<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1997
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
USAA FEDERAL SAVINGS BANK
(ORIGINATOR OF THE TRUST DESCRIBED HEREIN)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
USAA AUTO LOAN GRANTOR TRUST 1997-1
(ISSUER WITH RESPECT TO CERTIFICATES)
<TABLE>
<S> <C> <C>
UNITED STATES 0749 74-2291652
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) (I.R.S. EMPLOYER
</TABLE>
------------------------
10750 MCDERMOTT FREEWAY
SAN ANTONIO, TEXAS 78288
(210) 498-2265
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MICHAEL J. BROKER, ESQ.
VICE PRESIDENT AND
BANKING COUNSEL
10750 MCDERMOTT FREEWAY
SAN ANTONIO, TEXAS 78288
(210) 498-2265
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C> <C>
STEPHEN L. FLUCKIGER, ESQ. GLENN S. ARDEN, ESQ. RICHARD S. FORTUNATO, ESQ.
JONES, DAY, REAVIS & POGUE JONES, DAY, REAVIS & POGUE SKADDEN, ARPS, SLATE,
2001 ROSS AVE., SUITE 2300 599 LEXINGTON AVENUE MEAGHER & FLOM LLP
DALLAS, TEXAS 75201 NEW YORK, NEW YORK 10022 919 THIRD AVENUE
NEW YORK, NEW YORK 10022
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable on or after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
OFFERING PROPOSED
PRICE MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE PER AGGREGATE
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) OFFERING PRICE
<S> <C> <C> <C>
% Automobile Loan Pass-Through Certificates, Class A.................. $ 500,000.00 100% $ 500,000.00
% Automobile Loan Pass-Through Certificates, Class B.................. $ 500,000.00 100% $ 500,000.00
Total.............................................................. $1,000,000.00 $ 1,000,000.00
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION
SECURITIES TO BE REGISTERED FEE
<S> <C>
% Automobile Loan Pass-Through Certificates, Class A.................. $ 151.52
% Automobile Loan Pass-Through Certificates, Class B.................. $ 151.51
Total.............................................................. $ 303.03
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
_______________________________________________________________________________
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED OCTOBER , 1997
PROSPECTUS
USAA AUTO LOAN GRANTOR TRUST 1997-1
$ % AUTOMOBILE LOAN PASS-THROUGH CERTIFICATES, CLASS A
$ % AUTOMOBILE LOAN PASS-THROUGH CERTIFICATES, CLASS B
[LOGO]
USAA FEDERAL SAVINGS BANK, SELLER AND SERVICER
-------------------------------
The % Automobile Loan Pass-Through Certificates, Class A (the 'Class A
Certificates') and the % Automobile Loan Pass-Through Certificates, Class B
(the 'Class B Certificates'; the Class A Certificates and the Class B
Certificates are collectively referred to herein as the 'Certificates') offered
hereby evidence undivided interests in the USAA Auto Loan Grantor Trust 1997-1
(the 'Trust') created pursuant to a Pooling and Servicing Agreement (the
'Agreement') among USAA Federal Savings Bank, as seller and as servicer
('Seller' and 'Servicer' in such respective capacities), and , as
trustee (the 'Trustee') and as collateral agent (the 'Collateral Agent'). The
property of the Trust will include a pool of fixed rate simple interest motor
vehicle installment loans secured by new and used automobiles and light-duty
trucks (the 'Receivables'), certain monies due thereunder on or after
, 1997 (the 'Cutoff Date'), security interests in the vehicles
financed thereby, benefits of a Reserve Account and certain other property,
all as more fully described herein. The aggregate principal balance of the
Receivables as of the Cutoff Date was $ .
Principal and interest at the applicable Pass-Through Rate will be
distributed to the Certificateholders on the 15th day of each month (or, if such
day is not a business day, the next succeeding business day), beginning 1[5],
1997 (each, a 'Distribution Date'). The final scheduled Distribution Date is the
Distribution Date (the 'Final Scheduled Distribution Date'). Payments of
interest and principal on the Class B Certificates will be subordinated in
priority of payment to payments of interest and principal on the Class A
Certificates to the extent described herein.
The Certificates initially will be represented by Certificates registered in
the name of Cede & Co., as nominee of The Depository Trust Company ('DTC'). The
interests of beneficial owners of the Certificates will be represented by book
entries on the records of DTC and participating members thereof. Definitive
Certificates will be available only under the limited circumstances described
herein.
There currently is no secondary market for the Certificates and there is no
assurance that one will develop. The Underwriters expect, but are not obligated,
to make a market in the Certificates. There is no assurance that any such market
will develop, or if one does develop, that it will continue.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER 'RISK
FACTORS' ON PAGES 8 THROUGH 10 HEREIN.
------------------------
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF USAA FEDERAL SAVINGS BANK OR UNITED
SERVICES AUTOMOBILE ASSOCIATION OR ANY OF THEIR RESPECTIVE AFFILIATES.
A CERTIFICATE IS NOT A DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION (THE 'FDIC'). THE RECEIVABLES ARE
NOT INSURED OR GUARANTEED BY THE FDIC OR ANY OTHER GOVERNMENTAL
AGENCY AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
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.
<TABLE>
<CAPTION>
PROCEEDS TO THE
PRICE TO PUBLIC(1) UNDERWRITING DISCOUNT SELLER(1)(2)
<S> <C> <C> <C>
Per Class A Certificate...................... % % %
Per Class B Certificate...................... % % %
Total........................................ $ $ $
</TABLE>
(1) Plus accrued interest at the applicable Pass-Through Rate from ,
1997 [the ('Cut-Off Date')].
(2) Before deducting expenses estimated at $ .
------------------------
The Certificates are being offered by the Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that the
Certificates will be delivered in book-entry form, on or about , 1997,
through the facilities of DTC.
------------------------
[Underwriters of the Class A Certificates]
MERRILL LYNCH & CO. [CO-MANAGER] [CO-MANAGER]
[Underwriter of the Class B Certificates]
[MERRILL LYNCH & CO.]
------------------------
The date of this Prospectus is , 1997.
<PAGE>
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CERTIFICATES. SUCH
TRANSACTIONS MAY INCLUDE [STABILIZING AND THE PURCHASE OF CERTIFICATES TO COVER
SYNDICATE SHORT POSITIONS]. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
'UNDERWRITING.'
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued (which will occur under
the limited circumstances described herein), unaudited monthly and annual
reports, containing information concerning the Trust and prepared by the
Servicer, will be sent by the Trustee only to the registered holders of the
Class A Certificates and the Class B Certificates (the 'Certificateholders')
pursuant to the Agreement. The registered holder of the Class A Certificates and
the Class B Certificates is Cede & Co., as nominee of DTC. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. Persons acquiring an interest in the Certificates through
DTC may obtain these reports free of charge (except for copying and postage
costs) by a request in writing to the Trustee at , Attention:
. See 'The Certificates -- General,' ' -- Book-Entry
Registration' and 'Statements to Certificateholders.' The Seller does not intend
to send any of its financial reports to Certificateholders.
AVAILABLE INFORMATION
The Seller has filed with the Securities and Exchange Commission (the
'Commission') on behalf of the Trust a Registration Statement under the
Securities Act of 1933, as amended (the 'Securities Act'), with respect to the
Certificates offered pursuant to this Prospectus. For further information,
reference is made to such Registration Statement, the amendments thereof and the
exhibits thereto, which are available for inspection without charge at the
public reference facilities of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, as well as the Regional Offices of the Commission
at Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained by mail from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates.
The Commission also maintains a website, located at http://www.sec.gov, that
contains reports, proxy statements and other information regarding registrants
that file electronically with the Commission. The Servicer, on behalf of the
Trust, will also file or cause to be filed with the Commission such periodic
reports as are required under the Securities Exchange Act of 1934, as amended
(the 'Exchange Act') and the rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Servicer, on behalf of the
Trust, pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the termination of the
offering of the Certificates offered hereby shall be deemed to be incorporated
by reference into this Prospectus and to be part hereof. Any statement contained
herein or in a document deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as modified or superseded, to constitute a part of this
Prospectus.
The Seller will provide without charge to each person, including any
beneficial owner of the Certificates, to whom a copy of this Prospectus is
delivered, on the written or verbal request of any such person, a copy of any or
all of the documents incorporated by reference herein, except the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Written requests for such copies should be directed to the
Seller, 10750 McDermott Freeway, San Antonio, Texas 75288, Attention: Edwin T.
McQuiston, Vice President, Treasurer. Telephone requests for such copies should
be directed to Mr. McQuiston at (210) 498-2296.
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Certain capitalized terms
used in the Summary are defined elsewhere in this Prospectus. Reference is made
to the 'Glossary of Terms' for the location herein of defined terms.
<TABLE>
<S> <C>
Issuer.............................. USAA Auto Loan Grantor Trust 1997-1 (the 'Trust').
Seller/Servicer..................... USAA Federal Savings Bank (the 'Seller' and 'Servicer' in its respective
capacities as such, otherwise referred to herein as the 'Bank').
Securities Offered.................. % Automobile Loan Pass-Through Certificates, Class A (the 'Class A
Certificates') and % Automobile Loan Pass-Through Certificates, Class B
(the 'Class B Certificates'; the Class A Certificates and the Class B
Certificates are collectively referred to herein as the 'Certificates')
representing fractional undivided interests in the Trust. The Trust
property will include a pool of fixed rate simple interest motor vehicle
installment loans (the 'Receivables') secured by new and used automobiles
and light-duty trucks (the 'Financed Vehicles'), all monies due under the
Receivables on or after , 1997 (the 'Cutoff Date'), security interests
in the Financed Vehicles, proceeds from claims on certain insurance
policies, and certain rights under the Pooling and Servicing Agreement (the
'Agreement') between the Bank, as Seller and Servicer, and [
] (the 'Trustee'). The Certificates
will be offered for purchase in denominations of $1,000 and integral
multiples thereof. See 'The Trust' and 'The Certificates -- General.'
Certificates........................ The Class A Certificates will be issued in an initial principal amount
equal to $ (the 'Original Class A Certificate Balance'), and the Class
B Certificates will be issued in an initial principal amount equal to
$ (the 'Original Class B Certificate Balance' and, together with the
Original Class A Certificate Balance, the 'Original Certificate Balance').
The Original Class A Certificate Balance will equal approximately % of
the aggregate outstanding principal balance of the Receivables determined
in accordance with the Agreement (the 'Pool Balance') as of the Cutoff Date
(the 'Original Pool Balance'). The Original Class B Certificate Balance
will equal approximately % of the Original Pool Balance.
Registration of the
Certificates...................... The Class A Certificates and the Class B Certificates will each be
initially represented by one or more global certificates registered in the
name of Cede & Co. ('Cede'), as the nominee of The Depository Trust Company
('DTC'). No person acquiring an interest in a Certificate through the
facilities of DTC (a 'Certificate Owner') will be entitled to receive a
Definitive Certificate representing such person's interest in the Trust,
except in the event that Definitive Certificates are issued under the
limited circumstances described herein. All references herein to
Certificateholders shall reflect the rights of Certificate Owners, as such
rights may be exercised through DTC and its Participants, except as
otherwise
</TABLE>
3
<PAGE>
<PAGE>
<TABLE>
<S> <C>
specified herein. See 'The Certificates -- Book-Entry Registration' and
' -- Definitive Certificates.'
Pass-Through Rate................... % per annum with respect to the Class A Certificates (the 'Class A
Pass-Through Rate'), and % per annum with respect to the Class B
Certificates (the 'Class B Pass-Through Rate'), in each case calculated on
the basis of a 360-day year consisting of twelve 30-day months. The Class A
Pass-Through Rate and the Class B Pass-Through Rate are both sometimes
referred to as the applicable 'Pass-Through Rate.'
Distribution Date................... The 15th day of each month (or, if such 15th day is not a day on which the
Trustee and banks located in New York, New York are open for the purpose of
conducting a commercial banking business (a 'Business Day'), the next
following Business Day) commencing , 1997.
Interest............................ On each Distribution Date, interest at the applicable Pass-Through Rate
shall be paid in respect of the prior Collection Period, calculated on the
basis of a 360-day year consisting of twelve 30-day months, on the Class A
Certificate Balance and the Class B Certificate Balance, respectively, in
each case as of the preceding Distribution Date (after giving effect to all
payments of principal made on such preceding Distribution Date) or, in the
case of the first Distribution Date, as of the Closing Date, will be
distributed to the registered holders of the Class A Certificates (the
'Class A Certificateholders') and the registered holders of the Class B
Certificates (the 'Class B Certificateholders' and, together with the Class
A Certificateholders, the 'Certificateholders') as of the last day of the
preceding calendar month (the 'Record Date'), to the extent that sufficient
funds are on deposit in the Certificate Account or available in the Reserve
Account to make such distributions. A 'Collection Period' means the
calendar month preceding each Distribution Date, or in the case of the
initial Collection Period, the period from the Cutoff Date to
, 1997. See 'The Certificates -- Distributions on
Certificates' and ' -- The Reserve Account.' The rights of the Class B
Certificateholders to receive distributions of interest will be
subordinated to the rights of the Class A Certificateholders to receive
distributions of interest to the extent described herein. See 'Risk
Factors -- Limited Assets' and ' -- Subordination of Class B Certificates.'
Principal........................... On each Distribution Date, as described more fully herein, all payments of
principal on the Receivables received by the Servicer during the preceding
Collection Period, plus an amount equal to the principal balance of any
Receivables which became Defaulted Receivables during the preceding
Collection Period, will be distributed by the Trustee to the Class A
Certificateholders and to the Class B Certificateholders of record on the
preceding Record Date, to the extent that sufficient funds are available
therefor on deposit in the Certificate Account or available in the Reserve
Account to make such distributions. See 'The Certificates -- Distributions
on Certificates' and ' -- The Reserve Account.' The rights of the Class B
Certificateholders to receive distributions of principal will be
subordinated to the rights of the Class A Certificateholders to
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
receive distributions of interest and principal to the extent described
herein.
Subordination of Class B
Certificates...................... Distributions of interest on the Class B Certificates will be subordinated
in priority of payment to distributions of interest (but not principal) due
on the Class A Certificates, and distributions of principal on the Class B
Certificates will be subordinated in priority of payment to distributions
of interest and principal due on the Class A Certificates, in the event of
defaults on the Receivables to the extent described herein. The Class B
Certificateholders will not receive any distributions of interest with
respect to a Collection Period until the full amount of interest on the
Class A Certificates relating to such Collection Period has been deposited
in the Class A Distribution Account. The Class B Certificateholders will
not receive any distributions of principal with respect to a Collection
Period until the full amount of interest on and principal of the Class A
Certificates relating to such Collection Period has been deposited in the
Class A Distribution Account. See 'Risk Factors -- Limited Assets' and
' -- Subordination of Class B Certificates.'
Advances............................ On the Business Day preceding each Distribution Date (each, a 'Deposit
Date'), the Servicer may, in its sole discretion, make a payment with
respect to each Receivable (other than a Defaulted Receivable) equal to the
excess, if any, of (x) the product of the principal balance of such
Receivable as of the first day of the related Collection Period and
one-twelfth of its Contract Rate (calculated on the basis of a 360-day year
of twelve 30-day months), over (y) the interest actually received by the
Servicer with respect to such Receivable from the Obligor or from payment
of the Repurchase Amount during or with respect to such Collection Period
(any such payment, an 'Advance'). The Servicer may elect not to make any
Advance with respect to a Receivable to the extent that the Servicer, in
its sole discretion, determines that such Advance is not recoverable from
subsequent payments on such Receivable, from subsequent payments of the
Servicing Fee or from funds in the Reserve Account. See 'The
Certificates -- Advances.'
Servicing Fee....................... The Servicer will be entitled to receive a monthly fee (the 'Servicing
Fee'), payable on each Distribution Date, in an amount equal to the product
of [one-twelfth of] 1.00% (the 'Servicing Fee Rate') and the Pool Balance
as of the first day of the related Collection Period. In addition, the
Servicer will be entitled to receive as additional compensation investment
earnings on amounts on deposit (or to be deposited) in the Certificate
Account; provided, however, that if the Servicer fails to deposit an
Advance with respect to a Receivable other than because such Receivable has
been declared a Defaulted Receivable, such investment income will not be
paid to the Servicer, but will be treated as Available Interest pursuant to
the Agreement. See 'The Certificates -- Servicing Compensation.'
Reserve Account..................... A reserve account (the 'Reserve Account') will be established by the Seller
and maintained by the Collateral Agent with an initial deposit of cash of
at least $ (the 'Reserve Account Initial
</TABLE>
5
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Deposit'). In addition, on each Distribution Date, any amounts on deposit
in the Certificate Account with respect to the related Collection Period
after all payments to the Certificateholders and the Servicer have been
made will be deposited into the Reserve Account until the amount on deposit
in the Reserve Account is equal to the Specified Reserve Account Balance
(as defined below).
On each Deposit Date, the Collateral Agent will withdraw funds from the
Reserve Account, to the extent of the funds therein (exclusive of any
investment earnings on such funds), (i) first to reimburse the Servicer for
certain Advances previously made but not reimbursed ('Outstanding
Advances') and (ii) second to make available to Certificateholders the
excess, if any, of (x) the sum of the amounts required to be distributed to
Certificateholders and the Servicer on the related Distribution Date over
(y) the amount to be deposited in the Certificate Account with respect to
the preceding Collection Period (exclusive of investment earnings thereon).
If the amount in the Reserve Account is reduced to zero, Certificate-
holders will bear directly the credit and other risks associated with
ownership of the Receivables, including the risk that the Trust may not
have a perfected security interest in the Financed Vehicles. See 'Risk
Factors,' 'The Certificates -- The Reserve Account' and 'Certain Legal
Aspects of the Receivables.'
Specified Reserve Account
Balance........................... On any Distribution Date, the 'Specified Reserve Account Balance' will
equal % (or % under certain circumstances described herein) of the
Pool Balance as of the last day of the preceding Collection Period, but in
any event not less than the lesser of (i) $ and (ii) the sum of the
Pool Balance and an amount sufficient to pay interest on such Pool Balance
at a rate equal to the sum of the weighted average Pass-Through Rate plus
the Servicing Fee Rate through the Final Scheduled Distribution Date. The
Specified Reserve Account Balance may be reduced to a lesser amount as
determined by the Seller, provided that each Rating Agency shall have
confirmed in writing to the Trustee that such action will not result in a
withdrawal or reduction in its rating of the Certificates (the 'Rating
Agency Condition'). Amounts in the Reserve Account on any Distribution Date
(after giving effect to all distributions made on that date) in excess of
the Specified Reserve Account Balance will be paid to the Seller.
Optional Purchase................... The Servicer may purchase all of the Receivables on any Distribution Date
following a Record Date as of which the Pool Balance has declined to 5% or
less of the Pool Balance as of the Cutoff Date. See 'The
Certificates -- Termination.'
Trustee............................. [ ]
Collateral Agent.................... [ ]
Tax Status.......................... In the opinion of Jones, Day, Reavis & Pogue, special tax
counsel to the Bank, the Trust will be classified for Federal income
tax purposes as a grantor trust and not as an association taxable as a
corporation, and accordingly, Certificateholders must report their respective
allocable shares of income earned on the assets of the Trust and, subject to
certain limitations applicable to individuals,
</TABLE>
6
<PAGE>
<PAGE>
<TABLE>
<S> <C>
estates and trusts, may deduct their respective allocable shares of
reasonable servicing and other fees. See 'Certain Federal Income Tax
Consequences.'
Rating.............................. It is a condition to the issuance of the Certificates that the Class A
Certificates be rated in the highest rating category, and the Class B
Certificates be rated in one of the [four] highest rating categories, in
each case by at least [one] nationally recognized rating agency (a 'Rating
Agency'). There can be no assurance that a rating will not be lowered or
withdrawn if, in the sole judgment of a rating agency, circumstances so
warrant. A security rating is not a recommendation to buy, sell or hold
securities and may be revised or withdrawn at any time by the assigning
Rating Agency.
ERISA Considerations................ The Class A Certificates may be purchased by or on behalf of employee
benefit plans that are subject to the Employee Retirement Income Security
Act of 1974, as amended ('ERISA'), upon satisfaction of certain conditions
described herein. In contrast, the Class B Certificates may be purchased by
employee benefit plans subject to ERISA only if such acquisition and
subsequent holding of the Class B Certificates is exempt from the
prohibited transaction rules of ERISA and the Code by means of the
application of one or more statutory or administrative exemptions. Such
exemptions may apply with respect to certain insurance company general
accounts, insurance company pooled separate accounts, bank collective
investment funds and qualified professional asset managers. Each investor
purchasing the Class B Certificates by or on behalf of an employee benefit
plan subject to ERISA will be deemed to have represented that such
acquisition and the subsequent holding of the Class B Certificates will be
exempt from the prohibited transaction rules of ERISA and the Code by means
of the application of one or more of such exemptions.
Any benefit plan fiduciary considering a purchase of Certificates should,
among other things, consult with experienced legal counsel in determining
whether all required conditions have been satisfied. See 'ERISA
Considerations.'
</TABLE>
7
<PAGE>
<PAGE>
RISK FACTORS
An investment in the Certificates involves certain risks. Prospective
investors should carefully consider the following factors, in addition to the
matters set forth elsewhere in this Prospectus prior to investing in the
Certificates.
LIMITED LIQUIDITY
There currently is no secondary market for the Class A Certificates or the
Class B Certificates, and there is no assurance that one will develop. The
Underwriters expect, but are not obligated, to make a market in the
Certificates. There is no assurance that any such market will develop or, if one
does develop, that it will provide liquidity of investment or will continue for
the life of the Class A Certificates or the Class B Certificates, as the case
may be.
THE TRUST
The Seller will establish the Trust by selling and assigning the
Receivables to the Trust in exchange for the Certificates. After formation, the
Trust will not engage in any activity other than acquiring and holding the
Receivables, issuing the Certificates, distributing payments thereon and as
otherwise described herein and as provided in the Agreement.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
In order to protect the Trust's ownership interest in the Receivables, the
Bank will file UCC-1 financing statements with the appropriate governmental
authorities in the State of Texas to give notice of the Trust's ownership of the
Receivables and their proceeds. Under the Agreement, the Bank will be obligated
to maintain the perfection of the Trust's ownership interest in the Receivables.
It should be noted, however, that a purchaser of chattel paper who gives new
value and takes possession of it in the ordinary course of such purchaser's
business has priority over a security interest in the chattel paper which is
perfected by filing UCC-1 financing statements and not by possession by the
original secured party, if such purchaser acts in good faith without knowledge
that the specific chattel paper is subject to a security interest. Any such
purchaser would not be deemed to have such knowledge by virtue of the UCC
filings and would not learn of the sale of the Receivables from a review of the
Receivables since they would not be marked to show such sale, although the
Bank's master computer records will evidence such sale.
The Bank will assign its security interest in the individual Financed
Vehicles to the Trust. However, because of the administrative burden and
expense, and since the Bank remains as Servicer with respect to the Receivables,
neither the Bank nor the Trustee will amend the certificates of title to
identify the Trust as the new secured party and, accordingly, the Bank will
continue to be named as the secured party on the certificates of title relating
to the Financed Vehicles. In certain states, in the absence of such endorsement
and delivery, the Trustee may not have a perfected security interest in such
Financed Vehicles. See 'Certain Legal Aspects of the Receivables.'
PREPAYMENT CONSIDERATIONS
The weighted average life of the Certificates may be reduced by full or
partial prepayments on the Receivables. The Receivables are prepayable by the
obligors thereunder (the 'Obligors') at any time without penalty. Prepayments
may also result from liquidations due to default; the receipt of proceeds from
theft, physical damage, credit life and credit disability insurance policies;
repurchases by the Seller as a result of the failure of a Receivable to meet
certain criteria set forth in the Agreement; purchases by the Servicer as a
result of a breach of certain of its covenants with respect to the Receivables
made by it in the Agreement; or as a result of an exercise by the Servicer of
its option to purchase the Receivables Pool. 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 the
Financed Vehicle securing a Receivable without the Seller's consent.
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The Bank does not believe that the records maintained by the Bank of the
historical prepayment experience of its portfolio of Motor Vehicle Loans are
adequate to provide meaningful information with respect to the Receivables. No
assurance can be given that prepayments on the Receivables would conform to any
historical experience, and no prediction can be made as to the actual prepayment
experience to be expected with respect to the Receivables. Certificateholders
will bear any reinvestment risk resulting from the prepayment of the
Receivables. See 'The Receivables Pool -- Maturity and Prepayment Assumptions.'
GEOGRAPHIC CONCENTRATION
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of the Trust with respect to
the Receivables. Based on the location of the Obligor at the time each Motor
Vehicle Loan was advanced and the principal balance of each Receivable as of the
Cutoff Date, the states which accounted for more than 5% of the Pool Balance
were: Texas, %; California, %; Florida, %; New York, %; and
Virginia, %. See 'The Receivables Pool -- Geographic Distribution of the
Receivables.'
LIMITED ASSETS
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and the right
to receive payments under certain circumstances from the Reserve Account. The
Certificates represent interests solely in the Trust and will not be insured or
guaranteed by the Seller, the Servicer, the Trustee, the Collateral Agent or any
other person or entity. Consequently, holders of the Certificates will only be
able to look to payments on the Receivables and, if and to the extent available,
amounts on deposit in the Reserve Account, for payment. Amounts to be deposited
in the Reserve Account are limited in amount and will be reduced as the Pool
Balance declines.
Amounts on deposit in the Reserve Account will be available on any
Distribution Date first to cover shortfalls in reimbursement of Outstanding
Advances to the extent then reimbursable and payment of the Servicing Fee to the
Servicer, then to cover shortfalls in distributions of interest on the Class A
Certificates and then shortfalls in distributions of interest on the Class B
Certificates. After distributions of interest on the Certificates have been
made, the remaining amounts on deposit in the Reserve Account will be available
first to cover shortfalls in distributions of principal on the Class A
Certificates and then shortfalls in distributions of principal on the Class B
Certificates. If the Reserve Account is exhausted (and not replenished), the
Trust will depend solely on payments on the Receivables to make distributions on
the Certificates, and Certificateholders will bear directly, without any
additional credit enhancement (except to the extent that the Reserve Account is
replenished from Collections on Receivables), the risk of delinquencies, loan
losses and repossessions with respect to the Receivables. There can be no
assurance that the future delinquency, loan loss or repossession experience of
the Trust with respect to the Receivables will be better or worse than that set
forth herein with respect to the Bank's portfolio of Motor Vehicle Loans owned
and serviced by the Bank. See 'The Certificates -- The Reserve Account' and
' -- Distributions on Certificates.'
SUBORDINATION OF CLASS B CERTIFICATES
Distributions of interest on the Class B Certificates will be subordinated
in priority of payment to distributions of interest on the Class A Certificates,
and distributions of principal on the Class B Certificates will be subordinated
to distributions of interest and principal on the Class A Certificates, to the
extent described herein. In particular, the Class B Certificateholders will not
receive any distributions of interest with respect to a Collection Period until
the full amount of interest on the Class A Certificates relating to such
Collection Period has been deposited in the Class A Distribution Account. Class
B Certificateholders will not receive any distributions of principal with
respect to a Collection Period until the full amount of interest on and
principal of the Class A Certificates relating to such Collection Period has
been deposited in the Class A Distribution Account. However, distributions of
interest on the Class B Certificates, to the extent of collections on the
Receivables
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<PAGE>
allocable to interest and the amounts on deposit in the Reserve Account
available after the distribution of interest on the Class A Certificates has
been made, will not be subordinated to the distribution of principal of the
Class A Certificates. See 'The Certificates -- Distributions on Certificates.'
FEDERAL INCOME TAX; EFFECTS OF SUBORDINATION ON CLASS B CERTIFICATEHOLDERS
It is expected that, for Federal income tax purposes, amounts otherwise
distributable to the Class B Certificate Owners that are paid to the Class A
Certificate Owners pursuant to the subordination provisions described above
under ' -- Subordination of Class B Certificates' will be deemed to have been
received by the Class B Certificate Owners and then paid by them to the Class A
Certificate Owners pursuant to a guaranty. See generally 'Certain Federal Income
Tax Consequences.'
If the Class B Certificate Owners received distributions of less than their
share of the Trust's receipts of principal or interest (the 'Shortfall Amount')
because of the subordination of the Class B Certificates, holders of Class B
Certificates would probably be treated for Federal income tax purposes as if
they had (1) received as distributions their full share of such receipts, (2)
paid over to the Class A Certificate Owners an amount equal to such Shortfall
Amount and (3) retained the right to reimbursement of such amounts to the extent
of future Collections otherwise available for deposit in the Reserve Account.
Under this analysis (1) Class B Certificate Owners would be required to
accrue as current income any interest or original issue discount ('OID') income
of the Trust that was a component of the Shortfall Amount, even though such
amount was in fact paid to the Class A Certificate Owners, (2) a loss would only
be allowed to the Class B Certificate Owners when their right to receive
reimbursement of such Shortfall Amount became worthless (i.e., when it becomes
clear that such Shortfall Amount will not be reimbursed from any source) and (3)
reimbursement of such Shortfall Amount prior to such a claim of worthlessness
would not be taxable income to Class B Certificate Owners because such amount
was previously included in income. Those results should not significantly affect
the inclusion of income for Class B Certificate Owners on the accrual method of
accounting, but could accelerate inclusion of income to Class B Certificate
Owners on the cash method of accounting by, in effect, placing them on the
accrual method. Moreover, the character and timing of loss deductions is
unclear.
RATING
It is a condition to the issuance of the Certificates that the Class A
Certificates be rated in the highest rating category, and the Class B
Certificates be rated in one of the [four] highest rating categories, in each
case by at least [one] Rating Agency. A security rating is not a recommendation
to buy, sell, or hold securities and may be revised or withdrawn at any time by
the assigning Rating Agency. There can be no assurance that a rating will not be
lowered or withdrawn if, in the sole judgment of a rating agency, circumstances
in the future so warrant. The Seller cannot predict with certainty what effect
any revision or withdrawal of a rating may have on the liquidity or market value
of the Class A Certificates or the Class B Certificates.
THE CERTIFICATES
The Class A Certificates and the Class B Certificates will each be
represented initially by one or more global certificates registered in the name
of Cede, as nominee of DTC. No Certificate Owner will be entitled to receive a
Definitive Certificate representing such person's interest in the Trust except
in certain limited circumstances. Under the terms of the Agreement, Certificate
Owners will not be recognized as Certificateholders, and will be permitted to
exercise the rights of the Certificateholders only indirectly through DTC. See
'The Certificates.'
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THE BANK'S PORTFOLIO OF MOTOR VEHICLE LOANS
ORIGINATION OF MOTOR VEHICLE LOANS
The Bank has a portfolio of motor vehicle installment loans secured by new
and used automobiles and light-duty trucks ('Motor Vehicle Loans') all of which
are originated directly by the Bank. Applications for Motor Vehicle Loans are
made by individuals to the Bank's office in San Antonio, Texas and are reviewed
by the Bank in accordance with the Bank's underwriting procedures. Applications
are accepted in person, by mail or by telephone.
The Bank services all of its Motor Vehicle Loans. The servicing functions
performed by the Bank include customer service, document file keeping,
computerized account record keeping, vehicle title processing and collections.
The servicing policies and practices of the Bank may change over time in
accordance with the Bank's business judgment.
UNDERWRITING OF MOTOR VEHICLE LOANS
The Bank makes credit decisions with respect to Motor Vehicle Loans in two
alternative ways: on a judgmental basis, which, since September 1992, has
included a credit scoring process, or on a pre-approved basis.
Other than customers who are pre-approved for Motor Vehicle Loans, the Bank
requires each applicant for a Motor Vehicle Loan (an 'Applicant') to complete an
application which sets forth the Applicant's income, liabilities, credit and
employment history, and other personal information as well as a description of
the Financed Vehicle which is intended to secure a Motor Vehicle Loan. Each
application is reviewed for completeness and for compliance with the Bank's
guidelines and applicable consumer regulations. The Bank evaluates the
applications by considering, based on information provided in the application
and the credit bureau reports referred to below, the relationship of the
Applicant's income to expenses, including expenses relating to such Motor
Vehicle Loan.
Each Applicant for a Motor Vehicle Loan is evaluated using uniform
underwriting standards developed by the Bank. These underwriting standards are
intended to assess the Applicant's ability to repay such Motor Vehicle Loan and
the adequacy of the Financed Vehicle as collateral, based upon a review of the
information contained in the Applicant's loan application. Each application is
reviewed by a credit analyst. Among the criteria considered in evaluating the
individual applications are (i) stability of the Applicant with specific regard
to the Applicant's occupation and length of employment, (ii) the Applicant's
payment history based on information known directly by the Bank or as provided
by various credit reporting agencies with respect to present and past debt,
(iii) a debt service to gross monthly income ratio test, and (iv) a loan to
value ratio test taking into account the age, type and market value of the
Financed Vehicle. The Bank's general policy has been not to allow an Applicant's
debt service to gross monthly income ratio to exceed 55%.
An empirically based credit scoring process using credit scores provided by
credit bureaus is used to objectively assess an Applicant's creditworthiness.
This scoring process was created using historical information from the database
of Motor Vehicle Loans owned and serviced by the Bank. Through credit scoring,
the Bank evaluates credit profiles to quantify credit risk. The credit scoring
process entails the use of statistics to correlate common characteristics with
credit risk. The credit scoring process used by the Bank is periodically
reviewed and, if necessary, updated to reflect current statistical data. The
Bank's scoring process is intended to provide a basis for lending decisions, not
to supersede the judgment of the credit analyst.
Applications are reviewed using the credit scoring process and are approved
without further review if the resulting credit score exceeds pre-set parameters.
Applications that are not so approved are reviewed by a credit analyst using the
criteria described above.
Motor Vehicle Loan approval at variance with standard credit guidelines has
occurred, both before and after implementation of the credit scoring process,
but generally has required concurrent approval of a second, designated senior
credit analyst or credit manager of the Bank. Motor Vehicle Loans which do not
comply with all the Bank's guidelines must have strong compensating factors
which indicate a high ability of the Applicant to repay the loan. Generally in
such cases, if a Motor Vehicle Loan is
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approved it is because the Applicant has made a down payment and the amount
financed is lower than the maximum permitted by the Bank's guidelines.
The Bank has a program of pre-approving potential customers for Motor
Vehicle Loans. The Bank obtains names of potential customers from its existing
Motor Vehicle Loan database, credit card database, database of requests for
automobile pricing lists, and various other sources. The potential customer
names are screened against the Bank's credit card database and the database
maintained by the Bank's parent company, United Services Automobile Association
('USAA'). The Bank's credit card database must show that the potential customer
has an active credit card account at the Bank that (i) is current and has been
active more than twelve months, (ii) has not exceeded its credit limit nor been
more than 30 days delinquent on more than two occasions in any 36-month period,
(iii) has had no record of bankruptcy, closed account or collection problems and
(iv) has no lost or stolen account or fraudulent activity record. USAA's
database must show that the potential customer (i) is an active, or is eligible
to be a, USAA insurance policyholder, (ii) has a social security number in
USAA's database which matches the social security number in the Bank's credit
card database, (iii) is not identified in USAA's database as a customer who
should not receive advertising from USAA or its subsidiary companies and (iv)
has an address within the United States.
A potential customer who is pre-approved using the prescreening process
described above is offered a Motor Vehicle Loan in an amount determined by the
credit limit amount of the individual's credit card accounts with the Bank.
Pre-approved potential customers with Gold MasterCard or VISA'r'. credit card
accounts with the Bank or its subsidiary, USAA Savings Bank ('USAA SB') are
offered a $25,000 loan. Pre-approved potential customers with Standard
MasterCard or VISA'r'. credit card accounts with a credit limit exceeding $5,000
are offered a $20,000 loan; those potential customers with Standard MasterCard
or VISA'r'. credit card accounts with the Bank or USAA SB with a credit limit
between $2,500 and $5,000 are offered a $15,000 loan. The Bank notifies
potential customers that they have been pre-approved for a Motor Vehicle Loan by
direct mail under certain circumstances and, if a pre-approved individual calls
the Bank to inquire about a Motor Vehicle Loan, by telephone. A potential
customer who has been pre-approved identifies the make, model, year and price of
the Financed Vehicle and, because of the information known by the Bank through
USAA's database and the Bank's credit card database, is not required to provide
additional credit related information.
The amount advanced by the Bank under any Motor Vehicle Loan (including
Motor Vehicle Loans offered pursuant to the pre-approval program) generally has
not exceeded (i) for a new Financed Vehicle, the manufacturer's suggested retail
price plus taxes, and title and license fees on the Financed Vehicle or (ii) for
a used Financed Vehicle, 110% of the 'retail' value stated in the most recently
published National Automobile Dealers Association Used Car Price Guide, adjusted
for high or low mileage and before credit for any optional equipment. However,
the maximum amount advanced for Motor Vehicle Loans is often less than such
amounts depending on a number of factors, including the length of the Motor
Vehicle Loan term and the model and year of the Financed Vehicle. These
adjustments are made to assure that the Financed Vehicle constitutes adequate
collateral to secure the Motor Vehicle Loan. In addition, whether a Financed
Vehicle is new or used, the Bank will also finance service warranties under a
Motor Vehicle Loan.
Periodically, the Bank makes a detailed analysis of its portfolio to
evaluate the effectiveness of the Bank's credit guidelines and scoring process.
If external economic factors, credit delinquencies or credit losses change,
credit guidelines are adjusted to maintain the asset quality deemed acceptable
by the Bank's management. The Bank reviews, on an annual basis, the quality of
its Motor Vehicle Loans by conducting internal audits of certain randomly
selected Motor Vehicle Loans to ensure compliance with established policies and
procedures.
INSURANCE
Each Motor Vehicle Loan requires the Obligor to obtain comprehensive and
collision insurance with respect to the Financed Vehicle. Most Obligors obtain
the required comprehensive and collision insurance from USAA or an affiliate
thereof. USAA's insurance financial strength is rated 'Aaa' by Moody's Investors
Service, Inc. and USAA's insurer's claims-paying ability is rated 'AAA' by
Standard & Poor's Ratings Group.
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If an Obligor fails to maintain the required insurance, the Bank may, but
is not obligated to, purchase limited comprehensive and collision insurance to
protect the interests of the Bank and the Obligor and charge the Obligor for the
cost of such insurance ('Force Placed Insurance'). The Bank currently does not
obtain Forced Placed Insurance if the Obligor fails to maintain the required
insurance.
COLLECTION PROCEDURES
Collection activities with respect to delinquent Motor Vehicle Loans are
performed by the Bank. Collection activities include prompt investigation and
evaluation of the causes of any delinquency. An Obligor is considered delinquent
when he or she makes any payment that is less than 100% of a scheduled monthly
payment.
The Bank maintains an on-line collection system for use in collection
efforts. The collection system provides relevant Obligor information (for
example, current addresses, phone numbers and loan information) and records of
all contact of the Bank with Obligors. The system also records an Obligor's
promise to pay, affords supervisors the ability to review collection personnel
activity and modify priorities with respect to Obligor contacts and provides
reports concerning Motor Vehicle Loan delinquencies. Under the Bank's current
practices, contact by mail is initiated with an Obligor whose Motor Vehicle Loan
has become ten days delinquent. An additional mail contact is initiated with an
Obligor when his or her Motor Vehicle Loan has become 20 days delinquent. In the
event that such contacts fail to result in a payment sufficient to bring
scheduled payments current under the Motor Vehicle Loan, telephone contact with
the Obligor is attempted not later than the 22nd day of delinquency. Generally,
after a Motor Vehicle Loan continues to be delinquent for 35 days, an additional
mail contact is made. Repossession procedures generally will be initiated after
a Motor Vehicle Loan continues to be delinquent for 60 days. However, if a Motor
Vehicle Loan is deemed uncollectible, if the Financed Vehicle is deemed by
collection personnel to be in danger of being damaged, destroyed or made
unavailable for repossession, or if the Obligor voluntarily surrenders the
Financed Vehicle, a repossession may occur without regard to the length or
existence of payment delinquency. Repossessions are conducted by third parties
who are engaged in the business of repossessing vehicles for secured parties.
After repossession, the Obligor generally has an additional 15 days to redeem
the Financed Vehicle before the Financed Vehicle is resold.
Losses may occur in connection with delinquent Motor Vehicle Loans and can
arise in several ways, including inability to locate the Financed Vehicle or the
Obligor, or because of a discharge of the Obligor in a bankruptcy proceeding.
The current policy of the Bank is to recognize losses at the time the Motor
Vehicle Loan is deemed uncollectible, or during the month the Motor Vehicle Loan
becomes 120 days delinquent, whichever occurs first.
Upon repossession and sale of the Financed Vehicle, any deficiency
remaining is pursued to the extent deemed practical by the Bank and to the
extent permitted by law. The loss recognition and collection policies and
practices of the Bank may change over time in accordance with the Bank's
business judgment.
The Bank offers certain Obligors credit-related extensions. Generally,
these extensions are offered only when (i) the Bank believes that the Obligor's
financial difficulty has been resolved or will no longer impair the Obligor's
ability to make future payments, (ii) the extension will result in the Obligor's
payments being brought current, (iii) the total number of credit-related
extensions granted on the Motor Vehicle Loan will not exceed two and the total
credit-related extensions granted on the Motor Vehicle Loan will not exceed four
months in the aggregate and (iv) there have been no credit-related extensions
granted on the Motor Vehicle Loan in the immediately preceding twelve months.
Any deviation from this policy requires the concurrence of the Bank's collection
manager and a representative of the Bank's Senior Officers Credit Committee. See
'The Certificates -- Servicing Procedures' for certain additional conditions on
credit-related extensions which must be satisfied with respect to Receivables in
the Trust.
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DELINQUENCY AND LOAN LOSS AND RECOVERY INFORMATION
The following tables set forth information with respect to the Bank's
experience relating to delinquencies, loan losses and recoveries for each of the
periods shown for the portfolio of Motor Vehicle Loans owned and serviced by the
Bank. The portfolio of Motor Vehicle Loans owned and serviced by the Bank during
the periods shown includes both fixed rate Motor Vehicle Loans and variable rate
Motor Vehicle Loans. The Bank does not maintain separate records with respect to
fixed rate Motor Vehicle Loans and variable rate Motor Vehicle Loans regarding
delinquency, loan loss and recovery experience. The Receivables include only
fixed rate Motor Vehicle Loans. The Bank believes that the inclusion of variable
rate Motor Vehicle Loans has an immaterial effect on the information set forth
in the following tables with respect to the Bank's experience relating to
delinquencies, loan losses and recoveries.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
AT DECEMBER 31,
NINE MONTHS NINE MONTHS --------------------------------------------------------------------
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 1996 1995 1994 1993
------------------- ------------------- ---------------- ---------------- ---------------- --------------
NUMBER NUMBER NUMBER NUMBER NUMBER NUMBER
DOLLARS OF DOLLARS OF DOLLARS OF DOLLARS OF DOLLARS OF DOLLARS OF
(000'S) LOANS (000'S) LOANS (000'S) LOANS (000'S) LOANS (000'S) LOANS (000'S) LOANS
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstandings........ $ $ $ $ $ $
Delinquencies over
30 days(2)(3)..... $ $ $ $ $ $
Delinquencies over
30 days(%)(4).... % % % % % % % % % % % %
<CAPTION>
1992
----------------
NUMBER
DOLLARS OF
(000'S) LOANS
-------- ------
<S> <C> <C>
Outstandings.......... $
Delinquencies over 30
days(2)(3).......... $
Delinquencies over 30
days(%)(4).......... % %
</TABLE>
- ------------
(1) [The figures shown include information with respect to certain consumer
loans which are not Motor Vehicle Loans but for which the Bank does not
maintain separate records regarding delinquency experience. These other
consumer loans were less than % of outstandings as of each of the dates
shown in the table. The Bank believes that the inclusion of these other
consumer loans has an immaterial effect on the data shown.]
(2) Delinquencies include principal amounts only.
(3) The period of delinquency is based on the number of days payments are
contractually past due.
(4) As a percent of outstandings.
LOAN LOSS EXPERIENCE(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED NINE MONTHS ENDED ------------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996 1996 1995 1994 1993
------------------ ------------------ --------- -------- -------- --------
(DOLLARS IN 000'S)
<S> <C> <C> <C> <C> <C> <C>
Number of Loans(2).......................
Period Ending Outstandings............... $ $ $ $ $ $
Average Outstandings(3).................. $ $ $ $ $ $
Number of Gross Charge-Offs..............
Gross Charge-Offs(4)..................... $ $ $ $ $ $
Gross Charge-Offs as a % of Period End
Outstandings........................... % % % % % %
Gross Charge-Offs as a % of Average
Outstandings........................... % % % % % %
Recoveries(5)............................ $ $ $ $ $ $
Net Charge-Offs(6)....................... $ $ $ $ $ $
Net Charge-Offs as a % of Period End
Outstandings........................... % % % % % %
Net Charge-Offs as a % of Average
Outstandings........................... % % % % % %
<CAPTION>
1992
--------
<S> <C>
Number of Loans(2).......................
Period Ending Outstandings............... $
Average Outstandings(3).................. $
Number of Gross Charge-Offs..............
Gross Charge-Offs(4)..................... $
Gross Charge-Offs as a % of Period End
Outstandings........................... %
Gross Charge-Offs as a % of Average
Outstandings........................... %
Recoveries(5)............................ $
Net Charge-Offs(6)....................... $
Net Charge-Offs as a % of Period End
Outstandings........................... %
Net Charge-Offs as a % of Average
Outstandings........................... %
</TABLE>
(footnotes on next page)
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(footnotes from previous page)
(1) [The figures shown include information with respect to certain consumer
loans which are not Motor Vehicle Loans but for which the Bank does not
maintain separate records regarding loan loss experience. These other
consumer loans were less than % of outstandings for each of the periods
shown in the table. The Bank believes that the inclusion of these other
consumer loans has an immaterial effect on the data shown.]
(2) Number of loans as of period end.
(3) Averages were computed by taking a simple average of month-end outstandings
for each period presented.
(4) Amount charged off is remaining principal balance less proceeds from sale of
repossessed vehicles, or, in the case of repossessed vehicles which have not
yet been sold, the remaining principal balance less estimated proceeds from
the sale of such repossessed vehicles.
(5) Recoveries generally include amounts received with respect to loans
previously charged off, except for proceeds realized in connection with the
sale of the financed vehicles.
(6) Net charge-offs means gross charge-offs minus recoveries of loans previously
charged off.
------------------------
The data presented in the foregoing tables are for illustrative purposes
only. Delinquency and loan loss experience may be influenced by a variety of
economic, social and other factors. No assurance can be given that the
delinquency and loan loss information of the Bank, or of the Trust with respect
to the Receivables, in the future will be similar to that set forth above.
THE TRUST
The Seller will establish the Trust by selling and assigning the
Receivables to the Trust in exchange for the Certificates. Each Certificate will
represent a fractional undivided interest in the Trust. The Trust property will
include a pool (the 'Receivables Pool') of fixed rate simple interest motor
vehicle installment loans for the purchase of new and used automobiles and
light-duty trucks (the 'Receivables') and all monies due thereunder on or after
the Cutoff Date. The Trust property will also include (i) such amounts as from
time to time may be held in the Certificate Account, the Class A Distribution
Account and the Class B Distribution Account; (ii) security interests in the
vehicles securing the Receivables (the 'Financed Vehicles'); (iii) the benefit
of the right to payments from the Reserve Account; (iv) an assignment of the
rights of the Seller to receive proceeds from claims on theft, physical damage,
credit life and credit disability insurance policies covering the Financed
Vehicles or the Obligors, as the case may be, to the extent that such insurance
policies relate to the Receivables; and (v) the rights with respect to any
Financed Vehicle that has been repossessed by the Servicer on behalf of the
Trustee.
The Trust will be formed for this transaction pursuant to the Agreement and
prior to formation will have had no assets or obligations. After formation, the
Trust will not engage in any activity other than acquiring and holding the
Receivables, issuing the Certificates, distributing payments thereon and as
otherwise described herein and as provided in the Agreement. The Trust will not
acquire any contracts or assets other than the Trust property described above
and will not have any need for additional capital resources. As the Trust does
not have any operating history and will not engage in any activity other than
issuing the Certificates and making distributions thereon, there has not been
included any historical or pro forma financial statements or ratio of earnings
to fixed charges with respect to the Trust. While management of the Bank
believes that the figures and statistics contained herein for recent periods are
representative of past performance of Motor Vehicle Loans owned and serviced by
the Bank, there is no assurance that such performance is indicative of the
future performance of the Receivables, since future performance is dependent,
among other things, on general economic conditions and economic conditions in
the geographical areas in which the Obligors reside including, for example,
unemployment rates.
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THE RECEIVABLES POOL
The Receivables represent Motor Vehicle Loans from the portfolio of the
Bank that:
(a) were made to Obligors located in a state of the United States or
the District of Columbia;
(b) are secured by a new or used automobile or light-duty truck;
(c) have a remaining maturity, as of the Cutoff Date, of at least 6
months and not more than 66 months;
(d) with respect to loans secured by new Financed Vehicles, had an
original maturity of at least 12 months and not more than 72 months; with
respect to loans secured by used Financed Vehicles, had an original
maturity of at least 12 months and not more than 60 months;
(e) are fully-amortizing, fixed rate simple interest contracts which
provide for level scheduled monthly payments (except for the last payments,
which may be minimally different from the level payments) over their
respective remaining terms and have a simple interest contract rate (a
'Contract Rate') that equals or exceeds [6.5%], are not secured by any
interest in real estate, and have not been identified on the computer files
of the Bank as relating to Obligors who had requested a reduction in the
periodic finance charges, as of the Cutoff Date, by application of the
Soldiers' and Sailors' Civil Relief Act of 1940, as amended;
(f) are secured by Financed Vehicles that, as of the Cutoff Date, had
not been repossessed without reinstatement;
(g) have not been identified on the computer files of the Bank as
relating to Obligors who were in bankruptcy proceedings as of the Cutoff
Date;
(h) have no payment more than 30 days past due as of the Cutoff Date;
(i) have remaining principal balances, as of the Cutoff Date, of at
least $500.00; and
(j) are secured by Financed Vehicles that were not insured by Force
Placed Insurance as of the Cutoff Date and did not owe an Insurance Add-On
Amount as of the Cutoff Date.
The Receivables were selected in an unbiased manner from the Motor Vehicle
Loans in the portfolio of the Bank that met the above criteria. No selection
procedures were used which were believed by the Bank to be adverse to the
Certificateholders. Approximately % of the aggregate principal balance of
the Receivables, as of the Cutoff Date, were secured by new Financed Vehicles
and approximately % of the aggregate principal balance of the Receivables,
as of the Cutoff Date, were secured by used Financed Vehicles. The Seller may
not substitute other Motor Vehicle Loans from the portfolio of the Bank, or any
other motor vehicle receivables, for the Receivables at any time during the term
of the Agreement.
All of the Receivables are simple interest contracts. As payments are
received under a simple interest contract, the finance charges accrued to date
are paid first, and then the remaining payment is applied to the unpaid amount
financed. See 'The Certificates -- Servicing Procedures.' Accordingly, if an
Obligor pays the fixed monthly installment in advance of the date on which a
payment is due (the 'Due Date'), the portion of the payment allocable to finance
charges for the period since the preceding payment will be less than it would be
if the payment were made on the Due Date, and the portion of the payment
allocable to reduce the amount financed will be correspondingly greater.
Conversely, if an Obligor pays the fixed monthly installment after its Due Date,
the portion of the payment allocable to finance charges for the period since the
preceding payment will be greater than it would be if the payment were made on
the Due Date, and the portion of the payment allocable to reduce the amount
financed will be correspondingly smaller. When necessary, an adjustment is made
at the maturity of the loan to the scheduled final payment to reflect the larger
or smaller, as the case may be, allocations of payments to the amount financed
under the Receivable as a result of early or late payments, as the case may be.
In the case of the liquidation of a Receivable or repossession of a
Financed Vehicle, amounts recovered will be applied first to the expenses of
liquidation or repossession, second, to unpaid interest and third to unpaid
principal. The Bank reserves the right to change its policy with respect to the
application of amounts recovered from a liquidated Receivable or a repossessed
Financed Vehicle.
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The composition of the Receivables, distribution by Contract Rate of the
Receivables and geographic distribution of the Receivables, as of the Cutoff
Date are set forth in the following tables.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C>
Aggregate Principal Balance............................................ $
Number of Receivables..................................................
Average Principal Balance.............................................. $
Average Original Amount Financed....................................... $
Original Amount Financed (Range)....................................... $ to $
Weighted Average Contract Rate......................................... %
Contract Rate (Range).................................................. [ % to %]
Weighted Average Original Term......................................... months
Original Term (Range).................................................. [12 months to 72 months]
Weighted Average Remaining Term........................................ months
Remaining Term (Range)................................................. [6 months to 66 months]
</TABLE>
DISTRIBUTION BY CONTRACT RATE OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF AGGREGATE
CONTRACT RATE RANGE RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
- ------------------------------------------------------------------ ----------- ----------------- -------------
<S> <C> <C> <C>
6.50% to 7.00%................................................... $ %
7.01% to 8.00%...................................................
8.01% to 9.00%...................................................
9.01% to 10.00%..................................................
10.01% to 11.00%..................................................
11.01% to 12.00%..................................................
12.01% to 13.00%..................................................
13.01% to 14.00%..................................................
----------- ----------------- -------------
Totals....................................................... $ %
----------- ----------------- -------------
----------- ----------------- -------------
</TABLE>
17
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<PAGE>
GEOGRAPHIC DISTRIBUTION* OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF AGGREGATE
STATE RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
- ------------------------------------------------------------------ ----------- ----------------- -------------
<S> <C> <C> <C>
Alabama........................................................... $ %
Alaska............................................................
Arizona...........................................................
Arkansas..........................................................
California........................................................
Colorado..........................................................
Connecticut.......................................................
Delaware..........................................................
District of Columbia..............................................
Florida...........................................................
Georgia...........................................................
Hawaii............................................................
Idaho.............................................................
Illinois..........................................................
Indiana...........................................................
Iowa..............................................................
Kansas............................................................
Kentucky..........................................................
Louisiana.........................................................
Maine.............................................................
Maryland..........................................................
Massachusetts.....................................................
Michigan..........................................................
Minnesota.........................................................
Mississippi.......................................................
Missouri..........................................................
Montana...........................................................
Nebraska..........................................................
Nevada............................................................
New Hampshire.....................................................
New Jersey........................................................
New Mexico........................................................
New York..........................................................
North Carolina....................................................
North Dakota......................................................
Ohio..............................................................
Oklahoma..........................................................
Oregon............................................................
Pennsylvania......................................................
Rhode Island......................................................
South Carolina....................................................
South Dakota......................................................
Tennessee.........................................................
Texas.............................................................
Utah..............................................................
Vermont...........................................................
Virginia..........................................................
Washington........................................................
West Virginia.....................................................
Wisconsin.........................................................
Wyoming...........................................................
----------- ----------------- -------------
Total........................................................ $ %
----------- ----------------- -------------
----------- ----------------- -------------
</TABLE>
- ------------
* Based on the location of the Obligor at the time each Motor Vehicle Loan was
advanced.
MATURITY AND PREPAYMENT ASSUMPTIONS
The Receivables are prepayable by the Obligors at any time without penalty.
To the extent that prepayments are received on the Receivables, the actual
weighted average life of the Receivables will
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be shorter than a weighted average life calculation based on the assumptions
that payments will be made on schedule and that no prepayments will be made.
Weighted average life means the average amount of time in which each dollar of
principal on a Receivable is repaid. Prepayments may also result from
liquidations due to default; receipt of proceeds from theft, physical damage,
credit life and credit disability insurance policies, repurchases by the Seller
as a result of the failure of a Receivable to meet certain criteria set forth in
the Agreement; purchases by the Servicer as a result of a breach of certain of
its covenants with respect to the Receivables made by it in the Agreement;
or as a result of an exercise by the Servicer of its option to purchase the
Receivables Pool. Prepayments may also result from payments from the Reserve
Account with respect to Defaulted Receivables. 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 the
Financed Vehicle securing a Receivable without the Seller's consent. These
factors may also include unemployment, servicing decisions, seasoning of loans,
destruction of vehicles by accident, sales of vehicles and market interest
rates. A predominant factor affecting the prepayment of a large group of loans
is the difference between the interest rates on the loans and prevailing
interest rates. If the prevailing market interest rates were to fall
significantly below the interest rates on the Receivables, the rate of
prepayment (and refinancings) would be expected to increase. Conversely, if
prevailing interest rates were to increase significantly above the interest
rates on the Receivables, the rate of prepayments (and refinancings) would be
expected to decrease.
The Bank maintains certain records of the historical prepayment experience
of its portfolio of Motor Vehicle Loans. The Bank does not believe that such
records are adequate to provide meaningful information with respect to the
Receivables. In any event, no assurance can be given that prepayments on the
Receivables would conform to any historical experience, and no prediction can be
made as to the actual prepayment experience to be expected with respect to the
Receivables. All reinvestment risks resulting from any prepayments of
Receivables will be borne by the Certificateholders.
YIELD CONSIDERATIONS
On each Distribution Date, interest on the Certificates will be distributed
at the applicable Pass-Through Rate on the Class A Certificate Balance and the
Class B Certificate Balance, respectively, as of the preceding Distribution Date
(after giving effect to all distributions made on such preceding Distribution
Date) or, in the case of the first Distribution Date, as of the Closing Date. In
the event of a principal prepayment on a Receivable during a Collection Period,
Certificateholders will receive their pro rata share of interest for the full
Collection Period with respect to the unpaid principal balance of such
Receivable as of the first day of such Collection Period to the extent that
amounts on deposit in the Certificate Account and in the Reserve Account are
available for such purpose. See 'The Certificates -- Distributions on
Certificates.'
The effective yield to Certificateholders will be below the yield otherwise
produced by the applicable Pass-Through Rate because the distribution of
interest that accrues on the underlying Receivables in respect of any given
month will not be made until the related Distribution Date, which will not be
earlier than the 15th day of the following month.
Although the Receivables have different Contract Rates, each Receivable's
Contract Rate exceeds the sum of the Pass-Through Rate and the Servicing Fee
Rate. Therefore, disproportionate rates of prepayments between Receivables with
higher and lower Contract Rates will not affect the yield to Certificateholders.
POOL FACTORS
The 'Class A Pool Factor' and the 'Class B Pool Factor' will each be a
seven-digit decimal that the Servicer will compute each month indicating the
remaining Class A Certificate Balance and Class B Certificate Balance,
respectively, as of the close of business on the Distribution Date, as a
fraction of the respective initial outstanding principal balance of the Class A
Certificates and the Class B Certificates. The Class A Pool Factor and the Class
B Pool Factor will each be 1.0000000 as of the date of the initial issuance of
the Certificates (the 'Closing Date'), and thereafter will decline to reflect
reductions in the respective outstanding principal balances of the Class A
Certificates and Class B Certificates.
A Class A Certificateholder's portion of the aggregate outstanding
principal balance of the Class A Certificates is the product of (i) the original
denomination of the holder's Class A Certificate and (ii) the Class A Pool
Factor. A Certificate Owner's portion of the aggregate outstanding principal
balance of the Class A Certificates is the product of (i) the original principal
amount of the Certificate Owner's interest
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in the Class A Certificates and (ii) the Class A Pool Factor. A Class B
Certificateholder's portion of the aggregate outstanding principal balance of
the Class B Certificates is the product of (i) the original denomination of the
holder's Class B Certificate and (ii) the Class B Pool Factor. A Certificate
Owner's portion of the aggregate outstanding principal balance of the Class B
Certificates is the product of (i) the original principal amount of the
Certificate Owner's interest in the Class B Certificates and (ii) the Class B
Pool Factor.
Pursuant to the Agreement, the Certificateholders will receive from the
Trustee monthly reports concerning the payments received on the Receivables, the
Pool Balance, the Class A Pool Factor and the Class B Pool Factor, and various
other items of information. Certificateholders of record during any calendar
year will be furnished information by the Trustee for tax reporting purposes not
later than the latest date permitted by law. Certificate Owners may obtain such
information from the Trustee, as described in 'The Certificates -- Statements to
Certificateholders.'
Pursuant to the Agreement, Certificateholders will receive monthly reports
from the Paying Agent concerning payments received on the Receivables, the Pool
Balance, the Class A Pool Factor, the Class B Pool Factor, and various other
items of information. Certificateholders of record during any calendar year will
be furnished information for tax reporting purposes not later than the latest
date permitted by law. See 'The Certificates -- General' and ' -- Statements to
Certificateholders.'
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Receivables to the Trust and the sale of the Certificates, estimated to be
approximately $ , will be used for the initial Reserve Account
deposit and added to Seller's general funds.
USAA FEDERAL SAVINGS BANK
The Bank is a federally chartered savings association and a member of the
Federal Home Loan Bank System. The Bank is subject to the primary supervision of
the Office of Thrift Supervision. The Bank's deposits are insured by the Savings
Association Insurance Fund. The Bank is an indirect wholly-owned subsidiary of
United Services Automobile Association ('USAA'). The Bank is engaged in
providing consumer banking products and services primarily to the USAA
membership, concentrating its efforts in marketing consumer loan products as
well as deposit products. As of December 31, 1996, the total assets and total
common and preferred stockholders' equity of the Bank were $6.3 billion and $646
million, respectively.
The executive offices of the Bank are located at 10750 McDermott Freeway,
San Antonio, Texas 78288 and its telephone number is (210) 498-2265.
UNITED SERVICES AUTOMOBILE ASSOCIATION
USAA is a reciprocal interinsurance exchange formed in 1922. The reciprocal
form of ownership allows member policyholders to pool their insurance risks by
exchanging insurance contracts through an attorney-in-fact. As of December 31,
1996, there were approximately 2.7 million USAA member and associate member
policyholders. USAA members are principally active, retired and former United
States military officers. The associate membership is primarily comprised of the
ex-dependents of USAA members and enlisted military personnel.
USAA and its various property and casualty subsidiaries provide personal
lines insurance, which includes automobile, homeowners, renters and condominium
insurance, to its members and associate members. In addition, through its
various wholly-owned subsidiaries and affiliates, USAA offers personal financial
service products, including life insurance, mutual funds, financial planning and
banking services. USAA is the fifth largest private passenger automobile and the
sixth largest homeowner insurer in the United States. USAA markets its products
and services principally through a direct mail and telecommunication program.
USAA is headquartered in San Antonio, Texas and employs approximately 17,000
people.
20
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<PAGE>
THE CERTIFICATES
The Certificates offered hereby will be issued pursuant to the Agreement.
Copies of the Agreement (without exhibits) may be obtained by Certificateholders
upon request in writing to the Servicer at the address set forth above. The
following summary, while addressing all of the terms material to an investor,
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the Agreement.
GENERAL
On each Distribution Date, the Trustee will distribute to
Certificateholders of record on the preceding Record Date all payments of
principal on the Receivables received by the Servicer during the preceding
Collection Period (and, to the extent funds are available as described herein,
the amount of Realized Losses realized during such Collection Period), plus
interest in respect of such Collection Period of the applicable
Pass-Through Rate, calculated on the basis of a 360-day year consisting of
twelve 30-day months, on the Class A Certificate Balance and the Class B
Certificate Balance, respectively, in each case as of the preceding Distribution
Date (after giving effect to any payments made on such preceding Distribution
Date) or, in the case of the first Distribution Date, as of the Closing Date, to
the extent that sufficient funds are on deposit in the Certificate Account or
available in the Reserve Account to make such distributions. See
' -- Distributions on Certificates' and ' -- The Reserve Account.' Principal and
interest to be distributed to Certificateholders may be provided by payments
made by or on behalf of Obligors, Advances, the payment of Repurchase Amounts by
the Seller or the Servicer, withdrawals from the Reserve Account, repossession
of, or other enforcement measures taken with respect to, Financed Vehicles after
default by Obligors and the realization of net liquidation proceeds with respect
thereto, or recoveries (if any) of deficiencies from Obligors after the
repossession and sale of Financed Vehicles. See ' -- Sale and Assignment of the
Receivables' and ' -- Servicing Procedures.' In the event that, on any
Distribution Date, funds available from the foregoing sources are insufficient
to provide for such distributions, any shortfall will be payable on the
subsequent Distribution Date, to the extent funds are available therefor.
The Certificates will be offered for purchase in denominations of $1,000
and integral multiples thereof and will initially be represented by Certificates
registered in the name of the nominee of The Depository Trust Company ('DTC',
and together with any successor depository selected by the Seller, the
'Depository'), except as provided below. The Seller has been informed by DTC
that DTC's nominee will be Cede & Co. ('Cede'). No person acquiring an interest
in the Certificates through the facilities of DTC (a 'Certificate Owner') will
be entitled to receive a certificate representing such person's interest in the
Certificates, except as set forth below under 'Definitive Certificates'. Unless
and until Definitive Certificates are issued under the limited circumstances
described herein, all references herein to actions by Certificateholders shall
refer to actions taken by DTC upon instructions from its Participants, and all
references herein to distributions, notices, reports and statements to
Certificateholders shall refer to distributions, notices, reports and statements
to DTC or Cede, as the registered holder of the Certificates, as the case may
be, for distribution to Certificate Owners in accordance with DTC procedures.
See 'Definitive Certificates'.
Distributions of principal of and interest on the Certificates with respect
to each Collection Period will be made by, or on behalf of, the Paying Agent on
the Distribution Date immediately succeeding such Collection Period, commencing
15, 1997. Each Collection Period will be one calendar month, or in the
case of the initial Collection Period, the period from the Cutoff Date to
, 1997.
BOOK-ENTRY REGISTRATION
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 was created to hold securities for its participating
organizations ('Participants') and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating
21
<PAGE>
<PAGE>
the need for physical movement of certificates. Participants include securities
brokers and dealers (including the Underwriters), banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ('Indirect
Participants').
Certificate Owners that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Certificates may do so only through Participants and Indirect Participants.
In addition, Certificate Owners will receive all distributions of principal and
interest from the Trustee through DTC and its Participants. Under a book-entry
format, Certificate Owners may experience some delay in their receipt of
payments, since such payments will be forwarded by the Trustee to Cede, as
nominee for DTC. DTC will forward such payments to its Participants which
thereafter will forward them to Indirect Participants or Certificate Owners.
Certificate Owners will not be recognized by the Trustee as Certificateholders,
as such term is used in the Agreement, and Certificate Owners will only be
permitted to exercise the rights of Certificateholders indirectly through DTC
and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Certificates and is required to
receive and transmit distributions of principal of and interest on the
Certificates. Participants and Indirect Participants with which Certificate
Owners have accounts with respect to the Certificates similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
their respective Certificate Owners.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, the ability of a Certificate Owner to pledge
Certificates to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such Certificates, may be limited due to
the lack of physical certificates for such Certificates.
DTC has advised the Seller that it will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one or
more Participants to whose accounts with DTC the Certificates are credited.
Additionally, DTC has advised the Seller that it will take such actions with
respect to specified percentages of the Pool Balance evidenced by the Class A
Certificates or the Class B Certificates only at the direction of and on behalf
of Participants whose holdings include undivided interests that satisfy such
specified percentages. DTC may take conflicting actions with respect to other
undivided interests to the extent that such actions are taken on behalf of
Participants whose holdings include such undivided interests.
DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated form
('Definitive Certificates') to Certificate Owners or their nominees, rather than
to DTC or its nominee only if (i) the Servicer advises the Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as Depository with respect to the Certificates and the Trustee or the Servicer
is unable to locate a qualified successor, (ii) the Servicer, at its option,
elects to terminate the book-entry system through DTC or (iii) after the
occurrence of an Event of Servicing Termination, Certificate Owners representing
in the aggregate not less than 50% of the Pool Balance advise DTC through
Participants in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in the best interest of the Certificate
Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates. Upon surrender by DTC of
the definitive certificates representing the Certificates and instructions for
re-registrations, the Trustee will issue the Certificates as Definitive
Certificates, and thereafter the Trustee will recognize the holders of such
Definitive Certificates as Certificateholders under the Agreement ('Holders').
Distributions of principal of and interest on the Definitive Certificates
will be made by the Paying Agent directly to Holders in accordance with the
procedures set forth herein and in the Agreement.
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Distributions of principal and interest on each Distribution Date will be made
to Holders in whose names the Definitive Certificates were registered at the
close of business on the last day of the related Collection Period. Such
distributions will be made by check mailed to the address of such Holder as it
appears on the register maintained by the Trustee. The final payment on any
Certificate (whether a Definitive Certificate or the Certificates registered in
the name of Cede representing the Certificates), however, will be made only upon
presentation and surrender of such Certificate at the office or agency specified
in the notice of final distribution to Certificateholders.
Definitive Certificates will be transferable and exchangeable at the
offices of the transfer agent and registrar, which initially shall be the
Trustee (in such capacity, the 'Transfer Agent and Registrar'). No service
charge will be imposed for any registration of transfer or exchange, but the
Trustee or Transfer Agent and Registrar may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
SALE AND ASSIGNMENT OF THE RECEIVABLES
At the time of issuance of the Certificates, the Seller will sell and
assign to the Trust, without recourse, the Seller's entire interest in the
Receivables and the proceeds thereof, including its security interests in the
Financed Vehicles. Each Receivable will be identified in a schedule appearing
as an exhibit to the Agreement. The Trustee will, concurrently with such sale
and assignment, execute, authenticate and deliver the definitive certificates
representing the Certificates to the Underwriters against payment to the Seller
of the net purchase price of the sale of the Certificates.
The Agreement sets forth criteria that must be satisfied by each
Receivable. The criteria in the Agreement include, among others, the following:
(i) each Receivable (a) has been originated for the retail financing of a
Financed Vehicle by an Obligor located in one of the States of the United States
or the District of Columbia and (b) contains customary and enforceable
provisions such that the rights and remedies of the holder thereof shall be
adequate for realization against the collateral of the benefits of the security;
(ii) each Receivable and the sale of the related Financed Vehicle complies in
all material respects with all requirements of applicable federal, state, and
local laws, and regulations thereunder, including usury laws, the Federal
Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Federal Trade Commission Act, the Magnuson-Moss Warranty Act,
Federal Reserve Board Regulations B and Z, state adaptations of the National
Consumer Act and of the Uniform Consumer Credit Code, and any other consumer
credit, equal opportunity and disclosure laws applicable to such Receivable and
sale; (iii) each Receivable constitutes the legal, valid, and binding payment
obligation in writing of the Obligor, enforceable by the holder thereof in all
material respects in accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, insolvency, reorganization, liquidation and other similar
laws and equitable principles relating to or affecting the enforcement of
creditors' rights; (iv) immediately prior to the sale and assignment thereof to
the Trust, each Receivable was secured by a validly perfected first priority
security interest in the Financed Vehicle in favor of the Seller as secured
party or all necessary action with respect to such Receivable has been taken to
perfect a first priority security interest in the related Financed Vehicle in
favor of the Seller as secured party, which security interest is assignable and
has been so assigned by the Seller to the Trust; (v) as of the Cutoff Date,
there are no rights of rescission, setoff, counterclaim, or defense, and the
Seller has no knowledge of the same being asserted or threatened, with respect
to any Receivable; (vi) as of the Cutoff Date, the Seller had no knowledge of
any liens or claims that have been filed, including liens for work, labor,
materials or unpaid taxes relating to a Financed Vehicle, that would be liens
prior to, or equal or coordinate with, the lien granted by the Receivable; (vii)
except for payment defaults continuing for a period of not more than 30 days as
of the Cutoff Date, the Seller has no knowledge that a default, breach,
violation, or event permitting acceleration under the terms of any Receivable
exists; the Seller has no knowledge that a continuing condition that with notice
or lapse of time would constitute a default, breach, violation or event
permitting acceleration under the terms of any Receivable exists, and the Seller
has not waived any of the foregoing; (viii) each Receivable requires that the
Obligor thereunder obtain comprehensive and collision insurance covering the
Financed Vehicle; and (ix) each Receivable satisfies the criteria specified
above under 'The Receivables
23
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Pool'. As of the last day of the Collection Period following the Collection
Period (or, if the Seller elects, the last day of such Collection Period) during
which the Seller becomes aware or receives written notice from the Trustee or
the Servicer that a Receivable did not meet any of such criteria in the
Agreement as of the date sold to the Trustee and such failure materially and
adversely affects the interests of the Certificateholders in a Receivable, the
Seller, unless it cures the failed criterion, will repurchase the Receivable
from the Trustee at a price equal to the unpaid principal balance thereof plus
accrued interest thereon at the weighted average Certificate Rate through the
date of the repurchase (the 'Repurchase Amount'). The repurchase obligation will
constitute the sole remedy available to the Certificateholders or the Trustee
for the failure of a Receivable to meet any of the criteria set forth in the
Agreement. In the event that the Bank, as Seller, fails to satisfy its
regulatory capital requirements in the future, it may be prohibited from
repurchasing any of the Receivables.
To ensure uniform quality in the servicing of the Receivables and to reduce
administrative costs, the Trustee will appoint the Servicer as initial custodian
of the Receivables. The Receivables will not be stamped or otherwise marked to
reflect the transfer of the Receivables to the Trust and will not be segregated
from the other motor vehicle installment loans of the Servicer. The Obligors
under the Receivables will not be notified of the transfer of the Receivables to
the Trust, but the Seller's accounting records and computer systems will reflect
the sale and assignment of the Receivables to the Trust. See 'Certain Legal
Aspects of the Receivables'.
ACCOUNTS
The Servicer will establish and maintain a segregated account (the
'Certificate Account'), in the name of the Trustee on behalf of the
Certificateholders, into which all payments made on or with respect to the
Receivables will be deposited. The Trustee will also establish a segregated
account in the name of the Trustee on behalf of the Trust and for the benefit of
the Class A Certificateholders (the 'Class A Distribution Account'), and a
segregated account in the name of the Trustee on behalf of the Trust and for the
benefit of the Class B Certificateholders (the 'Class B Distribution Account'),
from which all distributions with respect to the Class A Certificates and the
Class B Certificates, respectively, will be made. The Certificate Account, the
Class A Distribution Account and the Class B Distribution Account are
collectively referred to as the 'Accounts.'
Each Account will be maintained at all times (a) with a depository
institution organized under the laws of the United States or any state thereof
or incorporated under the laws of a foreign jurisdiction with a branch or agency
located in the United States and subject to supervision and examination by
federal or state banking authorities, having a short-term certificate of deposit
rating of A-1+ and P-1 or a long-term unsecured debt rating of not less than AA
and AA2 assigned by Standard & Poor's and Moody's, respectively, and in the case
of an institution organized under the laws of the United States, the deposits of
which are insured by the FDIC (an 'Eligible Bank') or (b) in the trust
department of an institution organized under the laws of the United States or
any state thereof or incorporated under the laws of a foreign jurisdiction with
a branch or agency located in the United States and subject to supervision and
examination by federal or state banking authorities with authority to act under
such laws as trustee or in any other fiduciary capacity, having not less than $1
billion in assets under fiduciary management and a long-term deposit rating of
not less than BBB- and Baa3 assigned by Standard & Poor's and Moody's,
respectively (an 'Eligible Trust Company'). Should any depository of an Account
cease to be an Eligible Bank or Eligible Trust Company, such Account shall be
transferred to an Eligible Bank or Eligible Trust Company, provided that such
Account may remain at such depository if the Rating Agency Condition is
satisfied. [ ], in its capacity as the initial paying
agent (the 'Paying Agent'), will have the revocable right to withdraw funds from
the Accounts for the purpose of making distributions to Certificateholders in
the manner provided in the Agreement.
COLLECTIONS ON THE RECEIVABLES
The Servicer will deposit all payments on Receivables made by or on behalf
of Obligors into the Certificate Account on a daily basis within forty-eight
hours of receipt.
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In the event that, subsequent to the Closing Date, (i) the Bank obtains a
short-term certificate of deposit rating of the Bank from Standard & Poor's
Corporation ('Standard & Poor's') and Moody's Investors Service, Inc.
('Moody's') of A-1 and P-1, respectively, or certain conditions satisfactory to
Standard & Poor's and Moody's are satisfied, and (ii) the Bank is the Servicer,
the Servicer will no longer be required to make such deposits on a daily basis,
but instead will be permitted to make such deposits into the Certificate Account
on or before the related Deposit Date. Pending deposit into the Certificate
Account in such case, collections may be invested by the Servicer at its own
risk and for its own benefit and will not be segregated from other funds of the
Bank.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables and, in a manner consistent with the Agreement and
with the terms of the Receivables, will continue such collection procedures as
it follows with respect to comparable new or used automobile and light-duty
truck receivables that it services for itself or others and that is consistent
with prudent industry standards. The Agreement will provide that the Servicer
may not change the amount of or reschedule the Due Date of any scheduled payment
to a date more than 30 days from the original Due Date, change the Contract Rate
of, or extend any Receivable or change any material term of a Receivable, except
as provided by the terms of the Receivable or of the Agreement or as required by
law or court order; provided, however, that the Servicer may extend any
Receivable for credit-related reasons that would be acceptable to the Servicer
with respect to comparable new or used automobile and light-duty truck
receivables that it services for itself or others if (a) the amount on deposit
in the Reserve Account is greater than zero at the time of such extension, (b)
the total credit-related extensions granted on the Receivable will not exceed
four months in the aggregate, (c) the total number of credit-related extensions
granted on the Receivable will not exceed two, (d) the maturity of such
Receivable would not be extended beyond the Collection Period immediately
preceding the Final Distribution Date and (e) the rescheduling or extension
would not modify the terms of such Receivable in such a manner as to constitute
a cancellation of such Receivable and the creation of a new receivable. (The
Servicer also considers other criteria when making credit-related extensions as
described under 'The Bank's Portfolio of Motor Vehicle Loans -- Collection
Procedures'.) In the event that the Servicer fails to comply with the foregoing
terms of the Agreement, it will be required to purchase the affected Receivable
for the Repurchase Amount as of the last day of the Collection Period following
the Collection Period (or, if the Servicer elects, the last day of the
Collection Period) during which it became aware, or receives written notice from
the Trustee, of such failure. The purchase obligation will constitute the sole
remedy available to the Certificateholders or the Trustee for any such uncured
breach. In the event that the Bank, as Servicer, fails to satisfy its regulatory
capital requirements in the future, it may be prohibited from purchasing any of
the Receivables.
Under the Agreement, the Servicer, in accordance with its customary
servicing procedures and underwriting standards, will require the Obligors to
obtain comprehensive and collision insurance on the Financed Vehicles in
accordance with the policies and procedures employed by the Servicer with
respect to comparable new or used automobile and light-duty truck receivables
that it services for itself or others. See 'The Bank's Portfolio of Motor
Vehicle Loans -- Insurance'.
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The Agreement provides that the Servicer, based upon its collection
practices and procedures for comparable new or used automobile and light-duty
truck receivables that it services for itself or others, may repossess a
Financed Vehicle relating to a Receivable that is delinquent prior to such
Receivable being designated a Defaulted Receivable. The Agreement will also
require the Servicer to follow such normal collection practices and procedures
as it deems necessary or advisable to realize upon any Receivable with respect
to which: (i) the Servicer determines based upon its normal collection practices
and procedures, during any Collection Period, that eventual payment in full of
the amount financed is unlikely or (ii) more than 10 percent of a scheduled
payment is 120 or more days delinquent as of the last day of such Collection
Period (each such Receivable, a 'Defaulted Receivable'). See 'The Bank's
Portfolio of Motor Vehicle Loans -- Collection Procedures'. The Servicer may
sell the repossessed Financed Vehicle securing a Receivable at judicial sale, or
take any other action permitted by applicable law. See 'Certain Legal Aspects of
the Receivables'. The net proceeds of such realization will be deposited in the
Certificate Account.
ADVANCES
The Servicer may, in its sole discretion, make a payment with respect to
each Receivable (other than a Defaulted Receivable) equal to the excess, if any,
of (x) the product of the principal balance of such Receivable as of the first
day of the related Collection Period and one-twelfth of its Contract Rate
(calculated on the basis of a 360-day year of twelve 30-day months), over (y)
the interest actually received by the Servicer with respect to such Receivable
from the Obligor or from the payment of the Repurchase Amount during or with
respect to such Collection Period. The Servicer may elect not to make any
Advance with respect to a Receivable to the extent that the Servicer, in its
sole discretion, determines that such Advance is not recoverable from subsequent
payments on such Receivable or from funds on deposit in the Reserve Account. In
the event that the Servicer does not make an Advance, any Payment Deficiency
resulting therefrom will be funded by the application of available amounts in
the Reserve Account.
To the extent that the amount set forth in clause (y) above plus amounts
withdrawn from the Reserve Account during or with respect to such Collection
Period and allocable to interest with respect to a Receivable is greater than
the amount set forth in clause (x) above with respect thereto, such amount shall
be distributed by the Paying Agent to the Servicer on the related Distribution
Date to reimburse the Servicer for previous unreimbursed Advances with respect
to such Receivable. Any such reimbursement will only be from accrued interest
due from the Obligor under such Receivable.
The Servicer will deposit all Advances into the Certificate Account on the
Business Day immediately preceding the related Distribution Date.
SERVICING COMPENSATION
The Servicer will be entitled to receive the Servicing Fee for each
Collection Period, in an amount equal to the product of [one-twelfth of] 1.00%
(the 'Servicing Fee Rate') and the Pool Balance as of the first day of the
related Collection Period. In addition, the Servicer will receive as additional
compensation investment earnings on amounts on deposit (and to be deposited) in
the Certificate Account, except that beginning with the Collection Period for
which the Servicer fails to deposit an Advance with respect to a Receivable
other than because such Receivable is a Defaulted Receivable and thereafter,
such investment earnings will not be paid to the Servicer, but will be treated
as Available Interest pursuant to the Agreement.
The Servicing Fee will compensate the Servicer for performing the functions
of a third party servicer of motor vehicle receivables as an agent for the
Trust, including collecting and posting all payments, responding to inquiries of
Obligors, investigating delinquencies, reporting tax information to Obligors,
advancing costs of disposition of defaults, and monitoring the collateral in
cases of Obligor default. The Servicing Fee also will compensate the Servicer
for administering the Receivables,
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including accounting for collections and furnishing monthly and annual
statements to the Trustee with respect to distributions, and generating federal
income tax information. The Servicing Fee also will compensate the Servicer for
certain taxes, accounting fees, outside auditor fees, the fees of the Paying
Agent and the Transfer Agent and Registrar, data processing costs, and other
costs incurred in connection with administering and servicing the Receivables.
The amount of the Servicing Fee was determined in light of the foregoing duties
of the Servicer as well as with a view toward providing the Servicer with a
reasonable profit. The Servicing Fee, together with the additional compensation
consisting of investment earnings described above, is comparable to fees that
would be paid to parties unaffiliated with the Bank. The Bank expects that the
Receivables will provide the Trust with funds in an amount sufficient to pay the
Servicing Fee to the Servicer and interest each month at the Pass-Through Rate
on the Pool Balance to the Certificateholders.
THE RESERVE ACCOUNT
The Reserve Account will be created with an initial deposit of cash from
the proceeds of the sale of the Certificates having a value of at least the
Reserve Account Initial Deposit. In addition, on each Distribution Date, any
amounts on deposit in the Certificate Account with respect to the preceding
Collection Period after payments to the Certificateholders and the Servicer have
been made will be deposited into the Reserve Account until the amount on deposit
in the Reserve Account is equal to the Specified Reserve Account Balance.
The Reserve Account will be maintained at an Eligible Bank or Eligible
Trust Company and shall be established and maintained in the name of, and under
the control of, the Collateral Agent. Funds on deposit in the Reserve Account
will be invested in certain permitted investments. The Reserve Account and any
amounts therein will not be property of the Trust, but will be pledged to the
Collateral Agent, for the benefit of Certificateholders.
On each Distribution Date, the amount available in the Reserve Account (the
'Available Reserve Amount') will equal the lesser of (i) the amount on deposit
in the Reserve Account (exclusive of investment earnings) and (ii) the Specified
Reserve Account Balance. On each Deposit Date, the Collateral Agent will
withdraw funds from the Reserve Account to make available to Certificateholders
the excess, if any, of (x) the sum of the amounts required to be distributed to
Certificateholders, any accrued and unpaid Servicing Fees payable to the
Servicer on such Distribution Date and any amounts required to reimburse any
Outstanding Advances (excluding Advances made as a result of prepayments by
Obligors) over (y) the amounts to be deposited in the Certificate Account with
respect to the preceding Collection Period (exclusive of investment earnings).
Such deficiencies in the Certificate Account may result from, among other
things, Receivables becoming Defaulted Receivables or the failure by the
Servicer to make any remittance required to be made under the Agreement. The
aggregate amount to be withdrawn from the Reserve Account on any Distribution
Date will not exceed the Available Reserve Amount with respect to the related
Distribution Date. The Collateral Agent will deposit the proceeds of such
withdrawal from the Reserve Account into the Class A Distribution Account or the
Class B Distribution Account or pay such proceeds to the Servicer, as
applicable, on the Distribution Date with respect to which such withdrawal was
made.
The Specified Reserve Account Balance on any Distribution Date will equal
% of the Pool Balance as of the last day of the preceding Collection Period,
but in any event will not be less than the lesser of (i) $ and (ii)
the sum of such Pool Balance plus an amount sufficient to pay interest on such
Pool Balance at a rate equal to the sum of the weighted average Pass-Through
Rate and the Servicing Fee Rate through the Final Scheduled Distribution Date;
provided, however, that the Specified Reserve Account Balance will be calculated
using a percentage of % for any Distribution Date (beginning on the
199 Distribution Date) on which the Average Net Loss Ratio exceeds [ ]% or the
Average Delinquency Ratio exceeds [ ]%.
'Average Delinquency Ratio' means, as of any Distribution Date, the average
of the Delinquency Ratios for the preceding three Collection Periods.
'Average Net Loss Ratio' means, as of any Distribution Date, the average of
the Net Loss Ratios for the preceding three Collection Periods.
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'Delinquency Ratio' means, for any Collection Period, the ratio, expressed
as a percentage, of (i) the principal amount of all outstanding Receivables
(other than Purchased Receivables and Defaulted Receivables) which are 60 or
more days delinquent as of the end of such Collection Period, determined in
accordance with the Servicer's customary practices, divided by (ii) the Pool
Balance as of the last day of such Collection Period.
'Liquidation Proceeds' means with respect to any Receivable (i) insurance
proceeds received by the Servicer and (ii) the monies collected by the Servicer
(from whatever source, including but not limited to proceeds of a Financed
Vehicle sold after repossession), on a Defaulted Receivable net of any payments
required by law to be remitted to the Obligor.
'Net Loss Ratio' means, for any Collection Period, an amount, expressed as
an annualized percentage, equal to (i) Realized Losses minus Recoveries for such
Collection Period, divided by (ii) the average of the Pool Balances on the first
day of such Collection Period and the last day of such Collection Period.
'Recoveries' mean, with respect to any Collection Period, all monies
received by the Servicer with respect to any Defaulted Receivable during any
Collection Period following the Collection Period in which such Receivable
became a Defaulted Receivable, net of any fees, costs and expenses incurred by
the Servicer in connection with the collection of such Receivable and any
payments required by law to be remitted to the Obligor.
The Specified Reserve Account Balance may be reduced to a lesser amount as
determined by the Seller, subject to satisfaction of the Rating Agency
Condition. Amounts on deposit in the Reserve Account will be released to the
Seller on each Distribution Date to the extent that the amount on deposit in the
Reserve Account would exceed the Specified Reserve Account Balance. The
Collateral Agent will cause all investment earnings attributable to the Reserve
Account to be distributed on each Distribution Date to the Seller. Upon any
distribution to the Seller of amounts from the Reserve Account, the
Certificateholders will not have any rights in, or claims to, such amounts.
In the event that the funds in the Reserve Account are reduced to zero, the
Certificateholders will bear directly the credit and other risks associated with
ownership of the Receivables. In such a case, the amount available for
distribution may be less than that described below, and the Certificateholders
may experience delays or suffer losses as a result of, among other things,
defaults or delinquencies by the Obligors or previous extensions made by the
Servicer.
DISTRIBUTIONS ON CERTIFICATES
Deposits to Certificate Account. On or before the 15th day of each month
(or, if such 15th day is not a Business Day, the preceding Business Day), the
Servicer will inform the Trustee and the Paying Agent of the following amounts
with respect to the preceding Collection Period: (i) the amount of aggregate
collections on the Receivables; (ii) the aggregate amount of Advances to be
remitted by the Servicer; (iii) the aggregate Repurchase Amount of Receivables
to be repurchased by the Seller or purchased by the Servicer; (iv) the aggregate
amount to be withdrawn from the Reserve Account; (v) the aggregate amount to be
distributed as principal and interest on the Certificates; and (vi) the
Servicing Fee.
On or before each Deposit Date (a) the Servicer will cause all Collections
and Liquidation Proceeds and Recoveries to be deposited into the Certificate
Account and will deposit into the Certificate Account all Repurchase Amounts of
Receivables to be purchased by the Servicer on such Deposit Date, (b) the Seller
will deposit into the Certificate Account all Repurchase Amounts of Receivables
to be repurchased by the Seller on such Deposit Date and (c) the Servicer will
deposit all Advances for the related Distribution Date into the Certificate
Account.
'Available Interest' means, with respect to any Distribution Date, the
excess of (a) the sum of (i) Interest Collections for such Distribution Date,
(ii) all Advances made by the Servicer with respect to such Distribution Date
and (iii) beginning with the Collection Period for which the Servicer shall not
have made an Advance with respect to a Receivable other than because such
Receivable was a Defaulted Receivable, investment earnings on amounts on deposit
in the Certificate Account as of the last day of the related Collection Period,
over (b) the amount of Outstanding Advances to be reimbursed on or with respect
to such Distribution Date.
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'Available Principal' means, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period: (i)
that portion of all Collections on the Receivables allocable to principal in
accordance with the terms of the Receivables and the Servicer's customary
servicing procedures; (ii) to the extent attributable to principal, the
Repurchase Amount received with respect to each Receivable repurchased by the
Seller or purchased by the Servicer under an obligation which arose during the
related Collection Period; and (iii) all Liquidation Proceeds, to the extent
allocable to principal, received during such Collection Period. 'Available
Principal' on any Distribution Date shall exclude all payments and proceeds of
any Receivables the Repurchase Amount of which has been distributed on a prior
Distribution Date.
'Collections' mean, with respect to any Distribution Date, all collections
on the Receivables.
'Interest Collections' mean, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period: (i)
that portion of all Collections on the Receivables allocable to interest in
accordance with the terms of the Receivables and the Servicer's customary
servicing procedures; (ii) all Liquidation Proceeds, to the extent allocable to
interest, received during such Collection Period; (iii) all Recoveries on
Receivables which became Defaulted Receivables received during any Collection
Period following the Collection Period in which such Receivable became a
Defaulted Receivable; and (iv) to the extent attributable to accrued interest,
the Repurchase Amount with respect to each Receivable repurchased by the Seller
or purchased by the Servicer under an obligation which arose during such
Collection Period. 'Interest Collections' for any Distribution Date shall
exclude all payments and proceeds of any Receivables the Repurchase Amount of
which has been distributed on a prior Distribution Date.
'Purchased Receivable' means, at any time, a simple interest motor vehicle
installment loan included in the Schedule of Receivables as to which payment of
the Repurchase Amount has previously been made by the Seller or the Servicer
pursuant to the Agreement.
Deposits to the Distribution Accounts. On each Distribution Date, after
making reimbursements of Outstanding Advances to the Servicer from Available
Interest and/or the Available Reserve Amount to the extent then reimbursable
pursuant to the Agreement, the Trustee will make the following deposits and
distributions, to the extent of Available Interest and any Available Reserve
Amount remaining after such reimbursements (and, in the case of shortfalls
occurring under clause (ii) below in the Class A Interest Distribution, the
Class B Percentage of Available Principal to the extent of such shortfalls), in
the following priority:
(i) to the Servicer, first from Available Interest, and then, if
necessary, from the Available Reserve Amount, any unpaid Servicing Fee for
the related Collection Period and all unpaid Servicing Fees from prior
Collection Periods;
(ii) to the Class A Distribution Account, first from Available
Interest, then, if necessary, from the Available Reserve Amount, and
finally, if necessary, from the Class B Percentage of Available Principal,
the Class A Interest Distribution for such Distribution Date; and
(iii) to the Class B Distribution Account, first from Available
Interest and then, if necessary, from the Available Reserve Amount, the
Class B Interest Distribution for such Distribution Date.
On each Distribution Date, the Trustee will make the following deposits and
distributions, to the extent of the portion of Available Principal, Available
Interest and the Available Reserve Amount (to be applied in that order of
priority) remaining after the application of clauses (i), (ii) and (iii) above,
in the following priority:
(iv) to the Class A Distribution Account, the Class A Principal
Distribution for such Distribution Date;
(v) to the Class B Distribution Account, the Class B Principal
Distribution for such Distribution Date;
(vi) to the Reserve Account, any amounts remaining, until the amount
on deposit in the Reserve Account equals the Specified Reserve Account
Balance; and
(vii) to the Seller, any amounts remaining.
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On each Distribution Date, all amounts on deposit in the Class A
Distribution Account will be distributed to the Class A Certificateholders and
all amounts on deposit in the Class B Distribution Account will be distributed
to the Class B Certificateholders by the Trustee.
'Class A Certificate Balance', at any time, equals the Original Class A
Certificate Balance, as reduced by all principal amounts distributed to Class A
Certificateholders prior to such time.
'Class A Interest Carryover Shortfall' means, (i) with respect to the
initial Distribution Date, zero, and (ii) with respect to any other Distribution
Date, the excess of Class A Monthly Interest for the preceding Distribution Date
and any outstanding Class A Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that was actually
deposited in the Class A Distribution Account on such preceding Distribution
Date, plus 30 days of interest on such excess, to the extent permitted by law,
at the Class A Pass-Through Rate.
'Class A Interest Distribution' means, with respect to any Distribution
Date, the sum of Class A Monthly Interest for such Distribution Date and the
Class A Interest Carryover Shortfall for such Distribution Date.
'Class A Monthly Interest' means, with respect to any Distribution Date,
one-twelfth of the Class A Pass-Through Rate multiplied by the Class A
Certificate Balance as of the preceding Distribution Date (after giving
effect to all payments of principal made on such Distribution Date) or, in
the case of the first Distribution Date, as of the Closing Date.
'Class A Monthly Principal' means, with respect to any Distribution Date,
the Class A Percentage of Available Principal for such Distribution Date plus
the Class A Percentage of Realized Losses with respect to the related Collection
Period.
'Class A Percentage' means %.
'Class A Principal Carryover Shortfall' means, (i) with respect to the
initial Distribution Date, zero, and (ii) with respect to any other Distribution
Date, the excess of Class A Monthly Principal for such Distribution Date and any
outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that is actually
deposited in the Class A Distribution Account on such Distribution Date.
'Class A Principal Distribution' means, with respect to any Distribution
Date, the sum of Class A Monthly Principal for such Distribution Date and, in
the case of any Distribution Date other than the initial Distribution Date, the
Class A Principal Carryover Shortfall as of the preceding Distribution Date. In
addition, on the Final Scheduled Distribution Date, the Class A Principal
Distribution shall include any additional amount required to reduce the
outstanding principal balance of the Class A Certificates to zero.
'Class B Certificate Balance', at any time, equals the Original Class B
Certificate Balance, as reduced by all principal amounts distributed to Class B
Certificateholders prior to such time.
'Class B Interest Carryover Shortfall' means, (i) with respect to the
initial Distribution Date, zero, and (ii) with respect to any other Distribution
Date, the excess of Class B Monthly Interest for the preceding Distribution Date
and any outstanding Class B Interest Carryover Shortfall on such preceding
Distribution Date, over the amount in respect of interest that was actually
deposited in the Class B Distribution Account on such preceding Distribution
Date, plus 30 days of interest on such excess, to the extent permitted by law,
at the Class B Pass-Through Rate.
'Class B Interest Distribution' means, with respect to any Distribution
Date, the sum of Class B Monthly Interest for such Distribution Date and the
Class B Interest Carryover Shortfall for such Distribution Date.
'Class B Monthly Interest' means, with respect to any Distribution Date,
one-twelfth of the Class B Pass-Through Rate multiplied by the Class B
Certificate Balance as of the preceding Distribution Date (after giving effect
to all payments of principal made on such Distribution Date) or, in the case of
the first Distribution Date, as of the Closing Date.
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'Class B Monthly Principal' means, with respect to any Distribution Date,
the Class B Percentage of Available Principal for such Distribution Date plus
the Class B Percentage of Realized Losses with respect to the related Collection
Period.
'Class B Percentage' means %.
'Class B Principal Carryover Shortfall' means, (i) with respect to the
initial Distribution Date, zero and (ii) with respect to any other Distribution
Date, the excess of Class B Monthly Principal for such Distribution Date and any
outstanding Class B Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that is actually
deposited in the Class B Distribution Account on such Distribution Date.
'Class B Principal Distribution' means, with respect to any Distribution
Date, the sum of Class B Monthly Principal for such Distribution Date and, in
the case of any Distribution Date other than the initial Distribution Date, the
Class B Principal Carryover Shortfall as of the preceding Distribution Date. In
addition, on the Final Scheduled Distribution Date, the Class B Principal
Distribution will include any additional amount required to reduce the
outstanding principal balance of the Class B Certificates to zero.
'Realized Losses' mean, for any Collection Period and for each Receivable
that became a Defaulted Receivable during such Collection Period, the excess of
the aggregate principal balance of such Receivable over Liquidation Proceeds
received with respect to such Receivable during such Collection Period, to the
extent allocable to principal.
As an administrative convenience, the Servicer will be permitted under
certain circumstances to make deposits of Advances and Repurchase Amounts for,
or with respect to, a Collection Period net of distributions to be made to the
Servicer with respect to such Collection Period. The Servicer, however, will
account to the Trustee and to the Certificateholders as if all such deposits and
distributions were made on an aggregate basis for each type of payment or
deposit.
STATEMENTS TO CERTIFICATEHOLDERS
On each Distribution Date, the Paying Agent will include with each
distribution to each Certificateholder a statement, setting forth the following
information for the related Collection Period:
(i) the amount of the distribution allocable to principal on the Class
A Certificates and the Class B Certificates;
(ii) the amount of the distribution allocable to interest on the Class
A Certificates and the Class B Certificates;
(iii) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period;
(iv) the Class A Certificate Balance, the Class A Pool Factor, the
Class B Certificate Balance and the Class B Pool Factor as of such
Distribution Date, after giving effect to payments allocated to principal
reported under clause (i) above;
(v) the Pool Balance as of the close of business on the last day of
the related Collection Period;
(vi) the amount of the aggregate Realized Losses, if any, for the
related Collection Period;
(vii) the aggregate Repurchase Amount of Receivables repurchased by
the Seller or purchased by the Servicer;
(viii) the balance of the Reserve Account on such Distribution Date,
after giving effect to changes therein on such Distribution Date; and
(ix) the Specified Reserve Account Balance as of the close of business
on such Distribution Date.
Each amount set forth pursuant to subclauses (i), (ii) and (iii) above will
be expressed in the aggregate and as a dollar amount per $1,000 of the original
principal balance of a Certificate.
The statements for each Collection Period will be delivered to DTC for
further distribution to beneficial owners of the Certificates in accordance with
DTC procedures. See 'The Certificates
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-- General' and ' -- Book-Entry Registration'. Copies of such statements may be
obtained by Certificate Owners by a request in writing addressed to the Trustee
at its Corporate Trust Office. See 'The Certificates -- The Trustee'.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Agreement, the Paying Agent
will furnish to each person who at any time during such calendar year was a
Certificateholder, a statement containing the sum of the monthly amounts
described in (i) through (iii) above for the purposes of such
Certificateholder's preparation of federal income tax returns. See 'Certain
Federal Income Tax Consequences'.
EVIDENCE AS TO COMPLIANCE
The Agreement will provide that a firm of independent certified public
accountants will furnish to the Trustee on or before March 31 of each year,
beginning March 31, 1998, a statement as to compliance by the Servicer during
the twelve months (or shorter period in the case of the first such report) ended
the preceding December 31, with certain standards relating to the servicing of
the Receivables.
The Agreement will also provide for delivery to the Trustee, on or before
March 31 of each year, commencing March 31, 1998, of a certificate signed by an
officer of the Servicer stating that the Servicer has fulfilled its obligations
in all material respects under the Agreement throughout the twelve months (or
shorter period in the case of the first such certificate) ended the preceding
December 31 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 a
Certificateholder by a request in writing addressed to the Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
The Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder, except (i) upon determination
that the Servicer's performance of such duties is no longer permissible under
applicable law or (ii) in the event of the appointment of a successor Servicer,
upon satisfaction of the Rating Agency Condition. Such resignation will not
become effective until the Trustee (which shall not be obligated to act as
successor Servicer if the Servicer has resigned for a reason other than the
performance of its duties are no longer permissible under applicable laws) or a
successor Servicer has assumed the Servicer's servicing obligations and duties
under the Agreement.
The Agreement will also provide that neither the Seller nor the Servicer
may transfer or assign all, or a portion of, its rights, obligations and duties
under the Agreement, unless such transfer or assignment (i) (A) will not result
in a reduction or withdrawal by each of Standard & Poor's or Moody's of the
rating then assigned to the Certificates and (B) the Trustee has consented to
such transfer or assignment or (ii) the Trustee and holders of Certificates
evidencing not less than 51% of the Pool Balance consent thereto. Any transfer
or assignment with respect to the Servicer of all of its rights, obligations and
duties will not become effective until a successor Servicer has assumed the
Servicer's rights, obligations and duties under the Agreement.
The Agreement will also provide that so long as the Bank is the Servicer,
in the ordinary course of its business, the Servicer will have the right to
delegate any of its duties under the Agreement to a third party. Any
compensation payable to such third party will be paid by the Servicer from its
own funds, and none of the Trust, the Trustee or the Certificateholders will be
liable for such compensation. Notwithstanding any delegation of duties by the
Servicer, the Servicer will not be relieved of its liability and responsibility
with respect to such duties.
The Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees, and agents shall be under any liability to the
Trust, the Trustee or the Certificateholders for taking any action or for
refraining from taking any action pursuant to the Agreement, or for errors in
judgment; provided, however, that neither the Servicer nor any such person will
be protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith, or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder, except that
employees of either the Servicer or its affiliates will be protected against any
liability that
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would otherwise be imposed by reason of negligence. The Agreement will
further provide that the Servicer, and its directors, officers, employees and
agents are entitled to indemnification by the Trust for, and will be held
harmless against, any loss, liability or expense incurred in connection with any
legal action relating to their performance of servicing duties under the
Agreement, other than any loss, liability, or expense incurred by reason of the
Servicer's willful misfeasance, bad faith, or negligence in the performance of
duties or by reason of the Servicer's reckless disregard of obligations and
duties thereunder; provided, however, that such indemnification will be paid on
a Distribution Date only after all payments required to be made to
Certificateholders and the Servicer have been made, certain payments required to
be made to the Trustee have been made and deposits of any amount required to be
deposited into the Reserve Account to maintain the amount on deposit therein at
the Required Reserve Account Amount have been made. In addition, the Agreement
will provide that the Servicer is under no obligation to appear in, prosecute,
or defend any legal action that is not incidental to the Servicer's servicing
responsibilities under the Agreement 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 to the
Agreement and the rights and duties of the parties thereto and the interests of
the Certificateholders thereunder. In such event, the legal expenses and costs
of such action and any liability resulting therefrom will be expenses, costs and
liabilities of the Trust, and the Servicer will be entitled to be reimbursed
therefor out of the Certificate Account as such expenses are incurred; provided,
however, that such reimbursement will be paid on a Distribution Date only after
all payments required to be made to Certificateholders and the Servicer have
been made, certain payments required to be made to the Trustee have been made
and deposits of any amount required to be deposited into the Reserve Account to
maintain the amount on deposit therein at the Required Reserve Account Amount
have been made.
EVENTS OF SERVICING TERMINATION
'Events of Servicing Termination' under the Agreement will consist of (i)
any failure by the Servicer to deliver to the Trustee the Servicer's certificate
for the related Collection Period or any failure by the Servicer (or, so long as
the Seller is the Servicer, the Seller) to deliver to the Trustee for
distribution to the Certificateholders any proceeds or payments required to be
delivered under the terms of the Certificates or the Agreement (or, in the case
of a payment or deposit to be made not later than the Deposit Date, the failure
to make such payment or deposit on such Deposit Date), which failure continues
unremedied for five Business Days after discovery by the Servicer (or, so long
as the Seller is the Servicer, the Seller) or written notice to the Servicer
(or, so long as the Seller is the Servicer, the Seller) by the Trustee or to the
Trustee and the Servicer (or, so long as the Seller is the Servicer, the Seller)
by holders of Certificates evidencing not less than 25% of the Pool Balance;
(ii) any failure by the Servicer (or, so long as the Seller is the Servicer, the
Seller) duly to observe or perform in any material respect any other covenant or
agreement of the Servicer (or, so long as the Seller is the Servicer, the
Seller) set forth in the Certificates or in the Agreement, which failure
materially and adversely affects the rights of the Trust or the
Certificateholders (which determination shall be made without regard to whether
funds on deposit in the Reserve Account are available to the Certificateholders)
and which continues unremedied for 60 days after the date of written notice of
such failure to the Servicer (or, so long as the Seller is the Servicer, the
Seller) by the Trustee or to the Trustee and the Servicer (or, so long as the
Seller is the Servicer, the Seller) by holders of Certificates evidencing not
less than 25% of the Pool Balance; (iii) certain events of insolvency,
readjustment of debt, marshaling of assets and liabilities, or similar
proceedings and certain actions by the Servicer indicating its insolvency,
reorganization pursuant to bankruptcy proceedings or inability to pay its
obligations; (iv) any assignment or delegation by the Servicer of its duties or
rights under the Agreement, except as specifically permitted under the
Agreement, or any attempt to make such an assignment or delegation; and (v)
failure by the Servicer (other than the Bank) to be a servicer that complies
with certain criteria set forth in the Agreement. The holders of Certificates
evidencing not less than 51% of the Pool Balance may waive certain defaults by
the Servicer in the performance of its obligations.
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RIGHTS UPON AN EVENT OF SERVICING TERMINATION
As long as an Event of Servicing Termination under the Agreement remains
unremedied, the Trustee or holders of Certificates evidencing not less than 25%
of the Pool Balance, by notice given in writing to the Servicer (and to the
Trustee if given by Certificateholders), may terminate all the rights and
obligations of the Servicer under the Agreement, whereupon all authority and
power of the Servicer under the Agreement shall pass to and be vested in the
Trustee, the Trustee will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Agreement and will be entitled to the
compensation otherwise payable to the Servicer. In the event that the Trustee is
unwilling or unable so to act, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor Servicer to act as successor to
the outgoing Servicer under the Agreement. The Trustee shall not be relieved of
its duties as successor Servicer until a newly appointed successor Servicer
shall have assumed the responsibilities and obligations of the Servicer under
the Agreement. The Trustee may make such arrangements for compensation to be
paid to the successor Servicer, which in no event may be greater than the
Servicing Fee (plus the investment earnings on amounts on deposit and to be
deposited in the Certificate Account) paid to the Servicer under the Agreement.
AMENDMENT
The Agreement may be amended by the Seller, the Servicer and the Trustee,
without prior notice to or the consent of the Certificateholders, to cure any
ambiguity, correct or supplement any provision therein which may be inconsistent
with any other provision therein, or make any other provisions with respect to
matters or questions arising under such Agreement which are not inconsistent
with the provisions of the Agreement; provided that such action will not, on the
basis of an officer's certificate and/or in the opinion of counsel (which may be
internal counsel to the Seller or the Servicer) reasonably satisfactory to the
Trustee, materially and adversely affect the interests of the Trust or the
Certificateholders. The Agreement may also be amended by the Seller, the
Servicer and the Trustee with the consent of the holders of Certificates
evidencing not less than 51% of the Pool Balance for the purpose of adding any
provision to or changing in any manner or eliminating any of the provisions of
the Agreement or of modifying in any manner the rights of Certificateholders;
provided, however, that no such amendment, except with the consent of the
holders of all Certificates, may (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 on any Certificate, (ii) reduce
the aforesaid percentage of the Pool Balance, the Certificateholders of which
are required to consent to any such amendment, or (iii) reduce the shortfalls
for which the Trustee may withdraw funds from the Reserve Account or change the
formula for determining the Specified Reserve Account Balance.
LIST OF CERTIFICATEHOLDERS
At such time as Definitive Certificates have been issued, the Trustee, upon
written request by three or more Certificateholders or by holders of
Certificates evidencing not less than 25% of the Pool Balance, will afford or
cause the Transfer Agent and Registrar to 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 Agreement (provided such Certificateholders (i) state that they wish to
communicate with other Certificateholders with respect to their rights under the
Agreement or under the Certificates and (ii) provide the Trustee with a copy of
the proposed communication). Definitive Certificates will be issued only in the
circumstances described above in ' -- Definitive Certificates'.
The Agreement will not provide for the holding of any annual or other
meeting of Certificateholders.
TERMINATION
The obligations of the Seller, the Servicer and the Trustee pursuant to the
Agreement will terminate upon the earlier of (i) the Distribution Date next
succeeding the month which is six months after the maturity or other liquidation
of the last Receivable and the disposition of any amounts
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received upon liquidation of any property remaining in the Trust and (ii)
payment to Certificateholders of all amounts required to be paid to them
pursuant to the Agreement.
In order to avoid excessive administrative expense, the Servicer will be
permitted, at its option, to purchase from the Trust, as of the last Business
Day in any Collection Period in which the Pool Balance is 5% or less of the
initial Pool Balance, all remaining Receivables in the Trust at a price equal to
the sum of the aggregate of the Repurchase Amounts thereof as of such date.
Exercise of such right will effect early retirement of the Certificates.
The Trustee will give written notice of termination to each
Certificateholder of record, which notice will specify the Distribution Date
upon which Certificateholders may surrender their Certificates to the Trustee or
the Transfer Agent and Registrar, as the case may be, for final payment. The
final distribution to any Certificateholder will be made only upon surrender and
cancellation of such holder's Certificate (whether a Definitive Certificate or
the Certificates registered in the name of Cede representing the Certificates)
at the office or agency of the Trustee or the Transfer Agent and Registrar, as
the case may be, specified in the notice of termination. Any funds remaining in
the Trust, after the Trustee has taken certain measures to locate a
Certificateholder and such measures have failed, will be distributed to the
Seller or as otherwise provided in the Agreement.
DUTIES OF THE TRUSTEE
The Trustee makes no representations as to the validity or sufficiency of
the Agreement, the Certificates (other than the execution and authentication of
the Certificates), or the Receivables or any related documents, and is not
accountable for the use or application by the Seller or the Servicer of any
funds paid to the Seller or the Servicer in respect of the Certificates or the
Receivables, or any monies prior to the time such monies are deposited into the
Certificate Account. The Trustee has not independently verified the Receivables.
If no Event of Servicing Termination has occurred and is continuing, the Trustee
is required to perform only those duties specifically required of it under the
Agreement. Generally, those duties are limited to the receipt of the various
certificates, reports, or other instruments required to be furnished to the
Trustee under the Agreement, in which case it is only required to examine them
to determine whether they conform to the requirements of the Agreement.
The Trustee is under no obligation to exercise any of the rights or powers
vested in it by the Agreement 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
Certificateholders, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses, and liabilities
which may be incurred therein or thereby, prior to the occurrence of an Event of
Servicing Termination. No Certificateholder will have any right under the
Agreement to institute any proceeding with respect to the Agreement, unless such
holder previously has given to the Trustee written notice of default and unless,
with respect to the Class A Certificates, the holders of Class A Certificates
evidencing not less than a majority of the aggregate outstanding principal
balance of the Class A Certificates or with respect to the Class B Certificates,
the holders of Class B Certificates evidencing not less than a majority of the
aggregate outstanding principal balance of the Class B Certificates, have made
written request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity and the
Trustee for 30 days has neglected or refused to institute any such proceedings.
THE TRUSTEE
[ ] is the Trustee under the Agreement. The
Trustee, in its individual capacity or otherwise, and any of its affiliates may
hold Certificates in their own names or as pledgee. In addition, for the purpose
of meeting the legal requirements of certain jurisdictions, the Servicer and the
Trustee, acting jointly (or in some instances, the Trustee, acting alone), 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 Trustee by the Agreement shall be
conferred or imposed upon the Trustee and such separate trustee or co-trustee
jointly, or, in any jurisdiction in which the Trustee shall be incompetent or
unqualified to perform certain acts, singly upon
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such separate trustee or co-trustee who shall exercise and perform such rights,
powers, duties and obligations solely at the direction of the Trustee.
The Trustee may resign at any time by giving written notice thereof to the
Servicer, in which event the Trustee will be obligated promptly to appoint a
successor trustee. The Trustee will be obligated to resign if the Trustee ceases
to be eligible to continue as such under the Agreement, becomes legally unable
to act, or becomes insolvent. In such circumstances, the Trustee will be
obligated promptly to appoint a successor trustee. Any resignation or removal of
the Trustee and appointment of a successor trustee will not become effective
until acceptance of the appointment by the successor trustee.
The Agreement will provide that the Servicer will pay the Trustee's fees.
The Agreement will further provide that the Trustee will be entitled to
indemnification by the Servicer for, and will be held harmless against, any
loss, liability, or expense incurred by the Trustee not resulting from the
Trustee's 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
Agreement) except in the event the Servicer fails to indemnify the Trustee, in
which case the Trustee would be entitled to be indemnified by the Trust;
provided, however, that any such indemnification will be paid on a Distribution
Date only after all amounts required to be paid to the Certificateholders have
been paid and certain other distributions have been made and, with respect to a
successor Servicer, if any, after the Servicing Fee has been paid.
The Trustee's Corporate Trust Office is located at [ ],
telephone: [ ]. The Seller, the Servicer and their respective
affiliates may have normal banking relationships with the Trustee and its
affiliates.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
GENERAL
The Receivables are 'chattel paper' as defined in the Uniform Commercial
Code in effect in the States of Texas and New York (the 'UCC'). Pursuant to the
UCC, the sale of chattel paper is treated in a manner similar to perfection of a
security interest in chattel paper. In order to protect the Trust's ownership
interest in the Receivables, the Bank will file UCC-1 financing statements with
the appropriate governmental authorities in the State of Texas to give notice of
the Trust's ownership of the Receivables and their proceeds. Under the
Agreement, the Bank will be obligated to maintain the perfection of the Trust's
ownership interest in the Receivables. It should be noted, however, that a
purchaser of chattel paper who gives new value and takes possession of it in the
ordinary course of such purchaser's business has priority over a security
interest in the chattel paper which is perfected by filing UCC-1 financing
statements, and not by possession by the original secured party, if such
purchaser acts in good faith without knowledge that the specific chattel paper
is subject to a security interest. Any such purchaser would not be deemed to
have such knowledge by virtue of the UCC filings and would not learn of the sale
of the Receivables from a review of the Receivables since they would not be
marked to show such sale, although the Bank's master computer records will
evidence such sale.
SECURITY INTERESTS IN THE FINANCED VEHICLES
The Receivables consist of motor vehicle installment loans made pursuant to
contracts with Obligors for the purchase of automobiles and light-duty trucks
and also constitute personal property security agreements that include grants of
security interests in the Financed Vehicles under the UCC in the applicable
jurisdiction. Perfection of security interests in the Financed Vehicles
generally is governed by the motor vehicle registration laws of the state in
which the Financed Vehicle is located. In all states in which the Receivables
have been originated, a security interest in a vehicle is perfected by notation
of the secured party's lien on the vehicle's certificate of title or actual
possession by the secured party of such certificate of title, depending upon
applicable state law. The practice of the Bank is to effect such notation or to
obtain possession of the certificate of title, as appropriate under the laws of
the state in which a vehicle securing a motor vehicle installment loan
originated by the Bank is registered. The Receivables prohibit the sale or
transfer of the Financed Vehicle without the Bank's consent.
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The Bank will assign its security interest in the individual Financed
Vehicles to the Trust. However, because of the administrative burden and expense
and since the Bank remains as Servicer of the Receivables, neither the Bank nor
the Trustee will amend the certificates of title to identify the Trust as the
new secured party and, accordingly, the Bank will continue to be named as the
secured party on the certificates of title relating to the Financed Vehicles. In
most states, such assignment is an effective conveyance of such security
interest without amendment of any lien noted on the related certificates of
title and the new secured party succeeds to the Bank's rights as the secured
party as against creditors of the Obligor. In certain states, in the absence of
such endorsement and delivery, the Trustee may not have a perfected security
interest in the Financed Vehicle. In such event or in the event that the Bank
did not have a perfected first priority security interest in the Financed
Vehicle, the only recourse of the Trust vis-a-vis third parties would be against
an Obligor on an unsecured basis or against the Bank pursuant to the Bank's
repurchase obligation. See 'Repurchase Obligation'.
In the absence of fraud or forgery by a vehicle owner or administrative
error by state recording officials, the notation of the lien of the Bank on 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 the Financed Vehicle. If there are any Financed Vehicles as
to which the Bank has failed to perfect the security interest assigned to the
Trust (i) such security interest would be subordinate to, among others, holders
of perfected security interests and (ii) subsequent purchasers of such Financed
Vehicles would take possession free and clear of such security interest. There
also exists a risk in not identifying the Trust as the new secured party on the
certificate of title that, through fraud or negligence, the security interest of
the Trust could be released.
In the event that the owner of a Financed Vehicle moves to a state other
than the state in which such Financed Vehicle initially is registered, under the
laws of most states the perfected security interest in the Financed Vehicle
would continue for four months after such relocation and thereafter until the
owner re-registers the Financed Vehicle in such state. A majority of states
generally require surrender of a certificate of title to re-register a vehicle.
Accordingly, the Bank must surrender possession if it holds the certificate of
title to such Financed Vehicle or, in the case of Financed Vehicles originally
registered in a state which provides for notation of lien but not possession of
the certificate of title by the holder of the security interest in the related
motor vehicle, the Bank would receive notice of surrender if the security
interest in the Financed Vehicle is noted on the certificate of title.
Accordingly, the Bank would have the opportunity to re-perfect its security
interest in the Financed Vehicle in the state of relocation. In states which do
not require a certificate of title for registration of a motor vehicle,
re-registration could defeat perfection. In the ordinary course of servicing its
portfolio of motor vehicle installment loans, the Bank takes steps to effect
such re-perfection upon receipt of notice of re-registration or information from
the Obligor as to relocation. Similarly, when an Obligor under a Receivable
sells a Financed Vehicle, the Bank must surrender possession of the certificate
of title or will receive notice as a result of its lien noted thereon and
accordingly will have an opportunity to require satisfaction of the related
Receivable before release of the lien. Under the Agreement, the Servicer is
obligated to take such steps, at the Servicer's expense, as are necessary to
maintain perfection of security interests in the Financed Vehicles.
Under the laws of many states, certain possessory liens for repairs
performed on a motor vehicle and storage, as well as certain rights arising from
the use of a motor vehicle in connection with illegal activities, may take
priority even over a perfected security interest. Certain federal tax liens may
have priority over the lien of a secured party. The Bank will represent in the
Agreement that it has no knowledge of any such liens with respect to any
Financed Vehicle. However, such liens could arise at any time during the term of
a Receivable. No notice will be given to the Trustee in the event such a lien
arises.
ENFORCEMENT OF SECURITY INTERESTS IN VEHICLES
The Servicer on behalf of the Trust may take action to enforce its security
interest by repossession and resale of the Financed Vehicles securing the
Receivables. The actual repossession may be contracted out to third party
contractors. Under the UCC and laws applicable in most states, a creditor can
repossess a motor vehicle securing a loan by voluntary surrender, 'self-help'
repossession that is
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'peaceful' (i.e., without breach of the peace) or, in the absence of voluntary
surrender and the ability to repossess without breach of the peace, by judicial
process. The UCC and consumer protection laws in most states place restrictions
on repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. In the event of such
repossession and resale of a Financed Vehicle, the Trust would be entitled to be
paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the defaulting Obligor.
Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the motor vehicle securing such debtor's loan. However, some
states impose prohibitions or limitations on deficiency judgments. Moreover, a
defaulting Obligor may not have sufficient assets to make the pursuit of a
deficiency judgment worthwhile.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws, and general equitable principles may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
OTHER MATTERS
Numerous federal and state consumer protection laws may impose requirements
applicable to the origination and lending pursuant to the contracts, including
the Truth-in-Lending Act, the Fair Credit Reporting Act, the Equal Credit
Opportunity Act, the Magnuson-Moss Warranty Act, and the Federal Trade
Commission Act.
The so-called 'Holder-in-Due-Course' Rule of the Federal Trade Commission
(the 'FTC Rule'), other state statutes or the common law in certain states have
the effect of subjecting a seller (and certain related lenders and their
assignees) in a consumer credit transaction and any assignee of the seller
(which would include the Trust) to all claims and defenses which an obligor in
the transaction could assert against the seller of the goods. Liability of a
subsequent holder under the FTC Rule is limited to the amounts paid by the
Obligor under the contract, and a subsequent holder of the contract may also be
unable to collect any balance remaining due thereunder from such obligor. The
Uniform Consumer Credit Code applicable in certain states contains provisions
which generally duplicate this rule.
The Agreement will set forth criteria that must be satisfied by each
Receivable, and such criteria will provide, among other things, 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 such claim materially and adversely affects the Trust's interest in a
Receivable, such violation would result in the failure to satisfy a criterion in
the Agreement and would create an obligation of the Bank to repurchase the
Receivable unless such failed criterion is cured.
REPURCHASE OBLIGATION
Under the Agreement, each Receivable must satisfy certain criteria, and
such criteria relate to, among other things, the validity, subsistence,
perfection, and priority of the security interest in each Financed Vehicle.
Accordingly, if any defect exists in the perfection of the security interest in
any Financed Vehicle and such defect materially and adversely affects the
Trust's interest in a Receivable, such defect would result in the failure to
satisfy a criterion in the Agreement and would create an obligation of the Bank
to repurchase such Receivable unless such failed criterion is cured.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States Federal income
tax consequences of the purchase, ownership, and disposition of Certificates.
This summary is based upon laws, regulations, rulings, and decisions currently
in effect, all of which are subject to change. The discussion does not deal with
all Federal tax consequences applicable to all categories of investors, some of
which may be subject to special rules. Consequences to individual investors of
investment in the Certificates will vary
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according to circumstances. In addition, this summary is generally limited to
investors who will hold the Certificates as 'capital assets' (generally,
property held for investment) within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the 'Code'). Prospective investors should note
that no rulings have been or will be sought from the Internal Revenue Service
(the 'IRS') with respect to any of the Federal income tax consequences discussed
below, and no assurance can be given that the IRS will not take contrary
positions.
INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISERS TO DETERMINE THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF THEIR
PURCHASE, OWNERSHIP AND DISPOSITION OF THE CERTIFICATES.
TAX STATUS OF THE TRUST; SCOPE OF TAX OPINION
In the opinion of Jones, Day, Reavis & Pogue, special tax counsel to the
Seller ('Special Tax Counsel'), the Trust will not be classified as an
association taxable as a corporation for Federal income tax purposes, but will
be classified as a grantor trust, and each Certificate Owner will be subject to
Federal income taxation as if it owned directly its interest in each asset owned
by the Trust and paid directly its share of reasonable expenses paid by the
Trust. In addition, Special Tax Counsel has prepared or reviewed the statements
in this Prospectus under the headings 'Prospectus Summary -- Tax Status' and
'Certain Federal Income Tax Consequences,' and is of the opinion that such
statements are correct in all material respects. Such statements, to the extent
that they reflect conclusions of law, are intended as an explanatory discussion
of the possible effects of the classification of the Trust as a grantor trust
for Federal income tax purposes on investors generally and of related tax
matters affecting investors generally, but do not purport to furnish information
in the level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax adviser.
Accordingly, each investor is advised to consult its own tax advisers with
regard to the tax consequences to it of investing in the Certificates.
TREATMENT OF CERTIFICATE OWNERS' INTEREST IN TRUST ASSETS
Each Certificate Owner could be considered to own either (i) an
undivided interest in a single debt obligation having a principal amount equal
to the total stated principal amount of the Receivables and an interest rate
equal to the applicable Pass-Through Rate or (ii) an interest in each of the
Receivables and any other assets of the Trust. Special Tax Counsel is unable
to opine as to which characterization will govern because no authority exists
addressing the characterization of transactions having the characteristics of
the Trust or the Certificates. The Agreement will express the intent of the
Seller to sell, and the Certificateholders to purchase, the Receivables (other
than the Retained Yield) and the Seller, the Certificateholders, and each
Certificate Owner, by accepting a beneficial interest in a Certificate, will
agree to treat the Certificates as ownership interests in the Receivables, and
reports to Certificateholders will be prepared on that basis.
Treatment as Debt Obligation. If a Certificate Owner were considered to own
an undivided interest in a debt obligation of the Seller, rather than reporting
its share of the interest accrued on each Receivable it would, in general, be
required to include in income interest accrued or received on the Certificate
Principal Balance at the applicable Pass-Through Rate in accordance with its
usual method of accounting.
The Certificates would be subject to the original issue discount ('OID')
rules, generally in the manner discussed below with respect to Stripped
Receivables (as defined below). Thus, while the manner in which a
Certificateholder would calculate OID is unclear in some respects, each
Certificateholder would report as OID the difference between its proportionate
interest in the stated redemption price of such debt obligation and the issue
price of the Certificate. However, in determining whether such OID is de
minimis, the weighted average life of the Certificates would be determined using
a reasonable assumption regarding anticipated prepayments (a 'Prepayment
Assumption'). Original issue discount includible in income for any accrual
period (generally, the period between payment dates) would generally be
calculated using a Prepayment Assumption and an anticipated yield established as
of the date of initial sale of the Certificates, and would increase or decrease
to reflect prepayments at a faster or slower rate than anticipated. Purchasers
of the Certificates would also be
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subject to the market discount provisions of the Code to the extent that they
purchase such Certificates at a discount from the initial issue price (as
adjusted to reflect prior accruals of original issue discount).
Income on Receivables. The remainder of the discussion herein assumes that
a Certificate Owner will be treated as owning an interest in each Receivable
(and the proceeds thereof).
For Federal income tax purposes, the Seller will be treated as having
retained a fixed portion of the interest due on each Receivable (each, a
'Stripped Receivable') equal to the difference between (x) the Contract Rate of
the Receivable and (y) (i) with respect to the Class A Percentage of such
Receivable, the sum of the Class A Pass-Through Rate and the Servicing Fee Rate
and (ii) with respect to the Class B Percentage of such Receivable, the sum of
the Class B Pass-Through Rate and the Servicing Fee Rate (such difference
referred to as the 'Retained Yield'). The Retained Yield will be treated as
'stripped coupons' within the meaning of Section 1286 of the Code. In addition,
if the Class B Pass-Through Rate exceeds the Class A Pass-Through Rate, a
portion of the interest accrued on each Receivable will be treated as a
'stripped-coupon' purchased by the Class B Certificate Owners. Accordingly, each
Class A Certificate Owner will be treated as owning its pro rata percentage
interest in the principal of, and interest payable on, each Receivable (minus
the portion of the interest payable on such Receivable that is treated as
Retained Yield on the Stripped Receivables or as a stripped coupon purchased by
the Class B Certificate Owners), and such interest in each Receivable will be
treated as a 'stripped bond' within the meaning of Section 1286 of the Code.
Similarly, each Class B Certificate Owner will be treated as owning its pro rata
percentage in the principal of each Receivable, plus a share which, if the
Class B Pass-Through Rate exceeds the Class A Pass-Through Rate, will be
disproportionate, of the interest payable on each Receivable (minus the Retained
Yield on the Stripped Receivable).
Each Certificate Owner would be required to report on its Federal income
tax return its share of the gross income of the Trust, including interest and
certain other charges accrued on the Receivables and any gain upon collection or
disposition of the Receivables (but not including any portion of the Retained
Yield). Such gross income attributable to interest on the Receivables would
exceed the Class A Pass-Through Rate by an amount equal to the Class A
Certificate Owner's share of the expenses of the Trust for the period during
which it owns a Class A Certificate. The Class A Certificate Owner would be
entitled to deduct its share of expenses of the Trust to the extent described
below. Any amounts received by a Class A Certificate Owner from the Reserve
Account or from the subordination of the Class B Certificates will be treated
for Federal income tax purposes as having the same characteristics as the
payments they replace.
A Class A Certificate Owner would generally report its share of the income
of the Trust, including interest and certain other charges accrued on the
Receivables (but see discussion below in ' -- Discount and Premium'),
and investment earnings on funds held pending distribution, under its usual
method of accounting. Accordingly, interest, excluding OID or market discount,
would be includible in a Certificate Owner's gross income when it accrues on the
Receivables, or, in the case of Certificate Owners who are cash basis taxpayers,
when received by the Servicer on behalf of Certificate Owners. Because (i)
interest accrues on the Receivables over differing monthly periods and is paid
in arrears and (ii) interest collected on a receivable generally is paid to
Certificateholders in the following month, the amount of interest accruing to a
Certificate Owner that is an accrual basis taxpayer or deemed to have been
received by a Certificate Owner that is a cash basis taxpayer during any
calendar month will not equal the interest distributed in that month. Thus, both
cash basis and accrual basis taxpayers may be required to accrue some income in
advance of the receipt of the related cash distribution. For
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administrative convenience, the amount of accrued and collected interest will be
estimated rather than being calculated precisely for each Receivable.
For administrative convenience, the Servicer intends to report the total
amount of income with respect to the Class A Certificates on an aggregate basis
(as though all of the Receivables were a single obligation), rather than on an
asset-by-asset basis. The amount and, in some instances, character, of the
income reported to a Certificate Owner may differ under this method for a
particular period from that which would be reported if income were reported on
a precise asset-by-asset basis. Accordingly, the IRS could require that a
Certificate Owner calculate its income either (i) on an asset-by-asset basis,
accounting separately for each Receivable or (ii) aggregating all Stripped
Receivables under the aggregation rule described below and accounting for the
remaining Receivables on an asset-by-asset basis. See ' -- Original Issue
Discount on Stripped Receivables.' In computing its income on an asset-by-asset
basis, a Certificate Owner would allocate its tax basis among each Receivable
in proportion to their fair market values. To the extent that the remaining
terms of the Receivables vary widely (and thus cause significant differences in
value), the allocation of basis and computation of income on an asset-by-asset
basis could have a more significant effect on the income of a Certificate Owner
than it would if the Receivables had more uniform characteristics.
The remainder of the disclosure generally describes the Code provisions
governing reporting of income on the Receivables on a separate asset basis.
DISCOUNT AND PREMIUM
In determining whether a Certificate Owner has purchased its interest in
the Receivables (or any Receivable) at a discount and whether such Receivables
(or any Receivable) have OID, a portion of the purchase price of a Certificate
should be allocated to the Certificate Owner's undivided interest in accrued
but unpaid interest and amounts collected at the time of purchase but not
distributed. As a result, the portion of the purchase price allocable to a
Certificate Owner's undivided interest in the Receivables (or any Receivable)
(the 'Purchase Price') will be decreased and the potential OID on the
Receivables (or any Receivable) could be increased.
ORIGINAL ISSUE DISCOUNT ON STRIPPED RECEIVABLES
Because the Stripped Receivables represent stripped bonds, they will be
subject to the original issue discount rules of the Code. Accordingly, the tax
treatment of a Certificate Owner will depend in part upon whether the amount of
OID on a Stripped Receivable is less than a statutorily defined de minimis
amount.
In general, under Treasury regulations ('Treasury Regulations') issued
under Section 1286 of the Code (the 'Section 1286 Regulations'), the amount of
OID on a receivable treated as a 'stripped bond' will be de minimis if it is
less than 1/4 of one percent for each full year of weighted average life
remaining after the purchase date until the maturity of the Receivable, although
it is not clear whether expected prepayments are taken into account. Under the
Section 1286 Regulations, it appears that the portion of the interest on each
Receivable payable to the Certificate Owners may be treated as 'qualified stated
interest.' As a result, the amount of OID on a Stripped Receivable will equal
the amount by which the Purchase Price of a Stripped Receivable is less than the
portion of the remaining principal balance of the Receivable allocable to the
interest acquired.
If the amount of OID is de minimis under the rule set forth above, a
Stripped Receivable would not be treated as having OID. The actual amount of
discount on a Stripped Receivable would be includible in income as principal
payments are received on the Receivable, in the proportion that each principal
payment bears to the total principal amount of the Receivable.
If the OID on a Receivable is not treated as being de minimis, in addition
to the amounts described above, a Certificate Owner will be required to include
in income any OID as it accrues on a daily basis, regardless of when cash
payments are received, using a method reflecting a constant yield on the
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Receivable (or Receivables). It is possible that the IRS could require use of a
Prepayment Assumption in computing the yield of a Receivable. Accrued OID would
increase a Class A Certificate Owner's tax basis in the Class A Certificate (and
the applicable Receivables). Distributions of principal and other items
attributable to accrued OID (other than payments of interest on the Receivables
at the sum of the Class A Pass-Through Rate and the Servicing Fee Rate) would
reduce a Class A Certificate Owner's tax basis. If a Receivable is deemed to be
acquired by a Certificate Owner at a significant discount, such treatment could
accelerate the accrual of income by a Certificate Owner.
The Trustee intends to account for OID, if any, reportable by holders of
Certificates by reference to the price paid for a Certificate by an initial
purchaser, although the amount of OID will differ for subsequent purchasers.
Such subsequent purchasers should consult their tax advisors regarding the
proper calculation of OID on the interest in Receivables represented by a
Certificate.
In addition, for administrative convenience, the Trustee intends to
calculate OID, if any, on all of the Receivables on an aggregate basis and
without the use of a Prepayment Assumption. Treasury Regulations issued under
the OID provisions of the Code (the 'OID Regulations') suggest, although the
matter is not entirely clear, that all payments on the Stripped Receivables
allocable to the Certificates may be aggregated in determining whether the
Stripped Receivables will be treated as having OID. It is not clear whether use
of a Prepayment Assumption is required in computing OID. If the Service were
to require that OID be computed on a Receivable-by-Receivable basis, or that a
Prepayment Assumption be used, the character and timing of a Certificate Owner's
income could be adversely affected. Because under the stripped bond rules, each
sale of a Certificate results in a recalculation of OID, a Certificate Owner
technically will not be subject to the market discount provisions of the Code
with respect to Stripped Receivables.
In the event that a Receivable is treated as purchased at a premium (i.e.,
its Purchase Price exceeds the portion of the remaining principal balance of
such Receivable allocable to the Certificate Owner), such premium will be
amortizable by the Certificate Owner as an offset to interest income (with a
corresponding reduction in the Certificate Owner's basis) under a constant yield
method over the term of the Receivable if an election under Section 171 of the
Code is made with respect to the interests in the Receivables represented by the
Certificates or was previously in effect with respect to such taxpayer. Any such
election will also apply to all debt instruments held by the Certificate Owner
during the year in which the election is made and all debt instruments acquired
thereafter.
A Certificate Owner will be entitled to deduct, consistent with its method
of accounting, its pro rata share of reasonable servicing fees and other fees
paid or incurred by the Trust as provided in Section 162 or 212 of the Code. The
Trustee intends to take the position that the Servicing Fee plus the
Supplemental Servicing Fee constitute reasonable compensation for services,
although there is no authority on this point in the context of receivables such
as the Receivables. If a Certificate Owner is an individual, estate or trust,
the deduction for such holder's share of such fees will be allowed only to the
extent that all of such holder's miscellaneous itemized deductions, including
such holder's share of such fees, exceed 2% of such holder's adjusted gross
income. In addition, in the case of Certificate Owners who are individuals,
certain otherwise allowable itemized deductions will be reduced, but not by more
than 80%, by an amount equal to 3% of such holder's adjusted gross income in
excess of a statutorily defined threshold ($121,600.00 in the case of a married
couple filing jointly for the taxable year beginning in 1997). Because
the Servicer will not report to Certificate Owners the amount of income or
deductions attributable to interest earned on collections, such a holder may
effectively underreport its net taxable income.
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CLASS B CERTIFICATE OWNERS
In General. Except as described below, it is believed that the Class B
Certificate Owners will be subject to tax in the same manner as Class A
Certificate Owners. However, no Federal income tax authorities address the
precise method of taxation of an instrument such as the Class B Certificates. In
the absence of applicable authorities, the Trustee intends to report income to
Class B Certificate Owners in the manner described below.
Each Class B Certificate Owner will be treated as owning (i) the Class B
Percentage of the principal on each Receivable plus (ii) a portion (which, if
the Class B Pass-Through Rate exceeds the Class A Pass-Through Rate, will be
disproportionate to the Class A Certificateholders' share of such interest) of
the interest on each Receivable (not including the Retained Yield). Income will
be reported to a Class B Certificate Owner based on the assumption that all
amounts payable to the Class B Certificate Owners are taxable under the coupon
stripping provisions of the Code and treated as a single obligation. In applying
those provisions, the Trustee will take the position that a Class B Certificate
Owner's entire share of the interest on a Receivable will qualify as 'qualified
stated interest', although the law on this point is not entirely clear. Thus,
except to the extent modified by the effects of subordination of the Class B
Certificates, as described below, income will be reported to Class B Certificate
Owners in the manner described above for holders of the Class A Certificates.
Effect of Subordination. If the Class B Certificate Owners received
distributions of less than their share of the Trust's receipts of principal or
interest (the 'Shortfall Amount') because of the subordination of the Class B
Certificates, holders of Class B Certificates would probably be treated for
Federal income tax purposes as if they had (1) received as distributions their
full share of such receipts, (2) paid over to the Class A Certificate Owners an
amount equal to such Shortfall Amount and (3) retained the right to
reimbursement of such amounts to the extent of future collections otherwise
available for deposit in the Reserve Fund. There is, however, no authority
addressing this point and the Internal Revenue Service could assert that a
different treatment could apply.
Under this analysis, (1) Class B Certificate Owners would be required to
accrue as current income any interest or OID income of the Trust that was a
component of the Shortfall Amount, even though such amount was in fact paid to
the Class A Certificate Owners, (2) a loss would only be allowed to the Class B
Certificate Owners when their right to receive reimbursement of such Shortfall
Amount became worthless (i.e., when it becomes clear that amount will not be
available from any source to reimburse such loss) and (3) reimbursement of such
Shortfall Amount prior to such a claim of worthlessness would not be taxable
income to Class B Certificate Owners because such amount was previously included
in income. Those results should not significantly affect the inclusion of income
for Class B Certificate Owners on the accrual method of accounting, but could
accelerate inclusion of income to Class B Certificate Owners on the cash method
of accounting by, in effect, placing them on the accrual method. Moreover, the
character and timing of loss deductions is unclear.
SALE OF A CERTIFICATE
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Certificate Owner's
adjusted basis in the Receivables and any other assets held by the Trust. A
Certificate Owner's adjusted basis will equal the Certificate Owner's cost for
the Certificate, increased by any discount previously included in income, and
decreased by any deduction previously allowed for accrued premium and by the
amount of principal payments previously received
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on the Receivables. Any gain or loss not attributable to accrued interest will
be capital gain or loss if the Certificate was held as a capital asset.
FOREIGN CERTIFICATE OWNERS
Interest attributable to Receivables which is payable to a foreign
Certificate Owner will generally not be subject to the normal 30% withholding
tax imposed with respect to such payments, provided that such Certificate Owner
is not engaged in a trade or business in the United States and that such
Certificate Owner fulfills certain certification requirements. Under such
certification requirements, the Certificate Owner must certify, under penalties
of perjury, that it is not a 'United States person' and it is the beneficial
owner of the Certificates, and must provide its name and address. For this
purpose, 'United States person' means a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust the income of which is includible in gross income for United
States Federal income tax purposes, regardless of its source.
BACKUP WITHHOLDING
Payments made on the Certificates and proceeds from the sale of
Certificates will not be subject to a 'back-up' withholding tax of 31% unless,
in general, the Certificate Owner fails to comply with certain reporting
procedures and is not an exempt recipient under applicable provisions of the
Code.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ('ERISA'),
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and separate
accounts in which such plans, accounts or arrangements are invested that are
subject to ERISA and the Code (all of which are hereinafter referred to as a
'Plan') and on persons who are fiduciaries with respect to such Plans. Moreover,
based on the reasoning of the United States Supreme Court in John Hancock Life
Ins. Co. v. Harris Trust and Sav. Bank, 114 S. Ct. 517 (1993), an insurance
company's general account may be deemed to include assets of the Plans investing
in the general account (e.g., through the purchase of an annuity contract), and
the insurance company might be treated as a fiduciary with respect to such plans
by virtue of such investment. In accordance with ERISA's general fiduciary
standards, before investing in a Certificate, a Plan fiduciary should determine
whether such an investment is permitted under the governing Plan instruments and
is appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio. Other provisions of ERISA and
the Code prohibit certain transactions involving the assets of a Plan and
persons who have certain specified relationships to the Plan ('parties in
interest' within the meaning of ERISA or 'disqualified persons' within the
meaning of the Code). Thus, a Plan fiduciary considering an investment in
Certificates should also consider whether such an investment might constitute or
give rise to a prohibited transaction under ERISA or the Code.
An investment in Certificates by a Plan might result in the assets of the
Trust being deemed to constitute Plan assets, which in turn might mean that
certain aspects of such investment, including the operation of the Trust, might
be prohibited transactions under ERISA and the Code. There may also be an
improper delegation of the responsibility to manage Plan assets if Plans that
purchase the Certificates
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are deemed to own an interest in the underlying assets of the Trust. Neither
ERISA nor the Code defines the term 'plan assets'. Under Section 2510.3-101 of
the United States Department of Labor ('DOL') regulations (the 'Regulation'), a
Plan's assets may include an interest in the underlying assets of an entity
(such as a trust) for certain purposes, including the prohibited transaction
provisions of ERISA and the Code, if the Plan acquires an 'equity interest' in
such entity.
EXEMPTION FOR CLASS A CERTIFICATES
The DOL has issued an individual exemption, Prohibited Transaction
Exemption 90-29, to Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
'Exemption'). The Exemption generally exempts from the application of the
prohibited transaction provisions of Section 406 of ERISA and the excise taxes
imposed on such prohibited transactions pursuant to Sections 4975(a) and (b) of
the Code and Section 502(i) of ERISA certain transactions relating to the
initial purchase, holding and subsequent resale by Plans of certificates in
pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements set forth in the
Exemption. The receivables covered by the Exemption include fixed rate simple
interest retail motor vehicle installment sales contracts and retail motor
vehicle installment loans such as the Receivables. The Exemption will apply to
the acquisition, holding and resale of the Class A Certificates by a Plan from
the Underwriters, provided that specified conditions (certain of which are
described below) are met. The Seller believes that the Exemption will apply to
the acquisition and holding of the Class A Certificates by a Plan and that all
conditions of the Exemption other than those within the control of the investors
have been or will be met.
The Exemption sets forth six general conditions that must be satisfied for
a transaction involving the acquisition of the Class A Certificates by a Plan to
be eligible for the exemptive relief thereunder:
(1) the acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A 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 Class A Certificates
acquired by a Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(3) the Class A Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories of Standard & Poor's, Moody's, Duff & Phelps,
Inc. or Fitch Investors Service, L.P.;
(4) the Trustee is not an affiliate of any other member of the
'Restricted Group,' which consists of the Underwriters, the Seller, the
Servicer, the Trustee and any Obligor with respect to the Receivables
included in the Trust constituting more than 5% of the aggregate
unamortized principal balance of the assets of the Trust as of the date of
initial issuance of the Class A Certificates, and any affiliate of such
parties;
(5) the sum of all payments made to and retained by the Underwriters
in connection with the distribution or placement of the Class A
Certificates represents not more than reasonable compensation for
underwriting or placing the Class A Certificates. The sum of all payments
made to and retained by the Seller pursuant to the sale of the Receivables
to the Trust represents not more than the fair market value of such
Receivables. The sum of all payments made to and retained by the Servicer
represents not more than reasonable compensation for the Servicer's
services under the Agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith; and
(6) the Plan investing in the Class A Certificates must be an
'accredited investor' as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act.
Because the rights and interests evidenced by the Class A Certificates
acquired by a Plan are not subordinated to the rights and interests evidenced by
other certificates of the Trust, the second general condition set forth above is
satisfied. It is a condition of the issuance of the Class A Certificates that
they be rated in the highest rating category by a Rating Agency. A fiduciary of
a Plan contemplating purchasing a Class A Certificate must make its own
determination that at the time of such acquisition,
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the Class A Certificates continue to satisfy the third general condition set
forth above. The Seller and the Servicer expect that the fourth general
condition set forth above will be satisfied with respect to the Class A
Certificates. A fiduciary of a Plan contemplating purchasing a Class A
Certificate must make its own determination that the first, fifth and sixth
general conditions set forth above will be satisfied with respect to the Class A
Certificates.
In addition, the Trust must satisfy the following requirements:
(a) the corpus of the Trust must consist solely of assets of the type
which have been included in other investment pools,
(b) certificates in such other investment pools must have been rated
in one of the three highest generic rating categories of Standard & Poor's,
Moody's, Duff & Phelps, Inc. or Fitch Investors Service, L.P. for at least
one year prior to the Plan's acquisition of Class A Certificates, and
(c) certificates evidencing interests in such other investments pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of Class A Certificates.
If the general conditions of the Exemption are satisfied, the Exemption may
provide relief from the restrictions imposed by Sections 406(a) and 407(a) of
ERISA as well as the excise taxes imposed by Sections 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, transfer or holding of the Class A
Certificates by a Plan. 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 Class 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 Class A Certificates, an
'Excluded Plan' is a Plan sponsored by any member of the Restricted Group.
If certain specific conditions of the Exemption are also satisfied, the
Exemption may provide relief from the restrictions imposed by Sections 406(b)(1)
and (b)(2) and 407(a) of ERISA and the taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Section 4975(c)(1)(E) of the Code in connection with
the direct or indirect sale, exchange, transfer or holding of Class A
Certificates in the initial issuance of Class A Certificates between the Seller
or Underwriters and a Plan other than an Excluded Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of Plan assets in the Class A Certificates is (a) an Obligor with
respect to 5% or less of the fair market value of the Receivables or (b) an
affiliate of such person.
The Exemption also applies to transactions in connection with the
servicing, management and operation of the Trust, provided that, in addition to
the general requirements described above, (a) such transactions are carried out
in accordance with the terms of a binding pooling and servicing agreement and
(b) the pooling and servicing agreement is provided to, or described in all
material respects in the prospectus provided to, investing Plans before their
purchase of Class A Certificates issued by the Trust. The Agreement is a pooling
and servicing agreement as defined in the Exemption. All transactions relating
to the servicing, management and operation of the Trust will be carried out in
accordance with the Agreement. See 'The Certificates.'
The Exemption also may provide relief from the restrictions imposed by
Sections 406(a) and 407(a) of ERISA and the taxes imposed by 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 a Plan (or by virtue of having certain specified relationships to
such a person) solely as a result of such Plan's ownership of Class A
Certificates.
Any Plan fiduciary considering whether to purchase a Class A Certificate on
behalf of a Plan should consult with experienced legal counsel regarding the
applicability of the Exemption and other applicable issues and whether the Class
A Certificates are an appropriate investment for a Plan under ERISA and the
Code.
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EXEMPTION FOR CLASS B CERTIFICATES
Because the Class B Certificates are subordinate interests, the Exemption
will not apply to exempt the purchase and subsequent holding of the Class B
Certificates by or on behalf of a Plan from the prohibited transaction
provisions of ERISA and the Code. However, certain other administrative
exemptions may be available with respect to the purchase and subsequent holding
of the Class B Certificates by or on behalf of a Plan. These exemptions include
PTE 95-60, which applies to certain transactions involving insurance company
general accounts, PTE 90-1, which applies to certain transactions involving
insurance company pooled separate accounts, PTE 91-38, which applies to certain
transactions involving bank collective investment funds, and PTE 84-14, which
applies to certain transactions entered into on behalf of a Plan by qualified
professional asset managers.
PTE 95-60 in particular, among other things, provides an exemption for
transactions in connection with the servicing, management, and operation of a
trust in which an insurance company general account has an interest as a result
of its acquisition of certificates issued by the trust. PTE 95-60 would apply to
the acquisition of the Class B Certificates issued by the Trust provided that
certain conditions are met, including the requirement that the Trust is
described in and otherwise meets the requirements of an 'underwriter exemption,'
such as PTE 93-31, other than the requirements relating to the nonsubordination
and rating of the Class B Certificates. Accordingly, an insurance company may
acquire the Class B Certificates on behalf of its general account if the
conditions of PTE 95-60 are otherwise satisfied.
Any Plan fiduciary considering the purchase of a Class B Certificate on
behalf of a Plan should consult with experienced legal counsel regarding the
applicability of any such exemption from the prohibited transaction rules, other
relevant issues, and whether the Class B Certificates would be an appropriate
investment for the Plan under ERISA and the Code.
Each investor purchasing the Class B Certificates by or on behalf of a Plan
will be deemed to have represented that an exemption from the prohibited
transaction rules applies such that the acquisition and subsequent holding of
the Class B Certificates by or on behalf of such Plan will not constitute a
non-exempt prohibited transaction in violation of Section 406 of ERISA or
Section 4975 of the Code by reason of the application of one or more statutory
or administrative exemptions from the prohibited transaction rules.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the 'Underwriting Agreement'), the Seller has agreed to sell to each of the
underwriters named below (the 'Underwriters') and each of the Underwriters has
severally agreed to purchase the principal amount of Certificates set forth
opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS A
UNDERWRITER CERTIFICATES
- ------------------------------------------------------------------------------------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated........................................ $
----------
----------
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS B
UNDERWRITER CERTIFICATES
- ------------------------------------------------------------------------------------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated........................................ $
----------
----------
</TABLE>
The Seller has been advised by the Underwriters that they propose initially
to offer the Class A Certificates to the public at the price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of . % of the principal amount of the Class A
Certificates. The Underwriters may allow and such dealers may reallow to other
dealers a discount not in excess of . % of such principal amount. After the
initial public offering, such public offering price, concession and reallowance
may be changed.
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The Seller has been advised by the Underwriters that they propose initially
to offer the Class B Certificates to the public at the price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of . % of the principal amount of the Class B
Certificates. The Underwriters may allow and such dealers may reallow to other
dealers a discount not in excess of . % of such principal amount. After the
initial public offering, such public offering price, concession and reallowance
may be changed.
The Underwriters have advised the Seller that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids and syndicate covering
transactions, which may have the effect of stabilizing or maintaining the market
price of any class of Certificates at levels above those that might otherwise
prevail in the open market. A 'stabilizing bid' is a bid for or the purchase of
any Certificates on behalf of the Underwriters for the purpose of fixing or
maintaining the price of such Certificates. A 'syndicate covering transaction'
is the bid for or the purchase of Certificates on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with this
offering.
Stabilizing bids and syndicate covering transactions may have the effect of
causing the price of the Certificates of any class to be higher than it might be
in the absence thereof. Neither the Seller nor the Underwriters makes any
representation or prediction as to the direction or magnitude of any such effect
on the prices for the Certificates. Neither the Seller nor the Underwriters
makes any representation that the Underwriters will engage in any such
transactions or that, once commenced, any such transactions will not be
discontinued without notice.
The Seller has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.
VALIDITY OF THE CERTIFICATES
The validity of the Certificates will be passed upon for the Seller by
Jones, Day, Reavis & Pogue, and certain other legal matters will be passed upon
for the Seller by Michael J. Broker, Esq., Vice-President and Banking Counsel
for the Bank and for the Underwriters by Skadden, Arps, Slate, Meagher & Flom
LLP. Certain federal income tax and other matters will be passed upon for the
Seller by Jones, Day, Reavis & Pogue.
48
<PAGE>
<PAGE>
GLOSSARY OF TERMS
<TABLE>
<CAPTION>
TERMS PAGE
- ------------------------------------------------------------------------------------------------------ ---------
<S> <C>
Accounts.............................................................................................. 24
Advance............................................................................................... 5
Agreement............................................................................................. 1, 3
Applicant............................................................................................. 11
Available Interest.................................................................................... 28
Available Principal................................................................................... 29
Available Reserve Amount.............................................................................. 27
Average Delinquency Ratio............................................................................. 27
Average Net Loss Ratio................................................................................ 27
Bank.................................................................................................. 3
Business Day.......................................................................................... 4
Cede.................................................................................................. 3, 21
Certificate Account................................................................................... 24
Certificateholders.................................................................................... 2, 4
Certificate Owner..................................................................................... 3, 24
Certificates.......................................................................................... 1, 3
Class A Distribution Account.......................................................................... 24
Class A Certificate Balance........................................................................... 29
Class A Certificateholders............................................................................ 4
Class A Certificates.................................................................................. 1, 3
Class A Interest Carryover Shortfall.................................................................. 29
Class A Interest Distribution......................................................................... 29
Class A Monthly Interest.............................................................................. 29
Class A Monthly Principal............................................................................. 30
Class A Pass-Through Rate............................................................................. 4
Class A Percentage.................................................................................... 30
Class A Pool Factor................................................................................... 19
Class A Principal Carryover Shortfall................................................................. 30
Class A Principal Distribution........................................................................ 30
Class B Distribution Account.......................................................................... 24
Class B Certificate Balance........................................................................... 30
Class B Certificateholders............................................................................ 4
Class B Certificates.................................................................................. 1, 3
Class B Interest Carryover Shortfall.................................................................. 30
Class B Interest Distribution......................................................................... 30
Class B Monthly Interest.............................................................................. 30
Class B Monthly Principal............................................................................. 30
Class B Pass-Through Rate............................................................................. 4
Class B Percentage.................................................................................... 30
Class B Pool Factor................................................................................... 19
Class B Principal Carryover Shortfall................................................................. 30
Class B Principal Distribution........................................................................ 30
Closing Date.......................................................................................... 19
Code.................................................................................................. 38
Collateral Agent...................................................................................... 1
Collection Period..................................................................................... 4
Collections........................................................................................... 28
Commission............................................................................................ 2
Contract Rate......................................................................................... 16
Cutoff Date........................................................................................... 1, 3
Defaulted Receivable.................................................................................. 25
Definitive Certificates............................................................................... 22
</TABLE>
49
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ------------------------------------------------------------------------------------------------------ ---------
<S> <C>
Delinquency Ratio..................................................................................... 27
Deposit Date.......................................................................................... 5
Depository............................................................................................ 21
disqualified persons.................................................................................. 45
Distribution Date..................................................................................... 1
DOL................................................................................................... 45
DTC................................................................................................... 1, 3, 21
Due Date.............................................................................................. 16
Eligible Bank......................................................................................... 24
Eligible Trust Company................................................................................ 24
ERISA................................................................................................. 7, 45
Events of Servicing Termination....................................................................... 33
Excluded Plan......................................................................................... 47
Exemption............................................................................................. 45
FDIC.................................................................................................. 1
Final Scheduled Distribution Date..................................................................... 1
Financed Vehicles..................................................................................... 3, 15
Force Placed Insurance................................................................................ 13
FTC Rule.............................................................................................. 38
Holders............................................................................................... 22
Indirect Participants................................................................................. 22
Interest Collections.................................................................................. 28, 29
Liquidation Proceeds.................................................................................. 27
Moody's............................................................................................... 25
Motor Vehicle Loans................................................................................... 11
Net Loss Ratio........................................................................................ 27
Obligors.............................................................................................. 8
Original Certificate Balance.......................................................................... 3
Original Class A Certificate Balance.................................................................. 3
Original Class B Certificate Balance.................................................................. 3
Original Pool Balance................................................................................. 3
Outstanding Advances.................................................................................. 6
Participants.......................................................................................... 21
Parties in interest................................................................................... 45
Pass-Through Rate..................................................................................... 4
Paying Agent.......................................................................................... 24
Plan.................................................................................................. 45
Pool Balance.......................................................................................... 3
PTE................................................................................................... 45
Purchase Price........................................................................................ 41
Purchased Receivable.................................................................................. 29
Rating Agency......................................................................................... 7
Rating Agency Condition............................................................................... 6
Realized Losses....................................................................................... 30
Receivables........................................................................................... 1, 3, 15
Receivables Pool...................................................................................... 15
Record Date........................................................................................... 4
Recoveries............................................................................................ 27
Regulation............................................................................................ 45
Repurchase Amount..................................................................................... 24
Reserve Account....................................................................................... 5
Reserve Account Initial Deposit....................................................................... 5
</TABLE>
50
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TERMS PAGE
- ------------------------------------------------------------------------------------------------------ ---------
<S> <C>
Restricted Group...................................................................................... 46
Seller................................................................................................ 1, 3
Servicer.............................................................................................. 1, 3
Servicing Fee......................................................................................... 5
Servicing Fee Rate.................................................................................... 5, 26
Shortfall Amount...................................................................................... 10
Specified Reserve Account Balance..................................................................... 6
Standard & Poor's..................................................................................... 24
Transfer Agent and Registrar.......................................................................... 23
Trust................................................................................................. 1, 3
Trustee............................................................................................... 1, 3
UCC................................................................................................... 36
Underwriters.......................................................................................... 48
Underwriting Agreement................................................................................ 48
United States person.................................................................................. 44
USAA.................................................................................................. 12, 20
</TABLE>
51
<PAGE>
<PAGE>
__________________________________ __________________________________
NO DEALER, SALESPERSON, OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY USAA FEDERAL SAVINGS BANK
OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF USAA FEDERAL SAVINGS BANK OR THE RECEIVABLES SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports to Certificateholders.................. 2
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................... 2
Prospectus Summary............................. 3
Risk Factors................................... 8
The Bank's Portfolio of Motor Vehicle Loans.... 11
The Trust...................................... 15
The Receivables Pool........................... 16
Yield Considerations........................... 19
Pool Factors................................... 19
Use of Proceeds................................ 20
USAA Federal Savings Bank...................... 20
United Services Automobile Association......... 20
The Certificates............................... 21
Certain Legal Aspects of the Receivables....... 36
Certain Federal Income Tax Consequences........ 38
ERISA Considerations........................... 45
Underwriting................................... 48
Validity of the Certificates................... 49
Glossary of Terms.............................. 50
</TABLE>
------------------------
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
USAA AUTO LOAN
GRANTOR TRUST 1997-1
$ % AUTOMOBILE LOAN
PASS-THROUGH CERTIFICATES, CLASS A
$ % AUTOMOBILE LOAN
PASS-THROUGH CERTIFICATES, CLASS B
[LOGO]
USAA FEDERAL SAVINGS BANK
SELLER AND SERVICER
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
[ ]
[ ]
Underwriters of the Class A Certificates
[MERRILL LYNCH & CO.]
Underwriter of the Class B Certificates
, 1997
__________________________________ __________________________________
<PAGE>
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the offering of the Certificates being
registered herein are estimated as follows:
<TABLE>
<S> <C>
Registration Fee.................................................................. $ 303.03
Legal Fees and Expenses........................................................... *
Accounting Fees and Expenses...................................................... *
Blue Sky Fees and Expenses........................................................ *
Rating Agency Fees................................................................ *
Trustee's Fees and Expenses....................................................... *
Printing.......................................................................... *
Miscellaneous..................................................................... *
--------
Total........................................................................ $ *
--------
--------
</TABLE>
- ------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to the following document filed as an exhibit to this
Registration Statement which document is incorporated herein by reference:
Article VI of the By-Laws of USAA Federal Savings Bank (Exhibit 3.2
hereto).
Reference is also made to 12 C.F.R. SS545.121.
For the undertaking with respect to indemnification, see Item 17
herein.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- --------- ------------------------------------------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.*
3.1 -- Charter of the Registrant.
3.2 -- By-laws of the Registrant.
4.1 -- Form of Pooling and Servicing Agreement between the Registrant and the Trustee.*
5.1 -- Opinion of Jones, Day, Reavis & Pogue with respect to legality.*
8.1 -- Opinion of Jones, Day, Reavis & Pogue with respect to tax matters.*
23.1 -- Consent of Jones, Day, Reavis & Pogue (included as part of Exhibit 5.1).
23.2 -- Consent of Jones, Day, Reavis & Pogue (included as part of Exhibit 8.1).
24.1 -- Power of Attorney (included as part of signature page)
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statements:
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.
II-1
<PAGE>
<PAGE>
(b) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the 'Act') may be permitted to
directors, officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of such
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, such Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(c) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(d) That, for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
(e) That the undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-2
<PAGE>
<PAGE>
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
authorizes any agent for service named in this Registration Statement to file
one or more amendments (including post-effective amendments) to this
Registration Statement, which amendments may make such changes in this
Registration Statement as such agent for service deems appropriate, and the
Registrant and each such person hereby appoints such agent for service as
attorney-in-fact to execute in the name and on behalf of the Registrant and each
such person, individually and in each capacity stated below, any such amendments
to the Registration Statement.
SIGNATURES
The Registrant. Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Antonio, State of Texas on this 8th day of October, 1997.
USAA FEDERAL SAVINGS BANK
By /S/ MARK H. WRIGHT
..................................
MARK H. WRIGHT
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
By /S/ SUSAN K. EVERS
..................................
SUSAN K. EVERS
SENIOR VICE PRESIDENT FINANCE
(PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ ROBERT G. DAVIS Chairman October 8, 1997
.........................................
(ROBERT G. DAVIS)
/s/ CHARLES E. BISHOP Director October 8, 1997
.........................................
(CHARLES E. BISHOP)
/s/ ARTHUR R. EMERSON Director October 8, 1997
.........................................
(ARTHUR R. EMERSON)
/s/ KENNETH R. FLEENOR Director October 8, 1997
.........................................
(KENNETH R. FLEENOR)
/s/ RICHARD W. HAGAUER Director October 8, 1997
.........................................
(RICHARD W. HAGAUER)
/s/ CARLOS R. MONTEMAYOR Director October 8, 1997
.........................................
(CARLOS R. MONTEMAYOR)
</TABLE>
II-3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/s/ JAMES E. OLSSON Director October 8, 1997
.........................................
(JAMES E. OLSSON)
Director October 8, 1997
.........................................
(JANE B. PHIPPS)
Director October 8, 1997
.........................................
(DAVID M. ROBINSON)
/s/ JOSUE ROBLES, JR. Director October 8, 1997
.........................................
(JOSUE ROBLES, JR.)
/s/ MARK H. WRIGHT Director October 8, 1997
.........................................
(MARK H. WRIGHT)
</TABLE>
II-4
<PAGE>
<PAGE>
APPENDIX A
CHARTER T
USAA FEDERAL SAVINGS BANK
SECTION 1. Corporate Title. The full corporate title of the association
is "USAA FEDERAL SAVINGS BANK".
SECTION 2. Office. The home office of the association shall be located
in the County of Bexar, State of Texas.
SECTION 3. Powers. The association is a capital stock association
chartered under Section 5 of the Home Owners' Loan Act and has and may exercise
all the express, implied and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental there to, subject to the Constitution and
laws of the United States as they are now in effect, or as they may hereafter be
amended, and subject to all lawful and applicable rules, regulations, and orders
of the Federal Home Loan Bank Board.
SECTION 4. Duration. The duration of the association is perpetual.
SECTION 5. Capital Stock. The total number of shares of capital stock
which the association has authority to issue is 10,000,000 all of which are to
be shares of common stock, 90 dollar(s) par value per share. The shares may be
issued by the association from time to time as approved by its board of
directors without the approval of its stockholders except as otherwise provided
in this Section 5. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value per
share. Neither promissory notes nor future services shall constitute payment or
part payment for the issuance of shares of the association. The consideration
for the shares shall be cash, tangible or intangible property, labor or services
actually performed for the association or any combination of the foregoing. In
the absence of actual fraud in the transaction, the value of such property,
labor or services, as determined by the board of directors of the association,
shall be conclusive. Upon payment of such consideration, such shares shall be
deemed to be fully paid and nonassessable. In the case of a stock dividend ,
that part of the surplus of the association which is transferred to stated
capital upon the issuance of shares as a share dividend shall be deemed to be
the consideration for their issuance. Except for shares issuable in connection
with the conversion of the association from the mutual to the stock form of
capitalization, no shares of common stock (including shares issuable upon
conversion, exchange or exercise of other securities) shall be issued in the
following cases unless their issuance or the plan under which they would be
issued has been approved by a majority of the total votes eligible to be case at
a legal meeting; (i) shares of common stock to be issued, directly or
indirectly, to officers , directors or controlling persons of the association,
other than as part of the general public offering or as qualifying shares
<PAGE>
<PAGE>
to a director; or (ii) shares of common stock exceeding 15 percent of the total
number of shares of common stock then outstanding.
The holders of the common stock shall exclusively possess all voting
power. Each holder of shares of common stock shall be entitled to one vote for
each share held by such holder, except as to the cumulation of votes for the
election of directors. In the event of any liquidation, dissolution or winding
up the association, the holders of the common stock shall be entitled, after
payment or provisions for payment of all debts and liabilities of the
association, to receive all as sets of the association available for
distribution, in cash or in kind. Each share of common stock shall have the same
relative rights as and be identical in all respects with all the other shares of
common stock.
SECTION 7. Directors. The association shall be under the direction of a
board of directors. The number of directors, as stated in the association's
bylaws, shall not be less than seven.
SECTION 8. Amendment of Charter. No amendment, addition, alteration,
change, or repeal of this charter shall be made, unless such is first proposed
by the board of directors of the association, then preliminary approved by the
Federal Home Loan Bank Board, and thereafter approved by the stockholders by a
majority of the total votes eligible to be cast at a legal meeting. Any
amendment, addition, alteration, change, or repeal so acted upon shall be
effective on the date it receives the final approval of the Federal Home Loan
Bank Board or on such other date as such Board may specify in its approval.
-2-
<PAGE>
<PAGE>
USAA Federal Savings Bank
Attest:
/s/ /s/
- ------------------------------------ --------------------------------
Secretary President
Date: December 29, 1983
Declared Effective the 15th day of December, 1983
Federal Home Loan Bank Board
Attest:
/s/ /s/
- ------------------------------------ --------------------------------
Secretary Chairman
Date:
------------------------------
-3-
<PAGE>
<PAGE>
APPENDIX A
FEDERAL STOCK ASSOCIATION CHARTER
SECTION 1. Corporate Title. The full corporate title of the savings
bank is the USAA FEDERAL SAVINGS BANK.
SECTION 2. Office. The home office shall be located in the County of
Bexar, State of Texas.
SECTION 3. Duration. The duration of the savings bank is perpetual.
SECTION 4. Purpose and powers. The purpose of the savings bank is to
pursue any or all of the lawful objectives of a Federal savings bank chartered
under section 5 of the Home Owners Loan Act and to exercise all of the express,
implied, and incidental powers conferred thereby and by all acts amendatory
thereof and supplemental there to, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter be amended,
and subject to all lawful and applicable rules, regulations, and orders of the
Federal Home Loan Bank Board ("Board"). In addition, the savings bank may make
any investment and engage in any activity as may be specifically authorized by
action of the Board, including authorization by delegated authority, in
connection with action approving the issuance of the charter.
SECTION 5. Capital stock. The total number of shares of all classes of
the capital stock which the savings bank has the authority to issue is
10,000,000, all of which shall be common stock of par (or stated) value of 90
dollar(s) per share. The shares may be issued from time to time as authorized by
the board of directors without the approval of its shareholders, except as
otherwise provided in this Section 5 or to the extent that such approval is
required by governing law, rule or regulation. The consideration for the
issuance of the shares shall be paid in full before their issuance and shall not
be less than the par (or stated) value. Neither promissory notes nor future
services shall constitute payment or part payment for the issuance of shares of
the savings bank. The consideration for the shares shall be cash, tangible or
intangible property (to the extent direct investment in such property would be
permitted to the savings bank), labor, or services actually performed for the
savings bank, or any combination of the foregoing. In the absence of actual
fraud in the transaction, the value of such property, labor, or services, as
determined by the board of directors of the savings bank, shall be conclusive.
Upon payment of such consideration, such shares shall 'be deemed to be fully
paid and nonassessable. In the case of a stock dividend, that part of the
surplus of the savings bank which is transferred to stated capital upon the
issuance of shares as a share dividend shall be deemed to be the consideration
for their issuance. Except for shares issuable in connection with the conversion
of the savings bank from the
<PAGE>
<PAGE>
mutual to stock form of capitalization, no shares of common stock (including
shares issuable upon conversion, exchange, or exercise of other securities)
shall be issued, directly or indirectly, to officers, directors, or controlling
persons of the savings bank other than as part of a general public offering or
as qualifying shares to a director, unless the issuance or the plan under which
they would be issued has been approved by a majority of the total votes eligible
to be cast at a legal meeting.
The holders of the common stock shall exclusively possess all voting
power. Each holder of shares of common stock shall be entitled to one vote for
each share held by such holder, except as to the cumulation of votes for the
election of directors. Subject to any provision for a liquidation account, in
the event of any liquidation, dissolution or winding up of the savings bank, the
holders of the common stock shall be entitled, after payment or provision for
payment of all' debts and liabilities of the savings bank, to receive the
remaining assets of the savings bank available for distribution, in cash or in
kind. Each share of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
SECTION 6. Preemptive rights. Holders of the capital stock of the
savings bank shall not be entitled to preemptive rights with respect to any
shares of the savings bank which may be issued.
SECTION 7. Directors. The savings bank shall be under the direction of
a board of directors. The authorized number of directors, as stated in the
savings bank's bylaws, shall not be fewer than seven nor more than fifteen
except when a greater number is approved by the Board.
SECTION 8. Amendment of charter. Except as provided in Section 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is first proposed by the board of directors of the savings bank,
then preliminarily approved by the Board, which preliminary approval may be
granted by the Board pursuant to regulations specifying preapproved charter
amendments, and thereafter approved by the shareholders by a majority of the
total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change, or repeal so acted upon shall be effective upon filing with
the Board in accordance with regulatory procedures or on such other date as the
Board may specify in its preliminary approval.
<PAGE>
<PAGE>
P R O X Y
KNOW ALL MEN BY THESE PRESENTS: That the undersigned stockholder of
USAA Federal Savings Bank hereby constitutes and appoints Robert F. McDermott,
the true and lawful attorney, with full power of substitution and revocation to
vote upon the stock owned by and standing in the name of:
USAA BANCORP, INC.
at the Special Meeting of Stockholders to be held at 9800 Fredericksburg Road,
San Antonio, Texas, at 10:00 a.m. on September 25, 1990, or any meeting
postponed or adjusted therefrom, hereby granting said attorney full power and
authority to act for USAA Bancorp, Inc. at the meeting in the following matter:
Amendment of the Federal Stock Association Charter to
authorize the issuance of preferred, as well as common stock,
hereby ratifying and confirming all that said attorney may or shall do at such
meeting in the name of:
USAA BANCORP, INC.
IN WITNESS WHEREOF, I have hereunto set my hand this 25th day of
September, 1990.
/s/ Robert F. McDermott
------------------------------
CHAIRMAN, BOARD OF DIRECTORS
USAA BANCORP, INC.
WITNESS:
/s/ Judy McCormick
- --------------------------------
<PAGE>
<PAGE>
USAA FEDERAL SAVINGS BANK
NEW BUSINESS
Agenda Item 6.
I cast the votes which I hold "for" the following resolution:
RESOLVED, that Section 5. Capital Stock, of the Federal Stock
Association Charter of USAA Federal Savings Bank be amended to read as
follows:
(See Exhibit "1" attached hereto)
September 25, 1990
<PAGE>
<PAGE>
SECTION 5. CAPITAL STOCK.
The total number of shares of all classes of the capital stock which the savings
bank has the authority to issue is 20,000,000, of which 10,000,000 shares shall
be common stock of par value of $90 per share and of which 10,000,000 shares
shall be preferred stock of par value of $100 per share. The shares may be
issued from time to time as authorized by the board of directors without further
approval of shareholders, except as otherwise provided in this Section 5 or to
the extent that such approval is required by governing law, rule, or regulation.
The consideration for the issuance of the shares shall be paid iii full before
their issuance and shall not be less than the par value. Neither promissory
notes nor future services shall constitute payment or part payment for the
issuance of shares of the savings bank. The consideration for the shares shall
be cash, tangible or intangible property (to the extent direct investment in
such property would be permitted), labor, or services actually performed for the
savings bank, or any combination of the foregoing. In the absence of actual
fraud in the transaction, the value of such property, labor, or services, as
determined by the board of directors of the savings bank, shall be conclusive.
Upon payment of such consideration, such shares shall be deemed to be fully paid
and nonassessable. In the case of a stock dividend, that part of the surplus of
the savings bank which is transferred to stated capital upon the issuance of
shares as a share dividend shall be deemed to be the consideration for their
issuance.
Except for shares issuable in connection with the conversion of the savings bank
from the mutual to the stock form of capitalization no shares of capital stock
(including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the savings bank other than as part of a general public
offering or as qualifying shares to a director, unless their issuance or the
plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections hereto)
shall entitle the holders of any class of a series of capital stock to vote as a
separate class or series or to more than one vote per share, except as to the
cumulation of votes for the election of directors: Provided, that this
restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the board of directors,
less than a majority thereof, in the event of default in the payment of
dividends on any class or series or preferred stock;
EXHIBIT "1"
<PAGE>
<PAGE>
(ii) To any provision which would require the holders of preferred stork, voting
as a class or series, to approve the merger or consolidation of the savings bank
with another corporation or the sale, lease, or conveyance (other than by
mortgage or pledge) of properties or business in exchange for securities of a
corporation other than the savings bank if the preferred stock is exchanged for
securities of such other corporation: Provided, that no provision may require
such approval for transactions undertaken with the assistance or pursuant to the
direction of the "Office, Federal Deposit Insurance Corporation, or the
Resolution Trust Corporation";
(iii) To any amendment which would adversely change the specific terms of any
class or series of capital stock as set forth in this Section 5 (or in any
supplementary sections hereto), including any amendment which would create or
enlarge any class or series ranking prior there to in rights and preferences.
All amendment which increases the number of authorized shares of any class or
series of capital stock, or substitutes the surviving institution in a merger or
consolidation for the savings bank, shall not be considered to be considered to
be such an adverse change.
A description of the different classes and series (if any) of the savings bank's
capital stock and a statement of the designations, and the relative rights,
preferences, and limitations of the shares of each class of and series (if any)
of capital stock are as follows:
A. Common stock.
Except as provided in this Section 5 (or in any supplementary sections thereto)
the holders of the common stock shall exclusively possess all voting power. Each
holder of shares of common stock shall be entitled to one vote for each share
held by such holder, except as to the cumulation of votes for the election of
directors.
Whenever there shall have been paid, or declared and set aside for payment, to
the holders of the outstanding shares of any class of stock having preference
over the common stock as to the payment of dividends, the full amount of
dividends and of sinking fund, retirement fund, or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the savings bank,
the holders of the common stock (and the holders of any class or series of stock
entitled to participate with the common stock in the distribution of assets)
shall be entitled to receive, in cash or in kind, the assets of the savings bank
available for distribution remaining after: (i) Payment or provision for payment
of the savings bank's debts aid liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii) distributions
or provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution, or
winding up of the savings bank. Each share of common stock shall have the same
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<PAGE>
relative rights as and be identical in all respects with all the other shares
of common stock.
B. Preferred stock.
The savings bank may provide in supplementary sections to this charter for one
or more classes of preferred stock, which shall be separately identified. The
shares of any class may be divided into and issued in series, with each series
separately designated so as to distinguish the shares thereof from the shares of
all other series and classes. The terms of each series shall be set forth in a
supplementary section to the charter. All shares of the same class shall be
identical except as to the following relative rights and preferences, as to
which there may be variations between different series;
(a) The distinctive serial designation and the number of shares constituting
such series;
(b) The dividend rate or the amount of dividends to be paid on the shares of
such series, whether dividends shall be cumulative and, if so, from which
date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which such shares may be
redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of the savings
bank;
(f) Whether the shares of such series shall be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of such
shares, and if so entitled, the amount of such fund and the manner of its
application, including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or exchangeable
for, shares of any other class or classes of stock of the savings bank and, if
so, the conversion price(s) or the rate(s) of exchange, and the adjustments,
thereof, if any, at which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such series shall
be issued; and
(i) Whether the shares of such series which are redeemed or converted shall have
the status of authorized but unissued shares of serial preferred stock and
whether such
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<PAGE>
shares may be reissued as shares of the same or any other series of serial
preferred stock.
Each share of each series of serial preferred stock shall have the same relative
rights as and be identical in all respects with all the other shares of the same
series.
<PAGE>
<PAGE>
USAA FEDERAL SAVINGS BANK STOCKHOLDERS
Agenda Items 3 and 4 No. of Shares
- -------------------- -------------
USAA Bancorp, Inc. 200,000
Proxy: Robert F. McDermott
<PAGE>
<PAGE>
CERTIFICATE OF ASSISTANT-SECRETARY
OF
USAA BANCORP, INC.
I, Judy K. McCormick, Assistant-Secretary, of USAA BanCorp,
Inc., the parent of USAA Federal savings Bank, DO HEREBY CERTIFY that the
attached Special Meeting of Stockholders, approving the Amendment to the Federal
Stock Association Charter, has been validly authorized and approved by USAA
BanCorp, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and offered
the seal of USAA BanCorp, Inc.
Dated: October 5, 1990
/s/ Judy K. McCormick
---------------------------
Judy K. McCormick
Assistant-Secretary
[SEAL]
<PAGE>
<PAGE>
SUPPLEMENTAL CHARTER SECTION
Establishing and Designating the Series and Fixing and
Determining the Relative Rights and Preferences
of the
ANNUALLY ADJUSTABLE NONCUMULATIVE
PERPETUAL PREFERRED STOCK,
SERIES A
of
USAA FEDERAL SAVINGS BANK (the "Bank")
Five Hundred Thousand (500,000) shares of preferred stock authorized by
this Federal Stock Charter be, and hereby are, determined to be and shall be of
a series designated as Annually Adjustable Noncumulative Perpetual Preferred
Stock, series A, with a par value of $100 per share and a liquidation value of
$100 per share (hereinafter called "Series A Preferred Stock"), with the
following rights and preferences:
1. Rank. The shares of series A Preferred Stock shall, with respect to
dividend rights and rights on liquidation, winding up and dissolution of the
Bank, rank prior to the Bank's common stock (the "Common stock"), and to all
other classes and series of equity securities of the Bank now or hereafter
authorized, issued or outstanding, other than any classes or series of equity
securities of the Bank either (i) ranking on a parity with shares of Series A
Preferred Stock as to dividend rights and rights upon liquidation, winding up or
dissolution of the Bank (the "Parity Stock"), or (ii) ranking senior to shares
of Series A Preferred Stock as to dividend rights and rights upon liquidation,
winding up or dissolution of the Bank. The Common Stock and such other classes
and series of equity securities other than those described in (i) or (ii)
collectively may be referred to herein as the "Junior Stock." The shares of
Series A Preferred Stock shall be subject to the creation of such Parity stock
and such Junior Stock to the extent not expressly prohibited by this Federal
Stock Charter.
Any class or classes of stock of the Bank shall be deemed to rank prior
to Series A Preferred Stock as to dividends and as to distribution of assets
upon liquidation, dissolution or winding up if the holders of such class shall
be entitled to the receipt of dividends and of amounts distributable upon
liquidation, dissolution or winding up in preference or priority to the holders
of shares of Series A Preferred Stock.
2. Noncumulative Dividends and Dividend Rate. The holders of the Series
A Preferred Stock shall be entitled to receive, when, as, and if declared by the
Board of Directors and out of the assets of the Bank which are by law available
for the payment of dividends, cash dividends from the date of issue at the
"Applicable Rate" (as defined below), from time to time in effect, for each
semiannual dividend period. Dividends on the Series A Preferred Stock shall be
calculated as a percentage of the par value (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods), and
shall be payable semiannually in arrears on the 15th day of June and December
(each a "Dividend Payment Date") of each year, unless such day is a
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<PAGE>
nonbusiness day, in which event on the next business day, commencing June 15,
1991. Semiannual dividend periods (each a "Dividend Period") shall commence on
and include the 15th day of June and December of each year and shall end on and
include the day next preceding the next following Dividend Payment Date.
Dividends on the shares of Series A Preferred Stock shall be
noncumulative so that if a dividend on the shares of Series A Preferred Stock
with respect to any Dividend Period is not declared by the Board of Directors of
the Bank, then the Bank shall have no obligation at any time to pay a dividend
on the shares of Series A Preferred Stock in respect of such Dividend Period.
Holders of the shares of the Series A Preferred Stock shall not be entitled to
any dividends, whether payable in cash, property or stock, in excess of the
noncumulative dividends declared by the Board of Directors as set forth herein.
The "Applicable Rate" for any Dividend Period will be the rate (rounded
to the nearest one-hundredth (.01) of one percent) equal to 75% of the most
recent per annum average yield adjusted to a constant maturity for one-year
United States Treasury securities, as published by the Federal Reserve Board and
reported by any financial information service during the seven calendar days
ending on the December 14th preceding the first day of the Dividend Period for
which the dividend rate is being determined (the "Calendar Period"). In the
event that the Federal Reserve Board does not publish such a yield during any
such Calendar Period, then the Applicable Rate shall be determined using the
yield for one-year United States Treasury securities published by any Federal
Reserve Bank or by any U.S. Government department or agency selected by the
Bank.
Any Parity Stock issued by the Bank shall only have Dividend Periods
which end on the same date as a Dividend Period. No full dividends shall be
declared or paid or set apart for payment on any Parity Stock in respect of any
such Dividend Period unless full dividends on the Series A Preferred Stock for
the Dividend Period ending the same date as such Dividend Period shall have been
paid or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment.
If at any time with respect to any Dividend Period dividends are not
declared and paid in full (or declared and a sum sufficient for such full
payment so set apart) upon the shares of Series A Preferred Stock, dividends
upon shares of Series A Preferred Stock and dividends on any shares of Parity
Stock outstanding shall only be declared by the Board of Directors pro rata with
respect thereto, so that the amount of dividends declared per share on the
Series A Preferred Stock and such Parity Stock shall bear to each other the same
ratio that accrued dividends per share on the shares of Series A Preferred Stock
for such Dividend Period (which shall not include any accumulation in respect of
unpaid dividends for prior Dividend Periods) and full dividends, including
accumulations, if any, on shares of Parity Stock, bear to each other.
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<PAGE>
Unless full dividends have been declared and paid (or declared and a
sum sufficient for each full payment set apart for payment) on all outstanding
shares of Series A Preferred Stock for the immediately preceding Dividend
Period, the Bank shall not declare or pay any dividends (other than in Common
Stock or other Junior Stock) or set any amount aside for payment thereof or make
any other distribution on the Common Stock or on any other Junior Stock, nor
shall any Common Stock nor any Junior Stock be redeemed (or any moneys be paid
to or made available for a sinking fund or the redemption of any shares of any
such stock), or any Junior Stock or Parity Stock purchased or otherwise acquired
by the Bank for any consideration except by conversion into or exchange for
Junior Stock.
The amount of dividends payable for the initial Dividend Period or any
period shorter than a full Dividend Period shall be computed on the basis of the
actual number of days elapsed in the period over a 365-day year. Dividends
payable for each full semi annual Dividend Period shall be computed by dividing
the Applicable Rate by two.
3. Voting Rights. The holders of shares of Series A Preferred Stock
shall not be entitled to vote for any purpose.
4. Optional Redemption. The shares of Series A Preferred Stock are
redeemable at the option of the Bank for cash, in whole or in part, on the 15th
day of each December, at par plus in each case accrued and unpaid dividends
(whether or not declared) for the Dividend Period ending on the day preceding
the redemption date (without accumulation of accrued and unpaid dividends for
prior Dividend Periods) (the "Redemption Price") without interest.
No redemption may be made by the Bank without the approval of the
Office of Thrift Supervision if the Bank is not in compliance with the
regulatory capital requirements of 12 C.F.R. Part 567 or if after giving effect
to such redemption the Bank would fail to meet such requirements.
The Bank shall not redeem or set aside funds for the redemption of any
Parity Stock unless prior to or contemporaneously therewith it redeems, or sets
aside funds for the redemption of, a number of shares of Series A Preferred
Stock whose liquidation preference bears the same relationship to the aggregate
liquidation preference of all shares of Series A Preferred Stock then
outstanding as the liquidation preference of such Parity Stock to be redeemed
bears to the aggregate liquidation preference of all Parity Stock then
outstanding.
In the event that fewer than all the outstanding shares of Series A
Preferred Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors and the shares to be redeemed shall be
determined by the Board of Directors in its sole discretion to be equitable.
In the event the Bank shall redeem shares of Series A Preferred Stock,
notice of such redemption (a "Notice of Redemption") shall be given not less
than 10 nor more
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<PAGE>
than 60 days prior to the redemption date, to each holder of record of the
shares to be redeemed, at such holder's address as the same appears on the stock
register of the Bank.
On or after a redemption date, each holder of shares of Series A
Preferred Stock that were called for redemption shall surrender the certificate
or certificates evidencing such shares to the Bank and shall then be entitled to
receive payment of the Redemption Price for each share. If less than all the
shares represented by one share certificate are to be redeemed, the Bank shall
issue a new share certificate for the shares not redeemed.
If a Notice of Redemption shall have been given, then dividends shall
cease, after the end of the complete Dividend Period ending on the day preceding
the redemption date, to accumulate on the shares of Series A Preferred Stock
called for redemption and all other rights of holders of the shares so called
for redemption shall cease on and after the redemption date, except the right of
holders of such shares to receive the Redemption Price against delivery of such
shares, but without interest, and such shares shall cease to be outstanding.
Any shares of the Series A Preferred Stock which shall at any time have
been redeemed shall, after such redemption, have the status of authorized but
unissued shares of preferred stock of the Bank, without designation as to series
until such shares are once more designated as part of a particular series by the
Board of Directors.
5. Preference on Liquidation. In the event of any dissolution,
liquidation or winding up of the affairs of the Bank, after payment or provision
for payment of the debts and other liabilities of the Bank, the holders of the
Series A Preferred Stock shall be entitled to receive for each outstanding share
of the Series A Preferred Stock, out of the net assets of the Bank and before
any distribution shall be made to the holders of the Common Stock or to the
holders of any other Junior Stock, (i) $100 plus (ii) an amount equal to
all-dividends accrued and unpaid for the then-current Dividend Period (without
accumulation of accrued and unpaid dividends for prior Dividend Periods) to the
date fixed for distribution. If upon such dissolution, liquidation or winding up
of the affairs of the Bank, the net assets of the Bank shall be insufficient to
permit payment in full of the amounts required to be paid to the holders of the
Series A Preferred Stock and to the holders of any Parity Stock, then the
holders of the Series A Preferred Stock and the holders of all such Parity Stock
shall share ratably, without priority of one over the other, in the payment of
dividends, including accumulations, if any, in the proportion that the amount of
dividends, including accumulations, if any, then payable on each share bears to
the aggregate of such amounts then payable on all shares of the Series A
Preferred Stock and such Parity Stock, and in any distribution of assets other
than by way of dividends in the proportion that the sum payable on each share
bears to the aggregate of the amounts so payable on all shares of the Series A
Preferred Stock and such Parity Stock.
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<PAGE>
After such amount is paid in full, no further distributions or payments
shall be made in respect of the Series A Preferred Stock, the shares of the
Series A Preferred Stock shall no longer be deemed to be outstanding or be
entitled to any preferences, rights or privileges, and the shares of the Series
A Preferred Stock shall be surrendered for cancellation to the Bank.
6. Payments on Stock Ranking Junior. In the event of any such
liquidation, dissolution or winding up of the Bank, whether voluntary or
involuntary, unless and until payment in full is made to the holders of all
outstanding shares of the Series A Preferred Stock of the liquidation
distribution to which they are entitled, no dividend or other distribution shall
be made to the holders of the Common Stock or any other Junior Stock, and no
purchase, redemption or other acquisition for any consideration by the Bank
shall be made in respect of the shares of the Common Stock or such other class
of Junior Stock.
Neither a consolidation or merger of the Bank into or with another
entity or entities nor the sale, transfer or exchange (for cash, shares of
equity stock, securities or other consideration) of all or substantially all of
the property and assets of the Bank, shall be deemed to be a liquidation,
dissolution or winding up of the Bank within the meaning of this Supplemental
Charter Section.
7. Preemptive Rights. No holder of shares of the Series A Preferred
Stock shall have any preemptive right to subscribe to stock, obligations,
warrants, rights to subscribe to stock, or other securities of this corporation
of any class, whether now or hereafter authorized.
IN WITNESS WHEREOF, USAA FEDERAL SAVINGS BANK has caused its corporate
seal to be affixed and this Supplemental Charter Section to be signed by its
Chief Executive Officer and its Secretary this 27th day of October, 1990.
USAA FEDERAL SAVINGS BANK
[SEAL]
By /s/
-----------------------------
Chief Executive Officer
By /s/
-----------------------------
Secretary
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<PAGE>
<PAGE>
SUPPLEMENTAL CHARTER SECTION
Establishing and Designating the Series and Fixing and
Determining the Relative Rights of the
RESTRICTED NON-VOTING NON-CUMULATIVE
PERPETUAL PREFERRED STOCK, SERIES A
of
USAA FEDERAL SAVINGS BANK (the "Bank")
Five Hundred Thousand (500,000) shares of preferred stock authorized by
this Federal Stock Charter hereby are determined to be and shall be of a series
designated as Restricted Non-Voting Non-Cumulative Perpetual Preferred Stock,
Series A (hereinafter called "Series A Restricted Preferred Stock"), with a par
value of $100.00 per share and a liquidation value of $1,000.00 per share, with
the following rights and terms:
1. Rank. Except for the exclusive dividend rights stated in Paragraph 2
of this Supplemental Charter Section, the shares of Series A Restricted
Preferred Stock shall, with respect to dividend rights and rights upon
liquidation, winding up and dissolution of the Bank, rank in parity with the
Bank's common stock and all other classes and series of equity securities of the
Bank now or hereafter authorized, issued or outstanding (the Bank's common stock
and such other classes and series of equity securities referred to hereinafter
as the "Parity Stock"), other than any classes or series of equity securities of
the Bank ranking senior to shares of Series A Restricted Preferred Stock as to
dividend rights and rights upon liquidation, winding up or dissolution of the
Bank (such senior classes or series of equity securities referred to hereinafter
as the "Senior Stock"). The shares of Series A Restricted Preferred Stock shall
be subject to the creation of Parity Stock and Senior Stock to the extent not
expressly prohibited by this Federal Stock Charter.
Any class or series of equity securities of the Bank shall be deemed to
be Senior Stock if the holders of such class or series shall be entitled to the
receipt of dividends and of amounts distributable upon liquidation, dissolution
or winding up in preference or priority to the holders of shares of Series A
Restricted Preferred Stock.
2. Exclusive and Non-Cumulative Dividends. The holders of the Series A
Restricted Preferred Stock shall be entitled to receive dividends, when, as and
if declared on such shares by the Board of Directors of the Bank. The Board of
Directors of the Bank may declare and pay a dividend on the Series A Restricted
Preferred Stock without declaring or paying a dividend on any shares of Parity
Stock, and may declare and pay a dividend on any shares of Parity Stock without
declaring or paying a dividend on the Series A Restricted Preferred Stock.
EXHIBIT A
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<PAGE>
Dividends on the shares of Series A Restricted Preferred Stock shall be
non-cumulative. If a dividend on the shares of Series A Restricted Preferred
Stock is declared payable on or prior to a specified date and is not paid in
full by such date, then the Bank shall have no obligation to pay such declared
but not paid in full dividend after such date.
3. Voting Rights. The holders of shares of the Series A Restricted
Preferred Stock shall not be entitled to vote for any purpose.
4. Optional Redemption. The shares of the Series A Restricted Preferred
Stock are redeemable at any time and from time to time at the option of the Bank
for cash, in whole or in part, at the liquidation value of $1,000.00 per share
(the "Redemption Price"). In the event that fewer than all the outstanding
shares of the Series A Restricted Preferred Stock are to be redeemed, the shares
and the number of shares to be redeemed shall be determined by the Board of
Directors in its sole discretion.
No redemption may be made by the Bank without the approval of the
Office of Thrift Supervision if the Bank is not a "Tier 1 association", as that
term is defined in the capital distribution regulation or if, after giving
effect to such redemption, the Bank would fail to be a "Tier 1 association."
In the event the Bank shall redeem shares of the Series A Restricted
Preferred Stock, notice of such redemption shall be given not less than 10 nor
more than 60 days prior to the redemption date, to each holder of record of the
shares to be redeemed, at such holder's address as the same appears on the stock
register of the Bank.
On or after a redemption date, each holder of shares of Series A
Restricted Preferred Stock that were called for redemption shall surrender the
certificate or certificates evidencing such shares to the Bank and shall then be
entitled to receive payment of the Redemption price for each share. If less than
all the shares represented by one share certificate are to be redeemed, the Bank
shall issue a new share certificate for the shares not redeemed.
Any shares of the Series A Restricted Preferred Stock which have been
redeemed at any time shall, after such redemption, have the status of authorized
but unissued shares of preferred stock of the Bank, without designation as to
series until such shares are once more designated a part of a particular series
by the Board of Directors.
5. No Preference on Liquidation and Liquidation Price. In the event of
any dissolution, liquidation or winding up of the affairs of the Bank, the
shares of the Series A Restricted Preferred Stock shall not be entitled to any
preferences, rights or privileges entitling the holders thereof to any
distribution out of the net assets of the Bank prior to any such distribution to
holders of any other shares of the capital stock of the Bank.
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<PAGE>
In addition, the amount distributed to holders of the Series A
Restricted Preferred Stock in such event shall not exceed $1,000.00 per share.
Upon the dissolution, liquidation or winding up of the affairs of the Bank, the
shares of the Series A Restricted Preferred Stock shall be surrendered for
cancellation to the Bank.
IN WITNESS WHEREOF, USAA FEDERAL SAVINGS BANK has caused its corporate
seal to be affixed and this Supplemental Charter Section to be signed by its
President and Chief Executive Officer and its Secretary this 27th of October
1990.
USAA FEDERAL SAVINGS BANK
By: /s/
----------------------------
President and
Chief Executive Office
By: /s/
----------------------------
Secretary
<PAGE>
<PAGE>
BYLAWS
OF
FEDERAL SAVINGS BANK
(ADOPTED December 22, 1983)
ARTICLE I.
IDENTIFICATION
SECTION 1. NAME: The name of the Bank is USAA FEDERAL SAVINGS
BANK.
SECTION 2. REGISTERED OFFICE AND REGISTERED AGENT: The address of the
registered office is USAA Building, 10750 IH-10 West San Antonio, Texas 78230.
The name of the registered agent at that address is LARRY J. LANIE.
SECTION 3. CORPORATE SEAL: The corporate seal, or any facsimile
thereof, shall contain the following legend: USAA FEDERAL SAVINGS BANK, San
Antonio, Texas.
SECTION 4. FISCAL YEAR: The fiscal year of the corporation shall be
the twelve month period beginning on January 1 and ending on December 31 of
each year.
ARTICLE II.
STOCK CERTIFICATES
SECTION 1. All certificates of capital stock shall be signed by the
President or a Vice President, and the Secretary, and shall be sealed with the
corporate seal.
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<PAGE>
SECTION 2. Transfers of capital stock shall be made only on the books
of the Company; and the old certificates, properly endorsed, shall be
surrendered and cancelled prior to the issuance of a new certificate.
SECTION 3. In the event of loss or destruction of a certificate of
stock, no new certificate shall be issued in lieu thereof except upon
satisfactory proof of such loss or destruction.
ARTICLE III.
SHAREHOLDERS' ACTION
SECTION 1. ANNUAL MEETING: The annual meeting of the shareholders shall
be held once each fiscal year, on a date and at a place fixed by a majority of
the Board of Directors, for the purpose of electing directors and transacting
such other business as may properly be brought before the meeting.
SECTION 2. SPECIAL MEETINGS: Special meetings of shareholders of this
corporation may be called by a majority of the Board of Directors or upon the
written request of shareholders representing a majority of the capital stock of
the Company, on a date and at a place fixed by the Board of Directors.
SECTION 3. NOTICE OF MEETING - REQUIRED CONTENTS: A written or printed
notice stating the place, day, and hour of the meeting and,in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten (10) nor more than fifty (50) days before the date
of the meeting, either personally or by mail, by or at the direction of the
President, to each shareholder of record.
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<PAGE>
<PAGE>
SECTION 4. NOTICE OF MEETINGS - WAIVER: The transacting of business at
a meeting of shareholders, however called and noticed, is as valid as though had
at a meeting duly held after regular call and notice, provided a quorum is
present at such meeting, either in person or by proxy, and provided further,
that either before or after the meeting each person entitled to vote, and not
present in person or by proxy, signs a written waiver of notice to the holding
of the meeting. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meetings.
SECTION 5. VOTING: Each shareholder shall be entitled to case one vote
for each share of stock held in his name, which vote may be cast either in
person or by proxy properly executed.
SECTION 6. QUORUM: The presence, at any shareholders meeting, in person
or by proxy, of persons entitled to vote a majority of the shares constitutes a
quorum for the transaction of business.
ARTICLE IV.
THE BOARD OF DIRECTORS
SECTION 1.* NUMBER: There shall not be less than one nor more than nine
directors, one of whom shall be the President of the Company. The number of
directors for the ensuing year to be determined by the shareholders at each
annual meeting.
SECTION 2. ORGANIZATION: The President of USAA shall be the chairman of
the Board and shall perform all the duties usually incident to such an office.
The
- -----------------
* Amended 3/8/93 - See Exhibit II.
-3-
<PAGE>
<PAGE>
Board of Directors shall** elect one or more vice chairman to serve in the
absence of the Chairman.
SECTION 3. ELECTION: At the first annual meeting of the shareholders
and at each annual meeting thereafter, the shareholders shall elect directors to
hold office until the next succeeding annual meeting. Unless a director resigns
or is disqualified, he shall hold office until his successor is elected and
qualified.
SECTION 4. VACANCIES: A vacancy in the Board of Directors may be filled
by an affirmative vote of a majority of the remaining directors, even though
less than a quorum is present. Each director, so elected, shall hold office for
the unexpired term of his predecessor in office.
SECTION 5. PLACE OF MEETINGS: Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Texas.
SECTION 6. ANNUAL MEETING: The Board of Directors shall meet after the
annual meeting of the shareholders for the purpose of organization, election of
officers, and consideration of any other business that may properly be brought
before the meeting. No notice of any kind, to either old or new members of the
Board for such meeting shall be necessary.
SECTION 7. SPECIAL MEETING: Special meetings of the Board of Directors
shall be held upon notice by letter, telegram, telephone or word of mouth,
delivered not later than during the fifth (5th) day immediately preceding the
day for such meeting. Notice may be waived in writing and attendance shall
constitute a waiver of notice. Neither the business to be transacted at, nor the
purpose of, any regular or special
- ----------------
** Amended 3/20/86 ("shall" was changed to "may") - See Exhibit I.
-4-
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meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 8. QUORUM: A majority of the Board of Directors shall
constitute a quorum for the transaction of business. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 9. REMOVAL: Any director or the entire Board of Directors may
be removed from office, with or without cause, by a vote of the shareholders
holding a majority of outstanding shares entitled to vote at any annual or
special meeting of shareholders. In the event that any one or more directors are
so removed, new directors may be elected at the same meeting.
SECTION 10. COMMITTEES: The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate three (3) or more
directors to constitute an executive committee, which committee shall exercise
all the authority of the Board in the management of the Corporation in the
intervals between meetings of the Board. The executive committee shall be
subject at all times to control of the Board of Directors.***
The Board of Directors may create other committees as needed.
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*** Added 5/4/94 (Section 11 added) - See Exhibit III.
Amended 7/31/96 - See Exhibit V.
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ARTICLE V.
THE OFFICERS
SECTION 1. NUMBER: The officers of the Corporation shall consist of a
President, one or more Vice Presidents, a Secretary, a Treasurer, and such other
officers and assistant officers and agents as may be deemed necessary by the
Board of Directors. Any two (2) or more offices may be held by the same person,
except that the President and Secretary shall not be the same person. None of
the officers, except the President, need be directors.
SECTION 2. ELECTION AND TERM OF OFFICE: Officers of the Corporation
shall be elected by the Board of Directors. Each officer, so elected, shall hold
office until his successor is elected and qualified, or until his resignation,
death or removal.
SECTION 3. REMOVAL: Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby, but such
removal shall be without prejudice to contract rights, if any, of the person so
removed.
SECTION 4. VACANCIES: Any vacancy in any office because of resignation,
death or removal, or any other cause, may be filled in the matter prescribed in
these Bylaws under Section 2 of this Article for election or appointment to such
office.
SECTION 5. THE PRESIDENT: The President, who shall be chosen from the
directors, shall have active, executive management of the operations of the
Corporation, subject however, to the control of the Board of Directors.
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SECTION 6. THE VICE PRESIDENT(S): The Vice President(s) shall perform
all duties incumbent upon the President during the absence or disability of the
President, and shall perform such other duties as these Bylaws may require or as
the Board of Directors may prescribe.
SECTION 7. THE SECRETARY: The Secretary shall keep or cause to be kept
in books provided for the purpose, the Minutes of the meetings of the
shareholders, the Board of Directors, and the Executive Committee; shall see
that all notices are duly given in accordance with the provisions in the Bylaws
and as required by law; shall be custodian of the records and of the seal of the
Corporation and see that the seal is affixed to all documents, the execution of
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of this Code of Bylaws; and, in general, shall
perform all duties incident to the office Secretary and such other duties as
may, from time to time, be assigned to the Secretary by the Board of Directors
or by the President.
SECTION 8. THE TREASURER: The Treasurer shall keep correct and complete
records of account, showing accurately at all times the financial condition of
the Corporation. The Treasurer shall be the legal custodian of all moneys,
notes, securities and other valuables which come into possession by the
Corporation. The Treasurer shall immediately deposit all funds of the
Corporation coming into his hands in some reliable bank or other depository to
be designated by the Board of Directors and shall keep such bank account in the
name of the Corporation. The Treasurer shall further at all meetings of the
Board of Directors, or whenever requested, a statement of the financial
condition of the Corporation and shall perform such other duties as this
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Code of Bylaws may require or the Board of Directors may prescribe. The
Treasurer may be required to furnish good and sufficient bond determined by the
Board of Directors.
SECTION 9. SALARIES: The salaries of the offices shall be fixed, from
time to time, by the Board of Directors. No officer shall be prevented from
receiving such salary by reason of the fact he is also a director of the
Corporation.
ARTICLE VI.
INDEMNIFICATION
SECTION 1. Directors and officers of the Corporation shall be
indemnified to the fullest extent now or hereafter permitted by law in
connection with any actual or threatened action or proceeding (including civil,
criminal, administrative, or investigative proceedings) arising out of their
service to the Corporation or to another organization at the Corporation's
request. Persons who are not directors or officers of the Corporation may be
similarly indemnified in respect of such service to the extent authorized at any
time by the Board of Directors. The provisions of this section be applicable to
actions or proceedings commenced after the adoption hereof, whether arising from
acts or omissions occurring before or after the adoption hereof, and to persons
who have ceased to be directors, officers or employees and shall inure to the
benefit of their heirs, executors, and administrators. The Corporation may
purchase and maintain indemnity insurance with respect to any obligations
hereunder to the full extent permitted by law.
ARTICLE VII.
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AMENDMENTS
The power to alter, amend or repeal these Bylaws or adopt new Bylaws is
vested in a majority of the Board of Directors, subject to the power of the
shareholders to alter or repeal the same.****
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**** Added 12/20/94 (Added Article VIII Section) See Exhibit IV.
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EXHIBIT I
USSA FEDERAL SAVINGS BANK
BOARD OF DIRECTORS
MARCH 20, 1986
Present: Robert F. McDermott, Mahlon E. Gates, Richard W. Hagauer,
E. Douglas Hodo, Larry J. Lanie
Absent: James E. Olsson, Michael J.C. Roth
Guests: David E. Fusco, William McCrae, James E. Wheeler
The USAA Federal Savings Bank Board of Directors meeting was called to order by
General McDermott, Chairman. Minutes were presented to be the Board for
approval. Upon motion duly made by General Gates and seconded by Mr. Hagauer,
the minutes were approved.
After discussion upon motion duly made by Mr. Lanie and seconded by Mr. Hagauer,
the following resolution was unanimously approved:
RESOLVED, that Article IV, Section 2, of the USAA Federal
Savings Bank Bylaws be amended as follows:
Section 2. ORGANIZATION: The President of USAA shall be
the Chairman of the Board and shall perform all the duties
usually incident to such as office. The Board of Directors
may elect one or more Vice Chairmen to serve in the
absence of the Chairman.
After discussion upon motion duly made by General Gates and seconded by Mr.
Hagauer, the following resolution was unanimously approved:
RESOLVED, that effective April 1, 1986, the following
individuals will assume the duties and responsibilities of the
offices listed below:
David E. Fusco President and Chief Executive Officer
Larry J. Lanie Executive Vice President and
Chief Operating Officer
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EXHIBIT II
APPROVED AT USAA FEDERAL SAVINGS ANNUAL
SHAREHOLDERS MEETING, 3/8/93
USAA FEDERAL SAVINGS BANK
Shareholders
Agenda Item 7a.
RESOLVED, that Article IV, Section 1 of the Bylaws of USAA Federal
Savings Bank be amended to read as follows:
ARTICLE IV. THE BOARD OF DIRECTORS
SECTION I. NUMBER: There shall be not fewer than five nor more
than fifteen directors, one of whom shall be the President of
the Company. The number of directors for the ensuing year is
to be determined by the shareholders at each annual meeting.
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EXHIBIT III
AMENDMENT TO THE BYLAWS OF
USAA FEDERAL SAVINGS BANK
APPROVED AT THE ANNUAL SHAREHOLDERS MEETING
MAY 4, 1994
RESOLVED, that the Bylaws of USAA Federal Savings Bank be amended by adding the
following section:
Article IV, THE BOARD OF DIRECTORS
Section 11 - TERM AND AGE LIMITATIONS OF BOARD MEMBERS:
The length of time each outside member of the Board of Directors (a
director who receives fee compensation) may serve shall also be subject
to the following limitations, consisting of the earlier of: (1) an
annual appointment, consisting of a maximum of twelve one year terms,
or (2) the attainment of age 70, effective with the annual meeting in
the year of his/her 70th birthday.
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EXHIBIT IV
USAA FEDERAL SAVINGS BANK
SPECIAL MEETING
OF
SHAREHOLDERS
December 20, 1994
Present: Robert T. Herres
Absent: None
Others Present: Michael D. Wagner
The special meeting of the USAA Federal Savings Bank Shareholders was called to
order on Tuesday, December 20, 1994, at 9800 Fredericksburg Road, San Antonio,
Texas, by Robert T. Herres, Chairman of USAA Capital Corporation.
Evidence was presented of a signed Waiver of Notice of Special Shareholders'
Meeting, attached hereto as Exhibit A. Mr. Wagner stated that a list of
shareholders was available for review upon request, and that 200,000 shares were
represented. At this time, it was announced that a quorum was present and the
meeting could continue.
Reports of Officers
None
New Business
Upon motion duly made and seconded, the following resolution was unanimously
adopted:
RESOLVED, that effective the date of approval by the Office of Thrift
Supervision of the Bank's application for Trust Powers, that the Bylaws
of USAA Federal Savings Bank be amended by adding the following
section:
ARTICLE VIII.
TRUST DEPARTMENT
Section 1. TRUST DEPARTMENT: There shall be a department of the Bank
known as the Trust Department which shall perform the fiduciary
responsibilities of the Bank.
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Section 2. TRUST COMMITTEE: There shall be a committee to be known as
the Trust Committee consisting of the President and two or more other
members to be appointed by the Board of Directors from the directors
and advisory directors of the Bank, at least one of which shall be an
outside director, with such members serving for such terms as may be
designated by the Board, with the exception of the President, who shall
be a permanent member of this Committee. This Committee shall have
general supervision of the Trust Department of the Bank, shall have the
right to determine the policies of the Trust Department, including the
Trusts to be handled by the Bank and investments to be made of Trust
funds and shall perform all such acts as have been or from time may be
prescribed and authorized by the Board. In the event of any vacancy on
the Committee for any cause, the Board may fill such vacancy by
appointing another member to fill the unexpired term of such member.
Section 3. EXECUTIVE TRUST OFFICER: There shall be an Executive Officer
of this Bank whose duties shall be to manage, supervise and direct all
the activities of the Trust Department under the direct supervision of
the Bank's Chief Operating Officer. He shall do or cause to be done all
thing necessary or proper in carrying on the business of the Trust
Department in accordance with provisions of law and applicable
regulations. He shall act pursuant to opinion of counsel where such
opinion is deemed necessary. Options of counsel shall be retained on
file in connection with all important matters pertaining to fiduciary
activities. Such officer shall be responsible for all assets and
documents held by the Bank in connection with fiduciary matters. The
Board may appoint such other officers of the Trust Department as it may
deem necessary, with such duties as may be assigned.
Section 4. TRUST INVESTMENT COMMITTEE: There shall be a Trust
Investment Committee of this Bank appointed by the Board of Directors
composed of three or more members, who shall be capable and experienced
officers, directors or advisory directors of the Bank and other outside
members as appointed by the Board of Directors; provided, however, that
no officer or director who performs a credit or underwriting function
in the Bank shall be a member of this Committee, and the Committee
shall keep minutes of all its meetings, showing the disposition of all
matters considered and passed upon it. The Committee shall, promptly
after the acceptance of any account for which the Bank has investment
responsibilities, review the assets thereof to determine the
advisability of retaining or disposing of such assets. The Committee
shall conduct a similar review at least once during each calendar year
thereafter and within fifteen months of the last such review. A report
of all such review, together with the action taken as a result thereof,
shall be noted in the minutes of the Committee.
Section 5. TRUST AUDIT COMMITTEE: The Board of Directors shall appoint
a committee of three or more directors or advisory directors, exclusive
of any active officers of the Bank, which shall at least once during
each calendar year,
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and within fifteen months of the last such audit, make suitable audits
of the Trust Department or cause suitable audits to be made by auditors
responsible only to the Board of Directors, and at such time shall
ascertain whether the department has been administered in accordance
with law, applicable regulations, and sound fiduciary principles.
Members of this committee may also serve contemporaneously on the
Board's Audit Committee.
Section 6. TRUST DEPARTMENT FILES: There shall be maintained in the
Trust Department files containing all fiduciary records necessary to
assure that its fiduciary responsibilities have been properly
undertaken and discharged.
Section 7. TRUST INVESTMENTS: Funds held in a fiduciary capacity shall
be invested in accordance with the instrument establishing the
fiduciary relationship and local law. Where such instrument does not
specify the character and class of investments to be made and does not
vest in the Bank a discretion in the matter, funds held pursuant to
such instrument shall be invested in investments in which corporate
fiduciaries may invest under local law.
There being no further business, upon motion duly made and seconded, the meeting
was adjourned.
/s/ Michael D. Wagner
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Michael D. Wagner
Assistant Secretary, USAA Capital Corporation
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EXHIBIT V
AMENDMENT TO THE BYLAWS OF
USAA FEDERAL SAVINGS BANK
APPROVED AT THE BOARD OF DIRECTORS MEETING
JULY 31, 1996
RESOLVED, that the Bylaws of USAA Federal Savings Bank be amended to read
as follows:
Article IV, THE BOARD OF DIRECTORS
Section 11 - TERM AND AGE LIMITATIONS OF BOARD MEMBERS: The length of
time each outside member of the Board of Directors (a director who
receives fee compensation) may serve shall also be subject to the
following limitations, consisting of the earlier of: (1) an annual
appointment, consisting of a maximum of ten one-year terms, or (2) the
attainment of age 70, effective with the annual meeting in the year of
his/her 70th birthday.
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