Rating Agencies of the Securities will be based primarily on the
issuances of the Policies. A rating is not a recommendation to purchase,
hold or sell Securities. In the event that the rating initially assigned
to any of the Securities is subsequently lowered or withdrawn for any
reason, including by reason of a downgrading of the claims-paying ability
of the Insurer, no person or entity will be obligated to provide any
additional credit enhancement with respect to the Securities. Any
reduction or withdrawal of a rating may have an adverse effect on the
liquidity and market price of the Securities. See "Ratings" in the
Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
PROSPECTIVE NOTEHOLDERS AND CERTIFICATEHOLDERS ARE ADVISED TO CONSULT
THEIR TAX ADVISORS WITH REGARD TO THE FEDERAL INCOME TAX CONSEQUENCES OF
THE PURCHASE, OWNERSHIP, OR DISPOSITION OF INTERESTS IN THE NOTES OR
CERTIFICATES, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
STATE, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
Stroock & Stroock & Lavan, special tax counsel to the Trust, is of the
opinion, that for federal income tax purpose the Notes will be
characterized as debt and the Trust will not be characterized as an
association (or a publicly traded partnership) taxable as a corporation.
Opinions of counsel are not binding on the Internal Revenue Service (the
"IRS") and there can be no assurance that the IRS could not successfully
challenge this conclusion. Moreover, no ruling will be sought from the IRS
with respect to the transaction described herein. All potential investors
and Certificateholders are advised to review "FEDERAL INCOME TAX
CONSEQUENCES -- TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE" in the
Prospectus for a discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the Notes and
Certificates.
STATE TAX CONSIDERATIONS
Potential Noteholders and Certificateholders should consider the state
and local income tax consequences of the purchase, ownership and
disposition of the Notes and Certificates. State and local income tax laws
may differ substantially from the corresponding federal law, and this
discussion does not purport to describe any aspect of the income tax laws
of any state or locality. Therefore, potential Noteholders and
Certificateholders should consult their own tax advisors with respect to
the various state and local tax consequences of an investment in the Notes
and Certificates.
S-49
<PAGE>
ERISA CONSIDERATIONS
Section 406 of ERISA, and/or Section 4975 of the Code, prohibits a
pension, profit-sharing or other employee benefit plan, as well as
individual retirement accounts and certain types of Keogh Plans (each a
"Benefit Plan") from engaging in certain transactions with persons that are
"parties in interest" under ERISA or "disqualified persons" under the Code
with respect to such Benefit Plan. A violation of these "prohibited
transaction" rules may result in an excise tax or other penalties and
liabilities under ERISA and the Code for such persons. Title I of ERISA
also requires that fiduciaries of a Benefit Plan subject to ERISA make
investments that are prudent, diversified (except if prudent not to do so)
and in accordance with governing plan documents.
Certain transactions involving the purchase, holding or transfer of the
Securities might be deemed to constitute prohibited transactions under
ERISA and the Code if assets of the Trust were deemed to be assets of a
Benefit Plan. Under a regulation issued by the United States Department of
Labor (the "Plan Assets Regulation"), the assets of the Trust would be
treated as plan assets of a Benefit Plan for the purposes of ERISA and the
Code only if the Benefit 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. However, without regard to whether the Notes are treated as an
Equity Interest for such purposes, the acquisition or holding of Notes by
or on behalf of a Benefit Plan could be considered to give rise to a
prohibited transaction if the Trust, the Owner Trustee or the Indenture
Trustee, the owner of collateral, or any of their respective affiliates is
or becomes a party in interest or a disqualified person with respect to
such Benefit Plan. In such case, certain exemptions from the prohibited
transaction rules could be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 95-60, regarding investments by insurance company general
accounts; PTCE 91-38, regarding investments by bank collective investment
funds; PTCE 96-23, regarding transactions affected by in-house asset
managers; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
The Certificates may not be acquired by (a) an employee benefit plan (as
defined in Section 3(3) of ERISA) that is subject to the provisions of
Title I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or
(c) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it
is not subject to the foregoing limitation. For additional information
regarding treatment of the Certificates under ERISA, see "ERISA
Considerations" in the accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements.
A plan fiduciary considering the purchase of Notes should consult its tax
and/or legal advisors regarding whether the assets of the Trust would be
considered plan assets, the possibility of exemptive relief from the
prohibited transaction rules and other issues and their potential
consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in the
Underwriting Agreement, the Seller has agreed to cause the Trust to sell to
the Underwriters named below (the "Underwriters"), for whom CS First Boston
Corporation is acting as representative, and the Underwriters have
severally but not jointly agreed to purchase the following respective
number of Notes and Certificates.
<TABLE>
<CAPTION>
Principal Amount Principal Amount
Underwriter of Notes of Certificates
- ----------------------- ---------------- ----------------
<S> <C> <C>
CS First Boston
Corporation......... 130,275,000.00 4,725,000.00
Prudential Securities
Incorporated........ 62,725,000.00 2,275,000.00
</TABLE>
S-50
<PAGE>
The Underwriters have informed the Representative and the Seller that
they do not expect discretionary sales by the Underwriters to exceed 5% of
the principal amount of the Securities being offered hereby.
The Seller has been advised by the Underwriters that the Underwriters
propose to offer the Securities from time to time for sale in negotiated
transactions or otherwise, at prices determined at the time of sale. The
Underwriters may effect such transactions by selling Securities to or
through dealers and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriters
and any purchasers of Securities for whom they may act as agents. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of the Securities may be deemed to be underwriters, and any
discounts or commissions received by them and any profit on the resale of
Securities by them may be deemed to be underwriting discounts or
commissions, under the Securities Act of 1933, as amended.
The Representative and Seller have jointly agreed to indemnify the
several Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or contribute to payments which the
Underwriters may be required to make in respect thereof.
The Indenture Trustee and the Indenture Collateral Agent may from time to
time invest the funds in the Collection Account, the Pre-Funding Account,
the Capitalized Interest Account, the Payahead Account, the Spread Account,
as the case may be, in Eligible Investments acquired from the Underwriters.
EXPERTS
The consolidated balance sheets of Financial Security as of December 31,
1995 and 1994 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1995, incorporated by reference herein, have been
audited by Coopers & Lybrand L.L.P., independent certified public
accountants, and are incorporated herein in reliance upon the authority of
that firm as experts in accounting and auditing.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
federal income tax and other matters will be passed upon for the Seller and
the Trust by Stroock & Stroock & Lavan. Certain legal matters relating to
the Securities will be passed upon for the Representative by Eric R. Elwin,
Corporate Counsel of the Representative. Certain legal matters relating to
the Securities will be passed upon for the Underwriters by Stroock &
Stroock & Lavan. Certain legal matters will be passed upon for the Insurer
by Bruce E. Stern, General Counsel, the Insurer. The Insurer is
represented by Rogers & Wells. Stroock & Stroock & Lavan has performed
legal services for The Money Store Inc. and it is expected that it will
continue to perform such services in the future.
S-51
<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 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
<PAGE>
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 JUNE 17, 1996
-2-
<PAGE>
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.
---------------------
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.
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).
-3-
<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
-4-
<PAGE>
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").
-5-
<PAGE>
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
-6-
<PAGE>
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
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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. 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.
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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.
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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 an
undivided beneficial interest (the "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.
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
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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 ACCOUNT 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
Certificates and Notes as specified in the related
Prospectus Supplement.
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, over collateralization, 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.
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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.
The Servicer will be obligated to purchase any
Receivable if a perfected security interest in the
related Financed Vehicle in favor of the Servicer
is not maintained. If the Seller or the Servicer
fails to repurchase or purchase, as the case may
be, a Receivable for any of the foregoing reasons,
the Representative will be obligated to purchase
such Receivable on the date such Receivable was to
be so purchased or repurchased. See "Certain Legal
Aspects of the Receivables."
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
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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
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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.
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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 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
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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
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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
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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
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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 acquired by TMS Auto Finance in bulk 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.
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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 are to be acquired in bulk 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. 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
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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
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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).
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(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
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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
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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 May 31, 1996, TMS Auto Finance does business with
approximately 3442 franchised new car dealers or independent used car dealers in
the following 34 states: Alabama, Arizona, California, Colorado, Connecticut,
Florida, Georgia, 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 Dakota, Tennessee, Texas, Vermont, Washington
and Wisconsin. 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 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.
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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
The cornerstone of TMS Auto Finance's current operations is its 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, Tampa, Florida,
Atlanta, Georgia, Chicago, Illinois, Indianapolis, Indiana, Kansas City, Kansas,
Louisville, Kentucky, Boston, Massachusetts, Detroit, Michigan, St. Louis,
Missouri, Las Vegas, Nevada, Reno, Nevada, Albuquerque, New Mexico, Charlotte,
North Carolina, Columbus, Ohio, Oklahoma City, Oklahoma, Portland, Oregon,
Pittsburgh, Pennsylvania, Nashville, Tennessee, Dallas/Ft. Worth, Texas,
Houston, Texas, San Antonio, Texas, 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, fees,
participation, and other terms and conditions stipulated by the finance source.
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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.
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.
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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.
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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 12 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 three months ended March 31,
1996, The Money Store and its subsidiaries originated or purchased approximately
$3.8 billion and $1.2 billion of loans, respectively. Of those loans,
approximately 75% and 75%, respectively, by principal amount were home equity
loans, approximately 12% and 9%, respectively, by principal amount were SBA
Loans, approximately 10% and 10%, respectively, by principal amount were
government guaranteed student loans and approximately 3% and 6%, 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 March 31, 1996, The Money Store and its subsidiaries operated out of 183
branch locations in 49 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
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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.
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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.
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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
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(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
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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
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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
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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.
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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.
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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
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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
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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
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(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
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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.
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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"). 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.
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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. To assure uniform quality
in servicing both the Receivables and the Servicer's own portfolio of
receivables, as well as to facilitate servicing and save administrative costs,
the documents will not be physically segregated from other similar documents
that are in the Servicer's possession or otherwise stamped or marked to reflect
the transfer to a Trust so long as TMS Auto Finance is servicing the
Receivables. However, 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. Because the
Receivables will remain in TMS Auto Finance's possession and will not be stamped
or otherwise marked to reflect the assignment to the Owner Trustee, if a
subsequent purchaser were able to take physical possession of the Receivables
without knowledge of the assignment, the Owner Trustee's interest in the
Receivables could be defeated. 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
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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.
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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
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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 -
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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, overcollateralization, 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.
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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
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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
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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
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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
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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.
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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
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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.
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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 relates 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
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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.
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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. However, the Contracts will not be
physically marked to indicate the ownership interest thereof by the Trust. UCC-
1 financing statements will be filed with the California Secretary of State to
perfect by filing and give notice of the Trust's ownership interest in the
Contracts. If, through inadvertence or otherwise, any of the Contracts were
sold to another party who purchased such Contracts in the ordinary course of its
business and took possession of such Contracts, the purchaser would acquire an
interest in the Contracts superior to the interests of the Trust if the
purchaser acquired the Contracts in good faith, for value and without actual
knowledge of the Trust's ownership interest in the Contracts. The 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.
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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
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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.
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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.
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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
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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
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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.
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
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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.
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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
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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
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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,
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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
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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,
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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 de minimis amount (as calculated for purposes of
the OID rules of the Code) such Stripped Bond will be considered to have been
issued with OID. See "-- Original Issue Discount" 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
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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.
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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
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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
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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.
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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.
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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
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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.
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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.
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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.
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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
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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).
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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.
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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
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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
-82-
<PAGE>
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.
-83-
<PAGE>
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NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION, OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, THE RELATED PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR
DEEMED INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMA-
TION 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 PROSPEC-
TUS OR THE RELATED PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THERE-
UNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY 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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Securityholders................................................. S-3
Incorporation of Certain Documents by Reference............................ S-3
Summary of Terms........................................................... S-4
Risk Factors............................................................... S-16
Use of Proceeds............................................................ S-18
The Trust.................................................................. S-18
The Trust Property......................................................... S-19
The Receivables............................................................ S-20
The Insurer................................................................ S-26
Description of the Notes................................................... S-28
Description of the Certificates............................................ S-31
Weighted Average Life Considerations....................................... S-32
Description of the Purchase Agreements and the
Trust Documents .......................................................... S-37
The Policies .............................................................. S-46
Certain Federal Income Tax Consequences.................................... S-49
State Tax Considerations................................................... S-49
ERISA Considerations....................................................... S-50
Underwriting............................................................... S-50
Experts.................................................................... S-51
Legal Opinions............................................................. S-51
PROSPECTUS
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............. 41
Certain Legal Aspects of the Receivables................................... 55
Federal Income Tax Consequences............................................ 60
ERISA Considerations....................................................... 71
Ratings.................................................................... 74
Plan of Distribution....................................................... 75
Notice to Canadian Residents............................................... 75
Legal Opinions............................................................. 76
Annex I.................................................................... 77
Index of Terms............................................................. 81
</TABLE>
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UNTIL SEPTEMBER , 1996 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES OR CERTIFICATES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS SUPPLEMENT AND THE PROSPECTUS TO WHICH IT RELATES. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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- -------------------------------------------------------------------------------
$200,000,000
THE MONEY STORE [LOGO]
The Money Store Auto Trust 1996-1
$45,100,000
Class A-1 % Money Market Asset
Backed Notes
$90,000,000
Class A-2 Floating Rate Asset Backed Notes
$57,900,000
Class A-3 % Asset Backed Notes
$7,000,000
% Asset Backed Certificates
----------------
PROSPECTUS SUPPLEMENT
----------------
CS First Boston
Prudential Securities
Incorporated
June , 1996
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