As filed with the Securities and Exchange Commission on June 23, 1999
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 1999-1
(Issuer with respect to Certificates)
<TABLE>
<S> <C> <C>
UNITED STATES 0749 74-2291652
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</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. [__]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
__% Automobile Loan Pass-Through
Certificates, Class A................ $ 500,000.00 100% _____ _____
__% Automobile Loan Pass-Through
Certificates, Class B................ $ 500,000.00 100% _____ _____
- -----------------------------------------------------------------------------------------------
Total $1,000,000.00 $1,000,000.00 $278.00
</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.
Subject to Completion
Preliminary Prospectus Dated _________ __, 1999
[FLAG]
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
USAA AUTO LOAN GRANTOR TRUST 1999-1
Issuer
$________ FIXED RATE AUTOMOBILE LOAN PASS-THROUGH CERTIFICATES
USAA FEDERAL SAVINGS BANK
Seller and Servicer
The certificates will be issued by the trust. The certificates
represent interests in the trust. The sources for payments on the
certificates will be collections received on a pool of auto loans held by
the trust and the funds held in a cash reserve account.
THE CERTIFICATES
USAA Auto Loan Grantor Trust 1999-1 will issue the following two classes of
certificates:
Class A Certificates Class B Certificates
---------------------------------------------
Initial Principal Amount $_________ $________
Interest Rate ___% ___%
Final Scheduled Distribution ___ __, 200_ ___ __, 200_
Date
Price to Public (1) $______ (___%) N/A
Underwriting Discount $_______ (___%) N/A
Proceeds to Seller (2) $_______ (__%) N/A
First Distribution Date ___ __, 1999 ___ __, 1999
(1) Plus accrued interest, if any, at the applicable interest rate from
___ __, 1999.
(2) Before deducting expenses payable by the seller, estimated to be
$_________.
o Interest and principal on the certificates will be payable
monthly, on the 15th or the first business day after the
15th, beginning __ __, 1999.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE __ OF THIS
PROSPECTUS.
The certificates represent interests in the trust only and do not represent
obligations of or interests in, and are not guaranteed by, USAA Federal
Savings Bank or any of its affiliates.
This prospectus may be used to offer and sell the certificates.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
ACCURATE AND COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
UNDERWRITERS OF THE CLASS A CERTIFICATES
J.P. MORGAN & CO.
---------------
---------------
-------------------
The date of this prospectus is ____ __, 1999.
TABLE OF CONTENTS
SUMMARY OF TERMS..........................................................5
THE PARTIES.......................................................5
THE SECURITIES....................................................5
RISK FACTORS..............................................................9
THE BANK'S PORTFOLIO OF MOTOR VEHICLE LOANS..............................13
Origination of Motor Vehicle Loans...............................13
Underwriting of Motor Vehicle Loans..............................13
Insurance........................................................16
Collection Procedures............................................16
Delinquency and Loan Loss and Recovery Information...............17
DESCRIPTION OF THE TRUST.................................................19
DESCRIPTION OF THE RECEIVABLES POOL......................................20
Maturity and Prepayment Assumptions..............................25
YIELD CONSIDERATIONS.....................................................25
POOL FACTORS.............................................................26
USE OF PROCEEDS..........................................................27
USAA FEDERAL SAVINGS BANK................................................27
UNITED SERVICES AUTOMOBILE ASSOCIATION...................................27
DESCRIPTION OF THE CERTIFICATES..........................................27
General..........................................................28
Book-Entry Registration..........................................28
DTC's Year 2000 Efforts..........................................30
Definitive Certificates..........................................30
Sale and Assignment of the Receivables...........................31
Description of the Trust's Accounts..............................33
Collections on the Receivables...................................34
Servicing Procedures.............................................34
Advances.........................................................35
Servicing Compensation...........................................36
The Reserve Account..............................................36
Distributions on Certificates....................................38
Statements to Certificateholders.................................43
Evidence as to Compliance........................................44
Certain Matters Regarding the Servicer...........................44
Events of Servicing Termination..................................45
Rights Upon an Event of Servicing Termination....................46
Amendment........................................................46
List of Certificateholders.......................................47
Termination......................................................47
Duties of the Trustee............................................48
The Trustee......................................................48
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.................................49
General..........................................................49
Security Interests in the Financed Vehicles......................50
Enforcement of Security Interests in Vehicles....................51
Other Matters....................................................51
Repurchase Obligation............................................52
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................52
Tax Status of the Trust; Scope of Tax Opinion....................52
Treatment of Certificate Owners' Interest in Trust Assets........53
Treatment of Certificate Owners' Share of Trust Expenses.........55
Discount and Premium.............................................55
Original Issue Discount on Stripped Receivables..................56
Purchases at Premium.............................................57
Effect of Subordination..........................................57
Sale of a Certificate............................................58
Foreign Certificate Owners.......................................58
Backup Withholding...............................................58
Certain State Tax Consequences...................................58
ERISA CONSIDERATIONS.....................................................59
Exemption for Class A Certificates...............................59
Exemptions for Class B Certificates..............................62
Special Considerations Applicable to Insurance
Company General Accounts.......................................63
UNDERWRITING.............................................................63
VALIDITY OF THE CERTIFICATES.............................................64
GLOSSARY OF TERMS........................................................65
WHERE YOU CAN FIND MORE INFORMATION
Federal law requires the filing of information with the SEC,
including periodic reports and other information. You can read and copy
these documents at the public reference facility maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, NW, Room 1024, Washington, D.C. 20549.
You can also copy and inspect such reports, proxy statements and other
information at the following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for further information on
public reference rooms. SEC filings are also available to the public on the
SEC's web site at http://www.sec.gov.
This prospectus is part of a registration statement filed by the
seller with the SEC (Registration No. 333-( )).
You should rely only on the information provided in this
prospectus. We have not authorized anyone else to provide you with
different information. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the cover page
of this prospectus.
You can find a listing of the pages where capitalized terms used in
this prospectus are defined beginning on page __ in this prospectus.
We include cross-references to sections where you can find
additional information. The table of contents on the back cover provides
the location of these sections.
In this prospectus, the terms "we," "us" and "our" refer to USAA
Federal Savings Bank.
SUMMARY OF TERMS
o This summary highlights selected information from this document and
does not contain all of the information that you need to consider
in making your investment decision. To understand all of the terms
of the offering of the certificates, we urge you to read carefully
this entire prospectus.
o This summary provides an overview of calculations, cash flows and
other information to aid your understanding and is qualified by the
full description of these calculations, cash flows and other
information in this prospectus.
THE PARTIES
Issuer....................... USAA Auto Loan Grantor Trust 1999-1
Seller of the Auto Loans
and Servicer................. USAA Federal Savings Bank
Trustee...................... The Chase Manhattan Bank, a New York
banking corporation
Seller's Address.......... 10750 McDermott Freeway, San Antonio,
Texas 78288
Seller's Telephone Number. (210) 498-2265
THE SECURITIES
The Terms of the Certificates:
Class A Class B
Certificates Certificates
----------------------------------------------
Principal Amount: $_____________ $______________
Interest Rate per Annum: ____________ % ____________ %
Interest Accrual Method: 30/360 30/360
Distribution Date: monthly (15th) monthly (15th)
First Distribution Date: ___ ___, 1999 ___ ___, 1999
Final Scheduled Distribution ___ ___, 1999 ___ ___, 1999
Date:
THE CERTIFICATES
The trust will issue the following certificates:
o $_______ Class A __% Automobile Loan
Pass-Through Certificates
o $_______ Class B __% Automobile Loan
Pass-Through Certificates
An affiliate of the seller will purchase the Class B Certificates in the
aggregate principal amount of $______.
RATINGS OF CERTIFICATES
The trust will not issue the certificates unless:
(1) the Class A Certificates are rated in the
highest rating category, and
(2) the Class B Certificates are rated in at least the "BBB" category or
its equivalent,
by at least one nationally recognized statistical rating agency. After the
certificates are issued, any ratings may be lowered or withdrawn by the
applicable rating agency.
CLOSING DATE
The deposit of the auto loans and the issuance of the certificates is
expected to take place on ___ __, 1999.
INTEREST PAYMENTS
o The interest rates for the certificates are the fixed rates specified
above and on the cover page of this prospectus. Interest will be
payable on all certificates on each distribution date.
o Interest on the Class A and Class B Certificates will be calculated on
the basis of a 360-day year consisting of 12 months of 30 days each.
o On any distribution date, interest on the Class B Certificates will not
be paid until all accrued and unpaid interest on the Class A
Certificates has been paid in full.
PRINCIPAL PAYMENTS
The Class A Certificates and the Class B Certificates will be entitled to
their proportionate share of principal collections on the auto loans.
However, the trust will make principal payments to the Class A Certificates
before making principal payments to the Class B Certificates on each
distribution date.
FINAL SCHEDULED DISTRIBUTION DATE
The outstanding principal amount, if any, of each class of certificates
will be payable in full on the following final scheduled distribution date:
Final Scheduled
Certificates Distribution Date
Class A ___ __, 200_
Class B ___ __, 200_
REDEMPTION OF CERTIFICATES
The Class A Certificates and the Class B Certificates will be redeemed in
whole on any distribution date if the seller exercises its option to
purchase the auto loans and other trust property from the trust.
o The seller may exercise its option to purchase when the aggregate
principal balance of the auto loans declines to 5% or less of the
aggregate starting principal balance.
BOOK-ENTRY FORM
The trust will initially issue the certificates in book-entry form. You
will hold your interest in the certificates through The Depository Trust
Company.
You will not be entitled to receive a definitive certificate representing
your interest except under limited circumstances. See "Description of the
Certificates-Book-Entry Registration" in this prospectus.
CREDIT ENHANCEMENT
SUBORDINATION OF CLASS B CERTIFICATES
Payments on the Class B Certificates are subordinated to those on the Class
A Certificates to the extent explained below. This provides additional
credit enhancement for the Class A Certificates.
o No interest will be paid on the Class B Certificates on each
distribution date until all accrued and unpaid interest on the Class A
Certificates has been paid in full;
o No principal will be paid on the Class B Certificates on each
distribution date until all principal owed on the Class A Certificates
has been paid in full; and
o Amounts otherwise payable as principal on the Class B Certificates will
be available to make payments of interest and principal on the Class A
Certificates.
RESERVE ACCOUNT
Funds on deposit in the reserve account will be available on each
distribution date to cover shortfalls in distributions of interest and
principal on the certificates due to delinquencies and defaults on the auto
loans. Amounts in the reserve account will also be available to pay
servicing fees.
The reserve account will be funded as follows:
o On the closing date, the seller will make an initial deposit of
$_____ into the reserve account.
o On each distribution date, any collections on the auto loans remaining
after providing for all required payments to certificateholders,
payment of the total servicing fee and reimbursement of outstanding
servicing advances will be deposited in the reserve account up to the
specified reserve account balance.
The specified reserve account balance for any distribution date will equal
the greater of (a) ___% of the outstanding principal balance of the auto
loans and (b) __% of the initial principal balance of the auto loans. The
reserve amount, however, will not exceed the amount of the outstanding
principal balance.
TRUST PROPERTY
The primary assets of the trust will be the auto loans, which are a pool of
fixed rate retail motor vehicle installment contracts made by the
seller. The auto loans in the trust will be deposited by the seller
in the trust. The trust property will also include:
o All monies due or received under the auto loans on or after the cutoff
date of ___ __, 1999;
o A security interest in the new and used automobiles and light trucks
financed by the auto loans;
o Any proceeds from claims on related insurance policies or from
borrowers under the auto loans;
o Amounts on deposit in the trust accounts, including the right to
receive payments from the reserve account;
o All rights of the trust against the seller under the Pooling and
Servicing Agreement.
THE AUTO LOANS
On the closing date, the trust will acquire auto loans with an aggregate
principal balance of approximately $________ as of the cutoff date.
As of the cutoff date:
o the weighted average contract rate of the auto loans is approximately
___%;
o the weighted average remaining term of the auto loans, that is, the
period starting after the cutoff date and including each auto loan's
scheduled maturity date, is approximately ___ months; and
o the weighted average original term of the auto loans is approximately
___ months.
CERTIFICATE ACCOUNT; PRIORITY OF DISTRIBUTIONS
Payments received on the auto loans will be deposited in the certificate
account until paid to the certificateholders. On each distribution date,
funds on deposit in the certificate account collected during the prior
monthly collection period will be applied in the priority indicated below:
o reimbursement of outstanding advances;
o the total servicing fee;
o accrued and unpaid interest on the Class A Certificates;
o accrued and unpaid interest on the Class B Certificates;
o principal on the Class A Certificates;
o principal on the Class B Certificates; and
o the remaining balance, if any, to be deposited in the reserve account
SERVICING COMPENSATION
The trust will pay the servicer a monthly fee on each distribution date.
The monthly servicing fee will equal one-twelfth of 1.00% of the
outstanding principal balance of the auto loans in the trust as of the end
of the prior month. In addition, the servicer will receive as additional
compensation investment earnings on trust property, unless the servicer
fails to make certain advances of funds to the trust. The servicer has the
option, but is not obligated, to make advances to the trust in the amount
of interest payable on an auto loan but not yet received. See "The
Certificates-Advances" and "-Servicing Compensation".
TAX STATUS
Jones, Day, Reavis & Pogue, special tax counsel to the trust, will deliver
its opinion that the trust will be classified for federal income tax
purposes as a grantor trust and not as an association taxable as a
corporation. You must report your respective allocable share of income
earned on trust assets excluding certain amounts retained by the seller.
You may deduct your respective allocable share of reasonable servicing fee
and other fees, subject to limitations applicable to individuals, estates,
trusts and partnerships. However, the tax code is complex, and we recommend
that you and your tax advisors review the information under the caption
"Certain Federal Income Tax Consequences" in this prospectus.
ERISA CONSIDERATIONS
The Class A Certificates may be purchased by employee benefit or other
retirement plans if certain conditions are satisfied. The Class B
Certificates may be purchased and held by such plans only if exempt from
certain prohibited transaction rules. See "ERISA Considerations" in this
prospectus.
RISK FACTORS
You should carefully consider, among other things, the following
risk factors before deciding to invest in the certificates offered by this
prospectus.
ABSENCE OF PUBLIC MARKET The certificates will not be listed on
FOR YOUR CERTIFICATES COULD any securities exchange and there is
LIMIT YOUR ABILITY TO RESELL currently no public market for the
CERTIFICATES certificates. The underwriters expect,
but are not obligated, to make a market
in the Class A Certificates. If no
public market develops, as a
certificateholder, you may not be able
to sell the certificates you purchased
prior to maturity. There is no assurance
that any such market will be created or,
if created, will continue. Transfers of
the certificates can only be made
through DTC, and direct and indirect
participating organizations. You may not
be able to pledge a certificate as
collateral to an entity or person that
does not participate in those transfer
systems. In addition, some investors may
be unwilling to purchase certificates
for which there are no physical
certificates.
THE TRUST WILL NOT ENGAGE The seller will establish the trust
IN ANY OTHER ACTIVITY by selling and assigning the auto loans
to the trust in exchange for the
certificates. After formation, the trust
will not engage in any activity other
than holding the auto loans and
distributing payments.
SECURITY INTERESTS OF OTHER In order to protect the trust's
PERSONS IN THE AUTO LOANS AND ownership of the auto loans, the
TRUST PROPERTY MAY GET PRIORITY seller will file UCC-1 financing
OVER THE TRUST'S SECURITY statements with the appropriate
INTEREST governmental authorities in the State of
Texas to give notice of the trust's
ownership of the auto loans and their
proceeds. Therefore, the trust's
security interest will be perfected by
the UCC filings and not by possession of
the auto loans. Under the agreement, the
seller will be obligated to maintain
the perfection of the trust's ownership
interest in the auto loans. However, a
purchaser of an auto loan who gives new
value and takes possession of the
original document evidencing the auto
loan in the ordinary course of such
purchaser's business will have priority
over the trust's security interest, if
such purchaser acts in good faith
without knowledge that the specific auto
loan is subject to the trust's security
interest. While the seller's master
computer records will evidence the sale
of the auto loans to the trust, any
purchaser would be deemed not to have
knowledge of the sale by virtue of the
UCC filings or a review of the auto
loans since they would not be marked to
show the sale.
The seller will assign its security
interest in the individual financed
vehicles to the trust. However, because
of the administrative burden and
expense, and since the seller will be
the servicer of the auto loans, neither
the seller nor the trustee will amend
the certificates of title to identify
the trust as the new secured party.
Accordingly, the seller will continue
to be named as the secured party in the
certificates of title relating to the
financed vehicles. In some states, in
the absence of endorsement and delivery,
the trustee may not have a perfected
security interest in the financed
vehicles. See "Certain Legal Aspects of
the Receivables".
RISK THAT YOU MAY BE REQUIRED All of the auto loans may be prepaid at
TO REINVEST YOUR PRINCIPAL IN any time without penalty. Prepayments
THE CERTIFICATES BECAUSE OF may also result from liquidations due
PREPAYMENTS WHICH MAY REDUCE to:
YOUR YIELD
o default, the receipt of proceeds
from theft, physical damage, credit
life and credit disability insurance
policies;
o repurchases by the seller as a
result of the failure of an auto
loan to meet certain criteria in the
agreement;
o purchases by the servicer as a
result of breach of certain of its
covenants with respect to the auto
loans made by it in the agreement;
or
o as a result of an exercise by the
seller of its option to purchase
the auto loan.
The rate of prepayment and default of
auto loans may be influenced by a
variety of economic and other factors.
For example, changes in economic
conditions, interest rates and natural
disasters such as floods, hurricanes,
earthquakes and tornadoes may affect
prepayments.
The seller does not maintain adequate
records to provide meaningful prepayment
information with respect to the auto
loans. No prediction can be made as to
the actual prepayment rates which will
be experienced on the auto loans. You
will bear all reinvestment risk
resulting from prepayments on the auto
loans and the corresponding acceleration
of payments on the certificates.
GEOGRAPHIC CONCENTRATION OF Adverse economic conditions or other
AUTO LOANS MAY ADVERSELY factors particularly affecting any state
AFFECT YOUR CERTIFICATES or region where a high concentration of
auto loan is located could adversely
affect the certificates. As of ___ __,
1999, approximately ___%, ____%, ___%
and ___% of the auto loans, based on the
principal balance and mailing address of
the borrowers, were located in Texas,
California, Florida and Virginia,
respectively. The seller is unable to
determine and has no basis to predict,
with respect to any state or region,
whether any such conditions have
occurred or may occur, or to what extent
such conditions may affect the auto
loans or the repayment of amounts due
under your certificates. The location of
the auto loans by state, based upon
borrowers' addresses at the time the
auto loans were made, is set out in the
table beginning on page [ ] of this
prospectus.
LIMITED ASSETS OF THE TRUST You may suffer a loss on your
COULD RESULT IN LOSSES ON YOUR certificates if the assets of the trust
CERTIFICATES are insufficient to pay the principal
amount of the certificates in full. The
only sources of funds for payments on
the certificates will be the assets of
the trust. The assets of the trust are
limited to the auto loans, payments made
on the auto loans, funds on deposit in
the trust's accounts and the right to
payments from the reserve account. The
certificates represent interests solely
in the trust and neither the seller,
the servicer, the trustee, the
collateral agent or any other person or
entity will insure or guarantee the
certificates. Consequently,
certificateholders will only be able to
look to payments on the auto loans,
amounts on deposit in the trust's
accounts and the right to payments from
the reserve account for payment. Amounts
to be deposited in the reserve account
are limited in amount and will be
reduced as the principal balance of the
auto loans declines.
Amounts on deposit in the reserve
account will be available on any
distribution date first to cover
shortfalls in:
o reimbursement of outstanding
advances and payment of the
servicing fee to the servicer; then
o interest distributions on the Class
A Certificates; then
o interest distributions on the Class
B Certificates; then
o principal distributions on the Class
A Certificates; and finally
o principal distributions on the Class
B Certificates.
If the reserve account is exhausted and
not replenished, the trust will depend
solely on payments on the auto loans to
make distributions on the certificates.
Therefore, you will bear directly the
credit and other risks associated with
ownership of the auto loans, without any
additional credit enhancement. There can
be no assurance that the future
delinquency, loan loss or repossession
experience of the trust with respect to
the auto loans will be better or worse
than the information provided with
respect to the seller's portfolio of
motor vehicle loans owned and serviced
by the seller. See "The
Certificates--The Reserve Account" and
"--Distributions on Certificates".
CLASS B CERTIFICATES WILL The Class B certificateholders will not
ABSORB CASH SHORTFALLS BEFORE receive any interest distributions until
THE CLASS A CERTIFICATES the interest on the Class A Certificates
has been paid in full on each
distribution date. The Class B
certificateholders will not receive any
principal distributions until the
interest and principal of the Class A
Certificates has been paid in full on
that distribution date. You must rely on
payments on the auto loans, funds on
deposit in the trust's accounts and the
right to payments from the reserve
account for your payment. If funds in
the reserve account are exhausted, the
trust will depend solely on current
payments on the auto loans to make
distributions on the certificates.
Delinquent payments on the auto loans
may result in a shortfall in the
distributions on the Class B
Certificates on any date due to the
priority of payments on the Class A
Certificates.
A CHANGE IN THE CERTIFICATES It is a condition to the issuance of the
RATINGS MAY ADVERSELY AFFECT certificates that the Class A
THE MARKETABILITY OF YOUR Certificates be rated in the highest
CERTIFICATES rating category, and the Class B
Certificates be rated in at least the
"BBB" category or its equivalent 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 agency will not
lower or withdraw its ratings, if
warranted. 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 LACK OF DEFINITIVE The Class A Certificates and the Class B
CERTIFICATES MAY ADVERSELY Certificates will each be represented in
AFFECT YOUR RIGHTS AS A book-entry form through DTC. You will
CERTIFICATEHOLDER not be entitled to receive a definitive
certificate representing your interest
in the trust except under limited
circumstances. Therefore, you will not
be recognized as a certificateholder,
and you will not be permitted to
exercise your rights as a
certificateholder except indirectly
through DTC. See "The Certificates".
POTENTIAL DELAYS IN PAYMENTS The servicer is in the process of
ON YOUR CERTIFICATES DUE TO addressing issues arising from the year
POTENTIAL COMPUTER PROGRAM 2000 issue that could impact the timely
PROBLEMS BEGINNING IN THE payment of principal and interest on
YEAR 2000 your certificates. The year 2000 issue
is the result of previously written
computer programs using two digits to
define the applicable year. Computer
programs that have time-sensitive
software may recognize a date using "00"
as the year 1900 rather than the year
2000. Any such occurrence could result
in major computer system failure or
miscalculations. Although the servicer
reasonably believes that its servicing
system will be year 2000 compliant prior
to the year 2000, it is presently
engaged in various procedures to
determine if its computer systems and
software and those of its material
suppliers, customers and agents will be
year 2000 compliant.
In the event that the servicer, or any
of its suppliers, customers or agents do
not successfully and timely achieve year
2000 compliance, the servicer's
performance of its obligations under the
Pooling and Servicing Agreement could be
adversely affected. This could result in
delays in processing payments on the
auto loans and could cause a delay in
payments to you.
THE BANK'S PORTFOLIO OF MOTOR VEHICLE LOANS
ORIGINATION OF MOTOR VEHICLE LOANS
USAA Federal Savings Bank (the "BANK", the Bank is referred to in
this Prospectus as the "SELLER" or the "SERVICER" when it is acting in
those capacities) has a portfolio of motor vehicle installment loans
secured by new and used automobiles and light-duty trucks (the "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:
(1) stability of the Applicant with specific regard to the
Applicant's occupation and length of employment;
(2) 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;
(3) a debt service to gross monthly income ratio test; and
(4) 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 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, although an existing credit card account is not a prerequisite
for preapproval. If the potential customer has a credit card account, the
Bank's credit card database must show that the account:
(1) is current and has been active more than twelve months;
(2) has not been more than 30 days delinquent on more than two
occasions in the most recent 12 month period;
(3) has had no record of bankruptcy, closed account or
collection problems; and
(4) has no lost or stolen account or fraudulent activity record.
A potential customer without a credit card account is eligible for
a pre-approved Motor Vehicle Loan in the amount of $[15,000] if the
individual has an existing Motor Vehicle Loan that:
(1) has not been more than 30 days delinquent;
(2) has a term greater than one year and has been outstanding
for more than one year;
(3) has no record of bankruptcy or collection problems on any
Bank loan products; and
(4) had an original principal balance in excess of $[7,500].
All potential customer names are also screened against the database
maintained by the Bank's parent company, United Services Automobile
Association ("USAA"). USAA's database must show that the potential customer:
(1) is an active, or is eligible to be a, USAA insurance
policyholder; and
(2) is not identified in USAA's database as a customer who
should not receive advertising from USAA or its subsidiary
companies.
A potential customer who is pre-approved using the credit card
account 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 and, the individual's credit score.
Pre-approved potential customers are offered Motor Vehicle Loans in amounts
of $15,000 to $30,000. 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-approved program,
generally has not exceeded:
(1) for a new financed vehicle, the manufacturer's suggested
retail price plus taxes, and title and license fees on the
financed vehicle or
(2) 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 (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" and "AAA" by Moody's and Standard & Poor's,
respectively.
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 (the "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 on or about 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:
(1) 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;
(2) the extension will result in the Obligor's payments being
brought current;
(3) 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
(4) 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.
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
originated and serviced by the Bank. The portfolio of Motor Vehicle Loans
originated 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.
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE(1)
At June 30, At December 31,
--------------- --------------------------------------------------
1999 1998 1997 1996
--------------- --------------- --------------- ---------------
Dollars Number Dollars Number Dollars Number Dollars Number
in of in of in of in of
(000's) Loans (000's) Loans (000's) Loans (000's) Loans
------ ------ ------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstandings... -- -- -- -- -- -- -- --
Delinquencies
over 30
days(2)(3)... -- -- -- -- -- -- -- --
Delinquencies
over 30 days
(%)(4)..... -- -- -- -- -- -- -- --
- -----------
(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 did not exceed [10]% 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.
</TABLE>
<TABLE>
<CAPTION>
LOAN LOSS EXPERIENCE(1)
Six Months
Ended June 30, Year Ended December 31,
--------------- -------------------------------------------------
1999(7) 1998 1997 1996 1995
------- ---- ---- ---- ----
(Dollars in 000's)
<S> <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........ -- % -- % -- % -- % -- %
- ----------------
(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 did not exceed [10]% 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 an average of daily outstandings for
the loans owned by the Bank combined with an average of month-end
outstandings for sold loans for each period presented.
(4) Prior to ________ 199_, the amount charged off is the remaining
principal balance less proceeds from the 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. As of ________ 199_, amounts charged off
represent the remaining principal balance.
(5) Recoveries generally include amounts received with respect to loans
previously charged off, except for the 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.
(7) Data for 1999 reflects annualized numbers.
</TABLE>
----------------------
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.
DESCRIPTION OF THE TRUST
The Seller will establish the USAA Auto Loan Grantor Trust 1999-1
(the "TRUST") by selling and assigning the Receivables to the Trust in
exchange for 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 as 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"). The Trust property will also include:
(1) all monies due under the Receivables on or after ________
___, 1999 (the "CUTOFF DATE");
(2) 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;
(3) security interests in the vehicles securing the Receivables
(the "FINANCED VEHICLES");
(4) the benefit of the right to payments from the reserve
account (the "RESERVE ACCOUNT");
(5) 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;
(6) the rights of the Trust against the Seller and the Servicer
under the Pooling and Servicing Agreement (the "AGREEMENT").
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.
DESCRIPTION OF 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 72 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 9 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 [7.50]%, 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; and
(i) have remaining principal balances, as of the Cutoff Date, of
at least $[500.00].
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 holders of the Class A Certificates (the "CLASS A
CERTIFICATEHOLDERS") and the holders of the Class B Certificates (the
"CLASS B CERTIFICATEHOLDERS" and, together with the Class A
Certificateholders, 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.
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
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)............................ -- months to-- months
Weighted Average Remaining Term.................. -- months
Remaining Term (Range)........................... -- months to-- months
DISTRIBUTION BY CONTRACT RATE OF THE RECEIVABLES
<TABLE>
<CAPTION>
Percentage of
Principal Aggregate Pool
Rate Loans Balance Balance(1)
---- ----- --------- --------------
<S> <C> <C> <C>
[7.50]% 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]%....................... -- -- --
[14.01]% to [15.00]% ...................... -- -- --
------------ ----------------- -------------
Totals................................. -- $-- 100.00 %
============ ================= =============
- ------------
(1) May not add to 100.00% due to rounding.
</TABLE>
GEOGRAPHIC DISTRIBUTION(1) OF THE RECEIVABLES
<TABLE>
<CAPTION>
Percentage of
Number of Principal Aggregate Pool
State Receivable Balance Balance(2)
- ----- ---------- --------- --------------
<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..................................... -- -- --
---------- --------------- ---------------
Totals...................................... -- $-- 100.00 %
========== =============== ===============
- ------------
(1) Based on the location of the Obligor at the time each Motor Vehicle
Loan was advanced.
(2) May not add to 100.00% due to rounding.
</TABLE>
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 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 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 Seller 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 prepayment
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
Interest on the Certificates will be distributed on the 15th day of
each month (or if such day is a Saturday, a Sunday or not a business day in
New York, New York (a "BUSINESS DAY"), the next succeeding Business Day),
beginning ________ __, 1999 (each, a "DISTRIBUTION DATE"). Interest will be
__% 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"). The Class A Pass-Through
Rate and the Class B Pass-Through Rate are both sometimes referred to as
the applicable "PASS-THROUGH RATE". Interest 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 to all Certificateholders of record as of the day immediately
preceding such Distribution Date (the "RECORD 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".
Although the Receivables have different Contract Rates, each
Receivable's Contract Rate exceeds the sum of the weighted average of the
Pass-Through Rates 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 the Class B
Certificates.
A Class A Certificateholder's portion of the aggregate outstanding
principal balance of the Class A Certificates is the product of (a) the
original denomination of the holder's Class A Certificate and (b) 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 (a) the
original principal amount of the Certificate Owner's interest in the Class
A Certificates and (b) 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 (a) the original denomination
of the holder's Class B Certificate and (b) 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 (a) the original principal
amount of the Certificate Owner's interest in the Class B Certificates and
(b) 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 will be used for
the initial Reserve Account deposit and the remainder added to the
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 Federal Deposit Insurance Corporation. The Bank is an
indirect wholly-owned subsidiary of 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, 1998, the total assets and total
common and preferred stockholders' equity of the Bank were $7.184 billion
and $6.74 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. As of
December 31, 1998, USAA and its various property and casualty insurance
subsidiaries had approximately 3.0 million policyholders. In addition,
approximately 326,000 customers of USAA's financial services subsidiaries
are eligible to become insured by the USAA group of property and casualty
insurance companies.
USAA and its various property and casualty insurance subsidiaries
provide personal lines insurance, which includes automobile, homeowners,
and renters insurance, to their policyholders. In addition, through its
various wholly-owned subsidiaries and affiliates, USAA offers personal
financial service products, including life insurance, mutual funds, banking
services and financial planning services. USAA is the sixth largest private
passenger automobile and the sixth largest homeowners insurer in the United
States, based on 1998 direct written premiums. USAA markets its products
and services principally through a direct mail and telecommunication
program. USAA's insurance financial strength has been rated "Aaa" and "AAA"
by Moody's and Standard & Poor's, respectively. USAA is headquartered in
San Antonio, Texas and employs approximately 20,000 people.
DESCRIPTION OF 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
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.
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 at 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.
BOOK-ENTRY REGISTRATION
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 ________ __, 1999. Each Collection Period
will be one calendar month, or in the case of the initial Collection
Period, the period from the Cutoff Date to _________ __, 1999.
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 under the provisions of Section 17A of
the Exchange Act. DTC was created to hold securities for its participating
organizations (the "PARTICIPANTS") and facilitate the clearance and
settlement of securities transactions between Participants through
electronic book-entry changes in accounts of its Participants, thereby
eliminating 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 (the "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.
DTC'S YEAR 2000 EFFORTS
DTC's management is aware that some computer applications, systems
and the like for processing data ("SYSTEMS") that are dependent upon
calendar dates, including dates before, on and after January 1, 2000, may
encounter "Year 2000 problems." DTC has informed the Participants and other
members of the financial community (the "INDUSTRY") that it has developed
and is implementing a program so that its Systems, as the same relate to
the timely payment of distributions (including principal and interest
payments) to securityholders, book-entry deliveries and settlement of
trades within DTC, continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, DTC's plan includes a testing phase, which is
expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and
their agents, as well as third party vendors from whom DTC licenses
software and hardware, and third party vendors on whom DTC relies for
information and the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (a) impress upon them the
importance of such services being Year 2000 compliant and (b) determine the
extent of their efforts for Year 2000 remediation (and, as appropriate,
testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to the Industry for informational purpose only and is not
intended to serve as a representation, warranty or contract modification of
any kind.
DEFINITIVE CERTIFICATES
The Certificates will be issued in fully registered, certificated
form (the "DEFINITIVE CERTIFICATES") to Certificate Owners or their
nominees, rather than to DTC or its nominee only if:
(1) 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;
(2) the Servicer, at its option, elects to terminate the
book-entry system through DTC; or
(3) 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 (the "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.
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,
which date shall thereafter be the new Record Date. Such distributions will
be made by check mailed to the address of such Holder as it appears on the
register maintained by the 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:
(1) 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;
(2) 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;
(3) 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;
(4) 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;
(5) 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;
(6) 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;
(7) 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;
(8) each Receivable requires that the Obligor thereunder obtain
comprehensive and collision insurance covering the Financed
Vehicle; and
(9) each Receivable satisfies the criteria specified above under
"The Receivables 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".
DESCRIPTION OF THE TRUST'S 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 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 Federal Deposit Insurance Corporation
(the "FDIC"), (a "QUALIFIED INSTITUTION"); 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, a minimum net
worth of $50,000,000 and a long-term deposit rating of not
less than "BBB-" and "Baa3" assigned by Standard & Poor's
and Moody's, respectively (a "QUALIFIED TRUST COMPANY").
The Certificate Account and the Reserve Account discussed below
will be maintained with a Qualified Trust Company. Should any depository of
an Account cease to be a Qualified Institution or Qualified Trust Company,
as applicable, such Account shall be transferred to a Qualified Institution
or Qualified Trust Company, as applicable, provided that such Account may
remain at such depository if the Rating Agency Condition is satisfied. The
Chase Manhattan Bank, 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.
In the event that, subsequent to the Closing Date, (a) the Bank
obtains a short-term certificate of deposit rating of the Bank from
Standard & Poor's Ratings Services ("STANDARD & POOR'S") and Moody's
Investors Service, Inc. ("MOODY'S" and, together with Standard & Poor's
each, a "RATING AGENCY") of "A-1" and "P-1", respectively, or certain
conditions satisfactory to Standard & Poor's and Moody's are satisfied, and
(b) 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 the Business Day preceding
each Distribution Date (each, a "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 _________
__, 200_ Distribution Date (the "FINAL SCHEDULED
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".
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:
(1) 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
(2) 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 (a) 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, over (b) 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 (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 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 (b) above with
respect to a Receivable is greater than the amount set forth in clause (a)
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 (the "Outstanding 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 a monthly fee (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,
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
of $_______ (the "RESERVE ACCOUNT INITIAL DEPOSIT") from the proceeds of
the sale of the Certificates. 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 a Qualified Trust Company
and shall be established and maintained in the name of, and under the
control of, The Chase Manhattan Bank, as collateral agent (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 (a) the
amount on deposit in the Reserve Account (exclusive of investment earnings)
and (b) 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 (a) 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 (b) 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 the greater of (a) ___% of the Pool Balance as of the last day
of the preceding Collection Period and (b) ___% of the initial Pool Balance
(such amount not to exceed the outstanding Pool Balance as of the last day
of the preceding Collection Period). The Specified Reserve Account Balance
will be calculated using a percentage of ___%, instead of ___%, for any
Distribution Date on which the Average Net Loss Ratio exceeds ___% or the
Average Delinquency Ratio exceeds ___%; provided that such higher
percentage would remain in effect until the Average Net Loss Ratio and the
Average Delinquency Ratio are equal to or less than ___% for at least six
consecutive Collection Periods. 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").
"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.
"DELINQUENCY RATIO" means, for any Collection Period, the ratio,
expressed as a percentage, of (a) 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,
or Receivables as to which the related Financed Vehicle has been
repossessed but not sold, divided by (b) the Pool Balance as of the last
day of such Collection Period.
"LIQUIDATION PROCEEDS" means with respect to any Receivable (a)
insurance proceeds received by the Servicer and (b) 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 (a) Realized Losses minus
Recoveries for such Collection Period, divided by (b) 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.
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:
(1) the amount of aggregate collections on the Receivables;
(2) the aggregate amount of Advances to be remitted by the
Servicer;
(3) the aggregate Repurchase Amount of Receivables to be
repurchased by the Seller or purchased by the Servicer;
(4) the aggregate amount to be withdrawn from the Reserve
Account;
(5) the aggregate amount to be distributed as principal and
interest on the Certificates; and
(6) 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:
(1) Interest Collections for such Distribution Date;
(2) all Advances made by the Servicer with respect to such
Distribution Date; and
(3) 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.
"AVAILABLE PRINCIPAL" means, with respect to any Distribution Date,
the sum of the following amounts with respect to the preceding Collection
Period:
(1) 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;
(2) 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
(3) 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.
"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 ________ __, 1999.
"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:
(1) 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;
(2) all Liquidation Proceeds, to the extent allocable to
interest, received during such Collection Period;
(3) 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
(4) 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 appearing
as an exhibit to the Agreement 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 (2) below in the Class A Interest
Distribution, the Class B Percentage of Available Principal to the extent
of such shortfalls), in the following priority:
(1) 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;
(2) 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
(3) 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 (1), (2) and (3) above, in the following priority:
(4) to the Class A Distribution Account, the Class A Principal
Distribution for such Distribution Date;
(5) to the Class B Distribution Account, the Class B Principal
Distribution for such Distribution Date;
(6) to the Reserve Account, any amounts remaining, until the
amount on deposit in the Reserve Account equals the
Specified Reserve Account Balance; and
(7) to the Seller, any amounts remaining.
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, (a) with respect to
the initial Distribution Date, zero, and (b) 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, (a) with respect to
the initial Distribution Date, zero, and (b) 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, (a) with respect to
the initial Distribution Date, zero, and (b) 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.
"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, (a) with respect to
the initial Distribution Date, zero and (b) 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:
(1) the amount of the distribution allocable to principal on the
Class A Certificates and the Class B Certificates;
(2) the amount of the distribution allocable to interest on the
Class A Certificates and the Class B Certificates;
(3) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period;
(4) 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 (1)
above;
(5) the Pool Balance as of the close of business on the last day
of the related Collection Period;
(6) the amount of the aggregate Realized Losses, if any, for the
related Collection Period;
(7) the aggregate Repurchase Amount of Receivables repurchased
by the Seller or purchased by the Servicer;
(8) the balance of the Reserve Account on such Distribution
Date, after giving effect to changes therein on such
Distribution Date; and
(9) the Specified Reserve Account Balance as of the close of
business on such Distribution Date.
Each amount in clauses (1), (2) and (3) 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 "--General" and "--Book-Entry
Registration" above. 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 Trustee" below.
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 clauses (1) through (3) 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, 2000, 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, 2000, 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 (a) upon
determination that the Servicer's performance of such duties is no longer
permissible under applicable law or (b) 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 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 (1) (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 (2) 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
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 Specified
Reserve Account Balance 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 Specified Reserve Account
Balance have been made.
EVENTS OF SERVICING TERMINATION
"EVENTS OF SERVICING TERMINATION" under the Agreement will consist of:
(1) 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;
(2) 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;
(3) 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;
(4) 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
(5) 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.
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, and the Rating Agency Condition shall have been
satisfied. 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:
(1) 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;
(2) reduce the aforesaid percentage of the Pool Balance, the
Certificateholders of which are required to consent to any
such amendment; or
(3) 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:
(1) state that they wish to communicate with other
Certificateholders with respect to their rights under the
Agreement or under the Certificates; and
(2) 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:
(1) 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 received upon
liquidation of any property remaining in the Trust; and
(2) 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
The Chase Manhattan Bank is the Trustee (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 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 [450 West 33rd
Street, 15th Floor, New York, NY 10001, telephone: (212) 946-8600]. 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.
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 some 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 (a) such security interest
would be subordinate to, among others, holders of perfected security
interests and (b) 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 "peaceful" 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 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 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 ADVISORS 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 for federal income tax purposes 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 "Summary of Terms--Tax Status" and "Certain
Federal Income Tax Consequences," and is of the opinion that such
statements to the extent that they reflect conclusions of law are correct
in all material respects. Such statements 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 advisor. Accordingly, each investor is advised to
consult its own tax advisors 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:
(a) an undivided interest in a single debt obligation having a
principal amount equal to the total stated principal amount
of the Receivables; or
(b) an interest in each of the Receivables and any other assets
of the Trust.
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 a pro rata share of
interest accrued or received on such debt obligation in accordance with its
usual method of accounting.
The Certificates would be subject to the original issue discount
(the "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 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 (a) the
Contract Rate of the Receivable and (b) the sum of the weighted average of
the Class A Pass-Through Rate and 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. Accordingly, each 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) and such interest in each Receivable will be treated
as a "stripped bond" within the meaning of Section 1286 of the Code.
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 applicable Pass-Through Rate by an
amount equal to the Certificate Owner's share of the reasonable expenses of
the Trust for the period during which it owns a Certificate. The
Certificate Owner would be entitled to deduct its share of the reasonable
expenses of the Trust to the extent described below. Any amounts received
by a Certificate Owner from the Reserve Account or by a Class A Certificate
Owner on account of 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 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 (a) interest accrues on the Receivables over
differing monthly periods and is paid in arrears and (b) 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 recognize some income in advance
of the receipt of the related cash distribution. For administrative
convenience, the amount of accrued and collected interest will be estimated
rather than being calculated precisely for each Receivable.
If the Class B Pass-Through Rate exceeds the Class A Pass-Through
Rate, the amounts received by the Class A Certificate Owners (calculated at
the Class A Pass-Through Rate) and the amounts received by the Class B
Certificate Owners (calculated at the Class B Pass-Through Rate) will be
disproportionate to the face amounts of their Certificates. The proper
treatment of the amount of the difference, if any, in the amounts received
is unclear. The Agreement will express the intent of the Seller that the
Class B Certificate Owners be treated as having acquired a "stripped
coupon" integrated for federal income tax purposes with the Class B
Certificate Owners' interest in the Stripped Receivables and reports to
Certificate Owners will be prepared on that basis. It is possible, however,
that the IRS could recharacterize a portion of the Class B Pass-Through
Rate as constituting income other than interest (e.g., compensation for the
Class B Certificate Owners' assumption of a limited guaranty by the Seller
of the Class A Certificate Owners' receipt of principal and interest), in
which case the federal income tax consequences to the Class B Certificate
Owners, and possibly individual Class A Certificate Owners, could be
adversely affected. For example, a Class A Certificateholder might be
deemed to have received additional interest income and as having paid a
portion thereof as a guaranty fee (which may be subject to limitations on
deduction) to the Class B Certificateholders.
For administrative convenience, the Servicer intends to report the
total amount of income with respect to the Certificates on an aggregate
basis at the applicable Pass-Through Rate (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 (a) on an asset-by-asset basis,
accounting separately for each Receivable or (b) aggregating all Stripped
Receivables under the aggregation rule described below. See "--Discount and
Premium--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 the Receivables, in proportion to their fair market values.
The remainder of the disclosure generally describes the Code
provisions governing reporting of income on the Receivables on a separate
asset basis.
TREATMENT OF CERTIFICATE OWNERS' SHARE OF TRUST EXPENSES
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 constitutes 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
$______ in the case of a married couple filing jointly for the taxable year
beginning in 1999. While not a Trust expense, the same limitations would
apply to individual Class A Certificate Owners' deduction of any
compensation deemed to have been paid by them for a limited guarantee
provided by the Class B Certificate Owners. Because the Servicer will not
report to the Certificate Owners the amount of income or deductions
attributable to interest earned on Collections, such a holder may
effectively underreport its net taxable income.
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 (the "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 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 Certificate Owner's tax basis in
the 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 applicable Pass-Through
Rate and the Servicing Fee Rate) would reduce 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 IRS 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.
PURCHASES AT PREMIUM
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.
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 Account.
There is, however, no authority addressing this point and the IRS could
assert that a different treatment could apply.
Under this analysis:
(1) Class B Certificate Owners would be required to recognize 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 then as such loss may be limited by
Sections 67 and 68 of the Code); 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
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 (however, the withholding tax may apply to any portion of the
interest received by the Class B Certificate Owners that is recharacterized
as compensation for a guarantee). 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 a
trust (if a court within the United States is able to exercise primary
supervision over its administration and one or more United States
fiduciaries have the authority to control all of its substantial decisions)
or an estate, the income of which is includible in gross income for United
States Federal income tax purposes, regardless of its source. [Final
Treasury Regulations have been issued, generally with a ________ __, ____
effective date, that will affect the certification requirements with
respect to payments to foreign Certificate Holders.]
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.
CERTAIN STATE TAX CONSEQUENCES
Because of the variation in each state's and locality's tax laws,
it is impossible to predict the tax consequences to the Trust or to holders
of Certificates in all of the state and local taxing jurisdictions in which
they may be subject to tax. Prospective investors are urged to consult with
their own tax advisors regarding the state and local tax treatment of the
Trust as well as any state and local tax consequences to them of
purchasing, holding and disposing of the Certificates.
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 Section 4975 of
the Code. There may also be an improper delegation of the responsibility to
manage Plan assets if Plans that purchase the Certificates are deemed to
own an interest in the underlying assets of the Trust. Accordingly, under
Section 2510.3-101 of the United States Department of Labor (the "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 Section 4975
of 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 ("PTE") 90-23, as amended by PTE 97-34, to J.P. Morgan Securities
Inc. (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.
In addition, the Exemption provides that the trust's assets may
include:
(a) yield supplement agreements or similar yield maintenance
arrangements, provided such arrangements do not involve swap
agreements or certain other principal contracts; and
(b) certain pre-funding arrangements.
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 Credit Rating Co. or Fitch
IBCA, Inc.;
(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 SEC 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, 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 Credit Rating
Co. or Fitch IBCA, Inc. 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.
EXEMPTIONS 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, PTE 84-14, which applies to certain transactions entered
into on behalf of a Plan by qualified professional asset managers, and PTE
96-23, which applies to certain transactions entered into on behalf of a
Plan by an in-house asset manager.
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 90-23, 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.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
It should be noted that the Small Business Job Protection Act of
1996 added new Section 401(c) of ERISA relating to the status of the assets
of insurance company general accounts under ERISA and Section 4975 of the
Code. Pursuant to Section 401(c), the DOL is required to issue final
regulations (the "GENERAL ACCOUNT REGULATIONS") with respect to insurance
policies issued on or before December 31, 1998 that are supported by an
insurer's general account. The General Account Regulations are to provide
guidance on which assets held by the insurer constitute "plan assets" for
purposes of the fiduciary responsibility provisions of ERISA and Section
4975 of the Code. Section 401(c) also provides that, except in the case of
avoidance of the General Account Regulations, and actions brought by the
Secretary of Labor relating to certain breaches of fiduciary duties that
also constitute breaches of state or federal criminal law, until the date
that is 18 months after the General Account Regulations become final, no
liability under the fiduciary responsibility and prohibited transaction
provisions of ERISA and Section 4975 of the Code may result on the basis of
a claim that the assets of the general account of an insurance company
constitute the assets of any Plan. The plan asset status of insurance
company separate accounts is unaffected by new Section 401(c) of ERISA, and
separate account assets continue to be treated as the assets of any Plan
invested in the separate account. Insurance companies should consult with
their counsel regarding the potential impact of Section 401(c) on their
purchase of Certificates.
As of the date hereof, the DOL has issued proposed regulations
under Section 401(c). It should be noted that if the General Account
Regulations are adopted substantially in the form in which proposed, the
General Account Regulations may not exempt the assets of insurance company
general accounts from treatment as "plan assets" after December 31, 1998.
The proposed regulations should not, however, adversely affect the
applicability of PTCE 95-60 to purchases of Certificates.
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
Class A Certificates set forth opposite its name below:
PRINCIPAL AMOUNT OF
UNDERWRITERS CLASS A CERTIFICATES
------------ ---------------------
J.P. Morgan Securities Inc............................ $--
__________............................................ --
__________............................................ --
__________............................................ --
---------------
Total......................................... $--
===============
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.
The Class B Certificates will be purchased by an affiliate of the
Seller. Such affiliate may subsequently use this Prospectus in connection
with offers and sales of the Class B Certificates to third parties at
market prices prevailing at the time of such offers and sales. In order to
facilitate the book-entry registration of the Class B Certificates, J.P.
Morgan Securities Inc. will act as agent for the Seller in connection with
such purchase. J.P. Morgan Securities Inc. will receive no compensation in
connection therewith.
In connection with the offering of the Class A Certificates, the
Underwriters may engage in transactions that stabilize, maintain or
otherwise affect the price of the Class A Certificates. Specifically, the
Underwriters may overallot the offering, creating a syndicate short
position. The Underwriters may bid for and purchase Class A Certificates in
the open market to cover syndicate short positions. In addition, the
Underwriters may bid for and purchase Class A Certificates in the open
market to stabilize the price of the Class A Certificates. These activities
may stabilize or maintain the market price of the Class A Certificates
above independent market levels. The Underwriters are not required to
engage in these activities and may end these activities at any time.
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.
GLOSSARY OF TERMS
Advance .........................................................35
Agreement .........................................................20
Applicant .........................................................13
Available Interest......................................................39
Available Principal.....................................................39
Available Reserve Amount................................................37
Average Delinquency Ratio...............................................37
Average Net Loss Ratio..................................................37
Bank .........................................................13
Business Day .........................................................25
Cede .........................................................28
Certificate Account.....................................................33
Certificate Owner.......................................................28
Certificateholders......................................................21
Certificates .........................................................19
Class A Certificate Balance.............................................41
Class A Certificateholders..............................................21
Class A Certificates....................................................19
Class A Distribution Account............................................33
Class A Interest Carryover Shortfall....................................41
Class A Interest Distribution...........................................41
Class A Monthly Interest................................................41
Class A Monthly Principal...............................................41
Class A Pass-Through Rate...............................................25
Class A Percentage......................................................41
Class A Pool Factor.....................................................26
Class A Principal Carryover Shortfall...................................41
Class A Principal Distribution..........................................41
Class B Certificate Balance.............................................42
Class B Certificateholders..............................................21
Class B Certificates....................................................19
Class B Distribution Account............................................33
Class B Interest Carryover Shortfall....................................42
Class B Interest Distribution...........................................42
Class B Monthly Interest................................................42
Class B Monthly Principal...............................................42
Class B Pass-Through Rate...............................................25
Class B Percentage......................................................42
Class B Pool Factor.....................................................26
Class B Principal Carryover Shortfall...................................42
Class B Principal Distribution..........................................42
Closing Date .........................................................26
Code .........................................................52
Collateral Agent........................................................36
Collection Period.......................................................39
Collections .........................................................39
Contract Rate .........................................................20
Cutoff Date .........................................................19
Defaulted Receivable....................................................35
Definitive Certificates.................................................30
Delinquency Ratio.......................................................37
Deposit Date .........................................................34
Depository .........................................................28
Distribution Date.......................................................25
DOL .........................................................59
DTC .........................................................28
Due Date .........................................................21
ERISA .........................................................59
Events of Servicing Termination.........................................45
Excluded Plan .........................................................61
Exemption .........................................................59
FDIC .........................................................33
Financed Vehicles.......................................................19
Force Placed Insurance..................................................16
FTC Rule .........................................................52
General Account Regulations.............................................63
Holders .........................................................31
Indirect Participants...................................................29
Industry .........................................................30
Interest Collections....................................................39
Liquidation Proceeds....................................................37
Moody's .........................................................34
Motor Vehicle Loans.....................................................13
Net Loss Ratio .........................................................38
Obligor .........................................................16
OID .........................................................53
OID Regulations.........................................................56
Original Certificate Balance............................................28
Original Class A Certificate Balance....................................28
Original Class B Certificate Balance....................................28
Original Pool Balance...................................................28
Outstanding Advances....................................................36
Participants .........................................................29
Pass-Through Rate.......................................................25
Paying Agent .........................................................33
Plan .........................................................59
Pool Balance .........................................................28
Prepayment Assumption...................................................53
PTE .........................................................59
Purchase Price .........................................................55
Purchased Receivable....................................................40
Qualified Institution...................................................33
Qualified Trust Company.................................................33
Rating Agency .........................................................34
Rating Agency Condition.................................................37
Realized Losses.........................................................42
Receivables .........................................................19
Receivables Pool........................................................19
Record Date .........................................................25
Recoveries .........................................................38
Regulation .........................................................59
Repurchase Amount.......................................................32
Reserve Account.........................................................19
Reserve Account Initial Deposit.........................................36
Restricted Group........................................................60
Retained Yield .........................................................54
Section 1286 Regulations................................................56
Servicing Fee .........................................................36
Servicing Fee Rate......................................................36
Shortfall Amount........................................................57
Special Tax Counsel.....................................................52
Standard & Poor's.......................................................34
Stripped Receivable.....................................................54
Systems .........................................................30
Transfer Agent and Registrar............................................31
Treasury Regulations....................................................56
Trust .........................................................19
Trustee .........................................................48
UCC .........................................................49
Underwriters .........................................................63
Underwriting Agreement..................................................63
USAA .........................................................15
USAA AUTO LOAN GRANTOR TRUST 1999-1
$---------- ---%
Automobile Loan Pass-Through Certificates, Class A
$---------- ---%
Automobile Loan Pass-Through Certificates, Class B
[Logo]
USAA FEDERAL SAVINGS BANK
SELLER AND SERVICER
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PROSPECTUS
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J.P. MORGAN & CO.
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----------------
----------------
You should relay only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you
with different information.
We are not offering these certificates in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this prospectus as of
any date other than the date stated on the cover of this prospectus.
Dealers will deliver a prospectus when acting as underwriters on these
certificates and with respect to their unsold allotments or subscriptions.
In addition, all dealers selling these certificates will deliver a
prospectus until - -, 1999.
________ __, 1999
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:
Registration Fee............................. $278.00
Legal Fees and Expenses...................... *
Accounting Fees and Expenses................. *
Blue Sky Fees and Expenses................... *
Rating Agency Fees........................... *
Trustee's Fees and Expenses.................. *
Printing..................................... *
Miscellaneous................................ *
-------
Total.................................... $ *
=======
- --------------
* 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. ss. 545.121.
For the undertaking with respect to indemnification, see Item 17
herein.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits: Description
-------- -----------
1.1 -- Form of Underwriting Agreement.*
3.1 -- Charter of the Registrant -- filed as Exhibit 3.1 to
Registration Statement No. 333-37471 and
incorporated herein by reference.
3.2 -- By-laws of the Registrant -- filed as Exhibit 3.2 to
Registration Statement No. 333-37471 and
incorporated herein by reference.
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).
- -----------------
* 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.
(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 this 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.
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.
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SIGNATURES
The Registrant reasonably believes that at the time of the sale of
the securities, at least one nationally recognized statistical rating
organization will have rated the securities in one of its generic rating
categories which signifies investment grade.
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Antonio, State of Texas on
this 18th day of June, 1999.
USAA FEDERAL SAVINGS BANK
By /s/ Mark H. Wright
----------------------------------------
MARK H. WRIGHT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
By /s/ Rosemary M. Elizade
----------------------------------------
ROSEMARY M. ELIZADE
VICE PRESIDENT, SENIOR FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Robert G. Davis Chairman June 22, 1999
- ---------------------------------
ROBERT G. DAVIS
Director June [ ], 1999
- ---------------------------------
CHARLES E. BISHOP
/s/ Arthur R. Emerson Director June 18, 1999
- ---------------------------------
ARTHUR R. EMERSON
/s/ Carlos R. Montemayor Director June 21, 1999
- ---------------------------------
CARLOS R. MONTEMAYOR
/s/ James E. Olsson Director June 18, 1999
- ---------------------------------
JAMES E. OLSSON
Director June [ ], 1999
- ---------------------------------
JANE B. PHIPPS
Director June [ ], 1999
- ---------------------------------
DAVID M. ROBINSON
/s/ Mark H. Wright Director June 18, 1999
- ---------------------------------
MARK H. WRIGHT
